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The Presentation
Marketing of Financial Services
Difference between tangible and financial services
marketing,
Characteristics of services,
Why is planning essential for banks?
Benefits of planning,
Strategic and marketing plans,
Factors affecting banks’ strategy,
Changes in banks’ strategy in the 1980s,
New approach to banks’ marketing style,
Elements of a marketing plan,
Marketing mix in financial services,
Planning corporate account strategy,
Pricing decisions and strategy, and
The future of marketing for banks.
Marketing of Financial Services
One of the major problems facing the promoters
of financial services as opposed to tangible
products, is that services cannot be experienced
in a tangible manner.
Services cannot be:
(a) touched,
(b) tasted,
(c) handled, or
(d) purchased in bulk like tangible products.
Marketing of Financial Services
The Acronym (HIPI) will help you remember the
characteristics of services.
Heterogeneity
Although all bank branches sell the same services, the
standard of service is not uniform from branch to branch.
Service marketing relies heavily on the individual selling
the service.
It is this individual who is judged as the “bank” rather than
the underlying service being sold.
Hence, marketing manager must pay great attention to:
product knowledge, sales training, selling skills and
interpersonal skill of the seller.
Marketing of Financial Services
Intangibility
Marketing of financial services must necessarily stress the
Benefits because services cannot be touched, tasted or in
Any way experienced by the senses.
While a service may have some tangible representations
like: cheque book covers, bank statements, plastic cards,
these represent only a small part of the intangible service.
Purchase of financial services often involves a highly
emotive decision.
Different services also present a different level of risk to
the customer.
e.g current account may be considered low risk
mortgage account may be considered high risk.
Marketing of Financial Services
Perishability
Services are highly perishable since they cannot be stored
(e.g. time when sales persons are not serving customers cannot be
utilized to expand service at peak periods.)
Demand for services fluctuates from day to day, week to
week, month to month, especially for branches in tourist
areas.
Marketing of Financial Services
Inseparability
Most of the time services cannot be separated from the
sales consultants (e.g. investment advisor, corporate manager).
If a customers need investment advice, they must go to
an investment advisor duly authorized by the bank to
provide an advisory service.
Services are frequently created at the time they are used,
unlike the tangible products, which must be produced
before they can be sold to customers.
Marketing of Financial Services
A bank without a formal planning process is like a
ship without a destination.
Quotation: “A bank that fails to plan – is planning
to fail”.
Any commercial organization, which fails to plan its
future will quickly become out of touch with its
environment, thus leaving itself vulnerable to
competitor activity aimed at gaining a dominant
place in the market.
Marketing of Financial Services
The value of planning lies in the bank or financial
institution, being in a position to control its own
future.
This is principally due that the bank should be in
constant touch with a fast changing environment.
A systematic appraisal is developed and
incorporated in a written plan, which will provide
continuity of thought and action from one year to
the next.
Marketing of Financial Services
(a)Executives are forced to set corporate objectives
thus providing guidance for the bank’s operations
(b) Planning identifies the resource needs of each
activity, balances these needs against available
resources, and allocates these resources in the
most efficient way,
(c) A good planning process should make all staff
more aware of their own roles and responsibilities
(d) A formal plan forces banks or other organizations
to considers its own Strengths, Weaknesses,
Opportunities, and Threats (e.g. SWOT Analysis).
Marketing of Financial Services
(e) A good plan will enable a bank or financial
services provider to identify the customers’ needs
and wants, thus enabling the bank to build
strategies for any profitable segment identified,
(f) The bottom line of any planning process is to
monitor new development in the business
environment, and try to be in control.
Marketing
Plan
Human
Resources
Plan
Financial
Plan
Risk
Management
Plan
Marketing of Financial Services
With the growing level of competition, and the rapid
pace of change, banks started to focus their attention
on strategic planning,
Marketing plan emerged as an essential tool in the
overall strategic plan,
In spite of this new development, some traditional
banks remained with the “old banking business
concept” instead of employing modern management
business skills within the banking business.
Unfortunately, some traditional banks went out of
Business earlier than expected.
Marketing of Financial Services
1. Mission Statement
It states the overall purpose of bank or any organization.
2. Key Objectives
Objectives are cited for variables such as:
(a) financial return expected,
(b) degree of efficiency required,
© size of loans or credit on offer, and
(d) service quality
3. Market Assumptions
These contain explicit statements about future trends in strategic
market segments, which may affect the bank’s freedom to act.
4. Competitive Strength Evaluation
An evaluation exercise of the strengths & weaknesses based on
factors such as: ( relative costs, service quality, and market share).
Marketing of Financial Services
5. Assessment of Opportunities
The plan should assess the threats and opportunities for each market
segment. This is important in order to achieve the mission & objectives
6. Market Portfolio Strategy
The plan must identify the desired investment strategies for each of
the markets in, which bank units participate and the objectives to be
attained for each.
7. Strategic Changes
Objectives & goals for action plans stating changes in capabilities or
resources under the control of unit management and selected as most
likely for achieving the desired market results.
8. Action Plans for Implementation
Specific programs including measurable goals, events and timing,
which result in the changes specified in action plan objectives.
Marketing of Financial Services
9. Expected Financial Results
These include the anticipated financial outcome in terms of revenue,
profits and return on assets for the units.
10. Project Review or Evaluation
Realistically, with a every project concept, there should be a review
or evaluation with the intention to assess its result.
Marketing of Financial Services
Mission
Statement
Key
Objectives
Environment
& Market Assumptions
Competitive
Strengths Evaluation
Market Portfolio
Strategy
Strategic Changes
Action Plans
For Implementation
Evaluation Process
Action Plans
For Implementation
Assessment of
Opportunities
Marketing of Financial Services
The banking industry around the world has been
changing very rapidly since the early 1970s.
The industry has experienced a substantial change
in competitive conditions as a result of a number
of factors:
►the industry tended to go international, led by the
leading US commercial banks,
► new competitors entering the financial services
market new approaches to servicing corporate clients
► new capital markets emerged – as a result
transformed traditional funding of banks & MNCs
► a wide range of sophisticated products were
introduced under “packaged sales”
Marketing of Financial Services
►in response to competition, banks reacted and began
to build up their own multi-national presence
through their own brand name,
►banks began to channel their marketing resources
towards diversification,
►by the end of 1970s, banks’ operations had become
more complex with the range of services on offer,
►while margins on lending were eroded through
competition, fee-based services were increasing,
►non-bank financial institutions were also providing
financial services – hence, more competition,
(e.g. General Motors, Shell Co, American Express. Large stores,
and Supermarkets)
Marketing of Financial Services
► new information technology (I.T.) impacted on the
operations of the banks and became one of the key
drivers, (e.g. back office became automated),
►savings and loans associations initiated interest-
bearing transaction accounts and brought direct
competition to commercial banks, and
►professionals like accountants, lawyers, real estate
agents, financial brokers, asset managers also offered
financial services.
Marketing of Financial Services
In the 1980s the banking industry experienced an
acceleration in the pace of change in both:
(a) retail, and (b) wholesale market.
Retail Banking
→ Increased Segmentation of Consumer Groups
and provided Specialist Private Banking Services
(e.g. rich individuals, High-Net-Worth customers)
→ Stratified Accounts (e.g. personal loans, credit finance,
insurance products, 1st & 2nd line mortgages, deposits FD &
S/Term)
→ Replacement of Paper-Based Accounting Systems,
→ Increased competition for loans and deposits
Marketing of Financial Services
Wholesale Banking
→Competition Intensified- banks continued to strive for
competitive advantage and in doing so cancel out one
another’s efforts,
→MNCs became stronger in their demands by negotiating
their own interest rates and cost of services from banks,
→Japanese banks took the first 5 top positions in the
international banking league,
→New development in I.T change the banks’ approach
to the consumer, wholesale and corporate markets,
→Increase competition from non-bank institutions
(General Motors, General Electric, American Express, Merrill
Lynch, and other major credit finance companies)
Banks portray themselves as a “One Stop Financial Services
Centre”.
Banks no longer remain in their traditional service market.
They are now more aggressive in providing a full menu of
services that will cater for its customers’ needs.
The competition is so fierce that they can offer any type of
service provided their customers are satisfied with the speed
efficiency & costs involved.
Banks in certain industrial countries are now mobile in such
a manner, that they will visit you at your doorsteps.
Technology is one considered as one of the key drivers that
enables banks to cope with the intensity of competition.
• Overdraft,
• Fixed Rate Short Term Loan,
• Acceptance Finance,
• Multi-currency Lending,
• Hire Purchase,
• Tax Leasing,
• Leverage Leasing,
• Parallel Loans,
• Commodity & Stock Loan,
• Variable Term Loan,
• Syndicated Loan,
• Secured Equipment Loan,
• Merchandise Loan,
• Property Construction Loan,
• Merger & Acquisition Finance,
• Mortgage Finance Loan.
Domestic Transfers
• Cheques,
• Banker payments,
• Standing orders instruction,
• Credit transfers,
• Bank-to-bank transfers,
• Direct debits,
International Transfers
EFT transfers,
Bank drafts,
International cheques,
Commercial Credits
Clean credits,
Documentary credits,
Import & Export credits.
Trust Services
Executorships,
Share registrars,
Safe deposit services,
Estate planning,
Tax planning,
Life insurance,
Trusteeships,
Shares & Bonds purchases,
Pension fund management,
Corporate trustee services,
Investment advice, and
Dividend payments.
Consultancy Services
Invoicing centres,
Treasury management,
Pension Fund advice,
Insurance Man advice,
Forex forecasting,
Training in finance, and
Financial plan & money
management service.
 Payroll management & accounting,
 Factoring of commercial invoices,
 Travel arrangements,
 Life Insurance planning,
 Economic & strategic studies,
 Correspondent banking services,
 Data processing services,
 Non-life insurance planning, and
 Consumer banking services
Marketing of Financial Services
Relative Market Share
High
H
i
g
h
L
o
w
Low
STAR
PROBLEM CHILD
Strategy→ “Build”
Strategy→ “Build” or
“Harvest” or
“Divest”
CASH COW
DOG
Strategy→ “Hold”
Strategy→ “Harvest”
or
“Divest”
Source: Boston Consulting Group Matrix
Marketing of Financial Services
• Star
Where the bank would
make investments in
order to build up or
expand its Business
Units (BU),
• Problem Child
Where the bank allows
market share to decline
in order to maximize
short-term profitability &
cash flow, regardless of
the long-term effect,
* Dog
• Cash Cow
Where the bank would
invest just enough
money to hold the BU
share at the current level,
Where the bank sells or
phases out the BU &
reinvest resources.
Marketing of Financial Services
Ansoff identified 4 strategies following the BCG
Matrix:
(1) Market Penetration,
(2) Product Development,
(3) Market Development, and
(4) Diversification.
Marketing of Financial Services
MARKET
CURRENT MARKET
P
R
O
D
U
C
T
NEW MARKET
C
U
R
R
E
N
T
Market
Penetration
Market
Development
N
E
W
Product
Development
Diversification
Source: Ansoff Matrix
Marketing of Financial Services
(1) Market Penetration
This strategy is the least risky of the 4 strategies because
it involves increasing market share in existing markets.
(2) Product Development
The bank is already well known in its current market place
but there is an identified need for new products to meet
the changing needs of this market.
(3) Market Development
The bank is already known for its current products, but the
strategy is to take these products into a new market.
(4) Diversification
With this strategy, the bank is moving into new market
with new products.
The McKinsey model argues that businesses should
develop their growth strategies based on:
• Operational skills,
• Privileged assets,
• Growth skills, and
• Special relationships.
Growth can be achieved by looking at business
opportunities along several dimensions, summarized
in the diagram.
The McKinsey Model resembles the Ansoff Model.
Acquisitions
New Industry
Structure
Joint Ventures
New Geographic
Areas
How?
Minority Stakes
New Delivery
Systems
New Products &
Services
Alliances
Existing Products
to new customers
Marketing
Partnership
Existing Products
to existing customers
Organic Invt
Generic Options & Investment Structures for a Growth Strategy
Increasing Level of Risk
McKinsey Growth Pyramid
New Competitive
Arenas
Operational Skills
They are the “core competences” that a business has
which can provide the foundation for a growth strategy.
(e.g. the business may have strong competencies in customer
service; distribution, technology).
Privileged Assets
Those assets are held by the business that are
hard to replicate by competitors.
(e.g. in a direct marketing-based business these assets might
include a particularly large customer database, or a wellestablished brand).
Growth Skills
These are the skills that businesses need if they are
to successfully “manage” a growth strategy.
These include the skills of new product
development, or negotiating and integrating
acquisitions.
Special Relationships
Such relationships are those that can open up new
options.
(e.g. the business may have specially string relationships with
trade bodies in the industry that can make the process of growing
in export markets easier than for the competition) .
The model outlines seven ways of achieving growth,
which are summarized as follows:
 Existing products to existing customers
 Existing products to new customers
 New products and services
 New delivery systems,
 New geographic areas,
 New industry structure, and
 New competitive arenas
 Existing products to existing customers
The lowest-risk option; try to increase sales to the
existing customer base; this is about increasing the
frequency of purchase and maintaining customer loyalty.
 Existing products to new customers
Taking the existing customer base, the objective is to
find entirely new products that these customers might
buy, or start to provide products that existing customers
currently buy from competitors
 New products and services
A combination of Ansoff’s market development &
diversification strategy – taking a risk by developing
and marketing new products. Some of these can be sold
to existing customers – who may trust the business
(and its brands) to deliver; entirely new customers may
need more persuasion
 New delivery systems
This option focuses on the use of distribution channels
as a possible source of growth. Are there ways in which
existing products and services can be sold via new or
emerging channels which might boost sales?
 New geographic areas
With this method, businesses are encouraged to
consider new geographic areas into which to sell their
products. Geographical expansion is one of the most
powerful options for growth – but also one of the most
difficult.
 New industry structure
This option considers the possibility of acquiring
troubled competitors or consolidating the industry
through a general acquisition programme.
 New competitive arenas
This option requires a business to think about
opportunities to integrate vertically or consider
whether the skills of the business could be used in
other industries.
Marketing of Financial Services
Gap Analysis of Revenue
80
Desired Revenue
70
Strategic
Planning Gap
Revenue
60
50
Projected
Revenue
40
30
20
10
0
Time
Marketing of Financial Services
GAP analysis can be used at a number of levels of
Planning – strategic, operational, product & market.
The resultant gap analysis will enable the bank to
choose between one or two courses of action:
(a) plan strategies to close the gap, and
(b) redefine the objective so that they produce the
same result as the current projected trends.
Marketing of Financial Services
Changes in the external environment can affect the
desirability of the potential strategies of a bank
due to changes in its relative position in the market.
The changes follow the acronym (LePESTCo):
External Factors
(1) Le → Legal
(2) P → Political
(3) E → Economic
(4) S → Social
(5) T → Technological
(6) Co → Competition
Marketing of Financial Services
LEGAL
* Banking Regulations & Laws,
• Taxation Laws,
• Foreign Exchange Controls,
•POLITICAL
• Attitude of the Government towards the local banks,
• Attitude of the Government towards foreign banks &
non-bank financial institutions.
ECONOMIC CONDITIONS
• Industry Structure,
• Gross Domestic Product (GDP),
• National Rate of Inflation & Money Supply,
• Foreign Exchange Rates,
• Interest Rates, and
• Unemployment Levels.
Marketing of Financial Services
SOCIAL & DEMOGRAPHICS
• National Birth Rate,
• Population Size,
• Age Distribution,
• Socio-economic Distribution,
• Geographic Population Distribution,
• Education/Skill Distribution,
• Trend in Lifestyle,
• Public Opinion & Attitudes towards financial services
providers, and
•Trend in Banking Usage.
TECHNOLOGY
• Development in Integrated Technology,
• Changes in Technological Industry,
• Levels of Investment Required, and
• Customers’ attitudes towards new technology.
Marketing of Financial Services
COMPETITION
• Existing players in the Market,
• New Entrants penetrating the Market,
• Pricing of Financial Services/Products,
• Marketing Style, and
• Consolidation within the Banks.
Marketing of Financial Services
COMPETITOR ANALYSIS
• Market share,
• Financial position,
• Reputation among suppliers and creditors,
• Composition of the clientele,
• Menu of product/service range,
• Strategies for segmentation, key accounts,
• Pricing,
• Image & service quality standards & performance,
• Efficiency of service delivery,
• Promotion aspects (e.g. spending, timing & reach),
• Technology used for service delivery,
• Planning, information & control systems,
• Ability to attract qualified personnel,
• Training, morale, union relations,
• Commitment to research & development, and
• Plan to diversify within, and/or, outside the industry.
Marketing of Financial Services
A sound marketing plan should also considers
the impact of internal factors such as:
(a) Employees,
(b) Premises,
(c) Systems, and
(d) Financial resources needed to back the plan.
Marketing of Financial Services
Employees
Does the bank have adequate qualified employees to handle
the marketing campaign?
Are the employees fully aware of the marketing plan and
their respective responsibilities?
In the event of a shortage of employees – will they be
recruited from the bank’s competitors or given internal
training?
Will the employees be given a marketing target to achieve
within a specific period of time?
Who will be responsible for the overall co-ordination?
Will they be remunerated based on performance?
Marketing of Financial Services
Premises
Where will the marketing campaign be executed - Head
Office, or Branch Level?
Are the current premise visible or adequate to promote the
marketing campaign?
Will there be any additional cost to be incurred to make the
premises more user friendly and appealing?
How are the premises styled – open plan or closed counters?
Are the premises comparable with the bank’s competitors?
Marketing of Financial Services
Systems
Are the present systems adequate or robust enough to
handle the marketing campaign?
Are the systems user friendly?
Are the employees fully trained to manage the systems in
place?
Can the systems be replicated by the bank’s competitors?
Who will be responsible to manage the systems?
Can the systems be tempered with?
Is there a contingency plan in place in the event of a system
break down?
Marketing of Financial Services
Financial Resources
Is there a specific budget allocation for the marketing
campaign?
Who will be responsible to manage the budget?
Has adequate provisions made to include cost overrun of
the campaign?
Does the budget time frame match the marketing campaign
period?
Is the marketing campaign costs built into the service costs?
Market Characteristics
 Assess the market size,
 Test for historic growth rate,
 Make a projection of the growth rate,
 Count the number of accounts in total,
 Evaluate the trend in market concentration,
 Consider the buying decision process,
 Evaluate the service delivery process, and
 Assess the characteristics of customers.
Service Characteristics
 Relative capital intensity,
 Work out the degree of service differentiation,
 What is the “Value Added”?
 Consider the level and type of risk faced by the bank,
 Test the relative profitability of the service,
 What are the potential for cross-selling opportunities?,
 The impact of shared-cost structures,
 Rate of service change and innovation,
 Service integration with other bank services, and
 Attitude of customers to new services/products.
Environmental Characteristics
 Political stance and their impact on the industry,
 Impact of new technology and trends,
 Impact of social attitudes, and
 Economic dynamics and its impact on the industry.
 Identify the existing competitors and their market share
(to include non-bank financial institutions),
 Evaluate the bank’s market share towards its competitors,
 Consider the impact of changes of competitors,
 What is the major trend in the market share?,
 Evaluate the degree of competitor concentration in the
market,
 Test for relative service price, cost, and marketing effort,
 Assess the relative capital intensity,
 What is the position regarding entry or exit barriers?,
 Work out the relative employee skills required,
 Consider the relative resource availability to the bank, and
 Assess the systems capability, and
 Evaluate the services life cycle of the industry.
Life Cycle Position
Demand
STAGES IN THE BANK’S SERVICES LIFE CYCLE
Your Bank’s Position
Embryonic
Growth
Shakeout
Time
Maturity
Decline
Porter’s Five-Forces Model
Threats
of
New Entrants
Bargaining
Power
of Lenders
Competitive
Rivalry
Threats of
Substitute
Services
Source: Adapted from M E Porter, Competitive Strategy (1980)
Bargaining
Power
of Customers
Porter’s Generic Strategy Model
COMPETITIVE ADVANTAGE
Lower Cost
C
O
M
P
E
T
I
T
I
V
E
S
C
O
P
E
1. COST
LEADERSHIP
Differentiation
2.
DIFFERENTIATION
Broad
Target
3 (a) COST FOCUS
Narrow
Target
3 (b)
DIFFERENTIATION
FOCUS
Cost Leadership
This can be achieved through market leadership, or from
economies of scale (e.g. with high sales and aggressive costs
control).
The bank can try to achieve lower costs by means of
encouraging customers to use products in a way that is
cheaper for the bank (e.g. ATMs, SWITCH, DELTA cards).
The bank will also have to promote the benefits such as
convenience to the customers.
Depending on the type of market, cost leadership may be
difficult to maintain in banking, because many services
are broadly similar.
For a small market, diversification for cost leadership
strategy may not be feasible.
Differentiation
This is where a bank seeks to be unique in the financial
services sector by producing a product/service, delivery
system or image that is distinctive from its competitors.
Differentiation is only successful if the customers perceive
the difference.
Banks would tend to use marketing slogan such as:
 You’re better of talking to Barclays,
 The bank that says Yes
 The listening bank
 Your partner in development
 Your solutions bank
The major problem with differentiation as a strategy is that
financial services can be easily copied and adapted by
other competitors using slight different wordings.
Cost Focus
While the cost leadership and differentiation strategies aim
at a broad target, the focus strategies aim at a narrow target.
The bank would normally select a target market (s) & tailors
its strategy to the specific need of the target market (s).
(e.g. select a quoted MNCs as its target market, and aim to serve them
to the virtual exclusion of other target markets).
The bank can either aim at cost focus or differentiation focus.
Differentiation Focus
This approach can be described as “finding a niche in the
market place and developing services that matches the
niche market”.
If the target market is too small, the bank may be left with a
service menu that is not profitable.
Product
Price
People
Promotion
Place
Product/Service
This concerned with the features of the bank products, and
any option available to the customer.
(e.g. bank lending would include the term of loans – fixed or variable
rate and option to switch from variable to fixed rate or vice versa).
Place
Where the product or service is being made available to the
customer, or how can the customer obtain the service.
(e.g. branch network, ATMs, Internet banking).
Price
This refers to the interest rates offered to depositors and
borrowers, bank charges, commissions for services.
Promotion
It is concerned with advertising, direct sales, tele-marketing,
internet, personal visits to the customer.
People
In view of the heavy competition, banks expect their staff to
take a pro-active selling or customer service role.
In fact, bankers are more sales persons these days than two
decade ago.
It requires training or re-training and in many cases a
profound cultural change in the bank as a whole, as people
adjust to new selling roles.
In the marketing of financial services, it is imperative that
the staff (people) takes the centre stage in order to achieve
success.
In planning to target the corporate market, a bank would
necessarily have to consider the following factors:
Financial Data
* Sales,
* Gross margin,
* Sales growth rate potential,
* Net margin,
* Trend in the margin for the other banks,
* Sales percentage by the major line of business,
* Stock turnover,
* Debtors ageing trend,
* Creditors facilities,
* Trends in working capital for the corporate,
* Demand for plant & equipment,
* Trends in fixed asset investments,
* Short-term & long-term debts profile,
* Debt maturity schedule,
* Interest rate charged & paid,
* Equity capital injected, and
* Major shareholders.
Procedures to Adopt in Targeting Corporate Customers
Market Planning
General Screening
Prospecting
Needs Identification
Strategy Assessment
A/Cs Action Planning
Review
Relationship Dev
General Business Considerations
 Lines of business,
 Number of employees,
 Market position,
 Main brand names,
 Subsidiaries (domestic & international),
 Production/service sites (no & location), and
 Names & position of board and finance officers.
Competitor Analysis
Existing lead bankers,
Other bankers.
Advisors
o Accountants,
o Lawyers,
o Consultants
Industry Background Information
Growth Rate (i.e. historic & projected),
Capital Intensity,
R & D investment,
Marketing intensity,
Profitability,
Industry economic trends, &
Industry competitiveness
Pricing decisions are not only made in relation to new
products, but also in relation to the existing products.
Pricing decisions must be made, taking into account the
bank’s environment & how the factors constituting the
environment can be controlled.
The factors can be divided into (a) internal & (b) external.
Internal factors
• marketing objectives,
• marketing mix strategy,
• costs involved, and
• organization for pricing.
External factors
• nature of the market & demand,
• competition, and
• LePEST
Once a new product/service has been developed, a bank
will need to decide upon the price to charge, and to test
the acceptability by the target market using market
research approach.
Three of the most important strategies for pricing new
Products/services are as follows:
(1) Skimming Pricing,
(2) Penetration Pricing, and
(3) Perceived Value or Value Pricing.
Skimming Pricing
This involves setting a high initial price for the product/
service so as to just “skim the cream” of demand for the
product/service. It is especially suitable for new products
because:
(a) new products are less affected by price until the
competition arrives,
(b) a high initial price many help the product gain an
image of prestige and quality,
(c) a high initial price often produces more revenue in the
early days, thus bringing in funds to finance expansion
into larger markets,
(d) there are sufficient buyers to pay the high price,
(i.e. demand is inelastic), and
(e) a skimming price can be means for testing demand.
Penetration Pricing
This the opposite of skimming pricing; it sets a low price in
order to capture a large share of the market quickly.
This is a valid policy if one of more of the following
conditions apply:
(1)The intention is to capture a large share in a mass market,
(2) Strong competition will emerge soon after introduction,
(3) When the market appears price sensitive, and
(4) Substantial economies in production, and/or, distribution
costs can be achieved with a large sales volume.
Perceived Value or Value Pricing
Bank marketers should use this strategy to get beyond the
stage of “what does it cost us to deliver this service?” to
“what is the perceived value (benefit) of this service to the
customer?”.
The more tangible and intangible features (including say
Prestige) that can be added to a service, the higher the
value perceived by the customer.
This enables the bank to charge a higher price.
A bank must consider changing the price of the existing
products/services in certain circumstances.
The strategies may be considered along those lines:
(a) Cost Plus Pricing,
(b) Break-Even Pricing,
(c) Relationship Pricing,
(d) Loss-leader Pricing,
(e) Competitive Pricing,
(f) Pricing for Market Share, and
(g) Differential Pricing.
The marketing committee or team is usually responsible
to feed the strategist or the management team of the
best approach, considering the market circumstances.
Cost Plus Pricing Methodology
This approach identifies the basic cost of the product/service
first, then adds a worked out margin to ensure that the
product/service is sold at a profit.
The methodology is practically similar to the sales of tangible
commodities.
For such a strategy to be very productive, it is essential that
the true cost is obtained from the outset before the final
price is determined.
No business wants to operate at a loss, let alone, a bank or
financial institution.
Break-even Pricing
Such a pricing strategy speaks for itself “break-even” where
the product/service sold does not realized a profit or loss.
Both the fixed and variable costs are taken into account
when such a price is determined by the management.
One would ask, this is not in line with sound commercial
practice?
This strategy can be used by management to adjust the price
to fit in with expected demand and customer sensitivity
until a price is arrived that fits the target sales and equally
produces the desired profit result.
Unless, this practice is closely monitored by the marketers
and report to the management the bank can loose a lot of
money within a short period of time.
Relationship Pricing
This is particularly important when a bank is trying to deal
with the corporate clientele and high net worth individuals.
In order to cross-sell other services, other prices may be
adjusted downwards in order to keep the business, while
increasing the profits overall from these customers.
It is an important development that the management of a
bank must be able to track down the trend in the revenue
generation process.
Otherwise, the bank will be placed at a serious disadvantage
which can cost the shareholders very dearly.
Loss-leader Pricing
The term “loss-leader” means that you need to sell one
particular product at loss, which is necessarily linked to
other more profitable products/services.
This is not a bad strategy, subject that the marketing team
together with the management team are in control of the
entire campaign.
In the case, a bank would know that it is operating a service
at a loss, but on the other side, it provide the bank with the
opportunity to cross-sell other services.
The loss-leader service would be usually a service that is
not mutually exclusive (i.e. standing on its own).
This strategy resembles “buy one item- get one free”
Competitive Pricing
It is absolutely crucial that when a bank is considering its
marketing plan, which is embodied in the strategic plan,
the various pricing strategies are considered.
Customers normally would base their buying decisions after
considering all the built-in features including the price.
The typical psychological behaviour “ I will buy it – if the
price is right”. Financial services marketing is not different
from the other commodities.
If the market is fiercely competitive, then the bank may have
to price its products/services at the price that the market
is expected to bear.
Pricing for Market Share
Again, any smart management team has to consider the
motive (s) of its pricing policy as a priority rather than simply
put a price on a service.
To apply such a commercial strategy is to engage the bank’s
resources into a meaningless plan, which can be very costly.
In the case of pricing to gain the market share so as to
operate as a cost leader in the market – the marketing team
must be able to tune the whole campaign in line with the
overall corporate philosophy of the bank.
In order to gain the market share, the bank’s profits will
suffer in the short-term, but grow in the long-term if the
strategy is implemented successfully.
Differential Pricing
What does differential means? It means to be different!
Different from whom? Externally, different from your
competitors, and internally, different from service-service.
Internally, certain methods of conducting business
transactions are cheaper for the bank & customers.
It encourages customers to move away from voluminous
payment of say salaries by cheques, but by means of
electronic transfer.
It is less expensive for the bank to handle thousands of
“salaried payments” electronically, than by cheques – due
to the time involved.
The marketing campaign of banks’ services has always been
dynamic since de-regulation of the financial services sector
took effect in the 80s.
The competitive pressure by various players in the financial
services sector will not diminished in any form or substance.
Instead, it is expected that as competition intensified from all
fronts, the marketing campaign by banks to retain, let alone,
increase their market share will equally become more
aggressive.
Banks’ can only retain customers loyalty through the delivery
of service quality combined with risk-based pricing method.
Banks must also pay attention to their customers’ needs.
I wish you all,
good luck
in your studies.