Estimated reading time: 3 minutes 36 seconds
A couple of years back, my friend Shekhar (name changed) was visiting Agra, the city of Taj in the month of February when the weather is neither too cold nor too hot. He decided to stroll on a street in the famous market 'Sadar Bazaar' frequented by tourists looking to proudly own souvenirs especially a cabinet display version of Taj Mahal. Me having been raised in this city and familiar with its ways, I had cautioned my friend about the exorbitant prices quoted to tourists by locales to seek extraordinary profits.
My friend being the smart cookie he is, surveyed many shops on the street and decided to check on the prices of a beautifully hand-crafted model of Taj Mahal with the provision to put a small bulb that would glow the central dome. The shop owner sensing an outside visitor from the attire and the conversation style offered the model at a price of Rs.10K. My friend tried calling me at that moment but unfortunately, I could not attend to his call or read his messages, so he was left to tend to the purchase by himself. Shekhar had not seen the similar craftsmanship in other models and shops so he was very keen to acquire his choice if only he could get a good price for it. He decided to offer a price of Rs.2K recollecting my advice, but he was unsure. "Am I offering a very low price at 80% of the original quote", he thought. The shop owner, sensing his client's ambivalence, grimaced and said, "Sir, why would you offer such a low price for an exquisite piece that cannot be found in the entire city of Agra?" Of course, the claim was false without a doubt! Shekhar's feeling of being unsure suddenly enhanced 10x and he asked what the final price would be. The shop owner realizing he was about to close the deal said with a finality in his tone, "Sir, the best price even though I don't make much money would be Rs.8K". My friend tried one more time and offered Rs.6K. The shopkeeper countered with Rs.7.5K. Shekhar, in turn, suggested a final price of Rs.7K and they concluded the transaction at a decent 30% discount to the original quote.
Shekhar walked out of the shop happy with his purchase but still ambivalent if he got a good bargain. He kept thinking, should he have kept a lower walk-away price. It was not about the affordability but rather the feeling of proving to himself that he was a smart buyer. Discounts always give you this doubtful feeling if you were smart enough to get a good deal. The general pattern is that prices are inflated artificially and then reduced depending upon a client's negotiations skills. I have recently experienced it in a personal transaction for my son's coaching classes but that story probably some other time.
Similarly, when you get something seemingly for free, there is a doubt if the right value was delivered for the hidden costs. There is an inherent conflict of interest which incentivizes the provider to offer a product/service that realizes more commission than the product/service that is more suitable for the client. See below for an article on the recent trend on Mutual Fund commissions paid out to distributors for facilitating investments in various schemes.
The regulator has mandatorily provisioned for direct funds where no commissions are paid. Mitraz has adopted direct funds in its advice since 2016. The other service culture that many clients have experienced with Mitraz is no discounting on an individual client basis. The rationale is that we keep our fee competitive and the right compensation for the value being provided. It is against the values of the company to increase the fee and then discount it. What about the clients who never asked for a discount? We want to be fair to all our clients and that keeps things simple!
Please read through the article in the above link and be careful of the schemes especially close-ended ones which offer high commissions to the distributors of the product.
The writer is the Managing Director of Mitraz Financial Services Pvt. Ltd and can be contacted at email@example.com