New Delhi: When marine engineer Rohit Kanwara, 24, wanted to invest savings from his first job, he was determined it would be in an insurance policy from the Life Insurance Corp. of India (LIC).
“It was my hard-earned money,” he recalls. “I wanted to put it in trusted hands. LIC being a state-run company seemed the obvious choice.” Even though Kanwara is bombarded with numerous offers from many banking and financial product companies, when it came to parking his money, he went with his gut-feeling.
While shoppers such as Kanwara are a huge opportunity in a country where insurance and financial services and products are just starting to emerge in a meaningful way, they are also posing a big challenge for marketers.
A recent consumer study by IIMS Dataworks, a New Delhi-based market research agency, suggests that advertising plays a limited role in influencing Indian consumers’ final purchase decision when it comes to buying a financial product or a service.
The survey, of 100,000 people across 852 towns and 931 villages, suggests that in case of insurance products, only 1% of them said advertising played a role in buying a policy. Some 42% of the respondents chose to go with their agents’ recommendation on picking a product. Another 31% claimed their first life-insurance purchase was “self-motivated” and 25% said they were prompted by friends and financial advisers.
In case of housing loans, 80% of the respondents said their loan choices were primarily dictated by interest rates and low service charges, followed by a previous banking association and trust in the bank.
When it came to mutual funds, a nascent but booming sector in India, some 50% of the first-time mutual fund investors surveyed said that while they first heard of a mutual fund through an advertisement, only 1% invested in the fund based on the ad. An overwhelming 94% of consumers surveyed said recommendations from friends, relatives, peers, agents and self-motivation drove the actual choice of a fund.
“Financial service providers are big spenders in media, but we found that various factors such as agents, family, friends, peers and financial considerations still play the biggest role in convincing a customer to buy a product,” says Sandeep Ghosh, executive director, IIMS Dataworks. “Distribution is still the name of the game in the financial sector,”
These findings come at a time when there has been a significant increase in spending across some of these insurance and financial offerings.
Banking and financial products, and services companies, as a category, have emerged as one of the top advertisers within India in recent years. According to Mindshare Insights, the research arm of leading media buying agency Mindshare, the total ad spend by this category jumped 19% to Rs243 crore in 2006 from the year before. Through September, ads from this category totalled Rs220 crore.
The trend is no different in case of mutual funds, a category where spending rose from Rs34 crore in 2005 to Rs134 crore in 2006. Through October, it had already crossed Rs110 crore. The pace is unlikely to slow, say marketers.
“Our advertising budget has grown by more than 100% in the past two years and will continue to grow significantly,” said K.V.S. Manian, group head, retail liabilities and branch banking at Kotak Mahindra Bank Ltd.
Similarly, ICICI Lombard General Insurance Co. Ltd, a private insurer, increased its ad spends from around Rs50 lakh in 2004 to Rs1 crore in 2006 and, according to one media buying agency that didn’t want to be identified, as of September the company had spent Rs1.54 crore.
Bank of Baroda, State Bank of India, HDFC Bank and its insurance arm HDFC Standard Life Insurance Co. Ltd, Bajaj Allianz Life Insurance Co. Ltd and ICICI Prudential Life Insurance Co. Ltd are some of the other major advertisers in these categories.
So, is much of this advertising a waste?
“The financial sector is at a very nascent stage in India,” says Vineet Potnis, CMO, DBS Cholamandalam Asset Management Co. Ltd, the asset management firm of Chola Mutual Fund. “For instance, only 4% of Indian households invest in mutual funds. So, there is a need for advertising to create awareness and demand and, also, educate small investors on the options available in the market.”
A surge in new brands and offerings, all attracted by the future potential of an India where the gross domestic product is rising at 9% annually, is also pushing companies to keep advertising heavy.
“With more players entering the market, and new schemes and policies being launched every day, it is important for companies to advertise so as to build awareness about themselves and their offerings. It’s a big differentiator in a crowded space,” says Kapil Bhatia, brand manager for LIC at ad agency Mudra Communications Pvt. Ltd.
Take the case of LIC, clearly the king of the hill when it comes to Indian life insurance market in terms of brand recognition and trust. It continues to invest in advertising to keep its brand recall intact. “LIC is constantly adding new products to its portfolio,” says Bhatia. “While they (LIC) can rely on agents for selling, advertisements are important to inform consumers on what is on offer.”
And for good reason, investment in insurance products within India has steadily gone up in the past few years. According to the Insurance Regulatory and Development Authority, the number of insurance policies sold in the year ended March went up to 6.72 million from 2.70 million policies sold the previous year. The amount of premiums collected went up to Rs23,546 crore from Rs10,999 crore.
Much of the advertising, even while it touts specific products, is aimed at moving consumers along the classic cycle of creating awareness, followed by an interest in the category or brand, then a desire followed, hopefully, by action, the so-called Aida (awareness, interest, desire and action) model.
“Most financial products are bought on trust and loyalty, and that is created over time with increased presence,” says Kartik Jain, head, marketing and e-channel, at ICICI Lombard, adding that advertising will, over time, help in first building consumer trust and then start yielding results.