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    Bank marketing 1 Bank marketing 1 Document Transcript

    • Bank Marketing INDEXSR. DESCRIPTION Pg no.NO. Executive summary1. The Financial System2. Origin of The Word BANK3. Definition of Bank and marketing4. Finance and banking in India5. Users of Banking Services6. Meaning of Marketing7. Evolution of the marketing concept8. Marketing and Competition9. Marketing Concepts – Its application to Banking10. Meaning of Bank Marketing11. Market Research in Indian Banks12. Increasing Importance of Marketing in Banking Industry13. Market Segmentation14. Marketing Mix for Banking Services15. Strategies for Segmentation16. Marketing Mix for banking services17. Strategies for effective bank marketing in India18. Technology in Banking19. What are customer services20. Case study21. Bank Marketing in the Indian Perceptive22. Future of Bank Marketing23. Conclusion24. Refrences 1
    • Bank Marketing2
    • Bank MarketingTHE FINANCIAL SYSTEMThe financial system consists of variety of institutions, markets andinstruments that are related in the manner shown in the below figure,it provides the principal means by which saying are transformed intoinvestment. Given its role in the allocation of resources, the efficientfunctioning of the financial system is of critical importance to a moderneconomy. Financial manager negotiate loans from financialinstitutions, raises resources in financial marked and invests surplusfunds in financial market. In very significant way he manages theinterface between the form and its financial environment.Financial System placed a very important role in the development of acountry. Through Financial System, entire money or money equalsare channelized in such a way so that each sector of economy likeindustry, agriculture and services can be developed rationally.Financial sector development is the locomotive force for economicdevelopment of a country. 3
    • Bank MarketingORIGIN OF THE WORK ‘BANK’According to some economists the word ‘Bank’ has been derived fromthe German word BANC which means a Joint Stock Firm while otherssay that it has been derived from the Italian world ‘BANCO’ whichmeans a heap or mound.There is still another group of people who believe that word bank hasbeen derived from the Greek work ‘BANQUE’ which means a bench.In the olden days, Jews entered into money transactions sitting onbenches in a marked place. When a banker was not in a position tomeat his obligations, the on which he was carrying on the moneybusiness was broken into pieces and the was taken as bankrupt. Thusboth the words Bank or bankrupt are said to have origin from the word‘Banque’.DEFINITION OF BANKAccording to Oxford English Dictionary, Bank is, “An establishment forcustody of money received from or on behalf of, its customers. Itsessential duty is the payment of the orders given on it by thecustomers, its profit mainly from the investment of money left unusedby them”.Banking Regulation Act, 1949 (Sec. 5(c)), has defined the bankingcompany as, “Banking Company means any company whichtransacts business of banking in India”. According to Section 5B,“banking means the accepting of deposit of money from the public for 4
    • Bank Marketingthe purpose of leading or investment, which are repayable on demandor otherwise and are withdrawable by cheque, draft, order orotherwise.”Different economists, banking professionals and authorities explainedtheir viewpoint regarding bank or commercial bank. It has been rightlysaid by A.K. Basu that a general definition of a bank or banking is byno means easy, as the concepts of banking differ from age to age,and country to country.FINANCE AND BANKING IN INDIAIndia is a vast country, Before 1947, undivided India was equal toEurope excluding Russia in its area. It is situated in south of Asia. Inspite of a part of Asia, it is separated from it. It is separated byHimalayas in North India. India has vast oceans in South, East andWest. Due to its vastness it is also called sub continent. That vastcountry has given different names in different times. In Vedic period, itwas called ‘Arya-V-arat’. In Bir period and ancient period, it as calledBharatvarash’. Perhaps due to fame of king Bharat, it was called‘Bharatvarsh. Greek called it Indus on the name of river Sindh.Iranians called it Hindu. Chinese travelers called it Tienchu and Yintu.Ipsing called ‘Arya Desh’ and Brahmrashtra. Bible has called it Hoddu.In medieval period, it was called ‘Hindustan’ and Hind. Europeancalled it India. After Independence, it is return as Bharat Ganrajya orIndian Republic in Indian Constitution. 5
    • Bank MarketingEVOLUTION OF THE MARKETING CONCEPTThe Role of marketing in the banking industry continues to change.For many years the primary focus of bank marketing was publicrelations. Then the focus shifted to advertising and sales promotion.That was followed by focus on the development of a sales culture.Although all the elements of the marketing concept – customersatisfaction, profit integrated framework, and social responsibility – willremain important, customer satisfaction must receive the greatestemphasis in the years ahead.The chief concerns of most bank executives still focus on legal andregulatory issues, according to most surveys. Community banks areparticularly concerned with eliminating barriers that give unfairadvantages to financial services competitors, such as credit unions.However, another concern pertains to technology: keeping nonblankcompetitors out of the payment system.Bankers Identify Near-Team and Long Term Concerns 1991 2015Maintaining profitability Service qualityCredit Portfolio Management Maintaining profitabilityService Quality Market / customer focusRegional Economy Operations/systems/technologyCost Management / Expense Credit portfolio managementreduction Productivity improvementDeclining Earnings/ more failures Investment to stay competitiveMarket / customer focus Stock market value 6
    • Bank MarketingCapital adequacy Asset/liability managementStock market value Electronic BankingIndustry OvercapacityWhen this gateway system was first proposed, access to the Internetwas very new and few banks had the resources and knowledge to setup their own direct-access lines for customers. Customers haveshown a growing interest in online banking services, and banks haveresponded by quickly putting in place proprietary sites on the WorldWide Web and offering PC banking.Within the next five years, 93 percent of community bank executivessurveyed say they plan to offer telephone banking, and 79 percentplan to offer PC banking.When asked which technology holds the most potential for the future,bank executives identified call centers first. As customers continue thetransition the transition into a high-tech world in which they wantinformation and answers more quickly and accurately than everbefore, call centers offer the ideal bridge. With 24-hour access toeither automated information or live operators, customers doeverything from check their accounts to apply for a loan. Bankexecutives also identified PC banking as having the most promise forthe future, followed by Interest access and broad function kiosks.MARKETING AND COMPETITION 7
    • Bank MarketingIn view of the declining profitability and productivity of the bankingsector and extremely low rate of profit percentage, the determinationof the financial health of the system requires drastic remedialmeasures not only to build up investor confidence but also to combatcompetition from all over. It is time that the pros and cons of theoncoming banking era are properly understood and advantage takenof various opportunities. This will require an efficient marketingapproach to bank management in which target markets will be tackledsuccessfully along with effective satisfaction levels and in which theusual basic elements – product, pricing, promotion and distribution willbe taken care of in a proper format of an efficiently working marketingorganization.The nationalised banks must face competition from private banks,non-banking financial institutions, foreign banks and others. Thecompetition is in the fields of deposits and credits, foreign trade,consumer credit and miscellaneous banking activities. Thecompetition will benefit customers and force the banking system toraise its productivity, minimize expenses, and remain sensitive toevolving issues. Narasimham Committee Reports whilerecommending internal autonomy long with compliance withprudential norms suggested rule-based credit policies, fiscal balanceand a gradual movement towards liberatlisation.To deal with the competition from foreign banks, the Indian banksshould go in for diversification and extension of services as well asexpansion of products and business. Economic freedom andinnovative spirit have contributed greatly to the success of the market- 8
    • Bank Marketingoriented financial sector in the Western countries. Directed credit andinvestment has done just the opposite. Interventionism is notnecessarily bad provided it is associated with a committed leadership.Indian financial sector had for more than four decades, neither fulleconomic freedom nor a well disciplined interventionism so that it costoperational flexibility as well as functional autonomy both of whichwere concerned with profitability performance and related factors.MARKETING CONCEPTSIts application to Banking, When we apply marketing to the bankingindustry, the bank marketing strategy can be said to include thefollowing – i) A very clear definition of target customers. ii) The development of a marketing mix to satisfy customers at a profit for the bank. iii) Planning for each of the ‘source’ markets & each of the ‘use’ markets (A Bank needs to be doubly market – oriented – it has to attract funds as well as were of funds & services. iv) Organisation & Administration.BANK MARKETINGWe define bank marketing as follows: “Bank marketing is theaggregate of functions, directed at providing services to satisfy 9
    • Bank Marketingcustomers’ financial (and other related) needs and wants, moreeffectively and efficiently that the competitors keeping in view theorganizational objectives of the bank”. Bank marketing activity. Thisaggregate of functions is the sum total of all individual activitiesconsisting of an integrated effort to discover, create, arouse andsatisfy customer needs. This means, without exception, that eachindividual working in the bank is a marketing person who contributesto the total satisfaction to customers and the bank should ultimatelydevelop customer orientation among all the personnel of the bank.Different banks offer different benefits by offering various schemeswhich can take care of the wants of the customers.Marketing helps in achieving the organizational objectives of the bank.Indian banks have duel organizational objective – commercialobjective to make profit and social objective which is a developmentalrole, particularly in the rural area.Marketing concept is essentially about the following few thing whichcontribute towards banks’ success: 1) The bank cannot exist without the customers. 2) The purpose of the bank is to create, win, and keep a customer. 3) The customer is and should be the central focus of everything the banks does. 4) It is also a way of organizing the bank. The starting point for organizational design should be the customer and the bank should ensure that the services are performed and delivered in the most effective way. Service facilities also should be designed for customers’ convenience. 10
    • Bank Marketing 5) Ultimate aim of a bank is to deliver total satisfaction to the customer. 6) Customer satisfaction is affected by the performance of all the personal of the bank.All the techniques and strategies of marketing are used so thatultimately they induce the people to do business with a particularbank. Marketing is an organizational philosophy. This philosophydemands the satisfaction of customers needs as the pre-requisite forthe existence and survival of the bank. The first and most importantstep in applying the marketing concept is to have a whole heartedcommitment to customer orientation by all the employees. Marketingis an attitude of mind. This means that the central focus of all theactivities of a bank is customer. Marketing is not a separate functionfor banks. The marketing function in Indian Bank is required to beintegrated with operation.Marketing is much more than just advertising and promotion; it is abasic part of total business operation. What is required for the bank isthe market orientation and customer consciousness among all thepersonal of the bank. For developing marketing philosophy andmarketing culture, a bank may require a marketing coordinator orintegrator at the head office reporting directly to the Chief Executivefor effective coordination of different functions, such as marketedresearch, training, public relations, advertising, and businessdevelopment, to ensure customer satisfaction. The Executive Directoris the most suitable person to do this coordination work effectively inthe Indian public sector banks, though ultimately the Chief Executive 11
    • Bank Marketingis responsible for the total marketing function. Hence, the totalmarketing function involves the following: a) Market research i.e. identification of customer’s financial needs and wants and forecasting and researching future financial market needs and competitors’ activities. b) Product Development i.e. appropriate products to meet consumers’ financial needs. c) Pricing of the service i.e., promotional activities and distribution system in accordance with the guidelines and rules of the Reserve Bank of India and at the same time looking for opportunities to satisfy the customers better. d) Developing market i.e., marketing culture – among all the customer-consciousness ‘Personnel’ of the bank through training.Thus, it is important to recognize the fundamentally different functionsthat bank marketing has to perform. Since the banks have to attractdeposits and attract users of funds and other services, marketingproblems are more complex in banks than in other commercialconcerns.MARKET RESEARCH IN INDIAN BANKSAfter enquiring with all the public and 14 private sector banks whetherthey had undertaken any market research studies. The followingboard areas of market research were considered for the study: 12
    • Bank Marketing (a) New service development, (b) New service product acceptance, (c) Research and development of existing financial service, (d) Bank images study, (e) Measuring bank’s advertising effectiveness, (f) Measurement of market potentials, (g) Market research of competitive service products, (h) Customer’s opinion study, (i) Customer profile study, and (j) Market share analysis.In response to the inquiry information was received from 17 banks.Out of these banks, 14 are public sector banks and 3 are privatesector banks. Two nationalized banks and two private sector banksinformed that they have not conducted any markets research studies.Information regarding Bankwise Market Research Studies Bank Title of the Market Remarks Research Study1. Allahabad Bank a. Survey on Customer Not formal Service report2. Bank of Baroda prepared. b. Marketing of deposits MP Ranade: and allied services to BMP Thesis. non-residents customers opinion (1958)3. Canara Bank a. Marketing research For internal use study for two new only deposit schemes (1989)4. Central Bank of a. Market survey of Conducted by 13
    • Bank Marketing India customer services the students of b. Marketing deposits BITS, Pilani. (Customers) For internal use only service (1986)5. Indian Overseas a. Potential areas for future For internal use Bank business expansion only6. Oriental Bank of a. Study of customer R Upendran Commerce service in OBC with MBP Thesis special reference to metropolitan branches (1989)7. Punjab National a. Sample survey on For internal use Bank customer’s responses only (1987) For internal use b. Sample survey on only customer service (1988) Formal Report c. Study on deposit linked housing loan scheme (1982)8. Punjab and Sind a. Study on customer For internal use Bank turnover (mail only questionnaire based study of customers who have closed their J S Kalra: accounts) (1989) BMP Thesis b. Changing Profile of Punjab and Sind Bank’s Customers and their expectorations, a survey 14
    • Bank Marketing based study (1988)9. State Bank of a. A survey on customer For internal use Bikaner service, level of only customer satisfaction and customer expectations (1998)10.Syndicate Bank a. Evaluation Study on the For internal use quality of customer only service (1989) b. Marketing of bank K M Kanath service with special BMP Thesis reference to branches in Bombay city of Syndicate Bank- customer service (1979)11.Union Bank of a. Customer responses For internal use India (Opinion) survey (1988) only12.UCO Bank a. Customers’ opinion For internal use study (1989) only13.United Bank of a. Report of the survey on For internal use India customer opinion (1987) only b. Improvement of K P Ramesh customer service in a Rao metropolitan branch BNP Thesis (1979)14.Vijay Bank a. Report of the customer Formal Report service survey (1988)15.Karur Vysya a. Study on the image of Undertaken by Bank the bank (1989) a Consultant 15
    • Bank MarketingMost of these market research studies were conducted for internaluse and no formal reports were prepared. It is important to note thesubject or issue researched by the bank. The most important subjectfor market research in terms of the number of studies conducted, isthe customer service / customer’ profile opinion studies. Few bankshave conducted even more than one customer service / opinionstudies.INCREASING IMPORTANCE OF MARKETING INBANKING INDUSTRYThe various other factors which have led to the increasing importanceof marketing in the banking industry are categorized as follows:Government InitiativesThe Indian economy embarked on the process of economic reformand various policy measures initiated by the government resulted inthe increasing competition in the banking industry, therebyhighlighting the importance of effective marketing. The NarasimhanCommittee Report evidence of the Government’s desire to ‘re-regulate’ the banking industry so as to encourage efficiency throughcompetition. The Government initiatives include:Deregulation of Interest RatesThe bank may reduce their Minimum Lending Rates so as to attractcustomers (individual and corporate). Such reduction in lending ratesreduce the spread between the deposit rates and lending rates, i.e.the banks margins would decline and they would have to increase 16
    • Bank Marketingtheir volumes or provide attractive services so as to maintain profits.This calls for bank marketing.Increasing Emphasis on Bank Profitability:With the Narasimhan Committee Report, banks have been directed toimprove their efficiency, productivity and profitability. Banks arerequired to be self-sufficient. In fact, the report has adopted the BISstandards of capital adequacy (though in a phased manner).Foreign BanksForeign banks offer stiff competition to the Indian Banks and with theirsuperior services and technology offer them a competitive advantage.Thus Indian Banks have to effectively apply marketing concepts toattract customers.Entry of New Private BanksIn the early ‘90s new competition emerged in the form of new PrivateBanks, who brought along with them a high technology-based bankingmatching with International Standards and have made a significantdent in the banking business by capturing substantial share in theprofits of the banking industry.Reduction of Statutory Liquidity Ratio:With the Government’s aim of reducing the SLR to 25 percent, thebanks will have surplus funds for which they will have to attract users.Social EnvironmentIncreasing Urbanization, Education and Awareness: The higherliteracy level, migration to urban areas and higher awareness due to 17
    • Bank Marketingthe boom in the mass media have important implications for the retailbanker. He needs to be conscious of the fact the increasing proportionof people are aware of financial service and are, therefore demandingand expecting higher quality services.Increasing Urbanization, Education and Awareness: The higherliteracy level, migration to urban areas and higher awareness due tothe boom in the mass media have important implications for the retailbanker. He needs to be conscious of the fact the increasing proportionof people are aware of financial service and are, therefore demandingand expecting higher quality services.Decline in Traditional Indian Values (Borrowing as Taboo), RisingConsumerism, Rise in the Percentage of Working Women.Technology DevelopmentModernization of Technology has facilitated the introduction of newbanking services as to attract new customers. An example of this isthe ‘Automated Teller Machines’ or the facility of ‘Any Time Money’.Also in foreign countries, banks are experimenting with moneytransmission at Point of sale, e.g., petrol station linked with bankingnetwork.Credit is Easier to ObtainGrowing Importance of Non-Banking Financial Institutions: FixedDeposits being offered by the NBFC’s are very attractive for thepublic, because of the wide gap of interest rates offered by banks onterm deposits and that offered by the NBCS’s. further, they offer a 18
    • Bank Marketingvariety of specialized services to their customers so as to attract andretain them.Disintermediation: The increasing role of capital markets inmobilizing funds is reducing the importance of banks asintermediaries. Companies are directly approaching the saversthrough the capital markets. Mutual funds help in attracting the smallinvestors who do not want to take much risk.MARKETING CONCEPTS – ITS APPLICATION TOBANKINGWhen we apply marketing to the banking industry, the bank marketingstrategy can be said to include the following: i. A very clear definition of target customers. ii. The Development of marketing mix to satisfy customers at a profit for the bank. iii. Planning for each of the ‘source’ markets and each of the ‘user’ markets (A bank needs to be doubly market – oriented – its has to attract funds as well as users of funds and services). iv. Organization and Administration.Consumer Behavior and SegmentationNeed for segmentationPhilip Kotler has described the dilemma of the seller (especially, aseller dealing with masses, e.g. banks) as follows: 19
    • Bank Marketing“How the seller determines which buyer’s characteristics produce thebest partitioning of a particular market? The seller does not want totreat all customers alike nor does he want to treat them all differently”.Banks deal with individuals, group of persons and corporates, all ofwhom have their likes and dislikes. No bank can afford to assess theneeds of each and every individual buyer (actual or potential).Segmentation of the market into more or less homogenous groups, interms of their needs and expectations from the banking industry,provides a solution to this problem.This involves dividing the market into major market segments,targeting one or more of this segments, and developing products andmarketing programs tailor-made for these segments.In the first segmentation, the market is divided from a unitary whole, togroups of buyers who might require separate products and marketingmix. The marketer typically tries to identify different segments in themarket and develop profiles of resulting market segments.The second step is market targeting in which each segment’sattractiveness is measured and a target segment is chosen based ontits attractiveness.The third step is product positioning which is the act of establishing aviable competitive position of the firm and its offer in the targetsegment chosen. 20
    • Bank MarketingIn the process of segmentation, the market can be divided into majorsegments which are gross slices of the market, or into smallerspecially formed segments, otherwise known as niches. Nichecustomers have a specific set of needs which the markerter tries toaddress. While a market segment attracts several competitors, aniche attracts fewer competitors and therefore, a company shouldclearly define its target segment and devise strategies to target thecustomer, so that it has a competitive advantage in the segment.These concepts can be applied in personal banking by an IndianBank. Traditionally, Indian Banks have not had any conscious strategyfor selecting customers from the personal banking area, apart fromsome banks which have a geographic concentration strategy such asconcentrating on a particular region or state. These banks will have tosegment the market on certain basis, and identify market segments orniches which they want to cater to. For example, a bank like SBI maynot be able to cater high income groups (say, managers, professional,NRIs, etc. who earn above Rs. 4,00,000 p.a. and who want a higherquality of products / services and who are willing to pay for them), asthe services required by such a profile of customers are entirelydifferent from the kind of products / services SBI can offer.Initiation of Segmentation in IndiaStation Bank of India was the first Indian Bank to adopt the concept ofmarket segmentation. In 1972, it reorganized itself on the basis ofmajor market segments dividing customers on the basis of activity andcarved out 4 major market segments, viz. Commercial andInstitutional, Small Industries and Small Business Segment, 21
    • Bank MarketingAgriculture, Personal and Services Banking. The objectives of thisscheme were: • Deeper penetration and coverage of market by looking outwards. • Adequate flexibility of organization to accommodate growth and rapid change, • Delegation of work for releasing senior management for more futuristic tasks.Criteria for SegmentationSegmentation in a right fashion makes the ways for profitablemarketing. This helps policy planner in formulating and innovating thepolicies and at the same time also simplifies the task of bankprofessionals while formulating an innovating the strategic decisions.The following criteria make possible rig segmentation.An important criterion for market segmentation the economic systemin which we find agricultural sector, industrial sector, services sector,household sector, institutional sector and rural sector requiring ofweightage while segmenting.Agricultural Sector: In the agricultural sector, there are four categoryrise since the needs of all the categories cant’s be identical. 22
    • Bank MarketingThe mechanization of agriculture, the improved or scientific system ofactivation, the help of nature, the magnitude of risk, the availabilityinfrastructural facilities influence the level of expectations vis-à-vis theneeds and requirements. The banking organization are supposed toknow and under stand the changing requirements of differentcategories of farmers.Industrial Sector: The banking organizations subserve the interestsof the industrial sector. The large-sized, small-sized co-operative andtiny industries use the services of banks. The expectations of all thecategories cant’s be uniform.The banking organizations are supposed to have an indepthknowledge of the changing needs and requirements of the industrialsegment.Services sector: It is an important sector of the economy where thebanking organizations get profitable business. The two categories oforganizations such as profit-making and not-for-profit making arefound important in the very context. 23
    • Bank MarketingThe banking organizations need to identify the changing needs andrequirements of the services sector. With the frequent use ofinformation technologist and with the mounting pressure of inflationand competition, we find a change in the hierarchy of needs.Household Sector: This is also constitutes an important sector wheredifferent income group have different needs and requirements. inbelow figure we find the different segments of the household sector.Household Segment: The high income group, middle income group,low income group, substance level group and marginal income grouphave different hierarchy of need which influence the level of theirexpectations. 24
    • Bank MarketingGender Segment: In the gender segments, we find male and femalehaving different needs and requirements. The banking organizationsare supposed to identify the level expectations of both sexes.Some of the women are housewives and therefore they have differentneed and requirements whereas some of them are working ladieshaving different needs and requirements.In the profession segments, we find different categories of professionsan therefore we find a change in their needs and requirements.The technocrats, bureaucrats, corporate executives, intellects, whiteand blue – collar employees have different needs and requirementsand therefore the banking organizations should know theirexpectations. 25
    • Bank MarketingSome of the organizations are known as cultural organizations, someof them are not for –profit making, some of them are philanthropic andsome of them are related to trade and commerce. The emergingtrends in the social transformation process determine the hierarchy ofneeds.Markets segmentation thus simplifies the task of understanding thecustomers/prospects. The bank professional find it convenient toformulate and innovate the marketing mix of world class whichsimplify the process of excelling competition.In the Indian perspective where we find agrarian economy contributingsubstantially to the transformation of national economy, it is pertinentthat the banking organizations assign due weightage to the ruralsector of the economy where we find tremendous opportunities.The urbanization is likely to gain the momentum and villages, outskirtsof big towns and cities are to be developed on a priority basis. Almostall the organizations are to get tremendous opportunities there. Themarketing resources if of innovative nature would make the ways forcapitalizing on the same profitably. 26
    • Bank MarketingMARKETING MIX FOR BANKING SERVICESThe formulation of marketing mix for the banking services is the primeresponsibility of the bank professional who based on their expertiseand excellence attempt to market the services and schemesprofitably.The bank professionals having world class excellence make possiblefrequency in the innovation process which simplify their task of sellingmore but spending less. The four submixes of the marketing mix, suchas the product mix, the promotion mix, the price mix and the placemix, no doubt, are found significant even to the banking organizationsbut in addition to the traditional combination of receipts, the marketingexperts have also been talking about some more mixes for getting thebest result. The “People” as a submix is now found getting a newplace in the management of marketing mix. It is right to mention thatthe quality of people/employees serving an organization assumes aplace of outstanding significance. This requires a strong emphasis onthe development of personally-committed, value-based, efficientemployees who contribute substantially to the process of making theefforts cost effective. In addition, we also find some of the marketingexperts talking about a new mix, i.e. physical appearance. In thecorporate world, the personal care dimension thus becomesimportant. The employees re supposed to be well dressed, smart andactive. Besides, we also find emphasis on “Process” which gravitatesour attention on the way of offering the services. It is only notsufficient that you promise quality services. It is much more impactgenerating that your promises reach to the ultimate users without any 27
    • Bank Marketingdistortion. The banking organizations, of late, face a number ofchallenges and the organizations assigning an overriding priority tothe formulation processes get a success. The formulation ofmarketing mix is just like the combination of ingredients, spices in thecooking process.THE PRODUCT MIX: The banks primarily deal in services andtherefore, the formulation of product mix is required to be in the faceof changing business environmental conditions. Of course the publicsector commercial banks have launched a number of polices andprogrammers for the development of backward regions and welfare ofthe weaker sections of the society but at the same it is also right tomention that their development-oriented welfare programmes are notoptimal to the national socio-economic requirements. The changingpsychology, the increasing expectations, the rising income, thechanging lifestyles, the increasing domination of foreign banks andthe changing needs and requirements of customers at large make itessential that they innovate their service mix and make them of worldclass. Against this background, we find it significant that the bankingorganizations minify, magnify combine and modify their service mix.It is essential that ever product is measured up to the acceptedtechnical standards. This is due to the fact that no consumer wouldbuy a product which contains technical faults. Technical perfection inservice is meant prompt delivery, quick disposal, presentation of rightfacts and figures, right filing proper documentation or so. If computersstarts disobeying the command and the customers get wrong facts,the use of technology would be a minus point, and you don’t have anyexcuse for your faults. 28
    • Bank MarketingPRODUCT PORTFOLIO: The bank professional while formulating theproduct mix need to assign due weightage to the product portfolio. Bythe concept product portfolio, emphasis is on including the differenttypes of services/ schemes found at the different stages of the productlife cycle. The portfolio denotes a combination or an assortment ofdifferent types of products generating more or less in proportion totheir demand. The quality of product portfolio determines themagnitude of success. It is excellence of bank professionals that helpthem in having a sound product portfolio.We find the composition of a family sound, if members of all the agegroups are given due place. Like this, the composition or blending of aservice mix is considered to be sound, if well established and likely to 29
    • Bank Marketingbe profitable schemes are included in the mix. It is against thisbackground that a study and analysis of product portfolio is foundsignificant. The bank professionals are supposed to perform theresponsibility of composing the same. A sound product portfolio isessential but its process of constitution is difficult. An organization witha sound product portfolio gets a conducive environment andsuccesses in increasing the sensitivity of marketing decisions. Thebanking organizations need a sound product portfolio and the bankprofessionals bear the responsibility of getting it done suitably andeffectively.If the banks rely solely on their established services and schemes, themultidimensional problems would crop up in the long run becausewhen the well established services/schemes would start saturating orgenerating losses, the commercial viability of banks would of course,be questioned. The banking organizations relying substantially on aprofitable scheme and ding nothing for new scheme likely to get aprofitable market in the future is to face is to face a crisis like situation.It is in this context, that we find designing of a sound product portfolioessential to an organsition. We can’t deny that the product portfolio ofthe foreign banks is found sound since they keep their eyes moving.The innovation, diffusion, adoption and elimination processes aretaken due care. The public sector commercial banks need to innovatetheir service and this makes a strong advocacy in favour of analyzingthe product portfolio.DESIGNIGN AN ATTRACTIVE PACKAGEIn the formulation of product mix for the banking organization, thedesigning of package is found important. In this context, we find 30
    • Bank Marketingpackaging decision related to the formulation of a mix of differentschemes and services. Developing an attractive package requiredprofessional excellence and therefore, the bank professionals arerequired to be aware of the different key issues influencing theformulation process. What the package should basically be or do forthe particular target. We re aware of the fact that a number ofschemes and services are included in the service mix of bank productand all the services or schemes can’t be preferred by all. Of coursewe find some of the public sector commercial banks now evincingstage. This makes it essential that a bank manager thinks in favour ofdeveloping a package. The importance of packaging can’t beunderestimated considering the functions it performs and the effectswhich we witness in the process of attracting and satisfying thecustomers. In addition to other aspects, it is also pertinent that a bankmanager is familiar with the package developed by the leadingcompetitive banks since this would help them in innovating thepackage. It is an important component of the product mix and a bankmanager while formulating or designing a package needs to assigndue weightage to the formulation process. While developing apackage, it is essential that the packages offered are efficacious inestablishing an edge over the packages of competitors. Thus needsand preferences of the target market in addition to the packagesoffered by the competitors need due weightage while designing apackage.In the designing process the bank professionals can make a package,an ideal combination of both, the core and peripheral services. Themain thing in the process is to make it profitable, convenient andproductive to the customers so that they prefer to transact with the 31
    • Bank Marketingbank. For the bank professional, it is an important persuasive effortsthat helps in increasing the business even without developing orinnovating the services or schemes.PRODUCTR DEVELOPEMNT: In almost all the services, thedevelopment of a product is an ongoing process. The bankingorganizations also need to develop new services and schemes. Wecan’t deny that the development of product specially in the bankingservices is found diffcult since they don’t have any discretion, howeverthey can do it, of course in a limited way. By minifying, combining,modifying and magnifying, the banking organizations can give to theservices or scheme a new look. The regulations of the Reserve Bankof India, no doubt stand as a barrier but professionally soundmarketers make it possible even without violating the rules andregulations. The banking organizations in general have been founddeveloping product by including some new properties or features.Generally we find two process for the development of product. Thefirst process is found proactive since the needs of the target marketare anticipated and highlighted. The second process is reactive and inthis context the banks respond to the expressed needs of the target.PROACTIVE PROCESS: In the pro-active process, we find product tomarket needs. This makes it essential that the branch managers areaware of the changing needs of the target market. There are sixstages for the development of the product, such as idea generation,screening of the concept, assessing of market potential, analyzing thecost, test marketing and final commercial launching. The bankprofessionals have to be careful at all the stages so that whatever theservices or schemes are developed are found instrumental in getting 32
    • Bank Marketinga positive response. The customers and competitors help bankprofessional substantially in generating a new idea. The screening ofthe product concept focuses on the process of narrowing down the listof the ideas generated to a small number of concepts.The assessment of market potential is the third stage in which we findscanning of the market potentials at the apex level. The branchmanagers can assess the potential sin their command areas.The fourth stage draws our attention on analyzing the cost on thebasis of a cost-benefit analysis and the fifth stage before launching istest marketing which is found instrumental in minimizing the riskelement. And finally, we find commercial launching. The ReserveBank of India is also required to make the regulations liberal so thatthe pubic sector commercial banks get an opportunity to make theirservices or schemes internationally competitive. The unfair practices,illegitimate steps should be checked but fair practice shouldessentially be promoted to make the business environmentconductive.PROMOTION MIXIn the formulation of marketing mix the bank professionals are alsosupposed to blend the promotion mix in which different components ofpromotion such as advertising, publicity, sales promotion, word-of-mouth promotion, personal selling and telemarketing are given dueweightage. The different components of promotion help bankprofessionals in promotion the banking business. 33
    • Bank MarketingAdvertising: Like other organizations, the banking organizations alsous this component of the promotion mix with the motto of informing,sensing and persuading the customers. While advertising, it isessential that we know about the key decision making areas so thatits instrumentality helps bank organization both at micro and macrolevels.Finalising the Budget: This is related to the formulation of a budgetfor advertisement. The bank professionals, senior executives andeven the police planners are found involved in the process. Theformulation of a sound budget is essential to remove the financialconstraint in the process. The business of a bank determines thescale of advertisement budget.Selecting a Suitable vehicle: There are a number of devices toadvertise, such as broadcast media, telecast media and the printmedia. In the face of budgetary provisions, we need to select asuitable vehicle. The latest developments in the print technology havemade print media effective. The messages, appeals can be presentedin a very effective way.Making Possible creativity: The advertising professionals bear theresponsibility of making the appeals, slogans, messages morecreative. The banking organizations should seek the cooperation ofleading advertising professionals for that very purpose.Instrumentality of branch managers: At micro level, a branchmanager bears the responsibility of advertising locally in his / hercommand area so that the messages, appeals reach to the target 34
    • Bank Marketingcustomers of the command area. Of course we find a budget foradvertisement at the apex level but the business of a particular branchis considerably influenced by the local advertisements. If we talkabout the cause-related marketing, it is the instrumentality of a branchmanager that makes possible the identification of local events,moments and make advertisements condition-oriented.Public Relations: Almost all the organization need to develop andstrengthen the public relations activities to promote their business. Wefind this component of the promotion mix effective even in the bankingorganizations. We can’t deny that in the banking services, theeffectiveness of public relations is found of high magnitude. It is in thiscontext that we find a bit difference in the designing of the mix ofpromoting the banking services. Of course in the consumer goodsmanufacturing industries, we find advertisements occupying a place ofoutstanding significance but when we talk about the servicegenerating organizations in general and the banking organizations inparticular, we find public relations and personal selling bearing highdegree of importance. It is not meant that the banking organizationsare not required to advertise but it is meant that the bank executivesunlike the executives of other consumer goods manufacturingorganizations focus on public relations and personal.Personal Selling: The personal selling is found instrumental inpromoting the banking business. It is just a process of communicationin which an individual exercise his/her personal potentials, tact, skilland ability to influence the impulse buying of the customers. Since weget in immediate feed back, the personal selling activities energies theprocess of communication very effectively. 35
    • Bank MarketingThe personal selling in an art of persuasion. It is a highly distinctiveform of promoting sale. In personal selling, we find inter-personal ortwo-way communication that makes the ways for a feed back. Thereis no doubt in it that the goods or services are found half sold whenthe outstanding properties are well told. This are of telling and sellingis known as personal selling in which an individual based on his/herexpertise attempts to transform the prospects into customers.Dynamics of Personals SellingThe dynamics of personal selling are found instrumental in activatingthe selling activities. Sales preparations are considered most crucialfor the actual sales. Pre-sale activities and post-sale services can’t beleft neglected to improve the marketing activities. The customers maybe interested in knowing the main features of the services, how aparticular service would help them, rationale behind the technicalservices and proof in regard to its uses. The pre-sale activities wouldbring the positive results, if preparations are adequate.Some of the customers are found highly aware of the developments,they are found well informed. On the other hand, we also find othercategory of customers who are in dark. Here, the branch managersare expected to match the level of awareness of customers. As forinstance, Mr. A goes up the matrix but Mr. B has not enough time forthe branch managers. The branch managers are supposed to preparea synopsis of their sales talk. Not surprisingly the highly awarecustomers are found in apposition to make independent decisions andknow all about. While selling to the less aware customers, the 36
    • Bank Marketingmanagers should stress on the main features of the services and theexpected benefits of these services.Sales Promotion: It is natural that like other organisations, thebanking organizations also think in favour of promotional incentivesboth to the bankers as well as the customers. The bankingorganizations make provisions for incentives to the bankers and callthis bakers’ promotion. Like this, the incentives offered to thecustomers are known as customers’ promotion. There are a numberof tools generally used in the different categories of organizations inthe face of the nature of goods and services sold by them. The gift,contests, fairs and shows, discount and commission, entertainmentand traveling plans for bankers, additional allowances, low interestfinancing and retalitary are to mention a few found instrumental inpromoting the banking business.As and when the banking organizations offer new services andschemes, the tools of sales promotion are required to be innovated.This is with the motto of stimulating the new and old customers. Animportant thing in the very context is the changing needs andrequirements of customers/prospects. The bank professionals bean 37
    • Bank Marketingoutstanding task of studying the competitors’ strategies which wouldhe them in initiating the process of innovation. Here it is important tomention the promotional incentives to the customers would focus ondecisions related to the selection of a tool. There are a number ofconsiderations to streamline the process. The bank professionals aresupposed to study the market conditions and make necessarysuggestions, specially regarding the incentives.It is a blending process and bank professional have to be sure thewhatever the provisions, they make are fulfilled on priority basis. Moreincentives more efficiency or a vice-versa conditions more efficiency,more-incentives motivate bankers substantially.Word-of-Mouth Promotion: Much communication about the bankingservices actually take place by word-of-mouth information which isalso known as word-of-mouth promotion. In the banking industry, wefind use of different components of promotion and in the context it isessential that we also talk about word-of-mouth communication whichmakes the process of influencing the prospects effective bysensitizing the word-of-mouth recommendations. The personsengaged in communication, the hidden salesforce who play anincremental role in increasing the demand. An important questionregarding the word-of-mouth communication is related to its intensityof sensitizing the persuasion process.The problem before the bank professionals is to identify the personsto be included in the list of word-of-mouth promoters. It is supposedthat a bank manager is well aware of the social composition of his/hercommand area. The oral publicity plays an important role in 38
    • Bank Marketingeliminating the negative comments and improving the services. Thishelps you know the feed back which may simplify the task ofimproving the quality of services.It is important that a branch manager has an in-depth knowledge ofhis/ her command area and a list of word-of-mouth promoters isprepared. Organizing dinner, offering to them a gift and seeking theircooperation are the process to use this tool of promotion. A satisfiedgroup of customers is considered to be the most successful hiddenpromoters. A branch manager showing his/her excellence inimproving the quality of services in his/ her command area,establishing an edge over the services of the competing banks,promoting LGD marketing (lunch, golf, dinner marketing) successds ininstrumentalising the word-of-mouth promotion. It is against thisbackground that this component of the promotion mix is found gettingdue place.In this component of the promotion mix, we find two importantconsiderations, first the bank professionals are required to make itsure that the promised services reach to the ultimate users andsecond, the word-of-mouth promoters are offered small but newincentives which have not been offered by their competitors. The listof word-of-mouth promoters is to be based on a survey result or onthe personal experiences of a branch manager. A revision in the list ismade possible as and when circumstances necessitate so. Theinnovative peripheral services offered by the banks are well publicizedand the word-of-mouth promoters focus on the same intelligently. 39
    • Bank MarketingTHE PRICE MIXIn the formulation of product mix, the pricing decisions occupy a placeof outstanding significance. The pricing decisions or the decisionsrelated to interest and fee or commission charged by banks are foundinstrumental in motivating or influencing the target market. TheReserve Bank of India and the Indian Banking Association areconcerned with the regulations. The rate of interest is regulated by theRBI and other charges are controlled by the Indian BankingAssociation. To be more specific in the Indian setting, we find thiscomponent of the marketing mix significant because the bankingorganizations are also supposed to subserve the interests of weakersections and the backward regions. The public sector commercialbanks in particular are supposed to play developmental role withsocietal approach. It is natural that this specific role of the publicsector commercial banks complicate the problem of pricing.Pricing policy of a bank is considered important for raising the numberof customers vis-à-vis the accretion of deposits. Of course, there are anumber of factors to influence the process but it is also right tomention that the key role in the entire process is played by theReserve Bank of India. A National Consumer Survey Conducted bythe L.H. Associates reveals that the quality of Consumer service wasone of the three top issues and the consumers ranked the quality oftheir bank relationships as even more important than the fees chargedfor the services. To be more specific when we find a number ofdomestic and foreign banks working in the Indian economy, theReserve Bank of India bears the responsibility of making the businessenvironment conductive. The non-banking organizations and foreign 40
    • Bank Marketingbanks have been found attracting customers by offering to them anumber of incentives. The potential customers or investors frame theirinvestment plans in the face of pricing decisions made by the bankingorganizations. While formulating the pricing strategies, the banks havealso to take the value satisfaction variable into consideration. Thevalue and satisfaction can’t be quantified in terms of money since itdiffers from person to person, keeping in view the level of satisfactionof a particular segment, the banks have to frame their pricingstrategies. The policy makers are required to be sure that the serviceoffered by them are providing satisfaction to the customersconcerned. The pricing decisions may be to bit liberal, if the potentialcustomers are found shifting to the non-banking investments. In thiscontext, it is pertinent that pricing is used as motivational tool.The banking organizations are required to frame two-fold strategies.First, the strategy is concerned with interest and fee charged andsecond, the strategy is related to the interest paid. Since both thestrategies throw a vice-versa impact, it is pertinent that banks attemptto establish a correlation between the two. It is essential that both thebuyers as well as the sellers have a feeling of winning as shown infigure.The banks have to take the value satisfaction variable intoconsideration while designing the pricing strategies. McIver andNaylor opine that a marketing manager has to regard price as avariable to be traded off against product quality and promotion ratherthat as an absolute where the lowest price is not desirable. 41
    • Bank MarketingThe RBI has to be more liberal so that the public sector commercialbanks make decisions in the face of changing business conditions.There is no doubt in it that the commercial banks bear theresponsibility of energizing the social marketing, they are alsosupposed to bear the social costs. It is also right that the foreignbanks have been found making the business environment morecompetitive. These emerging trends necessitate a close look on thepricing problem. The policy makers find it difficult to bring a changesince the regulations of the RBI make things more critical. Theexpenses are not regulated by the RBI and the banking organizationsare forced to increase the budgetary provisions. The sources ofrevenue are regulated which complicates the task of bankprofessionals. This makes it essential that the Reserve Bank of India,the Government of India and the banking organizations thing over thiscomplicated issue with a new vision. 42
    • Bank MarketingTHE PLACE MIXThis component of the marketing mix is related to the offering ofservices. The two important decision making areas are makingavailable the promised services to the ultimate users and selecting asuitable place for bank branches.The selection of a suitable place for the establishment of a branch issignificant with the viewpoint of making the place accessible and inaddition, the safety and security provisions are also found important.The banking organizations are not free to open a branch since theReserve Bank of India regulates the subject of branch expansion butso far as the management of branch is concerned, the branchmanagers have option to select a place which is convenient to boththe parties, such as the users and the bankers. In the Indianperspective, the protection to the bank’s assets and safety to theusers and bankers need due weightage. The vulnerable area orregions need adequate provisions to make the branch safe. Themanagement of office is also found significant with the viewpoint ofmaking the services attractive. The furnishing, civic amenities andparking facilities can’t be overlooked.Another important decision making area is related to the offering ofservices. This draws our attention on the behavioural profile ofbankers. The bankers in general and the front-line-staff in particularbear the responsibility of making available the services-promised tothe ultimate users without any distortion often a gap is foundgenerated by front-line-staff that makes an invasion on the image of 43
    • Bank Marketingbank. The bank professionals or a branch manager is required to besure that whatever the promise have been made regarding the qualityof services are not distorted. The RBI and the different public sectorcommercial banks are required to manage the distribution processintelligently and professionally. Thus, the place mix is found to be animportant decision making area which requires due attention, both atmacro and micro levels. If the banking organizations sell the promisesit is essential that the end users get the same without any distortion.THE PEOPLESophisticated technologies, no doubt, inject life and strength to ourefficiency but the instrumentality of sophisticated technologies startturning sour if the human resources are not managed in a rightfashion. Generation of efficiency is substantially influenced by thequality of human resources. It is against this background that amajority of the management experts make a strong advocacy infavour of developing quality people and late, the people managementhas been include dint he marketing mix of organizations is generaland the service generating organizations in particular.Not only the public sector commercial banks but almost all the publicsector organization and albeit other government departments, of late,have been facing the problem of quality people resulting intoinefficiency, deceleration in the rate of overall productivity andprofitability or so. The front-line staff are rough and indecent, thebranch mangers are helpless and even the bankers have been foundinvolved in the unfair practices. The public sector commercial banksneed to assign on overriding priority to the development of quality 44
    • Bank Marketingpeople majority of the management of the experts have realized thesignificance of quality people in the development of an organizationand the boardrooms are also found changing their attitudes. The firsttask before the banking organisatoins at the apex level is to overhaulthe recruitment processes. While fixing criteria for selection, they needto assign due weightge to the ethical values. The education andtraining facilities are required to be innovated. The process ofidentification and inculcation need to be managed carefully.The foreign banks and the private sector commercial banks reward forefficiency and at the same time also demotivate the inefficientbankers. This helps them in improving the efficiency of even theinefficient people. The development of human resources makes theways for the formation of human capital. Incentives, of course, injectefficiency and the organizations offering more incentives succeed inmotivating the people. • Having better and cost-effective control over operations. • Enriching the job content of employees at all level (by reducing the drudgery of mundane operations and increasing the analytical content of their work). • Improving the quality of decision-making, a must in the fast changing environment. 45
    • Bank MarketingThus, the key focus areas in which information technology can beemployed are: • Automated processing of back-office operations like processing of forms, policy customerization and product selection, pricing and preparation of quotations, etc. • Computer assisted telephone and intelligent voice processing for customer call handling, new business marketing or handling after office hours enquires. • Image processing for documents storage and retrieval, folder management (or all documents related to a customer), and workflow management for the movement of documents with the bank. • Artificial intelligence and expert systems for complex decision- making like the appraisal of the creditworthiness of clients, designing of innovative instruments and strategy formulation. • Relational Database Management System (RDBMS) for the systematic use of information which would facilitate the cross- selling of products. • Electronic Data Interchange (EDI) for company-wise communication and inter-connection of systems for the benefit of both the bank’s MIS and the customer. • Office Management Systems for accounting and administrative support.All the above systems should be “client-based systems” and not “line-of-business systems” since these would provide better marketing andservice to clients, facilitate cross-selling and customerization of 46
    • Bank Marketingschemes and hence, a better packaging for the product. This wouldhelp Indian banks “thing customer”.All these would, thus, help in the effective management of time.Recourse to mechanized systems like ledger posting machine, cashcounting machine and cheque sorting machine would result inreduction in the number of tedious and routine jobs to be handledmanually saving time for the people to focus on the customer.STRATEGIES FOR EFFECTIVE BANK MARKETING ININDIAIntroduction: Since the inception of globalization in India, bankingsector has undergone various changes. Introduction of assetclassification and prudential accounting norms, deregulation ofinterest rate and opening up of the financial sector made Indianbanking sector competitive. Encouragement to foreign banks andprivate sector banks increased competition for all operators in bankingsector. The protective regime by the authority is over. Indian banksare exposed to global competition. Even competition within thecountry has increased manifold. The almost monopoly positionenjoyed by the public sector banks of India is no more existence.Under this development Indian banks needs to reinvent the marketingstrategy for growth.The spread of the bank in Indian rural and semi urban areas arehighly different from state to state and region to region. Many stateshave fewer networks of bank branches in the rural areas. Under suchscenario different marketing approach for different areas is required. If 47
    • Bank Marketingthe bank follows the same marketing strategy for all areas thesuccess would be difficult.Marketing approach for urban area: The urban areas of India aredeveloped taking into account all parameters of development. Thelevel of income of the people, the literacy rate and level of educationas well as awareness of the people about rights of the customer arehigher than that of the rural and even semi urban areas. Thus here foreffective bank marketing different approach is necessary than that ofrural areas.The marketing strategy should be based on customer service and theuse of modern technology in banking. Under competitive environmentfor the success of the business, better customers and retainingexisting customers is possible only with customer service. Use ofmodern technology in urban areas will also go long way for marketingof banking services. Technology based service like credit card, debitcard, ATM, anywhere banking, internet banking, and mobile bankingare necessary for urban areas. This is because it enables customersto perform banking transactions at their convenience. Business hoursof a bank are also an important factor for urban banking. India manyprivate sector banks, especially co-operative banks and now evensome of the public sector banks have also started this practice andthey find it successful. To attract business and wholesale customers,banks need to adopt technology based product and service which issuitable to such class of customer. For instance RTGS, collection ofout station cheques, issuing the cheques at par at any branch in thecountry, cash management facility, DD butiques etc. are necessary. 48
    • Bank MarketingAnother strategy for effective marketing is bank need to change thefocus from the traditional banking to universal banking. In urban areasthe extend and variety of economic activities demands that oneinstitution should meet all financial need of a customer. Under such anexpectation of people universal banking would prove successfulapproach for bank marketing. The term ‘universal banking’ in generalrefers to the combination of commercial banking and investmentbanking, i.e., issuing, underwriting, investing and trading in securities.A universal bank is a supermarket for financial products. Under oneroof, corporate can get loans and avail of other handy services, whileindividuals can bank and borrow.For increasing customer base and retention of the existing clientaluniversal banking approach is effective strategy. Universal bankingoffers number of benefits to customers as well s the banks. Forinstance, economies of scale arise in multi-product firms becausecosts of offering various activities by different units are greater thanthe costs when they are offered together.Universal banking with focus on retail customers made the ICICIbanks to acquire first position in Indian banking sector. Universalbanking approach is beneficial to bank also. For banks economies ofscale relate to cost-savings through sharing of overheads andimproving technology by jointly providing generically similar groups ofservices. Since universal banking basically provides financial servicesthe inputs like manpower, infrastructure is more or less same.Necessary changes in the inputs can be made easily. For instancetraining can be given to staff for providing different financial services 49
    • Bank Marketingto customers. Moreover the most important benefit for the bank is thatit is useful to increase the fee based income of the bank. Financialsector passing from lower interest rate regime at present and addedto this the process of disintermediation is affecting the main and thetraditional source of income for the banks i.e. interest income. Allbanks are striving hard to increase their fee based income to improvetheir bottom line. Universal banking can help the banks herepositively.Marketing approach for rural areas: Prior to nationalization of banksin 1969, the rural areas were virtually without banking facility. At thattime unorganized sector was dominating in the rural finance. Afternationalization of banks in 1969 branches of the banks were startedgradually in the rural areas also. To day more than 50 percentbranches of the banks are found in the rural areas. However, thedistribution of banks in the rural areas is highly uneven. Here bankshave to face competition with the unorganized sector. Moreover therural banking is highly regularized activity by the Government in India.Lending as well as interest rate is regularized. Thus under suchenvironment different marketing approach is required. For effectiverural marketing product development, promotion and communicationis important. All these parameters banks have to balance with socio-economic factors prevailing in the rural areas. Bank need to innovateproduct that could attract the depositors. Various loan schemes thatare suitable for them for getting funds at right time and also they findconvenient to repay. For instance traditional saving bank account maybe given fixed deposit concept that once a particular limit of balance isreached the funds from saving account is automatically coveted intofixed deposit attracting higher interest rate. 50
    • Bank MarketingBanks need t develop some scheme which would attract them to bankwith. For loans and advances products which are suitable to tarmers,small traders, small scale agro based rural industries are already inexistence. Banks need to see the how value addition can be mad tothese existing scheme. Banks also needs to tie up with NonGovernment Organisations and various Self Help Group for differenttypes of loans, micro financing etc. This will help the bank for buildinggood image and reputation in the rural areas over and above thebusiness. Another potential area which can be explored by the banksin the rural area is retail banking. With the steady increase in theincome of the rural people there is ample scope for retail loanproducts like housing loans and loan for consumer durables.Marketing through customer services in rural areas is different fromthat of urban areas. Here personalized banking is the success mantrafor banks. Because of high level of illiteracy people prefer toundertake banking transaction themselves. They hesitate to dependupon technology based service. For effective marketing in rural areasbank should have staff with right soft skill like concern for customers’problem, positive attitude, good communication and negotiation skill.At every level of dealing with the customer bank need to educatethem for banking activates and process. To attract the customers fromthe unorganized sector most important factor is to provide. Theborrower the required finance of right amount at right time.Conclusion: 51
    • Bank MarketingBanking sector has undergone various changes after the neweconomics policy based on privatization, globalization andliberalization adopted by Government of India. Introduction of assetclassification and prudential accounting norms, deregulation ofinterest rate and opening up of the financial sector made IndianBanking sector competitive. Encouragement to foreign banks andprivate sector banks increased competition for all operators in bankingsector. Banks in India prior to adoption of new economic policy wasprotected by Government and was having assured market due toalmost state monopoly in banking sector. However, under the newenvironment, Indian banks needs to reinvent the marketing strategyfor growth. In India geographical development is not even throughoutthe country, there are full-fledged urban areas covering themetropolitan cities and other big cities. On the other hand there areunderdeveloped rural areas too. For effective bank marketing differentapproach for different areas is required. In urban areas customerservices is of paramount importances as the level of literacy andtherefore awareness of the people is more. Also technology basedmarketing would have higher degree of success due to typical urbanlife style of the people. Universal banking providing all financialservice under one roof will have more success in urban areas. In therural areas for bank marketing personalized banking will go in longway. Also banks need to offer innovative tailor made deposits andadvances products to suit individual customers. Delivery of advancesof right amount of right amount and at right time is essential in ruralmarketing. 52
    • Bank MarketingTECHNOLOGY IN BANKINGTechnology is proving to be a vital tool in enhancing banking activitiesaround the globe. The advent of ATMs, and Internet Banking are keypointers to this. The role of an information system can in no way beunderestimated. The expanding role of information systems haveaided banks achieving Anytime, Anywhere and Anyhow banking. Theimprovement in telecommunication infrastructure is redefining the wasbanking is being conducted.Information Technology made its presence felt in banks in India a fewdecades ago. However, it is still being used as a support systems.Most of the software packages used in bank work on stand-alonesystems and are not integrated.Banks in India need to have an integrated systems that takes care ofall the front-office and back-office operations. However, Indian banksshould not be content with the integration of their activities. Banks inadvanced countries are planning to have global electronic banking.Electronic banking or e-Banking is a generic name for a range oftechnologies that allow the electronic exchange of information relatedto banking transactions.As Electronic Networks become more robust and widespread, theyare beginning to attract the attention of retail banks – like ATMs andphone banking. However they tend to be viewed merely as one morecheap distribution channel. Accordingly banks are replicating thebranch banking experience online, even to the extent of creating 3Dvirtual branches for their customers to navigate through. Such an 53
    • Bank Marketingapproach is characteristic of early attempts to use new technologyplatform.Indian Banks Cash in on Delivery ChannelsFrom the staid over-the-counter delivery mode to ATMs, tele banking,Net banking, and now mobile banking the number of delivery channeldeployed by banks has increased by leaps and bounds. Srikanth R.P.& Chitra Padmanabhan look at the evolution and impact of variousdelivery channels in the Indian banking scenario and forecast whichdelivery channel could be the next killer app for banking players.While today each and every bank touts ‘The customer is King’ mantra,it was a quite a different story not so long ago. Customers patronizingPSU banks were greeted with the typical ‘babu’ culture, where gettingeven a cheque encashed used to take ages. Customers had to adjusttheir schedule to the bank and very rarely was it the other wayaround. A person in a city like Bombay usually had to wait for aweekend to deposit a cheque, because by the time he reached home,the bank would have closed. Today, while the timings of banks havenot changed drastically – banks have become more customer –friendly. Now power has shifted into the hand of the customer.ATM (AUTOMATED TELLER MACHINES)Traditionally, banking players relied extensively on their reach toeffectively put emerging banks out of competition. This forced newbanks develop strategies, that could help them reach out to end-customers cost effectively. The solution came in the from of a deliverychannel known as Automated Teller Machines or ATMs. And whennew private banks started installing ATMs across the length and 54
    • Bank Marketingbreadth of the country, customers started flocking in droves. A case inpoint is ICICI Bank. During the liberalization of the banking sector,ICICI Bank which did not have a huge national network, realized that itcould use IT to enhance its value-added offerings.Says O.P. Srivastava, head of the retail channel infrastructure groupat ICICI Bank, “When the banking sector was liberalized we knew thatto get a lead over the well entrenched PSU banks, we had to take thehelp of delivery channels like ATMs. This was the only way to counterthe reach of national players. “ICICI Bank is the most aggressivedeployer of ATMs and has seen its base surge from 125 ATMs inJanuary 2000 to 1,200 ATMs today. Such has been the impact ofATMs that ICICI Bank’s customer base has grown from two million tofive million in the last two years. Srivastava attributes this increase tothe increase in ATM outlets.HDFC Bank, is the other big player from the banking industry whichhas aggressively used ATMs to its advantage. Says Mudit Saxena,vice-president for retail marketing and head of Net Banking at HDFCBank, “The average per-day transaction at an HDFC Bank ATM is350-400, with some ATMs recoding as many as 700 transactions perday”. Other tech savvy banks like UTI Bank and ABN Amro Bankhave also become extremely aggressive in installing ATMs.In the case of UTI Bank, the ATMs have added a fillip to the bank’scustomer base. Says V K Ramani, president for IT at UTI Bank, “Formthe first year of ATM installation, we have seen a surge in ourcustomer base. Currently, we have 647 ATMs servicing a base of 1.3million customers. Over 90 percent of cash withdrawals are done 55
    • Bank Marketingthrough ATMs. The number of ATM transactions have also increasedfrom one million in September 2001 to over 2.5 million in September2002.” With growth figures like this, its no wonder that every branchmanager wants an ATM installed in his area of operations.Alok Shende, Industry manager for IT practice at Frost & Sullivan,summarieses the evolution of the Indian banking industry perfectlywhen he says, “Banks followed two broad approaches when adoptingtechnology. The first approach was evolutionary. Banking players whohad large brick and mortar legacy particularly the public sector banks,kept the banking channels intact and automated the bottleneck points.This approach was adopted by around 80 percent of the industry.However, some banks adopted a revolutionary approach andchanged the banking scenario altogether. State Bank of India is agood example of the evolutionary approach, whereas HDFC Bank andICICI Bank, are good examples of the revolutionary approach. “Somebanks have gone a step ahead and share their ATMs with otherbanks. For instance, ABN Amro Bank has a private ATM sharingagreement with UTI Bank.Banks are also developing new strategies to leverage their ATMoutlets. For instance, rather than set up a branch in every suburb,ICICI Bank has hit upon a ratio of 8 ATMs to one branch office, thuseffectively reaching out to a large customer base, at a substantiallylower cost.ABN Amro launched Royalties, India’s first banking rewardsprogramme. In the programme, the customer gets rewarded everytime he uses any of the bank’s electronic access channels. If the 56
    • Bank Marketingcustomer bites the bait, it not only reduces the work load, but alsotranslates into huge cost savings.As PSU banks gear up to win back their customers through theaggressive deployment of ATMs, the already vibrant ATM market hasgot a further boost. In India, ATM manufacturers like NCR and HMADiebold are extremely bullish, as India is the fastest growing marketfor ATMs currently. India has close to 7,500 ATMs and analystspredict the market to grow at a rate of 60-70 percent year-on-year.Looking at the boom in ATMs NCR has decided to invest $6 million toset up its ATM manufacturing plant in India.Says Lars Nyberg, chairman and chief executive officer of NCR, “Indiais undoubtedly the hottest market for ATMs today. Our decision tomanufacturer in India is to accelerate supply to the local market.Initially, the manufacturing facility in Bangalore will have a capacity ofproduce 8,000-10,000 ATMs per year. “The potential of the Indianmarket has prompted NCR to design at ATM specifically for the Indianmarket.Total cost advantageWhile ATMs do help banks to attract customers, there is also onemore critical aspect to consider – the immense cost savings fromwhich a bank can benefit due to a transaction taking place over anATM vis-à-vis a branch. Typically, it costs a bank close to Rs. 50 pertransaction if conducted in a branch. The same if done an ATM costsabout Rs. 15. A look at the volume of ATM transactions conductedreflects the level of success of this delivery channel. 57
    • Bank MarketingInternet BankingThe other important delivery channel, from a bank’s perspective &Internet banking. The adoption of Internet banking by the bank’scustomers is important since the costs per transaction are even lowerthan those of an ATM. A net-based transaction costs the bank onlyaround Rs. 4. Thus, banks are trying to get customers to switch overto this mode of banking registered users for Internet banking in Indiaat over two million currently.It represent a significant opportunity for banks. In addition, as adelivery channel, Internet banking does not require physicalinfrastructure, thus saving on prohibitive real estate costs.Private banks like ICICI Bank, HDFC Bank, UTI Bank and ABN AmroBank have seen a steady surge in the number of users registered forInternet banking does not require physical infrastructure, thus savingon prohibitive real estate costs.Most banks today have facilities to enable internet banking customersto pay insurance premiums and utility bills over the Net. ThoughInternet banking as a concept has not caught the fancy of a majorityof customers as yet-even the small percentage that does use it,makes a difference to the overall cost. Almost all leading banks inIndia are hoping that just as ATMs saw a period of inaction beforethey were accepted by Indian masses, Internet banking too would beadopted once customers are comfortable with the technology. Forinstance, in 1998 India had just 500 ATMs today it has close to 7,500.Roadblocks 58
    • Bank MarketingWhile Internet banking is a potential and powerful delivery channel, ithas failed to make a significant impact due to a variety of reasons.RBI in its report, ‘Trend and progress of Banking in India, 2001-02,says Internet banking has failed to take off due to a combination ofpsychological, technological and socio-economic factors. Further, thereport states that additional hurdles relating to legal and infrastructuralproblems have also affected growth.Although the government has made considerable progress in initiatinga trust environment, with some Public Certification Authorities (PCA)already licensed to operate, the adoption of trust technology is still adaunting factor for many users. What needs to be developed is asimple way of integrating trust into online banking services.Says Shende, “The compelling restraint for the user is the fear ofsecurity breaches. As long as the perceived notion that the Internet isnot a safe place to conduct financial transactions prevails, large scaleadoption will be challenging.” In addition, the low penetration of PCsand access to the Internet are crucial issues which act as roadblocksin the adoption of Internet banking.MOBILE BANKINGWhat’s M-Banking?M-Banking allows a customer to request for account balance, chequebooks, cheque status, demand drafts, and banker’s cheques as wellas stop payments, make fixed deposits enquiry and transfer billsonline. HDFC customers, for instance, can pay their Max Touch andBPL Mobile both provide cellular services – Bombay State ElectricitySupply, and Maharashtra State Electricity Board bills. Says Shyamlal 59
    • Bank MarketingSaxena, 33, Vice President (Liabilities Product Management), HDFC:“WE are, in a sense, content providers of banking information.”Is it Better?M-banking is no different from Net Banking, in fact it has manylimitation. You still cannot transfer fund from one bank to another and,given the high air-time charges, it works out much more expensivethan Net Banking. And for the mobile phone to access a site, thecontents must be in Wireless Markup Language.Once the mobile users’ population grows, access rates will fall,allowing customers to use more air-time. By then, the Reserve Bankof India would also have put its own gateway in place to do onlinewhat it does today on paper.M-banking uses two kinds of communication technologies. One isWAP (Wireless application Protocal) and the other is SMS (ShortMessaging Services). WAP is more user-friendly, as it allowsdownload of graphic information. SMS, in contrast, allows text-onlyaccess. But as the time taken to download text is much les comparedto graphics, SMS is cheaper to use.Future Delivery ChannelsAmong all the delivery channels used by banks today, ATMs remainthe most successful, followed by telephone banking and Internetbanking. But the biggest potential could lie in mobile banking. Withcellphone tariffs falling and increased bandwidth, the potential forbanking player to tap this channel is enormous. Says Raman, “Thefuture delivery channel will have various mobile portals using 60
    • Bank Marketingtechnologies such as GRPS. The customer would prefer to dobanking transactions not only anytime, anywhere, but also throughany device. With the current rate of evolution in the wireless industry,the mobile channel is poised to become the defacto banking channelwithin the next three years.”One more important factor to consider in the evolution of deliverychannels is the requirement of a multi-channel architecture whichshould support all future delivery channels, while also seamlesslyintegrating with existing delivery channels. This is the reason why amajority of banks still have not launched Internet banking as a feature,since most do not have backend integration. Effectively, this meansthat if a person holding an account with the bank wants to apply for aloan, he would have to enter the same details already disclosedearlier to the bank. This is where players like HDFC Bank, Citibank orICICI Bank hold an edge, as they have an end-to-end integratedsystem already in place. This gives them the ability to cross-sell theirproducts, based on the customer profile they have with them.one more delivery channel which will increase in the future is thedeployment of call centres. For instance, looking at the costeffectiveness of call centres, ICICI Bank has commissioned thecountrys biggest call centre in the banking sector (1,100 seats) inHyderabad. This is to be followed by a 600-seat call centre inMumbai)As a delivery channel gains ground, it can be used to sell products ofother vendors too. For example, the SBI ATM at CST railway stationin Mumbai dispenses season tickets too. Analysts believe that as 61
    • Bank Marketingbanks discover the marketing power of ATMs, one would see a trendwhere ATMs would be used to deliver products of other vendors aswell. ICICI Bank has gone one step further by allowing devotees ofTirupati to offer payments to the temple at Tirupati temple throughtheir ATM.This could be the future of ATMs, where more non-cash transactionswill be done. Some banks are even toying with the idea of sellingmovie tickets through ATMs. Going forward, as the volume of non-cash transactions increase, one can see a trend where banksmaintain kiosks instead of ATMs, as there might not be a need forall the features of an ATM.Says Chopra of ABN Amro, "The next five years will see a markedshift, wherein customers will show a preference for non- branchdelivery channels. Also, the large number of customer calls will alsonecessitate use the of toll free numbers.”Irrespective of the delivery channel, one thing is clear-its boom timefor customers, as banks try a variety of options to lure themWho knows, the next time you go to deposit your cheque, you justmight fill in Virtual in the space reserved for Branch’.BANK MARKETING IN THE INDIAN PERSPECTIVEThe level of income, expectations, the rate of literacy, the geographic 62
    • Bank Marketingand demographic considerations, the rural or urban orientation, thechanges in economic systems the frequent use of, technologies aresome of the key factors governing the development plan of anorganisation. To be more specific in a welfare country like ours, thepublic sector commercial banks are supposed to playa decisive role infuelling the processes of socio-economic emancipation. This makes itclear that the banking organisation need a new vision, a newapproach and an innovative strategy. They are supposed to bringabout greater mobility in the financial resources to cater to thechanging socio-economic requirements. Willingly or unwillingly, theyhave also to bear the social costs by advancing credit facilities to theweaker sections and the vulnerable regions. The foreign banks and afew of the private sector commercial banks have been found makingsincere efforts to improve the quality of their services. The customersin general appreciate the functional style and service mix of foreignbanks. This makes a strong advocacy favour of practising marketingprinciples in the public sector commercial banks.The nationalisation of the Reserve Bank of India is a landmark in thedevelopment of Indian banking system which in a true sense pavedavenues for qualitative-cum quantitative improvements. Acquisition ofextensive powers of supervision and control by the Reserve Bank ofIndia under the Banking Regulations 1949 opened new vistas for theexpansion of banking facilities. The structure of public sector bankwas further strengthened in 1959. To curb concentration of economicpower and promote a judicious use of the financial resources for theeconomic development activities, the banking system was regulatedand supervised by the RBI subsequently in 1969 the Governmentacquired a direct control over a substantial segment of the banking 63
    • Bank Marketingsystem signifying its commitment to reshape the banking system soas to meet progressively and serve better the needs of thedevelopment of economy in conformity with the changing nationalpolicy and objective. The fruitfu11 results of nationalisation of 14commercial banks in 1969 encouraged. government to nationalisemore commercial banks in 1980. These developments necessitated afundamental change in the functional responsibilities of the publicsector commercial banks. Here it is pertinent to mention thatnationalisation was with the motto of improving the quality of servicesbut the public sector commercial banks started disappointing themasses. Of late, the quality of services is so poor that customers ingeneral are found dissatisfied. This makes it essential that theReserve Bank of India and the policy makers of the public sectorcommercial banks think in favour of conceptualising modernmarketing principles which would bring a radical change in theprocess of quality upgradation.The first task before the public sector commercial banks is toformulate the marketing mix which suits the national socio-economicrequirements. They need to synchronise the core and peripheralservices in such a way that product attractiveness is increasedsubstantially. To be more specific the peripheral services needfrequent innovation, since this would be helpful in excelling competi-tion. The personal selling and public relations activities need anintensive care. It is pertinent to mention that the leading foreign bankshave been found promoting telemarketing and the public sectorcommercial banks need to make it possible. Since we have worldclass communication technologies, the task is easier. The word-of-mouth promotion also needs due care and for that we need to 64
    • Bank Marketingimprove the quality of services vis-à-vis the cooperation of opinionleaders. The Reserve Bank of India and the Indian Banking Asso-ciation need an attitudinal change. The boardrooms also need tochange their attitudes. The gap between the services-promised andservices-offered is required to be bridged over. This requiresprofessional excellence. The professionals need to make possible afair synchronisation of performance-orientation and employeeorientation. This is not possible unless the banking regulations aremade liberal. The quality of people/employees serving the bankingorganizations needs an overriding priority. The bankers need to knowabout the behavioural management. The front-line-staff need empathyin their behaviour. This requires intensive training facilities. Thedomination of trade unions is required to be minimised. Thecontractual job system needs due attention. The bank professionalsneed to assign due weightage to their physical properties. They aresupposed to look smart, active and attractive. Thus we need multi-dimensional changes which make a strong advocacy in favour ofimplementing the innovative marketing principles.In view of the above, it is right to mention that in the face of newperception of quality developed by the foreign and private sectorcommercial banks, the public sector commercial banks have no optionbut to improve the quality of services. The marketing principles bearthe efficacy of initiating qualitative improvements. It is against thisbackground that we go through the problem of bank marketing. Of latethe foreign banks have been found promoting the use of sophisticatedinformation technologies. This makes it essential that we realisegravity of the situation and make possible a rational use oftechnologies which is not to aggravate the problem of retrenchment. 65
    • Bank MarketingThe marketing principles would be helpful in making an assault on themulti-dimensional problems. Of course, we find good auguriesbecause the policy makers have been found exploring ways for imple-menting the marketing principles but till now, the efforts are at the verynascent stage. It is high time that the public sector commercial banksconceptualise innovative marketing for bringing the banking systemon the rail.The first thing is that the future of bank marketing is gonna befabulous. If you are thinking to go for field than you must...You canstudy the charts how it rose since last 5 years and you will heimpressed. In past bank were not in competition with each other inIndia but now they are and thats where bank marketing is comingup...eg. In Ahmedabad ICICI rose by 70% in terms of advancing loansto local public...Sales guys are doing very well.,This is going to riseuntil 80% of Indians are not having credit cards.. Compare thebanking to developed countries and you will find bank marketing inIndia to be great.The bank of the future has to be essentially a marketing organisationthat also sells banking products. New distribution channels are beingused; more & more banks are outsourcing services like disbursementand servicing of consumer loans, Credit card business. Direct SellingAgents (DSAs) of various Banks go out and sell their products. Theymake house calls to get the application form filled in properly and alsotake your passport-sized photo. Home banking has already becomecommon, where you ~an order a draft or cash over phone/internet andhave it delivered horn. ICICI bank was the first among the new privatebanks to launch its net banking service, called Infinity. It allows the 66
    • Bank Marketinguser to access account information over a secure line, request chequebooks and stop payment, and even transfer funds between ICICIBank accounts. Citibank has been offering net banking to its Suvidhaprogram to customers.Products like debit cards, flexi deposits, ATM cards, personal loansincluding consumer loans, housing loans and vehicle loans have beenintroduced by a number of banks.Corporates are also deriving benefit from the increased variety ofproducts and competition among the banks. Certificates of deposit,Commercial papers, non-convertible Debentures (NCDs) that can betraded in the secondary market are gaining popularity. Recently,market has also seen major developments in treasury advisoryservices. With the introduction of Rupee floating rates for deposits aswell as advances, products like interest rate swaps and forward rateagreements for foreign exchange, risk management products likeforward contract, option contract, currency swap are offered by almostevery authorised dealer bank in the market. The list is growing.Public Sector Banks like SBI have also started focusing on this area.SBI plans to open 100 new branches called Personal BankingBranches (PBB) this year. The PBBs will also market SBIs entirespectrum of loan products: housing loans, car loans, personal loans,consumer durable loans, education loans, loans against share,financing against gold.The bank of the future has to be essentially a marketing organisationthat also sells banking products. New distribution channels are being 67
    • Bank Marketingused; more & more banks are outsourcing services. ICICI bank wasthe first among the new private banks to launch its net bankingservice, called Infinity.Products like debit cards, flexi deposits, ATM cards, personal loansincluding consumer loans, housing loans and vehicle loans have beenintroduced by a number of banks.Public Sector Banks like SBI have also started focusing on this area.SBI plans to open 100 new branches called Personal BankingBranches (PBB) this year. The PBBs will also market SBIs entirespectrum of loan products: housing loans, car loans, personal loans,consumer durable loans, education loans, loans against share,financing against gold. 68
    • Bank MarketingCASE STUDY 69