Case study 9.1 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:

1. 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.

2. 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

public sector 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.

3. 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.

4. 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.