Friday, February 17, 2012

Kotak's aggressive 6% interest rate campaign

This is for those financially educated people wondering about kotak's aggressive campaign of 6%.

If you are in the above mentioned category you might have had a feeling of "Kotak Mahindra Bank burning money on unnecessary ads" every time you have seen their aggressively run "6% interest on savings account" campaign. The same was the situation with one of my colleague who questioned the rationale and answered herself with, "Everyone might give 6% very soon. What's there in advertising so heavily?"

But the answer is there's a lot to it than what you can see. You will understand this if you were one among those looking to buy a Air conditioner (or an electronic household item) about some years back. This was the time when you were attracted towards one or two companies advertising aggressively that their air conditioners are rated by certain agencies and are the best on features such as low electricity consumption, etc.,

You might have felt that these products are the best whereas a person from an electronics (retail) industry or a person having knowledge of the industry would have been having the same feeling "Burning money on unnecessary ads". And a similar colleague of yours would have said "Everyone might give a rated AC very soon. What's there in advertising so heavily?" This would have been the feeling since, the government/regulator had just sometime back made it mandatory for products to be certified for rating.

Although you cannot compare a savings account to an Air conditioner as a product or the respective change in regulations this comparison highlights the view from a customer's psyche.

RBI has deregulated interest rate on savings account deposits which was earlier fixed at 4%. This has lead to YES bank and Kotak Mahindra Bank increasing the savings account deposit interest rate to 6% followed by an aggressive campaign from Kotak for the last 3 months. Everyone expected many other banks to follow suit but, it hasn't happened and might not happen for good reasons. If you are one among those who knows about deregulation and that a 6% interest can hardly mean only a 500 rupee higher interest post tax than what you currently get (on an average savings account balance of Rs.50,000), the campaign will give you a feel of "Burning money on useless ads".

But, the answer lies in questioning "How many people know this?" and "How many are financially educated to this level?"

In the first case you were a person from the industry or else, industry wise educated. In the second case, you are not from the industry or industry wise educated and hence, the attraction towards aggressive advertising by the electronics company.

A country with a huge not so financially educated population presents in itself a huge opportunity to a company which has first mover advantage that Kotak is striking on. Looks like the campaign is wonderfully targeted at such customers and the liners like "Don't look at it as 2% more. Look at it as 50% extra. Interest of Rs.10,000 will become Rs.15,000" leaves people with slight awareness of deregulation also thinking. 

And seems like a campaign which many of us might have seen as an unnecessary/useless spend, has already helped it through an enormous increase in the pace of new savings accounts opening. 

However, hope they have a strategy in place to build strong relationships on these accounts. Else, once other major banks increase(if they choose to, looks like they will not) the rate to 6%, it is a well known story "The huge number of dead savings accounts across the country".

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