If you are like me, you would have made your annual visit to a large jewellery showroom by now and bought some jewellery. You would have seen that, of late, most of these showrooms offer you a cup of coffee or juice to you during your shopping. Mostly this will be around the time that you are looking to finalise a purchase (notice it is never done as soon as you are seated; almost always it is well past the mid-way point of your shopping experience).

You may think that the shop is being courteous but this small gesture serves a much bigger purpose

Power of reciprocity

By nature, human beings don’t like to be indebted and would quickly want to ensure that they are no longer beholden to anyone. If you recall, in Indian households, we have this tradition of noting down the value of the gifts we have been given.

This is to ensure that we repay their debt by giving something of higher or similar value(depending on how close they are). This kind of reciprocity has been hardwired into our brains for centuries and is the basis for humans to flourish as a race. However, there is a small little detail to this which you may not have noticed.

When we are indebted to someone, it is harder for us to say no to their request! This is the power of reciprocity used by many smart marketers/sales folks. As humans, we are wired to release our indebtedness at the very first instance, which is why we will be willing to make more significant concessions than what the other person has done for you. This is the insight that smart salespersons use. The same hardwiring also makes us do larger favours to people who have done you small favours. Robert Cialdini summarises this principle in these simple words:

Reciprocity: a small favour can trigger a much bigger return favour.

Jewellery shops invoke the power of reciprocity

Once you know the principle and power of reciprocity, it is now easy to see why they offer you a coffee or juice midway during your shopping sessions. By giving you a small concession in the form of coffee, the salesperson is making sure that you are indebted to them. This simple act, which seems like basic courtesy, will dramatically increase their chance of closure in the sale.

I saw this being used very effectively at one of the shops I recently visited. After 15 mins of showing us various designs, the salesperson asked us if we would like a cup of coffee, which we refused (again because we didn’t want to feel indebted to them). However, she insisted that we have the coffee as they make really good coffee (she was selling coffee!) and made sure we enjoyed our cup of coffee and juice for the kids. My wife finally decided to buy at the same shop without realising the power of reciprocity.

FREE samples – remember buying stuff which you don’t need?

The power of reciprocity is invoked in many spheres by smart sales folks. You might have noticed department stores and grocery stores often handing out FREE samples of a product. Let’s say you agree to sample. That’s it. You are hooked! They then immediately follow up with a request to buy the same product.

Sales folks have found that the conversion rates of buying a new product are far higher after a FREE sample was distributed. You are hardly likely to buy a new product when shopping with a grocery list, but the FREE sample enhances your chances of buying a new product. Here too, the powers of reciprocation are at play.

The principle of Reciprocity is powerful and have many ways in which they can be used by leaders to influence people.

PS: This post is part of a series of posts, which I am writing after reading the book ‘Influence: The Psychology of Persuasion’ by Robert B. Cialdini.

Traditional customer service is centred around using both the phone and email as channels to reach out to customers, offer support, and upsell to them. In India, as the cost of a call centre is very cheap, the approach has been of setting up a call centre to handle customer support using the phone as the primary means of contact. This has been the standard operating procedure for the past decade or so. In addition, most lead-gen in India is also supported by the call centre, i.e., leads generated digitally or by other means are screened and pitched using the phone. Thus the phone has become the primary medium for customer service and lead-gen verification. But then a couple of changes in the last 2-3 years are making this route of phone-based customer support difficult. This is leading to a declining ROI in this setup, and we as marketers should take note and look at alternative solutions. In this article, I will talk about the changes and potential directions which one can consider.

Truecaller – Killing the call centre ROI

The Truecaller app, which was created by a Scandinavian company, has India as its biggest market. This is because the app provides a caller ID service and allows people to identify the caller before choosing to answer or reject the call. This has made call connect rates for call centres fall to an average of 25-35 %. This is not a sudden development but one that has evolved slowly the last 3-4 years. The trend has recently been exemplified by the availability of an always-on data connection. This has meant that companies now resort to auto-dialers and sophisticated setups to call the user many times from different numbers. The number of attempts made range from 4 in a week (ideal) to 15-20 in 3 days (bad user experience).

JIO and Dual SIMs – Killing the number as an identity

The second trend, which is impacting lead-gen, is the availability of cheap dual-sim phones making it easy to switch numbers at the drop of a hat. This means that a typical user may end up changing numbers many times in a couple of years. In addition, due to the dual-sim card, they are less likely to pick up calls made to those numbers which are bought just to avail data offers. The most prolific among the operators is JIO, which disrupted the telecom market. My anecdotal analysis of JIO is that most people keep it as a secondary SIM and don’t answer or make phone calls using JIO. This is the number which they readily give away to anyone, including lead-gen forms or anyone wanting to fill up a lucky draw coupon at the nearest mall. Thus, these secondary SIMs are used just to complete registration formalities like OTPs etc. but are hardly used to receive calls. This change is breaking the very core assumption that phone numbers can be used as unique identifiers for customers.

FB Messenger as an alternative channel

Given that it is becoming increasingly difficult to reach people for customer support and upselling. there is pressure to look at alternative means of customer service. One of the channels which are emerging is chat and here is where FB Messenger is making a bid by offering Messenger for Business and WhatsApp Verified Business Account. With FB Messenger and Whatsapp, Facebook is making a pitch for replacing the existing channels of email and phone with today’s more connected mediums of communication. The idea is good in principle but needs to be tested in the market to see if consumers will accept it and respond positively. To enable quicker adoption of this, Facebook is allowing the following:

1. Offering a messenger ad format which allows brands to start conversations with potential customers.
2. Send/Receive API’s which allow you to build customised experiences for your customer. This opens up a million possibilities. An e-commerce company can now notify shipping of their product using FB Messenger. Techcrunch provides a custom feed of stories inside FB Messenger based on your preferences.
3. Sponsored message – Allow businesses to send targeted messages to people who have already have chatted with the business on FB Messenger.
4. Customer Matching – It is also now allowing (for US businesses) to match your customer’s phone number from your CRM into messenger. Once there is a match you can start chatting with your customers directly on FB Messenger.

Have you considered using FB Messenger or Whatsapp for business for your business needs? If so would love to hear about your experience with the same.

Last week we had news of SpoonJoy shutting down operations in parts and also of Dazo (Tapcibo earlier) shutting down its operations due to lack of ability to make a profitable business.

PS: This article was written in 2015 December, since then my views on this have changed but I still believe the Swiggy will need to solve this problem if it ever wants to be a profitable venture,.

During a general chat last week one of my friend (Colleague ) told me that he is frustrated with the daily routine of the jobs and would like to start a business of their own. Have heard this familiar ruse for umpteen number of friends and relatives over the last 10 years. But I guess people have not really thought of the what are the risks and sacrifices one has to make to start some business of your own.

Let me share with you an analysis which I made with one of my friends on starting a small restaurant (size of a small Dharsini ). The idea of the analysis was to analyze how easy/ difficult it is to set up a business at a later stage.
Hope this example analysis will sensitize the readers on the costs/ risk/sacrifices one has to make to take up the route of Entrepreneurship. The intention of the article is not to scare you, but to sensitize you to the risk involved in setting up your own business by giving up your cushy jobs. One of the reasons why am writing this is that of my relative took up a business venture without realizing the costs involved in it and is now facing big losses. So let’s get sensitized to the costs/risks involved.

Note: All Data used here is actual data collected 2 years back and are not assumptions
Dharsini in Malleswaram :

The intention was to start a Dharsini for my friend (small quick service restaurant )in Malleswaram Area keeping in mind the daily traffic around 8th Cross – 12 th Cross Malleswaram. The intention was to offer things which are not normally available in a dharsini along with the regular fare at Dharsini

Cost of Real Estate: Upon an extensive survey we hit upon a really good place in 10th Cross Malleswaram. This place was available for a rent of  36k/ month with 11-month advance and was right on the main road.

Cost of Setup for Cooking & Serving: Once the real estate is taken we need around 2 months before we can start offering food. During this time we need to work on the interiors, cooking setup for this place. This costs on an average of 3 lakhs for a small dharsini.

Cost Of Employees: On discussing and visiting an existing hotel of a close friend of my dad realized that to run a small scale dharshini we need to have 5 full-time employees with + 1 head cook.  On an average, a head cook would charge around 8-9k / month and the 5 employees need to be paid 4k + accommodation. Even after this, it is difficult to retain people with employee turnover being highest at the lower levels. Apart from this, we need to provide accommodation for the employees which costs around 5k/ month.  So the total costs of employees is  9k+ 20k+ 5k = 34k
Monthly Costs: Apart from the cost of employees you need to factor other costs like GAS, Electricity, Mamul to Food Inspectors and the daily cost of rations to cooking food.  This on an average comes to  15k/ month.

All the analysis is fine, but the most important aspect is that you don’t make profits from the day you start your business. This is the fact where people who are starting off on their own make the biggest mistakes. They stretch themselves up to start the business, but no business is profitable from day one because it needs to achieve a critical mass before the fixed costs of operations are supplemented by profits from selling goods.   On visiting and discussing with existing owners of hotels/ dharsini we realized that on an average it takes  5 to 6 months for regular visitors to start coming to a joint and the critical mass of only reached after 18 months (optimistic assuming that u are serving the best food fare).

To make an analysis of costs involved we assumed that during 12 months we will not be able to break-even (i.e start earning enough profits from the sale of food to recover fixed costs like rent, salary). Let’s now see the overall costs involved.

Upfront Investment ~ 7.5 lakhs :

1. 4 lakhs for Advance of Rental
2. 3 lakhs for Interiors & Cooking setup
3. BBMP License, Cooking Gas, Electricity connection – 50k

Running Costs Till Break Even period ~ 10.8 lakhs:

1. Salary Costs –  34k * 12 Months ~  4 lakhs
2. Rental Costs –  36 *14 months   ~  5 lakhs( 2 months to set up place)
3. Monthly Expenses – 15*12 months ~ 1.8 lakhs

Thus we need to have around 19 lakhs of capital to start a small dharsini of your own.

Now to give an idea of the number of customers who have to visit your restaurant to make it profitable assuming 1 single customer spends Rs 25 in your restaurant and that your gross profits on this are around 15 Rs (i.e you spend 10 rupees to serve an item which costs 25 Rs). You need to recover Fixed costs of Salary + Rental from the profits we need to serve 4700 customers ~ 160 customers/day.  If you imagine this is quite a lot of customers to serve on a daily basis, so you break even only at this point.
But wait… what we are missing something!.
All this does not include your costs, BECAUSE you cannot continue to work with your cushy job while trying to start a business on your own. ADVICE which I got from several restaurant owners is that this sort of business cannot be made successful without fulltime involvement of the owner because trusting others with the management of a business is suicidal. So you need to quit your cushy job (would have done anyway right ? remember you are frustrated with ur corporate routine). Now here comes the most difficult part of the equation which needs to be solved. The moment you decide to quit it means that your monthly bank balance will no longer receive that nice salary cheque of xx thousand monthly. But starting a business does not mean you starve right? So u need to keep money aside for your daily expenses which we can safely assume is at-least 30k (remember kids education, house rent, EMIs. Could be higher if u have the burden of a big house EMI).

So you need to keep aside money for the same. Assuming an optimist view that business will break even in 12 months and you spend 2 months in setting it up and keeping a good buffer for another 12 months to cover up ur costs we are looking at 26 months * 30k of expense ~ 8 lakhs. So start you need to have a corpus of  19 lakhs + 8 lakhs.

Surprised!  -> BTW I am talking about a small dharshini only here. You may extrapolate this example to any other business which you wanted to get into.  The basic idea of this article is to sensitize one that we are all enjoying the benefit of assured salary every month and it is easy to forget about that one. As they say, the grass is greener on the other side, but it is not always so as the grass on another side may have many more thorns that one can imagine from here.

So the next time you make a loose statement that this 9 TO 5 Job is frustrating I want to start some business of mine, keep in mind costs involved

ps: This is the article written in 2011. My blog has since been backed and now am restarting this blog at a new destination.