Marketing of Financial Services (Nepalese Context)
Marketing of Financial Services Nepalese ContextSohan Babu KhatriCEOThree H Management Learn | Consult | Research
Sohan Babu Khatri - IntroductionProfessional Engagements:• CEO – Three H Management Pvt. Ltd• Director of Board – Grand Bank Nepal Ltd , Just-One NepalAdjunct Faculty:• Ace Insititute of Management• Kathmandu College of Management• London Chamber of Commerce and Industries – International QualificationBackground:• Bachelor’s of Civil Engineering (BE Civil) - Pulchowk Campus, Institute of Engineering, Nepal• Masters of Business Administration (MBA - Finance and Marketing), Bangalore University, India• Certified Financial Manager (CFM), Centre of Financial Management, Bangalore• Licensed International Financial Analyst (LIFA) - Charter Holder – International Research Association, Cambridge, Massachusetts
Key Questions• Do we have conceptualization of marketing in the decision making process of financial service organizations ?• Or is it only sales we are focusing on ?• Have we related the functional responsibilities of each department to the broad marketing strategy of the organization ? – Do we have marketing strategies at place ?
.....• Are we advertising and promoting as per the requirement placed by fund management strategy of the organization or are we askings questions related to the customer value and then everything else comes after that ?• Are we into Responsive Marketing, which attunes and responds to the changing needs of customers, society and environment ?
..........• Do we realize that marketing is unavoidably a social concern ? – Marketing activities involve a persuasive role in the formation of public opinion• The matching of marketing with the financial services is the formulation of an overall marketing strategy which suits the savings and investement preferences, needs and requirements, likes and dislikes of customers.
...........• Do we ever study behavioral profile of the customers and develop marketing information system – So that the marketing decision coil more dynamism in its nature and move with the customers and market.• Have we tried to be creative and innovative while carving out our marketing strategies and tactics ? – Aren’t we commoditizing financial services by not trying to be different ?
...........• Do we concentrate our efforts in designing core and peripheral services equally ? – Any one of them can be entry route for bringing in customers to your organization.• Are we continually putting efforts to create a “financial departmental store” out of our organization ?• Do we realize that financial services marketing is a managerial approach and a social process equally ? – The professionalism helps in drawing a balance between the two
Getting into the basics Learn | Consult | Research
The Value Triad3 Basic Elements of a Value Proposition Customer Value PropositionProduct Application 10
What should be at the heart of anybusiness process, strategy and goal ? Financial Service providing organizations are not exceptions Learn | Consult | Research
"Understand, you do not understand, you willnot understand, you cannot understand all your customers but still you have to do your best to understand them." Learn | Consult | Research
Do we value ?•Individual customers•Small depositers•Households•SMEs
Things to Understand• The psychology of how consumers think, feel, reason, and select between different alternatives (e.g., brands, products, and retailers);• The psychology of how the consumer is influenced by his or her environment (e.g., culture, family, signs, media);• The behavior of consumers while making marketing decisions;
……….• Limitations in consumer knowledge or information processing abilities influence decisions and marketing outcome;• How consumer motivation and decision strategies differ between products that differ in their level of importance or interest that they entail for the consumer; and• How marketers can adapt and improve their marketing campaigns and marketing strategies to more effectively reach the consumer.
Understand “Consumer Behavior” It blends the elements of – Psychology, – Sociology & – Economics.
Key Points• Refernce Group works in choosing Financial Services• The impact of consumer behavior on society is also of relevance. For example, aggressive marketing of easy credit, may have serious repercussions for the national economy.
Four Main Applications • Designing service/products of the company to suit consumer choices • Carving better marketing strategies / marketing campaigns • Designing better service/product deliveries • Creating better marketing channels.
Consumer Buying Behavior Learn | Consult | Research
EVALUATION OF ALTERNATIVES TOTAL AWARENESS CONSIDERATION CHOICE BUYING SET SET SET SET DECISION
Types of Consumer BuyingBehavior Learn | Consult | Research
Determined by• Level of Involvement in purchase decision.• Importance and intensity of interest in a product in a particular situation.• Buyers level of involvement determines why he/she is motivated to seek information about a certain products and brands but virtually ignores others.
BUYING ROLES INITIATOR: The first person to suggest the idea of buying. INFLUENCER: A person whose views impact the buying decision. DECIDER: The person who decides on what, when & where to buy the product or service. BUYER: The actual purchaser. USER: The person who uses/consumes the product or service. INFORMER, MAINTAINER, DISPOSER
Buying Behavior High Low Involvement Involvement Significant differences Variety between Brands Complex BB Seeking BB Few differences Dissonance Habitual between Brands Reducing BB BB
PURCHASING FINANCIAL SERVICES IS HIGH INVOLVEMENT PURCHASE DECISION
Where are we now ? High Low Involvement Involvement Significant differences Variety between Brands Complex BB Seeking BB Few differences Dissonance Habitual between Brands Reducing BB BB
High Low Involvement InvolvementSignificant differences Variety between Brands Complex BB Seeking BB Few differences Dissonance Habitual between Brands Reducing BB BBEducate and inform customers – Relationship Marketing should be focus
High Low Involvement Involvement Significant differences Variety between Brands Complex BB Seeking BB Few differences Dissonance Habitual between Brands Reducing BB BBCreate significant Branding and Differentiation– Innovation and Creativity is the key
Value and SatisfactionBased on this equation, the marketer can increase thevalue of the customer offering by(1)raising benefits,(2)reducing costs,(3)raising benefits and reducing costs,(4)Raising benefits by more than the raise in costs, or(5)lowering benefits by less than the reduction incosts.
MARKETERS SHOULDMAKE EVERY EFFORTS TO REDUCE THESERISKS FOR CONSUMERS
• The purchase of the same product does not always elicit the same Buying Behavior.• Product can shift from one category to the next. For example: – Buying financial services for various purposes • Just disposing savings • Investment for children’s education • Taking business loan vs. personal loan
Three factors affecting ConsumerBehavior Learn | Consult | Research
Personal Factors• Unique to a particular person.• Demographic Factors: Sex, Race, Age, Family Lifecycle Stage, Income, Employment etc.• Who in the family is responsible for the decision making.• Young people purchase things for different reasons than older people.
Advertisers thatuse comparative advertisements (pitching oneproduct against another), have to be very careful that consumers do not distort the facts andperceive that the advertisement was for the competitor.Average supermarketshopper is exposed to 17,000 products in a shopping visit lasting 30 minutes-60% of purchases are unplanned. Exposed to 1,500 advertisement per day. Cant beexpected to be aware of all these inputs, and certainly will not retain many.
Social Factors• Consumer wants, learning, motives etc. are influenced by a) Opinion leaders, b) Persons family, c) Reference groups, d) Social class and e) Culture.
Utilizing the understanding ofConsumer Behavior in FinancialServices Learn | Consult | Research
• Gain reputation and trust – With diminishing trust, comes diminishing loyalty• Focus on customer loyalty and the opportunities among existing client base• Understand Risks and Opportunities in Market• Understand Risk Perception of customers and market – find out the factors that shape up it.• Focus on Customer Relationship Management• Strive for Customer Satisfaction – Delight Them• Understand Customer Need and its state.
• Awareness and Knowledge level of customers is increasing• Customers are being ever demanding• They are technologically more oriented• Multipurpose bank vs. Specialist Bank – Strategic Decision• Increase service quality. – Customer Service Quality is decided by Customers• Reduce time of service and increase access
• Communicate message around ethical practices, relationship and commitment towards satisfaction.• Design loyalty programs
How to analyze ConsumerBehavior in BankingBuild Business IntelligenceUse Consumer related analytics Learn | Consult | Research
Example: Findings of the studyDecision aspects for selecting a bank: (Example of India) Rate of interest ATM gives deposit facility Convenience Overdraft protection Easy loans plan Free checking options Small business loans Online payment easy One-stop-shop 48
To reap the maximum benefits from dataanalytics, firms have to invest in the righttechnology, hire the right people anddevelop standardized and robust processesof data collection, data retrieval, dataanalysis and strategy implementation.
Don’t just sell aproduct/service. Sell an experience. Sell an idea Sell information Sell knowledge Sell sentiments Sell concern.
“First step to understandanything is to understand the importance of understanding”
Segment your market properly And Design your Service Accordingly Learn | Consult | Research
Developing a Target Market Strategy• Developing a target market strategy has three phases:1.Analyzing consumer demand / Selecting Target Market2.Targeting the market(s) a) Undifferentiated b) Concentrated c) Multi-segmented3.Developing the marketing strategy
Criteria Needed for Segmentation• Segments must have enough profit potential to justify developing and maintaining a MM• Consumer must have heterogeneous (different) needs for the product.• Segmented consumer needs must be homogeneous (similar)• Company must be able to reach a segment with a marketing mix• Must be able to measure characteristics & needs of consumers to establish groups.
Criteria for effective targeting ofmarket segments. To be an effective target, a market segment should be: (a) Identifiable (b) Sufficiency (c) Stable or Growing (d) Reachable (e) Actionable.
Segmentation and Targeting inFinancial Services Examples – for Banks Learn | Consult | Research
• All variables of segmentation are important• Yet Demographic and Psychographic variables are more important• Customer segmentation based on analytics for customer risk, attrition, response likelihood and other aspects are de rigueur in financial services• Many banks are still not using the most advanced predictive models—for example, customer behavior models based on transaction data.
• Refining segmentation strategies with information reflecting customer attitudes and sensitivities towards key business issues can also enhance incremental profitability.• As an example, banks can use testing within specified segments to determine customer sensitivity to deposit rates.• Deposit pricing sensitivity is an emerging concern for banks; knowing the exact price point at which a customer will likely defect is a powerful tool in improving customer retention efforts.• Adaptive control testing allows a bank to uncover hidden customer sensitivities and drive profit-enhancing treatment strategies into more granular customer sub-segments.
Example – Life Cycle Model• If banks could choose their customers the way kids choose sides on the playground, customers in the 18-to-35 age bracket would be picked last. With their relatively small incomes, low account balances and large student loan debts, young customers aren’t exactly the sort over whom the average bank salivates.• However, banks need to that some of those impecunious young customers might eventually turn into wealthy, profitable customers.• So banks need to pored through the bank’s data on its young customers looking for sub-segments with a strong potential for rapid income growth.• Analysis identifies that medical school and dental school students and interns as a group with a high potential to turn into profitable customers.
………• Bank put together a program to address the financial needs of credit-strapped young medical professionals, including help with student loans, loans for medical equipment for new practices and initial mortgages for their first offices.• "Our opportunity lies in finding what the needs of the customer might be so we can offer them additional products and get them to a point where we’re making some return.“
• Using this model (supplemented by focus groups, surveys and third-party research) divides individual clients into five strategic life-stage segments: 1. Youth: These clients are younger than 18. 2. Getting Started: These clients, generally between 18 and 35, are going through first experiences: graduation, first credit card, first car, first loan, marriage, first child. 3. Builders: These clients, usually between 35 and 50, are in their peak earning years. Typically they borrow more than they invest, as they build families and careers. With many expenses, their primary goal is to manage their debt load effectively. 4. Accumulators: Typically between 50 and 60, these clients are worried about saving for retirement and investing wisely. They want to know if they’ve saved enough to retire, if they’ll have to change their lifestyle when they retire and if they’ll need to work to supplement their retirement income. 5. Preservers: The primary needs of these clients, who are usually older than 60, are to maximize retirement income and maintain the lifestyle they desire. They typically manage multiple income sources and are starting to do estate planning.
• Life-stage segments with other strategic models such as profitability, potential, client credit risk and client vulnerability (risk of leaving the organization) onto the bank’s objectives: retaining profitable customers, growing customers with potential, managing and controlling customers with higher credit risk profiles and optimizing the costs of less profitable customers.• By doing so, they can identify opportunities to make a difference in the market
• Many don’t do any customer segmentation at all, and those that do typically don’t reap much value from the exercise because they segment on the wrong criteria.• Precise, needs-based customer segmentation is time- consuming and difficult, and very much in its infancy.• But it’s worth doing because it enables cost-effective targeting of customers with product and service offerings that match their needs.• That kind of precise targeting obviates spending a bundle on largely ineffective mass mailings—and alienating customers with irrelevant offers. It’s the quintessential win-win: Customers get what they want and subsequently buy more; companies waste less money and increase sales and profits.
• For convenience, companies that are organized along product lines often segment customers by the products they buy.• This approach, however, risks alienating customers in two ways: – Customers who happen to be in more than one segment get bombarded with multiple uncoordinated offers. – And big spenders in one product category who start buying in a second category are justifiably miffed when they’re treated as strangers.
• Banks should focus on managing life cycle of customers. a) Understand the lifecycle of needs of the customer b) Create a scheme that focuses on the sophistication of these customers and their needs c) Develop a dynamic needs assessment feedback loop that enhances awareness of items a and b, above
Key understandings• Create a proper markeing function/department at strategic level which aims at creating long term customer lifetime value and thus grabbing it and always strives to lead by delivering customer’s delight.• Formulate and innovate product mix in tune with the chnaging expectations of customers.
........• Strive to get positive response in the market for each step you take – Keep market and customers at the core of decision making process• Give promotional measures a new look and the creditibility for the same goes to the innovative marketing which make the advertisement and publicity measures creative.• Sales promotion measure should act as motivational tool and thus make ways for increasing the market share.
.......• Have non-price differentiation factors to differentiate and brand yourself.• Give transcendental priority to behavioural dimension of customers which helps banks in rating and evaluating the changing level of expectations.• Inject qualitative transformation in the managerial process of marketing financial services.• Design core and peripheral services in the face of social transformation programs and policies.• Price, interest, fees, commission and discount should be fixed for maintaining commercial viability targeting common mass.
.........• Create quality-gap by improving the quality of marketing mix.• Make contributions to the social transformation process optimal which is not to endanger the commercial viability.• Create IT enabled Data Warehousing, MIS and Business Intelligence-Decision Support System (DSS) within the bank and exploit it to carve out marketing strategies.
........• Focus on developing your human resources to be highly motivated market oriented human capital.• Manage Relationship Marketing One-to-One – Relationship marketing should not exist only on the lending leg of the financial services• Have relationship manager as the mobilizer of the financial services• Develop long-range and annual customer relationship plan with clear objectives, strategies and actions
..........• Dont under-rate retention of customers as compared to acquisition – Create proper CRM system within organization• Have bottom line as profit per employee and profit per customer lifetime.• Have CRM technologies, platforms and analytics in place – Measure, Measure, Measure• Sell experience
For Good Relationships• Initiate positive calls• Make recommendations• Candor in language• Show appreciation• Make service suggestions• Use “We” problem solving language• Get to problems• Use Innovative communications• Talk of “our future together”• Accept responsibility
The ENDThank YouSohan Babu KhatriCEOThree H Management Learn | Consult | Research