Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

The debilitating power of money

Many industries in India are perhaps still ruled by old cultural patterns where the focus is on money for social reasons, and economic value takes a back seat

My last column, on India’s lose-lose addiction, caused a bit of a storm in the mailbox for this column. Responses from readers normally peter out after a day or two. But this time, tweets, retweets, comments, SMSes, emails and postings in various forms were still buzzing more than a week later.

The notion that entrepreneurs and customers in many industries in India keep each other locked in a race for the lowest price rather than one for quality struck a nerve with many. Indeed, buyers (both consumers and business customers) often go to extreme lengths to eliminate every rupee from the selling price to maximize their own direct value. And sellers often try to extract as much money from customers by enhancing the perception of value while keeping costs so low that the real quality suffers.

This, in turn, stimulates buyers to not trust suppliers to deliver value, and therefore aim to push the price down as a way to at least get some gain from the transaction. This again provokes the seller to keep costs to a minimum, starting a vicious circle. And while this can result in low prices for some basic level of quality, as some readers suggested, it certainly does not stimulate long-term investments in innovation, quality improvement, upgrading of products, services and skills in an optimal way, with negative economic consequences for India as a whole.

Some readers confirmed this from their own experiences. Others simply expressed they were happy that this issue was addressed at all. Although some readers wondered why on earth I made you read about broccoli in the process.

One question that remained unaddressed, however, is why does this phenomenon seem so prevalent in India? Why do many people see buying and selling as a win-lose game? In my view, it has something to do with deep cultural values.

When we think dispassionately, it is often in the self-interest of both company and customer to allow the other party to reap value from the transaction or the relationship. I understand that it is in my self-interest to understand your self-interest in the economic relationship. Whether we want bread, jeans, cosmetics, information technology (IT) services or steel, we depend on the supply side of the market to deliver it at a certain price. And vice versa. And hence, we do not acquire it from them by explaining to them how much we ourselves need that particular product or service. We get it by emphasizing their gain from such an exchange.

As Adam Smith formulated it beautifully, “Man, works on the self love of his fellows, by setting before them a sufficient temptation to get what he wants; the language of this disposition is, give me what I want, and you shall have what you want. […] You do not address his humanity, but his self love. Beggars are the only persons who depend on charity for their subsistence."

It is important to realize that the ability to negotiate and drive down unnecessary costs is often a tremendous asset for Indian companies in international markets as well. Where Americans excel in innovation, Germans are brilliant in engineering, Japanese are unparalleled in quality management, Indians are potentially unsurpassed in eliminating unnecessary costs.

Problems arise, however, when cost-cutting becomes a dogma, and marketing and selling become pure window dressing. Advertising degrades into cosmetic hyperbole and trust is undermined. If increasing quality does not become a relentless aim, innovation progresses only slowly. It hinders the human spirit in its desire to strive forward.

Some readers suggested that a lose-lose mentality stems from the fact that as a country, India is still in survival mode. Many people, as private individuals and as executives, do not want to see the other side gain out of a mindset of scarcity—where we need every morsel of value for ourselves in order to survive. Indeed, while India’s economy is growing and millions of people are lifted out of poverty, that process is far from complete. Perhaps a mindset of scarcity lingers on, even after the reality has changed.

But my sense is that India’s deep reverence for status, power and position plays a crucial role here as well. It dawned on my in a discussion I once had with a taxi driver who ferried tourists across the country on multi-day trips. He indicated that normally he had to sleep in his car at night.

I asked if his boss would give him any money for his many sleepovers on long trips. “Not a single rupee", he complained. “My boss does not care. He keeps all the money to himself." So I suggested (naively) that our driver might start his own taxi company and thus create better conditions for drivers that would work for him. Then the telling reply came. “No way," he answered. “I would do exactly the same and keep everything to myself. Once you have money, you have power." In a vertically structured society like India, power is everything, and in today’s India, money is power.

And what does that mean for markets? It means that supply and demand do not meet in a mere economic activity, but also in a cultural power struggle. The buyer has the money and hence the power, and the seller does not. When both think in social power terms, the result is a lose-lose dynamic. In India, the buyer feels he gives power away, and the seller is desperate to gain it and wants to give as little in return. Despite the fact that it leads to unsound economics, many industries in India are perhaps still ruled by old cultural patterns where the focus is on money for social reasons, and economic value takes a back seat—at the cost of increasing quality, trust and innovation.

Tjaco Walvis is managing director of brand consulting and advertising agency THEY India, and a speaker at the Outstanding Speakers’ Bureau. He writes a fortnightly column on the softer cultural aspects of marketing that often tend to be ignored by marketers.