Case study

Customer acquisition at HDFC Bank

Until the 1990s, the banking sector in India was dominated by two main groups – the public-sector banks and the international banks. The former dealt with the mass market, although the quality of products and services provided was generally considered to be poor. The latter focused on the more wealthy segments and were typically very selective in terms of accepting new customers. Liberalization during the 1990s paved the way for the influx of new private-sector banks, the first of which was HDFC, launched in 1995. The bank’s research had identified a significant middle-class market, which expected a high quality of service and was willing to pay for it. These customers were not prepared to tolerate poor service and long queues in the public-sector banks, but equally were less trusting of the international banks and less attractive to those banks because they were outside the very high-income brackets.
As a new entrant, HDFC needed to develop its marketing mix in order to target these customers and persuade them to switch to HDFC. The basic value proposition that underpinned HDFC’s approach was that of ‘international levels of service at a reasonable price’. Specific marketing mix decisions were as follows.

Product

To meet the needs of the chosen mid-market segment, HDFC offered a comprehensive range of banking services, comparable to the product range of international banks. This was supported by the targeting of specific products to sub-segments based on differences in needs, expectations and behaviours. Staff were recognized as being of considerable importance, particularly those on the frontline, and the bank paid particular attention to recruiting staff with good customer service skills.

Price

HDFC offered its initial bank account with the requirement for a minimum balance of Rs 5000 – significantly below the typical international bank requirement of Rs 10 000, and so significantly cheaper, but still higher than the publicsector requirement of Rs 500. This ensured that HDFC had the margin to support the delivery of superior service, while remaining significantly cheaper than the international banks.

Promotions

HDFC supports its product and service offer with the usual range of above and below the line marketing promotion, with direct mail, e-mail and SMS becoming increasingly important. A significant recent innovation has been the use of sophisticated analytical techniques to test and evaluate campaigns. This has enabled HDFC to gain a better understanding of how customers respond to marketing promotions and use this information to develop more effective campaigns in the future. In addition, this analysis has enabled HDFC to target its communications more effectively, thus reducing marketing spend and the costs of acquisition.

Place

HDFC focused attention on the 10 largest cities in India, which account for close to 40 per cent of the population, and concentrated on gaining maximum market share in those areas before expanding to other cities. The decision to operate with a central processing unit allowed the bank to keep the cost of establishing a branch network relatively low, and thus supported more extensive coverage (around 500 branches in around over 200 towns and cities). Alongside its branch network, HDFC also delivered its services via ATMs, phones, the Internet and mobiles to ensure that it met the diverse set of needs of its midmarket customers.
The success of HDFC is evidenced in growth rates of 30 per cent per annum and a string of awards from AsiaMoney, Forbes Global, Euromoney and many others.

Case Study

Kwik-Fit insurance services

Since opening its first Kwik-Fit Centre in Edinburgh back in 1971, the company has grown to become one of the world’s largest independent automotive repair specialists and has established its credentials as a leading brand in the field of motoring. During 1994, Kwik-Fit came to the realization that technology in terms of advanced telephony and database management techniques provided an opportunity to address both of the strategic imperatives of defending the customer franchise and creating cross-selling possibilities. Thus, the idea of Kwik-Fit Financial Services (KFFS) was born. KFFS signalled a major form of diversification for Kwik-Fit. Motor insurance was the obvious first product for KFFS, and so it set up a panel of motor insurance providers and commenced its telemarketing operations in 1995.
To begin with, KFFS created an inbound model using significant abovethe-line advertising and promotion to create consumer demand-pull. It did not take KFFS long to realize that this model presented logistical and commercial challenges. First, it is difficult to plan the resources needed to handle demandpull telemarketing when using in-house facilities, and KFFS did not wish to outsource these functions. Secondly, the cost per sale did not make economic sense. Kwik-Fit responded quickly to this experience and created a wholly new model. This involved the creation of four separate groupings of telephone call agents, namely Research, Sales, Customer Service and Claims.
The research team role contacts customers who have used a Kwik-Fit Service Centre during the previous two days. Following an assessment of satisfaction, customers are asked whether they would like to receive a quotation for motor insurance, and a positive response to this line of questioning results in a lead. The motor insurance lead and relevant customer data are transferred electronically to the sales team, which makes outbound sales calls.
This new model has proved to be a great success solving the problems of resourcing and cost encountered in the earlier phase. Initially, the research team contacted some 5000 customers each day; more recently, the company has adopted a more precisely targeted approach by only telephoning those customers to whom it believes it can offer a competitive deal. By using this research encounter to obtain leads, Kwik-Fit has driven down the cost of customer acquisition dramatically. At the same time, it can manage sales call resourcing much more efficiently through the adoption of an outbound approach. This business model is an example of a service organization leveraging a real source of competitive advantage to achieve what in Ansoff’s terms is a strategy of product development. An unexpected spin-off from this research–lead–outbound call process was a material level of inbound requests for quotations as a consequence of word-of-mouth advocacy by ‘delighted’ customers.
So successful has this new business acquisition model become that the company has ceased all forms of demand-pull advertising and promotion. Its sole form of publicity is advertising in Yellow Pages. As at the end of 2005, some 75 per cent of KFFS’ new customers were sourced from the Kwik-Fit Service Centres, an additional 15 per cent originated via the directories, and the remaining 10 per cent via the Internet.
The third call agent grouping concerns customer service, and has the role of dealing with inbound customer service requirements such as a change of address or including an additional driver on the policy. Customer service call agents also have objectives – to generate leads to cross-sell other products which have now been added to the KFFS portfolio, including breakdown insurance, home contents and buildings insurance. In addition to general insurance products, the company also sells life assurance as an Appointed Representative of Legal & General. A further broadening of the product range concerns an arrangement the company has developed with Scottish Power to sell gas and electricity on its behalf. Again, calls are monitored frequently to ensure the quality of the call-agent–customer dialogue. The fourth team is responsible for the initial handling of claims in response to inbound customer contact. However, the actual claims management process is handed-off to the individual insurance companies.
KFFS has faced ever more intense competition from a widening variety of sources, including supermarkets and on-line brands such as Esure and the HBOS subsidiary Sheilas’ Wheels. It might be imagined that Direct Line poses the single most important threat. However, Direct Line does not have KFFS’ competitive advantage of low-cost acquisition via the nationwide Kwik-Fit Service Centre network. Direct Line would appear to be pursuing a somewhat selective customer recruitment policy, given that it underwrites its own policies. KFFS, on the other hand has an altogether more inclusive approach based upon its strategy of acting as an intermediary to a range of underwriting companies.
Now in its eleventh year of operation, it is estimated that KFFS has built an in-force book of more than 500000 policies, and for the last financial year it posted an operating profit of £6.8m. Its operation has grown to comprise some 800 employees, and it is considering further product range extensions. The company is believed to have the largest insurance outbound telephone marketing operation based in the UK. Moreover, KFFS has been rated as one of the UK’s best 100 companies to work for some four years in a row.