MARKETING OF BANKING SERVICES – JUNE 2003

CAIIB
ASSOCIATE EXAMINATION – JUNE 2003
MARKETING OF BANKING SERVICES

1. (A) Define
i) Retail Marketing
Retail Marketing is the process of determining and individual customer’s requirement of product
or service, motivating its sale at a profit.

ii) Services
A service is any act of performance that a party of offers to another in an intangible form, which
does not result in transfer of ownership of any goods but has value for the other.

iii) Hub and Spoke branches

A system of providing in limited service at smaller branches, backed up core branch that has
expertise, to execute at the desired speed and efficiency, are all the services the customer
requires.

iv) Decider
The person who ultimately determines any part or whole of the purchase decision.

v) Promotional Pricing
The lower price offered for any product or service to initially attract the customer to try the
product on the hope that the customer will continue to use the product / service even when its
price is reset at correct level.

(B) Fill in the blanks:

i) In delivery of banking products, SERVICE is equally important as the product.
ii) Bank guarantee is NON FUND BASED facility.
iii) VENTURE TEAM type structure is ideal for selling to corporate clients.
iv) The last phase of the product life cycle is DECLINE.
v) Two main channels of distribution are DIRECT and INDIRECT.

(C) State true or false with reasons—

i) Banks are using electronic medium of delivery to save expenses.

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TRUE: Development in technology has enabled banks to perform the repetitive to work without
error and at a lower cost.

ii) Value addition to each of the products is only way to attract customers.
TRUE: Competition has provided choice to customers. Today’s customer’s compare the offers are
available in the market and select the ones, which give better value.

iii) Banks should attract long term deposits to ensure that there is no asset liability mismatch.
TRUE: Banks are now funding long-term assets like loans for infrastructure / housing with long
gestation / repayment schedule with long-term liabilities. Long term deposits result in matching of
assets and liabilities.

iv) Launch of debit cards will result in reduction in demand for credit cards.
FALSE: Debit cards and credit cards meet the needs of different type of customers. Customers who
need temporary credit will opt for credit cards. Other will opt for debit cards as save on the membership
and other fees and yet have the convenience of a card.

v) Appointment of direct selling agents is the proof that regular staff of the Bank does not possess
marketing skills.
FALSE: Only new private sector banks and multinational banks who have limited human resources
and branch network appoint direct selling agents. Public sector banks continued to effectively market
their products through their own staff only.

2. Answer in 5 to 10 lines.
(i) Describe difference between goods and services.
Christian Gronoroos (1990) presents the differences between physical goods and services as follows:

Sl.No. Physical Goods Services

1. Tangible. Intangible.
2. Homogeneous. Heterogeneous.
3. Production and distribution Production, distribution, and consumption
separated from consumption. are simultaneous processes.
4. A thing. An activity or process.
5. Core value produced in factory. Core value produced in buyer-seller
interactions.
6. Customers do not participate in the Customers participate in the production.
production process.
7. Can be kept in stock. Cannot be kept in stock
8. Transfer of ownership. No transfer of ownership

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(ii) Explain the concept of ‘moments of truth’.

The customer is a person who buys our products or services. For an organization there are two types
of customers –Internal, i.e., the workforce or employees and External, i.e., the customers.
A customer is thus any one who receives a product or service from us.
‘Caring for Customers’, therefore, becomes the focal theme of any marketing strategy. ‘Customer
Care’ is a complex service of relationship between customer and bank. A successful outcome of
such interactive relationship leads to customer satisfaction.
Anytime we deal with a customer; it is a moment of truth. It can occur in three ways:

1. Face to face

2. Over telephone

3. Through written communication / correspondence

In type (1) i.e., Face to face (MOT) it can happen in any of the following ways:

– with external customer – our organization

– with external customer – our division / department

– with any one – even ourself

This is so because in whatever function we carry out, we always play some of the other role in
creating image of self, department or our bank. In order to create a very good image of our bank, we
must first deal with ourself and consciously create a very good impression at every moment of truth.
This means we must be always aware about customer satisfaction vis-à-vis his expectation from
Bank – Department ourselves – at every moment. Each contact with a customer becomes a Moment
of Truth.

(iii) Explain product life cycle

As product volume (sales) and sales revenue follows a typical pattern, the concept of product life
cycle has been one of the important concepts in marketing. As each product passes through certain
typical but definite stages in its life-span, we will look up into the important stages:
i) Introduction
ii) Growth
iii) Maturity
iv) Saturation
v) Decline
vi) Obsolescence

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Introductory Stage / Phase: This stage in the product life cycle is characterized by low sales and
most of the time negative profits which may be due to lack of awareness about the product or limited
distribution or unfamiliarity with the product.
In banking industry, however, it is different from consumer goods industry as the products have been
regulated for long and prices were also controlled by statutory agencies. Promotion being the only
variable, which could be manipulated, advertising and personal service, were the options.
Growth Stage: After a product survives the introductory stage, it passes into the growth stage. At
this point, competitive strategies by other banks can affect the growth. The promotional strategies
tend to change during this stage to keep up the sales. The product / services are fine-tuned during
this stage. Sales tend to grow and profit increase during this phase. Market acceptance of the
product is the key factor at this stage.
Maturity Stage: Having continued at the growth stage, the product then enters into the maturity
stage. The most notable indicator of this phase can be the initial stability and then slowdown in
volume of sales / profit.
Products in maturity stage can give indications about changes required in product / strategies. The
competition at times may tend to thin up the margin to stabilize the growth at maturity phase. It may
force to lower the price of the product or additional cost in promotion and distribution of the product.
Decline Stage: After maturity, with increased competition a downward shift / drift in sales or reduction
in profit may start. Except in case of new or diversified products in banking industry such sudden
decline cases are not many.
(iv) What are the different pricing methods described by Winkler ?
As described by Winkler there are 3 types of pricing methods:
a. Cost related
b. Market related
c. Competition related

a. Cost Related Pricing System

Four major costs related pricing methods
i) Standard – costing pricing
ii) Cost plus profit
iii) Break even analysis
iv) Marginal pricing

b. Market Related Pricing System:

Market related pricing systems, which adopt one or more of the following approaches:

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i) Perceived value pricing

ii) Psychological pricing
iii) Promotional pricing
iv) Skimming

c. Competitor Related Pricing Strategies

The competitive pricing means to compete with the leader in the market w.r.t. the price.
It can be either to set higher price initially and then to offer discounts known as ‘discount
pricing’ or to significantly increase sales volume by competing with others already leading in the
market by undercutting the prices significantly with the sole idea of penetrating the market.

(v) What is promotion ? Name the communication channels used in promotional efforts of banking
products
Promotion is a generic term used for the communication efforts of the firm that are directed towards
achieving the objectives of a marketing strategy.
The promotion efforts include the communication channels of :
– Advertising
– Publicity
– Sales Promotion
– Person – to – person communication
– Bank’s internal communication process, etc.
These elements of promotion serve as the links between the Bank and the target segment of its
market (customers).
Promotion thus means the Bank’s well organized, planned and goal oriented efforts which must be in
congruence with its overall business goals and objectives in the desired market area keeping specific
needs of customer in mind.

Composition of Promotion Mix

Mass Communication Person-to-Person Communication

Advertising Personal Sales

Publicity Internal Communication

Sales Promotion

Public Relation

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In the service industry like ‘Banking’, promotion assumes all the more important position as what we
really sell is ‘abstract’ thing, i.e., service with the interest rates, range of products, being more or less
same, the service given through proper promotion channels makes all the difference between two
Banks in marketing context.
Promotion can thus mean ‘communicating with the buyer (customer). In order to strengthen his attitudes
that are favourable to the (Bank’s) sellers’ offering and to change his attitudes, which are unfavourable
to the sellers. This pre-supposes ensuring that such buyers become satisfied customers of the Bank
– now or later.
The objectives of “Promotion” are:
1. Informing / telling / educating potential customer.
2. Informing existing customers about new products / services.
3. Following up with existing / potential customers for schemes introduced.
4. Approaching a new segment of customer to attract them to promote new scheme.

The following communication channels used in India by Banks:

a. PRESS: Advertisements, press releases and interviews.
b. TELEVISION: Advertisements, press releases and interviews.
c. RADIO: Advertisements, press releases and interviews.
d. PARTICIPATION IN FAIRS, exhibitions, seminars and conventions.
e. POSTERS, banners, leaflets at delivery points / city centres.
f. ADVERTISEMENTS through ATM screens and Internet sites.

3. Answer in 10 to 15 lines:

(i) Differentiate between debit and credit cards

‘Plastic Money’ or credit cards have become very popular as bank’s product and have wider acceptance
in Indian Market.
The credit card allows a holder to make purchases (up to his sanctioned credit limit) without making
purchases in lending shops / markets to make payment of bills – electricity or telephone – or to
withdraw funds (cash up to a pre-decided limit) as and when required. The debit cards issuing by the
Banks against the balances of Savings / Current accounts. Upto to the date of withdraw by the
customers, the balance carrying interest.

Precautions:

Debit Card
– PIN and credit care need to be used for drawing cash
– Signature on the credit card slip is required for purchases

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– Limit is fixed to ensure that card is not misutilised or utilized beyond the means.
– Magnetic strip on the card ensures the identification of the presenter, balance etc.
– Instead of credit limit, amount of balance in the account is the limiting factor for utilizing the
card.

Credit card
– PIN and credit care need to be used for drawing cash
– Signature on the credit card slip is required for purchases
– Limit is fixed to ensure that card is not misutilised or utilized beyond the means.
– Magnetic strip on the card ensures the identification of the presenter, balance etc.

Smart card is a plastic card contains microprocessor chip having information, processing and storage
capabilities. Smart card can perform other sophisticated functions such as cardholder identification,
account verification, transaction tracking and other account services. Smart card technology enables
credit / debit transactions to occur in a much safer fraud resistance environment. Many companies
are using this card to deliver goods and services over the Internet and other networks for encryption
and authorization of data so that financial transactions and information can be delivered in a secure
environment.

(ii) What are the primary differences in the marketing strategies for retail lending and corporate
finance ?
Mature markets, technological developments and deregulation in many countries have led to increased
competition. Consequently, banks operating in mass-markets will have to concentrate on cost-savings
in order to stay competitive. These and other factors have encompassed acquisitions and mergers
throughout the industry. It has all resulted in major redundancies in the banking industry. In terms of
employment, retail banking is a shrinking industry. The strategies for retail lending of the commercial
banks are:

– Technology impact on product / service scenario

– The changes in distribution plans

– The outsourcing or contracting-out

– Deregulation

– Privatization

– Different distribution channels to different customers.

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To Corporate Banking:
To be on the shopping list as a relationship bank for a multinational, a bank should have enough
financial muscles to finance the company around the globe.
In the area of distributing sophisticated corporate banking “products”, corporate, investment and other
specialized financial advisers are seen moving employees and other resources to “centres of gravity”.
The Web offers both a threat and an opportunity to corporate banks and everyone involved in financial
activities such as lawyers, accountants, venture capitalists and stockbrokers.
Marketing is a dynamic process. It is modified continuously in relation with the changing environment
strategies which worked a few years back may not work now and strategies will have to be re-
thought for present day applications.
Largely, the strategy formulation by banks depends on 3 external ‘C’s, viz.,
1. Climate – economic, technological and socio-political
2. Customers – internal and external
3. Competition – their strategy, product and market share
Besides these 3 ‘C’s the (organization’s) culture who plays dominant role in formulation and
implementation of strategies.
It is not enough for banks to take a short-term view of market but it is rather essential that they take
a long-term (future) view and accordingly devise their plans and strategies. In the changing economic
scenario a flexible and customer resources, market position and market share and what it wants to
be (in future) vis-à-vis the future changes in the market and future needs of the customer.
The customers in any segment have the following main expectations from a bank:
1. Quality Service
2. Low Cost
3. Higher Interest (Return)
4. Liquidity
5. Safety of Funds
6. Less Time Spent on Transactions
7. Efficient Service
8. Good Personal Relations
9. Advice on Investment
10. Easy Access
Each segment of customers thus has a different perception of good bank and quality service due to

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which, in what is known as relationship and transaction banking, a bank has to be alive to customer
– expectations and alert about changing market situations.
Banks have to do tightrope walking in striking a balance between:
a. Customer expectations
b. Cost of product delivery
c. Quality of service
d. Profit intended
e. Social Angle

The comparatively newer concept of relationship marketing emphasizes on continuous relationship

between the bank and its customers. The emphasis naturally is on quality customer service in such
type of relationship marketing. These concept talks about value added customer service and awareness
about quality in each of the following “P” s of bank marketing:
1. Place
2. Product
3. Price
4. Promotion
5. People
6. Procedures

“Relationship Management” was the concept formulated by Theodore Levitt in “The Marketing
Imagination” suggesting that the relationship between the buyer and seller seldom ends when the
sale is made. In a great and increasing transactions, the relationship actually intensifies subsequent
to the sales. This becomes the central factor in the buyer’s choice of the seller the next time around.
Levitt mentioned this relationship as “inextricable, inescapable and profound”
The objectives of “Relationship Marketing” as mentioned by M.Armstrong are to:
– achieve competitive advantage by creating value for the customers
– ensure that enough value is created in the sale to bring customers back for more
– build and maintain mutually satisfying relationship with customers.
The concept of Relationship Marketing is based on three important concepts, which are:
1. The basic Quality
2. Support Service
3. The value chain
The aim is to identify the groups and segments of the public, which influence the marketing strategies

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of the bank in both short run and long run and can help the bank to ensure successful implementation
of marketing strategies.

(iii) How market research helps in development of new products ?

All companies conduct marketing research of new products to have a deeper insight into the various
facets of the marketing problem. Companies usually conduct studies in five major areas, which are:

a. Sales and Market Research

– Measurement of market potentials
– Determination
– Market share analysis
– Sales analysis
– Distribution channel studies
– Test markets, store audits, consumer panels

b. Product Research
– Branding related studies
– Competitive product studies
– New product acceptance and potentials
– Testing of existing products
– Packaging research: Design, other characteristics

c. Business and Corporate Research

– Short-range forecasting (upto to one year)
– Long-range forecasting
– Business trends analysis
– Pricing, product-mix studies
– Employee relations studies
– International market studies

d. Advertising and Communication Research

– Studies of ad-effectiveness
– Media research

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– Message / copy research

– Consumer motivation research

e. Corporate Responsibility Research

– Studies on legal constraints
– Environmental impact studies
– Corporate policy analysis
– Corporate image tracking

(iv) Explain the important steps in selling process.

The important steps in Selling Process are:
The process of selling involves a number of crucial steps such as:
a. Pre-sale preparation
b. Prospecting
c. Pre-approach
d. Approach
e. Presentation
f. Objections
g. Close
h. Follow-up (Past Sale)

A. Pre-sale-Preparations: Before any ‘ sale the employee selling a product or service has to be
aware of his role, his bank, its products, the competitors’ product as well as the customers’
needs and techniques of selling a particular product to a particular type of the customer. He
must also be aware of the changes, if any, in RBI / his own bank’s policy as also the changes
in the market.

B. Prospecting: A prospect means ‘would be’ or a potential customer who brings prospective
business to the bank. He must have both ability and will to buy the products of the bank.

C. Pre-Approach: Since the product / services of a bank have to be tailored to the exact requirement
of the prospective customer, the (selling employee) salesman has to make in-depth inquiries as
to the buyer’s needs, preferences, behaviour, etc., as to plan about the approaching and
presentation strategy taking into account the probable needs, quantum of business and objections,
if any, which can be raised that prospective customer.

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D. Approach: The approach, after the above A, B, C of the selling process, can be telephone or
through a visiting card. A properly planned approach can decide the success or otherwise of the
process of selling as the prospects moods and willingness at that point of time must be tackled
carefully.
E. Presentation: The presentation must follow the AIDA formula, i.e.,
– Attract Attention
– Create Interest
– Proper Delivery to create Desire
– Result in Action
Besides, pleasing personality, etiquettes and manners, clear communication and a winning
approach use of brochure, data and audio-visual equipment’s helps in an effective presentation.
F. Objections: While it will be the emphasis of a salesman to sell his bank’s product there can be
objections raised by the customers which will show that there is further convincing required by
the salesman. Such objections should be welcome and respected as they indicate either the
lacuna in presentation or doubts / barriers in customers’ mind. All such objections can be
systematically recorded and convincingly answered to win customers’ confidence.
G. Close: ‘Close’ can be ‘let go’ in the selling process and thus a very crucial stage in the selling
process. In fact, the success of a salesman depends largely on his ability and skill to close the
sale confidently and successfully. He must look through the buyers’ behaviour throughout the
sales process and by his experience and judgement should decide the appropriate and exact
movement to ‘close the sale’.
H. Follow-up: As the sale is not decided by the bank employee over the counter, it is indeed
decided by the buyer – customer, a salesman has to contact regularly the prospective customer
to maintain goodwill and ensure frequent and repeat sales so as to ensure continued business
and on-going customer satisfaction. This provide a very good feedback of the customer as to
the product, service by the selling organization and also regarding unsatisfied present and / or
future needs of the customer.

4. Answer in 20 to 25 lines:
(i) Elaborate on the latest trends in marketing by Banks.
The banking business is becoming more and more complex with the changes emanating from the
liberalization and globalization, with UTI, NSC, Company Debentures and NBFCT competing in deposits
and new private banks and foreign banks competing in advances, with aggressive marketing strategies,
bankers are becoming glowingly aware about the need formarketing.
With the restricted (through now free to decide) rates of interest on deposits and advances the main
emphasis is being given on:

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a. Efficient and courteous customer service

b. Attractive and innovative schemes
c. Developing subsidiary services
d. Aggressive personalized selling strategy
Marketing has not remained just a strategy but many banks – like Citibank, Hongkong Bank in
foreign bank sector and State Bank of India, Canara Bank among the nationalized bank sector
adopted a pro-consumer philosophy.
The ‘customer is a king’ – thought is getting more and more deep-rooted. Since nationalization, the
Indian Banking scenario has been successively changing each decade and the banking system
today through more transparency, is showing signs of maturity.
The changing environment directly affects bank’s marketing strategy w.r.t. the following categories:
1. Political / legal dimensions
2. Technological dimensions
3. Socio-cultural dimensions
4. Economic dimensions
5. Competitive dimensions

With computerization on a large scale, the traditional concept of communications is undergoing sea
change. The letters are now replaced by E-mails. In place of cashiers and even tellers, ATMs are
responding quickly and for 24 hours. ‘Plastic Money’ is gaining more acceptance and popularity.
Home Banking, tele-banking, room service and the new catchy concepts, which attract the customer
to appeal to his valuable time factor and convenience.
The Money supply (M-3) has been affecting growth of banks’ deposits, which is, in fact, the raw
material for banking services. These are almost perfect co-relation between money supply and deposit
growth. Due to changing rates of interest on deposits, there is also shift in the patterns of short-term,
medium-term and long-term deposits with Banks. Due to large supply of bank credit to government
and the corporate sector preferring to raise money through the share market, it has also been
affecting the growth of advances. This exerts pressure on profitability, which compels bank to go for
low cost deposits, and higher rates on advances. This leads to more emphasis on selling to corporate
clients. The growth of market and vide spread of debenture and share culture provides the corporate
sector a direct access to saver causing dis-intermediation. This too forces the banks to provide new
types of services in the investment area. The money market instruments also have shown innovative
additions like (CP) Commercial Paper (CD) Certificate of Deposit, Stockinvest, Mutual Money Market
Fund, etc.
In the corporate sector, despite easy access of credit which enabled the small and medium industries
to widen their entrepreneurial base, the adoption of Tandon and Chore Committee norms for credit
decision and credit monitoring (which has the objective of orienting the corporate borrower to gain

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more and more for self reliance in equity), has been a compelling factor for corporate sector to turn
to capital market to raise additional funds / equity.
Now with more liberalization of bank credit to corporate sector against the present state of affairs in
the capital market, banks can aggressively utilize their marketing strategies to market their products /
schemes to corporate sector borrowers whereby the resources can be gainfully employed. This can
ensure comfortable profit margin for the banks and more importantly higher economic growth through
better industrial output.

(ii) Delivery of the product is more important than developing a good product – Discuss.
Banks being a service industry, are the quality of service is the most important factor crucial to
attract / retain customer.
The system by / through which service delivery takes place is called the “Process”. This process of
delivering a product or service is akin to the operation management in a manufacturing industry
where the raw material gets converted into a finished product i.e., an input-passing through a
mechanism or process-becomes an output.
The 3 process applicable in delivery of service products can be indicate as:
a. Line operations – e.g. self service hotels
b. Job shop operations – combination of operations using different sequence e.g. Hospitals or
Educational institutions.
c. Intermittent Operations – i.e., service is rarely repeated, e.g., consultancy for projects.

In application of these concepts of process in banking situations a banker will have to ask some
pertinent questions.
a. what are the steps involved in delivery process of a product / service ?
b. what can be the logical sequence of event ?
c. what modifications are necessary to smoothen the process ?
d. at what point and how much consumer contact is involved / desirable ?
e. can the technology be useful to speed up the process ?

The marketing can be successful if the product development, packaging and delivery are properly
synchronized from the viewpoint of the bank as well as the customer.
It becomes quite necessary in reviewing the process cycle to consider.
a. customer’s benefit
b. concept of service as seen by customer
c. method of offering the service
d. service delivery system

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This can be shown as a figure in the following manner:

Concept – Consumer Benefit
Ú
Concerned with Consumer’s Viewpoint
Ú
Translated to Service Concept
Ú
Concerned with the Benefits Offered by Service
Ú
Translated into a Service Offer
Ú
Concerned with Greater Details
Ú
Translated into a Service Delivery System
Ú
Concerned with People and Process

In such delivery of services, the process cycle and a specific market segment has to be considered
specifically. The quality of the service determined based on the following factors.
a. Product acknowledge
b. Customer orientation
c. Awareness of customer preferences
d. Motivation and skills
e. Specialized knowledge
f. Flexibility to take advantage and opportunities
g. Focus on competition
h. Ability to analyze problems
i. Honesty and Integrity
j. Hard working

(iii) Explain the concept of market segmentation. What are the advantages and disadvantages of
market segmentation in branch set-up ?
Market segmentation, the well-tested system for guiding marketing strategy, starts not with
distinguishing product possibilities, but rather with distinguishing customer needs or interests. Market
segmentation is the sub-dividing of a market into homogenous subsets of customers, where any
subset may conceivably be selected as a market target to be reached with a distinct marketing mix.

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The power of this concept is that in an age of intense competition for the mass market, individual
sellers may prosper through creativity serving specific market segments (markets or little markets)
whose needs are imperfectly satisfied by the mass-market offerings.
Any characteristic that related significantly to purchasing or consumption behaviour is a potential
basis for marketing segmentation. This includes demographic characteristics (such as location, sex,
education, and income), psychographic variables and several other potential basis for segmentation.
The basis used to segment a market should meet at least three criteria. Segments should be:
– Meaningful: Significantly related to buying and consumption behaviour
– Measurable: Identifiable and measurable without great effort and cost.
– Useful and reachable: Capable of being used in design and implementation of marketing strategy.

BENEFITS AND DISADVANTAGES OF MARKET SEGMENTATION BENEFITS:

The seller who is alert to the needs of different market segments may gain in three ways.
First, he is in a better position to spot and compare marketing opportunities. He can examine the
needs of each segment against the current competitive offerings and determine the extent of current
satisfaction. Segments from low levels of satisfaction from current offerings may represent excellent
marketing opportunities.
Second, the seller can use his knowledge of the marketing response differences of the various
market segments to guide the allocation of his total marketing budget. The ultimate basis for meaningful
segmentation is differences in customer response to different marketing tools.
The response difference becomes the basis for deciding on the allocation of company market funds
to different customers.
Third, the seller can make finer adjustments of his product and marketing appeals. Instead of one
marketing program aimed to draw in all potential buyers (the “shotgun” approach), the seller can
create separate marketing programs aimed to meet the needs of different buyers (the “rifle” approach).

DISADVANTAGES:
A disadvantage of segmentation strategy is its cost. A proliferation of products may result if a company
attempts to serve several different segments of the market. Not only are engineering and development
costs increased, but also production costs are higher because of shorter runs and products variations.
Both the manufacturer and distributors must carry out larger inventories, and promotion and distribution
expenditures rise if separate programs are used for diverse market segments.
Another potential pitfall is the changing characteristics and desires of the market. For example, many
American companies that invested millions of dollars in appealing to the huge youth market of the
sixties and seventies are now investing millions to change their image to one that appeals to more
mature markets. n

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