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Stage 3
Marketing of Financial Services
 Published by
The Institute of Bankers Pakistan
M.T. Khan Road
Karachi – 74200, Pakistan

Compiled by: Darakhshan Usman (MBA - International Business & Marketing),

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Mehwish Sarfaraz (IBP), Nida Kausar (IBP)

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Reviewed by: Naila Imran Sidat (IBP)

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Editing by: Mehwish Sarfaraz (IBP), Tooba Mughal (IBP)

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The Institute of Bankers Pakistan has taken all reasonable measures to ensure the accuracy
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of the information contained in this book and cannot accept responsibility or liability for
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errors or omissions from any information given or for any consequences arising.
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The Institute of Bankers Pakistan, March 2020 (Reprint)

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No part of this publication may be reproduced, stored in retrieval system or transmitted

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in any form or by any means – electronic, electrostatic, magnetic tape, mechanical,

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photocopying, recording or otherwise, without permission in writing from The Institute

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of Bankers Pakistan.
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Contents
Part 1: Introduction to Marketing
Chapter 1: Marketing - Meaning and Philosophy 2
Chapter 2: Types of Marketing 13
Chapter 3: Marketing Process 22
Chapter 4: Service Maketing 29
Chapter 5: Macro Trends and Opportunities in Pakistan's 36
Financial Marketing Arena

Part 2: Understanding the Market Identifying

Opportunities, and Developing the
Marketing Strategy

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Chapter 1: Consumer Markets and Consumer Buying Behavior 47

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Chapter 2: The Buyer's Decision Process and Types of Buying 56

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Decision Behavior
68

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Chapter 3: Business and Corporate Markets and their
Buying Behavior
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Chapter 4: Marketing Research 76
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Chapter 5: Different Methods and Types of Marketing Research 82

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Chapter 6: Marketing Information System 96

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Chapter 7: Measuring and Monitoring Service Quality via MIS 103

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Chapter 8: Media Planning and Buying 123

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Chapter 9: Competitor Analysis / Competition Scan 129

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Chapter 10: Key Features of the Pakistani Society

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Chapter 11: Market Segmentation / Target Market 142

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Chapter 12: Developing the Positioning Strategy 166

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Contents
Part 3: Developing and Implementing
the Marketing Program

Chapter 1: Product and Services Strategy 177

186
Chapter 2: Brand Management Concepts
202
Chapter 3: Services Marketing

Chapter 4: New Product Development and Product 224

Life Cycle Strategies

Chapter 5: Pricing Products and Services 238

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245

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Chapter 6: Pricing Strategies

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Chapter 7: Bank's distribution network and Alternate 253

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delivery channels

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Chapter 8: Integrated Marketing Communication Strategy
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295
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Chapter 9: Advertising, Sales Promotion and

Public Relation in Banks
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Chapter 10: Personal Selling 308

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Chapter 11: Direct/Indirect Marketing & Marketing Audit 337

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Chapter 12: Strategic Marketing and marketing mix 348

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Part 4: The Global Market

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Chapter 1: Global Marketing Trends & Marketing to Pakistani 363

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National’s Abroad
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Part 5: Social and Ethical Issues in Marketing

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Chapter 1: Social Critism on Marketing 403

Chapter 2: Public Policy and Ethical Issues 411
 Part 1: Introduction to Marketing

Chapter 1: Marketing - Meaning and Philosophy

Chapter 2: Types of Marketing

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Chapter 3: Marketing Process

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Chapter 4: Service Maketing
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Chapter 5: Macro Trends and Opportunities in Pakistan's

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1
Part One Introduction to Marketing
Chapter 1 Marketing - Meaning and Philosophy

Student Learning By the end of this chapter you should be able to:
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Define the term "Marketing"

List the main functions of marketing

Explain the concept of marketing philosophy

Discuss the role of a marketing department in a financial institution

Introduction While marketing embraces selling, advertising and public relations, its
total sphere is much broader, representing an overall business philosophy.

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Let us examine three basic definitions of marketing:

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"Marketing is the management process responsible for identifying,
anticipating and satisfying customer requirements profitably. "

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Constitution of the Chartered Institute of Marketing (2003)
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"Marketing is the process of planning and executing the conception,
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pricing, promotion and distribution of ideas, goods and services to create

exchanges that satisfy individual and organizational objectives."
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Constitution of the American Marketing Association (2003)

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"Getting the right goods, to the right people, in the right place, at the
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right time, at the right price, with the right level of communication
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profitability".
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Chartered Institute of Marketing (UK)

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The first definition provides a concise summary of the aim of marketing.

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The second more clearly defines the tools through which marketing
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realizes its objectives, while the third covers the key elements of marketing.
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The aim of marketing is to identify the target markets and develop

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products and services that will meet the needs of consumers in these
markets both now and in the future.
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If an organization is serious about its marketing, then it will strive to

understand the needs of its current and future customers, as well as having
a sound understanding of what its rival organizations are offering in the
market. To be successful, the organization needs to understand how its
market operates, and the organization will integrate its operational
activities around the conditions in the market.

2 Marketing | Reference Book 1

 The role of marketing

Marketing is very closely aligned to the success of any business, be it an

international financial services organization or a corner shop. To survive
and grow (or, in these fast changing times, even to stand still) an
organization has to be able to satisfy the needs and wants of its customers.
If this is achieved, these customers will not only come back for more
products and services, but will also recommend the products and services
to other potential customers.

To satisfy the customer's needs, there must be an acceptable level of

quality, reliability and service - both at the time of sale and after the sale.
In addition, the offering must be made at the right price and must be
available in the right locations.

Even if all of these factors are present, the organization must let the
potential customers know about the offerings - in other words, what the
business has to offer to the market must be communicated to potential
customers, both cost effectively and in terms that these likely customers

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can understand.

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If all this is to be delivered to the market, the organization must know

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what customers need and want-both now and in the future. The

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organization must also be aware of the trends in the market and of
developments that are likely to affect the business itself and the needs of

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the customers. In other words, the business must have a clear understanding
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of the marketing environment.
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The Scope of Marketing

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Marketing is typically seen as the task of creating, promoting and delivering

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goods and services to the end consumers. In fact, marketers are involved
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in marketing ten types of entities - goods, services, experiences, events,

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persons, places, properties, organizations, information and ideas.

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1. Goods
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Physical goods constitute the bulk of most countries' production and

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marketing effort. These include eggs, chicken, steel, cotton, fruit, etc. In
developing nations, goods - particularly food, commodities, clothing, and
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housing - are the mainstay of the economy.

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2. Services
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As economies advance, a growing proportion of their activities are focused

on the production of services. Services include the work of airlines, hotels,
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car rental firms, barbers, beauticians, as well as professionals working

within or for companies, such as accountants, bankers, lawyers, engineers,
doctors, consultants, etc. Many market offerings also consist of a variable
mix of goods and services. For example, a bank provides credit card service
to its customers, whereby a customer can purchase a product using the
loan service available to him/her.

Marketing - Meaning and Philosophy 3

 3. Experiences

By orchestrating several services and goods, one can create, stage, and
market experiences. For example, going to a theme park, climbing Mount
Everest, going for karaoke are all experiences.

4. Events

Marketers promote time-based events, such as national/international

sports events, trade shows, business exhibitions, weddings, parties, and
concerts. There is a whole profession of event planners who work out the
details of an event and stage it to take place successfully.

5. Persons

Celebrity marketing has become a major business. Today, every model

and actor has an agent and is tied to a public relations agency. The business
of head hunting agencies is also that of marketing professionals of different
organizations.

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6. Places

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Places - cities, regions, and nations - compete actively to attract tourists,

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foreign investments and new residents. Place marketers include economic
development specialists, commercial banks, advertising and public relations

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agencies.
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7. Properties
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Properties are intangible rights of ownership of either real property (real

estate) or financial property (stocks and bonds). Properties are bought
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and sold, and this occasions a marketing effort. Real estate agents work
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for property owners or seekers to sell or buy residential or commercial

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real estate. Investment companies and banks are involved in marketing

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securities to both institutional and individual investors.

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8. Organizations
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Organizations actively work to build a strong, favorable image in the

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public’s mind. Corporate ads by organizations are a clear example of this.

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Universities and schools also lay out plans to boost their public image
to compete more successfully for audiences and funds.
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9. Information
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Information can be produced and marketed as a product. This is essentially

what schools and universities produce and distribute at a price to parents,
students, and communities. Encyclopedias also market information. Even
magazines are a source of considerable information.

4 Marketing | Reference Book 1

 10. Ideas

Every market offering includes a basic idea at its core. Charley Revson of
Revlon observed: "In the factory, we make cosmetics; in the store we sell
hope." A person opting for a banking solution is actually buying financial
security and convenience. Products and services are platforms for delivering
some idea or benefit. Marketers search hard for the core need they are
trying to satisfy.

Marketers are skilled in stimulating demand for a company's products,

but this is too limited a view of the tasks marketers perform. Just as
production and logistics professionals are responsible for supply
management, marketers are responsible for demand management.
Marketing managers seek to influence the level, timing and composition
of demand to meet the organization's objectives.

Core Marketing Concepts Marketing can be further understood by defining several of its core
concepts:

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Target Markets and Segmentation

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A marketer can rarely satisfy everyone in a market. Not everyone likes

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the same soft drink, restaurant, automobile or movie. Therefore, marketers

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start with market segmentation. They identify and profile distinct groups
of buyers who might prefer or require varying products and marketing

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mixes. Market segments can be identified by examining demographic,
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psychographic and behavioral differences among buyers. The firm then
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decides which segments present the greatest opportunity - those whose

needs the firm can meet in a superior fashion. For each chosen target
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market, the firm develops a market offering. The offering is positioned

in the minds of the target buyers as delivering some central benefit. For
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example, an Islamic bank develops its lending products for the target
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market looking for interest-free loans. An Islamic bank, therefore, positions

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itself as a Shariah compliant bank.

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Marketers and Prospects

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A marketer is someone seeking a response (attention, a purchase, a vote,

a donation) from another party, called the prospect. If two parties are
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seeking to sell something to each other, we call them both marketers.

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Needs, Wants and Demands

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Needs describe basic human requirements. People need food, air, water,
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clothing, and shelter to survive. People also have strong needs for recreation,
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education and entertainment. These needs become wants when they are
directed to specific objects that might satisfy the need. Demands are wants
for specific products backed by an ability to pay. For example, many
people want a Mercedes only a few are able and willing to buy one.

Marketing - Meaning and Philosophy 5

 Product or Offering

A product is any offering that can satisfy a need or want. Major types of
offerings are goods, services, experiences, events, places, information and
ideas.

Value and Satisfaction

The product or offering will be successful if it delivers value and satisfaction

to the target buyer. The buyer chooses between different offerings on the
basis of which one is perceived to deliver the most value. We define value
as a ratio between what the customer gets and what he gives. The customer
gets benefits and assumes costs. The costs include monetary costs, time
costs, energy costs, and psychological costs.

Competition

Competition includes all the actual and potential rival offerings and
substitutes that a buyer might consider.

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The Marketing Competition represents only one force in the environment in which the
Environment marketer operates. The marketing environment consists of the task

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environment and the broad environment. The task environment includes

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the immediate actors involved in producing, distributing, and promoting
the offering. The main actors are the company, suppliers, distributors,

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dealers, and the target customers. The broad environment consists of six
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components: demographic environment, economic environment, natural
environment, technological environment, political-legal environment,
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and social-cultural environment. These environments contain forces that

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can have a major impact on the actors in the task environment.

Once the organization has an understanding of the customer and the
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environment within which it operates, it is then in a position to develop

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a marketing strategy. Even a large multinational financial services

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organization will not necessarily choose to offer products and services to

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everyone. Instead its strategy will focus on the target areas - or segments
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- which its analysis will have determined are the most attractive to that
organization.
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However, the organization is not operating in a vacuum. Unless it is in

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the unlikely position of operating in a monopoly situation, it will need

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to compete for business with rival organizations. It may be that the

customer can obtain a similar product or service from a rival organization;
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for example, a customer may choose to buy a money transmission account

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from your company or the rival next door. Alternatively, the customer
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may choose a different solution altogether; for example, instead of

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commissioning a mural for the nursery in their home, the customer may
opt to have a high quality decorating job carried out by a firm of painters
and decorators.

Marketing Mix Once the organization has an understanding of the customer and the
environment within which it operates, it is then in a position to develop

6 Marketing | Reference Book 1

 a marketing strategy. The marketing strategy mainly focuses on the target
audience for the organization's products and services. Even a large financial
services organization will not necessarily choose to offer products and
services to everyone. Instead its strategy will focus on the key target areas
or segments (derived after a thorough analysis).

The following five areas, commonly known as the 5 Ps, make up the
Marketing Mix:

● Product
● Price
● Place
● Promotion
● People

Product Decisions

What products or services will the organization offer to the market?

Decisions will cover what new or amended products the organization
wants to offer to the market, and how these are tested. Branding decisions

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are also considered here.

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Price Decisions

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What price is to be charged for these products? For example, in a price-

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sensitive market, is the decision on price is to attract a lot of customers
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to the product, or is the organization going to set a higher price in
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exchange for a more discerning client who is willing to pay a premium
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for a more personal service?

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Place Decisions
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Where is the company seeking to carry out business? In the past twenty
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years there has been an explosion of the range of delivery channels that
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financial services organizations use to reach their customers. In the past,

the main delivery channel was the main branch, and while this can still
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remain an important tool for some organizations, other methods now

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used include the internet and telephone banking. Decisions on these

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delivery channels will fall under the "place" heading.

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Promotion Decisions
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How is the business going to let potential customers know what they are
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offering to the market? What are the most suitable media by which
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potential customers can be informed about the organization's products

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and services?

People Decisions

Who is the organization going to employ? How are these people to be

trained and their skills developed? How are they to be rewarded?

Marketing - Meaning and Philosophy 7

 While these areas - commonly referred to as the "5 Ps" - have traditionally
made up what is known as the marketing mix, two other areas have been
added more recently (primarily service related):

● Physical evidence
● Process

(Discussed in detail in Part 1 - chapter 4)

Functions of Marketing

Following are main the function of marketing efforts of an organization:

● Satisfying the needs and wants of the customers.

● Identifying and making the most of the marketing opportunities

that are presented to the organization.

● Identifying the most suitable customers for the organization

(target audience), and targeting promotional activities in a

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comprehensive and cost-effective way, ensuring that these

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customers take notice of these activities.

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Building and maintaining a competitive advantage over competitor

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●

organizations.

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●
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Making the best use of the resources that are available to the
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organization.
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● Increasing profitability (against predetermined measurements) and

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market share.
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● Satisfying the needs of the key stakeholders in the organization, for

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example, shareholders, customers, managers, staff, creditors, the wider

community, etc.
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In simple words, what we are looking at is the ways in which the

organization is able to meet its chosen customers' needs and wants which
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could then provide an acceptable return to the organization and its

stakeholders. As we have already seen, the range of people involved in an
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organization's marketing effort can be wide and varied. Indeed, some of

the activities may be outsourced to external organizations such as
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advertising agencies. But it is hard to imagine a business with no marketing

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at all. Even a small, one-person business needs some sort of marketing

such as word-of-mouth referrals, flyers, business cards, etc. As a result of
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marketing activities, exchange can occur. In other words, one party can
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provide goods and/or services to another party in exchange for something

of value - usually money. This exchange should be mutually beneficial
for both the parties. The marketing activities should therefore work
towards the creation and maintenance of satisfying relationships.

8 Marketing | Reference Book 1

 Marketing Concept The marketing concept and philosophy states that the organization should
and Philosophy strive to satisfy its customers' wants and needs while meeting the
organization's goals. The best way to meet the organization's goals is also
by meeting customer needs and wants. The marketing concept's emphasis
is to understand the customers before designing and producing a product
for them. With the customer's wants and needs incorporated into the
design and manufacture of the product, or components of the service(s),
sales and profit goals are far more likely to be achieved.

With the customer's satisfaction the key to the organization, the need to
understand the customer is critical. Marketing research techniques have
been developed just for that purpose. Smaller organizations may keep
close to their customers by simply talking with them. Larger corporations
have established methods in place to keep in touch with their customers,
be it consumer panels, focus groups, or third-party research studies.
Whatever the method, the desire is to know the customers so the
organization can better serve them and not lose sight of their needs and
wants.

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Role of Marketing in a Marketing is perhaps the most important activity in any business because
Financial Institution

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it has a direct effect on profitability and sales. Larger businesses usually
dedicate specific staff and departments for the purpose of marketing.

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The marketing department must act as a guide and lead the company's

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other departments in developing, producing, fulfilling and servicing
products or services for their customers. Communication is vital. The

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marketing department typically has a better understanding of the market
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and customer needs, but should not act independently of product
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development or customer service. Marketing should be involved, and

there should be a meeting of minds, whenever discussions are held
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regarding new product development or any customer-related function

of the company.
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Financial services' marketing has evolved rapidly over the last decade. As
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a result, the very nature of the marketing function in financial services

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firms is undergoing a dramatic modification as more attention is paid to

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marketing-driven processes that impact the entire firm. Observations

suggest that the more progressive financial services organizations are
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currently going through an intellectual and practical transition that is

forcing the re-examination of the role of marketing within their firms.
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Many have begun to realize that financial marketing responsibilities

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include not only developing the firm's mission statement and key messages,
but also defining its business focus, relevant differentiation, competitive
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advantages and value proposition.

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At the same time, however, a number of financial services marketing

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directors must engage in possibly long-term negotiations with other

departments before they can implement worthy financial marketing
initiatives that will help accelerate the achievement of corporate goals.
In many financial organizations, the persistent problem of differentiating
financial marketing from sales still remains largely unresolved. In addition,
some financial services marketing directors must still enlist substantial

Marketing - Meaning and Philosophy 9

 management support just to maintain equilibrium and obtain the
opportunity to accomplish even limited objectives.

Changing Marketing The general marketplace is changing radically as a result of major societal
Environment forces such as technological advances, globalization and deregulation.

These major forces have created new behaviors and challenges such as:

● Customers increasingly expect higher quality and service and some

customization. They perceive fewer real product differences and show
less brand loyalty. They can obtain extensive product information
from the internet and other sources, permitting them to shop more
intelligently. They are showing greater price sensitivity in their search
for value.

● Brand manufacturers are facing intense competition from domestic

and foreign brands, which is resulting in rising promotion costs and
shrinking profit margins. They are being further buffeted by powerful
retailers who command limited shelf space and are putting out their
own store brands in competition with national brands.

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● Store-based retailers are suffering from an over-saturation of retailing.

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Small retailers are succumbing to the growing power of giant retailers

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and global corporations. Store-based retailers are facing growing
competition from direct-mail firms, home-shopping TV, and the

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Internet. As a result, they are experiencing shrinking margins.
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Company Responses and Adjustments
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Companies are doing a lot of soul searching, and many highly respected
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companies are changing in a number of ways. Here are some current

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trends:
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● Re-engineering: From focusing on functional departments to

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reorganizing by key processes, each managed by multidiscipline teams.

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● Outsourcing: From making everything inside the company to buying

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more goods and services from outside if they can be obtained cheaper
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and better.
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● E-commerce: From attracting customers to stores and having sales-

people call on offices, to making virtually all products available on
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the Internet. Consumers can access pictures and details of products,

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shop among online vendors for the best prices and terms, and "click"
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to order and pay.

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● Benchmarking: From relying on self-improvement to studying world-

class performers and adopting "best practices".

● Alliances: From trying to win alone to forming networks of partner

firms.

10 Marketing | Reference Book 1

 ● Partner-Suppliers: From using many suppliers to using fewer but more
reliable suppliers who work closely in a "partnership" relationship
with the company.

● Market-centered: From organizing by products to organizing by market

segment.

● Global and Local: From being local to being both global and local.

● Decentralized: From being managed from the top to encouraging

more initiative at the local level.

Marketer Responses and Adjustments

Marketers also are rethinking their philosophies, concepts, and tools.

Some of the current marketing themes include:

● Relationship Marketing: From focusing on transactions to building

long-term, profitable customer relationships. Companies focus on
their most profitable customers, products, and channels.

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● Customer lifetime value: From making a profit on each sale to making

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profits by managing customer lifetime value. Some companies offer

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to deliver a constantly needed product on a regular basis at a lower
price per unit because they will enjoy the customer's business for a

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longer period. nk
● Customer share: From a focus on gaining market share to a focus on
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building customer share. Companies build customer share by offering

a larger variety of goods to their existing customers. They train their
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employees in cross-selling and up-selling.

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● Target marketing: From selling to everyone trying to be the best

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firm serving well-defined target markets. Target marketing is being

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facilitated by the proliferation of special interest magazines, TV

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channels, Internet newsgroups, etc.

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Individualization: From selling the same offer in the same way to

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everyone in the target market to individualizing and customizing

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messages and offerings.

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● Customer database: From collecting sales data to building a rich data

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warehouse of information about individual customers' purchases,

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preferences, demographics, and profitability. Companies can "data-

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mine" their proprietary databases to detect different customer need

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clusters and make differentiated offerings to each cluster.

● Integrated marketing communications: From heavy reliance on one

communication tool, such as advertising or the sales force, to blending
several tools to deliver a consistent brand image to customers at every
brand contact.

Marketing - Meaning and Philosophy 11

 ● Channels as partners: From thinking of intermediaries as customers
to treating them as partners in delivering value to final customers.

● Every employee a marketer: From thinking that marketing is done

only by marketing, sales, and customer support personnel to recognizing
that every employee must be customer-focused.

● Model-based decision making: From making decisions on intuition

or slim data to basing decisions on models and facts on how the
marketplace actually works.

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12 Marketing | Reference Book 1

Part One Introduction to Marketing
Chapter 2 Types of Marketing

Student Learning By the end of this chapter you should be able to:
Outcomes
List and explain the different approaches to marketing

Illustrate the various marketing techniques

Introduction In this section we will study the development of marketing from the mass
production era and then, more specifically, examine the evolution of
marketing in the financial services sector.

It is generally accepted that the marketing era in business is actually the

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third major era in business history. The first two were the production
era, followed by the sales era.

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The Production Era

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In the second half of the nineteenth century, the industrial revolution

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was well established. As a result, goods were produced more efficiently
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and at a lower cost due to the improvements in transportation,
development of factories, division of labor, etc. As technology developed,
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more and more goods were f looding into the marketplace, and the
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demand by consumers for manufactured goods was strong. This focus on

production continued into the early part of the twentieth century.
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The production concept holds that consumers will prefer products that
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are widely available and inexpensive.

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Managers of production-oriented businesses concentrate on achieving

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high production efficiency, low costs and mass distribution. They assume
that consumers are primarily interested in product availability and low
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prices. This orientation makes sense in developing countries, where

consumers are more interested in obtaining the product than its features.
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It is also used when a company wants to expand the market. Some service
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organizations also operate on the production concept.

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Other businesses are guided by the product concept. The product concept
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holds that consumers will favor those products that offer the most quality,
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performance or innovative features. Managers in these organizations

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focus on making superior products and improving them over time. They
assume that buyers admire well-made products and can appraise quality
and performance. However, these managers are sometimes caught up in
a "love affair" with their product and do not realize what the market
needs. Product-oriented companies often design their products with little
or no customer input.

Types of Marketing 13
 From the 1920s onwards, the previously strong consumer demand for
products began to subside and entrepreneurs began to realize that just
supplying goods to the market was no longer enough to obtain sales. It
became apparent that these goods would need to be "sold" to potential
consumers. From the mid-1920s until the early 1950s, businesses were
able to grow their profits by increasing sales, which is why this period of
time gained the reputation of being sales-focused. The most important
marketing activities, therefore, were advertising and personal selling.

According to the selling concept, consumers and businesses, if left alone,

will ordinarily not buy enough of the organization's products. The
organization must, therefore, undertake an aggressive selling and promotion
effort. This concept assumes that consumers typically show ‘buying inertia’
or resistance and must be coaxed into buying. It also assumes that the
company has a whole battery of effective selling and promotion tools to
stimulate more buying.

This concept is practiced most aggressively with unsought goods; goods

that buyers normally do not think of buying, such as insurance,

an
encyclopedias, etc. These industries have perfected various sales techniques

st
to locate prospects and hard-sell them on their product's benefits. The
selling concept is also practiced in the non-profit area such as fund-raisers,

ki
political parties, etc.

Pa
The Marketing Era

s
er
nk
By the 1950s it became apparent to some entrepreneurs that efficient
Ba

production techniques and effective promotion of products was not going

to be enough to guarantee sales. Businesses started realizing that the first
of

step in gaining sales should be to find out what the customer actually
wanted to buy, and then manufacturing according to the customers'
e
ut

needs/wants, rather than first manufacturing and then trying to manipulate

customers' tastes to create a demand for the product.
it
st

This realization was the dawn of the marketing era - when customer
In

orientation came to the fore. By the 1960s, most organizations were aware
of the importance of marketing and invested in their marketing functions,
e
Th

but the predominant view of marketing was still transaction-based. As a

result, the focus was to identify customer needs and wants, ascertain the
:

appropriate target markets and become successful through appropriate

of

marketing campaigns.
ty

The marketing concept embraces the whole organization as it strives to

er

meet its objectives which are achieved by understanding and responding

op

to ever-changing customer needs. This customer-centered approach is

Pr

fundamental to the marketing concept. In other words, the marketing

concept starts by defining who the customers or potential customers are,
focusing on their particular needs, then co-ordinating all of the activities
required to fulfill those needs. The organization produces profits through
creating customer satisfaction and an overall enhanced customer experience.

14 Marketing | Reference Book 1

 The drawback to this approach is that it tends to focus on isolated, one-
off transactions. These transactions were important, if the organization
was to continue to prosper, however longer term relationships with
customers were needed to be developed. Thus relationship marketing
and other approaches to marketing were born, which will be discussed
later in this chapter.

The Societal Marketing Concept

Some have questioned whether the marketing concept is an appropriate

philosophy in an age of environmental deterioration, resource shortages,
explosive population growth, hunger and poverty, and neglected social
services. Are companies that do an excellent job of satisfying consumer
wants necessarily acting in the best long-run interests of consumers and
society? The marketing concept side-steps the potential conflicts among
consumer wants, consumer interests and long-run societal welfare.
Situations like this one call for a new term that enlarges the marketing
concept.

an
The societal marketing concept holds that the organization's task is to

st
determine the needs, wants, and interests of target markets and to deliver
the desired satisfactions more effectively and efficiently than competitors

ki
in a way that preserves or enhances the consumer's and the society's well-

Pa
being.

s
Contemporary
er
These concepts call upon marketers to build social and ethical
nk
Approaches to considerations into their marketing practices. They must balance and
Marketing
Ba

juggle the often conf licting criteria of company profits, consumer

satisfaction, and public interest.
of

The recent developments in marketing are customer, organization and

e

society driven. The contemporary approaches include relationship

ut

marketing emphasizing on the customer, industrial marketing focusing

it

on the organization and social marketing stressing on societal benefits.

st
In

New forms of marketing also use the internet and are therefore called
internet marketing or, more generally, e-marketing, online marketing,
e
Th

search engine marketing, desktop advertising or affiliate marketing. This

attempts to perfect the segmentation strategy used in traditional marketing.
:

It targets its audience more precisely, and is sometimes called personalized

of

marketing or one-to-one marketing. Internet marketing is sometimes

considered to be broad in scope, because it not only refers to marketing
ty

on the Internet, but also includes marketing done via e-mail and wireless
er

media.
op
Pr

Types of Marketing 15
 The following figure clearly elaborates the different techniques/approaches
of marketing being used today, and their differences.

Orientation Profit driver Description

Building and Emphasis is placed on the whole relationship

Relationship
keeping good between suppliers and customers. The aim is
marketing
customer relations to provide the best possible customer service
and build customer loyalty.

Industrial Building and In this context, marketing takes place between

marketing keeping businesses or organizations. The product focus lies
(Business relationships on industrial goods or capital goods rather than
Marketing) between consumer products or end products. Different
organizations forms of marketing activities, such as promotion,
advertising and communication to the customer
are used.

Social Benefit to Similar characteristics as marketing orientation

marketing society but with the added provison that there will be a
curtailment of any harmful activities to society,
in product, production, or selling methods.

an
Branding Brand value In this context, "branding" is the main company

st
philosophy and marketing is considered an

ki
instrument of branding philosophy.

Pa
Let's discuss each one of these in detail.

s
er
nk
1. Relationship marketing
Ba

Refers to the building of long term relationships with customers, which

of

will benefit both the customer and the organization, by improving the
quantity and quality of exchanges. Thus over time the customer builds
e

trust in the organization and the organization better understands the

ut

customer and so is in a better position to meet their needs.

it
st

As the era of relationship marketing has grown, this idea of relationship

In

has widened from simply the organization and the customer to

relationships with suppliers, referral partners, influencers, etc. The idea
e

of relationship has also extended to staff that must be motivated and have
Th

a clear idea of the organization's marketing strategy. The idea of relationship

:

marketing is vital within the financial services sector.

of

2. Industrial Marketing
ty
er

Industrial marketing (or business to business marketing) is the marketing

op

of goods and services by one business to another. Industrial goods are

Pr

those which an industry uses to produce an end product from one or

more raw materials. Main features of industrial marketing are:

● Marketing is one-to-one in nature. It is relatively easy for the seller to

identify prospective customers and build a face-to-face relationship.

16 Marketing | Reference Book 1

 ● Highly professional and trained people in buying processes are involved.
In many cases, two or three decision makers must approve a purchase
plan.

● Often the buying or selling process is complex, and includes many

stages (for example, request for proposal, request for tender, selection
process, awarding of tender, contract negotiations, and signing of final
contract).

● Selling activities involve long processes of prospecting, qualifying,

cultivating customer relationships, making representations, preparing
tenders, developing strategies, and contract negotiations.

3. Social Marketing

Kotler and Andreasen define social marketing as:

"Social marketing is differing from other areas of marketing only with

respect to the objectives of the marketer and his or her organization.

an
Social marketing seeks to influence social behaviors not to benefit the

st
marketer, but to benefit the target audience and the general society."

ki
In other words, social marketing is the systematic application of marketing

Pa
to achieve specific behavioral objectives for social welfare. Social marketing

s
can be applied to promote merit goods, or to make a society avoid demerit
er
goods and thus to promote society's well being as a whole. For example,
nk
social marketing may include creating awareness about the hazards of
Ba

smoking, asking drivers and /or passengers to use seat belts, or prompting
to make them follow speed limits.
of

4. Branding
e
ut

Branding is a major company philosophy. The American Marketing

it

Association (AMA) defines a brand as a "name, term, sign, symbol or

st

design, or a combination of them intended to identify the goods and

In

services of one seller or group of sellers and to differentiate them from

those of other sellers".
e
Th

Therefore it makes sense to understand that branding is not about getting

:

your target market to choose you over the competition, but it is about
of

getting your prospects to see you as the only one that provides a solution
ty

to their problem.
er

The objectives that a good brand will achieve include:

op
Pr

● Delivers the message clearly

● Confirms your credibility
● Connects your target prospects emotionally
● Motivates the buyer
● Concretes user loyalty

Types of Marketing 17
 To succeed in branding, a business must understand the needs and wants
of customers and prospects.

Marketing Techniques

Marketing techniques are the tools used by marketers to ensure that the
marketing plan is delivered effectively. An organization's marketing
department sets out to identify the most appropriate techniques to employ
in order to make profits. These marketing techniques include public
relations, sales promotions (consumer promotion, trade promotion, and
sales force promotion), point-of-sale materials, editorial, publicity and
sales literature.

Marketing techniques are employed at three stages of marketing:

Stage 1 Stage 2 Stage 3

Prior to marketing activity During marketing activity After marketing activity

an
Market research Developing the Evaluation of marketing
marketing mix effectiveness

st
ki
Public Relations

Pa
s
A public is any group that has an actual or potential interest in or impact
er
on a company's ability to achieve its objectives. Public relations (PR)
nk
involves a variety of programs designed to promote or protect a company's
Ba

image or its individual products/services.

of

A public can facilitate or impede a company's ability to achieve its

objectives. PR has often been treated as a marketing "step child", an after
e
ut

thought to more serious promotion planning. But a wise company takes

concrete steps to manage successful relations with its key public. Most
it

large companies operate a public relations department. The PR department

st

monitors the attitudes of the organization's publics and distributes

In

information and communications to build goodwill. When negative

publicity happens, the PR department acts as a troubleshooter.
e
Th

The best PR departments spend time counseling top management to

:

adopt positive programs and to eliminate questionable practices so that

of

negative publicity does not arise in the first place.

ty
er

The main functions of public relations include:

op

● Press relations - Presenting news and information about the

Pr

organization/product in the most positive light.

● Product publicity - Sponsoring efforts to publicize specific products.

● Corporate communication - Promoting and understanding of the

organization through internal and external communication.

18 Marketing | Reference Book 1

 ● Lobbying - Dealing with legislators and government officials to promote
or defeat legislation and regulation.

● Counseling - Advising management about public issues and company

positions and image.

Many companies today are turning towards Marketing Public Relations

(MPR) to directly support corporate or product promotion and image
making. MPR plays an important role in the following tasks:

● Assisting in the launch of new products

● Assisting in repositioning a mature product

● Building interest in a product category

● Influencing specific target groups

● Defending products that have encountered public problems

an
st
● Building the corporate image in a way that reflects favorably on its
products

ki
Pa
Sales Promotion

s
er
Sales promotion is a key technique used in marketing. Sales promotion
nk
consists of a diverse collection of incentive tools, mostly short term,
Ba

designed to stimulate quicker or greater purchase of particular products

or services by consumers or the trade.
of

While advertising offers a reason to buy, sales promotion offers an incentive

e
ut

to buy. Sales promotion includes tools for consumer promotion (samples,

coupons, prices off, premiums, prizes, patronage rewards, free trials,
it

warranties, tie-in promotions, cross-promotions, point-of-purchase displays,

st

and demonstrations); trade promotions (prices off, advertising and display

In

allowances and free goods), and business and sales force promotion (trade
shows and conventions, contests for sales reps, and specialty advertising).
e
Th

Sales promotion tools are used by most organizations, including

:

manufacturers, distributors, retailers, non-profit organizations and even

of

service organizations.
ty

Purpose of Sales Promotion

er
op

Sales promotion tools vary in their specific objectives. A free sample

Pr

stimulates consumer trial, whereas a free advisory service aims at cementing

a long-term relationship with the retailer/consumer. Sellers use incentive-
type promotions to attract experimenters, to reward loyal customers, and
to increase the repurchase rates of occasional users. The experimenters
are of three types - users of another brand in the same category, users in
other categories and frequent brand switchers. Sales promotions often

Types of Marketing 19
 attract the brand switchers, because users of other brands and categories
do not always notice or act on a promotion. Brand switchers are primarily
looking for low price, good value, or premiums. Sales promotions are
unlikely to turn them into loyal users. Sales promotions used in markets
of high brand similarity produce a high sales response in the short run
but little permanent gain in market share. In markets of high brand
dissimilarity, sales promotions can alter market shares permanently.

Consumer Promotion Tools

The major consumer promotion tools are summarized below:

● Samples - Offer of a free amount of product or service delivered door

to door, sent in the mail, picked up in a store, attached to another
product, or featured in an advertising offer.

● Coupons - Certificates entitling the bearer to a stated saving on the

purchase of a specific product: mailed, enclosed in other products, or
inserted in magazine or newspapers.

an
st
● Cash Refund Offers (rebates) - Provide a price reduction after purchase.

ki
Price Packs - Offers to consumers of savings off the regular price of a

Pa
●

product.

s
●
er
Premiums (gifts) - Merchandise offered at a relatively low cost or free
nk
as an incentive to purchase a particular product.
Ba

● Prizes (contests, sweepstakes, games, etc.) - Prizes are offers of the

of

chance to win cash, trips, or merchandise as a result of purchasing

some good or service. A contest calls for consumers to submit an entry
e
ut

to be examined by a panel of judges who select the best entries; a

sweepstake asks consumers to submit their names for a draw; a
it

game presents consumers with something every time they buy, which
st

might help them win a prize.

In

Patronage Awards - Values in cash or in other forms that are

e

●
Th

proportional to the patronage of a certain vendor, e.g. most airlines

offer frequent flyer programs.
:
of

● Free Trials - Inviting prospective purchasers to try the product without

ty

cost in the hope that they will buy the product.

er

Product Warranties - Explicit or implicit promises by sellers that the

op

product will perform as specified or that the seller will fix it or refund
Pr

the consumer's money during a specified period.

● Tie-In Promotions - Two or more brands or companies team up on

coupons, refunds, and contests to increase pulling power.

● Cross-Promotions - Using one brand to advertise another non-

competing brand.

20 Marketing | Reference Book 1

 ● POP Displays and Demonstrations - POP displays and demonstrations
take place at the point of purchase or sale.

Trade Promotion Tools

Major trade promotion tools include the following:

● Price-Off - A straight discount off the list price on each product

purchased during a stated time period.

● Allowance - An amount offered in return for the retailer's agreeing

to feature the manufacturer's products in some way.

● Free Goods - Offers of extra cases of merchandise to intermediaries

who buy a certain quantity or who feature a certain flavor or size.

Business and Sales Force Promotion Tools

Business and sales force promotion tools are used to gather business leads,

an
impress and reward customers, and motivate the sales force to greater

st
effort. Major business and sales force promotion tools include the following:

ki
Trade Shows and Conventions - Industry associations organize annual

Pa
●

trade shows and conventions. Firms selling products and services buy

s
space and set up booths and displays to demonstrate their products.
er
nk
● Sales Contests - A sales contest aims at inducing the sales force or
Ba

dealers to increase their sales results over a stated period, with prizes
going to those who succeed. Companies may sponsor annual or more
of

frequent sales contests for their sales force; top performers may receive
trips, cash prizes, or gifts.
e
ut
it

● Specialty Advertising - Specialty advertising consists of useful, low-

cost items bearing the company's name and address, and sometimes
st

an advertising message that sales people give to prospects and customers.

In

Common items are pens, calendars, diaries, and memo pads.

e
Th
:
of
ty
er
op
Pr

Types of Marketing 21
Part One Introduction to Marketing
Chapter 3 Marketing Process

Student Learning By the end of this chapter you should be able to:
Outcomes
State and discuss the concept of value chain

Illustrate the value chain in a financial institution

Introduction The marketing process consists of analyzing marketing opportunities,

researching and selecting target markets, designing marketing strategies,
planning marketing programs, and organizing, implementing, and
controlling the marketing effort.

an
Planning at the corporate, division, and business levels is an integral part
of the marketing process. To fully understand that process, we must first

st
look at how a company defines its business.

ki
Pa
The task of any business is to deliver value to the market at a profit. There
are at least two views of the value-delivery process. The traditional view

s
er
is that a firm makes something and then sells it. In this view, marketing
nk
takes place in the second half of the value-delivery process. The traditional
view assumes that the company knows what to make and that the market
Ba

will buy enough units to produce profits for the company. Companies
of

that subscribe to this traditional view have the best chance of succeeding
in economies marked by goods shortages where consumers are not fussy
e

about quality, feature, or style. But the traditional view of the business
ut

process will not work in more competitive economies where people face
it

abundant choices. The "mass market" is actually splintering into numerous

st

micro markets, each with its own wants, perceptions, preferences, and
In

buying criteria. The smart competitor, therefore, must design the offer
for well-defined target markets.
e
Th

The Evolution of In the past, marketing was seen as a concern for the manufacturing
:

Marketing in the industry only, with little or no relevance for a service industry such as
of

Financial Services banking. A banker was regarded as a professional, offering services to

Sector those who sought them rather than as a business person trying to sell
ty

products to new and existing customers. Competition was very limited.

er

There was little or no advertising, prices were fixed through a cartel, hours
op

of opening were uniform and the range of services available varied little
Pr

from one bank to another.

By the 1970s, this situation started changing. While the major clearing
banks did not compete amongst themselves on price, there was growing
competition among their subsidiary companies. Controls on lending,

22 Marketing | Reference Book 1

 which had held back the clearing banks, diverted business to other
financial institutions such as finance houses. Newcomers, such as
multinational banks, added to the pressure.

In the 1980s, shaped by the forces of deregulation, financial and

technological innovation, social change and competition, the market for
retail deposits became a market for a plethora of financial services.
Competition increased between banks, other financial institutions and
non-financial organizations. This continued into the 1990s with:

● A number of building societies converting into banks.

● Assurance and insurance companies offering bank services.

● Computer software companies developing computer-based

financial services.

● Car manufacturers and utility providers offering credit cards.

an
● Motoring organizations and exhaust replacement companies

st
offering insurance.

ki
In response, retail banks started adopting marketing strategies that reflected

Pa
the demands of their customers. Particular concern was placed on the
building of customer loyalty through the development and maintenance

s
er
of enduring, long-term customer relationships.
nk
Ba

The impetus for developing relationships has been the growing awareness
of the following two economic arguments:
of

● It is more expensive to win a new customer than to retain an existing

e

customer. Recruiting new customers is a costly business involving

ut

advertising costs, selling costs, credit-checking costs and administrative

it

costs. It has long been claimed that it is up to ten times as expensive

st

to obtain business from new customers as additional business from

In

existing customers.
e
Th

● The longer the association, the more profitable the relationship

between the bank and the customer. A customer has a lifetime
:

requirement for financial services and therefore, a potential lifetime

of

value to the bank. If we consider a basic money transmission account,

in the early years there are likely to be high transaction levels, low
ty

balances and low profits for the bank. Profit comes with customer
er

maturity, through higher income, higher balances, lending services,

op

deposit products and insurance commissions.

Pr

A transaction-oriented view of the customer would consider the sales

value and profitability of each single product or sale. A relationship-
oriented view of the customer considers the revenues and contributions
earned from a long-term relationship with a customer. When customers

Marketing Process 23
 leave a bank, they not only take profit with them from current transactions
but future profit as well.

To develop relationships effectively, banks have to understand their

customers better through the collection and interpretation of information
about their customers' circumstances and requirements. Careful planning
of both the positioning of the bank and the provision of services is
undertaken to meet customer needs. Activity is then monitored and
evaluated to compare performance against the plans.

From the above discussion on the evolution of marketing both generally

and within the financial services sector, the close link between marketing
and customer relationship management (CRM) is very evident. They
both embrace every area of the business comprehensively, with the
ultimate aims of identifying and meeting customer needs, maximizing
customer retention and attracting new business.

Marketing Concept in Financial Services

an
Marketing is significantly about perception. Most people perceive that

st
the ever-present challenge to attract customers is achieved by the financial
services organization providing the best products and services. Those that

ki
succeed are the providers whom customers perceive to be the best.

Pa
Obviously the quality of products and services is important, but the

s
customer is also influenced by other factors such as their perception of
er
brand, reputation, competitors, status, etc. The real challenge, therefore,
nk
is to win the minds of the customers.
Ba

How is this comprehensive marketing approach achieved? Competitive

of

pressures and increasing customer sophistication have caused many in

the finance sector to rethink their positions, both broadening their
e
ut

approach and placing greater emphasis on the marketing concept.

it

As discussed earlier, marketing is now seen as a fundamental component

st

in the planning process of any business operating in a competitive

In

environment. The marketing concept revolves around customer and

his/her needs as depicted in the figure given below:
e
Th
:
of
ty
er
op
Pr

24 Marketing | Reference Book 1

 As you can see, the customer is at the centre of the business and is
effectively the most important person for the organization. Customer
satisfaction is critical because:

● An organization's sales come from two groups - new customers and

existing customers. It is estimated that it costs up to ten times as much
to secure a sale from a new customer than to sell to an existing client.
Customers remain loyal to their financial services provider if they feel
satisfied with the service they receive.

● If a customer is satisfied with their provider, there is a strong possibility

that they will mention it to friends and colleagues (commonly known as
word-of-mouth) and so generate referral business. In some quarters, the
power of "word of mouth" has become known as "viral marketing". It
is perceived that around 50% of all new clients are generated in this
manner. Equally, this can of course work against an organization when
it comes to dissatisfied customers as they would also share their displeasure
with eight to ten people, and the effect would be multiplied. Obviously,
this can have a detrimental impact on both the image of the organization

an
and its sales.

st
The Value The value chain, is a concept from business management that was first

ki
Chain described and popularized by Michael Porter in his 1985 best-seller,

Pa
“Competitive Advantage: Creating and Sustaining Superior Performance.”

s
er
A value chain is basically a chain of activities for any organization
nk
encompassing various value addition stages in a product's/service's life -
Ba

from concept development to actual product/service delivery in the hands

of the final customer.
of

Products/Services pass through all activities of the chain in order and at

e

each activity the product/service gains some value. The important thing
ut

to note is that the chain of activities gives the product or services more
it

added value than the sum of the independent activity's value. It is

st

important not to mix the concept of the value chain with the costs
In

occurring throughout the activities. For example, a diamond cutting, as

a profession, can be used to illustrate the difference of cost and the value
e
Th

chain. The cutting activity may have a low cost, but the activity adds much
to the value of the end product, since a rough diamond is significantly
:

less valuable than a cut diamond.

of

Following are at the heart of a value chain concept, without these

ty

cornerstones the success of a value chain could be compromised:

er
op

1. Coordination and collaboration

Pr

2. Investment in information technology

3. Changes in organizational processes

4. Committed leadership

5. Flexible jobs and adaptable, capable employees

Marketing Process 25
 6. A supportive organizational culture and attitudes

Significance

The concept of a value chain is so powerful and beneficial in terms of

identifying exactly the points or areas where value is being compromised,
that today almost every industry is employing this concept to enhance
their performance and attain competitive advantage.

Also, the value-chain concept has been extended beyond individual firms.
It can apply to whole supply chains and distribution networks. The delivery
of a mix of products and services to the end customer will mobilize
different economic factors, each managing its own value chain. The
industry wide synchronized interactions of those local value chains create
an extended value chain, sometimes global in extent. Porter terms this
larger interconnected system of value chains "the value system." A value
system includes the value chains of a firm's supplier (and their suppliers
all the way back), the firm itself, the firm distribution channels, and the
firm's buyers (and presumably extended to the buyers of their products,

an
and so on).

st
Capturing the value generated along the chain is the new approach taken

ki
by many management strategists. For example, a manufacturer might

Pa
require its parts suppliers to be located nearby its assembly plant to
minimize the cost of transportation. By exploiting the upstream and

s
downstream information flowing along the value chain, the firms may
er
nk
try to bypass the intermediaries creating new business models, or in other
words create improvements in its value system.
Ba
of

Value chain approach could also offer a meaningful alternative to valuate

private or public companies when there is a lack of publically known data
e

from direct competition, where the subject company is compared with,

ut

for example, a known downstream industry to have a good feel of its

it

value by building useful correlations with its downstream companies.

st
In
e
Th

Firm Infrastructure

Human Resource Management

:
ACTIVITIES
SUPPORT

Mar
of

ngi

Technology
ty

Procurement Customer
er
op
Pr

Inbound Outbound Marketing &

Marg

Logistics Operations Logistics Sales Service

in

PRIMARY ACTIVITIES

26 Marketing | Reference Book 1

 Value chain of the financial industry

The value chain is used to identify activities that are core capabilities and
sources of competitive advantage as well as activities that are non-core
activities. Hence, it is crucial for sourcing decisions to understand the
value creation mechanisms to define sourcing objectives and establish
transparency on services and cost efficiency. The process view of the value
chain enables on the one side the allocation of resources. On the other
side, the chain view mitigates to identify how different activities interact
with each other, i.e. what outcomes one activity delivers to another activity
and what transaction costs would result from insourcing, outsourcing
etc. This process view also seems to support that the value chain is better
capable to analyze activities with regard to sourcing decisions than a
listing of value activities or an (SBU) Strategic Business Unit analysis.

Originally the value chain was developed to define the different areas of
value creation in the producer goods industry. The value activities defined
by Porter for the producer goods industry are not fully transferable to
the banking industry as the industrial value generation differs from the

an
production process of a bank. Contrary to the industrial value chain from

st
Porter the developed banking value chain starts from the customer side.

ki
A Bank's primary product, apart from all the ancillaries, is providing a

Pa
secure and trusted environment where customers can deposit their money.
An offshoot of this activity is the bank's ability to mobilize these deposits

s
er
in the form of advances and earn a fee for providing funds to the debtors.
nk
Hence, all of what a bank does can be broadly categorized into two
categories: securing deposits and lending advances/making investments.
Ba

Securing deposits is achieved via different kinds of accounts offered to

of

different types of customers. And lending advances is achieved via a

plethora of different loan and investment products in the commercial,
e
ut

corporate and consumer arena.

it

For deposit accounts, the customer initiates the process by his willingness
st

to deposit money with the bank. Whereas, for lending the actual loan
In

transaction is executed once the customer has already been approved for
the desired credit facility from the bank, i.e once the loan is approved
e
Th

then only the funds are disbursed to the customer and the actual product
is generated.
:
of

Banking Value Chain

ty
er

The banking business is customer driven, and therefore, the banking

op

value chain starts from the market side. The value process starts with
advertising a newly developed product or service to the market. Secondly,
Pr

the product/service is sold to customers, e.g. the credit contract will be

signed by the customer. In a third step, the product will be provided to
the customer, e.g. the credit amount is paid to the account of the customer.
Finally, the corresponding transactions, like payments, clearing & settlement
transactions, etc. will be processed.

Marketing Process 27
 Detailed Generic Value Chain of the Banking Industry

The conceptual framework development for the services provided by a

bank starts from the market analysis and intelligence. Fundamentally
put together as part of the marketing efforts, the underlying systems and
related tangible products are developed by the technology, operations,
treasury and related departments within a bank. Once the base work and
systems are in place, the branding and advertising activities pull the

an
customers in. Sale of any banking product is essentially the customer's

st
willingness to obtain the communicated service for which he fills out a
form and submits the required documentation. The actual transaction

ki
of payments, trading, fund disbursement, clearing etc is executed once

Pa
the decision is made by the bank in customer's favor.

s
er
In short the value chain process for a bank can be differentiated into
nk
following primar y activities: distribution, pro ducts and
Ba

transactions/infrastructure. The distribution part of the banking value

chain consists of marketing and sales activities. Marketing includes
of

promotion and adver tising activities, branding the f irm

name/products/services and sales support. Sales consists of multichannel
e

management (sales force, internet, call centers, branches), acquisition of

ut

customers and offering/pricing.

it
st

A generic value chain for consumer credits

In
e
Th
:
of
ty
er
op
Pr

28 Marketing | Reference Book 1

Part One Introduction to Marketing
Chapter 4 Services Marketing - Meaning and Key Concepts

Student Learning By the end of this chapter you should be able to:
Outcomes
Define the term Services Marketing

Discuss how Services Marketing differs from Product/Goods Marketing

Explain and illustrate how the financial sector is a classification of the

services marketing category

Introduction Services can simply be defined as deeds, processes and performances.

Services are not tangible and can not be touched, seen, and felt, but rather
are intangible deeds and performances. For example, IBM offers a repair
and maintenance service for its equipment, consulting services for IT and

an
e-commerce applications, training services, web design and hosting, and

st
other similar services. These services may include a final, tangible report,

ki
or a website, but for the most part, the entire service is represented to the

Pa
client through problem analysis activities, meetings with the client, follow-
up calls, and reporting - a series of deeds, processes, and performances.

s
er
Similarly, the core offerings of banks and financial institutions comprise
primarily of deeds and actions performed for customers.
nk
Ba

Therefore, services can be defined as including "all economic activities

whose output is not a physical product or construction, is generally
of

consumed at the time it is produced, and provides added value in forms

e

(such as convenience, timeliness, health, amusement, or comfort) that

ut

are essentially intangible concerns of its first purchaser".

it
st

The Finance The finance sector encompasses a broad range of organizations that
In

Sector basically deal with the management of money. Such organizations include
banks, insurance companies, leasing companies, consumer finance
e

companies, stock brokerages, investment organizations, etc. The products

Th

offered by these companies are mostly intangible, in that they cannot be

touched, or felt, and are, therefore, intangible deeds and performances.
:
of

For example, the primary operations of a bank include:

ty
er

● Keeping customers' money safe and allowing withdrawals when

op

required.
Pr

● Providing different types of loans such as personal loans, commercial

loans, etc.

● Issuance of credit cards and processing of credit card transactions and

billing.

Services Marketing - Meaning and Key Concepts 29

 ● Issuance of cheque books and debit cards.

● Ensuring smooth transactions of money.

● Facilitating easy and smooth transfer of funds between banks, cities,

and countries.

● Providing foreign exchange services.

All the above-mentioned activities are intangible in nature. Although

these operations do include certain tangible elements such as cheque
books, credit/debit cards, etc., the entire service is mainly represented to
customers through meetings and interactions - a series of deeds, processes,
and performances. Therefore, we can easily say that the financial sector
is clearly a classification of the services marketing category.

Services Marketing Services marketing is a sub field of marketing. Services marketing typically
refers to both business to consumer (B2C) and business to business (B2B)
services and includes marketing of services like telecommunications

an
services, financial services, all types of hospitality services, car rental

st
services, air travel, health care services and professional services (such as
lawyers, accountants and others).

ki
Pa
Services vs. There is a general agreement that inherent differences between goods
Product/Goods and services exist and that they result in unique, or at least different

s
Marketing
er
management challenges for service businesses. These differences and
nk
associated marketing implications are illustrated in the following table.
Ba

Comparison of Services and Product/Goods Marketing

of

Goods Services Description

e
ut

Tangible Intangible ● Services cannot be inventoried.

it

● Services cannot be patented.

Services cannot be readily displayed or communicated.
st

● Pricing is difficult.
In

Standardized Heterogeneous ● Service delivery and customer satisfaction depend

e

on employee actions.
Th

● Service quality depends on many uncontrollable factors.

● There is no sure knowledge that the service delivered
:

matches what was planned and promoted.

of

Production separate Simultaneous ● Customers participate in and affect the transaction.

ty

from consumption production and ● Customers affect each other.

er

consumption ● Employees affect the service outcome.

● Decentralization may be essential.
op

● Mass production is difficult.

Pr

● It is difficult to synchronize supply and demand with

Non-perishable Perishable services.
● Services cannot be returned or resold.

30 Marketing | Reference Book 1

 Characteristics 1. Intangibility
of Services
The most basic, and universally cited, difference between goods and
services is intangibility. Because services are performances or actions
rather than objects, they cannot be seen, felt, tasted, or touched in the
same manner that we can sense tangible goods. For example, health care
services are actions performed by a provider and directed towards patients.
Similarly, banking solutions are services performed by bankers and other
staff for their customers and cannot actually be seen or touched by the
customer, although the customer may be able to see and touch certain
tangible components of the service (like credit card, cheque, deposit slip,
etc.)

Resulting Marketing Implications

Intangibility presents several marketing challenges:

● Services cannot be inventoried, and therefore fluctuations in demand

are often difficult to manage.

an
Services cannot be easily patented, and new service concepts can

st
●

therefore easily be copied by competitors.

ki
Pa
● Services cannot be readily displayed or easily communicated to
customers, so quality may be difficult for consumers to assess.

s
er
nk
● Decisions about what to include in advertising and other promotional
materials are challenging, as is pricing.
Ba
of

● The actual costs of a "unit of service" are hard to determine, and the
price-quality relationship is complex.
e
ut

2. Heterogeneity
it
st

Because services are performances produced by humans, no two services

In

will be precisely alike. Heterogeneity also results because no two customers

are precisely alike; each will have unique demands or experience the
e
Th

service in a unique way. Thus, the heterogeneity connected with services

is largely the result of human interaction (between and among employees
:

and customers) and all of the vagaries that accompany it. For example,
of

a cashier/teller may provide a different service experience to two different

customers on the same day depending on their individual needs and
ty

personalities and on whether the cashier is dealing with them when he

er

or she is fresh in the morning or tired at the end of a long day.

op
Pr

Resulting Marketing Implications

● Because services are heterogeneous across time, organizations, and

people, ensuring consistent service quality is challenging.

Services Marketing - Meaning and Key Concepts 31

 ● Quality actually depends on many factors that cannot be fully controlled
by the service supplier, such as the ability of the consumer to articulate
his or her needs, the ability and willingness of personnel to satisfy
those needs, the presence/absence of other customers, and the level of
demand for the service.

● Because of these complicating factors, the service manager cannot

always know for sure that the service is being delivered in a manner
consistent with what was originally planned and promoted.

3. Inseparability

While most goods are produced first, then sold and consumed, most
services are sold first and then produced and consumed simultaneously.
For example, clothing can be manufactured in Faisalabad, shipped to
Islamabad, sold two months later, and consumed over a period of years.
But banking services cannot be provided until they have been sold, and
the banking experience is essentially produced and consumed at the same
time. Frequently this also means that the customer is present while the

an
service is being produced and thus views and may even take part in the
production process.

st
ki
Resulting Marketing Implications

Pa
Because services are often produced and consumed at the same time,

s
●

mass production is difficult, if not impossible.

er
nk
The quality of service and customer satisfaction will be highly dependent
Ba

on what happens in 'real time,' including actions of employees and

of

the interactions between employees and customers.

e

Similarly, it is not usually possible to gain significant economies of

ut

scale through centralization. Usually operations need to be decentralized

it

so that the service can be delivered directly to the consumer in

st

convenient locations.
In

● Because of simultaneous production and consumption, the customer

e

is involved in and observes the production process and thus may affect
Th

the outcome of the service transaction.

:
of

4. Perishability
ty

Perishability refers to the fact that services cannot be saved, stored, resold,
er

or returned. This is in contrast to goods that can be stored in inventory

op

or resold another day, or even returned if the customer is unhappy.

Pr

Resulting Marketing Implications

● A primary issue that marketers face in relation to service perishability

is the inability to inventory. Demand forecasting and creative planning
for capacity utilization are therefore important and challenging
decision areas.

32 Marketing | Reference Book 1

 ● The fact that services cannot be returned or resold also implies a need
for strong recovery strategies when things go wrong. For example,
while an unpleasant dealing with a customer cannot be returned, the
banker can and should have strategies for recovering the customer's
goodwill if and when such a problem occurs.

Services In addition to the traditional five Ps (product, place, price, promotion,

Marketing Mix people), the services marketing mix includes physical evidence and process.

Physical Evidence : The environment in which the service is delivered

and where the firm and customer interact, and any tangible components
that facilitate performance or communication of the service. This includes
all of the tangible representations of the service such as brochures, business
cards, signage, equipment, etc. It also includes the physical facility where
the service is offered - for example, the retail bank branch facility.

Physical evidence is of utmost importance in the financial industry services

arena, primarily because money is being dealt throughout the transaction.
In order for customer to have faith in the services offered by any financial

an
institution, it is very important to show him/her an evidence of existence.

st
Physical places where the customer can interact with the service providers
help in developing faith that his/her money is in safe hands. Bank branches,

ki
service centers, sales centers etc are considered physical evidence of a

Pa
financial industry.

s
er
Process : The actual procedures, mechanisms, and flow of activities by
nk
which the service is delivered - the service delivery and operating systems.
Ba

The actual delivery steps the customer experiences, or the operational

flow of the service, and also gives customers evidence on which to judge
of

the service. Some services are very complex, requiring the customer to
follow a complicated and extensive series of actions to complete the
e

process.
ut
it

Processes and procedures have to be highly standardized and documented

st

in case of financial products. The SOPs or the standard operating procedures

In

are communicated to the concerned people throughout the organization

to ensure adherence and minimum deviation.
e
Th

Services Marketing The entire process of transactions is closely monitored by audit personnel,
:

in Financial Services in order to ensure smooth processing and to avoid gaps and loop holes.
of

Perishable : In this role there is a special need to ensure that trust and
ty

the customer's expectation of objectivity from his/her banker are not

er

misplaced. This is not to say that the manufacturer of consumer products

op

or a distributor of industrial products is without responsibility. The

Pr

responsibility in these other cases is limited to the fitness of purpose,

quality and value for money of the product or service concerned. It is
inconvenient but seldom catastrophic if the car breaks down or the food
is stale or the components are substandard, but a financial services
practitioner's failure to discharge his/her fiduciary responsibility for
safeguarding customers' funds or to provide responsible advice on financial

Services Marketing - Meaning and Key Concepts 33

 matters can bankrupt an organization or have a negative impact on an
individual's life. Therefore, the financial services practitioner is obliged
to pay attention to achieving the right balance between commercial and
fiduciary issues.

Intangibility : This may make it difficult for a customer to both comprehend

the particular financial service being offered and appreciate the benefits
of one service over another.

Inseparability : Even allowing for new technology, many financial services

involve a considerable human element. This may involve the provision
of advice, the tailoring of a service to particular circumstances or simply
interaction between the teller and the customer. Perhaps unlike products
such as grocery items, the customer's opinion of the financial service is
often based on attitudes towards the organization's staff rather than the
service itself. This means that the nature of the relationship between
customer and provider is likely to be the key to whether the customer
is gaining satisfaction from use of the organization's services.

an
The standard of service at a branch or call centre converts the "intangible"

st
into the "tangible". In financial services the delivery of the product is
almost as important as the product itself.

ki
Pa
Heterogeneity : As the provision of financial services involves this human
element, it is difficult to provide a service of exactly the same standard

s
er
from each member of staff, let alone the entire organization. Staff training
nk
and standardized methods can foster an awareness of this amongst staff
while the adoption of a "house style" and prepackaged services can give
Ba

an impression of standardization. Even so, much depends on the individual

of

employee who has direct contact with the public.

e

These are the key elements that show marketing of financial services is
ut

part of services marketing. As such, when responding to customer needs

it

and developing a marketing mix, the impact of these elements has to be

st

borne in mind.
In

Relationship Marketing in Financial Organization

e
Th

All financial organizations focus on long term relationships with a

:

view of:
of

● Acquisition
ty

● Satisfaction
er

● Retention
op
Pr

Relationship marketing is an important services marketing technique

used within financial services. It has evolved as a means to achieve these
objectives and provides a vehicle for the transition from the conventional
transaction-based marketing approach to the more interactive activities
facilitated by more sophisticated customer databases.

34 Marketing | Reference Book 1

 Most financial services organizations realize that markets do not contain
an infinite number of new customers. Retaining customers and maximizing
their lifetime value through relationship marketing is based on the
supposition that it is more cost effective to cross-sell to an existing customer
than to acquire a new one. Remember the cost, not to mention the effort
that it takes to induce satisfied customers to switch away from their
current suppliers.

Therefore, a customer should not be seen as the purchaser of a series of

discrete transactions but rather as someone with whom the organization
has an ongoing relationship. This means that the organization should be
anticipating what each customer is likely to need throughout their life
and when they are likely to need it. This is dependent on:

● The organization being knowledgeable about the characteristics of its

customers - most, if not all, financial services organizations have
developed customer-based computer systems which hold data on the
characteristics of each of their customers and their behaviors. A large

an
amount of this information is collected by front-line staff or contact

st
centre advisers during meetings or discussions with customers. By

ki
combining this information with:

Pa
● demographic data

s
transaction data
er
●

family life cycle information

nk
●

● details of customer balances

Ba

● details of other products held

of

A financial services organization can ensure that customers are only

e

targeted with products and promotions that are appropriate to their

ut

circumstances and needs. The organization's success at doing this is

it

dependent on the accuracy of the data that is held and the frequency with
st

which it is updated.
In
e

● The organization maintaining customer loyalty : In order to increase

Th

loyalty, financial services organizations employ a number of marketing

tools such as:
:
of

● Newsletters to keep customers informed

● Cross-selling programs
ty

● Relationship pricing (special reduced prices for customers who

er

consolidate a number of their requirements from one organization)

op

● Free phone numbers to handle customer enquiries and complaints

Pr

The emphasis of any relationship marketing activity should be on

maintaining relationships with profitable customers.

Services Marketing - Meaning and Key Concepts 35

Part One Introduction to Marketing
Chapter 5 Macro Trends and Opportunities in Pakistan's
Financial Marketing Arena

Student Learning By the end of this chapter you should be able to:
Outcomes
Discuss the current scenario of Pakistan's financial marketing industry

List the main players of Pakistan's banking industry

List and discuss the factors that influence the marketing activities

of banks

The Marketing The marketing environment includes all those factors that exert a direct
Environment or indirect influence on an organization's marketing activity. In other

an
words, the rest of the world constitutes the business's marketing

st
environment. Although this is theoretically true, the task of monitoring

ki
activities and changes in a company's environment can only be made

Pa
manageable by taking a more selective and carefully structured view of
the environment. The elements which are generally seen as having greatest

s
impact are set out in the following diagram.
er
nk
Ba

Figure 5.1 - Factors influencing marketing activities of banks

and other businesses
of
e
ut
it
st
In
e
Th
:
of
ty
er

DEMOGRAPHIC
op
Pr

This diagram shows two things:

● The organization's microenvironment consists of the elements in the

immediate environment that affects the ability to serve its markets:
suppliers, customers, publics and competitors. These are elements that

36 Marketing | Reference Book 1

 the organization can either control or influence in order to acquire
information to assist in marketing activities.

● The organization's macroenvironment consists of external entities

which can influence performance but which are out of direct control,
such as demographic, economic, technological, socio/cultural and
political/legal forces. These are the wider environmental factors which
in the longer term would likely to have an impact on the
organization's position in the market.

For an organization, the changes in the marketing environment either

at the micro or macro level creates uncertainty, threats and opportunities.
Although the environment cannot be predicted with certainty, an
organization must attempt to anticipate how consumer preferences will
shift, how competitors will react and the implications of political and
technological changes.

The Microenvironment The micro environment is specific to the individual organization as

opposed to the macro environmental factors, which will affect any

an
organization which operates in a particular market.

st
Let us first examine the micro environmental factors.

ki
Pa
● Suppliers Suppliers are organizations and individuals who provide
resources needed by the organization in order to serve their customers.

s
er
They supply equipment, computers, buildings, etc. Suppliers are often
nk
thought of as other companies, but employees and sources of finance
Ba

must also be recognized as suppliers. For all types of suppliers, a

company should be monitoring the following aspects:
of

a. Costs Changes in the price of materials or labor may require the

e

organization to alter its product range or seek substitutes for certain

ut

materials or even labor. On-line banking, automation and ATMs

it

in the financial services sector have come about partially as a result

st

of increasing staff costs.

In

b. Supplies Supply shortages or strikes may damage customer goodwill.

e
Th

For example, if certain free gifts or a package such as a house buyer's

file is promoted, supply shortages can mean that the organization
:

loses sales in the short run and suffers image damage in the long
of

run.
ty

c. Alternatives The introduction of substitute services such as debit

er

cards rather than cheque books.

op
Pr

From a marketing perspective, we need to be aware that these areas of

supply can have an influence on the ability of the business to meet the
needs of the customers. This could include innovations carried out by
suppliers or interruptions in their level of supply, for example, due to
industrial action in their organization.

Macro Trends and Opportunities in Pakistan's Financial Marketing Arena 37

 ● Customers In the marketing context, important elements of the
environment are the customers and staff, therefore the organization
must be aware of:

● How do customers evaluate its services against those of its

competitors?

● What are they looking for in this market and how far is the
organization providing this effectively?

● How are customers' tastes changing?

● What are customers buying in the market, from whom and why?

● Employees Whilst not included in the diagram, they should be included

together with customers - they may also be customers - as the most
important influence in this environment. Employing the correct staff
and keeping them motivated is an essential part of the strategic
planning process of any organization. Training and development play

an
an essential role, particularly in service sector marketing, in order to

st
gain a competitive edge.

ki
● Competitors Competition consists of those products or services which

Pa
the consumer regards as viable alternatives. For example, competitors
of cinemas are not simply other cinemas but also bars, theatres,

s
er
television, clubs and all other forms of entertainment.
nk
The identity of a financial services organization's competition should be
Ba

reviewed regularly because the situation may change. Originally banks

of

only competed with each other, then competitors included other financial
service companies and now retailers and "internet only" banks are
e

established in the market. Analysis of competitive performance and the

ut

activities of competitors enables an organization to determine the most

it

suitable strategies for competitive success.

st
In

If the organization is to be successful, then it must be able to make an

offering that can be differentiated from that offered by the competition,
e
Th

and therefore the organization needs to look at how its marketing mix
is different from the others.
:
of

● Publics In addition to customers and competitors, a large number of

publics take an interest in the organization's method of doing business.
ty

Although possibly not directly involved with the organization, these

er

publics can facilitate or impede an organization's ability to achieve its

op

goals. They are groups from which the organization wants some response,
Pr

such as goodwill, favorable mentions or the provision of assistance in

terms of time, money and influence.

38 Marketing | Reference Book 1

 Businesses will often undertake public relations activities to distribute
information and communications to build goodwill. When negative
publicity about the company occurs, public relations activities will be
used to counter this publicity.

A Financial Services Organization's Publics

Financial Media
community

Government

THE ORGANISATION

Public pressure
group

an
st
Internal publics

ki
Pa
The professions

s
er
nk
A financial services organization is likely to face the following types
Ba

of public:
of

● Financial community publics Stockbrokers, investment and other

e

financial institutions affect the organization's ability to obtain funds.

ut

Banks therefore produce glossy annual reports and will often invite
it

financial analysts and commentators to expensive receptions in order

st

to gain the confidence of these groups.

In

● Media publics In order to ensure that favorable information is

e

disseminated about the organization or its services, companies will

Th

cultivate the goodwill of media organizations such as television, radio,

:

newspapers and magazines. Relationships will be fostered with

of

journalists by keeping them informed of new developments, inviting

them to press conferences and arranging lunches. This can happen at
ty

both local and national level.

er
op

● Government publics Financial services organizations will often lobby

Pr

government ministers and civil servants about legislation which may

damage their interests or rulings by regulatory bodies.

● Public pressure groups On a national level these can include consumer

organizations, environmental groups, minority groups, etc. At the
local level this may include community organizations.

Macro Trends and Opportunities in Pakistan's Financial Marketing Arena 39

 ● The professionals Lawyers, accountants and independent financial
advisers can influence individuals and organizations in their choice
of provider. Businesses should maintain good relations with these
individuals through regular meetings and by networking, for example,
with local business organizations.

● Internal public These include the organization's own workforce. The

organization image and morale can inf luence the image held by
external publics, therefore companies produce newsletters, provide
profit-sharing schemes and offer benefits to staff. For example, banks
usually offer loans to staff on discounted rates as well as other benefits.

Each of these public and the manner in which they view the organization,
can inf luence the organization's overall success. Their attitudes and
protests or praise can inf luence the behavior of customers, therefore
businesses need to monitor all their public and plan their communications
with these groups.

The Macroenvironment The macro environment consists of five forces that can shape opportunities

an
and pose threats to the organization:

st
Demographic environment

ki
●

Pa
● Economic climate

s
● Political/legal/regulatory environment
er
nk
Socio/cultural environment
Ba

●
of

● Technological developments
e

Demographic environment
ut
it

Demographic factors are individual characteristics such as age, gender,

st

race, ethnic origin, income, family life cycle and occupation. All of these
In

factors have the ability to impact consumers' buying requirements and

behaviors; therefore a clear understanding of these demographic
e
Th

characteristics is important.
:

Examples of demographics in buying decisions is the influence of children

of

aged 6 - 17 on the buying of breakfast cereals, and the influence of parents

ty

on the financial services providers that their children choose - most

children will bank with the organization that their parents use. Therefore,
er

when marketing a product or service, the group that will have the greatest
op

inf luence on the buying decision needs to be targeted; this may not
Pr

necessarily be the same group who actually buy the product or service.
The impact of demographic changes can be demonstrated by some of the
changes which have occurred since the 1980s in Western societies:

● Continuing decline in children of school age is a threat to producers

of teenage magazines, confectionery, soft drinks, etc.

40 Marketing | Reference Book 1

 ● An increasing proportion of older people (over 75) influencing the
demand for retirement homes, hearing aids and special holidays.

● An increasing proportion of working women and the resultant demand

for convenience foods, microwave ovens and child daycare centers.
As this clearly illustrates, changes in education, ethnic population,
divorce rates and geographical shifts have a major effect on demand
for products and customer preferences.

Economic environment

The state of an economy will have an influence on the decisions made

by consumers and also organizations and their marketing activities.
The overall state of the economy in any country will fluctuate. This is
affected by the forces of supply and demand within the economy, the
buying power of consumers and organizations (along with their willingness
to consume) and the levels of competition within the economy.
These changes within the economy tend to be cyclical in nature and are
often referred to as the "business cycle", of which there are four stages:

an
st
● Prosperity

ki
Recession

Pa
●

s
● Depression
er
nk
● Recovery
Ba

Political/legal/regulatory environment
of

The government can also stimulate consumer demand for financial

e
ut

services by introducing a variety of schemes and products.

it

The government's economic policy will also have a significant influence

on the regulation of competition, permissible business practices and
st

future economic conditions. In addition, changes in relationships between

In

one country and others can seriously affect companies involved in

international marketing. A break in diplomatic relations not only affects
e
Th

the possible payment for products received but also the attitudes towards
the organization and its services.
:
of

Socio/cultural environment
ty
er

The society and culture in which people grow up and are educated shape
op

their views, attitudes and values. These attitudes and values may relate
to factors such as:
Pr

● Debt and savings - attitudes towards loans credit and thrift

● Material culture - attitudes towards acquisition of goods and services

Macro Trends and Opportunities in Pakistan's Financial Marketing Arena 41

 ● Social organization - role of women, old people and children .

● Religious beliefs - attitude and beliefs towards the underlying banking

principles.

● Aesthetics - attitudes towards color, brand names, design and music.

There are also views within society on the role of the marketing function;
for example, if marketing is deemed to be doing a good job, then it is
unlikely that praise will flow from the society - it is almost as if these
positive efforts are invisible. On the other hand, if there is a feeling that
marketing has in some way been negative, say through an unethical
advertising campaign, then much negative publicity is bound to flow.
Within the past decade, there has also been a much higher prominence
given to "green" issues. This has posed a challenge for marketers to
publicize the efforts that the organization is making to protect the
environment, for example through recycling efforts.

Technological environment

an
st
Technology is the application of knowledge and tools to solve problems
and to perform tasks more effectively. The effects of technology are wide

ki
ranging and can be seen all around us; for example, consider the way that

Pa
you communicate now compared to the way you did ten years ago and

s
you will realize how great the changes have been in the volume and
methods of communication.
er
nk
Ba

Some of the more recent developments in financial services technology

which have occurred in the last twenty to thirty years are:
of

● Electronic Fund Transfer Systems

e
ut

Automated Teller Machines

it

●
st

● Direct deposit of payroll

In

Payment by phone systems

e

●
Th

● Pre-authorized fund transfers (direct debit/standing orders)

:
of

● Debit cards
ty

Electronic cash, smart cards

er

●
op

● Telephone banking
Pr

● Internet banking

These types of new technology pose threats to existing products but also
offer new opportunities.

42 Marketing | Reference Book 1

 Database technology is also playing an increasingly important role in
banks, enabling them to target potential customers for products more
accurately. Financial services companies continually strive to keep up to
date with the most recent developments, investing in the most relevant
softwares and systems in an attempt to gain an edge on competitors. The
enablement of database marketing has removed much of the speculation
and provided a focused, targeted approach.

Current Scenario of As everywhere else in the world, the financial sector of Pakistan plays a
Pakistan’s Financial significant role in a contemporary world of money and economy. It
Sector influences and facilitates many different but integrated economic activities
like resource mobilization, poverty elimination, production and
distribution of public finance. Pakistan has a well-developed banking
system, which consists of a wide variety of institutions ranging from a
central bank to commercial banks and to specialized agencies to cater for
special requirements of specific sectors. The country started without any
worthwhile banking network in 1947 but witnessed phenomenal growth
in the first two decades. By 1970, it had acquired a flourishing banking
sector. Pakistan's banking sector reforms, which were initiated in the early

an
1990s, have transformed the sector into an efficient, sound and strong

st
banking system.

ki
The major changes that have occurred in the banking sector of Pakistan

Pa
during the last decade or so can be summarized as follows:

s
●
er
80 percent of the banking assets in Pakistan are now held by private
nk
banks. Privatization of nationalized commercial banks has brought
Ba

about a culture of professionalism and service orientation, with greater

focus on the customer.
of

● The banks that were losing money due to inefficiencies, waste and
e

limited product range have become highly competitive and resultantly

ut

profitable businesses.
it
st

● Online Credit Information Bureau reports provide updated information

In

to the banks about the credit history and track record of the borrowers.
Consequently, the quality of new assets has improved as stringent
e
Th

measures are taken to appraise new loans, and assure the underlying
securities.
:
of

● The human resource base of financial institutions has improved

significantly. Recruitment in banks is now done on merit through a
ty

highly competitive process. Compensation packages and internal

er

promotions/transfers are linked to training, skills and high performance.

op
Pr

The banks now routinely employ MBAs, M.Coms, Chartered Accountants,

IT graduates, and other highly educated persons. The banking industry
has become the preferred choice of profession among young graduates.

Macro Trends and Opportunities in Pakistan's Financial Marketing Arena 43

 ● Banking technology that was almost non-existent in Pakistan until a
few years ago has revolutionized the whole industry through
technologies like online banking, Internet banking, ATMs, etc.

● Cut throat competition in the financial sector has resulted in an ever-

expanding array of product and services offered by banks.

Major Players in The main lesson learned from the last decade suggests that the financial
Pakistan's Banking sector functions effectively and efficiently only if the macroeconomics
Industry situation is favorable and stable. The need to maintain macroeconomic
stability is, therefore, highly important.

Pakistan is one of the most populous countries of the world with a GDP
growth rate of more than 20%. Economically, Pakistan can be termed as
a developing economy as the country has been facing severe economic
and political crises over a long period of time. The industrial output of
the country has been largely backed by the banks in Pakistan, which are
scattered throughout almost every region of the country.
A concise list of the major players in Pakistan's banking industry follows.

an
st
● State Bank of Pakistan

ki
● National Bank of Pakistan

Pa
● First Women Bank

s
er
● Industrial Development Bank of Pakistan
nk
● Zarai Taraqiati Bank (ADBP)
Ba

● Allied Bank Ltd.

of

● Askari Commercial Bank

e
ut

● Bank Al-Habib
it

● Habib Bank Ltd.

st

● JS Bank
In

● United Bank Ltd.

e
Th

● Muslim Commercial Bank

:

● Citibank
of

● HSBC
ty

Faysal Bank Ltd.

er

●
op

● Silk Bank
Pr

● KASB Bank Ltd. etc.

44 Marketing | Reference Book 1

 Part 2: Understanding the Market
Identifying Opportunities, and
Developing the Marketing Strategy

Chapter 1: Consumer Markets and Consumer Buying Behavior

Chapter 2: The Buyer's Decision Process and Types of Buying Decision

Behavior

an
st
Chapter 3: Business and Corporate Markets and their Buying Behavior

ki
Pa
s
Chapter 4: Marketing Research er
nk
Ba
of

Chapter 5: Different Methods and Types of Marketing Research

e
ut
it
st
In

Chapter 6: Marketing Information System

e
Th
:
of

Chapter 7: Measuring and Monitoring Service Quality via MIS

ty
er
op
Pr

Chapter 8: Media Planning and Buying

45
 Part 2: Understanding the Market
Identifying Opportunities, and
Developing the Marketing Strategy

Chapter 9: Competitor Analysis / Competition Scan

Chapter 10: Key Features of the Pakistani Society

an
Chapter 11: Market Segmentation / Target Market

st
ki
Pa
s
Chapter 12: Developing the Positioning Strategy
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

46
Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 1 Consumer Markets and Consumer Buying Behavior

Student Learning By the end of this chapter you should be able to:
Outcomes
Discuss the concept of consumer behavior

Discuss how studying consumer behavior can aid the overall

marketing efforts

Introduction The field of consumer behavior covers a lot of ground; it is the study of
the processes when individuals or groups, select, purchase, use, or dispose
of products, services, ideas, or experiences to satisfy needs and desires.

an
Consumers may be from different age ranging from an eight-year old

st
child to an executive of a large corporation.

ki
Pa
Consumers are actors on the market place stage. The perspective of role
theory takes the view that much of consumer behavior resembles actions

s
in a play. As in a play, each consumer has lines, prop and costumes
er
necessary to put on a good performance. Every person has more than
nk
one role to play in life and thus they alter their consumption decisions
Ba

depending on the particular "role" they are in at that time. The criteria
they use to evaluate products and services in one role may be quite
of

different from that used in another role.

e
ut

Consumer Behavior
it
st

In its early stages of development, the field was often referred to as buyer
behavior, reflecting an emphasis on the interaction between consumers
In

and producers at the time of purchase. However, most marketers now

e

recognize that consumer behavior is an ongoing process, it does not

Th

merely happens at the moment a consumer hands over money and in

turn receives some good or service.
:
of

Although the exchange (transaction) remains an important part of

ty

consumer behavior, the expanded view emphasizes the entire consumption

er

process, which includes the issues that influence the consumer before,
op

during, and after a purchase. Figure 1.1 illustrates some of the issues that
are addressed during each stage of the consumption process.
Pr

Consumer Markets and Consumer Buying Behavior 47

 Figure 1.1 - Some Issues that Arise During Stages in the Consumption
Process
CONSUMER'S PERSPECTIVE MARKETER'S PERSPECTIVE

PRE-PURCHASE

How does a consumer decide that he/she needs How are consumer attitudes toward products
ISSUES

a product? formed and/or changed?

What are the best sources of information to What cues do consumers use to infer which
learn more about alternative choices? products are superior to others?
PURCHASE ISSUES

Is acquiring a product a stressful or pleasant How do situational factors, such as time

experience? What does the purchase say about pressure or store displays, affect the consumer's
the consumer? purchase decision?

an
st
ki
POST-PURCHASE

Does the product provide pleasure or perform What determines whether a consumer will be

Pa
its intended function? satisfied with a product and whether he/she will
ISSUES

buy it again?
How is the product eventually disposed of, and

s
what are the environmental consequences of Does this person tell others about his/her
this act?
er
experiences with the product and influence
their purchase decisions?
nk
Ba

"Consumer Behavior", Michael R. Solomon

of

Consumer Behavior involves many Different Actors

e
ut

A consumer is generally thought of as a person who identifies a need or

it

desire, makes a purchase and then disposes of the product during the
st

three stages in the consumption process. In many cases, however, different

people may be involved in this sequence of events. The purchaser and
In

user of a product might not be the same person, as when a parent

e

purchases an investment plan for a teenager. In other cases, another

Th

person may act as an inf luencer, providing recommendations for or

against certain products without actually buying or using them. For
:
of

example, a friend or colleague might influence a person's decision to

apply for a credit card from a certain bank.
ty
er

Consumers' Impact on Marketing Strategy

op
Pr

Let us now discuss why it is important for managers and marketing

professionals to study and learn about consumer behavior. Very simply,
understanding consumer behavior is good business. A basic marketing
concept holds that firms exist to satisfy consumers' needs. These needs
can only be satisfied to the extent that marketers understand the people
and organizations that will use the products and services they are trying
to sell, and that they do better than their competitors.

48 Marketing | Reference Book 1

 Consumer response is the ultimate test of whether a marketing strategy
will succeed. Thus, knowledge about consumers should be incorporated
into every facet of a successful marketing plan. Data about consumers
help organizations define the market and identify threats and opportunities
to a brand.

Segmenting The process of market segmentation identifies groups of consumers who

Consumers are similar to each another in one or more ways and devises marketing
strategies that appeal to one or more groups. Amazon.com tries to reach
multiple segments at the same time, whereas toysrus.com focuses on
products for kids. Similarly, in Pakistan's banking industry, UBL targets
multiple segments from different social classes, while HSBC focuses more
on the upper-middle class of the society.

Demographic Segmentation:

There are many dimensions that can be used to slice up a larger market.
Demographics are statistics that measure observable aspects of a population,
such as birth rate, age distribution and income. Let's summarize some of

an
the most important demographic dimensions:

st
1) Age

ki
Pa
Consumers of different age groups obviously have very different needs
and wants. Although people who belong to the same age group differ in

s
er
many other ways, they do tend to share a set of values and common
nk
cultural experiences that they carry throughout their life. For example,
UBL launched "UBL First - Minor Saving Account", designed especially
Ba

for children and aimed at becoming every child's first bank account. This
of

enabled UBL to target a particular age group of consumers.

e

2) Gender
ut
it

Many products, from fragrances to footwear, are targeted either towards

st

men or women. Differentiating by gender is also important and at times

In

very useful.
e

3) Family Structure
Th
:

A person's family and marital status is yet another important demographic

of

variable, because it is has a big effect on consumers' spending priorities.

Young bachelors and newlyweds are most likely to exercise, go to concerts
ty

and movies, etc. Families with young children are big purchasers of health
er

foods and fruit juices, while those with older children buy more junk
op

food. Home maintenance services are most likely to be used by older

Pr

couples and bachelors. Similarly, investment plans are more likely to be

purchased by families with little kids in order to secure their future, while
bachelors and young adults would be more interested in credit cards.

Consumer Markets and Consumer Buying Behavior 49

 4) Social Class and Income

Social class indicates people who are approximately equal in terms of

their incomes and social standing in the community. They work in roughly
similar occupations, and they tend to have similar tastes in music, clothing,
art, and so on. They also tend to socialize with one another, and they
share many ideas and values regarding the way life should be led.
The distribution of wealth is of great interest to marketers because it
determines which groups have the greatest buying power and market
potential. A good example of targeting a social class in the banking
industry is of HBL, which targets multiple segments from various social
classes. On the other end of the spectrum is HSBC focusing more on the
upper-middle class of the society.

5) Race and Ethnicity

As the society becomes increasingly multicultural, new opportunities

develop to deliver specialized products to racial and ethnic groups and
to introduce other groups to these offerings.

an
Psychographic Segmention

st
ki
Lifestyle, values and interests

Pa
Consumers also have very different lifestyles, even if they share other

s
er
characteristics such as age or gender. The way we feel about ourselves,
the things we value, things we like to do in our spare time - all of these
nk
factors help to determine which products will push our buttons.
Ba

Geographic Segmentation
of
e

Many marketers tailor their offerings to appeal to consumers who live

ut

in different parts of the country. For instance, there are various big banks
it

in Pakistan that have opened their branches in rural areas in order to

st

cater to the segment living in those areas as well.

In

Studying consumer behavior has become even more important with the
e

growth of consumerism. Consumerism can be defined as a movement

Th

by various bodies of people to attempt to defend and exercise their rights

:

as buyers. In particular, consumerism is concerned with:

of

● Ensuring that adequate information is provided to the potential

ty

customer about a product or service

er

● Increasing the protection given to consumers against questionable

op

marketing practices
Pr

● Influencing directly the features of products or services and the way

they are sold if these adjustments are likely to benefit society or the
environment as a whole

50 Marketing | Reference Book 1

 Consumer protection

Buyers' rights have a major impact on the responsibilities of financial

services providers and have been reinforced by statues such as the
Consumer Credit Act 1974 and the Financial Services and Markets Act
2000. The Banking Code is an example of an explanation of the practices
of organizations and the rights of consumers.

Relationship Marketers are carefully defining customer segments and listening to

Marketing: Building people in their markets as never before. Many of them have realized that
Bonds with Consumers a key to success is building relationships between brands and customers
that will last a lifetime. Marketers who believe in this philosophy called
relationship marketing (discussed in earlier chapters as well), interact
with customers on a regular basis and give them reasons to maintain a
bond with the company over time.

The True Meaning Another revolution in relationship building is Database marketing, which
of Consumption involves tracking consumers' buying habits very closely and crafting
products and messages tailored precisely to people's wants and needs

an
based on this information.

st
One of the fundamental premises of the modern field of consumer

ki
behavior is that people often buy products not for what they do, but for

Pa
what they mean. This principle does not imply that a product's basic
function is unimportant, but rather that the roles products play in peoples'

s
er
lives go well beyond the tasks they perform. The deeper meanings of a
nk
product may help it to stand out from other similar goods and services
- all things being equal, a person will choose a brand that has an image
Ba

(or even a personality) consistent with the purchaser's underlying needs.

of

For example, although most people probably couldn't run faster or jump
higher if they were wearing Nikes versus Reeboks, many die-hard loyalists
e

swear by their favorite brand. The brands are largely marketed in terms
ut

of their images - meanings that have been carefully crafted with the help
it

of legions of athletes, stars, slickly produced commercials, etc. So when

st

you bank with HSBC, you may be doing more than choosing a bank -
In

you may also be making a lifestyle statement about the type of person
you are or wish you were.
e
Th

Our allegiances to such brands help us define our place in modern society,
:

and these choices also help us to form bonds with others who share similar
of

preferences.
ty

As we have already seen, a trademark of marketing strategies today is an

er

emphasis on building relationships with customers. The nature of these

op

relationships can vary, and these bonds help us to understand some of

Pr

the possible meanings products have to us. Here are some of the types of
relationships a person might have with a product/brand:

● Self-concept attachment - the product helps to establish the user's

identity

● Nostalgic attachment - the product serves as a link with a past self

Consumer Markets and Consumer Buying Behavior 51

 ● Interdependence - the product is a part of the user's daily routine

● Love - the product elicits emotional bonds of warmth, passion, or

other strong emotion

One consumer researcher developed a classification scheme in an attempt

to explore the different ways that products and experiences can provide
meaning to people. This consumption typology views consumption as a
type of action in which people make use of consumption objects in a
variety of ways. This analysis identified four distinct types of consumption
activities:

● Consuming as experience - an emotional or aesthetic reaction to

consumption objects. This would include reactions such as the pleasure
derived from receiving a delightful service from a bank.

● Consuming as integration - learning and manipulating consumption

objects to express aspects of the self or society. For example, some
people use souvenirs of the brands they use (e.g. mugs, pens, etc.) to
express their bonding with the product/brand.

an
st
● Consuming as classification - the activities that consumers engage in

ki
to communicate their association with objects, both to self and to

Pa
others. For example, consumers of a particular bank might use their
souvenirs to demonstrate to others that they are their fans.

s
er
Consuming as play - consumers use objects to participate in a mutual
nk
●

experience and merge their identities with that of a group.

Ba

The Global One by-product of sophisticated marketing strategies is the movement

of

Consumer towards a global consumer culture, one in which people around the world
e

are united by their common devotion to brands. The rise of global

ut

marketing means that even smaller companies are looking to expand

it

overseas - and this increases the pressure to understand how customers

st

in other countries are the same or different than in one's own country.
In

The Dark Side of Sometimes consumers are their own worst enemies. Individuals are often
e

Consumer Behavior depicted as rational decision makers, calmly doing their best to obtain
Th

products and services that will maximize the well-being of themselves,

their families and their society. In reality, however, consumers' desires,
:
of

choices and actions often result in negative consequences towards

individuals and/or society in which he/she lives. Let's review some
ty

dimensions of the dark side of consumer behavior.

er
op

Addictive Consumption
Pr

Consumer addiction is a physiological and/or psychological dependency

on products or services. Although most people equate addiction with
drugs, virtually any product or service can be seen as relieving some
problem or satisfying some need to the point that reliance on it becomes
extreme.

52 Marketing | Reference Book 1

 Some psychologists are even raising concerns about internet addiction.
Similar concerns have been raised about addiction to stock trading by so-
called day traders.

Compulsive Consumption

Compulsive consumption refers to repetitive shopping, often excessive,

as an antidote to tension, depression, anxiety, or boredom.

Compulsive consumption is distinctly different from impulse buying.

The impulse to buy a specific item is temporary, and it centers on a specific
product at a particular moment. In contrast, compulsive buying is an
enduring behavior that centers on the process of buying, not the purchases
themselves.

In some cases, it is fairly safe to say that the consumer has little to no
control over consumption. Much negative or destructive consumer
behavior can be characterized by three common elements:

an
1. The behavior is not done by choice.
2. The gratification derived from the behavior is short-lived.

st
3. The person experiences strong feelings of regret or guilt afterwards.

ki
Pa
Consumed Consumers

s
er
People who are used or exploited, willingly or not, for commercial gain
nk
in the marketplace can be thought of as consumed consumers. The
situations in which consumers themselves become commodities can range
Ba

from traveling road shows that feature dwarfs to the selling of body parts
of

and babies.
e

Consumer Behavior By now it should be clear that the field of consumer behavior encompasses
ut

as a Field of Study many things, from the simple purchase of a carton of milk to the selection
it

of a complex investment plan. There's an awful lot to understand, and

st

many ways to go about it. Although people have certainly been consumers
In

for a long time, it is only recently that consumption per se has been the
object of formal study.
e
Th

Interdisciplinary Influences on the Study of Consumer Behavior is a very

:

young field, and as it grows, it is being influenced by many different

of

perspectives. People with training in a very wide range of disciplines -

from psychophysiology to literature - can now be found doing consumer
ty

research.
er
op

The Issue of Strategic Focus

Pr

Many regard the field of consumer behavior as an applied social science.

Accordingly, the value of the knowledge generated should be judged in
terms of its ability to improve the effectiveness of marketing practice.
However, some researchers have argued that consumer behavior should
not have strategic focus at all; the field should not be a "handmaiden to

Consumer Markets and Consumer Buying Behavior 53

 business." It should instead focus on the understanding of consumption
for its own sake, because the knowledge can be applied by marketers.

The Issue of Two Perspectives on Consumer Research

A general way to classify consumer research is in terms of the fundamental

assumptions that the researchers make about what they are studying and
how to study it. This set of beliefs is known as a paradigm. As in other
fields of study, consumer behavior is dominated by a paradigm, but some
believe that it is in the middle of a paradigm shift, which occurs when
a competing paradigm challenges the dominant set of assumptions.

The basic set of assumptions underlying the dominant paradigm at this

point in time is called positivism (or sometimes modernism). This
perspective emphasizes that human reason is supreme, and that there is
a single, objective truth that can be discovered by science. Positivism
encourages us to stress the function of objects, to celebrate technology,
and to regard the world as a rational, ordered place with a clearly defined
past, present, and future.

an
The emerging paradigm of interpretivism (or postmodernism) questions

st
these assumptions. Proponents of this perspective argue that there is too

ki
much emphasis on science and technology in our society, and that this

Pa
ordered, rational view of behavior denies the complex social and cultural
world in which we live. They feel that positivism puts too much emphasis

s
er
on material wellbeing. Interpretivists instead stress the importance of
nk
symbolic, subjective experience, and the idea that meaning is in the mind
of a person - that is, we each construct our own meanings based on our
Ba

unique and shared cultural experiences, so there are no right or wrong

of

answers. In this view, the value placed on products because they help us
to create order in our lives is replaced by an appreciation of consumption
e

as offering a set of diverse experiences.

ut
it

Consumer Behavior Today's dual-career couples, single-parent families and two-job families
st

in Services are realizing a burning consumer need: more time. Individuals in these
In

and other non-traditional family configurations are overstressed with

their work and home obligations and find dealing with many of life's
e

everyday tasks overwhelming.

Th
:

The antidote to time deficiency are the new services and service features
of

of retailers that recover time for consumers. Innovative new services like
wedding planners, executive organizing, personal shopping assistants are
ty

emerging. Earlier performed at a household level, all these can now be

er

purchased by the time-buying consumer. Conventional services such as

op

banking are also adding peripheral services to make shopping easier,

Pr

adjusting their work hours to suit customer schedules, reducing transaction

time, providing internet banking solutions, etc.

The primary objective of service producers and marketers is identical to

that of all marketers - to develop and provide offerings that satisfy consumer
needs and expectations, thereby ensuring their own economic survival.
In other words, service marketers need to be able to close the customer

54 Marketing | Reference Book 1

 gap between expectations and perceptions. To achieve this objective,
service providers need to understand how consumers choose and evaluate
their service offerings. We will discuss this in greater detail
in the next chapter, but let's go through it briefly here.

Consumers have a more difficult time evaluating and choosing services

than goods partly because services are intangible and non-standardized,
and partly because consumption is so closely intertwined with production.
Lack of understanding of the way customers assess and choose services
leads to a customer gap that must be closed by service marketers.

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

Consumer Markets and Consumer Buying Behavior 55

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 2 The buyer's decision process and Types of Buying Decision
Behavior

Student Learning By the end of this chapter you should be able to:
Outcomes
Explain the buyer's decision process

List and discuss the types of buying decision behavior

List the factors that influence the buyers decision process

Analyze a decision process in the given scenario

Explain the buyer decision process for new banking products

an
st
Introduction Model of Consumer Buying Behavior

ki
Pa
The starting point for understanding consumer buying behavior or the
buyer's decision process is the stimulus-response model shown in Figure 2.1.

s
er
Marketing and environmental stimuli enter the buyer's consciousness.
nk
The buyer's characteristics and decision process lead to certain purchase
Ba

decisions. The marketer's task is to understand what happens in the buyer's

consciousness between the arrival of outside stimuli and the buyer's
of

purchase decisions.
e
ut

Figure 2.1: Model of Buyer Behavior

it

Buyer's
st

Marketing Other stimuli Buyer's decisions

stimuli characteristics
In

Product Economic Cultural Product choice

e

Price Technological Social Brand choice

Th

Place Political Personal Dealer choice

Promotion Cultural Psychological Purchase timing
:
of

Purchase amount
ty

The Buyer's decision process can also be described as the multiple decision
er

making processes undertaken by consumers in regard to a potential

op

market transaction before, during and after the purchase of a product or

service.
Pr

More generally, decision making is the cognitive process of selecting a

course of action from among multiple alternatives/marketing stimuli.
Common examples include shopping and deciding what to eat. Decision
making is said to be a psychological construct. This means that although
we can never "see" a decision, we can infer from observable behavior that

56 Marketing | Reference Book 1

 a decision has been made. Therefore we conclude that a psychological
event that we call "decision making" has occurred. It is a construction
that imputes commitment to action. That is, based on observable actions,
we assume that people have made a commitment to effect the action.

The figure below suggests that consumers pass through all five stages
with every purchase. But in more routine purchases, consumers often
skip or reverse some of these stages. A person sticking to woman buying
his/her regular brand of toothpaste would recognize the need and make
a go right to the purchase decision, skipping information search and
evaluation. However, we use the model in figure because it shows all the
considerations that arise when a consumer faces a new and complex
purchase situation.

Need Recognition &

Problem Awareness

Information
Search

an
st
Evaluation of

ki
Alternatives

Pa
s
er
Purchase
nk
Ba

Post-Purchase
Evaluation
of
e
ut

Need Recognition
it

The first stage of the buyer decision process, in which the consumer
st

recognizes a problem or need that needs to be fulfilled.

In
e

Information Search
Th

The stage of the buyer decision process in which the consumer is aroused
:
of

to search for more information; the consumer may simply have heightened
attention or may go into active information search like internet search,
ty

brochure gathering, call center inquiries, etc.

er
op

Evaluation of Alternatives
Pr

The stage of the buyer decision process in which the consumer evaluates
alternative brand choices gathered by him in the information search stage.

Purchase Decision

The buyer's final decision about which brand/product to purchase.

The buyer's decision process and Types of Buying Decision Behavior 57

 Post Purchase Behavior

The stage of the buyer decision process in which the consumer takes
further action after purchase, based on their satisfaction or dissatisfaction.

The Major Factors A consumer's buying behavior is inf luenced by a number of factors
Influencing Buying including cultural, social, personal and psychological factors. Cultural
Behavior factors exert the broadest and deepest influence. Let us discuss each one
of these factors in detail:

1. Cultural Factors

Culture, subculture, and social class are particularly important in buying

behavior.

Culture

Culture is the most fundamental determinant of a person's wants and

behavior. The growing child acquires a set of values, perceptions, preferences,

an
and behaviors through his or her family and other key institutions. For

st
example, a child growing up in a fully developed country is exposed to
values like achievement and success, activity, efficiency and practicality,

ki
progress, material comfort, individualism, freedom, external comfort,

Pa
humanitarianism, and youthfulness.

s
Subculture
er
nk
Ba

Each culture consists of smaller subcultures that provide more specific

identification and socialization for their members. Subcultures include
of

nationalities, religions, racial groups, and geographic regions. Many

subcultures make up important market segments, and marketers often
e

design products and market programs tailored to their needs.

ut
it

Social classes are relatively homogenous and endure divisions in a society,

st

which are hierarchically ordered and whose members share similar values,
In

interests, and behavior.

e
Th

Social classes do not reflect income alone, but also other indicators such
as occupation, education, and area of residence. Social classes differ in
:

dress, speech patterns, recreational preferences, and various other

of

characteristics. Table 2.1 shows broadly defined social classes in Pakistan

ty

and other major societies.

er
op
Pr

58 Marketing | Reference Book 1

 Upper Class The social elite who live on inherited wealth. They give large sums to
charity, maintain more than one house, send their children to the finest
schools abroad. Although very small as a group, they serve as a reference
group to the extent that their consumption decisions are imitated by other
social classes.

Lower Upper Class Persons who have earned high income or wealth through their professions
or business. They usually come from the middle class.

Upper Middle Class They possess neither family status nor unusual wealth. They are primarily
concerned with careers. They have attained positions as professionals,
independent businesspersons, and corporate managers. They believe in
education and want their children to develop professional or administrative
skills. Members of this class are home-oriented and are the quality target
market for good homes, clothes, furniture, and appliances.

Middle Class Average-salaried white and blue collar workers. Often, they buy products
that are popular to keep up with trends.

Working Class Average-pay blue collar workers and those who lead working-class lifestyles,
whatever their income, school background, or job. A working class vacation
means staying in town, and going away means to the beach or resort no
more than two hours away.

Upper Lower Class They are working, although their living standard is just above poverty.

an
They per form unskilled work and are ver y p o orly paid.

st
Lower Class This class is visibly poverty stricken, and usually out of work. They are

ki
mostly dependent on public aid or charity for income.

Pa
Table 2.1: Social classes

s
Social classes have several characteristics. First, those within each social
er
class tend to behave more alike than persons from two different social
nk
classes. Second, persons are perceived as occupying inferior or superior
Ba

positions according to social class. Third, social class is indicated by a

cluster of variables - for example, occupation, education, income, wealth,
of

and value orientation - rather than by any single variable. Fourth,

individuals can move from one social class to another - up or down -
e
ut

during their lifetime. The extent of this mobility varies according to the
it

rigidity of social stratification in a given society.

st

Social classes show distinct product and brand preferences in many areas,
In

including clothing, home furnishings, leisure activities, and automobiles.

Some marketers focus their efforts on one social class. Social classes also
e
Th

differ in media preferences. There are language differences as well among

different social classes. The advertiser has to compose, copy and dialogue
:

that ring true to the targeted social class.

of

2. Social Factors
ty
er

In addition to cultural factors, a consumer's behavior is influenced by

op

such social factors as reference groups, family, and social roles and statuses.
Pr

Reference Groups

A person's reference groups consist of all the groups that have a direct
(face-to-face) or indirect influence on the person's attitudes or behavior.
Groups having a direct influence on a person are called membership
groups.

The buyer's decision process and Types of Buying Decision Behavior 59

 Some membership groups are primary groups, such as family, friends,
neighbors, and co-workers, with whom the person interacts fairly
continuously and informally. People also belong to secondary groups,
such as religious and professional groups, which tend to be more formal
and require less continuous interaction.

People are significantly influenced by their reference groups in at least

three ways. Reference groups expose an individual to new behaviors and
lifestyles. They inf luence attitudes and self-concept. And they create
pressures for conformity that may affect actual product and brand choices.

People are also inf luenced by groups to which they do not belong.
Aspirational groups are those the person hopes to join; dissociative groups
are those whose values or behavior an individual rejects.

Marketers try to identify target customers' reference groups. However,

the level of reference-group influence varies among products and brands.
Reference groups appear to influence both product and brand choice
strongly only in the case of automobiles, etc. Mainly brand choice in such

an
items as furniture and clothing; and mainly product choice in such items

st
as cigarettes, etc.

ki
Manufacturers of products and brands where group influence is strong

Pa
must determine how to reach and influence the opinion leaders in these
reference groups. An opinion leader is the person in informal product-

s
er
related communication who offers advice or information about a specific
nk
product or product category, such as which of several brands is best or
how a particular product may be used. Opinion leaders are found in all
Ba

strata of society, and a person can be an opinion leader in certain product

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areas and opinion follower in other areas. Marketers try to reach opinion
leaders by identifying demographic and psychographic characteristics
e

associated with opinion leadership, identifying the media read by opinion

ut

leaders, and directing messages at the opinion leaders.

it
st

Family
In

The family is the most important consumer-buying organization in society,

e
Th

and it has been researched extensively. Family members constitute the

most influential primary reference group. We can distinguish between
:

two families in the buyer's life. The family of orientation consists of one's
of

parents and siblings. From parents a person acquires an orientation

towards religion, politics, and economics, and a sense of personal ambition,
ty

self-worth and love. Even if the buyer no longer interacts very much with
er

his or her parents, their influence on the buyer's behavior can be significant.
op

A more direct influence on everyday buying behavior is one's family of

Pr

procreation - namely one's spouse and children.

Marketers are interested in the roles and relative influence of the husband,
wife and children in the purchase of a large variety of products and
services. These roles vary widely in different countries and social classes.

60 Marketing | Reference Book 1

 In Pakistan, husband-wife involvement traditionally varies widely by
product category. The wife traditionally acts as the family's main purchasing
agent for products like food, sundries, and clothing items. For finance-
related products or banking solutions, usually the man of the house is
more dominant. In the case of expensive products and services like housing
or vacations, husbands and wives usually engage in joint decision making.
Marketers need to determine which member normally has the greater
influence in choosing various products. Often it is a matter of who has
more power or expertise.

Recent research has shown that although traditional buying patterns still
hold, baby boomer husbands and wives are more willing to shop jointly
for products traditionally thought to be under the separate control of one
spouse or the other. Hence, convenience goods marketers are making a
mistake if they think of women as the main or only purchasers of their
products. Similarly, marketers of products traditionally purchased by men
may need to start thinking of women as possible purchasers.

Another shift in buying patterns is an increase in the amount of money

an
spent and influence wielded by children and teens. This is now an era

st
where children not only are seen and heard but also are catered to as
never before. Companies today are more likely to show off their products

ki
to children - and solicit marketing information from them - over the

Pa
Internet and other sources.

s
Roles and Statuses
er
nk
Ba

A person participates in many groups - family, clubs, and organizations.

The person's position in each group can be defined in terms of role and
of

status. A role consists of the activities that a person is expected to perform.

Each role carries a status. A Supreme Court Justice has more status than
e

a Sales Manager, and a Sales Manager has more status than an Office
ut

Clerk. People choose products that communicate their role and status in
it

society. Thus company presidents often drive Mercedes, wear expensive

st

suits, and dine at expensive restaurants. Marketers are aware of the status
In

symbol potential of products and brands.

e
Th

3. Personal Factors
:

A buyer's decisions are also influenced by personal characteristics. These

of

include the buyer's age and stage in the life cycle, occupation, economic
ty

circumstances, lifestyle, personality and self-concept.

er

Age and Stage in the Life Cycle

op
Pr

People buy different goods and services over a lifetime. They eat baby
food in the early years, most foods in the growing and mature years, and
special diets in the later years. Taste in clothes, furniture, and recreation
is also age related.

The buyer's decision process and Types of Buying Decision Behavior 61

 Consumption is shaped by the family life cycle. Nine stages of the family
life cycle are listed below:

1. Bachelor stage: young, single, may not be living at home.

2. Newly married couples: young, no children.
3. Full nest: I: youngest child under six.
4. Full nest II: youngest child six or over.
5. Full nest III: older married couples with dependent children.
6. Empty nest I: older married couples, no children living with them,
head of household in labor force.
7. Empty nest II: older married, no children living at home, head
of household retired.
8. Solitary survivor in labor force.
9. Solitary survivor retired.

Marketers often choose life-cycle groups as their target market. Some

recent work has identified psychological life-cycle changes. Adults
experience certain passages or transformations as they go through life.
Marketers pay close attention to changing life circumstances - divorce,

an
widowhood, remarriage - and their effect on consumption behavior.

st
Occupation and Economic Circumstances

ki
Pa
Occupation also influences a person's consumption patterns. A blue-
collar worker will buy work clothes, work shoes, and lunch boxes. A

s
er
company president will buy expensive suits, air travel, club membership,
nk
and an insurance plan. Marketers try to identify the occupational groups
that have above-average interest in their products and services.
Ba

Product choice is greatly affected by economic circumstances: spendable

of

income (level, stability, and time pattern), savings and assets, debts,
borrowing power, and attitude towards spending versus saving. Marketers
e

of income-sensitive goods pay constant attention to trends in personal

ut

income, savings, and interest rates. If economic indicators point to a

it

recession, marketers can take steps to redesign, reposition, and re-price

st

their products so they continue to offer value to target customers.

In

Lifestyle
e
Th

People from the same subculture, social class, and occupation may lead
:

quite different lifestyles.

of

A lifestyle is the person's pattern of living in the world as expressed in

ty

activities, interests, and opinions. Lifestyle portrays the "whole person"

er

interacting with his or her environment.

op
Pr

Marketers search for relationships between their products and lifestyle

groups. For example, an insurance broker might find that most of his
customers are achievement-oriented. The marketer may then aim the
brand more clearly at the achiever lifestyle.

62 Marketing | Reference Book 1

 Personality and Self-Concept

Each person has a distinct personality that influences buying behavior.

By personality, we mean distinguishing psychological characteristics that

lead to relatively consistent and enduring responses to environment.

Personality is usually described in terms of such traits as self-confidence,

dominance, autonomy, deference, sociability, defensiveness, and
adaptability. Personality can be a useful variable in analyzing consumer
behavior, provided that personality types can be classified accurately and
that strong correlations exist between certain personality types and product
or brand choices. For example, a computer company might discover that
many prospects show self-confidence, dominance, and autonomy. This
suggests designing computer advertisements to appeal to these traits.

Related to personality is self-concept (or self-image). Marketers try to

develop brand images that match the target market's self-image. It is
possible that a person's actual self-concept (how he/she views herself)

an
differs from his/her ideal self-concept (how she would like to view herself)

st
and from his/her others self-concept (how he/she thinks others see him/her).

ki
Which self he/she tries to satisfy in making a purchase? Because it is

Pa
difficult to answer this question, self-concept theory has had a mixed
record of success in predicting consumer responses to brand images.

s
er
nk
4. Psychological Factors
Ba

A person's buying choices are influenced by four major psychological

of

factors - motivation, perception, learning, beliefs and attitudes.

e

Motivation
ut
it

A person has many needs at any given time. Some needs are biogenic;
st

they arise from psychological states of tension such as hunger, thirst,

In

discomfort, etc. Other needs are psychogenic; they arise from psychological
states of tension such as the need for recognition, esteem, or belonging.
e
Th

A need becomes a motive when it is aroused to a sufficient level of

intensity. A motive is a need that is sufficiently pressing to drive the
:

person to act.
of
ty

Perception
er

A motivated person is ready to act. How the motivated person actually

op

acts is influenced by his or her perception of the situation.

Pr

Perception is the process by which an individual selects, organizes, and

interprets information inputs to create a meaningful picture of the world.

Perception depends not only on the physical stimuli, but also on the
stimuli's relation to the surrounding field and on conditions within the
individual.

The buyer's decision process and Types of Buying Decision Behavior 63

 The key word in the definition of perception is individual. One person
might perceive a fast-talking salesperson as aggressive and insincere;
another, as intelligent and helpful. People can emerge with different
perceptions of the same object because of three perceptual processes:
selective attention, selective distortion, and selective retention.

Selective Attention: People are exposed to a tremendous amount of daily

stimuli. Because a person cannot possibly attend to all of these, most
stimuli can be screened out - a process called selective attention. Selective
attention means that marketers have to work hard to attract consumers'
notice. The real challenge is to explain which stimuli people will notice.

Selective Distortion: Even noticed stimuli do not always come across in

the way the senders intended. Selective distortion is the tendency to twist
information into personal meanings and interpret information in a way
that will fit our preconceptions. Unfortunately, there is not much that
marketers can do about selective distortion.

Selective Retention: People will forget mostly what they learn but will

an
tend to retain information that supports their attitudes and beliefs. Because

st
of selective retention, we are likely to remember good points mentioned
about a product we like and forget good points mentioned about competing

ki
products. Selective retention explains why marketers use drama and

Pa
repetition in sending messages to their target market.

s
er
nk
Learning
Ba

When people act, they learn. Learning involves changes in an individual's

of

behavior arising from experience.

e

Most human behavior is learned. Learning theorists believe that learning

ut

is produced through the interplay of drives, stimuli, cues, responses, and

it

reinforcement.
st
In

A drive is a strong internal stimulus impelling action. Cues are minor

stimuli that determine when, where, and how a person responds. Suppose
e
Th

you go and do a banking transaction with Habib Bank. If your experience

is rewarding, your response to banking and Habib Bank will be positively
:

reinforced. Later on, when you want to get a credit card, you may assume
of

that because Habib Bank gives a good banking experience, Habib Bank's
credit card would also be good. In other words, you generalize your
ty

response to similar stimuli. A counter-tendency to generalization is

er

discrimination. Discrimination means that the person has learned to

op

recognize differences in sets of similar stimuli and can adjust responses

Pr

accordingly.

Learning theory teaches marketers that they can build up demand for a
product by associating it with strong drives, using motivation cues, and
providing positive reinforcement.

64 Marketing | Reference Book 1

 Beliefs and Attitudes

Through doing and learning, people acquire beliefs and attitudes. These
in turn influence buying behavior.

A belief is a descriptive thought a person holds about something. Beliefs

may be based on knowledge, opinion, or faith. They may or may not
carry an emotional charge. Of course, manufacturers are very interested
in the beliefs people carry about their products and services. These beliefs
make up product and brand images, and people act on their images.

An attitude is a person's enduring favorable or unfavorable evaluations,

emotional feelings, and action tendencies toward some object or idea.

People have attitudes toward almost everything: religion, politics, clothes,

music, food, etc. Attitudes put them into a frame of mind of liking and
disliking an object, moving toward or away from it. Attitudes lead to
people to behave in a fairly consistent way towards similar objects. People
do not have to interpret and react to every object in a fresh way. Because

an
attitudes economize on energy and thought, they are very difficult to

st
change. A person's attitude settles into a consistent pattern: To change
a single attitude may require major adjustments in other attitudes.

ki
Thus a company would be well advised to fit its product into existing

Pa
attitudes rather than to try to change people's attitudes.

s
Types of
er
Consumer decision making varies with the type of buying decision. The
nk
Buying Behavior decisions to buy toothpaste, a tennis racket, a personal computer, and a
Ba

new car are all very different. There are four distinct types of consumer
buying behavior, which are distinguished on the basis of the degree of
of

buyer involvement and the degree of differences among brands.

e
ut

High Low
it

involvement Involvement
st
In

Significant Complex Va r i e t y
difference Buying Seeking
e
Th

between Behavior Buying

brands Behavior
:
of
ty

Few Dissonance Habitual

er

differences Re d u c i n g Buying
op

between Buying Behavior

Pr

brands Behavior

The buyer's decision process and Types of Buying Decision Behavior 65

 a. Complex Buying Behavior

Complex buying behavior involves a three-step process. First, the buyer

develops beliefs about the product. Second, he or she develops attitude
about the product. Third, he or she makes a thoughtful choice. Consumers
engage in complex buying behavior when they are highly involved in a
purchase and aware of significant differences among brands. This is usually
the case when the product is expensive, bought infrequently, risky, and
highly self-expressive. Typically, the consumer does not know much about
the product category.

The marketer of a high-involvement product must understand consumers’

information-gathering and evaluation behavior. The marketer needs to
develop strategies that assist the buyer in learning about the product’s
attributes, and their relative importance. The marketer needs to differentiate
the brand's features, and motivate store sales personnel and the buyer's
acquaintances to influence the final brand choice.

b. Dissonance-Reducing Buyer Behavior

an
st
Sometimes the consumer is highly involved in a purchase but sees little
difference in brands. The high involvement is based on the fact that the

ki
purchase is expensive, infrequent, and risky. In this case, the buyer will

Pa
shop around to learn what is available but will buy fairly quickly, perhaps
responding primarily to good price and purchase convenience.

s
er
After the purchase, the consumer might experience dissonance that stems
nk
from noticing certain disquieting features or hearing favorable things
about other brands. The consumer will be alert to information that
Ba

supports his or her decision. In this case, the consumer first acted, then
of

acquired new beliefs, then ended up with a set of attitudes. Marketing

communications should supply beliefs and evaluations that help the
e

consumer feel good about his or her brand choice.

ut
it

c. Habitual Buying Behavior

st
In

Many products are bought under conditions of low involvement and the
absence of significant brand differences. Consider salt. Consumers have
e
Th

little involvement in this product category. They go to the store and reach
for the brand. If they keep reaching for the same brand, it is out of habit,
:

not strong brand loyalty. There is a good evidence that consumers have
of

low involvement with most low-cost, frequently purchased products.

ty

With these products, consumer behavior does not pass through the normal
er

sequence of belief, attitude, and behavior. Consumers do not search

op

extensively for information, evaluate characteristics, and make a decision

Pr

on which brand to buy. Instead they are passive recipients of information

in television or print ads. After purchase, they may not even evaluate the
choice because they are not highly involved with the product. For low-
involvement products, the buying process begins with brand beliefs, and
is followed by purchase behavior, which may be followed by evaluation.

66 Marketing | Reference Book 1

 Marketers of such products find it effective to use price and sales
promotions to stimulate product trial. Television ads are more effective
than print because it is a low-involvement medium that is suitable for
passive learning.

d. Variety-Seeking Buying Behavior

Some buying situations are characterized by low involvement but

significant brand differences. Here consumers often do a lot of brand
switching. Think about cookies. The consumer has some beliefs about
cookies, chooses a brand of cookies without much evaluation, and evaluates
the product during consumption. Next time, the consumer might reach
for another brand out of a wish for a different taste. Brand switching
occurs for the sake of variety rather than dissatisfaction.

The market leader and the minor brands in this category have different
marketing strategies. The market leader will try to encourage habitual
buying behavior by dominating the shelf space, avoiding out-of-stock
conditions, etc. Challenger firms will encourage variety seeking by offering

an
lower prices, deals, coupons, free samples, and advertising that presents

st
reasons for trying something new.

ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

The buyer's decision process and Types of Buying Decision Behavior 67

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 3 Business and Corporate Markets and their Buying Behavior

Student Learning By the end of this chapter you should be able to:
Outcomes
Define the concept of Business and Corporate Markets

Discuss business and corporate buying behavior

Discuss institutional and government markets

Differentiate between individual buying behavior and business

buying behavior

an
Differentiate between the Institutional/government and

st
business/corporate market dynamics and their buying behaviors

ki
Pa
Organizational Business organizations not only sell; they also buy. Their purchases include

s
Buying raw materials, supplies, equipment, services, etc. Marketers need to
er
understand the needs and buying processes of these organizations.
nk
Ba

Organizational buying is the decision-making process by which formal

organizations establish the need for purchased products and services and
of

identify, evaluate, and choose from alternative brands and suppliers.

e
ut

Organizational Buying Behavior

it

By organizations, we mean companies or partnerships who manufacture

st

or offer a service, retailers and wholesalers, and governmental, educational

In

and charitable bodies.

e
Th

In a business market, we are not targeting individuals and households;

rather we are looking at various businesses and organizations. The term
:
of

that is currently used to describe this relationship is "business to business

marketing".
ty
er

Organizational buying behavior has many similarities with consumer

purchasing behavior; it also has a number of major differences. In order
op

to market products and services to organizations effectively, financial

Pr

services organizations must be aware of these differences.

Business Market A business market comprises of organizations who acquire goods and
versus Consumer services used in the production of other products or services that are sold,
Market
rented, or supplied to others.

68 Marketing | Reference Book 1

 Business markets have several characteristics that contrast sharply with
consumer markets. Let us discuss them here.

● Fewer buyers: Business marketers usually deal with fewer buyers

than a consumer marketer.

● Larger buyers: A few large buyers do most of the purchasing.

● Close supplier-customer relationship: Because of a smaller customer

base and the importance of few large companies, the supplier-customer
relationship is very close.

● Geographically concentrated buyers: Most of the buyers

(industries) are situated in one area.

● Derived demand: The demand for business goods is ultimately

derived from the demand for consumer goods.

● Inelastic demand: Demand for most business goods and services is

an
inelastic - i.e. it is not much affected by change in prices.

st
Fluctuating demand: Demand for business goods and services tend

ki
●

to be more volatile than the demand for consumer goods and services.

Pa
An increase in consumer demand can lead to a much larger increase
in demand for plant and equipment necessary to produce the

s
additional output.
er
nk
Ba

● Professional purchasing: Business goods are purchased by

professionals like trained procurement personnel, who follow the
of

organization's policies and constraints. Many of the buying instruments

used in such purchases are not found in consumer purchases, e.g.
e

quotations, contracts, etc.

ut
it

● Several buying influences: In business markets, a greater number of

st

people can influence the buying decisions. These influencers may

In

include senior managers, technical experts, etc.

e
Th

Organizational transactions can differ from consumer transactions in a

number of ways. These differences, as discussed above, can be summarized
:

as follows:
of

Purchasing decisions to be made by a group of people rather than by

ty

one individual
er
op

● The purchasing organization have to impose policies and requirements

Pr

- for example, affecting the nationality of financial services supplier -

which must be needed by the individuals making the buying decision

● The buying process to be more complex with items such as requests

for quotations, proposals and contracts

Business and Corporate Markets and their Buying Behavior 69

 ● The scale of business arranged with each customer being far greater
both in terms of value and number of transactions

● Negotiating periods over a purchase to take months and even years

● The knowledge level of the purchasers to be higher

Although these differences occur, it is important to note that as all

organizations consist of collections of individuals, therefore, many of the
theories of individual consumer behavior remain applicable. However,
whilst an element of the emotional considerations may be preserved, the
psychological dimension tends to be overshadowed by commercial
considerations when evaluating purchasing decisions.

The Decision Only a small proportion of organizational purchase decisions are made
Making Unit by just one individual. Typically the decision-making unit consists of a
number of individuals who participate in the decision-making process.
The specific individuals involved in the purchase-decision will vary from
company to company dependent on factors such as:

an
st
● Company Size

ki
Decisions regarding corporate banking requirements in a large company

Pa
will tend to involve more people than will be the case in a smaller
company.

s
er
nk
● Degree of Centralization
Ba

An organization which purchases on a centralized basis for all its

of

subsidiaries may have one bank satisfying all its needs internationally.
This may be different from those companies where subsidiaries make
e

decisions on an autonomous basis.

ut
it

● Job Titles and the Responsibilities of Individuals within Companies

st
In

These will differ greatly between companies even within the same
industry. The individuals involved in the decision-making process will
e
Th

become known to you at the time the original transaction is concluded

and it is essential that you keep up to date with any changes to the
:

decision-making personnel.
of
ty

The area in the organization that makes the purchasing decisions is the
buying centre which is responsible for selecting suppliers and negotiating
er

the terms of the purchase. You may have had some experience of this if
op

you have been asked to supply information as part of a tendering process

Pr

in which your organization has participated in an effort to win the banking

services of a potential commercial customer.

Buying Roles in Individuals will often play different roles in the decision-making process
Organizational and can be categorized as:
Buying Process

70 Marketing | Reference Book 1

 ● Users

These are members of the company who will actually use and come
into daily contact with the organization. These individuals will
frequently initiate the purchase process, set out the specifications for
the service required and evaluate the service once the company is
using it. These users may be located in the finance or accounts
departments of the company.

● Influencers

Those playing this role may influence the decision, although they may
not be directly involved. Influencers may be located within and outside
the organization, for selecting financial services. This role may be
played by advisers to the organization, such as lawyers or accountants.

● Deciders

The deciders select the provider and banking service often based on

an
recommendations from users and inf luencers. They will most

st
commonly be senior level managers.

ki
● Gatekeepers

Pa
They control the flow of information to and among the others. They

s
er
have the power to prevent sales people or information from reaching
nk
the others involved in the decision-making process. Examples include
Ba

receptionists, secretaries and even members of the accounts department.

of

One person may perform several of these roles; for example, a senior
manager who is both, a user and a decider.
e
ut

Types of Purchase The number and structure of an organization's decision-making unit will
it

vary for different types of bank service and for each of the following
st

different types of purchase:

In

● Straight Re-buy
e
Th

This describes a situation where the purchasing organization requires

:

a service on a routine basis. This may involve additional loans, overdraft

of

facilities or additional leasing arrangements. As these may be relatively

straightforward decisions, the size of the decision-making unit will be
ty

small and may only consist of one individual from the accounts/finance
er

department.
op
Pr

● Modified Re-buy

This involves the purchaser wanting a similar service with modifications

such as with longer term capital loans or money transmission services.

Business and Corporate Markets and their Buying Behavior 71

 This is likely to involve more individuals in the decision-making
process.

● New Task

This faces a company buying a product or service for the first time.
The greater the risk or expenditure, the larger the number of individuals
involved in decision making and the longer the time to decision
completion.

These classes of purchase should not be seen as being discrete steps, but
rather as a continuum ranging from new task at one extreme to straight
rebuy at the other.

Organizational In purchasing financial services, industrial buyers move through a

Buying Process purchasing or procurement process. This process depends upon the
company, the specific service being purchased and the level of risk involved.

An eight stage approach that organizations tend to go through when

making purchasing decisions is shown below. These will not necessarily

an
be sequential steps but may be activities which occur simultaneously or

st
out of sequence.

ki
Pa
Eight Stages of the Industrial Buying Process

s
There are eight stages in the industrial buying process, which are:
er
nk
● Problem Recognition
Ba

● General Need Description

Product/Service Specification
of

● Supplier Search
e

● Proposal Solicitation
ut

● Supplier Selection
it

● Order-Routine Specification
st

● Performance Review
In

1. Problem recognition
e
Th

Similar to the consumer market, the buying process begins when an

individual within the company identifies a need which has to be met.
:
of

This need may arise under a variety of circumstances; for instance, if

problem occur with cash flow, then a need may be recognized for facilities
ty

such as factoring or invoice discounting. An expansion program may

er

require a term loan support or an increased working capital. Equally,

op

surplus cash in the business may present investment opportunities. New

Pr

ideas raised in meetings with bank staff or promoted in direct mailings

may also highlight a need for a specific service.

2. General need description

In order to satisfy the need identified in stage one, the buyer determines
the general characteristics of the needed service (i.e. the size of loan

72 Marketing | Reference Book 1

 required). This may involve discussion with influencers such as accountants.

3. Product/service specification

This involves the development of specifications setting out conditions

such as repayment levels, access to funds and flexibility which the service
must be able to provide.

4. Supplier search

The company will search for possible products/services to meet the area
of need. This may involve contacting banks for information and/or
examining brochures and the financial press. The result of this stage will
be a short list of potential suppliers/banks.

5. Proposal solicitation

The company will seek meetings with the short-listed financial

organizations to present their proposals, usually supported by a formal

an
business case. At this time they will be looking to secure the lender's

st
agreement in principle together with the terms and conditions that will
be attached.

ki
Pa
6. Supplier selection

s
er
The financial services organization will be chosen based on its ability to
nk
meet the attributes sought by the decision-making unit, in terms of factors
Ba

such as capabilities, price, flexibility, service quality, protection/security,

back-up services, reputation.
of

Personnel issues very much come to the front in this type of situation
e

with both parties assessing if these are the type of people with whom they
ut

can establish an ongoing productive working relationship. Don't

it

underestimate this factor; if the individuals have a desire to work together

st

but there are shortcomings in the proposer's ability to align with the
In

lender's criteria, a deal-making approach may be adopted in an attempt

to establish a mutually acceptable compromise.
e
Th

7. Order routine specification

:
of

The buying organization now agrees to the final contract document with
the financial organization.
ty
er

8. Performance review
op
Pr

Actual performance after purchase in terms of service quality, reliability,

speed and flexibility are compared with the initial specifications and
projections. The result of this evaluation at this stage become feedback
for the other stages and therefore influence future purchasing decisions.

Business and Corporate Markets and their Buying Behavior 73

 These eight stages would operate in a new task buying situation. In the
modified re-buy or straight re-buy, some of these stages would be
compressed or bypassed. For example, if it is a re-buy, companies will be
unlikely to undertake steps 1, 2, 4, 5 & 6 (If we are not searching supplier
and proposal solicitation, no need for supplier selection as it is a re-buy).

Influences on Organizational Buying

Four major categories of factors appear to influence organizational buying

decisions:

● Environmental
● Organisational
● Interpersonal
● Individual

Environmental factors

These are similar to those discussed for consumer behavior. In particular,

an
the economic environment in terms of level of output, cost of money and

st
economic outlook has a major impact on the types of financial services
sought by companies.

ki
Pa
As you will recall from earlier, these environmental factors, such as
political, legal and regulatory influences, can be uncontrollable by the

s
er
organization, and as such, they can present a large degree of uncertainty.
nk
However, changes in these environmental factors can generate new
purchasing opportunities; for example, developments in technology can
Ba

give financial services organizations the opportunity to work more closely

of

with business customers, as the flow of information between the two

businesses is easier to transmit.
e
ut
it

Organizational factors
st
In

Such factors as the objectives, policies, procedures, organizational structure

and systems of the company all have an influence on buying decisions,
e
Th

in terms of who makes the decisions and the evaluation criteria used. For
example, the nature of an organization's computers and procedures may
:

require special money management systems.

of

The policies and procedures of a business organization may have an

ty

impact on their choice of financial services provider; for example, the

er

internal policies may state that the provider must be based in a particular
op

country, etc.
Pr

Interpersonal factors

We have already highlighted the importance of this factor. The

interrelationships between the different participants in the decision-
making unit will also influence decisions. This includes how the different

74 Marketing | Reference Book 1

 individuals in the company interact as a group in terms of different
statuses, authority, persuasiveness and empathy. For example, certain
persons in the decision-making unit may currently be in favor or may be
better communicators than others and thus may be more convincing.

When thinking about interpersonal factors, keep in mind that no matter

how good the features of the financial services are, if the personnel from
the bank who deal with the customer on a day-to-day basis are not well
regarded, then there is little likelihood of there being much customer
satisfaction.

Individual factors

The attitudes, knowledge and preferences will be influenced by the age,

income, education, position and personality of the individual concerned.
Some may be hard bargainers, some may be concerned with detail,
whereas others may simply wish to reduce risk to themselves in terms of
security, personal liability, etc.

an
These characteristics of individuals who work in the buying centre are

st
likely to affect their view of the financial service provider. For example,
if you are dealing with a person who has worked in the customer's

ki
organization for a long time and has built up a relationship with your

Pa
organization over a period of years, then they are likely to have more
loyalty to your business than a person who has recently joined the buying

s
er
centre and has an aggressive negotiating style.
nk
Ba

The level of influence these four factors have will be dependent on the
buying situation; the type of service being purchased and whether the
of

purchase is new task, modified re-buy or straight re-buy. However, a

corporate banker should be continuously aware of the changing nature
e

of the above influences for every corporate customer.

ut
it

Institutional and Institutional markets include health care organizations, schools, nursing
st

Government Markets homes, prisons and other non-profit agencies that must provide goods
In

and services to people in their care. Many of these organizations are

characterized by low budgets and captive clienteles.
e
Th

Government organizations are a major buyer of goods and services. These

:

organizations usually require suppliers to submit bids, and the contract

of

is awarded to the lowest bidder. Government organizations usually require

a lot of paperwork from suppliers, who often complain about excessive
ty

paperwork, bureaucracy, delays in decisions, and regulations.

er
op

In government or institutional markets, group purchases are very common.

Pr

Similar to corporate buyers, they are often managed like corporations

with a broad range of purchase requirements. Marketers, while selling to
government and institutional markets, need to be fully aware of political
considerations, policies, and laws.

Suppliers must be prepared to adapt their offers to the special needs and
procedures found in institutional and government markets.

Business and Corporate Markets and their Buying Behavior 75

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 4 Marketing Research

Student Learning By the end of this chapter you should be able to:
Outcomes
Define the term ‘Marketing Research’

Discuss the significance and use of maketing research in making

marketing decision

Introduction As with many other aspects of our lives, marketing capability is also
governed by a budget. In order to gain the maximum benefit from this

an
budget, it is important the organization's marketing strategy is clearly
defined. It gives detail of specific segments, target markets and states what

st
that is to be communicated. Any financial constraints may thereby require

ki
a compromise in the scale of the exercise but should respect the strategic

Pa
perspective. However, it is common across industry sectors to let the
budget be the key driver, that is, start with the budget, decide what this

s
er
enables and determine what you wish to communicate. This can be
nk
dangerous as in that the end result can be somewhat different from what
was that detailed strategic plan.
Ba
of

Apart from budget, information and planning are critical to the

management of marketing activity. In the highly competitive and complex
e

financial service sector, a financial services organization gains advantage

ut

if it can identify and respond to market opportunities before its competitors.

it

Quality information is critical for the identification of such opportunities.

st
In

Marketing Frequently, financial services organizations need to commission specific

Research marketing research studies in order to have adequate information to
e

make decisions.
Th
:

● Marketing research is the means used by an organization to keep in

of

touch with the needs, wants and attitudes of those who purchase or
could purchase the organization's products and services.
ty
er

Such research can involve:

op
Pr

● Product research to assist in: the design, development and testing of

new products and services, the improvement of existing products and
services, and the forecasting of trends in customer preferences for
specific products and services.

76 Marketing | Reference Book 1

 ● Market research to assist in: the analysis of market segments, market
size and the share of the market held by the financial services
organization and its competitors.

● Customer research to assist in: the analysis of buying behavior,

perceptions, attitudes and reasons for purchase.
● Promotion research to assist in: the testing and evaluation of
promotional material.

Any of these types of research can be undertaken as part of a continuous

research project where changes in market share, consumer attitudes, etc
can be tracked over a period of time. Alternatively, an ad hoc study is
undertaken on a one-off basis and provides the organization with a
snapshot of what the situation is at any point in time. The research would
normally be undertaken either by the organization's own marketing/market
research department, or by an external marketing research agency. There
are advantages and disadvantages of using external agencies.

Types of Research Agencies

an
st
Research agencies can be categorized into the following types:

ki
Pa
1. Syndicated service agencies

s
These agencies specialize in gathering continuous consumer and corporate
er
information which they sell in the form of standardized reports to any
nk
company wishing to purchase them.
Ba

2. External Agencies
of
e

These agencies are hired by a client to carry out one-off research projects
ut

for the sole use of the client company. They participate with the client in
it

designing the research study and the final report becomes the client's
st

property. They can take one of the following forms:

In

● Full service agencies - able to do all types of market research in almost

e

any market.
Th

Market specialist agencies - have specialist skills in carrying out research

:

●
of

in specific markets (i.e. the corporate market, the consumer market,

amongst children, in the financial sector or in certain geographic
ty

regions).
er
op

● Technique specialist agencies - have specialist skills in carrying out

Pr

research using specific techniques (i.e. telephone research, the use of

street interviewers, small in-depth studies).

3. Fieldwork agencies

These agencies provide interviewers either to other research agencies or

to client companies. They are only responsible for carrying out the

Marketing Research 77
 interviewing, with all other design and analysis functions being undertaken
by the company which hires them.

Advantages and Disadvantages of External Research Agencies

The advantages of using external research agencies relate to the agency

having specialist skills, facilities and resources supported by the fact that
their analysis of the findings can be undertaken with greater objectivity
as they are not concerned with the internal politics of the organization.

On the other hand, the disadvantages relate to risks of information leaks

to competitors and the possibility of valuable information being lost in
the communication of findings between the agency and the client company.

The Market Research Process

Stages of the market research process can be understood with the diagram
in figure 4.1

an
Figure 4.1: Stages In The Market Research Process

st
UNDERSTANDING THE BUSINESS

ki
PROBLEM OR OPPORTUNITY

Pa
s
DEFINITION OF er
nk
RESEARCH OBJECTIVES
Ba
of

RESEARCH DESIGN
e
ut
it

DATA COLLECTION
st
In
e

DATA ANALYSIS &

Th

REPORT PRESENTATION
:
of

1. Understanding the Business Problem or Opportunity

ty
er

It is important that the reason for undertaking the research is clearly

understood, before actually defining the research objectives. It is all too
op

easy to undertake research on areas that would be nice to know; however,

Pr

if there is not a commercial reason for undertaking the research, it is

simply an expensive pastime. Defining the problem will clearly identify
if research is needed and what information is required to assist the decision
makers in tackling the business problem or opportunity.

78 Marketing | Reference Book 1

 The problem itself could be signaled by a number of events, such as a
failure on the part of the organization to attain its operating objectives,
a drop in sales, an increase in expenses, or a fall in profits. Whilst these
are all negative examples, the stimulus to market research could be
something positive which the company wants to get to the bottom of
and do more of. Examples of this would include an increase in sales and/or
profitability.

Interaction between the marketing department and the market researcher

(or organization) should come up with a clear definition of the problem
or situation. It is important to stay in this stage until both the organization
and the researchers are quite clear and agreed upon what they want from
the research, and how it will be used.

2. Definition of Research Objectives

The next step in any research is to clearly define the objectives of the
study. If the objectives are stated too vaguely or wrongly defined, then
the research results may be useless or even misleading to the organization.

an
st
Care must be taken in determining exactly what information is needed
to assist decision making and setting objectives which ensure that the

ki
need is met.

Pa
3. Research Design

s
er
nk
The research has to be designed in order to meet the objectives of the
Ba

study. This involves decisions about the types of data, the data collection
method to be used and the specific people to be interviewed.
of

We have now defined the problem or issue to be researched, so the next

e

step will be to develop a plan for the collation of the information that
ut

we need. It is important to have a clear statement of the research objectives.

it

The "research objective" is a statement of the outcomes that we are

st

looking for from the research project. It may also be that researchers will
In

develop a hypothesis based on past research and the expected outcomes

of the planned research.
e
Th

The hypothesis is a statement - basically an informed guess - about a particular

:

problem or set of circumstances. It is based on what we know about the problem

of

based on past research and any other relevant sources. As the research project
develops and information begins to be produced, then it is possible to test the
ty

hypothesis based upon this information.

er
op

4. Data Collection
Pr

The data collection or fieldwork phase of the research follows after the
research design has been finalized. There may be some testing of the
research method and sample before the full primary research phase is
undertaken. Interviewers then have to be trained on the particular subject

Marketing Research 79
 area and in the skills of encouraging accurate and thoughtful answers
from respondents.

5. Data Analysis and Report Presentation

Once the data has been collected, it must be interpreted if any meaning
is to be made of it. This interpretation will be easier if there have been
clear objectives set at the start of the process.

Normally the first step in analyzing the information is to present it in

tabular format. After this stage, statistical interpretation will commence.
This interpretation will focus on what is typical, and what information
deviates from the average which will give an indication of how widely
responses vary and how distributed these responses are. However, within
interpretation, there is likely to be a degree of judgment used by the
researcher.

Once the data has been analyzed, this may cause the original hypothesis
to be accepted or rejected.

an
st
The data coming out of the research will then be interpreted. If the results
of the study are deemed to be valid, then the organization will need to

ki
take decisions based upon it. However, the analysis may have shown that

Pa
one or more of the questions in the research were flawed and the results
should be consequently discarded.

s
er
nk
Finally the research results must be reported - usually in a formal, written
document. It is common to find that in these reports, the summary and
Ba

recommendations of the researchers are presented at the start of the

of

document because many of the users of this type of report do not have
the time or the inclination to plough through the whole document.
e
ut

Conducting research is an integral part of planning for any business,

it

especially for financial service organizations. Organizations that do not

st

have adequate insight on their consumers and competitors fail in the

In

long run. Organizations that possess knowledge about their customers,

and build marketing strategies accordingly have a higher rate of customer
e
Th

retention and, therefore, generate higher profits.

:

Significance of Market Here we will discuss the benefits of market research in making marketing
of

Research in making decisions.

ty

Marketing decisions
Good market research can lead to quality decision making, which in
er

turn ensure survival of the organization in the long run.

op
Pr

l With quality market research, organizations can identify opportunities

and threats in the market.

l Organizations are able to keep track of their customers and constantly

learn about the customers, competitors and their marketing efforts.

80 Marketing | Reference Book 1

 l Companies can reduce risks about new products or services which
they plan to introduce in the market.

l Market research gives marketing benchmarks to organizations that

they need to compete. In such a way, organizations can evaluate their
marketing efforts and constantly improve their marketing strategy.

Today's customers have more choices and options than ever. Each and
every prospective customer in the market is worth earning, not just once
but again and again. One of the most effective ways to win these customers
is to gain knowledge about them; what they like and dislike, how do they
spend, what are their preferences, their demographics, etc. The findings
of such research provides essential performance indicators, which can
help marketers make informed and accurate decisions that eventually
help boost operational efficiency and revenues.

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

Marketing Research 81
Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 5 Different Methods and Types of Marketing Research

Student Learning By the end of this chapter you should be able to:
Outcomes
List and explain the different types of marketing research

List the different types of research methods available

Explain the importance of research in the current market scenario

Illustrate with examples scenarios demonstrating different market

research techniques

Evaluate scenarios and suggest marketing research techniques to

be used

an
st
ki
Introduction We have already discussed the marketing research process in previous

Pa
chapters, let us now take a broader look at the importance of this function
and its role in marketing financial services.

s
er
nk
As you will recall from earlier in the course, if marketing is to be successful
Ba

and effective, the organization must have a clear and accurate picture of
its customers, competitors and the environment within which it operates.
of

This information should relate to both the current reality and what is
likely to happen in the future. If this is to happen, then market research
e

will play a crucial role.

ut
it

As a result of carrying out research, the organization will know the needs
st

and wants of both its current customers and its potential future customers.
In

Having this information will allow the organization to deepen its

relationships with existing customers and develop products and services
e
Th

that will meet both, their future needs and the needs of future customers.
:

Such research can involve:

of

Product research
ty

● Market research
er

● Customer research
op

● Promotion research
Pr

82 Marketing | Reference Book 1

 One of the key objectives of marketing is the identification of customer
needs and the satisfaction of these needs in a manner that is superior to
your competitors. In order to succeed in achieving this aim, there is an
on going need to be fully aware of what customers or potential customers'
value. The subject of customer value is fully covered in the CIOBS course
on Customer Relationship Management and it is seen as one of the key
competitive differentiation tools.

In essence, customer value is the total package of benefits or added values

that enhance the core products and services. It is imperative that your
organization's offering remains relevant and attractive both to sustain
competitiveness and the quality of the overall customer experience.

The following extract is drawn from the book "Marketing" by Geoff

Lancaster and Paul Reynolds which effectively defines the role of market
research as:

"The concept of value is a subjective issue and lies within the mind of the
individual customer. In a broad sense marketing management needs to

an
understand the 'minds' of its target markets, their attitudes and value

st
systems. It needs a formalized, managerial approach to this task. This is
the role of marketing research."

ki
Pa
"Without the information that marketing research provides, management
cannot apply the marketing concept as an over-riding business philosophy."

s
The Importance er
It is vital for all organizations that they have an understanding of their
nk
of Market Research customers, the competition and the environment within which they are
Ba

operating. This information comes from the gathering of market

of

intelligence.
e

The purpose of market research is to give the business information about

ut

the needs and wants of customers, the opportunities that the business
it

has to market its goods and services, and what the trends in its line of
st

business are, thus leading to a possible explanation about what the future
may hold.
In
e

Types of Market There are five types of research to be considered:

Th

Research
1. Exploratory research
:

2. Descriptive research
of

3. Causal research
ty

4. Predictive research
5. Conclusive research
er
op

1. Exploratory research
Pr

Exploratory research looks at the general nature of a problem and the

factors that relate to it. The design of this type of research is very flexible.
It may be that the research will be expected to review information from
internal company sources or publicly available information, such as a
study of information available on the internet regarding industry trends
or demographics.

Different Methods and Types of Marketing Research 83

 Not surprisingly, this is undertaken at an early stage of the research
procedure. There is an element of feasibility at this stage as "the water is
tested"; in other words consideration is given as to whether there is mileage
in taking the research any further. If it is deemed that there are
opportunities, the findings at this stage determine what merits further
investigation and these findings are utilized to establish the framework
for the remainder of the research program.

Exploratory techniques can be relatively straightforward and unstructured

and can involve purely group discussions with the relevant parties (this
can include customer forums), a review of the knowledge of historic
findings or experiences, or the adoption of customer questionnaires.

In marketing, regular reference is made to qualitative and quantitative

research. Qualitative research deals with information that can be difficult
to quantify, for example looking at customers' opinions, feelings and
value judgments, which often come to light during discussions that form
part of the market research process. We are thus dealing with "soft" facts.
Factors which could be looked at under the qualitative heading would

an
include:

st
How happy are you to deal with a global organization?

ki
●

● How happy are you to deal with a regional bank?

Pa
Quantitative research, on the other hand, looks at "hard" facts. Here we

s
er
are looking at information that can be expressed in figures, such as:
nk
How many accounts do you have at present?
Ba

● What is your credit limit?

of

At this stage you should refer back to the diagram on stages in the market
e

research process in the previous chapter and the section on understanding

ut

the business problem or opportunity. Completion of the exploratory stage

it

should enable clear identification of further research objectives and

st

information requirements.
In

2. Descriptive research
e
Th

This type of research will concentrate on providing an accurate description

:

of the variables within a situation. An example of this would be where

of

an organization is looking to target a particular group within the

population, say a bank wanting to target young adults with a new account
ty

and carrying out research to determine how often this group would use
er

ATMs, telephone banking and internet banking.

op
Pr

Descriptive research will demand a high level of prior knowledge and

will assume that the problem is clearly defined. The main task is then to
determine the best methods of collecting and measuring the data.

Descriptive research tends to be ongoing and relates to what is actually

happening now. It is often presented in the form of graphs, pie charts,
etc.

84 Marketing | Reference Book 1

 3. Predictive research

Various techniques can be employed in predictive research, building on

the information that has been gleaned from the earlier stages. The aim
of this type of research is to predict matters such as changing customer
needs, future pricing issues, competitor activity and generally the potential
growth/decline, given projected market conditions.

4. Conclusive research

The aim of conclusive research is to analyze variables often identified at

the exploratory stage. There is a logical progression between the two
stages. The researchers at this stage are endeavoring to establish the most
effective route between market variables, covering areas such as price,
sales, advertising/packaging, etc.

The following case study provides a clear example.

A marketing manager might need to establish which set of merchandising

an
materials, price promotion and shelf configurations is most effective in

st
achieving sales within a multiple grocery store chain.

ki
Assuming there are four different versions of each of the marketing

Pa
variables, such as four merchandising sets, four price promotions and four
different shelf configurations that could be used in store, the researcher

s
er
would be tasked with identifying which permutation of these market
nk
variables was most effective.
Ba

The researcher might establish an experimental approach with each

of

permutation being randomly allocated to different stores. The experiment

should then be allowed to run until sufficient data has been generated.
e

The results would then be analysed to determine the most effective

ut

permutation.
it
st

5. Causal Research
In

This type of research will need a more complex approach than descriptive
e
Th

research. It is assumed that a particular variable A will cause a variable

B. The research must be planned to either prove or disprove that A causes
:

B. When designing research, we must ensure that the research techniques

of

are both reliable and valid. A technique will be deemed to be reliable if

it produces very similar results in a series of repeated trials. However, to
ty

be valid, the technique must measure what it is supposed to measure.

er
op
Pr

Different Methods and Types of Marketing Research 85

Marketing Recsearch Any form of research is a need at collection secondary data and or primary
Methodologies data of support the hypothesis.

Secondary data

This is the data that is currently available and which was originally
collected for purposes other than the specific research needs at hand. This
will include the use of in-company data, published and unpublished
sources such as official statistics, newspapers, technical journals, past
business dissertations and other information available from libraries.
These sources provide a relatively inexpensive supplement to any primary
data gathered.

It is quite common for market research projects to commence with the

collection of secondary data, with the organization's own sources of
information often being a good starting point; for example, sales reports,
previous research activity outcomes, etc.

Internal Sources of Secondary Data

an
st
The sources can vary depending on the nature and size of the organization;
however, here are some examples:

ki
Pa
● Accounting and financial information, including data on sales, expenses
and profits, which may be collated for particular types of customer,

s
geographical area, product type, etc.
er
nk
Customer feedback - most organizations will have a system to capture
Ba

feedback from customers, both positive and negative; in addition, in

of

the financial services sector, there are the complaints standards laid
down by the FSA that must be adhered to.
e
ut

● Comparative information on competitors - again, it is common for

it

organizations to collate information on the products and services

st

offered by the competition, along with pricing information.

In

External Sources of Secondary Data

e
Th

Again, there are a number of potential sources here, such as government

:

statistics, the internet, trade associations (in financial services, the British
of

Bankers Association), journals and periodicals, etc.

ty

Primary data
er
op

This is new data collected specifically for purposes of the

Pr

research needs at hand and can take following forms:

● Observational research
● Interviewing
● Surveys
● Experimentation
● Questionnaries

86 Marketing | Reference Book 1

 ● Focus groups
● Surveys
● Sampling
● Motivational Techniques

1. Observational Research

One way to collect primary data is to carry out personal observations in

various situations, such as observing customers' actions in a bank branch.
Video cameras are often utilized to collate the information. This can help
in the design of new bank branches.

When carrying out observation research, direct contact with the respondents
is avoided. Rather, the researchers will record the respondents' behavior,
taking account of physical conditions and events, therefore the researchers
are taking note of respondents' actions. This type of research may involve
the customers being observed using the product, or wider services from
the organization, such as the premises mentioned earlier in this section.

an
This type of research is not just limited to the consumer. The most

st
common example that comes to mind here is the use of mystery shoppers,
who sample the service of organizations and score the service level received.

ki
Pa
Data that is collected through observation may be flawed if the respondent
is aware of the observation process. If it is thought that the presence of

s
er
a human observer is likely to skew the behavior of the consumer, this
nk
may be overcomed by the use of mechanical observation devices, such as
Ba

security cameras in branches to monitor queue movements and trends.

of

Loyalty cards used by supermarkets are another example of observational

research, where the organization is able to gather in data on the
e

consumption patterns of customers.

ut
it

Some more common examples of observational research are discussed below.

st
In

● A bank evaluates possible new branch locations by checking traffic patterns,

neighborhood conditions and the locations of competing bank branches.
e
Th

● A food products manufacturer sends researchers into supermarkets to find

:

out the prices of competing brands or how much shelf space and display
of

support retailers give its brands.

ty

● A maker of personal care products pretests its advertisements by showing

er

them to people and measuring eye movements, pulse rates and other physical
op

reactions.
Pr

● A department store chain sends observers who pose as customers into its
stores to check on store conditions and customer service (similar to the mystery
shopper approach adopted by many financial services organizations).

● A museum checks the popularity of various exhibits by noting the amount

of floor wear around them.

Different Methods and Types of Marketing Research 87

 Observational research materials can also be sourced from other channels known
as mechanical observation where information is automatically collated. For
example:

● "People meters" attached to television sets in selected homes, records

who watches which program. This provides summaries of the size and
demographic make-up of audiences for different television programs.
The television networks use these ratings to judge program popularity
and to set charges for advertising time. Advertisers use these ratings
when selecting program for their commercials.

● Checkout scanners in retail stores utilize laser scanners to record details

of consumer purchases. Retailers use scanner information amongst
other aspects (such as stock control) to assess and improve product
sales and store performance.

Observational research can prove to be the only way to obtain information

that customers are either unable or unprepared to provide.

an
2. Interviewing

st
This is perhaps the main activity most people associate with marketing

ki
research. It often involves the use of a questionnaire, which is administered

Pa
by an interviewer or by the respondent him/herself. It can be completed
on the respondent's doorstep, in the street, by telephone or through the

s
mail.
er
nk
Ba

The format of the questions will vary depending on the objectives of the
research, with very open and discussion-based questions being used to
of

probe deeply into customer motivation and multiple choice/yes-no type

questions being used where basic data on customer behavior is required.
e
ut

Here the respondents rely on questions when face to face with the
it

researcher. It is possible for the interviewer to use visual aids as part of

st

this process, such as pictures, advertising copy, brochures, etc. Part of the
In

survey may be the researcher recording the respondent's physical reaction

to these visual aids.
e
Th

As rapport can be built up using this technique, it is possible for the

:

interviewer to ask more in-depth questions, or to ask follow-up questions,

of

although this latter technique will reduce the consistency of the questioning
ty

approach. As the interview will tend to be longer, it is possible to have a

more in-depth interview. A depth interview is a lengthy one-to-one
er

interview in which the respondent's views about a product are examined

op

in detail.
Pr

If an organization is considering the use of personal interviews, then it

should take account of the following:

88 Marketing | Reference Book 1

 a. On-street Interviews

Most people are familiar with the on-street interview, where the respondents are
selected either on the street or within a shopping mall. As with any face-to-face
interview, the researcher is able to take cognizance of the non-verbal communication
of the respondent, and visual aids may be used. If appropriate, it may be possible
to let the respondent sample the product, although this is not relevant in financial
services!

b. In-depth Interviews

An in-depth interview will seek to combine the advantages of the focus group
with the speed of the on-street interview. Here, respondents are selected on the
street and taken to a café (for example), to be asked more probing and in-depth
questions than would be possible in the course of an on-street interview.

c. In-home Interviews

If self-disclosure of the respondent is important, then an "in-home interview"

an
may be considered appropriate. This type of interview will normally last between

st
45 and 90 minutes and the respondent can be probed to reveal their true
motivations, thoughts, feelings, aspirations, etc.

ki
Pa
d. On-site Computer Interviewing

s
er
The final interviewing technique to consider is on-site computer interviewing
nk
where the respondent will complete a self-administered questionnaire on a
Ba

computer. It is possible to use software that will allow this process to be carried
out in malls, etc.
of

In determining the most advantageous approach, a pilot survey is often adopted

e

to check the methodology.

ut
it

3. Questionnaires
st
In

Questionnaires require to be clear and concise with no scope for ambiguity.

The effort that is expended in the design will be rewarded in the accuracy
e
Th

of the information which it produces.

:

The questions must be designed in a way that will meet the needs of the
of

research project, therefore the questions must be clear and easy for the
ty

respondent to understand. A common mistake when compiling the

questions is to include questions that are of interest to the researchers,
er

but do not give information that will allow the acceptance or rejection
op

of the hypothesis. It is also vital that the questions drafted maintain

Pr

impartiality.

Different Methods and Types of Marketing Research 89

 There are various types of questions that can be adopted:

● Open-ended questions, such as "what is your opinion of …?" This can

evoke a wide range of information that can sometimes be difficult to
analyze accurately and present in a succinct manner. However, this
type of question can be beneficial at the pilot stage in determining
the potential range of responses.

● Multiple choice questions - providing a range of possible answers

● Yes/No type questions - straightforward two choices of answer. This

can obviously be adapted in various formats apart from yes/no

● "Thermometer" questions - those being questioned are asked to rate

the views on a scale of, say 1 - 10

The design of the questionnaire is important as it will affect the usefulness

of the results. The layout should be such that it does not put the respondents
off as questionnaire fatigue may mean that the quality of the responses

an
is not as useful as it might have been.

st
● Who are the target customers?

ki
Pa
● What is the most convenient/effective location, e.g. office, home, street,
etc?

s
● er
Contamination of the results by interviewer error, customer
nk
bias/untruthful response, etc.
Ba

High costs.
of

●
e

● Factors affecting customer motivation to participate in the survey, as

ut

illustrated in the following diagram.

it
st

Possible influence
In
e
Pr Level or interviewed motivation

Th

Pressure of Embarrassment Dislike for Fear of Invasion of

competing activities or ignorance Interview content consequences privacy
:
of
ty

Payments Liking for Interest in Loneliness Prestige of

er

rewards interview content research agency

op

4. Focus Groups

These are an extension of personal interviewing involving groups of

customers. Open dialogue and interaction should be encouraged around
the question framework provided by the chairperson.

90 Marketing | Reference Book 1

 The objective behind a focus group interview is to observe the interaction
of the group when they are exposed to a new idea or concept. Often a
focus group discussion is carried out informally, without a structured
format, and the group is around 8 - 12 people.

This approach is useful when looking at consumer attitudes, behaviors,

life styles, needs and wants, with it being possible to explore these areas
in a flexible and creative manner. As mentioned above, the intention is
to create open dialogue and interaction, with this being facilitated through
the use of open questions and probing follow-up questions from the
facilitator.

The conversation is usually started by a general discussion which is led

by the facilitator, who will then narrow down the conversation to home
in on a particular product or brand - hence the name "focus group".

A potential disadvantage of a focus group is that as the commissioning

organization will have gone to the time, trouble and expense of creating
a conducive atmosphere, some of the respondents may feel that it is ill

an
mannered to give any negative responses, thus compromising the results.

st
5. Surveys

ki
Pa
This is the most popular method of information gathering and is very

s
well suited to descriptive research. It is the most widely used procedure
for primary data collection.
er
nk
Ba

Surveys can be completed by mail, telephone or personal interview;

questionnaires can be either self-administered or completed by an
of

interviewer.
e
ut

The selection of the type of survey to be used will be determined by the

nature of the problem, the resources that are available to the organization,
it

the type of data required to meet the research objectives, etc.

st

It is becoming increasingly difficult to obtain respondents for market

In

research purposes. One of the reasons for this is the use of "sugging" -
when companies try to make sales under the disguise of "market research".
e
Th

There is also a feeling amongst respondents that surveys take too long to
complete and they do not have the time. Also the frequency in which
:

some people are approached may make them less than willing to participate
of

in surveys.
ty

Equally, consideration requires to be given to each delivery mechanism

er

in terms of the advantages/disadvantages of each.

op
Pr

Mail Surveys

This is where a questionnaire is sent to potential respondents and they

are asked to compete and return it. This can be a cost effective way of
carrying out research, but only if the expected response rate is high.

Different Methods and Types of Marketing Research 91

 There are a number of tactics which could be used to increase the response
rate. It may be that the organization offers some form of incentive for the
return of the surveys, or there is a follow-up call to the respondent which
may motivate them to submit a response.

A further development in the field of mail surveys is the mail panel. A

mail panel is a group of customers (or potential customers) who are
chosen as a representative group of a market or a segment, and who agree
to be interviewed regularly by mail. This approach can give useful
information regarding the evaluation of products and the consumption
patterns of the mail panel.

In a similar vein you may have come across consumer purchase diaries.
These have been used by transport companies in an attempt to change
timetables for services. Research has shown that the type of customers
most likely to engage in this type of research are those with better education
and higher income, but this group may not be representative of the market
or the segment. However, if the organization is to include less well-
educated consumers in the sample group, then they run the risk of a lower

an
level of response and the danger that this will affect the reliability of the

st
results.

ki
If an organization is considering the use of mail surveys, then it should

Pa
take account of the following:

s
● Who are the target customers?
er
nk
● Will they be motivated to respond?
Are the questions straightforward?
Ba

● What is the length of the questionnaire?

of

● Cost - provision of prepaid reply envelopes

● Response rate and the impact on the cost/value of the survey
e
ut
it

Telephone surveys
st
In

Whilst the traditional view of a market researcher is someone standing

on a street corner with a clipboard, interviewing passers-by, the telephone
e

interview has become increasingly popular. The response rate for the
Th

telephone survey is higher than for the mail survey as it takes less effort
:

for the respondent to complete this type of questionnaire.

of

This approach also means that the organization may obtain the research
ty

information more quickly, and it can be used effectively when the

er

organization is looking for a quick response to a recent event; for example,

op

a change in the mortgage rate.

Pr

However, there are a number of disadvantages to this approach, some of

which we have already discussed, for example the use of sugging.

Other disadvantages associated with telephone surveys include the fact

that communication is only oral, therefore it is not possible to use visual

92 Marketing | Reference Book 1

 aids and the researcher cannot observe the non-verbal clues that are
coming from the respondent. Also some potential respondents will be
excluded as their telephone numbers are ex-directory, or they use voicemail
or call display to screen callers.

There has also been an increase in the use of computer assisted telephone
interviewing. This approach integrates the use of the questionnaire, data collection
and tabulation to give information in the shortest time possible. The questionnaire
responses are entered on a terminal keyboard, or the interviewer can use a light-
pen to record the responses on a light sensitive screen. Open-ended responses can
be recorded on a keyboard. This technique can save time as the interim results
of the survey are available as soon as the survey is commenced.

It is now also possible to conduct on-line surveys, where the respondent has agreed
to be part of the study and has supplied their e-mail address. As this medium is
semi-interactive, it is possible for the respondent to ask for clarification on particular
questions, or to pose questions of their own. One advantage is that as the
information is received on-line, it is easier for the organization to commence the
collation of the material.

an
st
The potential to obtain information this way and through the internet is increasing
all the time, and this, allied to the cost effectiveness of this approach, is likely to

ki
make on-line surveying increasingly popular.

Pa
If an organization is considering the use of telephone and on-line surveying, then

s
it should take account of the following:
er
nk
Ba

● Who are the target customers?

● Impact of ex-directory?
of

● Need for short, straightforward questions

● More difficult for the interviewer to establish a personal approach
e

Method provides a fast response and is relatively inexpensive

ut

● On-line accessibility of target customers.

it
st

7. Sampling
In

When looking at both interviewing and surveys, it is useful to give some

e
Th

thought to the concept of sampling. As we have already discussed, all

organizations have to operate with limited resources. As a result, it is not
:

possible for them to consult with every customer or potential customer

of

when they are carrying out market research activity.

ty

The "population" is the number of households or organizations that are

er

of interest to the researchers. Out of this population, the researchers will

op

select a "sample" which they hope will be representative of the views,

Pr

needs, wants, etc of the larger population. You will be familiar with this
concept through your knowledge of political opinion polls, where a
smaller group is surveyed in the belief that their views are representative
of the larger population.

Different Methods and Types of Marketing Research 93

 Therefore the objective of sampling is to select representative units from
a total population. Sampling procedures allow marketers to predict buyer
behavior accurately based on the responses from the sample group.

There are two types of sampling - probability sampling and random

sampling. Probability sampling is where every element within the
population has a known chance of being selected for study, whereas with
random sampling all of the units in the population have an equal chance
of being selected to appear in the study.

A further type of probability sampling is stratified sampling where a

population is divided into groups according to a common characteristic
or attribute, and probability sampling is then conducted within each
group. This technique may help to reduce some of the error that may
occur as a result of using a simple random sample.

Area sampling involves selecting:

● A probable sample of particular geographical areas, for example

an
particular streets, and households, individuals, or other units within

st
the selected geographical areas for the sample

ki
Pa
When choosing how to select the units, the researchers may decide to
select every nth house, or they may use a random sampling technique.

s
er
The final sampling technique we will look at is quota sampling where
nk
the population is divided into groups and participants are chosen at
random from there. It is normal to have some form of controls - normally
Ba

two or three variables, such as gender, age, height, occupation, etc. These
of

controls will attempt to ensure that the sample is representative.

e

8. Experimentation
ut
it

Not a word or a methodology that features too regularly in financial

st

services, it is more akin to manufacturing industry. The closest it gets is

In

possibly pilot schemes when new products or delivery mechanisms are

tested in a limited manner.
e
Th

9. Motivational Research Techniques

:
of

This approach is utilized in an attempt to identify the motives, desires

ty

and emotions of customers which influence their behavior. Techniques

er

can include:
op
Pr

● Depth interviewing - employing interviewing and observational

methods; encourages open dialogue and opinions relating to such
issues as products, services, brand, etc

● Focus groups/group interviews or discussions; encourage freedom of

expression as detailed above

94 Marketing | Reference Book 1

 ● Projective techniques - utilized to "dig beneath the surface". This can
include techniques such as verbal projection where questions are
phrased in relation to a third party but the answers will actually apply
to the customers themselves such as: "what do you think of our latest
customer promotion?"

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

Different Methods and Types of Marketing Research 95

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 6 Marketing Information System

Student Learning By the end of this chapter you should be able to:
Outcomes
Define and explain the concept of marketing information system
(MIS)

List the uses of marketing information system

Explain how the information extracted from the MIS can be used
by management

Apply the information provided by the MIS to take a decision in

an
the given scenario

st
ki
Introduction Information and planning are critical to the management of marketing

Pa
activity. In the highly competitive and complex financial service sector,

s
a financial services organization can gain an advantage if it can identify
er
and respond to market opportunities before its competitors. Quality
nk
information is critical for the identification of such opportunities.
Ba

The marketing environment is changing at an accelerating rate. Given

of

the following changes, the need for real-time market information is greater
than at any time in the past:
e
ut

From local to national to global marketing - As companies expand

it

geographically, information is needed more quickly.

st
In

● From buyer needs to buyer wants - With increase in incomes, customers

become more selective in their selection of goods and services. To
e
Th

know about customers' changing tastes and choices, it is important to

gain knowledge about them through market research.
:
of

● From price to non-price competition - As marketers move more towards

ty

branding and product differentiation, they require more information

er

on the effectiveness of these tools.

op

Marketing Information
Pr

Information is an essential resource in making marketing decisions. The

more information an organization has about areas such as its customers,
competitors and target markets, the better it will be able to develop an
effective marketing program.

96 Marketing | Reference Book 1

 The Marketing Although information does not replace management's judgment, it
Information System enables an informed decision-making process with a view to minimizing
the chance of error, but, to be effective, information has to be timely,
accurate and easy to use. A marketing information system is needed to
manage information and aid marketing decision making.

Marketing information system is defined as follows.

A marketing information system (MIS) is basically a set of procedures to

gather, sort, analyze, evaluate and distribute marketing information for
use by decision makers to improve marketing planning, implementation
and control.

From one company to another, a marketing information system can vary

widely. Typical systems for small and larger organizations are set out
below:

● Small organization - The MIS may involve someone looking for

relevant information and either filing it or circulating it around the

an
key decision makers.

st
Large organization - A computer storage and retrieval system is needed

ki
●

to handle the large volume of data.

Pa
The start of the process is determining what the objective of the information

s
er
is; once the organization is clear what this is, then it can start to collect
nk
and process the right kind of material.
Ba

As shown in Figure 7.1, the marketing information system consists of

of

inputs from the internal reporting system, the gathering of market

intelligence and marketing research.
e
ut

Figure 7.1: THE MARKETING INFORMATION SYSTEM

it
st
In
e
Th
:
of
ty
er
op
Pr

Marketing Information System 97

 These inputs are then processed, which at the most advanced level may
involve using statistical or computer modeling, but normally consists of
classifying, storing and indexing the data in order that it can be easily
retrieved to provide outputs for marketing decision making. Finally,
feedback enables those who are responsible for gathering internal and
external data systematically to adjust and improve the information intake.

We will now look in detail at the three main information inputs shown
in the diagram in figure 7.1.

1. Internal Reporting Input

The most basic source of marketing information is from internal reports,

including reports on areas such as sales (by product, branch, region or
type of customer), information on current customer types, levels of
customer complaints and expenditure on promotional activities.

For important personal or corporate clients, additional information can

be retained - their past history, the relationship they have had with the

an
financial services organisation, the names of other professionals they use,

st
their current plans and objectives. Such information can prove valuable
in trying to maintain their loyalty, in designing new services for them,

ki
and in developing marketing activities for similar types of customer.

Pa
The specific elements of the internal reporting input, as well as the other

s
er
MIS inputs, must be designed to serve the needs of decision makers in a
nk
timely and cost effective way. This is best done by asking decision makers,
Ba

whether they be operational line management or specialist staff in a

centralized function, the following types of questions:
of

● What types of marketing decisions are you regularly called upon to

e

make?
ut
it

● What types of information do you need to make these decisions and

st

what information do you currently receive?

In

● What additional information would you want daily, weekly, monthly,

e

and yearly?
Th

What magazines and reports would you like to see routed to you on
:

●
of

a regular basis?
ty

● What specific topics would you like to be kept informed of ?

er
op

Based on the answers to these questions, an MIS should be developed

Pr

which reconciles:

● what decision makers think they need

● what decision makers really need
● what is economically feasible

98 Marketing | Reference Book 1

 2. Marketing Intelligence Input

Whereas internal reports provide decision makers with "results-type"

data, marketing intelligence supplies them with "happenings-type" data.
Marketing intelligence is information about what is currently happening
in the marketing environment.

Many decision makers in the finance sector collect marketing intelligence

in an informal way through reading various journals and newspapers and
through discussions with other professionals and clients.

An informal approach to intelligence gathering on its own can also lead

to important information being missed, such as a new business opportunity
with a large client or a pending shift in competitive strategy by a competitor.

A financial services organization can take steps to improve intelligence

by formalizing the areas to be monitored. These should relate to the main
elements of the macro and microenvironments which we looked at earlier
in the book.

an
st
As discussed in detail earlier, the main elements of the macro and
microenvironments are as follows:

ki
Pa
Macroenvironment Microenvironment

s
er
Demographic environment nk Suppliers
Economic climate Customers
Ba

Political/legal/regulatory environment Competitors

Technological developments Publics
of
e
ut

All staff should be encouraged to gather market intelligence data,

particularly about the microenvironment, and pass it on to others in the
it

organization.
st
In

Intelligence gathering can often be improved by setting up a committee/

representative group/cross-functional working group, consisting of
e
Th

individuals from appropriate operational and specialized functions to

coordinate and manage the activity. In some instances, elements of this
:

information gathering may be bought or outsourced to specialist external

of

companies. The coordinating role involves:

ty

Scanning relevant national or local publications for news about

er

competitors, clients, planning/development initiatives

op
Pr

● Organizing a filing system for intelligence that will make the retrieval
of past and current information relatively straightforward

● Collecting customer and staff comments and complaints about

marketing activity.

Marketing Information System 99

 3. Marketing Research Input

Frequently, financial services organizations need to commission specific

marketing research studies in order to have adequate information to
make decisions.

Marketing research is the means used by an organization to keep in touch

with the needs, wants and attitudes of those who purchase or could
purchase the organization's products and services.

Such research can involve:

● Product research to assist in: the design, development and testing of

new products and services; the improvement of existing products and
services; the forecasting of trends in customer preferences for specific
products and services.

● Market research to assist in: the analysis of market segments, market

size and the share of the market held by the financial services

an
organization and its competitors.

st
Customer research to assist in: the analysis of buying behavior;

ki
●

the analysis of customer perceptions, attitudes and reasons for purchase.

Pa
Promotion research to assist in: the testing and evaluation of

s
●

promotional material.
er
nk
Any of these types of research can be undertaken as part of a continuous
Ba

research project where changes in market share, consumer attitudes, etc

of

can be tracked over a period of time. Alternatively, an ad hoc study is

undertaken on a one-off basis and provides the organization with a
e

snapshot of what the situation is at any point in time. The research would
ut

normally be undertaken either by the organization's own marketing/market

it

research department or by an external marketing research agency.

st
In

Some Examples Let us suppose you are holding a customer forum with a view to providing
feedback to your marketing team. A few questions that would evoke
e
Th

useful information include:

:

● What do you like about our products and services?

of

Do they meet your needs?

ty

●
er

● How do you perceive us in relation to our competitors?

op
Pr

● Is there anything that really irritates you about our products and
services?

● What changes would you like to see us make? (This needs to be

positioned with a degree of realism.)

100 Marketing | Reference Book 1

 While formulating these questions, one should be mindful of the
features/benefits trap. Customers normally buy benefits, so one should
avoid asking questions relating to a list of features attaching to a product.
You can get round it by adopting questions such as:

● What are you looking for in our products/services?

● What product do you prefer to buy?

Market intelligence will comprise a sizable chunk of the "primary

information" which we discussed in the earlier chapters. However, it may
be felt that this information is not enough in itself to inform the decisions
which the business has to take; thus additional research will be carried
out.

Depending upon the size of the organization, this research may be carried
out internally or it may be commissioned to a specialist market research
organization - more than 650,000 people work in the market research
industry globally!

an
st
The increase in the amount of market research carried out over the years,
and the greater reliance put on it in the decision-making process has led

ki
to a shift in the decision-making process from intuitive decision making,

Pa
where managers would come to decisions based on their knowledge and
experience - often called "acting on a hunch" - to a more scientific-based

s
er
approach, where the decisions are made as a result of a logical and orderly
nk
decision-gathering process. Thus, information is gathered in by using a
Ba

logical process, and decision-making processes are followed, rather than

relying on trial and error. However, do not read from this that there is
of

no room in the decision-making process for intuition; successful decisions

are often a mix of researched information and intuition.
e
ut

Management use By carrying out market research we are improving the organization's
it

ability to make good decisions. However, the results of market research

st

are a resource similar to other resources that are used by the business -
In

it comes at a cost. As we have discussed earlier, no organization has

unlimited resources and a decision will always have to be made, weighing
e
Th

up the costs of obtaining the information with the likely benefits that
will accrue to the organization of having this information; in other words,
:

we are looking at an investment decision.

of

Different form of MIS has different level of usage and importance from
ty

the management's perspective. Information gathered can be:

er
op

1. Data relating to customer demographics and psychographics gives

Pr

useful insight on customer buying behavior, their preferences and

background information, etc. This sort of information is very useful
for management to make product related decisions like that of product
feature modification, line expansion, new product development, setting
sales targets, distribution strategy, etc.

Marketing Information System 101

 2. Information about the competition and industry dynamics helps
management to decide on effective marketing strategies and other
decisions regarding what works and what doesn't at a particular point
in time for a certain kind of product.

3. Data regarding company's own processes and turnaround times gives

management a powerful insight into how different departments are
performing and also helps them identify possible source of issues.
Depending on the kind of information that is being captured,
management can make process reengineering and resource mobilization
decisions.

4. Financial data helps make budgeting and investment decisions. Coupled

with performance related information of different departments and
areas, this data can help management identify the cost centers and \
assist in tweaking the different areas for better overall financial
performance of the company.

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

102 Marketing | Reference Book 1

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 7 Measuring and Monitoring Service Quality via MIS

Student Learning By the end of this chapter you should be able to:
Outcomes
Explain the concept of measuring service quality in a financial
institute

Discuss and illustrate with examples how MIS can be used to

measure service quality

Introduction Service quality is one of the key differentiators for success. What makes

an
a difference? What can you do that makes you better than your competitors
and strengthens your relationship? Remember - think customer! It is the

st
one aspect of customer relationship management over which you have

ki
a high level of control in that you probably have limited influence over

Pa
the structure of the products which are offered by your organization.

s
er
Given knowledge of the customer experience, you know what is important
nk
to your customers and how they want it delivered. This should enable
you to strive to meet their expectations and create long term relationships.
Ba
of

Success in this area increases:

e

● Customer retention
ut

● Income
it

● Referrals
st
In

Service Quality
e

Creating a Differential Advantage: A common complaint among service

Th

providers is the difficulty of differentiating their service from that of

:

competitors. Service intangibility and inseparability mean that consumers

of

rarely compare alternative service offerings in advance of purchase in the

way that potential buyers of products do. Differences in the attractiveness
ty

or value of competing services are not readily obvious to the potential

er

buyer.
op
Pr

Nevertheless, a differential or competitive advantage is necessary for

marketing and financial reasons as it enables the firm to attract new
customers and prevent existing customers from defecting to the
competition.

A differential advantage is necessary if a business is to maintain earnings

above the cost of capital, i.e. to generate shareholder value. The absence

Measuring and Monitoring Service Quality via MIS 103

 of a differential advantage enables competitors to enter the market, copy
the company's offer and erode profit margins.

Offering customers superior value creates a differential advantage It can

be increased by offering customers improved performance or benefits for
the same cost, or the same benefits for a lower cost. Since customers have
different preferences and constraints, the optimum value will differ among
them. Some customers will put a greater emphasis on benefits, such as
innovative product features or services; others will place a greater weight
on price or convenience.

Hence, in any market there will be different value propositions, depending on

the customer base. Managers must make key decisions relating to which customers
are to be targeted and the choice of value proposition that is to be offered.

Some companies compete on the basis of offering more benefits; others compete
on cost and convenience. The former strategy is suited to those customers who
wish to select suppliers who offer the best solutions and are willing to incur more
costs to get them.

an
st
There are four types of positioning strategies that compete on this dimension:

ki
1. Product (and Process) Leadership

Pa
Some companies target customers who want the latest technology and products

s
er
with the most innovative features. Examples include 3M, Sony, Glaxo, Microsoft
nk
and Intel. These companies invest heavily in research and development, aim to
hire the brightest talent and build organizational cultures focused on creativity
Ba

and innovation. The financial advantages of successful product leadership are the
of

opportunities to achieve rapid growth and obtain premium prices. As an example,

let's go through the case study below.
e
ut

2. One-to-One Marketing
it
st

This strategy involves communicating with customers on an individual

In

basis to learn about their needs and develop tailored solutions which
directly improve their experience.
e
Th

The characteristics of customer intimacy strategy are:

:
of

● The construction of data banks to hold information on the preferences

and buying behavior of individual customers.
ty
er

● The use of information technology to allow direct one-to-one

op

communication between the firm and the customer.

Pr

● The organization of marketing around customer managers rather than

brand managers .
● The tailoring of individual product and service solutions.

104 Marketing | Reference Book 1

 3. Brand Leadership

Consumer brands such as McDonald's, Coca-Cola and Gillette have

emotional values beyond those that can be explained by their product or
service performance. In business to business markets, major bank brands
plus brands such as McKinsey and Hewlett Packard have similar values.
Brands give consumers confidence that they can trust these suppliers.
They reduce the personal, social or economic risks attached to making
decisions. For the supplier, the benefit of strong brands is that it is easier
to gain market share. Preference also means that strong brands sell at
higher prices.

4. Service Leadership

Some customers place a high value on outstanding service. Companies

with a value proposition based on service include Emirates or South West
Airlines, Hyatt and American Express. Businesses competing in this way
need to identify the types of customers who will pay more to be pampered.

an
Defining Service Quality

st
The characteristics of services described above have challenged many

ki
organizations in their attempts at designing quality standards that will

Pa
be readily accepted by potential customers. Such problems are compounded
by the absence of absolute standards of service excellence - one customer's

s
er
idea of a disappointing service may be another's idea of service excellence.
nk
For instance, an infrequent traveler who has won a first class air ticket
Ba

may consider all aspects of the service to exceed their expectations, while
a regular business traveler with higher expectations may express
of

dissatisfaction because of slow check-in procedures and an inattentive

cabin crew.
e
ut

As service quality is essential for successful customer relationships, we

it

shall consider ways to overcome the difficulties described above and

st

suggest methods for implementing service quality systems in financial

In

organizations. In doing so, we shall suggest some of the ways in which

firms can incorporate a differential advantage into their service offering.
e
Th

Researching Service Quality

:
of

It is generally acknowledged that one of the main reasons for poor service
performance is the lack of awareness about customer expectations. This
ty

further illustrates the importance of service quality and the customer

er

experience going hand in hand. This problem can be resolved through

op

the use of marketing research to gain information about customers'

Pr

expectations and perceptions of service. The first step in this process is for
service organizations to ask the following key questions:

● What do customers consider the most important features of the service?

● What level of these features do they expect?
● How do customers perceive service delivery?
● What is the relative importance of each feature?

Measuring and Monitoring Service Quality via MIS 105

 Service Quality and Customer Value

Some of the most useful methods for researching customers' experience,

expectations and perceptions are examined below. These methods are
most effective when they are:

● Varied - in order to achieve a comprehensive insight into a

problem, a variety of research methods should be used.

● Ongoing - the expectations and perceptions of customers are constantly

changing as is the nature of the service offer provided by companies
and their competitors; a service research process should be administered
on a continuous basis so that any changes can be picked up quickly
and acted upon if necessary.

● Undertaken with staff - the closeness of staff to customers within the

services sector makes it important that they are asked about problems
and possible improvements as well as their personal motivations and
requirements. However, care should be taken to note that when staff

an
undertakes research, the customer does not like to give bad news and

st
so there is a place for this but it cannot then be used as an absolute
measure.

ki
Pa
Research Objectives

s
er
The first step in designing services marketing research is without doubt
nk
the most critical - defining the problem and research objectives. Does the
company want to know how customers perceive the service provided by
Ba

the company, what customer requirements are, how customers will respond
of

to a new service introduction, or what customers will want five years

from now? Each of these research questions requires a different research
e

objective.
ut
it

The following are the most common research objectives in financial

st

services:
In

● to identify dissatisfied customers, so that service recovery can be

e
Th

attempted
:

● to discover customer requirements or expectations of service

of

to monitor and track service performance

ty

●
er

● to assess overall company performance compared with competition

op
Pr

● to assess gaps between customer expectations and perception

● to gauge effectiveness of changes in service delivery

● to appraise the service performance of individuals and teams for

evaluation, recognition and rewards

106 Marketing | Reference Book 1

 ● to determine customer expectations for a new service
● to monitor changing customer expectations in an industry
● to forecast future expectations of customers

Research Methods

The various research methods include the following:

● Regular Customer Surveys

Members of the public frequently receive surveys from service providers

asking for their opinion about the level of service provided. Surveys may
be carried out, for example, by telephone, post or face-to-face. The latter
method may include exit interviews, when a customer has been visiting
the service provider's premises, or street interviews when members of the
public are asked to fill out a questionnaire. Recipients of surveys are
usually asked to relate any complaints that they may have about the
services provided along with suggestions for improvements. The results

an
of these surveys may not always be accurate as the respondents frequently

st
give hurried and ill-considered responses.

ki
Consideration should also be given to the census of the survey, that is,

Pa
the size and composition of the population to be surveyed; whether to
include everyone in the chosen field of research or to take a representative

s
sample.
er
nk
Ba

● Customer Panels
of

These are used to provide a continuous source of information on customer

expectations. Groups of customers who are frequent users are brought
e

together by a company on a regular basis to study their opinions about

ut

the quality of service provided. On other occasions, they may be employed

it

to monitor the introduction of a new or revised service; for example, a

st

panel could be brought together by a building society following the

In

successful introduction of a new branch design.

e
Th

This research method provides organizations with a means of anticipating

problems and an early warning system for emerging problems. The value
:

of this research is directly related to how well the panel represents the
of

rest of the consumers. Careful selection should be undertaken to ensure

ty

the panel matches the social, demographic and economic profile of the
consumers being analyzed.
er
op

● Transaction Analysis
Pr

This involves tracking the satisfaction of individuals during recent

transactions to enable management to judge current performance,
particularly customers' satisfaction with the contact personnel as well as
their overall satisfaction with the service. This research method normally
involves issuing a questionnaire to individual customers immediately
after a transaction has been completed.

Measuring and Monitoring Service Quality via MIS 107

 Building societies, for example, invite customers who have just used their
mortgage services to express their views on the service received via a
structured questionnaire. An additional benefit of this research is its
capability to associate service quality performance with individual staff
members and link it to reward systems.

● Mystery Shoppers/Mystery Customers

In this form of research, companies hire outside research organizations

to send people into service establishments and experience the service as
if they were customers. This enables managers to monitor the quality of
staff performance when they are delivering the service.

A major difficulty in ensuring service quality is overcoming the non-

performance of staff in complying with service guidelines. Customers
often complain about services when staff is unable or unwilling to perform
the service at the desired level. An important function of mystery customer
or mystery shopper surveys, therefore, is to monitor the extent to which
specified quality standards are being met by staff. The mystery customers

an
are trained assessors who visit the organization, pretend to be a customer

st
and then prepare a report on how well or badly the service personnel did
their job. When applied correctly, this can provide a powerful technique

ki
for revealing how customers perceive the service.

Pa
As an example, the criteria used in conducting "mystery shopper" research

s
can be:
er
nk
How they were greeted as customers
Ba

The manner of the staff - politeness, attitude, etc

of

●
e

● Knowledge of the product or service offered

ut

The sales technique, ie whether they felt pressurised into buying or

it

were guided to a sale in an acceptable way

st
In

● Responses to questions asked

e

● How the transaction was concluded

Th

● Conduct of any follow-up actions

:
of

The SERVQUAL Methodology

ty
er

The importance of quality as a determinant of the success of a service has

led to comprehensive programs to measure quality. Pre-eminent among
op

these is SERVQUAL, a methodology based on the premise that customers

Pr

can evaluate a firm's service quality by comparing their perceptions of its

service with their expectations.

● What to measure

108 Marketing | Reference Book 1

 The question of what to measure will vary from one industry to another,
but the factors outlined below apply to most organizations in the service
sectors.

"Reliability" refers to the ability to perform the promised service

dependably and accurately. It is regarded as the most important determinant
of service quality. It is especially important for services such as transport,
banks, building societies, insurance companies, delivery services and trades
such as plumbing and car repair.

"Responsiveness" refers to the willingness to help customers and deliver

prompt service. It is particularly prevalent where customers have requests,
complaints, problems or questions.

"Assurance" refers to the employees' knowledge, courtesy and ability to

inspire trust. It is important for the customers of health, financial and
legal services.

"Empathy" refers to the caring, individualized attention the service

an
provides its customers.

st
"Tangible" refers to the appearance of physical facilities, equipment,

ki
personnel and communication materials. These can be used to create a

Pa
favorable image of the organization in the mind of the customer. Tangibles
are important when the customer's physical presence at a service is

s
er
necessary for consumption to occur, such as a hair salon, night club or
nk
hotel.
Ba

● How to measure
of

Customers are asked to complete 22 statements relating to their expectations

e

of a service and a perceptions section consisting of a matching set of

ut

company-specific statements about service delivery. They are asked to

it

score on each instance, on a scale from 1 (strongly disagree) to 7 (strongly

st

agree), whether or not they agree with each statement.

In

In addition, the survey asks for respondents' evaluation of the relative

e
Th

importance they attach to each dimension of service quality or the relative

importance of different customer groups. The results of the survey reveal
:

whether customer expectations are being met or not.

of

The following example illustrates how SERVQUAL could be applied to

ty

a financial services organization.

er
op

Example…
Pr

Please complete Part A by indicating your expectations of banks in general.

Then complete Part B indicating your perceptions of this bank in particular.
Please answer on a scale from 1 (strongly disagree with the statement) to
7 (strongly agree).

Measuring and Monitoring Service Quality via MIS 109

 PART A

Directions: Please complete the following questionnaire pertaining to

service quality. If you feel the features in each statement are essential to
your judgment of the bank, please circle 7. However if you feel the features
are of little importance, please circle number 1.

Strongly disagree

1 7

An excellent bank will send me information that is accurate and consistent

employees at an excellent bank will be knowledgeable about its products
and services.
1 2 3 4 5 6 7

An excellent bank provides efficient services that are easy to access.

1 2 3 4 5 6 7

an
Literature from an excellent bank eg statements, policy documents is

st
clearly explained.
1 2 3 4 5 6 7

ki
Pa
When an excellent bank promises to do something by a certain time, it
will do so.

s
1 2 3 4 5
er 6 7
nk
When customers have a problem, an excellent bank will show a genuine
Ba

interest in solving it.

of

1 2 3 4 5 6 7
e

An excellent bank will perform the service correctly the first time.
ut

1 2 3 4 5 6 7
it
st

An excellent bank will respect the confidentiality of its customers and do

In

its best to protect them from fraud.

1 2 3 4 5 6 7
e
Th

Employees at an excellent bank are honest and trustworthy.

:

1 2 3 4 5 6 7
of

An excellent bank will provide the services I require.

ty

1 2 3 4 5 6 7
er
op

Staff at an excellent bank will give prompt service to customers.

Pr

1 2 3 4 5 6 7

Staff at an excellent bank will always be willing to help customers.

1 2 3 4 5 6 7

Staff at an excellent bank will never be too busy to respond.

1 2 3 4 5 6 7

110 Marketing | Reference Book 1

 The behavior of staff at an excellent bank will instill confidence in
customers.
1 2 3 4 5 6 7

Customers of an excellent bank will feel safe in their transactions.

1 2 3 4 5 6 7

Staff at an excellent bank will be consistently courteous with customers.

1 2 3 4 5 6 7

An excellent bank treats its customers fairly.

1 2 3 4 5 6 7

Staff at an excellent bank will give customers individualized attention.

1 2 3 4 5 6 7

The physical facilities at an excellent bank are visually appealing.

1 2 3 4 5 6 7

an
Staff at an excellent bank are always smartly dressed.

st
1 2 3 4 5 6 7

ki
An excellent bank will have the customers' best interests at heart.

Pa
1 2 3 4 5 6 7

s
er
nk
The staff of an excellent bank will understand the specific needs of their
Ba

customers.
of

1 2 3 4 5 6 7
e

PART B
ut
it

Strongly disagree
st

1 7
In

My bank sends me information that is accurate and consistent.

e
Th

1 2 3 4 5 6 7
:

Employees at my bank are knowledgeable about its products and services.

of

1 2 3 4 5 6 7
ty

My bank provides efficient services that are easy to access.

er

1 2 3 4 5 6 7
op
Pr

Literature from my bank eg statements, policy documents is clearly

explained.
1 2 3 4 5 6 7

When my bank promises to do something by a certain time, it does it.

1 2 3 4 5 6 7

Measuring and Monitoring Service Quality via MIS 111

 When I have a problem, my bank shows a genuine interest in solving it
eg an error in a statement.
1 2 3 4 5 6 7

My bank performs the service correctly the first time.

1 2 3 4 5 6 7

My bank respects my need for confidentiality and does its best to protect
me from fraud.
1 2 3 4 5 6 7

Employees at my bank are honest and trustworthy.

1 2 3 4 5 6 7

My bank provides the services I require.

1 2 3 4 5 6 7

Staff at my bank deliver prompt service.

1 2 3 4 5 6 7

an
st
Staff at my bank are always willing to help.
1 2 3 4 5 6 7

ki
Pa
Staff at my bank are never too busy to respond.
1 2 3 4 5 6 7

s
er
nk
The behaviour of staff at my bank instils me with confidence.
1 2 3 4 5 6 7
Ba
of

I feel safe when making transactions at my bank.

1 2 3 4 5 6 7
e
ut

Staff at my bank are consistently courteous.

it

1 2 3 4 5 6 7
st
In

My bank treats me fairly.

1 2 3 4 5 6 7
e
Th

Staff at my bank give me individualised attention.

:

1 2 3 4 5 6 7
of

The physical facilities at my bank are visually appealing.

ty

1 2 3 4 5 6 7
er
op

Staff at my bank are always smartly dressed.

Pr

1 2 3 4 5 6 7

My bank has my interests at heart.

1 2 3 4 5 6 7

The staff at my bank understand my specific needs .

1 2 3 4 5 6 7

112 Marketing | Reference Book 1

 SERVQUAL results can be used in the following ways:

● to indicate aspects of service where the service is weak or poor

● to monitor service quality over time
● to compare performance with that of competitors
● to measure customer satisfaction with the industry generally

It is easier to achieve customer satisfaction when service providers decide

upon a target quality of service level that is then communicated to
employees and customers. This allows employees to know what is expected
of them and tells customers what they can expect.

The SERVQUAL methodology highlights the difficulties in ensuring a

high quality of service for all customers in all situations. It identifies five
gaps where there may be a shortfall between expectation of service level
and perceptions of actual service delivery:

Gap 1
Gap between consumer expectations and management perceptions.

an
Management may think they know what consumers want and proceed

st
to deliver this when the consumers may want something quite different.

ki
Gap 2

Pa
Gap between management perception and service quality.

s
er
Management may not set quality specifications or may not set them
nk
clearly. Alternatively, management may set clear quality specifications
Ba

that are unachievable.

of

Gap 3
e

Gap between service quality specifications and service delivery.

ut

Unforeseen problems or poor management can lead to a service

it

provider failing to meet service quality specifications. This may be due

st

to human error or mechanical breakdown.

In

Gap 4
e
Th

Gap between service delivery and external communications. There may

:

be dissatisfaction with the service due to exaggerated claims in the service

of

advertisements.
ty

Gap 5
er
op

Gap between perceived service and expected service. This gap occurs as
Pr

a result of one or more of the previous gaps. The way in which

customers perceive actual service delivery does not match their initial
expectations.

(Source: Zeithamel, V, Berry, L and Parasuraman, A, Communication and

Control Processes in the Delivery of Service Processes, Journal of Marketing,
Vol 52, April 1988)

Measuring and Monitoring Service Quality via MIS 113

 Gaps Model of Service Quality

CUSTOMER

COMPANY

an
st
ki
Pa
s
Before we look at the methodology for addressing these gaps, let us add
er
in some final research findings that take the situation a stage further and
nk
look at the statistics behind as to why customers move to competition.
Ba

Why do customers move to the competitor?

of

Much industry wide research has been concluded in an attempt to answer

e
ut

this question. According to work completed by M LeBoeuf, an amazing

68% of customers move as a result of an indifferent approach demonstrated
it

by staff. The full results are:

st
In

● 1% die
3% move away
e

●
Th

● 4% are natural floaters

● 5% move on recommendations
:

9% find somewhere cheaper

of

● 10% are chronic complainers

ty

● 14% are dissatisfied

er

● 68% go elsewhere because the people who serve them are indifferent
to their needs - they just don't care
op
Pr

It is estimated that it can cost up to six times more to attract a sale from
one new customer than to get a sale from an existing client! Imagine the

114 Marketing | Reference Book 1

 impact on retention, income and referrals of making significant in-roads
into the 68% of customers who leave as a result of being exposed to
indifferent service. This is before you start looking at the other categories
(mindful that in a practical sense there will be an element within these
customers that you will not be too disappointed to lose due to non-
profitability, complaints, etc.)

How to improve service quality?

Findings from analyzing the customer experience combined with the

thinking of staff as customers can form the foundation for moving forward.
The challenge is to create a work environment that is as appropriate for
staff as for external customers. This is ideal but translating it into an
operational efficiency can be somewhat more difficult because of dealing
with a complete cross section of staff with different personalities, skills
and abilities, etc. While technology has enabled the service offering to
become more standardized through the use of ATMs, telephone, on-line
banking etc, financial services organizations remain predominantly people
-based institutions - the greater the human involvement, the greater the

an
variation in service quality.

st
So how to move forward? Given the information gathered from the

ki
customer experience it is important to establish a business model which

Pa
facilitates the process. The key elements of this model are:

s
● the vision
er
nk
● the goals
Ba

● the planning process

● training/coaching
of

● monitoring/measuring
● managing the team
e
ut

Let's discuss each one of these elements.

it
st

● The vision
In

The vision should be qualitative, not quantitative. It needs to be simple

e
Th

so that it can be easily communicated and remembered. An example

could be: "We shall provide the highest standard of service quality within
:

the finance sector."

of

In order to ensure maximum buy-in to the vision, the communication

ty

process has to include the benefits for customers, staff and the organization.
er
op

● The goals
Pr

Goals should be quantitative; unless specific targets are set with a deadline,
they are meaningless. The key components of every goal are:

Measuring and Monitoring Service Quality via MIS 115

 ● What?
● How much?
● By when?

Goal setting is an important part of service quality and is not just about
achieving targeted volumes. Effective goal setting will include quality as
well as productivity including behavior, error rates, turnaround times,
deadlines met, complaint handling, etc. Monitoring and tracking is also
a key component.

● The planning process

At this stage plans are formulated detailing the operational activities that
will achieve the set goals. From a service quality point of view this means
the behaviors and how often they require to be repeated. They need to
be specific - how much, of what, by when - and have clear ownership as
to who must deliver. An element of flexibility should be built into the
plans to enable changes to be introduced should ongoing research reveal
any requirements to match market or operational demands.

an
st
Training and coaching

ki
●

Pa
In the prescribed areas requiring action plans you will see that training
is a key feature. There is little point in formulating plans if you fail to

s
er
equip your people with the appropriate skills to fulfill them. This can
nk
ref lect the demands of the plans as well as the ongoing personal
development of individuals. A disciplined, structured approach is required
Ba

to ensure standards and consistencies are maintained.

of

Coaching is equally important in helping colleagues to learn how to do

e

more, better and different. A good coach will provide complete clarity as
ut

to what is required, assess the capabilities of the individual (including

it

identification of training needs) and motivate team members.

st

Positive reinforcement is one of the key motivational tools and also one
In

that is much underused. While recognition and reward form an important

part of this, in many cases verbal recognition has the most impact.
e
Th

A common mistake is failing to coach top performers. Their performance

:

might be doubled and in many cases this can compensate for the less
of

gifted in the team.

ty

● Monitoring/measuring
er
op

Follow-up to the plans is critical: "what gets measured, gets done!"

Pr

Ongoing collection of information from all the earlier mentioned

sources such as surveys, mystery shoppers, etc plus performance figures,
require to be analyzed. The results represent a fundamental
management tool in identifying strengths, weaknesses, training and
coaching needs, personnel issues, etc. It should lead to constructive
dialogue with the team such as:

116 Marketing | Reference Book 1

 ● What was successful? Why? Can we do more?

● What didn't work? Why?

● What can we do differently?

● Who has done well in a particular area? What can be learned from
them? Best practice!

● Managing the team

It is important that a model such as this is not seen as just another

academic exercise. This is about operational activities which will enhance
CRM and produce results for the organization. The team manager bears
much of the responsibility for "making it happen" in a positive, productive
manner. There is a need to create a positive "can do" environment in
leading, managing and coaching the team, cultivating positive attitudes
and individual accountability.

an
st
Let us now return to the gaps model and look at the areas where specific
action plans will require to be established in order to close the gaps:

ki
Pa
Gap 1

s
Prescription: Learn what the customers expect:
er
nk
Develop a clearer understanding of the customer experience/
Ba

expectations through research, complaint analysis and other forms of

of

marketing research.
e

Increase interactions between managers and customers to develop a

ut

better understanding.
it
st

● Improve upward communication from contact personnel to

In

management and reduce the number of levels between the two.

e
Th

● Turn information into action.

:

Gap 2
of

Prescription: Establish the right service quality standards

ty
er

● Ensure that top management display continuing commitment to

op

quality from the customers' points of view.

Pr

● Benchmarking can play an important role (and this is covered in detail

later in the chapter).

● Train managers in the skills needed to lead employees to deliver quality

service.

Measuring and Monitoring Service Quality via MIS 117

 ● Clarify to employees which tasks have the biggest impact on quality
and should receive the highest priority.

● Reward managers and employees for attaining quality goals.

Gap 3

Prescription: Ensure that service performance meets standards

● Clarify employee roles.

● Match employees to jobs by selecting for the abilities and skills needed
to perform each job well.

● Provide employees with appropriate training to perform tasks.

Train employees in interpersonal skills, especially when dealing with
customers under difficult situations.

● Eliminate role conflict among employees by involving them in the

an
process of setting standards.

st
● Train employees in priority setting and time management.

ki
Tie employee compensation to delivery of quality service.

Pa
Build team work so that employees work well together and use team
rewards as incentives.

s
er
nk
Gap 4
Ba

Prescription: Ensure that delivery matches promises

of

● Seek inputs from operations when new advertising programs are being
e

created.
ut
it

● Develop advertising that features real employees doing their jobs.

st

Allow service providers to preview advertisements before customers

In

see them.
e

Ensure that advertising content accurately ref lects those service

Th

characteristics that are most important to customers in their encounters

:

with the organization.

of

Identify and explain uncontrollable reasons for shortcomings in service

ty

performance.
er
op

(Extracted from Zeithamel, V, Parasuraman, A and Berry,

Pr

L, Delivering Quality Service: Building Customer Perceptions and

Expectations)

If all these gaps are closed, then Gap 5 (between perceived service and
expected service) will also be closed.

118 Marketing | Reference Book 1

 Benchmarking as The nature of customers' quality expectations in other similar service
a Technique for industries or other sections of the same organizations can be a useful
Creating Service source of information for managers. Benchmarking is a way of identifying
Quality practices applied in successful organizations which can be adapted to
other organizations known as benchmarking partners. The aim is to share
ideas, techniques, knowledge and systems, leading to a general, overall
improvement in effectiveness and efficiency.

Benchmarking is an organization's search for good practices, and their

application to its own situation. It is about finding someone who does
something well and copying them.

Companies are beginning to understand that international competitiveness

involves searching - around the world if necessary - for best practice, and
adapting this for their own use. Although it has recently come to the fore,
benchmarking is not new. The success of benchmarking illustrates that
while some efficiency gains can be obtained by self-examination; real
breakthroughs are more likely to be obtained when performance is
compared to the best in class, outside the organization, in each relevant

an
area. Some critics have suggested that benchmarking is simply an acceptable

st
form of copying or even industrial espionage. In fact, it is a means of
building on the success of others, of searching for new and better ways

ki
of doing things.

Pa
The aims of benchmarking are to:

s
er
nk
● determine how customers rate the benchmarking company relative
Ba

to its competitors
of

● establish the "best in class", thus providing a standard to work towards

e

adapt and use shared knowledge and experience with the aim of
ut

becoming a high-performing organization

it
st

Benchmarking has been around as long as human beings. The process of

In

observing others, imitating their actions and adapting them for our own
use is central to human development, whether we are learning to walk,
e
Th

talk or apply skills.

:

Benchmarking emerged in a more familiar form in Japan in the 1950s.

of

At that time, the USA was assisting Japan in the rebuilding of its economy,
and many American ideas began to be adopted by Japanese business
ty

leaders who visited the USA and borrowed ideas for products and processes.
er

However, this was not an example of blatant copying; rather Japanese

op

business took established Western ideas and developed and improved

Pr

them to suit their own needs. Benchmarking was considered one of the
key reasons for the growing pre-eminence of Japanese industry. Firms
within an industry benchmarked themselves against each other, with the
result that industries continually improved their performance and their
dominance in the marketplace.

Measuring and Monitoring Service Quality via MIS 119

 Benchmarking came to prominence in the United States when the Xerox
Corporation sought to react to its falling share of the photocopier market
in the face of Japanese competition. Through their Japanese partners,
Xerox examined and adapted Japanese methods. As a result, Xerox became
a world leader in quality, particularly in the field of benchmarking, and
won the 1989 Baldrige Award.

Types of Benchmarking Let us discuss the four types of benchmarking.

1. Internal Benchmarking

Internal benchmarking involves comparisons between the departments,

sections or even individual staff members of a single organization. Some
slight improvements in performance are possible, but systems, work
practices and culture are likely to be fairly consistent within the same
organization. Instead of measuring a process against best in class, the firm
is comparing two processes which may be mediocre and have little to
learn from each other.

an
2. Competitive Benchmarking

st
Competitive benchmarking involves the comparison of products or

ki
services with direct market rivals. The principal practical difficulty may

Pa
be unwillingness among some firms to allow their competitors access to
their methods. In addition, some countries have strict laws to prevent

s
collaboration within an industry.
er
nk
The most common type of competitive benchmarking is reverse
Ba

engineering, where the product or service is bought and used and the
of

organization works back to how their own equivalent products might be

improved in the light of the information gained. For example, Japan
e

bought a Morris car, stripped it down and started to build cars. Although
ut

it can provide benefits, reverse engineering is essentially backward looking

it

as the firm is looking at what competitors did some time ago.

st
In

While competitive benchmarking activities seek to compare like with

like, it is often a difficult exercise to conduct because companies are
e

unwilling to divulge information to direct competitors. The next best

Th

option is to compare your process with a similar process in a closely

:

related organization. For example, one high tech company producing

of

components for the computer industry might benchmark themselves

against another high tech company producing electronic components for
ty

cars.
er
op

Some of the most successful benchmarking exercises have been conducted

Pr

between organizations whose products and services are entirely different.

In this case the procedure would involve:

● identifying a specific process within your organization.

120 Marketing | Reference Book 1

 ● stripping it down to its bare essentials.

● looking for a process in a world class company that had similar essential
features.

● thinking creatively about what you could learn from the way they do
things.

The following case study of Hewlett Packard would make things more
clear.

Hewlett Packard

Hewlett Packard became involved in benchmarking when they discovered

that their customers were unhappy with the service they were receiving
from the company's finance department. In considering who to approach
as their benchmarking partner, Karen Prior-Smith, the Business Support
Manager, recalled how impressed she had been with the reliable, consistent
service she had received from First Direct. Although her team was

an
apparently doing its job well, they were making the classic mistake of not

st
monitoring and responding to customer requirements. A particular
problem was that the team had no procedure for dealing with requests

ki
or complaints from customers. From Karen's experience of First Direct,

Pa
she felt they should be able to help solve her problems.

s
er
Hewlett Packard employed an internal benchmarking expert to approach
nk
First Direct. Extensive preparation took place to identify the information
Ba

required, the questions to be asked, the people to be involved and the

help they might be able to offer First Direct in return.
of

A code of conduct was agreed between the two exchange parties so that
e

both were happy with the way in which shared information would be
ut

used. The benchmarking exercise was designed to be beneficial for both

it

parties. The Hewlett Packard Finance Team followed First Direct's example
st

and set up a Customer Care Team supported by a special training

In

programme aimed at increasing customer satisfaction. They also adopted

several of First Direct's smaller initiatives such as theme days, thank you
e
Th

letters and special achievement awards. First Direct were equally pleased
with the help they got in setting up self-managing teams, which Hewlett
:

Packard had already implemented with success. The exercise resulted in

of

Hewlett Packard winning the first ever European Benchmarking Award.

ty

3. Functional Benchmarking
er
op

When an organization compares one of its functions with the same

Pr

function in a best-in-class organization, they are carrying out functional

benchmarking. The functions compared may be human resources, research
and development or customer service. One major advantage of this
approach is that it is easier to gain access to non-competitive organizations
because it is less threatening. There is also a greater likelihood that a two-
way partnership can be forged with a greater potential for learning.
The following is an example of functional benchmarking from the 1980s.

Measuring and Monitoring Service Quality via MIS 121

 4. Generic Benchmarking

Generic benchmarking implies a company-wide exercise taking in several

organizations and functions. It is from this approach to benchmarking
that innovative ideas leading to radical breakthrough can emerge.

Activities of a similar nature are letters or welcome packs for new customers,
and visits to business connections with the frequency being determined
by the circumstances. The message this sends is that you care and are
endeavoring to personalize the service.

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

122 Marketing | Reference Book 1

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 8 Media Planning and Buying

Student Learning By the end of this chapter you should be able to:
Outcomes
Discuss the concept of media planning and buying

Introduction Media planning is a problem-solving process; It tries to solve the issue of

how the media choices help meet marketing objectives. The ultimate goal
is to reach the target audience in the best way.

an
In this chapter, we will study the media planning and buying functions

st
and where they fit in the advertising process. We will also go through

ki
how media planners develop media strategies.

Pa
s
Media Planning
er
nk
Media planning is the process of determining how to use time and space
Ba

to achieve marketing objectives. One of these objectives is to place the

advertising message before a target audience. A medium is a single form
of

of communication, e.g. print, television, billboards, etc. Combining media,

i.e. using multiple mediums such as print and television is a media mix.
e
ut

A media vehicle is a single program, or magazine. Although all these

it

terms carry different meanings, people in the advertising industry mostly

st

use the term media in all situations. We will also be using the same term.
In

Media planning is a mixture of marketing and mass communication skills.

Media planners have two main roles - analyzing the market and evaluating
e
Th

media channel effectiveness. We will discuss this in detail later in the

chapter. Figure 8.1 illustrates where media planning and buying fit in the
:

advertising process. Media planning and creative planning are both parallel
of

processes that constantly influence one another.

ty
er
op
Pr

Media Planning and Buying 123

 Figure 8.1: Media Planning

an
st
ki
Pa
s
er
nk
Ba
of
e
ut

The Aperture Concept

it
st

Each customer has an ideal time and place at which he or she can be
reached with an advertising message. This point can be when the consumer
In

is in the purchasing mode or when he or she is seeking information before

e

making a purchase. The objective of the media planner is to expose the

Th

target audience to the advertiser's message at these critical points. This

ideal point is called an aperture. The most effective advertising is the one
:
of

that exposes the consumer to the product or service when interest and
attention are high.
ty
er

Locating the aperture opportunity is a major responsibility of the media

op

planner. The planner must study the marketing position of the advertiser
Pr

to determine which media opportunities will do the most effective job.

Finding this opportunity is a very difficult task, whose success depends
on accurate marketing research (discussed in earlier chapters), appreciation
of the message concept, and a sensitive understanding of the channels of
mass communication.

124 Marketing | Reference Book 1

 Media Planning Information Sources

Media planners need to gather sufficient data and information, sort, and
analyze it before making media planning and buying decisions. Figure
8.2 illustrates the wide range of media information sources.

Figure 8.2: Sources of Information in Media Planning

Creative Sources Marketing Sources Media Sources

● Theme ● Distribution Patterns ● Popularity
● Message ● Market Sales ● Profiles
● Research ● Rivals' Patterns ● Cost Forecasts

Media Planning

(Advertising: Principles and Practice; Wells, Burnett, Moriarty)

an
st
Setting Media Objectives

ki
Each media plan has a series of objectives that reflect some basic goals.

Pa
These can only be met if a strategic plan of action is implemented. These

s
goals usually focus on the following aspects:
er
nk
● Finding Target Audiences - Whom to advertise to
Ba

● Sales Geography - Which areas to cover geographically

of

● Timing - When to advertise

e
ut
it

● Duration - What should be the duration of the campaign; and what

should be the length of the ad
st
In

Finding Target Audiences

e
Th

While searching the media for target audience opportunities, media

:
of

planners are faced with two major challenges:

ty

● Discrepancies between the language of internal strategic research and

er

external media research

op

● Lack of reliable audience research for new media

Pr

Company research can provide profiles of the organization's valued

customers and prospects. These profiles contain valuable insights into the
company's target audience such as descriptions of people's interests,
activities, and attitudinal concerns. The problem for media planners is
that these profiles are not used by the mass media in describing

Media Planning and Buying 125

 their audiences. This discrepancy forces planners to translate the
organization's marketing research language into the language of mass
media information sources.

Another challenge is the lack of reliable audience research for the numerous
new media for advertising and sales promotion. New traditional media
(magazines or cable networks that have been recently launched) must
wait some time before research organizations can supply audience estimates.
For innovative media (such as online advertising, special event promotion,
etc.), the existing research firms do not have measurements available that
are comparable to those for traditional media.

Sales Geography

Usually organizations sell their products in various cities and countries.

Even financial service organizations have branches in many geographical
areas to serve a variety of customers. However, it is not necessary for sales
to be consistent in all these areas. These sales differences affect which
markets the marketer runs the campaign in and how much money to

an
allocate to each geographical area. The media planner needs a system to
distribute the advertising money fairly and accurately.

st
ki
Timing

Pa
The concept of aperture (discussed earlier the chapter) suggests that

s
advertising is most effective when people are most receptive to the product
er
information. Exposing consumers to an advertisement at this time is
nk
easier said than done. Timing decisions relate to factors such as seasonality,
Ba

holidays, days of the week, and time of the day.

of

Duration
e
ut

This pertains to deciding for how many weeks of the sales year should
it

the advertising run. This selection depends on a number of factors

including the advertising budget, consumer use cycles, and competitive
st

strategies.
In

Developing Media Strategies

e
Th

We have discussed the objective setting part of the media planning process.
:

To achieve the key objectives discussed above, media planners use a

of

selection process of choosing the best alternatives and methods to satisfy

ty

the plan's needs. In all cases, the final media strategy must reflect the
advertising objectives.
er
op

Let us now discuss some of the most common strategies used by

Pr

organizations to meet business objectives. These include:

● Target audience strategies

● Geographic strategies
● Timing strategies
● Duration strategies
● Size strategies

126 Marketing | Reference Book 1

 Target Audience Strategies

Media planners are limited by mass media audience research. However,

future developments may help them overcome this limitation so that
they can better execute their target audience strategies.

Retail Scanners

With the expansion of scanning at cashier stations and checkouts, marketing

researchers are gaining extensive knowledge about the individual
consumer's buying behavior. Efforts are underway to match buyer activity
with specific media preferences.

Database developments

Software technology has revolutionized the typical customer list. Now

businesses can store an individual's product preference by name and other
details in a database. Banks are a good example of database developments.
We often see random calls from banks personnel offering credit cards and

an
other financial products to people based on bank's database regarding

st
the existing products they use or services they prefer.

ki
Marketing Mix Modeling

Pa
Marketing mix modeling enables marketers to determine the precise

s
er
impact of the media plan on product sales. This science has been evolving
nk
gradually among packaged goods markets since the emergence of
Ba

supermarket scanner data, but it is now spreading throughout a wide

array of product categories.
of

Internet Audience Measurement Problems

e
ut

The fast growing Internet media segment is presenting new measurement

it

problems. Finding out who is online and which sites they are visiting is
st

posing a lot of difficulties. To deal with this issue, different sites have come
In

up with different solutions such as some sites measure the total hits, others
measure unique visitors, visits, or page impressions.
e
Th

Geographic Strategies
:
of

When a regional manager's sales patterns are uneven, the media planner
is responsible for balancing sales with advertising investment market by
ty

market. The formula planners use to allocate advertising money may rely
er

on any or all of the following market statistics:

op
Pr

● Target population
● Distribution
● Strength
● Media costs
● Company sales results

Media Planning and Buying 127

 The media planner's ideal advertising allocation provides enough budget
to meet the sales objectives of each geographic area. Planners usually do
not make heavy allocations in weak sales areas unless strong marketing
reasons indicate significant growth potential. On the other hand, strong
sales markets may not receive proportional increases in advertising unless
they have evidence suggesting that sales can go higher with greater
advertising investment. Successful allocation strategy entails the combined
efforts of the media planner, and marketing and sales people.

Timing and Duration Strategies

When to advertise can pertain to seasons, months, or parts of the day or week,
but it all fits within the aperture concept. This strategy involves a balance between
the available advertising money and the length of the campaign.

A continuity strategy spreads the advertising continuously and evenly over the
length of the campaign. Planners who cannot afford continuous scheduling have
two alternative methods to consider - pulse patterns and flight patterns.

an
Pulsing is designed to intensify advertising before an open aperture and then to

st
reduce advertising to much lower levels until the aperture opens again. The pulse
pattern has peaks and valleys. Pulse schedules cover most of the year, but still

ki
provide periodic intensity. This pattern is usually used by fast food chains such

Pa
as McDonald's and KFC. Some banks in Pakistan also use these patterns by
intensifying advertising before a special occasion.

s
er
nk
The flighting strategy is the most severe type of continuity adjustment. It is
characterized by alternating periods of intense advertising activities and periods
Ba

of no advertising at all (commonly known as hiatus). This schedule allows for a

of

longer campaign without making the advertising schedule too light. If the flight
strategy works, there is a carry-over effect of past advertising in no advertising
e

periods that means consumers remember the product or service until the next
ut

advertising period begins.

it
st

Size Strategies
In

Determining the size and position of a particular message within a medium is

e
Th

also very important. Although researchers have studied this area in detail, data
on which size is most effective is still inconclusive. Although a larger promotion
:

creates a higher level of attraction and greater opportunity for creative impact,
of

the extent of this effect is still not determined. Depending on what advertisers
say and how they say it, a 30-second commercial might do a better job than a 60-
ty

second commercial.
er
op

The size or length chosen should relate to the advertising objectives. For example,
Pr

if a bank wants to educate its target audience about a particular product, a full-
page ad or a 60-second commercial covering the technicalities of the product
might be necessary. However, a 10-second ad or a quarter page newspaper ad
might be sufficient if the bank's objective is to create name recognition.

128 Marketing | Reference Book 1

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 9 Competitor Analysis / Competition Scan

Student Learning By the end of this chapter you should be able to:
Outcomes
Discuss the importance of competition scan while making
marketing decisions

Discuss what are the important parameters against which

competitors strength can be measured

Introduction This chapter examines the role competition plays in a business environment

an
and how organizations position themselves relative to competitors. Michael
Porter identified five forces that determine the intrinsic long-run profit

st
attractiveness of a market segment:

ki
Pa
● Industry competitors
● Potential entrants

s
er
● Substitutes
Buyers
nk
●

● Suppliers
Ba

These forces pose the following threats to a business:

of

Threat of intense segment rivalry - A segment is not very attractive if

e

●
ut

it already has numerous, strong, or aggressive competitors; if the

it

segment is stable or declining; if fixed costs are high; if exit barriers

are high; etc. Such conditions can often lead to price wars, advertising
st

battles, and ultimately makes it expensive to compete. An example of

In

such a segment is fizzy drinks where Pepsi and Coca Cola have cut-
e

throat competition against each other.

Th

● Threat of new entrants - A segment's attractiveness also depends on

:

its entry and exit barriers. The most attractive segment is one in which
of

entry barriers are high and exit barriers are low.

ty

Threat of substitute products - A segment is not attractive when actual

er

or potential substitutes exist for the product. This is so because

op

substitutes place a limit on prices and on the profits that a segment

Pr

can earn.

● Threat of buyers' growing bargaining power - If the buyers possess

strong or growing bargaining power, the segment becomes unattractive.
In such instances, buyers try to force the prices down, demand more
quality and service, and set competitors against each other, all at the
expense of seller profitability.

Competitor Analysis / Competition Scan 129

 ● Threat of suppliers' growing bargaining power - A segment is
unattractive if an organization's suppliers are able to raise prices or
reduce quality. Suppliers tend to be powerful when they are
concentrated or organized, when there are few substitutes of their
products, when the supplied product is an important input for the
business, when the costs of switching suppliers are high, and when the
suppliers can integrate downstream.

Identifying Competitors

Identifying competitors seems to be a very simple task for an organization.

UBL knows that HBL is a major competitor and Adamjee Insurance
knows that EFU is a major competitor. But the range of an organization's
actual and potential competitors is actually much broader. An organization
is more likely to be hurt by emerging competitors or new technologies
than by current competitors.

Focusing on current competitors rather than latent ones is a phenomenon

known as "competitor myopia", which has rendered some companies

an
extinct.

st
Industry Concept of Competition

ki
Pa
An industry is a group of firms that offer a product or class of products
that are close substitutes for each other.

s
er
nk
Industries are classified according to the number of sellers; degree of
differentiation; presence or absence of entry, mobility, and exit barriers;
Ba

cost structure; degree of vertical integration; and degree of globalization.

of
e

Number of Sellers and Degree of Product Differentiation

ut
it

The starting point of describing an industry is to specify the number of

st

sellers and whether the product is highly differentiated or not. These

In

characteristics give rise to four industry structures. Let us discuss each of

these structure types briefly:
e
Th

Pure Monopoly: In this structure, there is only one firm in the industry
:

that provides a certain product or service in a particular area. This can

of

lead to the company charging a high price, doing no advertising and

offering minimal service.
ty
er

Oligopoly: In this type of industry structure, a small number of large

op

firms produce products that range from highly differentiated to

Pr

standardized. Pure oligopoly consists of a few companies producing

essentially the same commodity e.g. oil, petrol, etc. Differentiated oligopoly
consists of a few companies producing partially differentiated products
such as autos or cameras etc.

130 Marketing | Reference Book 1

 Monopolistic Competition: Many competitors are able to differentiate
their offers in whole or part. A pure example of this is restaurants.

Pure Competition: In pure competition, many competitors offer the same

product or service. Because there is little or no basis for differentiation,
competitors' prices are more or less similar.

Entry, Mobility, Exit Barriers

Industries differ greatly in ease of entry and exit. Major entry barriers
include high capital requirements; economies of scale; patents and licensing
requirements; scarce locations; raw materials, or distributors; and reputation
requirements.

Even after entering an industry, a company might face mobility barriers

when it tries to move into other market segments.

Firms also face exit barriers, such as legal or moral obligations to customers,
creditors or employees; government restrictions; lack of alternative opportunities;

an
etc.

st
ki
Cost Structure

Pa
Every industry has a certain cost burden that shapes much of its strategic conduct.

s
er
For example, setting up a steel mill involves very high manufacturing and raw
nk
material costs. Firms often try to strategize to reduce these costs.
Ba
of

Degree of Vertical Integration

e

Organizations often find it beneficial to integrate backward or forward. This is

ut

called vertical integration. Vertical integration often lowers costs, enabling an

it

organization to gain a larger share of the value-added stream. Such companies

st

can also manipulate prices and costs in different parts of the value chain to earn
In

profits where taxes are lowest.

e
Th

Degree of Globalization
:
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Some industries are highly local; others are global. Organizations in global
industries need to compete on a global basis in order to keep up with the advances
ty

in technology.
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Competitor Analysis / Competition Scan 131

 Competitor Analysis

Once the primary competitors of a company have been identified, it must ascertain
their characteristics. These specially include their strategies, objectives, strengths
and weakness, and reaction patterns. Let us look into each one of these in detail:

1. Strategies

A group of firms following the same strategy in a given target market is

called a strategic group.

An organization must continuously monitor its competitors' strategies.

Resourceful competitors keep revising their strategies with time.

2. Objectives

Once a company has identified its competitors and their strategies, it must
answer the following questions:

What is each competitor seeking in the marketplace?

an
●

st
● What drives each competitor's behavior?

ki
Pa
One useful initial assumption is that competitors strive to maximize
profits. However, companies differ in the importance they put on short-

s
er
term and long-term profits. An alternative assumption is that each
competitor pursues some mix of objectives, such as current profitability,
nk
market-share growth, cash flow, technological leadership, service leadership.
Ba

Knowing how a competitor weighs each objective helps an organization

of

in anticipating its reactions.

e

Various factors can shape a competitor's objectives. These may include

ut

size, history, current management, and financial situation. A company

it

must also monitor its competitors' expansion plans.

st
In

3. Strengths and Weaknesses

e

Another perspective on competitors comes from examining strengths and

Th

weaknesses. Going against competitor's strength with respect to a value

:

proposition is risky; the brand and its identity, position, and execution
of

will all need to be exceptional. There is little margin for error. It is easier
to attack at points where the opponent's castle is not so well fortified. Of
ty

particular interest, therefore, are competitors' vulnerabilities. For example,

er

Arco is perceived as a low-price gasoline option which does not accept

op

credit cards and appeals to the price-sensitive segment. The elements of

Pr

the Arco organization-including its people, systems, programs, and culture

all support a low-cost operation, as does its source of Alaskan crude oil.
A resulting vulnerability, though, is the appearance and operation of Arco
service stations. A competitor who can persuade consumers to look at the
gas purchase differently- by considering the station experience, for example-
might thus have an advantage in attracting Arco customers.

132 Marketing | Reference Book 1

 According to the Arthur D. Little Consulting Firm, an organization
occupies one of the following six competitive positions in the market:

● Dominant - This firm controls the behavior of other competitors and

has a wide choice of strategic options.
● Strong - This company can take independent action without
endangering its long-term position and can maintain its long-term
position without concern for competitors' actions.

● Favorable - This organization has an exploitable strength and an above-

average opportunity to improve its position.

● Tenable - This organization is performing at a satisfactory level to

warrant continuity in business, but it exists at the sufferance of the
dominant company and has a less-than-average opportunity to improve
its position.

● Weak - This organization is performing at an unsatisfactory level, but

an opportunity exists for improvement.

an
st
● Nonviable - The performance of this organization is unsatisfactory

ki
and there lies no opportunity for improvement.

Pa
In general, an organization should monitor the following three variables

s
while analyzing its competitors:
er
nk
● Share of market - The competitor's share of the target market.
Ba

Share of mind - The percentage of customers who named the competitor

of

in responding to the statement "Name the first company that comes

e

to mind in this industry."

ut
it

● Share of heart - The percentage of customers who named the competitor

st

in response to the statement "Name the company from whom you

would prefer to buy the product."
In
e

4. Reaction Patterns
Th

Each competitor has a certain philosophy of doing business, a certain

:
of

internal culture, and certain guiding beliefs. Most competitors fall into
one the following four categories:
ty
er

● The laid-back competitor - A competitor that does not react quickly

op

or strongly in response to a rival's move. Reasons for slow response

Pr

vary. Laid-back competitors may feel they have a very loyal customer
base; they may be milking the business; they may be slow in noticing
the move; or they may lack the required funds to react properly. Rivals
must try to assess the reasons for such behavior.

Competitor Analysis / Competition Scan 133

 ● The selective competitor - A competitor that reacts only to certain
types of attacks. It might respond to price cuts, but not to advertising
expenditure increases. Knowing what a key competitor reacts to gives
its rivals a clue as to the most feasible lines of attack.

● The tiger competitor - A competitor that reacts swiftly and strongly

to any action.
● The stochastic competitor - A competitor that does not exhibit a
predictable reaction pattern. There is no way of predicting the
competitor's action. Many small businesses are in this category,
competing on miscellaneous fronts when they can afford it.

Designing the Competitive Intelligence System

Let us now discuss how organizations should design their competitive

intelligence systems.

Four Steps

an
There are four main steps in designing a competitive intelligence system:

st
ki
1. Setting up the system

Pa
2. Collecting data
3. Evaluating and analyzing data

s
4. Disseminating information and responding
er
nk
We will go through each of these steps briefly below.
Ba

1. Setting Up the System

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The first step involves identifying vital types of competitive information,

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ut

identifying the sources of this information, and assigning a person who

it

will manage the system and its services.

st

2. Collecting Data
In

The data are collected on a continuous basis from the field (sales force,
e
Th

market research firms, suppliers, etc.), from people who do business with
competitors, and from published data.
:
of

3. Evaluating and Analyzing the Data

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Once gathered, the data are checked for validity and reliability, interpreted,
er

and organized.
op
Pr

4. Disseminating Information and Responding

Key information is sent to relevant decision makers, and manager's and

inquiries are answered. With a well-designed system, managers receive
timely information about competitors via telephone calls, reports,
newsletters, etc. Managers can also contact the market intelligence
department whenever they need help.

134 Marketing | Reference Book 1

 Selecting Competitors

With good competitive intelligence, managers find it easier to formulate

their competitive strategies.

Customer Value Analysis

Sometimes managers conduct a customer value analysis to reveal the

organization's strengths and weaknesses relative to various competitors.
The major steps in such an analysis are as follows:

1. Identify the major attributes customers value

2. Assess the quantitative importance of the different attributes
3. Assess the company's and competitors performances on the different
customer values against their rated importance
4. Examine how customers in a specific segment rate the company's
performance against a specific major competitor on an attribute-by-
attribute basis
5. Monitor customer values over time

an
st
Classes of Competitors

ki
After the organization has conducted its customer value analysis, it can

Pa
focus its attack on one of the following classes of competitors:

s
er
Strong versus Weak - Most companies aim their shots at weak competitors,
nk
because this requires fewer resources. Yet, in attacking weak competitors,
Ba

the firm usually achieves little in the way of improved capabilities. An

organization should also compete with strong competitors to keep up
of

with the best. Even strong competitors have some vulnerabilities, and
the organization might prove to be a worthy opponent.
e
ut

Close versus Distant - Most organizations compete with competitors who

it

resemble them the most. For example, Bank of Khyber competes with
st

Bank of Punjab, not HSBC.

In
e
Th

Good versus Bad - Every industry contains 'good' and 'bad' competitors.
An organization should support its good competitors and attack its bad
:

competitors. Good competitors play by the industry rules. They make

of

realistic assumptions about the industry's growth potential; they set

reasonable prices; they favor a healthy industry; they limit themselves to
ty

a segment of the industry; and they accept the general level of their share
er

and profits. Bad competitors try to buy share rather than earn it; they
op

take large risks; they invest in overcapacity; and they upset industry
Pr

equilibrium.

Competitor Analysis / Competition Scan 135

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 10 Key Features of the Pakistani Society

Student Learning By the end of this chapter you should be able to:
Outcomes
Define market intelligence

Explain how marketing intelligence is employed in the financial

sector

Discuss prominent features of the Pakistan's financial

market/customer

an
Market "Market intelligence is the collection of all of the information and ideas

st
Intelligence that exist within the organization which helps in the decision-making

ki
process."

Pa
This will comprise a sizable chunk of the "primary information" which

s
we discussed in the earlier chapters. However, it may be felt that this
er
information is not enough in itself to inform the decisions which the
nk
business has to take; thus additional research will be carried out.
Ba

Depending upon the size of the organization, this research may be carried
of

out internally or it may be commissioned to a specialist market research

organization - more than 650,000 people work in the market research
e
ut

industry globally!
it

The increase in the amount of market research carried out over the years,
st

and the greater reliance put on in the decision-making process has led to
In

a shift in the decision-making process from intuitive decision making,

e

where managers would come to decisions based on their knowledge and

Th

experience - often called "acting on a hunch" - to a more scientific-based

approach, where the decisions are made as a result of a logical and orderly
:
of

decision-gathering process. Thus, information is gathered in by using a

logical process, and decision-making processes are followed, rather than
ty

relying on trial and error. However, do not read from this that there is
er

no room in the decision-making process for intuition; successful decisions

are often a mix of researched information and intuition.
op
Pr

By carrying out market research we are improving the organization's

ability to make good decisions. However, the results of market research
are a resource similar to other resources that are used by the business -
it comes at a cost. As we have discussed earlier, no organization has
unlimited resources and a decision will always have to be made, weighing

136 Marketing | Reference Book 1

 up the costs of obtaining the information with the likely benefits that
will accrue to the organization of having this information; in other words,
we are looking at an investment decision.

Whereas internal reports provide decision makers with "results-type"

data, marketing intelligence supplies them with "happenings-type" data.
Marketing intelligence is information about what is currently happening
in the marketing environment.

Marketing Intelligence in the Financial Sector

Many decision makers in the finance sector collect marketing intelligence

in an informal way through reading various journals and newspapers and
through discussions with other professionals and clients.

An informal approach to intelligence gathering on its own can also lead

to important information being missed, such as a new business opportunity
with a large client or a pending shift in competitive strategy by a competitor.

A financial services organization can take steps to improve intelligence

an
by formalizing the areas to be monitored. These should relate to the main

st
elements of the macro and microenvironments which we looked at earlier

ki
in the book.

Pa
All staff should be encouraged to gather market intelligence data,

s
particularly about the microenvironment, and pass it on to others in the
organization. er
nk
Ba

Intelligence gathering can often be improved by setting up a committee/

representative group/cross-functional working group, consisting of
of

individuals from appropriate operational and specialized functions to

coordinate and manage the activity. In some instances, elements of this
e

information gathering may be bought or outsourced to specialist external

ut

companies.
it
st

The coordinating role involves:

In

● scanning relevant national or local publications for news about

e

competitors, clients, planning/development initiatives.

Th
:

● organizing a filing system for intelligence that will make the retrieval
of

of past and current information relatively straightforward.

ty

● collecting customer and staff comments and complaints about

er

marketing activity.
op
Pr

Frequently, financial services organizations need to commission specific

marketing research studies in order to have adequate information to
make decisions.

Marketing research is the means used by an organization to keep in touch

with the needs, wants and attitudes of those who purchase or could
purchase the organization's products and services.

Key Features of the Pakistani Society 137

 As discussed earlier in the book, such research can involve:

Product research to assist in:

● The design, development and testing of new products and services .

● The improvement of existing products and services.
● The forecasting of trends in customer preferences for specific products
and services.

Market research to assist in:

● The analysis of market segments, market size and the share of the
market held by the financial services organization and its competitors.

Customer research to assist in:

● The analysis of buying behavior customer perceptions, attitudes,

reasons for purchase.

an
Promotion research to assist in:

st
The testing and evaluation of promotional material.

ki
●

Pa
Any of these types of research can be undertaken as part of a continuous
research project where changes in market share, consumer attitudes, etc

s
er
can be tracked over a period of time. Alternatively, an ad hoc study is
nk
undertaken on a one-off basis and provides the organization with a
snapshot of what the situation is at any point in time. The research would
Ba

normally be undertaken either by the organization's own marketing/market

of

research department or by an external marketing research agency. There

are advantages and disadvantages of using external agencies, which were
e

discussed in detail in the chapter on Market Research.

ut
it

Pakistan's financial industry has remained strong and resilient, despite

st

facing pressures due to the changes in macroeconomic environment since

In

late 2007. Financial markets, including money market and foreign exchange
market, functioned well in maintaining financial stability.
e
Th

The banking system of Pakistan is quite strong and has a lot of long term
:

potential. Due to this factor, this industry has been successful in attracting
of

a substantial amount of FDI in the sector.

ty

Banking in Pakistan
er
op

Between 2002 and 2007, Pakistan's economic growth was underpinned

Pr

by a strong banking sector. Classified as Pakistan's best performing sector,

the banking industry's assets rose to over $60 billion, its profitability
remained high, non-performing loans (NPLs) were low, credit was fairly
diversified and bank-wide system risks were well-contained. Almost 81%
of banking assets are in private hands.

138 Marketing | Reference Book 1

 In general, there are primarily two types of banks in Pakistan: Commercial
Banks and Investment Banks. Both types of banks provide financial
services essential for Pakistan's economy to function and grow.

Key Features of Pakistan's Financial Market

Overall, financial penetration in Pakistan is quite low. Pakistan has the

highest number of people per bank branch in Asia. Currently 37 percent
of adults have bank accounts and the number of borrowers-5.5 million-
constitutes only 3.5 percent of the population. There are only 171 deposit
accounts and 30 loan accounts per 1,000 people. Agriculture and SME
credit reach 1.5 and 0.16 million borrowers, respectively. Outreach of the
documented microfinance sector was 1.13 million as of March 2007.

In Pakistan's financial market, financial inclusiveness is critical, given

that 42 percent of Pakistan's population is under 15 years of age and
about 24 percent of the population-nearly 40 million people-live below
the national poverty line.

an
There are a number of reasons for financial exclusion in Pakistan.
Geographic constraints play a large role, with 67 percent of the population

st
living in rural and remote areas. Innovative delivery channels, such as

ki
branchless banking, have not yet been introduced. Financial institutions

Pa
are reluctant to venture into new areas and do not have the capacity to
assess demand and deliver financial services down-market. There is

s
er
inadequate information about borrowers. In Pakistan, there is a lack of
nk
land records, and therefore, collateral or land documents required by
banks are not available. Due to this, banks are unable to serve a large
Ba

segment of the population.The population is also excluded financially

of

because of illiteracy, as well as cultural and language barriers, limited

awareness and understanding of financial services.
e
ut

Types of Financial Institutions

it
st

The financial sector in Pakistan is comprised of the following players:

In

● Commercial banks
e
Th

● Development finance institutions

:
of

● Microfinance banks
ty

● Non-bank financial institutions (e.g., leasing companies, housing

er

finance companies, insurance companies, venture capital companies,

op

mutual funds, etc.)

Pr

● Modarabas (non-bank Islamic finance institutions)

Key Features of the Pakistani Society 139

 ● Stock Exchange

As in most developing countries, the financial sector is dominated by

banks. Although the financial sector in Pakistan has undergone substantial
reform and privatization, the banking sector continues to serve only a
small proportion of the population: around 5.5 million borrowers, or 3
percent of the population, compared with 20 million depositors, as
discussed earlier.

Most services of banks are concentrated in Karachi, Lahore, Islamabad,

and other urban areas, leaving large parts of the country underserved.
The banking system accounts for approximately two-thirds of total financial
sector assets. Non-bank financial institutions also play a significant role.
Additionally, National Savings Centers account for another one-fifth of
the financial sector and compete directly with banks for deposits. State
Bank of Pakistan acts as the supervisory body for conventional and
microfinance banks. The remaining financial institutions are monitored
by other authorities, such as the Securities and Exchange Commission
and the Controller of Insurance.

an
st
Banks

ki
As of June 30, 2007, there were 47 banks operating in Pakistan

Pa
with a total of 7,746 branches, including public sector, local private,
foreign, and specialized commercial banks.

s
er
nk
Very few banks provide microfinance services, with the First Women's
Bank and the SME Bank among the exceptions.
Ba
of

Leasing Companies
e

The assets of non-banking financial institutions (NBFIs) in Pakistan

ut

comprise 5.9 percent of total financial sector assets; of this volume, the
it

leasing sector is the largest single component. The next largest component
st

is comprised of 21 investment banks.

In

There are 24 leasing companies in Pakistan; certain commercial banks

e
Th

also have leasing products. Orix Leasing is the largest leasing company in
the country. The company has been innovative in service delivery, using
:

point of sale (POS) devices to improve efficiency and reach rural areas.
of

Insurance Companies / Microinsurance

ty
er

The insurance sector represents only 3.1 percent of the total financial
op

sector and is very concentrated; three companies command 80 percent

Pr

of the general insurance market. EFU General Insurance claims the largest
market share, followed by Adamjee Insurance Company and New Jubilee
Insurance.

140 Marketing | Reference Book 1

 Market Structure

There has been a slowdown of lending in Pakistan. This is mainly because

of continued mergers and acquisitions in the banking sector. These trends,
plus the need to meet higher capital requirements, have forced banks to
look for fresh capital injections. Banks in the country are more focused
in investing in government securities and issuing term finance certificates
(TFCs) in the corporate debt market than they are in extending their loan
portfolios.

Financial Industry Associations

The Financial Markets Association of Pakistan (FMAP) is a nonprofit

professional association. Its members are drawn from national, foreign,
and private sector banks. FMAP has more than 285 members, which
annually elect the governing body.

The Pakistan Banks' Association (PBA) represents the Pakistan banking

industry. Established in 1953, its main objective is to coordinate the efforts

an
of the banking industry and share a common vision of progress and

st
development with its members. PBA is also consulted by the State Bank
of Pakistan in policy formulation.

ki
Pa
The Pakistan Microfinance Network (PMN)is one of the key sources of
information and data on microfinance in the country. It gathers data

s
er
from major MFIs in the country and publishes these statistics quarterly
nk
in its bulletin, MicroWatch. PMN also publishes a comprehensive
Ba

Performance Indicators Report of the Microfinance Sector on an annual

basis.
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

Key Features of the Pakistani Society 141

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 11 Market Segmentation / Target Market

Student Learning By the end of this chapter you should be able to:
Outcomes
Explain the concept of market segmentation
List and explain the different levels of market segmentation

Define target markets, explain the purpose and the process of

identifying the target markets

Illustrate how a group of people can be divided into various

segments for a credit card brand

an
st
Introduction If we were to aggregate the behavior, expectations and perceptions of all

ki
customers in a particular market, we would probably be overwhelmed

Pa
with the diversity of consumer needs and profiles. At one extreme, service
firms treat customers as individuals and develop marketing plans for each

s
er
type of individual customer; for example, a law firm and an advertising
agency will develop service offerings customized for their large corporate
nk
clients. At the other extreme, some service firms offer one service to all
Ba

potential customers as if their needs and preferences were homogeneous.

Providers of gas or electricity, for example, often view the needs of
of

customers as varying only in terms of quantity purchased and offer a

e

standardized approach. Between these two extremes are the available

ut

options that most marketers choose.

it
st

Before starting the discussion on market segmentation, it is useful to

In

explain precisely what is meant by the word "market", as this word can
have a range of meanings. For example, market in its traditional sense,
e

is the geographic space where buyers and sellers come together to trade,
Th

but "market" can also mean a large geographical area, or the relationship
:

between buying and selling. This is seen in reports of the Stock Exchange
of

which state that "the market" has made substantial gains or losses this
week.
ty
er

Market
op
Pr

Word market refers to a group of people, either as individual consumers

or as part of organizations, who need and have the ability to purchase
particular goods and services.

For a group of people to be part of a market, there are certain requirements

that must be fulfilled. These requirements are:

142 Marketing | Reference Book 1

 ● A need or want for a particular product or service
● The ability to purchase this product or service - in other words, buying
power. This buying power is normally money which may either be
money that they have right now, or money that they are going to earn
in the future but are able to source right now, for example, by obtaining
a loan. It is also possible for this buying power to be other goods and
services with which the buyer is able to trade

● A willingness to use this buying power

● The authority to buy the specific product or service

It can be quite possible that an individual has the desire, buying power
and willingness to buy particular goods and services, but they do not have
the authority to do so; for example, someone under the age of 18 who
wishes to buy a cigarette.

Types of Market

an
There are two types of market - the consumer market and the business

st
market. The consumer market is the market that is made up of households

ki
who buy products and services for personal consumption, that is, they do

Pa
not buy with the express intention of trading with their purchases. The
business market is made up of those who buy products with one of the

s
following intentions in mind:
er
nk
● for resale
Ba

● for use in the production of other products

of

● for use in general daily operation

e
ut

Market Segment
it
st

A market segment is composed of a group of current and potential

In

customers who share common characteristics, needs, purchasing behavior

or consumption patterns. Different segments will have different needs.
e
Th

In the market for personal financial services, these differences may come
:

about as a result of factors such as the age, income, social status, life style
of

and geographical location of the various individuals within a market.

ty

Let's take an example from outside the financial sector - selecting a car.
er

The age, income, social status, life style and geographical location of the
op

purchaser may influence whether selection is based on:

Pr

● Speed and power

● Style
● Capital outlay
● Running costs
● Carrying capacity
● Off-road capabilities

Market Segmentation / Target Market 143

 ● Ease of parking
● Comfort

In organizational markets, factors such as size of company, industrial

sector and buying practices, may influence needs and the factors taken
into account when selecting a service.

A purchasing organization might take cognizance of the following factors

in assimilating its selection criteria for the purchase of a new computer
system:

● The importance of technology

● Price
● Nationality of supplier
● Networking capabilities

As needs can differ greatly, it is unlikely that a single version of an account,

service or marketing mix will be able to satisfy the needs of everybody

an
in a market. In addition, some organizations may be in a position to serve

st
certain customers better than others because of product range, geographical
coverage or even image. Therefore a business, instead of trying to meet

ki
all needs and competing everywhere, should identify those parts of the

Pa
market that are most attractive and which it could serve most effectively.

s
er
Two approaches can be adopted:
nk
● Market Segmentation - the act of subdividing a market into distinct
Ba

and meaningful subsets of customers who have similar needs and

therefore might merit separate marketing effort
of
e

● Target Marketing - the act of selecting and targeting segments on which

ut

to concentrate marketing effort and resources.

it
st

Both approaches, effectively implemented, should group buyers into

segments in ways that result in as much similarity as possible.
In
e

Benefits of Market Segmentation for Financial Organizations

Th

The benefits of segmentation for financial services markets are listed

:
of

below:
ty

● Cost reduction through a close matching of company resources with

market requirements
er
op

● Enhanced customer satisfaction through requirements being satisfied

Pr

● Company can focus its efforts on a clearly defined target segment,

thereby gaining a specialist knowledge of that group of customers

● Identification of gaps in the market which offer new product

opportunities

144 Marketing | Reference Book 1

 ● Customer retention can be improved via increased customer satisfaction
● A more efficient use of marketing resources

● Improved customer acquisition as a result of clearer understanding of

customer needs

Market As already stated, a market segment is a group of individuals, groups or

Segmentation organizations who share common characteristics that cause them to have
relatively similar needs.

At the most detailed level, every buyer's requirements from a financial

services organization are probably unique in some way or the other. Being
practical, businesses group such unique wants into subgroups or market
segments. Such groups may be classified as consisting of retired people,
young married people, students or the self employed.

The principal rationale for using the segmentation approach is that, in

a diverse market, it is more cost effective for an organization to develop
a marketing mix that satisfies specific segments of a total market than it

an
is to attempt to design a marketing mix which satisfies the needs of

st
everyone in a market.

ki
Pa
In the unlikely event that an organization is targeting an entire market,
this is called "undifferentiated (or total) marketing", but it is much more

s
common to see the use of market segmentation. In the financial services
er
sector, there has been a move away from the mass marketing approach
nk
and organizations provide a more segmented offering. For example, in
Ba

the past, home loans were offered, either on a capital and interest, or
interest-only basis, but now there is a wide range of different house
of

purchase loans available from most financial services providers. This type
e

of market, in which consumers have a variety of needs, is called a

ut

"heterogeneous" market.
it
st

The role of market segmentation is to identify these discrete groups so

that organizations can develop products and services to meet these needs
In

and wants. This is done by developing products and services that will
e

appeal to target segments, and developments will be supported by suitable

Th

promotional activities, customer service, pricing and place/distribution

strategies.
:
of

By segmenting their market, an organization can identify and take

ty

advantage of the opportunities that become available. In order to do this,

er

the organization must take account of the following:

op
Pr

1. Customer analysis

By segmenting their market, the organization is better able to see what

the needs and wants of its potential customers are - and this information
will be vital if the business is to be successful in the development of
products and services that will meet these needs.

Market Segmentation / Target Market 145

 The smaller the segment, the easier it is to find out this information
and the more accurate will be the predictions that the organization
makes about future buying behavior. However, the downside is that
the smaller the segment, the fewer potential buyers the organization
has. For example, if you look at the 20 households that are located
beside your house, you will see that they share a number of common
characteristics around size and type of home, whether the home is
owner occupied or rented, the type and number of cars owned, the
size and layout of garden space (if any), family size, etc. It would
therefore be a fairly straightforward job to compute the needs and
wants of these households with a high degree of accuracy. The
disadvantage though is that as we are only looking at 20 households,
no matter how accurate we are, this is a very small number of potential
customers that we are considering.

2. Competitor analysis

Most markets operate in a very competitive environment, and the

financial services market is no different; so, if a company is to be

an
successful in its market, it must understand the competition that they

st
are up against.

ki
3. Resource allocation

Pa
s
Every organization will have limited resources at its disposal - that is
er
one of the reasons why choices have to be made about the most
nk
appropriate segments that should be targeted. If an organization targets
Ba

particular segments, then it is more likely to be making the best use

of the finite resources at its disposal.
of

4. Strategic marketing planning

e
ut

If an organization is operating in a number of segments, then it is

it

unlikely that it will have the same strategic plan for all of them. Indeed,
st

one of the purposes of splitting its market into segments is to let the
In

business see clearly the differences between these different areas, and
to plan to meet the needs of each segment.
e
Th

Market Segmentation Criteria

:
of

A number of criteria for effective market segmentation have been identified:

ty

Measurability - there must be some way of measuring the size and

er

purchasing power of the segment(s)

op
Pr

● Accessibility - the firm must be able to reach its segments

● Substantiality - the segment must be economically viable
● Practicality - the degree to which effective marketing programs can be
designed and implemented to attract and serve the segment

146 Marketing | Reference Book 1

 When identifying the firm's segments there are a number of questions
that should be addressed:

● What are the needs of the specific segments that we have identified?
● Which of these segments best fits our organization's mission and our
current operational capabilities?

● What do customers in each segment see as our strengths and weaknesses?

Can our weaknesses be corrected?

● How should we differentiate our marketing to attract and retain the

customers that we want?

There are three distinct phases that a business must address when carrying
out market segmentation:

● Segmenting the market

● Targeting strategy
● Positioning the product

an
st
1. Segmenting the market

ki
Pa
There are a number of ways in which the segment can be defined.
When making this decision, it is important that the most suitable

s
er
bases are used for the products and customers in question. As much
information as possible should be acquired about the customers in a
nk
segment - after all, the more we know about a customer, the more
Ba

likely we are to be able to design a product that will meet their needs.
of

2. Targeting strategy
e
ut

Once the segments have been identified, the decision must be taken
it

as to how many customer groups can be targeted. The following

st

options are available:

In

● Concentrate on the whole market - in other words, adopt an

e

undifferentiated approach.
Th
:

● Concentrate on one segment with the one product.

of

● Look at a number of segments, but only with the one product.

ty
er

● Target a number of different products to a number of different

op

segments.
Pr

3. Positioning the product

Once the decision is taken as to what segments and products are to be

used, the organization must decide how to promote its offering to the

Market Segmentation / Target Market 147

 segments. How a potential customer is informed about the product
will be a key factor in determining whether or not they will be interested
in taking the product.

Bases for Market Segmentation

The variables used for segmenting consumer markets can be divided into
two broad categories:

● Consumer characteristics
● Consumer responses

Consumer Characteristics

These are independent of the product or service being purchased and

include:
● demographic

an
geographic

st
●

ki
● psychographic elements

Pa
1. Demographic segmentation

s
er
nk
This consists of grouping customers on the basis of demographic
variables, historically the most popular for distinguishing customer
Ba

groups as they are easier to identify and measure than most others.
of

Typical variables to be used include:

e

age
ut

● gender
it

● family size
st

● income level
In

● occupation of the head of household

● religion
e
Th

● race
● nationality
:
of

Most companies will segment a market by combining two or more

demographic variables. In the financial sector, family life cycles which
ty

combine age, family size and therefore levels of disposable income,

er

are often used to segment markets for financial products.

op
Pr

148 Marketing | Reference Book 1

 FAMILY LIFE CYCLE
Group Age Lifestyle Finance Requirements

School Up to 16 Mainly parental Mainly parental

guidance. Limited guidance. Limited
children financial resources. financial resources.

Youth 16 - 21 Leaving school. Mainly parental

Further education. guidance. Limited
First job; low financial resources.
earnings.

Young 21- 25 Going steady or Joint account. Budget

getting facilities. Savings
married married. Saving for accounts. Consumer loans.
a home. Joint Insurance, wills and travel
income. services.

Householder 25 - 45 Income growth but Joint account. Mortgages and

married temporary loss of home improvement loans.
with wife's earnings Longer term savings for
when children education funding. Insurance,

an
family
born. Buying home wills, consumer loans.

st
and trading up. Savings accounts for children.

ki
Older Over 45 Higher paid with or Savings and investments.

Pa
persons but before without inherited Occasional borrowing.
retirement wealth. Higher Replacement mortgage or

s
spendable income. home improvement loans.
Need for financial er Financial advisory services.
nk
advice and planning.
Ba

Retired Over Accumulated Management of

of

60/65 capital. Lump sums capital/income. Trust services

available. Protection and financial advice.
e

for widowed.
ut
it

● Age
st
In

The age of the consumer is one of the simplest methods of segmenting

a market. The underlying assumptions are that individuals of a similar
e

age have similar needs and requirements.

Th
:

Financial institutions now offer accounts for different age groups. Generally,
of

younger customers have a higher demand for loan facilities than older
customers who have a preference for deposit funds. Students have been
ty

targeted by a number of banks that are keen to offer loan facilities in the
er

expectation that the student will become profitable after he or she

op

graduates and enters a career.

Pr

School children have also become an important segment since they

constitute a significant proportion of the population and have considerable
discretionary purchasing power through pocket money, gifts and earned
income. Many financial institutions have responded to this trend by
introducing young savers accounts backed up by gifts to act as incentives
and create brand loyalty with that particular organization.

Market Segmentation / Target Market 149

 There is a notable demographic shift with the financial institutions
placing an increased level of attention on the older age groups, the so-
called "greys" or "third agers" aged between 50 and 65.

● Life cycle

Banks which offer savings accounts need to be aware of customers'

motives for saving and how these may change in the course of their
life. Customers will have several savings objectives and these will be
affected by a number of factors, including the state of the economy
(interest rates and inflation), level of income, perception of risk and
stage in the life cycle.

Some people save to be able to spend in the near future. For them,
the purpose of saving is to accumulate enough money to buy something
(a holiday, household item or a car, for example) although the growing
availability of interest-free credit has diminished the need to do this.
These customers look for simple deposit accounts with easy access.

Others save for emergencies or the unexpected. These customers also

an
require easy access to their funds. Customers with longer term objectives,

st
such as saving for retirement or for their children's education, will

ki
need longer term savings products of a lower liquidity; these could
include personal pensions or notice accounts. People who want to

Pa
accumulate capital, on the other hand, will look for higher risk, equity-

s
based investments.
er
nk
In practice, customers have both long and short term goals for their
Ba

savings, depending on their stage in the life cycle. The basic family life
cycle has five stages: youth, independent, family, empty nest, retired.
of

These were discussed earlier in the book.

e

Benefits of a life cycle approach

ut
it

A key benefit of the life cycle approach is that it enables financial

st

institutions to develop a relationship with their customers and retain

In

them by offering the right product at the right time, as and when the
customer requires it. The youth market has been targeted with money
e

transmission services, overdraft and loan facilities, simple savings

Th

accounts and travel facilities, whereas the family segment require

mortgages and home improvement loans, longer term savings for
:
of

children, insurance, wills, pensions and loans.

ty

One of the major criticisms of the family life cycle has been its inability
er

to keep pace with sociological trends. Over the last few decades the
op

following changes have altered the traditional life cycle:

Pr

● a decline in the size of the family

● an increase in the average age of individuals before first marriage

● shorter child-bearing cycles as women choose to have children

both later in life and closer together to return to work

150 Marketing | Reference Book 1

 more quickly
● rising divorce rates
● remarriage
● increasing numbers of lone parents
● greater longevity

Despite the above criticisms, the life cycle is still used by many financial
organizations.

The customer corridor

A useful technique for consumer behavior and successful relationship

management is to map out the whole life cycle of a customer's
interactions with a company and its services. The life cycle can be
symbolized as a corridor like the one illustrated here for a retail bank.
Customers enter the bank at one end and each arrow along the top
of the passage represents a doorway or interaction with the bank,

an
beginning with the account application. The model can also show the

st
frequency of those interactions.

ki
Pa
Figure 11.1: The Customer Corridor: Retail Banking

s
er
nk
customer
Ba

entry
of
e
ut

New job Marriage New Children New Children Retirement

it

home home to college

st

Competitor Competitor Competitor

In
e

In many industries, including banking, insurance and other service

Th

industries, the customer corridor has a second set of doorways made

up of the major changes in a customer's private life, shown here -
:
of

along with competitors' efforts to lure the customer away - by the

arrows below the corridor.
ty
er

Career moves, relocations, life style changes and family events such as
marriage, birth, divorce or death can be opportunities to deliver
op

additional value to the customer. In fact, if companies fail to tailor

Pr

services to such events, defections are almost inevitable. Banks which

have analyzed defection frequencies find that changes of this kind
increase defection probabilities by between 100 - 300%. Having
discovered that relocation is a prime cause of defection, a number of
banks have developed programs which transfer customers to another
branch.

Market Segmentation / Target Market 151

 ● Gender

Gender can be another common demographic variable. In the past,

financial organizations would target their offerings at males as it was
perceived at that time that the final buying decision for financial
services would be made by males.

Socio-economic variables will include factors such as income,

occupation, education and social class. Income can be a useful variable
as the more income a household has, the more they are able to consume
and this can affect their aspiration for a particular life style. In financial
services, this has been evidenced in the development of separate
departments which seek to meet the needs of "high net worth"
individuals and indeed in the existence of organizations which seek
to serve particular wealthy segments, for example Adam and Company.

2. Geographic segmentation

Historically, geography was the first segmentation variable. Small firms

an
which lacked the resources for supplying an entire country limited

st
their supply of goods to local areas where they had gained market
knowledge. Many building societies segmented geographically by

ki
default until technology enabled them to serve a much wider market.

Pa
Nevertheless, the branch network is still an important segmentation
variable with 64% of the population identifying the branch as the

s
er
preferred channel for managing their current accounts.
nk
Ba

This approach divides the market into different geographical units

such as:
of

● countries
e

regions
ut

● city size
it
st

Market density refers to the number of potential customers who are

In

located within a specific area. There is normally a correlation between

market density and population density, but the correlation is not
e
Th

always precise. For example, two areas of roughly the same size and
population may have different levels of demand for loan funds because
:

one area may have a higher proportion of businesses located

of

within it.
ty

Market density can be a useful segmentation variable as a low density

er

market may well need a different approach in the sales, advertising

op

and distribution of products and services than a high density market.

Pr

3. Psychographic/life style segmentation

In psychographic segmentation (or life style segmentation), buyers are

divided into different groups on the basis of their social class and life

152 Marketing | Reference Book 1

 styles. Socio-economic or social class groupings are used extensively
by the government and research organizations for tracking trends in
the population.

This is becoming far less employed by financial institutions who wish

to undertake more selective promotions or targeting. They are clearly
far too broad and do not relate particularly accurately to financial
needs, but they do provide a starting point for further refinement and
using the government statistics which are classified in this manner
can give useful leads as to the way further segmentation should go.

SOCIAL GRADE CLASSIFICATIONS

Social Social
Grade Status Occupation

A Upper middle Higher managerial, administrative

class or professional

B Middle class Intermediate managerial,

an
administrative or professional

st
ki
C1 Lower middle Supervisory or clerical, and junior
class managerial, administrative or

Pa
professional

s
C2 Skilled working
er
Skilled manual workers
nk
class
Ba

D Working class Semi and unskilled manual workers

of

State pensioners or widows (no other

earners),
e
ut

E Those at the casual or lowest grade workers

it

lowest level of
st

subsistence
In

The final psychographic variables that we will consider are based on

e

the differences between the terms of knowledge of the financial service,

Th

level of involvement, attitudes and use of various financial services.

:
of

A research study conducted revealed the following four categories of

consumer:
ty
er

● The financially confused

op

● Apathetic minimalists
Pr

● Cautious investors
● Capital accumulators

Market Segmentation / Target Market 153

 Use of financial services was measured in terms of the product
knowledge and the degree of financial maturity exhibited by individuals
in terms of their willingness to invest in complex products with a
degree of risk.

The characteristics of the segments can be summarized as shown in

figure 11.2.

The financially confused and the apathetic minimalists are perhaps

the most challenging from the point of view of the financial institution
since they do not consider themselves to be very knowledgeable about
financial services, have very short term planning horizons and are the
least financially active, but they represent an opportunity for sales
targeting.

The cautious investor and the capital accumulators are the more
knowledgeable and sophisticated financial users. Both have longer
term financial objectives and maintain a keen interest in financial
services.

an
st
The major difference between the two segments is that the cautious
investors are more risk averse than the capital accumulators, preferring

ki
to avoid products which they perceive as being high risk (such as stocks,

Pa
shares and unit trusts) and opting for safer investment items
(including pensions and regular savings plans).

s
er
nk
Figure 11.2: Characteristics of Psychographic Segments
Ba
of

Financially confused Apathetic minimalists

Least financially active Exhibit an average use of financial
e

● ●
ut

● Most likely naver to save services generally

it

● Savings of Rs.10,000/= pa or less on

● Moderate saving facility, on average
savings of Rs.100,000/= pa
st

average
● Less likely to have shares, unit trusts or
In

● Least likely to make use of loans and

PEPs
credit cards but most likely to use a
Trusting of financial advisers and are
e

●
ratailer storecard
Th

likely to be 'sold' financial products

● Credit cards balances tend to be paid
in instalments, not in full
:
of

Cautious investors Capital accumulators

ty

● Generally very actibe financially ● The most financially active

er

● Tendency to opt for ‘safer’ savings ● The most frequent and heaviest savers
and investment products
op

● Savings of Rs. 300,000/= pa on average

● Save between Rs.100,000/= and
Pr

● Bias towards equity-based investments

Rs. 300,000/= pa
● Frequent use of credit cards but mainly
● Avoid ‘riskier’ investment in equities to take advantage of the deferred
● Not very heavy users of credit cards payment period with balances paid in
and tend to pay balances in full full

154 Marketing | Reference Book 1

 Consumer Responses

Consumer responses to the financial services provider's specific offering

can be analyzed by factors such as usage patterns and benefits sought.
This is called behavioral segmentation and buyers are grouped on the
basis of their knowledge, attitude, use or response to a product.

Usage patterns

Usage patterns can be determined from occasions or events when buyers

develop a need, purchase or use a product, and usage rates when customers
can be defined as light, medium or heavy users based on the number of
transactions they undertake.

Events can be:

● planned (where the financial organization can anticipate the need) -

term deposit or loan maturity
● operational (where the financial organization notes a change in the

an
management of an account) - balance limit exceeded or behavioral

st
change in channel usage

ki
Pa
● external (where the financial organization becomes aware of changes
in the customer's circumstances) - notices in newspapers regarding a

s
customer's application for planning permission
er
nk
In terms of usage, the FinPin System (developed by a company called
Ba

PinPoint) classifies the population into four categories and ten subgroups
according to their levels of financial activity. Each group has a predictable
of

behavior and purchase pattern for the various financial products and
e

services. The FinPin data is geographically referenced and linked to

ut

postcodes, making targeting easier.

it
st

FinPin SEGMENTATION BASED ON USAGE AND FINANCIAL

SOPHISTICATION
In
e

A Financially Active i) Most Active

Th

ii) Financially Secure Savers

B Financially Informed iii) Multiproduct Savers and
:
of

Investors
iv) Traditional Multiproduct Users
ty

v) Net Savers
er

C Financially Conscious vi) Average Users

op

vii) Uncommitted Investors

Pr

viii) Basic Product

D Financially Passive ix) Inactive Borrowers
x) Least Active
(source: Pinpoint Analysis)

Market Segmentation / Target Market 155

 Benefits

The belief underlying this segmentation strategy is that the benefits which
people are seeking in consuming a given service are the basic reason for
the existence of true market segments.

Benefit segmentation is used quite extensively and requires determining

the major benefits that people look for in the product class, the kinds of
people who look for each benefit and the competitor's services that deliver
each benefit. In 1968 Haley undertook a benefit segmentation of the
toothpaste market and uncovered four benefit segments.

Segmentation for the Corporate Sector

The corporate sector differs widely from the personal sector in terms of
structure and characteristics. These differences have important implications
for market segmentation. Corporate customers are generally smaller in
number but larger in size.

an
The needs of businesses and other organizations are often more complex

st
than those of personal customers, yet corporate customers have a more
complete understanding of their financial requirements. Thus, in many

ki
cases, financial institutions find themselves dealing with sophisticated

Pa
and complex financial service users.

s
er
The corporate sector is also more influenced by the state of the economy
nk
and factors outside the buyer's control (such as exchange and interest
rates) can take on a significant role in decision making.
Ba
of

As with the personal market, some of the segmentation bases that are
chosen for the corporate sector may be easier to measure and apply than
e

others. The most commonly used segmentation variables for corporate

ut

customers are:
it
st

● Industry characteristics - Industry type, company size, company location

In

● Operating variables - Product use status, company technology

e
Th

● Purchasing approaches, policies and purchasing criteria

:

Situational factors, urgency, application, order size

of

●
ty

● Buyer's characteristics - Age, social class, personality, life stage

er

Industry characteristics
op
Pr

Those variables that relate to the type of business, where it operates, how
old the company is and its size are probably the most commonly used
variables in corporate marketing. It may well be that your organization
segments its business markets in this way.

156 Marketing | Reference Book 1

 It is common to find that business managers may be allocated a portfolio
based on the size of the customer, say through the use of small business
advisers, or on the type of business that the customer carries out; for
example, it is usual to find specialist agricultural business managers. It is
also very common to find that the business managers are allocated
customers based upon the amount that they borrow.

Operating variables

Here we are looking at customer requirements being affected by different

operating variables, such as the technology used by the customer, or the
products and services that they utilize. In this case, we could be looking
at the different types of lending product that the customer uses, or perhaps
their need for specialist finance.

Purchasing approach

This is where the buying approach of the customer organization is used

as a segmentation base. An example of this can be seen where segmentation

an
applies based on the buying policies of the organization.

st
Situational factors

ki
Pa
Here we are concerned with the size of the order or the urgency with
which the order must be dealt. The size and frequency of order can be

s
er
another determining factor - a large corporate customer may be looking
nk
for a higher level of personal attention from a financial organization than
Ba

that given to a small business which processes routine transactions and

rarely has cause to approach the bank.
of

Buyer's characteristics
e
ut

Whilst the individual who is carrying out the purchasing on behalf of the
it

organization may have less of a say in the ultimate decision than if they
st

were making a purchase on their own behalf, their individual characteristics

In

may still have some influence on the purchasing decision. Although in

this section we are looking at corporate marketing, there will still be an
e
Th

interface between people and their likes, dislikes, personality, etc can still
play a part in the decision-making process.
:
of

While we have looked at some of the commonly encountered bases, there

are some categories that are used by banks to classify their business
ty

customers which we would not necessarily see in other sectors.

er
op

These classifications include:

Pr

● Account turnover - for example, some banks will only allocate a

business manager to a business customer whose turnover is in excess
of a specific figure. It is also common to see that there is a turnover
level above which the corporate customer may be dealt with by
relationship managers who specialize in dealing with larger customers.

Market Segmentation / Target Market 157

 ● Financial sophistication - for example, the use of an external accountant,
the employing of a full time accountant, having an in-house finance
department, etc.

● Ownership characteristics - the structure of the customer's organization,

be it sole trader, partnership, private limited company, public limited
company, charity, etc.

● Trigger points - new start-ups, expansions, management buyouts, etc.

It is also quite common for banks to have a separate segment for professional
customers, such as doctors, lawyers, accountants, etc.

Size of organization

Group Examples of Potential Services

Small: Up to Rs1m turnover Personal financial services for busy

owners.
example Special "start-up" funding, for

an
through

st
Small Firms Loan Guarantee Scheme.

ki
● Hire purchase and leasing

Pa
● Factoring

● Key person insurance

s
er
● Money transmission services

● Direct banking
nk
● Business credit cards
Ba

Medium: Rs1m - Rs 5m turnover On-line "business support" financial

of

services
e

● Business credit cards

ut

● Hire purchase and leasing

it

● Factoring

● Long term loans

st

● Importer/exporter services
In

Large: Rs 5m+ turnover Business advisory service

e

● Business credit cards

Th

● Hire purchase and leasing

● Factoring
:
of

● Importer/exporter services

● Registration facilities
ty

● Equity finance

● Long term loans

er
op

Trigger points
Pr

● Potential for
New business start-up Government funding incentive
schemes
● Small Firms Loan Guarantee
Scheme

158 Marketing | Reference Book 1

 Expanding network of distribution ● Credit card retailer services and
Leasing of premises, vehicles other fixed assets

Expanding production ● Loans for investment in plant and

machinery

Altering product range ● Business advisory service

● Franchising
● Plant and machinery funding

Entering export trade ● Export/financial advice

● Loans
● International services

Taking on more staff ● Bank accounts for new employees

● Insurance/pensions

Moving to larger premises/ ● Business advisory services

buying own premises ● Property loans
Leasing of fixed plant

Acquisition of another business Business advisory service Equity

an
●

st
Finance Registration services ● Leasing Pensions Employee

ki
Introducing employee insurance
enhancements, for example

Pa
company cars

s
er
Death of director of key employee ● Key person insurance for specific
employees
nk
Ba

Redundancy of employees ● Investment advice for affected

● Business start-up advice for those
of

wishing to become self employed

e

Management buyouts Small Firm Loan Guarantee

ut

Scheme
it

● Business start-up advice

st
In

Target Marketing
e
Th

Once the organization has identified the bases on which to segment its
market, it has to decide which segment it is going to target and what
:
of

products it is going to offer. Three factors need to be considered:

ty

● The size and growth potential for each segment.

er
op

● Their structural attractiveness.

Pr

● The organization's objectives and resources.

Market Segmentation / Target Market 159

 Size and growth potential

The question of what is a right size for a segment will vary significantly
from one organization to another. As a broad guideline, we can say that
large organizations tend to concentrate on large existing or potential sales
volumes and quite deliberately overlook or ignore small segments that
will fail to deliver sufficient profit margins. Small firms, by contrast, often
avoid large segments because of the level of resource needed to operate
effectively. In terms of each segment's structural attractiveness, the
manager's main aim is profitability. A segment that is both large and
growing could be described as unattractive if existing competition will
reduce profit potential.

Selection of target markets

A target market is a segment or segments of the market on whom an

organization concentrates marketing effort and creates a marketing mix
that specifically fits the needs and preferences of the individuals in that
segment.

an
st
In selecting target market segments a bank should evaluate:

ki
● Attractiveness of each segment.

Pa
● The size of the segment in terms of volume and value.

s
● er
The growth potential - is the segment growing or declining?
nk
Ba

Here we are interested in the projected future of the segment in terms

of volume sales and profit. Declining volumes in certain market segments
of

can still be extremely profitable for the organizations which service them.
e
ut

● The level of segment domination by competitive organizations and

it

their relative strengths and weaknesses.

st

The resources needed to be active in this segment in terms of computer

In

or administration facilities, promotional effort and distribution channels

e

required.
Th

Is the segment changing? There are three aspects to this question:

:

●
of

We need to understand how the structure and make-up of the segment

is likely to change over time. Is the segment starting to attract new
ty

and slightly different members to its centre? What effect will this have
er

on the segment's needs?

op
Pr

● The nature of the products and services that we would expect this
segment to be demanding in the future.

● The movements of the segments over time. There are two ways in
which this structural change may occur. Segments may merge to create
larger segments. Alternatively, larger segments may fragment over
time into small, more precise market targets for the firm to approach.

160 Marketing | Reference Book 1

 Level of potential competitive advantage

The extent to which the financial services organization has some level
of potential competitive advantage in each segment can be estimated
by analyzing:

● the current share of sales within the segment held by the organization
● the profit margins gained from this segment in comparison to the
competition

● the level to which the organization can satisfy the requirements of the
segment in terms of product effectiveness, competitive price, positioning,
reputation/ image, effectiveness of sales/promotional activity, technical
support and available resources

● The financial services organization's objectives

Some attractive segments can be dismissed because they do not meet with
the organization's long term objectives; therefore care must be taken to

an
select target market segments that offer synergy with existing activities

st
and that move the organization forward towards its long term goals.

ki
Consideration must also be given to whether the organization has the

Pa
necessary skills, competencies and commitment required for operating
effectively.

s
er
Once the target market segments have been selected, the organization
nk
should develop a marketing mix which positions it in such a way as to
Ba

satisfy the requirements of the customers in that segment. The organization

can then develop its marketing strategy.
of
e

1. Segmentation Strategies
ut
it

Segmentation strategies involve deciding which and how many segments

st

to enter. In order to do this, targeting decisions need to be made so

the business must decide in which segments it should prioritize its
In

efforts. Remember that all organizations will have limited resources

e

and so are not in the position of being able to target the entire market.
Th

You should also keep in mind that one of the effects of globalization
is that markets are growing all the time, so even large organizations
:
of

will still not be able to target everything.

ty

2. Single Segment Concentration

er
op

This occurs when the organization decides to target one segment to

Pr

the exclusion of all others. This strategy is used when the firm has
limited resources or because the segment represents a match between
the firm's offering and the segment's requirements. The risk of this
strategy is that the firm has placed "all of its eggs in one basket".

Market Segmentation / Target Market 161

 3. Selective Specialization

This occurs when a firm chooses a number of segments because it has

a variety of products to offer or because it wishes to minimize the
effects of competition. Many banks have used this approach as it
spreads risk. For example, within a bank's small business segment,
there may be specialists in the fields of healthcare, franchising and
licensing, and agriculture. These relationship managers deal solely
with these particular areas, thereby providing a more tailored service.

4. Product Specialization

This refers to firms which specialize in marketing a particular product

to several segments. While product modifications will normally be
made to allow for the differences in the segments in terms of buying
preferences, there will be no differences in product categories. Credit
card companies are one of the few examples where this strategy has
been pursued with success. It is not a feasible option for banks or
building societies as it would not allow deposits and loans to be offered

an
simultaneously.

st
5. Market Specialization

ki
Pa
This refers to firms which concentrate on serving many needs of a particular
customer group. Single segment specialization often develops into market

s
er
specialization. Direct Line began by targeting the over 45s with general
nk
insurance products. Over time their product range has been developed to
meet the wider needs of this group and they have added savings and mortgages
Ba

to their portfolio.
of

Strategic Options for Target Marketing

e
ut

There are four acknowledged strategic options for target marketing:

it
st

● Undifferentiated marketing
In

● Differentiated marketing
e
Th

● Concentrated marketing
:

● Custom marketing
of

1. Undifferentiated Marketing
ty
er

This is often called mass marketing. An example of undifferentiated

op

marketing is an organization which offers one type of current account

Pr

and tries to satisfy all customer segments. This approach is a total

market approach and does not really involve the process of
segmentation.

162 Marketing | Reference Book 1

 Undifferentiated marketing assumes that individual customers in the
target market for a specific kind of product such as a current account
have similar needs, and therefore the organization can satisfy most
customers with a single marketing mix.

Figure 11.3: Undifferentiated Marketing

MARKETING

MIX

Product TARGET MARKET=

FIRM
Price
TOTAL MARKET

Promotion

Place

an
st
People

ki
Physical

Pa
s
evidence
er
nk
Process
Ba
of

similar needs, and therefore the organization can satisfy most customers
with a single marketing mix.
e
ut
it

This strategy is effective when a large proportion of customers within the

whole market have very similar needs and wants - this is termed a
st

"homogenous market".
In

This approach relies on the organization being able to produce a single

e
Th

marketing mix that will satisfy all of the potential purchasers within the
market, therefore the firm must be able to identify accurately the needs
:

that are common to most of the market, and have the resources which
of

will allow it to reach this market.

ty
er

2. Differentiated Marketing
op

Marketing approach; for example, in addition to the standard current account

Pr

offering, there are:

● for the youth market - a card based account

● for students - financial incentives
● for the affluent - a high interest cheque account

Market Segmentation / Target Market 163

 Figure 11.4: Differentiated Marketing

MARKETING
An organization develops several MIX 1
offerings, each targeted at a specific
Product
segment The marketing mixes used Price SEGMENT 1
for such a strategy may vary as to Promotion
product differences, distribution Place
People
methods, promotional methods and
Physical
prices-Many of the major banks would
evidence
be seen as having a differentiated
Process
marketing approach;

for example in MARKETING

MIX 2
addition to the
Product

an
standard current
SEGMENT 2

st
Price
account offering

ki
FIRM Promotion
there are:

Pa
Place
People

s
for the youth

market - a card
Physical
er
nk
evidence
Ba

based account Process

of

for students - financial

MARKETING
e

incentives MIX 3
ut
it

for the affuent - a high

Product
st

Price SEGMENT 3
interest cheque account.
In

Promotion
Place
e
Th

People
Physical
:
of

evidence
Process
ty
er
op

3. Concentrated marketing
Pr

An organization concentrates on one market segment by designing a

marketing mix that more precisely matches the needs of individuals
in a selected segment.

164 Marketing | Reference Book 1

 Concentrating on a single segment can allow an organization with
restricted resources to compete with much larger organizations.

Figure 11.5: Concentrated Marketing

MARKETING

MIX 1
MARKSEGMENT
Product

FIRM TARGET SEGMENT

Price

Promotion
MARKSEGMENT
Place

an
People

st
ki
Physical

Pa
evidence

s
Process er
nk
Ba
of

The main advantage to this approach is that it allows the organization

to enjoy a degree of specialization and so it can concentrate its resources
e
ut

and energy on one distinct group of customers and thus satisfy the
needs of this group more effectively than if it were operating in a range
it

of segments. However, there is the risk of putting "all of its eggs in the
st

one basket".
In

4. Custom Marketing
e
Th

Custom marketing is an attempt to satisfy each individual customer's

:

requirements with a separate marketing mix.

of
ty
er
op
Pr

Market Segmentation / Target Market 165

Part Two Understanding the Market Identifying
Opportunities, and Developing the
Marketing Strategy
Chapter 12 Developing the Positioning Strategy

Student Learning By the end of this chapter you should be able to:
Outcomes
Discuss the concept of positioning

Discuss the concept of building brand positioning

Illustrate with examples the concept of positioning as applied in

financial markets

Explain the concept of positioning strategy

an
Describe how a positioning strategy can be applied for marketing

st
success

ki
Discuss why positioning must be given prime importance while

Pa
developing marketing program

s
Introduction er
Throughout the world, retail financial markets are changing dramatically
nk
as a result of:
Ba
of

● The consumer becoming more financially sophisticated, demanding

and generally aware
e
ut

● Increasing competition brought on by deregulation

it
st

● Technology
In

These changes have led to the financial services organizations exploring

e

alternative ways of differentiating themselves and their offerings from

Th

their competitors.
:
of

Particular emphasis has been placed on adopting practices of some of the

major retailers and supporting these with improvements at branch level
ty

in both service quality and promotional activity. We will now explore

er

these areas and their relevance to financial services.

op
Pr

Elements of Retailing; The Need for Differentiation

First, let's take a closer look at the reasons for the changes in the retail
financial market.

● The consumer becoming more financially sophisticated, demanding

and generally aware.

166 Marketing | Reference Book 1

 This sophistication has three roots:
● The periods of high inflation in the 1970s and 1980s
● The efforts of various governments to encourage and facilitate personal
sector investment

● The effects of advertising undertaken by financial institutions

The high inf lation rate in our country in the last decade meant that
consumers became increasingly aware that money in bank accounts,
particularly current accounts, was losing its real value at an alarming rate.
The consumer began looking for alternative locations for savings.

The consumer has also been encouraged by the government to invest in

property, pensions and equities through privatizations etc.

Major advertising and direct mailing expenditure by the financial services

organizations has also helped to educate the consumer about the types
of financial products available and the manner in which they work.

an
st
Customers have become more demanding as a result of this knowledge

ki
and awareness, the heightened level of competition, ie alternative providers,
and changes in life style where time has become a precious commodity.

Pa
s
● Increasing competition brought on by deregulation
er
nk
Deregulation has meant that a whole range of Pakistani and international
Ba

organizations can offer bank-type services. Building societies, insurance

companies, retailers and even software providers are now competing
of

directly with the banks.

e
ut

● Technology
it

ATMs, telephone banking, and the growing use of on-line banking are
st

changing the nature of banking and may alter the future role of the
In

branch network. Up until now, the financial services providers' branch

network has been one of their major strengths. While technology provides
e
Th

alternative delivery mechanisms which are being increasingly adopted as

a higher percentage of the customer base displays computer literacy, there
:

is still a need for an efficient branch network.

of
ty

In addition to this, there is an expectation on the part of the customer

that the established players in this market will still maintain a presence
er

in the high street, therefore the associated costs of maintaining this

op

network will still need to be met by the banks, whilst the newer players
Pr

in the market can operate from a much lower cost base.

The demands of customers have resulted in a changed dynamic between

financial services organizations and their customers. Power has shifted

Developing the Positioning Strategy 167

 into the hands of customers as they demand a higher quality service which
specifically meets their needs. Loyalty to the financial services provider
can no longer be taken for granted.

The importance of market positioning and the attractiveness of individual

financial services organizations' branches is critical when one considers
the level of competition that now exists. Customers shop around, and
financial services organizations are looking to the methodology adopted
in the retail sector in order to attempt to create an image/offering which
is differentiated from the competition and which meets the demands of
sophisticated and selective consumers.

The advances in Internet and technology have made it easier for customers
to compare the offering of different organizations when shopping around,
although the ultimate purchase may still be made through a more
traditional delivery channel.

Creating the Retail Environment

an
st
The retail environment contains a number of key elements such as:

ki
● outlet location

Pa
● outlet ambience
● the merchandise mix

s
customer service
er
● nk
Whilst we can isolate these elements, their success depends on how well
Ba

they are combined and coordinated. Customer requirements combine to

form the retailing environment and the financial services organization
of

has to coordinate its activities to create an environment which satisfies

e

the target market.

ut
it

The first consideration for the financial services provider is to determine

st

at whom the retail environment is being targeted. These customers will

have expectations from their financial services provider that the branch
In

must meet or surpass.

e
Th

Customer expectations
:
of

Customer expectations are based on what they have seen in advertisements,

experienced in visits to other retail establishments and heard about when
ty

talking to friends or observing the media.

er
op

● Customers' expectations of a branch will relate to its location, in as

Pr

much as it should be convenient for the target consumers. It should

therefore be located close to where they work, shop or live.

● The customers will seek a familiar and comfortable environment in

which to undertake their financial business. In addition, they will
expect a welcoming and attractive environment similar to that which
would be expected from any other retail establishment. It should be

168 Marketing | Reference Book 1

 designed in such a way as to meet their needs, which may involve fast
service tills or ATMs for speedy transactions or even car parking in
certain locations.
● The customers will have expectations about the corporate, business
or personal products and services which should be available in their
branch such as foreign exchange, insurance advice or the provision of
new cheque books.

● Customers will have expectations about the greeting they receive from
branch staff, the length of time they have to wait for service and the
quality of service they receive.

All these areas of expectation combine to form the retail environment

which the customers are seeking from the retail establishment or, in this
case, their financial services provider.

Figure 13.1:CREATING THE RETAIL ENVIRONMENT

an
Customer Profile

st
ki
Pa
Customer Expectations

s
er
nk
Ba

Location Store Merchandise Customer

Ambience Service
of
e
ut
it

THE RETAILING ENVIRONMENT

st
In
e

Merchandise Trading Customer Communications

Th

Policy Format Service Policy

:

Policy Policy
of
ty
er

FINANCIAL SERVICES PROVIDER’S

op

MARKET POSITIONING STATEMENT

Pr

Positioning Statement

Based on the corporate and marketing objectives, the financial services

provider will draw up a positioning statement creating an identity with
which customers and potential customers can identify and feel comfortable.

Developing the Positioning Strategy 169

 The positioning statement must ref lect the customer satisfaction
expectations of the targeted customer groups and therefore will take
account of location, store/branch ambience, the products required and
the level of service expected.

A hypothetical market positioning statement for a branch might emerge

as:

A branch with appeal to the discerning customer who tends to be

reasonably sophisticated in terms of financial matters. They are likely to
be in senior executive positions or self employed and therefore have
limited time for visits to bank branches. The branch's offering must be
extensive, particularly in terms of investment and also corporate facilities.
High quality service and advice is a prerequisite, supported by the provision
of fast and efficient service during peak times such as during the busy
lunchtime period.

Given such a statement, management must then decide upon various

policies (merchandise, trading format, customer service and

an
communications) considered essential for the successful creation of the

st
appropriate retail environment.

ki
Merchandise Policy

Pa
Similar to a retail store, the product/service range at a given branch will

s
er
be determined by the profile of the customers and potential customers
nk
in the local catchments area.
Ba

Many financial services organizations have adopted the concept of having

of

major branches located in town and city centers which offer all services,
and satellite branches in other locations offering a limited range of services.
e

Customers requiring to see specialists can either visit them at the major
ut

branches or arrange appointments to see them at satellite branches or in

it

their own homes. Some banks are making a distinction between corporate
st

bank branches or business banking centers and personal or retail bank

In

branches.
e
Th

Soon there might emerge the concept of fully automated branches. Such
units will provide a range of machines within the area of the branch
:

which would enables the customer to undertake most basic transactions

of

such as deposits, withdrawals, balance enquiries and inter-account

transactions.
ty
er

As this suggests, the merchandise policy for a branch is determined by

op

the customer profile of the local catchments area combined with customer
Pr

expectations and what is cost effective for the branch to provide.

In modern retail stores, the product range will also have a sense of
compatibility, often having a common theme running through a range;
for example, a nautical theme in fashion garments or a health theme in
a food store.

170 Marketing | Reference Book 1

 In the banking sector, attempts have also been made to coordinate product
ranges; for example, The United Bank Limited (UBL) of coordinates a
number of its products by using the "line" branding in each product's
name (eg Cashline and Businessline).

Retail products are often grouped in a way in which the customer plans
to buy and not necessarily in the conventional departmental arrangements;
for example, curtain materials sold alongside furniture rather than in the
fabrics department. In response to the grouping of house-buying services
by the building societies, banks now put together packages which include
details of mortgages, insurance and personal loans.

The overall presentation of the retailer's products in terms of style, quality

and assortment coordination is critical, with clear positioning and direction
required for ultimate effectiveness. This positioning is also coordinated
with aspects such as display standards, price levels and visual merchandising.
Financial services providers do not have physical products as such, but
they can coordinate the product literature, documentation and related
displays in order to create a coherent sense of style and quality.

an
st
Trading Format Policy

ki
Within this heading, decisions are required with regard to:

Pa
Branch location

s
●

● Facilities made available to customers er

nk
Ba

● Branch design
of

1. Branch Location
e
ut

Like the major retail stores, financial services organizations have always
put a great deal of time and money into researching catchments area
it

prior to selecting a site for a new branch.

st
In

Research of a catchments area involves:

e
Th

● Identifying the demographic characteristics of the population in

potential geographic areas (in terms of factors such as age profile,
:

social class, home ownership levels, etc)

of
ty

● Examining the main locations for working and shopping in the

local area
er
op

● Identifying the numbers and types of branches of other financial

Pr

institutions in the area

● Measuring the levels of awareness of the financial services

organization, and any attitudes towards it in the local area

● Analyzing pedestrian traffic flows for individual streets.

Developing the Positioning Strategy 171

 ● Considering the quality of neighboring shops, both in terms of
potential banking business opportunities but also in terms of the
image of the local area

● Assessing the location in relation to the distance to other branches

of the same financial services organization

● Analyzing the proximity of potential professional connections (eg

lawyers and accountancy practices)

● Forecasting levels of profitability

Each of the above has to be considered, not only when identifying

locations for new branches, but also when moving or closing branches.

2. Facilities

In the retail environment, it has become more common to offer

additional facilities such as restaurants, and banking ATMs for customers

an
in a hurry, in order to attract certain types of shoppers and also to

st
improve the shopping experience for all.

ki
Financial services organizations are also offering additional facilities

Pa
such as out-of-hours banking halls, longer opening hours, automated
statement printers and the separation of business from personal tellers.

s
er
However, the major problem with increased automation is that in
nk
solving one problem, ie the effective provision of 24 hour banking, it
creates another problem by reducing face-to-face contact and diluting
Ba

cross-selling opportunities.
of

This goes full circle in that it presents marketing with the challenge
e

of ensuring that appropriate customers are targeted through other

ut

channels.
it
st

Additional services are offered in retail stores to add value to the

In

products and to demonstrate a high level of customer care. Such

services include personal shoppers, assistance from fashion advisers
e
Th

and beauty consultants or the provision of free credit.

:

The financial services organizations themselves offer value-added

of

services in the form of specialized assistance in areas such as investment,

trusts, etc in the retail area and in agriculture, property, etc in the
ty

business and corporate sectors.

er
op

3. Branch Design
Pr

Retail stores are designed to create an ambience, tone or character

which reinforces the stores' positioning statements and stimulate the
sale of the merchandise. In this regard, major research has been
undertaken into aspects such as space allocation and the optimum
balance of obtaining the maximum return per square foot of floor

172 Marketing | Reference Book 1

 space and the role of space in creating an image of exclusivity and
quality. As a result, external designers have been used by many of the
major retail stores to create the most suitable ambience for their
outlets.

Many financial services organizations are using the same designers

and consultants to develop open-plan branches which are more
welcoming and less intimidating than the transaction-oriented counter
system used in the past. Traditionally, as much as 70% of a branch's
prime selling area was behind the counter; the designers were posed
the challenge of reversing this ratio.

In addition, new designs are being used to reflect the positioning of

the organization.

There has to be some uniformity of design throughout the country

in order to provide psychological reassurance to the customer of a
familiar environment - to ensure that the customers feel comfortable
when entering another branch.

an
st
A uniform image is almost a form of advertising, providing a

ki
recognizable profile brand on streets throughout the country.

Pa
Customer Service Policy

s
er
nk
For many years, retailers have recognized the importance of customer
service in adding value to their existing offering, increasing the relative
Ba

differentiation between themselves and their competitors, and

of

generating more revenue. Retail staff regularly attends customer service

programs which are reinforced by weekly and daily sessions in their
e

own branches.
ut
it

Communications Policy
st
In

Similar to the major retail chains, the majority of financial services

organizations' external promotion is conceived and executed nationally.
e
Th

However, in both the financial services and retail sectors, branch staff
is responsible for some local initiatives such as PR events and point-
:
of

of-sale displays. If well coordinated and well executed, this combination

of national and local activity can be very successful; if uncoordinated,
ty

it can lead to an organization tarnishing its overall image and reputation.

er
op

Integration
Pr

As we have already seen, there are many similarities between the

elements of retailing and retail financial services, but competitive
advantage is dependent on the successful coordination of these elements
into a retailing environment which satisfies the organization's
positioning statement and the expectations of the customer.

Developing the Positioning Strategy 173

 Types of Positioning Strategies

There are four types of positioning strategies:

1. Product (and process) leadership

Some companies target customers who want the latest technology and
products with the most innovative features. Examples include 3M, Sony,
Glaxo, Microsoft and Intel. These companies invest heavily in research
and development, aim to hire the brightest talent and build organizational
cultures focused on creativity and innovation. The financial advantages
of successful product leadership are the opportunities to achieve rapid
growth and obtain premium prices. The example of Direct Line would
make things clearer.

2. One-to-one marketing

This strategy involves communicating with customers on an individual

basis to learn about their needs and develop tailored solutions which

an
directly improve their experience.

st
The characteristics of customer intimacy strategy are:

ki
Pa
● The construction of data banks to hold information on the preferences
and buying behavior of individual customers

s
er
nk
● The use of information technology to allow direct one-to-one
communication between the firm and the customer
Ba
of

● The organization of marketing around customer managers rather than

brand managers
e
ut

● The tailoring of individual product and service solutions

it
st

3. Brand leadership
In

Consumer brands such as McDonald's, Coca-Cola and Gillette have

e
Th

emotional values beyond those that can be explained by their product or

service performance. In business to business markets, major bank brands
:

plus brands such as McKinsey and Hewlett Packard have similar values.
of

Brands give consumers confidence that they can trust these suppliers.
They reduce the personal, social or economic risks attached to making
ty

decisions. For the supplier, the benefit of strong brands is that it is easier
er

to gain market share. Preference also means that strong brands sell at
op

higher prices.
Pr

4. Service leadership

Some customers place a high value on outstanding service. Companies

with a value proposition based on service include Emirates or South West

174 Marketing | Reference Book 1

 Airlines, Hyatt and American Express. Businesses competing in this way
need to identify the types of customers who will pay more to be pampered.
● The use of information technology to allow direct one-to-one
communication between the firm and the customer

● The organization of marketing around customer managers rather than

brand managers

● The tailoring of individual product and service solutions

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

Developing the Positioning Strategy 175

 Part 3: Developing and Implementing
the Marketing Program

Chapter 1: Product and Services Strategy - Concepts

Chapter 2: Brand Management Concepts

Chapter 3: Services Marketing

Chapter 4: New Product Development and Product Life Cycle Strategies

Chapter 5: Pricing Products and Services

an
st
Chapter 6: Pricing Strategies

ki
Pa
Chapter 7: Bank's distribution network and Alternate

s
delivery channels
er
nk
Chapter 8: Integrated Marketing Communication Strategy
Ba
of

Chapter 9: Advertising, Sales Promotion and

Public Relation in Banks
e
ut

Chapter 10: Personal Selling

it
st

Chapter 11: Direct/Indirect Marketing & Marketing Audit

In
e

Chapter 12: Strategic Marketing and marketing mix

Th
:
of
ty
er
op
Pr

176
Part Three Developing and Implementing the
Marketing Program

Chapter 1 Product and Services Strategy

Student Learning By the end of this chapter you should be able to:
Outcomes
Define the product concept

Discuss product concept as applied in financial institutes

Discuss the ways in which products are classified

Differentiate between product oriented and service oriented

strategy

an
Define how the marketing mix is employed when making product

st
decisions

ki
Pa
The Product We discussed the product concept in detail in Part 1 of this book. The

s
Concept product concept holds that consumers will favor those products that offer
er
the most quality, performance or innovative features. Managers in these
nk
organizations focus on making superior products and improving them
Ba

over time. They assume that buyers admire well-made products and can
appraise quality and performance. However, these managers are sometimes
of

caught up in a love affair with their product and do not realize what the
market needs. Product oriented companies often design their products
e
ut

with little or no customer input.

it
st

The Marketing Mix

In

The marketing mix is a concept that dates back to the early 1960s. It
e

basically represents the tools through which marketing objectives are

Th

achieved and usually comprises the greater part of the organization's

marketing activities. Marketing mix was introduced in chapter 1 of Part
:
of

1.
ty

The main components of the marketing mix have become known as the
er

Four Ps":
op

● Product
Pr

● Promotion
● Price
● Place (Distribution)

We shall take this foundation and develop it slightly further, adding:

Product and Services Strategy 177

 ● People
● Physical evidence
● Process

The "mix" is defined by taking these components and utilizing them in

the most effective manner in each marketing situation.

The most suitable marketing mix will reflect knowledge about customers,
their requirements and the relative strengths and weaknesses of the
organization in relation to the competition. In addition, the marketing
mix will change between products, services and market conditions.
Marketing skills are demonstrated in getting the correct mix to make a
product or service a success and ultimately achieve the organization's
objectives.

Product

Consider these statements:

an
● “Customers don't buy products; what they are looking for is a bundle

st
of benefits and solutions.”

ki
● “Customers love to buy from people, but they hate to be sold at.”

Pa
“Marketers often do not understand the complexity or sophistication

s
●

of the product they are trying to sell.”

er
nk
Marketing is no different from other areas of financial services in that
Ba

your approach must always contain an element of "think customer". We

of

are all customers in some aspect of our lives. What annoys you? What
really "turns you off" in a sales situation? Draw on this and view every
e

scenario as objectively as possible from your customer's perspective.

ut
it

Behind these statements lie some basic principles of successful marketing.

st

When people purchase products, they are not motivated in the first
In

instance by the physical attributes of the product but by the benefits that
those attributes bring with them. Customers like to have these explained
e
Th

to them and, provided they match their needs or solve their problems,
they are likely to make a decision to buy.
:
of

This reinforces the need for a continuous reality check for marketers.
There is an ongoing need for operational input to ensure that all areas
ty

of the marketing process "speak the same language". In other words,

er

marketing proposals require this dimension to ensure alignment of

op

thought and that any difficulties in implementation are identified with

Pr

adoption of appropriate remedial action. Failure to achieve this continuity

in the delivery along with clarity of the message can result in the customer
identifying these benefits being provided more efficiently by some other
product or service provider. The opportunity for a sale is lost!

Different customers have different needs and they will identify different
benefits in the same product or service.

178 Marketing | Reference Book 1

 For example, in the finance sector, different segments of the market seek
different benefits from investment portfolios. The older person wants a
high income yield; the younger person wants to grow capital at a rate
higher than inflation. However, for both segments, the decision to assemble
a portfolio arises from a wish to acquire certain financial and economic
benefits rather than to make specific investments.

Consider a banking product as simple as the provision of a cheque book.

This is a way of transmitting money, but the product may be seen by the
customer to provide other benefits, such as the opportunity to keep a
handy record of transactions or in terms of the time it saves. With a cheque
book, the customer is not buying a tear-off booklet with their name
printed on every page; they are buying a bundle of benefits which includes
the solving of a specific money transmission problem.

The difference between benefits and products is not just a question of

semantics. It is crucial that any financial services organization, wishing
to develop its business profitably, should define its scope of activity, present
and future, not in terms of the products or services that it offers, but

an
rather in terms of the benefits that it provides or the problems that it

st
solves. Let us look at an example from manufacturing industry.

ki
If a company takes too narrow a view of its business, by defining its

Pa
business as the manufacture of, say, fountain pens, then it may run the
risk of concentrating on becoming better and better at producing fountain

s
er
pens while gradually the market is turning to other forms of writing
nk
implement.
Ba

The alternative approach would be for this company to recognize that

of

the benefits it provides are in the field of written communication and

that, if better or more cost effective means of providing those benefits
e

come along, then people will naturally move towards the new product
ut

which makes use of such developments.

it
st

By analogy, there is no point in a financial services organization

In

concentrating on offering, say, a super-efficient counter service for the

payment of bills if what is wanted by the customer is really a system of
e
Th

on-line and telephone banking.

:

Financial services providers must constantly review their product range

of

by confronting the question: does each product provide relevant and

desired benefits for today's needs?
ty
er

In the financial services sector, some existing products - like the current
op

account, which has total customer acceptance - fill needs already recognized
Pr

and identified by the customer. It is rather more difficult to elicit

information on benefits that the customer would ideally like but which
currently are not provided, but it can be done. Through market research,
a group discussion with a sample of customers or by asking customers to

Product and Services Strategy 179

 fill in a questionnaire, it is possible to build up a list of benefits which,
to a greater or lesser extent, are sought by the users of one of the bank's
products. Customers can also be asked what combinations of these benefits
they most prefer.

In addition, they can be asked to rate existing products according to how

well they provide these benefits. Out of this process can emerge a detailed
basis for the identification of a new product need - a new type of bank
card, say, or a new type of personal loan with a different ceiling or
repayment period, or linked to a different type of commodity purchase.

When talking of reformulating or repositioning financial products, it is

useful to recall to mind what is the nature of "products" in the finance
sector. The five basic elements of any financial services organization's
products are that they are concerned with:

● lending - money lent

● saving - money lodged
● transmitting money

an
● protection - insurance

st
● advice

ki
Financial services products are also an example of derived demand.

Pa
Customers do not generally buy financial products because they want a
loan per se, or because a collection account facility is of itself desirable.

s
er
Nearly all financial services products are bought as a means to support
nk
some other economic activity. A personal loan may enable a new car to
be purchased; a collection account ensures prompt access to receivables,
Ba

themselves derived from the supply of goods or services.

of

Understanding the underlying motivation for the transaction is yet another

example of the need to view the world through the eyes of the customer,
e

thereby more accurately ref lecting the needs of those customers.

ut
it

Characteristic Strengths and Weaknesses of Financial Services

st

Organizations' Products
In

Looking first at the strengths, financial services providers have a great

e
Th

deal of flexibility in introducing a variety of products. Furthermore, it is

generally true that because of banks' long experience of these operations,
:

new products can be introduced rapidly, with a short time between initial
of

concept and customer availability because much of the development is

already there, generated by historical experience.
ty
er

However, the other side of the coin is that every other bank can also
op

introduce new products easily. Every product can be rapidly matched by

Pr

rivals. Every product risks being duplicated by every other bank. Even if
it is not a direct duplication, every other new product idea can be copied,
and copied fast, by rival banks - and perhaps by other non-banking
institutions, thus making it difficult to build and maintain competitive
advantage.

180 Marketing | Reference Book 1

 Product Differentiation

The solution to this particular dilemma lies in the process of product

differentiation. The challenge for the bank marketer is to develop some
unique quality or characteristic which cannot be readily plagiarized by
the competition.

Another way of bringing differentiation to financial services is by means of

enhancing the image, both of the institution providing the services and the services
themselves. The Marks & Spencer charge card is perceived by customers as
providing value and quality, even before they have studied the detail of the
product. "Management Today" magazine's annual poll of Britain's Most Admired
Companies in 2005 saw a resounding victory for Tesco for the second time in
three years, a reflection of their perceived status in the marketplace.

Matching Products and Markets

We have already defined marketing as the process of matching an organization's

resources with customer needs.

an
st
The product is the vehicle whereby this matching is achieved. Because the product
is central to the fortunes of an organization, the need for a defined policy towards

ki
products is all important. Put at its simplest, the product will only continue to

Pa
provide the means whereby the organization's objectives can be met if it
concurrently provides the means whereby customer needs are met.

s
er
nk
The art of successful product management, therefore, must be based on a clear
Ba

view of just how the present and future product range will continue to meet these
twin goals of satisfying customer and organization objectives.
of

As a first stage in successful product management, it is essential to think of the

e

"product" as a variable in the marketing mix, in the same way that we might
ut

consider price or promotion. Freedom to exploit the product variable largely

it

depends on the internal resources of the organization, the market opportunities

st

and the competitive threats. The technique most commonly used to assess these
In

factors is strengths, weaknesses, opportunities and threats analysis (SWOT), which

was discussed in detail earlier.
e
Th

Pertinent questions, which help to establish the appropriateness of an organization's

:

current strategy, include the following:

of

What benefits do customers seek in this type of product?

ty

●
er

● Do our products provide these benefits in greater proportion than competitors'

op

products?
Pr

● What competitive product advantages are causing the organization to gain

or lose market share?

● Does our product range still provide "value-in-use" to customers in relation

to its cost to them?

Product and Services Strategy 181

 ● Does each product in the organization's range still meet the corporate objectives
set for it?

The answers to these questions will provide a firm basis for developing a product-
market strategy.

Product-market strategy

Very simply, product-market strategy is the totality of the decisions taken within
an organization concerning its target markets and the products that it offers to
those markets.

"Strategy" implies a chosen route to a defined goal and suggests an element of

long term planning, thus the product-market strategy of a financial services
organization represents a decision as to the current and future direction of that
organization. It looks forward from the market segmentation issues towards the
selection of new products.

Decisions on product-market strategy must be made in the context of a product

an
range portfolio which, for the organization as a whole, should contain a suitable

st
balance of growth products, mature products and declining products. This balance
may not be desirable for separate parts of the organisation's operations which

ki
serve the needs of one kind of customer predominantly, but for the organization

Pa
as a whole, a balanced portfolio must be built up so that there is a sound base
on which to plan for future development.

s
er
nk
The Product Portfolio
Ba

Your organization will no doubt offer more than one product and operate in
of

more than one market. Decisions on product-market strategy therefore must be

made in the context of a product range portfolio and the defined market segments
e

to which this portfolio is marketed. At any particular time, the profitability of a

ut

financial services organization will depend on the individual profitability of each

it

of the products in its portfolio. A review of the portfolio would reveal that there
st

are products in it at various stages of growth, maturity and decline. The precise
In

balance of the portfolio will thus not only indicate today's profitability but also
provide a sound guide to tomorrow's profitability.
e
Th

A product portfolio is in many respects similar to the investor's portfolio of stocks

:

and shares. The investor may wish to achieve a balance between yield or income
of

and capital growth. Some shares might produce more of the latter and less of the
former, while others show the reverse of this pattern; or the investor might attempt
ty

to achieve a balance in terms of risk - some shares having a higher risk of capital
er

loss, against which must be balanced the prospect of higher returns.

op
Pr

Each organization should aim to achieve a product portfolio which is balanced

in terms of its corporate objectives, be they objectives of sales growth, profits or
cash flow. As individual products grow or decline, and as markets grow or shrink,
then the overall nature of the product portfolio will change. It is imperative
therefore that the whole portfolio is regularly reviewed and that an active policy
towards new product development and divestment of aged products is pursued.

182 Marketing | Reference Book 1

 Even the best product must be seen as part of a mixed portfolio of products that
render a balance. For example, an increase in the funds lodged in high interest
deposit accounts will reduce the level of funds in ordinary deposit accounts. At
the same time, it would not necessarily be desirable to see all deposit funds
converted to high interest accounts. The organization must first define its objectives
and then make sure the portfolio matches them.

Once the product portfolio has been measured against corporate objectives,
individual products must be assessed in relation to the whole portfolio.

Planning for Profits

To ensure successful growth, all organizations must aim for a balanced product
portfolio which contains:

● A substantial number of new products which will provide major profits in

the future

● A sufficient number of mature products to generate enough money to finance

an
the growth products

st
● A planned phasing out of products which in the past have been major products

ki
but which are beginning to be a drain on resources

Pa
An appropriate balance between products will provide management with a

s
sound basis on which to plan for future development.
er
nk
The Product Portfolio at Local Level
Ba

When managing a product range at local level, the concept of the balanced
of

product range portfolio is less directly applicable. The balanced portfolio concept
e

really applies to a product offering at either organizational or business unit level.

ut

Each individual branch will not necessarily need to have a balanced portfolio of
it

its own. The particular local blend of customers may mean that an area has a
st

predominance of business in particular products.

In

The needs of customers in some areas will indicate that some branches should
e

concentrate more on lending while others should concentrate more on taking

Th

deposits. It depends on the nature of the customer in its catchments area.

:
of

For example, a large proportion of retired people in the local population means
that borrowing requirements are not great, but that customers will be looking
ty

for investment services. In other areas, borrowing requirements will be particularly

er

high which will inevitably reflect in the nature of targets established at a local
op

level.
Pr

As a result, there need not be as much attention paid to the achievement of a

balanced product portfolio as will be the case for the financial services organization
nationally. However, the national position should be borne in mind by all
marketers.

Product and Services Strategy 183

 The Product Portfolio and Market Segments

A further aspect to be remembered when considering how to achieve a balance

in the product portfolio is that the product range must be matched against market
segments.

Equally, if products are not balanced in terms of customer requirements, the risk
of losing whole market segments is high. If there are "gaps" in relation to customer
needs, then in that sense the portfolio is incomplete. The following examples
would make things clear.

● If a bank had schemes for married couples, families and the elderly, but no
provision for borrowing to buy a home, the portfolio would be incomplete.

● There might be a gap in services to business customers if there were no

provision of overnight safes for banking fairly large sums of cash.

● If the portfolio included special services for corporate customers but ignored
some of the merchant banking expertise, again there would be a gap in the

an
portfolio from the point of view of the market segment into which the

st
products were being sold.

ki
These considerations suggest that each individual product should be assessed on

Pa
its own strictly in cash terms. However, it is sometimes necessary to fill a "gap"
in the portfolio which, although not profitable on its own, may serve to attract

s
customers to other products in the portfolio.
er
nk
Customer acceptance and customer loyalty are important in order to maintain
Ba

cash flow, but may not always be assessable in strict cash terms for individual
of

products.
e

It may be worthwhile with personal account holders to attract them as students,

ut

hold them as savers for marriage or home buying, help them with the financial
it

demands of a growing family and assure them of the availability of cash in old
st

age.
In

It may be that at some points in their lives, such as the student phase, these
e
Th

personal accounts are not profitable, but the customer loyalty engendered at that
point could lead to the purchase of other products such as:
:
of

● Savings
Insurance
ty

● Pension planning
er

● Loans
op

● Child accounts, etc.

Pr

This same approach could also apply to business customers who need a range
of different kinds of help as a business grows. At first they may need help in
knowing the locality, or with appreciating how government regulations work.

184 Marketing | Reference Book 1

 At the other end of the spectrum, as an entrepreneur moves closer to retirement,
a particular expertise can help him to maximize the price for which he can sell
the business, minimize his tax liability and help to finalize his pension arrangements.
Less profitable offerings may help attract the customer for the more profitable
product sales later on.

Even products with a short life cycle should not necessarily be dismissed just for
that reason. Opportune products, geared to current events, can act as stimulants
to keep a financial services organization in the public eye, help with promotion
and capture new market segments. They may have publicity and image-building
value. If they are good public and customer relations exercises, they will stimulate
other products which help the longer term prospects of growth.

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

Product and Services Strategy 185

Part Three Developing and Implementing the
Marketing Program

Chapter 2 Brand Management Concepts

Student Learning By the end of this chapter you should be able to:
Outcomes
Discuss the concept of brand management

Differentiate between product management and brand

management

Describe the importance of a brand strategy and explain how it

is implemented

State the concept of brand equity

an
st
Discuss the importance of managing brand equity

ki
Pa
Introduction As we have already seen in this course, marketing is successful when the

s
product or service can be differentiated from that offered by the
er
competition. This differentiation may be brought about by offering
nk
features and benefits that are not available from other providers, the levels
Ba

of customer service that are offered, the locations of where the product
is accessible to customers, or pricing. Another way in which either the
of

organization or its products can be differentiated from competitors is

through branding.
e
ut
it

Successful branding will allow the consumer to clearly identify the product
st

and make it easier for the organization to communicate to its chosen

markets. Brand awareness, brand loyalty and the perception of brand
In

quality all combine to produce the strength of a brand.

e
Th

Branding is particularly important as it is one of the few tangible elements

in an industry that deals almost exclusively in intangibles. A further
:
of

important aspect to consider is that as customer loyalty is so important

within financial services, branding is a key way in which customers can
ty

be encouraged to return to the organization for more products and thus

er

cement their long term relationship with the organization.

op

A successful brand will be distinctive and will stick in the minds of existing
Pr

and potential customers. Branding can be cost effective, is environmentally

friendly and is a key promotional tool.

186 Marketing | Reference Book 1

 Branding What is Branding?

We will start this study of branding by defining our terms. If an organization

does not have good branding, then no matter how good their products
are, they may be lost amongst all the other offerings on the market.
Therefore, key marketing decisions will need to be made around the
brand name and designs that the organization uses.

A brand is a name, term, design, symbol or any other feature that will
identify one organization's products from another's.

Depending upon the marketing strategy of the business, the brand may
simply identify one product, or a family of products, or all of the products
offered by the organization. It is common in financial services to see
branding that may apply to the entire organization or around a family
of products, for example a particular type of money transmission account.

A brand name, on the other hand, is that part of a brand that may be
spoken.

an
st
For example, UBL have successfully used the term "Cashline" for many
years - to the point where the users of other organisations' ATMs and

ki
cards are often heard to use the word "Cashline" to describe them!

Pa
Sometimes a brand name is the only way in which a product is
differentiated, so without this, the product could not be differentiated.

s
er
Once a brand is established within the market, then the name can
nk
communicate a number of factors about this product to consumers, such
Ba

as reliability, value for money, safety, etc.

of

Logos can also be closely associated with branding. Your own organization
will no doubt have invested a considerable amount of time and money
e

in designing a logo which will be heavily used in all of its promotional

ut

materials. These logos will remain in place for a long period of time, so
it

it is important that the design is right and communicates what the

st

organization wants it to communicate to the market. Indeed, these logos

In

can often survive the merger of organizations, so powerful is their impact

felt to be.
e
Th

Benefits of Branding to Consumers

:
of

The benefits of branding to consumers include helping them to identify

products that they wish to consume, as well as those that they do not
ty

want to purchase. This can save them time when making purchasing
er

decisions as the consumer is simply looking for the distinctive brand.

op
Pr

As was mentioned earlier, a brand can give the consumer reassurance

about the quality of the service they are buying.

If a customer is thinking about purchasing a credit card, whilst they may

not recognize the name of the card provider, if there is a connection to
an established bank and this bank's logo appears on the promotional

Brand Management Concepts 187

 material, then this will reassure the potential customer about the quality
and reliability of the credit card.

There can also be a perceived psychological reward to the consumer of

being associated with a brand which is deemed to symbolize status, for
example a Rolex watch. In financial services, this could be seen from
either a particular product, such as an HSBC card, or a brand associated
with high net worth individuals, such as a private banking brand.

Benefits of Branding to the Organization

The benefits of branding to the organization includes the ability to identify

its products, thus making repeat business more likely - an important area
in financial services, where customer relationship management techniques
encourage firms to look to win a bigger share of "wallet" from existing
customers.

Branding can also help to mitigate risk when introducing new products.
If the new product is clearly identified as belonging to an established and

an
successful brand, then customer take-up should be quicker.

st
Brand loyalty refers to the commitment and motivation of customers to

ki
repeatedly buy the products and services that are associated with a

Pa
particular brand. This will allow the organization to obtain a certain
amount of stability within the market. Loyal customers are extremely

s
er
important to financial services organizations, as they allow the business
nk
to grow organically and they can also be a fruitful source of positive word-
of-mouth which will generate new business.
Ba
of

It can also be that once an organization has built up a certain amount of

brand loyalty - particularly when this is associated with a high quality
e

offering - the organization may be able to charge a premium for its

ut

products and services. For example, one business bank may be offering
it

a free banking service, while another bank with a strong business banking
st

brand may charge for its services but will retain customers who feel loyal
In

to that brand.
e
Th

As competition has increased, brand loyalty has declined, as consumers

have become more price sensitive and the choice available to consumers
:

has increased. In the past, it was quite common to find that a customer
of

would have all of their financial services needs met by one organization,
albeit this may have been limited to a money transmission account,
ty

savings account and cheque guarantee card. Now it is far more common
er

to find that not only do customers have a choice of more financial services
op

products, but that these are spread amongst a number of providers.

Pr

There are three degrees of brand loyalty:

● Brand recognition

This is where the customer is aware that a brand is in existence and they

188 Marketing | Reference Book 1

 will deem it worthy of purchase if their preferred brand is not available.
Therefore the use of the word "loyalty" is very loose here - the customer
is actually loyal to another brand, but will use this other brand if they
need to.

● Brand preference

This is a stronger brand loyalty than above - here the customer definitely
prefers one brand over another and will choose this brand when it is
available. However, as we have seen, if the preferred brand is not available,
then the customer is prepared to accept substitutes, rather than having
to go to the time and trouble of seeking out the preferred brand elsewhere.

● Brand insistence

This is a stronge degree of loyalty, when the customer prefers a specific

brand, will not accept any substitutes and is willing to invest to a great
deal of time and effort in order to obtain that brand. Whilst this is the
strongest type of brand loyalty, it is also the least commonly encountered.

an
Brand

st
As branding is used to differentiate product offerings, build and maintain
Management competitive advantage and raise product awareness, it is important that

ki
branding is managed as part of the overall marketing effort of the

Pa
organization. However, it can be difficult for an organization to manage
its brands, therefore the need to make the correct choice of brand at the

s
er
outset is paramount. It is important that the business understands the
nk
brand loyalty of its customers and their perceptions of the brand.
Ba

To create a successful brand, the organization must:

of

● Prioritize quality - successful brands tend to be high quality in their

e

product fields.
ut
it

● Offer superior service - high quality service is more difficult for the
st

competition to imitate than product features. Even if the organization

In

has launched an innovative product, within the financial services field

it is relatively easy for other organizations to copy this.
e
Th

● Get there first - this gives the customers a perception that the
:

organization is a market leader and a more attractive company to deal

of

with than one which is always following the leader. This leading may
be done by exploiting new technology, using new distribution channels,
ty

exploring new segments in the market, reacting to gaps that appear

er

as a result of changes within the environment.

op
Pr

● Differentiate the brand - thus the consumer has the perception that
the offerings of the company are in some way different from what is
being offered by the competition.

● Develop a unique positioning concept - this will make both the brand
and its differentiating characteristics stand out from the others, with
a clear positioning message against those of the competition.

Brand Management Concepts 189

 ● Support the brand and its positioning with a strong communication
program - this will ensure that the customers being targeted are aware
of the brand and its positioning.

● Deliver consistently and reliably over time - this will mean that target
customers will perceive the brand to be trustworthy.

Levels of Brand

There are four levels of brand:

1. The tangible product - the quality, performance, features and real

attributes of the brand.

2. The basic brand - the identity, differentiation and positioning of the

brand.

3. The augmented brand - the aggregated impact of the brand from

supplementary products and service support.

an
st
4. The potential of the brand - is reached when the customer will not
willingly accept substitutes and is not happy about having to switch

ki
to rival brands.

Pa
There are three tests for determining whether a brand is successful. These

s
three determinants are:
er
nk
1. Has the brand been successful in capturing the leading share of the
Ba

market segment or distribution channel?

of

2. Does the brand command prices that are high enough to produce a
e

sufficiently high profit margin?

ut
it

3. Will the brand be able to sustain this share of profits when rival and
st

generic versions of the product come into the market?

In

Corporate This is where we look at the principles of branding at the corporate level.
e
Th

Branding Corporate branding is apparent in the company name, logo and "house
style" of publicity materials and advertisements. There are many examples
:

of this - HSBC, Citi Bank, etc. You will be able to think of many more.
of

Corporate branding can inform all of the marketing decisions and activities
ty

in the company, as the wish of the organization will be to create a congruent

er

message. This will therefore impact on advertising, promotional materials,

op

internal communications, product designs and stationery (plastic cards,

Pr

product application documents, cheque books, etc), website design, staff

uniforms, office furniture and fixtures, branch layout and so on.

If corporate branding is to be successful, it needs to be embedded in all

of the company's actions so that all communications - internal and external
- convey a consistent message about the organization's branding.

190 Marketing | Reference Book 1

 The whole concept of corporate branding is important within financial
services because, if it is done successfully, it may in some way overcome
the difficulties that are encountered through dealing with intangible
products.

Brands versus Products

According to Phillip Kotler, a product is anything that can be offered to

a market for attention, acquisition, use, or consumption that might satisfy
a need or want. Thus, a product may be a physical good, service, retail
store, person, organization, place, or idea.

Kotler defines five levels of a product as follows:

1. Core benefit level - The fundamental need or want that consumers

satisfy by consuming the product or service.

2. Generic product level - Basic version of the product containing only

those attributes that are absolutely necessary for its functioning but

an
with no distinguishing features.

st
3. Expected product level - A set of attributes that buyers normally expect

ki
when they purchase a product.

Pa
4. Augmented product level - This includes additional product attributes,

s
benefits, or related services that distinguish the product from
competitors. er
nk
Ba

5. Potential product level - This level includes all of the augmentations

and transformations that a product might ultimately undergo in the
of

future.
e
ut

Competition within many markets essentially takes place at the product

augmentation level, because most firms can successfully build satisfactory
it

products at the expected product level. Another veiw is that, competition

st

is not between what organizations produce in the factories but between

In

what they add to their factory output in the form of packaging, services,
advertising, customer advice, financing, delivery arrangements,
e
Th

warehousing, and other things that people value.

:

A brand is a product, then, but one that adds other dimensions to

of

differentiate it in some way from other products designed to satisfy the

ty

same need. These differences may be rational and tangible - related to

product performance of the brand - or more symbolic, emotional, and
er

intangible - related to what the brand represents. Marketing guru Alvin

op

Achenbaum explains the concept as follows:

Pr

“More specifically, what distinguishes a brand from its unbranded

commodity counterpart and gives it equity is the sum total of consumers'
perceptions and feelings about the product's attributes and how they
perform, about the brand name and what it stands for, and about the
company associated with the brand.”

Brand Management Concepts 191

 Marketers create perceived differences among products through branding,
and this is how they create value, which in turn results in financial profits
for them. The reality is that the most valuable assets that many organizations
have may not be tangible assets, such as plant and equipment, but
intangible assets such as management skills, financial expertise, and most
importantly, the brands themselves.

Strategic Depending upon the marketing strategy of the business, the brand may
brand tools simply identify one product, or a family of products, or all of the products
offered by the organization. It is common in financial services to see
branding that may apply to the entire organization or around a family
of products, for example a particular type of money transmission account.

A brand name, on the other hand, is that part of a brand that may be
spoken. There are two very important strategic brand tools. The brand-
product matrix and the brand hierarchy - by defining various relationships
among brands and products - help to formulate brand strategies. We next
suggest how to best design branding strategies. Different issues in
implementing brand strategies will also be discussed later in the chapter.

an
st
A. Brand-Product Matrix

ki
To characterize the product and branding strategy of an organization,

Pa
one useful tool is the brand-product matrix.

s
er
The brand-product matrix is a graphical representation of all the brands
nk
and products sold by an organization. The matrix has the brands as
rows and the corresponding products as columns (shown in
Ba

figure 2.1).
of

Figure 2.1: Brand-Product Matrix

e
ut

Products
it
st

1 2 ......... N
In

A
e
Th

Brands B
:
of

…
ty

M
er
op

The rows represent brand-product relationships and capture the brand

Pr

extension strategy of an organization in terms of the number and

nature of products sold under the brands of the firm. A brand line
consists of all products sold under a particular brand. Thus, a brand
line would be one row of the matrix. A potential new product extension
of a brand must be judged by how effectively it leverages existing

192 Marketing | Reference Book 1

 brand equity from the parent brand to a new product, as well as how
effectively the extension, in turn, contributes to the equity of the
parent brand. In other words, what is the level of awareness likely to
be and what is the expected strength, favorability, and uniqueness of
brand associations of the particular extension product. Also, how does
the introduction of the brand extension affect the prevailing levels of
awareness and strength, favorability, and uniqueness of brand
associations of the parent brand as a whole.

On the other hand, the columns of the matrix represent product-brand

relationships and capture the brand portfolio strategy in terms of the
number and nature of brands to be marketed in each category. The
brand portfolio is the set of all brands and brand lines that particular
organization offers to buyers in a particular category. Therefore, a
brand portfolio would be one particular column of the matrix. Different
brands may be designed and marketed to appeal to different market
segments. Brands also can take on very specialized roles in the portfolio.
For example, as flanker brands to protect more valuable brands, as
low-end entry-level brands to expand the customer franchise, as high-

an
end prestige brands to enhance the worth of the entire brand line, or

st
as cash cows to milk all potentially realizable profits.

ki
Product Line

Pa
A product line is a group of products within a product category that

s
er
are closely related because they function in a similar manner, are sold
nk
to the same customer groups, are marketed through the same type of
Ba

outlets (or branches), or fall within given price ranges. A product line
may consist of different brands or a single family brand or individual
of

brand that has been line extended.

e

Product Mix
ut
it

A product mix (or assortment) is the set of all product lines and items
st

that a particular organization makes available to buyers. Product lines

In

represent different sets of columns on brand-product matrix that, in

total, make up the product mix.
e
Th

Brand Mix
:
of

A brand mix (or assortment) is the set of all brand lines that a particular
organization makes available to buyers.
ty
er

Branding Strategy
op
Pr

The branding strategy of an organization reflects the number and

nature of common and distinctive brand elements applied to the
different products sold by the organization. In other words, brand
strategy involves deciding which brand elements will be applied to
which products and the nature of new and existing brand elements to
be applied to new products.

Brand Management Concepts 193

 A brand strategy can be characterized according to its breadth and its
depth. Lets discuss this concept.

Breadth of a Branding Strategy

The breadth of a branding strategy concerns the number and nature

of different products linked to the brands sold by the organization.
There are various considerations concerning the product mix and
which products the firm should sell. Strategic decisions have to be
made concerning how many different product lines the company
should carry (breadth of the product mix), as well as how many variants
should be offered in each product line (depth of the product mix).

Depth of a Branding Strategy

The depth of a branding strategy concerns the number and nature of

different brands marketed in the product class sold by an organization.

The main reason to adopt multiple brands is to pursue multiple market

an
segments. These different segments may be based on different

st
considerations, such as different price segments, different channels of

ki
distribution, or different geographical boundaries.

Pa
There a number of roles that brands can play in a brand portfolio. Let

s
er
us discuss these briefly:
nk
Flankers
Ba
of

The purpose of flanker or fighter brands is to create stronger points

of parity with competitors' brands so that more important or profitable
e

flagship brands can retain their desired positioning.

ut
it

In designing flanker brands, marketers need to be very careful so that

st

not to make these flanker brands so attractive that they take sales away
In

from their higher-priced comparison brands. At the same time, if

flanker brands are seen as connected as an extension to other brands
e
Th

in the portfolio in any way, then flanker brands must not be designed
so cheaply such that they would reflect poorly on these other brands.
:
of

Cash Cows
ty
er

Some brands must be kept around despite dwindling sales because

op

they still manage to hold onto sufficient number of customers and

maintain their profitability with virtually no marketing support. These
Pr

brands can be effectively milked by capitalizing on the reservoir of

existing brand equity.

194 Marketing | Reference Book 1

 Low-End Entry-Level or High-End Prestige

Many brands introduce line extensions or brand variants in a certain

product category that vary in price and quality. These sub-brands
leverage associations from other brands while distinguishing themselves
on the basis of their price and quality dimensions.

The role of a relatively low-priced brand in the brand portfolio is often

as a means of attracting customers to the brand franchise. These brands
are often able to trade-up customers to a higher-priced brand.

Contrary to this, the role of a high-priced brand is often to add value,

prestige and credibility to the brand portfolio.

B. Brand Hierarchy

A brand hierarchy reveals an explicit ordering of brand elements by

displaying the number and nature of common and distinctive brand
elements across the organization's products. By capturing the potential

an
branding relationships among the different products sold by the firm,

st
a brand hierarchy is a useful means to graphically portray a firm's
branding strategy. A hierarchy can be constructed to represent how

ki
products are nested with other products because of their common

Pa
brand elements.

s
er
Moving from the top level to the bottom level of the hierarchy typically
nk
involves more entries at each succeeding level, or in this case, more
Ba

brands. Perhaps the simplest representation of possible brand elements

and thus potential levels of a brand hierarchy, from top to bottom,
of

might be as follows:
e

Corporate brand
ut

● Family brand
it

● Individual brand
st

● Modifier
In

The highest level of the hierarchy technically always involves the

e
Th

corporate brand. For example, UBL is a corporate brand. Some

organizations combine their corporate brand name with family brand
:

or individual brands, e.g. UBL Cashline.

of

At the next lower level, a family brand is defined as a brand that is

ty

used in more than one product category but is not necessarily the
er

name of the organization. For example, under the brand of UBL

op

Deposits, UBL offers a number of products such as Unisaver, Uniflex,

Pr

etc.

An individual brand is defined as a brand that has been restricted to

essentially one product category, although it may be used for several
different product types within the same category.

Brand Management Concepts 195

 1. Building Equity at Different Hierarchy Levels

Let us now examine some issues in building brand equity at each

of the different levels of the brand hierarchy.

a. Corporate Brand Level

A corporate image can be thought of as the associations that

consumers have in memory to the organization making or
offering the product or service. Corporate image is a very
relevant concern when the corporate brand plays a prominent
role in the branding strategy adopted.

In establishing a corporate image, a corporate brand may evoke

associations wholly different from an individual brand, which
is only identified with a certain single product. For example,
a corporate brand may be more likely to evoke associations of
common products and their shared attributes or benefits,
people and relationships, programs and values, and corporate

an
credibility.

st
b. Family Brand Level

ki
Pa
Like corporate brands, family brands are brands applied across
a range of product categories. The main difference is that

s
er
because a family brand may be distinct from the corporate
nk
brand, company-level associations may be less likely to be
salient. These are also referred to as "umbrella brands".
Ba
of

Family brands may be used instead of corporate brands for a

number of reasons. As products become more dissimilar, it
e

may be harder for the corporate brand to be used and still

ut

retain any product meaning. If the corporate brand is linked

it

to a wide variety of products with little product similarity, it

st

may be difficult for the corporate brand to effectively link the

In

disparate products and serve as an umbrella brand. Distinct

family brands, on the other hand, can be circumscribed to
e

evoke a specific set of associations across a group of related

Th

products.
:
of

Family brands can be an effective means to link common

associations to multiple, but distinct products. The cost of
ty

introducing a related new product can be lower, and the

er

likelihood of acceptance can be higher when an existing family

op

brand is used to brand a new product.

Pr

c. Individual Brand Level

Individual brands are restricted to one product category,

although multiple product types may be offered on the basis
of different models, sizes, flavors, etc.

196 Marketing | Reference Book 1

 The major advantage of creating individual brands is that the
brand and all its marketing activity can be customized to meet
the needs of the specific target group. Thus, the brand elements
and marketing programs can all be designed to focus a particular
target market. Also, if the brand fails, there is a minimal risk
to other brands and the organization.

The disadvantage involves the difficulty and expense involved

in developing separate marketing programs to build sufficient
brand equity.

d. Modifier Level

Regardless of whether corporate, family, or individual brands

are employed, it is often necessary to further distinguish brands
on the basis of different models or types. Adding a modifier
often signals differences in the brand related to factors such as
quality levels, different attributes, or different functions.

an
Brand modifiers can often play an important role in

st
communicating how different products within the same
category that share the same brand name can differ on one or

ki
more attribute or benefit. Therefore, one of the uses of brand

Pa
modifiers is to show how one brand variation relates to others
in the same brand family. Modifiers also help to make products

s
er
more understandable and relevant to consumers.
nk
Ba

2. Designing the Brand Hierarchy

of

Designing a brand hierarchy involves decisions related to the

following:
e
ut

1. The number of levels of hierarchy to use.

it
st

2. How brand elements from different levels of the hierarchy are

In

combined, if at all, for any one particular product.

e
Th

3. How any one brand element is linked, if at all, to multiple

products.
:
of

3. Designing Supporting Marketing Programs

ty

Once the broad parameters of the hierarchy are put into place as
er

to how brand elements relate to particular products, decisions

op

also have to be made concerning how to design the supporting

Pr

marketing programs in a way that best reflects the desired content

and structure of the brand hierarchy. In doing so, decisions have
to be made regarding the desired image at each brand hierarchy
level and any necessary adjustments that should be made to the
marketing programs to support the image.

Brand Management Concepts 197

 A well constructed and developed brand is a huge asset to any organization.
This value is referred to as "brand equity" and is the marketing and
financial value associated with the strength of the brand within the market.

Concept of Brand Equity

One of the most popular and potentially important marketing concepts

to arise in the 1980s was the concept of brand equity. The emergence of
brand equity, however, has meant both good news as well as bad news to
marketers.

The good news is that it has raied the importance of the brand in marketing
strategy - which heretofore - has been relatively neglected - and provided
focus for managerial interest and research activity. The bad news is that
the concept has been defined in a number of different ways for a number
of different purposes, resulting in some confusion.

In a general sense, most marketing people agree that brand equity is

defined in terms of the marketing effects uniquely attributable to the

an
brand. That is, brand equity relates to the fact that different outcomes

st
result from the marketing of a product or service because of its brand
name or some other brand element, as compared to outcomes if that

ki
same product or service did not have that brand identification. Although

Pa
there are a number of different views on brand equity, they are all generally
consistent with the basic notion that brand equity represents the "added

s
er
value" endowed to a product as a result of past investments in the
nk
marketing for the brand.
Ba

Sources of Brand Equity

of

For branding strategies to be successful and brand equity to be created,

e

consumers must be convinced that there are meaningful differences

ut

among brands in the product or service category. The key to branding is

it

that the consumers must not think that all brands in the category are the
st

same.
In

Brand Name Awareness

e
Th

As consumers become aware of a brand, this will lead to brand familiarity,

:

which should lead in turn, to them having a level of comfort with the
of

brand. The more comfortable a consumer is with a brand, then the more
likely they are to make a purchase. This, however, rests on the assumption
ty

that the awareness with the brand is associated with positive rather than
er

negative messages!
op
Pr

Brand Loyalty

Having good brand loyalty will help an organization to maintain its

existing customers and should also make it relatively straightforward to
win new customers. The more loyal customers there are to a brand,

198 Marketing | Reference Book 1

 the more visible the brand will be in the market - either from increased
demand, or by positive word-of-mouth.

Perceived Brand Quality

There will always be a perception of quality associated with a particular

brand, whether this is a high quality/high price brand, a "stack 'em high
and sell 'em" cheap approach, or somewhere in between. When the name
of the brand will instill in the consumer certain images of quality, then
this can be used as a substitute for actual judgments of quality.

The brand may be used to communicate a number of other aspects, for

example, being linked to a particular life style. This occurs in brand
advertising, where, for example, a premium credit card is associated with
an affluent life style.

As you can see from this analysis, brand equity is difficult to measure, but
it does have a significant economic impact upon the organization.

an
Brand Personality, Values and Attributes

st
Most organizations will have specific attributes that they want to have

ki
associated with their brand - these are the brand attributes that you will

Pa
find listed in posters and promotional material. Many banks will have
these displayed in a poster that is prominently placed in each branch.

s
er
nk
A brand value is a less tangible item that is associated with the brand -
Ba

this is more likely to be some sort of "emotional benefit" associated with

the brand. For a bank this may be linked to some aspect of service.
of

An example of a brand value within financial services would be that the

e

customer can contact a member of staff at a local branch rather than

ut

dealing with a different point of contact at a contact centre every time

it

they need to communicate with the organization.

st
In

The brand values that underpin this attribute could be the knowledge of
the staff that the customer will deal with, the dependability of these
e
Th

individuals, etc. As you can see, these values are more emotional than the
attributes. However, the values and attributes combine to make a coherent
:

offering to the market.

of

It has also been argued that in addition to brand values and attributes,
ty

a good branding strategy will also identify brand personality that will
er

make it easier for the organization to differentiate itself from the

op

competition and forge closer links with the customer. Brand personality
Pr

is the physiological clues and even less tangible aspects of a good branding
exercise. Within financial services these traits could be a willingness to
help the customer, approachability, fairness, a common sense approach
to charging, etc.

Brand Management Concepts 199

 Branding Policies

One of the early decisions that must be made is whether or not the
organization is going to use branding, or will it take the view that as the
products that it offers are so similar to the others on the market, it might
as well just offer its products alongside the others?

One of the fundamental aspects is to consider how important branding

is to the consumer. Will they be attracted to a particular brand of the
product, or are they simply looking for the product and not particularly
concerned who supplies it? At the most basic level, is the customer looking
for a money transmission account only from MCB or will any money
transmission account suffice as they all do the same thing anyway?

On the assumption that the organization has decided to brand, there are
a number of branding strategies that it could follow. We have also discussed
these strategies in detail in the previous chapter.

Individual branding

an
st
This is where the organization decides to name all of its products differently.
The main advantage of this approach is that if the organization launches

ki
a product and it proves to be unsuccessful, then damage to the reputation

Pa
of the entire company may be minimized. It may also be that the
organization wishes to enter a number of segments in the same market.

s
er
By using individual branding, it can target a separate brand in each
nk
segment.
Ba

Overall family branding

of

This is where all of an organization's products are branded with the same
e

name - or at least part of the name is the same. For example, Cadbury's
ut

chocolate where the company sells a range of chocolate bars, but they all
it

bear the name "Cadbury's" at some point.

st
In

By taking this approach, organizations can increase customer confidence

in what they are buying, although the products could be quite different.
e
Th

A further advantage is that by promoting one product within the family

brand, the organization will also gain promotion of its other products.
:
of

An organization should consider the following factors when determining

its branding policy:
ty
er

● The number of products that the organization produces

op
Pr

● The characteristics of its target markets

● The number and type of competing products
● The size of its resources

200 Marketing | Reference Book 1

 Benefits from Brand Equity

A number of benefits can result from a strong brand, in terms of both

greater revenue and lower costs. Let us briefly discuss some of the benefits
to the organization of having brands with a high level of awareness and
a positive brand image (in other words, high brand equity).

The following points summarize these benefits:

● Greater loyalty
● Less vulnerability to competitive marketing actions
● Less vulnerability to marketing crises
● Larger profit margins
● More inelastic consumer response to price increases
● More elastic consumer response to price reductions
● Greater trade cooperation and support
● Increased marketing communication effectiveness
● Possible licensing opportunities
● Additional brand extension opportunities

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

Brand Management Concepts 201

Part Three Developing and Implementing the
Marketing Program

Chapter 3 Services Marketing

Student Learning By the end of this chapter you should be able to:
Outcomes
Write the concept of services marketing

Discuss the nature and characteristics of services marketing

Discuss consumer behavior for service oriented products

Describe the kind and level of expectations that customers have

towards service oriented industry

an
State and discuss the strategies available to influence customer

st
perceptions

ki
Define service leadership

Pa
List ways to attain services leadership in banking industry

s
er
nk
Introduction Put in most simple terms, services are deeds, processes and performances.
Ba

Services are not tangible things that can be touched, seen, and felt, but
of

rather are intangible deeds and performances. For example, IBM offers
repair and maintenance service for its equipment, consulting services for
e

IT and e-commerce applications, training services, web design and hosting,

ut

and other similar services. These services may include a final, tangible
it

report, or a website. But for the most part, the entire service is represented
st

to the client through problem analysis activities, meetings with the client,
In

follow-up calls, and reporting - a series of deeds, processes, and performances.

Similarly, the core offerings of banks, and financial institutions, comprise
e
Th

primarily of deeds and actions performed for customers.

:

Therefore, services can be defined as follows:

of

"Services include all economic activities whose output is not a physical

ty

product or construction, is generally consumed at the time it is produced,

er

and provides added value in forms (such as convenience, timeliness, health,

op

amusement, or comfort) that are essentially intangible concerns of its

Pr

first purchaser."

202 Marketing | Reference Book 1

 Financial Services The finance sector encompasses a broad range of organizations that
basically deal with the management of money. Such organizations include
banks, insurance companies, leasing companies, consumer finance
companies, stock brokerages, investment organizations, etc. The products
offered by these companies are broadly intangible, and cannot be touched,
or felt. Their products are intangible deeds and performances.

If we take an example of a bank, its primary operations would include:

● Keeping customers' money safe, and allowing withdrawals when

required
● Provide different types of loans such as personal loans, commercial
loans, etc.

● Issuance of credit cards and processing of credit card transactions

and billing

● Issuance of cheque books and debit cards

an
● Ensure smooth transactions of money

st
ki
● Allow easy and smooth transfer of funds between banks and cities

Pa
● Provide foreign exchange services

s
er
All the above-mentioned activities are intangible in nature. Although
nk
these operations do include certain tangible elements such as cheque
Ba

books, credit/debit cards, etc. for the most part, the entire service is
represented to customers through meetings and interactions - a series of
of

deeds, processes, and performances. Therefore, we can easily say that

e

financial sector is clearly a classification of the services marketing category.

ut
it

Services Marketing
st

Services marketing is a sub field of marketing.

In
e

Services marketing typically refers to both business to consumer (B2C)

Th

and business to business (B2B) services, and includes marketing of services

like telecommunications services, financial services, all types of hospitality
:
of

services, car rental services, air travel, health care services and professional
services.
ty
er

We have covered the topic of services marketing in great detail in part 1

op

of this book.
Pr

Services Marketing Mix

In addition to the traditional five P's, the services marketing mix includes
physical evidence and process.

Services Marketing 203

 Physical Evidence - The environment in which the service is delivered
and where the firm and customer interact, and any tangible components
that facilitate performance or communication of the service. This includes
all of the tangible representations of the service such as brochures, business
cards, signage, equipment, etc. It also includes the physical facility where
the service is offered - for example, the retail bank branch facility.

Process - The actual procedures, mechanisms, and flow of activities by

which the service is delivered - the service delivery and operating systems.
The actual delivery steps the customer experiences, or the operational
flow of the service, also give customers evidence on which to judge the
service. Some services are very complex, requiring the customer to follow
a complicated and extensive series of actions to complete the process.

Consumer Buying Behavior

A financial services organization may not wish to satisfy all the needs of
all potential customers. Choosing which needs and which customers
should potentially prove the most profitable for an organization, calls for

an
extensive knowledge of the customers and significant marketing skill and

st
judgment.

ki
We have studied consumer behavior in great detail in Part 2 of this book.

Pa
In this chapter, we will discuss consumer behavior with a special focus
on the services sector.

s
er
nk
Consumer Behavior for Services
Ba

Using an adaptation of the basic consumer buying process discussed in

of

Part 2 of this book, we will now discuss this process for services. This
process is illustrated in figure 3.1 below.
e
ut

Figure 3.1: Stages in Consumer Decision Making and Evaluation of Services

it
st

Need Recognition
In
e
Th

Information Search
:
of
ty

Evaluation of
er

alternatives
op
Pr

Purchase &
Consumption

Post Purchase
Evaluation

204 Marketing | Reference Book 1

 The diagram illustrates the following categories in the consumer decision
making process:

1. Need recognition
2. Information search
3. Evaluation of alternatives
4. Purchase and consumption
5. Post purchase Evaluation

In purchase of services, these categories do not occur in a linear sequence

as they often do in the purchase of goods. One of the major differences
between goods and services is that a greater portion of the valuation of
services succeeds purchase and consumption than is the case with goods.

1. Need Recognition

The process of buying a service begins with the recognition that a need
or want exists. Although there are many different ways to characterize
needs, the most widely known is Maslow's hierarchy, which specifies five

an
need categories arranged in a sequence from basic lower-level needs to

st
higher-level needs. Five needs are identified:

ki
● Physiological needs

Pa
● Safety and Security needs
Social needs

s
●

● Ego needs
er
nk
● Self-actualization needs
Ba

Physiological needs are biological needs such as food, water, and sleep.
of

The recognition of these basic needs is fairly straightforward. For example,

when one is hungry at lunchtime, restaurants, and similar service
e

establishments become more noticeable.

ut
it

Safety and security needs include shelter, protection, and security. Social
st

needs are for affection, and acceptance. Social needs are critical to all
In

cultures but are particularly important in the Eastern culture, because

in East people spend more time with families and friends than Westerners,
e
Th

and therefore consumer more want/use services that can be shared.

Consumers in all cultures use various types of services to address social
:

needs. These include clubs, vacations, etc.

of

Ego needs are for prestige, accomplishment, and self-esteem, while self-
ty

actualization needs involve the needs for self-fulfillment and enriching

er

experiences. Consumers desire to live up to their full potential and enjoy

op

themselves. Some purchase experiences such as skydiving, bungee jumping,

Pr

etc. for thrill, a need quite different from the others in the hierarchy.
Others fulfill this need by opting for painting, poetry, etc.

Services Marketing 205

 2. Information search

Consumers obtain information about products and services from personal

sources such as friends or family members, and non-personal sources such
as media.

When consuming services, consumers seek and rely on personal sources

more than non-personal sources. This is mainly because media can
communicate little about experience qualities. By asking friends and
experts about services, the consumer can obtain reliable information
about experience qualities. Second, for services, non-personal information
might also not be available. Thirdly, because consumers can discover few
attributes before consuming a service, they may feel greater risk in selecting
an alternative that is not very well-known.

Consumers may find post purchase information seeking more essential

in services than with goods because services possess experience qualities
that cannot be adequately assessed before purchase.

an
The following model describes the situation that occurs frequently when

st
consumers select services:

ki
● The consumer selects from among virtually indistinguishable

Pa
alternatives.

s
●
er
Through experience the consumer develops an attitude towards the
nk
service.
Ba

● After the development of an attitude, the consumer learns more about

the service by paying attention to messages supporting his or her
of

choice.
e
ut

In contrast to the goods purchase, where consumers seek information

it

and evaluate products before purchase, with services most evaluation

st

occurs after the purchase has taken place.

In

3. Evaluation of service alternatives

e
Th

An evoked set of alternatives is the group of products a consumer considers

acceptable options in a given product category. This evoked set is likely
:
of

to be smaller for services than in the case of goods.

ty

This is because to purchase goods, consumers generally shop in retail

er

stores that display competing products in close proximity, clearly

op

demonstrating all the alternatives. However, in the case of services, the

Pr

consumer visits an establishment (such as a bank) that offers only a single

brand for sale. Secondly, the consumers are unlikely to find more than
one or two business offering a service in a particular geographical area.

A third reason for a smaller evoked set is the difficulty of obtaining

adequate pre-purchase information about services.

206 Marketing | Reference Book 1

 When faced with the task of collecting and evaluating experience qualities,
consumers usually simply select the first acceptable option available rather
than searching many alternatives.

4. Service purchase and consumption

Emotion and mood are feeling states that influence people's perceptions
and evaluations of their experiences. Moods are distinguished from
emotions in that moods are transient feeling states that occur at specific
times and in specific situations, whereas emotions are more intense, stable,
and pervasive.

Because services are experiences, moods and emotions are critical in

shaping the perceived effectiveness of service encounters. For example,
if a customer is in a bad mood when he enters a bank, service provision
by the cashier will likely be interpreted more negatively than if he were
in a positive mood. Similarly, if a service provider is not in a good mood,
his interaction with customers will likely be colored by that mood. To
cut it short, any service characterized by human interaction is strongly

an
dependent on the moods and emotions of the people involved.

st
Moods can affect the behavior of service customers in a number of ways,
such as:

ki
Pa
● Positive moods can make customers more obliging and willing to
participate in behaviors that help service encounters succeed. A

s
er
customer in a good emotional state is likely to overlook delays in
nk
service at a bank. On the other hand, a customer in a bad mood is less
Ba

likely to engage in behaviors essential to the effectiveness of the service.

of

● Moods and emotions bias the way service customers judge service
encounters and providers. Moods and emotions enhance experiences,
e

making them either more positive or more negative than they might
ut

seem in the absence of those moods and emotions. For example, after
it

losing a big account holder, a branch manager catching an airline

st

flight will be more incensed with delays than he might be on a day

In

when everything went well. Conversely, the positive mood of a customer

at a bank will heighten the experience, leading to positive evaluations
e
Th

of the bank and its staff.

:

● Lastly, moods and emotions affect the way information about service
of

is absorbed and retrieved. As memories about a service are encoded

by a consumer, the feelings associated with the encounter become an
ty

inseparable part of memory. For example, if a customer first realizes

er

that his level of fitness is poor when on a guest pass in a health club,
op

negative feelings may be encoded and retrieved every time he thinks

Pr

of the health club.

Service marketers need to be aware of the moods and emotions of

customers as well as of service employees and should try to influence
those moods and emotions in positive ways. They should cultivate positive
moods and emotions such as delight and contentment, and discourage
negative emotions like anger and frustration.

Services Marketing 207

 Other customers present and receiving services at the same time also play
an important role here. Consider how central the mere presence of other
customers is in restaurants, clubs, etc. If no one else shows up, customers
will not get to socialize with others, one of the primary expectations in
these types of services. However, if the number of customers becomes so
large that crowding occurs, customers may also be dissatisfied. The way
other customers behave with many services such as banks, airlines, and
clubs also exerts a major influence on a customer's experience. In general,
the presence, behavior, and similarity of other customers receiving services
has a strong impact on the satisfaction and dissatisfaction of any given
customers.

Customers can be incompatible for a number of reasons, such as differences

in beliefs, values, experiences, abilities to pay, appearance, age, etc. The
service marketer must anticipate, acknowledge and deal with different
consumers who have the potential to be incompatible.

5. Post purchase Evaluation

an
a. Attribution of Dissatisfaction

st
When consumers are dissatisfied with purchases, they may attribute

ki
their dissatisfaction to a number of different sources, among them

Pa
the retailer, producers, or themselves. Because consumers participate
to a great extent in the definition and production of services, they

s
er
may feel more responsible for their dissatisfaction when they
nk
purchase services than when they purchase goods.
Ba

The quality of many services depends on the information the

of

customer brings to the service encounter. For example, a tax

preparer's satisfactory performance relies on the receipts saved
e

by the customer. Failure to obtain satisfaction with any of these

ut

services may not be blamed completely on the service provider,

it

because the consumer must adequately perform his or her part

st

in the production process also.

In

On the other hand, in the case of products, a consumer's main

e

form of participation is the act of purchase. The consumer may

Th

attribute failure to receive satisfaction to his or her own decision-

:

making error, but holds the producer responsible for product

of

performance.
ty

b. Innovation Diffusion
er
op

As compared to products, services are less communicable, less

Pr

divisible, more complex, and less compatible than goods. They are
less communicable because they are intangible, and often unique
to one buyer; they are less divisible because they are usually
impossible to sample or test; more complex because they are
composed of a bundle of different attributes, not all of which are
offered to every buyer on each purchase; and less compatible with

208 Marketing | Reference Book 1

 existing values and behaviors especially if consumers are accustomed
to providing the service for themselves. Consumers adopt
innovations in service more slowly than they adopt innovation
in goods.

c. Customer Expectations

Customer expectations are beliefs about service delivery that

function as standards of reference points against which performance
is judged. Because customers compare their perceptions of
performance with these reference points when evaluating service
quality, thorough knowledge about customer expectations is critical
to service marketers.

Knowing what the customer expects is the most important step

in delivering quality service. Among the aspects of expectations
that need to be explored and understood for successful services
marketing are the following:

an
● What types of expectation standards do customers hold about
services?

st
● What factors most influence the formation of customer

ki
expectations?

Pa
● What role do these factors play in changing expectations?
● How can a service organization meet or exceed customer

s
expectations?
er
nk
d. Levels of Service Expectations
Ba
of

Although everyone has an intuitive sense of what customer

expectations are, service marketers need a very thorough and clear
e

definition of expectations in order to comprehend, measure, and

ut

manage them. Customers hold different types of expectations

it

about service. For purpose of discussion in this chapter, we will

st

focus on two types. The highest can be termed "desired service":

In

the level of service the customer hopes to receive - the 'wished for'
level of performance. Desired service is a blend of what the
e

customer believes 'can be' and 'should be'. For example, when
Th

engaging a college placement office for jobs, a graduate expects

:

the office to find him or her the right job in the right place for
of

the right salary - because that is what the graduate hopes and
wishes for. However, the economy may constrain the availability
ty

of ideal job openings in ideal organizations. In such situations

er

and in general, customers hope to achieve their service desires but

op

recognize that this is not always possible. We call the threshold

Pr

level of acceptable service "adequate service" - the level of service

that the customer will accept. In the economic slowdown few years
back, many graduates trained for high-skilled jobs accepted
entry level positions or internships for no pay. Their hopes
and desires were still high, but they recognized that they could
not attain those desires in the market that existed at that time.

Services Marketing 209

 Their standard for adequate service was much lower than their
desired service. Some graduates accepted any job for which
they could earn a salary, and others agreed to non-paying,
short-term positions. Adequate service represents the "minimum
tolerable expectation," the bottom level of performance
acceptable to the customer.

Customer Relationship Management

High levels of customer care are a feature of today's successful companies.

As we have already highlighted, CRM is one of the key components of
customer care across the finance sector and also one of the main means
of attaining a differential advantage as well as maximizing customer
retention.

Customers perceive services in terms of the quality of the service and how
satisfied they are overall with their experiences. Organizations today
recognize that they can compete more effectively by distinguishing
themselves with respect to service quality and improved customer

an
satisfaction.

st
Customer Satisfaction

ki
Pa
A formal definition of customer satisfaction is:

s
er
Satisfaction is the consumer's fulfillment response. It is a judgment that
nk
a product or service feature, or the product or service itself, provides a
pleasurable level of consumption-related fulfillment.
Ba
of

In other words, satisfaction is the customer's evaluation of a product or

service in terms of whether that product or service has met their needs
e

and expectations. Failure to meet needs and expectations is assumed to

ut

result in dissatisfaction with the product or service.

it
st

Customer retention requires organizations to understand what customers

In

expect when service failures occur as well as implementing effective

recovery programs. Mistakes and failures occur for all sorts of reasons:
e
Th

● the service may be unavailable when promised

:

● it may be delivered too late

of

● the outcome may be incorrect or poorly executed

employees may be rude, uncaring or ill-informed
ty

●
er

If these problems are ignored, customers can leave, tell other customers
op

about their negative experiences and even challenge the organization

Pr

through consumer rights organizations or legal channels. The next example

illustrates the consequences of failing to address customer complaints.

210 Marketing | Reference Book 1

 Mitsubishi Motors

Sales at Mitsubishi Motors tumbled 18% in September 2000 following

revelations that Japan's fourth largest automobile manufacturer covered
up customer complaints for more than 30 years. The scandal led to the
resignation of the company's president, Katsuhiko Kawasoe, and the recall
of 620,000 cars.

The company was also fined Y4 million by a Tokyo court for failing to
recall cars as required by the Road Vehicles Act. The group faced further
penalties and damage to the brand from a police investigation, launched
after the Transport Ministry filed criminal charges against the company
for covering up more than 64,000 customer complaints.

Why unhappy customers don't complain?

In order of frequency, the three main reasons why customers fail to

complain are:

an
1. they do not think it is worth the time or effort

st
2. they decide that no one is concerned about their problem or

ki
resolving it

Pa
3. they do not know where to go or what to do

s
er
nk
How customers respond to service failures?
Ba

When there is a service failure, customers can respond in a variety of

of

ways. First, they can choose to take action or they can do nothing. Many
customers are passive about their dissatisfaction, simply saying or doing
e

nothing. At some point during the service failure the customer will decide
ut

to remain with the supplier or switch to a competitor. Those who fail to

it

complain are the least likely to return.

st
In

Customers can be grouped into four categories based on how they respond
to failures:
e
Th

● Passives
:

● Voicers
of

● Irates
Activists
ty

●
er

While the proportion of the types of complainers is likely to vary across

op

industries and contexts, it is likely that these four categories of complainer

Pr

types will be relatively consistent and that each type can be found in all
companies and industries.

Services Marketing 211

 1. Passives

This group of customers is least likely to take any action. They are unlikely
to say anything to the provider, less likely than others to spread negative
word-of-mouth and unlikely to complain to a third party. They often
doubt the effectiveness of complaining, thinking the consequences will
not merit the time and effort they will expend.

2. Voicers

Voicers actively complain to the service provider, but they are less likely
to spread negative word-of-mouth, to switch patronage or to go to third
parties with their complaints. Odd though it may seem, these customers
are valuable to the service provider as they give the company a second
chance. Their belief in the social benefits of complaints means that they
have no qualms about complaining. They prefer to lodge a complaint
with the company rather than spread negative word-of-mouth to third
parties.

an
3. Irates

st
These consumers are likely to engage in negative word-of-mouth to friends

ki
and relatives and to switch providers. They are about average in their

Pa
propensity to complain to the provider. They are less likely to give the
service provider a second chance and will switch to a competitor and

s
spread negative word-of-mouth on the way.
er
nk
4. Activists
Ba
of

These consumers have an above average tendency to complain to the

provider on all aspects of service. They also discuss their complaints with
e

third parties and are likely to become terrorists who will seek opportunities
ut

to complain about the company in public.

it
st

The categories described above suggest there are some customers who are
In

more likely to complain than others. Customers who complain often

believe their actions will result in social benefits and expect compensation.
e
Th

They believe that fair treatment and good service is their due. They
sometimes feel a social obligation to complain to help others avoid similar
:

situations or to punish the service provider. A very small number of

of

consumers have complaining personalities.

ty

Others fail to complain as they see the process as being pointless or are
er

unaware how to complain. In some cases, people fail to complain because

op

they blame themselves for the service failure.

Pr

212 Marketing | Reference Book 1

 The personal relevance of the failure can also influence whether people
complain. If the service failure is for a relatively trivial matter that has
no critical consequences for the consumer, then he or she is less likely to
complain. For example, consumers are more likely to complain about
services that are high risk such as holidays, health care or investments
than they are about less expensive services such as visits to fast-food outlets
or bus journeys.

There is a model to deal with complaints:

Figure 3.2: Model to Deal with Complaints

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st

1. Empathy
In
e

Empathy is being able to show the customer that you understand how
Th

they feel, but when empathizing you are not necessarily agreeing with
them. There are a number of phrases you could use, for example:
:
of

"I can understand that you are annoyed at the call not being
ty

returned …"
er
op

"I appreciate that you feel angry about this …"

Pr

By empathizing, you are showing the customer that you understand how
they are feeling, but in neither of the suggestions above are you necessarily
agreeing with what the customer is saying. You are not in a position to
either agree or disagree with them, as you have not, as yet, gathered in
all the facts.

Services Marketing 213

 A further benefit of displaying empathy is that you are removing much
of the aggression from the situation. Using empathy with a complaining
customer is often called "cushioning" in that you are absorbing the
conflict in the situation.

2. Get all the relevant facts

Allow the customer to talk and listen carefully to what they are saying
to you. You should strive to obtain all the relevant facts from the customer
- so listen to them and don't prejudge the situation.

This is a good time to use questioning and active listening techniques.

You should make sure that you summarize what the customer has said
so that the customer confirms your understanding of the situation.
It should also help the customer as they now feel that someone is listening
to their concerns and wants to help them.

3. Work to a solution

an
You have now taken the heat out of the situation by using empathy and

st
you have gathered in the facts from the customer.

ki
It may be that you need to get more information from colleagues to allow

Pa
you to progress the complaint. If this is the case, you should explain to
the customer what it is that you have to do and why. You should also

s
er
make a firm commitment to the customer of when you will be able to
nk
get back in touch with them.
Ba

If events conspire against you and you are not able to get all the information
of

that you require in this timescale, then you should still go back to the
customer to explain the up-to-date position and to let them know what
e

the revised timescales are going to be. However, once you have gathered
ut

all the information that you need, you are in a position to work to a
it

solution.
st
In

As you come to the end of the solution stage, you should ensure that the
customer is clear about what is going to happen. You should also make
e
Th

sure that the customer is happy with your proposals.

:

If the customer is happy with the situation, then you have come to the
of

end of the process. However, if they are not happy, you simply have to
move into the empathy stage again and work round the cycle again.
ty
er

Benefits of a Service Recovery Program

op
Pr

Research has shown that complaints do not necessarily lead to lost custom.
Provided the organization offers a satisfactory response to the complaint,
customers will remain loyal. Those who never complain are least likely
to repurchase.

214 Marketing | Reference Book 1

 The several benefits arising from a service recovery program include:
● increased customer satisfaction
● loyalty
● the generation of positive word-of-mouth.

The improvements that are made to service processes as a result of

complaints increase the likelihood of getting it "right first time" and
decrease the costs of failures. Companies which fail to offer a recovery
program can turn dissatisfied customers into "terrorists" who can behave
quite aggressively if their complaints are ignored. It is also worth noting
that persistent service failures can undermine employee morale and lead
to absenteeism and rapid employee turnover.

As was mentioned in earlier chapters, customer expectations have increased

and this is reflected in the media exposure with newspaper columns and
television programs such as Watchdog. Financial services organizations
should therefore never underestimate the power of the media when
dealing with complaints. Equally, this does not mean that you should

an
capitulate when you have done nothing wrong. Every case must be dealt
with on its own merits with reasonableness and objectivity being adopted

st
as part of the decision making process.

ki
Pa
Strategies for Influencing Customer Perceptions

s
In this section, we will discuss management strategies used to influence
perceptions of service directly. er
nk
Ba

Measure and Manage Customer Satisfaction and Service Quality

of

A key strategy for customer-focused firms is to measure and monitor

customer satisfaction and service quality. Such measurements are needed
e
ut

to track trends, to diagnose problems, and to link to other customer-

it

focused strategies. Organizations usually link their measurement of

customer satisfaction to strategies related to employee training, reward
st

systems, organizational structure, and leadership goals.

In

Aim for Customer Quality and Satisfaction in Every Service Encounter

e
Th

Because every service encounter is extremely critical for customer retention,

:

many organizations aim for zero defects, or hundred percent satisfaction

of

in every encounter. To achieve this requires, first, clear documentation

of all of the points of contact between the organization and its customers.
ty

The next step is the development of understanding of customer expectations

er

for each of these encounters, so the strategies can be built around meeting
op

those expectations. The following actions can help the organization aiming
Pr

for zero defects:

● Plan for effective recovery

● Facilitate flexibility in service encounters
● Help employees cope with problem customers
● Manage the dimensions of quality at the encounter level

Services Marketing 215

 Manage the Evidence of Service to Reinforce Perceptions

The evidence of service - people, process, physical evidence - provides a

framework for planning marketing strategies that address the expanded
marketing mix elements for services. These new elements essentially
tangibilize the service for the customer and thus represent important
means for creating positive perceptions.

Service Leadership A common complaint among service providers is the difficulty of

differentiating their service from that of competitors. Service intangibility
and inseparability mean that consumers rarely compare alternative service
offerings in advance of purchase in the way that potential buyers of
products do. Differences in the attractiveness or value of competing services
are not readily obvious to the potential buyer.

Nevertheless, a differential or competitive advantage is necessary for

marketing and financial reasons as it enables the firm to attract new
customers and prevent existing customers from defecting to the
competition.

an
st
A differential advantage is necessary if a business is to maintain earnings
above the cost of capital, i.e. to generate shareholder value. The absence

ki
of a differential advantage enables competitors to enter the market, copy

Pa
the company's offer and erode profit margins.

s
er
Offering customers superior value creates a differential advantage. It can
nk
be increased by offering customers improved performance or benefits for
the same cost, or the same benefits for a lower cost. Since customers have
Ba

different preferences and constraints, the optimum value will differ among
of

them. Some customers will put a greater emphasis on benefits, such as

innovative product features or services; others will place a greater weight
e

on price or convenience.
ut
it

Hence, in any market there will be different value propositions, depending

st

on the customer base. Managers must make key decisions relating to

In

which customers are to be targeted and the choice of value proposition

that is to be offered.
e
Th

Some companies compete on the basis of offering more benefits; other

:

compete on cost and convenience. The former strategy is suited to those

of

customers who wish to select suppliers who offer the best solutions and
are willing to incur more costs to get them.
ty
er

There are four types of positioning strategy that compete on this dimension:
op
Pr

● Product (and process) leadership

● One-to-one marketing
● Brand leadership
● Service leadership

216 Marketing | Reference Book 1

 In this chapter, we will discuss service leadership in detail.

Service Leadership

Some customers place a high value on outstanding service. Companies

with a value proposition based on service include Emirates or South West
Airlines, Hyatt and American Express. Businesses competing in this way
need to identify the types of customers who will pay more to be pampered.

Importance of Service Quality in Service Leadership

We will now consider the importance and nature of service quality and
then look at methods of improving quality through training and internal
marketing.

Financial services organizations tend to use the following terms

interchangeably:
● service quality
● customer satisfaction

an
● customer service

st
ki
However, they do actually have differences in meaning.

Pa
Service quality is the excellence with which an organization meets customer

s
requirements and expectations, especially in those elements where there
er
is direct interaction between the customer and the financial services
nk
organization.
Ba

Related to this:
of
e

Customer satisfaction is defined as the outcome of the evaluation a

ut

customer makes with regard to a financial services organization's level

it

of service quality.
st

This suggests that a financial services organization cannot control customer

In

satisfaction, but it can influence customer satisfaction through the provision

e

of excellent service quality.

Th

Finally:
:
of

Customer service can be defined as the activities undertaken by a financial

ty

services organization to implement and operationalize excellent service

er

quality.
op
Pr

Therefore, as outlined in the following diagram, a financial services

organization undertakes customer service activities which are evaluated
relative to customer requirements, leading to a certain level of service
quality which in turn leads to customer satisfaction or dissatisfaction.

Services Marketing 217

 Figure 3.3

an
st
ki
Importance in Importance of service Leadership in the Financial Services Sector

Pa
Financial Sector
Service quality is one of the key differentiators for success in a service

s
er
leadership strategy. What makes a difference? What can you do that makes
nk
you better than your competitors and strengthens your relationship?
Remember - think customer! It is the one aspect of customer relationship
Ba

management over which you have a high level of control in that you
of

probably have limited influence over the structure of the products which
you offer.
e
ut

Research will provide knowledge of the customer experience; you know

it

what is important to your customers and how they want it delivered. This
st

should enable you to strive to meet their expectations and create long
In

term relationships.
e
Th

Performance cannot be measured by customers in advance, therefore

each contact a customer has with staff, either by mail, telephone or in a
:

face-to-face situation, is a critical incident through which they form their

of

impression of the organization's quality and service.

ty

Additionally, with the exception of possibly ATM and credit card

er

transactions, financial services personnel are an intrinsic part of the service

op

- they provide the advice or process the lodgment. Every person is different;
Pr

therefore the care, attention and responsiveness may also differ between
branches and between individuals within branches.

The financial services organization which can minimize these differences

and ensure a high level of service from all its employees at all times has
a major competitive advantage over its competitors, and hence can pursue
service leadership.

218 Marketing | Reference Book 1

 The physical environment of the branch and the systems used are also
critical. If either of these is poor, employees are blamed and consumers
perceive poor quality of service.

Overall, customers' expectations of quality are rising and there is growing

evidence that customers are becoming more critical of poor service.

Benefits of Service Leadership

If you get it right and good service is evident, the following benefits may
ensue:

● improvements in customer loyalty

● attraction of new customers from word-of-mouth recommendations
● improved employee morale
● lower staff turnover
● increased productivity
● higher market share
● increased profitability

an
st
Elements of Service Quality

ki
Perceived quality is a consumer judgment and results from comparisons

Pa
by consumers of expectations of service with their perceptions of actual
service performance. Dissatisfaction can occur if there is a gap between

s
er
the customer's expectations and the actual service provided. This gap may
nk
be as a result of:
Ba

● management's perceptions of customers' service requirements being

of

incorrect
e

although customer requirements are known by management, no clear

ut

or correct guidelines about service quality are provided to staff

it
st

● the service that is delivered by staff to the customer is different from

In

that set out in management guidelines

e
Th

● the service that is delivered to the customer is different from that

appearing in external communications such as in advertising.
:
of

It is important to act in a manner which matches any advertising message

- The Listening Bank, The Caring Bank, Where you come first, etc.
ty
er

To maintain a high level of service quality, it is vital for a financial services

op

organization to have:
Pr

● an understanding of their customers' needs and wants, particularly at

times when the customer comes into contact with the organization
or its staff
● a well developed and widely communicated service policy

Services Marketing 219

 ● customer- (and employee-) oriented delivery systems

● well trained customer-oriented front line people (staff who come

directly into contact with the customer)

Each of the above has to take account of the fact that service quality
consists of two dimensions:

1. Technical Quality

Technical quality aspects can generally be measured in a rather objective

manner and are the areas where financial services organizations have
tended to concentrate on in the past, in terms of training and staff appraisal.

The technical quality elements include:

● technical skills - able to balance cash, fill in forms correctly, etc

● product knowledge - an understanding of products, their features and

benefits to the customer

an
st
● mechanization through systems, technical solutions and computer

ki
systems

Pa
2. Functional Quality

s
er
Functional quality is far more difficult to evaluate and measure and is
nk
more concerned with the psychological interaction between members of
Ba

the financial services provider's staff and customers.

of

These elements can only be perceived in a subjective manner and include:

e

● staff attitudes towards the customer, the organization and colleagues.

ut
it

● inter-relationships between employees and customers.

st

● appearance and personality of front line personnel.

In

● approachability of personnel.
e
Th

● service mindedness of personnel.

:

Although many of the technical quality elements are perceived as

of

prerequisites by customers, a large number of research surveys have shown

ty

that functional quality is of most importance in determining a customer's

satisfaction with a financial services provider. As such, many financial
er

services organizations are placing great emphasis on improving elements

op

of functional quality in their branches and in head office.

Pr

Training Programs

Improvements in functional quality and service quality as a whole are

principally being sought through training programs. These may be either
off-the-job - where participants are taken away from the immediate work
environment, or on-the-job (in the work environment) training initiatives.

220 Marketing | Reference Book 1

 A number of stages are gone through in developing the training:

1 Identification of customer requirements in terms of service-market

research

This research will be carried out amongst customers and potential

customers to identify the dimensions of service they seek when coming
into contact with a financial services organization and the areas where
they are currently dissatisfied.

2 Setting of standards of performance to be achieved when dealing

with customers. This may involve areas such as:

● queuing times
● use of the customer's name
● telephone handling procedures
● procedures for handling customer complaints

3 Analysis of the quality of existing service provision

an
st
This is in order to identify the training requirements of employees, if the
standards set in 2 are to be reached.

ki
Pa
4 Development of training programs

s
The programs will cover areas such as:
er
nk
Ba

● business and product knowledge

● customer awareness
of

● interpersonal skills
e

5 Implementation of training programs

ut
it

In theory, these programs should involve all levels and types of staff
st

(management, front line staff and back room staff) in order that:
In

● back room staff see the need for providing a good service to front line
e
Th

staff
:

● an understanding is created of each other's role in the organization

of

barriers are broken down and an atmosphere is created of working

ty

together for the benefit of the customer

er
op

6 Reinforcement of the training programs through:

Pr

● the awarding of customer service awards to branches or individuals

for good or improved service

● regular team meetings, sometimes using the technique of quality

circles where small groups of around six to ten members of staff meet

Services Marketing 221

 regularly to discuss customer service problems and present new ideas
to management

● small refresher sessions, often undertaken weekly, concentrating on

service issues (you may notice that many of the major retailers are
closed for 30 minutes one morning each week for this type of training,
as do most banks).

7 Measuring and monitoring success by:

● carrying out surveys amongst customers and staff on a regular basis

to monitor any perceived changes in service over time

● monitoring the level of customer complaints

● the use of "mystery shoppers" - individuals who go around branches

acting as customers to monitor service levels and identify potential
training needs

● monitoring the level of business generated through the branches

an
st
You may well have personal experience of mystery shoppers. This is where

ki
the organization defines the standards that all staff and branches should

Pa
adhere to; for example, no more that 2 minutes queuing time, the
customer's name must be used at least three times during the interaction,

s
etc. The mystery shopper will then visit the branch to carry out a transaction,
er
or to request information. As a result of the visit, the mystery shopper
nk
will assess the performance of the individual and the branch and award
Ba

a score.
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Internal Marketing and Service Quality

e
ut

Training is only effective if the environment within the financial services

it

organization is conducive to a quality service. Internal marketing involves

st

management activities aimed at creating an internal environment within

In

the financial services organization which supports customer consciousness

and sales mindedness amongst the organization's personnel.
e
Th

There are five activities which impact on the conduciveness of the internal
:

environment:
of
ty

1 Recruitment
er

At the recruitment and selection phase, the correct people should be

op

placed in the correct job. Those who are comfortable in dealing with the
Pr

public should be placed in front line positions; those who are not should
be placed in other positions within the organization, for example in a
processing centre.

Dealing with the public should not be seen as a low status function. It
can easily be argued that these are the most important people in the

222 Marketing | Reference Book 1

 organization, effectively representing the "face" of the business. A high
percentage of customers seldom deal with anyone else and so their
perception of the entire organization is highly influenced by the front
line staff.

2 Management and supervision

The focus of management should move away from the solely technical
quality dimension towards the functional quality dimension, and staff
needs to be recognized for their performance in the functional areas. If
staff is treated well, this invariably reflects in the quality of service they
provide.

3 Information

● the importance of the services they offer, and the importance of their
own job function in meeting customer requirements

● they must understand what and how they are expected to perform

an
and why

st
● strategy and objectives should be explained in order that they can be

ki
supported

Pa
● new services and their benefits should be sold internally before being

s
launched on the market
er
nk
● there must be clear routes of internal communication both up and
Ba

down the organization

of

4 Emphasis on training
e
ut

Training needs to be ongoing, with greater emphasis being placed on the

it

functional quality aspects.

st

5 Measurement and control

In
e

Measurement and control of both technical and functional quality

Th

elements with feedback on areas requiring improvement or where

retraining is necessary.
:
of

If a financial services organization does care about employees as well as

ty

customers, the outcome should be increased employee motivation and

er

satisfaction, resulting in a higher level of service quality. Staff should be

op

kept informed of what is happening, in particular:

Pr

Services Marketing 223

Part Three Developing and Implementing
the Marketing Program
Chapter 4 New Product Development and Product Life Cycle Strategies

Student Learning By the end of this chapter you should be able to:
Outcomes
Explain the process of new product development

Discuss the factors that need to be considered while developing

new banking products

List and explain the stages of product life cycle

Identify the marketing strategies needed to be employed in different

stages of the product life cycle

Illustrate the product life cycle and explain its each component

Define product architecture

an
st
Explain the concept of product architecture

ki
Explain the role of architecture in product development

Pa
s
Product Consider these statements: er
nk
Ba

"Customers don't buy products; what they are looking for is a bundle of
benefits and solutions."
of
e

"Customers love to buy from people, but they hate to be sold at."
ut
it

"Marketers often do not understand the complexity or sophistication of

st

the product they are trying to sell."

In

Marketing is no different from other areas of financial services in that

e

your approach must always contain an element of "think customer". We

Th

are all customers in some aspect of our lives. What annoys you? What
really "turns you off" in a sales situation? Draw on this and view every
:
of

scenario as objectively as possible from your customer's perspective.

ty

Behind these statements lie some basic principles of successful marketing.

er

When people purchase products, they are not motivated in the first
op

instance by the physical attributes of the product, but by the benefits that
Pr

those attributes bring with them. Customers like to have these explained
to them and, provided they match their needs or solve their problems,
they are likely to make a decision to buy.

This reinforces the need for a continuous reality check for marketers.
There is an ongoing need for operational input to ensure that all areas
of the marketing process "speak the same language". In other words,

224 Marketing of Financial Services | Reference Book 1

 marketing proposals require this dimension to ensure alignment of
thought and that any difficulties in implementation are identified with
adoption of appropriate remedial action. Failure to achieve this continuity
in the delivery along with clarity of the message can result in the customer
identifying these benefits being provided more efficiently by some
other product or service provider, resulting in the opportunity of sale to
be lost.

Different customers have different needs and they will identify different
benefits in the same product or service.

In the finance sector, different segments of the market seek different

benefits from investment portfolios. The older person wants a high income
yield; the younger person wants to grow capital at a rate higher than
inflation. However, for both segments, the decision to assemble a portfolio
arises from a wish to acquire certain financial and economic benefits
rather than to make specific investments.

Consider a banking product as simple as the provision of a cheque book.

an
This is a way of transmitting money, but the product may be seen by the

st
customer to provide other benefits, such as the opportunity to keep a
handy record of transactions or in terms of the time it saves. With a cheque

ki
book, the customer is not buying a tear-off booklet with their name

Pa
printed on every page; they are buying a bundle of benefits which includes
solution of a specific money transmission problem.

s
The Product Portfolio
er
nk
An organization usually offers more than one product and operates in
Ba

more than one market. Decisions on product-market strategy therefore

must be made in the context of a product range portfolio and the defined
of

market segments to which this portfolio is marketed. At any particular

time, the profitability of a financial services organization will depend on
e

the individual profitability of each of the products portfolio. A review of

ut

the portfolio would reveal that there are products at various stages of
it

growth, maturity and decline. The precise balance of the portfolio will
st

thus, not only indicate today's profitability but will also provide a sound
In

guide to tomorrow's profitability.

e
Th

A product portfolio is in many respects similar to the investor's portfolio

of stocks and shares. The investor may wish to achieve a balance between
:

yield or income and capital growth. Some shares might produce more of
of

the latter and less of the former, while others show the reverse of this
pattern; or the investor might attempt to achieve a balance in terms of
ty

risk. Some shares having a higher risk of capital loss, against which the
er

prospect of higher returns is balanced.

op
Pr

Each organization should aim to achieve a product portfolio which is

balanced in terms of its corporate objectives, they can be objectives of
sales growth, profits or cash flow. As individual products grow or decline,
and as markets grow or shrink, the overall nature of the product portfolio
changes. It is therefore imperative that the whole portfolio is regularly
reviewed and that an active policy towards new product development
and divestment of aged products is pursued.

New Product Development and Product Life Cycle Strategies 225

 Even the best product must be seen as part of a mixed portfolio of products
that render a balance. For example, an increase in the funds lodged in
high interest deposit accounts will reduce the level of funds in ordinary
deposit accounts. At the same time, it would not necessarily be desirable
to see all deposit funds converted to high interest accounts. The organization
must first define its objectives and then ensure that the portfolio matches
them.

Once the product portfolio has been measured against corporate objectives,
individual products must be assessed in relation to the whole portfolio.

Planning for Profits

To ensure successful growth, all organizations must aim for a balanced

product portfolio which contains:

● a substantial number of new products which will provide major profits

in the future

an
st
● a sufficient number of mature products to generate enough money
to finance the growing products

ki
Pa
● a planned phasing out of products which, in the past have been major
products but, which are beginning to be a drain on resources

s
er
nk
An appropriate balance between products will provide the management
Ba

with a sound basis on which to plan for future development.

of

The Product Portfolio at Local Level

e

When managing a product range at local level, the concept of the balanced
ut

product range portfolio is less directly applicable. The balanced portfolio

it

concept really applies to a product offering at either organizational or

st

business unit level. Each individual branch will not necessarily need to
In

have a balanced portfolio of its own. The particular local blend of customers
may mean that an area has a predominance of business in particular
e
Th

products.
:

The needs of customers in some areas will indicate that some branches
of

should concentrate more on lending while others should concentrate

more on taking deposits.
ty
er

Let us study this example. A large proportion of retired people in the

op

local population means that borrowing requirements are not great, but
Pr

that customers will be looking for investment services. In other areas,

borrowing requirements will be particularly high which will inevitably
reflect in the nature of targets established at a local level.

As a result, there need not be as much attention paid to the achievement

of a balanced product portfolio as will be the case for the financial services

226 Marketing of Financial Services | Reference Book 1

 organization nationally. However, the national position should be borne
in mind by all marketers.

The Product Portfolio and Market Segments

A further aspect to be remembered when considering how to achieve a

balance in the product portfolio is that the product range must be matched
against market segments.

Equally, if products are not balanced in terms of customer requirements,

the risk of losing whole market segments is high. If there are "gaps" in
relation to customer needs, then in that sense the portfolio is incomplete.

The following examples would clarify things:

● If a bank had schemes for married couples, families and the elderly,
but no provision for borrowing to buy a home, the portfolio would
be incomplete.

an
● There might be a gap in services to business customers if there were

st
no provision of overnight safes for banking fairly large sums of cash.

ki
● If the portfolio included special services for corporate customers but

Pa
ignored some of the merchant banking expertise, again there would
be a gap in the portfolio from the point of view of the market segment

s
into which the products were being sold.
er
nk
Ba

These considerations suggest that each individual product should be

assessed on its own strictly in cash terms. However, it is sometimes necessary
of

to fill a "gap" in the portfolio which, although not profitable on its own,
may serve to attract customers to other products in the portfolio.
e

Customer acceptance and customer loyalty are important in order to

ut

maintain cash flow, but may not always be assessable in strict cash terms
it

for individual products.

st
In

For example, it may be worthwhile with personal account holders to

attract them as students, hold them as savers for marriage or home buying,
e
Th

help them with the financial demands of a growing family and assure
them of the availability of cash in old age.
:
of

It may be that at some points in their lives, such as the student phase,
these personal accounts are not profitable, but the customer loyalty at
ty

that point could lead to the purchase of other products such as:
er
op

savings
Pr

● insurance
● pension planning
● loans
● child accounts, etc.

New Product Development and Product Life Cycle Strategies 227

 This same approach could also apply to business customers who need a
range of different kinds of help as a business grows. At first they may need
help in knowing the locality, or with appreciating how government
regulations work.

At the other end of the spectrum, as an entrepreneur moves closer to

retirement, a particular expertise can help him to maximize the price for
which he can sell the business, minimize his tax liability and help to
finalize his pension arrangements. Less profitable offerings may help
attract the customer for the more profitable product sales later on.

Even products with a short life cycle should not necessarily be dismissed
just for that reason. Opportune products, geared to current events, can
act as stimulants to keep a financial services organization in the public
eye, help with promotion and capture new market segments. They may
have publicity and image-building value. If they are good public and
customer relations exercises, they will stimulate other products which
help the long term prospects of growth.

an
New Products The selection and development of new products is a process vital to the

st
success of any organization. New product development can usefully be
seen as a process consisting of the following six steps:

ki
Pa
1 Exploration - the search for product ideas to meet the organization's
objectives.

s
er
nk
2 Screening - an analysis of the ideas to establish those which are relevant.
Ba

3 Business analysis - the idea is examined in detail in terms of its fit in

of

the business.
e

4 Development - converting the idea into an actual product.

ut
it

5 Testing - market tests necessary to verify early business assessment.

st
In

6 Commercialization - full scale product launch, committing the

organization's reputation and resources.
e
Th
:

In the following section we shall look at some of the main considerations

of

involved in exploration, screening, evaluation and testing.

ty

Product conception and exploration

er
op

The new product in financial services can be anything from a brand new
Pr

idea to the repositioning of a tried service. There is no short answer to

how often an organization should innovate, and as we have already seen,
this will depend on changing customer needs and competitive forces.
Although innovation and product development are inevitably expensive,
they must be viewed as an investment for the future if the institution is
really going to create and maintain a position of differentiation in the
marketplace.

228 Marketing of Financial Services | Reference Book 1

 The importance of strong clear points of differentiation cannot be
overemphasized, especially if the bank is to avoid imitation by its
competitors. As this often involves innovation, it is desirable that, if
possible, a bank should enable certain specialists to concentrate on working
on new product ideas. Anyone coping with day-to-day activity is hampered
from free-ranging and creative thought; and, although new product
departments often come up with ideas that will never see the light of the
day because they are either impractical or unprofitable, a creative freedom
is essential to the successful generation of new good ideas. Clearly, specialists
in this area need to have extensive banking knowledge and experience as
well as a strongly developed sense of innovation.

Other new product ideas can come from:

● all the different levels of staff, particularly those in closest contact with
customers
● customers
● government
● competitors

an
● technological progress
changing social needs

st
●

● Employee Protection Acts

ki
● pension requirements

Pa
● economic triumphs and/or disasters
fiscal measures

s
●

other outside influences

er
●
nk
Screening
Ba
of

A number of marketing considerations need to be taken into account

when screening new ideas. Because of existing expertise, it will be easier
e

to sell a new product if it is complementary to the existing range. The

ut

new product may well help to sell more of the existing products. The
it

introduction of new products needs to be viewed in the context of the

st

complete product range. Full advantage should be taken of the way that
In

existing products are promoted and delivered to the customer. Clearly,

building on the current procedure ensures an effective introduction with
e

minimum cost and maximum market penetration.

Th
:

Financial considerations relate to the product's ability to perform

of

satisfactorily within the product portfolio when considered in terms of

the organization's economic objectives. Thus, cash generation, funds usage,
ty

capital adequacy requirements and profitability are all important

er

considerations.
op
Pr

● What is the likely cost of introduction and what will be the cash
benefits in the first, second or third year - up to at least the fifth year?

● Is the product reviewable?

● Are there clear assessment ingredients?

New Product Development and Product Life Cycle Strategies 229

 The risk of the investment, measured against current products and their
development costs and cash streams over time must be considered in the
light of corporate policy.

Staffing requirements will vary both with size and complexity of the
project. Whatever these may be, they must be taken into consideration
for planning purposes. The problems of industrial relations must never
be overlooked, particularly when new technologies are introduced.

There are other considerations as well, other questions which need to be

asked, such as:

● How much commitment from the branch network will be involved?

● Does the product need special or new knowledge on the part of branch
management?

● If so, what is the best way to impart that knowledge and how far ahead
of the launch?

an
Is there a risk of the idea getting out to rivals who can imitate fast and

st
●

spoil the launch?

ki
Pa
● How much secrecy needs to be observed?

s
er
What technology is required to deliver or service the product?
●
nk
Ba

Evaluation and testing

of

Arriving at any product idea is not easy; developing an idea to be ready

e

for market is even more difficult. To minimize failure, and to ensure that
ut

only likely successes are pursued, it is beneficial to follow a rigorous

it

evaluation and testing procedure. Marketing management must continually

st

seek viable and profitable new products, but this is a task fraught with
In

risk.
e

For the majority of organizations, the introduction of a new product into

Th

the marketplace involves a considerable investment, both in the

:

development process and in the introductory stage when marketing

of

acceptance has to be won if the product is to succeed.

ty

This investment can represent a considerable slice of an organization's

er

managerial and financial resources and there can be no cast-iron guarantee

op

that the investment will yield an acceptable return.

Pr

What then should be the role of marketing management in attempting

to reduce the uncertainty that surrounds the new product launch? There
are no means of providing crystal ball revelations about prospects for
success or failure in this area, but some procedures can be very helpful
in quantifying the risks implicit in each new product launch.

230 Marketing of Financial Services | Reference Book 1

 The concept test uses interviews with representatives of the target market
to give a broad picture of how acceptable a product concept is to its
potential market. A qualitative screen assesses the product's fit in terms
of the organization's objectives and resources. An economic analysis
examines the detailed economics of the project. A test market is an attempt
to reproduce the conditions of a full scale launch, but on a much smaller
scale.

In commerce and industry, test marketing radically cuts the cost of

launching products by reducing failure. It can also direct promotional
activity on to successful lines. A bank cannot always test market because
customers expect identical products, instantaneously, in all geographical
areas. However, it is possible to identify profile markets for testing new
products after the launch. These would consist of towns or small locations
where the customer characteristics are typical of the larger area or segment.
In yielding data on the acceptability of products, these markets can also
provide guidelines about the level of promotional activity needed elsewhere.
Using test marketing of this kind can help to unearth and eliminate
uncertainties in the early days of the launch.

an
st
Difficulties in developing successful new banking products

ki
Pa
Difficulties relate to the risk of failure by not meeting customer
requirements, the costs involved in developing and promoting a new

s
er
product, the ease with which competitors can copy a new banking product,
nk
the difficulty of finding a significantly new and different product in the
Ba

financial services sector, product training, etc.

of

Many of these difficulties can be lessened by thorough screening, evaluation

and testing.
e
ut

The difference between benefits and products is not just a question of

it

semantics. It is crucial that any financial services organization, wishing

st

to develop its business profitably, should define its scope of activity, present
In

and future, not in terms of the products or services that it offers, but
rather in terms of the benefits that it provides or the problems that it
e
Th

solves.
:

If a company takes too narrow a view of its business, by defining its

of

business as the manufacture of, say, fountain pens, then it may run the
risk of concentrating on becoming better and better at producing fountain
ty

pens while gradually the market is turning to other forms of writing

er

implement.
op
Pr

The alternative approach would be for this company to recognize that

the benefits it provides are in the field of written communication and
that, if better or more cost effective means of providing those benefits
come along, then people will naturally move towards the new product
which makes use of such developments.

New Product Development and Product Life Cycle Strategies 231

 By analogy, there is no point in a financial services organization
concentrating on offering, say, a super-efficient counter service for the
payment of bills if what is wanted by the customer is really a system of
on-line and telephone banking.

Financial services providers must constantly review their product range

by confronting the question: does each product provide relevant and
desired benefits for today's needs?

Answering this question objectively requires knowledge of the market

beyond simple head-counting and demographics. To answer the question,
a financial services provider must regularly conduct benefits-need research.
In the financial services sector, some existing products, like the current
account, which has complete customer acceptance, fills needs already
recognized and identified by the customer. It is rather more difficult to
elicit information on benefits that the customer would ideally like but
which currently are not provided, but it can be done. Through market
research, a group discussion with a sample of customers or by asking
customers to fill in a questionnaire, it is possible to build up a list of

an
benefits which, to a greater or lesser extent, are sought by the users of

st
one of the bank's products. Customers can also be asked what combinations
of these benefits they most prefer.

ki
Pa
In addition, they can be asked to rate existing products according to how
well they provide these benefits. Out of this process can emerge a detailed

s
er
basis for the identification of a new product need - a new type of bank
nk
card, say, or a new type of personal loan with a different ceiling or
Ba

repayment period, or linked to a different type of commodity purchase.

When talking of reformulating or repositioning financial products, it is
of

useful to recall to mind what is the nature of "products" in the finance

sector. The five basic elements of any financial services organization's
e

products are that they are concerned with:

ut
it

● Lending - money lent

st

● Saving - money lodged

In

● Transmitting money
● Protection - insurance
e
Th

● Advice
:

Financial services products are also an example of derived demand.

of

Customers do not generally buy financial products because they want a

loan per se, or because a collection account facility is of itself desirable.
ty

Nearly all financial services products are bought as a means to support

er

some other economic activity. A personal loan may enable a new car to
op

be purchased; a collection account ensures prompt access to receivables,

Pr

themselves derived from the supply of goods or services.

Understanding the underlying motivation for the transaction is yet another

example of the need to view the world through the eyes of the customer,
thereby more accurately ref lecting the needs of those customers.

232 Marketing of Financial Services | Reference Book 1

 Strengths and Weaknesses of Financial Services Organizations' Products

Looking first at the strengths, financial services providers have a great

deal of flexibility in introducing a variety of products. Furthermore, it is
generally true that because of banks' long experience of these operations,
new products can be introduced rapidly, with a short time between initial
concept and customer availability because much of the development is
already there, generated by historical experience.

However, the other side of the coin is that every other bank can also
introduce new products easily. Every product can be rapidly matched by
rivals. Every product risks being duplicated by every other bank. Even if
it is not a direct duplication, every other new product idea can be copied,
and copied fast, by rival banks - and perhaps by other non-banking
institutions, thus making it difficult to build and maintain competitive
advantage.

Product Differentiation

an
The solution to this particular dilemma lies in the process of product
differentiation. The challenge for the bank marketer is to develop some

st
unique quality or characteristic which cannot be readily plagiarised by

ki
the competition.

Pa
An example of successful product differentiation was the NatWest Piggies

s
er
savings product for children. By transforming the intangibility of a savings
nk
account to the tangible qualities of a family of porcelain piggy banks, the
product was differentiated in a way which made direct copying both
Ba

difficult and less successful.

of

Another way of bringing differentiation to financial services is by means

e

of enhancing the image, both of the institution providing the services

ut

and the services themselves. The Marks & Spencer charge card is perceived
it

by customers as providing value and quality, even before they have studied
st

the detail of the product. "Management Today" magazine's annual poll

In

of Britain's Most Admired Companies in 2005 saw a resounding victory

for Tesco for the second time in three years, a reflection of their perceived
e

status in the marketplace.

Th
:

In both these examples we can see the importance of image and the way
of

in which it is linked to brands and branding. It is interesting to note that

in mentioning Marks & Spencer, they have launched a pilot scheme to
ty

change its brand name to "Your M & S" at selected stores for a trial period.
er

The logo appears on carrier bags, window displays and in-store signs as
op

well as in advertising campaigns, and the company will gauge consumer

Pr

response before considering expansion of this re-branding. However, what

makes this more interesting is that this branding reflects the name which
consumers have affectionately adopted for the company for some
considerable time. We have discussed the importance of branding in
earlier chapters.

New Product Development and Product Life Cycle Strategies 233

 Matching Products and Markets

We have already defined marketing as the process of matching an

organization's resources with customer needs.

The product is the vehicle whereby this matching is achieved. Because

the product is central to the fortunes of an organization, the need for a
defined policy towards products is all important. Put at its simplest, the
product will only continue to provide the means whereby the organization's
objectives can be met if it concurrently provides the means whereby
customer needs are met.

The art of successful product management, therefore, must be based on

a clear view of just how the present and future product range will continue
to meet these twin goals of satisfying customer and organization objectives.

As a first stage in successful product management, it is essential to think

of the "product" as a variable in the marketing mix, in the same way that
we might consider price or promotion. Freedom to exploit the product

an
variable largely depends on the internal resources of the organization,

st
the market opportunities and the competitive threats. The technique
most commonly used to assess these factors is strengths, weaknesses,

ki
opportunities and threats analysis (SWOT), which was discussed in detail

Pa
earlier.

s
er
Pertinent questions, which help to establish the appropriateness of an
nk
organization's current strategy, include the following:
Ba

● What benefits do customers seek in this type of product?

of

● Do our products provide these benefits in greater proportion than

e

competitors' products?
ut
it

● What competitive product advantages are causing the organization to

st

gain or lose market share?

In

● Does our product range still provides "value-in-use" to customers in

e
Th

relation to its cost to them?

:

● Does each product in the organization's range still meet the corporate
of

objectives set for it?

ty

The answers to these questions will provide a firm basis for developing
er

a product-market strategy.
op
Pr

Product-market strategy

Very simply, product-market strategy is the totality of the decisions taken

within an organization concerning its target markets and the products
that it offers to those markets.

234 Marketing of Financial Services | Reference Book 1

 "Strategy" implies a chosen route to a defined goal and suggests an
element of long term planning, thus the product-market strategy of a
financial services organization represents a decision as to the current and
future direction of that organization. It looks forward from the market
segmentation issues towards the selection of new products.

Decisions on product-market strategy must be made in the context of a

product range portfolio which, for the organization as a whole, should
contain a suitable balance of growth products, mature products and
declining products. This balance may not be desirable for separate parts
of the organization's operations which serve the needs of one kind of
customer predominantly, but for the organization as a whole, a balanced
portfolio must be built up so that there is a sound base on which to plan
for future development.

Let us first consider the way in which individual products generate profits.

Product Life Cycle

an
Marketing practitioners in the industrial and consumer sectors have made
extensive use of the concept of the product life cycle ever since it first

st
emerged in marketing literature. In its simplest form, the concept suggests

ki
that any product or service moves through identifiable stages during its

Pa
life.

s
er
Introduction into the market marks a period of slow growth when profits
nk
are almost non-existent as the organization still has to recoup the costs
of product development and market introduction. In this early stage, only
Ba

a few people, known as innovators, buy the product. If it is successful, the

of

product then moves into its growth stage when large numbers of people
(the so-called early adopters) account for increasing sales. Repeat purchases
e

grow and word-of-mouth reputation develops. Often, competitor

ut

organizations see a potential market, imitate the product and, by adding

it

their weight to the promotional expenditure, accelerate an increase in

st

the total sales of the product.

In

Figure 4.1: The Product Life Cycle

e
Th
:
of
ty
er
op
Pr

New Product Development and Product Life Cycle Strategies 235

 However, no market opportunity is infinite and, ultimately, the rate of
sales slows as the product moves into its maturity stage of life. At this
stage where there are few new sales to be obtained. Repeat purchases from
loyal customers, along with some customers won from competitors, are
the only sources of a possible increase in sales.

As the product reaches the point of market saturation, there will normally
be no further sales expansion unless the organization modifies its marketing
mix. Eventually the product moves on to the decline stage of its life cycle
where, despite often desperate actions, sales continue to decline as the
product is replaced by a new generation of product innovations.

The Life Cycle Concept and Financial Products

The pattern of the product life cycle means that, in most industries, in
both manufacturing and service sectors, a product typically requires an
injection of cash in the early stages and later goes on to generate cash
which can support the development of new products. But how applicable
is this idea to financial products?

an
st
Financial products are slightly more difficult to analyze using the concept
of the product life cycle, because the cash f low associated with the

ki
development of the product can become confused with the product itself

Pa
- which is usually cash.

s
er
If a bank were to introduce a new personal loan, for instance, its launch
nk
would require cash for promotion purposes, but once the product has
Ba

been successfully launched, the fact that it is a lending product would

mean that there was a continuing cash outflow from the bank. It is less
of

easy to see the point at which a positive cash flow back into the bank
occurs.
e
ut

The case is rather different with a savings product, whose successful launch
it

would mean an immediate inflow of funds into the bank.

st
In

Despite the greater difficulty of applying it, the concept is still a useful
one in the banking context. It enables the marketer to ensure activities
e
Th

are adjusted to meet the different requirements of the bank's products

at different stages of their lives. Careful analysis must first be made of the
:

individual life cycles of the products offered and of the particular markets
of

into which they are being sold.

ty

The importance of the concept lies not in giving hard and fast rules but
er

in providing a framework for developing specific marketing strategies.

op
Pr

Uses of the concept

The product life cycle concept is useful principally in that it focuses

attention on the likely shape of things to come if no action is taken.
An additional useful feature of the concept is that, when a drop in sales
occur, the bank is encouraged to look not just at the promotion, place

236 Marketing of Financial Services | Reference Book 1

 and price elements of the marketing mix but also to examine closely the
product itself:

● Has it passed beyond its growth period?

● Should basic changes in product composition be considered?

Again, an associated close analysis of the particular markets involved is

necessary to arrive at an accurate assessment of the situation. Perhaps it
is possible to change the nature and image of the product and successfully
reposition it in the market.

On the other hand, it may be decided that the product has reached the
end of its profitable life cycle and should be allowed to die. Large amounts
of money that could be spent boosting the image of a declining product
may be better spent on building up a new one.

Whatever the circumstances, an assessment should be made of the stage

of life which individual products have reached so as to determine the

an
most appropriate marketing strategies for those products.

st
Product Architecture

ki
Pa
Product architecture is defined as:

s
er
"Description of the way(s) in which functional elements of a product or
nk
system are assigned to its constituent sections or subsystems, and of the
Ba

way(s) in which they interact." and

of

"The arrangement of functional elements into physical chunks which

become the building blocks for the product or family of products."
e
ut

Figure 4.2: Product Architecture

it
st
In
e
Th
:
of
ty
er
op
Pr

Time

New Product Development and Product Life Cycle Strategies 237

Part Three New Product Development and
Product Life Cycle Strategies
Chapter 5 Pricing Products and Services

Student Learning By the end of this chapter you should be able to:
Outcomes
List factors that need to be considered when setting product prices

Discuss the importance of setting the right price for the product

Describe the process that needs to be adopted while setting financial

product prices

Explain the types of prices charged for banking products

Introduction No decision is more critical than the appropriate price to charge customers.

an
Price is an observable component of the product that results in consumers

st
purchasing or not purchasing it, and at the same time it directly affects

ki
margin per unit sold. Other components of the marketing mix are also
very important, but price is the marketing variable that most often makes

Pa
or breaks a transaction.

s
The Price Decision er
In the economists' view of the world, price is regarded as the chief
nk
determinant of the level of sales of a product. Price is central to many of
Ba

their models and the mechanism whereby prices are set, has become a
major field of study. At the government level too, the price of goods and
of

services is subject to great scrutiny, in this case because of the implications

for inflation and general social welfare.
e
ut

In the light of this external interest in prices, it is perhaps all the more
it

surprising that many organizations adopt relatively unsophisticated

st

approaches to the determination of price, based on some rudimentary

In

formula or rule of thumb. It would appear that only infrequently do

pricing decisions form part of an overall integrated marketing strategy
e
Th

where price is related in some specific way to the achievement of defined

objectives.
:
of

The pricing decision is important in a number of ways but, clearly, its

ty

main importance lies in its effect on profits by determining the revenue

that can be obtained and it also influences demand, thus affecting the
er

volume of business achieved.

op
Pr

Relating pricing objectives to marketing strategy

If an integrated marketing strategy is to be achieved, the pricing decision

must be taken in the light of the objectives underlying that strategy.
Financial service organizations work with a finite resource - capital.
Management must ensure that the resources allocated to them make the

238 Marketing of Financial Services | Reference Book 1

 maximum contribution to those objectives. In making sure that the
pricing and marketing strategy fit, managers must not be frightened of
manipulating price. It is not always the right thing to charge the cheapest
price, as the customer may use price as a determinant of value.

The market position of a product may be considerably affected by

perceptions of its less tangible attributes; for example, a toilet soap may
have connotations of gracious living. Price is one of the marketing mix
elements that will contribute to the product's market position. In the
above situation, for instance, it would hardly be appropriate to set a low
price on the toilet soap; this would bring into question its perceived value.
Equally, when buying a new car, customers seldom set out to buy the
cheapest car they can find; they look to align their budget with whatever
criteria they deem important to meet their personal needs, ie performance,
status, safety, etc.

The price of the product must also relate to its life cycle.

Let us take the example of a new product. On the launching of that

an
product, the financial services provider could opt for a skimming policy

st
by setting a high price or for a market penetration policy by setting a low
price.

ki
Pa
A skimming policy, as the name suggests, is based on entering the market
at a high price and then later, if necessary, lowering the price to gain

s
er
acceptance in other price segments. It is a strategy appropriate to several
nk
circumstances; for example, if a bank feels that it has a sufficient lead over
Ba

its competitors in the introduction of the product and can take advantage
of this lead to achieve an accelerated rate of recovery on its outlay. It is
of

important in a situation of this kind to be aware that a skimming policy

can provide encouragement for other competitors to enter the market.
e

The key to success in these situations is to plan for a steady reduction in

ut

price once an initial market penetration has been established and cost
it

recovery is under way.

st
In

On the other hand, the opposite route could be taken by going for a
penetration pricing policy where the price is deliberately set low with a
e
Th

number of objectives in mind. An initial low price makes it more difficult

for would-be competitors to imitate. A penetration policy also ensures
:

maximum adoption of the product in its early life. The problem associated
of

with such a policy is chiefly the opportunity cost of possible additional

revenue foregone.
ty
er

The appropriateness of either of these policies would be determined to

op

a large extent by the elasticity of demand in the marketplace; that is, the
Pr

responsiveness of demand to changes in price levels. In some markets,

demand does not seem to be affected by price - up to a point, at least.
Deposit account business, for instance, is surrounded by considerable
inertia on the part of depositors. In such circumstances, we say that
demand is inelastic.

Pricing Products and Services 239

 Regardless of how low interest rates fall, there will always be a significant
number of deposit account holders who leave their funds in ordinary
deposit accounts.

On the other hand, some markets are more sensitive to price. Price
elasticity will also depend on the value of the customer's business, and
on the degree of the buyer's financial sophistication. Price elasticity by
itself does not explain the response of markets to price levels, but it should
at least be included as a criterion in the choice of pricing strategy. In the
choice of a skimming policy, for instance, a financial services organization
would need to be sure that it was compatible with the underlying price
elasticity.

A further consideration facing financial services organizations is the

competitive situation. There are established price brackets for their products
at any one time even though they may change over time, sometimes quite
rapidly.

Given the level of competition in the finance sector, the question must

an
be asked: is my organization a price "maker" or a price "taker"? In other

st
words, does the organization's position in the market provides it with
room to maneuver on price?

ki
Pa
Usually, a financial services provider does not have the opportunity to
move significantly away from market norms, but this does not mean that

s
er
it always has to match its competitors' prices exactly. The customer's
nk
evaluation is what matters, and he/she may judge that other facets of the
Ba

organization's offering justify the price, such as particular confidence in

his/her relationship manager. There is always an area for some discretion
of

in pricing policy.
e

Finally, a financial services organization and its managers must recognize

ut

that pricing policies have a strategic importance in the context of sales

it

and market share objectives and the revenue requirements of the rest of
st

the organization's product portfolio. For example, if the chosen market

In

strategy were to establish as quickly as possible a sizeable share of the

market, then sales maximization through a penetration pricing policy
e
Th

would seem to be indicated. In this case, the provider might even decide
that the benefits of market share over-rode the need for initial profitability;
:

that is, that market share should be bought by a deliberate pricing policy.
of

On the other hand, in the case of an established product well into the
ty

maturity stage of its life cycle, the product might be viewed as a source
er

of cash for financing the growth of other products. In these circumstances,

op

the pressure would be to maintain price, and even to increase it at the

Pr

expense of sales and market share.

A financial services organization's market profile should also have an

influence on pricing decisions. In order to avoid damaging its reputation,
an organization may offer a price towards the upper end of the range
which would imply high quality. A reduced price may not necessarily lead
to an increase in the volume of sales. On the contrary, price is seen by

240 Marketing of Financial Services | Reference Book 1

 many customers as an indicator of the product's quality or the value of
the manager's advice.

In this latter context, we are seeing price in its true strategic role as a
variable that enables the achievement of marketing objectives across the
complete product portfolio. The pricing decision on a specific product
should be viewed in relation to the strategic requirements of the financial
services provider's global market strategy as well as in terms of the product's
own needs.

Answering the following questions can aid companies in setting product

prices:

1. What are our competitors' prices?

2. Where is the product in its life cycle?
3. What is our market positioning policy?
4. Is the market developing, saturated or declining? Etc

"Prices" in a Financial Sector Organization's Environment Price can take

an
many forms, and involves setting interest rates, determining fee structures

st
and deciding on charges for bank accounts. When setting prices and
considering their possible effects, it is important to remember that, in the

ki
financial sector, supply and demand changes very rapidly and are subject

Pa
to a great many factors.

s
er
There are two categories of income that are charged from a financial
nk
organization's customer. All types of charges fall under either one of the
Ba

category:
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1. Interest income or Net Interest Income: Net Interest income is basically

the difference between revenues generated by interest-bearing assets
e

and the cost of servicing (interest-burdened) liabilities. For banks, the

ut

assets typically include commercial and personal loans, mortgages,

it

construction loans and investment securities. The liabilities consist

st

primarily of customers' deposits. Interest Income (Net) is the difference

In

between (a) interest payments the bank receives on loans outstanding

and (b) interest payments the bank makes to customers on their
e
Th

deposits.
:

Net Interest Income = (interest payments on assets, interest payments on

of

liabilities)
ty

2. Fee Income: The revenue taken in by financial institutions from

er

account-related charges to customers fall under fee income category.

op

Charges that generate fee income include non-sufficient funds fees,

Pr

overdraft charges, late fees, over-the-limit fees, wire transfer fees,

monthly service charges, account research fees and more.

Unique to the financial sector is the fact that prices must also be set with
regard to the credit standing of the customer. The customer must be

Pricing Products and Services 241

 creditworthy and the company with AAA credit rating can demand the
finest of rates. Other companies will not be in a position to do this because
they are likely to be deemed a greater risk. Risk assessment is always a
consideration in a financial provider's pricing policy. It is a canon of
banking practice that the rate charged should reflect the risk inherent in
the proposal.

Rather than a single price being charged, it is often necessary to set a

range of prices to reflect risk assessments. Traditionally, cost orientation
has been the pricing stance in banking. If costs have risen, the banks have
sought to raise fees and charges in line with costs. At the end of the day,
the prices charged by each financial services provider must be related to
the price it has had to pay in the first place for its funds.

But acceptance of the increasing pressures of competition means that

most financial services organizations have moved towards a market
orientation in pricing.

Reaction to competition not only means that lending margins are eroded,

an
but also has implications for deposit rates, with banks being forced to

st
raise these and to offer interest-bearing cheque accounts, as a response to
the many new initiatives being introduced by new entrants to the financial

ki
services sector.

Pa
Within a total market strategy, it is important to see how price interacts

s
er
with the other elements of the marketing mix. From this we can see the
nk
importance of ensuring that the price set is appropriate to each financial
Ba

services organization's marketing program.

of

Pricing Procedures and Methods

e

In practice, many pricing procedures are based on simple, albeit

ut

unsatisfactory, precepts. Many of these procedures are what might best

it

be termed "cost-oriented". One approach, based on cost, is the target

st

return on costs method, commonly known as the cost plus method of

In

setting prices.
e
Th

Using this approach, a financial services organization would set itself a

target level of profits to be achieved at a given level of sales, such that an
:

adequate return on costs would be obtained. The price would be set at

of

a level which, when multiplied by the number of sales already decided,

would give a total revenue equal to total costs plus say, 25%.
ty
er

The problem with this approach is that it assumes that a given number
op

of sales can be made at a given price, whereas in fact the price itself is
Pr

likely to have some effect on sales. Another problem occurs in some cases
in the determination of total costs.

Costs are often common between products. The allocation of overheads

between products can be difficult to determine; the allocation chosen is
frequently arbitrary for the individual product.

242 Marketing of Financial Services | Reference Book 1

 There is also the danger that the method might lead us to seek a return
on sunk costs; that is, those fixed costs which represent outlays made in
the past and which should have no bearing on the price.

The market-oriented approach to pricing stands in contrast to those

methods which are based mainly on costs. In this approach, costs are
viewed solely as a constraint on the lower limit pricing discretion. The
emphasis here is placed on such notions as what the market will bear,
competitive activity and price/quality perceptions, as well as the overall
strategic marketing goals.

The idea that a product should be priced according to market considerations

rather than cost considerations is not new, but it is surprising how many
managers enter a decision by talking first about costs. In a sense, this is
understandable - costs are tangible inputs to any decision process and
appear to be easily quantifiable.

Market factors are usually harder to pin down. Getting a feel for what the
market will bear can really only come through experience in a product

an
field. It is unlikely that a financial services organization will know enough

st
about its markets to construct precise demand curves. It is more likely to
be able to identify broad bands within which the price will be acceptable

ki
to the majority of the chosen market.

Pa
Some researchers have developed operational methods for determining

s
er
how acceptable price standards might be. They simply ask a representative
nk
sample of the target segment whether they would buy the product at a
Ba

certain price and, if their answer is "no", then they are questioned with
a view to finding out whether the refusal is due to the price being too
of

high or too low (in the sense that the quality of the product might be in
doubt).
e
ut

These researchers have reported that the customer intent on the purchase
it

enters the market not with a set of demand schedules in mind, but simply
st

with two price limits. There is a lower limit below which he/she would
In

distrust the quality of the product and an upper limit beyond which
he/she would judge the product to be unduly expensive.
e
Th

The market-oriented view of pricing attempts to relate the price of the

:

product to the value that the customers believe they will derive from its
of

purchase. One method, known as product analysis pricing, is based on

the concept that the price a buyer pays for a product must be directly
ty

related to the various utilities that the user is seeking from the product.
er
op

Here cost is seen solely as a lower limit below which the long term price
Pr

should not fall. In almost all financial services markets, the competitive
structure of the market inf luences the price decision. Often, pricing
discretion is limited by the fact that a going rate exists in the market and
this single fact of necessity will determine the price at which individual
organizations must operate.

Pricing Products and Services 243

 For the marketing manager, these various aspects of the pricing decision
can be seen as providing a framework for maneuver which can be summed
up as:

● Price should be set above the cost of a product sale, or it cannot make
a profit.

● Price should be set within the limits of what the customer regards as
too low" and "too high" for the product.

● Price should be set with an eye on the going rate but not necessarily
to match it.

● Price should be set remembering that customers may judge quality

by price.

● Price should be set to maximize the financial services organization's

return on its finite resources.

an
These five considerations set the discretionary range for a financial services

st
organization's pricing decisions. As we have seen, even this range of
maneuver might be circumscribed by competitive factors. In addition, it

ki
is often necessary to take into account the effects of government regulations

Pa
and controls on the environment in general, and a pricing decision in
particular, like government controls on interest rates, and so on.

s
er
nk
Overall, it is apparent that the pricing decision is one which has so many
Ba

ramifications for profit and for strategy that it should be taken in the
light of careful analysis of the many factors outlined above.
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

244 Marketing of Financial Services | Reference Book 1

Part Three Developing and Implementing
the Marketing Program
Chapter 6 Pricing Strategies

Student Learning By the end of this chapter you should be able to:
Outcomes
State the product pricing strategies available

Explain the process of selecting the pricing strategy appropriate

for different products

Illustrate the cost analysis at different stages of a product life cycle

Explain the types of costs incurred during the product life cycle

Explain the impact of competition faced for a introducing a product

State the concept of product mix pricing strategy

an
st
ki
Introduction An organization must set a price for the first time it develops a new

Pa
product. The organization must decide where to position its product on
quality and price. In some markets, such as the auto market, as many as

s
eight price points can be found:
er
nk
Segment Example (Automobiles)
Ba
of

Ultimate Rolls-Royce
e

Gold standard Mercedes-Benz

ut

Luxury Audi
it
st

Special needs Volvo

In

Middle Buick
e

Ease / convenience Fo r d E s co r t
Th

Me too, but cheaper Hyundai

:
of

Price alone Kia

ty

There can be competition between price-quality segments. Figure 6.1

er

shows nine price-quality strategies.

op
Pr

Pricing Products and Services 245

 Figure 6.1: Nine Price-Quality Strategies
P
r
o
High Medium Low
d
u High 1. Premium 2. High-value 3. Super-value
c strategy strategy strategy
t
Medium 4. Overcharging 5. Medium-value 6. Good-value
Q strategy strategy strategy
u
a Low 7. Rip-off strategy 8. False economy 9. Economy strategy
l strategy
i
t
y The diagonal strategies (1, 5, and 9) can all co-exist in the same market.
For example, one firm offers a high quality product at a high price, another
offers an average quality product at an average price, and another offers
a low-quality product at a low price.

an
Strategies 2, 3, and 6 are ways to attack the diagonal positions. According

st
to strategy 2, an organization declares that its product has the same high

ki
quality as product 1, but they charge less. Strategy 3 says the same thing

Pa
and offers an even bigger saving.

s
er
Positioning strategies 4, 7, and 8 amount to overpricing the product in
nk
relation to its quality.
Ba

The organization has to consider many factors in setting its pricing strategy.
of

Let's discuss a six-step process for this.

e
ut

Figure 6.2: Setting Pricing Policy

it
st
In

Selecting the pricing

e

objective
Th
:
of
ty

Determining
er
op

Demand
Pr

246 Marketing of Financial Services | Reference Book 1

 Estimating

costs

Analyzing competitors'

costs, prices and offers

Selecting a pricing

method

an
st
ki
Pa
Selecting the final

s
price er
nk
Ba
of

1. Selecting the Pricing Objective

e

The organization first decides where it wants to position its market

ut

offering. The clearer a firm's objectives, the easier it is to set the price. An
it

organization can pursue any of the major objectives through pricing:

st
In

● Survival - Companies pursue survival as an objective if they are plagued

with overcapacity, intense competition, or changing consumer wants.
e
Th

In this case, profits are less important than survival.

:
of

● Maximum current profit - Some companies estimate the demand and

costs associated with alternatives prices and choose the price that
ty

produces maximum current profit, cash flow, or rate of return on

er

investment. This strategy assumes that the organization has knowledge

op

of its demand and cost functions; in reality, these are difficult to

Pr

estimate.

● Maximum market share - Companies wanting to maximize their

market share pursue this strategy. They believe that a higher sales
volume will lead to lower unit costs and higher long-run profit. They
set the lowest price assuming the market is price sensitive. This strategy
is called market penetration pricing.

Pricing Strategies 247

 ● Maximum market skimming - Many organizations favor setting high
prices to "skim" the market. Market skimming makes sense under the
following conditions:

1. A sufficient number of buyers have a high current demand

2. The unit costs of producing small volumes are not so high that they
cancel the advantage of charging what the traffic will bear

3. The high initial price does not attract more competitors to the market

4. The high price communicates the image of a superior product

● Product-quality leadership - An organization might aim to be the

product-quality leader in the market.

2. Determining Demand

Each price will lead to a different level of demand and therefore have a

an
different impact on a company's marketing objectives. Usually the higher

st
the price, the lower is the demand. However, some consumers perceive
a higher price to signify a better product. However, if too high price is

ki
charged, the level of demand may fall.

Pa
Marketers need to know how responsive, or elastic, demand would be to

s
er
a change in price. Demand is likely to be less elastic under the following
nk
conditions:
Ba

1. There are few or no competitors or substitutes

of

2. Buyers do not readily notice the higher price

3. Buyers are slow to change their buying habits and search for lower
e

prices
ut

4. Buyers think the higher prices are justified by quality differences,

it

normal inflation, etc.

st
In

If demand is elastic, sellers will consider lowering the price. A lower price
may produce more total revenue. This makes sense as long as the cost of
e
Th

producing and selling more units does not increase disproportionately.

:

3. Estimating Costs
of

Demand sets a ceiling on the price the company can charge for its product.
ty

Costs set the floor. The organization wants to charge a price that covers
er

its costs of producing, distributing, and selling th product, including a

op

fair return for its effort and risk.

Pr

A company's costs can take two forms, fixed and variable. Fixed costs are
costs that do not vary with production or sales revenue. An organization,
for example, must pay bills for utilities, rent, salaries, etc. regardless of the
output.

248 Marketing of Financial Services | Reference Book 1

 Variable costs vary directly with the level of output. Total costs consist of
the sum of the fixed and variable costs for any given level of production.

Average cost is the cost per unit at that level of production; it is equal to
total costs divided by production. Management wants to charge a price
that will at least cover the total costs at a given level of production.

4. Analyzing Competitors' Costs, Prices, and Offers

Within the range of possible prices determined by market demand and

organization costs, the company must take the competitors' costs, prices,
and possible price reactions into account. If an organization's offer is
similar to a major competitor's offer, then the firm will have to price close
to the competitor. If the organization's offer is inferior, it will have to
charge lesser than the competitor. If the offer is superior to that of
competitor's, the organization can charge more than the competitor. The
organization, however, should take into account how competitors might
react to change in prices.

an
5. Selecting a Pricing Method

st
Given the three Cs - the customers' demand schedule, the cost function,

ki
and competitors' prices - the organization is now ready to select a price.

Pa
Costs set a floor to the price; Competitors' prices provide an orienting
point; Customers' assessment of unique product features establishes the

s
ceiling price.
er
nk
Ba

Organizations select a pricing method that includes one or more of these

three considerations. There are mainly six types of pricing methods
of

available:
e

Markup pricing - The most elementary method involves adding a

ut

standard markup to the product's cost.

it
st

● Target-return pricing - In target-return pricing, the company determines

In

the price that would yield its target rate of return on investment (ROI).
e

● Perceived-value pricing - In perceived-value pricing, organizations base

Th

prices on the customers' perceived value.

:
of

● Value pricing - In value pricing, organizations charge a fairly low price

for a high quality offering. Value pricing says that the price should
ty

represent a high-value offer to consumers.

er
op

● Going-rate pricing - Here, the firm bases its price largely on competitors'
Pr

prices. The firm might charge the same, more, or less than major
competitors.

● Sealed-bid pricing - This is common where firms submit sealed bids

for jobs. The firm bases its price on expectations of how competitors
will price. The firm wants to win the contract, and winning normally
requires submitting a lower price bid.

Pricing Strategies 249

 6 Selecting the Final Price

In selecting the price, an organization must consider additional factors,

including psychological pricing, the influence of other marketing-mix
elements on price, company pricing policies, and the impact of price on
other parties.

Product-Mix Price-setting logic must be modified when the product is part of a product
Pricing mix. In such a case, the organization searches for a set of prices that
maximizes profits on the total mix. Pricing is difficult because the various
products have demand and cost interrelationships and are subject to
different degrees of competition.

We can distinguish six situations involving product-mix pricing:

1. Product-line pricing
2. Optional-feature pricing
3. Captive-product pricing
4. Two-part pricing
5. By-product pricing

an
6. Product-bundling pricing

st
1. Product-Line Pricing

ki
Pa
Organizations usually develop product lines rather than single products
and introduce price steps. Let us consider the following case study.

s
er
nk
Intel
Ba

In the fall of 1997, Intl segmented its product line into micro processors
of

aimed at specific markets, such as cheap PCs, mid-tier "performance"

PCs, and powerful corporate servers. This strategy let Intel balance thin
e

profits from products like the Celerons, which sell for as little as $86 and
ut

go into low-priced PCs, with cash cows like the Pentium II Xeon workstation
it

and server chips, which cost up to $2,000. The company's most profitable
st

chips are the mid-range Pentium IIs, used in 97 percent of all PCs priced
In

over $1,500.
e

In many lines of trade, sellers use well-established price points for the
Th

products in their line. For example, a men's clothing store might carry
:

men's suits at three price levels. Customers will associate low, average,
of

and high quality suits from the three price points. The seller's task is to
establish perceived quality differences that justify the price differences.
ty
er

2. Optional-Feature Pricing
op
Pr

Many organizations offer optional products, features, and services along

with their main product. The automobile buyer can order electric window
controls, light dimmers, defoggers, etc. Pricing these options is an issue
because companies must decide which items to include in the standard
price, and which to offer as options.

250 Marketing of Financial Services | Reference Book 1

 Restaurants also face a similar problem. Restaurant customers can often
order drinks in addition to the meal. Many restaurants price their drinks
high and their food low or normal. The food revenue covers costs, and
the drinks produce the profit. This explains why waiters often press
customers to order drinks.

3. Captive-Product Pricing

Some products require the use of ancillary or captive products.

Manufacturers of razors and cameras often price them low and set high
markups on razor blades and film, respectively.

There is a danger in pricing the captive product too high in the aftermarket.
Caterpillar, for example, makes high profits in the aftermarket by pricing
its parts and service high. This practice has given rise to pirates, who
counterfeit the parts and sell them at low prices.

4. Two-Part Pricing

an
Service organizations often engage in two-part pricing. This consists of

st
a fixed fee plus a variable usage fee. For example, telephone users pay a
monthly fee plus charges for calls beyond a certain area.

ki
Service organizations face an issue similar to captive-product pricing -

Pa
namely, how much to charge for the basic service and how much for the
variable usage.

s
er
nk
The fixed fee should be low enough to induce purchase of the service;
Ba

the profit can then be made on the usage fees.

of

5. By-Product Pricing
e

The production of certain goods, such as meat, petroleum products, and

ut

other chemicals, often results in by-products. If the by-products have value

it

to the customer groups, they should be priced on their value. Any income
st

earned on the by-products will make it easier for the company to charge
In

a lower price on its main product if competition forces it to do so.

Sometimes companies do not realize how valuable their by-products are.
e
Th

6. Product-Bundling Pricing
:
of

Sellers often bundle their products and features at a set price. An auto
manufacturer might offer an option package at less than the cost of buying
ty

all the options separately. A theater company will price a season subscription
er

at less than the cost of buying all the performances separately. Because
op

customers may not have planned to buy all the components, the savings
Pr

on the price bundle must be substantial enough to induce them to buy

the bundle.

Some customers will want less than the whole bundle. Suppose a medical
equipment supplier's offer includes free delivery and training. A particular
customer might ask to forgo the free delivery and training in exchange

Pricing Strategies 251

 for a lower price. The customer is asking the seller to "unbundle" or "re-
bundle" its offer. If a supplier saves Rs.1000 by not supplying delivery
and reduces the customer's price by Rs.800, the supplier has kept the
customer happy while increasing its profit by Rs. 200.

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

252 Marketing of Financial Services | Reference Book 1

Part Three Developing and Implementing
the Marketing Program
Chapter 7 Bank's distribution network and Alternate delivery channels

Student Learning By the end of this chapter you should be able to:
Outcomes
Describe a bank's distribution channel and explain its functions

Discuss the role of branch as a distribution channel

List and discuss the channel design decisions

Discuss the role of alternative delivery channels as points of contact

and sale

Define online marketing

Define electronic commerce

an
Differentiate between online and electronic marketing

st
ki
Discuss the need of adopting online and electronic marketing
strategies and tools for effective marketing

Pa
Recall few examples of the application of 'electronic commerce'

s
in banking industry
er
nk
Ba

Introduction Throughout the world, retail financial markets are changing dramatically
as a result of:
of
e

● the consumer becoming more financially sophisticated, demanding

ut

and generally aware

it
st

● increasing competition brought on by deregulation

In

● technology
e
Th

These changes have led to the financial services organizations exploring

alternative ways of differentiating themselves and their offerings from
:
of

their competitors.
ty

Particular emphasis has been placed on adopting practices of some of the

er

major retailers and supporting these with improvements at branch level

op

in both service quality and promotional activity. We will now explore

Pr

financial services.

Bank's distribution network and Alternate delivery channels 253

 Creating the Retail Environment

The retail environment contains a number of key elements such as:

● outlet location
● outlet ambience
● the merchandise mix
● customer service

Whilst we can isolate these elements, their success depends on how well
they are combined and coordinated. Customer requirements combine to
form the retailing environment and the financial services organization
has to coordinate its activities to create an environment which satisfies
the target market.

The first consideration for the financial services provider is to determine

at whom the retail environment is being targeted. These customers will
have expectations from their financial services provider that the branch
must meet or surpass.

an
st
Customer expectations

ki
Customer expectations are based on what they have seen in advertisements,

Pa
experienced in visits to other retail establishments and heard about when
talking to friends or observing the media.

s
er
nk
Ba

● Customers' expectations of a branch will relate to its location, in as

much as it should be convenient for the target consumers. It should
of

therefore be located close to where they work, shop or live.

e

The customers will seek a familiar and comfortable environment in

ut

which to undertake their financial business. In addition, they will

it

expect a welcoming and attractive environment similar to that which

st

would be expected from any other retail establishment. It should be

In

designed in such a way as to meet their needs, which may involve fast
service tills or ATMs for speedy transactions or even car parking in
e
Th

certain locations.
:

● The speed with which customers have been served has increased in
of

recent years through the introduction of "quick deposit" points in

branches, where customers can deposit lodgments in a secure area and
ty

these are processed later in the day in the back office area. It is also
er

now common to have a member of staff to "walk the queue" at busy

op

times to identify waiting customers who have non-cash transactions

Pr

which they can take from the customer for subsequent processing,
thus saving the customer time, helping the branch adhere to customer
service standards and reducing the queue.

● The customers will have expectations about the corporate, business

or personal products and services which should be available in their

254 Marketing of Financial Services | Reference Book 1

 branch such as foreign exchange, insurance advice or the provision of
new cheque books.

● Customers will have expectations about the greeting they receive from
branch staff, the length of time they have to wait for service and the
quality of service they receive.

All these areas of expectation combine to form the retail environment

which the customers are seeking from the retail establishment or, in this
case, their financial services provider.

Figure 7.1: CREATING THE RETAIL ENVIRONMENT

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th

Based on the corporate and marketing objectives, the financial services

:

provider will draw up a positioning statement creating an identity with

of

which customers and potential customers can identify and feel comfortable.
The positioning statement must ref lect the customer satisfaction
ty

expectations of the targeted customer groups and therefore will take

er

account of location, store/branch ambience, the products required and

op

the level of service expected.

Pr

A hypothetical market positioning statement for a branch might emerge

as:

A branch with appeal to the discerning customer who tends to be

reasonably sophisticated in terms of financial matters. They are likely to
be in senior executive positions or self employed and therefore have

Bank's distribution network and Alternate delivery channels 255

 limited time for visits to bank branches. The branch's offering must be
extensive, particularly in terms of investment and also corporate facilities.
High quality service and advice is a prerequisite, supported by the provision
of fast and efficient service during peak times such as during the busy
lunchtime period.

Given such a statement, management must then decide upon various

policies (merchandise, trading format, customer service and
communications) considered essential for the successful creation of the
appropriate retail environment.

Merchandise Policy

Similar to a retail store, the product/service range at a given branch will

be determined by the profile of the customers and potential customers
in the local catchment area.

Many financial services organizations have adopted the concept of having

major branches located in town and city centers which offer all services,

an
and satellite branches in other locations offering a limited range of services.

st
Customers who require seeing specialists can either visit them at the
major branches or arrange appointments to see them at satellite branches

ki
or in their own homes. Some banks are making a distinction between

Pa
corporate bank branches or business banking centers and personal or
retail bank branches.

s
er
nk
A number of financial services providers are going down the route of
Ba

fully automated branches. Such units provide a range of machines within

the area of the branch which enables the customer to undertake most
of

basic transactions such as deposits, withdrawals, balance enquiries and

inter-account transactions. Members of staff are occasionally on hand to
e

offer assistance.
ut
it

There are also mobile banks which have served rural areas for many years.
st

This has been expanded in certain locations as an alternative against a

In

background of branch closures. In some locations, a branch may not be

viable and therefore a standalone ATM is installed, often within an existing
e
Th

retail store.
:

As this suggests, the merchandise policy for a branch is determined by

of

the customer profile of the local catchment area combined with customer
expectations and what is cost effective for the branch to provide.
ty

In modern retail stores, the product range will also have a sense of
er

compatibility, often having a common theme running through a range;

op

for example, a nautical theme in fashion garments or a health theme in

Pr

a food store.

In the banking sector, attempts have also been made to coordinate product
ranges; for example, The United Bank Ltd coordinates a number of its
products by using the "line" branding in each product's name (e.g.
Cashline, Businessline etc ).

256 Marketing of Financial Services | Reference Book 1

 Retail products are often grouped in a way in which the customer plans
to buy and not necessarily in the conventional departmental arrangements;
for example, curtain materials sold alongside furniture rather than in the
fabrics department. In response to the grouping of house-buying services
by the building societies, banks now put together packages which include
details of mortgages, insurance and personal loans.

The overall presentation of the retailer's products in terms of style, quality

and assortment coordination is critical, with clear positioning and direction
required for ultimate effectiveness. This positioning is also coordinated
with aspects such as display standards, price levels and visual merchandising.
Financial services providers do not have physical products as such, but
they can coordinate the product literature, documentation and related
displays in order to create a coherent sense of style and quality.

Trading Format Policy

Within this heading, decisions are required with regard to:

an
● branch location

st
● facilities made available to customers
branch design

ki
●

Pa
a. Branch location

s
er
Like the major retail stores, financial services organizations have always
put a great deal of time and money into researching a catchment area
nk
prior to selecting a site for a new branch.
Ba

Research of a catchment area involves the following:

of
e

● identifying the demographic characteristics of the population in

ut

potential geographic areas (in terms of factors such as age profile,

it

social class, home ownership levels, etc)

st
In

● examining the main locations for working and shopping in the local
area
e
Th

● identifying the numbers and types of branches of other financial

institutions in the area
:
of

● measuring the levels of awareness of the financial services organization,

ty

and any attitudes towards it, in the local area

er
op

● analyzing pedestrian traffic flows for individual streets (these can be

Pr

purchased from retail property specialists for most shopping areas in

the country)

● considering the quality of neighboring shops, both in terms of potential

banking business opportunities but also in terms of the image of the
local area

Bank's distribution network and Alternate delivery channels 257

 ● assessing the location in relation to the distance to other branches of
the same financial services organization

● analyzing the proximity of potential professional connections (e.g.

lawyers and accountancy practices)

● forecasting levels of profitability.

Each of the above has to be considered, not only when identifying locations
for new branches, but also when moving or closing branches.

b. Facilities

In the retail environment, it has become more common to offer additional

facilities such as restaurants, crèches, banking ATMs and check-out tills
for customers in a hurry, in order to attract certain types of shoppers and
also to improve the shopping experience for all.

Financial services organizations are also offering additional facilities such

an
as out-of-hours banking halls, longer opening hours, automated statement
printers and the separation of business from personal tellers. However,

st
the major problem with increased automation is that in solving one

ki
problem, i.e. the effective provision of 24 hour banking, it creates another

Pa
problem by reducing face-to-face contact and diluting cross-selling
opportunities.

s
er
nk
This goes full circle in that it presents marketing with the challenge of
ensuring that appropriate customers are targeted through other channels.
Ba

Additional services are offered in retail stores to add value to the products
of

and to demonstrate a high level of customer care. Such services include

personal shoppers, assistance from fashion advisers and beauty consultants
e

or the provision of free credit.

ut
it

The financial services organizations themselves offer value-added services

st

in the form of specialized assistance in areas such as investment, trusts,

In

etc in the retail area and in agriculture, property, etc in the business and
corporate sectors.
e
Th

c. Branch design
:
of

Retail stores are designed to create an ambience, tone or character which

reinforces the store’s positioning statements and stimulate the sale of the
ty

merchandise. In this regard, major research has been undertaken into

er

aspects such as space allocation and the optimum balance of obtaining

op

the maximum return per square foot of floor space and the role of space
Pr

in creating an image of exclusivity and quality. As a result, external

designers have been used by many of the major retail stores to create the
most suitable ambience for their outlets.

Many financial services organizations are using the same designers and
consultants to develop open-plan branches which are more welcoming
and less intimidating than the transaction-oriented counter system used

258 Marketing of Financial Services | Reference Book 1

 in the past. Traditionally, as much as 70% of a branch's prime selling area
was behind the counter; the designers were posed the challenge of reversing
this ratio.

In addition, new designs are being used to reflect the positioning of the
organization; for example, Lloyds have attempted to develop a classical
upmarket look for their new branches.

There has to be some uniformity of design throughout the country in

order to provide psychological reassurance to the customer of a familiar
environment - to ensure that the customers feel comfortable when entering
another branch.

A uniform image is almost a form of advertising, providing a recognizable

high profile brand on high streets throughout the country.

Customer Service Policy

For many years, retailers have recognized the importance of customer

an
service in adding value to their existing offering, increasing the relative

st
differentiation between themselves and their competitors, and generating
more revenue. Retail staff regularly attend customer service programs

ki
which are reinforced by weekly and daily sessions in their own branches.

Pa
Almost all of the UK retail financial services organizations have undertaken

s
er
some form of customer service training program with their branch staff.
nk
Ba

For example, Lloyds Bank set up a "Customer First" campaign which had
the following objective:
of

"To heighten employees' awareness of the importance of customer service

e

and encourage staff to look at their jobs as consumers in order to gain

ut

insight into the service they should provide."

it
st

Communications Policy
In

Similar to the major retail chains, the majority of financial services

e
Th

organizations' external promotion is conceived and executed nationally.

However, in both the financial services and retail sectors, branch staff are
:

responsible for some local initiatives such as PR events and point-of-sale

of

displays. If well coordinated and well executed, this combination of

national and local activity can be very successful; if uncoordinated, it can
ty

lead to an organization tarnishing its overall image and reputation.

er
op

Integration
Pr

As we have already seen, there are many similarities between the elements
of retailing and retail financial services, but competitive advantage is
dependent on the successful coordination of these elements into a retailing
environment which satisfies the organization's positioning statement and
the expectations of the customer.

Bank's distribution network and Alternate delivery channels 259

 Service Quality

We will now consider the importance and nature of service quality and
then look at methods of improving quality through training and internal
marketing.

Financial services organizations tend to use the following terms

interchangeably:

● service quality
● customer satisfaction
● customer service

However, they do actually have differences in meaning.

Service quality is the excellence with which an organization meets customer

requirements and expectations, especially in those elements where there
is direct interaction between the customer and the financial services
organization.

an
st
Related to this:

ki
Customer satisfaction is defined as the outcome of the evaluation a

Pa
customer makes with regard to a financial services organization's level
of service quality.

s
er
nk
This suggests that a financial services organization cannot control customer
Ba

satisfaction, but it can influence customer satisfaction through the provision

of excellent service quality.
of

Finally:
e
ut

Customer service can be defined as the activities undertaken by a financial

it

services organization to implement and operationalize excellent service

st

quality.
In

Therefore, as outlined in the following diagram, a financial services

e
Th

organization undertakes customer service activities which are evaluated

relative to customer requirements, leading to a certain level of service
:

quality which in turn leads to customer satisfaction or dissatisfaction.

of
ty
er
op
Pr

260 Marketing of Financial Services | Reference Book 1

 THE INTERRELATIONSHIPS BETWEEN SERVICE QUALITY,
CUSTOMER SATISFACTION AND CUSTOMER SERVICE

Financial services organization

Undertaking customer service activities

Evaluation of service quality by customer

CUSTOMER CUSTOMER
4 7

an
SATISFACTION DISSATISFACTION

st
ki
Pa
Importance of service quality in the financial services sector

s
er
Service quality is one of the key differentiators for success. What makes
a difference? What can you do that makes you better than your competitors
nk
and strengthens your relationship? Remember - think customer! It is the
Ba

one aspect of customer relationship management over which you have

a high level of control in that you probably have limited influence over
of

the structure of the products you offer.

e
ut

Research will provide knowledge of the customer experience; you know

it

what is important to your customers and how they want it delivered. This
st

should enable you to strive to meet their expectations and create long
In

term relationships.
e

Performance cannot be measured by customers in advance, therefore

Th

each contact a customer has with staff, either by mail, telephone or in a

face-to-face situation, is a critical incident through which they form their
:
of

impression of the organization's quality and service.

ty

Additionally, with the exception of possibly ATM and credit card

er

transactions, financial services personnel are an intrinsic part of the service

op

- they provide the advice or process the lodgement. Every person is

Pr

different, therefore the care, attention and responsiveness may also differ
between branches and between individuals within branches.

The financial services organization which can minimize these differences

and ensure a high level of service from all its employees at all times has
a major competitive advantage over its competitors.

Bank's distribution network and Alternate delivery channels 261

 The physical environment of the branch and the systems used are also
critical. If either of these is poor, employees are blamed and consumers
perceive poor quality of service.

Overall, customers' expectations of quality are rising and there is growing

evidence that customers are becoming more critical of poor service.

Branch Promotions

As in so many markets, promotional activities can help perform a vital

role in brand identification. The majority of promotional activity is
conceived and executed nationally, but there is also a role for effective
promotion locally.

In addition to personal selling activity, such promotion can involve:

● public relations activity

● direct mail (this now tends to be limited as it is mostly centralised)
● point-of-sale displays

an
● attendance at exhibitions, agricultural shows, etc.

st
To be cost effective, such promotional activity has to be planned,

ki
coordinated and managed.

Pa
Planning branch or business unit promotions

s
er
nk
The planning process is the same whether the promotional material is
Ba

instigated nationally or at branch/business unit level. However, it is

essential to closely liaise with the centralized marketing function to ensure
of

that all initiatives align with the organization's criteria and direction.
e

Basically, to achieve the branch/business unit's marketing objectives,

ut

careful planning should identify what message to communicate:

it
st

● to whom
In

● by what means
● when
e

● how often
Th

● at what cost
:
of

What message to communicate?

ty

This will be based on the marketing objectives of the branch or business

er

unit. Communication objectives will be set and these may cover elements
op

such as:
Pr

● to introduce a trial/pilot exercise

● to increase usage
● to provide information
● to build differentiation

262 Marketing of Financial Services | Reference Book 1

 ● to increase awareness
● to generate sales
● to select the service/product to be promoted and the manner in which
it is to be positioned.

To whom?

Identify the target audiences based on the branch/business unit

development plan.

By what means?

Identify what communications media are available and assess the most
appropriate for the target audience based on:

● availability
● cost
● its use by competitors
● relevance to target audience

an
● flexibility.

st
When?

ki
Pa
Consider the most appropriate time for the promotional activity to have
the most impact on target audience (eg holiday loans - May/June, student

s
er
accounts - summer months). Remember to ensure activities are
nk
synchronized with any national activity being undertaken.
Ba

How often?
of

The frequency of activity will depend on the objectives and the budget
e

available.
ut
it

At what cost?
st
In

Budgets should be predetermined, as they will have an impact on all the

answers to the other questions. The budget should be balanced against
e
Th

the benefits and likely returns of undertaking the promotional activity.

:

Once these questions have been answered, it is quite common for the
of

branch marketing organizer/branch manager/business unit manager to

plot the various activities on an annual wall chart showing what is being
ty

done, at what time and by whom.

er
op

Finally, the promotional plan, once implemented, should be carefully

Pr

monitored to check if it is achieving its objectives.

Point-of-sale displays

There are two main display areas in most branches/business units - the
windows and the main customer area. Within each of these display areas,

Bank's distribution network and Alternate delivery channels 263

 there will be prime spots that are more visible than others. Each member
of a branch's staff should be aware of where these locations are and these
displays should be continually changed to match the current promotional
activity.

Equally, it should be mentioned, many financial services organizations

have opted to outsource some of these activities to agencies who update
point-of-sales displays in line with the organization's marketing calendar.
This ensures uniformity and maintenance of professional standards.

Different parts of the branch/business unit are more suitable for some
services than others.

For example, credit card literature should possibly be located near foreign
exchange counters and high interest checking accounts promoted in
proximity to personal deposit facilities. When staff are undertaking a
promotion, the relevant literature should be close at hand to ensure they
have ready access to these back-up materials.

an
Although creative displays produced by individual branch staff were

st
encouraged in the past, they have mostly been replaced by professionally
produced posters enhancing the image of the organization and aligning

ki
with other elements of the marketing mix. It is also important that these

Pa
displays are compliant with the current regulatory requirements.

s
Guidelines for branch displays
er
nk
Ba

1 One person should be responsible for the overall look of the display
areas:
of

● to ensure that staff are aware of the services being promoted

e

to synchronize the displays with the main business development

ut

program specified in the branch marketing plan or with national

it

advertising or other special campaign activity.

st
In

2 In a familiar working environment it is easy for branch display areas

to become untidy and neglected.
e
Th

All staff should habitually straighten leaflets, replenish stocks and generally
:

try to see the exterior and interior of the branch as the customer sees it
of

- with a fresh eye.

ty

3 Site-ing of displays is important.

er
op

Some areas of the branch are seen by more people than others.
Pr

Spots where people who are likely to remain stationary for a short
time and can see displays are prime areas; so too are parts of the branch
near to entrance doorways. You can compare this to bars of chocolate
or bargain buys that supermarkets place in the queuing space at their
check-outs.

264 Marketing of Financial Services | Reference Book 1

 4 Change displays regularly, perhaps once a month, and make sure that
supporting material such as posters and brochures ties in with the
services leaflets. It is sometimes beneficial to concentrate on a maximum
of three or four services at a time.

5 Avoid using "Sellotape" and "Blu-tack" fixing materials and do not

allow notices to build up even though some have to be displayed for
statutory reasons; even then, that type of notice should not occupy a
prime sales area.

Overall it should be remembered that branch/business unit displays

increase customer awareness of products/services and they can reinforce
any other advertising or promotional activity being undertaken.

Public relations activity

Public relations is a background activity for a financial services organization

branch and is designed to enhance the organization's position with
specifically targeted audiences in the local geographic area. The key

an
objectives are to obtain editorial coverage, as distinct from paid advertising

st
space in the local press, and a higher profile for the branch, increasing
local awareness and building credibility.

ki
Pa
Specific target markets should be established for local public relations
activity so that the branch's money and effort is not dissipated over a wide

s
er
spread of unfocused activities. For example, the branch may target activities
nk
relating to farmers, young business people and young families rather than
Ba

being simply involved in anything that comes along.

of

The range of possible activities is wide, but could include:

e

the sponsoring of some form of charity event

ut

● staff taking part in a charity event

it

● providing prizes for local competitions

st

● membership of inf luential bodies (eg Rotary Club, Chamber of

In

Commerce)
● public speaking/seminars at local clubs, schools, etc.
e
Th

Although the precise measurement of the effect of these public relations

:

activities is difficult, it is worth comparing the number of mentions a

of

branch receives in the local press and on local radio with that of competing
branches.
ty
er

Finally, full use should be made of advertising the organization's

op

involvement in certain activities with posters in the local financial services

Pr

provider's branch.

Direct mail

The majority of direct mailing activity is undertaken by the centralized

function throughout the financial services sector, but mailing to business

Bank's distribution network and Alternate delivery channels 265

 customers on a small and very selective scale can be effective at a business
unit level. Such mailings may require a telephone follow-up or a visit to
spur the customer into action.

To be effective, direct mail needs to be targeted at specific companies and

at specific named individuals (not "Dear Sir" or "for the attention of the
Managing Director"). Based on any information the branch or business
unit has about the targeted company, it is important to ensure that the
services highlighted in the letter and brochures are relevant to the recipient.

Wherever possible, ease of acceptance of the service should be such that

the customer is not put off by massive form filling, and there should be
a telephone number where customers can seek clarification or make an
appointment.

Exhibitions

Attendance at exhibitions and demonstration stands at seminars can also

be highly effective if targeted properly. For example, a stand at a student
fair, a small trade exhibition or a local agricultural show is not only a

an
good PR exercise for the branch/business unit, but may also allow the

st
staff to talk to people who rarely have time to come into the branch.

ki
Display material for stands at exhibitions is usually supplied by a centralized
function within the organization's head office. The guidelines for branch

Pa
displays set out previously should be followed when setting up an exhibition

s
stand.
er
nk
Assessing branch promotions
Ba

The suitability and quality of branch promotional activity can be assessed

of

by asking the following set of questions for any promotional activity to

be undertaken:
e
ut

● Does the material meet the promotion objectives?

it

● Will it gain target audience attention and interest?

st

● Will it reach the correct audience?

Is the message clear?
In

● Does it have initial impact?

e

● Does it attract attention by identifying customer needs and suggesting

Th

how the organization can satisfy them?

Will it encourage target audience action?
:

●
of

● Is it clear as to what the customer should do next?

● Does the material reinforce corporate communication?
ty

● Is it consistent with other communications issued by the organization?

er

● Does it follow the corporate style?

op

Online Marketing and Ecommerce

Pr

The Internet has a huge influence on the way that organizations market
their business and interact with customers. To ref lect the growing
importance of the internet and technology we will discuss the study of
how these factors have affected the ways in which customers deal with
organizations and vice versa.

266 Marketing of Financial Services | Reference Book 1

 The huge growth of the internet in recent years has altered the way in
which most companies do business. Financial services have not been
immune to this change - in the past, customers would primarily deal with
their bank though the traditional high street branch but this has now
changed. Most financial services organizations have their own websites
which allow customers to obtain information on the products and services
offered.

There are two types of internet banking operations:

● stand-alone internet banks which offer competitive interest rates and

service charges due to lower overheads.

● traditional banks which provide branch, telephone and internet

banking facilities - these are sometimes referred to as "clicks and
mortar" banks.

Advantages of Internet Banking

an
The advantages of internet banking are:

st
● Services are available 24 hours a day, seven days a week.

ki
Pa
● The time and effort it takes to visit branches are removed and customers
can transact their banking from home, office or any site.

s
●
er
Fees are often lower than traditional banking fees.
nk
● Despite concerns about security, the technology ensures the privacy
Ba

and safety of customers' financial information.

of

● Customers can check the balances of their accounts, transfer funds

e

between accounts and make electronic bill payments.

ut
it

As a result of the internet, the ways in which financial services organizations

st

conduct their marketing has changed.

In

The Internet and Marketing

e
Th

A number of terms are associated with transactions on the internet, and

it is useful to look at these before we get into the main content of the
:
of

topic.
ty

The term most commonly associated with trading on the internet is "e-
er

commerce", or "electronic commerce". By this is meant maintaining

op

business relationships, transferring information and conducting transactions

Pr

by way of telecommunications networks. "E-marketing" or "electronic

marketing" is the term used to describe the strategic process of creating,
distributing, promoting and pricing products within the internet
environment.

Bank's distribution network and Alternate delivery channels 267

 By using the internet, the customer can not only conduct transactions,
but also obtain information about the organization and compare one
business or product with another. Depending upon the construction of
the site, the customer may be able to ask questions of the organization,
raise complaints, or engage in market research activities. Many buying
decisions are now informed by information that customers obtain on-
line, thus making it much easier to compare the offerings of one
organization with another.

In the past, this process would be time consuming as the customer would
have to contact each organization individually to request information
and may even have necessitated visiting the organization's premises and
talking to a sales person, before considering whether to buy or not. Now
this information may be accessed at a time convenient to the customer
and normally in the comfort of their home, allowing comparisons to be
made between one business and another before making the buying
decision. The actual purchase may or may not be made on-line.

Indeed for some types of purchase, such as insurance, there are organizations

an
which operate websites where the customer inputs the relevant information

st
and a recommendation results as to the business that will best meet their
stated needs.

ki
Pa
The advent of the internet has also decreased the time it can take for a
financial services organization to relay a decision to the customer.

s
er
Traditionally, a customer looking for credit would have been required to
nk
visit their branch, have a lending application completed and then wait
Ba

for this to be manually underwritten by a member of staff; this process

could take several days. As credit scoring techniques became more
of

sophisticated, this timescale was reduced. Now, with websites, customers

can input their details on-line and have a decision relayed to them
e

immediately, albeit this decision may be subject to some conditions, such

ut

as income verification or the satisfaction of anti-money laundering

it

identification requirements. Not only will the customer receive the

st

decision instantaneously, they may also apply and get a decision at a time
In

that suits them - in the evenings or at weekends.

e
Th

The internet has also altered the geography within which financial services
businesses may operate. Whilst a provider may be located in one area,
:

access to its internet offering is worldwide, and so customers may be

of

drawn from a much wider population than in the past.

ty

The internet has also altered the ways in which many activities within
er

the financial services market are now carried out. In the past, if a customer
op

wished to buy or sell stocks and shares, this would be done via their
Pr

branch, whereas now this type of transaction may be carried out on-line
through a trader.

268 Marketing of Financial Services | Reference Book 1

 The Characteristics of Electronic Marketing

It is important to keep in mind that the process of marketing is the same

whether we are looking at the more traditional ways of marketing or
electronic marketing - we still need to keep a focus on the marketing mix.
However there are some characteristics which differentiate the electronic
marketing environment from the traditional environment, and that is
what we will look at in this section.

These characteristics of electronic marketing are:

● addressability
● interactivity
● memory
● control
● accessibility
● digitalization

Addressability

an
st
By addressability is meant the ability of the organization to identify the
customer before they make a purchase. This is made possible by the

ki
internet as the customer can identify themselves when they visit a site -

Pa
indeed for the type of transactions and purchases that are made on a
financial services website, it will be a necessity for the customer to identify

s
themselves.
er
nk
Ba

The idea of addressability is key to the marketing concept as it will allow

the organization to tailor its marketing mixes to suit the needs of particular
of

customer groups and discover the buying behaviour of particular customers

and customer groups so that its offerings to the needs and wants of these
e

individuals and groups can be targeted. The organization will thus have
ut

a greater chance of making the sale and the customer having their specific
it

needs met.
st
In

It is possible for some websites to store a "cookie" on a visitor's computer.

A cookie is an identifying string of text. It can be used by marketers to
e
Th

track how often a particular user visits the website, what they look at
during the visit and in what sequence. Cookies will also allow the visitor
:

to customize services, such as the virtual trolley.

of

However, this storing of customer information may pose an ethical

ty

problem for the organization, depending upon the ways in which this
er

information is used; for example, if the organization can link the user's
op

interests to a name and address and sell this information to another party.
Pr

Interactivity

A key component of internet trading is the ability of the customer to state

their needs and wants directly to the organization in response to marketing
activity. While it is possible that this could happen in a traditional manner

Bank's distribution network and Alternate delivery channels 269

 - for example, as part of a conversation between the customer and a sales
person - the internet eases this interaction at a lower cost and more quickly.

Memory

This is the ability of the organization to be able to access information

held in databases or data warehouses regarding the individual customer's
profile and past purchasing behavior. This will allow the organization to
customize its marketing to particular customers.

Although organizations have always held information on customers, it

could be difficult to access this information in a useful format; for example,
it was time consuming to trawl through customer records to find useful
information. A further problem that prevailed in the financial services
industry was that information tended to be stored around products rather
than customers.

As a result, it could be comparatively straightforward to identify how

many customers held a particular product, or even information about a

an
particular customer's use of one product, but what could not be identified

st
was the range of products that were used by the one customer, and so
there was only a partial view of the customer. In recent years this has

ki
changed as most organizations use customer identification numbers to

Pa
organize information, therefore it is now much easier to see how many
different products a particular customer has and how these are used.

s
er
nk
Technology will now allow an organization to identify a specific visitor
Ba

to its website immediately, locate that customer's profile on its database,

display the customer's purchasing history and suggest other products or
of

services to the customer while they are still on the site.

e

Control
ut
it

This is about the ability of the customer to control the information that
st

they see on screen, and the rate and sequence in which they view the
In

information.
e
Th

When a customer visits a website, they can determine what information

they view, hence the web is described as a "pull" mechanism. On the
:

other hand, with television and radio, it is up to the organization to

of

determine what the viewer sees, hence it can be described as a "push"

mechanism. Therefore, television and radio give "limited exposure control"
ty

- in other words, the customer sees and hears what the organization wants
er

them to see and hear, until the customer decides to change the situation,
op

that is, they change the channel!

Pr

Marketing on the internet can thus be more challenging - the marketer

has to work hard when developing a website so that when the site is
visited, the customer (or prospective customer) is motivated to stay on
the site. Simply having a website will not be enough; as there are literally
millions of sites that may be visited. As well as having the

270 Marketing of Financial Services | Reference Book 1

 site, the organization must devise strategies to encourage users to visit the
site. One of the ways in which organizations do this is by paying to
advertise on high traffic sites which will be particularly attractive if the
site chosen to advertise on is a "portal" site. A portal site is one which is
used as a gateway to other websites, such as MSN.

Accessibility

As you are well aware, there is a huge amount of information available

on the web. Accessibility refers to the ability to obtain this information.
One of the spin-offs to the development of the web is that customers can
find out far more about the products and services of an organization in
a much shorter space of time than before.

As mentioned earlier, customers will not always use the web to make the
final purchase of the firm's products but rather they may use it to compare
the products, terms and conditions, prices, etc before making the purchase
in a more traditional manner, such as by visiting a branch.

an
A further factor for an organization to consider under the heading of

st
"accessibility" is that of the "uniform resource locator" or URL. This is
their website address. Once a URL is registered, the holder is entitled to

ki
use this as their web address and it cannot be used by another organization,

Pa
therefore if an organization cannot obtain a URL which is close to the
name by which it operates, customers may find it difficult to locate the

s
site, or, once they have, to remember it.
er
nk
Ba

Digitalisation
of

This is the ability of a business to represent its product - or at least some

of the benefits of the product - as digital bits of information.
e

This concept will allow the organization to promote, sell and distribute
ut

aspects of service that are apart from the physical aspect of the product.
it
st

If you post an item by Special Delivery by visiting the Post Office website
In

and keying in the unique reference number for the item, you can find
out the status of the item or indeed when it was delivered and by which
e
Th

post office.
:

There is a similar offering from financial services organizations which

of

allow customers to view the balances of their accounts, make transfers,

etc. It can also be seen with tracker investment products, where current
ty

market valuations of holdings can be seen on-line.

er
op

E-Marketing Strategies
Pr

Having looked at the distinguishing characteristics of carrying out business

on-line, we will now take the analysis a stage further and consider how
these can affect the marketing strategy of the organization.

Bank's distribution network and Alternate delivery channels 271

 As mentioned earlier, the principles of marketing are unaffected by
whether we are operating in a traditional manner or whether the customers
are accessing products and services on-line. The organization still needs
to be able to analyze the target market and produce a marketing mix that
will meet the needs and wants of the customers within this target market.
However, when dealing with e-marketing, there are differences in the way
in which the marketing mix elements are developed and combined to
make up the strategy. Also, as the internet is such a fast paced medium,
there may well be a need for the organization to frequently modify its
e-marketing strategies.

Target markets

In pakistan, the internet usage has seen a drastic increase since the year
2000. In year 2000 number of internet users was 133,900 out of total
population of 163 million. This number has seen a drastic increase and
at year end 2010, estimated internet users are 18.5 million out of the total
population of 177 million (source: IMF). Therefore the internet is a vitally
important way for organizations to reach their customers.

an
st
Product considerations

ki
The web has given organizations a huge opportunity to market their

Pa
products both to households and to other businesses. International Data
Corp tell us that e-commerce business is growing at a rate of 73% per

s
annum.
er
nk
Ba

The websites presented by financial services organizations have altered

the way in which a significant amount of customers communicate with
of

their provider. It is possible for customers to keep a close watch on their

finances on-line and make the appropriate adjustments such as switching
e

funds or altering standing orders and direct debits. In the past, the request
ut

for this information and for the subsequent action would have been
it

routed through their branch.

st
In

While this is an example of the internet being used to deal with traditional
products, there has also been a move to offer particular products and
e
Th

services that are only available on-line. For example, due to the lower
operating costs that are associated with the internet as opposed to a
:

traditional banking operation, some organizations now offer accounts

of

that are only available through their internet arm.

ty

A particular type of savings account may be only be available through

er

the organization's website, and the account pays a higher rate of interest
op

than the account offered through the branch. This will allow the
Pr

organization to compete on a cost basis with an internet-only bank which

can pass on the savings from its lower cost base to the customer by way
of higher interest rates on savings.

272 Marketing of Financial Services | Reference Book 1

 Distribution considerations

The internet is a distribution channel that was not previously available,

and it has allowed the communication between organizations and their
customers to be a much smoother process. As a result, it is much easier
for an organization to find out what its customers' needs and wants are,
as we saw in earlier chapters.

Within financial services, the internet has smoothed the process between
the customer applying for a product and the organization communicating
its decision on this request. It may be that as soon as the customer has
completed their on-line application for a credit facility, the organization
can communicate its decision, albeit in principle. This can also happen
if the customer is looking for a new type of account. The application can
be made through the organization's website and the customer can even
transfer the funds on-line to open up the account. All of this is now
possible without the customer having to visit a branch during business
hours.

an
Promotion considerations

st
As we have discussed, one of the primary functions of the internet is to

ki
allow customers to gather information about the products and services

Pa
that the organization offers and so the internet can be used by organizations
to promote their offerings to the market.

s
er
nk
Every "hit" an organization has on its website is a positive - the user has
Ba

chosen to visit the site and so they must have some level of interest in
what the business has to offer.
of

The internet can also be a very cost effective marketing tool - once the
e

initial investment in the development and launch of the site has been
ut

made, the ongoing maintenance fees are relatively low, especially if

it

compared to a high profile advertisement campaign where every advert

st

has to be paid for, and there is no guarantee that the person seeing the
In

advert has any interest in what the organization has to offer.

e
Th

However, what has to be thought through is how the business is going to

inform the customers about its website and its address. This may be done
:

through promotional material and registering "meta tags" on search

of

engines, so that it is likely that a customer will be directed to the right

website when carrying out a search, advertising on other websites, etc.
ty
er

Pricing considerations
op
Pr

Pricing is the most flexible element of the marketing mix. E-marketing

allows for both price and non-price competition as the consumer now
has more information than ever before about the price and non-price
aspects of an organization's services.

Bank's distribution network and Alternate delivery channels 273

 The use of the Internet in managing customer relationships
While it is possible that the internet can be used by organizations in order
to win one-off sales, this approach is not so relevant within the financial
services sector. Financial organizations look to build and maintain customer
relationships over a long period of time - the customer corridor is a good
example of this. Technology can play an important role in maintaining
and developing this relationship.

The role of technology in customer relationship management (CRM)

CRM should focus on using information about customers to develop and
maintain long term customer relationships. One of the reasons we have
seen an increased focus on CRM in recent years has been due to technology
making it possible for an organization to target individual customers.
The more the organization can meet the needs of the individual consumer,
the less likely it is that the consumer will defect to the competition.

E-marketing allows the organization to carry out one-to-one marketing

more effectively than ever before. The accessibility, interactive nature and
memory of e-marketing can help the organization to identify specific

an
customers, find out about their needs and wants and, by combining this

st
information with the customer's purchase history, devise and develop the
right products at the right time in order to meet these needs.

ki
Pa
This represents a shift in focus from an emphasis on share of market to
share of wallet. This is particularly relevant in financial services as

s
er
organizations seek to sell more products to existing customers. The result
nk
of this will be that the organization will be able to provide a more holistic
Ba

service to the customer and the customer has the convenience of dealing
with one financial services provider, rather than several different
of

organizations.
e

This focus on the share of wallet shows that organizations are realizing
ut

that customers all have different needs and that they do not have equal
it

value to the business. Whilst most businesses have known for a long time
st

that not all of their profits are spread equally throughout all of their
In

customers, technology now means that customers may be profiled in a

much more accurate way than in the past.
e
Th

The aim of the business is to assess the value of customers on an individual

:

basis and so estimate their lifetime value to the organization. Once this
of

information is to hand, the business can see which customers are less
attractive to deal with and plan accordingly. For example, high
ty

maintenance/low value customers may be required to pay additional

er

charges to the organization to cover the higher costs of maintaining their

op

connection. This technique will allow a business to focus its finite resources
Pr

on those customers from whom it is getting the best return.

CRM requirements for success

If CRM is to be successful, then the following must take place:

274 Marketing of Financial Services | Reference Book 1

 ● An analysis of the behaviour and value of different customers or
customer groups and the development of an appreciation of what
really are the customers' experiences of dealing with the company.

● Planning activity and interactions with the customer in order to

maximise the value of the customer base, focusing on retention,
efficiency, acquisition and penetration of the customers.

● Proposition developments to ensure the customer's needs are met and

new customers attracted.

● The use of information and technology to store customer information,

facilitate customer engagement and enable CRM practices to flourish.

● The recruitment, development, motivation and deployment of bespoke

customer management personnel, not just in the company but also
amongst suppliers and channel members.

● Process management to ensure customer management personnel are

an
operating effectively and are harnessed by the rest of the business.

st
Customer management activity, including targeting, enquiry

ki
●

management, welcoming of new or upgrading customers, understanding

Pa
customer characteristics and issues, the development of customers so
that those who require it receive a higher or different level of service,

s
er
the managing of problems customers may have with the business, win-
nk
back activity to redress problems with lost customers.
Ba

● Measurement of the value of their CRM function and personnel. All

of

of the CRM activity should be benchmarked against customer

expectations, competitors' standards and industry’s best practices.
e
ut

An organization must ascertain the nature of the dealings that it has with
it

customers, how the customer perceives these interactions, and the extent
st

to which these perceptions match the customer's expectations. Also an

In

organization needs to alter its ways of dealing with the customer over
time. Because the customer's needs will evolve over time, the organization
e
Th

must also therefore change. CRM is not only about obtaining more
business from existing customers but is also about solving problems that
:

these customers may currently have with the organization.

of

The point is that the organization must be able to develop procedures

ty

for dealing with customers' issues in an appropriate way - otherwise this

er

ongoing relationship will be damaged. If CRM is to be effective, then the

op

organization must be willing to make the investment in learning about

Pr

the customer. Each customer interaction will form the

basis of the next transaction as more and more useful information about
the customer is received. As technology develops, the recording and
retrieval of the information becomes easier and more useful, which in
turn will make target marketing easier.

Bank's distribution network and Alternate delivery channels 275

 CRM systems

If CRM is to be successful, then it must be possible for the organization

to collect, store, analyze and disseminate customer information. The role
of technology will therefore be vital.

Financial services have been quoted as purveyors of best practice in this

regard. Whilst the range of services provided by most organizations is
wide, the customer will quickly become dissatisfied if they find that they
have to deal with a different member of staff for each of the services that
they utilize. Organizations should therefore invest in integrated systems
to allow the member of staff to access information on all of the services
that the customer is using, be it money transmission, home loans, personal
loans, insurance, etc. The result of this is that the customer receives a
seamless service.

If we compare this to the situation in the past when information was

organised around products rather than customers, this retrieval of
information was far more difficult. Information on different products

an
may well have been stored in different physical locations, meaning that

st
the retrieval could take several days.

ki
Technology-driven CRM

Pa
CRM is driven by the need of the organization to have useful information

s
er
to hand for each interaction that the customer has with the business. As
nk
organizations grow and the customer base tends to come from a wider
Ba

and wider geographical area, businesses have become increasingly reliant

upon automated systems to hold this material.
of

By using the technology, the marketers within the organization can

e

analyze dealing between the organization and the customer and identify
ut

what it is doing well and where it can improve its performance. This
it

information can then be passed throughout the organization in order to

st

disseminate best practice and present a more consistent image when

In

dealing with customers.

e
Th

Technology is also useful to identify if front line staff are making the most
of the opportunities presented to them.
:
of

Technology used in a number of financial services call centers will prompt

the adviser to promote named products which seem to meet the needs
ty

of the customer who is currently on the line. Later, if the adviser is

er

reviewing this call with their supervisor, they can view the screen at the
op

same time as they listen to the call and discuss how the adviser dealt with
Pr

the sales opportunity.

Ethical issues in e-marketing

In the final section of this chapter, we will look at some of the ethical
issues that can arise as a result of e-marketing. These issues tend to focus
around privacy and unsolicited e-mail.

276 Marketing of Financial Services | Reference Book 1

 As we have seen, when a user logs on to a website, the organization is
starting to collect information about that person - most commonly by
the use of cookies. There can be a fear amongst customers that this
information will be used improperly. In response to these concerns, some
organizations are restricting the amount of information that they collect.
Although there is little in the way of legislation to address the privacy
issues surrounding e-marketing, the standards that are acceptable for
marketing conduct generally may be applied to e-marketing

In Europe the 1998 European Directive on Data Protection specifically

requires companies that wish to collect personal information must explain
how this information is going to be used and they must also obtain the
individual's consent to use the information. It is also a requirement that
organizations make customer data files available on request. Website
operators are also barred from selling e-mail addresses and using cookies
to track site visitors' movements and preferences without obtaining the
customer's permission first.

As a result of this legislation, companies are not permitted to give personal

an
information about EU citizens to those counties whose privacy laws do

st
not adhere to EU standards. Spam is the term for unsolicited e-mail,
which is likely to be the next target for regulation, as it may be felt that

ki
spam invades the recipient's privacy and uses up some of their resources.

Pa
It is becoming increasingly common for organizations to give customers
the option of opting out of obtaining unsolicited e-mail. In addition,

s
er
many organizations are moving away from sending huge amounts of
nk
unsolicited e-mails in favor of a more targeted approach to customers.
Ba

As the internet continues to grow and evolve, more legal and ethical issues
of

are bound to come to the surface. It is felt that marketers and other users
of the internet should learn to abide by a basic "netiquette". This internet
e

etiquette would ensure that all users can obtain the most out of the
ut

resources available. If this happens, it will allow the great opportunities

it

that are being presented by the internet to foster long term mutually
st

beneficial customer/organization relationships to grow and develop.

In
e
Th
:
of
ty
er
op
Pr

Bank's distribution network and Alternate delivery channels 277

Part Three Developing and Implementing
the Marketing Program
Chapter 8 Integrated Marketing Communication Strategy

Student Learning By the end of this chapter you should be able to:
Outcomes
Discuss the concept of integrated marketing communication
strategy

Define total promotional budget mix

State the emerging trends in the marketing communication arena

Explain how the emerging trends influence the local marketing

communication practices

an
Communication Communication is defined as transmitting, receiving, and processing

st
information.

ki
This definition suggests that when a person, group, or organization

Pa
attempts to transfer an idea or message, the receiver must be able to

s
process that information effectively.
er
nk
Communication occurs when the message that was sent reaches its
Ba

destination in a form that is understood by the intended audience.

of

Integrated Marketing Communications

e
ut

An integrated marketing communications program is based on the

foundation provided by the communications model. Some marketing
it

scholars argue that the integrated marketing communications (IMC)

st

approach is a recent phenomenon. Others suggest the name is new, but

In

the concept has been around for a long time. They note that the importance
of effectively coordinating all marketing functions and promotional
e
Th

activities has been described in the marketing literature for many years.
Integrated marketing communications is defined as follows:
:

“Integrated marketing communications is the coordination and integration

of

of all marketing communication tools, avenues, and sources within an

ty

organization into a seamless program that maximizes the impact on

er

consumers and other end users at a minimal cost. This integration affects
a firm's business-to-business, marketing channel, customer-focused, and
op

internally directed communications.”

Pr

An Integrated Marketing Communications Plan

Integrated marketing begins with the development of a master marketing

plan. The marketing plan is the basis of the total integrated communication
design. The plan provides for the coordination of efforts in all components

278 Marketing of Financial Services | Reference Book 1

 of the marketing mix. The purpose of the plan is to achieve harmony in
relaying messages to customers and other publics. Planning should also
integrate all key promotional efforts, which in turn keeps the company's
total communication program in sync.

Figure 8.1 shows the primary steps required to complete a marketing

plan.

Figure 8.1: The Marketing Plan

● Situation analysis
● Marketing objectives
● Marketing budget
● Marketing strategies
● Marketing tactics
● Evaluation of performance

an
Once the marketing plan has been established, the organization can
prepare its integrated marketing communications program.

st
ki
Developing an integrated marketing communications program is similar

Pa
to constructing a baseball. First, the cork or center becomes the basis for
the rest of the ball. Then string is wound around the cork, followed by

s
er
the leather shell. Finally, lacing holds the leather together.
nk
Let us discuss the components of an integrated marketing communication
Ba

plan. A brief description of each aspect of IMC follows.

of

IMC Components
e
ut

Part of the overall message that a firm sends to consumers is related to

it

how the organization treats its members and the larger society. A portion
st

of any integrated marketing communication plan should include elements

In

that confront ethical and social concerns.

e

The Foundation
Th
:

The promotional analysis part of an IMC plan builds the foundation for
of

an effective IMC. A promotional analysis identifies all target markets of

the communication program. Then comes the organization and brand
ty

image issues. At this point, marketing executives attempt to understand

er

what kinds of brand and firm images are currently being projected and
op

decide whether or not attempts should be made to modify these images.

Pr

Each message sent has an impact on the organization's image. Everything

from commercials, to logos, to letterheads, to publicity affects a company's
image, as do the activities of sales representatives and repair departments.
All communication efforts designed by the marketing department or an
advertising creative should reinforce the desired image.

Integrated Marketing Communication Strategy 279

 The next topic to look into is the nature of consumer buyer behavior.
The steps of the purchasing power can be used to explain how individuals
make choices. Marketers need to identify which motives lead to purchase
decisions and which factors affect those decisions. Then, effective
communication programs indicate the manner in which company efforts
can influence consumers.

Advertising

Advertising management addresses the major functions of advertising

and directs the general path the company will take. Media selection and
advertising design involve matching the message, media, and audience,
so that the right people see/hear/see the ads. Many appeals can be used,
including those oriented towards fear, humor, music, and logic. These
should be conveyed by attractive, credible, likable, authoritative sources.
Advertising must reinforce or project a specific brand or company image,
which evolves out of the marketing plan at the center of the IMC process.

The Promotional Mix

an
st
The next level of activity includes the more traditional marketing elements
of trade promotions, consumer promotions, and personal selling. When

ki
marketing managers carefully design all of the steps taken up to this

Pa
point, the firm is in a better position to integrate consumer and trade
promotions in conjunction with personal selling tactics. Messages presented

s
er
in the advertising campaigns can be reinforced in the trade and consumer
nk
promotions.
Ba

The goal is to fully integrate all communications so that advertising

of

messages are repeated and reinforced.

e

Communication Tools
ut
it

The last step in an IMC program includes more tactical types of promotions.
st

These include public relation efforts, sponsorship programs, database

In

programs, and internet marketing, plus the evaluation of integrated

marketing communication programs. To take advantage of the total IMC
e
Th

concept, it is important to include public relation events and sponsorship

programs.
:
of

New forms of technology have generated tremendous new IMC

opportunities for organizations. The internet and databases should become
ty

an integral part of the IMC programs.

er
op

It is also very important to make decisions about how a communication

Pr

program will be evaluated prior to any promotional campaign so materials

may be designed accordingly.

280 Marketing of Financial Services | Reference Book 1

 Refining the IMC Program

It is very important to realize that integrated marketing communication

is more than a plan or a simple marketing function. IMC should be taken
as an overall organizational process. To be successful, every part of the
marketing operation must be included.

Promotional Budget Mix:

Huge sums of money are spent on promotion every week by companies,

governments and others, all seeking to influence the way we think and
the way we act. Before considering the factors which make this promotion
effective, let us consider how promotion works.

There are five broad considerations, and promotion works through the
mechanism of one or a combination of these factors:

1 Promotion can make the customer familiar with a product or the

organization providing it. This is important because we all have a

an
natural wariness of things which are new or different. Promotion can

st
reassure the customer, such as advising of a brand new company or
a new service not previously offered. Home buyers will be more likely

ki
to approach a mortgage company if they have already become familiar

Pa
with that company's presence in the marketplace through promotion.

s
er
2 Promotion reminds customers of services which are already available.
nk
None of us have perfect memories, and when the time comes to buy
Ba

a particular service, it helps to be reminded of what is available. For

example, without a regular reminder of the availability of a bank loan,
of

the car buyer may well decide to use more expensive hire purchase,
arranged at the car showroom.
e
ut

3 Promotion can change attitudes or promote action by spreading news.

it

By definition, news is something the customer did not previously

st

know. For example, promoting new higher deposit interest rates can
In

cause funds to flow from one organization to another.

e
Th

4 Promotion can help to overcome natural inertia. Customers frequently

have every intention of using a service or buying a product, but
:

somehow don't get round to it. Signing up for a pension scheme may
of

not be a priority for young people, although they would recognize the
benefits which ultimately accrue.
ty
er

5 Promotion adds values which are not of themselves a part of the

op

product. Promotion can contribute positively to the image of an

Pr

organization and its products in a way which is unconnected with

those products. "The Bank That Likes to Say Yes" stimulates a very
positive feeling about the TSB, but does not, for example, commit the
TSB to lending outside its normal credit criteria. This particular
mechanism of promotion is not dissimilar to the way in which branding
works, with value being added to the product in a way that is just not
possible if the basic product attributes are analyzed.

Integrated Marketing Communication Strategy 281

 The Importance of Promotional Objectives

Contrary to much folklore, the effectiveness of promotion can be measured

with some degree of accuracy, provided always that valid objectives have
been set. The need for the objectives must be valid. Before deciding what
promotion needs to be done, it is essential to decide what the objectives
are and what role promotion is expected to play in the overall marketing
effort.

That may seem obvious but it is not always practiced, even when it is
understood.

● Is the promotion expected to underline why the product costs more

than the customer expects?

● Is it to explain some novel or new aspect of the product?

● Is it to overthrow traditional attitudes either to the product or to the

concept of it?

an
● Is it to reassure, to promise national availability or widespread benefits?

st
ki
● Is it to build a specific image?

Pa
A promotional campaign or a mix of campaigns could achieve all these

s
objectives, yet the combination could still lead to a marketing failure.
er
nk
The expensive product may not be available, the available product may
Ba

be too expensive, the novel product may be too novel, not what the
customer wants. The image building can be let down by lack of training
of

at customer contact levels. In such instances, which are not infrequent,

there is little point in laying blame at the door of the promotional activity.
e
ut

The promotional objectives have been achieved, but the customers' hopes
it

have been dashed by the failure of the rest of the marketing activity. The
lesson is to ensure that the promotional objectives are appropriate to the
st

marketing effort overall and that the organization's communications do

In

not over-claim.
e
Th

It is quite possible to communicate effectively but fail to achieve the

marketing objectives of sales, market share and so on. The successful
:
of

achievement of marketing objectives depends also on the satisfactory

iteration of product, price, place, people, physical evidence and process.
ty

In addition, the successful achievement of promotional objectives will

er

only lead to the fulfillment of marketing objectives if the bank has been
correct in its assumptions of how the achievement of the promotional
op

objectives will affect customers' buying decisions.

Pr

Sometimes promotion helps to create more interest in a rival product

than in the organization's own product because the other elements of
the marketing mix have not been adequately coordinated. Thus a
promotional objective might be said to have been achieved if it created

282 Marketing of Financial Services | Reference Book 1

 interest in savings accounts, but to have failed if it merely created an
interest in savings accounts in general rather than in the organization's
own specific savings account.

The Nature of Promotional Objectives

Recent studies have shown that organizations traditionally set four major
types of objective for their promotional activity:

● branding and image building

● education and information
● affecting attitudes
● loyalty reinforcing and reminding

Branding and image building

Whether an organization is engaged in industrial products, consumer

goods or services, it always seeks to communicate an overall image of the
organization and its worth to actual and potential customers. As most
organizations believe that a favorably perceived image creates a constructive

an
environment in which to market their products, they commonly set the

st
building of such an image as a promotional objective. In this instance,

ki
the responses sought from the promotional activity would lie at the

Pa
indirect end of the spectrum of responses.

s
er
They would be concerned with: nk
● stimulating customers to view the organization in the context of their
Ba

needs
of

● recalling and reinforcing previous satisfaction

e

modifying attitudes
ut

●
it

Let us go through the following example of Nestle.

st
In

Nestlé
e
Th

Nestlé's coffee brands have consistently topped the Trusted Brand tables
over the years. In 2006, as well as being the winner in the overall coffee
:

category, it topped the rankings for understanding customer needs, and

of

it was ranked fourth for image.

ty

The brand has been under pressure to innovate due to competition from
er

coffee shops, a decline in the popularity of instant coffee and the

op

development of Fair Trade products in the sector, which appeal to

Pr

consumers' ethical sensibilities. It has risen to the challenge, adding

products such as Nescafe Café Style Coffee for home consumption and
semi-caffeinated products such as Nescafe Gold Blend Half Caff. Last year,
it introduced Partners' Blend, its Fair Trade certified coffee.
Some brands have gained customers' trust purely as a result of their
longevity and familiarity. Others have worked hard to produce their own

Integrated Marketing Communication Strategy 283

 definition of the "rules" of trust around strong image, understanding
customer needs, quality and value. Some have become known due to the
"category" of the components which they choose to associate with, often
failing in the areas in which they have chosen not to focus. A good example
is Ryanair who has built its brand around value. It can get away with
flight delays in a manner that other airlines such as BA would never
achieve.

Before leaving brands, let's look at one final area which we have already
touched upon - celebrity endorsements. This can have wide ranging effects
from significant success to tainting the brand and is well covered in the
following case study drawn from "Marketing" magazine.

Celebrity Endorsements

Persuading a celebrity to endorse a brand is a strategy well used by

marketers to win consumer trust, but, as brands can find out to their cost,
getting the right fit is crucial. If a celebrity loses the public's trust, the
brand can be tainted by association, not to mention the embarrassment

an
of having to drop the celebrity and the waste of an expensive advertising

st
campaign.

ki
Recent examples include Kate Moss, who lost her contract with Burberry

Pa
after revelations about her alleged drug taking, and Churchill Insurance,
which dropped comedian Vic Reeves after he was convicted of drunk

s
driving.
er
nk
Ba

With this in mind, as part of its Trusted Brands research, "Reader's Digest"
has tried to match a list of "trusted" Britons to brands with a high level
of

of trust. A strong "fit" occurs when the people who say they trust a
particular brand are significantly more likely than average to also trust
e

the named Briton.

ut
it

The results throw up some intriguing suggestions: according to the data,

st

David Beckham has a stronger brand fit with Weetabix and Barclays Bank
In

than either Vodafone or Gillette, the brands he currently endorses. While

Asda seems to have got it right with Sharon Osborne, creating a stronger
e
Th

than average fit, Jamie Oliver's endorsement of Sainsbury's is only about

average. And despite current political problems, Tony Blair would
:

apparently be a strong spokesman for a brand such as Beechams cold

of

remedies.
ty

But is this really a good model for looking at celebrity tie-ups? Matt Neale,
er

joint managing director of PR consultancy GolinHarris, says the research

op

may be light-hearted in one sense, but it is a reminder for brands that

Pr

they must consider more carefully the celebrities they choose to endorse
their brand. "Celebrity endorsement is one of the most underplanned of
all marketing disciplines: there are many mismatched celebrity tie-ups,"
he says.

284 Marketing of Financial Services | Reference Book 1

 Neale says some marketing directors are squandering their budgets with
"kneejerk" expensive hiring of celebrities for one-off campaigns - or by
using people who are f leetingly famous - "Big Brother" winners for
example.

He believes the tie-ups that work are those where respected celebrities
consistently support the brand over a number of years, such as Gary
Lineker and Walkers crisps.

However, Nesle warns that even these brands should be careful not to
put the celebrity at the heart of their brand - there is always a chance that
things might go wrong.

Education and information

Organizations generally know far better than their customers what they
are trying to achieve in the way of product performance. In well organized
marketing activity, that performance level will have been set on the basis
of a very close analysis of customer and consumer needs and wants.

an
Ensuring that customers are aware of, and understand, the organization's

st
offering along with the benefits it can potentially bestow, is very important.
It is all too easy to assume prematurely that customers are aware and do

ki
understand.

Pa
Now the emphasis is focused more to direct responses, with at least the

s
er
intention that customers will seek more information. If the promotional
nk
message completely fulfils the customers' need for information, they
Ba

could be persuaded to take the service directly.

of

Affecting attitudes
e

The initial campaign for education and information must be followed by

ut

a campaign to affect potential customers' attitudes in a way favourable

it

to the organisation's output.

st
In

Loyalty reinforcement and reminding

e
Th

The fourth major objective has two dimensions:

:

● reinforcement of loyalty
of

the corollary to loyalty reinforcement - reminder communication.

ty

●
er

On the one hand, an organization wishes continually to reinforce its

op

customers' loyalty to it products. On the other hand, the customers need

Pr

to be convinced that their pattern of habitual behavior is not shortsighted.

The promotional objective in such circumstances will be to reinforce the
feeling that the habit is correct and sensible and does not need breaking.

Customers may not make enough use of their financial services provider.
Failure to remind the customer about the range of products the provider

Integrated Marketing Communication Strategy 285

 has available may well lead to another more recently communicated
message having a greater influence on the customer.

The combination of loyalty and reminder communication is intended to

ensure that any custom generated does indeed come to you rather than
to any other conveniently available financial services organization.

The relative importance of these four major objectives varies according

to the stage of the market and the life cycle of the particular product, the
generation of awareness and the conveyance of information. Later in the
product's life cycle, branding, image, loyalty and reminding take on much
greater significance. The effective marketing operation ensures that
appropriate communication goals are set for each of its products offered.

Measuring Promotional Effectiveness

To measure effectively the success of communications, a systematic

approach must be adopted. There are many factors involved in measuring

an
such effectiveness, including the important areas of objective setting, pre-

st
testing and post-exposure evaluation.

ki
The stages involved in the process of measuring success can be summarized

Pa
as:

s
1. Setting promotional objectives
er
nk
Ba

Promotional objectives become the benchmark against which the

effectiveness of the organization's approach can be measured. As we have
of

discussed previously, these objectives must be clear and must take into
account the fact that communications are only one part of the marketing
e

mix, therefore they must be taken as an integral part of the total marketing
ut

strategy.
it
st

Promotional objectives for products will differ depending on whether

In

the market is static, increasing or declining.

e
Th

Similarly, they may differ according to whether the intention is to change

an attitude in order to gain new customers, or to increase the usage of
:

the product by increasing frequency of purchase among existing buyers.

of

2. Evaluation of ways in which objectives can be implemented

ty
er

It is not enough simply to state an objective as "to increase lending". The

op

objective must be refined in terms of operations, such as increasing fees

Pr

or market share, or total lending by how much, by whom and by when.

Ultimately, what gets measured, gets done!

It is then necessary to decide and research how such an increase can be

achieved.

286 Marketing of Financial Services | Reference Book 1

 3. Appropriation necessary to meet objectives

Assessing the means of achieving objectives must be done alongside

calculations of the appropriations thought necessary to carry out the
strategy. Previous experience will help here, but if the organization has
no experience in the area, the calculations will help ensure that subsequent
activities are carried out according to the overall objective.

4. Message(s) necessary to fulfill objectives

Once target audiences and objectives have been identified, an appropriate

message or messages can be developed. These must be specific - if the
objective is to instill an attitude that the product is particularly suitable
for self employed business people, this message must be conveyed. The
message would be lost if the product were promoted as a product for all
business people.

5. Decision to allocate resources above and below-the-line

an
"Above-the-line" and "below-the-line" are phrases used to differentiate

st
between conventional direct advertising (above-the-line) and other
promotional devices used to support the communication strategy such

ki
as branch displays, window posters, special promotions (below-the-line).

Pa
It is generally agreed that below-the-line expenditure results in short term
sales growth, but does little to build long term loyalty, or increase business

s
over a long period.
er
nk
Ba

Staying above-the-line will commit the financial services organization to

a longer term objective where customer response will not be directly
of

attributable to advertising. Where both above and below-the-line activities

are planned, they must be coordinated to complement each other in the
e

achievement of the main objectives.

ut
it

6. Choice of above-the-line media

st
In

The appropriate media can be determined by historical practice and by

the amount of money available. Organizations should consider periodically
e
Th

whether their particular choice of media is reaching the target audience

and conveying the right message.
:
of

7. Choice of non-media promotional vehicles

ty

Interest can be created using a wide range of below-the-line activities. The

er

target audience and the objectives will help determine the type of below-
op

the-line activity used.

Pr

If the objective is to win new savings accounts among the school population,
for example, it would be appropriate to link a savings scheme to the
collection of breakfast cereal coupons - an idea already tried out by Barclays
in England. On the other hand, if a bank wants to convince the buying

Integrated Marketing Communication Strategy 287

 public that it is concerned for society at large, then its promotional activity
might reflect its sponsorship of the arts or perhaps the Commonwealth
or Olympic Games.

Again, commitment to corporate social responsibility can provide a key

component.

8. Decisions about creativity used in promotional activities

Creativity alone does not sell products. Creativity can ensure that
promotional activity is memorable and therefore more likely to secure
the desired responses. The organization will do well with an advertising
agency which employs great creative flair, but it must ensure that the
correct message is still being conveyed.

The importance of thorough, concise briefing of the advertising agency

cannot be overemphasized. Effort invested at all stages of the briefing
process will ultimately be rewarded with better advertising.

an
9. Pre-testing is sensible insurance against errors in the creative

st
development and execution of ideas

ki
It is a means of checking whether material is technically capable of

Pa
achieving its objectives. It is not a substitute for other research to identify
whether particular promotional objectives are the most appropriate for

s
er
the product or service being promoted. It involves presenting the
nk
promotional material to a sample of the correct target audience of
Ba

customers and measuring their reactions to it.

of

10. Scheduling of advertising and promotion

e

The whole area of media scheduling requires special management. This

ut

can either be left to the specialty of an advertising agency, or taken up

it

within the organization itself. However, because of the complexities

st

involved, the organization will have to be sure that coordinating activities

In

above and below-the-line are given full care and attention.

e
Th

11. Choice of post-exposure evaluation methods

:

As in pre-testing, research methods in post-exposure evaluation involve

of

survey work among potential and actual customers. Whatever objectives

were adopted for the promotional campaign, they should be checked to
ty

see whether they have been achieved. Most customers may well have been
er

aware of the campaign but failed to receive clearly the information that
op

it was intended to communicate, or they may have covered both these

Pr

stages and failed to develop or evolve their attitudes. Promotion and

advertising represents a considerable investment, both in cash terms and
in personnel and management time. Good promotional activity requires
the use of many specialists whose contributions can be coordinated using
the systematic approach detailed above. Ultimately, it is management
who must decide the role of promotion in their marketing mix. It is for
them to judge the value of the promotional investment.

288 Marketing of Financial Services | Reference Book 1

 Changing Marketing Communication

The digital media landscape is changing. Technology develops rapidly and

as it changes, so too does the behavior of its users. Early adopters set the
stage, changing a certain process, and then the mainstream masses start
applying this same behavior.

It is very important to research upcoming PR, marketing and

communication trends that we believe will see fruition in the upcoming
years - trends that have the potential to change certain behaviors in your
target audience.

As you know, we live in a time of nearly endless opportunity for

communicators. This should both excite and perhaps worry all who are
responsible for a company's PR and marketing. You should feel excitement
because it is now possible to engage and interact directly with your target
audience, in a timely and cost-effective manner.

But, this changing media landscape is not without its challenges. PR and

an
marketing professionals that do not adapt to the changing media

st
environment stand the risk of falling behind competitors who dare to try
new things.

ki
Pa
Let us discuss all the factors below:

s
1. Companies become their own Media
er
nk
Ba

Over the past 2 years we have heard more and more companies discussing
the use of Social Media. For a company, social networks allow companies
of

to take out the middleman and become their own media. There is a shift
from the old model of content ownership. Instead of relying on traditional
e

3rd party media to promote and spread their message, companies can
ut

share and take part in a conversation directly with their intended audience.
it

And as a consequence, even more of the PR and marketing budget must

st

shift to online activities.

In

Therefore, a communicator or PR professional needs to discern how to

e
Th

invest in Social Media activities intelligently. This investment will be

based on goals, strategies, and convincing upper management that trial
:

and error will be part of it.

of

Here is an example of a company that has turned itself into a media

ty

house:
er
op

Cisco's Social Media Accounts

Pr

With around 100 Twitter handles, 26 Facebook pages, 300 YouTube

channels, 61 communities and 37 blogs, Cisco has really invested into the
concept of Social Media. They based their social media strategy on the

Integrated Marketing Communication Strategy 289

 "Dandelion", one of Jeremiah Owyang's Frameworks for Social Business.
This model allows flexibility but sacrifices a bit of control. However, in
this arena, control is f leeting and because technologies and people's
behavior change rapidly, it is adaptability that counts.

2. The rise of the fearless communicator

In many ways, PR has not changed. A communicator's job is still about

good writing, finding a good story, coming up with catchy headlines, and
building relationships with the media. The change lies in the medium
for these skills and where the conversations around these stories are taking
place.

According to a recent study by Jeff Mancini, 78% of major corporations

use social media, but only 41% have a strategic digital plan. Nearly 60%
are sending mixed messages through these channels. And so, while
companies are becoming their own media as noted above, they are also
relinquishing control over the spread and interpretation of their messages.

an
The Internet, and social media in particular, has given consumers much

st
more power over a brand's message. PR professionals need to do more
than just package a good story and build relationships. They need to listen

ki
and engage a dynamic, fickle, and very influential audience - their own

Pa
customers.

s
er
This requires a fearlessness and humility, because what happens is that
nk
you are forced to experiment. You have to dabble with trial and error, in
Ba

a very transparent environment that can be subject to intense scrutiny.

On top of that, you will have to deal with managers at the company that
of

might not be willing to take the Social Media step.

e

The example of Cisco above clearly shows a company that is willing to

ut

take that plunge. They have developed strategies to reach their audience,
it

to find where the conversation is happening, and to listen to what their

st

customers are saying.

In

Like Cisco, your Social Media communication tactics have to be flexible

e
Th

and have to follow your audience's behavior and needs.

:
of

3. Internal becomes external

ty

It is believed that "social media has allowed customers to peer directly

er

into the windows of companies and see the people who work inside."
op

With the emergence of the fearless communicator, comes the increase in

Pr

transparency and openness - it's what customers require

from an "engaged" company. Whichever framework for social business
is chosen, your intended audience gains entry to a part of your company
that would otherwise often remain private: its people. The main effect of
this is your employees give your company a face to the name. It makes

290 Marketing of Financial Services | Reference Book 1

 your company personal, but not necessarily private (which is, of course,
a good thing).

Therefore, it is important to identify the internal communicators at your

company. Find those internal stories that can be shared with the public,
bringing your employees to the storefront.

As Joseph Kumar Gross of Allianz says, "more and more, the brand
promise will need to be delivered through the whole organization to
provide a consistent customer experience and create and sustain a
meaningful brand."

4. From B2C and B2B to B2P: Business-to-People

The business world seems to revolve around the traditional Business-to-

Business (B2B) and Business-to-Consumer (B2C) models. But as "internal
becomes external" companies are shifting towards B2P, or Business to
People.

an
st
Marty Homlish at SAP put it this way: "The distinction between B2B and
B2C brands is becoming irrelevant. Behind every business 'B' is a person

ki
who expects a Consumer-like experience." As the lines blur between the

Pa
two concepts, it becomes increasingly clear that a company stops dealing
with a "what" but with a "who".

s
er
nk
And so, you have to be communicative on their terms. Listen to your
Ba

"people" individually, whether they are a business or a direct consumer.

Find out how they want you to engage with them and adapt your business
of

strategies accordingly. Let them interact with your company and use that
as a base to meet their needs and predict their behavior.
e
ut

5. Digital media to go
it
st

We live in a mobile age. "People all over the world are walking around
In

with mini computers in their hands and you can basically let your
imagination run wild with the endless possibilities that offers to the social
e
Th

media industry," Niall Harbison indicates in a recent article. In Sweden

alone, there are 700 000 iPhones (just under 10% of the entire population),
:

not to mention a large part of the population that use smartphones by

of

HTC, Samsung, and Sony Ericsson.

ty

It's important to realize that the rise of mobile phones could mean a
er

further increase in non-web internet usage. Mobile devices are the perfect
op

medium for applications and widgets that run on the internet but do not
Pr

require websites (MSN messenger, Spotify, Tweetdeck, Skype, etc).

This means that you, the communicator, need to start repackaging the
message. Find new and more mobile-friendly methods to reach and engage
with your audience. For example, share videos and images to your audience
for free, which in turn can be shared with their own network. Or create

Integrated Marketing Communication Strategy 291

 mobile phone applications (apps) and think about how to enhance your
news releases for tablet computers.

Also, there are some fascinating things being done with QR codes, which
can be scanned by smart phones and used to unlock enriched media
content like an mp3, video, or digital coupon. We will see a rise in QR
code usage as more and more people start using smart phones.

6. Experimentation with new Business Models

With the leveling of the playing field through the Internet, and the fact
that information is now accessible and can be shared basically for free,
established media is trying to create new business models to stay afloat
in this landscape. One such model is pay wall. Especially newspapers are
dealing with the question: "to pay-wall or not to pay-wall?"

There was quite a lot of discussion surrounding the decision to put up a

paywall on the Times website. The newspaper itself predicted a drop in
traffic by 90%, and in a recent article by BBC, the numbers turned out

an
to be quite close to that. However, the newspaper was quite optimistic

st
about the fact that it had 105 000 subscribers that paid for access to its
content. It's still not anywhere near the revenues that the very open and

ki
very free Guardian.co.uk makes per year(£40 million), but it seems it's

Pa
still too early to conclude whether this strategy failed or succeeded.

s
er
One very interesting theory comes from Rasmus Kleis Nielsen. In his blog
nk
entry on paywalls and online news provision, he states that in order for
Ba

paywalls to be successful, "[newspapers] will require high degrees of

editorial differentiation to convince people to pay for precisely your
of

product and not simply go for the free alternative." This means that
media outlets focusing on a niche market could have a fighting chance,
e

but that those dealing with a broader range of subjects might have
ut

difficulties.
it
st

So how will this affect you, the communicator? As mainstream media

In

starts experimenting with business models that essentially results in a

dwindling audience, you need to start thinking of other ways to reach
e
Th

them.
:

A press release that is picked up by the Times, and published, will not be
of

read by as many people as before. That press release essentially needs a

new home on the web: one that is search engine optimized and whose
ty

contents are easily shareable. Focus on finding websites with open content
er

to publish on and investing in optimizing your own website.

op
Pr

7. Social media is the source

So, how are journalists handling these shifts in the media landscape?
Regardless of whether a newspaper's website has a pay wall or not, the
journalists involved still retain the fundamental task of finding and

292 Marketing of Financial Services | Reference Book 1

 spreading good stories. But now, with the advent and continuous
development of social media and social networks, as well as the increase
in mobile Internet usage, the role of the journalist will be embedded with
the community more than ever.

News outlets and journalists are using this community as the source for
news. To an extent this has always been the case. But social media has
made the process more efficient and immediate. Journalists act as a
community manager in a world of collaborative reporting, where a merger
occurs between source and content provider. They are now required to
do as much listening, sharing, and commenting as everyone else in a
digital community, rather than just telling that community what constitutes
"news".

They still need to wade through tons of material to find that story, but
as social networks makes news more widespread, a journalistic piece is
likely to be the middle of a conversation, rather than the start of one.
What this means is that the original witnesses of the news, rather than
the journalist, becomes the reporter.

an
st
And thus, we move to a network economy, where the network around a
piece of content, rather than the content itself, is most important - and

ki
the journalists are as much a part of this network as the blogger or Twitter

Pa
account that first highlighted the content.

s
er
Therefore, you have to be where the conversation takes place. As a
nk
communicator, you need to find a way to access this network where stories
Ba

relevant to your company are born.

of

8. Bigger. Better. Stronger. More Social.

e

When you think of Social Media, most people think of Facebook. With
ut

500 million users, they are by far the largest social network in the western
it

world. But social media channels such as Orkut (biggest in Brazil and
st

India) or Tencent (520 million users in China) could start claiming some
In

of Facebook's market share.

e
Th

Facebook will continue to develop its product, adding mobile-friendly

and location-based services. However, established giants in the Internet
:

world like Apple and Google will also want in on that highly fruitful
of

market. They will try to find a way to monetize their product while still
keeping it accessible (and social) for everyone. And monetizing is the key
ty

for them. Tencent alone makes over USD 1.4 billion in virtual goods
er

revenue - that's people buying applications, virtual gifts, and other online
op

widgets for use only in Tencent.

Pr

And so, as social networks increase in numbers and increase their service
levels, you are challenged to think "social" for every PR or marketing
activity. If you launch a new product, think of the channels and audiences
you can reach immediately and effectively. It is not enough to add a link
to a press release from your Facebook page. Rethink how you market

Integrated Marketing Communication Strategy 293

 your brand - what would be interesting enough for your social network
to talk about and share? You'll see that suddenly those sneak preview
images you released on Flickr are now available on Twitter, Facebook,
and Wikipedia, and maybe even Friendster or Orkut.

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

294 Marketing of Financial Services | Reference Book 1

Part Three Developing and Implementing
the Marketing Program
Chapter 9 Advertising, Sales Promotion and Public Relation in Banks

Student Learning By the end of this chapter you should be able to:
Outcomes
Define advertising

Discuss the ways in which advertising can be used to promote

banking products

Describe the concept of sales promotion

State some examples of sales promotions used to promote banking

products

Describe the concept of public relations

an
st
Discuss the importance of PR in banking industry

ki
Pa
Describe the concept of Event Management

s
er
Describe the concept of brand activation and discuss its importance
in banking industry
nk
Ba

Explain how the marketing campaign outputs can be measured

of

to ascertain effectiveness
e
ut

Advertising Advertising is defined as the practice of attracting public attention to

it

one's product, service, proposition etc., especially by paid announcements

st

in newspapers and magazines, over radio or television, on billboards, etc.

In

It takes many forms based on the purpose that the company wishes to
achieve. For example, the aim of an advertising campaign could be
e
Th

awareness or reminder etc. The desired result is to drive consumer behavior

with respect to a commercial offering, although political and ideological
:

advertising is also common.

of

Just like every other industry, financial organizations use different forms
ty

of advertising for achieving their targets. Banks today are making use of
er

both ATL (Above the line) and BTL (Below the line) advertising methods
op

to maximize their reach. ATL communications use media that are broadcast
Pr

and published to mass audiences, whereas the BTL communications use

media that are more niche focused. Both ATL and BTL communications
can be used to either build brand awareness or drive sales through specific
offers (promotions), it is BTL communication, however, that gives the
marketer the ability to tailor their messaging in a more personal manner
to the audience. Banks like HBL, UBL, SCB, Bank Al-Falah and others

Advertising, Sales Promotion and Public Relation in Banks 295

 are making use of TV, radio commercials and billboards (ATL) and sales
drives like setting up awareness booths at malls and other public places
and e-mailing product brochures (BTL) etc , to enhance their presence
and public image.

With the advent of new local and foreign banks resulting in increased
competition, survival of the fittest and plethora of options available to
customers , it has now become of utmost importance that banks use
advertising for their survival in addition to the improved service standards.
Everything from banners, product brochures, commercials etc in
combination with attractive product offerings can help boost a bank’s
image, ultimately resulting in enhanced profitability.

Sales Promotion Sales promotion is any initiative undertaken by an organization to

promote an increase in sales, usage or trial of a product or service (i.e.
initiatives that are not covered by the other elements of the marketing
communications or promotions mix). Sales promotions are varied.

Often they are original and creative, and hence a comprehensive list of

an
all available techniques is virtually impossible. Here are some examples

st
of popular sales promotions activities:

ki
(a) Buy-One-Get-One-Free (BOGOF) - which is an example of a self-

Pa
liquidating promotion. For example if a loaf of bread is priced at $1,
and cost 10 cents to manufacture, if you sell two for $1, you are still

s
er
in profit - especially if there is a corresponding increase in sales. This
nk
is known as a PREMIUM sales promotion tactic.
Ba

(b) Customer Relationship Management (CRM) incentives such as bonus

of

points or money off coupons. There are many examples of CRM,

from banks to supermarkets.
e
ut

(c) New media - Websites and mobile phones that support a sales
it

promotion. For example, in the United Kingdom, Nestle printed

st

individual codes on KIT-KAT packaging, whereby a consumer would

In

enter the code into a dynamic website to see if they had won a prize.
Consumers could also text codes via their mobile phones to the same
e
Th

effect.
:

(d) Merchandising additions such as dump bins, point-of-sale materials

of

and product demonstrations.

ty

(e) Free gifts e.g. Subway gave away a card with six spaces for stickers
er

with each sandwich purchase. Once the card was full the consumer
op

was given a free sandwich.

Pr

(f) Discounted prices e.g. Budget airline such as EasyJet and Ryanair, e-
mail their customers with the latest low-price deals once new flights
are released, or additional destinations are announced.

296 Marketing of Financial Services | Reference Book 1

 (g) Joint promotions between brands owned by a company, or with
another company's brands. For example fast food restaurants often
run sales promotions where toys, relating to a specific movie release,
are given away with promoted meals.

(h) Free samples (aka. sampling) e.g. tasting of food and drink at sampling
points in supermarkets. For example Red Bull (a caffeinated fizzy
drink) was given away to potential consumers at supermarkets, in
high streets and at petrol stations (by a promotions team).

(i) Vouchers and coupons, often seen in newspapers and magazines, on

packs.

(j) Competitions and prize draws, in newspapers, magazines, on the TV

and radio, on the internet, and on packs.

(k) Cause-related and fair-trade products that raise money for charities,
and the less well off farmers and producers, are becoming more
popular.

an
st
(l) Finance deals - for example, 0% finance over 3 years on selected
vehicles.

ki
Pa
Many of the examples above are focused upon consumers. Don't forget
that promotions can be aimed at wholesales and distributors as well.

s
er
These are known as Trade Sales Promotions. Examples here might include
nk
joint promotions between a manufacturer and a distributor, sales
Ba

promotion leaflets and other materials (such as T-shirts), and incentives

for distributor sales people and their retail clients.
of

Branch Promotions
e
ut

As in so many markets, promotional activities can help perform a vital

it

role in brand identification. The majority of promotional activity is

st

conceived and executed nationally, but there is also a role for effective
In

promotion locally.
e
Th

In addition to personal selling activity, such promotion can involve:

:

● public relations activity

of

● direct mail (this now tends to be limited as it is mostly centralized)

point-of-sale displays
ty

attendance at exhibitions, agricultural shows, etc.

er

●
op

To be cost effective, such promotional activity has to be planned,

Pr

coordinated and managed.

Planning branch or business unit promotions

The planning process is the same whether the promotional material is

instigated nationally or at branch/business unit level. However, it is

Advertising, Sales Promotion and Public Relation in Banks 297

 essential to closely liaise with the centralized marketing function to ensure
that all initiatives align with the organization's criteria and direction.

a. Point-of-sale displays

There are two main display areas in most branches/business units - the
windows and the main customer area. Within each of these display areas,
there will be prime spots that are more visible than others. Each member
of a branch's staff should be aware of where these locations are and these
displays should be continually changed to match the current promotional
activity.

Equally, it should be mentioned, many financial services organizations

have opted to outsource some of these activities to agencies who update
point-of-sales displays in line with the organization's marketing calendar.

This ensures uniformity and maintenance of professional standards.

Different parts of the branch/business unit are more suitable for some

an
services than others.

st
For example, credit card literature should possibly be located near foreign

ki
exchange counters and high interest chequeing accounts promoted in

Pa
proximity to personal deposit facilities. When staff is undertaking a
promotion, the relevant literature should be close at hand to ensure they

s
have ready access to these back-up materials.
er
nk
Although creative displays produced by individual branch staff were
Ba

encouraged in the past, they have mostly been replaced by professionally

of

produced posters enhancing the image of the organization and aligning

with other elements of the marketing mix. It is also important that these
e

displays are compliant with the current regulatory requirements.

ut
it

b. Guidelines for branch displays

st
In

1. One person should be responsible for the overall look of the display
areas:
e
Th

● to ensure that staff are aware of the services being promoted

:

● to synchronise the displays with the main business development

of

programme specified in the branch marketing plan or with national

advertising or other special campaign activity.
ty
er

2. In a familiar working environment it is easy for branch display areas

op

to become untidy and neglected.

Pr

All staff should habitually straighten leaflets, replenish stocks and generally
try to see the exterior and interior of the branch as the customer sees it
- with a fresh eye.

298 Marketing of Financial Services | Reference Book 1

 3. Siting of displays is important.

Some areas of the branch are seen by more people than others.
Spots where people who are likely to remain stationary for a short time
and can see displays are prime areas; so too are parts of the branch near
entrance doorways. You can compare this to bars of chocolate or bargain
buys that supermarkets place in the queuing space at their check-outs.

4. Change displays regularly, perhaps once a month, and make sure that
supporting material such as posters and brochures ties in with the
services leaf lets. It is sometimes beneficial to concentrate on a
maximum of three or four services at a time.

5. Avoid using "Sellotape" and "Blu-tack" fixing materials and do not

allow notices to build up even though some have to be displayed for
statutory reasons; even then, that type of notice should not occupy
a prime sales area.

Overall it should be remembered that branch/business unit displays

an
increase customer awareness of products/services and they can reinforce

st
any other advertising or promotional activity being undertaken.

ki
c. Public Relations

Pa
An organization must relate to a large number of interested publics.

s
Public is defined as follows:
er
nk
A public is any group that has an actual or potential interest in or impact
Ba

on a company's ability to achieve its objectives. Public relations (PR)

of

involves a variety of programs designed to promote or protect a company's

image or its individual products.
e
ut

A public can facilitate or impede a company's ability to achieve its

it

objectives. PR has often been treated as a marketing stepchild, an

st

afterthought to more serious promotion planning. But a wise company

In

takes concrete steps to manage successful relations with its key publics.
Most companies operate a public relations department. The PR department
e
Th

monitors the attitudes of the organization's publics and distributes

information and communication to build goodwill.
:
of

Usually PR departments perform the following functions:

ty

1. Press relations - Presenting news and information about the

er

organization in positive light.

op
Pr

2. Product publicity - Sponsoring efforts to publicize specific products.

3. Corporate communication - Promoting understanding of the

organization through internal and external communications.

Advertising, Sales Promotion and Public Relation in Banks 299

 4. Lobbying - Dealing with legislators and government officials to
promote or defeat legislation and regulation.

5. Counseling - Advising management about public issues and company

positions and image. This includes advising in the event of a product
mishap.

Marketing Public Marketing managers and PR specialists are often not very well-aligned.
Relations Marketing managers are mostly bottom-line oriented, whereas PR specialists
see their job as preparing and disseminating communications.

However, most companies are now moving towards marketing public

relations (MPR) to directly support corporate or product promotion and
image making.

The old name for MPR was publicity. But MPR goes beyond simple
publicity and plays an important role in the following tasks:

● Assisting in the launch of new products

an
● Assisting in repositioning a mature product

st
ki
● Building interest in a product category

Pa
● Influencing specific target groups

s
Defending products that have encountered public problems
er
● nk
● Building the corporate image in a way that reflects favorably on its
Ba

products
of

Major Decisions in Marketing PR

e
ut

In considering when and how to use MPR, management must establish

it

the marketing objectives, choose the PR messages and vehicles, implement

st

the plan carefully, and evaluate the results.

In

Let us discuss each of these in detail.

e
Th

Establishing the Marketing Objectives

MPR can contribute to the following objectives:
:
of

● Build awareness
ty

● Build credibility
er

● Stimulate sales force and dealers

op

● Hold down promotion costs

Pr

Choosing Messages and Vehicles

The manager must identify or develop interesting stories about the

product. Suppose a relatively unknown college wants more visibility. The
MPR practitioner will search for possible stories. Do any faculty members

300 Marketing of Financial Services | Reference Book 1

 have unusual backgrounds, or are any working on unusual
projects? Are any new courses being taught at the college?

The best MPR practitioners are able to find or create stories on behalf of
even mundane products.

Implementing the Plan

Implementing public relations requires care. Consider placing stories in

the media. A great story is easy to place, but most stories are less than
great and might not get past busy editors.

One of the chief assets of publicists is their personal relationship with

media editors. PR people look at media editors as a market to satisfy so
that these editors will continue to use their stories.

Evaluating Results

MPR's contribution to the bottom line is difficult to measure, because

an
it is used along with other promotional tools. If it is used before the other

st
tools come into action, its contribution is easier to evaluate.

ki
The three most commonly used measures of MPR effectiveness are:

Pa
Number of exposures

s
●

●
er
Awareness, comprehension, or attitude change
nk
● Contribution to sales and profits
Ba

Public Relations Activity

of

Public relations is a background activity for a financial services organization

e

branch and is designed to enhance the organization's position with

ut

specifically targeted audiences in the local geographic area. The key

it

objectives are to obtain editorial coverage, as distinct from paid advertising

st

space in the local press, and a higher profile for the branch, increasing
In

local awareness and building credibility.

e
Th

Specific target markets should be established for local public relations

activity so that the branch's money and effort is not dissipated over a wide
:

spread of unfocused activities. For example, the branch may target activities
of

relating to farmers, young business people and young families rather than
being simply involved in anything that comes along.
ty
er

The range of possible activities is wide, but could include:

op
Pr

● the sponsoring of some form of charity event

● staff taking part in a charity events

● providing prizes for local competitions

Advertising, Sales Promotion and Public Relation in Banks 301

 ● membership of inf luential bodies (eg Rotary Club, Chamber of
Commerce)

● public speaking/seminars at local clubs, schools, etc.

Although the precise measurement of the effect of these public relations

activities is difficult, it is worth comparing the number of mentions a
branch receives in the local press and on local radio with that of competing
branches.

Finally, full use should be made of advertising the organization's

involvement in certain activities with posters in the local financial services
provider's branch.

Event Management

Event management is the application of project management to the

creation and development of festivals, events and conferences.

an
Event management involves studying the intricacies of the brand,

st
identifying the target audience, devising the event concept, planning the
logistics and coordinating the technical aspects before actually executing

ki
the modalities of the proposed event. Post-event analysis and ensuring a

Pa
return on investment have become significant drivers for the event
industry.

s
er
nk
The recent growth of festivals and events as an industry around the world
means that the management can no longer be ad hoc. Events and festivals,
Ba

such as the Asian Games, have a large impact on their communities and,
of

in some cases, the whole country.

e

The industry now includes events of all sizes from the Olympics down to
ut

a breakfast meeting for ten business people. Many industries, charitable

it

organizations, and interest groups will hold events of some size in order
st

to market themselves, build business relationships, raise money or celebrate.

In

Marketing Tool
e
Th

Event management is considered one of the strategic marketing and

:

communication tools by companies of all sizes. From product launches

of

to press conferences, companies create promotional events to help them

communicate with clients and potential clients. They might target their
ty

audience by using the news media, hoping to generate media coverage

er

which will reach thousands or millions of people. They can also invite
op

their audience to their events and reach them at the actual event.
Pr

Services

Event management companies and organizations service a variety of areas

including corporate events (product launches, press conferences, corporate
meetings and conferences), marketing programs (road shows, grand

302 Marketing of Financial Services | Reference Book 1

 opening events), and special corporate hospitality events like concerts,
award ceremonies, film premieres, launch/release parties, fashion shows,
commercial events, private (personal) events such as weddings and bar
mitzvahs.

Clients hire event management companies to handle a specific scope of

services for the given event, which at its maximum may include all creative,
technical and logistical elements of the event. (Or just a subset of these,
depending on the client's needs, expertise and budget).

Event Manager

The event manager is the person who plans and executes the event. Event
managers and their teams are often behind-the-scenes running the event.

Event managers may also be involved in more than just the planning and
execution of the event, but also brand building, marketing and
communication strategy. The event manager is an expert at the creative,
technical and logistical elements that helps an event to succeed. This

an
includes event design, audio-visual production, scriptwriting, logistics,

st
budgeting, negotiation and, of course, client service. It is a multi-
dimensional profession.

ki
Pa
The event manager may become involved at the early initiation stages of
the event. If the event manager has budget responsibilities at this early

s
er
stage they may be termed an event or production executive. The early
nk
stages include:
Ba

● Site surveying
of

● Client Service
● Brief clarification
e

Budget drafting
ut

● Cash flow management

it

● Supply chain identification

st

● Procurement
In

● Scheduling
● Site design
e
Th

● Technical design
● Health & Safety
:
of

An event manager who becomes involved closer to the event will often
have a more limited brief. The key disciplines closer to the event are:
ty
er

● Health & Safety including crowd management

op

● Logistics
Pr

● Rigging
● Sound
● Light
● Video
● Detailed scheduling
● Security

Advertising, Sales Promotion and Public Relation in Banks 303

 Event Management as an Industry

Event Management is a multi-million dollar industry, growing rapidly,

with mega shows and events hosted regularly. Surprisingly, there is no
formalized research conducted to assess the growth of this industry. The
industry includes fields such as the MICE (Meetings, Incentives,
Conventions and Exhibitions), conferences and seminars as well as live
music and sporting events.

The logistics side of the industry is paid less than the sales/sponsorship
side, though some may say that these are two different industries.

Event management software companies provide event planners with

software tools to handle many common activities such as delegating
registration, hotel booking, travel booking or allocation of exhibition
floor space.

Categories of Events

an
Events can be classified into four broad categories based on their purpose

st
and objective:

ki
● Leisure events e.g. leisure sport, music, recreation.

Pa
● Cultural events e.g. ceremonial, religious, art, heritage, and folklore.

s
●
er
Personal events e.g. weddings, birthdays, anniversaries.
nk
Organizational events e.g. commercial, political, charitable, sales,
Ba

product launch, expo.

of

Brand Activation
e
ut

As a unique approach to marketing goods and services, Brand Activation

it

is a concept that integrates elements of emotions, logic, and general

st

thought processes to connect with the consumer. The very goal of Brand
In

Activation is to establish the connection in such a way that the consumer

responds to a product offering based on both emotional and rational
e
Th

response levels. With its will aimed at breaking new grounds, Brandsynario
is proud to bring forth the first ever dedicated Brand Activation section
:

that covers every major experiential brand activation happening in

of

Pakistan. Brand activation is not a theory; it is a natural step in the

evolution of brands.
ty
er

From marketing brands to brand activation

op
Pr

As society moves into post modernism, new companies have evolved and
older ones have reformed their businesses to meet the changing needs of
people and companies. These companies have listened to their customers,
and they have learned that, both as companies and as persons, we perceive
ourselves as individuals with specific needs.

304 Marketing of Financial Services | Reference Book 1

 The enlightened individual is the focal point in the postmodern society.
As Robert Delamar states in his article "Post-modernism, electronic
consciousness and humanness": "Humanity is the center of the postmodern
period; indeed it is helpful to characterize this age as the self-centered
era". Today, people are no longer a massive work force, or manipulated
consumers. Each individual brings competence and ideas valuable for
every kind of commercial business. We look upon ourselves as persons
with individual values and preferential needs. An increasing number of
industries have specialized in meeting the increased complexity of the
individual needs. Staffing service, with companies such as Manpower,
have flourished meeting the demands in a rapidly changing global business
environment where flexibility is key to a lot of companies.

In the meantime, in the highly competitive business climate, developing

and maintaining unique product features has become hard and costly.
Technical progress does not necessarily assure commercial success or
sustainable competitive advantages. Products are becoming more and
more like commodities. According to Naomi Klein, author of the much
debated book "No Logo", leading companies like Nike, Microsoft and

an
Tommy Hilfiger put brands before products claiming that they no longer

st
produce things, but images of their brand. Companies also turn to services
to differentiate themselves in the customer relation. Financial institutes

ki
such as banks have abandoned their diversified strategy with a wide range

Pa
of products and services, where each individual service had its' own selling
point. Instead, they reform their relations to their customer by bundling

s
er
different services and offering financial planning. This strategy is not
nk
based on a specific product portfolio; rather it ref lects a deeper
Ba

understanding of the customers as individuals. One of the basic ideas

behind financial planning is to understand the individuals' financial
of

situation, behavior and needs in order to cater specific services and

products. It is important to mention here, that these new services are not
e

just meant as a new source of income, but also serve as a key differentiating
ut

feature. The American airline Southwest Airlines distinguish themselves

it

from other airlines by having singing flight attendants onboard. "The

st

mission of Southwest Airlines is dedication to the highest quality of

In

Customer Service delivered with a sense of warmth, friendliness, individual

pride and Company Spirit." Not surprisingly, they call it service.
e
Th

Companies desire a stronger relationship with their customers, making

:

it harder to exchange the products for other offers, both on a functional

of

and on an emotional level. In this highly competitive and individual

world companies are increasingly depending on the brand as a competitive
ty

weapon. The brand has become the carrier of the emotional value
er

proposition towards the customers and a symbol of the specific competence

op

that builds up a company's competitive advantage. Thus the brand faces

Pr

new challenges in giving meaning to a company's whole relationship with

the customer.

Traditionally, branding has been a marketing communication tool, a

visual and verbal weapon owned by marketers and marketing consultants.
In order to earn trust and loyalty from the postmodern customer, it is

Advertising, Sales Promotion and Public Relation in Banks 305

 time for the rest of the company to take benefit of the assets embodied
in the brand. Demystify the brand since branding in most cases is driven
from a communication perspective, branding and competence about
branding is still owned and guarded by marketing directors and advertising
agencies. Today a person meets in general 30,000 messages per day, of
which 3000 are branded in some way. Brand strategies have evolved into
complex theories predominantly driven by the communication
environment. According to David C.Court, Mark G. Leiter and Mark A.
Loch, brands do "work" for the customers. In their paper "Brand leverage"
they explain why: "they simplify everyday choices (a shopper who regularly
buys Crest doesn't have to agonize continually over toothpaste), reduce
the risk of complicated buying decisions (IBM mainframes and Boeing
jets are safe choices), provide emotional benefits (Tiffany), and offer a
sense of community (Apple Computer and Saturn)".

Marketers have been eager and successful in developing and exploring

the brand as an asset for communication during the 80's and 90's. Other
organizational competencies have much to learn from marketers when
it comes to adapting and exploring the brand for their specific purposes.

an
As consumers are getting more selective towards brands and products,

st
seeing themselves as individuals with strong values and preferences,
companies that don't live up to communication promises will rapidly

ki
disappear from the consumers mind. This means that companies cannot

Pa
afford not to meet expectations set by the marketing communication.
Therefore, companies would be wise to take control of their brand

s
er
management, and apply it to areas beside the pure marketing function,
nk
instead of putting it in the hands of marketing consultants. We mean that
the brand can be activated in all customer relations, such as the helpdesk,
Ba

in the telephone, in the product or in the design, etc. To be able to do

of

that, it's time to demystify the brand. It's time to make the brand a
common knowledge among all employees; so that it can be a source for
e

innovation and new ideas among all competencies within the organization.
ut
it

What is Brand Activation?

st
In

Brand activation is not a theory; it is a natural step in the evolution of

brands. We believe when all the necessary brand strategies are implemented,
e

companies just need to execute them across the organization and in the
Th

total offer towards the customer. Brand activation is looking deeper into
:

the possibilities within the brand, its strategy and position to find assets
of

that have relevant consequences for the whole company.

A brand can be activated in a range of situations, best summarized in
ty

four cornerstones; Products and services, Employees, Identity and

er

Communication.
op
Pr

An active brand offers products and services that deliver on the brand
position. It meets the customer in a personal manner closely related to
the position. It also has the same appearance independent of interface.
In other words, the customer will perceive the brand as "one coherent
company" whether he or she meets it in digital or analog media, through
a product, face to face or on the telephone. But brand activation is also
communicating the position through advertising.

306 Marketing of Financial Services | Reference Book 1

 What to Activate?

When activating a brand, look for the core features that constitute the
brand. It might be the communicated position or promised customer
benefit, or the company vision or people policy - strategies and tactics
that often are relevant for the whole company. Therefore, effective brand
activation starts with a defined brand. Brand position is a common
definition in these circumstances. Al Ries and Jack Trout first defined the
term in their book "Positioning". Ries and Trout describe the marketing
opportunities of conquering a specific position in the mind of the target
audience. This position must have strategic advantages towards competitors
to be profitable.

Where to Start?

We see the brand position in Aaker's model as a tactical asset when

communicating especially the core identity. Thus the brand position can
change focus without interfering with the core identity. While Aaker
identifies competitive communication strategies from a perfectly working

an
identity system, we search for ways to look deeper into the parts that

st
build up the system. We also look for ways to let the brand make a positive
impact on these areas. Though there are obvious similarities between

ki
Aaker's Brand Identity System and the four cornerstones; Products and

Pa
Services, Employees, Identity and Communication - there are differences.

s
er
The four described cornerstones are not defined from a communications
nk
perspective, i.e. we do not try to find values in these areas worth
Ba

communicating because they strengthen the identified core identity.

Instead, we search for solutions where the brand can support, guide and
of

innovate the company in these four areas. The point is to help companies
become a coherent brand whatever situation or customer relation. When
e

exploring the brand for activation, search for answers to how the brand
ut

can be relevant, adaptable and profitable for the four areas, respectively.
it

There is also an opportunity to add a fourth question; how is this

st

measurable? Though there are numerous well-developed theories and

In

methods for measuring the brand, we choose not to explore this question
further in this paper. But we do want to stress that measurement tools
e
Th

and methods are important indicators of the effects of brand activation

efforts. The questions mentioned - if the brand can be relevant, adaptable
:

and profitable - are not intended to question the validity of a brand.

of

Instead, they shall explore the opportunities within the brand that can
have relevant and meaningful consequences for the four areas. In other
ty

words: there must exist a strategic brand work as platform for brand
er

activation efforts.
op
Pr

Advertising, Sales Promotion and Public Relation in Banks 307

Part Three Developing and Implementing
the Marketing Program
Chapter 10 Personal Selling

Student Learning By the end of this chapter you should be able to:
Outcomes
Define Personal Selling

Differentiate between personal selling and advertising

Explain the personal selling process

Explain the role of personal selling in retail banking

Explain the role of personal selling in corporate banking

Differentiate between personal and mass selling techniques

an
st
State the qualities needed in a successful sales person

ki
Pa
Explain why personal selling is adopted in both retail and corporate
banking

s
er
Discuss the benefits and difficulties of managing sales force for
nk
personal selling products
Ba
of

Explain the compensation methods used to motivate/reprimand

the sales force for banking products
e
ut
it

Introduction Personal selling can be defined as follows:

st
In

Personal selling is oral communication with potential buyers of a product

with the intention of making a sale. The personal selling may focus initially
e

on developing a relationship with the potential buyer, but will always

Th

ultimately end with an attempt to "close the sale".

:
of

It is one of the oldest forms of promotion. It involves the use of a sales

force to support a push strategy (encouraging intermediaries to buy the
ty

product) or a pull strategy (where the role of the sales force may be limited
er

to supporting retailers and providing after-sales service).

op
Pr

Kotler describes six main activities of a sales force:

(1) Prospecting - trying to find new customers

(2) Communicating - with existing and potential customers about the

product range

308 Marketing of Financial Services | Reference Book 1

 (3) Selling - contact with the customer, answering questions and trying
to close the sale

(4) Servicing - providing support and service to the customer in the

period up to delivery and also post-sale

(5) Information gathering - obtaining information about the market to

feedback into the marketing planning process

(6) Allocating - in times of product shortage, the sales force may have
the power to decide how available stocks are allocated

Advantages of using personal selling as a means of promotion

● Personal selling is a face-to-face activity; customers therefore obtain

a relatively high degree of personal attention

● The sales message can be customised to meet the needs of the customer

The two-way nature of the sales process allows the sales team to

an
●

respond directly and promptly to customer questions and concerns

st
ki
● Personal selling is a good way of getting across large amounts of

Pa
technical or other complex product information

s
● The face-to-face sales meeting gives the sales force chance to
demonstrate the product er
nk
Ba

● Frequent meetings between sales force and customers provide an

opportunity to build good long-term relationships
of

Disadvantages of using personal selling

e
ut
it

Possibly the biggest disadvantage of selling is the degree to which this

promotional method is misunderstood. Most people have had some bad
st

experiences with salespeople who they perceived were overly aggressive

In

or even downright annoying. While there are certainly many salespeople

who fall into this category, the truth is salespeople are most successful
e
Th

when they focus their efforts on satisfying customers over the long term
and not focusing own their own selfish interests.
:
of

A second disadvantage of personal selling is the high cost in maintaining

ty

this type of promotional effort. Costs incurred in personal selling include:

er

High cost-per-action (CPA) - As noted in the Promotion Decisions

op

tutorial, CPA can be an important measure of the success of promotion

Pr

spending. Since personal selling involves person-to-person contact,

the money spent to support a sales staff (i.e., sales force) can be steep.
For instance, in some industries it costs well over (US) $300 each time
a salesperson contacts a potential customer. This cost is incurred
whether a sale is made or not! These costs include compensation
(e.g., salary, commission, bonus), providing sales support materials,

Personal Selling 309

 allowances for entertainment spending, office supplies,
telecommunication and much more. With such high cost for
maintaining a sales force, selling is often not a practical option for
selling products that do not generate a large amount of revenue.

● Training Costs - Most forms of personal selling require the sales staff
be extensively trained on product knowledge, industry information
and selling skills. For companies that require their salespeople attend
formal training programs, the cost of training can be quite high and
include such expenses as travel, hotel, meals, and training equipment
while also paying the trainees' salaries while they attend.

● A third disadvantage is that personal selling is not for everyone. Job

turnover in sales is often much higher than other marketing positions.

For companies that assign salespeople to handle certain customer

groups (e.g., geographic territory), turnover may leave a company
without representation in a customer group for an extended period
of time while the company recruits and trains a replacement.

an
st
Objectives of Personal Selling

ki
Personal selling is used to meet the five objectives of promotion in the

Pa
following ways:

s
●
er
Building Product Awareness - A common task of salespeople, especially
nk
when selling in business markets, is to educate customers on new
Ba

product offerings. In fact, salespeople serve a major role at industry

trades shows where they discuss products with show attendees. But
of

building awareness using personal selling is also important in consumer

markets. The advent of controlled word-of-mouth marketing is leading
e

to personal selling becoming a useful mechanism for introducing

ut

consumers to new products.

it
st

● Creating Interest - The fact that personal selling involves person-to-

In

person communication makes it a natural method for getting

customers to experience a product for the first time. In fact, creating
e
Th

interest goes hand-in-hand with building product awareness as sales

professionals can often accomplish both objectives during the first
:

encounter with a potential customer.

of

Providing Information - When salespeople engage customers a large

ty

part of the conversation focuses on product information. Marketing

er

organizations provide their sales staff with large amounts of sales

op

support including brochures, research reports, computer programs

Pr

and many other forms of informational material.

● Stimulating Demand - By far, the most important objective of personal

selling is to convince customers to make a purchase.

310 Marketing of Financial Services | Reference Book 1

 ● Reinforcing the Brand - Most personal selling is intended to build
long-term relationships with customers. A strong relationship can
only be built over time and requires regular communication with a
customer. Meeting with customers on a regular basis allows salespeople
to repeatedly discuss their company's products and by doing so helps
strengthen customers' knowledge of what the company has to offer.

Difference between Personal Selling and Advertising

Advertising and personal selling are two most important methods of

creating and increasing demand for goods and services. These are widely
used throughout the world to introduce the products to the prospective
buyers and pushing the sales. But the two are different from each other
in many ways. The points of difference between the two are as follows:

1. Personal selling involves direct interaction of salesmen with individuals.

Advertising is nonpersonal and is addressed to the customers in
general.

an
2. Personal selling is confined to a particular area; advertisement is

st
generally found to cover a larger number of people.

ki
3. Personal selling involves two way communication. The salesman

Pa
explains his viewpoint to the potential buyer and observes the buyer's
reaction. In advertisement there is one way communication; the

s
er
targeted persons' reactions cannot be known immediately.
nk
Ba

4. Personal selling allows only one channel of transmission of messages

i.e., personal conversation of the salesman with the potential buyers;
of

advertisement offers a wide choice of channels, visual, audio such as

radio and audiovisual such as television.
e
ut

Importance of Selling in Financial Services Industry

it
st

The financial services marketplace is growing all the time. There are all
In

kinds of other financial services providers competing for a "slice of the

cake" that was once the sole property of the high street banks. Apart from
e
Th

building societies, these competitors include a range of new banks, finance

companies and retail organisations who are offering a range of banking
:

services, inclusive of online facilities.

of

As the market is becoming more competitive, to remain profitable, all of

ty

these providers are looking to increase sales penetration with their existing
er

customers as well as to expand and grow that customer base. Therefore,

op

we have sales targets for areas, offices/branches, individual sales targets

Pr

for particular products and targets for staff to pass on customer leads to
more specialized colleagues.

As the ability to sell has become more important for staff, so the way job
performance is measured has changed. An important part of everyone's
performance review is his or her success at selling. So, the better we are
at selling, the better our job performance is going to be.

Personal Selling 311

 Salespeople

No salesperson is successful in every sale that they attempt to make, but

successful salespeople are those who reflect on why they didn't make a
sale, learn from that, and move on.

There are many reasons why the sale is not always made, including:

● the wrong product, for example a credit card to someone who already
has a credit card from your organization

● the wrong time, for example a personal loan to a customer who has
queued for 15 minutes to be served

● not listening to the customer, for example by not asking them the
right questions, or even if you do, by not listening to the answers
properly

● not explaining the product properly, for example talking about the

an
product in terms of general features, rather than by personalising the

st
product to the customer by talking in terms of benefits.

ki
● not dealing with the customers' objections properly - if the customer

Pa
gives us an objection, they can be indicating that they are interested
in our product, but if we don't deal with the objection properly, the

s
er
situation can all too easily escalate into confrontation, or even rejection.
nk
Ba

Good salespeople will listen far more than they talk. It is often said that
we have two ears and one mouth and they should be used in that
of

proportion! It is only by listening that we can identify what the customer

needs and so tailor our communication to meet these needs.
e

If you talk too much, you are not taking the time to present your product
ut

to the customer in a way that is seen to meet their needs. Rather, you are
it

presenting a standard "sales pitch" that will come across as flat and in
st

the same words that you have used with all of the customers you have
In

spoken to that day! You are also demonstrating "foot in the door" selling
techniques and are unlikely to meet with much success.
e
Th

From this section, you have seen that we all have the ability to sell - it is
:

not something that we are born with. However, to be successful at selling,

of

we need to want to be successful and be willing to learn the techniques

involved. We should also be willing to learn from those times when we
ty

are not successful.

er
op

The Personal Selling Process

Pr

The complete personal selling process involves:

● Pre-sales preparation
● Introduction
● Explore and listen
● Identify and agree the customer's needs

312 Marketing of Financial Services | Reference Book 1

 ● Introduce the product(s) to meet these needs
● Overcome objections (objections can occur at any stage in the selling
process)
● Close the sale
● Ask for referrals
● After sales service

Pre-sales preparation

When selling to a customer who has an appointment to see you, the pre-
sales process should be looked upon as an integral part of the selling
process - not something that you can do if you have 5 minutes to spare
before the appointment!

Your success in the interview will be determined to a great extent by how

well you carry out your pre-sales preparation and how you use the
information that you have gained during the preparation.

We all have a natural fear of the unknown - the unknown breed's

an
uncertainty. Preparation allows the successful seller to remove the unknown.

st
You cannot know too much about a customer or a potential customer,
so it helps if we start to gather this information before our meeting.

ki
Pa
The effective salesperson will not only carry out pre-sales preparation,
but will inform the customer that this was completed. This should be

s
er
done in a way that lets the customer know that you have done your
nk
homework, have prepared thoroughly for the meeting and that really
Ba

understanding their needs is important to you - therefore they feel valued.

of

As we discussed earlier, most people have a fear of the unknown and

preparation will remove this element from a meeting and so you will
e

approach it in a confident frame of mind. In addition, customers are more

ut

likely to buy from a salesperson that is professional. By letting the customer

it

know that you have done your homework, you are displaying professional
st

behavior.
In

Preparation will allow you to have an idea of the likely support material
e
Th

that you will need during the conversation with the customer, such as
application forms, leaflets, brochures, illustrations, etc.
:
of

Pre-sales preparation also gives you some of the background information

about the customer that will allow you to start to build a rapport once
ty

you come face to face.

er
op

Finally, by preparing, you are beginning to build up a picture about the

Pr

customer and gain an impression of the types of product that they are
likely to need. However, a word of warning - don't make your mind up
at this stage as to what you consider the extent of your customer's needs.
It is only when you meet the customer and by using the questioning and
listening techniques that we will discuss later that you will be able to
determine their real needs.

Personal Selling 313

 Now that you have carried out the preparation you are now ready to sit
down with the customer and move on to the next stage of the selling
process - the introduction.

The introduction

Remember the maxim that "people buy people", therefore it is worth

spending a little time on the introduction to give you a better chance of
meeting the customer's needs later on in the meeting.
During the introduction, you should:

● greet the customer by name, giving them eye contact

● smile

● shake hands with the customer and tell them your name; remember
the point earlier that you may want to give them you name twice,
for example "Good morning, Mr Customer, my name is Peter, Peter
Adams…"

an
● guide the customer over to the interview room/area

st
● maintain an open body posture; - 55% is how you look and 38% is

ki
how you sound - it is important that you come across in a genuine

Pa
manner to the customer and don't appear to be "going through the
motions"

s
●
er
chat to the customer to build rapport with them - this is where you
nk
can start to use some of the information you gathered during your
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preparation; you may want to chat about their journey to your office,
one of their hobbies or even the weather, but it is best to avoid politics
of

or sports unless you know the customer well!

e
ut

● if your preparation has told you that the customer doesn't like to
it

spend time chatting, you must remember that at this stage

st

● you could ask if the customer would like a cup of tea or coffee.
In

Remember that earlier in the course we spoke about how the negative
e
Th

stereotype of a salesperson is someone who introduces the product too

soon. By having a structured introduction, you can see that you will not
:

fall into this trap but rather, all you are doing at this stage is selling
of

yourself. If the customer has no other connection with your organization,

ty

you will have to start to sell the company to them at this stage.
er

Some of this will have been done even before you meet the customer, for
op

example by brand advertising carried out by your organization or by the

Pr

location and image of your premises.

To sell the company you should mention factors such as:

● the types of market in which your company operates

314 Marketing of Financial Services | Reference Book 1

 ● the organisation itself - is it part of a global financial services group
or is it a small organisation that is proud of the personal service it
can provide to its customers?

● the structure of the company and your place in it - does your role
reflect the fact that your company gives a specialised service? If so,
you should mention this to the customer so that they know that you
and the company are experts in that particular field.

● your company's local representation - how many offices do you have

in the area and what type of services do they provide?

By this stage the customer should be feeling comfortable and you have
started the interview on a positive footing.

Explore and listen

This is a vital stage in the process - it is only when we ask the customer
questions and listen to what they say to us, that we can identify their
financial needs and decide what products we have that could help the

an
customer to satisfy these needs.

st
ki
It is important to emphasise that we cannot make assumptions about

Pa
what the customer's needs are likely to be; we must allow them to tell
us. For this approach to be successful we must listen to what the customer

s
er
is really saying - not what we think they are going to say!
nk
When we explore and listen we are communicating with the customer.
Ba

Communication can be described as:

of

"the interchange of thoughts, opinions, or information by speech, writing,

e

or signs" (Anderson, 1992)

ut
it

The key word is "interchange". For communication to work it must be

st

a two-way process - in other words, there must be feedback. Think about

In

a radio: it doesn't communicate as it only sends its message one way, so

there is no feedback. Imagine if a radio is on in an empty room - it is
e

carrying out a pointless activity.

Th

Similarly, when we sell, we must communicate - there should be a dialogue

:
of

between the seller and the customer. It's often said that a successful
salesperson has "the gift of the gab", but if a salesperson is doing all the
ty

talking, they are not finding out what the customer needs and cannot let
er

that customer see what their product can do for them. As a result, the
op

salesperson who does all the talking is unlikely to get many sales.
Pr

We communicate in two ways: verbally and non-verbally. Non-verbal has

by far the greatest impact, accounting for two thirds of our communication.

To be successful at identifying customer needs, we must be excellent

listeners and to be excellent listeners we must ask the right questions.

Personal Selling 315

 An open question is one that cannot be answered with a simple "yes" or
"no". Open questions always begin with one of the following words:

● Who
● What
● Where
● When
● Why
● How

Open questions are used to gather information from the customer therefore
they are the predominantly used questions during the explore and listen
phase of the selling process. Open questions allow the customer to tell
you their current situation, their aspirations, their current financial
products, their financial and lifestyle goals, etc. This is all vital information
for you to use in the next stage of the selling process, when you identify
and agree to their needs.

There are two further points to keep in mind about open questions:

an
● Once you have asked the question, let the customer talk. There is

st
often a temptation to answer the question for the customer, especially
if they seem a little reticent. If you listen to people talking, you will

ki
be amazed at how often an open question is asked and then the

Pa
person asking the question goes on to answer it. For example: "what
kind of car are you going to buy with your car loan - the same make

s
as your last one?"
er
nk
Ba

● Silence can be an effective open question. Unless they know the other
person really well, most people find silence uncomfortable within a
of

conversation. This is especially true if they feel that they are in a tense
situation (like being in their first sales interview). If you want the
e

customer to expand on what they have just said, the best policy is to
ut

say nothing. In a very short space of time, the customer will start
it

talking again to break the silence.

st
In

There are obviously lots of questions that you could ask. Here are five:
e
Th

● What are your financial goals for the next 10 years?

What are your plans for retirement?

:

●
of

● When will your children go to university?

ty
er

● What improvement plans do you have for your home?

op
Pr

● How do you plan to repay your mortgage?

The opposite question to an open question is a closed question which the

other person can answer fully with a simple "yes" or "no". Closed questions
have their place in the selling process when you are looking for the
customer to confirm information. They can be put to particularly good

316 Marketing of Financial Services | Reference Book 1

 effect when overcoming objections or closing the sale. Closed questions
are not so effective during the 'explore and listen' phase as they will
restrict the amount of information that you are gathering in from the
customer. Many salespeople fall into the trap of asking too many closed
questions, but with a little thought, you can change these into open
questions.

We all communicate non-verbally and we have done it since we were

born. Most babies cry from the moment they are born and at this point
they are communicating hunger, fear, cold, etc. We communicate non-
verbally in the following ways:

1. Body movement

If you move around in an erratic way, you can communicate nerves

to the customer, which may make them doubt your ability. On the
other hand, leaning slightly forward can create interest. Crossing your
arms and legs whilst also turning your shoulder towards the customer
is a very defensive position to adopt.

an
st
2. Facial expression

ki
You should match your facial expression to the message you

Pa
are communicating, so if you have to turn a customer down for a
loan, you shouldn't smile as you tell them! Frowning can make a

s
customer feel uneasy.
er
nk
Ba

3. Eyes
of

By maintaining eye contact with a customer you are maintaining

the positive relationship you built with them during the introduction.
e

If the customer is talking and you give them no eye contact, it is very
ut

difficult for them to continue talking.

it
st

4. Gestures
In

If you continually repeat a gesture in front of a customer, the gesture

e
Th

becomes a mannerism which will only serve to distract the customer.

Aim to have open hand gestures to demonstrate confidence and
:

trustworthiness.
of

5. Voice
ty
er

Remember when we discussed how important tone of voice is to

op

our impact similarly, as the conversation develops, you should match

Pr

your tone of voice to the words that you are saying.

Be aware that whilst we all communicate non-verbally, we can send out

messages that the customer doesn't always pick up or may misinterpret.
If someone folds their arms, that may be interpreted as adopting a defensive
stance but the person may have folded their arms because they are feeling
cold or because the room is draughty!

Personal Selling 317

 The important point to bear in mind about non-verbal communication
is to think how you can use it to back up the message you are sending to
the customer. Also if you are picking up non-verbal signals from the
customer, don't rely on only one action - validate it by further testing.

Throughout the explore and listen stage you are working to find out the
customer's needs which may become apparent to the customer during
the conversation or you may discover needs that the customer is not
aware of; these are called hidden needs.

During this stage you are discovering the customer's needs and taking
notes; you have not spoken about your product(s). This is because you
need as much information as you can get about the customer to enable
you to eventually start talking about the appropriate products. It is
important to mention that during the 'explore and listen' stage it is
essential that you undertake a full "fact find" regardless of the type of
interview you are conducting. This ensures that the customer fully
understands their current financial position and can make an informed
decision about any products they may wish to take now or in the future.

an
You are now in a position to move to the next stage, where you can

st
identify and agree to the customer's needs.

ki
Identify and agree to the needs of the customer

Pa
This stage is important as it provides the link between the information

s
er
gathering stage of the process and the point where you will introduce the
nk
customer to the products that your organisation can provide that will
Ba

satisfy these needs.

of

By this time you will have obtained a lot of information about the
customer - indeed, they should have done most of the talking. You now
e

have enough information to be able to select what the most important

ut

financial needs of the customer are, and you should explain to the customer
it

what you perceive these needs to be. You should also ask the customer
st

to confirm that they agree that these are indeed their financial needs.
In

Once the customer can see clearly what their financial needs are, it is
e
Th

more likely that in the next stage of the process they will be able to see
how the products you recommend will meet these needs and be of benefit
:

to them. As a result, it will be easier for you to gain their commitment

of

when closing the sale.

ty

You will say something along the lines of:

er
op

"So Mr Chan, from what we have discussed so far, it seems to me that

Pr

you need to make provision for your pension if you wish to retire at 55.

You also need a savings plan to help support your son through university
in seven years time. Is this an accurate reflection of our discussions?"

318 Marketing of Financial Services | Reference Book 1

 The customer will either agree or disagree. If you get agreement at this
stage, you are now able to move straight into the next stage where you
introduce the product(s) to meet these needs. On the other hand, if the
customer disagrees, you have to find out why. Is it because you did not
listen carefully enough to the customer? Or perhaps your use of questions
was not good enough to unearth a need that the customer thinks is
pressing? Whatever the reason, you need to continue the conversation
until you feel that you know the customer's needs and agree to them
with the customer. When this happens, you can move on to the next stage.

Introduce product(s) to meet needs

At last - you can now talk about the product(s)! Many salespeople fall at
this hurdle as they do not take the time to look at their products from
the customer's point of view so that instead they talk in terms of features
rather than benefits. As a result, they tell every customer that they see
the same things about the product.

The successful seller will only discuss those aspects of the product that

an
are of interest to the customer, thus avoiding bombarding the customer

st
with a lot of irrelevant information.

ki
Another disadvantage to this approach is that if the salesperson is saying

Pa
the same things to every customer, they will quickly become bored and
this will come across in the way they communicate with the customer.

s
er
Remember the way we look and sound has far greater impact with the
nk
customer than the words we use.
Ba

To be successful, you must let the customer see what the product can do
of

for them, so you are linking the product to specific financial needs that
the customer has told you about earlier in the conversation. When you
e

do this you will talk to the customer in terms of product benefits, rather
ut

than product features.

it
st

A feature is what the product provides to the customer. Every product

In

has many features and these will not vary from customer to customer.
Here are some generic features associated with financial services products:
e
Th

● Fixed monthly repayments

● Rate of interest
:

● Unlimited withdrawals
of

● Ability to use the card to pay for goods and services at the point
of sale
ty

Monthly statements
er

●
op

A benefit is the explanation of what a feature can do for an individual

Pr

customer that will meet their particular needs.

Fixed monthly repayment means that a customer can budget more easily
and so their account will not go overdrawn due to an increased monthly
repayment and they will not have to pay the service charge.

Personal Selling 319

 What is the benefit to the customer? They save money by not paying
service charge!

In this example, every customer who buys this product will have fixed
monthly repayments, but you would only talk to a customer about this
feature being able to save them money if you knew that this was of interest
to them. Also, it is important that you explain to them how the fixed
monthly repayment can save them money rather than just state that there
are fixed monthly repayments. If you only mention fixed monthly
repayments, the customer may not make the connection and so a potential
sales winning benefit will be lost.

If a car has this feature, it is statistically less likely that it will suffer a rear-
end collision. However, the benefit of this for a customer is increased
safety. Again, a car salesperson should only mention this if, during the
sales conversation, the potential customer had agreed that safety was an
important need.

If you only talk in terms of features, as you mention each one , the

an
customer could say "so what?" For example, if you rhyme off that the

st
savings plan you are recommending has a rate of interest that will be
credited to the plan monthly, the customer can legitimately say "so what?".

ki
This is because they do not necessarily know what this means to them.

Pa
Rather you could say that monthly interest means that the capital value
of the plan will grow more quickly and so they will be able to retire at

s
er
55, which they told you during the explore and listen part of the sales
nk
process.
Ba

Customers must be able to see what the product can do for them. This
of

is often referred to as WIFFM, which means:

e

What's In It For Me
ut
it

If a customer cannot see what's in it for them, they are very unlikely to
st

buy. As a salesperson, you cannot assume that the customer will see what's
In

in it for them and you must take the responsibility of explaining this.
e
Th

Selling benefits allows you to personalise the product to each customer

which means that each conversation you have with customers about the
:

same product will be different as each customer's needs are different. This
of

allows you to explain the product differently to each customer and so

you avoid appearing stale or bored. In other words, when you are talking
ty

in terms of benefits you personalise the product to the customer and let
er

them know what the product can do for them. To do this effectively, you
op

must be able to look at things from the customer's perspective.

Pr

Does a customer have any desire for a mortgage? No, what they want is
to buy their new home, therefore that's what you should focus on when
talking about benefits. Similarly, do they really want to put their hard
earned cash into a savings plan every month? No, what they really want
is to provide for their children's education or to retire early, so this should
form the focus of your benefit statement.

320 Marketing of Financial Services | Reference Book 1

 However, to get to benefits, you will still need to mention the relevant
product features to the customer. The phrases you should use to link to
the benefits are: "… which means that …" and "… so …".

If we look at the car example again, the salesperson could say something
like:

"You mentioned earlier that safety for you and your family is one of your
prime needs. You will see that this car has a third rear brake light, which
means that you are less likely to have a rear-end collision, so it is a safer
car."

Had the salesperson merely pointed out the third rear brake light, the
customer could have said "so what?" as they may not have made the
connection between this and increased safety.

It is often said that selling a service is more difficult than selling a tangible
product. One way to overcome this is by painting pictures in the customer's
mind of what your service can do for them. There are also some visual

an
aids that you could use, such as leaf lets and quote illustrations.

st
You should always have a good stock of current leaflets wherever you are

ki
seeing customers. Once you have identified the product to meet the

Pa
customer's needs, you can use the appropriate leaflet to back up what
you are saying. It is also useful to personalise the leaflet to the customer

s
er
such as, by circling or highlighting those parts of the leaflet that directly
nk
meet the needs that you have agreed. When the customer takes the leaflet
Ba

away, they can see easily those areas that are of interest to them.
of

Another type of visual aid you can use is a product quote. Many computer
systems used in financial services will now allow you to print out a quote
e

to illustrate, for example, the repayment schedule on a personal loan.

ut

Often you will also have the opportunity to show this illustration in the
it

form of a graph, whereby the customer can see how their monthly
st

payments reduce the capital and interest elements of the loan to end up
In

with a zero balance.

e
Th

Until now, things have been going really well - you have carried out your
pre-sale preparation, you have met the customer and built rapport with
:

them before asking questions and listening to the replies to determine

of

their needs . You have agreed these needs with the customer, explained
what products you have that could meet these needs and sold the benefits.
ty

You could almost look to close the sale at this point - but life doesn't
er

always run as smoothly as this, does it? At any time after you have met
op

the customer you could meet with resistance; in other words, you will
Pr

have to deal with objections.

Overcoming objections

This is the part of the process that inexperienced sellers fear most! An
objection can occur at any stage in the process and usually occurs when
the potential customer makes some negative comment about the product,

Personal Selling 321

 which, on the face of it, appears to be a reason for them not to buy. If you
don't deal with the objection properly, it may well become a strong reason
for them not to buy. In this section we'll look at ways to deal with
objections professionally and make the customer even more likely to buy.

Objections could be viewed as something positive or something negative

- you should always view them positively!

There are a number of reasons for this:

● An objection is a signal of interest form the customer. If they had no

interest in what you are selling, they could easily tell you so, but if
they are objecting about some aspect of the product, they must be
thinking seriously about buying it!

● When you answer an objection, you are dealing with an area of

specific interest to the customer. In stating the objection, the customer
is highlighting what they are concerned about. If you can allay their
fears, then you are likely to have a customer who is keen to sign up

an
for the product.

st
Objections can often allow us to move more swiftly to the close. As

ki
●

stated in the last two points, when you get objections, you are dealing

Pa
with the areas of particular concern to the customer, but if you can
resolve these concerns, it is likely that the customer will now want

s
er
to take the product and you may be able to move straight to the
nk
close.
Ba

Look on objections positively - they are stepping stones on the way to the
of

close. Even if you get a number of objections, as you resolve each one,
you are one step closer to winning the sale.
e
ut

OBJECTIONS ARE A SALES AID! You should never take objections

it

personally - always remember that the customer is objecting to some

st

aspect of the product; they are not objecting to you! By keeping this in
In

mind, you will avoid becoming embroiled in an argument with the

customer.
e
Th

Objections can arise for a number of reasons:

:
of

● You may already have told the customer the information that they
are asking you for, but they weren't listening to you! When you
ty

respond to the objection, you should avoid saying things like "I've
er

told you this already!" Rather take the time to explain this to them
op

again.
Pr

● The customer may have misunderstood you. Although you gave

them this information, they may have picked you up wrongly. For
example, the customer may be looking for a product that pays interest
monthly. You may well have told them this, but they have wrongly
picked up that you said interest is paid six monthly, so their objection

322 Marketing of Financial Services | Reference Book 1

 could be that the account doesn't meet their needs as they don't get
monthly interest. In this situation, all you have to do to is tactfully
correct the misunderstanding and you have resolved the objection.

● The objection may be what is called a "true objection" in that there

is a limiting factor in the product that the customer is not happy
about. For example, they may feel that the fixed charge on a current
account is too high, or that the interest rate you are quoting for a
personal loan is not as competitive as that charged by one of your
competitors. When faced with a true objection, you should:

● Use the information gained during explore and listen to show the
customer that whilst there is a limitation to the product, it is more
than compensated for by the agreed benefits of the account

● Choose another product that better meets this customer's needs.

No one looks forward to receiving an objection. For inexperienced

salespeople, the thought of receiving an objection can make them feel

an
nervous. However, you should keep the following points in mind:

st
Let the customer finish talking - if the objection makes you feel

ki
●

nervous, it is tempting to jump in with a response before the customer

Pa
has finished talking. As with a complaint, the customer may feel
nervous about objecting and being interrupted won't help their state

s
of mind.
er
nk
Ba

● Show that you are interested in the objection - even if the customer
is objecting to something you have already told them, don't show
of

any impatience; after all, the objection is real to them.

e

Don't rush your response - use a short pause before dealing with the
ut

objection to convey to the customer's subconscious that you are

it

considering the response. Even if this is an objection that you have

st

heard and dealt with 100 times before, it is the first time for the
In

customer, so deal with the objection courteously.

e
Th

A real objection is a genuine objection that the customer has and once
answered will clear the matter up in the mind of the customer, whereas
:

a hidden objection is one that hides behind a smoke-screen. The customer

of

may feel uneasy about voicing their real objection so they make up
another objection in the hope that this will get them out of having to
ty

state their real objection.

er
op

You are going to go to a night out next week and decide to buy a new
Pr

pair of shoes. You see a pair that you really like that would go well with
what you are planning to wear. You go into the shoe shop and ask if they
have the shoes in your size, they do and you try them on. You are really
happy with the shoes and then the fateful moment - you look at the
shoebox and see that the price of the shoes is double the amount you are
willing to pay.

Personal Selling 323

 Most of us are too embarrassed to say that the price is too high so we start
to make other objections to get out of the shop, saying things like "I don't
like the colour" or "they aren't comfortable" or "they won't go with what
I'm planning to wear", etc.

If the salesperson can overcome these objections, the potential customer

will eventually have to state the real objection …probably much to their
embarrassment!

This can happen in any selling situation - the customer may not be happy
stipulating their real objection so they put up a smokescreen. As a
salesperson, you must get through the smokescreen as quickly as possible
to give you the opportunity of dealing with the true objection. You will
then be able to either overcome the objection, or if the objection is
insurmountable, you won't waste any more time on a sale that you are
not going to win.

How should we deal with objections?

an
The material here will be familiar to you as the model you should use

st
when dealing with an objection is exactly the same as that for resolving
a customer complaint.

ki
Pa
To help your understanding of this material, think about an objection
that you could hear from a customer and write it down in the space below.

s
You will use this as we work through the model.
er
nk
Ba

An objection I could hear from a customer is …

The model is:
of
e
ut

Objection closed off

it
st
In

Empathise
e
Th
:

Ask questions
of

Verify that the customer is happy

ty
er

Overcome object
op
Pr

Let's work through this model, focusing on how we can use it to overcome
objections.

324 Marketing of Financial Services | Reference Book 1

 Empathise

Empathy is being able to show the customer that you understand how
they feel, without necessarily agreeing with what they are saying. As with
complaints, it is vital that you display empathy with the customer to avoid
the possibility of ending up in an argument. In addition, as the customer
may feel nervous about voicing
an objection, showing empathy will help smooth the situation.

The terminology you will use will vary depending upon what the customer
is objecting about and what your relationship is with the customer.
Phrases that show empathy include:

● I can understand that you think this …

● It does appear that way on the surface …
● A number of other customers feel that way …
● When this product was introduced I thought this too …

By showing this empathy you are demonstrating to the customer that

an
you can see things from their perspective.

st
It is important to note that at this stage you are showing that you

ki
understand the sentiment behind what it is that the customer is saying,

Pa
but you are not necessarily agreeing with the content. This is an important
differentiation to make. If you are seen to agree with the content of the

s
er
objection, when you try to overcome it you will be contradicting yourself!
nk
You must avoid phrases like:
Ba

● I agree …
of

● You are right …

● That's a point …
e
ut

You can see that this display of empathy will let the customer see that
it

you are not going to move into a confrontational situation with them
st

and it also demonstrates that you are confident in your product and you
In

will be able to overcome the objection.

e
Th

Empathy helps to take the sting out of the objection. Although it may be
tempting to jump straight in to answer the objection, you are not ready
:

to do that yet. To have a successful outcome, you need to spend the time
of

at the start showing the customer that you are on their side - displaying
empathy helps you to do that.
ty
er

Even after empathising, you are still not in a position to answer the
op

objection and you need to move to stage two in the process.

Pr

Ask questions

It is easy to assume that we know the nature of the customer's objection

only to find that after we have responded the customer says "that's not
what I meant!" To avoid this happening, you should ask open questions
to ensure complete clarity.

Personal Selling 325

 When you have secured a clear description of the objection, you should
summarise your understanding to the customer.

By summarising, you are doing a number of things:

● You are showing the customer that you have been listening to them
(remember in the explore and listen section we saw that a component
of active listening was summarising).

● You are giving yourself some time to think of how you are going to
overcome the objection.

● You are again taking the heat out of the situation by acting in a non-
confrontational way.

If you feel that this objection is all that stands between you and the sale,
you can test this by saying something like: "Given your circumstances,
if I can demonstrate that our savings plan will give you a greater return
than your current plan, would you like to go ahead?"

an
At this stage, the customer will either agree or disagree. If they agree, you

st
know that if you overcome the objection, you are into the close. On the

ki
other hand, if the customer says "no", you can look to identify other

Pa
hidden objections and you know where you stand.

s
If you wanted to test that either of these was the only objection between
you and the close, you could say: er
nk
Ba

● If I can show to you that this account will give you a greater annual
return than the account you currently have with Rutland Bank,
of

would you be happy to transfer the account today?

e
ut

● If I can show you that our arrangement fees are reasonable for the
it

work involved in setting up this account, would you be willing to

st

open the account today?

In

You can see the use of closed questions in both of these examples. In this
e

situation, we are not looking for the customer to expand on what they
Th

have already said but rather we are looking for confirmation - hence the
use of closed questions.
:
of

You are now in a situation to actually answer the customer's objection.

ty

By using the first two steps in the process you are in a much better position
er

to be able to successfully answer the objection because:

op
Pr

● you have preserved your relationship with the customer, by using

empathy

● you are quite clear about the nature of the customer's objection

● you are calmer when overcoming the objection than you would have
been, had you jumped straight into responding to the situation.

326 Marketing of Financial Services | Reference Book 1

 If the objection arises from a misunderstanding on the customer's part,
you should clarify this misunderstanding at this stage.

It may be that the customer sees a limitation of a product. You can

overcome this by restating the benefits you detailed at an earlier stage
For example, if the customer objects that the monthly fee for a packaged
current account is too high, but they have been greatly attracted by the
extras they would receive with this product, you should remind them of
the overall benefits to overcome the fee objection.

Again, by talking to the customer in terms of benefits, you are looking

at the situation from their perspective.

There are also different general tactics you can use when dealing with
objections.

The cautionary tale

This is used when a customer makes an objection and you paint a picture

an
of what could happen if they didn't take the product you are suggesting.

st
For example, if you have suggested to a self employed customer that they
take level term assurance and they object to the premiums, you could

ki
point out what would be the consequences for their family if something

Pa
were to happen to them and no other provisions were in place.

s
The lowest common denominator
er
nk
Ba

When a customer is objecting to the annual fee for a product you should
break the cost down to what the cost is per month, per week or even per
of

day. This is particularly effective if you then relate the cost to the price
of an everyday item. For example, if a customer is objecting to the cost
e

of a premium, you may break the cost down to be 50p per day and then
ut

link this to the cost of their daily newspaper.

it
st

If you have worked through the entire process, it will be easier to overcome
In

any objection as you will have lots of information about the customer
that you can use to your advantage.
e
Th

As with the previous examples, the text you have written will vary according
:

to your objection. Here are examples of the types of phrase you could
of

use:
ty

As you receive interest on this account monthly, it adds to the capital

er

sum; your next interest payment will be even higher and so by the
op

end of the period, you can see that your total return is greater than
Pr

under your current plan - so you make more money.

● This account does have an arrangement fee which covers the

administration costs in settling up the loan account. However, you
only need to pay this when the account is opened. On the other hand,
if you chose an overdraft, then you would need to pay an annual

Personal Selling 327

 arrangement fee to renew the overdraft - so you can see that choosing
this account will save you money.

It would be tempting at this stage to feel that we have dealt with the
objection and either move on, or attempt to close the sale.

What you do not know at the moment is whether the customer thinks
that you have dealt with the objection to their satisfaction. If you have
not, you are highly unlikely to close the sale. However, you won't know
this until you attempt to close; if unsuccessful you may then need to go
back to the overcoming objections stage.

You need to get the customer's sanction or approval in order to progress.

This is done by simply asking the customer if they are happy with your
response. If the customer is happy, you are getting their confirmation of
this and so you are more likely to win the sale. Otherwise if the customer
is not happy with your answer, you can find out the aspect with which
they remain uncomfortable and you can again move through the objection
resolution model. The advantage of this approach is that if you identify

an
the issues with which the customer remains unhappy , you are still in

st
control and in a position to do something about it.

ki
A further advantage of verifying with the customer that they are happy

Pa
with your response is that you are displaying confidence in your ability
to make the sale. As mentioned earlier, a prospective customer is far more

s
er
likely to do business with a confident salesperson rather than one who
nk
is lacking in confidence.
Ba

Closing the sale

of

Again many inexperienced salespeople do not like this stage of the process,
e

probably because they do not want to appear to be pushy. Remember

ut

earlier in the course we agreed that this is a negative image associated

it

with salespeople. As a result, they do not close the sale and allow the
st

prospective customer to walk out of the door.

In

This is a great pity. If the process we have been working through has been
e
Th

used correctly, the customer is now aware of their outstanding financial

requirements. Indeed this awareness could have been heightened by the
:

salesperson successfully overcoming any objections. However, the

of

conversation will have petered out as the salesperson felt uncomfortable

asking for the business. It was probably left that the customer would take
ty

a leaflet or brochure with them and call the salesperson at some point
er

in the future.
op
Pr

Another reason for some salespeople not wanting to close is that there
is a fear of rejection - what if the customer says "no"? It is important to
bear in mind that no salesperson ever has a 100% success level with
customers; you will experience customers saying "no" from time to time.
But even if the customer does say that they don't want the product, you
might still be able to find out why they don't. It may be that you are then

328 Marketing of Financial Services | Reference Book 1

 given an objection to deal with and if you can overcome this one, you are
on your way to getting the sale. On the other hand, if the customer is still
adamant that they don't want the product, you can accept this and
concentrate on those customers who do have a need for your products.

You will remember the point made earlier that customers are far more
likely to buy from a professional and confident salesperson. If you have
not asked for the business, you will appear to be lacking in both of these
qualities! Also keep in mind that by using this sales process, it is unlikely
that the customer will not want the product as you have agreed that they
have a need for the product and will have overcome any objections. The
chances are that all you need to do at this stage is to close off the sale.

It is often said that a good closer is a good salesperson and a bad closer
is a bad salesperson. Think of it like an athlete who has trained all year
for a marathon. During the race, they employ the right tactics and lead,
until in the last mile, they lack the self belief to win and end up having
the rest of the field passing them. Similarly, if you do everything right
during the sales process but don't carry out the final step, you are allowing

an
the competition to pass you at the crucial moment.

st
Closing does not always mean getting the customer to buy a product.

ki
Depending on your role, your "sale" may be getting the customer to agree

Pa
to have an appointment with another member of the team, say a financial
adviser, or perhaps someone from a specialised head office department,

s
er
for example to draft a will and agreeing to act as their executor.
nk
Ba

As the customer now has an outstanding need, they are motivated to take
steps to fill the gap. Unfortunately, they are highly likely to go to a
of

competitor organisation. So, by not asking for the business, the salesperson
has done all of the hard work - for their competitor!
e
ut

Asking for the business is crucial in any selling situation, so let's look at
it

how we know when the time is right to attempt to close the sale and also
st

what the different types of close are.

In

The right time to close is when the customer is at the top of the "buying
e
Th

plateau".
:

INTEREST
of

As the conversation between the salesperson and the customer develops,

ty

the salesperson is increasing the customer's interest in the product through

er

the combination of the steps we have discussed in the selling process.

op

Eventually, the customer's interest will reach a peak which is called the
Pr

"buying plateau". When the customer is on the buying plateau, the

salesperson should close the sale.

If the salesperson does not close at this point, the customer's interest will
eventually wane and they will be come bored and lose interest in the
product. When this happens, it will become very difficult for the salesperson
to get the sale.

Personal Selling 329

 You will see from the above that if the salesperson attempts to close too
early, the situation is not lost - you can always keep the process going, and
then have another go at closing later. However, if you leave the close too
late and the customer has moved off the buying plateau, you will probably
have lost the sale altogether.

The customer will let the salesperson know that they are ready to buy by
displaying "buying signals" although often these buying signals are discrete
and so the successful salesperson must be able to detect them and act
upon them when seen.

Buying signals may be either involuntary buying signals or voluntary

buying signals.

An involuntary buying signal is one where the customer displays that

they are interested in the product through their non-verbal communication.
They could show this interest by:

● looking more interested than they were earlier, for example by sitting

an
further forward, nodding a lot or giving stronger eye contact

st
looking more specifically at any leaflets or illustrations you may have

ki
●

been using.

Pa
A voluntary buying signal is one that is usually more apparent and less

s
er
open to misinterpretation. Voluntary buying signals include:
nk
Ba

● asking very pointed questions about the product, for example asking
how long it will take for the plastic card to be produced, how long
of

before the loan proceeds are credited to the account, how soon an
appointment could be made with a financial adviser, etc
e
ut

● if there are two customers they may talk to one another about how
it

well the product will meet their needs.

st
In

When you see these signals then the time is right to move in to close the
sale.
e
Th

There is a variety of ways to close a sale and you should seek to use a
:

range of them depending on circumstances. The closing techniques we

of

shall look at are:

ty

● ask for the business

er

● the either/or close

op

● the assumptive close

Pr

● the cautionary tale

● closing on an objection
● the "yes" close
● the narrowing the options close

330 Marketing of Financial Services | Reference Book 1

 Ask for the business

This is the simplest close of all to use. Here you will have worked through
the sales process with the customer and will have answered any questions
and objections. Once you have done this, there is nothing else to do but
close.

The danger at this point is that the customer will often be waiting for
you to take the lead and ask for the business. If you don't, you run the
risk of losing out. Therefore it is imperative that you simply ask the
customer if they would now like to go ahead and order the product.

Once you have asked for the business, you must maintain eye contact
with the customer and keep your mouth shut until they speak! If you are
nervous at this point, the pause before the customer speaks to you may
seem long … but you must allow the customer to speak next. They will
either say to you that they are happy to proceed, or they may give you
another objection. If they do give you an objection, answer in the manner
that we discussed earlier, then ask for the business once more.

an
st
If you do talk before the customer has replied to you, then you are simply
going to start talking about the product again and could even end up

ki
losing the sale if the customer has moved off the buying plateau.

Pa
The either/or close

s
er
nk
This is where you give the customer a choice - which includes closing.
Ba

Therefore, once the customer has made the choice, they have also agreed
to close on the sale.
of

There is a host of options here, including:

e
ut

● Would you like the cheque book to have a side counterfoil or a slip
it

at the back to record your transactions?

st
In

● Based on the figures we have discussed, would taking the loan over
24 or 36 months best fit your budget?
e
Th

● Would you like the appointment with the financial adviser to be on

:

Wednesday afternoon or some time next week?

of

Once the customer has chosen the option they would prefer, they are also
ty

telling you that they would like to close on the product.

er
op

The assumptive close

Pr

This close assumes that the customer will go ahead and take the product
without being asked formally. This can be an effective technique to use
if you are completing some form of documentation with the customer.
Once the form is complete, all you have to do is print it off and ask the
customer to sign. Again, by signing, the customer is agreeing to take the
product and so the close is complete.

Personal Selling 331

 You can also use a variation of this technique when dealing with the
customer over the phone. For example, if the customer has phoned to
discuss a personal loan, once you have gathered in enough information
to make a decision and have given the customer repayment figures, you
can explain that you will print the form off and post it out to them/the
local branch for signature.

The cautionary tale

You will remember that we discussed the cautionary tale when dealing
with objections. This technique can also be used when closing if the
customer does not want some additional aspect of the product or even
the whole of the product. To use the cautionary tale you paint the downside
of not taking this product to let the customer see that this will better
meet their needs. Once the customer has made this decision, the sale is
closed.

You could say to the customer that by not having a will nor using the
executive service:

an
st
● they do not have inf luence over the dispersion of their estate

ki
● their family would need to take the time to wind up their estate at

Pa
a particularly distressing time

s
their family may not have the expert knowledge to wind up the estate
er
●

and so they would need to find a suitable executor, again at a time

nk
that is distressing for them.
Ba

Close on an objection
of
e

In the overcoming objections section we discussed how you can test if a

ut

customer only has one objection to your product by saying something

it

like "if I can show to you that this account will give you a greater annual
st

return than the account you currently have with Rutland Bank, would
In

you be willing to transfer the account today?".

e

In this scenario, provided that you can overcome the objection to the
Th

customer's satisfaction, you have closed the sale. When the customer has
confirmed that they are happy that the objection has been overcome, you
:
of

can simply ask the customer for the business at that stage.
ty

The "yes" close

er
op

This technique involves the use of closed questions. Here the salesperson
Pr

uses closed questions to have the customer agreeing on:

● what their needs are

● how the product meets their needs

● the product pricing is acceptable to the customer.

332 Marketing of Financial Services | Reference Book 1

 Then by asking for the customer's agreement to proceed, the sale is closed.

Narrowing the options close

This final technique is used where the customer has been presented with
a variety of solutions to meet their needs. By removing those that the
customer is less interested in, the salesperson can reduce the customer's
choice to more manageable proportions, thus making the buying decision
easier for the customer. Again, once the customer has made this choice,
the sale is closed.

An example of this type of close would be where a customer is looking

for some form of money transmission account. Your organisation has a
range of suitable products but there are a number of varying features on
these products, resulting in different terms and conditions for each product
(for example, there may be a minimum level of balance on one account,
a monthly fee on another account, a preferential overdraft interest rate
on a third, a better credit interest rate on a fourth, and so on). Faced with
a wide number of choices, the final buying decision may be too much

an
for the customer to take in and there is a real risk that they become

st
overwhelmed by all of this and decide to "… go away to think about
it …".

ki
Pa
A successful salesperson will make this decision easier for the customer
by removing from the decision-making process those products that do

s
er
not offer the best benefits to meet their needs. For example, if the customer
nk
has told you earlier in the conversation that they do not envisage having
Ba

an overdraft on the account, with their agreement you can withdraw that
particular product from the equation. Thus you have made the customer's
of

buying decision easier for them.

e

At the end of any sale you must make the customer aware of any cooling
ut

off period / cancellation rights which depends on whether the sale has
it

taken place within the financial organisation, on the phone or at the

st

customer's premises. This is in line with the requirements of the Consumer

In

Credit Acts 1974 and 2006.

e
Th

Before leaving the subject of closing the sale, we will look at the situation
mentioned above where the customer says that they "… want to go away
:

to think about it …".

of

This may be a genuine point made by the customer, in that they want to
ty

mull over what you have explained to them, compare your product with
er

that of a competitor or discuss the product with someone else. On the

op

other hand, you may not have done your job as well as you could have
Pr

and it may be that they are not sure if the product actually meets their
needs.

Personal Selling 333

 In this situation, it is easy to lose control of the situation and leave things
"in limbo" as there is no agreement between you and the customer as to
what will happen next. To overcome this, you should agree with the
customer that they should take some time to consider the product, but
you should also agree a timescale advising that you will contact them at
the end of this period, thereby retaining control of the situation.

By doing this, even in the worst scenario - if the customer says that they
no longer want the product - you can still find out the underlying reasons
and so you have still gained something for your efforts. Then you may
be able to:

● use the objection resolution model to overcome this resistance

● advise the customer that there is another product that may better
meet their needs

● accept the customer's decision.

If you need to accept the customer's decision - perhaps there is a limitation

an
with your product that cannot be overcome - you are still maintaining

st
a relationship with the customer and may still be able to do business with

ki
them at some point in the future.

Pa
By this stage in the selling process you have been successful in selling a

s
product to your customer. If this product meets the needs of this customer,
er
it is likely that it will also meet the needs of similar customers. If you have
nk
a satisfied customer, ask for a referral - someone else that they know who
Ba

could also benefit from the product.

of

Asking for referrals

e
ut

A referral occurs when we ask one customer if they know of anyone

it

whom they feel could also benefit from our products and services. When
we contact this person, we already have a link with them, making it easier
st

to build the relationship and ultimately hopefully to sell to meet their

In

needs.
e
Th

You certainly don't want to ask for referrals when the customer is in to
make a complaint! To have the best chance of getting a referral, you need
:
of

to choose a time when the customer is happy with the service they are
receiving from your organisation. This could be when:
ty
er

● you have just sold them a product to meet their needs

op

● they have expressed satisfaction to you about the levels of service you
Pr

have provided

● you have "gone the extra mile" for the customer in some way and
again they express their satisfaction.

334 Marketing of Financial Services | Reference Book 1

 It is best not to think of referral seeking as an extra part of your job but
rather something that you should always be looking out for. As soon as
you spot the opportunity, ask for the referral. After all, the worst thing
the customer can say is that they don't want to give you anyone's name!

You should always agree how the referral is going to be contacted. It may
be that:

● the customer would like to position your approach with the referral
before you contact them. If this is the case, you need to agree with
the customer how you will know when this has been done in which
case you may want to give the customer a business card with your
details for them to pass on to the referral.

● the customer is happy for you to contact the referral directly, merely
stating that you have been given their name from the referral source.

You could still give the customer your details on a business card and ask
them to think about this for a couple of days. You should agree that you

an
will call them at the end of this period to see if they now have a referral

st
for you.

ki
If you were involved with a profession that was only interested in "one-

Pa
off" sales, then this would mark the end of the sales process. However, in
financial services, we have seen that the foundation of future sales is the

s
er
provision of excellent customer service and so there is still something we
nk
can do to complete the process - after sales service.
Ba

After sales service

of

Think about a time when you have made a major purchase. You probably
e

spent a lot of time researching the right product and talking to different
ut

organisations that could supply it. Then you had to choose the organisation
it

from whom you were going to buy the item and finally place your order
st

and wait for delivery.

In

How did you feel once you had placed the order? Were you happy or did
e
Th

you still have a few lingering doubts about having made the correct
decision? In the latter instance you were experiencing something that
:

most people feel once they have made a major purchase - "buyer's remorse"
of

- which is when you begin to have some negative thoughts about what
you have just bought. You may start to think:
ty
er

● Did I make the right choice?

op

● Should I have considered more suppliers?

Pr

● Can I really afford this product?

● Do I really need this product?

Personal Selling 335

 The list could go on and on!

One of the simplest things is diarise to call the customer to ask them if
everything went according to plan. For example, did they receive the
plastic cards on time, did the financial planner call them to arrange an
appointment, was the meeting with the financial planner successful, were
the loan proceeds credited to their current account at the right time, etc.

In this conversation, you could also enquire about the underlying

transaction. For example, if the customer was obtaining a personal loan
to book a holiday, did they manage to make the booking; if the loan was
to buy a car, what type of car did they choose, etc.

The advantages of making this type of call are:

● you are demonstrating excellent service to the customer

● if there has been a problem, you are now given an opportunity to

resolve it; this will be easier to do if you have initiated the call rather
than if the customer has had to make a complaint

an
st
● you are more likely to be able to do more business with this customer

ki
at some future date as the customer can see that you are interested

Pa
in them and their needs.

s
You could also diarise to contact the customer some time later to ensure
er
that the product is operating in the way that they envisaged. Again, this
nk
is demonstrating excellent customer service, with the added advantage
Ba

that you would be able to ascertain at this point if the customer has any
new financial needs.
of
e

As you can see, these forms of after sales service are conducted over the
ut

phone. If you work in an organisation that operates a branch network,

it

you can easily carry out this after sales service the next time you see the
st

customer in the branch.

In
e
Th
:
of
ty
er
op
Pr

336 Marketing of Financial Services | Reference Book 1

Part Three Developing and Implementing
the Marketing Program
Chapter 11 Direct/Indirect Marketing & Marketing Audit

Student Learning By the end of this chapter you should be able to:
Outcomes
Explain the concept of Direct and Indirect marketing

Explain the types of direct and indirect marketing communication

Define marketing audit

Explain the process of conducting marketing audit

Explain the importance and the requirement of conducting a

marketing audit

an
List the main characteristics of a marketing audit

st
ki
Explain the four characteristics of marketing audit

Pa
State the essential components of a marketing audit

s
er
nk
Ba

Direct Marketing Direct marketing is a channel-agnostic form of advertising that allows

businesses and nonprofits to communicate straight to the customer, with
of

advertising techniques such as mobile messaging, email, interactive

consumer websites, online display ads, f liers, catalog distribution,
e
ut

promotional letters, and outdoor advertising.

it

Direct marketing messages emphasize a focus on the customer, data, and

st

accountability. Characteristics that distinguish direct marketing are:

In

Marketing messages are addressed directly to customers. With the evolution

into digital marketing channels, this addressability comes in a variety of
e
Th

forms including email addresses, mobile phone numbers, and web browser
cookies. Direct marketing, also seeks to drive a specific "call to action."
:

For example, an advertisement may ask the prospect to call a free phone
of

number or click on a link to a website.

ty

Direct marketing emphasizes trackable, measurable responses from

er

customers - regardless of medium.

op
Pr

Direct marketing is practiced by businesses of all sizes - from the smallest

start-ups, to the leaders on the Fortune 500. A well-executed direct
advertising campaign can prove a positive return on investment by
showing how many potential customers responded to a clear call-to-

Direct/Indirect Marketing & Marketing Audit 337

 action. General advertising eschews calls-for-action in favor of messages
that try to build prospects' emotional awareness or engagement with a
brand. Even well-designed general advertisements can rarely prove their
impact on the organization's bottom line.

Direct marketing is often seen as being synonymous with direct mail

although the latter is only one form of direct marketing, albeit the most
obvious and widely used form of direct communication with individual
customers. Taking into account the cost of producing and mailing the
many millions of mail shots, direct mail can account for more expenditure
than even press advertising.

Its importance lies in the ability of direct mail to make the matching
process effective and more precisely targeted. As we have already seen,
segmentation allows resources to be deployed efficiently, to satisfy groups
of customers exhibiting similar needs. However, to some extent, this is a
compromise. Direct mail provides an even greater degree of focus, allowing
the marketing effort to be applied to individual customers.
Financial services marketers are increasingly looking to more creative

an
direct mail campaigns, to alleviate the escalating costs of advertising. By

st
improving the efficiency of the matching process, direct mail can result
in a more cost effective method of achieving a transaction with a customer.

ki
However, its success is dependent on the financial organization having

Pa
sophisticated computer systems, accurate customer databases and effective
mechanisms for handling customer responses. Therefore, although the

s
er
process is efficient, one should not underestimate the size of the capital
nk
investment required, especially if a large mass market (personal business)
is being addressed.
Ba
of

Benefits of Direct Marketing

e

Direct marketing is attractive to many marketers because its positive

ut

results can be measured directly. For example, if a marketer sends out

it

1,000 solicitations by mail and 100 respond to the promotion, the marketer
st

can say with confidence that campaign led directly to 10% direct responses.
In

This metric is known as the 'response rate,' and it is one of many clearly
quantifiable success metrics employed by direct marketers. In contrast,
e
Th

general advertising uses indirect measurements, such as awareness or

engagement, since there is no direct response from a consumer.
:

Measurement of results is a fundamental element in successful direct

of

marketing. The internet has made it easier for marketing managers to

measure the results of a campaign. This is often achieved by using a
ty

specific website landing page directly relating to the promotional material.

er

A call to action will ask the customer to visit the landing page, and the
op

effectiveness of the campaign can be measured by taking the number of

Pr

promotional messages distributed (e.g. 1,000) and dividing it by the

number of responses (people visiting the unique website page). Another
way to measure the results is to compare the projected sales or generated
leads for a given term with the actual sales or leads after a direct advertising
campaign.

338 Marketing of Financial Services | Reference Book 1

 Direct marketing includes other forms of interactive communication.
Use of the telephone, also known as telemarketing, can be a medium of
great immediacy, but this requires to be viewed from two different
perspectives. On the plus side, the benefits of two-way communication
ensure that the telephone continues to have an important role in
maintaining the interaction from marketplace to supplier. This is
compounded by improved telephone techniques and consumers become
more confident of new technology.

The major downside is that the public backlash against cold calling has
forced call centres to re-focus as inbound service specialists. Taking this
a stage further, "Marketing" magazine, April 2006, states that the long
predicted death of cold calling - the point at which the practice ceases to
be profitable - is fast approaching. This will change the face of telemarketing
as it becomes far more focused on retention, cross-selling and upselling.

E-mail

E-mail can be an inexpensive way of communicating to an existing

an
customer base.

st
Fax

ki
Pa
The fax machine should not be forgotten, although to a large extent it
has been overtaken by alternative technologies. The use of this particular

s
er
medium will probably be reserved for business customers in view of the
nk
relatively restricted access to fax machines.
Ba

Exhibitions
of

Exhibitions often provide an excellent opportunity for exposure of an

e

organization's services and personnel to existing and potential new

ut

customers. Attendance at many of the major regional shows, exhibitions

it

or student fresher fairs is a frequent occurrence for many financial

st

organizations.
In

However, it is important that there should always be a reason for marketing

e
Th

expenditure of any sort. That said, a valid reason for involvement at an

exhibition could be nothing more than a wish to enhance a relationship
:

with the exhibition organizers, or indeed to maintain image and profile

of

(i.e. to be seen there) with the exhibition attendees. Local exhibitions,

such as agricultural shows, can often be justified on these grounds alone.
ty
er

Indirect Marketing
op
Pr

In contrast to the direct marketing strategy of taking the sale to the

customer, Indirect Marketing Strategies (also known as 'Passive Marketing')
are designed to bring the customer in to the business place.

The advantages of indirect marketing include the following:

Direct/Indirect Marketing & Marketing Audit 339

 ● Low or no cost

● High leverage activities - once published your profiles and content

continue to be effective

● Build relationships which encourage long term and repeat customers

● Easy to target people interested in your niche

● Increases web presence and brand awareness

● Builds up trust in the eyes of prospects

● Increases networks

Some of the disadvantages of indirect marketing are as follows:

● Takes far longer than direct marketing

● Requires a consistent investment of time

an
Prospects are usually not looking to buy when they are using social

st
●

media sites etc.

ki
Pa
● Needs some skill (or outsourcing)

s
Marketing Audit
er
nk
A marketing audit is a comprehensive, systematic, independent and
Ba

periodic evaluation of a company's marketing assets. It is an effective tool

of

in reviewing the competence of a marketing strategy, analyzing the

objectives, policies and strategies of the company's marketing department
e

as well as the manner and the means employed in attaining these goals.
ut

Because of the constantly varying business environment, marketing audit

it

is frequently required, not only at the beginning of the planning process,

st

but along with the implementation stage, providing grounds for evaluating
In

possible future course of action.

e
Th

Marketing audit on a regular basis is a strong reference point, reflecting

evolution in external business environment, internal experience and
:

strategy development.
of

The marketing audit focuses on three key headings:

ty
er

● The external marketing environment

op

● The internal marketing environment

Pr

● Evaluation on the current marketing plan

External environment consists of economic, political and legal factors

and concentrates on clients and competition.

340 Marketing of Financial Services | Reference Book 1

 Marketing audit of the external surroundings analyses the customers,
their needs and how to meet them, their behavior and decisions, perception
of products and brands, segmentation, targeting and positioning on the
market. The nature of competition is also studied, concerning its
concentration, profitability, strengths and weaknesses, plans and strategies.
New entrants on the market are also studied as well as the substitute
products, the influence of supplier.

The cultural nature of the external environment consists of education

levels and standards, religion and beliefs, as well as lifestyle and customs.
Demography plays a key role in marketing audit of the consumers,
ref lecting on growth distribution, age, evolution of technology and
information systems as well as marketing communication and media.
The external economic conditions consist of indicators as unemployment
rates, inflation levels, interest rates, economic growth, taxation and average
disposable income. Political and legal landscaping concern laws, regulations,
minimum levels of taxes or wages and maximum levels of prices or quotas.

Internal environment focuses on the resources the company has at hand

an
as labor, finance, equipment, time and other factors of production. It also

st
analyses the marketing team concerning structure, efficiency, effectiveness,
correlation with internal functions and other organizations. The internal

ki
marketing planning process, its accuracy and actuality, the product

Pa
portfolio, new products, pricing and distribution are areas the marketing
internal audit is concerned in. It also focuses on market share, sales, profit

s
er
margins, costs and effectiveness of marketing mix.
nk
Ba

The marketing audit studies also the current marketing plan, focused on
objectives, strategies and the marketing mix used to achieve these goals.
of

It also evaluates budgeting, staffing, training , developing, experience and

learning. The current marketing plan concerns also the market share,
e

financial targets as profit and margins, cash flow, debt and other indicators
ut

that need to be balanced.

it
st

There are several approaches that can be used, for example SW OT analysis
In

for the internal environment, as well as the external environment. Other

examples include PEST(political-economic-social-technological) and Five
e
Th

Forces Analyses, which focus solely on the external environment. Using

SWOT a company lists its advantages and disadvantages, strengths and
:

weaknesses compared to its competitors or similar products providers. It

of

also includes an analysis of the external factors that could help or hinder
company's chance of success, as well as an evaluation of internal practices
ty

and operations.
er
op

A five force analysis is similar to SWOT, but is used to evaluate an individual

Pr

product or business rather than an entire marketing strategy. Using this

approach, the study reviews similar subjects covered in a SWOT analysis,
eventually dividing the results in five groups labeled as following :

Direct/Indirect Marketing & Marketing Audit 341

 ● Power of buyer
● Threat of entry
● Competitive rivalry
● Power of suppliers
● Threat of substitutes

Political-economic-social-technological (PEST) is another audit study also

known as a STEP (change in the order of letters) study. This audit focuses
mainly on the factors inf luencing the external environment, usually
factors out of company's internal control. This study analyses political
climate, economic growth, social environment and technological evolution
in the area where the product will be delivered. Its similarity to SWOT
consists of dividing these results in opportunity and threats.

In conclusion, a marketing audit does not necessarily audit the current

activity of the business, but reviews all the areas that are crucial to the
success of the company, both internal and external and tries to align these.
Only considering these results and using them in planning the next
marketing strategy, a business can grow and become stronger.

an
st
Characteristics of a Marketing Audit

ki
Let us examine the four characteristics of the marketing audit:

Pa
1. Comprehensive - The marketing audit covers all the major marketing

s
er
activities of a business, not just a few trouble spots.
nk
2. Systematic - The marketing audit is an orderly examination of the
Ba

organization's macro and micromarketing environment, marketing

of

objectives and strategies, marketing systems, and specific activities.

e

3. Independent - A marketing audit can be conducted in six ways: self-

ut

audit, audit from across, audit from above, company auditing office,
it

company task force audit, and outsider audit.

st
In

4. Periodic - Typically, marketing audits are initiated only after sales

have turned down, sales force morale has fallen, and other problems
e
Th

have occurred. Companies are thrown into crisis partly because they
failed to review their marketing operations during good times. A
:

periodic marketing audit can benefit companies in good health as

of

well as those in trouble.

ty

Process of Marketing Audit

er
op

A marketing audit starts with a meeting between the company officers

Pr

and the marketing auditors to work out an agreement on the audit's

objectives, coverage, depth, data sources, report format, and time frame.
A detailed plan as to who is to be interviewed, questions to be asked, the
time and place of contact, and so on is prepared so that auditing time and
costs are kept to a minimum.

Let us discuss the steps involved in the audit process.

342 Marketing of Financial Services | Reference Book 1

 Setting the Objectives and Scope

The first step calls for a meeting between the company officer(s) and a
potential auditor to explore the nature of the marketing operations and
the potential value of a marketing audit. If the company officers are
convinced of the potential benefits of a marketing audit, they and the
auditor have to work out an agreement on the objectives, coverage, depth,
data sources, report format, and time period for the audit.
Consider this case study. A plumbing and heating supplies wholesaler
with three branches invited a marketing consultant to prepare an audit
of its overall marketing policies and operations. Four major objectives
were set for the audit.

1. Determine how the market views the company and its competitors.
2. Recommend a pricing policy.
3. Develop a product evaluation system.
4. Determine how to improve the sales activity in terms of the
deployment of the sales force, the level and type of compensation,
the measurement of performance, and the addition of new sales

an
representatives.

st
Furthermore, the audit would cover the marketing operations of the

ki
company as a whole and the operations of each of the three branches,

Pa
with particular attention to one of the branches. The audit would focus
on the marketing operations but also would include a review of the

s
er
purchasing and inventory systems, since they intimately affect marketing
nk
performance. The company would furnish the auditor with published
Ba

and private data on the industry. In addition, the auditor would contact
suppliers of manufactured plumbing supplies for additional market data
of

and contact wholesalers outside the company's market area to gain further
information on wholesale plumbing and heating operations. The auditor
e

would interview all the key corporate and branch management, sales and
ut

purchasing personnel, and would ride with several of those salespeople

it

on their calls. Finally, the auditor would interview a sample of the major
st

plumbing and heating contractor customers in the market areas of the

In

two largest branches. It was decided that the report format would consist
of a draft report of conclusions and recommendations to be reviewed by
e
Th

the president and vice president of marketing, and then delivered to the
executive committee, which included the three branch managers. Finally,
:

it was decided that the audit findings would be ready to present within
of

six to eight weeks.

ty

Gathering the Data

er
op

The bulk of an auditor's time is spent in gathering data. Although we talk

Pr

of a single auditor, an auditing team is usually involved when the project

is large. A detailed plan as to who is to be interviewed by whom, the
questions to be asked, the time and place of contact, and so on, has to be
carefully prepared so that auditing time and costs are kept to a minimum.
Daily reports of the interviews are to be written and reviewed so that the
individual or team can spot new areas requiring exploration, while

Direct/Indirect Marketing & Marketing Audit 343

 data is still being gathered. The cardinal rule in data collection is not to
rely solely for data and opinion on those being audited. Customers often
turn out to be the key group to interview. Many companies do not really
understand how their customers see them and their competitors, nor do
they fully understand customer needs.

Company sales people think that company reputation, however, is the

most important factor in customer choice, followed by quick response to
customer needs and technical support services. Those who plan marketing
strategy have a different opinion. They see price and product quality as
the two major factors in buyer choice, followed by quick response to
customer needs. Clearly, there is a lack of consonance between what
buyers say they want, what company salespeople are responding to, and
what company marketing planners are emphasizing. One of the major
contributions of marketing auditors is to expose these discrepancies and
suggest ways to improve marketing consensus.

Preparing and Presenting the Report

an
The marketing auditor will be developing tentative conclusions as the

st
data comes in. It is a sound procedure for him or her to meet once or
twice with the company officer before the data collection ends to outline

ki
some initial findings to see what reactions and suggestions they produce.

Pa
When the data-gathering phase is over, the marketing auditor prepares
notes for a visual and verbal presentation to the company officer or small

s
er
group who hired him or her. The presentation consists of restating the
nk
objectives, showing the main findings, and presenting the major
recommendations. Then the auditor is ready to write the final report,
Ba

which is largely a matter of putting the visual and verbal material into
of

a good written communication. The company officer(s) will usually ask

the auditor to present the report to other groups in the company. If the
e

report calls for deep debate and action, the various groups hearing the
ut

report should organize into subcommittees to do follow up work, with

it

another meeting to take place some weeks later. The most valuable part
st

of the marketing audit often lies not so much in the auditor's specific
In

recommendations but in the process that managers begin to go through

to assimilate, debate, and develop their own concept of the needed
e
Th

marketing action.
:

Components of the Marketing Audit

of

A major principle in marketing audits is to start with the marketplace

ty

first and explore the changes that are taking place and what they imply
er

in the way of problems and opportunities. Then the auditor moves on to

op

examine the company's marketing objectives and strategies, organization,

Pr

and systems. Finally the auditor may move to examine one or two key
functions that are central to the marketing performance of that company
in more detail.

However, some companies ask for less than the full range of auditing
steps in order to obtain initial results before commissioning further work.

344 Marketing of Financial Services | Reference Book 1

 The company may ask for a marketing environment audit and, if satisfied,
then ask for a marketing strategy audit. Or it might ask for a marketing
organization audit first, and later ask for a marketing environment audit.

We view a full marketing audit as having six major components; each

can be semi-autonomous if a company wants less than a full marketing
audit. The six components and their logical diagnostic sequence are
discussed below.

Marketing Environment Audit

By marketing environment, we mean both the macro environment

surrounding the industry and the task environment in which the
organization intimately operates. The macro-environment consists of the
large scale forces and factors influencing the company's future, over which
the company has very little control. These forces are normally divided
into economic-demographic factors, technological factors, political-legal
factors, and social-cultural factors. The marketing auditor's task is to assess
the key trends and their implications for company marketing action.

an
However, if the company has a good long-range forecasting department,

st
then there is less of a need for a macro-environment audit.

ki
The marketing auditor may play a more critical role in auditing the

Pa
company's task environment. The task environment consists of markets,
customers, competitors, distributors and dealers, suppliers, and marketing

s
er
facilitators. The marketing auditor can make a contribution by going out
nk
into the field and interviewing various parties to assess their current
Ba

thinking and attitudes and bringing them to the attention of management.

of

Marketing Strategy Audit

e

The marketing auditor then proceeds to consider whether the company's

ut

marketing strategy is well postured in the light of the opportunities and

it

problems facing the company. The starting point for the marketing strategy
st

audit is corporate goals and objectives, followed by marketing objectives.

In

The auditor may find the objectives to be poorly stated, or well stated
but inappropriate given the company's resources and opportunities. For
e
Th

example, a chemical company had set a sales growth objective for a

particular product line at 15 percent. However, the total market showed
:

no growth, and competition was fierce. Here the auditor questioned the
of

basic sales growth objective for that product line. He proposed that the
product line be reconsidered for a maintenance or harvest objective at
ty

best and that the company should look for growth elsewhere.
er
op

Even when a growth objective is warranted, the auditor will want to

Pr

consider whether management has chosen the best strategy to achieve

that growth.

Marketing Organization Audit

A complete marketing audit would have to cover the question of the

effectiveness of the marketing and sales organization, as well as the quality

Direct/Indirect Marketing & Marketing Audit 345

 of interaction between marketing and other key management functions
such as manufacturing, finance, purchasing, and research and development.

At critical times, a company's marketing organization must be revised to

achieve greater effectiveness within the company and in the marketplace.
Companies without product management systems will want to consider
introducing them; companies with these systems may want to consider
dropping them, or trying product teams instead. Companies may want
to redefine the role of a product manager from being a promotional
manager (concerned primarily with volume) to a business manager
(concerned primarily with profit). There is the issue of whether decision-
making responsibility should be moved up from the brand to the product
level. There is the perennial question of how to make the organization
more market-responsive, including the possibility of replacing product
divisions with market-centered divisions. Finally, sales organizations often
do not fully understand marketing. In the words of one vice president of
marketing: "It takes about five years for us to train sales managers to
think marketing."

an
Marketing Systems Audit

st
A full marketing audit then examines the various systems being used to

ki
gather information, plan, and control the marketing operation. The issue

Pa
is not the company's marketing strategy or organization per se but rather
the procedures used in some or all of the following systems: sales forecasting,

s
er
sales goal and quota setting, marketing planning, marketing control,
nk
inventory control, order processing, physical distribution, new products
development, and product pruning.
Ba
of

The marketing audit may reveal that marketing is being carried on without
adequate systems of planning, implementation, and control. An audit of
e

a consumer products division of a large company revealed that decisions

ut

about which products to carry and which to eliminate, were made by the
it

head of the division on the basis of his intuitive feeling, with little
st

information or analysis to guide the decisions. The auditor recommended

In

the introduction of a new product-screening system for new products and

an improved sales control system for existing products. He also observed
e
Th

that the division prepared budgets but did not carry out formal marketing
planning and conducted hardly any research into the market. He
:

recommended that the division establish a formal marketing planning

of

system as soon as possible.

ty

Marketing Productivity Audit

er
op

A full marketing audit also includes an effort to examine key accounting

Pr

data to determine where the company is making its real profits and what,
if any, marketing costs could be trimmed. Decision Sciences Corporation,
for example, starts its marketing audit by looking at the accounting figures
on sales and associated costs of sales. Using marketing cost accounting
principles, it seeks to measure the marginal profit contribution of different
products, end-user segments, marketing channels, and sales territories.

346 Marketing of Financial Services | Reference Book 1

 We might argue that the firm's own controller or accountant should do
the job of providing management with the results of marketing cost
analysis. A handful of firms have created the position of marketing
controllers, who report to financial controllers and spend their time
looking at the productivity and validity of various marketing costs. Where
an organization is doing a good job of marketing cost analysis, it does not
need a marketing auditor to study the same. But most companies do not
do a careful marketing cost analysis. Here, marketing auditors can pay
their way by simply exposing certain economic and cost relations that
indicate waste or conceal unexploited marketing opportunities. Zero-
based budgeting is another tool for investigating and improving marketing
productivity.

In normal budgeting, top management allots to each business unit a

percentage increase (or decrease) of what it got last time. The question
of whether that basic budget level still makes sense is not raised. The
manager of an operation should be asked what would basically be needed
if the operation were started from scratch and what it would cost. In this
way, a budget reflecting the true needs of the operation is built from the

an
ground up. When this technique was applied to a technical sales group

st
within a large industrial goods company, it became clear that the company
had three or four extra technical sales people on its payroll.

ki
Pa
The manager admitted to the redundancy but argued that if a business
upturn came, these people would be needed to tap the potential. In the

s
er
meantime, they were carried on the payroll for two years in the expectation
nk
of a business upturn.
Ba

Marketing Function Audit

of

The work done to this point might begin to highlight certain key marketing
e

functions that are performing poorly. The auditor might spot, for example,
ut

sales force problems that go very deep. Or it might become clear that
it

advertising budgets are prepared in an arbitrary fashion and such things

st

as advertising themes, media, and timing are not evaluated for their
In

effectiveness. In these and other cases, the issue becomes one of notifying
management of the desirability of one or more marketing function
e
Th

audits.
:
of
ty
er
op
Pr

Direct/Indirect Marketing & Marketing Audit 347

Part Three Developing and Implementing
the Marketing Program
Chapter 12 Strategic Marketing and marketing mix

Student Learning By the end of this chapter you should be able to:
Outcomes
Define the term 'Strategic Marketing'

Explain why it is important to employ the concept of strategic

marketing

Explain the concept of 'marketing mix'

List and discuss the components of a bank's marketing mix

Differentiate between marketing mix and the product mix

an
Apply the concepts of strategic marketing and develop a marketing

st
mix for a financial institution in a given scenario

ki
Pa
Strategic Strategic marketing has been defined as the management function

s
er
Marketing responsible for identifying, anticipating and satisfying customer
nk
requirements profitably.
Ba

Strategic Marketing is, therefore, both a philosophy and a set of techniques

of

which address such matters as research, product design and development,

pricing, packaging, sales and sales promotion, advertising, public relations,
e

distribution and after-sales service. These activities define the broad scope
ut

of marketing and their balanced integration within a marketing plan,

it

that is known as the marketing mix. A modification of a definition of

st

strategic marketing suggests that marketing is the management process

In

that seeks to maximize returns to shareholders by creating a competitive

advantage in providing, communicating and delivering value to customers
e

thereby developing a long-term relationship with them. This definition

Th

clearly defines the objectives of marketing and how its performance

:

should be evaluated. The specific contribution of marketing in the

of

organization lies in the formulation of strategies to choose the right

customer, build
ty

relationships of trust with them and create a competitive advantage.

er
op

Scope of strategic marketing

Pr

Marketing is a philosophy that leads to the process by which organizations,

groups and individuals obtain what they need and want by identifying
value, providing it, communicating it and delivering it to others. The core
concepts of marketing are customers' needs, wants and values; products,
exchange, communications and relationships. Marketing is strategically
concerned with the direction and scope of the long-term activities

348 Marketing of Financial Services | Reference Book 1

 performed by the organization to obtain a competitive advantage. The
organization applies its resources within a changing environment to
satisfy customer needs while meeting stakeholder expectations.

Implied in this view of strategic marketing is the requirement to develop

a strategy to cope with competitors, identify market opportunities, develop
and commercialize new products and services, allocate resources among
marketing activities and design an appropriate organizational structure
to ensure that the desired performance is achieved.

There is no unique strategy that succeeds for all organizations in all

situations. In thinking strategically about marketing many factors must
be considered:

● the extent of product diversity and geographic coverage in the

organization;

● the number of market segments served,

an
● marketing channels used,

st
the role of branding,

ki
●

Pa
● the level of marketing effort,

s
● and the role of quality.
er
nk
Ba

It is also necessary to consider the organization's approach to new

product development, in particular, its position as a technology leader or
of

follower, the extent of innovation, the organization's cost position and

pricing policy, and its relationship to customers, competitors, suppliers
e

and partners.
ut
it

The challenge of strategic marketing is, therefore, to manage marketing

st

complexity, customer and stakeholder expectations and to reconcile the

In

influences of a changing environment in the context of a set of resource

capabilities. It is also necessary to create strategic opportunities and to
e
Th

manage the changes required within the organization. In this world of

marketing, organizations seek to maximize returns to shareholders by
:

creating a competitive advantage in identifying, providing, communicating

of

and delivering value to customers, broadly defined, and in the process

developing long-term mutually satisfying relationships with those
ty

customers.
er
op

A strategic marketing approach attempts to determine ways of offering

Pr

superior value to the more profitable segments without damaging

individual customer relationships. A strategic marketing approach reflects
an integrated approach based on research and feedback. Customer needs
are first evaluated through market research, an integrated marketing
effort is developed to satisfy customers so that the organization achieves
its goals, especially those affecting shareholders.

Strategic Marketing and marketing mix 349

 This is a customer orientation, and contrasts very bluntly with a narrow
competitor orientation based on sales, in which the organization by
capitalizing on the weaknesses of vulnerable competitors or by removing
its own competitive weaknesses attempts to obtain high sales and long-
run profits.

Marketing Mix

The marketing mix is a concept that dates back to the early 1960s. It
basically represents the tools through which marketing objectives are
achieved and usually comprises the greater part of the organization's
marketing activities.

The main components of the marketing mix have come to be known as

the "Four Ps":

● Product
● Promotion
● Price
Place (Distribution)

an
●

st
We shall take this foundation and develop it slightly further, adding:

ki
People

Pa
●

● Physical evidence

s
● Process
er
nk
The "mix" is defined by taking these components and utilizing them in
Ba

the most effective manner in each marketing situation. Each element of

the marketing mix will be covered separately. However, in practice,
of

decisions about the ways in which each individual element is used are
interrelated with the others and cannot be isolated. For example, in the
e
ut

right circumstances, a lowering of interest rates on specific types of loans

it

could be as effective in generating business as an increase in advertising

expenditure.
st
In

The most suitable marketing mix will reflect knowledge about customers,
their requirements and the relative strengths and weaknesses of the
e
Th

organization in relation to the competition. In addition, the marketing

mix will change between products, services and market conditions.
:
of

Marketing skills are demonstrated in getting the correct mix to make a

product or service a success and ultimately achieve the organization's
ty

objectives.
er

Product Decisions
op
Pr

Consider these statements:

"Customers don't buy products; what they are looking for is a bundle of
benefits and solutions."

350 Marketing of Financial Services | Reference Book 1

 "Customers love to buy from people, but they hate to be sold at."

"Marketers often do not understand the complexity or sophistication of

the product they are trying to sell."

Marketing is no different from other areas of financial services in that

your approach must always contain an element of "think customer". We
are all customers in some aspect of our lives. When people purchase
products, they are not motivated in the first instance by the physical
attributes of the product but by the benefits that those attributes bring
with them. Customers like to have these explained to them and, provided
they match their needs or solve their problems, they are likely to make
a decision to buy.

In the finance sector, different segments of the market seek different

benefits from investment portfolios. The older person wants a high income
yield; the younger person wants to grow capital at a rate higher than
inflation. However, for both segments, the decision to assemble a portfolio
arises from a wish to acquire certain financial and economic benefits

an
rather than to make specific investments.

st
Manchester United

ki
Pa
Manchester United provides a successful example of an extended benefits
package combined with customer relationship management (CRM)

s
strategy.
er
nk
Ba

Red-blooded loyalty at Manchester United

of

Manchester United is one of the biggest football clubs in the world, so

you could perhaps be forgiven for thinking it would not have to work
e

too hard to retain the loyalty of its supporters. However, according to

ut

Steven Falk, the club's director of commercial services, nothing could be

it

further from the truth.

st
In

"Our CRM strategy is based on us behaving as if the ground was half

empty every week," he explains. "We look at the entire customer
e
Th

relationship, from people who only come to a football match to people

who just want to buy things from us. We predict what they want from us
:

and satisfy their needs."

of

Man United embarked upon its CRM initiative about six years ago and
ty

started to pull the disparate elements together three years ago. That was
er

when the club launched its One United campaign. Working with direct
op

marketing agency Iris and IT services company Data Dimension, Man

Pr

United set out to revamp its 100,000-strong supporters club. Its aim was
to increase membership numbers and improve the benefits of membership.
The benefits package was extended to include club store discounts, a
football skills DVD and a yearbook summarising the last season's campaign.
Fans who did not attend matches were targeted through on-line and
offline surveys, roadshows and direct response advertising. The campaign

Strategic Marketing and marketing mix 351

 helped boost membership numbers to 160,000 - a size that has been
maintained in order to give each member a reasonable chance of obtaining
match tickets through a ticket ballot, another benefit of membership.

Despite these figures, and the fanatical support the club enjoys, Falk says
Man United is not resting on its laurels. "It might sound clichéd but CRM
is a journey, not a destination," he insists. "You never get to the end of
the process of continual development and improvement."
An important part of this process is to get supporters' feedback. An annual
satisfaction survey shows the club where it needs to concentrate its efforts.
"Four years ago, the fans told us they didn't think much of the scoreboard,
so we invested a significant amount of money in improving it," Falk says.
"The major issue at the moment is the speed of service in the catering
concessions at half time. Once we know what the issues are, we work hard
to put them right."

(Article from "Marketing Direct" April 2006)

In the financial services sector, some existing products - like the current

an
account, which has total customer acceptance - fill needs already recognised

st
and identified by the customer. It is rather more difficult to elicit
information on benefits that the customer would ideally like but which

ki
currently are not provided, but it can be done. Through market research,

Pa
a group discussion with a sample of customers or by asking customers to
fill in a questionnaire, it is possible to build up a list of benefits which,

s
er
to a greater or lesser extent, are sought by the users of one of the bank's
nk
products. Customers can also be asked what combinations of these benefits
they most prefer.
Ba
of

In addition, they can be asked to rate existing products according to how

well they provide these benefits. Out of this process can emerge a detailed
e

basis for the identification of a new product need - a new type of bank
ut

card, or a new type of personal loan with a different ceiling or repayment

it

period, or linked to a different type of commodity purchase.

st
In

When talking of reformulating or repositioning financial products, it is

useful to recall to mind what is the nature of "products" in the finance
e
Th

sector. The five basic elements of any financial services organization's

products are that they are concerned with:
:
of

● lending - money lent

● saving - money lodged
ty

● transmitting money
er

● protection - insurance
op

● advice.
Pr

Financial services products are also an example of derived demand.

Customers do not generally buy financial products because they want a
loan per se, or because a collection account facility is of itself desirable.
Nearly all financial services products are bought as a means to support
some other economic activity. A personal loan may enable a new car to

352 Marketing of Financial Services | Reference Book 1

 be purchased; a collection account ensures prompt access to receivables,
themselves derived from the supply of goods or services.

Understanding the underlying motivation for the transaction is yet another

example of the need to view the world through the eyes of the customer,
thereby more accurately reflecting the needs of those customers.

Promotion decisions

Before considering the different ways in which a financial services

organization can communicate with its customers, we should first be clear
as to why communication is necessary at all. The art of marketing is to
match the resources of the organization with the needs of customers. This
is done by manipulating the marketing mix, and we have already seen
the importance of structuring a range of products appropriate to the
needs of customers; but matching on its own is not enough. Customers
must also be aware that the organization can satisfy their needs. The
responsibility for achieving this, lies firmly with the marketer.

an
Marketing is a proactive activity, not a reactive one, hence the importance

st
of communication, because, however good the organization's products,
however excellent the organization's service, customers will not buy, or

ki
even consider using that provider, unless something has happened to

Pa
make them aware and to persuade them to buy.

s
er
As in any other organization, the methods of communication chosen by
nk
a financial services provider depends on the type of customer sought and
Ba

the nature of the product to be sold.

of

There is a huge armoury of techniques of communication available to

the marketer. These techniques may be deployed singly and in combination,
e

for the maximum effect within a given budget. The major methods of
ut

communication constitute a tool kit for all marketers, whether they are
it

operating in consumer or industrial goods markets or service markets.

st
In

Although different types of communication tend to be more widely used

in different markets (personal selling, for example, is the major form of
e
Th

communication in industrial markets), there are no hard and fast rules

about what methods can and cannot be used in any particular market.
:
of

Specific marketing situations must be evaluated on their own terms and

an appropriate communications strategy devised. Indeed, some of the
ty

most successful communication campaigns have resulted from the use of

er

a different method of communication in a market which had become

op

accustomed to receiving messages in one or two particular ways.

Pr

In the communications mix, as in the marketing mix as a whole, the

marketer will arrange the basic elements so as to achieve the emphasis
desirable for the particular market. The major methods of communication
which are widely available include:

Strategic Marketing and marketing mix 353

 ● advertising
● direct marketing
● public relations
● point-of-sale materials
● personal selling

Price Decisions

In the economists' view of the world, price is regarded as the chief

determinant of the level of sale of a product. Price is central to many of
their models and the mechanism whereby prices are set, has become a
major field of study. At the governmental level too, the price of goods
and services is subjected to great scrutiny, in this case because of the
implications for inflation and general social welfare.

In the light of this external interest in prices, it is perhaps all the more
surprising that many organizations adopt relatively unsophisticated
approaches to the determination of price, based on some rudimentary
formula or rule of thumb. It would appear that only infrequently do

an
pricing decisions form part of an overall integrated marketing strategy

st
where price is related in some specific way to the achievement of defined
objectives.

ki
Pa
The pricing decision is important in a number of ways but, clearly, its
main importance lies in its effect on profits by determining the revenue

s
er
that can be obtained and it also influences demand, thus affecting the
nk
volume of business achieved.
Ba

Price can take many forms, and involves setting interest rates, determining
of

fee structures and deciding on charges for bank accounts. When setting
prices and considering their possible effects, it is important to remember
e

that, in the financial sector, supply and demand change very rapidly and
ut

are subject to a great many factors.

it
st

Unique to the financial sector is the fact that prices must also be set with
In

regard to the credit standing of the customer. The customer must be credit
worthy and the company with AAA credit rating can demand the finest
e
Th

of rates. Other companies will not be in a position to do this because they

are likely to be deemed a greater risk. Risk assessment is always a
:

consideration in a financial provider's pricing policy. It is a canon of

of

banking practice that the rate charged should reflect the risk inherent in
the proposal.
ty
er

Rather than a single price being charged, it is often necessary to set a

op

range of prices to reflect risk assessments. Traditionally, cost orientation

Pr

has been the pricing stance in banking. If costs have risen, the banks have
sought to raise fees and charges in line with costs. At the end of the day,
the prices charged by each financial services provider must be related to
the price it has had to pay in the first place for its funds.

354 Marketing of Financial Services | Reference Book 1

 But acceptance of the increasing pressures of competition means that
most financial services organizations have moved towards a market
orientation in pricing.

Reaction to competition not only means that lending margins are eroded,
but also has implications for deposit rates, with banks being forced to
raise these and to offer interest-bearing cheque accounts, as a response to
the many new initiatives being introduced by new entrants to the financial
services sector.

Within a total market strategy, it is important to see how price interacts

with the other elements of the marketing mix. From this, we can see that
the importance of ensuring, that the price set is appropriate to each
financial services organization's marketing program.

A financial services organization and its managers must recognize that

pricing policies have a strategic importance in the context of sales and
market share objectives and the revenue requirements of the rest of the
organization's product portfolio. For example, if the chosen market

an
strategy were to establish as quickly as possible a sizeable share of the

st
market, then sales maximization through a penetration pricing policy
would seem to be indicated. In this case, the provider might even decide

ki
that the benefits of market share over-rode the need for initial profitability;

Pa
that is, that market share should be bought by a deliberate pricing policy.

s
er
On the other hand, in the case of an established product well into the
nk
maturity stage of its life cycle, the product might be viewed as a source
Ba

of cash for financing the growth of other products. In these circumstances,

the pressure would be to maintain price, and even to increase it at the
of

expense of sales and market share.

e

A financial services organization's market profile should also have an

ut

influence on pricing decisions. In order to avoid damaging its reputation,

it

an organization may offer a price towards the upper end of the range
st

which would imply high quality. A reduced price may not necessarily lead
In

to an increase in the volume of sales. On the contrary, price is seen by

many customers as an indicator of the product's quality or the value of
e
Th

the manager's advice.

:

In this latter context, we are seeing price in its true strategic role as a
of

variable that enables the achievement of marketing objectives across the

complete product portfolio. The pricing decision on a specific product
ty

should be viewed in relation to the strategic requirements of the financial

er

services provider's global market strategy as well as in terms of the product's

op

own needs.
Pr

In almost all financial services markets, the competitive structure of the

market influences the price decision. Often, pricing discretion is limited
by the fact that a going rate exists in the market and this single fact of
necessity will determine the price at which individual organizations must
operate.

Strategic Marketing and marketing mix 355

 For the marketing manager, these various aspects of the pricing decision
can be seen as providing a framework for manoeuvre which can be
summed up as:

● Price should be set above the cost of a product sale, or it cannot make
a profit.

● Price should be set within the limits of what the customer regards as
"too low" and "too high" for the product.

● Price should be set with an eye on the going rate but not necessarily
to match it.

● Price should be set remembering that customers may judge quality

by price.

● Price should be set to maximise the financial services organisation's

return on its finite resources.

These five considerations set the discretionary range for a financial services

an
organisation's pricing decisions. As we have seen, even this range of

st
manoeuvre might be circumscribed by competitive factors. In addition,

ki
it is often necessary to take into account the effects of government

Pa
regulations and controls on the environment in general, and a pricing
decision in particular, like government controls on interest rates, and

s
so on.
er
nk
Overall, it is apparent that the pricing decision is one which has so many
Ba

ramifications for profit and for strategy that it should be taken in the
light of careful analysis of the many factors outlined above.
of
e

Place Decisions
ut
it

Place is the shorthand description for the means by which a financial

st

services organization actually makes its products available to its customers.

In

It is clearly an activity of some importance since it represents the addition

of time and place utility to the product. Without this added value, the
e

product is not only worthless, but unavailable to customers.

Th

Clearly, "place" in financial services organizations covers rather different

ground from what would be understood by that term in manufacturing
:
of

industry. In that context, "place" might mean the distributive function.

This has been given a number of names, including physical distribution
ty

management (PDM), marketing logistics and materials management, all

er

of which are associated with the movement activity within a company -

op

the flow of materials and information through the whole business process,
Pr

ending with the finished goods arriving at the customer's premises. "Place"
also means the marketing channels through which customers acquire the
company's products.

It is not difficult to see that the relevance of this second aspect of "place"
is not confined to manufacturing industry. Financial services organizations,

356 Marketing of Financial Services | Reference Book 1

 like all service industries, employ channels to ensure that the right product
gets to the right place at the right time.

The staffed branch network is the traditional delivery mechanism for

retail banking services. Such networks evolved to attract relatively cheap
retail deposits through the convenience of branch locations and branch-
based payment systems. As a result, they have provided a highly effective,
though increasingly costly, mechanism for administering, collecting and
delivering cash.

They have also, simultaneously, facilitated the selling and servicing of a

wide range of financial services. However, the changes in competition
through financial deregulation, technology and customer requirements
has brought the role and overall nature of the retail bank branch network
into question.

In addition to potential changes in the branch network, there is now a

range of delivery mechanisms available to retail banks for selling and
servicing financial services, including:

an
st
● bank premises
third party premises (such as supermarkets)

ki
●

● ATMs

Pa
● kiosks/screen banking facilities
telephone

s
●

● internet pages
er
nk
● home banking computer systems
Ba

● company visits
● post
of

● EFTPOS
e

Telephone banking
ut
it

One area where there has been significant advancement over the last ten
st

years is the home-based or telephone banking facility. In the UK this

In

started off with the computer-based home and office banking system
jointly launched by the Bank of Scotland and Nottingham Building
e
Th

Society in 1986. This original system required the customer to have a

small terminal or computer hardware which could communicate with
:

the bank through the telephone lines. With such a system, customers
of

could access their accounts, check the balance and transfer money to other
accounts and to pay bills.
ty
er

Midland Bank went one stage further in 1989 by setting up a bank which
op

could only be accessed through the telephone or via ATMs. The telephone
Pr

system is manned by human operators who not only provide the same
services as any bank branch but also undertake cross-selling activities.

All of the major banks now offer a telephone banking service, although
in most cases customers can continue to use the branch network as well
as the telephone for operating and managing their accounts. For some

Strategic Marketing and marketing mix 357

 services, interactive voice response (IVR) telephone banking is used where
a customer simply requires a touch-tone telephone.

The bank's computer responds in an interactive simulated voice to

commands given through the telephone's touch-tone buttons. The same
activities are possible in a PC-based system and the cost to the bank per
transaction is almost half of that for an ATM transaction, taking into
account hardware and telecommunication costs.

For the banks which have set up telephone banking operations, their
ultimate objectives are:

● to remain competitive while reducing overheads on transaction-based

accounts

● to free up the branches to deliver services for other products and

customer segments which require face -to -face contact.

Typical services available through telephone or computers.

an
BASED DELIVERY SYSTEMS

st
ki
● Check the balance of an account and enquire about recent transactions
Transfer money between accounts

Pa
●

● Pay regular bills

s
● Amend and cancel direct debits and standing orders
● Stop cheques er
nk
● Request statements/new cheque books
Ba

● Order travel money

● Arrange a loan
of

An alternative route is to place branches inside other types of outlet. In

e
ut

particular, shopping malls are emerging as natural sites for branch or

it

kiosk banking. In addition to offering longer opening hours, the cost of

a kiosk is likely to be one fifth to one tenth of the price of a traditional
st

branch to build and operate. Interestingly, in the USA bank branches

In

opened in supermarkets have performed far more successfully than those

established in department stores.
e
Th

In the UK, the cashback facility where customers can withdraw money
:
of

from their accounts in supermarkets using their debit cards is now well
established. Apart from providing customers with a basic banking facility,
ty

it reduces the supermarket's cash handling costs.

er

The face of traditional branch banking has significantly changed over

op

recent times. Apart from the noticeable increase in the number of financial
Pr

services providers, banks themselves have radically reviewed their networks

in light of alternative, more cost effective delivery mechanisms. Taking
this a stage further, the newly streamlined branch networks have been
the subject of redesigned layouts accommodating changes such as:

358 Marketing of Financial Services | Reference Book 1

 ● open-plan working

● removal of barriers between customers and staff with the removal of

glass screens/rising screens while still ensuring that staff security was
not compromised

● queue management systems

● limited back office work with much of this type of work removed to
centralised functions.

The challenge throughout this change process has been to ensure that
relationship management activities are not compromised or limited by
adoption of delivery mechanisms that are less conducive to these
techniques.

People Decisions

Although the management of a financial services organization's service

personnel may be seen as the responsibility of the human resource

an
function, the critical impact of branch and telephone staff on the satisfaction

st
of customers means that this has to be closely integrated with the

ki
management of the other elements of the marketing mix.

Pa
The elements that require to be managed include:

s
1 Recruitment and selection er
nk
Ba

Recruitment policies should reflect the profile of the customers, with the
selection of staff being based on their ability and willingness to satisfy
of

customer needs. The skills required for operating equipment (telephony)

e

and processing the components of the service encounter are also important.
ut
it

2 Training and development

st

Human resource management emphasizes labor as a resource of production

In

to be used like any other raw material, which may lead to an alienated
e

and poorly motivated workforce which in turn will impact on the quality
Th

of service provided. Therefore to develop customer satisfaction and support

the other elements of the marketing mix, the goal of human resource
:
of

management should be the training and development of service personnel

as the organization's most valuable resource.
ty
er

3 Communication
op

It is vital that staff is not only aware of their own role in dealing with
Pr

customers but that they also understand the "bigger picture" or reasoning
behind the roles they are undertaking. This not only motivates the staff
but also empowers them to use their own initiative when dealing with
non-standard enquiries.

Strategic Marketing and marketing mix 359

 4 Career development and reward mechanisms

The retention of staff is often directly related to the quality of reward on

offer. From the organisation's point of view, some form of performance-
related pay can influence not only the efficiency of transactions but also
the level of sales and marketing activity undertaken by front line staff.
Both full time and part time staff require a clearly defined career progression
pathway. Do not make the mistake of treating staff employed on flexible
contracts differently from their full time colleagues. The only difference
is in the number of hours which they work; it does not influence their
capabilities.

Career progression, or otherwise, should remain to a high degree a personal

choice. If an individual demonstrates the appropriate skills and
commitment, they should be assessed accordingly and not on the number
of hours they attend work. People's circumstances continually change
and individuals often move between full time and part time work.

5 Monitoring and controlling staff

an
This involves the monitoring of performance relative to the organizational

st
goals, but also the elements of supervision, employee participation and

ki
teamwork necessary to meet these goals.

Pa
These elements are critical as service personnel are essential in analyzing

s
er
and interpreting what is happening in the marketplace; their creative
nk
capacities are required to design and refine the product offerings and the
service delivery system; their discretionary capacities construct the "fit"
Ba

between the product offering and the customers' needs, and they are the
of

face of the organisation during any interactions with the customer.

e

Physical Evidence Decisions

ut
it

The term "atmospherics" was coined by academics and designers to

st

describe the tailoring of the designed environment to enhance the

In

likelihood of desired effects or outcomes, such as:

e

greater user satisfaction, including both staff and customers

Th

● improvement in the image of the product or service provider

:

● increased efficiency in the function of that environment, for example,

of

greater productivity, increased sales and enhanced usage rates.

ty

The service environment is generally seen as playing an enormous role

er

in influencing the reality of a service in the consumer's mind. However,

op

one of the difficulties in the investigation of the impact of the service

Pr

environment is that many of the attributes making up an environment

exert their effects at or below the conscious level of awareness, although
the physical characteristics of the environment can create an emotional
state within individuals which affects behaviour.

360 Marketing of Financial Services | Reference Book 1

 It should also be remembered that other elements of physical evidence
such as staff uniforms, cheque books, bank statements and signage may
also influence customer attitudes and behavior. Therefore to ensure that
the financial services provider communicates to customers in a consistent
manner, care must be taken to coordinate the design of this physical
evidence with the organization's promotional activities, product
positioning, pricing policies and staff training.

Process Decisions

The management of the process involves the control of a system which

provides a financial provider's services to or for a customer, and includes
the design, planning and control of the system.

The major objectives of this activity are:

● the provision of customer satisfaction

● the effective and efficient use of all resources.

an
The resources could include:

st
ki
● people and skills - manual or cerebral skills

Pa
● physical assets - ATMs, computers, telephone equipment

s
er
● information - on customers, service requests
nk
● materials - office supplies, cheque books, plastic cards
Ba

● finance.
of

These resources require to be efficiently converted into a service which

e

is delivered to and satisfies customers.

ut
it

Although the concept of operations management is similar in both the

st

service and manufacturing sectors, the delivery of a service does provide

In

some unique challenges to the activity.

e
Th

Customers seek to utilize the delivery channels at their own convenience

and whilst to a degree times of high demand can be predicted, such as
:

lunch times, before/after a bank holiday etc, it can still create significant
of

problems in capacity planning and utilization as well as sustaining constant

levels of customer satisfaction.
ty
er
op
Pr

Strategic Marketing and marketing mix 361

 Part 4: The Global Market

Chapter 1: Global Marketing Trends & Marketing to Pakistani

National’s Abroad

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

362
Part Four The Global Market

Chapter 1 Global Marketing Trends & Marketing to

Pakistani National’s Abroad

Student Learning By the end of this chapter you should be able to:
Outcomes
List the challenges faced in marketing to Pakistani national's
abroad

State a few examples of Pakistani banks operating abroad

Discuss the influence of global marketing practices on Pakistan's

local marketing industry specifically the banking arena

Explain the concept of the world becoming a global village

an
st
Discuss the opportunities available and challenges faced by
marketing experts with the advent of globalization

ki
Pa
s
Global Village - The term "Global Village" is used to emphasize that the people have
concept and er
become closer due to increased communication channels and the ease
nk
definition with which they can contact each other; more aware since they can access
Ba

information with ease and participate in the happenings all around the
globe .. Physical distance is no more a hindrance to the real-time
of

communication among the people. The social circles have largely expanded
e

because people can search for online communities and interact with like-
ut

minded individuals. This technology fosters the idea of a conglomerate

it

yet unified global community. Due to the enhanced speed of online

st

communication and the ability of people to read about, spread and react
to global news very rapidly, it forces people to become more involved
In

with one another from countries around the world and be more aware
e

of their global responsibilities.

Th

Today, after more than a century of electric technology, we have extended

:
of

our central nervous system itself in a global embrace, abolishing both

space and time as far as our planet is concerned. - Marshall McLuhan,
ty

Understanding Media, 1964.

er
op

Marshall McLuhan's had foreseen our society interconnected by an

Pr

electronic nervous system, well before it actually happened. He was the

first person to popularize the concept of a global village and to consider
its social effects. His insights were revolutionary at the time and brought
in a fundamental change towards how everyone previously thought about
media, technology and communications.. McLuhan chose the insightful
phrase "global village" to highlight his observation that an electronic
nervous system (the media) was rapidly integrating the planet -- events

Global Marketing Trends & Marketing to Pakistani National’s Abroad 363

 in one part of the world could be experienced from other parts in real-
time, which is what human experience was like when we lived in small
villages.

While McLuhan popularized this concept, he was not the first to think
about the unifying effects of communication technology. Another thinker
along this line was Nicolas Tesla, who in an interview with Colliers
magazine in 1926 stated:

"When wireless is perfectly applied the whole earth will be converted

into a huge brain, which in fact it is, all things being particles of a real
and rhythmic whole. We shall be able to communicate with one another
instantly, irrespective of distance. Not only this, but through television
and telephone we shall see and hear one another as perfectly as though
we were face to face, despite intervening distances of thousands of miles;
and the instruments through which we shall be able to do this will be
amazingly simple compared with our present telephone. A man will be
able to carry one in his vest pocket."

an
McLuhan's ideas have permeated in our minds and the way we think. We

st
have become part of the global village and dependent upon technology
and media to such an extent that we are generally no longer aware of the

ki
revolutionary effect his concepts had when they were first introduced.

Pa
McLuhan made the idea of an integrated planetary nervous system a part
of our popular culture, so that when the Internet finally arrived in the

s
er
world it seemed no less amazing, but still somehow fitted in the natural
nk
order of things.
Ba

GLOBALIZATION - Concept and Definition

of

According to Friedman (1999), globalization is:

e
ut

"The inexorable integration of markets, nation, states and technologies

it

to a degree never witnessed before- in a way that is enabling individuals,

st

corporations and nations/states to reach around the world farther, faster,

In

deeper and cheaper than before, the spread of free-market capitalism to

virtually every country in the world."
e
Th

On the other hand, a great number of economists assert that globalization

:

is an on-going historical process that reached its apex toward the end of
of

the 20th century. This process leads to the increasing integration of the
production of goods, services, ideas, culture, communication and
ty

environmental pollution on a world-wide scale, imparting locality of

er

populations and labor.

op
Pr

"Globalization" is currently a popular yet controversial issue. Quite often

it remains a poorly-defined concept. Sometimes it is used to encompass
increases in trade and liberalization policies as well as reductions in
transportation costs and technology transfer. The discussion on globalization
tend to consider its effects simultaneously on economic growth,
employment and income distribution - often without distinguishing

364 Marketing | Reference Book 1

 between countries and within-country inequalities and other social impacts
such as opportunities for poverty alleviation, human and labor rights,
environmental consequences and so on.

Dimensions of Globalization

Globalization is an umbrella term with important dimensions, which

can be related to every aspect of daily life some of the dimension are as
follow:

● Economics - related to globalization in trade, money, corporations,

banking, capital;

● Political - science, governance, wars, peace, IGOS, NGOS, and regimes;

● Sociology-communities, conflict, classes, nations, agreements;

● Psychology-individuals as subjects and objects of global action;

an
● Anthropology- cultures overlapping, adapting, clashing, merging;

st
Communications- information as knowledge and tools-internet;

ki
●

Pa
● Geography- Everything - provided it can be anchored in space;

s
er
Each of these social sciences looks at a special aspect of the whole system
nk
of interdependent parts that constitutes our world system. Each discipline
Ba

constructs a concept of globalization that reflects its special point of view.

of

Impact on World Economy

e
ut

Since the 1980's the world economy has become increasingly "connected"
it

and "integrated". On one hand the decreasing transportation costs and

st

the diffusion of information and communication technology imply a fast

In

decreasing concept of "distance", while on the other there is significant

rise in hand gross trade, Foreign Direct Investment (FDI), capital flows
e

and technology transfer. In most countries, however, the increased emphasis

Th

on "globalization" is resulting in increasing concerns about its impact on

:

employment and income distribution. While its impact is more positive

of

for the developed world, globalization impacts are far more adverse in
the developing countries with respect to both employment and income
ty

distribution. For instance, optimists would underline the link between

er

increasing trade and economic growth and would conclude that trade is
op

good for growth and growth in turn is good for the poor (both in terms
Pr

of job creation and poverty alleviation). In contrast, the pessimists feel

that globalization is quite uneven in its impact and gives rise to negative
counter-effects on the previously protected sectors, the marginalization
of entire regions of the world economy and possible increases in within
country income inequality.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 365

 Another example of this kind of diversity of opinions is the debate about
poverty indicators: supporters of globalization underline the fact that
worldwide absolute poverty has decreased over the last two decades, while
critics of globalization show that this result is almost entirely due to
statistical artifacts and to the fast growth of China, while absolute poverty
has increased in many developing countries and relative poverty has
increased in the majority of countries.

Positive impacts of Globalization

Globalization is dominating the world economy since the nineties of the

last century. People relied more on the market economy, had more faith
in private capital and resources, international organizations started playing
a vital role in the development of developing countries. The impact of
globalization has been fair enough on the developing economies to a
certain extent. It brought along with it many opportunities for the
developing countries. The technology transfer promised better productivity
and thus improved standard of living.

an
Advantages:

st
Economic integration by 'globalization' enables the cross country free

ki
flow of information, ideas, technologies, goods, services, capital, finance

Pa
and people. This cross border integration has different dimensions -
cultural, social, political and economic. More or less the economic

s
integration happened through four channels:
er
nk
Ba

1. Trade in goods and services

2. Movement of capital
of

3. Flow of finance
4. Movement of people
e
ut

1. Trade in Goods and Services - In theory, international trade ensures

it

consistent allocation of different resources. This process specialization

st

leads to better productivity. From the economic perspective, restrictive

In

trade barriers in emerging economies only impede growth. Emerging

economies can reap the benefits of international trade if only all the
e
Th

resources are utilized in full potential. This is where the importance

of reducing the tariff and non-tariff barriers crop up.
:
of

2. Movement of Capital - The production base of a developing economy

gets enhanced due to capital flows across countries. It was very much
ty

true in the 19th and 20th centuries. The mobility of capital enables
er

savings for the entire globe and exhibits high investment potential.
op

A country's economic growth doesn't, however, get barred by domestic

Pr

savings. Foreign capital inf low plays an important role in the

development of an economy. To be specific, capital flows either can
take the form of foreign direct investment or portfolio investment.
Developing countries would definitely prefer foreign direct investment
because portfolio investment doesn't have a direct impact on the
productive capacity expansion.

366 Marketing | Reference Book 1

 3. Financial Flows - The capital market development is one of the major
features of the process of globalization. Growth in capital and mobility
of the foreign exchange markets enable better transfer of resources
cross borders and by large the global foreign exchange markets improve.
It is mandatory to go in for the expansion of foreign exchange markets
and thus facilitate international transfer of capital.

Negative impacts of Globalization:

Globalization has thrown open varied challenges such as inequality within

and across different nations. There has been a volatility in financial
markets and the general environment is changing from bad to worse.
Additional negative aspect of globalization is that a majority of third
world countries have stayed away from the limelight.

Disadvantages:

1. The critics of globalization believe that international businesses are

responsible for social inequality, poor working conditions, turning

an
blind eye towards environmental issues, unprofessional handling of

st
natural resources and biological harm. Anti-globalization supporters
feel that the World Trade Organization, the World Bank and the

ki
International Monetary Fund are the leaders of economic globalization

Pa
and blindly follow only those guidelines which yield their corporate
interests.

s
er
nk
2. Anti-globalists feel that the economic growth is not the only factor
Ba

which makes people happier but can often make their lives depressing
with organizations like WTO making the rich richer and the poor
of

poorer. These organizations get away with their share of profits by

ignoring nature and human interests.
e
ut

3. Globalization elevates the inflow of skilled and non-skilled employment

it

opportunities from the developed economies to third world in search

st

of cheap workforce.
In

4. Growth in chances of monetary commotions in one country affecting

e
Th

all other countries.

:

5. Corporate control of nation-states is greater than that of civil society

of

associations.
ty

6. The privatization of world media and its authority in the hands of a

er

few restricts the artistic and ethnic expression.

op
Pr

7. Globalization might lead to greater risks of violent behavior from

people at the receiving end in an effort to conserve cultural inheritance.

8. Restriction less international travel and inf lux of foreign visitors

generate greater chances of spread of diseases carried accidentally
between countries.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 367

 9. Anti-globalists predict that the globalization is responsible for altering
people's mindset, outlook and lifestyle and it promotes materialistic
way of living.

10. They also hold international organizations like the World Trade
Organization responsible for violating national and individual
independence.

11. Greater probability of civil war within the third world nations and
open conflict between them as they compete for resources.

Globalization and changing face of marketing efforts:

Globalization or the global village concept brings a wide array of pros

and cons for marketers to ponder over. Where it opens many doors of
opportunities it also raises many concerns among the marketers, hence
it is imperative for marketers to understand the concept of globalization
and analyze its possible negative and positive outcomes before starting
into their marketing efforts. Following are some of the impacts of

an
globalization that on marketing practices:

st
1. Competition: With diminishing borders, competition is no more local

ki
or with competitors who are located nearby. The whole world is

Pa
now competing against each other. For developed nations, this opens
a wide array of opportunities whereas for the developing or

s
er
underdeveloped nations this poses a serious threat. Giants like China
nk
and USA use economies of scale, cheap products and raw materials to
have a competitive advantage and thus rule the market.
Ba
of

2. Income Distribution: Although globalization leads to economic

development in most of the developing countries, it does not however
e

help to minimize income inequalities within that country. Masses still

ut

live below the poverty line and their standard of living goes further
it

down considerably. One of the main causes of poverty in these countries

st

is income inequality. While the effects of globalization, economic

In

liberalization and market growth are felt in the cities and urban sectors,
most of the rural areas do not get too developed and their condition
e
Th

does not get significantly improved.

:

3. Employment: According to the theory of the relative comparative

of

advantages, both trade and FDI should take advantage of the abundance
of labor in developing countries and trigger a trend of specialization
ty

in domestic labor-intensive activities, resulting in an expansion in local

er

employment.
op
Pr

However, contrary to this prediction, the analysis of the recent literature

supports the conclusion that the employment impact of increasing trade
is not necessarily positive for a developing country.

When a developing country opens its borders to foreign capital, FDIs

generate positive employment impacts both directly and indirectly through

368 Marketing | Reference Book 1

 job creation within suppliers and retailers and also a tertiary employment
effect through generating additional incomes and so increasing aggregate
demand. Yet, all these positive employment effects of FDI have to be
compared with the possible crowding-out of non-competitive and
previously sheltered domestic firms (implying bankruptcies and job
losses); with the possible labor-saving effects of the new technologies
brought about by multinational firms and with the possible reduction
in employment associated with FDI operating through Mergers and
Acquisitions (M&A). In fact, both imports and inward FDI may imply a
"crowding out" of domestic production. This job displacement effect can
be further amplified when FDI inflows are accompanied by financial
liberalization and consequent increases in the interest rate, in turn leading
to shrinking domestic investments. Since the overall employment impact
of trade and FDI is uncertain from a theoretical point of view, it is
important to collect data on these relationships and to empirically
investigate the direct and indirect effects of globalization on the domestic
employment of developing countries.

4. Social Factors: Contrary to popular belief, globalization does not

an
concentrate on making the world an equal place to reside for all

st
sections of the society - it, however, ends up making the rich richer
and the poor poorer, rather poorest. Emergence of WTO as a factor

ki
behind the liberalization of business globally is the biggest example

Pa
of this fact.

s
er
a. Distributional outcomes of globalization: While the advocates of
nk
globalization believe that it helps in growing income between all the
Ba

sections of the society and even low-income groups have emerged as

winners, the critics propose that globalization may increase total
of

incomes but the advantages are not equally distributed among the
national population. Moreover the ever-increasing social disputes not
e

only increase the welfare and social issues but also restrict the factors
ut

of growth due to the lesser utilization of prospects opened by

it

globalization. The research data recommends that the income inequality

st

has increased across the nations over the last twenty years and at the
In

same time the average real incomes of the weaker sections of the
society has elevated. The analysis reveals that growing business and
e
Th

economic globalization have had equal and opposite effects on income

distribution pattern. The factors which are connected with lower
:

income inequality are liberalization of business and export growth,

of

whereas higher inequality is associated with growing economic

openness.
ty
er

In a world where 400 highest income earners from the United States
op

earn as much money annually as the total population of 20 African

Pr

countries, something seems to be intensely wrong. Global inequalities

exist at alarming levels. As per the data from the International Monetary
Fund ten percent of the richest global population is 117 times higher
than the poorest ten percent. This is a massive increase from the
percentage in 1980, when the earnings of the 10 percent of richest
population was around 79 times greater than 10 percent of the poorest
population.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 369

 In spite of these numbers, there is a considerable debate among
economic analysts about whether the entire global disparity is increasing
in the time of corporate globalization. That is because of the
impact of China and India, huge nations have been developing
while most of the developing economies have been dormant or
decreasing financially and most of the developed economies have been
growing sluggishly.

Inequality within the countries is increasing which is evident in developed

nations of the United States and the European Union. Organizations like
the World Trade Organization, the International Monetary Fund (IMF)
and World Bank can be held responsible for such state of affairs and for
laying guidelines of the global economy.

Other factors that equally contribute are domestic power scuffle over
national tax strategy, corruption, investment decisions in education and
healthcare, etc.

Factors responsible for social inequalities:

an
st
1. Financial liberalization and financial instability
2. Debt which the developing nations together owe $2.3 trillion to foreign

ki
creditors.

Pa
3. Higher interest rates
4. Trade liberalization - increasing wage disparity

s
er
5. Agricultural layoffs and agricultural business liberalization
nk
6. Business liberalization which divides the profit between capital and
labor
Ba

7. Flexibility of labor market

of

8. Intellectual property fortification

9. Privatization of market - transferring public wealth to private assets
e

10. Privatization of water and other public services

ut

11. Uneven disease liability and economic disparity

it
st

b. Social Anxieties:
In

Listed below are the three sources of anxiety between worldwide markets
e
Th

and social steadiness:

:

1. Across the nations, globalization triggers the services of large sections

of

of working people more effortlessly substitutable,

2. Commerce can set free factors that weaken guidelines in national
ty

practices, for example workers in USA are replaced by child laborers

er

from Pakistan or India,

op

3. Globalization and its cutthroat rivalry makes it hard for administration

Pr

to perform important tasks of offering the social programs

5. Cultural Factors:

Through the process of globalization, there is intermingling and blend

of various cultures, traditions and thoughts and interchange of ideas.

370 Marketing | Reference Book 1

 Another major aspect of globalization is the business and trade links
between various countries across the globe. Due to increased exposure to
media and information across borders there is immense cultural
transferability. These result in making people more aware of different
cultures and societies and helps open closed up areas in terms of heightened
awareness of laws and rights. People who want to invest in social benefit
get an opportunity to identify the neediest areas and provide help in
relevant ways as part of their social responsibilities.

FINANCIAL Financial globalization is defined as an amalgamation of domestic financial

GLOBALIZATION system of a particular country with the global organizations as well as
financial markets. Massive growth have been noticed in global economy
in the last couple of years, and in the field of technology, more precisely
in transport and communications there was a silent revolution which
made the globalization of finance an obvious choice. The Global Monetary
Fund (IMF) and World Bank are the two global institutions of finance
which were set up to endorse world trade to keep up with the growth of
Financial Globalization.

an
In the early 1990s, Financial Globalization inflated noticeably and capital

st
from developed countries to the developing countries started flowing in.
From 1973 to 2005, the rate of world trade increased at a great deal. It

ki
continues to grow and in the year 2005, the GDP of world hit 42%.

Pa
Impact of Financial Globalization: Although, there is rich history of trans-

s
er
country capital movements, but the impact of financial globalization is
nk
definitely huge in the composition of national and global capital markets.
Ba

The banking system was mostly stirred and it had to experience

disintermediation.
of

Advantages of financial globalization: There are loads of advantages that

e

the world is enjoying today due to Financial Globalization. First and

ut

foremost, it has enhanced capital flow in each and every country with
it

which a country may always remain prepared to counter any financial

st

crisis. Another most important factor is that, due to Financial Globalization

In

the capital flows between nations increase which causes well-organized

world allocation of money. Another important fact is that, globalization
e
Th

of finance has improved living standards of the people. Simply speaking,

Financial Globalization is the safeguard to defend against national shocks,
:

and an excellent system for more efficient global allocation of resources.

of

Disadvantages of financial globalization: The number of downsides of

ty

financial globalization is also not less. If the economy of the country is

er

not strong, it could be affected by the financial shocks of a different

op

country. Not just that, Financial Globalization can also cause severe
Pr

disorder and cost high for stock market turbulence, bank failures, corporate
bankruptcies, currency depreciation, etc. The latest example is recession.
Most of the countries are more or less affected due to financial shocks in
the U.S. Sudden reversal of capital can also create a great economic
turbulence on a large scale due to Financial Globalization.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 371

 To reap the benefits of financial globalization, it is a must to have first-
rate institutions and quality of governance. For this reason, it has been
noticed that the developing countries could hardly derive the benefits of
globalization as their infrastructure is not that much of well equipped.
On the contrary, it is a proven truth that that Financial Globalization is
extremely advantageous for the developed countries.

Financial globalization is the one of the most powerful dimensions of

globalization. It has caused great impact on the global economy and
constituted a remarkable change in the exhaustive cross-border financial
and cost flows. In addition, financial globalization also has great impact
in global risk-sharing management. There are myriad of aspects of Financial
Globalization, and financial globalization and financial stability is one
of them.

Due to financial globalization, a massive change has been noticed in the

market operators and institutions, in expanding the stakes of cross-border
properties as well as the growing global profile in the financial stability
of economic markets. These changes have been called as the 'second wave'

an
of financial globalization.

st
When the financial markets cannot perform at its best due to an

ki
unrelenting predicament, the situation is called as financial instability.

Pa
To counteract this instability, financial globalization takes an important
role. First of all, it changes the traditional government-ruled exchange

s
er
rate to a flexible exchange rate system. In addition, a precise application
nk
of liberalization and formation of institution is the crucial factor in all
emerging markets.
Ba
of

Reasons for financial globalization:

e

Technological advancement is considered as the prime cause of financial

ut

globalization. Especially, the transport and communications sectors have

it

experienced an enormous growth which caused a change in the financial

st

system. A combined effort of the technological advancement and the

In

expansion of financial liberalization ensured active financial globalization

in today's global economy.
e
Th

Due to financial globalization, there was a huge crisis in banking sector

:

which affected almost all the countries in the world. The first impact had
of

been noticed in the Nordic countries and Japan in the 1980s, while in the
1994, there was Mexican crisis, and crisis in banking sector in the Asian
ty

countries took place during the 1997-98. In the Russian countries it was
er

in 1998.
op
Pr

In the earlier days, the system was mainly political dominated, but financial
globalization and financial stability has reformed the entire system, and
gave birth to the market-directed system. This system performs important
role in determining the conditions of flexible accessibility in economy,
and exchange rates. In addition, it also helps to cope up with any sort of
financial crisis.

372 Marketing | Reference Book 1

 There was massive impact of financial globalization on the countries and
regions across the world. A total transmission noticed, and in the place
of bank-centered financial system, a market-driven financial system has
taken the charge. As a result, there was a downfall in the banking sector,
and they need to search for other options in domestic and global markets
to rejuvenate the sector.

Advantages:

It can undoubtedly be said that due to financial globalization and financial

stability there is boom in the economic sector. Plenty of options have
been opened and the sources of global financing have become cheaper
and easily accessible as well. Due to financial globalization, numerous
countries are enjoying financial stability which is widely accepted. The
most important thing is that, for the developing countries, financial
globalization and financial stability is really a boon. They have been
highly benefited from the security markets of the developed countries.
Furthermore, to keep the inflation rate in control, financial stability has
been very much effectual. In a word, financial globalization and financial

an
stability is definitely a perfect step for boosting up the economy in different

st
countries worldwide.

ki
Influence of Global Marketing Practices on a Country's Marketing Efforts

Pa
Global marketing is concerned with the application of marketing operations

s
er
across national frontiers. Many financial services organizations now
nk
operate in overseas markets as well as in the Pakistani market. They also
Ba

experience the global marketing efforts of overseas competitors entering

into or active within the Pakistani market.
of

Many corporate customers are involved in overseas trade and expect their
e

financial services providers to have either a presence in other countries

ut

or at least linkages with correspondent banks, representative agents, etc

it

in these countries. The growth in telephone and internet banking has

st

resulted in an increased awareness and interest in the opportunities and

In

threats posed by the marketing of financial services across national

boundaries.
e
Th

Following are the concepts and activities involved in transacting business

:

across borders:
of

Domestic versus global marketing

ty
er

The concept of marketing in global markets is the same as that for domestic
op

markets. It involves identifying customers and their needs, targeting

Pr

specific segments and planning and managing the elements of the

marketing mix. However, the main differences in global marketing relate
to aspects of scope, complexity and risk.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 373

 a. Scope:

The scope of global marketing is obviously much wider than domestic

marketing. The "world" becomes the financial services organization's
marketplace with a choice of a great many countries and markets and so
the organization can choose to operate in one country, a group of related
countries or in a wide range of countries globally.

There are many strategies for entering and developing overseas markets;
for example, an organization can offer its services in other countries
through exporting, joint ventures and wholly owned subsidiaries. It is
important to note that a financial services organization may use one of
these approaches or tailor specific approaches to specific countries.

b. Complexity:

The global marketing task is much more complex than the purely domestic
task in terms of:

an
● Market information

st
There is increased difficulty in obtaining information about overseas

ki
markets. Where information is available, it may be inaccurate or

Pa
incomparable with similar data from other countries. Completing
marketing research in foreign markets is likely to be more complex and

s
difficult to manage.
er
nk
Market characteristics
Ba

●
of

Regulations and legislation can mean that the provision of financial

services in other countries is very different from that experienced by the
e

financial services provider in the domestic market. In certain countries,

ut

banks are seen as being critical to national and economic security, and as
it

such, only domestic or government-owned banks are allowed to operate.

st

Even if non-domestic financial services organizations are allowed to

In

operate, they may face discrimination through higher costs and taxation
or having to compete with government-subsidized domestic banks.
e
Th

● Management
:
of

There will be issues relating to the management of personnel across

borders regarding the employment of indigenous and expatriate staff as
ty

well as the problems of language. Changes may be required in the structure

er

of the organization and reporting lines. The transfer of people and

op

materials from one location to another also becomes more time consuming
Pr

and complex.

374 Marketing | Reference Book 1

 Some of the other areas of complexity are:

DIFFERENCES BETWEEN DOMESTIC MARKETS AND GLOBAL MARKETS

Domestic Global

Research information is usually Research information may be

easily accessed extremely difficult to obtain and
interpret (as well as being in a
different language and currency)

Single currency Multiple currencies and varying

exchange rates

Single language Multiple languages

Business laws and regulations are A variety of laws and regulations

clearly understood

Business risks may be obvious May be difficult to accurately

an
identify and assess risk

st
ki
Documentation and credit control Documentation and credit control

Pa
reasonably straightforward may be complex and difficult

s
Planning and organizational The complexity of global trade
control systems can be er
often necessitates the adoption of
nk
straightforward and direct complex and sophisticated
Ba

planning, organization and control

systems
of

c. Risk:
e
ut
it

Global marketing is much more risky than purely domestic marketing

in the sense that the "unknown" element of the environment is larger,
st

and therefore, fear and perception of risk tend to be greater.

In

A variety of factors in the global environment tends to be less controllable

e

than in the domestic environment and are also less familiar, including:
Th

● political and social unrest - changes in governments, strikes and

:
of

industrial action, terrorism and conflicts

ty

● economic risk or economic downturn - such as currency depreciation

er

or crises affecting other economies

op

climatic conditions - tropical storms, flooding and other severe weather

Pr

conditions

● administrative bureaucracy - in certain countries it can be a very

difficult and slow process to obtain official permission to undertake
certain business activities or even simply to get a visa for access into
the country

Global Marketing Trends & Marketing to Pakistani National’s Abroad 375

 ● infrastructure - the reliability of transport, telecommunications and
energy links can all impact on the effectiveness of the overseas operation.

Justification for These complexities and differences may lead you to question why financial
globalization services providers and other organizations attempt to expand into global
markets. There is a wide range of reasons put forward, including:
● Economies of scale - reductions in unit production or processing costs
resulting from large scale operations

● New product development which often requires so much expenditure

that in many cases firms intending to introduce new products require
a larger or global market to recoup their investment

● The spread of risk whereby a sudden collapse in market demand in

one country may be offset by expansion in others

● Intense competition in the domestic market but little in certain overseas

countries

an
● The sight of foreign competitors entering an organization's domestic

st
market may provide the impetus for the organization to operate
globally

ki
Pa
● A product or service that has reached the end of its life cycle at home
may have a fresh lease of life if introduced into another country

s
er
nk
● The image associated with Scottish financial products may provide a
competitive advantage in overseas markets due to the high esteem in
Ba

which Scottish bankers are held abroad

of

● Doing business in foreign markets exposes a firm's management to

e

fresh ideas and different approaches to solving problems - this can give
ut

organization a competitive edge in its domestic market.

it

Overall, cross-border trade is today much easier to organize than it

st

was in the past due to improved communications, travel and global

In

business services. This has led to many more organizations operating

on an global marketing or even a multinational marketing basis.
e
Th

Global marketing in this context means marketing across particular

:

national frontiers, while multinational marketing means the integrated

of

coordination of the firm's marketing activities throughout the world.

Multinational marketing in practice is usually associated with the operations
ty

of multinational corporations (MNCs) which pursue global strategies in

er

relation to production, investment and marketing, and derive significant

op

proportions (usually in excess of 20%) of their revenues and profits from

Pr

overseas operations.

Thus, an MNC will seek to maximize its revenues on a global rather than
national level, locating its operations wherever conditions are most
favorable and regardless of the country in which the company's head
office is based. Multinational organizations include financial organizations,
such as Citibank, American Express, Barclays Bank etc.

376 Marketing | Reference Book 1

 There are basically five key tasks involved in global marketing:

1. Identification of global market opportunities

2. Researching specific country markets
3. Developing strategies for entering country markets
4. Designing the global marketing program
5. Organizing and controlling the global marketing program

1. Identification of global market opportunities

There are around 200 countries in the world. Very few financial services
organizations can afford or would wish to market their services in all of
them. Moreover, a global marketer who only has limited resources at his
or her disposal must identify the most attractive countries to priorities
and target.

Marketing opportunities in foreign countries usually exist but are difficult

to locate. Searching for export markets is akin to exploring for oil reserves

an
- direct observation may be difficult, but probabilities of their presence
can be assessed from the characteristics of environments where they might

st
be found.

ki
Pa
Collecting market information on numerous foreign countries is a
potentially enormous task, thus a logical, disciplined and structured

s
er
approach to market selection must be applied. This task is called market
nk
screening and involves screening out all of those markets offering little
Ba

chance of success and identifying those markets that have genuine potential.
The first step is to gather information of a general nature on each foreign
of

market that might be a candidate for entry. The range of available data
is very broad and should be categorized into the following types of group.
e
ut
it

Economic factors
st

Consideration should be given to the overall economic health of the

In

nation in terms of:

e
Th

● growth rates
● living standards
:

levels of inflation
of

● interest rates
ty

● balance of payments
er

● total GDP (Gross Domestic Product)

op

● GDP per capita by social group

current and possible foreign exchange restrictions
Pr

● structure of imports by value and product

● rates of growth of imports
● consumer expenditure by volume and product category
● rate of investment in fixed, capital and industrial equipment
● wage rates by gender and occupational category.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 377

 In particular, it may be possible to identify countries at the same level of
economic development and with consumers who exhibit the same patterns
of demand. For countries at similar levels of economic development as
the country of the exporting financial services organization, it may be
appropriate to find the variables with which demand for the organization's
products is most closely correlated within the domestic market, and then
look for these variables in other nations. How a particular market will
progress might be predicted from a careful analysis of how other countries
with similar economic backgrounds, but at a more advanced stage of
industrialization, progressed themselves.

Income and wealth might be measured by Gross Domestic Product in

total and per head of population as well as private consumption spending
and ownership levels of motor cars, houses and consumer durables. If
most people have incomes near the national average, their purchasing
habits are likely to be the same. Often, however, many people are below
the average, indicating a small, very rich section of the population and
a larger, much poorer section.

an
An even distribution of income and wealth is desirable for marketing

st
standard financial services products; uneven distribution might help sales
of offshore accounts, private banking operations and investment

ki
management services. Another relevant factor is the country's rate of

Pa
inf lation, which determines real (as opposed to nominal) changes in
standards of living.

s
er
nk
Social and cultural factors
Ba

Factors to be included within this grouping include:

of

● The structure and size of the population - different age groups have
e

disparate needs, incomes, perspectives and buying habits, so that the

ut

age structure of the population could be crucial for products that

it

appeal to particular age categories.

st

Ratio of urban to rural dwellers - the geographical area over which

In

the population is distributed might also be important. The lower the

e

population density per square mile, the more difficult and expensive
Th

it is to deliver a service through branches and offices.

:
of

● The degree of population concentration or urbanization can also

influence the perceived attractiveness of a market. City dwellers are
ty

easier to reach and, being more cosmopolitan in outlook, they are

er

more likely to respond positively to new ideas and new market entrants.
op

● Literacy rates and schooling periods - if literacy rates are low, it may
Pr

be difficult for an organization to communicate its offering and there

may be an inherent unwillingness to trust paperwork and organizations
such as banks which depend on statements, contracts, etc.

378 Marketing | Reference Book 1

 ● Cultural norms, religious groupings, life styles and consumer tastes -
local religious or cultural norms may influence financial practices.
Culture affects what people buy (taboos, local tastes, historical traditions,
etc), when they buy (such as the spending boom around Christmas in
Christian countries), who does the purchasing (men or women),
attitudes towards borrowing money and attitudes towards foreign
supplied products and services.

On a wider level, cultural influences are evident in some aspects of a

country's demographic makeup (e.g. household size, the role of the
extended family, the existence of a class-based society).

All of these factors will have an influence on purchasing behavior, people's

aspirations and their attitudes towards different financial services and
their providers.

● Language(s) - financial services organizations may prefer to locate in

countries which have a common language. Traditionally, many banks
have globalised by locating themselves in commonwealth countries

an
or in the United States where English is the common language.

st
Political and legal factors

ki
Pa
Political risk may be obvious where a country's government openly
broadcasts its views on the role of foreign companies in their economy.

s
er
Political risk may be latent, where, like a slow burning fuse, there is the
nk
danger of suddenly and unexpectedly losing one's assets in a possible
Ba

action of expulsion or nationalization.

of

Political risk may also be greater for some sectors than others. Sectors
which have major implications for national and economic security such
e

as oil exploration, transportation, telecommunications and the finance

ut

sector are more likely to be tightly controlled and monitored, than would
it

be the case for other product-based markets.

st
In

To reduce some of these risks, organizations may often prefer to operate

within their own geographic region or within their political and economic
e
Th

bloc. A major political and economic bloc for British organizations has
changed from being the British Empire and the Commonwealth to the
:

European Union.
of

Some financial services organizations concentrate on what is referred to

ty

as the Triad countries - namely Japan, Western Europe and the United
er

States. These three areas not only represent the major and fastest growing
op

market for most financial services, but are increasingly viewed as

Pr

homogeneous markets.

Whilst providing interesting background for financial services organizations,

they often prove to be inadequate as the risk level is determined at a
macro level and are not industry specific. A country that has a low risk
level, for example, may have plans to introduce new legislation restricting
foreign bank investment. This is perhaps the reason why financial services

Global Marketing Trends & Marketing to Pakistani National’s Abroad 379

 organizations choose to send a senior management delegation to foreign
countries to discuss recent and expected developments with government
officials and local trade leaders.

Legal systems will also vary from country to country - different laws,
interpretations and legal methods apply to commercial litigation within
each nation, and conflicts between the legal systems of specific countries
frequently occur. There is no uniform law governing global trade, only
the application of a nation's domestic law to global transactions.
Three types of legal system predominate in the modern world:

Common law

Common law approaches apply in English speaking countries and rely

on historical precedent, on judgments in specific cases and on ad hoc
legislation to create and interpret statutes.

Civil codes

an
Countries with civil codes, conversely, have written rules intended to

st
cover all eventualities, so that "the law" on a particular issue can be
looked up in the appropriate article of the country's civil code.

ki
Pa
Islamic law

s
er
Islamic law derives directly from the Qur'an and typically is mixed in
nk
with the preexisting common law or civil code provisions of the
country. Although there are no fundamental differences between
Ba

these legal systems and many countries do adhere to rules established

of

via global conventions, disputes still occur, particularly with regard to

contractual law. Examples of dispute relate to obligations of contracts,
e

withdrawal of offers, exemption and penalty clauses.

ut
it

The worldwide liberalization of global trade practices and procedures

st

has been an outstanding feature of the post-Second World War era.

In

Yet despite their notional support for free trade, many nations continue
to use restrictive measures in order to protect their own industrial
e
Th

and service sectors.

:

In screening countries, financial services organizations need to consider

of

the various exchange controls, tariff barriers, special documentation

requirements, subsidies of domestic organizations and administrative
ty

delays which may impact on the organization's global competitiveness.

er
op

Technology and infrastructure

Pr

Screening should also take account of the technological sophistication of

the country, not only in terms of providing the telecommunication and
electronic services and support to run a modern financial services
organization, but also in terms of the technological sophistication of
potential customers and staff.

380 Marketing | Reference Book 1

 The reliability of the country's energy and telecommunication services
is also an important screening factor. Access to global flights and investment
in the reduction of road and rail congestion may also be important.

Market and customer factors

In addition to the environmental factors outlined above, the specific

nature of the finance sector market within each country will have an
impact on its perceived attractiveness.

Questions such as the following need to be answered:

● What proportion of the population own the different types of financial

product?
● What are the trends in the markets for these products?
● How sophisticated are the consumers and on what basis do they choose
suppliers?

an
● How is the market segmented?

st
● What are the attitudes towards overseas suppliers/financial

ki
organizations?

Pa
● What are the fees or level of charges in the country?

s
er
Who are the competitors and what are their strengths and weaknesses?
nk
●
Ba

● What distribution channels do the competitors use?

of

Market attractiveness indexes

e
ut

Some financial services organizations compute indexes of market

it

attractiveness from weighted averages of whichever environmental and

st

market variables they consider most appropriate to their own objectives

In

and capabilities. Hence countries are ranked according to the number of

points they attract vis à vis key variables relevant to the market entry
e

decision.
Th
:

Stages in the implementation of a points system for comparing potential

of

markets are:
ty

1 Based on the financial services organization's overall corporate strategy

er

and a pragmatic assessment of its resources, strengths and weaknesses,

op

the management will list the criteria to be used in the analysis, eg

Pr

market size, gross domestic product, political risk and so on.

2 Weights are assigned to the perceived importance of each variable

depending on the nature of the product and the financial services
provider's particular circumstances.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 381

 3 All countries and/or markets that seemingly offer some potential are
analyzed. Published data is collected plus any other conveniently
available information on candidate countries under the selected criteria.

4 Countries are then placed in rank order and categorized into three
groups:

● Category 'A' countries - offer the best opportunities both in the

short and for the longer term

● Category 'B' countries - the kind of countries which represent a

medium level of attractiveness but as a result of one or two criteria,
the organization is reluctant to invest heavily therein

● Category 'C' countries - are sometimes called "no-hopers" and are

most commonly discarded at this stage.

5 The research effort applied to Category 'A' countries is intensified.

an
Further general information on Category 'B' is collected and, if appropriate,

st
certain countries may be promoted from Category 'B' to Category 'A'.
The remainder countries are dropped.

ki
Pa
The main difficulty in categorizing is the weighting attached to each
variable and the high sensitivity of the results to changes in weights.

s
er
Comparability exercises are complex, subjective and sometimes based on
nk
unreliable data, so the results need to be treated with extreme caution.
There are also difficulties with regard to:
Ba
of

● the high financial cost of gathering information on many countries

e

● the vast number of potentially relevant variables and the difficulty of

ut

deciding which ones are critical

it
st

● the extents and frequencies of dramatic changes in foreign market

conditions
In
e

● the fact that the initial screening process needs to rely on whatever
Th

published information about candidate countries happens to be

available in the exporter's home country. Data for certain countries
:
of

is unreliable, the base years of statistical series will differ, and many
gaps in data are likely.
ty
er

However, the major justification for completing a market attractiveness

op

index is perhaps the discipline it imposes on the managers involved,

Pr

requiring them to think carefully about their intended actions and to

adopt a logical and systematic approach to the problem.

2. Researching specific country markets

Having selected the countries to target, market research is likely to be

required to determine the entry route, marketing objectives and marketing

382 Marketing | Reference Book 1

 strategy. The process of researching global markets is not very different
from the one that is pursued in domestic markets, but the scope,
complexities and, inevitably, costs are very different.
Areas that cause particular problems include:

1. The comparability of results

The comparability of results is a major problem, particularly when trying

to compare one country with another. If data is derived from national
sources which do not conform to the same benchmark, there is a danger
that you are not comparing "like with like".

Every country's government will calculate their economic and social

statistics in different ways, using different categories and including/excluding
distinct groupings of activity or individuals. As such, it is important, at
all times, to ensure that sources of information used have been prepared
in accordance with the rules of comparability.

2. Languages

an
st
Global researchers must ensure that they understand the nuances of each
language. Developing questionnaires for multi-country use is more than

ki
simply direct translation. The subtlest difference in meaning may nullify

Pa
the objective of comparability, thus reducing the overall value of the
study.

s
er
nk
3. Cultural values
Ba

Cultural differences can impact on the type of responses. When Japanese

of

have to respond to a scale ranging from 1 for "poor" to 5 for "excellent",

they would tend to err upwards as they do not like to judge a situation
e

or product too harshly in case the recipient feels hurt and loses face.
ut

By the same token, in some cultures placing one's response at the halfway
it

mark, namely 3, is deemed to be a safe and fairly generous mark.

st

Attempting to compare the results without a built-in correcting mechanism

In

may lead to absurd conclusions.

e
Th

Culture may also impact on whether people will take part in research;
some may fear that information will get back to the government or the
:

taxman; in Islamic countries, it may be difficult to interview women;

of

some cultures may be reluctant to talk about personal finances or banking-

related subjects.
ty
er

Accepted methods
op
Pr

The acceptability of the research method can vary from country to country.
Postal surveys depend on the quality of mailing lists in each country, the
efficiency of the Post Office (how long does mail take to arrive?/does it
arrive?), the levels of literacy and public attitudes towards the completion
of questionnaires.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 383

 Telephone surveys depend on the level of telephone ownership, government
controls on cold calling and public attitudes towards telephone research
(positive in the USA, very negative in Latin America and the Middle East).
Personal interviewing will depend on current practice as to whether it is
undertaken on the doorstep or in the street. The acceptable length of the
questionnaire and the extent to which it is qualitative or quantitative will
vary from country to country.

Once these problems have been resolved as much as is practicable and

the initial research is complete, it is time to enter the selected markets.

3. Developing strategies for entering country markets

A new overseas market represents both a potential opportunity and a

risk to an organization. A financial services organization's market entry
strategy should aim to balance these two elements. There are a number
of options available, the most common in the finance sector being:

Supplying from a domestic base

an
st
The least risky method of developing an overseas service market is to
supply that market from a domestic base using post, telephone or the

ki
Internet and avoiding the cost and risk of setting up local service outlets.

Pa
Telephone banking linked with ATMs for withdrawals offer significant
opportunities for developing overseas markets. The offshore operations

s
er
of many financial services organizations offer global telephone services.
nk
However, opportunities are not limited to offshore operations; all financial
Ba

services organizations may be able to take advantage of the different

economic conditions between countries to provide attractively priced
of

products, cross border. Differences in exchange rates, tax regimes, interest

rates and regulatory environments might all yield opportunities.
e

The increased use of the Internet could create a very low cost electronic
ut

delivery channel into overseas markets. On the other hand, it also lowers
it

the entry level barriers to overseas organizations wishing to enter the UK

st

finance market.
In

However, the sole use of Internet or telephone-based delivery to a foreign

e
Th

financial market may face the inevitable difficulty of customer

unwillingness to utilize a foreign financial provider with no base in their
:

home market.
of
ty

4. Designing the global marketing program

er

Having analyzed an overseas market and decided to enter it, a financial

op

services organization must make marketing mix decisions that will allow
Pr

it to penetrate that market successfully. These decisions will focus on the

extent to which the organization will adapt its service offering to the
needs of the local market, as opposed to the development of a uniform
marketing mix that is globally applicable in all its markets. For a
multinational financial services organization to become truly global
demands a commitment to identical strategies, on behalf of both the

384 Marketing | Reference Book 1

 organization and its services, in different markets and countries around
the world, rather than applying country-specific adjustments to the same
basic marketing policies.

Different organizations have chosen different ways of going about this.

Financial organizations such as American Express, Barclays and Hong
Kong and Shanghai Bank (HSBC) have developed global brands exhibiting
an identical formula, packaging and positioning in every country; whereas
banks such as Standard Chartered Bank (parent of the Clydesdale Bank),
the Royal Bank of Scotland and the Bank of Scotland have developed or
maintained local brands tailored to specific national or regional tastes.

The implications of these two approaches are shown below.

Multi-National Global Brand

(eg Royal (eg American Express,
Bank of Scotland) Citibank, HSBC)

an
Strategic arena Collection of essentially A world bank, involved in

st
domestic banks with key banking markets

ki
overseas outlets in
elected target countries

Pa
s
Business strategy Autonomous/semi- Same basic unified
autonomous, products erstrategy units worldwide,
nk
tailored to fit circum with interdependent units
Ba

stances of each country and few product

adjustments unless
of

unavoidable
e
ut

Strategy Limited coordination Highly coordinated and

it

coordination integrated worldwide

st
In

Processing strategy Processing scattered across Processing located on basis

e
Th

host countries of maximum competitive

Adapted to local needs advantage
:
of

Marketing mix Subsidiaries generally Standardized worldwide

ty

strategy autonomous mix, with minor local

adaptations if unavoidable
er
op

Organization Global structure to unify

Pr

structure strategy operations, major strategic

decisions closely
coordinated at global
headquarters

Global Marketing Trends & Marketing to Pakistani National’s Abroad 385

 The extent to which a globalization approach can be adopted will depend
on the relative transferability of the financial services organization brand.
This will involve determining if the brand is:

● Universal
● Modern
● Portable
● Cross cultural
● Suited to overseas tastes
● Appropriate for global life styles
● Economically transferable
● Consistent with corporate objectives.

An assessment can then be made of the relative difficulty of converting

and managing a global as opposed to local brand and the benefits and
economies of scale to be derived.

Product and There are five possible strategies for adapting the product offering and
promotion decisions promotional effort in overseas markets based on the extent to which each

an
of these varies from the global norm:

st
1. Maintain a uniform product and promotion worldwide

ki
Pa
This approach develops a global marketing strategy as though the world
were a single entity. Its benefits are numerous. Customers travelling from

s
er
one market to another can immediately recognize a financial services
nk
organization and the values for which its global brand stands. On the
other hand, if the organization's name or service formulation is different
Ba

in overseas markets, a traveler visiting an overseas outlet may be confused

of

about the qualities of the brand.

e

Standardization of the service offering can also yield benefits of economies

ut

of scale, including market research, advertising and the design of buildings,

it

uniforms, etc. A common brand name means that travelers to overseas

st

markets will already be familiar with the brand's values as a result of

In

promotion in the domestic market. However, care must be taken in

selecting a brand name which will have no unfortunate connotations in
e
Th

overseas markets, as in some of the examples below:

:

● General Motors' "Nova" brand means "doesn't go" in Spanish

of

● Coors puts its slogan - "turn it loose" - into Spanish, where it was read
ty

as "suffer from diarrhoea"

er
op

● Pepsi's "Come alive with the Pepsi Generation" translated into "Pepsi
Pr

brings your ancestors back from the grave" in Chinese

● The Coca-Cola name in China was first read as "Ke-kou-ke-la", meaning

"bite the wax tadpole" or "female horse stuffed with wax", depending
on the dialect. Coke then researched 40,000 characters to find a phonetic
equivalent "ko-kou-ko-le", translating into "happiness in the mouth".

386 Marketing | Reference Book 1

 There can also be problems where legislation prevents a global slogan
being used. In France, for example, law No. 75-1349 of 1975 makes use of
the French language compulsory in all advertising for services; this also
applies to associated packaging, documentation, etc.

2. Retain a uniform service formulation, but adapt local promotion

This strategy produces an essentially uniform global service but adapts

promotional effort to meet the sensitivities of local markets. The manner
in which brand values are communicated in advertisements is a reflection
of the cultural values of a society. For this reason, a financial services
organization may use a straightforward, brash, hard sell approach in its
American market, a humorous one in its British market and a seductive
approach in its French market, even though the service offering is identical
in each.

Similarly, certain objects and symbols used to promote a service may have
the opposite effect to that which may be expected at home.

an
The significance of color can also vary from country to country with white

st
in Japan being the color of mourning and green in Malaysia signifying
disease.

ki
Pa
The complexity of promotional issues in different countries results in
many companies appointing local agencies and managers to supervise

s
their promotional activity across the globe.
er
nk
Ba

3. Adapt the local service offering only

of

This may be done to meet specific local needs or legislation while retaining
the benefits of a global image; for example, mortgages may have to be
e

structured differently in different countries.

ut
it

4. Adapt both local product and promotion

st
In

In practice, a combination of a slight modification to service and promotion

may be needed in order to meet different local needs and differences in
e
Th

local sensitivity to advertising.

:

McDonald’s differentiates its product mix on a global basis. Many people

of

regard the fast food chain McDonald’s as a firm using undifferentiated

marketing strategies. In fact, closer inspection will reveal that this is far
ty

from the case and that there are quite significant differences in the firm's
er

product mix within different countries or at least overseas regions. The

op

firm is perhaps best known for its 'hamburgers' which are actually made
Pr

of beef. Many people are aware, however, that the firm now offers 'veggie'
burgers and chicken-based products.

Even looking at the basic burger product we can see many product
adaptations in different parts of the world. In Canada, the burgers are
bigger than they are in the UK. In India, the firm offers a range of vegetable-

Global Marketing Trends & Marketing to Pakistani National’s Abroad 387

 based burgers to the Hindu community and a range of Halal-based meat
products to the Muslim community, the same in Pakistan. In Israel, the
burgers are 'kosher'. In France, customers can obtain alcohol with their
meal, and a range of salads are available for starters.

Whereas the basic concept of burger-based fast food is the same wherever
McDonald’s operate in the world, the firm has gone to a lot of care to
ensure that the original USA-based fast food concept is acceptable to the
tastes and religious sensitivities of the local population.

5. Develop new services

Markets may emerge overseas, for which a domestic financial services

organization has no product offering that can be easily adapted. For
example, the absence in some overseas countries of state provision for
certain key welfare services may create a market for insurance-related
products which is largely absent in the Pakistani domestic market. The
pattern of property ownership in Malaysia has given rise to a novel two-
generation property mortgage not generally found in Western Europe.

an
st
Marketing Decisions:

ki
1. Pricing decisions

Pa
A number of factors affect price decisions overseas:

s
● er
Local interest rates will determine the rates to be charged by financial
nk
services organizations competing in the overseas market.
Ba

Competitive pressure varies between markets, reflecting the stage of

of

market development that a service has reached and the impact of

e

regulations, taxation and government intervention.

ut
it

● The cost of delivering a service may be significantly different in overseas

st

markets. Wage levels may differ and related personnel costs may be
affected by differences in welfare provision for which employers are
In

required to pay. Other significant cost elements such as property prices

e

or rental costs may also vary significantly.

Th

● Local customs may influence customers' expectations of the way in

:

which they are charged for a service. The British may expect no charges
of

on their cheque accounts whereas every transaction is charged for in

ty

some other European countries.

er

All of these factors will affect the levels of charging, the interest rates
op

offered and other elements of pricing.

Pr

2. Distribution decisions

The analysis of location decisions can be applied equally to overseas

markets. However, a financial services organization must avoid assuming
that a location strategy that has worked in one market will work just as

388 Marketing | Reference Book 1

 effectively overseas; consumer behavior may differ significantly in overseas
markets, for example. In the USA, banking in out-of-town shopping centers
is common, as is the use of branches within supermarkets. In addition,
car parking at branches is expected, whereas in many European countries,
banking is limited to the commercial centers of towns and cities where
car parking is often very difficult.

The acceptability of technology will also vary. People in the USA and
Japan are quite happy to use ATMs to pay money into their accounts,
whereas Britain has been more reluctant to accept this methodology. This
not only relates to customer attitudes but also the payment practices in
each of the countries. Many American deposits involve printed cheques
which are machine readable, Japanese deposits are largely in currency
notes which can be counted by machine, whereas the British pay
predominantly by cash and plastic card.

The speed of adoption of telephone banking and Internet banking will

also vary from country to country, making it difficult to adopt a standard
distribution approach in all markets.

an
st
3. People decisions

ki
Although remote banking services can be provided to overseas markets,

Pa
it is common for some presence of offices or branches to be established
in target countries. Where this is the case, a decision must be made on

s
er
whether to employ local or expatriate staff. The latter may be preferable
nk
where the financial service being offered is highly specialized. It also aids
Ba

career development where financial services organizations may elect to

second the company's home based personnel to different countries to
of

experience different cultures and management practices.

e

However, for relatively straightforward services a large proportion of staff

ut

would be recruited locally, leaving just senior management posts filled

it

by expatriates. Recruiting locally will require an awareness of local

st

employment law, salary levels and employment conditions, which may

In

all be very different from those existing in the home country. In addition,
an extensive staff training program may be required to ensure that locally
e
Th

recruited staff performs in a manner that is consistent with the

organization's global image.
:
of

Organizing and controlling the global marketing program

In organizing and controlling foreign operations, a number of issues can
ty

create difficulties:
er
op

● Cultural and geographic distance between countries increases not only

Pr

the expense and time involved in communication but also the possibility
of error.

● Performance evaluation is difficult when host country environments

may vary dramatically from subsidiary to subsidiary.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 389

 ● Compiling and publishing accurate national economic and industry
data is costly, and thus in poor countries, subsidiaries are unable to
obtain accurate data to prepare marketing plans.

● Rapid economic and/or political changes preclude long range planning

and hence effective control.

● The motivations of staff may vary from country to country, affecting

commitment to decisions.

Small and large players in the global arena will face these issues whichever
market entry strategy they have adopted.

Multinational corporations (MNCs)

MNCs pursue global strategies in relation to production, investment and

marketing, and derive significant proportions (usually in excess of 20%)
of their revenues and profits from overseas operations. Thus, an MNC
will seek to maximize its revenues on the global rather than national

an
level, locating its operations wherever conditions are most favorable and

st
regardless of the country in which the company's head office is based.
Multinational organizations include financial organizations such as

ki
Citibank, American Express, Chase Manhattan Bank, Deutsche Morgan

Pa
Grenfell, Merrill Lynch Global. These organizations plan, organize and
control company operations on a worldwide scale, with national markets

s
er
being regarded as little more than segments of a broader regional customer
nk
base.
Ba

Every multinational financial services organization has its headquarters

of

in some country or other and has a majority of shareholders from one

particular nation. Yet the adoption of a world view by headquarters
e

executives is essential for successful global operations.

ut
it

A world view will involve:

st
In

● everyone concerned with management regarding foreign operations

as being of at least equal importance to domestic operations
e
Th

● allocation of top jobs to foreign nationals

:
of

● genuine attempts to integrate activities on a worldwide basis

ty

● rewarding successful foreign subsidiaries more highly than domestic

er

country units in appropriate circumstances

op
Pr

● joint strategic decision making by headquarters staff and managers of

subsidiary units.

In selecting a structure, an MNC needs to ensure that the organization:

● has an unambiguous chain of command

390 Marketing | Reference Book 1

 ● is capable of coordinating worldwide activities
● can take decisions quickly at the most appropriate level
● provides for fast and effective communication between units.

The structure chosen needs to:

● motivate and develop employees

● facilitate global communications, planning, decision making and
control

● create a clearly defined accountability and delegation system

● make it as easy as possible for the company to satisfy customer demand.

It is particularly important that managers of all subsidiaries have a

common perception of the organization's overall goals and how they
should be pursued.

an
There is no single "best way" to organize for global business, since much

st
depends on the financial services organization and market characteristics.

ki
Indeed, an ideal structure will be sufficiently flexible to allow the firm

Pa
to alter its organizational form quickly as circumstances change. Factors
influencing the choice of organizational form should include the extent

s
of the organization's foreign operations and experience of global markets
er
as well as its aspirations regarding further global expansion.
nk
Ba

Other factors to be considered are:

of

● the ability levels and experience of the MNC's staff in each country,
especially their capacities to think strategically and plan for the long
e
ut

term
it

the stability of local markets (the more uncertain the local market,
st

the greater the need for local control)

In
e

● the number, types and complexity of the operating units in various

Th

countries.
:
of

All of these factors will impact on the levels of centralization

/decentralization adopted by an organization.
ty
er

Centralization -vs- decentralization

op

Centralization of decision making means that:

Pr

● all the financial services organization's activities are subject to direct

and immediate control

● correct working methods can be imposed on all parts of the organization

Global Marketing Trends & Marketing to Pakistani National’s Abroad 391

 ● the coordination of operations may be enhanced

● there are no possibilities for disagreements and haggling among

different decentralized units

● all major decisions can be directly related to the core objectives of the
bank

● duplication of effort can be avoided

● the nature of decision making systems and procedures is unambiguous.

Problems with centralization are:

● its tendency to create inflexible attitudes

● possibly the inability to adapt to change

● the potential for missing lucrative opportunities at the local level

an
● senior executives at the core of the financial services organization

st
receiving so much complicated information from subsidiary units that

ki
important matters may be overlooked

Pa
● there is no guarantee that instructions emanating from the top of the

s
organization will be put into practice.
er
nk
Decentralization, however:
Ba

● may encourage local initiative

of

● may ensure that local circumstances are taken into account when
e

policies are determined

ut
it

● means that senior executives can devote their time to strategic planning
st

while leaving operational matters to expert local managers - those at

In

the top can take an overall bird's eye view of the situation
e

● means that there is likely to be less red tape and hence faster decision
Th

making, and the organization as a whole should become more

:

responsive to conditions in various foreign markets.

of

However, decentralization also means:

ty
er

● the prospects of developing a global standardization strategy are remote

op

● greater propensity for waste and less cost effectiveness

Pr

● a more market-oriented than a centralized approach.

It is also worthwhile remembering that it is not simply a case of either

a centralized structure or a decentralized structure - a range of possible
structures exist between these two extremes and the level of centralization

392 Marketing | Reference Book 1

 will depend on the circumstances in both the financial services organization
and the markets at that particular point in time.

In addition to developing effective headquarters-subsidiary relations, a

global financial services organization also needs to establish mechanisms
to coordinate operations across national boundaries. Many organizations
will hold regular meetings of country managers in a specific country to
encourage interaction and the sharing of ideas and experience. Managers
can learn from each other's tactical experiences in dealing with the same
competitor or a common marketing environment.

For certain customers, such as multinational companies, it may also be

necessary to establish global linkages. Some financial services organizations
have established global account management systems to handle and
coordinate relations with customers globally. Typically, an account manager
is assigned responsibility for handling relations with the corporate
headquarters of a global customer. This includes negotiating contracts,
identifying product and service needs, and coordinating marketing activities
worldwide to meet these needs.

an
st
In some cases, local managers are also appointed to handle relations with
local subsidiaries of a customer. These managers report to the global

ki
account manager and provide input for planning and coordinating

Pa
marketing activities, and for developing new products and services.

s
influence of global
er
In Pakistan, financial industry has been the most visible to be impacted
nk
marketing on by globalization. Last decade marked the boom of banking industry when
Pakistan's local
Ba

many global players Pakistan's local financial arena. Banks like Royal
marketing industry Bank of Scotland, Dubai Islamic Bank, HSBC,
of

Pakistan - An overview of the Financial Sector:

e
ut

A sound and well functioning financial sector is essential to support

it

economic growth of a country. Pakistan possess a wide range of financial

st

institutions; commercial banks, specialized banks, national savings schemes,

In

insurance companies, development finance institutions, investment banks,

stock exchanges, corporate brokerage houses, leasing companies, discount
e
Th

houses, microfinance institutions and Islamic banks. They offer a whole

range of products and services both on the assets and liabilities side.
:
of

Prior to 1971, the primary focus of the Governments was on developing

commercial banks in the private sector and creating development
ty

institutions backed by Government. The private sector development,

er

however, almost closed during the period 1971-1990, due to the

op

nationalization policy of the Government. During this period, the banking

Pr

sector came under the Government's control.

Since 1990s, the Government has followed more liberal and market-based
reforms.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 393

 The current structure of the financial sector in Pakistan is the result of
several policy shifts and developments. Like many other developing
countries, Pakistan also undertook the process of financial restructuring
through reforms in early 1990s to establish a more market-based system
of financial intermediation and Government financing, conduct the
monetary policy more efficiently through greater reliance on indirect
instruments and increase the contribution to the rapid development of
the stock markets.

During the last few years, financial markets and institutions in Pakistan
have witnessed significant changes in terms of consolidation as well as
diversification. Since 2000, more than 40 transactions of mergers and
acquisitions have been executed within banks and between banks and
non-bank finance companies.

On the other hand, a number of banks/development financial institutes

as well as their holding groups have expanded their activities into the
areas where the banks hitherto were either not allowed or not interested.
These include insurance, asset management, brokerage, leasing and other

an
non-banking finance services essentially through separate entities. Along

st
with financial services, various groups that control different banks have
also stakes in non-financial/real sector of economy.

ki
Pa
In the World Economic Forum's "Financial Development Report 2009",
Pakistan has been ranked 49 out of 55 countries. Under Factors, Policies

s
er
and Institutions pillar, Pakistan ranks 52nd in institutional environment,
nk
50th in business environment and 48th in Financial Stability.
Ba

State Bank of Pakistan is the sole supervisory and regulatory authority

of

of Commercial Banks, Islamic Commercial Bank, Development Financial

Institutions (DFIs), Micro Finance Banks and foreign exchange companies
e

in Pakistan. The remaining financial institutions are monitored by other

ut

authorities, such as the Securities and Exchange Commission.

it
st

BANKING SECTOR:
In

Pakistani banking sector has witnessed drastic changes over a period of

e
Th

63 years since country's independence in 1947. Initially, it suffered from

acute shortage of resources and uncertainty due to prevailing political
:

and socioeconomic conditions. Lack of trained human resource and

of

professionals resulted into poor quality of products and services. State

Bank of Pakistan was established as the central bank on July 1, 1948 to
ty

control the financial sector. Subsequent amendments were made to extend

er

the control and functions of SBP through State Bank of Pakistan Act
op

1956. SBP encouraged the private sector to establish banks and financial
Pr

institutions in the country. It resulted into unhealthy competition and

unlawful practices due to bribe and corruption during the decades of
1950s and 1960s.

In 1974, all the existing banks were nationalized by the Government. The
performance of nationalized banks deteriorated due to government
protection to employees, resulting into the provision of inferior products

394 Marketing | Reference Book 1

 and poor services. It also discouraged the private investors and foreign
financial institutions. The poor performance of nationalized banks caused
the reforms/privatization of banking sector in early 1990s.

Today, the Banking sector of Pakistan is playing pivotal role in the growth
of country's economy. In accordance with the State Bank of Pakistan Act,
the banking system of Pakistan is a two-tier system including the State
Bank of Pakistan (SBP), commercial banks, specialized banks, Development
Finance Institutions (DFIs), Microfinance banks and Islamic banks. As of
June 2010, the banking sector comprised 36 commercial banks (including
25 local private banks, 4 public sector commercial banks and 7 foreign
banks) and 4 specialized banks with a total number of 9,087 branches
throughout the country. Among the banks, there are 6 fully f ledged
Islamic banks as at end of June 2010.

In addition to the above, the SBP has granted licenses to the Industrial
and Commercial Bank of China (ICBC) and Sindh Bank in December
2010. The ICBC aims to exploit opportunities in trade and project finance
generated by a growing number of Chinese companies working in Pakistan

an
while Sindh Bank aims to promote agricultural development and small

st
scale businesses.

ki
Besides the commercial banks, 8 Microfinance banks and 7 Development

Pa
Finance Institutions (DFIs) are operating in the banking industry of
Pakistan. Due to closing down of a number of Development Financial

s
er
Institutions (DFIs) during the last decade, the government is currently
nk
re-considering to set-up either an "Infrastructure Bank" or "Infrastructure
Ba

Institution" as this is requirement of the country.

of

The banks in Pakistan provide settlement and cash services to individuals

and companies, including correspondent-banking. Banks also offer domestic
e

and cross-border remittance services to the population. Furthermore, they

ut

provide depository services for the accounting and safekeeping of securities.

it

During the last few years, banks have been paying great attention to the
st

expansion of services rendered to households and the enhancement of

In

their quality and efficiency. New forms and channels of making payments
have also been introduced.
e
Th

The services of State Bank of Pakistan include payments to banks, to and

:

on behalf of the Federal and Provincial Governments, the Treasury and

of

some other public institutes including collection of revenues etc., through

its 16 field offices as well as through a countrywide network of currency
ty

chest/sub-chest branches of National Bank of Pakistan.

er
op

Banking Technology that was almost non-existent in Pakistan until a few

Pr

years ago has revolutionized the customer services and access on-line
banking, Internet banking, ATMs, mobile phone banking/ branchless
banking and other modes of delivery have made it possible to provide
convenience to the customers while reducing the transaction costs to the
banks. The Credit Cards, Debit Cards, Smart Cards etc. business has also
expanded.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 395

 The foreign exchange market that was highly regulated through a system
of direct exchange controls over suppliers and users of foreign exchange
has been liberalized and all purchases and sales take place through an
active and vibrant inter-bank exchange market. All restrictions have been
removed with full current account convertibility and partial capital
account convertibility.

Since 1st July 2008 Real-Time Gross Settlement (RTGS) payment system
has been put in place. The RTGS in Pakistan has been named as Pakistan
Real-time Inter-bank Settlement Mechanism (PRISM). Using this system,
the banks holding accounts at SBP are able to operate their accounts in
real time from their own premises via computerized network between
SBP and the participating Banks.

Prior to the recent financial crisis, the excess liquidity and competition
among the banks prompted them to move away from the traditional
limited product range of credit to the government and the public sector
enterprises, trade financing, big name corporate loans, and credit to
multinationals to an ever-expanding menu of products and services. The

an
borrower base of the banks expanded many folds as the banks diversified

st
into agriculture, SMEs, Consumers financing, mortgages, etc. The middle
class that could not afford to buy cars or houses/apartments as they did

ki
not have the financial strength for cash purchases had been the biggest

Pa
beneficiaries of these new products and services.

s
Current trends in
er
Since late 2007, Pakistan faced a difficult macroeconomic environment,
nk
Pakistan's banking not as such due to the global crisis but rather due to a confluence of
sector: factors which had been brewing for a while, particularly due to the gradual
Ba

build up of macroeconomic imbalances which led the country to embark

of

on a macroeconomic stabilization program in November 2008 with the

support of the IMF SBA.
e
ut

The Global Financial Crisis (GFC) had an indirect impact in Pakistan

it

which became evident in 2009 and manifested itself in various forms in

st

the real sector of the economy. However, as said earlier, the major challenges
In

facing the domestic economy can only be partly attributed to the GFC.
Indeed there was a decline in exports due to recession in economies which
e
Th

are Pakistan's major trading partners, and there was pressure on capital
flows where strained liquidity position in global financial markets impacted
:

foreign portfolio investment.

of

However, factors such as the power shortages leading to under utilization

ty

of industrial capacity and rise in the cost of production, the long standing
er

issue of inter corporate circular debt, considerable decline in foreign direct

op

investment due to weak economic fundamentals, high inflation, security

Pr

concerns and above all, the mounting fiscal deficit breaching previous
records in the country's economic history, all had a role to play in keeping
the process of economic recovery in Pakistan weak at best. The leading
evidence of these various pressures on domestic firms and industries is
that their loan repayment capacity has been compromised, with a
consequent rise of non-performing loans (NPLs) on the banks' balance
sheets.

396 Marketing | Reference Book 1

 Furthermore, due to the deteriorated fiscal situation, public sector borrowed
heavily from banks for budgetary support, financing needs of Public
sector Enterprises (PSEs) and commodity operations.

Accordingly, there has been a shift in banks' asset-mix towards credit to

the public sector along with increased performance for top rated
corporations - over Small and Medium Enterprises (SMEs) and consumer
that are generally less resilient to economic slowdown and fragility in
operating environment. The heightened credit risk is ref lected in a
noticeable and persistent increase in NPLs - doubling over two years by
the end of calendar year 2009.

Nevertheless, it has tested the resilience of the banking sector in that

banks have been forced to build contingency reserves and provide for
infected assets. Such requirements have been affecting their dividend
payments and consequently putting pressure on their share prices.

Pakistani banks operating abroad

an
Following six banks have overseas operations in form of booths, units

st
and branches. The list below was last updated on 31st Dec 2007 and is
also available on SBP website:

ki
Pa
1. Bank Alfalah - 6 branches
2. Habib Bank Ltd - 42 branches

s
3. MCB - 3 branches
er
nk
4. NBP - 16 branches
Ba

5. UBL - 17 branches
6. SCB Pakistan - 2 branches
of

Impact of With the advent of globalization, the entire dynamics of doing business
e

globalization worldwide has changed. These changes in the global marketing

ut

environment have primarily been in terms of emergence of new

it

powerhouses, new direction in global engagement, changing consumer

st

demographics and expectations, changing nature of competition, emergence

In

of global services economy, advent of new technologies and the growing

transparencies of corporate practices.
e
Th

Being competitive in the twenty-first century, in the words of Zairi (1996:

:

54-5):
of

"requires an unprecedented set of extraordinary strengths. For one thing,

ty

the dynamics of the market are more turbulent where there is parity in
er

terms of product/service technological capability and intense competition

op

in less tangible, 'soft aspects', such as customer service, quality and

Pr

responsiveness.... For another thing, successful competitiveness often is

the result of the ability to determine rational capability (through strengths
and weaknesses) and a rigorous attack to fulfill customer needs that are
well defined through closeness to the market (voice of the customer).
Finally, winning comes through innovation, uniqueness (differentiation),
teaching rather than following, a culture of continuous improvement
and learning".

Global Marketing Trends & Marketing to Pakistani National’s Abroad 397

 Approaches to global marketing have evolved as the marketing
environment demands.

Judging by the many and varied approaches put forward over the years,
there has been no shortage of new ideas in the evolution of marketing
theory. The table below presents an overview of approaches, ranging from
the 'transactional' to the 'relational' approach to marketing and their
periods of origin.

When we talk about the impact of globalization on Pakistan's marketing

practices; specifically that of the financial industry, we are essentially
talking about the services sector advancements that have occurred in the
last decade. Services are the largest and most dynamic component of

an
both developed and developing nations. 55% of the world's economy is
based on the services sector. It is impossible for any country today, to

st
prosper under the burden of an inefficient and expensive services

ki
infrastructure.

Pa
In Pakistan, the services sector contributes to more than half of the GDP.

s
er
Workers' remittances account for the largest component of services and
nk
the country has a large number of expatriates throughout the world.
Being a developing country, Pakistan has adopted a cautious approach
Ba

while making commitments in trade in services. However, the actual

of

policy of the government is far liberal as compared to the binding

commitments scheduled in the General Agreement on Trade in Services
e

(GATS).
ut
it

Following are the changes globalization brought about in Pakistan's

st

financial markets resulting in changing the way banking products were

In

marketed forever:
e

1. Increased competition
Th
:

With open borders and ease of market entry, many FDIs made their way
of

into Pakistan's financial sector. They brought with them the learning's
and innovations of developed nations, creating enormous competition
ty

in Pakistan's banking world. Although the local banks had support from
er

the government and the regulatory authorities, the customer preferred

op

better quality products and sophisticated service standards; leaving local

Pr

banks with no option but to up their game. Banks like Citi and SCB were
the first to mark the beginning of newness in otherwise aging banking
sector of Pakistan.

398 Marketing | Reference Book 1

 2. Need for research

One major aspect of the world becoming a global village is the need for
every player in the global market to be updated about the activities and
changes happening world over. Knowing what practices, processes, products
and procedures are being adopted or discarded by other players, not only
opens gates for innovation and newness, but also helps to avoid reinventing
the wheel and provides learning from similar businesses/economies. In
order to keep one updated about the changes all around, it is imperative
to adopt research as the key component of doing business day in and day
out. Research holds a very important role in business dynamics of the
financial industry. All the banks and financial institutes in Pakistan have
now adopted some form of formal and/or informal research practices;
this not only keeps them aware of the competition's performance, but
also helps them stay updated on the innovations and changes happening
in the global marketing arena.

3. Higher customer expectations - quality products and robust services

an
The global customer is smart, aware and very sophisticated. Technological

st
advancements have made information readily available on just one click;
resulting in exposing the customer to a wide array of possible options

ki
and existence of excellent service levels. These expectations are the driving

Pa
force behind the change of marketing strategy by organizations. Pakistan's
financial industry has also faced the tremendous pressure of heightened

s
er
expectations in terms of customer services relating to banking products
nk
and newer, more flexible financial products. These expectations coupled
Ba

with the advent of new competitors have forced banks across the country
to invest in new product development and infrastructure to ensure
of

provision of quality customer services.

e

4. Alternate delivery channels

ut
it

Banking is no more a matter of branch and tellers; today's bank is all

st

about providing services to boost customer convenience and marketing

In

products to improve their life style. To provide this, banks are moving
closer to their customers breaking all the barriers of brick and mortar
e
Th

business models and moving a significant potion to their online presence

and adopting click and mortar approach. The concept of branchless
:

banking and introduction of alternate delivery channels (ADCs) are

of

becoming increasingly popular worldwide. A global customer does not

travel with cash in hand, he has the convenience and liberty to have plastic
ty

money which can be used internationally; hence, ADC is no more an

er

option but a pressing requirement that banks must adhere to if they wish
op

to stay ahead of the competition. Pakistan is no exception. All the banks

Pr

in Pakistan are investing in developing competitive products with constant

efforts to adopt strategies to give them a competitive edge. Credit cards,
debit cards, online banking, ATMs, CDMs etc are all examples of ADCs.

Global Marketing Trends & Marketing to Pakistani National’s Abroad 399

 5. Improvement in business processes - automation and process re-
engineering

In order to provide the sophisticated customizable products and global

service standards, it is imperative for banks to improve their business
processes. Process re-engineering and automation are all attempts to
reduce costs, dependency on human capital, to achieve economies of scale
and to have more consistent and standard service provision to the end
consumer. Streamlined processes ensure decreased redundancy, overheads
and wastage - all of which are needed to achieve a low cost high quality
service product line. Banking is a formal sector with a high requirement
of standardized processes and procedures; absence of which can cause
legal and regulatory penalty.

6. Shrinking profit margins

When competition increases, each player tries to adopt possible strategies

that can make it more attractive and preferred by the customer. Low price
is one of the most desirable attribute when it comes to product or service

an
comparison by the customer. Low price can be achieved by many ways

st
but in an industry like banking, where product differentiation is minimal
and the cost of funds is high, decreasing price usually means shrinkage

ki
of profits. Banking in Pakistan is regulated by the State Bank that does

Pa
not only look to maximize profits of the banks but also keeps in view the
customers welfare. When it comes to product prices for banks, SBP has

s
er
taken measures to ensure that they do not go to exorbitant levels due to
nk
the constant rise in the interest rates. This is achieved by linking the prices
to a base rate (KIBOR, LIBOR etc) which has resulted in a more streamlined
Ba

pricing structure. Hence, banks invest in all other possible means to

of

achieve lower costs; putting more focus on research, process re-engineering

and technological advancement.
e
ut

7. Adoption of better and transparent business practices - Improved

it

corporate governance
st
In

Marketing today talks about the need for organizations to have a

'sustainable competitive advantage' to exist in today's dynamic global
e
Th

market. There are many ways to achieve sustainable advantage but mostly
it comes from the way a business operates. In services industry, provision
:

of a service in a timely manner is as important as the service itself.

of

Efficiency is one of the cornerstones today in any and every kind of

business; it can be achieved by streamlining processes, developing
ty

standardized procedures, transparent business practices and improved

er

corporate governance. In Pakistan, banking is one of the most competitive

op

industry and the players are adopting all the above mentioned to attain
Pr

sustainable competitive advantage.

400 Marketing | Reference Book 1

 8. Technological advancements - Need for updated systems and
reporting requirements

Just like adopting ADCs is not an option anymore, so is the automation

of banking systems. It is now a requirement for all the banks to automate
their processes and procedures; primarily because of tremendous customer
volumes and the need to decrease the processing time. Information needs
to be fetched, processed and analyzed in a timely manner to ensure
customer satisfaction. Also, since marketing is becoming more focused
and product customization based on demographics is on the rise, need
for sophisticated systems to capture these customer attributes are required.
Hence new systems are expected to have complex query processing abilities
to match the emerging reporting requirements of the new global market.

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

Global Marketing Trends & Marketing to Pakistani National’s Abroad 401

 Part 5: Social and Ethical Issues
in Marketing

Chapter 1: Social Critism on Marketing

Chapter 2: Public Policy and Ethical Issues

an
st
ki
Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of
ty
er
op
Pr

402 Marketing | Reference Book 1

Part Five Social and Ethical Issues in Marketing

Chapter 1 Social Critism on Marketing

Student Learning By the end of this chapter you should be able to:
Outcomes
State SBP’s prudential regulations concerning marketing activities
undertaken by the banks in Pakistan

Discuss the concept of socially responsible marketing

List steps which can be taken by the businesses to implement

socially responsible marketing

Illustrate with an example the application of socially responsible

an
marketing in a given scenario

st
List few scenarios where advertising specifically not been socially

ki
responsible

Pa
List the principles of public policy towards marketing

s
Define PEMRA er
nk
Ba

Explain its role in regulating the electronic media

of

List the primary functions of PAS

e

Describe the role of PAS in overall marketing industry of Pakistan

ut
it
st

Introduction Social and environmental issues are rarely out of the news. Social issues
In

concern the ways in which people live and work. These are constantly
e

changing and the financial services industry has arguably witnessed more
Th

changes than most in recent years. An industry that was traditionally

concerned with delivering services through face-to-face interactions that
:
of

took place at high street locations has been transformed by the emergence
of multiple channels to market, including telephone banking and the
ty

internet.
er

Environmental issues are also of major concern to financial services

op

organizations. Pressures created by climate change, accelerated by human

Pr

activity, are constantly in the news. Organizations are now expected by

their major stakeholders to have policies in place that set out the steps
they will take to reduce the impact of their operations on the environment.

Social Critism on Marketing 403

 Socially Responsible Marketing

Socially responsible marketing is a marketing philosophy which considers

the interest of society in short and long term. Socially responsible marketing
refers to any and all business activities which are discretionary, rather
than mandated by law, or which are expected. At the same time, socially
responsible marketing must result in a benefit for the corporation as well
- whether in the form of increased revenues, or reduced costs, or retention
and/or growth in customer base, or in any other form.

Socially responsible companies should aspire to produce desirable products

which are environmental friendly. Desirable products provide immediate
satisfaction and long term benefits. These products are sought by consumers
for immediate gratification and also benefit society and consumers in the
long term.

An example of socially responsible marketing would be the advertising

of customer loans bearing interest. A bank that decides to use socially
responsible marketing would avoid advertising its product without

an
informing potential customers that the bank is not Shariah compliant.

st
The bank would focus its advertising around late night television
programming or adult magazines that minors are less likely to read.

ki
Having a pro-social agenda means having a powerful marketing tool that

Pa
can build and shape a company's reputational status, make a differentiation
in the market and give a company a competitive edge. In today's business

s
er
environment, firms that last are those which manage their key relationships
nk
well and focus on their reputations. Differentiating the company or brand
through the image of care and compassion to society is a strategy that can
Ba

be highly rewarded.
of

Following are some advertisements that ref lect socially responsible

e

marketing:
ut
it

UBL Watan card project is a powerful welfare initiative aimed at

st

alleviating the suffering of the flood victims which has fast achieved
In

the status of being the largest corporate social responsibility initiative

e

to have ever taken shape in Pakistan.

Th

The Watan cards were distributed to the flood affected throughout

:
of

the interior regions of Pakistan through massive distribution

collaborations with Nadra and Visa Inc. The Watan card project
ty

has touched more than 2 million flood affected families so far and
er

has quickly gained the undivided attention of uncountable welfare

op

bodies globallv.
Pr

404 Marketing | Reference Book 1

 Procter & Gamble Pakistan presented the Ariel World's Largest Kurta,
a Guinness World Record, at an elaborate ceremony in Karachi. The Kurta
measures a staggering 101 feet in length and is large enough to be worn
by a 175-foot tall person.

Ariel World's Largest Kurta is a unique symbol of national unity. As a

national dress, worn by men, women and children, from Karachi to the
Khyber, the Kurta captures the culture and identity of Pakistan.

Speaking at the occasion, Country Manager P&G Pakistan Qaisar Shareef

said "Ariel World's Largest Kurta, is the latest accomplishment of Ariel
that signifies national pride on an international platform. Since its launch
in Pakistan, Ariel is committed to bringing innovation to its consumers
across the country. This initiative is a tribute to all the consumers who
have recognized Ariel's superiority in cleaning and put their trust in Ariel
as their detergent of choice."

Qaisar added that, "Corporate Social Responsibility programs are an

important part of our business culture. The Ariel team is going the extra

an
mile and will be creating small kurtas from the Ariel World's Largest

st
Kurta to donate to children of the Edhi Child homes across Pakistan."

ki
Enlightened Marketing

Pa
The philosophy of enlightened marketing holds that a company's marketing

s
er
should support the best long-run performance of the marketing system.
nk
Enlightened marketing consists of five principles: consumer oriented
Ba

marketing, innovative marketing, value marketing, sense of mission

marketing and societal marketing.
of

Consumer-Oriented Marketing
e
ut

Consumer-oriented marketing means that the company should view and

it

organize its marketing activities from the consumers' point of view. It

st

should work hard to sense, serve and satisfy the needs of a defined group
In

of customers. Only by seeing the world through its customers' eyes can
the company build lasting and profitable customer relationships.
e
Th

Innovative Marketing
:
of

The principle of innovative marketing requires that the company

continuously seeks real product and marketing improvements. The
ty

company that overlooks new and better ways to do things will eventually
er

lose customers to another company that has found a better way.

op
Pr

Marketing Ethics

Conscientious marketers face numerous moral dilemmas. Not all managers

have face more sensitivity. Companies need to develop corporate marketing
ethics policies. These policies should cover distributor relations, advertising

Social Critism on Marketing 405

 standards, customer service, pricing, product development and general
ethical standards. Managers need a set of principles that will help them
figure out the moral importance of each situation and decide how far
they can go in good conscience.

Case study

Homeworker plc

Homeworker plc is a large retail company that sells building supplies, do-
it-yourself and garden products to the general public. It has been a public
listed company for six years. The company is highly profitable and is
regarded as a market leader by the general public and other companies
in the sector.

The commitment of the company to good governance is supported by a

policy of voluntary disclosure, particularly on matters relating to the
environment. The company has had a corporate social responsibility
statement in place for two years. The statement includes a commitment

an
to minimize the adverse impact of the company's activities on the natural

st
environment and to strive to become "carbon neutral" by 2010.

ki
In the last two years, the gross profit margins of the company have fallen

Pa
due to increased competition and a failure to control costs of goods sold.
In response to this, the executives have recommended that the board

s
er
considers shifting contracts away from home suppliers in favour of lower
nk
cost overseas suppliers. It is felt that this will achieve two advantages.
Firstly, it will reduce costs to the desired level. Secondly, it will reinforce
Ba

the company's commitment to helping suppliers in developing countries

of

by offering them valuable business, underlining the company's corporate

social responsibility objectives.
e
ut

This recommendation has caused much debate, with some directors

it

expressing concern that the image in the home market will be damaged
st

by the loss of business to domestic suppliers.

In

Of particular concern to some of the directors is the proposal to buy in

e
Th

products made of wood, such as garden sheds, fences, dog kennels and
doors, ready made from a South American producer. At present, these
:

are purchased from a supplier in the home country, with the contract
of

making up over 70% of the supplier's business. The cost reductions are
undeniable, but there is a fear that moving the contract will put the
ty

existing supplier out of business. Furthermore, the directors have noted

er

that the country from which it is proposed that the wood products be
op

sourced adopts indiscriminate policies towards deforestation (clearing

Pr

forest areas), causing irreparable damage to the ecosystem. It consistently

argues that the improvement in the quality of life of people in rural areas
must take priority over natural resources.

406 Marketing | Reference Book 1

 Although the new policies are not formally agreed, a national newspaper
has published an article criticizing the company for considering the
"betrayal" of home producers. The newspaper stated that the information
was obtained from an "unnamed employee" of the company. The editorial
column of the newspaper went on to say that it was refreshing to know
that someone at Homeworker plc had sufficiently high principles to pass
this information to the press ahead of any duty to the company. The
newspaper further stated that the company should remember that it was
its domestic suppliers' consistently high quality products that helped
Homeworker plc achieve its strong market position today, and that the
directors should think hard before letting them down so ruthlessly. The
directors do not know how this information was leaked to the newspaper
but know that up to twenty staff would have known about the initial
research into overseas suppliers. They have decided to issue a written
reminder to all head office employees of their duty of confidentiality to
the company, which must override any personal values and beliefs in
respect of the company's policies.

Advertising not been socially responsible

an
st
Advertising has a "social responsibility" to sell truthfully. And here, we
sometimes need to remind our critics that the test of truth is not what

ki
is literally said in an advertisement, but what is understood.

Pa
s
er
nk
Ba
of
e
ut
it
st
In
e
Th
:
of

“These tobacco industry programs that seek to contribute to a greater

ty

social good urge the question: how can tobacco companies reconcile their
er

main aim, to gain a maximum profit by producing and selling a deadly

op

product, with the goals of Corporate Social Responsibility: business norms,

Pr

based on ethical values and respect for employees, consumers, communities

and the environment?" World Health Organization, 2003

Social Critism on Marketing 407

 Self-named "responsible corporate citizens," Pakistan Tobacco Company
and Lakson Tobacco Company sponsored this youth smoking prevention
campaign. (Pakistan, 2006)

Most tobacco companies engage in youth smoking prevention programs,

claiming to be responsible companies concerned about youth smoking.
However, their programs are ineffective at preventing smoking and often
actually encourage youth to smoke by portraying smoking as an adult
activity, making it even more attractive to youth, and failing to talk about
the health effects of smoking.

Steps in implementing Socially Responsible Marketing

There is no "one-size-fits-all" method for pursuing a socially responsible

marketing approach. Each firm has unique characteristics and circumstances
that will affect how it views its operational context and its defining social
responsibilities. Each will vary in its awareness of CSR issues and how
much work it has already done towards implementing a CSR approach.

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That said, there is considerable value in proceeding with CSR

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implementation in a systematic way-in harmony with the firm's mission,
and sensitive to its business culture, environment and risk profile, and

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operating conditions. Many firms are already engaged in customer,

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employee, community and environmental activities that can be excellent
starting points for firm-wide CSR approaches. CSR can be phased in by

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focusing carefully on priorities in accordance with resource or time
nk
constraints. Alternatively, more comprehensive and systematic approaches
can be pursued when resources and overall priorities permit or require.
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The bottom line is that CSR needs to be integrated into the firm's core
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decision making, strategy, management processes and activities, be it

incrementally or comprehensively.
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The impulse for harmonization also stems from the wider social context.
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There are a number of governmental and partnership developed initiatives

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that have emerged to provide guidance on governmental and societal

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expectations of business. By using these instruments-such as the OECD

MNE Guidelines or the UN Global Compact-business users can be
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confident that they are basing their efforts on internationally-endorsed

approaches.
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What follows below is a broad framework for implementing a CSR

approach that builds on existing experience as well as knowledge of other
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fields, such as quality and environmental management. The framework

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follows the familiar "plan, do, check and improve" model that underlies
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such well-known initiatives as those of the International Organization

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for Standardization (ISO) in the areas of quality and environmental

management systems. The framework is also intended to be flexible, and
firms are encouraged to adapt it as appropriate for their organization.

Every firm is different and will approach CSR implementation in different

ways. The steps suggested below show one way to implement CSR
commitments:

408 Marketing | Reference Book 1

 Step 1: Situation analysis
Step 2: Target audience selection
Step 3: Determination of desired behavior changes
Step 4: Determination of barriers and motivations to behavior change
Step 5: Negotiation with partner
Step 6: Development and dissemination of communication materials

PEMRA and its Functions

PEMRA has been established under PEMRA Ordinance 2002 to facilitate

and regulate the private electronic media. It has mandate to improve the
standards of information, education and entertainment and to enlarge
the choice available to the people of Pakistan including news, current
affairs, religious knowledge, art and culture as well as science and
technology.

The Authority is responsible for facilitating and regulating the establishment

and operation of all private broadcast media and distribution services in
Pakistan established for the purpose of international, national, provincial,

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district, and local or special target audiences.

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The journey of electronic media development in the country begins from

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14 August 1947, when Pakistan Broadcasting Corporation was formed

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after independence. At independence Pakistan possessed three radio
stations at Dhaka, Lahore & Peshawar. A major programme of expansion

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witnessed new stations opened at Karachi and Rawalpindi in 1948 and a
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new broadcasting house at Karachi in 1950. This was followed by further
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stations at Hyderabad (1951), Quetta (1956), a second station at Rawalpindi

(1960) and a receiving centre at Peshawar (1960). In October 1998, radio
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Pakistan started its first FM transmission. The decision to establish a

general purpose television service in Pakistan under the general supervision
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of the government of Pakistan (GOP) was taken in October 1963.

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Subsequently, the government signed an agreement with the Nippon

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Electronic Company (NEC) of Japan, allowing it to operate two pilot TV

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stations in the country. The first of these stations went on air in Lahore
In

on 26 November 1964. On the completion of the experimental phase, a

private limited company, called Television Promoters Limited was set up
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in 1965 which was converted into a public limited company in 1967.

Further television centres were established in Karachi and Rawalpindi /
:

Islamabad in 1967 and in Peshawar and Quetta in 1974.

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Since its inception in Pakistan, electronic media in the country remained

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in government control till 1990, when Shalimar Television Network (STN)

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and Network Television Marketing (NTM) signed a contract to launch

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Pakistan's first private sector TV channel. During mid 90s, a growing

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demand for television entertainment in Pakistan paved way to foreign

TV channels through satellite dishes. In the beginning, the phenomenon
of having a dish TV was restricted to the urban elite. However, satellite
dish became a commodity item with penetration across the various socio-
economic classes of Pakistani population. Simultaneously, successive
governments in the country adopted more liberal media policies by
providing masses with the enhanced access to information, education,

Social Critism on Marketing 409

 and entertainment by encouraging public private participation. In such
environment, there was a need to have an effective regulatory framework
which could advance freedom of speech and expression, and access of
people to information while keeping in mind the larger interests of the
state.

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410 Marketing | Reference Book 1

Part Five Social and Ethical Issues in Marketing

Chapter 2 Public Policy and Ethical Issues

Student Learning By the end of this chapter you should be able to:
Outcomes
List the principles of public policy towards marketing

Discuss the public policy and ethical issues that may arise in direct
marketing

List the steps that must be taken to avoid the ethical issues while
using direct marketing

Discuss office of fair practices

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Discuss the competition ordinance

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Discuss the code of advertising practices in Pakistan

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Principles of Public Policy nk
Certain public policy principles can be used to make the marketing more
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effective these principles include:

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● full consumer and producer freedom,

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● potential harms should be eliminated,

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● producers should meet the basic needs of the consumers,

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there should be economic efficiency consumers and producers both

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should be on beneficent in practicing the exchange process,

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● producer should ensure the innovation ,

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● consumer should be provided full knowledge about the products and

should be protected against any sort of unethical and illegal practices
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by the producers
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Public policy issues in direct marketing

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Irritation- Irritation includes annoying and offending customers. Many

people do not like the large number of hard sell, direct marketing
solicitations. Especially bothersome are dinnertime or late-night phone
calls, poorly trained callers, and computerized calls by auto-dial recorded-
message players.

Public Policy and Ethical Issues 411

 Unfairness- some direct marketers take advantage of impulsive or less
sophisticated buyers or prey on the vulnerable, especially the elderly.
Unfairness includes taking unfair advantage of impulsive or less-
sophisticated buyers.

Deception and fraud- some direct marketers design mailers and write
copy intended to mislead. They may exaggerate product size, performance
claims, or the retail price. Deception includes "heat merchants" who
design mailers and write copy designed to mislead consumers. Internet
fraud includes identity theft and financial scams.

Invasion of privacy- It seems that almost every time customers order

products by mail or telephone, enter a sweepstakes, apply for a credit
card, or take out magazine subscription, their name, address, and purchasing
behavior may be added to several company databases. Critics worry that
marketers may know too much about consumer's lives, and they may use
this knowledge to take unfair advantage.

The concern is that marketers may know too much about the consumers

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and use this information to take unfair advantage.

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Ethical Issues in Marketing

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It is quite natural that consumers are worried about how any marketing
system will safeguard their interests. Consumers accuse aggressive marketing

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of harming them through:
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1. High prices
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2. Misleading practices
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3. Unsafe products
4. Planned obsolescence
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5. Poor service
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How to avoid Ethical Issues

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We need to make a greater effort to make ethics part of the equation."

How? How about by not lying to people? Specifically, we should ask
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ourselves a few questions about everything we do:

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● What is the truth about this product, service, or cause?

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● Am I telling this truth in my advertising message?

Does my prospect understand that this is a solicitation?
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● Am I concealing or omitting any facts my prospect would want to

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know?
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● Am I falsifying any information?

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● Is any element of my message or format misleading?

● What is my intention with this technique?
● Does my success depend on trickery?
● What would my customers think if they knew what I was doing to get
their business?
● What are the long-term consequences of what I am doing?

412 Marketing | Reference Book 1

 Every time there's a major scandal in our industry, it leads to legislation.
If we don't watch it, we could allow ourselves to be legislated out of
business. If you have a product or service that requires trickery to sell, is
best to produce a new product or service.

Marketers must accept responsibility for the consequence of their activities

and make every effort to ensure that their decisions, recommendations
and actions function to identify, serve and satisfy all stakeholders.

Marketers' Professional Conduct must be guided by:

1. The basic rule of professional ethics: not to harm knowingly;

2. The adherence to all applicable laws and regulations;
3. The accurate representation of their education, training and experience;
and
4. The active support, practice and promotion of this code of ethics.

Marketers shall uphold and advance the integrity, honor and dignity of
the marketing.

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Office of Fair Practices

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One of the most important initiatives taken by the Competition

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Commission of Pakistan (CCP) to redress deceptive marketing practices
and enhance the link between the Commission and the consumer; is

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development of Office of Fair Practices (generally known as Office of Fair
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Trade [OFT]).
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Establishment of OFT facilitates in completing the picture of the

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competition agency in Pakistan. The purpose of setting up of OFT is to

create a business environment based on healthy competition by protecting
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consumers from deceptive marketing practices. OFT has a mandate to

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oversee and act as a watch dog for Misleading and Deceptive Marketing
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Practices under Section 10 of the Competition Act 2010. The objectives

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of OFT are;
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● To build a vibrant, fair and competitive market place for consumer

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confidence.
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● To encourage and ensure disclosure of sufficient information to enable

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informed consumer choice.

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● Reach out to consumers and general public with the aim of identifying
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and providing solutions to the potential issues.

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● Ensure fair dealing in business and to handle individual/group

grievances on account of deceptive marketing practices.
OFT is currently being supervised by Member (Office of Fair Trading
(OFT) and Budgetary Affairs), it is manned by the officers drawn from
the Legal department. However, it is envisioned that OFT will eventually
be headed by a Director General with a team of such number of
officers as deemed appropriate by CCP from time to time.

Public Policy and Ethical Issues 413

 It needs to be appreciated that unlike other jurisdictions where OFT
operates and functions as an independent Competition Agency, the
establishment of an Office of Fair Trading within the CCP is focused on
consumer protection essentially within the limited scope of Section 10
of the Act 2010.

Code of Advertising practices in Pakistan

It is held that the responsibility of advertisers, advertising agencies and

associated companies is a constructive force in business. To discharge this
responsibility, the parties within the industry must recognize not only an
obligation to clients, but to the public, the media they employ and to
each other.

As a business the industry must operate in the spirit of vigorous competition

honestly conducted.

It is also recognized that unethical competitive practices in the advertising

business lead to financial waste, divisiveness, loss of prestige and to the

an
weakening of public confidence in both the advertisements and the

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industry.

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The Pakistan Advertisers Society (PAS) will, in addition to supporting

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and obeying the laws and legal regulations pertaining to advertising,
undertake to extend and broaden the application of high ethical standard,

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specifically society members will not create advertising that is:
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1. False or misleading visual or verbal.
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2. Claims insufficiently supported that distort the true meaning or

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practicable application of statements made by professional or scientific

authority.
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3. Testimonials that do not ref lect the real opinions of individuals

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involved.
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4. Price claims that are misleading.

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5. Statements, suggestions or pictures offensive to public decency or

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minority segments of the population.

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The Pakistan Advertisers Society also recognizes that there are areas that
are subject to honestly different interpretations and judgments: comparative
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advertising shall be governed by the same standards of truthfulness, claim

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substantiation, tastefulness, etc. as apply to other types of advertising.

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1. OBJECTIVES
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The code is primarily intended to enhance the ethical and professional

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standards of the advertising industry in Pakistan via a self-regulatory

process. Further development of the code is recognized and a wider group
of interested parties' involvement, including such customers,
educationalists, etc. could develop later.

414 Marketing | Reference Book 1

 2. STAKEHOLDERS

The code of advertising practice should cover advertisers, advertising

agencies and media owners.

3. SCOPE

The scope of the code of conduct initially covers:

a) Truth, honesty and integrity of advertising and the use of advertising

copy.

b) A yearly development plan should also be provided for, whereby

additional topics would be added to the code of conduct, examples
would be:

a. plagiarism

b. commerciality / handling of political advertising/consumer

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complaints.

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However, for start-up given the infancy and lack of structure the emphasis

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should be on establishing those items under a).

Pa
4. SANCTIONS

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a) Given that the objective of the code in operation is to enhance the
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professionalism of the industry, the primary task is to advise on

behavior and practice rather that rules and regulations. However, it
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is recognized that continuous malpractice can only be handled via the

suspension of a member from the PAS.
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b) Any complaint or issue raised by a member of the PAS against another

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internal member will be handled via a Code of Advertising Practice

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Standing Committee which would take advice, consider the issues and
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either reject the issue/complaint (no record kept) or make

recommendations to the PAS Council for further action.
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Actions on any member would be via the PAS Council. Only

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complaints/issues between members would be handled.

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5. DEVELOPMENT
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It was recognized that new areas over which the code could operate would
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need to be added over time. These should be agreed by the PAS Council
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and passed to the Standing Committee for development; an annual

development plan should be drawn up by the Standing Committee for
endorsement by the PAS Council.

6. APLICATIONS

i. Definitions

Public Policy and Ethical Issues 415

 a) Advertisements which were factually wrong, misleading or used
another advertiser's property or distinctive device would be covered
by the code.

b) A product encompasses goods, services, causes or opportunities,

prizes and gifts.

ii. Business Areas

The codes apply to:

a) Advertisements in newspapers, magazines, brochures, leaf lets,

circulars, mailing, catalogues and other printed publications, facsimile
transmission, posters and aerial announcements.

b) Television, radio, video commercials, cinema advertising and outdoor

advertising.

c) Advertisements in non-broadcast electronic media such as computer

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games and the internet.

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d) View data services.

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e) Mailing lists.

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f) Sales promotions.
g) Advertisement promotions.

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h) Overlay.
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iii. Exceptions
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a) Advertisements in foreign media.

b) Health-related claims in advertisements and promotions addressed
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only to the medical and allied professions.

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c) Classified private advertisements.

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d) Statutory, public, police and other official notices.

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e) Works of art exhibited in public or private.

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f) Private correspondence.
g) Oral communications, including telephone calls.
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h) Press releases and other public relations matter.

i) The content of books and editorial communications.
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7. PRINCIPLES
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The following principles apply to the code:

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a) All advertisements should be legal, decent, honest and truthful.

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b) All advertisements should be prepared with a sense of responsibility

to consumers and to society.
c) All advertisements should respect the principles of fair competition
generally accepted in business.
d) No advertisements should bring advertising into disrepute.
e) Advertisements must conform to the Code of Advertising Practice.

416 Marketing | Reference Book 1

 8. COVERAGE

8.1. Substantiation

8.1.1 If there is a significant division of informed opinion about any

claims made in an advertisement they should not be portrayed as
universally agreed.

8.1.2 If the contents of non-fiction books, tapes, videos and the like have
not been independently substantiated, advertisements should not
exaggerate the value of practical usefulness of their contents.

8.1.3 Obvious untruths or exaggerations that are unlikely to mislead and

incidental minor errors and unorthodox spellings are all allowed
provided they do not affect the accuracy or perception of the
advertisement in any material way.

8.2. Legality

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8.2.1 Advertisers have primary responsibility for ensuring that their
advertisements are legal. Advertisements should contain nothing

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that break the law or incites anyone to break it, and should omit

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nothing that the law requires.

Pa
8.3. Decency

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8.3.1 Advertisements should contain nothing that is likely to cause serious
or widespread offence. Particular care should be taken to avoid
Ba

causing offence on the grounds of race, religion, sex, sexual

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orientation or disability. Compliance with the Codes will be judged

on the context, medium, audience, product and prevailing standards
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of decency.
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8.4. Honesty
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8.4.1 Advertisers should not exploit the credulity, lack of knowledge or

inexperience of consumers.
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8.5. Truthfulness
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8.5.1 No advertisement should mislead by inaccuracy, ambiguity,

exaggeration, omission or otherwise.
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8.6. Fear Distress

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8.6.1 No advertisement should cause fear or distress without good reason.

Advertisers should not use shocking claims or images merely to attract

attention.

8.6.2 Advertisers may use an appeal to fear to encourage prudent behavior

or to discourage dangerous or ill-advised actions; the fear likely to

Public Policy and Ethical Issues 417

 be aroused should not be disproportionate to the risk.

8.7. Safety

8.7.1 Advertisements should not show or encourage unsafe practices

except in the context of promoting safety. Particular care should
be taken with advertisements addressed to or depicting children
and young people.

8.8. Violence & Anti-social Behavior

8.8.1 Advertisements should contain nothing that condones or is likely

to provoke violence or anti-social behavior.

8.9. Protection of Privacy

8.9.1 Advertisers are urged to obtain written permission in advance if

they portray or refer to individuals or their identifiable possessions
in any advertisement. Exceptions include most crowd scenes,

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portraying anyone who is the subject of the book or film being

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advertised and depicting property in general outdoor locations.

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8.10. Testimonials & Endorsements

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8.10.1 Advertisers should hold signed and dated proof, including a contact

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address, for any testimonial they use. Testimonials should be used
nk
only with the written permission of those giving them.
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8.11. Pricing
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8.11.1 Any stated price should be clear and should relate to the products
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advertised. Advertisers should ensure that prices match the products

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illustrated.
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8.11.2 It should be apparent immediately whether any price quoted

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exclude other taxes, duties or compulsory charges and these should,

wherever possible, be given in the advertisement.
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8.11.3 If the price of one product is dependent on the purchase of another,

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the extent of any commitment by consumers should be made clear.

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8.11.4 Price claims such as "up to" and "from" should not exaggerate the
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availability of benefits likely to be obtained by consumers.

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8.12. Free Offers

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8.12.1 There is no objection to making a free offer conditional on the

purchase of other items. Consumers' liability for any cost should
be made clear in all material featuring the offer. An offer should
only be described as free if consumers pay no more than:

418 Marketing | Reference Book 1

 a) the current public rates of postage.
b) the actual cost of freight or delivery.
c) the cost, including incidental expenses, of any travel involved
if consumers collect the offer.

Advertisers should make no additional charges for packing and handling.

8.13. Availability of Products

8.13.1 Advertisers must make it clear if stocks are limited. Products must
not be advertised unless advertisers can demonstrate that they have
reasonable grounds for believing that they can satisfy demand.

8.14. Guarantees

8.14.1 The full terms of any guarantee should be available for consumers
to inspect before they are committed to purchase. Any substantial
limitation should be spelled out in the advertisement.

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8.14.2 Advertisers should inform consumers about the nature and extent

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of any additional rights provided by the guarantee, over and above
those given to them by law, and should make clear how to obtain

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redress.

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8.14.3 'Guarantee' when used simply as a figure of speech should not

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cause confusion about consumers' legal rights.
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8.15. Comparisons
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8.15.1 Comparisons can be explicit or implied and can relate to advertiser's

own product or to those of their competitors; they are permitted
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in the interest of vigorous competition and public information.

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8.15.2 Comparisons should be clear and fair. The elements of any

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comparison should not be selected in a way that gives the advertisers

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an artificial advantage.
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8.16. Denigration
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8.16.1 Advertisers should not unfairly attack or discredit other businesses

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or their products.
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8.16.2 The only acceptable use of another business's broken or defaced

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products in advertisements is in the illustration of comparative

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test, and the source, nature and results of these should be clear.
Pr

8.17. Exploitation of Goodwill

8.17.1 Advertisers should not make unfair use of the goodwill attached
on the trademark, name, brand, or the advertising campaign of
any other business.

Public Policy and Ethical Issues 419

 8.18. Imitation

8.18.1 No advertisement should so closely resemble any other transmitted

or published in Pakistan or any other country that it misleads or
causes confusion.

8.18.2 The subject matter of an advertisement should not be chosen in

such a way that it gives unfair and artificial advantage to the
advertisers.

8.18.3 No advertiser should use another's concept, distinctive devices or

key visuals in such a way that it gives the advertiser unfair advantage
or deliberately mislead the consumer.

8.19. Identifying Advertisers and Recognizing Advertisements

8.19.1 Advertisers, publishers and owners of other media should ensure

that advertisements are designed and presented in such a way that
they can be easily distinguished from editorial.

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8.19.2 Features, announcements or promotions that are disseminated in
exchange for a payment or other reciprocal arrangement should

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comply with the Codes if their content is controlled by the

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advertisers. They should also be clearly identified and distinguished
from editorial.

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8.19.3 Mail order and direct response advertisements and those for one
day sales, homework schemes, business opportunities and the like
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should contain the name and address of the advertisers.

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420 Marketing | Reference Book 1

 REFERENCES: 1. Marketing & Selling Financial Services Book 1 & 2, Chartered Banker

2. "Marketing Management", Philip Kotler

3. "Principles of Marketing" by Kotler, Armstrong, Saunders and Wong

4. "Marketing" by Geoff Lancaster and Paul Reynolds

5. "Services Marketing", Valarie A. Zeithaml; Mary Jo Bitner

6. "Marketing Made Simple" by Lancaster & Reynolds

7. Advertising: Principles and Practice; Wells, Burnett, Moriarty

8. Doyle, Peter, Value Based Marketing- Marketing Strategies for

Corporate Growth and Shareholder Value

9. Veithamel, V and Bitner, M, Services Marketing

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10. "Strategic Brand Management", Kevin Lane Keller

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11. Reichheld, F "The Loyalty Effect"

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Pa
12. JICNARS National Readership Sur vey, JAN-DEC 1987

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13. Harrison, T S, Mapping Customer Segments for Personal Financial
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Services: Replication and Validation, Journal of Financial Services
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Marketing Vol. 2, No 1
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14. Pinpoint Analysis/CACI LTD

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15. Marketing Concept and Philosophy by eNotes

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http://www.enotes.com/management-encyclopedia/marketing-concept-
it

philosophy
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16. The TIMES 100 - Business Case Studies

http://www.thetimes100.co.uk/theory/theory--marketing-techniques-
e
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-186.php
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17. International Finance Corporation - Pakistan Diagnostic Studies

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http://www.ifc.org/ifcext/mifa.nsf/AttachmentsByTitle/Pakistan_
Diagnostic_Studies_20090428.pdf/
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ADDITIONAL READS: 1. Dr. Ishrat Hussain - Papers and Articles

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http://Ishrathusain.iba.edu.pk/papers.html
Pr

2. How is Pakistan Positioning itself for challenges of Globalization?

By Ishrat Hussain
http://www.sbp.org.pk/about/speech/2001/How%20is%20Pakistan.pdf

421
 3. Making Globalization Work for the poor - Case Study of Pakistan By
Ishrat Husain
http://www.sbp.org.pk/about/speech/2001/Impact_of_globalization
_Mahboobul_haq.pdf

4. Impact Of Globalization on Poverty in Pakistan By Dr. Ishrat Husain

http://www.sbp.org.pk/about/speech/2001/Globalization_Work_
for_Poor_3.pdf

5. Pakistani's Banks Overseas Branches, Booths and Units (96) As On

31st December, 2007
http://www.sbp.org.pk/publications/anu_stats/2007/Append5.pdf

6. Pakistan Banking sector

http://www.osec.ch/sites/default/files/PakistanBankingSector2011.pdf

7. The Social Impact of Globalization in the Developing Countries

http://ftp.iza.org/dp1925.pdf

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Chartered Banker Institute is a trading name of The Chartered Institute of Bankers in Scotland: Charitable Body No SC013927

422 Marketing | Reference Book 1

Pr
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