The Price is Right? The importance of homework in the global economy
27th December 2009
Simon Harding
After weeks of laboriously peeling potatoes with an aged kitchen knife, I decided that a potato peeler would be a useful addition to my tiny kitchen. On my way home from work I called into one of the numerous kitchenware shops in the local market: a long narrow room piled high with shiny pots, pans, tiffin tins and flat iron tawas – a rough frying pan for making rotis, the flat bread eaten with almost every meal. Within a minute a selection of half a dozen peelers had been laid out before me on the counter, from a small aluminium and plastic fruit peeler all the way up to a large stainless steel peeler cum dagger with a 20 year guarantee. The salesman was adamant that I needed to buy the top of the range model: 'lasts a long time, can peel anything'. Unwilling to spend my weekly food budget on a small kitchen gadget, I managed to repel his sales patter and walked away just Rs.20 lighter and with a small peeler in my pocket.
Shopping in India is always a face to face affair. Rarely does the customer walk into a shop, pick up an item, pay for it and leave. More often the shopper is serenaded with a personalised sales pitch like some live action home shopping channel. This gives the salesman a chance to show his entire range, impart useful information about his wares and persuade the customer to go for the best quality product he can afford. A little haggling often takes place, but ultimately both parties usually walk away happy – the customer with the right product and the salesman with a satisfied customer and both with a fair price.
This relationship between salesman and customer works because the Indian shopper knows the price of a pint of milk, a kilo of onions and a steel saucepan and what a decent product looks like; the salesman knows the punters are streetwise and is forced to play fair for fear of losing or simply annoying his customers. However, when the customer is not up to speed with local pricing and has little clue about what he or she is buying then this happy system begins to crumble. To find a good example of the dangers of asymmetrical information in the shops, one only needs to look a few hundred kilometres down the road to Agra, home of the Taj Mahal. On a recent trip there, the general perception amongst locals was that, as a foreigner, I'd probably landed in India the previous day, was dripping in crisp, newly exchanged rupees and knew next to nothing about the place, its goods, and most importantly of all, its prices. But a few months in Delhi and some prior research had taught me a little about prices, quality and the art of haggling. This made for some interesting encounters with the local salesmen.
'This is marble', said the owner of a small souvenir shop in Agra's Kinari market. He held up the small model of the Taj Mahal to the light. 'Marble is transparent', he said as the light shone straight through the model, making it glow yellow. He wanted Rs.300, which is not so bad for a solid marble model. But in Agra, I had read, what you are told is often not what you get: I took the model in my hand and scratched the edge of the base with my thumbnail, a technique I'd read about on numerous Indian travel websites. A small blob of white dust collected on top of my thumb; a tiny shard sheared off and got stuck under my nail. At best it was soapstone. At worst it was some kind of plaster. Whatever it was, it was definitely not marble and it definitely was not worth Rs.300. I left amused that the informational asymmetry, on which the shop owner had banked, didn't exist: I knew far more about product and price than he suspected. A little later I felt a little smug as I bought the exact same model in another shop for Rs.30.
A few hours later and the Taj Mahal was glowing yellow in the mid afternoon sunshine. I stood in the mosque next to the Taj, admiring Shahjahan's great monument to love which was perfectly framed by the mosque's main arch. But, I was not alone. I had also somehow acquired an informal guide, a elderly man in black and white Islamic dress: the self proclaimed 'mosque man'. He led me around, pointed out a few architectural features and showed me how everything in the mosque lines up perfectly with the Taj, a hundred or so meters away. After five minutes the 'tour' finished and, as I expected, he asked for a 'donation', meaning a tip for his pocket. I gave him Rs.20; a decent amount for five minutes work. 'No, more', he complained, 'you give me a hundred'. Considering that a construction site worker gets around Rs.60 for a hard eight or nine hour shift, Rs.100 for a short tour sounded extortionate. I left without opening my wallet a second time.
My modest knowledge of India and pre-trip research had served me well. I had paid around the going rate for my tacky little Taj and my seemingly obligatory guided tour. Unlike so many before me, I had avoided paying two, three or even ten times over the odds. The whole experience underlined the value of knowledge and research, not just in petty haggling, but in business too. Any small business entering into the global economy needs to know the local market conditions, practices and prices. Small enterprises need to know the going piece rate for manufactured products – like my new potato peeler - in a Guangzhou factory or how to find the very best quality silks amongst the vast array of wholesalers in Varanasi on the banks of the Ganges (and what to pay for them!) Not doing homework may lead to some expensive mistakes.