AMC Speak 26th March 2012
Re-think customer on boarding to drive retail penetration
Navin Tewari, Head Sales & Marketing, Birla Sun Life AMC


At the recently concluded Wealth Forum Platinum Circle Advisors Conference, held in Mumbai on 23rd March 2012, Navin Tewari led a panel discussion on "Retail Penetration : moving from dream to reality". He made some powerful observations on why we as an industry have gone wrong with retail penetration and what are some simple steps that each one of us can take to make mutual funds a lot more relevant to the average Indian saver than they have ever been. It's all about re-thinking our customer on-boarding strategy, says Navin.

In his opening presentation, Navin shared the reality of the industry's retail penetration, which, as we all know, is none too satisfactory.

- Retail constitutes only 19% of industry AuM

- Top 15 cities continue to account for 72% of AuM

- Equity constitutes 87% of retail AuM

Get back to basics

There are many reasons for this unsatisfactory state of affairs. But, if we want to achieve meaningful retail penetration, Navin strongly feels we need to go back to the basics and understand how to make mutual funds relevant to customers, how to effectively get them on board into the category.

To start with, we must desist from the old product push approach where we only focussed on equity funds when it came to retail investors. We must make a concerted effort to break this myth that mutual funds = only equity.

Let's learn from Pizza/Burger experiences in India

He gave a very useful example of McDonald's experience in India. Trying to find space into Indian foodie's mind, it took the effort to look around and observe exactly what the average Indian consumer ate as snack foods. That effort led it to revamp its menu and launch its McAloo Tikki Burger, priced at Rs. 20. Aloo Tikkis are snacks that we Indians understand and relate to. That brought the crowds into McDonalds.

That's one part of the story, said Navin. Today, when an average Indian family eats at McDonalds, what is the average amount per head that they spend? Are they still eating only 1 McAloo Tikki burger each and spending Rs. 20 per head? No, the reality is that having become familiar with McDonalds, they have moved onto many of its other menu items and now perhaps spend between Rs. 50 - 100 per head each time they visit a McDonalds restaurant. McAloo Tikki burger was just part of the customer on-boarding strategy that McDonalds seemingly applied in the Indian market.

What's the lesson for us from this? McDonalds understood how to get the consumer on board first and then how to cross sell and up sell its entire range to them later. When they initially went straight for their original range, which the consumer did not relate to, they met with limited success. When they changed their on-boarding strategy, to introduce a product that the consumer more readily related to, the conversions were far more.

Indians are savers more than investors

In the same way, we need to break away from our old approach of going to first time mutual fund investors directly with an equity fund. Indians are savers more than investors. If we understand this fact, we will first approach them with a superior savings vehicle and not a high risk investment vehicle. Approach them with liquid funds first, which are a far superior savings avenue than a bank savings account and get them comfortable with mutual funds through this low risk route. Once they get familiar with mutual funds, offer them the higher risk products as per their risk appetite.

Breaking the inertia is crucial to your success

He then went on to narrate a fascinating incident on how he got an HNI to begin his journey into mutual funds. Navin was driving back home one evening, when a friend of his asked him for a lift back home. The friend happened to be the Chief Technology Officer of a large group, and part of its top management. Navin knew that his friend had not yet invested in mutual funds, and decided to use the car journey to begin his friend's journey into mutual funds. During the car journey, Navin casually asked his friend about how much money he thought may be lying in his savings account. His friend casually remarked - probably 12-15 lakh rupees. Navin did some quite math and then asked his friend - "How much money do you spend on all your household help - your maids, car wash man etc? Probably 6000 - 7000 rupees a month? What if I were to tell you that from next month, they will all work for free for you?" His friend was startled and asked how this would be possible. Navin went on to explain that the 12 lakhs that was lying in a savings account could be invested into a liquid fund, which would give him net of tax a 4% to 5% higher yield. That alone would be enough to pay for all the household help. One simple action could make the household help work for free.

Navin was astonished with his friend's response - 6000 rupees a month - that's 200 bucks a day. That's not such a big deal. Is it worth the bother? Navin thought for a moment how to react to this response....& said in physical form , it would be impossible for us to willingly lose a single rupee we are ignorant of losing Rs 200 a day ! Imagine the thought of throwing away a single rupee coin - how many of us will willingly do it? Yet, we give up far more each day, by simply not making our idle savings account balances work harder for us. His friend saw the point and became an investor in liquid funds the very next day.

Achieving meaningful retail penetration is in the hands of each of us

Meaningful retail penetration can be achieved if every distributor re-orients his thinking along these lines. Understand that Indians are savers more than investors. Appeal to their savings instinct with liquid funds as an alternative to savings accounts. Make them understand the value of incremental savings, by one simple action of opening a liquid fund account. Get clients first comfortable with liquid funds. Let them experience the benefits of liquid funds. Then, move towards cross selling other mutual fund products based on their risk appetite.

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