Turtle Talk - 17th December 2012

• What's in the frame?
• A Bank for the Buck- A book worth every buck: From the WMG Desk

William Shakespeare had said "A rose by any other name smells just as sweet". However, marketing heads of companies will disagree with Shakespeare's observation. According to them, a juicy twist to a fact helps in communicating the message better than merely conveying the bald truth. In other words, they are always attempting to frame a fact in the most effective manner. A mutual fund advertisement can state a fact in two ways:

Our scheme's five-year compound annual rate of growth is 12 per cent, while the BSE Sensex gave a return of 10 per cent during the same period. Or, if you had invested Rs 10,000 in our scheme in June 2007 it would have grown to Rs 17,600 today, while the same money would have grown to only Rs 16,100 if you had invested in an index fund.

But when you say the first sentence - the reader will look at only a 2 percentage point difference. On the other hand, the difference in amount is Rs 1,500 - most likely to have a much-greater impact.

A TV advertisement for a private-sector bank has the protagonist rebuking people who are unimpressed by the fact that the bank's Saving Account interest rate has been raised from 4 per cent annually to 6 per cent a year. Instead, according to him, there is a hefty 50 per cent increase in the rate, which is highly attractive. Again, the 50 per cent more resonates better than the 2 percentage point difference.

In insurance, it is used as well. Advertisements for life insurance products could say, 'Our experienced actuaries ensure that the life insurance policy is priced appropriately - quite boring, actually. Instead, they will show images of happy couples or parents beaming at their child's graduation ceremony, and state how such pleasant experiences can be enjoyed by paying a nominal annual premium.

In all these cases, while the first sentence is a correct statement of fact, it is bland and does not excite the reader / viewer. The target audience is unlikely to reach for their wallet after reading it. On the other hand, the second statement has greater potential to strike a chord and galvanise them into taking positive action.

Now, here is how it can be used wrongly, as well. When a new fund offer (NFO) is launched, mutual fund distributors will approach you and say that it is cheaper than an existing well-performing mutual fund with a track record. The argument: The units are available for only Rs 10 or Rs 100, whereas the current net asset value of the scheme is Rs 1,000. "So, with Rs 10,000, only 10 units of existing mutual fund can be bought, whereas you can buy 100 units of the NFO".

The answer to this is quite simple. Say, both the schemes grow by 20 per cent in one year. So the NFO's NAV becomes Rs 12 and the existing scheme's NAV is Rs 1,200, how much will your Rs 10,000 grow? It will be Rs 1,200 in both cases. So, the cheaper positioning is wrong.

Why is this framing used? Before engaging in any activity or making any purchase, all of us are keen on knowing 'What's in it for us?'' Alluringly framed messages answer this question by underlining how the product or service can enhance the purchaser's quality of life. This is superior to merely listing out the product’s positive attributes. But one has to come out of the frame and think about his/her action rationally.

Just as framing can be used to motivate action it can also be used to deter actions. This is especially valid while conveying messages of social importance. Two such examples are:

Cigarette packets have always contained the warning - 'Cigarette smoking is injurious to health'. However, for the past few years, this warning has been supplemented with pictorial depictions of how they may actually harm you. The pictures are expected to be more effective than mere words in dissuading smokers as they clearly convey how smoking actually harms the smoker.

Piracy of CDs and DVDs has been the scourge of the entertainment industry. The industry's appeals to the consumers' conscience often fell on deaf ears. What proved to be more effective was a series of advertisements highlighting how pirated CDs ruined the head of the users' CD players.

But it does not work always. 'Framing' of communication would certainly have been less effective if man was a truly rational animal, For instance, Mr Spock (from the TV series, Star Trek) would have been thoroughly unenthused with the bank advertisement mentioned above. Luckily for several sectors of the economy, man is not rational. His actions are stimulated either by his own past experiences or the experiences and feedback received from acquaintances. While overtly persuasive tactics repulse many, subtle hints are received more positively albeit sub-consciously.

Today, the unsavoury combination of a current dismal economic scenario and a (until recently at least) range bound stock market is proving to be a formidable challenge to advisors. They are rapidly running out of reasons to provide their clients with some hope. While advisors are convinced about the merits of long-term investing, clients do not appear share this conviction. During such times, it may be worthwhile to go back to the drawing board and frame some compelling messages which may help the cause.

How about going back to the good old days of slow and steady wins the race instead of flashing 20 per cent and 30 per cent returns annually? In times of uncertainty, even a faraway silver lining is a positive.

This article was first published in Business Standard newspaper on December 2, 2012.

"If you like the book; my dear reader, it's because the story of the bank is compelling. If you find it boring, blame the storyteller", writes Tamal Bandopadhayay in the beginning. "A Bank for the Buck" written by Tamal is a classic example of how a book on banking and finance can be so gripping, even for the readers who are not from this background. The book is a story of HDFC Bank, its people who gave birth to it and lead to its current status of India's most valuable bank. Normally books on such subjects can often be monotonous. But Tamal, one of the most respected financial journalist makes the book quite engaging and narrates a non-fiction book like an interesting story, never allowing the readers to get bored.

The book is based on hundreds of hours of interviews with central bankers, corporate executives, bankers, consumers and investors in different parts of India and overseas. Divided into thirteen chapters, the book begins where Deepak Parekh makes a call to Aditya Puri (who was Chief Executive Officer of Malaysias operation of Citibank N.A) to quit his cushy job and set up a bank in India. Deepak, the Chairman of HDFC had applied for a banking license against the backdrop of the new bank movement in India that started in 1994. The Reserve Bank of India opened up the sector to introduce competition and to forced banks to be efficient and more productive. Deepak could not match the salary Aditya was paid at Citi. But he promised stock options with a simple logic: if the bank is successful he will make good the losses he would suffer by quitting Citi. Aditya took this opportunity of building a bank with the assurance of complete freedom to run. The idea was to bring the best talents from the best banks around the world and build a bank with a world class reputation. The opportunity with HDFC Bank was to give a banking experience better than PSU banks and opening many branches, which the MNC Banks were restricted to.

Then began a series of search and appointments for the top management. Some of the key members to join the board were S.S. Thakur (former controller of foreign exchange in India) who eventually became the founder-chairman at HDFC Bank. Next to join was Vinod Yennemadi (former finance director of Kalyani Steels) becoming the CFO and the first employee on the bank's payroll and then many others followed. The commonality in all these people was the fact they took a pay cut, compromised their luxuries from their previous jobs. All they got was a moderate salary and good stock options. In one of the funny instance, the wife of Harish Engineer (who was quitting his well paying job at Bank of America to Join HDFC Bank) started asking silly questions like "Who will pack our furniture? Where will we stay?". Nobody had any idea about how the stock will perform in the future.

The book is packed with some warm stories of the initial days; like the training sessions under a tree when there were no meeting rooms at Kamala mills, the ATM swallowing Satwalekar’s (then MD of HDFC) ATM card, employees asked to bring their own coffee mugs to save cost,etc. The book covers the Banks changing focus from institutional to retail and its large focus on advanced technology. It narrates the business philosophy of the bank and how it's different from that of others; particularly ICICI Bank. HDFC bank also couldn't escape the wrath of the regulator when it was penalised twice by the RBI. One chapter focuses on the management style of Aditya Puri and what makes him one of the best bankers in the country. Some of his other characteristics are highlighted; like his priority for work life balance and his frugal nature. Once he promised all his employees to take them to a place where the food would be something they would not have eaten before. He parked the car near a small dhaba and said "lets eat here". He has no computer on his desk, wades through printouts of mails and still manages to leave office at half past five in the evening.

This book narrates the trials and tribulations Puri and his hand-picked team went through to create the country's most valued bank. The book is recommended to all the readers who are interested in knowing the untold story of India's most successful bank post liberalisation. And thanks to Tamal, it's an easy and an enjoyable read.