Marketing Of Financial Services

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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: (h) touched, (i) tasted, (j) handled, or (k) 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

h e ban king in dus try ar oun d the wo rld has been han gi ng ver y rapi dly s in ce the ear ly 19 70 s.

h e in dus try has experi en ced a subs tan tial chan g n c ompet it ive condi ti ons as a resu lt of a num ber f fac tors: ►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: (c) 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: (4) Market Penetration, (6) Product Development, (8) Market Development, and (10) 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

•

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 New Delivery Systems New Products & Services

How?

Minority Stakes 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 well-established 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: (g) plan strategies to close the gap, and (i) 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 (8) Le → Legal (9) P → Political (10) E → Economic (11) S → Social (12) T → Technological (13) 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: (d) Employees, (f) Premises, (h) Systems, and (j) 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. COS T LE ADE RS HIP

Differentiation

2. DIFFERENTIATION

Broad Target

3 (a) COST FOCUS Narrow Target

3 (b) DIFFERENTIATIO N 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: •

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: (g) 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: (8)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: (f) Cost Plus Pricing, (g) Break-Even Pricing, (h) Relationship Pricing, (i) Loss-leader Pricing, (j) Competitive Pricing, (k) Pricing for Market Share, and (l) 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.