Strategic Marketing

Marketing Strategy: HDFC Times Card

Study of the industry and Strategic Marketing Issues

AnkitBharadwaj Abhimanyu Gupta 3/7/2013

11PGDM071 11PGDM001

Contents
Overview of the Credit/Charge card Industry........................................................................................... 2 Future trends in the industry ................................................................................................................ 2 The profit sharing model....................................................................................................................... 3 Critical success factors in the Credit Card category .............................................................................. 3 Key Marketing Assets for the Credit Card category .............................................................................. 3 Growth categories for Indian Banks ......................................................................................................... 4 HDFC TIMES CARD......................................................................................................................................... 5 The product and the strengths and weaknesses ...................................................................................... 5 Existing prevalent segmentation of the market for Credit Cards ............................................................. 6 Target Segment for the Times Card .......................................................................................................... 8 Marketing Mix ....................................................................................................................................... 8 Competitive Positioning ...................................................................................................................... 10

1|Page

Overview of the Credit/Charge card Industry

A total of 609.8 million credit cards are held by U.S. consumers. In recent times with thehelp of information technology, it has now becomepossible for Indian banks to deliver products and servicesefficiently and to improve customer base withoutopening new branches. Hence, new private andforeign bank players are trying to compete with old banks onthe basis of adoption of new technological serviceslike plastic cards, PC banking, Electronic FundsTransfer (EFT), Internet banking etc. to approach themaximum customers inspite of having less physicalbranches (Venkatesan and Kumar, 2007). Due to thisreason, public sector banks are also moving towards electronic banking, which is ultimately leading the entire banking sector to the remarkableimprovement with respect to its efficiency, customerservices, productivity, profitability etc. Thus, Banksare now reengineering the way in which their servicescan be reached to their customers by bringing inflexibility in their "distribution channels" Indians use a credit card for an average payment amount of about Rs 55,000 in a year which is nearly 30 times the money spent through debit cards.However, the number of debit cards in the country is more than 15 times than that of credit cards, shows an analysis of data available with Reserve Bank of India.At the end of the last fiscal, 2011-12, there were 1.76 crore outstanding credit cards in the country, which rose further to 1.8 crore by June 2012. Industry is in the growth stage. Year 2003-04 2004-05 2005-06 2006-07 Outstanding Cards (mn) 10.1 14.1 17.3 23.1 Transactions (mn) 100.2 129.5 156.1 169.5 Value of Transactions (Rs bn) 176.6 256.9 338.9 413.6

Credit Card usage in India upto 2007

Future trends in the industry

According to CLSA Report, the estimatedcredit card base in India till 2020 will be 127 million as compared to 23.1 million in 2007. In late 2007, most of the companies hadannounced plans to convert their credit/debitcards to smart cards by replacing themagnetic stripes in them with computer chipsand incorporating latest encryptiontechnologies. So it would not be long beforesmart cards established themselves in India.

2|Page

The profit sharing model

The players involved: Banks and Credit Card Platform Company. How the bank makes money: Incurred to the customer are late payment Fee. Fee for exceeding credit limit, cash withdrawal fee, annual fee and interest charged on outstanding balances (high since the loans are unsecured) How the company offering the platform makes money: Incurred to the merchant are transaction fee of 2-6% on the value of every transaction.

Critical success factors in the Credit Card category

1. Co-branding : as a product with lifestyle and image appeal branding is important intangible resource for sustainable competitive advantage 2. Strength of the bank: the partnering bank bears the risk of delinquency and also sets the interest rate on non-payment and the fees. The bank should be able to bear interest burdens, have healthy deposits and risk management capabilities 3. Strength of the relationships: relationships and negotiated deals with merchant establishments is the key differentiator and translates into benefits offered to the consumer 4. Default and compliance management

Key Marketing Assets for the Credit Card category

1. Branding Brand involvement can be high as the acquisition of the card is a status symbol 2. Existing customer base the partners must have a large customer base as in India customers tend to prefer credit cards from banks in which they have savings accounts. This is more important to reach out to the new middle class than the HNIs 3. Partnerships partnerships between banks, merchant establishments and the service providers. 4. Alliances with merchant establishments the credit card brand should enjoy negotiated deals with a large number of merchant establishment across entertainment, dining, retail and fuel stations, to be able to pass on the discounts and benefits onto the customers 5. Exclusivity the lifestyle appeal of the credit card is in the form of exclusive offerings such as concierge services and fine dining facilities and membership to exclusive clubs (eg: the Amex Black card)

3|Page

Growth categories for Indian Banks

A summary of the growth category of banking products is given below together with the sources of risk. Category Number of players Major Competitors Sources of Risk

Credit and charge cards

Low

HDFC, ICICI, SBI

Co-branding success, Behavioral aspects, delinquency Volatility in interest rates, profiling for credit worthiness Delinquency, interest rate volatility Economic cycles, domestic demand, exchange rate Delinquency, credit worthiness, interest rate volatility

Education Loans for mass market

High

PSBs, HDFC, Scholarships

Housing Loans for the lower-middle class Wholesale loans for MSMEs

Medium

PSBs

Medium to High

PSBs, all private players, MNC banks

Auto Loans

Medium

PSBs, all private players

4|Page

HDFC TIMES CARD

The product and the strengths and weaknesses

Variant HDFC Times Platinum

Annual Fee (INR) 1500

Benefits to customer 25% on movie tickets 15-20% on dining bills 55% on times group offers Interest free credit facility Fuel surcharge waiver Times group offers Welcome offers depending on the city

Benefits to merchant establishments Discounted ad rates Positive reviews and coveragein magazines and supplements Draw crowds in Times events

HDFC Times Titanium

500

Some salient features: Dining offers in 40 restuarants in Delhi/NCR at 15% discount. Movie offers with DT and Fun cinemas. 15% off on classified ad bookings and 55% on magazine subscriptions (ranging from Femina, Filmfare to Lonely Planet)

5|Page

Strengths of the offering viz competitors: Core Capabilities: Core-capabilities can integrate assets and capabilities to enable the firm to move in its chosen strategic direction. Times group is a leader in media, and has created an entertainment ecosystem with its magazine and event management business. It has a huge existing customer base and th its relationships with restaurants, clubs and entertainment together with the resources of HDFC, the 6 largest Indian bank by assets with branches in 1399 cities and ATMs in 995 cities of India allow. The card strips away sacred product attributes in the category and offers new ones, particularly concentrating on entertainment. Weaknesses: Rewards exclude air miles, concierge services, hotel and telecom categories. The risk is the card will not be perceived as member of the category by customers.

Existing prevalent segmentation of the market for Credit Cards

High Net Worth Individuals

The initial users of Credit Cards in India were HNIs with western education or family links with Western countries. Furthermore, relatively highpricedstatus symbols are associated with globalised consumption (Lakha, 1999). This HNI segment is relatively stable in terms of liquidity and not at a risk for default even during lean economic times, as is seen by the Crisil Top of the Pyramid Report 2011. An aggregate of the different personality profiles found amongst HNIs can be drawn below together with the changing natures. Personality Variable Education Self-made, Inheritors and Professional More educated than his fathers generation. 36% have masters/PG degree against 13.5% Inheritors: opportunistic spending patterns, Self Made: balanced spending pattern with a conservative bend, Professionals are midway but with major opportunistic component Art, Vintage Liquor, Exclusive holiday Typical Indian HNI earmarks 20-30% of his portfolio for exotics Sophisticated Well Travelled (looks for at least 2 weeks of international travel) Have brand affinity and understand

Spending Patterns

Other personality traits

6|Page

brand value (convenience over cost)

Source: Crisil Top of the Pyramid Report 2011 Inheritors and Professionals amongst HNIs are usually the target segment for Premium Credit and charge cards such as the SBI Signature and the Amex Centurion Card. Given that Credit Cards followed the prevailing trend of Premiumization in India, in which products are positioned at an aspirational level and the line is extended downwards from a Premium positioning platform. This was noticed by ITC Ltd, in regards to marketing FMCG products. It holds particularly true in regards to products with Image and Lifestyle appeals such as Credit Cards. Theliberalization of the Indian economy had marked a profound transformation in the characterand values of the middle class in India. The impact of Western/global influences on business, entertainment, food, fashionand housing habits and activities of the middle class has clearly intensified since the economic liberalisation of the 1990s.

The New Middle class

The new middle class is not new in terms of its structural or social basis in which it tends to be traditional. It is new in terms of aspirations and buying behavior, characterized by a considerable increase inconsumption practices and aspirations for privileged lifestyles, strengthening andreinvigorating its social and class identity through a conspicuous consumer culture,unseen in the country earlier. It is also young, with the median age of India's population as a whole being 28, significantly lower than that of regional peers China and Japan( Euromonitor survey). The new middle class seeks to construct its identity through employment status and acquisition of status symbols. The distinction from the old middle class is manifest also in preferential visits to modern departmental stores and shopping malls, which virtually distance prosperous middle class consumers from those who are not part of this group

7|Page

Target Segment for the Times Card

Segmentation used will use the psychographic and demographic bases as prevalent in segmenting the market but additionally the target customer for the HDFC Times Card is not a frequent traveler and is necessarily outgoing (dining and movies). The card is not targeted at travelers, globe trotters or HNIs with a focus strategy on creating a unique positioning with creative segmentation and reverse positioning by eliminating unnecessary card features for the target segment (such as air miles for urban professionals in static jobs) and offering value in an underserved segment. We find that the card offering is a fit between the companys resources, its corporate strategy of deepening relationships with its core customers as youth brand, and the target segment of urban youth. Times groups ecosystem of media and entertainment and its resources in brand, customer base and relationships with dining and movie establishments, combined with the resources and capabilities of HDFC bank to handle delinquencies and manage risk and payment allow the HDFC Times Card to reach a previously underserved segment. Characteristics of the The Bon Vivant: 1. Subset of the new middle class. Urban working professional with disposable incomes. The product is offered for only these 8 cities. 2. Frequently outgoing by nature and seeking both status signaling (eliminating the no annual fee no reward competitors) and discounts at several outlets as a benefit. 3. Cashless transactions with plastic money facilitate more consumption in line with the selfconfident nature.

Marketing Mix

It is very important to develop a marketing mix for the Times Card as based on this particular identity we can develop our competitive positioning Product: The product on offer is not just a credit card but more importantly a card that allows for cashless payment at the time required and also at the same time offers convenience. We need to be clear that what is being offered by Times card is a product of convenience and without some of the extra features that are offered by the competitors but not necessarily used by the user. Also in the Augmented product offering lie the different discounts etc provided because of the use of the credit card. Price:

8|Page

While developing the pricing of the product thus provided we need to make the following consideration on the value to the customer. As this product is both aspirational and at the same time a product delivering convenience hence we need to price nominally. The actual revenue in such sort of a product/service is from the transactions done by the users so the product price would be a yearly subscription fees. Promotion: Here the strategy would be to create awareness about the brand and to accentuate the extra features being provided by the card Place: Place in the sense of a credit card doesnt really have much say as the distribution of the credit card would be through a direct marketing route.

9|Page

Competitive Positioning

Importance

Distinctive and pre-emptive

Superior Communicable

Affordable and profitable

A card which offers discounts and rewards at a variety of hangouts for outgoing youth without features meant for HNIs and frequent travelers Discount on lifestyle and fashion magazines for the youth (AutoCar, Femina etc.) and offering noncash deals to merchant establishments (paid advertisements, equity) Discounts at more eating and movie outlets than any card at the same price Tagline Credit card that entertains communicates USP together with brand association of Times group with entertainment The card is priced for new middle class and the Platinum card is cheaper than those offered by banks like HSBC

Based on the above parameters we can easily define the competitive positioning for the product. This product/service will unlike its competitor be focusing on the underserviced target audience and thus will have a dedicated strategy towards the same. By reducing the core product offerings and supplementing them with other features HDFC Times Card can provide a better and more value delivering product. This can be thus called a strategy of reverse positioning which can help in delivering higher value and create a more differentiated product for the users. In this particular area we would also need to focus on the Brand and how the brand positioning can be leveraged. The corporate brand of Times Group stands for entertainment and fun with its plethora of TV channels standing a testament to it. Thus we can easily use this brand image to show top our customers the unique ability of being a fun brand when it comes to our product of even a credit card. This will be supplemented by the discounts that we would provide to our customers which will complement their lifestyle, we have to remember that we are targeting a certain sect of the society who stand for a particular lifestyle. Customer Service and Relationship Focus

The focus on Customer service and relationship is more in this industry than in any other industry and primarily because of this reasons we need to provide with much more features in this regard.The major duties to be performed by the customer service in this industry are to handle disputes and grievances which is of paramount importance in such an industry and secondly to sell additional products. An innovative way to be involved with the consumers and provide them with a quicker and more direct reply is to target them at places where they exist and thus the importance of the social media has increased many folds. Over social media the industry players are trying to provide its users timely data and information and at the same time through the rich inclusive media opportunities available they are trying to get new users and generate a greater bond with their existing users. Some innovative marketing campaigns focusing on Co-creation and thus relationships in this industry are as follows:

10 | P a g e

Facebook Like Contests: Chase has hosted a number of these contests, offering up amounts ranging from $500 to $1 million as a way to get social media users to Like them and therefore receive company announcements in the future. Leveraging the popularity of online games: Farmville, the popular product from the online gaming company Zynga, has more than 20 million unique visitors per month. That level of interaction explains why American Express developed a Farmville Prepaid Card that gives cardholders the chance to accrue virtual rewards and Discover offers a $100 virtual rewards bonus to new customers who sign up for credit cards through the games. Online rewards sharing: Citi enables cardholders to pool their rewards earning online in order to score especially valuable perks. Social-media based savings opportunities: American Express and Facebook teamed up to develop Link, Like, Love. Consumers who link their credit cards to their Facebook accounts can therefore claim special online deals and save automatically when they make associated purchases.

Risks and Recommendations

Since HDFC Times Card is not targeted at HNIs but the middle-class, it will miss the premiumization benefits and may not be able to skim the market. The pricing strategy seems to be of penetration in its target segment. It is important for it to communicate its benefits clearly and position itself for its niche effectively. The communication strategy should establish Points of Parity to gain membership of the Credit Card category in the minds of the consumers and also communicate the Points of Difference The Bon Vivant because of his assertive outward directed personality is also at a risk for credit default and profits may be tightly coupled with the health of the economy and job growth. HDFC needs to have risk management processes in place and the eligibility criteria should be revisited from time to time.

References:
Lifestyle of India's New Middle Class Shopping Malls, Credit Cards and Global Brands : Consumer Culture and Lifestyle of the Middle Class, Nita Mathur, SAGE Development of Plastic Cards Market: Past, Present and Future Scenario in Indian Banks, Asia Pacific Business Review Crisil Top of the Pyramid Report 2011

11 | P a g e