4

CHAPTER - 1
Introduction to Service Marketing

1.1 MEANING AND DEFINITION OF SERVICES:

'Services are those separately identifiable, essentially intangible activities which provide want satisfaction, and that are not necessarily tied to the sale of a product or another service. To produce a service may or may not require the use of tangible goods. However when such use is required, there is no transfer of title (permanent ownership) to these tangible goods.' - William Stanton Services are the activities, benefits or satisfactions which are offered for sale or are provided in connection with the sale of goods.

- American Marketing Assc.

We can see that, in the above definitions two important aspects of services have been highlighted. First, services are intangible in nature and secondly, they are largely described as act or activities performed that create satisfaction. The diagram given below helps us to understand the term service in a better manner.

Services are the activities, deeds, performances or efforts which are:

Performed By:
people (baby sitters,doctors,ATMs etc. people with machines( taxi drivers,surgeons etc)

Directed At:
people(men or women or children),possessions(money, clothes, cars ),business users (companies)etc.

Rendered for:
profit(hotels, beauty salons etc) non profit(free school, homes for poor).

1.2 MARKETING OF SERVICES: Services are very different from products. So the marketing concepts need to be revisited while marketing a service. Services can range from financial services provided by the banks, technology services provided by the IT company, food and ambiance as a service provided by restaurants or even a blog where an

author provides a service (information presentation, interesting reading etc) to his audience. The product marketing mix consists of the 4 Ps which are Product, Pricing, Promotions and Placement. The extended service marketing mix places 3 further Ps which include People, Process and Physical evidence. Thus service marketing is dominated by the 7 Ps of marketing namely Product, Price, Place, Promotion, People, Process and Physical evidence. All of these factors are necessary for optimum service delivery. Let us discuss the same in further detail.

Service marketing mix:

Place

Product

Price

Physical evidence

Service marketing mix

Promotion

Process

People

1.3

7 Ps OF SERVICE MARKETING:

1. Product The product in service marketing mix is intangible in nature. Like physical products such as a soap or a detergent, service products cannot be measured. Tourism industry or the education industry can be an excellent example. At the same time service products are heterogeneous, perishable and cannot be owned. The service product thus has to be designed with care. Generally service blue printing is done to define the service product. For example a restaurant blue print will be prepared before establishing a restaurant business. This service blue print defines exactly how the product (in this case the restaurant) is going to be.

2. Place - Place in case of services determine where is the service product going to be located. The best place to open up a petrol pump is on the highway or in the city. A place where there is minimum traffic is a wrong location to start a petrol pump. Similarly a software company will be better placed in a business hub with a lot of companies nearby rather than being placed in a town or rural area. Who would want to travel 10 miles to have a regular dinner, even if that is priced very competitively and has a super quality? Services are often chosen for their place utility. Closer to the customer means higher probability of purchase. 3. Promotion Promotion plays a role in the perception the possible target audience may have about your service. There has to be a fit between the promotion and the positioning. Promotions have become a critical factor in the service marketing mix. Services are easy to be duplicated and hence it is generally the brand which sets a service apart from its counterpart. You will find a lot of banks and telecom companies promoting themselves rigorously.
4

Why is that? It is because competition in this service sector is generally high and promotions is necessary to survive. Thus banks, IT companies, and dotcoms place themselves above the rest by advertising or promotions. 4. Pricing Pricing in case of services is rather more difficult than in case of products. If you were a restaurant owner, you can price people only for the food you are serving. But then who will pay for the nice ambience you have built up for your customers? Who will pay for the band you have for music? Thus these elements have to be taken into consideration while costing. Generally service pricing involves taking into consideration labor, material cost and overhead costs. By adding a profit mark up you get your final service pricing. You can also read about pricing strategies.

5. People People is one of the elements of service marketing mix. People define a service. People are crucial in service delivery. The best food may not seem equally palatable if the waitress is in a sour mood. A smile always helps. If you have an IT company, your software engineers define you. If you have a restaurant, your chef and service staff defines you. If you are into banking, employees in your branch and their behavior towards customers defines you. In case of service marketing, people can make or break an organization. Thus many companies nowadays are involved into specially getting their staff trained in interpersonal skills and customer service with a focus towards customer satisfaction. In fact many companies have to undergo accreditation to show that their staff is better than the rest. Definitely a USP in case of services. 6. Process Processes are important to deliver a quality service. Services being intangible, processes become all the more crucial to ensure standards are met with. Service process is the way in which a service is delivered to the end
5

customer. Lets take the example of two very good companies McDonalds and Fedex. Both the companies thrive on their quick service and the reason they can do that is their confidence on their processes. On top of it, the demand of these services is such that they have to deliver optimally without a loss in quality. Thus the process of a service company in delivering its product is of utmost importance. It is also a critical component in the service blueprint, wherein before establishing the service, the company defines exactly what should be the process of the service product reaching the end customer. 7. Physical Evidence The last element in the service marketing mix is a very important element. Physical evidence affects the customers satisfaction. Often, services being intangible, customers depend on other cues to judge the offering. This is where physical evidence plays a part. As said before, services are intangible in nature. However, to create a better customer experience tangible elements are also delivered with the service. Take an example of a restaurant which has only chairs and tables and good food, or a restaurant which has ambient lighting, nice music along with good seating arrangement and this also serves good food. Which one will you prefer? The one with the nice ambience. Thats physical evidence. Several times, physical evidence is used as a differentiator in service marketing. Imagine a private hospital and a government hospital. A private hospital will have plush offices and well dressed staff. Same cannot be said for a government hospital. Thus physical evidence acts as a differentiator. This is the service marketing mix (7p) which is also known as the extended marketing mix.

1.4 7Cs Of Service Marketing

Before discussing about 7Cs Compass Model, inevitably we need to understand the contents of 4Ps and 4Cs. Not matter whether the marketing model is 4Ps, 4Cs or 7Cs, it is not only for the academic research but also can be effectively applied for the marketing management. A good model can be applied for a long period even the outside environment has been changed. However when the changes are too much and out of the expectation of its inventor, the model needs to be entirely revamped to suite these changes. 4Cs is introduced at such background - from high-growth to low-growth economics while 7Cs compass model introduced by Professor Koichi Shimizu is to more precisely explain the essential factors of low-growth economics.

We can find out a dozen of marketing jargons for high growth economics like managerial marketing, social marketing, ecological marketing and demarketing, etc. Their basic philosophy is Pro-marketing - to promote the marketing activities, moving forward. However for the low growth economic, it is replaced by Com-marketing - to communicate and cooperate with the consumers, sometimes stopping or even moving backward to listen to their voices. The seven Cs compass model are: 1. (C1)Corporation The core of four Cs is corporation (company and non profit organization). C-O-S (Organization, Competitor, Stakeholder)

within the Corporation. The company has to think of compliance and accountability as important.The competition in the areas in which the company competes with other firms in its industry.

The four elements in the seven Cs compass model are: A formal approach to this customer-focused marketing mix is known as Four Cs (Commodity, Cost, Channel, Communication) in the seven Cs compass model. The four Cs Model provides a demand/customer centric version alternative to the well-known four Ps supply side model (product, price, place, promotion) of marketing management. Product Commodity Price Cost Place Channel Promotion Communication 2. (C2)Commodity (Original meaning of Latin: Commodus=convenient) : the goods and services for the consumers or citizens. Steve Jobs has been making the goods with which people are pleased. It is not "product out". 3. (C3)Cost (Original meaning of Latin: Constare = It makes sacrifices) : There is not only producing cost snd selling cost but purchasing cost and social cost. 4. (C4)Channel (Original meaning is a Canal) : marketing channels. Flow of goods. 5. (C5)Communication (Original meaning of Latin:Communio=sharing of meaning) : marketing communication : Not only promotion but communication is important.

The compass of consumers and Circumstances (environment) are: 6. (C6)Consumer (Needle of compass to Consumer)

The factors related to consumers can be explained by the first character of four directions marked on the compass model. These can be remembered by the cardinal directions, hence the name compass model: N = Needs W = Wants S = Security E = Education :(consumer education) 7. (C7)Circumstances (Needle of compass to Circumstances )

In addition to the consumer, there are various uncontrollable external environmental factors encircling the companies. Here it can also be explained by the first character of the four directions marked on the compass model:

N = National and International W = Weather S = Social and Cultural E = Economic

CHAPTER - 2
Channel Of Service Distribution

2.1 INTRODUCTION:

Making a good product or service, pricing it according to the customer value concept and promoting it using a variety of communication tools are essential ingredients of a marketers mix. But this is not all. The product or service must be made available to customers for consumption in right quantity, at right time and in right locations. If a failure occurs in making the goods or services available to customers for consumption, marketing would remain on paper. Distribution of service includes an important aspect that is, Place. Place is one of the Ps in the marketing mix. Place refers to the location of service operations or facility. Service location is an important consideration because if a service is not conveniently located, the customers would find it difficult to use the same. The inconvenience caused by improper location raises the use cost and thereby reduces the value of service to the customer. This issue acquires increased significance when the service in question is homogeneous. Standard services generally have to compete on the basis of spatial convenience whereas differentiated services can pull the customers on the strength of their uniqueness. For these reasons services like banks, fast food, cleaning services, repair and maintenance etc. apply the strategy of going near the market. Generally, the location where the service would be made available to customer is guided by the overall marketing strategy and positioning of the service. Location can act as an entry barrier in service. For instance, many service firms buy out space in prime markets to prevent others from entering the
10

same area. Once a prime service location is gone, competitors cannot start operations in that area. Location decisions also affect other strategic dimensions of flexibility, competitive positioning, demand management and focus. Flexibility: Location decisions are capital intensive and they involve large capital outlays. Flexibility issues must be taken care of while selecting the location. That is the degree to which the service can successfully cope with changing demographic, economic, cultural and competitive changes. The selected location must be responsive to these changes. For instance, multiple locations can reduce risk because change may not be able to affect all the units simultaneously. Some would be insulated from the adverse change. Competitive positioning:

A service firm can establish itself stronger by

locating itself on strategically important sites. This preventive strategy can create barriers to competition to other firms and thereby provide competitive advantage. Demand management: this involves issues like control of quality, quantity and timing of demand. Service location has significant on a firms ability to effectively manage demand. For instance, facility location near good prospects can ensure supply of high value customers. Therefore banks locate branches near business centers. Locating near diverse customer groups provides the firm an opportunity to fill-in non customers during the period of lean demand. Focus: a service firm can develop a service keeping in view the needs and wants of a specific group. The same service can be offered at many locations in the multisite approach.

11

2.2 CHANNELS OF DISTRIBUTION IN SERVICES:

Service marketers, like their goods counterparts, have to handle distribution of their services. Services must be made available to target customers, because without availability, marketing just cannot take place. Services are intangible entities and therefore cannot be transported as physical objects can be. Often they are inseparable from the provider. Services unlike goods cannot be produced in some centralized location and transported later to different

markets for sale and consumption. Rather services must move near the place of demand. This is generally possible by creating multi site operations. Decentralized services like restaurants, banks, hotels, hospitals and educational institutions manage to achieve much larger coverage that is otherwise impossible in case of services. There are two critical issues that must be sorted out in service distribution context. First the channel through which the service would be made available or provided to customers and second, where they would be located. CHANNEL OPTIONS: It is not necessary that a firm always wants to achieve maximum coverage of the market. What type of channel structure is desirable depends on the overall marketing strategy that drives the efforts of the firm. An ideal kind of channel structure would be one that makes the product or service available in consonance with the target customer needs. There are three types of channel structure options viz. intensive, selective and exclusive distribution. Intensive distribution: Intensive distribution involves placing the products or services in maximum possible outlets. All the responsible and suitable outlets are used in this kind of
12

system. It means developing as many service outlets as possible so that the service is widely available throughout the market. Achieving such an intensive distribution is difficult in services because their production and consumption is not separated. However, when convenience becomes a dominant factor in customer buying services, options must be explored as to how a service can be distributed intensively. For instance, banks seem to be moving towards

intensive distribution through the adoption of newer technologies like internet and mobile communication. Credit card firms have been able to provide services intensively by creating a mass network of establishments that honor these cards. In the nineties, telephone services were distributed intensively after ISD and STD services were made available through a vast network of kiosks and shops. Exclusive Distribution: This is the other extreme form of distribution option. In exclusive system, the product or service is distributed through very limited number of outlets that deal with only that product. The total market in this case is usually divided into a number of sub-markets where only one service outlet is used to provide service to the area. Exclusive distribution offers the advantages of greater control over the service levels provided by the reseller. This kind of arrangement generally envisages that the reseller would exclusively deal with only one product. Selective Distribution: Selective distribution falls in-between the above two extremes. It makes use of more than a few intermediaries but less than the number used in intensive distribution. Sometimes, full coverage of the market is not desired as a majority of sales come from certain pockets. In such cases, a company can be selective about building its distribution. Through this adequate coverage could be

13

achieved and greater control over intermediaries could be gained than in the case of intensive distribution.

2.3 NEED FOR INTERMEDIARIES IN SERVICE DISTRIBUTION: It is often argued that a firm would be able to work according to its marketing objectives and strategy when it performs all of its functions by itself including distribution. Use of independent firms in the distribution process may lead to conflicting situations where interests clash. But despite doubts and difficulties that surround the use of intermediaries, the popularity of marketing channels is a reality. There are a number of reasons that have contributed to the wide spread use of intermediaries by firms to achieve their distribution objectives. Efficiency: the decentralized system of exchange involving no intermediaries is less efficient as compared to centralized system where intermediaries are used. The use of intermediary brings un efficiency in the number of contacts that have to be made within a marketing system. For instance, if there are 4 manufacturers and te10 customers then the total number of contacts in the system is going to be 40 ( 4 sellers x 10 customers). These contacts can be considerably reduced if one intermediary is used in between the two. The number of contacts in the new system will come down to only 14 (4 sellers x 1 middleman x 10 customers). The economic rationale of the use of intermediaries is that this system increases the efficiency of transactions. Flow of goods: intermediaries smoothen the flow of goods and services from place of production to place of consumption. They create time, place, and possession utilities. Smoothening process involves performance of sorting function by intermediaries. The inconsistency between the assortment of goods
14

and services produced by the producer and the assortment demanded by the customer is matched. Manufacturers make limited variety in large numbers whereas the customer needs large variety in limited numbers. Sorting by the intermediaries require them to do sorting out or grading, accumulation, bulk breaking and building right assortment. Routine building: compared to a transaction that is done in a routine fashion, a non- routine transaction tends to be less efficient. A non standard transaction would require greater time because of the details that are worked every time the parties interact. The intermediaries routinise transactions by standardizing the ordering, valuating and paying processes. For instance, an automated reordering system between a retailer and the manufacturer, through which orders are placed directly as the inventory dips below a particular level, can greatly increase efficiency of the transactions. Search : In marketing, generally a two-way search goes on. Customers look for sources of supply that would effectively meet their needs. On the other hand, marketers search for customer needs and wants which can be incorporated in the marketing process. The search by customer and marketer involves uncertainty. Intermediaries provide assistance in the process of search to both parties. For instance, the customer has no difficulty in finding a product like a drug and cement cause he knows where to look for a drug and cement. The middlemen tend to be close to the customers and are in a better position to read customer needs and anticipate future trends. Feasibility : Use of intermediaries becomes a necessity for those marketers who cannot afford to achieve distribution of their products and services on their

15

own. They may lack financial resources to develop their own chain of intermediaries or perform marketing directly.

2.4

LOCATION

CONSIDERATIONS

IN

DISTRIBUTION

OF

SERVICES:

The selection of sites depends upon a number of factors. Some of the factors that have influence on the choice of location are as follows: 1. Access: Service accessibility is the key determinant of customer patronage. How easily the service site is approachable in terms of roads, congestion, and physical distance affects service use. If a service site is along a line that offers benefits of public transportation, it is easier to access and use.

2. Visibility: Service outlets that are visible to customers in a shopping or office area, where people move are likely to attract more customers than the ones that do not. The site can actually remind and prompt potential customers to use the service.

3. Parking : It is emerging as one of the important considerations affecting service usage. Adequate parking facility attracts customers and parking inconveniences can drive customers away. It is this consideration that is making many service providers locate their services on sites that provide ample parking space around the outlet.

4. Traffic congestion: Congested places, where density per square meter gets high enough to make shopping uncomfortable, can discourage customers from shopping and spending time.

16

5. Expansion opportunities: The site must provide scope to expand operations in future. A closed site can become a burden later for the marketer when service needs to be strengthened and expanded as a competitive compulsion.

6. Surroundings: The environment that surrounds the service site is an important determinant of customer choice. The total area, where the service is located, must offer the customer a complete package that he is looking for. Hygiene aspects like cleanliness and other atmospheric factors should also be taken care of.

7. Competition: Sometimes, presence of other competitors helps in building customer traffic. This makes the customers to compare the alternatives. Presence of other competitors may have both positive as well as negative impact on the business. Hence it becomes necessary to make interpretation carefully.

8. Regulatory aspects: Municipal restrictions and other site regulations must be taken care of while making location decisions. These may be in relation to pollution, reservation and taxes.

17

CHAPTER - 3
Distribution Channels in Banks
3.1 INTRODUCTION: If an organization has managed to create the correct marketing mix in all other respects but cannot distribute the product to its customers, the product will fail. Place therefore is about making the product available in the right place at the right time. Channels of distribution for financial services should be thought of as means to increase the availability and/or convenience of services that help satisfy the needs of the existing users or increase their use among existing or new customers. In order to envisage such a criterion, the financial services marketer must facilitate the right product for the right people at the right price and in the right place. After identifying the characteristics of the total financial market through market research the problem areas can be corrected. Then the marketing mix can be tailor made for the selected customer segments of the market in the most profitable manner. We now attempt to see what effect the special nature of services has, on the formulation of banking delivery systems.

1. Intangibility: It is not often possible to illustrate, demonstrate, or display the services on offer, and therefore storage, transportation and inventory control are not relevant for the bank marketer. This partly explains the relative absence of middle persons in the delivery of banking services. As a result, it severely limits the alternatives available to the financial services marketer and often necessitates the use of direct channel for distribution.

2.Inseperability: Because of the simultaneous production and distribution of financial services, the main concern of the marketer is usually the creation of

18

time and place utility ; that is, that the services are available at the right place and at the right time. This implies that direct sale is almost the only feasible channel of distribution. But as we shall discuss later, one way of overcoming the inseparability factor is the use of credit cards, whereby the service is transferable.

3. Highly individualized marketing system: When selecting channels of distribution, the goods marketer will usually have a marketing system that contains several established middle persons. This is not always the case with financial services with a few traditional distribution channels. In many bank transactions, a client relationship exists between buyer and seller, as distinct from a customer relationship. This is especially true in the case of many corporate and trust accounts, although it now extends more and more to other retail customers as well. Where such a close personal and professional client relationship must exist, direct channels may be the only feasible choice.

4. Lack of special identity: To the public, often, one financial service is very much like the other. The reason why a particular f inancial institution or branch is used, is often related to convenience. As the competing products are similar, the emphasis is on the package rather than the product. The package consists of branch location, staff, services, reputation, advertising. As major competitors offer similar services, the emphasis will be more on the promotional aspects rather than on the inherent uniqueness of a particular financial institutions service.

19

5. Geographical dispersion: There has to be a branch network In any financial institution of size and scope, in order to provide benefits of convenience and to meet international, national and local needs. Therefore all services or promotions must have both appeal and wide application.

Distribution Channels for Banks

DISTRIBUTION CHANNELS

Indirect Channels

Direct Channels

Electronic methods

In-shop Branches

Branches

ATM
(AUTOMATED TELLER CL MACHINES)

BANKING BY MAIL

POS (Point of sales)

EFTs
(Electronic fund transfer)

In touch
(home link services)

20

3.2 CLASSIFICATION OF BANK BRANCHES:

Different financial institution branches deliver different types of services for different types of customer, as follows:

1. Full service branch: The full service branch has been the convention delivery system within the financial industry. For many financial institutions, nearly all branches irrespective of their size, provide a full range of the products and services offered by the institution to both corporate and retail customers. However, in the developed countries, the services provided by banks have increased immensely as deregulation has led them to extend their range of conventional financial service variants. In India too, with the liberalization and deregulation of the financial sector, similar position is set to be evident soon. The traditional reason for establishing branches were to collect deposits, arrange loans and provide convenience in conducting transactions. Technological

development has meant that there is less need for customers to go to branches for their business transactions. This reduces the possibility of any impulsive, cross service-sales.

2.Speciality branch: Specialty branches now serve as an alternatives to full service operations. Specialty branches focus on either retail or corporate business, but not both; for example real estate specialist branches focus on mortgage finance. Thus the time devoted to withdrawal and deposit transactions is reduced. On the domestic scene, we have many SSI branches, Industrial Finance/Corporate Banking Branches, NRI Branches, High Tech Agricultural
21

Branches, Service Branches, Commercial and Personal Branches, Recovery Branches, Leasing Branches, Housing Finance Branches, etc. 3. High Net Worth Branches: These branches are located in appropriate sociodemographic areas and they distribute a range of financial services for up market customers. These services are often based on minimum account balance criteria, and they emphasize personal financial counselor services rather than conventional bank teller services.

4. Corporate Branches: These aim at middle-market corporate accounts and do not usually handle retail financial services. The services provided are on-line foreign exchange, letters of credit, asset based financial specialization, corporate cash management services and so on.

5. Hub and spoke banking: The status of each branch is determined by the area and customers it serves. There is little point for a branch in a small rural village to have a business adviser. It is more beneficial for the bank to ignore this service when the market is very small and to cater for it at a large branch in the nearest larger town. This system of providing a limited service in the smaller branches, backed up by a nearby, larger core branch, that is able to carry out all the services the bank offers, is called hub-and-spoke branch banking. The smaller satellite branches provide a limited and mostly high automated service, dealing mainly with personal banking. These are linked to a key branch that offers a full range of services, and often coordinates the activities of its satellites. Normally there can be between 4 and 15 satellites to one key branch. The hub is responsible for corporate business and has overall jurisdiction for the network as a whole. In India such an organization arrangement is not common.

22

The hub-and-spoke structure has many benefits. One very important benefit is that it is a part of a rationalization strategy. The new structure reduces the large amount of replication that was occurring at every site and which was not being used in an efficient way anyhow. This reduction and key grouping at the key site has vastly reduced the excessive costs that many of the large banks were suffering. This approach to branch structuring is a move towards getting the bank to provide the correct range of services in an area.

The advantages of hub-and-spoke branching are: 1. Costs are reduced by concentrating specialized staff in key branches. 2. Duplication of management skills is avoided. 3. The processing function is centralized in a limited number of branches and 4. Banks are able to pursue simultaneously both product and relationship strategies, for example identifying good customers in satellite branches who are then served by product managers (bankers) located in key branches.

Overall the tendency is towards fewer bank branches. The reason for this is that, the high operational and staffing costs of running a branch, the increase in scale and benefits of automation and technology, the advent of direct banking and the mergers and acquisitions by banks have given rise to rationalization that is reduction of the number of branches.

It often happens that a financial product that might be unprofitable when delivered through one type of branch say, a satellite branch- might be successful when it is distributed through a central, regular bank branch. The selection or emphasis on a particular type of distribution outlet rather than another one depends on the personal service required, service content (for example information, advice, personal attention and so on), the complexity of

23

the financial product and its customization requirements, purchase frequency and level of customer sophistication.

There are three perspectives that determine distribution profitability in financial services: i. channel profitability, ii. branch profitability, iii. customer profitability.

Branch profitability is particularly important, as the costs of managing and operating branches tends to increase. The profitability of a branch is affected by its administration. Research has shown that the profitability of a branch depends largely on the volume of deposits, that is, a high -volume/economies of scale approach is usually profitable. To handle this problem banks have developed a number of different types of branch as mentioned above and depicted in the following figure. TYPES OF BANK BRANCHES WITH SPECIAL REFERENCE TO LOCATION:

24

Key branches (in large urban centres) General branches (other all purpose branches) Personal service branches(offering counter commercial services support) Services branches (for specialised services) Automated branches
Branch location in shopping and commercial centers. Branch locations often tend to be concentrated in larger shopping canters because financial institutions seek to attract customers. The past experiences indicates that these are the most advantageous locations, specially for banks. The advantages of locating branches in shopping canters include easy market entry since many shoppers and potential customers frequently visit these places. Generally, the availability of parking and transport facilities make the location ideal for customer contact.

A few of the distinct limitations of such branches are: 1) they might not be able to expand because of limited adjacent space. 2) they might lose their special identity because of the many competing branches around. 3) in certain areas, shopping canters have restricted opening hours, which might affect the branchs activity.

25

The Indian experiments of opening rural branches, service area approach and directed lending uniquely combine both the marketing and social responsibility roles for bankers. The liberalization and deregulation may focus more on the viability of operations more than in the past and hence, the aspects that go to make a branch profitable, will need to be addressed more effectively.

3.3 BRANCH NETWORK OPTIMIZATION As consumers demand for convenience has increased over the past decade, banks have made significant investments in their distribution channels particularly in online and telephone banking. To fund these additional channels, many banks have sought to reduce their expenses by consolidating branch locations and implementing programs to steer customers toward lower-cost channels. The implicit objective of these programs was, in effect, to reduce customer traffic in branch locations. Today, however, most bankers are recognizing that, despite the increasing popularity of self-service channels, branches continue to play a critical role in the acquisition of new customers and new accounts. Branch locations are a key component of an institutions brand image, and the location of a branch facility near ones home or business is a primary factor for selecting a bankeven for customers who are primarily self-service oriented and rarely visit a branch . Banks are also coming to recognize that customers with a higher degree of branch usage tends to be among their most profitable customers. As a result, branch construction across the United States has surged over the past few years. A number of major metropolitan areas have seen a

26

significant increase in branch locations, with branch growth far exceeding household growth. To design and manage a multi-channel network that centers around robust sales capabilities, banks need strong distribution analysis and implementation competencies. In this concept, we focus on the branch side of distribution, and offer our perspective on how banks can optimize their branch networks from a planning and operational aspect.

3.4 ELECTRONIC CHANNELS OF DISTRIBUTION OF FINANCIAL SERVICES:

ATM:

The need to make branches and distribution more efficient has led to the introduction of electronic methods in financial services. The first ATMs were introduced in the U.K in the form of cash dispensers by Barclays Bank in 1968. The main objectives of this distribution facility were to save costs and staff time, and to provide greater customer convenience. Since the system was introduced, there have been four main problems with ATMs. They were, reliability, security from fraud, volume generation at any particular location, and the relatively high costs per machine network.

27

The decision whether or not to install an ATM depends on a number of factors such as; Its impact on branch staffing levels, branch business and costs. (recent research suggests that paying out money via cash dispensers is about 65 percent cheaper than counter withdrawal) The cost of investing in a large network of ATMs, including service support and reciprocal arrangements with other financial institutions. The impact of ATM installation on a financial institutions image and its ability to differentiate its services/products.

The distribution of financial services has been further affected by development of the Electronic Fund Transfer System (EFTS), whereby institution in the form of electronic data rather than being transferred physically, which involves the processing of paper. ATMs form part of EFTS and have been used to provide the customer with a quick, convenient and safe service 24 hours a day, seven days a week. Telemarketing: Consider the case of the largest branch of the Manufacturers Bank in the USA. No customer visits it. Its customers reside throughout the USA and their business is solicited by long distance telemarketing or direct mail. There has been substantial growth in both loans and deposits via

telemarketing and direct response to newspaper advertising. These systems can be much cheaper than full branch operations and are specially useful to institutions that do not have a large network of branches. Intelligent terminals: In the corporate market, developments in electronic banking have led to the introduction of intelligent terminals. With these, and backed up with their own central processing units, corporate treasures can
28

interact with the banks own main frame computers to undertake cash management, transactions, letters of credit and like receiving timely transaction data and other economic and financial information services. Phone banking: Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. Most of the telephone banking uses an automated phone answering system with phone keypad response or voice recognition capability. To guarantee security, the customers must initially authenticate through a numeral or verbal password or through security questions asked by a representative. With the obvious exception of cash withdrawals and deposits, telephone banking offers all the virtual features that are accessed with the use of an ATM such as balance inquiry, check latest transactions, bill payments, order statements, check foreign exchange rate, activate cards, change passwords and funds transfer between customer accounts. Internet banking: The advent of the internet has a significant impact on the banking service that is traditionally offered by the branches to the customers. Internet banking often referred to as online banking can be defined as performing financial transactions over the internet through a banks website . The objective of internet banking is to provide financial services to the customers 24 hours a day, 365 days a year from locations with internet accessibility. Banks expect advantages such as reducing operating costs, wide customer reach, promote business diversification, and retain market share. Mobile banking: refers to provision and availment of banking and financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market

29

transactions, to administer accounts and to access customized information . Mobile banking today is most often performed via SMS. Mobile banking presents an opportunity for banks to retain their existing, technology-savvy customer base by offering value-added, innovative services and thus attracting potential customers. Mobile banking provides access to loan and card statements, alerts on accounts activity personalized alerts on security prices, real time stock quote and many more.

CHAPTER 4
Strategies Adopted by Banks for Distribution of Financial Services

4.1 DISTRIBUTION NETWORK PLANNING:

Banks need to consider a number of variables when developing strategies for their branch networks. This analysis is typically starts with a bank out review based on current strategy and distribution assets ( location, cost, and capacity) . Factors that need to be reviewed include: Corporate strategic direction: What are the institutions strategic priorities, particularly with respect to products, services, and customer segments.
30

Distribution strategies need to be closely aligned with the banks priorities such as target market segmentation, product set, etc. given the long-term impact of branch network decisions.

Existing branch network: What is the current performance and contribution of each branch in the institutions network? Branch performance needs to be analyzed with respect to the banks sales ( accounts opened per year, account mix, balances, and same store sales growth), customer mix, and household/account retention . Customer transaction activity in each area should be reviewed to determine the extent to which customers frequent multiple branches. In addition, banks should assess the degree to which a branchs domiciled customers actually use that location to conduct their transactions. In metro areas that have experienced significant suburban growth, customers often conduct their banking activities at newer branches, while their accounts are domiciled at older urban locations.

This could lead to inaccurate calculations of branch profitability, which, in turn, could result in inappropriate decisions to close a branch . Once this foundational analysis has been completed, trade areas for each branch should be defined and mapped for a market area . This analysis identifies potential gaps in a banks market coverage, as well as opportunities for branch consolidation and relocation . For example, as illustrated in the diagram below, branches A and B have a high degree of trade area overlap and therefore would be candidates for consolidation . In contrast, trade areas C, D and E are not adequately covered by existing branch locations and may represent opportunities for expansion .In conducting this analysis, institutions must adopt a holistic view of their branch networks and assess the interdependence of

31

branch offices, rather than look at the performance of each location in isolation . The combination of a banks locations in a market impacts the institutions ability to expand its customer base and profitability. Closing a branch can adversely impact revenue at nearby offices while also impeding those locations ability to meet their future growth potential. If the bank has too few locations in a market, it would be under-scale and each branch would be limited in its sales ability (lacking the density of branch network to draw more prospects into all branches). In contrast, if the bank has too many locations, its deposit base would be spread across too many branches, thereby limiting each branchs profit contribution . This review needs to be complemented by a market in assessment focused on the demand for banking services, which is influenced by the markets attractiveness, customer and competitor dynamics, and the real estate environment. Critically, in this analysis the bank designs its distribution system around its current (and prospective) customers using their banking behavior, preferences, and profitability to shape its distribution network. Some of the key issues to be addressed in this evaluation include: Market How attractive are the banks markets? Key market

Analysis:

variables need to be analyzed, including historical and projected household growth as well as current and future demand for various financial products and services (e.g. . , checking and savings accounts, consumer loans, etc.) .The banks current household and product penetration in each trade area also needs to be analyzed to assess relative market position . Customer Analysis:

Which customer segments are predominant in each

market and how do channel preferences vary between segments? In markets with high concentrations of segments that prefer branch contact, institutions

32

should build larger facilities, given the potential for high branch traffic. Banks also need to consider the profitability of each customer segment when developing branch network strategies. Market areas with a significant number of unprofitable or minimally-profitable customers may require actions to reduce expense, such as downsizing branches or closing locations and replacing them with off-premise ATMs. Competitive Analysis: What are the competitive dynamics in each market? Would the institution have a competitive advantage or disadvantage by expanding its presence in the market? Most importantly, banks need to evaluate branch density in each market (typically measured in terms of households per branch) and determine whether the area is overbanked or under banked . Opening a new location in a heavily-banked market could result in sub-optimal returns un less household growth in the area is projected to increase at a rate significantly faster than branch growth . Real Estate Analysis:

How does real estate availability compare across

markets? Institutions need to have an in-depth understanding of real estate developments and site availability in areas targeted for expansion . The

institution will need to determine its criteria for new branch sites (e.g. branch size and configuration, location in high traffic retail areas, etc. ) in order to effectively assess new opportunities. By optimizing these variables, the distribution planning team can develop a branch network strategy for each of the banks major markets with recommendations for new branches, relocations, and closings. This strategy would specify the appropriate number of locations needed in the market to maximize the banks branch investments and detail projected branch transactions, required branch capacity, new sales and operating expense. Once all of the individual market strategies have been completed, the

33

bank will have a portfolio of actions that need to be pursued to optimize its branch distribution system. This framework will allow the bank to prioritize new branch opportunities across its footprint, and to a l locate available capital accordingly.

4.2 LEVERAGING BRANCH POTENTIAL: Branches play a key role in new account opening and new customer acquisition . On average, retail customers purchase a new financial product once every three years and visit a branch lobby about twice per month . It is critical that banks make the most of their service interactions with customers given the infrequency of customer sales activity. As indicated in several recent studies, the average consumer has a low awareness of the products and services offered by their bank. With ineffective merchandising (posters, brochure racks) and inadequately trained staff who cannot provide a compelling explanation of the banks product benefits, most banks have done little to increase the consumers awareness. Even the typical design of bank branches impedes consumer

awareness, featuring the teller transaction area and hiding sales personnel behind cubicle panels or office doors. Banks need to think more like retailers of financial services and adopt merchandising and design practices implemented by leading organizations such as Home Depot and Best Buy. New branch designs should showcase ways in which the bank can meet the customers needs and promote the full range of the banks products and services. Moreover, new branch designs should create more inviting places for customers to interact with bank staff. For example, several institutions, most notably Umpqua Bank in Oregon, have designed new branches with Investment Centers, where customers can meet with investment specialists, and Internet Cafes, which allow branch
34

associates to demonstrate the banks Internet capabilities.

These designs

provide an environment in which branch staff can deliver a more memorable branch experience, which in turn creates a higher level of sales activity and greater customer loyalty.

4.3

OPERATIONAL

AND

IMPLEMENTATION

CONSIDERATIONS: Based on past experience, superior management and implementation skills which are critical to ensuring the success of branch expansion and optimization programs must be utilized, such as: Distribution management: A centralized distribution planning function is required to develop strategies for the organizations branch footprint and coordinate implementation of branch network optimization initiatives (new branches, closings, relocations, etc. ) . This structure ensures that distribution actions fit with corporate objectives and that the organization pursues new branch opportunities that maximize the institutions return on investment.

Management of new branch locations: Banks need to consider creating a position to oversee and champion a l new branch locations. Management focus
35

on , and attention to, new branches is critical in the first 12 months of operation to ensure that new locations meet their first years financial goals. In addition, this structure facilitates the identification and implementation of best practices across new branch locations, and ensure In contrast, assigning new branches to regional managers responsible for existing branch locations can result in suboptima l performance. New branches typically account for a small percentage of a regional managers growth goals; as a result, regional managers usually spend more time on existing branches, limiting the potential of new branch offices. Conversely, if they spend too much time on new branches, efforts to increase same-store sales could suffer. Under the new branch executive, new branches would still interact with other branches in their market at regional sales meetings, and they would also participate in the same sales campaigns. After 12 months of operation, management oversight for these locations would transfer to the appropriate regional manager.

Measurement of results:

Banks need to develop a thorough post-

implementation process to review the results of distribution actions, including sales results at new branches as well as customer retention at branches that were closed or relocated . Actual performance should be evaluated against goals defined in the business case for each project. Best practices with respect to sales, marketing and HR strategies should be identified for high-performing new branch locations and implemented at other new offices. In todays increasingly competitive retail banking industry, it is critical that banks develop strategies to optimize their branch networks and maximize the sales effectiveness of branch locations. Institutions with the most successful branch programs will be those that consistently demonstrate superior execution in planning, implementation, and management of new locations.

36

CHAPTER 5
Distribution Channels of Axis Bank Ltd

5.1 Introduction Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd.,

37

The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The Bank as on 31st December, 2012 is capitalized to the extent of Rs. 427.15 crores with the public holding (other than promoters and GDRs) at 55.64%. 5.2 MANAGEMENT: The management of Axis Bank Ltd consists of Mr. Adarsh Kishore who has been appointed as the Chairman of the Bank with effect from 2010 subject to the approval of the Reserve Bank of India and the shareholders. Mrs. Shikha Sharma has been a Director of the Bank since June 2009. A retired IAS officer, Mr. Adarsh Kishore has had an illustrious career in the civil services and has held several key positions in India and overseas, including Finance Secretary, Government of India, Executive Director, World Bank and Government nominee on the Boards of many companies in the financial sector.

The Managing Director, Mrs Shikha Sharma, has been a professional banker for over 30 years, and before joining Axis Bank in 2009 was heading ICICI Pru operations.

The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing Axis are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength.

38

5.3 PRODUCT SCOPE:

Axis Bank offers a bunch of products and services to meet the every need of the people. The company cares for both, individuals as well as corporate and small and medium enterprises. For individuals, the company has a range of accounts, investment, and pension scheme, different types of loans and cards that assist the customers. The customers can choose the suitable one from a range of products which will suit their life-stage and needs. For organizations the company has a host of customized solutions that range from Funded services, Non-funded services, Value addition services, Mutual fund etc. These affordable plans apart from providing long term value to the employees help in enhancing goodwill of the company. The products of the company are categorized into various sections which are as follows: Accounts and deposits. Loans. Investments and Insurance. Forex and payment services. Cards. Customer center. Business: Axis Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments:

39

 Wholesale Banking Services: The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporate and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. It is recognized as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks.

Retail banking Services: The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to customers through the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile Banking.

The Axis Bank Preferred program for high net worth individuals, the Axis Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions, information and advice on various investment avenues. The Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository Participant (DP) services for retail customers, providing customers the facility to hold their investments in electronic form.
40

The Bank launched its credit card business in late 2001. By March 2010, the bank had a total card base (debit and credit cards) of over 14 million. The Bank is also one of the leading players in the merchant acquiring business with over 90,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.

Treasury: Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalization of the financial markets in India, corporate need more sophisticated risk management information, advice and product structures. These and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.

5.4 DISTRIBUTION NETWORK: The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. The Bank has a very wide network of more than 1763 branches. The Bank has a network of over 10,700 ATMs (as on 30th November, 2012) providing 24 hrs a day banking convenience to its customers. This is one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is committed to

41

adopting the best industry practices internationally in order to achieve excellence. The Bank's expansion plans take into account the need to have a presence in all major industrial and commercial centres where its corporate customers are located as well as the need to build a strong retail customer base for both deposits and loan products. Being a clearing/settlement bank to various leading stock exchanges, the Bank has branches in the centres where the NSE/BSE has a strong and active member base.

Moreover, Axis Bank's ATM network can be accessed by all domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders. The Bank's expansion plans take into account the need to have a presence in all major industrial and commercial centers where its corporate customers are located as well as the need to build a strong retail customer base for both deposits and loan products. Being a clearing/settlement bank to various leading stock exchanges, the Bank has branches in the centers where the NSE/BSE has a strong and active member base. Bank's ATM network can be accessed by all domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders

5.5 TECHNOLOGY: Axis Bank operates in a highly automated environment in terms of information technology and communication systems. All the bank's branches have online connectivity, which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to retail customers through

42

the branch network and Automated Teller Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best technology available internationally, to build the infrastructure for a world class bank. The Bank's business is supported by scalable and robust systems which ensure that our clients always get the finest services we offer.

The Bank has prioritized its engagement in technology and the internet as one of its key goals and has already made significant progress in web-enabling its core businesses. In each of its businesses, the Bank has succeeded in leveraging its market position, expertise and technology to create a competitive advantage and build market share.

5.6 BUSINESS FOCUS: Axis Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. Axis Bank's business philosophy is based on four core values Operational Excellence, Customer Focus, Product Leadership and People

43

CONCLUSION:

As more and more customers of financial-services companies turn to low-cost virtual-distribution channels, the higher-cost physical channelstraditional bank branches, in particularwill no doubt have a harder time earning their keep. Yet rumors of the death of bank outlets does not seem to be true. Indeed, banks should find them a source of substantial value for years to come if they are carefully designed to fit the rest of the distribution system and local market opportunities. For bank outlets offer customers something that the Internet can never match: a secure physical location for transacting complex financial business with real people. More than 80 percent of consumers visit a physical outlet at least once a month, and bank outlets still generate 80 to 90 percent of new deposit, investment, and loan accounts. Thus it is found that consumers prefer financial institutions offering services both on the electronic channels and in physical outlets to institutions that offer them only on-line.

44

Bibliography:

Books: Service Marketing Text and Cases. Marketing In Banking and Insurance Marketing Financial services Websites:
www.economictimes.com http://ieeexplore.ieee.org/xpl/freeabs_all.jsp?arnumber=4599716 http://www.hdfcbank.com/aboutus/general/default.htm

45

46

47