Marketing of Financial Services

MFS MFS MFS
MFS MFS MFS

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.
One of the major problems facing the promoters

of financial services as opposed to tangible
products, is that services cannot be experienced
in a tangible manner.
Services cannot be:
(a) touched,
(b) tasted,
(c) handled, or
(d) purchased in bulk like tangible products.
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.
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.
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.
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.
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.
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.
(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).
(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
Financial Human
Plan Resources
Plan
Risk
Management
Plan
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.
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).
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.
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.
Mission
Statement
Key
Objectives
Environment Competitive Assessment of

& Market Assumptions Strengths Evaluation Opportunities
Market Portfolio
Strategy
Strategic Changes
Action Plans
For Implementation
Evaluation Process Action Plans

For Implementation
banking industry around the world has been

ging very rapidly since the early 1970s.
ndustry has experienced a substantial change

mpetitive conditions as a result of a number
ctors:
industry tended to go international, led by th
ading US commercial banks,
w competitors entering the financial services
arket new approaches to servicing corporate c
w capital markets emerged – as a result
ansformed traditional funding of banks & MNC
wide range of sophisticated products were
troduced under “packaged sales”
esponse to competition, banks reacted and be

build up their own multi-national presence
ough their own brand name,
ks began to channel their marketing resources
wards diversification,
the end of 1970s, banks’ operations had becom
ore complex with the range of services on offer
le margins on lending were eroded through
mpetition, fee-based services were increasing,
n-bank financial institutions were also providin
ancial services – hence, more competition,
. General Motors, Shell Co, American Express. Large s
Supermarkets)
w information technology (I.T.) impacted on th

erations of the banks and became one of the k
vers, (e.g. back office became automated),
ings and loans associations initiated interest-

aring transaction accounts and brought direct
mpetition to commercial banks, and
fessionals like accountants, lawyers, real esta

ents, financial brokers, asset managers also of
ancial services.
In the 1980s the banking industry experienced an

acceleration in the pace of change in both:
(a) retail, and (b) wholesale market.
Retail Banking
→ Increased Segmentation of Consumer Groups
and provided Specialist Private Banking Services
(e.g. rich individuals, High-Net-Worth customers)
→ Stratified Accounts (e.g. personal loans, credit finance,
insurance products, 1st & 2nd line mortgages, deposits FD &
S/Term)
→ Replacement of Paper-Based Accounting Systems,
→ Increased competition for loans and deposits
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.
International Transfers
Domestic Transfers EFT transfers,
• Cheques, Bank drafts,
• Banker payments, International cheques,
• Standing orders instruction,
• Credit transfers,
• Bank-to-bank transfers,
• Direct debits,
Commercial Credits
Clean credits,
Documentary credits,
Import & Export credits.
Trust Services Consultancy Services
Executorships, Invoicing centres,
Share registrars, Treasury management,
Safe deposit services, Pension Fund advice,
Estate planning, Insurance Man advice,
Tax planning, Forex forecasting,
Life insurance, Training in finance, and
Trusteeships, Financial plan & money
Shares & Bonds purchases, management service.
Pension fund management,
Corporate trustee services,
Investment advice, and
Dividend payments.
 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
Relative Market Share
High Low
STAR PROBLEM CHILD
H
i Strategy→ “Build” Strategy→ “Build” or
g “Harvest” or
h “Divest”
CASH COW DOG

Strategy→ “Hold” Strategy→ “Harvest”
L
or
o
“Divest”
w
Source: Boston Consulting Group Matrix

• Star • Problem Child

Where the bank would Where the bank allows
make investments in order market share to decline
to build up or expand its in order to maximize
Business Units (BU), short-term profitability &
cash flow, regardless of
the long-term effect,
• Cash Cow * Dog

Where the bank would Where the bank sells or
invest just enough money
phases out the BU &
reinvest resources.
to hold the BU share at the
current level,
Ansoff identified 4 strategies following the BCG

Matrix:
(1) Market Penetration,
(2) Product Development,
(3) Market Development, and
(4) Diversification.
MARKET
CURRENT MARKET NEW MARKET
C
U
R
P R Market Market
R E Penetration Development
O N
T
D
U
N
C E Product
Diversification
T W Development
Source: Ansoff Matrix

1) Market Penetration
This strategy is the least risky of the 4 strategies because
it involves increasing market share in existing markets.
2) Product Development
The bank is already well known in its current market place
but there is an identified need for new products to meet
the changing needs of this market.
3) Market Development
The bank is already known for its current products, but the
strategy is to take these products into a new market.
4) Diversification
With this strategy, the bank is moving into new market
with new products.
The McKinsey model argues that businesses should
develop their growth strategies based on:
• Operational skills,
• Privileged assets,
• Growth skills, and
• Special relationships.
Growth can be achieved by looking at business

opportunities along several dimensions, summarized
in the diagram.
The McKinsey Model resembles the Ansoff Model.

New Competitive Acquisitions
Arenas
New Industry
McKinsey Growth Pyramid
Structure Joint Ventures
Increasing Level of Risk

New Geographic
Areas
How? Minority Stakes
New Delivery
Systems
Alliances
New Products &
Services
Marketing
Existing Products
to new customers
Partnership
Existing Products
to existing customers Organic Invt
Generic Options & Investment Structures for a Growth Strategy

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.
Gap Analysis of Revenue

80
70
Desired Revenue
60
50
Revenue
Strategic
40 Planning Gap
30
Projected
20 Revenue
10
0
Tim e
GAP analysis can be used at a number of levels of

Planning – strategic, operational, product & market.
The resultant gap analysis will enable the bank to

choose between one or two courses of action:
(a) plan strategies to close the gap, and
(b) redefine the objective so that they produce the

same result as the current projected trends.
Changes in the external environment can affect the

desirability of the potential strategies of a bank
due to changes in its relative position in the market.
The changes follow the acronym (LePESTCo):
External Factors
1) Le → Legal
2) P → Political
3) E → Economic
4) S → Social
5) T → Technological
6) Co → Competition
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.
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.
COMPETITION
• Existing players in the Market,
• New Entrants penetrating the Market,
• Pricing of Financial Services/Products,
• Marketing Style, and
• Consolidation within the Banks.
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.
A sound marketing plan should also considers

the impact of internal factors such as:
(a) Employees,
(b) Premises,
(c) Systems, and
(d) Financial resources needed to back the plan.

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?

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?

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?
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
STAGES IN THE BANK’S SERVICES LIFE CYCLE
Demand
Your Bank’s Position
Embryonic Growth Shakeout Maturity Decline
Time
Porter’s Five-Forces Model
Threats
of
New Entrants
Bargaining Bargaining
Power Competitive Power
of Lenders Rivalry of Customers
Threats of
Substitute
Services
Source: Adapted from M E Porter, Competitive Strategy (1980)

Porter’s Generic Strategy Model
COMPETITIVE ADVANTAGE
Lower Cost Differentiation
C
O 1.COST 2. DIFFERENTIATION
M LEADERSHIP
P
E Broad
T Target
I
T
I
V 3 (a) COST FOCUS 3 (b)
E
DIFFERENTIATION
S Narrow FOCUS
C Target
O
P
E
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 Place
Promotion
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.
Advisors
Competitor Analysis o Accountants,
Existing lead bankers,
o Lawyers,
Other bankers.
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 External factors

• marketing objectives, • nature of the market & demand,
• marketing mix strategy, • competition, and
• costs involved, and • LePEST
• organization for pricing.
Once a new product/service has been developed, a bank
will need to decide upon the price to charge, and to test
the acceptability by the target market using market
research approach.
Three of the most important strategies for pricing new

Products/services are as follows:
(1) Skimming Pricing,
(2) Penetration Pricing, and
(3) Perceived Value or Value Pricing.

Skimming Pricing
This involves setting a high initial price for the product/
service so as to just “skim the cream” of demand for the
product/service. It is especially suitable for new products
because:
(a) new products are less affected by price until the

competition arrives,
(b) a high initial price many help the product gain an
image of prestige and quality,
(c) a high initial price often produces more revenue in the
early days, thus bringing in funds to finance expansion
into larger markets,
(d) there are sufficient buyers to pay the high price,
(i.e. demand is inelastic), and
(e) a skimming price can be means for testing demand.
Penetration Pricing
This the opposite of skimming pricing; it sets a low price in
order to capture a large share of the market quickly.
This is a valid policy if one of more of the following

conditions apply:
1)The intention is to capture a large share in a mass market,
2) Strong competition will emerge soon after introduction,
3) When the market appears price sensitive, and
4) Substantial economies in production, and/or, distribution

costs can be achieved with a large sales volume.
Perceived Value or Value Pricing
Bank marketers should use this strategy to get beyond the

stage of “what does it cost us to deliver this service?” to
“what is the perceived value (benefit) of this service to the
customer?”.
The more tangible and intangible features (including say

Prestige) that can be added to a service, the higher the
value perceived by the customer.
This enables the bank to charge a higher price.

A bank must consider changing the price of the existing
products/services in certain circumstances.
The strategies may be considered along those lines:
(a) Cost Plus Pricing,

(b) Break-Even Pricing,
(c) Relationship Pricing,
(d) Loss-leader Pricing,
(e) Competitive Pricing,
(f) Pricing for Market Share, and
(g) Differential Pricing.
The marketing committee or team is usually responsible

to feed the strategist or the management team of the
best approach, considering the market circumstances.
Cost Plus Pricing Methodology
This approach identifies the basic cost of the product/service
first, then adds a worked out margin to ensure that the
product/service is sold at a profit.
The methodology is practically similar to the sales of tangible

commodities.
For such a strategy to be very productive, it is essential that

the true cost is obtained from the outset before the final
price is determined.
No business wants to operate at a loss, let alone, a bank or

financial institution.
Break-even Pricing
Such a pricing strategy speaks for itself “break-even” where
the product/service sold does not realized a profit or loss.
Both the fixed and variable costs are taken into account
when such a price is determined by the management.
One would ask, this is not in line with sound commercial

practice?
This strategy can be used by management to adjust the price

to fit in with expected demand and customer sensitivity
until a price is arrived that fits the target sales and equally
produces the desired profit result.
Unless, this practice is closely monitored by the marketers

and report to the management the bank can loose a lot of
money within a short period of time.
Relationship Pricing
This is particularly important when a bank is trying to deal
with the corporate clientele and high net worth individuals.
In order to cross-sell other services, other prices may be

adjusted downwards in order to keep the business, while
increasing the profits overall from these customers.
It is an important development that the management of a

bank must be able to track down the trend in the revenue
generation process.
Otherwise, the bank will be placed at a serious disadvantage

which can cost the shareholders very dearly.
Loss-leader Pricing
The term “loss-leader” means that you need to sell one
particular product at loss, which is necessarily linked to
other more profitable products/services.
This is not a bad strategy, subject that the marketing team

together with the management team are in control of the
entire campaign.
In the case, a bank would know that it is operating a service

at a loss, but on the other side, it provide the bank with the
opportunity to cross-sell other services.
The loss-leader service would be usually a service that is

not mutually exclusive (i.e. standing on its own).
This strategy resembles “buy one item- get one free”

Competitive Pricing
It is absolutely crucial that when a bank is considering its
marketing plan, which is embodied in the strategic plan,
the various pricing strategies are considered.
Customers normally would base their buying decisions after

considering all the built-in features including the price.
The typical psychological behaviour “ I will buy it – if the

price is right”. Financial services marketing is not different
from the other commodities.
If the market is fiercely competitive, then the bank may have

to price its products/services at the price that the market
is expected to bear.
Pricing for Market Share
Again, any smart management team has to consider the
motive (s) of its pricing policy as a priority rather than simply
put a price on a service.
To apply such a commercial strategy is to engage the bank’s

resources into a meaningless plan, which can be very costly.
In the case of pricing to gain the market share so as to

operate as a cost leader in the market – the marketing team
must be able to tune the whole campaign in line with the
overall corporate philosophy of the bank.
In order to gain the market share, the bank’s profits will

suffer in the short-term, but grow in the long-term if the
strategy is implemented successfully.
Differential Pricing
What does differential means? It means to be different!
Different from whom? Externally, different from your

competitors, and internally, different from service-service.
Internally, certain methods of conducting business

transactions are cheaper for the bank & customers.
It encourages customers to move away from voluminous

payment of say salaries by cheques, but by means of
electronic transfer.
It is less expensive for the bank to handle thousands of

“salaried payments” electronically, than by cheques – due
to the time involved.
The marketing campaign of banks’ services has always been
dynamic since de-regulation of the financial services sector
took effect in the 80s.
The competitive pressure by various players in the financial

services sector will not diminished in any form or substance.
Instead, it is expected that as competition intensified from all

fronts, the marketing campaign by banks to retain, let alone,
increase their market share will equally become more
aggressive.
Banks’ can only retain customers loyalty through the delivery

of service quality combined with risk-based pricing method.
Banks must also pay attention to their customers’ needs.

I wish you all,
good luck
in your studies.

Marketing of Financial Services

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Marketing of Financial Services

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MFS MFS MFS

MFS MFS MFS

Difference between tangible and financial services

One of the major problems facing the promoters

Services cannot be:

The Acronym (HIPI) will help you remember the

Service marketing relies heavily on the individual selling

It is this individual who is judged as the “bank” rather than

Hence, marketing manager must pay great attention to:

While a service may have some tangible representations

Purchase of financial services often involves a highly

Different services also present a different level of risk to

Services are highly perishable since they cannot be stored

Demand for services fluctuates from day to day, week to

Most of the time services cannot be separated from the

If a customers need investment advice, they must go to

Services are frequently created at the time they are used,

A bank without a formal planning process is like a

Quotation: “A bank that fails to plan – is planning

Any commercial organization, which fails to plan its

The value of planning lies in the bank or financial

This is principally due that the bank should be in

A systematic appraisal is developed and

(a)Executives are forced to set corporate objectives

(b) Planning identifies the resource needs of each

(c) A good planning process should make all staff

(d) A formal plan forces banks or other organizations

(e) A good plan will enable a bank or financial

(f) The bottom line of any planning process is to

With the growing level of competition, and the rapid

Marketing plan emerged as an essential tool in the

In spite of this new development, some traditional

Unfortunately, some traditional banks went out of

4. Competitive Strength Evaluation

6. Market Portfolio Strategy

8. Action Plans for Implementation

9. Expected Financial Results

10. Project Review or Evaluation

Environment Competitive Assessment of

Evaluation Process Action Plans

banking industry around the world has been

ndustry has experienced a substantial change

esponse to competition, banks reacted and be

w information technology (I.T.) impacted on th

ings and loans associations initiated interest-

fessionals like accountants, lawyers, real esta

In the 1980s the banking industry experienced an

Banks no longer remain in their traditional service market.

The competition is so fierce that they can offer any type of

Banks in certain industrial countries are now mobile in such

Technology is one considered as one of the key drivers that

CASH COW DOG

Source: Boston Consulting Group Matrix

• Star • Problem Child

• Cash Cow * Dog

Ansoff identified 4 strategies following the BCG

(1) Market Penetration,

(2) Product Development,

(3) Market Development, and

Source: Ansoff Matrix

• Growth skills, and

Growth can be achieved by looking at business