Banking Sector

BANKING SECTOR The Indian banking has finally worked up to the competitive dynamics of the ‘new’ Indian market and is addressing the relevant issues to take on the multifarious challenges of globalization. Banks that employ IT solutions are perceived to be ‘futuristic’ and proactive players capable of meeting the multifarious requirements of the large customer’s base. Private Banks have been fast on the uptake and are reorienting their strategies using the internet as a medium The Internet has emerged as the new and challenging frontier of marketing with the conventional physical world tenets being just as applicable like in any other marketing medium. PEST ANALYSIS TECHNOLOGICAL ENVIROMENT The latest development in technological in computer and telecommunication have encouraged the bankers to changes the concept of branch banking to anywhere to anywhere banking. The use of ATM and internet banking have allowed anytime anywhere banking facilities. Simple quires are now answered by automatic voice recorders, currency accounting machines; self service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today master card and visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc… through ECS we can receive the dividends and interest directly to our account avoiding the delay or chance of loosing the post. ECONOMICAL ENVIROMENT Banking is as old as authentic history and the modern commercial banking are traceable to ancient times. In India banking has been existed in one form or the other from time to time. The present era in banking may be taken to have commenced with establishment of bank of Bengal in 18089 under the government charter and with government participation in share capital. Allah bad bank was started in the year 1865 and Punjab national bank in 1895, etc… Every year RBI declares its 6 monthly policy and accordingly the various measures and rates are implemented which has impact on the banking. Also the union budget affects the banking sector to boost the economy by giving certain concessions or facilities. If in budget savings are encouraged more deposits will attract the banks and in turn they can lend more money to the agricultural sector and industrial sector, therefore booming the economy. If the FDI limits are relaxed then more FDI are brought in India through banking channels. POLITICAL/ LEGAL ENVIROMENT Government and RBI policies affects the banking sector sometimes looking into the political advantage in a particular party the govt. declares some measures to their benefits like waver of short term agricultural loans, to attract the farmers votes. By doing so the profits of the bank get lower down. Various banks in the cooperative sector are open and run by the politicians. They exploit these banks for their benefits. Various chairmen’s of the bank are appointed by the government.Various policies are framed by the RBI looking at the present situation of the country for better control over the banks. SOCIAL ENVIROMENT Before nationalization of the banks the control of banks were in the hands of the private parties and only big business houses and the effluent sections of the society were getting benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the social development in the banking sector it was necessary for speedy economic progress consistent with social justice in democratic political; system which is free from domination of law and in which opportunities are open to all. Accordingly with national and social objective bankers were given direction to help economically weaker section of the society and also provide need based finance to all the sectors of the economy with flexible and liberal attitude. Now the banks provide various types of loan to farmers, working women, professionals, and traders. Also on apart from the recently education loan to the students and housing loans, consumer loans, etc... Banks having big client or big companies say reliance etc…have to provide something like personalized banking to their clients because these customers do not believe in running about and waiting in queues and getting their work done. The bankers have to provide these customers with special provisions and also at times benefits like food and organize parties for them. But the banks do not mind incurring these costs because of the kind of business these clients bring for the bank. 7 P’S of BANKING SECTOR It is very important for any bank to identify the 7 P’s of services so was understands their customers better and provide them with best of service. The 7 P’s are:

PRODUCT MIX BANKS PRODUCTS: (A) DEPOSITS: Savings, Current, Fixed etc. (B) ADVANCES: (1) Fund Oriented:

a) Term Loan, b) Clean Loan, c) Bills Discounting, d) Advances, e) Pre-shipment Finance, f) Post-shipment finance, g) Secured and Unsecured lines of credit. (2) Non-fund oriented: a) Guarantees, and b) Letter of Credit. (C) INTERNATIONAL BANKING: a) Letter of Credit, and b) Foreign Currency. (D) CONSULTANCY: a) Investment Counselling, b) Project Counselling, c) Merchant Banking, and d) Tax Consultancy. (E) MISCELLANEOUS: a) Traveller Cheques, b) Credit card, c) Remittances, d) Collections, e) Sale of Drafts, f) Standing instructions, and g) Trusteeship. Price Mix The price mix in the banking sector is nothing but the interest rates charged by the different banks. In today’s competitive scenario where customer is the king the banks have to charge them interest at the rate in force on accordance with the RBI directives. Banks also compete in terms of annual fees for services lie credit cards, DMAT etc. another important part of the banks pricing policy today is the interest charged on the Home Loans and Car Loans. With India’s economy progressing there are more and more buyers seeking these loans but at a very competitive interest rate. Let’s understand this with an example. A particular buyer approaches for a car loan say for a period of 3 years. He is charged Rs. 20,000 as interest. however if a sales representative of another bank comes to know of this deal he will try to attract the customer by giving him a better deal that is a loan at a lower rate on interest. In this way due to the high level of competition the customer benefits. Value pricing This type of pricing is mainly done by banks having unique or different products or schemes. They usually charge a combination of high and low prices depending on the customer loyalty as well as the products. This type of pricing strategy is usually coupled with promotion programmes. Going rate pricing: The most pricing technique is going rate pricing. In going rate pricing the banks bases its price largely depending on the competitor’s prices. The banks however have to stay within the RBI directives and compete. The banks may charge higher or lower than their competitors. After 1991 when the foreign banks entered the Indian market this method of pricing has gained increasing importance. Mark up pricing: This is a pricing technique wherein the cost of the service is determined and a small margin is added to it and then the final price is offered to the customers. This type of pricing is the not very popular since in the banking sector it is not very easy to arrive at the cost of the service. Thus most banks use a combination of mark – up pricing and going rate pricing. THE MOST FAVORABLE PRICING STRATEGY

This model shows a pricing strategy which should be adopted in order to ensure maximum satisfaction to both the bank as well as the customers.

PLACE MIX Place mix is the location analysis for banks branches. There are number a factors affecting the determination of the location of the branch of bank. It is very necessary a bank to situated at a location where most of its target population is located. Some of the important factors affecting the location analysis of a bank are: 1. The Trade Area:The trade area is a very important factor determining the place where a bank branch should be set up. For example a particular location maybe a huge trading place for textiles, diamonds or for that case even the stock market. Such locations are ideal for setting up of bank branches. 2. Population Characteristics: The demography of a place is a very important factor. This includes: The income¬ level of the population The average age The average male female¬ population The caste, religion, culture and customs The average spending and saving habit of the people. These factors are very important for a bank as the help them decide the kind of business the branch will get.

3. Commercial Structure:The commercial structure refers to the level of commercial i.e. business activities taking place at a particular location. The higher the level of business activities taking place in a particular location the more preferable it is for setting up a bank branch. 4. Industrial Structure: This is nothing but a combination of the trade area analysis and the commercial structure. However the industrial structure focuses more on the kind of industries operating in a particular location. For example an area like seeps is marked with a lot of electronic manufacturing units. Thus the industrial stricture determines the kind of financial transactions that could take place in a particular location 5. Banking Structure:The Banking structure refers to the existence of other banks in the area. Whether there is already an efficient network of other bank branches operating at that particular area. Thus the overall infrastructure needed for the working of a bank. 6. Proximity of other convenient outlets:This refers to the other branches of the same bank as well other commercial, entertainment and industrial outlets. 7. Real Estate Rates:This is mainly dealing with the cost factor involved in opening up a bank branch at a particular location. The real estate rate is very strong factor influencing the location decision for a bank branch. 8. Proximity to public transportation:The location should be proximate to public transportation facilities. This means it should have bus stops close by as well as it should be proximate to railway stations so to make it convenient for the common man. 9. Drawing Time:Drawing time refers to the time period in which a bank can draw a huge amount either from other banks o from the RBI in case of any kind of emergency requirement. No bank has more than a certain amount with them and in case a customer wants to withdraw an amount more than that available with the bank, the bank needs to draw that amount from other banks. Hence a location must be such that it facilitates minimum drawing time. 10. Location of Competition:The existence of other banks also means competition. If the level of competition is very high in a particular location it is necessary that a bank does a lot of market research before opening a branch so as to estimate the kind of business it would get. 11. Visibility:The location of a branch should be such that is visible and easily noticed by the customers as well other people. 12. Access:The bank branch should be very easily accessible to the customers. If this is not the case the customer might switch to some other bank which is more convenient to him and very easily accessible. The location should be such that it is very convenient for the customer to reach.

Promotion Mix

Promotion is nothing but making the customer more and more aware of the services and benefits provided by the bank. The banks today can use a lot of new technology to communicate to their customers. Two of the fastest growing modern tools of communicating with the customers are: 1. Internet Banking 2. Mobile Banking Different ways of Promotion Public Relations:In today’s competitive scenario developing strong public relations is very important for any bank to be successful. Most banks today have a separate Public Relations department. However primarily it is considered as a responsibility of the various bank managers to develop a steady and strong relationship with their present customers as well as potential customers. This can be done by a constant follow – up and also some small programmes etc. Personal Selling:Personal selling is found to be one of the most effective and popular form of promoting bank business. The main reason for this is that banking is a service in which trust plays a very important role. In personal selling a bank representative goes to the customers and explains the scheme to the customers. Also he gives the customers any kind consultation he might need. He provides the customers all the information seeked by him. Representative tries to persuade the customers to go for the scheme provided by the bank by telling him all the benefits. Here are some of the important features of personal selling it is a direct relation¬ between the buyers and the seller it is oral presentation in conversation it is personal and social behavior¬ it is found to be more effective in service oriented organizations it is based on the professional¬ excellence or expertise of an individual Sales Promotion:Sales promotions are basically giving the customers some additional benefits maybe at times just some small gifts in order to promote the schemes. The more innovative the sales promotions the more positive are the results. Some of the most popular sales promotions techniques are gifts. Contests, fairs and shows. Discounts and commission, entertainment and traveling plans for bankers, additional allowance, low interest financing etc. it is very important that the sales promotions benefits are designed in such a manner that they are better than those of the competitors. Word – of – mouth Promotion: This form of promotions is not only very effective in banking services but in any kind of service. However it is more important in banking for the only reason that this is a service where trust plays a very important role. If a particular bank’s services are recommended by one’s friends, relatives, or other well – wishers the person is more influences and inclined towards that bank. It is very important to note that the internal employees of the bank play a very important role in word – of – mouth promotion technique. This is because they can start the process by recommending the bank to their friends and relatives and after that it is like chain which spreads like wild fire. Telemarketing:In recent times telemarketing has gained increasing importance as an effective tool for promotion. The telemarketing is a process of making use of sophisticated communication network for promoting the banks. This includes promoting through television, telephone, radio and nowadays very largely through cell phones. This is the most popular form of promotion. Banks today have started using ‘SMS’ and many other services supported by cell phones to provide benefits to their customers and thus have tried to increase their sales. In today’s competitive and modern scenario it very important that banks makes use of telemarketing techniques very efficiently to have desirable results. Internet:The use of internet as a promotion tool is increasing very fast today. More and more banks are using internet to promote their services. The online banking has made it even easier for the customers to avail the bank’s services. No longer do people have to go to their bank branches for small petty matters like checking their balance etc. all this can done with just the help of a few clicks. Thus these were the numerous ways in which a bank can promote its services and create more awareness amongst the people. PeoplePeople are the employees that are the service providers. In a banking sector the service provider plays a very important and determinant role in rendering the customers a satisfactory and a good service. It is extremely essential that the service provider understands what his customers expects from him. In a banking sector the customer needs to be guided in a lot of matters which is possible only with the help of the service provider.The position in the eyes of the customer will be perceived by appearance, attitude and behavior of the customer contact employees. Not only the customers contact employee influence the customers but also the customer base of the organization does so.

Process Mix The process mix constitutes the overall procedure involved in using the services offered by the bank. It is very necessary that the process is very customer friendly. In other words a process should be such that the customer is easily able to understand and easy to follow. Today if particular banks formalities are long and the procedure very complicated the overall process fails and the customer may not be inclined towards using that banks services. Let’s take for example the process for application for a car loan. Now this mainly involves 3 things. 1. Producing of proper documents 2. Filling up of application form 3. Paying for the initial down payment. Here the process may fail in the following cases: 1. If the customer is asked to produce a number of forms out of which some may not be necessary at all. Thus it is very necessary that the customer is asked for the minimum but most necessary document and not other unnecessary documents. 2. In case of application form, the application form must in a language best understood by the customers and it should not be very lengthy one demanding a lot on unnecessary information. 3. Finally the payment of initial amount. The customer should be given options as to how he would like to pay by Cheques or by credit card. Once again the amount should be very competitive not very high above the regular rates prevailing in the markets. The smaller and simpler the procedures the better the process and the customer will be more satisfied. PHYSICAL EVIDENCE Physical evidence is the overall layout of the place. How the entire bank has been designed. Physical evidence refers to all those factors that helps make the process much easier and smoother. For example in case of a bank the physical evidence would be the placement of the customer service executive’s desk, or the location of the place for depositing Cheques. It is very necessary the place is designed in such a manner so as to ensure maximum convenience to the customer and cause no confusion to him. THE 4 I’S OF BANK MARKETING There are four distinctive characteristics of service, which create challenges and opportunities. They are commonly known as the four I’s namely: 1.) Intangibility It is that characteristics of a service indicating that is not a physical attribute that a person may feel, hear, taste before they buy it. Like for example of the bank that I visited, a person who is new to this bank and wanted to open up a account in the bank can not feel it that or taste it that it could be good before opening an account. He has to experience it how is the service, how humbly do people or the staff members behave with him, is his money invested or put in an account safe or not, he would come to know from the services. This could be done only from the trust that that he would build up as these things cannot be inspected before the use that is in this case they cannot be told how the service is before having some actual work in the bank. It is used that the service has been performed and delivered at a certain particular quality. 2.) Inconsistency: This refers to variability that a company or an organization may depend on Inconsistency. For a bank, a new customer or a rare going customer may not get the same type of service as much as a regular customer may get. This may be the case because the staff members know the person well as he comes often but they don’t know that person who does not come in again and again. Also another point for inconsistency is that the service delivery by different people that is service is delivered differently from different types of people. Like in case of a bank, different staff members would provide different services. In the bank a person may have lot of work and may not attend a customer as may be a person with the same work may attend him with great enthusiasm. In one of the book, I read the bank “PANJAB NATIONAL BANK” that promotes itself as “crown of quality for customer who is the king” and is an ISO 9002 certified bank. Thus it has to have consistency and quality to serve its customers. 3.) Inseparability : Inseparability is that characteristics of a product that cannot be separated from creater-seller of a products. This means that whenever a product is sold a service is also attached with it. Like for e.g. if you buy a room in a hotel to stay for 2 days then the receptionist, the waiters all have their service attached with it. But this is only possible when the hotels have

customers to stay inn and the hotel owner has mangers, waiters etc. to provide them services. Thus, services when provided should have both the accepter as well as seller. Then it is known as inseparable. There are basically 3 types of services. (i) Co- production: where the service provider and the customer work together to produce services. Bank service where if a customer wants to withdraw cash then both need to be present. (ii) Isolated production: the part of service that is done outside to an organization. Services of TELE-BANKING. (iii) Self Service production: uses the equipments of the service providers and self serve it. Services of ATM.

4.) Inventory: By this one means that the perishable characteristics of the service marketing. In a bank if a customer starts with his day in the morning eight and ending in the day at four where as in bank is open in morning at 9:00 a.m. and closes at 1:00 p.m. in the afternoon, then one might not be able to attend it but nothing can be done in this case because for such a person the bank cannot be on till end. Also there may be is less work in the middle of the month where as in end and starting of a month there could be more work like people come to put in money as they get there salary, there would be withdrawals, pass book checking etc. which cannot be transferred in the between of the month as it depend on the people when they come as well one would come to put his money of salary only when he gets it and that’s at the end of month. So service faces a lot of problem from inventory as it cannot be stored, saved and then used later. MARKET SEGMENTATION An organization is supposed to enter to the changing needs of customers; it is natural that all customers have their own likes and dislikes. They have some uniqueness which throws a big imprint on their lifestyles. This makes the task of understanding a bit difficult. It has the context that we go through the problem of market segmentation in the banking service. In the banking services, the banking organizations are supposed to satisfy different types of customers living in different segments. The segmentation of market makes the task of bank professionals easier. If the market segmentation is done in a right fashion, the task of satisfying the customers is simplified considerably. The modern marketing theories advocate the formulation of marketing policies and strategies for each segment which an organization plans to solicit. CRITERIA FOR SEGMENTATION Segmentation in a right fashion makes the way for profitable marketing. This helps policy planners in formulating and innovating the policies and at the same time also simplifies the task of banking professionals while formulating and innovating the strategic decision. The following criterion makes the segmentation right. 1. ECONOMIC SYSTEM: An important criterion for market segmentation is the economic system in which we find agricultural sector, industrial sector, services sector, household sector, and rural sector requiring the weight age while segmenting. A). AGRICULTURAL SECTOR: In the agricultural sector, there are four categories since the needs of all categories can’t be identical. The mechanization of agriculture, the improved or scientific system of cultivation, the help of nature , the magnitude of risk, the availability of infrastructural facilities influence the level of expectations vis-à-vis the needs and requirements. The banking organizations are supposed to know and understand the changing requirements of different categories of farmers. B). INDUSTRIAL SECTOR: The banking organizations are supposed to have an in-depth knowledge of the changing needs and requirements of the industrial sector. The large –sized, small- sized co-operative and tiny industries use the services of the banks. The expectation of all the categories can’t be uniform. The banking organizations are supposed to have an in-depth knowledge of the changing needs and requirements of the industrial segment. The emerging tends in competition, the pressure of inflation, the use of sophisticated technologies, and the business regulations are some of the important aspects influencing the hierarchy of needs. C). SERVICES SECTOR: It is an important sector to the economy where the banking organizations get profitable business. The two categories of organizations such as profit-making and non- profit making are found important in the very context.

The banking organizations need to identify the changing needs and requirements of the services sector with the frequent

use of IT and with the mounting pressure of inflation and competition, we find a change in the hierarchy of needs. 2). HOUSEHOLD SEGMENT: This also constitutes an important sector where different income groups have different needs and requirements. In the below figure we can see the different segments of household sector. A). HOUSEHOLD SEGMENT: The high income group, middle income group, subsistence level group and marginal income group have different hierarchy of needs which influence the level of their expectations. B). GENDER SEGMENT: In the gender segment we find male and female having different needs and requirements. The banking organizations are supposed to identify the level of expectations of both sexes as shown in the below figure. Gender Segment Working Ladies Housewives Gender Segment Sub- Segment

Some of the women are housewives and therefore they have different needs and requirements whereas some of them are working ladies having different needs and requirements. C). PROFESSION SEGMENT: In the profession segment, we find different categories of professions and therefore we find a change in their needs and requirements. As shown in the below figure. Technocrats Bureaucrats Corporate Executives Intellects White - Collar Employees Blue – Collar Employees

Profession Segment Public/ Private Formal/Informal

The technocrats, bureaucrats, corporate executives, intellects, white-collar and blue collar employees have different needs and requirements and therefore the banking organizations should know their expectations.