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Marketing in Banking

Category : Banking

THE CONCEPT OF MARKETING

Marketing management is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives. Basically, marketing is a business technique devised to sell products and services keeping in mind the needs and requirements of existing and prospective customers. Marketing is based on five concepts:

  1. Product concept
  2. Production concept
  3. Marketing concept
  4. Social marketing concept
  5. Selling concept

 

IMPLEMENTING THE MARKETING CONCEPT

To implement the marketing concept/ companies need to focus on 3 basic areas:

  1. Target market: The first step is to identify the target market. This can be by market research and deciding which target market will give the best returns.
  2. Value proposition: In this concept/ the companies decide what strategy they need to adopt. The combination of above- the-line (ATL) and below-the-line (BTL) activities should be adopted. The kind of value should the firm create and deliver also decides marketing success.
  3. Demands of the target market: A preferred step in marketing research is the consumer preferences study. The study will help the firm determine the needs wants and demands of the target market.

 

Marketing of Banking Services

Bank marketing is the sum of functions directed at providing services to satisfy customers' financial needs and wants more efficiently and effectively than the competitors in consonance with the organisational objectives.

Application of marketing techniques in banking means a coordinated organizational effort to reach to the customer to fulfil specific needs for getting patronage through use of people, products or services, price, promotion, branch outlets and distribution policies for maximising customer satisfaction.

In a competitive market, banks sell their services through branch counters throughout the entire country through the employees who act as salesmen recruited by the management.

 

Features of Bank Marketing

  1. Banking products cannot be seen or felt like manufactured products (intangibility)
  2. In banking products' marketing/ the product and the seller are inseparable (inseparability)
  3. Banking products are introduced and delivered at the same time; they cannot be stored and inspected before delivering (perishability)
  4. Standardisation of banking products is difficult (variability)

 

NEED FOR BANK MARKETING

 

Awareness among customers: Modem technology has caused awareness among customers of the developments in the financial system. Financial needs of the customers have grown up to a large extent like quick cash accessibility, money transfer, asset security, increased return on surplus funds, financial advice, deferred payments etc. With a wide network of bank branches, customers expect the banks to offer a more and better service to match their demands and this has forced banks to take up marketing in right earnest.

 

Quality of service as a key factor

With the economic development, fast change has been seen in every activity, and banking has been no exemption. Service quality is a key aspect in the competitive world, which is market driven and banks have faced this emerging scenario. In fact, it cannot be ignored that quality will in future be the sole determinant of successful banking ventures and marketing has to focus on this most crucial aspect.

 

Growing Competition

Increased competition is a matter of concern for Indian banking industry and other agencies both, local and foreign, offering value-added services. Competition is no more confined to resource mobilization but also to lending and other areas of banking activity. The foreign commercial bank with superior technology, speed in operations and imaginative positioning of their services has also provided the necessary reasons to the Indian banks to innovate and compete in the market.

 

 

Technological Advances

Technological innovation has resulted in financial product development especially in the international and investment banking areas. The western experience has showed that technology has not only made execution of work faster but has also resulted in greater availability of manpower for customer.

 

Objectives of Bank Marketing

  • The core objectives of bank marketing are:
  • Maximising the profitability
  • Providing high return on investment to investors
  • Developing an image and reputation
  • Developing new products to meet the needs of emerging customer requirements

 

The specific objectives of bank marketing are:

  • Increase in deposits
  • Increase in loans
  • Diversification of products

 

Directing customers to specific products. The achievement of these objectives requires that the marketing sector should perform the following functions:

  • Analysis of customer behaviour, attitudes and market segmentation
  • Conducting market research to collect, investigate analyse customers' attitudes and market developments to achieve maximum attainment of objectives
  • Designing new products and/or services
  • Focusing on Advertising, publicity and promotion
  • Keeping check on pricing
  • Defining strategies, administering and controlling the marketing programme
  • Predicting changing customer profiles and consequent product changes

 

Bank Marketing in India

  • Initially, the marketing concept was introduced in the Indian banking sector in the form of advertising and promotion. The first big step in the direction of bank marketing was initiated by State Bank of India in 1971.
  • Group-wise segmentation was launched by SBI to understand the specific needs of groups of customers. The bank recognised itself on the basis of major market segments, dividing the borrowing customers bases on activity and four major market segments, i.e. commercial and institutional, small industries and business, agriculture and personal and services banking segments.
  • A few schemes like home loan accounts, education loans, instalment credit etc. were introduced to the traditional services range.
  • Foreign banks also adopted different marketing techniques successfully in India in fund mobilisation and promotion of consumer credit.
  • Post liberalisation there was remarkable growth in competition in the financial sector, especially in the banking sector.
  • The public sector banks along with old private sector banks, new generation banks, and foreign banks revamped marketing strategy.
  • Competition leads to quality gap as some competitors, especially foreign banks and new private banks provide quality core and peripheral services using advanced information technologies and develop
  • Aggressive marketing and technological innovation help private banks to make inroads into the bank market.
  • In most banks, management personnel had little idea and experience about marketing in a competitive environment. They previously focused mainly on deposit mobilisation and achieving deposit targets.
  • The current marketing strategy shifted away from deposits to capturing prime customers wanting credit facilities, raising funds from the market, offering more and more technology oriented products and even recruiting and retaining skilled
  • personnel
  • The marketing of loans has become a major occupation of management at all levels.

 

 

Indicator

Pre-liberalization

Post-liberalization

Customer feedback

Mandated by committee reports and law

Consciously practised as a way of banking

Product Innovation

Done based on regulator's guidelines/suggestions

Willingly undertaken

Tools

Manual

Technology based

Delivery Channel

Branch

Delivery channels like ATMs, Tele- banking, Internet Banking, Mobile Banking

Branch Ambience

Similar to government offices

Providing supermarket buying experience

Orientation

Inward looking

Outward looking

Consumer Status

Less importance of customers

Customer-oriented

 

Table: Competition in the Indian industry before and after liberazation:

Challenges of Bank Marketing in India

 

  • Competitive Environment and Technology: Huge capital base, latest technology, innovative and globally tested products/services are the areas where the domestic banks need to improve to keep pace with technology, innovation, and globally accepted products.
  • Transformation of Human Capital: Another important challenge is the transformation of human capital. There is the need to develop and manage the human resources to make them adaptable to the changing environment. Banks should provide on-the-job training to the staff to work with latest technology.
  • Rural Marketing: The Indian banks face challenge to enhance rural marketing to increase their customers. Banks should open their branches not only in the urban and semi-urban areas but also in the rural areas.

 

Marketing trends in the Indian banking industry

 

Insight-Driven Marketing

The significance of consumer insight and data for financial marketers will be more important than ever. In the past, a majority of financial marketers had no access to big data because they lacked the skills and budget to make an impact. New tools and technologies make advanced analytics available for all sized organisations, while digital channels and the desire for personalized offers make the investment in data analytics mandatory for success.

 

Integration of Mobile Communication

Mobile has become a part of a bank's or credit union's marketing plan as consumers do a significant proportion of their researching, shopping and buying on their smartphones. This includes a mobile optimized and responsive website, and may also involve custom apps and mobile targeted campaigns. Leading organizations in the retail and other industries are already leveraging the mobile device for location-based offers and sales messaging. As consumers switch to online and mobile banking channels, marketing budgets must do the same.

 

Increasing Focus on Return on Investment (ROI)

Marketing campaigns should be measured to gauge success. The advanced tools can now look at the customer purchase journey to determine what blend of channels were used in the decision process.

 

With costs being cut across most organizations, the need of validating the return on marketing investment has never been more important. Being able to link specific revenue outcomes to marketing initiatives can "close the loop" for financial marketers. These same marketers must now shift where they spend their budgets to reflect this potential.

 

Customization and Personalization

With the improved consumer experience and the potential of advanced data analytics in banking, personalized communication must get a higher priority in the years to come.

The benefits of personalization can be in the form of higher response and conversion rates, brand loyalty and repeat customers, amplified reach and increased relevance. Consumers are inclined towards custom solutions based on their personal situation in real time.

 Consumers expect emails to have more relevant content. Consumers will have less tolerance for online and mobile advertising that is too highly personalized.

 

Optichannel Marketing

Besides multichannel or omnichannel, the concept of Optichannel in marketing refers to the ability to communicate and support a consumer's shopping and buying process using the channel that is best for them given the consumer's overall objective. The aim is to support a smooth transition between digital and physical delivery channels as well as between digital and mass media communication channels for the best possible experience.

Financial marketers need to look beyond single channel silos of marketing, where there is a disconnect between the ways a consumer absorbs marketing and how banks and credit unions send messages.

 

Social Media Mainstream

Social media marketing has become mainstream in financial industry since most of adults today use social media. Of all the social networks, Facebook is the most popular for marketers since the network is the largest and the network has built a top-notch ad system. Facebook's data and targeting tools help marketers to personalize their social campaigns.

Twitter, Snapchat and Instagram are also becoming more popular in certain areas of the population. The present challenge for financial marketers is to link social media campaigns to sales. This challenge is what is holding most marketers back from increasing investments in social marketing.

 

BANK MARKETING STRATEGIES

Market strategies are designed after taking into account the strengths and weaknesses of the bank. The factors which play significant role in framing marketing strategies include market penetration, market development and new product range for customers of various segments.

Blogging: A blogging strategy for a bank can increase traffic to its site, build its social media profiles, and establish expertise. To produce a well-designed, SEO-optimized blog the following aspects are taken into consideration:

  • Delivering a great user experience.
  • Providing a call-to-action that ties in the services.
  • Using images and videos to diversify content.
  • Establishing a consistent and easily readable post format.
  • Social Media: It is a must-use tool for bank marketing and establishing a brand presence amongst your competitors. The following points are remembered while creating content that is self-promoting:
  • Posting frequently or regularly.
  • Preparing for negative customer feedback, broadcasting the same message across all channels.
  • Facilitating word of mouth through customer engagement.

Customer Service: Unique customer service can be built into the marketing strategy and ultimately used to boost brand image. A great brand image helps to define a bank more distinctly in the marketplace, and it can create a sense of perceived value in the minds of consumers which often equates to profitability over the long haul. Effective customer service can be delivered through: integrate self-service with agent assistance; handling calls more intelligently; initiate proactive contact; make more effective use of customer data and segmentation; use inbound marketing to reach customers outside the branch, etc.

 

  • Digital media
  • Customers are connected to digital media very easily.
  • Graphics, videos, audio (radio or podcast), and web pages are extensively used to innovatively engage with customers.
  • With digital media/ content marketing strategies can be developed to connect with customers and position your bank for the best kind of marketing.
  • Building a strong bank brand often requires more thought towards strategy, creativity, and innovation to effectively drive  consumer engagement and to maximize the advantages of today's digital media channels and display opportunities.
  • Rewards programmes: For designing a rewards program for customers, three primary goals are considered. There is an increase in consumer loyalty when they become committed to a brand and make repeat purchases over time.
  • Extending customer retention.
  • Cross-promoting services and products.
  • Increasing customer loyalty through consistent use of debit card.
  • Customer retention is influenced because the longer you stay with the bank, the more free money you earn.
  • Rewards program providing the perfect opportunity to cross-promote their savings accounts. Banks have a wide choice in their marketing plans.
  • Attracting and acquiring customers with price-based promotions, or develop new customer relationships with a more brand-based strategy.
  • Strategic Partnerships
  • Partnership with organisations helps make a strong customer base. This could be through entertainment companies, real estate agencies, or nonprofits.
  • Connecting with partners and Grafting strategic programs positions bank distinctively among competitors.
  • Banks need to realize that they offer parity services and potential customers have an extremely difficult time differentiating between banks.
  • Customer Data Analysis
  • Data gives a clear insight into your existing customer base.
  • With data, banks can better understand behaviour patterns and offer relevant deals that fit within their customers' daily lives.
  • Banks need to leverage their data to better understand and serve their existing client base.

 

Major Components of Bank Marketing

 

The marketing strategy of a business consists of seven components which are named as marketing mix. The combinations of marketing mix of a bank vary with the situation or environment. The marketing mix includes product, price, place, promotion, process, people and physical evidence. These are considered as the 7 Ps or 7 elements of bank marketing strategy. An appropriate blend of these Ps is necessary for a well-orchestrated marketing strategy.

  1. Product: The bank services are of intangible nature. Different varieties of products are attractive, innovative and competitive. Service/product of an optimal mix of core and peripheral dimensions will increase the attraction of the product. Banking products are divided into core products, formal products and augmented products/peripheral services. For a bank, core products are savings, banks, term deposits, current accounts, cash credits, overdrafts, term loans, etc. Formal products include two or more core products having strong marketing content to meet some customer needs, e.g. unfixed deposit scheme. The Augmented product is a formal product related to peripheral services, e.g., ATM card or credit card.
  2. Price: Price includes the interest, fees and commission charged and paid by the bank. Price decides the profitability of the banks. Indian Banks have not felt any need to develop their own pricing strategy. But the scenario has steadily changed to deregulated market due to liberalisation. Through RBFs credit policy, banks have flexibility in their pricing policy.
  3. Place: This component requires placing or distribution of services to the ultimate customers. The service mix of banks moves through different distribution channels, such as, the branches, the executives and the staff. A suitable location/ point for the establishment of a bank branch is very important. It should give convenience and comfort to the customers. The behavioural profile and efficiency of the bank personnel is also equally important. Effective marketing requires good appearance and comfortable surroundings.
  4. Promotion: It involves communication with    the    customers/prospective customers on almost all the aspects of the marketing mix like advantages of different products, details of how it is delivered, details on the interest and commission paid and charged by the bank, etc. Marketing promotion aims to inform the prospective customers and to persuade them through advertisement, personal interaction and sales campaign. Four components of promotion strategy are advertising, sales promotion, personal selling and publicity.

(a) Advertising: It includes non-personal presentation and promotion of ideas, goods and services by an identified sponsor. In bank marketing, it is the bank which directly talks about itself, and pays for doing so. The bank tells the prospective customer the features of its products and how it satisfies the customer.

(b) Sales Promotion: It is effective in motivating the customers and bank employees. It comprises of short term activities to boost the banking business. It helps in increasing market share and promoting loyalty towards a brand. The tools of sales promotion include gifts, contests, fairs and shows, discounts and commissions, low interest financing, entertainment and travelling.

(c) Personal Selling: It involves informing the prospective customers and persuading them to purchase products through personal communication. In personal selling, inter-personal communication happens.  Moreover, personal selling may be interchanged with persuasion.

(d) Public Relations and Publicity: Public relation is a two-way communication system to develop mutual understanding between a banking organisation and its customer. Most probably it is in the form of a press release to newspapers and banking magazines or financial news. In banks, there is a Public Relations Department and Public Relations Officer. The other components of public relations are press bits distributed during press conference,   speeches,   seminars, annual reports, charitable donations, sponsorships, community relations, etc.

  1. Process: With 156 reforms in the banking industry, basic changes in banking systems and procedures are necessary for achieving customer satisfaction. Customer-friendly and marketing-oriented processes will give uniqueness to the product. The work-flow in a bank branch should be customer-oriented and the reporting system should be abolished to reduce the workload of the bank staff. Information and communication technology-based systems and procedures will smoothen the banking process.
  2. People: They are an important component of bank marketing strategy as human factor is very influential in services marketing. The quality of service provided by a bank depends on the quality of people available to the bank. A combination of dedicated and committed team of efficient professionals and new information technology could produce the best results.
  3. Physical Evidence: Banking products are intangible, so banker needs to use the instrument of physical evidence in different forms in banks. Proper upkeep of branch premises and interior decoration of branches are originally part of place strategy. Another area of physical evidence is the stationery items like cheque book, pass book supplied to customers and other stationery materials in use.

 

Customers' Opinion on Marketing Strategy

 

  • Customer awareness on new marketing strategies during liberalisation period reflected the customer's opinion on marketing strategy.
  • Commercial banks have been provided the freedom to compete with each other and with other financial agencies after liberalisation period. They have been forced to apply new marketing strategies during this period.
  • Most of the customers are quite aware of banks' new marketing strategies. Awareness is high in urban branches, followed by semi-urban branches and rural branches. There is considerable difference among locations regarding customers' opinion.
  • Customer's opinion on need for marketing in the liberalised banking scenario revealed that majority of people treated marketing as very much essential. Only a few customers rejected it.
  • Marketing is considered very much essential in public sector banks (PSBs) in comparison to old private sector banks (OPSBs).
  • There was considerable difference in the opinion of urban/ semi urban and rural respondents regarding bank marketing.

 

Aggressive Bank Marketing

 

  • The concept of aggressive marketing is extensively used in many banks, especially in new generation banks in the form of aggressive lending and mobilising deposits at higher rates of interest.
  • Majority ban personnel/ opposed aggressive marketing'in banking in the context of financial and banking crisis in the developed countries.
  • Sector-wise analysis revealed that a little less than half of PSBs opposed it while more than half of OPSBs opposed it.
  • While a higher percentage of employees in rural branches was against aggressive marketing in banks, majority in urban branches favoured it.
  • Aggressive marketing customers expect proper and timely services and relationship marketing.
  • Banks are aggressively marketing a new form of high cost credit intended to boost their fee income at the expense of the most vulnerable consumers.

 

Methods of Introducing New Products

  • Personal contact: It involves face-to- face selling and includes data-based marketing, relationship marketing and benefit selling to effectively communicate to consumers. A major advantage of personal contact is the opportunity to ask and answer questions and offer rebuttals to consumer objections or misperceptions.
  • Media: Print media and electronic media have become a major source of knowledge regarding banks and bank products. Sector-wise and location- wise analysis revealed the difference in opinion of customers regarding media as a source of knowledge.
  • Telephone contact: Telemarketing is a method of direct marketing in which a salesperson contacts customers to buy products or services, either over the phone or through a subsequent face to face or Web conferencing appointment scheduled during the call.
  • Pamphlets: They can be used as a source of knowledge about products. Sector-wise analysis revealed that use of pamphlet is higher in urban branches in comparison with rural areas.
  • Existing customers: New bank marketing strategies focus on retaining existing customers and drawing in new customers interaction showed that banks are very much conscious about competition from other financial agencies including new generation banks and foreign banks. So to compete with others, new strategies, including effective use of customer relationship marketing, are required.
  • Websites: It refers to a broad category of advertising that takes many different forms, but generally involves any marketing activity conducted online. The interactive space of the Internet simplifies a bank's ability to track, store, and analyze data about a customer's demographics, personal preferences, and online behaviour.

The banking system is on the threshold of change and continuity in growth and   development,   of   individual customer needs and corporate practices, technology and competitions. The role of marketing in the banking industry continues to change. For several years the primary focus of bank marketing was public returns. Then the focus shifted to advertising and sales promotion. That was followed by concentration on the development of a sales culture. At present, the target is on the individual customer meeting and even anticipating their needs and developing trusting, long- term relationships by delivering high quality personalized service. Marketing both as a philosophy and an activity will contribute immensely to the realization of goals both immediate and future.

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