Indian banking, a conservative club with exclusive membership, was forced to open its doors to some new members

in the id-90s. These new membersthe private banks, helped by the winds of liberalisationchanged the face of banking as we knew it, forever. Earlier, the banking sector had just two types of players. On the one hand, there were the foreign banks, which were choosy and decided who to accept as a customer. At the other extreme were the public sector banks which catered to the masses but which were seriously found wanting in terms of products and services. Then there were the old private sector banks and co-operative banks, but they were mainly community-oriented. A large number of middle-class customers, though a tolerant lot, were looking for a change. This was the scenario when the new private banks stepped into the picture in 1995, HDFC Bank being the first. Market Analysis When HDFC Bank entered the scene, market shares were skewed heavily in favour of public sector banks. They held 86.19 per cent of the deposits, with the foreign banks holding 7.14 per cent and the old private banks holding 6.67 per cent share. Thanks Then The public sector banks did not believe in pursuing customers, preferring instead to wait for them to come to the banks. Given the width of distribution, most customers had virtually no choice. Foreign banks, meanwhile, concentrated primarily on the large metros and the immediate vicinity of their branches. While most foreign banks were happy waiting for their customers to come to the branches, some American banks had begun developing Direct Sales Agents to go to the customers doorstep and solicit deposits. Evolving Indian customer While the banking industry was in a state of flux, the customerswere evolving too. With liberalisation and the entry of international brands into the country, customer expectations had begun to change in terms of quality and service. The media boom and the advent of several satellite channels changed attitudes further. Indians had begun to travel internationally either on work or for leisure and had become more discerning. No longer were they willing to wait in long queues or tolerate condescending behaviour. This change began to reflect itself in terms of expectations from banks too. Players would be benchmarked against global standards, while services would be compared to the best of other industries as well. There seemed to be an opportunity for a bank that served customers well at a reasonable price. Consumer Behaviour Analysis Research conducted amongst customers of foreign and public sector banks revealed the following. Customers perceived banks to be trustees of the money they had deposited with them. However, when they dealt with public sector banks, they felt the bank staff behaved like they were doing them a favour. On the other extreme, the foreign banks seemed to emerge as fair-weather friends who dealt with them with clinical efficiency. Actual consumer statements of dissatisfaction with both segments are detailed below: Reasons for dissatisfaction with public sector banks l I cannot stand the rush and noise. It looks like a railway platform.

l Nobody cares whether a customers work is done or not. l The whole attitude is that of a government employee. l The whole bank is a mess with people shouting and files all over. l Their standard is to give cash in five minutes. It always takes 30 minutes. l They do not treat you as a customer, more like a beggar. Reasons for dissatisfaction with foreign banks l They suddenly raised the minimum balance and asked me to either increase the balance or go. l The whole atmosphere is artificial. l They look for posh people. l They charge you for everything. l They talk to you nicely but you know that it is unnatural. l They are trained. Their smiles are synthetic. Consumer perception of the HDFC Brand The favourable image that the parent company has amongst the burgeoning middle class, having disbursed housing loans for over two decades, also helped greatly. Associations with HDFC l Consumers connected emotionally with the brand, as it hadhelped them buy homes l While they had lent money, they treated consumers with grace, trust and professional service HDFC Bank could ride on this image The Opportunity: In the polarised banking scenario, with a large unfulfilled need gap, a bank that offered the best of both worlds had a ready and waiting market. Acquisition Strategies An effective Acquisition Strategy is based on acquiring profitable customers at a low cost and is based on an effective business plan that covers a host of activities: * Customer segmentation as an Acquisition Strategy Research revealed that there were basically two types of customers: those who were willing to pay for service and those who werent. These customers lay in two buckets, either with public sector banks or foreign banks . What was revealing was that there were several customers who were willing to pay for service but currently banked with public sector banks, as they had no choice. This was the market that appealed to HDFC Bank and was consciously targeted for conversion with success. Those customers who were unwilling to pay for service with public sector banks and those who associated with foreign banks for the status attached to them were not targeted as it would have been a waste of resources. * Value proposition as an Acquisition Strategy Addressing the need gap, HDFC Bank decided to offer international levels of service at a reasonable price. This proposition was relevant to a vast and statistically significant

middle-class market. Given the fact that this was what the market was waiting for, it met with great success and helped make acquisition an easier task, as it addressed consumer needs. * Pricing as an Acquisition Strategy In 1995 there were only two pricing points for consumers. One could choose between a foreign bank with an opening balance of Rs 10,000 and upwards or a public sector bank at Rs 500, with polarised levels of service. HDFC Bank decided to offer international levels of service and technology at Rs 5,000, thus suddenly growing the market as a huge chunk of public sector bank customers who were willing to pay for service found an alternative. * Distribution as an Acquisition Strategy It is also important to know where your most important markets are, and thus focus on those for best results. RBI data (July 2000), for example, shows that the top 10 cities account for 38 per cent of the all-India market in deposits. It therefore enables us to concentrate on getting maximum market share in those markets by offering a wide range of products and services. Once the top ten centres were covered, focus was shifted to the next 20 cities. This focus on the top 30 cities covered 49 per cent of the deposit market. HDFC bank also consciously decided to have a Centralised Processing Unit (CPU) that took care of all back-office functions and thus left branches to concentrate on selling. This allowed the bank to set up smaller branches at a lower cost * Technology as an Acquisition Strategy Harnessing enabling technology to provide convenience and quality service through multiple channels at value for money price points has been the banks mission from inception. To this end the bank invested in open systems and a scalable architecture that allowed it to ramp up easily and handle the rapidly growing volume of customers, apart from reducing costs. * Product range as an Acquisition Strategy A complete range of products, from a basic savings account to value-added services, loans, NRI and depository services, enables the bank to straddle the full product spectrum that fulfills any financial need. Thus we provide a customer the choice to start a relationship with several options. Products Value-added services Savings Accounts Internet Banking Current Accounts PhoneBanking, MobileBanking, ATMs Loans cars, Personal, LAS Demat International Debit Card NRI Services Bill Payment through channels * Choice of Channels for servicing as an Acquisition Strategy HDFC Bank offers multiple channels to customers to access their bank. There are customers who prefer to deal with the bank by coming to branches...and we have 126 of them in 46 cities. There are others who prefer to bank from electronic channels like

ATMs, phone, Internet or even the mobile. This choice helps in acquiring customers with varying behaviour patterns. * Value propositions as an Acquisition Strategy Different segments have different needs, and to offer a value proposition that appeals to each of these segments, the bank has launched various products. Younger, tech-savvy customers who are comfortable with direct banking channels like ATM, mobile phone, Internet and debit card can open a Freedom Account with just Rs. 1,000. Those who seek the familiarity of branch banking can avail of the basic savings account at Rs. 5,000. While High Networth Customers (HNW) are invited by the bank to start a relationship through the Preferred Account when their relationship size exceeds Rs. 5 lakh. * People as an Acquisition Strategy While one may talk of technology, access channels and products, one simply cannot ignore the human element. A human face and personal relationships are still imperative for growth. Therefore, getting the right kind of people at the right positions becomes crucial. At HDFC Bank, we have people who understand servicing, and our front-office staff belongs to various service sectors such as travel, hospitality, credit cards, etc. * Data Management as an Acquisition Strategy To enable the bank to understand the customer and consequently service him better, we have invested huge amounts to implement a data-warehousing and data-mining solution. This helps us analyse customer behaviour and thus develop relevant products and services for prospects. * Cross-Selling as an Acquisition Strategy With a wide network and multiple channel access, customers deal with the bank in several ways. Each interaction is an opportunity to cross-sell another product. After all, historically it has always been cheaper to sell to an existing customer than to acquire a new one. More banks are also leveraging routine communication such as account statements to carry marketing messages and cross-sell products while driving down communication costs. * Micro Marketing as an Acquisition Strategy Given the nature of the banking sector, customers always operate in a micro market which revolves around their residence. As bank branches are spread across the city, each branch vies for customers with competition in the vicinity. This also varies within a city and most certainly between larger metros and smaller metros due to the difference in competitive presence, service benchmarks and customer expectations. Acquiring customers requires different propositions and consequently every branch needs to draw up its own marketing plan. There also needs to be tight co-ordination of all sales channels DSAs, phone, DM, Mass media etc, for greater efficiency and optimum results. * Alliances as an Acquisition Strategy Several corporates focus on the same type of customer even though they may not be competing in the same business category. For example an ISP, a car manufacturer, a

cellular services provider, or a computer seller may be targeting the same SEC A customer. There is great merit in leveraging customer bases and making joint offers to customer bases and acquiring them. * Internet as an Acquisition Strategy While one may talk of various strategies and products etc. one needs to be alert to the changes that the Internet is bringing about. It has already challenged established paradigms, and will also force us to change our thinking. The medium obviously affords a wide reach and it is a boon, especially in reaching out to our NRI customers. Also, the interactivity of the medium offers an opportunity to have a one-to-one dialogue with the customers and get their feedback instantaneously. As and when webcams become a norm in most homes, one can also envision a virtual relationship manager (like Anna Nova the virtual webcaster). * Mergers an Acquisition Strategy However, finally, organic growth has its limitations. Toadys dynamic environment is forcing organisations to grow and reap the benefits of economies of scale at speeds hitherto unheard of. HDFC Bank set the tone for another first in the banking industry by acquiring TimesBank and overnight grew its customer base by over 3 lakh in 38 branches. With this precedent, mergers might just become the norm for rapid growth and customer acquisition in the banking industry. Conclusion Liberalisation has really changed the banking industry. It is no longer enough for banks to just manage money efficiently; they also have to manage customers, who now have a wide choice of alternatives. The future promises to be even more exciting, interesting and challenging, thanks to technology. No longer will banks, or any large organisation, treat customers as a group and segment them into just some demographic and psychographic profiles. The Internet has enabled us to talk to each customer as an individual, with different needs and requirements. Products will need to be developed to meet those needs, and services will become the crucial diffrentiator. For years, customers were part of the banks Fixed Assets; now they have moved into the Current Assets category, and it will be a task keeping them there.