Market share focus

I recently visited the web site of a few banks. I noted that these banks take pride in making available all products for their customers. The idea seems to be that the customer need not go elsewhere to satisfy his financing needs. This is a strong proposition to make to customers and is no doubt very attractive.

In reality, however, it is found that most banks, which have multiple products and services to offer, do not have a process to manage cross sell or to fulfill the expectations of the customers. Most of their products are managed in silos and the staff do not care or are not aware of the other products. This results in dis-satisfying customers and leads them to move to competition.

This blog is not attempting to cover cross sell which will the topic in some future blog. This blog is aimed at driving the importance of market share and product focus.

No bank has unlimited resources - we all know that. Therefore, it is important for the bank to decide which products they want to focus on and how much capital is needed for that product. When any product / service is proposed to be offered to customers a lot of work needs to be done in the background before the launch. Some of the key activities is captured below:

1. Have a business plan in place
2. Recruit the team which has expertise in the product.
3. Buy / Make the system to run the product.
4. Have the policies and processes well defined
5. Train the staff and create internal awareness
6. Create the distribution channels - branches / sales points / agents etc.
7. Promote the product by creating awareness
8. Tie up with key stake holders
9. Create back end processing capabilities
10. Get regulatory / other approvals for launch

All of these result in a substantial amount being invested for launch. When one is investing in people / other resources like systems, one cannot afford to get inferior quality because these has a direct impact on the earnings / quality of the product / portfolio. All these investments can only be recovered if a certain level of market share is met.

Moreover, to sustain the interest of staff / channel in the product, one has to be an active player in the business. For example, if one were to lend against commercial vehicles, one needs to be a serious player to attract customers, dealers, manufacturers etc. to support and work together. If the stakeholders find that the bank is not serious to gain market share, they will move to other more serious banks.

Thus it makes a lot of sense to consider specialising in a few manageable products and gain market share there rather than be a "Jack of all trades, master of none" bank. With focus on a few products, it is possible to gain mastery over it completely and become the preferred brand for customers. Take Housing Development Finance Corporation (HDFC) in India as an example. They have been in business for almost 3 decades focusing only on housing finance. So much that they have become synonymous with mortgages and are really experts in it. Very few customers would think mortgages without considering HDFC. They have done this without compromising on quality or profitability or size.

In conclusion, I would like to state that it is not necessary to have multiple products to become successful or a sought after bank. It makes a lot of sense to focus on a few related products and become a dominant player it it rather than be a one stop shop.

I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.