Chapter 25 : Marketing of Financial Services(Banking,
Insurance, Mutual Fund & Portfolio Management Services)
Market Segmentation in Banking Industry
Price Promotion People Process Physical Evidence
Recent Trends in Banking
Section Summary-Banking Industry
The bank is a financial institution which accepts deposits and lends that
money to its customers. As banks deal with their customers'finances,
banking is a high-involvement service. Therefore banks need to win the trust
of their customers. Based on the customer profiles, banks segment their
market into retail banking, corporate banking, personal banking etc.
Depending on customer needs for finance, the market can also be segmented
into trade finance, consumer finance, etc. For the banker to derive maximum
returns and enhance his market position the marketing mix has to be
effectively managed. The products offered by a bank may be in the core or
augmented form. The core products offered by a bank include a savings bank
account or a housing loan.
The augmented product includes services like internet banking, ATMs, 24-hour
customer service etc. These augmented services help the banker differentiate
his service offering from those of his competitors. In the pricing of
banking services, determining the interest rates plays an important role, as
these rates in turn determine the revenues and profits of the bank.
The multiple sources of revenue for today's banks include annual charges for
core services and augmented services, penalties, commissions for cross
selling and charges for payment of utility bills, apart from the
differential interest rate. The basic pricing strategy in banks is based on
risk-return pay-offs. However, the competitor and customer reaction have to
be taken into consideration while initiating a price change.
The place element of the marketing mix refers to making the services
available and accessible to customers. Improvements in the availability and
accessibility of services have changed the process of banking. Technological
innovations have given rise to modern channels like the Internet, which have
helped banks increase business volumes and attract new customers.
ATMs and credit and debit cards offer convenience to customers and have also
improved the efficiency of banking operations. These changes have helped
banks tackle the challenges of services marketing. The promotion or
communication mix in banking refers to varied strategies like personal
selling, advertising, discounts, and publicity etc. used by present day
banks to promote their service offerings.
People also play an important role, even though their role has been eclipsed
by technology in the recent past. Process determines the efficiency of
banking operations and thus the service quality in a bank. Physical evidence
includes the infrastructure and buildings not only in branch offices, but
also the ATMs or other places of interaction. Even the quality of cheque
books and mailers to customers forms physical evidence.
The banking industry has changed drastically over the past decade. The
banking reforms and the opening of the economy to foreign and private banks
have improved the working of the public sector banks. This has resulted in
improved service to the customers of the banking industry. Increased
competition and technology have enhanced the quality of service offered to
the customers and also improved the returns for bankers.
Insurance Industry »