Marketing and use of education

I have written a few posts on this subject earlier also. What is different in this post is that I have been seeing which industries do more of this and which not so much.

What I have observed is that in India, its the financial industry – specifically Portfolio Management Companies and Equity investment houses and to a certain extent Mutual fund companies that do a lot of work towards educating their customers, in their own different ways.

So you could have representatives of fund houses come on business channels and on internet properties and talk about their view of where the market is going. Generally the underlying point of the discussion is related to the kind of fund they are launching.

I have already written earlier also about the enormous amount of knowledge that Raamdeo Aggarwal of Motilal Oswal spreads free of cost with his Wealth Creation studies. Its an enormous amount of effort these people would be going through to create these wealth creation studies. The amount of knowledge I have got through reading these free reports, of the Indian stock markets, is more than all the knowledge I have gained over the years by buying and reading books from international authors. to be fair to the international authors, there are certain nuances about the Indian stock market that are different than the more matured US stock markets.

An author whom I have written about earlier also is Saurabh Mukherjea. He weaves interesting stories in his books and includes a lot of background information about the Indian stock markets. He runs a company by the name of Marcellus Investments. You could read the books to gain the knowledge that he is giving or you could also understand the philosophy of their investment process. If you like it, you could actually also park your money with them. He has recently come out with a book Diamonds in the Dust:Consistent Compounding for Extraordinary Wealth Creation, again with a lot of in-depth examples and case studies.

All this education , in all the three examples, is given on absolute neutral basis, but all of them do inform about their philosophy and how their funds work, in passing. So if you like their philosophy you could decide to use them for your financial goals.

So as an example, since I had gained so much free education from Motilal Oswal, I felt obliged to open my demat account with them , when I wanted to enter into the stock market. Indirectly that investment in freely educating me, by Motilal Oswal, has resulted in consistent business for them.

See how you can utilise education to indirectly influence your prospects.

Till next time then.

Carpe Diem!!!

Fractional Reserve System

Banks, cash flow, Debt, Leverage, Liabilities

When I was a kid, I always wondered how banks operate. Yes I did know they take money from us and lend it to someone on a higher interest, compared to what they give us. The difference in the two helps them make money. Because they allow you to keep the money on “tap” they give almost negligible interest rates. On longer duration deposits they give a slightly higher rate of interest because the chance of the money being asked earlier is reduced.

While this is simple I still could not understand how banks could lend so much money and how defaulters could have so much money with them.

A few years back I was sharing a ride from Indore to Bhopal – two cities in the state of Madhya Pradesh in India – with a banker. During this 4 hour journey, I happened to get talking with him on the same query. His logic partially answered my question.

The logic was that at any point in time the banks don’t allow you to withdraw All the money from a savings bank account. So they will put clauses – that in case you need an ATM facility then you need to maintain a certain amount, if you need a cheque book then you have to maintain a certain minimum amount in the bank, otherwise they penalise you. Due to this there is always money available to the bank even in savings bank deposits which will not go out of the bank in most situations. This becomes one source of low value funds. In addition there are the long duration deposits etc.

This had partially answered my questions but I was still not able to get my mind to understand how these deposits can create such high value lending capabilities for banks.

I don’t know if you have heard this term Fractional Reserve System before. If you have, then the remaining part of the post will be uninteresting to you. I first read about this in the book Second Chance by Robert Kiyosaki. Then I did some research on Google, Wikipedia etc. This got me most of the answers.

So now over and above what the banker above told me, the banks are allowed to lend a “multiple” of their deposits of various kinds. The key word is multiple. To ensure that the banks don’t go “bust” in most countries they have to hold a certain amount of their deposits with a central bank so that there is always a safety net for the depositors in case the debtors default and a bank has a run on their money.

Due to the ability to lend multiples of the deposit rate , say just for argument sake 10 times the deposit rate – if a bank has 1 million retail customers who have to maintain a minimum deposit of $100 then they have $100 million (1m*100) as the amount which would generally always be available to the bank. Now because they are allowed to lend 10 times the deposit rate, they can therefore lend $100m *10 = $1000m.

Since they always get a much higher rate on lending, and they only pay out a much lower level of interest to the depositors, the difference is huge amount of money for the bank. So on the 100m they are paying 2% per annum – which will mean giving out 2m as cumulative interest to the depositors. On the other hand they may lend at 10%. So 10% of $1000m is $100m. So at a gross level the bank has just made $98m using your $100m. I am sure there are other expenses involved, I have used 10 times just for demonstration purposes.

The challenge for the bank is when people default on paying their loans and the amount is much higher than the deposits. Therefore banks ask for collateral to protect their downside.

This was such a huge revelation for me because this is such a huge cash generator. They have so much leverage on the money which you have lent to them with very little liabilities. The key in this is the ability of the bank to have a good process to understand risk on a loan. This is why I now remember in one his interviews Raamdeo Aggarwal of Motilal Oswal, mentioned that if you want to buy the shares of a bank look at their loan underwriting process. The stronger the process the better the bank in getting its money back and the higher the profits.

I get elated when I am able to solve a query which has been at the back of my head for such a long time.

Let me know if you have had Aha moments when a query which has been long standing gets solved.

Till next time then.

Carpe Diem!!!

Marketing is Education – Part 3

education, Marketing, Methodologies, Technology

In this part today we will look at another set of great marketing successes who have used education as a method to differentiate themselves and made me their customer.

Example 1: Jay Abraham. I referred to him in the first part of this series. He is big time into giving away knowledge free of cost. There’s so much knowledge which I have gained from him, that when I could afford I started investing in his programs. Due to him I learned that there are only 3 ways to grow a business. The strategy of pre-eminence. The marketing Parthenon etc.

Example 2: Motilal Oswal.This is one of the biggest brokerages in India. When I was starting to learn about the stock markets, I read a lot of the Berkshire letters to the shareholders by Warren Buffet. I read a massive amount of books on the subject. The only challenge was that all the content was international. I was looking for content specifically for India.

That’s when I found the Wealth Creation studies that have been authored by Raamdeo Aggarwal each year for the last 20 odd years. These studies don’t talk about their company at all except maybe for the methodologies they use. Due to that, you gain trust.

When I read those twenty odd reports, I was able to understand the Indian stock markets. So when I had to choose my brokerage, I chose motilaloswal. There were others who were offering cheaper options but because I had trust in motilaloswal, I took them.

Its however difficult to create pure education based content and put it out. Even though I am so much in favor of creating educational content around your offerings, its especially tough when you are in the technology space where there’s so much happening. So I also struggle to get this to happen.

Having said that, I would still think its the best way to build trust with customers.

Till next time then.

Carpe Diem!!!

Diversification is admission of ignorance

B2B, ideal customer, Marketing, messaging, prioritizing, Product Management, segmentation, single target market

A few posts back I had written a post on how giving too many choices actually reduces the chance of success.

I used to hear a lot of gurus in the stock market talk about being focused with not more than 10-15 stocks to get the best returns. If you read the Wealth Creation studies by Raamdeo Aggarwal, he gives a lot of examples of how being focused can give much higher returns. If you want average returns then you can just take an Index ETF.

The other day I was listening to an interview of Garrett Gunderson with Joe Polish on YouTube. And he happened to mention this term in passing and it kind of stuck with me. Garrett has written a very nice book Killing Sacred Cows: Overcoming the Financial Myths that are Destroying your Prosperity.

Even in marketing if you try to do too many things trying to see which will succeed is because you are not sure of yourself either on your offering or on your market or a whole lot of other things. Most of the time we try to do multiple things at the testing stage to see what sticks and what falls. But once you start seeing what sticks you need to start improving on that. You can’t be testing multiple variables simultaneously. It never works.

You cannot be testing multiple offerings in different markets and also seeing which message works. I have done this at different times and flopped badly. Sometimes these were done because I fell in love with multiple brands and thought I could get them launched at the same time but then eventually realized I could not do justice to all of them. It was definitely my ignorance then. At other times I was in a tight spot and had to somehow get something moving and thought at least if a try so many things simultaneously, I will be able to get success somewhere.

Eventually I have come down to some very specific things for B2B marketing. I need to identify only one target market and niche it as much as possible when I am launching a new product / service. If your segmentation is done well and then you get your database / list based on that you have already come a long way. After that you test your messaging.

The 80/20 that I have been talking about in the last few posts is exactly the opposite of diversification. Its about focus and the knowledge which comes from focus. Like the image above, a few colors in a pattern can give a good look but putting too many colors on the same rug, assuming some one will like some color is ignorance.

Whether its finance or marketing or even other areas of your life you can spread your self, diversify and be shallow and ignorant or go deep, focus and be knowledgeable and get great results.

Till next time then.

Carpe Diem!!!