banking and branding strategy yes bank

8/9/2019 Banking and Branding Strategy YES Bank

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I. Institute

Institute for Financial Management & Research (IFMR), Chennai, Plot 24 Kothari Road

Nungambakkam Chennai 600034

II. Participants

Name Course Contact Mail

Saurabh Fasate PGDM Full Time 9381335044 [email protected]

Srikant Rajan PGDM Full Time 9962552824 [email protected]

Vamsi Krishna PGDM Full Time ,

Financial

Engineering

9962382820 [email protected]

III. Team Name - Zeitgeist


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Executive Summary

In the first part of the report we evaluate the growth & allied business strategy for TPBoI

This is done by identifying its existing strength with regards to banking services and profitable

growth avenues for its core business. A suitable match is identified with regards to growth

strategy. Next we identified some allied business and evaluate their feasibility with regards to

the proposed growth strategy and other parameters. Business insurance is identified as the

service that would aid TPBoI achieving its objectives of profitability and standalone operation

of that business in the coming years. Top line financial projections are evaluated based on

current market size, competitor action and anticipated market share of TPBoI based on its

number of branches.

In the second part we investigate alternatives forbuilding a strong consumer brand. Here we

first identify the user perception about services and brands in the BFSI vertical. We focus on

respondents from tier 2 cities as the size and potential of these areas is higher compared to

metros. Based on current user perception we evaluate the branding construct to be employed

for TPBoI, in line with its growth and allied business strategy. Exclusivity and innovation are

identified as branding constructs for TPBoI and a branding strategy is crafted.


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PART 1 - GROWTH AND ALLIED BUSINESS STRATEGY

I. Growth Strategy

The Bank has already made investments in retail banking and is expected to expand to 750+

branches by 2015. Such expansion is likely to give it access to cheaper source of funds,

lowering its cost of capital.

However retail expansion in tier 1 cities may not be profitable as these cities already have a

large number of players and the competition is fierce (reference).The new branches have to be

located in Tier II and Tier- III cities to push the bank into the next growth trajectory. This may

be profitable as there is a large untapped market1for customizedbanking solutions offered by

premium banking2 players like TPBoI. We are expecting TPBoI to target the upper middle

class and position itself as a premium brand in banking. In these cities the bank will operate in

both wholesale and retail lines of businesses.The current strengths of TPBoI are:

1. Expertise in understanding different businesses2. Superior relationship management with clients

Since TPBoI would be in wholesale banking business in even Tier II and Tier III cities they

would understand the local SME businesses and maintain superior relationships with clients.

II. Allied Business Strategy

Thus we see that profitable expansion is in retail and wholesale banking in tier 2 and tier 3

cities. We now consider TPBoI with regards to new business which should help it to

1. Achieve sustainable growth in business2. Diversify revenue streams to mitigate impact of adverse business conditions

1India Today, Tier II cities ahead in Job creation, November 20092Rediff Business, Foreign Bank Warm up to Small Towns , February 2010, & RBI


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Some of such possible allied businesses are evaluated on the following criteria:

1. Synergy for TPBoI based on its current strengths2. Profitability of the business3. Non-Cyclicality of the business to reduce variability in revenue4. Regulatory compatibility

Brokerag

e

Mutual

fund

Private

Equity NBFC

Microfina

nce

Life

Insurance

Business

Insurance

Housi

financ

nergy for

BoI Low High High Low Low Low High Lo

fitability Low Med High High High High High M

n-Cyclicality Low Low Low Low High High High Lo

gulatory

mpatibility High High Low Med Med High High Hi

Exhibit 1 - Allied Business Profitability

The synergy for businesses like brokerage, housing finance is low because these businesses

need scale. Mutual fund, private equity and NBFCs are all cyclical businesses hence the

variability in revenue streams are high.

Microfinance business needs reach in rural areas anddoes not match with the current strengths of TPBoI.

Life insurance business is not synergistic to TPBoI as it needs scale for operation and TPBoI

will not be willing to offer services under its name to all because it could result in deterioration

of its premium brand image. Non-Life insurance business lines like health and retail vehicle

insurance also are not synergistic with TPBoI for the same scalability and branding issues.

Business insurance will comprise of lines of business such as corporate, industrial, liability,marine, shop and fire insurance. Inclusion of business insurance in its service portfolio will:

1. Offer consistent revenue as insurance industry is relatively non - cyclical and offers highmargins even in adverse economic conditions.

2. The revenue for an insurance service provider stems from 2 sources


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a. Underwriting

b. Investment of premiums which gives majority of profits

3. As seen from the growth strategy TPBoIs existing relation expertise is likely to getstrengthened when it extends its business to wholesale clients (SMEs) in tier 2 and 3cities.

TPBoI is uniquely positioned to profit from business insurance as it can leverage its

expertise by investing insurance premiums in profitable sectors of which it has knowledge

Thus we propose that TPBoI start a new subsidiary that provides general insurance services

for corporate and SME clients.

III. Financial ProjectionsThe General Insurance (GI) industry is valued at 28805 Cr which is split between the public

sector and private sector participants in the ratio of 68% and 32 % respective. The biggest

public sector player is New India (22%), and in the private sector ICICI Lombard (11.5%)

dominates. Business Insurance (BI) comprises of 33% of GI services3.

We assume market share to be directly

correlated to no of branches. In the private

sector ICICI Lombard has 11.5 % marketshare, with 1500+ operational branches4

across all tier 2 and 3 cities. Since TPBoI plans

to expand to 750+ branches in next 5 years it

is 150 branches per year, we assume in first

year 100 branches to be offering insurance

services and that is 0.8% markets share.

Exhibit 2 - Market Share of TPBoI Services

3Insurance Regulatory Development Authority( IRDA) Annual report 20094ICICI Bank Website


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All figures in Cr. (INR) 2010-11 2011-12 2012-13 2013-14 2014-15

General Insurance Industry 37975.65 42478.12 47514.42 53147.82 59449.14

Business Insurance Industry 12658.55 14159.37 15838.14 17715.94 19816.38TPBoI Market share (% of overallBusiness Insurance) 0.80% 1.60% 2.40% 3.20% 4.00%

Revenue From BI Services for TPBoI 101.2684 226.55 380.1153 566.9101 792.6552Profit * 5.06342 11.3275 19.00577 28.34551 39.63276

Exhibit 3 - Top Line Projection for TPBoI Business Insurance Services5

* The above table indicates profits only from underwriting services. Profits are likely to

increase if investment income is taken into account.

The underwriting profit has been computed after providing for claims and operational

expenses which are estimated at around 70% and 25% of the premium collected respectively

Thus expenses account for 95% of premiums collected and give an approximate margin of 5%.

Per year market share for TPBoI is assumed to increase in same proportions as the increase in

number of branches.

The GI services growth rate is assumed historical and BI share is assumed constant at 33%.

PART 2 CONSUMER BRANDING FOR TPBOI

I. Objective

Tobuild a consumer brand for TPBoI we plan to

1. Identify current perceptions of brand among retail users2. Establish brand positioning and values for TPBoI3. Leverage TPBoI existing strength to create a suitable new association

II. Methodology

A qualitative *research was undertaken to

5Insurance Regulatory Development Authority (IRDA), Annual report 2009 & Deloitte


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1. Establish current association of retail customers with regards to financial & bankingservices

2. Identify existing players and their associationsa.

For instance SBI was the top of mind recall and showed a uniform association ofcommon peoples bank

3. Identify unfulfilled associations such as exclusivity, access to a particular service (notnecessarily financial).

III. Results

Target Group 15 people, equal split of gender, age group 20-25

Area of upbringing Tier 2 cities such as Cuddalore, Durgapur, Puri, Bhartpur

1. Common financial services not necessarily to be available in a bank trading, assetmanagement, insurance

2. The must have services in a bank were Deposits, loans, internet banking, ATMs andlockers in that order of utility.

3.

The top of mind associations were SBI, ICICI, HSBC and Citibank. Some otherassociations included public sector banks such as PNB, Federal bank.

4. YES Bank was not recalled; however aided recall scores were 100%5. In terms of similarity, YES bank was considered at par with Citibank and HSBC, and

least similar to SBI.

6. SBI was rated as being a people centric bank, whereas Citibanks and HSBC wereconsidered rich peoples bank (not for common man)

IV. Inferences

1. TPBoI has a retail presence only in the wealth management space which derives itsequity from TPBoIs existing expertise in relationship management from

wholesale/corporate banking.


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2. The same equity is transferred in the form of high similarity rating scores with Citibankand HSBC.In fact one respondent opined that having an account with Citibank in his

town (incidentally Puri) was considered somewhat of a status symbol.

Thus there exists an opportunity for TPBoI to expand aggressively in Tier 2 cities as unlikeits foreign competitors it is

1. High market potential in these areas as identified in part 1 of analysis2. Not bound by any regulatory hurdles.3. It enjoys a high aspirational appeal among users which creates an aura of exclusivity.

V. Branding Construct - Type & Channel

The above identified services are broadly classified as

A. Checks trading accounts, Savings, Deposits

These are transaction based services and augur well with a purely functional construct such as

speed of service, availability. However, these services are commodity based, susceptible to

competition and not ideal differentiator for a brand.

B. Customized Banking solutions

These are relationship based service hence require an emotional construct such as trust

Simultaneously, functional constructs of expertise & knowledge are also desired. Thus these

services offer a potential for brand building.

C. Branding Construct Type

For a financial services provider branding is preferably done on an emotional construct rather

than on a functional one as the latter is susceptible to imitation.

D. Branding Channel

The available options for brand building are


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1. Service (What to deliver, the types of services)2. Operations (How to deliver whatever you are delivering to different people?)

a. Online , phone, branch, ATM3.

Control, Feedback and Maintenance (How well is the delivery?)

a. This would focus on the benefits one would incur pre and post service use.b. CRM and data analytics

Since TPBoI has technology investments, it is capable of providing functional benefits such as

speed, reliability, secure internet banking in a better manner vis--vis competitors.

Additionally its expertise in relation management and customized banking solutions gives

it an opportunity to create a competitive point of differentiation (POD).Instead of just

focusing on providing a good service(which is subject to commoditization), TPBoI should

emphasize on the benefits incurred from superior delivery and use of services.

VI. Brand Positioning & Values for TPBoI

A. Positioning Statement

To provideeveryday financial service to people in the age group of 18-55 in tier 2 cities whose

annual income is more than 10lkpa.This would be done in a manner that is innovative for

instance SMS and phone banking. This in turn gives them accessto an exclusive group.

The values for TPBoI are exclusive and innovation.The positioning here would be similar to

Virgin, which has an aura of elitism and innovation in its brand.

VII. Brand Strategy

The salience of the brand measure in terms of ease of recall is very low. Thus the objective in

the immediate future is to build brand salience by creating awareness, which can be done by

communicating the various services and available channels of distribution. The stress should


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be on technology as being innovative. Other Options include spokesperson endorsements

events sponsorship, third party activities (TPBoI endorsed reviews and awards), Co- branding.

The above activities would increase the frequency of recall as more customers would be

coming in touch with TPBoI activities.

The next phase would be to communicate the superiority of TPBoI of service offerings, in

terms of customer satisfaction. This could entail inclusion of testimonials of key customers

of the bank in its offer documents.

banking and branding strategy yes bank

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