Capitec’s 6 P’s of marketing

by Herman Manson (@marklives) Today’s consumer is bad news for the banking industry. They are an unhappy bunch, as the Global banking survey 2011 by Ernst & Young revealed, when it found that nearly half of SA’s banking consumers felt unsatisfied with the service they experience from their bank.

Service quality was given as the primary motivation for switching banks by 96% of South African customers according to Ernst & Young who also found that South African customers are the most sensitive to price, with 57% citing it as a main reason for a change of bank.

It’s easy to hate banks. The bureaucracy, the hidden costs, the soulless, soul destroying slog of resolving any issue that doesn’t fit the clearly templated existence of their customer “support” personnel, the stupid office hours…

Obviously there is a service gap in the industry. It’s one spotted years ago by the founders of Capitec Bank – today the fastest growing retail bank in the country and the first to finally make the Big 4 (ABSA, Standard Bank, Nedbank and FNB) sweat. The reason for the discomfort is because Capitec decided to build a bank based on easy to understand and affordable banking products.

Consumer discontent opened up the market for this “straight talking organisation” according to Carl Fischer, Head Executive of Marketing and Corporate Affairs at Capitec. Fischer says he has no idea how the Big 4 justify their costs and business practices and increasingly consumers don’t either. Capitec wants to change banking “like Kulula.com changed the airline market” says Fischer. That is – it wants to bring about fundamental change to this market.

Fischer says 10% of SA’s banking population use credit cards – the other 90% don’t have access to these and bank via their saving accounts. Capitec simply asked what consumers really want and require?  The answer – a transaction account that earns interest. As a result Capitec’s  products are built on the ability to save, borrow and transact. Low cost and ease of use should be what banking is about, says Fischer.

Fischer sees some bank products as commodities – i.e. Home loans or car finance – if the brand doesn’t matter then consumers use the lowest costing home loan or lowest cost car finance. It is only the one to one transactional account where brand becomes the determining factor, he says.

Consumers have lost faith in branch managers, the traditional human interface between a branch and clients, as decision making power where centralised away from them, meaning little value remains for consumers in maintaining those personal relationships with banks.

Capitec’s management team has turned the traditional banking on its head. “We do not think like bankers,” says Fischer, “we think like retailers.” This means seeing at every aspect of the business from a consumer point of view. Banks create products around which consumers need to fit and adapt, while Capitec pursues an open platform defined by the individual consumers’ needs.

For example it’s the Global One facility offers transacting, savings (you can open four of these on your Global One account and call them for example Savings, Holiday, Emergency, Fund etc. – each with a monthly admin rate of R4.50) and credit options in one facility. And forget being required to fix accounts at the standard 32 days, 6 months, 12 months etc. – with Capitec you can fix your accounts according to your own goals and requirements.

It also adopted regular business hours rather than the traditional banking business hours for its branches to be open. Capitec branches are open from 8am – 5pm on weekdays (8.30am on Wednesdays) and 8am – 1pm on Saturdays, while specific branches in major shopping malls are also open on Sundays 10am – 2pm.

The bank was launched in 2001 and built on the back of its micro-credit business. While it was always the intention to establish a proper bank the micro-lending platform enabled earnings over the three-four years it took to put the banking infrastructure in place, says Fischer.

This meant Capitec launched into the low income segment of the South African consumer market and has been gradually working its way up towards the middle and upper middle income segments. Quite the reverse of its rivals who have all been piling in to target the low income market – partially under pressure from government regulation but also because Capitec had clearly shown there was a profitable market to be had.

Fischer admits that its low end entry has meant the bank has had to work hard at changing market perceptions formed in its early micro-credit days. Initially the focus had been on product offers and localised marketing rather than on building a national brand. The bank only launched a national branding campaign in about 2006 as it started repositioning itself in the broader market.

Today Capitec’s branding campaigns clearly position the bank as easy to use, straight talking and cost effective in ways that appeal to this broader market and the bank is investing in placing branches in shopping malls where a wider income range of consumers gather.

Straight talk extends beyond its marketing mantra to the organisational culture, says Fischer, who says the founders of Capitec really set out to build an “anti-bank.” Its headquarters spans a number of low rise buildings in Stellenbosch, furnishings are basic through to the CEO’s office. In a service industry your people are your brand, notes Fischer. They don’t do suits here (they are the anti-bank, remember!).

Capitec branches generally consist of only nine people, including a team leader (the branch manager at other banks), whose primary focus is addressing clients’ needs rather than paperwork and managing risk, which in both counts have shifted from being done by personnel to technological processes. The bank is moving quite aggressively into retails spaces even as its rivals move to the taxi ranks.

Quantity wins over size when it comes to its physical spaces – the bank would rather open more offices in an area than scale one office. It’s all about accessibility and convenience says Fischer.

It also means branches are profitable much sooner than those of Capitec’s rivals – and much cheaper to launch. A branch costs around R1 million (or 10-12% of what it costs rivals) to establish and is generally profitable within 6 months of operation.

Branches don’t hold any cash for withdrawal (but you can deposit cash at a branch) – instead consumers draw money from tills at retail outlets (‘Tills are the new ATMs’ says its marketing communications) and ATMs. Consumers can draw cash at Pick n Pay and Boxer stores (charged at R1 per withdrawal) while Shoprite, Checkers and PEP allows cash back transactions (cash withdrawals with purchases).

Fischer explains that this way the cash cycle is dramatically reduced – along with costs to the bank and ultimately the customer. Traditionally the cycle goes from consumer to the retailer, then to the cash handler and the bank, back to the cash handler, to the ATM and finally back to the consumer. Capitec recycles value between customers and retailers taking out all the middlemen. Retailers meanwhile are only too happy to have cash taken out of their systems.

On its shift towards a broader market segment Fischer says class or income has nothing to do with one’s banking ability. At Capitec all are treated the same. Branches in upmarket malls look exactly like they do next to a taxi rank or in a township.

Location and access is important and Capitec is shifting perceptions by associating with A and B grade malls to attract more of the middle segment market. Its marketing communication similarly focuses on the innovative ways Capitec does things differently rather than to position the bank as a “cheap solution”.

Capitec has been working on expanding usage of its digital and mobile banking solution as well after waiting to ensure the offerings where were they needed them to be. Fischer says the bank is making headway in the youth market with these product offerings and has been targeting universities and other institutions of learning. To date, says Fischer, these services have been under marketed. This is about to change.

Technology is driving the future of banking – it brings down cost which is in the best interests of consumers. For Capitec the challenge lies in making technology easier to understand and to access. The ultimate goal is to allow consumer to get where they want to go in the fewest possible clicks, says Fischer.

Capitec also moved its communication strategy in-house because the banking sector is a complicated one and those inside the organising is best positioned to fully understand the market and broader banking environment. It was, says Fischer, about claiming back the role many marketers have abdicated to ad agencies, and allows greater control on delivering communication the bank knows it can deliver on. While the bank owns its own in-house studio it also makes use of the services of agencies like Quirk and 140BBDO.

Fischer says after taking the communication strategy in-house the effect was an immediate lift in its market share.

Today Capitec has 475 branches, more than 3.2 million customers and over 6000 staff members. Monthly client acquisition numbers range from 70 000 to 90 000 new customers a month.

This performance lead Swiss-based financial services group Credit Suisse name Capitec a ‘Great Brand of Tomorrow’ in its 2010 report – one of only 27 selected from around the world and the only one to emerge from the African continent. The report identified brands Credit Suisse believes will significantly outperform the market over the next 3-5 years as they build and leverage brand equity to grow in size, scale and profitability.

Capitec’s competition has taken note of its growth and has created products and services to counter it. FNB launched EasyPlan – a paperless banking offering which allows customers open an EasyPlan account, take out personal loans, and sign up for a funeral policy – with its own branch network. ABSA has rolled out more loan centres while Standard Bank has redesigned its distribution platforms and Nedbank has put more emphasis on segmental marketing. The Big 4’s challenge remains a service mind-set structured to the upper end of the market, says Fischer. Their branch infrastructure remains expensive, Fischer points out.

The competitive environment heated up after FNB laid a complaint with the ASA charging that Capitec cannot support a marketing claim stating it charged the “lowest banking fees” in the market. The ASA found against Capitec on a technicality – the documentation it submitted to substantiate its claims where not from SAMRA accredited researchers (Fischer says he was unaware this was a requirement). Dismissing the documents at hand the ASA found against Capitec.

According to Fischer only 10% of South Africans understand the concept of inflation – meaning 90% don’t. It illustrates how financially illiterate South Africans really are. For Capitec the challenge is getting that 90% to bank better through its simplified offer and conditions. Bank thinking haven’t made much of dent in that figure – Capitec is betting a consumer centric retail view of banking is about to change all that.

Ultimately Capitec’s brand is being built on the 6 P’s of marketing, Fischer adds People and Processes to the traditional four of product, price, place (distribution), and promotion. The response, to Capitec and others, coupled with a global shift in consumer expectations and behaviour, indicates the time of only 4 P’s are over. And Capitec is helping lead the charge.

Reprinted from the February 2012 issue of AdVantage magazine.