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The Art of Feedback: An Interpersonal Transaction

  • Jaipuria Institute of Management, Noida, India

Abstract and Figures

For a good manager, the art of giving feedback is one of the important key expertises. In the absence of feedback, all of the other tools of managerial-ship joining together will not allow anyone to be fully effective. The vision, talents, and competencies of managers and the subordinates will not truly synergize without this vital link. It is through feedback that we put into practice the ability to see ourselves as others see us. On the contrary, it is through feedback that others know how we see and perceive them. Feedback is any kind of return information or instruction from a source which is helpful in regulating behavior. It takes the form of verbal or nonverbal communication to a person or group, providing them with information about how their behavior is perceived by one or more individuals, especially as it relates to a goal or standard. Feedback can also be defined as a reaction by others to how one’s behavior is affecting them, usually in terms of their emotions and perceptions. The basic framework set forth in this article, starting with introduction & nature of feedback, explains the various characteristics of giving and receiving feedback, implications of behavior while receiving feedback, value of feedback, positive versus negative feedback, guidelines for providing feedback, and desirable behaviors for making effective feedback. The essential quality and spirit of feedback is to comfort the afflicted and to afflict the comfortable. Giving and receiving feedback is seldom easy, but for effective managerialship to take place, it is important to master the feedback as an art which can be learned, practiced, and continuously improved.
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NSB Management Review • Volume 2 • No. 2 • February 2010
From the Editor-in-Chief ’s Desk ............................................................................... 2
Perceived Satisfaction of Out-Patients from Private Clinics :.......................................... 4
With Reference to Gujarat
- Dr. J. M. Badiyani
Inventory Management Practices in FMCG C ................................................................. 16
- Dr Ashish Varma
Service Quality of Tourism Industry Based on Customer Satisfaction ........................ 22
and Expectation –An Evaluation of Tourism in Mysore
- Dr.H . N. Ramesh and Poolad Daneshvar
Coffee Cafés: A retail story .................................................................................................. 34
- Dr. Sujata Shahi, Monica Mor
Management Case
The Home Delivery System: A Case of Mother Dairy ................................................... 46
- Vandana Gupta, Saheli Chakraborty
Banking on Merger: The Success Saga of HDFC Bank Employee Branding ............ 50
- A Retention Mantra for 21-C
- Dr Swati Agrawal, Vranda Jain
An empirical study of the investment pattern of private life insurance companies .. 58
in India
- Moid Uddin Ahmad
The Laffer Curve – Still Holds Good ................................................................................ 70
- Dr. Jeet Singh, Dr. Preeti Yadav
The Art of Feedback: An Interpersonal Transaction ...................................................... 80
- Abdul Qadir
Save the Environment to Save Your Future ...................................................................... 94
- Prof. Alok Satsangi
Book Scan
Get Content Get Customers -Turn Prospects into Buyers ............................................ 98
with Content Marketing
- Sonali Saxena
Financial Markets, Institutions and Services ................................................................... 102
- Raghav Jain
Guidelines for Manuscript Submission .................................................................. 104
NSB Management Review • Volume 2 • No. 2 • February 2010
From the Editor-in-Chief ’s Desk
It gives me immense pleasure to release the current issue of our flagship
publication, NSB Management Review (NMR). NMR is a refereed
international journal and we have tried to maintain the highest ethical and
technical standards of the manuscript review. All items submitted to NMR
were screened, without any exception, and only those short-listed ones were
subject to double blind peer review from the specialists in the field.
The current volume is great combination of the latest information and
happenings in the field of management and technology. It provides an
integrated cross functional blend on the current and emerging developments
in India and abroad resented through the different sections of the journal.
The research section has four papers from different functional areas of
management. The paper by Dr. J M Badiyani examines the perceived
satisfaction of out-patients from private clinics based on various attributes
in Gujarat. It also evaluates the difference of satisfaction for some
demographic factors of out-patients. Dr. Ashish Varma researched top five
FMCG companies to know if there is a significant impact of inventory
figures in the financial statements on the stock prices. Dr. H.N Ramesh
and Poolad Daneshvar in their study on “Service Quality of Tourism
Industry Based on Customer Satisfaction and Expectation –An Evaluation
of Tourism in Mysore” indicate that there are significant differences between
overall expectations and satisfaction levels of tourists. Dr. Sujata Shahi and
Ms. Monica Mor in their research have highlighted retail story in Coffee
Cafes. This paper delves into this sector and looks into the existing players
and analyses some of their strategies which can be reworked in the long
In the management case section Ms. Vandana Gupta and Ms. Saheli
Chakraborty have prepared a case study on Home Delivery System of
Mother Dairy. The case deals with the major problems being faced by Mother
Dairy and provides some other alternatives which could be well implemented
to find a solution for the existing problems keeping in mind the future
perspective of the Company.
In the discourse section four articles are included. Contribution from Dr.
Swati Agrawal and Ms. Vranda Jain have discussed mergers and acquisitions
as the Success Saga of HDFC Bank. An empirical study of the investment
pattern of private life insurance companies in India by Mr. Moid Uddin
Ahmad have highlighted the importance of insurance companies in an
economy considering the factor of savings, social importance and
government finances. Dr. Jeet Singh and Dr. Preeti Yadav highlight the
features of Laffer curve and show how it applies to India. It also looks into
the supply-side economics. According to authors the Laffer curve is a popular
tool in shaping and analyzing economic policy problems. Mr. Abdul Qadir
Knowledge is the
most democratic
source of power.
- Alvin Toffler
NSB Management Review • Volume 2 • No. 2 • February 2010
talk about the Art of Feedback in the spirit of helping the other person in building a relationship of trust and
openness, if it is received in the spirit of learning from the situation to increase interpersonal effectiveness and
to contribute to such relationship of trust and openness. This article is a humble effort to help every superior
and subordinate to achieve the effectiveness while providing or receiving feedback whether it is linked to
performance appraisal or related with day to day operational issues in organization.
The dialogue section includes the conversation one with Mr. Pankaj Mehrotra, Associate Vice President –
Sales, Ceasefire Industries Ltd., New Delhi. The talk discussed the effects of Global Warming on our lives and
environment challenges faced by India. Mr. Pankaj also suggested various ways which can be chalked by
Government and by individuals to save environment.
The Book Scan caries two book reviews. Ms Sonali Saxena reviewed the book “Get Content Get Customers”-
Turn Prospects into Buyers with Content Marketing authored by Joe Pulizzi and Newt Barrett. Mr Raghav Jain
has given his observations on the book Financial Markets, Institutions and Services authored by N K Gupta &
Monika Chopra.
We hope it makes an interesting and informative copy. We at NSB, would like to thank the editorial and
publications team for the efforts they have put in. We also thank the reviewers for their time spent in making
constructive statements, which not only checked but also served to improve the quality of final articles.
We would welcome all ideas that can make NMR more relevant to its target readers.
Rita Sachdev
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
Perceived Satisfaction of
Out-Patients from Private
Clinics : With Reference to
J. M. Badiyani
This paper examines the perceived satisfaction of out-patients from private clinics based
on various attributes in Gujarat. It also evaluates the difference of satisfaction for some
demographic factors of out-patients. A sample of 339 consumers was personally surveyed
using structured questionnaire. Using simple statistics like descriptive analysis, t – test,
ANOVA test, factor analysis and total consumer satisfaction index analysis, the
hypotheses were tested. The factor analysis reduced variables and then t – test and
ANOVA test for different demographic groups are conducted. Significant difference of
satisfaction is found out in different demographic groups. Through total consumer
satisfaction analysis, total consumer satisfaction index calculated is 61.569 %. The
results may help the practitioners and administrators to serve patients better and further
researchers. They may also be helped by knowing different weight ages assigned to different
factors by respondents so that practitioners and administrators can make better decisions.
Key words: Out-Patients’ Satisfaction; Demographic factors; Total Consumer
Satisfaction Index; Private Clinics; Practitioners and Administrators
The World Health Organization (WHO) defined health as “a state of
complete physical, mental and social well-being and not merely the absence
of disease or infirmity”(WHO Constitution, 1946). The statement has been
modified to include the ability to lead a “socially and economically productive
life.” The LaLonde report suggested that there are four general determinants
of health including human biology, environment, lifestyle, and healthcare
services (LaLonde, 1974).
Today, marketing is inevitable for every business and consumer is considered
as uncrowned king of the market. Similar story is there for healthcare as an
industry. Thus, consumer satisfaction must be and is given much more
importance today. This thought generated a problem of studying perceived
satisfaction of patients.
“Quality in a service
or product is not what
you put into it.
It is what the client or
customer gets out of
- Peter Drucker
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
Out-patients are quantitatively a larger part of the
society compared to inpatients and thus here they are
considered. The private clinic here does not involve
government or trust based clinics as well as private
alternate medicine clinics. Thus, only out-patients of
private allopathic clinics are considered here.
2. Review of literature.
Howard and Sheth described consumer satisfaction as
a related psychological state to appraise the
reasonableness between what a consumer actually gets
and gives (Howard and Sheth, 1969). It is also observed
that consumer satisfaction resulted from purchasing
and using a certain product, which was made by a
consumer to compare the expected reward and the
actual cost of the purchase (Churchil and Suprenant,
1982). The price decision also has an impact on
consumers’ satisfaction in service industries (Voss,
Paraguayan and Grewal, 1998). The service industries
are mostly customer driven and their survival in
competitive environment largely depends on quality
of the service provided by them.
The demographics and consumer satisfaction in
general is related as observed by several researchers.
Gender is not found very much impacting factor in
adoption of modern technology in general (Taylor and
Todd, 1995). Younger persons tend to adopt more of
more of technology if age is a factor (Zeithaml and
Gilly, 1987; Trocchia and Janda, 2000; Lee, Lee and
Schumann, 2002).
In a study, it is observed that corporate hospital serves
patients better in comparison to government and quasi
government hospitals (Srinivas and Prasad, 2003). It is
also observed that healthier patients, older patients,
males, those with a lower levels of education, those
with perceived system performance to be high and
those with lower levels of system usage are more
satisfied with both their healthcare and health plan than
their opposite counterparts (Braunsberger and Gates,
Positive evidence on the direct relationship between
customer satisfaction and organizational performance
is found specifically in hospital settings (Nelson, Rust,
Zahorik, Rose, Batalden and Siemanski, 1992).
Measuring and implementing the results of surveys
related to patient satisfaction though tough but can be
done (Carr – Hill, 1992). The association is also found
out between patient satisfaction and perceived quality
dimensions by the patients (Rao, Peters and Bandeen
– Roche, 2006). There are links found out between
managerial motivation, leadership, nurse outcomes and
patient satisfaction (McNeese, 1999).
Many factors can influence the patient satisfaction
(Qureshi, Khan, Naik, Khan, Bhat, Khan, Hasan and
Tak, 2005). Several factors like clinical care, availability
of services, waiting time and cost can be linked with
patients’ satisfaction (Prasanna, Bashith and Sucharitha,
2009). Communication skills workshops can improve
patient satisfaction significantly and thus, it also
becomes a major factor for patient satisfaction (Lau,
2000). Personality of medical care provider can also
have an impact on the consumer satisfaction (Hendriks,
Smets, Vrielink, Van Es and De Haes, 2006).
Different methods and instruments are used to assess
consumer satisfaction (Ivarson and Malm, 2007). The
Davis Consumer Emergency Care Satisfaction Scale
(CECSS) assesses the emergency care to be reliable
and valid and could be used confidently (Davis, Kiesel,
McFarland, Collard, Coston and Keeton, 2005). The
UKU Consumer Satisfaction Rating Scale, which
consists of six items related to the structure and process
of treatment care and two items related to outcome
and well-being, is widely used and proved to be suitable
for use in ordinary clinical practice (Ahlfors, Lindstrom,
Malt, Lublin and Malm, 2001). In other studies,
consumer satisfaction assessment is conducted by
asking respondents to rate their satisfaction on five
key aspects of local health services (availability,
geographical accessibility, choice, continuity and
economic accessibility as measured by affordability)
using a 5 point Likert scale (Chan and Twinn, 2003).
An alternative method involves investigating
consumers’ experiences with actual and potential
complaints in relation to health services (Samson,
2001). The easier and direct method is consumer
satisfaction index analysis which considers factors and
their importance and gives percentage of satisfaction
in overall terms (Bhave, 2002).
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
3. Objectives and hypotheses.
The objectives of the study are
1. To identify
1) The difference of perceived satisfaction
between male and female.
2) The difference of perceived satisfaction among
different age groups.
3) The difference of perceived satisfaction among
different education groups.
4) The difference of perceived satisfaction among
different income groups.
2. To measure the overall perceived satisfaction
among out-patients of private clinics.
From the objectives, following are the hypotheses
Ho1: There is no significant difference of perceived
satisfaction between male and female.
Ho2: There is no significant difference of perceived
satisfaction among different age groups.
Ho3: There is no significant difference of perceived
satisfaction among different education groups.
Ho4: There is no significant difference of perceived
satisfaction among different income groups.
In addition to above hypotheses, the researcher here
tried to find out overall consumer satisfaction index in
accordance to know the overall perceived satisfaction
among out-patients.
4. Research methodology.
4.1. Data collection, sample and tool.
One of the primary concerns of this paper is to identify
the important factors affecting the out-patient
satisfaction of private clinics in Gujarat. The 18 service
quality dimensions of clinic service quality are
identified in consultation with several doctors and
healthcare administrators that are taken here to evaluate
satisfaction of out-patients. Through a structured
questionnaire data were collected for final analysis. Out
of total 350 questionnaires sent, 339 questionnaires
were found valid for analysis. Sampling technique used
here is convenience sampling. Survey questionnaire
included a number of questions related to out-patient
satisfaction and the responses have been recorded on
five point likert type scale (1 = not at all important
and 5 = extremely important). The questions related
to demographic profiles of the respondents such as
gender, age, education and income were also included.
4.2. Data analysis.
Data collected were analysed through MS Excel and
SPSS. Data analysis methods included are t test,
ANOVA test, factor analysis and customer satisfaction
index analysis. In measuring customer satisfaction, the
American Customer Satisfaction Index (ACSI) is widely
used by researchers and corporations (Xueming and
Bhattacharya, 2006). A different method of measuring
customer satisfaction, Customer Satisfaction Index
(CSI) is also used. The Customer Satisfaction Index
represents the overall satisfaction level of that customer
as one number usually as a percentage (Bhave, 2002).
5. Data Analysis and Discussion.
Satisfaction and importance of each of 18 factors is
measured on five point likert scale. The reliability
analysis is done for 18 factors and the cronbach alfa
found is 0.7456. Comparison of observed satisfaction
is also made on the basis of various demographic
factors is shown below.
5.1. Consumers’ profile.
The consumers’ demographic profiles are shown in
table 1.
Frequencies for satisfaction shows a normal curve
which is shown in Graph 1.
5.2. Comparison of satisfaction through
different demographic factors.
Various factors are considered for comparison like
gender, age, education and income.
5.2.1. Factor analysis
To reduce the no. of factors the factor analysis is done.
Eighteen factors are classified in six groups. The
extraction method is principal component analysis and
varimax rotation. The total variance is explained in table
2 and rotated matrix is shown in table 3.
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
Here the total variance explains that the six factors
explain 79.935 % of the total variables which are
grouped and named accordingly in the rotated
component matrix shown in table 3. The extraction
method used here is principle component analysis. The
rotation method is varimax with Kaiser Normalization.
The abovementioned six factors are then used for the
testing of hypotheses related to demographic factors.
5.2.2. t – Test and ANOVA test for demographic
The t – test for gender wise comparison and one way
ANOVA test for age, education and income wise
comparison are shown in table 4.
If we consider gender group differences of satisfaction
in the above six factors, only doctor’s personal factors
have significant difference between male and female
while all other factors including acquaintance, opinions
and references, peripheral facilities and Para medical
factors, communication skills, availability of doctor and
attending emergency and fees and prescription do not
have significant differences between male and female.
Looking at means, males are more satisfied than
females in terms of doctor’s personal factors where
decision makers need to pay attention.
Age groups have significant differences in two factors
i. e. doctor’s personal factors and acquaintance,
opinions and references. For finding out the groups
differences post hoc Tuckey test is done which is shown
in table 5.
Above table shows the significant difference of
satisfaction among the age groups for two factors
where “*” means significant difference at 0.05
significance level. Thus, in the above two areas decision
makers need to pay attention to the shown age groups.
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
Education groups have significant differences in all
six factors including doctor’s personal factors,
acquaintance, opinions and references, peripheral
facilities and Para medical factors, communication
skills, availability of doctor and attending emergency
and fees and prescription. For finding out the groups
differences post hoc Tuckey test is done which is shown
in table 6.
Above table shows the significant difference of
satisfaction among the education groups for all six
factors where “*” means significant difference at 0.05
significance level. Thus, in the above all six areas
decision makers need to pay attention to the shown
education groups.
If we consider income groups differences of
satisfaction in the six factors, doctor’s personal factors
acquaintance, opinions and references, peripheral
facilities and Para medical factors and communication
skills have significant differences among income groups
while availability of doctor and attending emergency
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
and fees and prescription do not have significant
differences among income groups. For finding out
the groups differences post hoc Tuckey test is done
which is shown in table 7.
Above table shows the significant difference of
satisfaction among the income groups for four factors
where “*” means significant difference at 0.05
significance level. The rest two factors do not have
significant difference at 0.05 significance level as shown
in table 4. Thus, in the above four areas decision makers
need to pay attention to the shown income groups.
5.3. Measuring level of satisfaction
Measuring level of satisfaction through Total Customer
Satisfaction Index is shown in table 8. Here all eighteen
factors are considered for analysis.
Total Customer Satisfaction Index 61.569 %
Total consumer satisfaction index is 61.569 % which
needs attention on certain areas where the observed
gap between satisfaction score and importance score
is more like communication, doctor’s personality,
experience, qualifications, attending to emergency etc..
6. Conclusion.
Healthcare practices are changing rapidly in Gujarat
and India. The satisfaction of patients in clinics will
provide doctors and administrators of clinics an
opportunity to improve in certain areas and to certain
demographic groups of consumers. Though further
specific research is required, this article may throw light
on certain areas of improvement and further research.
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Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
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Badiyani • NSB Management Review • Volume 2 • No. 2 • February 2010
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Dr. J. M. Badiyani
Assistant Professor,
Department of Business Administration
Bhavnagar University,
Varma • NSB Management Review • Volume 2 • No. 2 • February 2010
Inventory Management
Practices in FMCG
Ashish Varma
The Fast moving consumer goods (FMCG) industry is a very lucrative
industry, and given the interesting aspects of the business, this study aims
to know if there is a significant impact of inventory figures in the financial
statements on the stock prices.
Past research shows that the inventory practices followed by FMCG
companies are critical to the business. It would be interesting to find out
the validity of the hypothesis that the inventory valuation aspect influences
the profits & hence stock prices.
To conduct this study the top five FMCG companies which captures 70%
of the Indian organised FMCG market were considered.
The companies which were studied were
• Dabur
Hindustan Uniliver Limited
Indian Tobacco Company Ltd.
Nestle India
Proctor & Gamble
These firms are operating in India for more than a few decades
and are in good purview of the consumers. In past decade these
firms have shown an average growth in revenues in the range
of 4-20%.
The stock prices and profits of all the 5 companies studied are shown in
the graphs in Exhibit 1.
Data for the past 10 years was taken from the CMIE database of
the 5 companies. The reports were:
Balance sheets
Income statements
Various ratios specifically based on inventory
“Give a man a fish and
he will eat for a day.
Teach a man to fish
and he will eat for a
lifetime. Teach a man
to create an artificial
shortage of fish and
he will eat steak”
- Jay Leno
Varma • NSB Management Review • Volume 2 • No. 2 • February 2010
1) Raw material turnover
2) Finished goods turnover
3) Debtor turnover
4) Asset turnover
5) Finished goods cycle
It was hypothesized that the values of the above ratios
have an impact on the profits and also the stock prices.
To find out the validity of this hypothesis, regression
outputs were obtained using SPSS. Three regressions
were run on the data taken:
1. Multiple Regression of Profit (dependent variable) on
the ratios (independent variable) (output in Exhibit 3a)
2. Multiple Regression of Stock prices (dependent variable)
on the ratios (dependent variable) (output in Exhibit
3. Multiple Regression of Stock prices (dependent variable)
on Profit (dependent variable) (output in Exhibit 3c)
The detailed output of the above regression models
for an indicative company Dabur are given in Exhibit
3 (a and b). The other companies are analyzed similarly.
The above regressions were analyzed to find out if
each of the ratios significantly influences the profits/
stock prices.
It can be inferred that none of the independent
variables are significantly influencing the profits or the
stock prices across the firms. Hence no generalization
can be drawn from the analysis done. Vishnani,S and
. Shah B (2008)1 also concludes that the financial
information from the financial statements cannot
explain the stock markets.
The R-square & p-values from the regression output
are pasted below in a table, the highlighted cells show
the significant variables.
Varma • NSB Management Review • Volume 2 • No. 2 • February 2010
Finished goods cycle is the only variable significantly
influencing the profits of Dabur. No variable is
significantly influencing the stock prices of Dabur.
Finished goods cycle is reduced from 27.82 days in
the year 1999 to 15.72 in year 2009. Their finished
goods cycle has decreased and has a positive impact
on profit (lower finished goods cycle leads to more
Finished goods turnover, Debtor turnover, Asset turnover are
the variables significantly influencing the profits of
HUL. No variable is significantly influencing the stock
prices of HUL. As finished goods turnover ratio of
HUL is decreasing it is impacting in increase in profit
over the years. HUL has reduced Finished Goods
turnover ratio from 48.94 from year 1999 to 26.71 in
year 2008.HUL has reduced debtor turnover ratio from
52.66 in year 1999 to 29.86 in year 2008 and thus it is
showing negative impact on its profit. Asset turnover
ratio has decreased from 2.65 in year 1999 to 2.16 in
year 2008. It has resulted into negative impact on profit.
Finished goods cycle is the only variable significantly
influencing the profits of ITC. Finished goods turnover
& Debtor turnover are the variables significantly
influencing the stock prices of ITC.
Finished goods cycle of ITC has increased from 11.87
to 25.54 which have resulted in positive impact on
profits. Its finished goods turnover ratio has increased
from 17.77 in year 1999 to 27.1 in year 2009, which
has a positive impact on stock prices of ITC. Debtor’s
turnover ratio has increased from 19.29 in year 1999
to 31.6 in year 2009, which has negative impact on
stock prices of ITC.
Asset turnover is the only variable significantly
influencing the profits of Nestle. No variable is
significantly influencing the stock prices of Nestle.
Asset turnover ratio has increased from 2.09 in year
1999 to 2.83 in year 2009 which has resulted in positive
impact on its profits.
No variable is significantly influencing the profits or
the stock prices of P&G.
Varma • NSB Management Review • Volume 2 • No. 2 • February 2010
Exhibit 1:
Below graphs show the stock prices & after-tax profits (on the date of the balance sheet) of the 5 companies
over the 10 years.
Varma • NSB Management Review • Volume 2 • No. 2 • February 2010
Varma • NSB Management Review • Volume 2 • No. 2 • February 2010
Atkinson A, Hamburg J, Ittner C (1994) “Linking quality to profits”, Montvale NJ: Institute of Management Accountants
ASQC Quality Press.
Brinker B, Ed (1995) “Emerging practices in cost management” Boston, MA: Warren, Gorham and Lamont.
Burns W (1992) “Performance measurement, evaluation and Incentives”: Boston Harvard Business School Press.
Cooper R, Kaplan R (1999) “The design of cost management systems”. Upper Saddle River, NJ: Prentice Hall.
Deakin E, Maher M, Cappel J, (1988) “Contemporary literature in cost accounting” Homewood IL Richard D Irwin.
Howell R, Shank J, Soucy, Fisher J, (1992) “Cost management for tomorrow: Seeking the competitive edge” Morristown NJ:
Financial executives research foundation.
Klammer T (1994) “Managing Strategic and Capital Investment Decisions” Burr Ridge, IL: Irwin and IMA.
Dr Ashish Varma
Assistant Prof Accounting and Finance
IMT Ghaziabad.
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
“Service Quality of Tourism
Industry Based on
Customer Satisfaction and
Expectation – An Evaluation
of Tourism in Mysore”
H.N. Ramesh and Poolad Daneshvar
This research deals with the concept of service quality and has demonstrated the model
of service quality gaps; it aims to measure tourists’ gap between satisfaction levels of
interpretation of services and their preferences of the interpretive service in Mysore. The
research questions are utilized to measure the gap between expectation and satisfaction
levels of tourists about Mysore. For this purpose a questionnaire with five-point Likert
scale is applied to measure customer satisfaction. Data was obtained from 100 respondents
and analyzed using SPSS software by employing factor analysis and multiple regressions.
Results indicate that there are significant differences between overall expectations and
satisfaction levels of tourists. For practitioners, it is worth noting that International
tourists are exclusively concerned with the value for money services, while Indian tourists
regard security and safety, as important factors for them to stay or revisit Mysore. The
article contains material relevant to the tourism industry, and implementable solutions
are sufficiently suggested.
Key Words: Satisfaction, Expectation, Service Quality, Gap model Mysore
Because of people’s inclination to seek out something new, including that
of traditional cultures, heritage tourism has become a major “new” area of
tourism demand, which almost all policy–makers are now aware of and are
anxious to develop. Heritage tourism, as a part of the broader category of
“cultural tourism”, is now a major pillar of the nascent tourism strategy of
many countries. Cultural/heritage tourism strategies in various countries
have common major growth area; which can be used to boost local culture,
and can aid the seasonal and geographic spread of tourism (Richards, 1996).
Cultural/heritage tourism is the fastest growing segment of the tourism
industry because there is a trend towards an increased specialization among
tourists. This trend is evident in the rise in the volume of tourists who seek
“You’ll never have a
product or price
advantage again.
They can be easily
duplicated, but a
strong customer
service culture can’t
be copied.”
- Jerry Fritz
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
adventure, culture, history, archaeology and interaction
with local people (Hollinshead, 1993).
Cultural and heritage tourism comprises important
sectors of global tourism (Richards, 2000; Silberberg,
1995). According to the World Tourism Organization
(WTO), 37 percent of international tourism is culturally
motivated, and the demand is estimated to be growing
at 15 percent annually (Richards, 2000).One of the
major attractions for international tourists to India is
to visit rich heritage sites; which are considered to be a
major activity of cultural tourism. Recent studies about
cultural/heritage tourism have focused on identifying
the characteristics, development, and management of
cultural/heritage tourism, as well as on investigating
demographic and travel behavior characteristics of
tourists who visit cultural/heritage destinations.
Silberberg (1995) found a common pattern of cultural/
heritage tourists by analyzing age, gender, income, and
educational level. The study also showed cultural/
heritage tourists’ demographic and travel behavior
characteristics in order to help tourism marketers to
better their understanding of customers. Further,
because there have been few studies that identify the
relationship between cultural/heritage destination
attributes and tourists’ perception, this study focused
on attributes which satisfy tourists who visit cultural/
heritage destinations in order to help tourism planners
develop strategies to attract customers.
1. About Mysore
After the reign of Haidar Ali and Tipu Sultan in the
late 18th century the Wodeyar dynasty came back into
power and ruled the Kingdom of Mysore, which was
the capital till India’s independence in 1947 and the
removal of princely state in about 1950. The Wodeyars
were patrons of art and culture and have contributed
significantly to the cultural growth of the city, which
has led to Mysore earning the sobriquet Cultural capital
of Karnataka.
Mysore is located at 12.30° N 76.65° E and has an
average altitude of 770 meters above m.s.l (2,526 ft)
.It is situated in the southern region of the state of
Karnataka, at the base of the Chamundi Hills and
spreads across an area of 128.42 km² (50 sq mi). Mysore
has never failed to mesmerize the tourists with its
quaint charm, rich heritage, magnificent palaces,
beautifully laid-out gardens, imposing buildings, broad
shady avenues and sacred temples. Some of the
prominent places of tourist interest in Mysore are the
1. The palace
2. Chamundi Hill
3. Zoo
4. St. Philomena’s Church
5. Krishnarajasagar Dam and the adjoining
Brindavan Gardens
6. Tipu’s palace in Srirangapatna and tomb Gombaz
7. Ranganatha Bird Sanctuary in srirangapatna
2.1. Cultural/Heritage Destination
The study attempts to identify cultural/heritage
destination attributes which satisfy tourists when they
visit these destinations. Therefore, after investigating
previous research related to this topic, the researcher
decided to select several of cultural/heritage attributes
Andersen, Prentice and Guerin (1997) investigated the
cultural tourism of Denmark. They chose several
attributes, such as historical buildings, museums,
galleries, theaters, festivals and events, shopping, food,
palaces, famous people (writers…), castles, sports, and
old towns. They identified the important attributes as
being castles, gardens, museums, and historical
buildings, when tourists made a decision to visit
Richards (1996) showed the marketing and
development of European cultural tourism. He chose
several attributes related to cultural/heritage
destinations in order to analyze European cultural
tourism. Through analyzing these attributes, this article
indicated a rapid increase in both the production and
consumption of heritage attractions.
Glasson (1994) argued the impacts of cultural/heritage
tourism and management responses through an
overview of the characteristics of tourists to Oxford
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
in England. This article highlighted the varying
perspectives and dimensions of impacts on and tourist
capacity of the city. Peleggi (1996) assert the relevance
of Thailand’s heritage attractions to both international
and domestic tourism, including an analysis of the state
tourism agency’s promotion of heritage and the
ideological implications of heritage sightseeing in
relation to the official historical narrative. This research
introduced several attributes, such as traditional villages,
monuments, museums, and temples. Philip (1993)
distinguished black-white racial differences in the
perceived attractiveness of cultural/heritage tourism.
The article surveyed a Southern metropolitan area and
chose various attributes. The research concluded that
white tourists were more interested in cultural/heritage
destinations than black tourists.
In addition to the research argued above, many other
researchers have studied cultural/heritage destination
attributes. For example, Sofield & Li (1998) studied
the cultural tourism of China by selecting history,
culture, traditional festivals, historical events, beautiful
scenic heritage, historical sites, architecture, folk arts
(music, dancing, craft work) and folk culture villages
as the attributes of significance. Janiskee (1996) focused
on the importance of events through several attributes
such as festivals, historic houses, traditional ceremonies,
music, dancing, craftwork, food, and the direct
experience of traditional life.
The following table illustrates not only the attributes
of previous studies about cultural/heritage tourism,
but also the attributes identified for the purpose of
this study. The 25 selected attributes are based on
previous studies, which were similar to this study. These
attributes include cultural/heritage attributes as well
as infrastructure attributes, such as food, shopping
places, accommodations, etc.
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
2.2. Tourists’ Satisfaction
Tourist satisfaction is important to successful
destination marketing because it influences the choice
of destination, the consumption of products and
services, and the decision to return (Kozrak &
Rimmington, 2000). Several researchers have studied
customer satisfaction and provided theories about
tourism (Bramwell, 1998; Bowen, 2001). For example,
Parasiraman, Zeithaml, and Berry’s (1985) expectation-
perception gap model, Oliver’s expectancy–
disconfirmation theory (Pizam and Milman, 1993),
Pizam and some studies on customer satisfaction are
also notable in tourism behavior research. For example,
Pizam, Neumann and Reichel (1978) studied the factor
structure of tourists’ satisfaction with their destination
Chon and Olsen (1991) found out a goodness of fit
correlation between tourists’ expectations about their
destination, and tourists’ satisfaction. Then, after
tourists have bought the travel service and products,
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
if the evaluation of their experience of the travel
product is better than their expectations, they will be
satisfied with their travel experience. Furthermore,
Chon and Olsen (1991) provided an intensive literature
review of tourist satisfaction. One thing to be noted,
however, is that although the posited social cognition
theory offers an alternative way of explaining
satisfaction processes, its methodological mechanism
is analogous to that of expectancy–disconfirmation
theory. In other words, the concepts of congruity and
incongruity can be interpreted similarly to the concepts
of confirmation and disconfirmation, both of which
can result in either positive or negative directions.
Kozak and Rimington (2000) examined the findings
of a study to determine destination attributes critical
to the overall satisfaction levels of tourists. Pizam,
Neumann, and Reichel (1978) found that it is important
to measure consumer satisfaction with each attribute
of the destination, because consumer dis/satisfaction
with one of the attributes leads to dis/satisfaction with
the overall destination. Rust, Zahorik, and Keininghan
(1993) assert that the relative importance of each
attribute to the overall impression should be
investigated because dis/satisfaction can be the result
of evaluating various positive and negative experiences.
2.3. Gaps Model of Service Quality
The widespread adoption of service quality concept
and the close attention of the service firm managers
to this concept motivate the researchers to explore
more solid methods for service quality measurements
and the evaluation of it (e.g. Parasuraman et al., 1988;
Dabholkar et al. 1996; Brady and Cronin, 2001). For
this aim, gap theory is the most accepted model in the
service literature (Brown and Bond, 1995), although
some criticisms about its validity are also discussed by
researchers (e.g. Teas 1993).
The gaps model positions the key concepts, strategies
and decisions in services marketing in a manner that
begins with the customer and builds the organization.
Tasks around what is needed to close the gap between
customer expectations and perceptions (Zeithaml and
Bitner, 1996). Not knowing what customers expect
(Gap1), not selecting the right service designs and
standards (Gap 2), not delivering to service standards
(Gap 3),and not matching performance to promises
(Gap4), are the underlying causes behind the customer
gap (Gap 5). Among these five service quality gaps,
the customer gap is the most vital point to consider.
The major aim of the gaps model is to analyze the
difference between customer expectations and
perceptions (see exhibit 1). To increase customer
satisfaction, firms first need appropriate measurement
techniques for measuring and evaluating the gap
between expectations and perceptions. After receiving
the service, customers compare the performance
of the service provider with their expectations
which are mainly influenced by word of mouth,
personal needs and past experience. In most of the
service settings, however, customers may not get the
service level they expected before the service
experience. The performance of the service provider
falls either below customer’s expectations or above
them. When expectations are high, service is perceived
to be of exceptional quality and also to be a pleasant
surprise. When expectations are not met, service quality
is deemed unacceptable. When expectations are
confirmed by perceived service, quality is satisfactory.
However, quality, which falls short of expectations,
has a greater effect on customer satisfaction than
quality which exceeds satisfaction (Zeithaml and Bitner,
1996). In the services sector, being different has a
special advantage among rivals who offer similar goods
and services (Fitzsimmons and Fitzsimmons, 1994).
3. Purpose of the Study
The purpose of this study is to evaluate tourists’ gap
between satisfaction levels of interpretation services
and their preferences for the interpretive service in a
single tourist destination, Mysore city. Specifically, this
study attempts to examine the effectiveness of
interpretation services and to determine if the
interpretive services provided by the Mysore city meet
the needs of the general public.
4. Methodology
4.1. Sample
The sample population for this research comprised of
tourists who visited Mysore in March and April, of
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
2008. The survey was conducted over a 3-week period
at five different places that are frequently visited in
Mysore. Distribution of questionnaires was carried out
only during the daytime between 11 A.M. and 4 P.M.
Respondents were approached and informed about the
purpose of the survey in advance before they were
given the questionnaire.
Respondents under the age of 18 were excluded.
Personal observations revealed that tourists who were
age 18 or older visit cultural/heritage destinations either
individually or with their friends or families as groups.
A total sample size of 100 was completed.
4.2. The instrument
The data collection instrument consisted of a two part
self-administered questionnaire. The first section of
the questionnaire was to measure the guests’
expectation and satisfaction of service quality in
Mysore city. Respondents were asked to indicate the
level of perceptions based on a Likert scale from one
(very low) to five (very high). The second part of the
questionnaire was designed to capture the demographic
and traveling characteristics of respondents. SPSS 11.0
for windows was employed in order to access the
particular results required for the scale measurement.
Descriptive analysis such as means, standard deviation
and frequencies were calculated. Reliability of the scale
was tested, dimensionality of the scale was confirmed
through an exploratory factor analysis and regression
analysis produced causal results.
4.3. The sample population
The target population of the study consisted of all
the international and domestic tourists (n = 100) who
stayed in Mysore city.
5. Hypothesis
1. There is no difference between tourists’
expectation and satisfaction toward interpretation
2. There is no correlation between overall tourist’s
satisfaction and attributes.
3. Few factors best predict overall satisfaction of the
tourist’s satisfaction.
6. Discussion and Results
6.1. Demographic Characteristics of the
The demographic characteristics of the respondents
are shown in (see exhibit 1). The gender distribution
of the respondents was quite even, with 27% female
respondents and 73% male respondents. The dominant
age group of the respondents was 25 to 35 years (39%),
followed by 35 to 45 years (34%), less than 25 years
(17%), and 45 to 55 (6%), whereas above 55 years (4%)
made up the smallest group, representing 4% of the
In terms of the level of education, almost 56% of the
respondents had a post graduate education, 32% of
the respondents had a university education level; and
5% of the respondents had a secondary school
education. No respondent in the research study was at
the primary level or below. The result shows the
relatively high educational attainment of the
respondents. With regard to occupation, the most often
mentioned occupations were “Business” (30%) and
“Student” (29%). Followed by “Salaried” (19%),
“Professional” (18%) and “Others” (4%).
With regard to respondents’ monthly income, the
largest group included those with an annual household
income of US $2000 or below (75%), and 4.8% of
the respondents had an annual household income of
US $2001or above (see exhibit 1).
6.2. Expectation and Perception Gaps by
Underlying Dimensions
The concept of measuring the difference between
expectations and perceptions in the form of the
SERVQUAL gap score proved very useful for assessing
levels of service quality (Shahin A, 2005). Exhibit 2
shows that the average ratings for expectations are
higher than the average perception ratings in almost
of the attributes. The results of the quantitative
application of the SERVQUAL model in tourism
industry show that the overall expectations of hotel
guests are higher than their perception. This proves
the existence of a negative SERVQUAL gap (-2.81).
In order to measure the gaps between the expected
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
and perceived service levels (Gap 5), that 16 major
tourism service dimensions was grouped. Then, to
assess the significance difference of the arithmetic
means for each dimension, pair wise t-tests were
performed between expectation and perception scores
at 95 per cent confidence level. According to the results,
mean differences between the expected and perceived
service levels regarding all of the 16 dimensions, 13
dimensions were statistically significant (see exhibit 2).
This demonstrated to us that there were service quality
gaps in 13 service categories. Further study of the
paired differences in Table 2 also showed that the
widest negative gap was in the PRICE of services,
followed by the QUIETNESS and INFORMATION
AVAILABILITY services. On the other hand there
was the widest positive gap in the FOOD services,
followed by the CATERING services.
These results revealed reject for hypothesis 1 that there
is a difference between tourists’ expectation and
satisfaction of the selected cultural/heritage attributes.
6.3. Correlation Analysis
A correlation coefficient measured the strength of a
linear between two variables. In the study, a correlation
coefficient measured the strength of a linear between
the overall satisfaction of the respondents and six
factors (Safety, Price, Hygiene, Food, Quietness and
Accommodation). The correlations between overall
satisfaction and six factors were positive and were
significant at the 0.01 and 0.05 levels. For example,
the correlation between overall satisfaction and Safety
(Factor 1) was 0.446 (p=.000); the correlation between
overall satisfaction and Price (Factor 2) was 0.447
(p=.000); the correlation between overall satisfaction
and Hygiene (Factor 3) was 0.265 (p=.008); the
correlation between overall satisfaction and Food
(Factor 4) was 0.371 (p=.000); the correlation between
overall satisfaction and Quietness (Factor 5) was 0.204
(p=.042), and the correlation between overall
satisfaction and the Accommodation (Factor 5) was
0.366 (p=.000)(exhibit 3). Therefore, the study
indicated that the correlations between overall
satisfaction and Safety or Price were higher than that
between overall satisfaction and Hygiene, Food,
Quietness and Accommodation Factor.
These results revealed reject for hypothesis 2 that there
is correlation between overall satisfaction and the
selected cultural/heritage attributes.
6.4. Stepwise Multiple Regression
In Model 1 (see exhibit 4), when a single independent
variable (X1 = Price) was used to calculate the
regression equation for predicting the dependent
variable, overall tourists satisfaction (Y), the correlation
coefficient R was 0.447, representing 44.7% degree
of association of Y and X1. The coefficient of
determination (R2) indicates the percentage of total
variation of Y explained by X1. Using the value of X1
reduces the error of predicting the dependent variable
by 19.9%. The standard error of estimate represents
the standard deviation of the actual dependent values
around the regression lines. The standard error was
With the addition of another dependent variable into
the model, Safety (X2) increased R, and R2 (0.579 and
0.335), respectively. The standard error also declined
with the addition of X2. Model 3 further added another
variable called Accommodation (X3) into the equation
which further improved the capability of the model
to explain the variation in Y, Accommodation (X3)
increased R, and R2 (0.647 and 0.419), respectively.
Model 4 further added another variable called Food
(X4) into the equation which further improved the
capability of the model to explain the variation in Y,
Food (X4) increased R, and R2 (0.703 and 0.494),
respectively. The adjusted R-square (0.472) in Table 4
tells us that the model accounts for 47.2% of variance
in the Food. In other words this model can predict
service quality almost 47.2%correctly. As a result Price
factor (R=0.447) has 19.1% contribution, further
Safety and Accommodation and Food factors along
with Price have 32.1%, 40.1% and 47.2% contribution
to improve the service quality of Mysore tourism
industry, respectively. In addition, 53.8% of improving
factors are unaccounted and unexplained. These
factors can relate to tourist behavior to purchase the
services and marketing strategy of KSTDC in Mysore.
These results revealed support for hypothesis 3 that
there are few factors best predict overall satisfaction
of the tourist’s satisfaction. The results of the present
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
study have a number of practical implications for
Karnataka State Tourism Development Corporation
(KSTDC) managers who are seeking to identify the
customer satisfaction level of international as well as
domestic customers. The research on measuring
service quality has focused primarily on how to meet
or exceed the external tourist’s expectations, and has
viewed service quality as a measure of how the
delivered service level matches tourist’s expectations.
Parasuraman et al., argue that, with minor modification,
SERVQUAL can be adapted to any service
organization. They further argue that information on
service quality gaps can help managers diagnose where
performance improvement can best be targeted. The
largest negative gaps, combined with assessment of
where expectations are highest, facilitate prioritization
of performance improvement. Equally, if gap scores
in some aspects of service do turn out to be positive,
implying expectations are actually not just being met
but exceeded, then this allows managers to review
whether they may be “over-supplying” this particular
feature of the service and whether there is potential
for re-deployment of resources into features which
are underperforming.
It seems that in almost all the existing resources, the
SERVQUAL approach has been used only for closing
Gap 5. However, its application could also be extended
to the analysis of other gaps. It is important to note
that SERVQUAL is only one of the instruments used
in service quality analysis and there are different
approaches which might be stronger in closing gaps
(Shahin A, 2005). For this purpose, Karnataka State
Tourism Development Corporation (KSTDC) should
pay attention to four factors -Price, Safety,
Accommodation and Food- to enhance the service
quality in tourism industry in Mysore. Concerning
Table 4, the mentioned factors contribute 47.2% to
improvement of quality of tourism service; on the
other hand KSTDC should conduct research to know
about tourist expectation level about infrastructure of
Mysore and establish a proper feedback system to
evaluate the tourist’s expectation and perception about
Furthermore, to enhance safety and security of Mysore
the Police can help to improve the quality of service
in Mysore. Finally, KSTDC managers should ensure
that employees are well trained and understand the
level of service needed to provide for their customers.
KSTDC also should give customers the opportunity
to talk about both their positive as well as negative
experiences in Mysore. Employees should be able to
show adequate personal attention to customers.
Ensuring that employees are well trained, and giving
attention to other factors that are required for the
provision of a high level of service quality might incur
increased costs, but will provide improved customer
satisfaction. The allocation of financial resources for
the human resource applications will equip employees
with a better understanding of excellent.
7. Conclusion
Success in tourist business depends on understanding
the key factors in determining customer satisfaction.
As KSTDC continue to compete intensely for a larger
market share, effective marketing strategies are essential
to target both Indian and International travelers. This
can be achieved by satisfying them during their first
visit and prolonging their stay in order to develop
customer loyalty and thereby building up the desire to
revisit Mysore.
The article reported that service quality is indeed an
important driver of customer retention. Where price
and safety perceptions are poor, there is potential for
improving service quality to a significant increase in
rate of retention. However, where negative price
perceptions are associated with high service quality
perceptions, service quality alone will be inadequate
to retain customers.
The differences and similarities in tourists attribute
evaluation and customer satisfaction has been
highlighted. Hospitality factor is the most influential
factor in determining the satisfaction level for both
Indian and International travelers that will lead to
revisit. International tourists are more concerned with
value for money services, while Indian tourists perceive
security and safety as major factors (see table 5).
Further, the innovation and value-added services is the
least important factor to both Indian and International
tourists in this study.
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
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Dr. H.N.Ramesh, MBA., Ph.D.,
Director , Kuvempu University, PG Center, B.H Kadur ,Karnataka
Poolad Daneshvar
Research Scholar, Department of Business Administration, University of Mysore
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
Ramesh & Daneshvar • NSB Management Review • Volume 2 • No. 2 • February 2010
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
Coffee Cafés: A retail story
Sujata Shahi and Monica Mor
The retail sector is an evolving sector, and the growth rate being very attractive has
encouraged multiple players to become a part of the retail bandwagon. One of the sectors
which are in the growth phase of the product life cycle is the restaurant and coffee chains.
Having witnessed the success of Starbucks and Costa Coffee in the international market,
people in India did get enthused about the concept and soon with the advent of modern
style coffee formats, a new recreation arena was discovered by the general public. Café
Coffee Day being the pioneer did have a first mover advantage; however the market is
now getting crowded with many such players storming in. Sometimes a first mover advantage
may not cultivate itself into a lifetime advantage, and therefore companies have to be
dynamic and flexible enough to adapt to changing tastes. This research paper delves into
this sector and looks into the existing players and analyses some of their strategies which
can be reworked in the long run.
Key Words: Coffee chains, changing tastes, strategy, adapt, competition
Hot beverages have always been a part of the tradition of India, especially
South India. Coffee was introduced to India by the Britishers and the drink
was confined to rich families. Over time the popularity of this drink grew
and penetrated almost every house hold in South India. In order to spread
the drink, coffee houses emerged at various places in the country, which
also began to serve as meeting joints for intellectual minds. One of the
oldest coffee houses in South India is the Raayars Mess in Chennai,
established in 1940. From then till now we have been witness to spread of
coffee houses all over India as standalone coffee joints or coffee shops
within hotels. In fact now it comes under retail sector with the opening of
retail cafe chains like Costa Coffee, Cafe Coffee Day and Barista. Cafe
Coffee Day (hereon referred to as CCD), in fact pioneered the cafe concept
in India in 1996 by opening the first cafe in Brigade Road in Bangalore.
With a major part of people in India being traditional tea lovers, the average
coffee consumption in India was quite low at 10 cups per person annually.
However, in the late 1990s, a silent coffee revolution was sweeping urban
India. Coffee drinking was increasingly becoming a statement of the young
and upwardly mobile Indians. Coffee bars, an unheard concept till the
mid-1990s had become big business. There was a transition from the
“There are two modes
of establishing our
reputation: to be
praised by honest
men, and to be abused
by rogues. It is best,
however, to secure the
former, because it will
invariably be
accompanied by the
- Charles Caleb Colton
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
conventional and outdated coffee house to more
sophisticated and trendy coffee bar chains like Barista
and Café Coffee Day. There are a few other players
like the Quikys and the Nescafe parlours. By the turn
of 20th century, non-traditional coffee retailing outlets
like coffee bar chains, coffee vending machines and
specialty coffee powder shops succeeded in making
coffee one of the most desirable beverages in urban
India. The coffee parlours were an instant hit across
all major metros and cities in India, as they offered an
entirely new experience to customers. From a handful
of cafes in six cities, according to their website, CCD
has become India’s largest and premier retail chain of
cafes with 833 cafes in 118 cities around the country.
The second success story is that of Barista Lavazza
which according to their website, claim to own 220
units in over 30 cities.
Economic growth and higher disposable income are 2
key forces driving the coffee retail market. The key
contributors are a large young population and increased
urbanization in India. The young India is redefining
its value system. With over 50 percent of the
population in India under the age-group of 25 years,
there are growing aspirations and higher spends on
lifestyle. The outcome is a complete transformation
which is majorly because of access to higher disposable
incomes due to vastly enhanced job opportunities. A
rapid growth in the ‘very rich’ and ‘consuming class’
has resulted in an increasing propensity and willingness
to consume. This makes the café segment as the fastest
growing part of the restaurant business.
Our research is about such Coffee Cafes or Coffee
Shops and how this sector is showing tremendous
growth rates and, where we see it positioned in the
India Growth story.
2. Strategy for growth
2.1 Aspects of strategy
While analysing the strategy for growth of the Coffee
cafes we shall focus on aspects of marketing strategies
adopted by coffee cafes. Marketing usually encapsulates
the 7Ps and Brand development. Since the focus of
this research paper is narrow, an analysis based on all
the above factors would be beyond the scope of our
research paper. Our focus would be on a few critical
aspects within the service and retail industry. We would
be looking at those few perspectives that help these
coffee chains to sustain the increasing competition.
We would be bringing in the perspective from
consumers’ point of view. Hence our analysis would
be based on primary survey conducted majorly using
questionnaires and thereafter we shall try to put forth
our views on strategies for the near future for retail
cafe chains.
2.2 Research methodology
This is a descriptive research design with the objective
to understand the impact of existing strategies of
coffee retail chains on consumers. We would then be
giving our comments on the various strategies along
with our recommendations. We are limiting ourselves
to qualitative research. For the purpose of this research
paper we have prepared a questionnaire which was
validated with the help of a pilot test conducted on 20
people. Our sample of respondents was selected
randomly and comprised people between the age group
of 15 – 60, a bulk of which is the target market segment
for all coffee cafes.
As a part of primary research we would also be using
observational analysis. In addition to primary data
collected using qualitative tools we would also be using
secondary data collected from journals, magazines,
newspapers and internet sites.
Our research is limited to the National Capital Region
including only the prime business districts in New
Delhi, Gurgaon and Noida.
2.3 A brief insight into existing coffee chains
and emerging café formats
Barista entered the Indian coffee retailing market in
2000 and decided to position itself as a lifestyle brand.
The company targeted the premium segment youth,
as it realized that it wasn’t only coffee that its target
segment was looking for, but also for a place to hang
around comfortably, where they could be themselves
and do whatever they wanted, such as reading a book,
writing a letter, or simply chilling out. Hence, it
recreated the ambience and experience of the typical
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
Italian neighbourhood espresso bars in India, with
bright, trendy and comfortable interiors. It promoted
a social and interactive environment, where one can
play games like chess and scrabble, read books, listen
to music, enjoy arts, surf the Net and sip an Espresso
Italian, or Iced Café Mocha. Fun posters, message
boards and TV screens with music videos, all set the
right mood. An open kitchen behind the bar enables
one to watch the coffee actually being made.
To ensure superior quality of its product offerings,
Barista used only top grade Arabica beans to make
coffee and also invited brew masters from Italy to
create new blends. The employee orientation program
at Barista specially focused on enabling the team to
understand and avoid the attitudes and behaviours in
traditional restaurants that restrain customer from
being himself/herself.
Since 2002, as a part of differentiating its services,
Barista began offering Italian food at its outlets and
also entered into tie – ups with Planet M, Crossword
and Ebony to set up Espresso Corners at these places.
During this period, to expand the reach of its services,
the company also opened outlets in banks (ABN –
Amro), movie theatres (PVR in Delhi), offices (HSBC
and GE), airports and in hotels. Beside the Indian
subcontinent Barista Lavazza also has cafes in locations
across Sri Lanka, Dubai and Oman.
Café Coffee Day is a division of India’s largest coffee
conglomerate, Amalgamated Bean Coffee Trading
Company Ltd. (ABCTCL), popularly known as Coffee
Day, a Rs. 750 core ISO 9002 certified company. Coffee
Day sources coffee from 5000 acres of coffee estates,
the 2nd largest in Asia, that is owned by a sister concern
and from 11,000 small growers. It is one of India’s
leading coffee exporters with clients across USA,
Europe & Japan. Coffee Day has its business spanning
the entire value chain of coffee consumption in India.
Its different divisions include: Coffee Day Fresh n
Ground (which owns 400 Coffee bean and powder
retail outlets), Coffee Day Xpress (which owns 895
Coffee Day Kiosk, a lot of them inside offices and
colleges), Coffee Day Take away (which owns 12000
Vending Machines), Coffee Day Exports and Coffee
Day Perfect (FMCG Packaged Coffee) division.
Enthused by the success of offering a world-class
coffee experience, CCD has opened a Café in Vienna,
Austria and is planning to open other Cafes in the
Middle East, Eastern Europe, Eurasia, Egypt and
South East Asia in the coming months. CCDs different
café formats include Music Café, Book Café, Highway
Cafes, Lounge Cafes, Garden Cafes and Cyber Cafes.
CCD indulges in a lot of promotional activities like
teeing with production houses for using CCD outlets
in their movies and also tieing up with advertisement
agencies for using their products in their photo shoots.
Nescafe popularized the coffee kiosk concept in India,
where it offered coffee through its vending machines.
Nestle installed hundreds of Nescafe kiosks at places
such as shopping malls, cinema halls, food centres and
office buildings. Its vending machines came in different
sizes and styles to match the needs of consumers at
different locations. For instance Nestlé’s high capacity
multi task vending machines provided snacks, drinks
and confectionery items. The kiosk model enabled
consumers to have hot coffee instantly, whether they
were shopping or at office, just by the click of buttons.
Most offices buy the Nescafe vending machines to
provide their employees with free coffee.
3. Existing Strategy
Under the broad spectrum of marketing, in this
research we have done an analysis of the strategy which
is followed by Coffee chains for making not just coffee
a chosen beverage but also integrating experience
marketing very closely with the Physical evidence,
location, sustainable competitive advantage and People.
For the Coffee Chains the strategies that they followed
was done keeping in mind the changing tastes and
changing demographics of the urban Indian. India has
one of the youngest populations in the world with 66%
(around 70 million) below the age of 35 years. 56.7%
below 25 years and 46.7% below the age of 20. By
2020 it is estimated that 61% of Indians (about 790
million) will be less than 35 years of age. This trend
implies that the world’s youngest Indian workforce and
student community shall spur consumption levels
offering tremendous opportunities to retail business.
We can thereby imagine the ramifications on food
retailing as well, including coffee shops. The McKinsey
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
Global Institute points out that with a ten-fold increase
in the country’s middle class population and a three-
fold jump in household income, the Indian consumer’s
per capita per head expenditure will increase, and food
and beverages form a significant part of that increase.
New market segments have emerged which have given
an enthusiastic response to coffee shops. These new
target groups that emerged as coffee drinkers were not
really the traditional hot beverage consumers but were
the ones on the lookout for “hanging out” joints. A
“hanging out joint” can be defined as a place within
controlled temperature environs; nice and soft lighting
and music, comfortable seating and decent food items
to munch while spending time with friends, family &
office colleagues. Our research helped us categorise
this consumer segment broadly into:
age group 16 – 25 years : school and college going:
who were getting pocket money from parents and
having a group of friends interested in spending
time away from home
age group 22 – 25 years : working in BPOs and
call centres: who were earning a decent amount,
were without any liabilities and had enough
disposable income to splurge on outings
age group 26 years and above: young executives
who often went out with office colleagues during
working hours and with friends on weekends
age group 50 – 65 years: old shoppers: who are
found shopping in malls and take a break from
Ladies: age group 30 – 45: working women and
home makers who step out when kids and
husbands are away.
The last two segments have been late additions and
where not typically segments being looked upon by
the coffee chains as a potent segment. The changing
living patterns in urban areas have thrown these two
unexpected consumer segments. We are witness to an
increasing number of senior citizens staying on their
own away from their children, enjoying their retired
lives and having money which can be spent on desirous
consumptions. This segment usually feels safe watching
movies and shopping in malls and is often seen taking
a break in Baristas and CCDs. Then again the segment
mentioned in the end comprising women who are not
working and often go out shopping in groups, are
found spending time in such coffee cafes. There is also
a significant number of women of other nationalities
who are without occupation in India and are in India
to be with their expat husbands. With not much gainful
employment we observed plenty of such women
lounging in cafes and enjoying the company of other
expat wives.
The so called young coffee drinking generation is not
just on the lookout for fun but also since they are paying
quite a sum, want sumptuous snacks with their
beverage (cool or hot). The behaviour of consumers
inside the cafe is dependent on plenty of factors
surrounding them like the crowd around them, the
types of beverages available, the seating areas and its
capacity, and of course the pricing which has to be
within the affordable range. Having understood the
demographics of the existing and new target
consumers the Coffee chains went about trying to
create the right mix of ambience, food and beverage
items, and staff. Let’s look into these aspects from a
consumer’s perspective.
3.1 Physical Evidence:
This in other words implies the ambience of the place.
In general the store layout and its design form the crux
of the look that the outlet wants to portray. In order
that customers enjoy a wholesome experience the cafe
needs to be designed with the following objectives:
the store’s atmosphere should be consistent with
the store’s image and strategy
the store’s design should help influence purchase
it should lead to increased productivity of the retail
it should enhance the experience of the customer
A number of factors need to be kept in mind while
deciding the layout of the coffee shop. Type and
amount of merchandise, location, floor pattern and
product display are some of the key factors that need
to be considered by the cafe. For instance in many
malls where Barista has opened its outlets they are
located in the middle of the atrium of the mall and
with seating space for just about 30-40 people at a time.
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
Ambience would include multiple things like
• seating
• lighting
music being played
colours on the walls
look & colour of furniture
display shelves
any form of tapestry or blinds used
the look of product menu card
placement of televisions, journals and magazines
display of logo and brand names
A combination of all of the above in the right dosage
would help support the customer’s memory of things
they wish to consume while having a nice time with
their companions. Just like any retail outlet a coffee
chain would also have to take decisions whether to
adopt an open format outlet or one within doors and
windows. Sometimes it’s a combination of both,
wherein we have seen coffee joints having placed
garden furniture on the frontage, as we saw for Cafe
Coffee Day in Grand mall in Gurgaon. In the MGF
mall and DT City Centre, Lavazza Barista has open
cafes in the open areas within the malls. The Costa
Coffee joint in Great India Place in Noida is in a closed
area but without any doors. In the Mega Mall in
Gurgaon, Cafe Coffee Day has a closed outlet, but
with glass doors and windows.
Since the first impression usually stimulates a customer
to walk into a cafe the look of the outlet is of prime
importance. Once they walk in they are enveloped by
the pleasant smell of coffee beans, the soft colours of
the walls and the furniture, and the beaconing glass
display shelves. This serves as a secondary stimulant
to customers who then wish to make themselves
comfortable with a hot/cool beverage and a sandwich/
pastry to munch on. Nowadays cafes are also looking
at keeping occupied those customers who do not come
in groups but in couples or alone. There are books
and magazines available, games like scrabble and chess
are provided, also few joints have put guitar inside their
outlets for any guitar lover to start strumming. While
exploring the human psyche plenty of strategies crop
up which help enhance the facilities provided by the
cafe. In India we still have a long way to go before we can even
trot the Starbucks way in terms of menu and customer service,
but we are moving along nevertheless.
Barista, since the beginning has looked to use colours
in the café interiors, logos and images; to project a
“warm, earth glow, synonymous with coffee”. Barista
uses shades of orange & brown to good effect to
promote its “laid-back” atmosphere. The logo is a
combination of brown, orange and light yellow; with
the word “Barista” written in an upward curve, and
the word “coffee” underneath. A simple logo that
perfectly expresses Barista’s brand image: A traditional
café for coffee lovers. Barista’s internal décor and
architecture expresses the simplicity you would
normally associate with traditional cafes. The furniture
is made of light shade wood, and there are comfortable
sofas in bigger cafes. The walls are shades of orange
with various photographs of the love for coffee spread
around each outlet.
3.2 Location:
CCD gets as they claim 3.9 million walk-ins every
month in all its cafes. This is definitely a big number
and can be possible only if the cafe is conveniently
located and looks welcoming enough. This brings us
to the very important aspect for every retail
organisation: Location, Location, Location.
Location becomes a critical factor for any retailer. A
bad location may cause a retailer to fail even if the
store’s strategic mix is excellent. On the other hand
sometimes a good location may work in the retailer’s
favour despite a mediocre strategic mix. Store location
however is the least flexible element in a retailer’s
strategic mix due to its fixed nature, the amount of
investment and the length of lease agreements. Even
when a lease provides easier exit option, a frequent
change in location is a high risk decision. Customers
may get irritated and frequent shifts leave an impression
of an unsuccessful store. It is therefore a big challenge
to decide upon a store location which would involve
decisions regarding the current and future catchment
area of the store and the exact site of the store. For
deciding on the store location, a retailer needs to assess
the geographical terrain of its trading area. This implies
a look into the infrastructure, economic activities and
housing pattern in that area. The economic prosperity
of an area can be gauged by the commercial and
industrial establishments in the area. Here we can
mention the corporate hub that NCR has become.
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
With the opening up of many business districts and
malls which have attracted many residential apartments
in the same area and with people moving into the
apartments and most of the office spaces having been
occupied, NCR has become prime property area and
therefore very lucrative for retailers to set up shop.
Density of population too has a direct impact on the
type, size and number of stores in a given area. In
Gurgaon especially, most of the population lives in
multi-unit housing facilities, so the trading areas tend
to be small, and usually cluttered within bigger units
like a mall. Hence there is the presence of several
shopping clusters which is manifested in the form of
a number of coffee cafes within the area of New
Gurgaon itself.
Airport retailing is another new option being looked
at by retailers in India, especially with the renovation
of the domestic and international Delhi airport there
has been in a spurt in this sector. A visit to the Delhi
airport is a very pleasant experience nowadays unlike
in the past. Along with other types of retail outlets,
coffee chops like Barista and Costa Coffee have also
opened their cafes there, and they do witness
substantial amount of walk-ins, what with the Delhi
airport being one of the most crowded this side of
the Atlantic.
During the course of our research we did not see too
many standalone cafes and therefore parking was not
one of their concerns. Most of these cafes are located
in shopping complexes, within a mall or in a business
district. Mocha is one such exception which usually
opens its branches in standalone formats. They
generally cater to young college-going crowd. Quite a
few CCD Express counters are seen in petrol pumps
and inside college cafeterias. Surprisingly both these
places do receive a significant foot fall despite their
relatively high prices compared to regular college
canteen rates and close by dhaba prices. Location inside
malls is probably a very profitable venture for most of
the franchisees. People while shopping or waiting for
an upcoming movie show tend to spend time in these
coffee cafes.
3.3 Building a sustainable competitive
Establishing a competitive advantage means that the
retailer in effect, builds a wall around its position in
the market. When the wall is high, it will be hard for
competitors to enter the market and compete for
retailer’s target customers. A few important
opportunities for retailers to develop sustainable
competitive advantages are (1) customer loyalty, (2)
unique merchandise, (3) vendor relations, (4) customer
service, and (5) human resources.
Let’s have a look at how these factors play an important
(1) Customer Loyalty: is considered as repeated
purchasing behaviour of consumer towards a store.
This would be reflected in repeat visits of customers
to the coffee shops to enjoy the experience again and
again. Plenty of customers who work, live or study in
an area usually throng the same café with friends and
family. In fact in marketing it’s said that half the work
is done if an organisation is able to retain its customers,
which in any case has become a difficult proposition.
Youngsters who study in Gurgaon institutes are often
found to be hanging around the cafes in their vicinity,
also executives and managers working in the Infinity
Tower area in Gurgaon are on a regular basis found
binging in the nearby Costa Coffee. We can safely
conclude, location often fosters customer loyalty
especially in the case of coffee shops.
(2) Unique merchandise: Products are critical to a
retail firm’s existence and profitability, and constitutes
goods, services, experience, etc.. Coffee shops have to
not only keep good stuff they also have to display them
well. The types of items that outlets like Barista and
CCD sell have to be such that they are different from
the kind of items sold at outlets like Haldiram,
Bikanerwala and other Indian snack joints. They have
to offer unique continental eateries which would also
suit the palate of Indian customers. They have hot as
well as cold items for sale like quiche and cold
sandwiches. Their beverages also fall in similar
categories like hot coffees and cool milk shakes. The
variety of different coffee drinks is increasing every
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
(3) Vendor relations: In order to avoid sales loss, a
retailer is generally interested in the assessment of a
supplier’s capacity to deliver ordered goods in time and
as per specifications. They are infact very particular
about parameters like quality and nil-defect delivery.
Since coffee shops are retailing perishable products
like sandwiches, patisseries and milk beverages they
have to be extremely cautious with the order
placements. For this reason usually they tie up with
reputed cake shops for their dessert items and keep
chillers for storage of milk and ice creams. For example,
Barista has a tie up with Taj Cake shop for all its dessert
items. For their coffee, the distribution of stock begins
from the coffee beans being sent abroad for roasting.
The roasting takes place in Venice, and the beans are
then supplied to the main warehouse in Delhi. Stock
is then distributed to the various regional warehouses,
and from there to the local warehouses.
(4) Customer service: Retail is a part of service sector.
This is largely due to the fact that today retailers operate
in a buyers’ market. We have all moved in from the
age of customer satisfaction to the age of customer
delight, where organisations are remodelling their
strategies around the customer and his needs, with the
aim of bringing him back and keeping him for life.
This is a very critical factor for coffee shops. The staff
in these coffee shops have to not only been adept at
their work but also respectful towards their guests. They
have to possess the right attitude while serving the
order to their customers and also while handling any
inconvenient experiences like a spilt coffee. Therefore
most of the coffee shops have certain standard
operating procedures which need to be followed by all
franchisees in any corner of this planet.
(5) Human Resource: Retailers operate in a unique
environment. The retail industry is characterised by
large number of inexperienced workers, who need to
put in long hours of work. Most of the time these
employees are in direct contact with customer and may
face irate and unreasonable customers. The people who
work in the front end are very important, as they are
the face of the organisation, for the customer. Their
attitude, behaviour, manners and product knowledge
plays a very important role in building long term
relations with the customers. In a coffee shop the
customers are in direct contact with the brewers and
the cashiers. Though most of these chains are self-
service, yet the interaction with the customer starts
from the entrance of the cafe itself. The employees
are usually trained by the organisation before they step
into the coffee shops to deal with customers and sell
their products. A customer who is looking forward to
a pleasant experience would be very particular about
almost everything and everyone in the café. Not only
do they want the best coffee but the expectation from
employees is also quite high. Being a part of the service
sector it therefore becomes very crucial for the cafes
to not let their guests feel uncomfortable. To ensure
this the staff is put through trainings for making the
various beverages along with soft skills trainings. While
the taste of a ‘café late’ cannot vary from one Barista to
another, similarly the employees are also made to wear
uniforms to ensure a commonality amongst all their
cafes. They are trained in linguistic skills so as to be
able to converse in Hindi and English equally well.
They are trained in areas like etiquette, cleanliness,
personal hygiene and order taking. Often there are
complexities in the orders placed by customers who
want say a special variant of coffee. The ability to
understand instructions and follow them depends upon
the skills of the brewer. We have seen that the variants
in India are kept largely simple to understand and
execute, unlike in Starbucks outlets outside India, where
the different items in a menu are quite complex to
The Human resource department plays a very
important role here. In Barista for instance, the boom
in growth has sparked of a greater need for more and
more human resources. This poses a challenge for
Barista to ensure that their employees all across the
country are well trained and provide consistent service
at every outlet. The average age of Barista employee
is 22. Most employees especially in the front end are
in the age group of 19 – 26. Barista currently opens a
new outlet somewhere in the country every 10-12 days.
The spurt of growth can only be successful if they
have the right people working for them. Staff is needed
primarily at the Counter Staff and Field Staff level.
Barista therefore maintains a very dynamic Recruitment
& selection process. To ensure consistent employee
performance, training & development policies are very
important. Barista has a set 14 days rigorous training
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
procedure for each employee, with training modules
customised to fit the professional needs of each
employee. In case of their brew masters, the training
programmes are drawn up and conducted by trainers
who have been trained by Italian brew masters. Barista
further splits its training into Induction Training for
new employees and Refresher Training which usually
happens every two months. These trainings revolve
majorly around Technical training and Soft skills
All the points mentioned above help in creating unique
experiences for guests which they cherish enough to
come back again and relive it. Coffee drinking is no
longer just about a cuppa, it’s much more and there
seems to be a growth curve ahead which shall propel
the coffee cafes to match that of the economy.
4. Research Findings
In our questionnaire which we had circulated we had
questions on choices of people on the various coffee
chains as well as their opinions on the various aspects
associated with these chains. A total of 100 respondents
were chosen randomly belonging to different age
groups in Gurgaon, Delhi and Noida office areas, malls
and shopping complexes. The respondents were asked
initial basic questions about their favourite cafes and
then had to fill up questions where we had used Rank
scale and Importance scale. This survey aims to get
hold of the reasons why people have started visiting
café shops and their reaction to various aspects like
the ambience, coffee, food items which are most
integral to their growth strategies.
On the question about the type of customers that
visit coffee shops from our sample about 50%
belonged to the youth category in the age group
16 – 25, as seen in Figure 1.
From amongst the various cafes like Costa Coffee,
Barista Lavazza and CCD, majority of the people
preferred Barista followed closely by Costa Coffee,
as seen in Figure 2. Interestingly café coffee Day
fared a third here.
Majority of the people as of now visit 2-3 times
in a month followed by frequent visits in a week,
as seen in Figure 3.
As clearly seen in Figure 5, the most important
factors for any coffee shop are Ambience and the
Quality of coffee.
From the other questions asked these are our
o While coffee (hot or cold) is the main reason
people enter a Barista or a CCD, other drinks
are equally popular like Smoothies and Granitas.
o People are quite comfortable with pricing of
most of the food items and drinks sold.
o Service by the employees is quite satisfactory
with the order taking and delivery being fairly
o People are also quite happy with the seating
o Response to staff behaviour is positive towards
their behaviour, manners and service provided.
However in terms of product knowledge, most
of the coffee shop employees were found
o Ambience aspects like lighting, furniture, décor
and comfort draw a satisfactory response,
however the cafes were found lacking in other
modes of entertainment like games, books and
the quality of music played within the café.
o Stock maintenance has not yet left the customers
unhappy, however the number of items on sales
are still quite less. The menu can be increased
o Most of the respondents have given an above
average ranking to the overall service and
experience in the cafes.
5. Conclusion
Our findings do point towards the growing brand
image of the coffee chains in India and their presence
in the Indian Retail sector is expected to grow with
the growth in the Indian economy. Backed by a strong
marketing team and an equally sound marketing
strategy, the coffee chains do have a bright future. A
few points did come out strongly in our research:
Improvements are needed in the training methods
of the front end employees, who are still found to
be quite shy in interacting with the guests in their
café. They definitely need to be more boisterous
and welcoming.
Training should also be in the direction of the
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
product knowledge. Plenty of consumers have
questioned the employees behind the cash counter
on the various accessories being sold by them, and
have not been satisfied by the answers given.
The cafes need to improve the menu spread not
only in the variety of eatables but also in the types
of coffee.
Quite a few respondents who have travelled abroad
or were expats, look forward to experiencing the
standards set by Starbucks both in terms of
services and the menu.
The coffee shops cannot afford to get complacent
looking at their increasing revenues; the fight for
market share is going to get bitter in the future.
Pricing as a factor needs to be relooked frequently,
as India is a price sensitive nation and bulk of the
consumers of coffee shops are school and college
going youngsters who survive on pocket money
given by parents.
Relooking at the ambience every few years might
remove the monotony set in having seen CCD and
Barista sporting the same colours since inception.
The new café formats that are emerging need to
be located such that the target customers find it
accessible and conveniently located.
An improvement in services is important by giving
due importance to people who are differently
abled, both as employees and as customers.
Although CCD has the largest number of cafes in
India, people are showing an increased rate of
boredom towards CCD. The company needs to
probably instil more dynamism inside their cafes
via menu, service and employees.
Adopting emarketing strategies like creating social
networking sites would probably increase the
connect with the youth target market which is very
internet savvy. Barista has started a community and
it seems it may help in reaching out to the net
friendly customer.
A sense of complacency cannot be allowed to set
in and new and exciting ways have to be created to
make the customer come back and ask for more.
Gearing up for the competition is the name of the
game. This industry is definitely on the upside and all
players have to foresee the future, with market
researches on consumer behaviour being the backbone
to any innovative offerings. Through our research using
the customers’ perception we did get an insight into
the way this sector functions and how modifications
can be brought about for future strategies so as to be
better equipped for competition onslaught.
Ackerman, D., Tellis, G., 2001. Can Culture Affect Prices? A Cross-Cultural Study of Shopping and Retail Prices. Journal of
retailing, 77, 57-82.
Bajaj, Tuli, Srivastava; “Retail Management”; Oxford Publication
Carpenter, J.M., Moore, M., 2006. Consumer Demographics, Store Attributes, and Retail Format Choice in the US Grocery
Market. International Journal of Retail and Distribution Management, 34 (6), 434-447.
Chang, C.H., Tu, C.Y., 2005. Exploring Store Image, Customer Satisfaction, and Customer
Choo, H.C., Chung, J.E., Pysarchik, D.T., 2004. Antecedents to New Food Product Purchasing Behaviour among Innovators
Groups in India. European Journal of Marketing, 38 (5/6), 608-625.
Dick, A.S., Basu, K., 1994. Customer Loyalty: Toward an Integrated Conceptual Framework Academy of Marketing Science
Journal, 22(2), 99-114.
Gwin, C.F., Gwin, C.R., 2003. Product Attributes Model: A Tool for Evaluating Brand Positioning. Journal of Marketing:
Theory and Practice. 11 (2), 30-42.
Huddleston, P., Whipple, J., VanAuken, A., 2004. Food Store Loyalty: Application of a Consumer Loyalty Framework.
Journal of Targeting, Measurement and Analysis for Marketing, 12 (3), 213-230
Levy, Pandit; “Retailing Management”; TataMcGrawHill Publication
Loyalty Relationship: Evidence from Taiwanese Hypermarket Industry. American Academy of Business, Cambridge, 7 (2),
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
Michelli Joseph; “The Starbucks Experience”; Tata McGraw Hill Publication
Pandit, Bitner, Zeithmal; “Services Marketing”, McGraw hill Publication
Pradhan, Swapna; “Retailing Management; Text and Cases”; McGraw Hill Publishing
Dr. Sujata Shahi
Associate Professor; OB & HR
IILM Institute for Higher Education
Monica Mor
Assistant Professor; Marketing
IILM Institute for Higher Education
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
Shahi & Mor • NSB Management Review • Volume 2 • No. 2 • February 2010
Gupta & Chakraborty • NSB Management Review • Volume 2 • No. 2 • February 2010
The Home Delivery System:
A Case of Mother Dairy
Vandana Gupta and Saheli Chakraborty
This case basically talks about one of the leading brand of the Dairy Industry in India
i.e. none other than Mother Dairy commissioned by The National Dairy Development
Board (NDDB).
Mother Dairy markets around 2.8 million liters of milk per day in the markets of
Delhi, Mumbai, Saurashtra, and Hyderabad.
The major competitor of Mother Dairy in the market is Amul.
The case deals with the major problems being faced by Mother Dairy. Mother Dairy
faces maximum challenge in maintaining the consistency of its milk taste which fluctuates
due to mixing of milk from different regions of India.
Another challenge being faced by Mother Dairy is retention of its customer. The shifting
of customers is not only due to the taste factor but also due to the intermediaries playing
an important role in so.
The problems resulting into decrease in sales.
The case discusses the existing Home Delivery System of Mother Dairy and its loopholes.
The case also tries to summarize the problems by providing it with some other alternatives
which could be well implemented to find a solution for the existing problems keeping in
mind the future perspective of the Company.
The Government of India launched a dairy development program popularly
known as “OPERATION FLOOD” from 1971-1996. The program was
unique in its approach. It was used to manufacture liquid milk and funds
which were generated were reinvested in rural areas in milk production
enhancement activities. This coordinated and innovative effort has greatly
increased milk production and resulted in a “White Revolution,” making
India the world’s largest milk producer.
“Next to doing the
right thing, the most
important thing is to
let people know you
are doing the right
- John D. Rockefeller
Gupta & Chakraborty • NSB Management Review • Volume 2 • No. 2 • February 2010
Company Profile
Mother Dairy is the largest brand of milk in India. It
markets about 2.8million liters of milk per day in the
markets of Delhi, Mumbai, Saurashtra, and Hyderabad.
At Mother Dairy, processing of milk is controlled by
process automation. The microprocessor technology
has been adopted to integrate and automate all the
functions of the milk processing areas to ensure high
product quality, reliability and safety. It is an IS/ISO-
9002, IS-15000 HACCP and IS-14001 EMS certified
organization. Its Quality Assurance Laboratory is
certified by National Accreditation Board for Testing
and Calibration Laboratory (NABL)-Department of
Science and Technology, Government of India
The National Dairy Development Board (NDDB) has
commissioned Mother Dairy in the first phase of
Operation Flood in 1974. As a result of the success
of Dairy industry NDDB established Fruit and
Vegetables Project in Delhi in 1998 with “SAFAL” as
the umbrella brand.
Mother Dairy has a market share of 66% in the
branded sector in Delhi where it sells 2.3 million liters
of milk daily.
It is Mother Dairy’s constant endeavor to:
(a) Ensure that milk producers and farmers regularly
and continually receive market prices by offering
quality milk, milk products and other food products
to consumers at competitive prices. To ensure this
it operates in such manner that the farmer gets
85% of the total cost of sales.
(b) Uphold institutional structures that empower milk
producers and farmers through processes that are
Home Delivery System of Mother Dairy
To reach the different part of the country and provide
people with their service Mother Dairy has launched
this Home Delivery mode of trade. With the help of
this system Mother Dairy delivers milk at the doorstep
Gupta & Chakraborty • NSB Management Review • Volume 2 • No. 2 • February 2010
of its customer. With the increase in professionalism
among the people this system has actually become very
popular among its customer. Mother Dairy with its
delivery system has impressed its customer with
Mother Dairy mainly follows three models of trade in
its home Delivery Process.
First Model of Trade:
In the first model of trade, the home delivery agents
collect the milk crates from the distributors and supply
them to different residential societies. The home
delivery agents charges a commission of 80p/lt. from
the company along with the service charges what they
charge from their customers for the service they are
Second Model of Trade:
In the second model of trade, the retailers collect the
milk crates from the distributor and supply them to
the residential societies. The retailers’ charges
commission from the company and they are also given
different types of available schemes by the company.
But the home delivery process carried forward by the
retailers themselves and the company has no role in it.
Third Model of Trade:
In the third model of trade, which is a rare model as
not in much use, the Mother Dairy milk booth agents
perform the home delivery of milk packets, which is
not much in practice. The milk booth agents receive a
commission of 20p/lt. from the company and the
home delivery service is sometimes practiced by them
but the company has no role in it. The milk booth
agents also earn a profit of Rs.1/day from the
customers as their service charges.
Problems as faced by Mother Dairy:
In the recent scenario Mother Dairy is facing problems
related to the sale of milk. Suddenly the milk sale has
gone down to a certain extent in some areas of trade.
The major reason behind is threat from its biggest
competitor Amul setting its foot on those areas. Mother
Dairy has seen certain shifting of customers to their
competitors’ brand. The local brands are also coming
into play and trying to capture certain part of the
One of the major problems being faced by Mother
Dairy is its taste problem. The reason behind is Mother
Dairy collects milk from various part of the country
and thus a huge variety of milk mixing takes place in
its respective plants. Thus, due to different sources of
milk the taste also varies from plant to plant. Mother
Dairy distributors does not always receive milk from
the same and a constant plant as the plants varies in its
production capacity and a particular plant may not be
able to satisfy the demand of the nearby area. Hence,
this diversification in taste which is not well accepted
by the customer. Variety in taste is sometimes perceived
by the customer as improper product quality which in
turn is followed by decrease in sale.
Whereas, Amul the competitor shows consistency in
taste as it collects milk mainly from the Gujarat region
without much of variety.
Another problem faced by Mother Dairy is the agents
of the target areas are basically keen on introducing
the new customers to Amul rather than Mother Dairy.
The reason behind so is majorly the taste complain
from the customers and also the quick and steady
replacement of the damaged or leaked packets from
Amul. Thus, the Mother Dairy home delivery agents
are not well satisfied with the organization. Although,
both Mother Dairy and Amul pays the same
commission i.e. 80p/lt. to its agents. But still Mother
Dairy is unable to satisfy its agents through its service.
The taste problem being a major reason but that is an
internal problem and would involve a lot of cost and
techniques to resolve such a problem and the company
is working on it. Thus, Mother Dairy can now focus
on the other major problem i.e. dealers plays an
important role in convincing people (consumers). So
these dealers should be targeted and be provided with
certain schemes or benefits which may in a way grab
their attention and interest them to convince the
consumers. They can also go for some kind of
awareness programs which will in a way help them
Gupta & Chakraborty • NSB Management Review • Volume 2 • No. 2 • February 2010
educating the consumers about the product and thus
will result into promotion of the product. The
children’s can be targeted by offering free gifts with
some special packs and will thus attract the attention
of the consumers.
One of the most effective measures would be to
develop a new trade model for the home delivery
process. In spite of having 3 existing trade models they
should try to implement something new and something
which won’t involve many intermediaries rather should
focus on some direct trade method at least to get hold
of the market of the target area.
The company should possess a specific distribution
system which should be followed by all the
distributors so that a particular pattern is being
followed and an organized distribution takes place
at every part of the city.
The home delivery agents should be provided with
“dry ice boxes” which can act as a refrigerator
until the milk packets are being delivered to
house\holds and in turn this would reduce the flow
of complains of destroyed milk in the packets.
The organization has many schemes being
designed for the distributors and dealers; similarly
it should come out with different schemes for the
customers also to prevent losing its customers to
other competitors.
Mother Dairy should improve its promotional
activities to cater to the competition. As of Amul
promoting its milk by stating as “low fat”, “low
calorie”, “no powder added” in its milk packets
but Mother Dairy is not into such activities. But
this features being stated in the packets do
sometimes attract customers.
Last but not the least, the organization should keep
performing surveys to stay updated to the needs
of their customers and can thus keep a proper track
of the activities of its major competitors such as
An Article by: Dr. Rajat. K. Baisya, Value Addition in Dair y Industry-Vision 2020, Professor Management Studies, IIT Delhi
An Article by: Vijay Sardana and Ashish Dokras, Global Trends in Major Dairy Product Trade, Centre for International Trade in
Agriculture and Agro-based Industries (CITA), New Delhi
Kotler , Philip , Marketing Management, Pearson Education,13th edition,part3/page no.114-198
Naresh Malhotra, Marketing Research, New Delhi, Prentice Hall Publishing House Pvt. Ltd., 4th edition,part2/ page no.99-368,
part3/ page no.413-427
Vandana Gupta
Senior Lecturer
Amity Business School, Amity University
Saheli Chakraborty
Amity Business School
Agrawal & Jain • NSB Management Review • Volume 2 • No. 2 • February 2010
Banking on Merger: The
Success Saga of HDFC Bank
Dr Swati Agrawal and Ms. Vranda Jain
Asian economies have witnessed strong and steady GDP growth with continued trickle
down of wealth. These days in the banking industry, mergers and acquisitions (M&A)
have been extended to healthy banks as well. Smaller banks with sound financials stand
equal chance of facing a threat from the larger and better run banks as large banks with
weak income statements. With this objective, the case focuses on the spate of M &A
activity by HDFC bank spanned over the last eight years, ranging from the first ever
private banking merger with the Times Bank to the latest merger with Centurion bank
of Punjab in the year 2008. The case also discuses and throws light on the acquisition
of Bank of Punjab by Centurion Bank and becoming Centurion Bank of Punjab(CboP)
and in further diversification and expansion mode, CboP acquiring Lord Krishna bank
(LKB), to being itself getting acquired by HDFC bank. The case enables us to understand
and analyze the strategic issues, challenges and outcomes associated with M & A activities.
With increasing cultural differences, people management has emerged as a strategic issue.
This was clearly evident in the merger of CboP and LKB. The driving force behind the
discussed mergers was size. HDFC bank was able to expand its geographical reach
significantly. In a nutshell, the case justifies the move of Indian banks from a regime of
‘large number of small banks’ to ‘small number of large banks’.
Focus Issues
These days M&A have become the most common form adopted by
corporate world to impart higher growth to organizations. A study conducted
by PricewaterhouseCoopers (2008) for India mentions that the value of M
& As in financial services increased remarkably to US$6.9 bn in 2007 from
US$ 1.2 bn in 2006. Mr. D. S. Brar, the former Ranbaxy CEO, presents six
reasons that drive M & As: assessing new markets, maintaining growth
momentum, buying cutting edge technology rather than import it, acquiring
visibility and international brands, developing new product mixes, improving
operating margins and efficiencies, and taking on the global competition.
Unctad’s World Investment Report 2006 also points out four factors that
drive developing countries to go global- market penetration, rising labour
costs in the home country, competitive pressures in the domestic country,
and home government policy liberalizations stimulate outbound investment.
With this perspective, numerous M & A have taken place all over the world,
“A visionary company
doesn’t simply
balance between
idealism and
profitability: it seeks to
be highly idealistic
and highly profitable.
A visionary company
doesn’t simply
balance between
preserving a tightly
held core ideology and
stimulating vigorous
change and
movement; it does
both to an extreme.”
- Jim Collins
Agrawal & Jain • NSB Management Review • Volume 2 • No. 2 • February 2010
including in India. Consolidation has become the
buzzword for the Indian banking industry as well. The
report on the committee on banking sector reforms
(the second Narsimham committee 1998) had also
favoured mergers among the strong banks. Since 1961
till date, under the provisions of the Banking
Regulation Act, 1949, there have been as many as 77
bank amalgamations in the Indian banking system, of
which 46 amalgamations took place before
nationalisation of banks in 1969 while remaining 31
occurred in the post-nationalisation era. Of the 31
mergers, in 25 cases, the private sector banks were
merged with a public sector bank while in the remaining
six cases both the banks were private sector banks.
Since the onset of reforms in 1990, there have been
22 bank amalgamations. With this perspective, the case
focuses on the spate of M &A activity by HDFC bank
spanned over the last eight years, ranging from the first
ever private banking merger with the Times Bank to
the latest merger with Centurion bank of Punjab in
the year 2008. The case also discuses and throws light
on the acquisition of Bank of Punjab by Centurion
Bank and becoming Centurion Bank of Punjab(CboP)
and in further diversification and expansion mode,
CboP acquiring Lord Krishna bank, to being itself
getting acquired by HDFC bank.
In a milestone transaction of being the first ever private
bank merger, Times Bank, (promoted by Bennett,
Coleman & Co) got merged with HDFC bank under
the provisions of the Banking regulation Act, 1949 in
February 2000. What invited attraction was the fact
that both the profitable new Generation Private Sector
Banks was barely five years old with reasonably similar
“Larger banks make stronger banks. Size and scale do
matter in the banking space and this deal has not come
as a surprise. Stricter capital adequacy norms with Basel
II implementation could force more banks, especially
several of them down south, to merge with bigger
entities. Thus, consolidation in the banking sector
should go on for a while” said Country Head of
Investment banking at Religare, Kamlesh Gandhi. Also
Basel II mandates stricter capital requirements based
on the banks’ own measures of risk that require
comprehensive data collection and analysis, which will
be expensive to implement resulting in banks’
operational costs shooting up and a consequent rise in
charges levied from customers. Thus, bigger banks with
a better scale of economies would be able to provide
services at a lower cost and prevent customer attrition.
Further, the norm will require significant changes in
internal systems and processes, which are expensive
as well. It may be better to do it through M & As rather
than wait for that to happen through slow organic
growth. Hence the attraction of mergers in the banking
space over and above the usual advantage of
economies of scale.
The merger talks between HDFC Bank and Centurion
Bank of Punjab (CBoP) began in January 2008
following the exit of CBoP’s principal shareholders–
Bank Muscat (14.02 per cent), Sabre Capital (3.48 per
cent) and Kephinance Investment (Mauritius) (6.13 per
cent). At the time of merger, HDFC Bank was the
country’s second largest private sector lender, while
CBoP was the fourth largest bank. The motive behind
merger for HDFC Bank was to move up the ladder to
the seventh position from the current tenth and be
next to State Bank of India, Canara Bank, Punjab
National Bank, Bank of Baroda, and Bank of India,
in the public sector and ICICI Bank in the private
Up the ladder: HDFC Bank will jump to the 7th
position from 10th after the merger
Agrawal & Jain • NSB Management Review • Volume 2 • No. 2 • February 2010
Similar intentions, common goals and area of operation
constituted the push and pull factors of merger of
CBoP. It was expected that the deal would enable the
combined entity, Centurion bank of Punjab to figure
itself among the top 10 private sector banks in the
country. The principal reasons favouring this merger
were- the requirement of funds to support the growth
plans of both the banks, adherence to Basel II norms
(2006), compliance with the RBI guidelines of
maintaining a net worth of Rs. 3000 million for private
sector banks so as to bring Indian banking industry at
par with the global level, reworking and re building on
the power brands (of both banks) and very importantly,
to protect themselves from a possible takeover by a
foreign bank. It was the result of bailout of Centurion
bank by the combine of Mr. Rana Talwar and bank of
Muscat that the cash infused bank was prepared to
absorb Bank of Punjab. The need for this merger was
high on the part of BoP, attributable to the rapid
increase in proportion of bad loans in FY 05.
The Centurion Bank-BoP merger was announced in
June 2005. It became effective from October 1 and,
six months later, by March 2006, efforts began in
earnest to identify the next target. Within five months,
on 19 August 2006, Centurion Bank of Punjab (CBoP)
announced a merger with Lord Krishna Bank (LKB).
“There is now a compelling reason for banks to merge,”
says Shailendra Bhandari, managing director and CEO,
CBoP, “because a lot of the old crutches have gone.
Competition has increased, margins are being
squeezed, products have become more complex and
the customer has become far more discerning.” In such
a scenario a national footprint is a must.
Mission/Vision/Corporate Objectives
Housing Development Finance Company (HDFC)
was founded by H.T. Parekh and incorporated in 1977
with the aim of providing long-term financing for
home ownership. During the LPG era of 1990s, when
the government decided to open the economy in
general and banking sector in particular to the private
players, HDFC acquired Reserve Bank of India’s (RBI)
approval to set up a commercial bank in 1994 and
rechristened the company as HDFC bank. With the
inauguration of the bank in 1995, it went public with
an IPO of INR 500 million. HDFC Bank’s mission is
to be a World-Class Indian Bank. The objective is to
build sound customer franchises across distinct
businesses. HDFC Bank’s business philosophy is based
on four core values - Operational Excellence, Customer
Focus, Product Leadership and People 1. Incorporated
in June 1994, Centurion Bank was promoted by
erstwhile 20th Century Finance Corporation (TCFC)
& its associates in association with Keppel Tatlee Bank
(which was earlier Keppel Bank of Singapore). In
January 1998 TCFC got amalgamated with the bank.
Following the Bank of Punjab Act 1989, the Bank of
Punjab made its debut in 1989 and acquired the status
of a scheduled bank in the year 1994. Prior to its merger
with Centurion Bank, it had a network of 271 branches
with presence in all important and main trading centers
of the country.Lord Krishna Bank was established in
the year 1940 in Kerala with branches in Delhi, Kerala,
Andhra Pradesh, Karnataka, Mumbai and Tamil Nadu.
Roadmap in Action
In the first ever merger with the Times Bank, HDFC
bank foresighted gains in context of savings in
technology, expanded customer base, increased market
share and faster growth as an outcome of the deal
worth INR 2.3 billion (USD 53.89 million). As per the
scheme of amalgamation duly approved by the
shareholders of both banks and the RBI, shareholders
of Times bank received one share of HDFC bank for
every 5.75 shares of times bank. After eight months
of merger, HDFC’s bank stock trebled in value and
traded in the range of Rs. 270-280.
Agrawal & Jain • NSB Management Review • Volume 2 • No. 2 • February 2010
Reserve Bank of India formally approved the
amalgamation of Centurion Bank of Punjab with
HDFC Bank on May 23, 2008. Valuing Centurion Bank
at Rs 57 a share, the deal was worth Rs.9510 crore
($2.4 billion). The Scheme of Amalgamation envisaged
the share swap ratio of 1:29 (one share of HDFC Bank
for twenty nine shares of Centurion Bank of Punjab).
Mr. Deepak Parekh, Chairman, HDFC commented:
“We were amongst the first to get a banking license,
the first to do a merger in the private sector with Times
Bank in 1999, and now if this deal happens, it would
be the largest merger in the private sector banking space
in India. HDFC Bank was looking for an appropriate
merger opportunity that would add scale, geography
and experienced staff to its franchise. This opportunity
arose and we thought it is an attractive route to
supplement HDFC Bank’s organic growth. We believe
that Centurion Bank of Punjab would be the right fit
in terms of culture, strategic intent and approach to
Mr. Talwar, Chairman, CBoP posted trust and faith
on HDFC Bank and had the positive view that in times
to come HDFC Bank will create a world-class bank in
quality and scale and would also set the stage to
compete with banks both locally and globally.
It was decided that HDFC bank will have two
representatives of the merged bank in the board. Mr.
Talwar was offered a seat on the Board as non executive
member and Mr. Shailendra Bhandari, the managing
director and CEO of CBoP was invited to join as
Executive Director. However they had no role to play
in day to day operations of the Bank. Mr. Bhandari
helped in the process of integrating the two entities.
The board also noted that there was no scope for
appointment of a deputy managing director in the
merged entity.
The main challenge posed for HDFC Bank was
integration with the merged entity. Even though the
culture of Centurion Bank was not very dissimilar with
HDFC Bank but the culture of employees of Lord
Krishna Bank and Bank of Punjab was not alike HDFC
Bank. Further CBoP was burdened with non-
performing assets (NPAs) in trade financing and huge
liabilities. The net non-performing assets of CBoP were
higher at 1.26 percent, compared to 0.4 percent for
HDFC Bank.
However Mr. Parekh had the view: “This opportunity
arose and we thought it is an attractive route to
supplement HDFC Bank’s organic growth. We believe
that Centurion Bank of Punjab would be the right fit
in terms of culture, strategic intent and approach to
Centurion bank and bank of Punjab received
regulatory approval from RBI for their mergers,
effective from October 1, 2005. Drawing from the
merger, the new entity was rechristened as Centurion
bank of Punjab with main concentration on retail, SME
and agricultural sectors.
Centurion Bank’s Chairman Mr. Rana Talwar took over
as the chairman of CBoP and Mr. Shailendra Bhandari,
MD, Centurion Bank continued as the MD of the
merged entity. It was decided that the promoters of
the Bank of Punjab (BoP) and major stakeholders of
Centurion Bank will have a combined stake of around
42% in the merged entity. There was no cash
transaction in the course of merger. Share swap ratio
was fixed at 4:9 (for every four shares of Rs 10 of
Bank of Punjab, its shareholders received nine shares
of Rs 1 of Centurion Bank).
Mr. Shailendra Bhandari, Managing Director,
Centurion Bank said, “Both banks have synergies
which complement each other very well.” On one hand
it will help BoP overcome the problems faced in hiking
capital and on the other it will provide an avenue for
Centurion Bank to utilize its excess capital. It was
believed that the merger will add significant value in
terms of being well capitalized, a strong management
team and the potential of achieving considerable
revenue and cost synergy. As Centurion bank had
recently written off its bad loans against equity, it would
an additional benefit to the merged entity. On a
standalone basis, Centurion bank had a capital
adequacy ratio of 23.1 per cent and Bank of Punjab
stood at 9.21 per cent. The combined entity will have
a satisfactory capital adequacy of 16.1 per cent, much
above the stipulated requirement of RBI, to provide
for its growth plans. As on March 31, 2005, net NPAs
of Centurion Bank stood at 2.49 per cent and BoP at
Agrawal & Jain • NSB Management Review • Volume 2 • No. 2 • February 2010
4.6 per cent, yielding the combined figure of about
3.6 per cent.
Commenting on the approval, Rana Talwar, Chairman
of the combined entity, said, “Centurion Bank of
Punjab will build upon the strong franchises and
traditions that the individual banks have built up and
carry these to new heights. Commenting on the merger,
Mr. Tejbir Singh, Executive Director, Bank of Punjab,
said that the combined bank would produce
“electrifying results” and represented a perfect fit.
Mr. Bhandari, managing director and CEO, CBoP
although agreed that there were differences in the size
of CBoP and Lord Krishna Bank (LKB)- CBoP had
twice the number of branches than LKB and its
balance sheet was five times that of LKB but
simultaneously the management of CBoP strongly
believed that there was an enormous untapped
potential with LKB. While more than fifty per cent of
LKB’s branches were in Kerala, they accounted for
only a quarter of its total business. So the management
of CBoP foresighted an upscale in business through
LKB’s branch network.
to be reassured. They had to be told what was expected
of them. And in some of the core Punjab areas, the
quality of staff was fabulous. We found a lot of
energetic people waiting for direction.” However the
big question surrounding this merger was the
integration of LKB’s employees with those of CBoP’s
employees. There were vast cultural differences- the
young employees of BoP and the all together different
crowd of LKB. Employees of LKB also went on an
indefinite strike protesting the merger and demanding
instead a merger with a public sector bank. They were
plagued with four major unions, under the banner of
the United Forum of LKB Unions (UFLU). It was
not so with CBoP. To make the merger successful, it
was realized that the motto has to be: “challenge the
minds, win the hearts”. Challenging the minds of the
LKB employees was still easy, but winning their hearts
was not that easy for the management.
Reasons for Success
Operational issues:
The key factor driving all these mergers was Size. As
deposits constitute an important source of finance for
Anil Jaggia, COO, CBoP commented, “People are the
key.” After the merger with BoP, the top management
had made a lot of effort to communicate with the
employees of the erstwhile BoP. “We held meetings in
Punjab that went on till 3 a.m.,” says Vig. “People had
banks and there is an increasing challenge and
competition in mobilizing deposits, these mergers aim
at enhancing the total deposit and balance sheet size.
The merger of Times Bank and HDFC bank was
expected to bring in synergies of operations and
Agrawal & Jain • NSB Management Review • Volume 2 • No. 2 • February 2010
volumes. HDFC had four lakh retail accounts. The
merger brought with it additional two lakh accounts
maintained by Times bank. It also enabled HDFC bank
to widen its focus from targeting the top end corporate
to inclusion of mid- market corporate clientele.
Centurion Bank’s Chairman Mr. Rana Talwar said “The
merger is a win-win for the shareholders, customers
and staff of the two banks. The reason for the merger
is the fantastic fit in terms of achieving scale and
geographical presence. After the regulatory approvals,
there would be crossover of products and services”.
BoP was a great fit with Centurion Bank as the latter
was strong in retail had enough capital from an $80-
million GDR issue. BoP, on the other hand, lacked
capital and had high NPA (non-performing asset)
levels. It was not very good at retail, but it had good
SME (small and medium enterprise) credit and a strong
liability engine.
The merger of Centurion bank and HDFC bank lead
to a strong deposit base of around Rs. 1,22,000 crore
and net advances of around Rs. 89,000 crore. The
balance sheet size of the combined entity was over
Rs. 1,63,000 crore.
Expanded geographical reach :
The merger made the presence of HDFC bank more
prominent in centers where it suffered from low
visibility. HDFC bank had presence in 26 cities and
Times bank in 23, which encouraged HDFC to set up
branches where they were missing. It also leveraged
the alternative delivery channels like phone banking
and internet banking of HDFC bank.
The amalgamation of HDFC bank and CBoP added
significant value to HDFC Bank in terms of increased
branch network, geographic reach, customer base, and
a bigger pool of skilled manpower. HDFC Bank
acquired around 400 branches and skilled personnel.
The branch acquisitions boosted the presence of
HDFC Bank in the northern and the southern regions.
CBoP had around 170 branches in the north and
around 140 branches in the south while HDFC Bank
had nearly 250 branches in the north and nearly150
branches in southern India. The combined had a
nationwide network of 1,148 branches (the largest
amongst private sector Banks) a strong deposit base
of around Rs. 1,200 billion and net advances of around
Rs. 850 billion. The balance sheet size of the combined
entity was over Rs. 1,500 billion.
Centurion Bank had strong presence in south and BoP
had strong reach in north. The combined banking
entity resulted in good footprint across the country
with 235 Branches & extension counters, 382 ATMs
and 2.2 million customers and strengths in the retail,
SME and agricultural segments.
CBoP’s merger with LKB helped CBoP expand in
South, particularly in Kerala, where more than half of
LKB’s 124 branches and extension counters were
People Issues:
Success of a merger depends upon the commitment
of people involved in it. Workforce becomes dedicated
when they foresee personal benefits in terms of
financial incentives and in cornering opportunities
ahead and also in their belief on a sound strategy.
Another concern for managing people issues is the
changes resulting from mergers. Change management
sessions will help employees in understanding how
individuals and organizations typically react to change
removing insecurity which is an inbuilt feature of
merger. Transparency and communication in HR
polices on selection, training, compensation will further
aid in the success of M& A activities.
The best aspect of the HDFC-Times Bank merger
deal was that there were no handshakes. All 650 people
associated with times bank were absorbed.
Centurion Bank had staff strength of around 1,500
while BoP employed 1,900 people. There was no
downsizing via the voluntary retirement scheme.
HDFC bank also clearly defined the new organizational
structure for the merged entity, specifying revision in
salaries and job responsibilities, so as to minimize job
conflicts and fear in the minds of employees. A first
time participant in Global HR Excellence Awards
2008, given at the Asia Pacific HRM Congress, held in
Mumbai Centurion Bank of Punjab bagged the award
in the category ‘Organization with Innovative HR
Agrawal & Jain • NSB Management Review • Volume 2 • No. 2 • February 2010
Practices’ wherein it showcased its Vision Mission
Values cascade program aimed at Culture
Amalgamation. Asia Pacific HRM Congress is a unique
Annual Human Resource Conference which has been
held for the last 16 years, which aims at recognizing
Great Human Resource Practices across industries, and
outstanding HR professionals who have contributed
significantly within and outside their respective
Cultural Issues:
As each firm has a unique culture replete with a distinct
history, work-style, value system, and its own web of
power and personal equations so clashes are inevitable
and interventions are often required.
As mentioned earlier in the survey conducted by
Hewitt, few of the major changes and risk are
incompatible culture, poor leadership and flawed
valuation. As also mentioned earlier in the paper, it
was the culture of employees of Lord Krishna Bank
and Bank of Punjab which was not similar to HDFC
Bank. However the culture of Centurion Bank was
not very dissimilar with HDFC Bank There were still
some legacy issues which persisted from the earlier
mergers (Centurion Bank with Bank of Punjab and
Lord Krishna Bank), so the bank appointed an external
firm to conduct a cultural audit and planned its HR
interventions based on these findings. Often, people
hold the key to the success or failure of any merger.
Coming to HDFC Bank from Times Bank through a
merger in 1999, HDFC’s Maitra knew what the chief
employee concerns would be. Even before the
acquisition received the formal nod from the Reserve
Bank, she had started making trips all over the country,
meeting employees and allaying their concerns. Further
the bank established a portal whereby people could
send their queries and also produced a docket whereby
FAQs were addressed. These efforts being done to
endure cultural fit in the prospective mergers.
The key challenges in identifying and resolving cultural
differences to bring cultural fit are assessing and
measuring culture of all organization involved,
ensuring timely availability of information about
cultural fit, and leadership that can bring commitment
and motivation among team members and people
involved. Of these the most challenging is the
assessment and measurement of the culture of all
entities involved. It is so because being complex and
collectively held; it is not an easy task to measure culture
on specific quantitative terms and its analysis. Further
the challenge is not only to measure the culture but
also to compare the culture, which needs bringing them
on same parameters. It is also being observed that
normally during merger, the culture of the entity which
is to be merged is analyzed rather than the company
which is taking over. It is important for the acquiring
party also to assess, measure and analyse their culture
and compatibility with the entity being acquired for
effective and successful merger. The process of
achieving cultural fit involves understand the business
objective of the participating entities, formulating the
integration structure and finally ensuring cultural fit
among the units involved. Achieving this cultural fit
needs to articulate that whether the organizations
culture facilitate or hinder the achievements of
prospective objective of mergers and acquisitions,
whether the workforce are involved and engaged in
the process of achieving cultural fit, and also whether
the implementation plan of entities involved in M &
A can successfully remove the cultural barrier if it is.
Communication is the key to bring cultural fit. This
needs effective communication of key messages and
mechanism of capturing feedback from the workforce.
Issues for debate and analysis
1. Integration decisions are justified with the
synergies they generate. In the Indian banking
industry, it started with the merger of Times Bank
with HDFC Bank. Elaborate the rationale behind
M & A activities.
2. Discuss and draw the benefits of synergies
accruing to participating entities generated out of
M & A activities, through the spate of M & A
activities of HDFC Bank and Centurion bank.
3. Keeping in mind the M & As discussed in the case,
outline the main steps to be taken for a merger to
be successful, focusing on the factors enabling the
M & A activities of HDFC.
Agrawal & Jain • NSB Management Review • Volume 2 • No. 2 • February 2010
“Centurion Bank-Bank of Punjab-bank on the Merger”, The Hindu, Business Line, July 17, 2005.
Centurion Bank of Punjab, HDFC Bank to merge, the times of India, February 23, 2008.
“Consolidation in the Indian Banking sector”, special address delivered by Shri. V. Leeladhar, Deputy Governor, RBI, April
17, 2008.
Consolidation in the Indian banking system: legal, regulatory and other issues, September 2004, Indian Banks’ association.
HDFC Bank, Centurion Bank okay merger plan, The Hindu, Business Line, February24, 2008.
HDFC Bank, centurion Boards okay merger, Business Standard, February 24, 2008.
HDFC Bank and Centurion Bank of Punjab to merge at share swap of 1:29, Business Standard, February 25, 2008.
Hitt, A. Michael et all, Mergers and Acquisitions-a guide to creating value for stakeholders, Oxford University Press, New
York, 1st Edition, 2001
“Mastering the Art of Integration”, the Economic Times, Corporate Dossier, October 10, 2008.
Tackling cultural fit in Merger and Aacquisitions, HR connect, NASSCOM, Issue 9, and October 2009.
http:/, accessed on May12, 2009.
http:/, accessed on May 15, 2009.
Dr Swati Agrawal
Associate Professor
Jaipuria Institute of Management
Ms. Vranda Jain
Sr. Lecturer
Jaipuria Institute of Management
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
An empirical study of the
investment pattern of
private life insurance
companies in India
Moid Uddin Ahmad
The investment policies of life insurance companies has always been an imperative issue
for concerned stakeholders considering the corpus of fund and the underlying objective of
the fund. Thus there is a great need to study the investment pattern of life insurance
companies which includes investment into the company and investment out of the company.
The given research is an empirical effort to analyze the investment pattern of private life
insurance companies in India. Based on the findings of the study, conclusions have been
drawn to make suggestions for macro economic issue to government and microeconomic
policies to companies.
Keywords: Life Insurance, Investments, Efficiency, Macroeconomics
Continuing with the policy of control liberalization of the Indian economy,
the insurance sector was opened for private investment which was till date
the monopoly and privilege of the Life Insurance Corporation of India
and government controlled general insurance companies. Since LIC is state
owned and controlled, the concern for the policymakers was the private
life insurance business. Till 1999, the insurance business in India was under
the purview of the Insurance Act, 1938. It was only in 1999 when another
act, the Insurance Regulatory and Development Authority Act was passed
to control, regulate and develop the insurance market in India.
The modern concept of insurance practices in India started during the
British rule in 1818 when Oriental Life Insurance Company was established
in Calcutta. India became independent from British rule in 1946, and by
1956 the insurance sector was nationalized, with the Life Insurance
Corporation of India created by combining almost 245 private life insurance
companies; 107 private non-life companies combined in 1973 to form the
General Insurance Corporation. But since the very purpose of nationalizing
the insurance sector got sidelined due to the monopolistic power it enjoyed,
“The message from
Wal-Mart today to the
rest of the business
community is there
need not be any
conflict between the
environment and the
economy. We will find
the way not only to
reconcile (those), but
to find new profits and
new opportunities as
we do the right thing.”
- Al Gore
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
coupled with the bureaucratic mindset of LIC and
GIC, insurance again was opened to private players in
During 2000-2006, almost 15 life and 13 non-life
private insurance players (mostly joint ventures
between Indian and foreign players) started operations
in India, indicating the willingness of foreign investors
to enter the Indian insurance sector. But through all
these major changes the actual impact was felt only in
major urban areas, while the vast majority of the rural
population was excluded from the insurance sector.
One major and significant change in the economic
policy was allowing Foreign Direct Investment (FDI)
in the life insurance business in the form of a joint
venture with 74:26 ratios in favor of domestic
investment. This meant that a maximum of 26% stake
in the equity capital was allowed for investment by the
foreign investors. The first company to get registered
was HDFC in collaboration with Standard Life as a
foreign partner. As on date there are 21 private LIC,
amongst which there are two 100% domestic financed
private life insurance companies (Reliance LIC and
Sahara LIC).
Life insurance is a very critical business. It existence is
as important as its survival. Also it involves huge money
invested over a long term. Perhaps this is the reason
that a robust surveillance and control is required over
the insurance market. The investment into the
company is important as the promoters/owners are
the decision makers who would be the determinants
of the company’s future. Likewise the funds collected
from the policy holders has its own criticality
This paper tries to study these two aspects of private
life insurance companies in India.
The Mission statement of IRDA (Source: Annual
report, 2007-08)
To protect the interest of and secure fair treatment
to policyholders;
To bring about speedy and orderly growth of the
insurance industry (including annuity and
superannuation payments),for the benefit of the
common man, and to provide long term funds for
accelerating growth of the economy.
To set, promote, monitor and enforce high
standards of integrity, financial soundness, fair
dealing and competence of those it regulates;
To ensure speedy settlement of genuine claims,
to prevent insurance frauds and other malpractices
and put in place effective grievance redressal
To promote fairness, transparency and orderly
conduct in financial markets dealing with insurance
and build a reliable management information
system to enforce high standards of financial
soundness amongst market players;
To take action where such standards are inadequate
or ineffectively enforced;
To bring about optimum amount of self-regulation
in day to day working of the industry consistent
with the requirements of prudential regulation.
Literature Review:
Kallinath (2003) conducts a study which evaluated the
products and performance of the Life Insurance Corp.
of India in the Gulbarga District, India.
Slater(October 31,2002) reports on the growth of life
insurance industry in India. Shortage of life insurance
agents in the country; Joint ventures between Indian
and international companies; Percentage growth
projected for the industry; Number of insurance
policies sold by various companies etc.
Tone (2005) applies a new variant of data envelopment
analysis model to examine the performance of Life
Insurance Corporation (LIC) of India. The findings
show a significant heterogeneity in the cost efficiency
scores over the course of 19 years. A decline in
performance after 1994–1995 can be taken as evidence
of increasing inefficiencies arising from the huge initial
fixed cost undertaken by LIC in modernizing its
operations. A significant increase in cost efficiency in
2000–2001 is, however, cause for optimism that LIC
may now be realizing a benefit from such
modernization. This will stand them in good stead in
terms of future competition. Results from a sensitivity
analysis are in broad agreement with the main findings
of this study.
Krishnamurthy et al (2005) discussed and concluded
that some of the challenges faced by the insurance
sector pertain to the demand conditions, competition
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
in the sector, product innovations, delivery and
distribution systems, use of technology, and regulation.
To understand the growth and development and the
future prospects of this sector, this colloquium
addresses the following issues: What will be the demand
for insurance? What types of innovative strategies of
insurance education and awareness will we require to
encourage the Indian consumers? With the changes
following bank participation in insurance, will the
nature of competition in this sector intensify?
What kind of competitive and risk pressures will the
insurance businesses experience? What are their
implications for profitability, margins, and efficiency?
The average size of the polices will continuously
decline as the insurance companies increase the
geographic coverage. As a result of this, the
intermediation costs will go up. What are the
implications of these on average costs? What will be
the product market scenario? Has the insurance sector
benefited from the knowledge base of global
companies? To what extent have the technology gains
in telecommunications, computer information, and
data processing contributed to increased efficiency and
productivity of insurance companies?
Raman (2004) emphasized on regulatory dissonance
which not only poses serious challenges to insurance
companies seeking global expansion, but also reiterates
the fact that business models cannot be exported in
their entirety from one country to another. The paper
presented the regulatory dissonance that exists between
the non-life insurance industry in the U.S. and India.
It attempts to highlight the regulatory dissonance that
exists in the business line definition area, accounting
treatment of acquisition expenses, treatment of
unearned premiums, creation of a catastrophe reserve,
reinsurance cession, investment regulation, obligations
to the rural and social sector, rate and form regulation
and solvency margin computation. While the paper
attempts to compare most of the dissonance that exists
between the two regulatory frameworks, it does not
purport to be an exhaustive study of all the
discrepancies that exist between the two systems.
Ramana (2008) discusses the rapid growth of the
insurance industry in India.
Bhat et al (2007) emphasized the need of insurance in
rural markets. They said that the order of the day would
be to focus on micro insurance to capture the huge
potential of rural customers.
Research Methodology:
Effective December, 2007, all insurers have been
advised to file the quarterly financial statements with
the IRDA. These statements include the Balance Sheet,
Revenue A/c (Policyholders’ A/c) and the Profit &
Loss A/c (Shareholders’ A/c).Also the insurance
companies have to follow the provision set out in
Section 27 of the insurance Act,1938 should be read
with rule 3 of the IRDA(Investment Regulations,2000).
The given research is an empirical effort to analyze
the pattern of investments into and out of a life
insurance company. Data was collected from secondary
sources. The significant sources IRDA databases,
Insurance regulations and notifications, electronic
research database EBSCO and other related links and
published matter on life insurance. The idea is to study
the pattern of three parameters for PLIC’s, their FDI
and total investment, their investment pattern and their
total premium income and the relationship between
these three parameters.
Out of the existing 21 PLICs in India, 12 of those
companies were taken as a sample (Table 1) which had
their business running for at least six complete years
till date since FDI was allowed in insurance sector or
starting from the date of registration of first company
(23/10/2000) till date. The time period of study was
taken as five financial year from 2003-04 to 2007-08
with the underlying logic to study the trends from most
recent over past years for more than half of the total
time period available. Also during this time period the
global economy, especially Indian economy witnessed
extreme fluctuations (Stock market as a barometer).
FDI and investment figures were taken for the
company as a whole, Total premium collected was
taken for the company as a whole but while studying
the investment made by the PLICs ,the investments
of life fund was taken because the investment of other
two funds, the pension & annuity fund and Group
fund was not significant in comparison to life fund
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
also like the fourth fund, the Unit linked fund, these
were not purely an insurance fund. Thus the life fund
investment has been taken as a proxy for total
investment. Out of the three core life insurance fund
, for the year 2007-08,life fund was 60% of total first
year premium collected.
Initially the absolute values of the three parameters
were compared and analyzed and subsequently their
correlations were calculated to find out the extent of
relationship between them.
The research questions to be addressed are:
Do private life Insurance companies differ in their
investment policy across different investment
Do private sector companies differ in their
investment as compared to total investment in
different securities?
What is the extent and nature of correlation
between total investment in and total investment
What is the extent and nature of correlation
between total premium in and total investment out?
What is the extent and nature of correlation
between total premium in and total investment in?
Data and Analysis:
Analysis on Equity Capital/investment into
1. For all the companies over the time period 2004-
08, the total equity investment has been rising with
an exception of Bajaj Allianz where it has remained
constant at Rs. 150 crore and SBI Life for 2005-06
where it fell by 68% over previous financial year.
This gives an impression that the joint venture
model with a maximum FDI cap of 26% has been
accepted by private life insurance companies.
2. In terms of percentage increase in total investment
over the past previous year, the maximum increase
was again for SBI Life for 2006-07 with an increase
of 350% to Rs. 500 crore. Three incidents of 100%
increase in total capital were reported during the
period taken for study.
3. For the time period, the total investment was
maximum for ICICI Prudential for all the years
with a maximum of Rs. 1401 crore for 2008.
4. The FDI limit initially was less than 26% only for
HDFC Standard but has become almost saturated
for all companies by 2008.The exception is Reliance
Life Insurance where there is no FDI.
5. The FDI has been fluctuating in both directions
for HDFC Standard over the time period which
indicates the management’s aggression in allocating
domestic capital into the business.
Analysis on premium income:
ICICI was consistently the maximum grosser of total
premium amongst all the companies for all the years.
METLIFE and RIL over the time period have
consistently recorded an increase of more than 100%
in premium income every year.
Analysis on Investment:
The insurance companies has to follow the provisions
set out in section 27 of the Insurance Act, 1938, read
with rule 3 of the IRDA (Investment) Regulations,
The funds can be classified as controlled (Life Fund)
and not controlled fund (Pension, Annuity, and unit
linked business).
Insurance being a critical part of the large financial
sector which has huge social implications and
importance, there are stringent guidelines for
investment to be done by insurance companies for
controlled fund and the options available to them are:
1. Central government securities,
2. State government securities ,
3. Approved Securities,
4. Infrastructure and Social Sector,
5. Non Approved Securities,
6. Investment subject to exposure norms
The total investment for all companies for all the years
has been growing positively. One possible reason is
the growing equity capital into the business and the
other possible reason is the growing premium income.
This is being proved true by the correlation analysis.
The rise in total investment for an year over previous
year, company wise was maximum for ING at 218%
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
for year 2004-05(Table 2)
The maximum investment security wise (Rupees) for
all the companies and for all the years was in central
government securities (Rs. 1353 crore for ICICI).
The investment in government securities and approved
securities has been growing for all the companies for
all the years.
The investment in infrastructure has been growing for
all the companies for all the years, likewise for other
investment avenues. These investment trends indicate
investment in the growth of the country itself. The
investment in infrastructure, government securities and
social sector, which are the building block of an
economy is growing (even in times of global economic
slowdown) which is a great positive sign for the Indian
The investment in other than approved securities was
almost zero for AVIVA and low for TATA AIG making
them the least risky company in terms of investment
Considering the total investment by the sample private
life insurance companies in comparison to total
investment of the industry (which includes LIC and
new PLICs) it is observed that the investment of PLCs
is very minimal ranging from 5% to 0.6% over the
time period. Significant observation is that this ratio
has increased over the time period which explains the
rise in the number of private life companies and their
business. Considering this ratio ,investment segment
wise and year wise, the investment in the infrastructure
securities has been maximum every year. This signifies
the inclination of private sector towards this sector
out of the available and can substantiate the claim of
the private sector to increase the maximum cap on
The pattern of total investment is related with the
investment made by insurance companies. This is
proved by the correlation analysis as for the two
parameters for all the companies are highly correlated
with a minimum correlation as 0.87 for SBI.
The pattern of total premium income is related with
the investment made by insurance companies. This is
proved by the correlation analysis as for the two
parameters for all the companies are highly correlated
with a minimum correlation as 0.95 for AVIVA.
The pattern of total premium income is related with
total investment in the insurance companies. This is
proved by the correlation analysis as for the two
parameters for all the companies are highly correlated
with a minimum correlation as 0.88 for ICICI.
Some broad and imperative conclusions which can be
drawn from the analysis are:
The FDI limit being saturated for all the companies
by 2007-08,it makes a strong case for the PLICs to ask
for increase in this limit. Since the investment by the
PLICs is adequately controlled and complied which is
into the core areas of the economy such as
government securities and infrastructure, it is advisable
that for the benefit of the economy, the policymakers
should support the growth of PLICs in India. The
importance of insurance companies in an economy
considering the factor of savings, social importance
and government finances was reiterated and proved.
Chung, Kee H. and Puelz, Robert(1992),‘An Empirical Regularity in the Market for Risk and Insurance Research’, Journal of
Risk & Insurance, Vol. 59 Issue 3
Colquitt, L. Lee and Dumm, Randy E.(1999),‘The Significance of Insurance Research to Those Involved in the Regulatory
Process.’, Journal of Insurance Regulation, Vol. 18 Issue 2
Doherty,N.A.(1977), ‘Stochastic Choice in Insurance and risk sharing’, Journal of Finance,Vol. 32 Issue 3
Dorfman, Mark S. and Tippins, Steven C.(2006), ‘An Examination of Alternative Approaches to Risk Management and
Insurance Research’, Risk Management & Insurance Review, Vol. 9 No.1
Garg, Mahesh(2008), ‘Efficiency of General Insurance Industry in India in the Post-Liberalization Era: A Data Envelopment
Approach’,Risk & Insurance,Vol. 5 Issue 1
Gründl, Helmut and Schmeiser, Hato (2007),‘Capital Allocation for Insurance Companies—What Good is it?,Journal of Risk
& Insurance,Vol. 74 Issue 2
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
Kallinath S., Patil(2003), ‘Life Insurance Corporation of India, Its Products and Their Performance Evaluation: A Special
Reference to Gulbarga District’, Finance India,Vol. 17 No.3
Krishnamurthy, S.; Mony, S. V.; Jhaveri, Nani; Bakhshi, Sandeep; Bhat, Ramesh; Dixit, M. R. & Maheshwari, Sunil(2005),
‘Insurance Industry in India: Structure, Performance, and Future Challenges, Vikalpa: The Journal for Decision Makers,Vol.
30 Issue 3
Mukhopadhyay, Arunabha; Chakrabarti, Binay Bhushan & Podder, Asok Kumar(2004), ‘Derivatives and Inflation— Indexing
of Pension in India’, IIMB Management Review, Vol. 16 Issue 3
Pillai, V. N. S.(2008), ‘Options under annuity, a choice of values — The Indian experience’, Pensions: An International
Journal,Vol. 13 Issue 1/2
Raman, Veena(2004), ‘Regulatory Dissonance and Challenges to Globalization: A Comparative Study of the United States
and Indian Non-life Insurance Regulatory Frameworks’, Geneva Papers on Risk & Insurance - Issues & Practice, Vol. 29
Issue 3
Ramana, B. Venkata(2008), ‘An Industry on a Growth Trajectory’,Risk Management, 2008 Spotlight Issue, p54-55
Sharpe, Ian G. and Stadnik, Andrei(2007),‘Financial Distress in Australian General Insurers’, Journal of Risk &
Insurance,Vol. 74 Issue 2
Subhash, K. B. & Bhat, Deepti(2007), ‘What Lies Beneath: The Untapped Insurance Market in India’,Journal of Wealth
Management,Vol. 10 Issue 3
Tone, Kaoru & Sahoo, Biresh K.(2005), ‘Evaluating cost efficiency and returns to scale in the Life Insurance Corporation of
India using data envelopment analysis’,Socio-Economic Planning Sciences,Vol.39 Issue 4,
Moid Uddin Ahmad
Jaipuria Institute of Management
Table 1: List of Private life insurance companies in India taken as sample (with acronyms):
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
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Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
Ahmad • NSB Management Review • Volume 2 • No. 2 • February 2010
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010
“The Laffer Curve – Still
Holds Good”
Jeet Singh and Preeti Yadav
The Laffer curve is a popular tool in shaping and analyzing economic policy problems.
The Laffer curve is often used to explain the behaviour of a revenue maximizing
bureaucracy. The Laffer curve illustrate the concept of “taxable income elasticity”, which
is the idea that government can maximize tax revenue by setting tax rates at an optimum
point and that neither a zero percent tax rate nor a one hundred percent tax rate will
generate government revenue. The principal of the Laffer curve is present in virtually
every business decision where the overall objective is to maximize profitability through the
determination of setting prices consistent with the ability and desire of the consumer to
buy. Setting higher prices produces a shortfall in sales and revenues while setting lower
prices produces shortfall in profits.
The Laffer curve also holds true in India as well. In the past few years we have seen an
increase in the taxable income limit.
This paper highlights the features of Laffer curve and how it applies to India. It also
looks into the supply-side economics.
The Laffer curve is used to illustrate the concept of taxable income elasticity
which is the idea that government can maximize tax revenue by setting tax
rates at an optimum point and that neither a zero percent tax rate nor a
hundred percent tax rate will generate government revenue. The curve was
popularized by Arthur Laffer, although the underlying principle was known
since the time of Ibn Khaldun’s Muqaddimah (1377). J. M. Keynes in his
General Theory of Employment, Interest and Money described how
increasing taxation past a certain point might lower revenue and vice versa.
The Laffer curve illustrates the basic idea that changes in tax rates have two
effects on tax revenues:
The Arithmetic Effect: If tax rates are lowered, tax rates revenues
will be lowered by the amount of the decrease in the rate. The reverse
is true for an increase in tax rates.
The Economic Effect: The economic effect, however, recognizes the
positive impact that lower tax rates have on work, output and
“A well-informed
mind is the best
security against the
contagion of folly and
of vice. The vacant
mind is ever on the
watch for relief, and
ready to plunge into
error, to escape from
the languor of
- Ann Radcliffe
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010
employment and thereby the tax base, by providing
incentives to increase these activities. Raising tax
rates leads to opposite economic effect by
penalizing participation in the taxed activities. In
other words, this effect contributes to how raising
taxes decreases revenue and lowering taxes
increases revenue.
According to this logic, higher taxes discourage
business activity and drive down tax revenues.
Conversely, lower taxes encourage business investment
and high after tax income provides a greater incentive
for employees to work more. This increased economic
productivity results in an increase in tax revenues
despite the lower Tate of taxation. Because the
economic effect and the arithmetic effect more in
opposite directions, the bottom line implications of
any given tax increase or decrease are not easy to predict
with exact certainty. As the arithmetic effect always
works in the opposite direction from the economic
effect therefore, when the economic and the arithmetic
effect of tax rate changes are combined, the
consequences of the change in tax rates on the total
tax revenues are no longer quite so obvious.
Determining the tax rate at which productivity and
revenues are both maximized is the subject of great
political debate because the Laffer curve does not
provide a clear numerical answer to the taxation
question – it merely suggested that such a hypothetical
rate does exist.
The idea inherent in the Laffer curve has been
described many times prior to Arthur Laffer, by
Ibn Khaldun (Islamic Scholar) in 14th century
Alexander Hamilton (Politician) in 18th century
Frederic Bastiat (French Economist) in 19th
Confederate States of America in 19th century
J. M. Keynes (Economist) in 20th century
It is important to note that Laffer does not claim credit
for the idea although he does seen to be responsible
for popularizing the concept and its implications to
policy makers.
The early 1980s saw the emergence of a new school
of thought that emphasized the impact of aggregative
supply on the economic growth of nations. This new
school of thought was called supply side economics.
Supply side economists stated that an economic
environment should be created:
to provide incentives for people to work and save
for the firm to invest and create employment ;
& this will result in an increase in aggregate supply.
The supply side economists assumed that:
The aggregate supply demand of the nation was
always adequate; and
It would absorb the aggregate supply.
The supply side economics laid emphasis on:
Liberalization of economy;
Reduction in social spending;
Reduction in tax rates;
Promotion of free labour market
The main objective of the supply side economic
policies is to improve employment and reduce inflation
in the economy and thereby achieve economic growth
and development. It is believed that incentives and tax
rates influence the economy’s aggregate supply to a
great extent. The tax rates induce people either to
produce or to utilize their resources in a productive
manner because tax rates determine the level of
disposable income.
Factors determining the economic growth
in supply side economics
The two important factors which determine the
economic growth in the supply side economics are:
Incentives: The first factor which determines the
economic growth is the incentives provide by the
government. It is argued by supply side economists
that tax cuts influence post tax factor rewards.
Enforcing tax cuts would imply increase in the
after-tax rewards that individuals earn for working,
saving or investing. When people gain by higher
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010
rewards or incentives, it encourages them to work
more or invest more in order to gain higher profits.
This results in increased productivity and
entrepreneurs invest additional capital into the
economy which in turn has an impact on the
aggregate supply in the economy. The economists
believe that a reduction in taxes induces the people
to save and invest which results in economic
Tax Cuts: Another important factor determining
the economic growth is tax cuts. Arthur Laffer,
one of the main proponents of supply side
economics argued that high tax rates led to a
reduction in tax revenues. According to him, higher
tax rates led to shrinking tax bases. This was due
to the fact that higher tax rates cause reduction in
economic activity. The economic activity is reduced
because higher taxes discourage individuals from
working and entrepreneurs to invest. The higher
tax rate no longer gives the government higher total
tax revenue. So the government will gain only by
reducing the tax rates, thus pushing up the incentive
to work and increasing the base on which taxes
are levied. Therefore, Laffer advocated tax cuts for
economic growth.
The Laffer curve, a mound shaped indicator was
designed to find the ideal tax rate that would help the
government, as well as the people it serves prosper.
The idea is credited to economist Dr. Arthur B. Laffer,
although Laffer himself notes that Muslim philosopher
Ibn Khaldun wrote about it in “The Muqaddimah” a
14th century text. J. M. Keynes also wrote about it in
his economic works. There is a concerted effort even
in the financial media to get governments to use the
notion of a “Laffer Curve” to justify arguments for
substantially reducing taxes on profits. Since mid 1970s,
the idea of such a curve with particular uniqueness
has been used to promote tax cuts for the rich, on the
ground that this would result in an increase in tax
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010
The Laffer Curve reflects the view that when tax rates
rise, initially revenues gained from such rates would
rise, but beyond same maximal point any further
increase in taxes would in fact reduce revenues either
because individuals would work less rather than earn
more and have it taxed away or because they would
find ingenious ways of tax evasion.
In practice, there are host of factors which determine
the revenue generated by a given structure of taxes.
These factors are:
The nature and efficacy of the tax administration;
The justice implicit in the tax system;
Per capita income of the country;
The extent of income inequality;
The perceptions of the people regarding the use
of tax revenues by the government
The curve is most understandable at both extremes
of income taxation – zero percent and one hundred
percent – where the government collects no revenue.
At one extreme a zero percent tax rate means the
revenue of the government is of course zero. At the
other extreme, where there is a one hundred percent
tax rate, the government collects zero revenue because
tax payers presumably change their behaviour in
response to the tax rate, either they have no incentive
to work or they avoid paying taxes, so the government
collects one hundred percent of nothing. Somewhere
between zero percent and one hundred percent
therefore, lies a tax rate percentage that will maximize.
Here it is important to note that the curve achieves its
maximum will vary from one economy to another and
depends on elasticity’s of demand and supply and is
subject to much theoretical speculation.
The Laffer curve was first drawn by economist Arthur
Laffer in 1974 on a cocktail napkin during a small
dinner meeting at the Washington Hotel attended by
the late Wall Street Journal editor Robert Bartley and
such high-powered policy makers as Dick Cheney and
Donald Rumsfeld. The Laffer curve helped launch the
Reaganomics Revolution in America and a frenzy of
tax rate cutting around the globe that continues to this
In economics, this theory is one of the simplest
concepts. Yet its logic continues to elude the class
warfare lobby, whose disbelief is unburdened by the
multiple real-life examples that validate its conclusions.
The idea is that lowering the tax rate on production,
work, investment and risk taking will spur more of
these economic activities and thereby will often lead
to more tax revenue collections for the government
rather than less.
The important features of Laffer curve are mentioned
herein below:
The Laffer curve is a popular tool in shaping and
analyzing economic policy problems.
The Laffer curve is often used to explain the
behaviour of a revenue maximizing bureaucracy.
The Laffer curve illustrate the concept of “taxable
income elasticity”, which is the idea that
government can maximize tax revenue by setting
tax rates at an optimum point and that neither a
zero percent tax rate nor a one hundred percent
tax rate will generate government revenue.
The Laffer curve became an icon of supply side
economics. Some economists said that it proved
that most governments could raise more revenue
by cutting tax rates, an argument that was often
cited in the 1980s by the tax cutting governments
of Ronald Reagan and Margaret Thatcher.
The principal of the Laffer curve is present in
virtually every business decision where the overall
objective is to maximize profitability through the
determination of setting prices consistent with the
ability and desire of the consumer to buy. Setting
higher prices produces a shortfall in sales and
revenues while setting lower prices produces
shortfall in profits.
The parabolic shape of the Laffer curve
demonstrates that there is no one exact point or
tax rate that changes incentives. However, there
are at least two rates of taxes that will produce the
same tax revenue (points A and A* in the graph
below). At lower tax rates there is little resistance
to paying tax, but as tax rates rise, each of us
reaches a point where we take actions that will
reduce our exposure to these higher tax rates.
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What Laffer Curve does not Claim
The Laffer curve does not claim the following:
The Laffer curve does not claim that lowering
income tax rates will always bring in more revenue.
It only claims that a lower income tax rate may
bring in more revenue. If the tax rates are already
very low, lowering the rates may not bring in mire
revenue. But if the rates are too high, lowering the
rates will bring in mire revenue.
The Laffer curve does not claim to know exactly
what tax rate is the ‘right’ tax rate. In fact, the only
way to know if the current tax rates are too high is
to lower them and see whether revenues increase
or not. If the tax revenues increase, the rates were
too high. If the revenues decrease, the rates were
too low.
The Laffer curve does not address questions of
envy and redistributionist politics. It only addresses
the question of how to have the healthiest
economy producing the highest income tax
The Laffer curve itself does not say whether a tax
cut will raise or lower revenues. Revenue responses
to a tax rate change will depend upon the tax
system in place, the time period being considered,
the ease of movement into underground activities,
the level of tax rates already in place, the prevalence
of legal and accounting driven tax loopholes, etc.
The Laffer curve does not promise to solve social
The Laffer curve does not promise to force elected
representatives to propose and enact lower
spending programmers. The Laffer curve only
promises that, if tax rates are too high and they
get lowered, revenues will increase.
Laffer Curve and Capital Gains Tax
To study the effects of taxation on taxpayer behaviour,
changes in the capital gains tax rate provide a unique
opportunity. When we compare capital gains with other
heads or sources of income we find it different in the
sense that people have more control over the timing
of the realization of capital gains.
When we see the past trends in the capital gains tax
rate, the historical data show an incredibly consistent
patter. When capital gains tax rate was cut, there was a
surge in revenues. With increase in capital gains tax
rate, revenues take a dive. No one wants to pay higher
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010
taxes. If an investor could choose when to realize
capital gains for tax purposes, the investor would clearly
realize capital gains before tax rates are raised.
The actual basis of the Laffer curve is the knowledge
that if you want more of something then reduces the
cost of producing it. In this case it is not really tax
revenues that we want to increase but investment.
Investment is fuelled by savings. Hence, capital gains
taxes strike at savings and investment which in turn
keep living standards lower than they would otherwise
be. From this we can conclude that capital gains taxes
are also transaction taxes. Where they are levied on
the sale of assets for example shares, they have the
effect of reducing the number of transactions because
this is an easy way of avoiding the tax.
Major Periods of Tax Rate cuts in the USA
For the past one hundred years, there have been three
major periods of tax rate cuts in the USA, namely;
The Harding-Coolidge cuts of the mid 1920s:
In 1913, the federal progressive income tax was
put into place with a top marginal rate of seven
percent. Due to World War I, this tax rate was
quickly increased significantly and peaked at
seventy seven percent in 1918. Then through a
series of tax rate reductions, the Harding-Coolidge
tax cuts dropped the top personal marginal income
tax rate to twenty five percent in 1925. In 1920s,
tax rate on the highest income brackets were
reduced the most which is exactly what economic
theory suggests should be done to spur the
economy. The tax cuts resulted in an increase in
the share of total income taxes paid by those
marking more than $100000 per annum from 29.9
percent in 1920 to 62.2 percent in 1929.
The Kennedy cuts of the mid 1960s: During
the depression and World War II, the top marginal
income tax rate rose steadily, peaking at an
incredible 94 percent in 1944 and 1945. The rate
remained above 90 percent well into Kennedy’s
term. President Kennedy proposed massive tax rate
reductions which were passed by Congress and
became law after his death. The tax rate cut in 1964
reduced the top marginal personal income tax rate
from 91 percent to 70 percent by 1965. In the four
years following the tax cut, federal government
income tax revenue increased by 8.6 percent
annually and total government income tax revenue
increased by 9 percent per annum.
The Reagan cuts of the early 1980s: President
Reagan signed into law the Economic Recovery
Tax Act (ERTA) in 1981. The ERTA slashed
marginal earned income tax rates by 25 percent
across the board over a three year period. The
highest marginal tax rate on unearned income
dropped to 50 percent from 70 percent. Internal
Revenue Service data reveal that tax collections
from the wealthy, as measured by personal income
taxes paid by top percentile earners, increased
between 1980 and 1988 despite significantly lower
tax rates.
Each of these three periods of tax cuts was remarkably
successful as measured by virtually any public policy
Three Concepts of Tax Cuts
The three concepts of tax cuts are described herein
Size of tax cuts: It is clear that people do not
work consume or invest to pay taxes. They work
and invest to earn after tax income and they
consume to get the best buys after tax. So people
are not concerned with taxes but with after tax
Timing of tax cuts: People generally decide as
to how much they work, when they work when
they invest and when they spend. Lower expected
tax rates in the future will reduce taxable economic
activity in the present as people try to shift activity
out of the relatively higher taxed present into the
relatively lower taxed future. So in the periods
before tax cuts take effect, people will defer income
and then realize that income when tax rates have
Location of tax cuts: Finally, people can also
chose where they earn their after tax income, where
they invest their funds and where they spend their
money. Regional and country differences in various
tax rates matter.
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010
Laffer Curve & Budget Deficit
According to Laffer, the curve is and always has been
a pedagogic device illustrating that change in tax rates
influence both the revenue collected per dollar of tax
base and the very size of the tax base itself. The
sophomoric notion that such a curve purports to show
that cutting tax rates automatically reduces deficits
should never have seduced any profound ‘insider’.
Lower tax rates may or may not reduce the budget
deficit. Many factors come into play. The longer a
reduction in tax rates is in existence, the more likely it
will expand total revenues.
The Ideal Tax Rate and The Politics of The
The subject of great political debate is determining
the tax rate at which productivity and revenues are both
maximized. Laffer curve does not provide clear
numerical answer to the taxation question however; it
merely suggested that such a hypothetical rate does
exist. In politics world, it all comes down to theories
on how to manage the economy of the country. The
Laffer curve is an idea closely aligned with supply side
economics and the tax cutting policies of former
President Ronald Reagan which are often referred to
as “Reaganomics”.
There are two arguments about it. One argument says
that rich capitalists create jobs for the poor, as such,
the rich should be give free reign to manager their
businesses with a minimum interference from the
government side. The benefits of increased
productivity will then flow to the poor. So, the gains
from the tax rate cuts will allow the rich capitalists to
provide more jobs to the poor. According to this
argument, additional tax revenue is generated because
the poor have higher incomes to tax. The second
argument states that governmental redistribution of
society’s wealth via taxation is a vehicle to take from
the rich and give to the poor. To proponents of this
argument views the first argument as giving the
majority of the benefits to the rich and letting the
leftovers trickle down to the poor.
Both sides of the debate cite an extensive array of
statistical data to support their views. But neither side
agrees with the statistical data provided by the other,
but both groups generally agree that the Laffer curve
is legitimate. Supporters of supply side economics
argue that the economy is always positioned on the
Laffer curve in a manner such that tax cuts increase
revenue, whereas their counterparts argue the reverse..
India’s Laffer Curve
The Income Tax Act, 1961 contains the law relating
to taxability of income in India. It covers different
aspects of taxability of income namely; levying of
income tax, computation of total income, exemption,
deductions, power of the tax authorities, penal
provision and appellate procedures, etc.
We have also the Income Tax Rules, 1962 which
contains the procedural aspects, guidelines in respect
of the working methodology of different sections of
the Income Tax Act. Lots of amendments have been
made in the Act since its enactment. Every year
amendments are brought in through the Finance Act,
deleing and modifying earlier provisions.
The Income Tax Act provides incentives in the form
of tax concessions and holidays to specific industries
and regions of the country and in this way it has been
used over the years as an important tool for focused
economic development. Also the concessions provided
to businesses set up in special economic zones, export
businesses and businesses set up in specified regions
of the country. There are lots of litigations are pending
at various levels – tax authorities, tax tribunals, High
Courts and the Supreme Court. Huge amounts of time,
effort and money is wasted in the litigation process at
different levels. This time, effort and money could be
saved if decision on tax issues can be reduced. In the
current tax scenario however, this looks difficult due
to complexities in the tax structure.
There is sufficient evidence to support the view that
whenever tax rates are reduced, the law is simplified
and compliance procedures made more convenient,
the relative percentage of both tax compliance and
revenue collection has increased. The lowering of tax
rates in India in the liberalization period has resulted
in far better revenue collections. If the proposed new
tax code is simplified, not only by reducing the number
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010
of sections in the stature book but also by making it
procedurally simple, limiting the number of
exemptions and deductions to the minimum, it will
surely help because maximum litigations are related to
exemptions and deductions. Therefore, key elements
should be identified and resolved first.
Finally, India is at the threshold of becoming a true
global player and tax laws do play a vital role in any
investment decision. There should be certainty on the
tax liability likely to be incurred on a business
transactions may it be international or domestic. Turing
India into a zone of good taxation could give a big
impetus to economic growth.
Many of the Indian States that reduced the rates have
found the typical working of the Laffer curve
phenomenon. In Karnataka for instance, the tax rate
was reduced from 16 percent in 2001-02 to 8 percent
in 2002-03 and revenue from stamp duties grew 30
Criticism of Laffer Curve
Laffer curve is criticized on the following grounds:
Strong Tax Collection Machinery: The Laffer
curve states that at higher rates of taxes people
does not like to pay tax and try to evade taxes. But
it is argued that if the tax collection machinery is
strong enough, free from corruption and stringent
punishment is there for evading the tax, than hardly
any person will evade tax.
Incorrect Assumptions: The Laffer curve
assumes that the Government will collect no tax
at a 100 percent tax rate because rationally no
person will choose to carry out work if they receive
none of the economic return from that work.
However, some economists question whether this
assumption is correct. For instance, in a classically
structured Communist society, there was an
effective 100 percent tax rate and whilst these
societies may have been highly inefficient people
did continue to work to some extent.
Keynesian Critique: Some economists argue that
while tax cuts are beneficial to the economy, they
are beneficial for different reasons. It is suggested
by Keynesian economics that an increased
government deficit – for instance, resulting from
a tax cut will stimulate economic output. This leads
some to identify instances of the Laffer curve as
periods of Keynesian demand stimulation.
Neo Laffer Curve: An example of a neo-Laffer
curve, plotted from actual corporate tax rates and
revenues in various countries in 2004. The grey
neo-Laffer curve demonstrates that real life
scenarios may not follow what the green Laffer
curve predicts. A harsher critique of the Laffer
curve can be seen with Martin Gardner’s satirical
construct, the so called neo-Laffer curve. The neo-
Laffer curve matches the original curve near the
two extremes of 0 percent and 100 percent but
rapidly collapses into an incomprehensible snarl
of chaos at the middle. Gardner based his curve
on actual US economic data collected in a fifty
year period by statistician Persia Diaconis. The
Neo-Laffer curve is most commonly used to
selectively criticize the right half of the Laffer
curve. However, it also implies that the left half
of the curve should be just as unpredictable (i.e.
that raising taxes has an unpredictable effect on
To conclude, we can say that Laffer curve remains
basically a suggestive ad hoc relation besides the fact
that it is widely referred to as a policy tool and a
theoretical input for analyzing bureaucratic behaviour.
The Laffer curve is a popular tool in shaping and
analyzing economic policy problems. The Laffer curve
also holds true in India as well. In the past few years
we have seen an increase in the taxable income limit.
Corporate tax collections have registered a good jump
so far. Any country which is to the right of the
maximum would gain by reducing tax rates either
because it would have the supply side effect of
encouraging more work and output and therefore
generating more taxes or would ensure greater tax
compliance and therefore increase tax revenues. In
practice, there are lots of factors which determine the
revenue generated by a given structure of taxes. Thus,
the optimal maximum tax rate is impossible to specify,
unless lots of variable factors are taken into account.
There is a clear tendency among nations to attract
investments and reduce their corporate tax rates.
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010
Economics for Managers, ICFAI Press
Keynes, J. M.: “The Collected Writings of John Maynard Keynes”, London: Macmillan, Cambridge University Press, 1972
Laffer, Arthur: “The Laffer curve: Past, Present and Future”, Heritage Foundation, Backgrounder.
Monissen, G. Hans: “Explorations of the Laffer Curve” University of Wuerzburg, Germany
Moore Stephen: “The Economy Booms and Arthur Laffer Has the Last Laugh”, Opinion Journal Archives
Ramanujam, T.C.A.: “A Case for Competitive Tax Rates”, 2007
Reynolds, Alan: “The Laffer Curve Renamed”, Humaneventsonline. Com
Vasal, Vikas: “India’s Laffer Curve Inflexion”, 2007
Internet Sources
Wikipedia, the free encyclopedia
Newspaper Source
The Hindu Business Line
MBA, M. Com., MA (Eco), NET, Ph. D
Assistant Professor,
Faculty of Management, Moradabad Institute of Technology
MBA, M. Com., Ph. D
Faculty of Management Studies, Institute of Rural Management
Singh & Yadav • NSB Management Review • Volume 2 • No. 2 • February 2010