India Knowledge@Wharton | Joining the ‘prison poncho’ bandwagon

India Knowledge@Wharton | Joining the ‘prison poncho’ bandwagon

When Martha Stewart, America’s diva of décor, was released from federal prison in West Virginia in March 2005, her first public appearance had an interesting and unexpected aside: It created a fashion trend.

Anshuman Singh, chief executive officer of Future Logistics—the logistics arm of the Indian retailer Future Group—spoke about Martha Stewart’s poncho at the recent Global Supply Chain Summit 2007 held at the Indian School of Business in Hyderabad. His view was that logistics firms had missed out on a huge opportunity. “In the first week after Martha Stewart appeared wearing this poncho, consumers went wild and demand soared, but neither the apparel companies, nor their supply chains. were ready... All around the US, there were lost sales."

In countries like India, where most retail stores are located in the heart of the city—where rents are high and storage space is scarce—supply chain management has even more serious business implications. Future Logistics, Singh said, now handles two-and-a-half million SKUs (or stock keeping units) a day across the Future Group’s various retail formats around the country. By 2010, this number is expected to increase to more than 30 million SKUs a day. Singh reckons that even with 98% accuracy, some 600,000 pieces will not be delivered correctly, resulting in an estimated sales loss of more than Rs4 crore a day.

“We believe that the biggest driver in consumer logistics will be the need for zero defect. While infrastructure, technology, automation, processes and people will all play an important role, zero defect can only be achieved through vertical integration across the entire supply chain—from raw material supply, production, wholesale and retail. The different parts of the supply chain will no longer be able to work in silos as they do today," Singh noted.

Are you a tightwad or a spendthrift?

While “tightwad" and “spendthrift" are not exactly labels that most people would welcome in a discussion of their spending habits, they are valuable as predictors of consumer behaviour.

Scott I. Rick, a visiting professor of operations and information management at Wharton, and two researchers from Carnegie Mellon University have developed a “spendthrift-tightwad scale" that measures “individual differences in the pain of paying". The scale is based on four questions that were posed to 13,327 respondents over a 31-month period ending in 2007. Rather than asking survey respondents to comment on “the emotion they experience while shopping", of which they may only have limited conscious awareness, the respondents were asked to “indicate the extent to which their typical spending habits diverge from their desired spending habits". The results of this research are in a paper, Tightwads and Spendthrifts, which will appear in a forthcoming issue of the Journal of Consumer Research.

According to the researchers, tightwads are defined as people “who feel intense pain at the prospect of spending money and, therefore, tend to spend less than they would ideally like to spend". Spendthrifts “feel insufficient amounts of pain at the prospect of spending and, therefore, tend to spend more than they would ideally like to".

Rick suggests companies pay attention to the spendthrift vs tightwad distinction as a way o fbetter understanding who their customers are. “For example, it could help stores determine which customers will be more sensitive to sales and/or to marketing schemes, or which customers are most likely to put items in their shopping cart online, but then not bother to check out. Our paper presents a scale that can diagnose those tendencies. The four questions can be easily administered online or even in stores as people are entering and leaving," he says.

Generally speaking, Rick adds, spendthrifts are more sensitive to attributes of the products themselves “and to how much pleasure they will get out of buying them". With tightwads, he notes, “a store might want to emphasize how painless it is to pay for the product"—by, for example, adding the word “small" to a fee, or by framing a purchase as “an investment".

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