22620124 Marketing of Financial Services

8/8/2019 22620124 Marketing of Financial Services

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Marketing of Financial ServicesMarketing of Financial Services

MFS

MFSMFSMFS

MFS MFS


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Sit Back,

Relax,

Enjoy,

The Presentation


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Marketing of Financial Services

Difference between tangible and financial services

marketing,Characteristics of services,Why is planning essential for banks?Benefits of planning,

Strategic and marketing plans,Factors affecting banks strategy,Changes in banks strategy in the 1980s,New approach to banks marketing style,

Elements of a marketing plan,Marketing mix in financial services,Planning corporate account strategy,Pricing decisions and strategy, andThe future of marketing for banks.


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One of the major problems facing the promoters

of financial services as opposed to tangible

products, is that services cannot be experienced

in a tangible manner.

Services cannot be:

(a) touched,(b) tasted,

(c) handled, or

(d) purchased in bulk like tangible products.


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The Acronym (HIPI) will help you remember the

characteristics of services.HeterogeneityAlthough all bank branches sell the same services, the

standard of service is not uniform from branch to branch.

Service marketing relies heavily on the individual selling

the service.

It is this individual who is judged as the bank rather than

the underlying service being sold.

Hence, marketing manager must pay great attention to:

product knowledge, sales training, selling skills and

interpersonal skill of the seller.


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Intangibility

Marketing of financial services must necessarily stress theBenefits because services cannot be touched, tasted or in

Any way experienced by the senses.

While a service may have some tangible representationslike: cheque book covers, bank statements, plastic cards,

these represent only a small part of the intangible service.

Purchase of financial services often involves a highly

emotive decision.

Different services also present a different level of risk to

the customer.

e.g current account may be considered low riskmortgage account may be considered high risk.


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Perishability

Services are highly perishable since they cannot be stored

(e.g. time when sales persons are not serving customers cannot be

utilized to expand service at peak periods.)

Demand for services fluctuates from day to day, week to

week, month to month, especially for branches in tourist

areas.


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Inseparability

Most of the time services cannot be separated from the

sales consultants (e.g. investment advisor, corporatemanager).

If a customers need investment advice, they must go to

an investment advisor duly authorized by the bank to

provide an advisory service.

Services are frequently created at the time they are used,unlike the tangible products, which must be produced

before they can be sold to customers.


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A bank without a formal planning process is like aship without a destination.

Quotation: A bank that fails to plan is planning

to fail.

Any commercial organization, which fails to plan its

future will quickly become out of touch with its

environment, thus leaving itself vulnerable tocompetitor activity aimed at gaining a dominant

place in the market.


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The value of planning lies in the bank or financialinstitution, being in a position to control its own

future.

This is principally due that the bank should be inconstant touch with a fast changing environment.

A systematic appraisal is developed and

incorporated in a written plan, which will providecontinuity of thought and action from one year to

the next.


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(a)Executives are forced to set corporate objectives

thus providing guidance for the banks operations

(b) Planning identifies the resource needs of each

activity, balances these needs against available

resources, and allocates these resources in themost efficient way,

(c) A good planning process should make all staff

more aware of their own roles and responsibilities

(d) A formal plan forces banks or other organizations

to considers its own Strengths, Weaknesses,

Opportunities, and Threats (e.g. SWOT Analysis).


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(e) A good plan will enable a bank or financial

services provider to identify the customers needsand wants, thus enabling the bank to build

strategies for any profitable segment identified,

(f) The bottom line of any planning process is tomonitor new development in the business

environment, and try to be in control.


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FinancialPlan

HumanResources

Plan

Marketing

Plan

RiskManagement

Plan

M k ti f Fi i l S i


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With the growing level of competition, and the rapid

pace of change, banks started to focus their attentionon strategic planning,

Marketing plan emerged as an essential tool in the

overall strategic plan,

In spite of this new development, some traditional

banks remained with the old banking business

concept instead of employing modern managementbusiness skills within the banking business.

Unfortunately, some traditional banks went out of

Business earlier than expected.

M k ti f Fi i l S i


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1. Mission Statement

It states the overall purpose of bank or any organization.

2. Key Objectives

Objectives are cited for variables such as:(a) financial return expected,

(b) degree of efficiency required,

size of loans or credit on offer, and(d) service quality

3. Market Assumptions

These contain explicit statements about future trends in strategicmarket segments, which may affect the banks freedom to act.

4. Competitive Strength EvaluationAn evaluation exercise of the strengths & weaknesses based on

factors such as: ( relative costs, service quality, and market share).

M k ti f Fi i l S i


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5. Assessment of Opportunities

The plan should assess the threats and opportunities for each marketsegment. This is important in order to achieve the mission & objectives

6. Market Portfolio Strategy

The plan must identify the desired investment strategies for each of

the markets in, which bank units participate and the objectives to beattained for each.

7. Strategic ChangesObjectives & goals for action plans stating changes in capabilities or

resources under the control of unit management and selected as mostlikely for achieving the desired market results.

8. Action Plans for Implementation

Specific programs including measurable goals, events and timing,

which result in the changes specified in action plan objectives.



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9. Expected Financial Results

These include the anticipated financial outcome in terms of revenue,profits and return on assets for the units.

10. Project Review or Evaluation

Realistically, with a every project concept, there should be a review

or evaluation with the intention to assess its result.



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Mission

Statement

Key

Objectives

Environment

& Market Assumptions

Competitive

Strengths Evaluation

Assessment of

Opportunities

Market Portfolio

Strategy

Strategic Changes

Action Plans

For Implementation

Action PlansFor Implementation

Evaluation Process



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e banking industry around the world has been

anging very rapidly since the early 1970s.

e industry has experienced a substantial change

competitive conditions as a result of a number

factors:

he industry tended to go international, led by theleading US commercial banks,new competitors entering the financial services

market new approaches to servicing corporate clienew capital markets emerged as a resulttransformed traditional funding of banks & MNCsa wide range of sophisticated products were

introduced under packaged sales



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response to competition, banks reacted and bega

o build up their own multi-national presencehrough their own brand name,anks began to channel their marketing resourcesowards diversification,y the end of 1970s, banks operations had becom

more complex with the range of services on offer,hile margins on lending were eroded through

competition, fee-based services were increasing,on-bank financial institutions were also providingfinancial services hence, more competition,e.g. General Motors, Shell Co, American Express. Large sto

nd Supermarkets)



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new information technology (I.T.) impacted on theoperations of the banks and became one of the kedrivers, (e.g. back office became automated),

avings and loans associations initiated interest-earing transaction accounts and brought directompetition to commercial banks, and

rofessionals like accountants, lawyers, real estategents, financial brokers, asset managers also offeinancial services.



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In the 1980s the banking industry experienced an

acceleration in the pace of change in both:

(a) retail, and (b) wholesale market.

Retail Banking

Increased Segmentation of Consumer Groupsand provided Specialist Private Banking Services

(e.g. rich individuals, High-Net-Worth customers)

Stratified Accounts (e.g. personal loans, credit finance,insurance products, 1st & 2nd line mortgages, deposits FD &

S/Term)

Replacement of Paper-Based Accounting Systems,

Increased competition for loans and deposits



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Wholesale Banking

Competition Intensified- banks continued to strive forcompetitive advantage and in doing so cancel out one

anothers efforts,

MNCs became stronger in their demands by negotiatingtheir own interest rates and cost of services from banks,

Japanese banks took the first 5 top positions in theinternational banking league,

New development in I.T change the banks approachto the consumer, wholesale and corporate markets,

Increase competition from non-bank institutions

(General Motors, General Electric, American Express, MerrillLynch, and other major credit finance companies)


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Banks portray themselves as a One Stop Financial Services

Centre.

Banks no longer remain in their traditional service market.

They are now more aggressive in providing a full menu of

services that will cater for its customers needs.

The competition is so fierce that they can offer any type of

service provided their customers are satisfied with the speed

efficiency & costs involved.

Banks in certain industrial countries are now mobile in such

a manner, that they will visit you at your doorsteps.

Technology is one considered as one of the key drivers that

enables banks to cope with the intensity of competition.


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Overdraft, Fixed Rate Short Term Loan, Acceptance Finance, Multi-currency Lending, Hire Purchase, Tax Leasing,

Leverage Leasing, Parallel Loans, Commodity & Stock Loan, Variable Term Loan,

Syndicated Loan, Secured Equipment Loan, Merchandise Loan, Property Construction Loan, Merger & Acquisition Finance,

Mortgage Finance Loan.


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Domestic Transfers Cheques, Banker payments, Standing orders instruction,

Credit transfers, Bank-to-bank transfers, Direct debits,

International TransfersEFT transfers,Bank drafts,International cheques,

Commercial CreditsClean credits,Documentary credits,Import & Export credits.


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Trust ServicesExecutorships,Share registrars,Safe deposit services,

Estate planning,Tax planning,Life insurance,Trusteeships,Shares & Bonds purchases,

Pension fund management,Corporate trustee services,Investment advice, andDividend payments.

Consultancy ServicesInvoicing centres,Treasury management,Pension Fund advice,

Insurance Man advice,Forex forecasting,Training in finance, andFinancial plan & money

management service.


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Payroll management & accounting, Factoring of commercial invoices, Travel arrangements, Life Insurance planning, Economic & strategic studies, Correspondent banking services, Data processing services,

Non-life insurance planning, and Consumer banking services



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g

STAR

Strategy Build

PROBLEM CHILD

Strategy Build orHarvest orDivest

CASH COW

Strategy Hold

DOG

Strategy Harvestor

Divest

Hi

g

h

L

o

w

High Low

Relative Market Share

Source: Boston Consulting Group Matrix



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g

Star

Where the bank would

make investments in order

to build up or expand its

Business Units (BU),

Cash Cow

Where the bank would

invest just enough moneyto hold the BU share at the

current level,

Problem Child Where the bank allows

market share to declinein order to maximizeshort-term profitability &cash flow, regardless of

the long-term effect,

* Dog Where the bank sells or

phases out the BU &reinvest resources.



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g

Ansoff identified 4 strategies following the BCGMatrix:

(1) Market Penetration,

(2) Product Development,

(3) Market Development, and

(4) Diversification.



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g

Product

Development Diversification

Market

Development

Market

Penetration

CU

R

R

E

NT

N

E

W

P

R

OD

U

C

T

CURRENT MARKET NEW MARKET

MARKET

Source: Ansoff Matrix



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(1) Market PenetrationThis strategy is the least risky of the 4 strategies because

it involves increasing market share in existing markets.

(2) Product Development

The bank is already well known in its current market placebut there is an identified need for new products to meet

the changing needs of this market.

(3)Market DevelopmentThe bank is already known for its current products, but the

strategy is to take these products into a new market.

(4) Diversification

With this strategy, the bank is moving into new market

with new products.


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The McKinsey model argues that businesses should

develop their growth strategies based on:

Operational skills,

Privileged assets,

Growth skills, and

Special relationships.

Growth can be achieved by looking at business

opportunities along several dimensions, summarized in

the diagram.

The McKinsey Model resembles the Ansoff Model.


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New Competitive

Arenas

New Industry

Structure

New Geographic

Areas

New DeliverySystems

New Products &

Services

Existing Products

to existing customers

Acquisitions

Minority Stakes

Alliances

MarketingPartnership

Organic Invt

Existing Products

to new customers

In

creas

ingLeve

lof

Risk

How?

Joint Ventures

Mc

Kin

seyGrowt h

Pyr a

mid

Generic Options & Investment Structures for a Growth Strategy


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They are the core competences that a business has which

can provide the foundation for a growth strategy. (e.g. thebusiness may have strong competencies in customer service; distribution,

technology).

Operational Skills

Those assets are held by the business that are hard to

replicate by competitors.

(e.g. in a direct marketing-based business these assets mightinclude a particularly large customer database, or a well-

established brand).

Privileged Assets

G h Skill


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These are the skills that businesses need if they are to

successfully manage a growth strategy.

These include the skills of new product development, or

negotiating and integrating acquisitions.

Growth Skills

Such relationships are those that can open up new options.

(e.g. the business may have specially string relationships with tradebodies in the industry that can make the process of growing in export

markets easier than for the competition) .

Special Relationships


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The model outlines seven ways of achieving growth, which

are summarized as follows:

Existing products to existing customers

Existing products to new customers

New products and services

New delivery systems,

New geographic areas,

New industry structure, and

New competitive arenas

E i ti d t t i ti t


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Existing products to existing customers

The lowest-risk option; try to increase sales to the existing

customer base; this is about increasing the frequency of

purchase and maintaining customer loyalty.

Existing products to new customers

Taking the existing customer base, the objective is to findentirely new products that these customers might buy, or

start to provide products that existing customers currently buy

from competitors


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New products and services

A combination of Ansoffs market development &

diversification strategy taking a risk by developing and

marketing new products. Some of these can be sold toexisting customers who may trust the business (and its

brands) to deliver; entirely new customers may need more

persuasion

New delivery systems

This option focuses on the use of distribution channels as a

possible source of growth. Are there ways in which existing

products and services can be sold via new or emerging

channels which might boost sales?

New geographic areas


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New geographic areas

With this method, businesses are encouraged to consider

new geographic areas into which to sell their products.

Geographical expansion is one of the most powerfuloptions for growth but also one of the most difficult.

New industry structure

This option considers the possibility of acquiring troubled

competitors or consolidating the industry through a general

acquisition programme.

New competitive arenas

This option requires a business to think about

opportunities to integrate vertically or consider whether the

skills of the business could be used in other industries.



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Gap Analysis of Reven

0

10

20

30

40

50

60

70

80

Time

Revenue

Desired Revenue

Projected

Revenue

Strategic

Planning Gap



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GAP analysis can be used at a number of levels of

Planning strategic, operational, product & market.

The resultant gap analysis will enable the bank to

choose between one or two courses of action:

(a) plan strategies to close the gap, and

(b) redefine the objective so that they produce thesame result as the current projected trends.



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Changes in the external environment can affect the

desirability of the potential strategies of a bankdue to changes in its relative position in the market.

The changes follow the acronym (LePESTCo):

External Factors

(1) Le Legal

(2) P Political

(3) E Economic

(4) S Social

(5) T Technological

(6) Co Competition


G


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LEGAL

* Banking Regulations & Laws, Taxation Laws,

Foreign Exchange Controls,

POLITICAL Attitude of the Government towards the local banks,

Attitude of the Government towards foreign banks &non-bank financial institutions.

ECONOMIC CONDITIONS

Industry Structure, Gross Domestic Product (GDP), National Rate of Inflation & Money Supply, Foreign Exchange Rates, Interest Rates, and

Unemployment Levels.


SOCIAL & DEMOGRAPHICS


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SOCIAL & DEMOGRAPHICS National Birth Rate, Population Size,

Age Distribution, Socio-economic Distribution, Geographic Population Distribution, Education/Skill Distribution, Trend in Lifestyle, Public Opinion & Attitudes towards financial services

providers, andTrend in Banking Usage.

TECHNOLOGY Development in Integrated Technology, Changes in Technological Industry, Levels of Investment Required, and

Customers attitudes towards new technology.



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COMPETITION Existing players in the Market, New Entrants penetrating the Market, Pricing of Financial Services/Products, Marketing Style, and

Consolidation within the Banks.



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COMPETITOR ANALYSIS Market share, Financial position,

Reputation among suppliers and creditors, Composition of the clientele, Menu of product/service range, Strategies for segmentation, key accounts,

Pricing, Image & service quality standards & performance, Efficiency of service delivery, Promotion aspects (e.g. spending, timing & reach), Technology used for service delivery, Planning, information & control systems, Ability to attract qualified personnel, Training, morale, union relations, Commitment to research & development, and

Plan to diversify within, and/or, outside the industry.



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A sound marketing plan should also considers

the impact of internal factors such as:

(a) Employees,

(b) Premises,

(c) Systems, and

(d) Financial resources needed to back the plan.



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EmployeesDoes the bank have adequate qualified employees to handle

the marketing campaign?

Are the employees fully aware of the marketing plan and

their respective responsibilities?

In the event of a shortage of employees will they berecruited from the banks competitors or given internal

training?

Will the employees be given a marketing target to achieve

within a specific period of time?

Who will be responsible for the overall co-ordination?

Will they be remunerated based on performance?



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PremisesWhere will the marketing campaign be executed - Head

Office, or Branch Level?

Are the current premise visible or adequate to promote the

marketing campaign?

Will there be any additional cost to be incurred to make thepremises more user friendly and appealing?

How are the premises styled open plan or closed counters?

Are the premises comparable with the banks competitors?



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SystemsAre the present systems adequate or robust enough to

handle the marketing campaign?

Are the systems user friendly?

Are the employees fully trained to manage the systems in

place?

Can the systems be replicated by the banks competitors?

Who will be responsible to manage the systems?

Can the systems be tempered with?

Is there a contingency plan in place in the event of a system

break down?



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Financial Resources

Is there a specific budget allocation for the marketingcampaign?

Who will be responsible to manage the budget?

Has adequate provisions made to include cost overrun of

the campaign?

Does the budget time frame match the marketing campaign

period?

Is the marketing campaign costs built into the service costs?


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Market Characteristics Assess the market size,

Test for historic growth rate,

Make a projection of the growth rate,

Count the number of accounts in total,

Evaluate the trend in market concentration,

Consider the buying decision process,

Evaluate the service delivery process, and

Assess the characteristics of customers.


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Service Characteristics

Relative capital intensity, Work out the degree of service differentiation, What is the Value Added? Consider the level and type of risk faced by the bank,

Test the relative profitability of the service, What are the potential for cross-selling opportunities?, The impact of shared-cost structures, Rate of service change and innovation, Service integration with other bank services, and

Attitude of customers to new services/products.


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Environmental Characteristics

Political stance and their impact on the industry,

Impact of new technology and trends,

Impact of social attitudes, and

Economic dynamics and its impact on the industry.


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Identify the existing competitors and their market share

(to include non-bank financial institutions), Evaluate the banks market share towards its competitors, Consider the impact of changes of competitors, What is the major trend in the market share?,

Evaluate the degree of competitor concentration in themarket,

Test for relative service price, cost, and marketing effort, Assess the relative capital intensity,

What is the position regarding entry or exit barriers?, Work out the relative employee skills required, Consider the relative resource availability to the bank, and Assess the systems capability, and Evaluate the services life cycle of the industry.

Life Cycle Position


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STAGES IN THE BANKS SERVICES LIFE CYCLE

Embryonic Growth Shakeout Maturity Decline

Your Banks Position

Deman d

Time

Porters Five-Forces Model


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Threats

of

New Entrants

Threats of

Substitute

Services

Bargaining

Powerof Customers

CompetitiveRivalry

Bargaining

Powerof Lenders

Source: Adapted from M E Porter, Competitive Strategy (1980)

Porters Generic Strategy Model


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1.COSTLEADERSHIP

2. DIFFERENTIATION

3 (a) COST FOCUS 3 (b)DIFFERENTIATION

FOCUSNarrowTarget

Broad

Target

C

OM

P

E

T

I

T

I

V

E

SC

O

P

E

Lower Cost Differentiation

COMPETITIVE ADVANTAGE

Cost Leadership


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Cost LeadershipThis can be achieved through market leadership, or from

economies of scale (e.g. with high sales and aggressive costscontrol).

The bank can try to achieve lower costs by means of

encouraging customers to use products in a way that is

cheaper for the bank (e.g. ATMs, SWITCH, DELTA cards).

The bank will also have to promote the benefits such as

convenience to the customers.

Depending on the type of market, cost leadership may be

difficult to maintain in banking, because many services

are broadly similar.

For a small market, diversification for cost leadership

strategy may not be feasible.

Differentiation


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DifferentiationThis is where a bank seeks to be unique in the financial

services sector by producing a product/service, delivery

system or image that is distinctive from its competitors.

Differentiation is only successful if the customers perceive

the difference.

Banks would tend to use marketing slogan such as: Youre better of talking to Barclays, The bank that says Yes The listening bank Your partner in development

Your solutions bank

The major problem with differentiation as a strategy is that

financial services can be easily copied and adapted by

other competitors using slight different wordings.

Cost Focus


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Cost FocusWhile the cost leadership and differentiation strategies aim

at a broad target, the focus strategies aim at a narrow target.

The bank would normally select a target market (s) & tailors

its strategy to the specific need of the target market (s).

(e.g. select a quoted MNCs as its target market, and aim to serve themto the virtual exclusion of other target markets).

The bank can either aim at cost focus or differentiation focus.

Differentiation Focus

This approach can be described as finding a niche in themarket place and developing services that matches the

niche market.

If the target market is too small, the bank may be left with a

service menu that is not profitable.


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PlacePeoplePrice

Product

Promotion

Product/Service


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/This concerned with the features of the bank products, and

any option available to the customer.

(e.g. bank lending would include the term of loans fixed or variablerate and option to switch from variable to fixed rate or vice versa).

PlaceWhere the product or service is being made available to the

customer, or how can the customer obtain the service.(e.g. branch network, ATMs, Internet banking).

PriceThis refers to the interest rates offered to depositors and

borrowers, bank charges, commissions for services.

PromotionIt is concerned with advertising, direct sales, tele-marketing,

internet, personal visits to the customer.

People


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PeopleIn view of the heavy competition, banks expect their staff to

take a pro-active selling or customer service role.

In fact, bankers are more sales persons these days than two

decade ago.

It requires training or re-training and in many cases a

profound cultural change in the bank as a whole, as people

adjust to new selling roles.

In the marketing of financial services, it is imperative that

the staff (people) takes the centre stage in order to achievesuccess.


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In planning to target the corporate market, a bank would

necessarily have to consider the following factors:Financial Data

* Sales,* Gross margin,

* Sales growth rate potential,

* Net margin,

* Trend in the margin for the other banks,

* Sales percentage by the major line of business,* Stock turnover,

* Debtors ageing trend,

* Creditors facilities,

* Trends in working capital for the corporate,

* Demand for plant & equipment,* Trends in fixed asset investments,

* Short-term & long-term debts profile,

* Debt maturity schedule,

* Interest rate charged & paid,

* Equity capital injected, and* Major shareholders.

P d t Ad t i T ti C t C t


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Market Planning

General Screening

Prospecting

Needs Identification

Strategy Assessment

A/Cs Action Planning

Relationship Dev

Procedures to Adopt in Targeting Corporate Customers

Review


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General Business Considerations Lines of business, Number of employees, Market position, Main brand names, Subsidiaries (domestic & international), Production/service sites (no & location), and

Names & position of board and finance officers.

Competitor AnalysisExisting lead bankers,Other bankers.

Advisorso Accountants,o Lawyers,o Consultants


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Industry Background InformationGrowth Rate (i.e. historic & projected),Capital Intensity,

R & D investment,Marketing intensity,Profitability,

Industry economic trends, &Industry competitiveness


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Pricing decisions are not only made in relation to new products,

but also in relation to the existing products.

Pricing decisions must be made, taking into account the banksenvironment & how the factors constituting the environment

can be controlled.

The factors can be divided into (a) internal & (b) external.

Internal factors marketing objectives,

marketing mix strategy, costs involved, and organization for pricing.

External factors nature of the market & demand,

competition, and LePEST


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Once a new product/service has been developed, a bank

will need to decide upon the price to charge, and to test

the acceptability by the target market using marketresearch approach.

Three of the most important strategies for pricing new

Products/services are as follows:

(1) Skimming Pricing,

(2)Penetration Pricing, and

(3) Perceived Value or Value Pricing.

Skimming Pricing


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g gThis involves setting a high initial price for the product/

service so as to just skim the cream of demand for the

product/service. It is especially suitable for new products

because:

(a) new products are less affected by price until the

competition arrives,

(b) a high initial price many help the product gain animage of prestige and quality,

(c) a high initial price often produces more revenue in the

early days, thus bringing in funds to finance expansion

into larger markets,(d) there are sufficient buyers to pay the high price,

(i.e. demand is inelastic), and

(e) a skimming price can be means for testing demand.

Penetration Pricing


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This the opposite of skimming pricing; it sets a low price in

order to capture a large share of the market quickly.

This is a valid policy if one of more of the following

conditions apply:

(1)The intention is to capture a large share in a mass market,

(2) Strong competition will emerge soon after introduction,

(3) When the market appears price sensitive, and

(4) Substantial economies in production, and/or, distribution

costs can be achieved with a large sales volume.

Perceived Value or Value Pricing


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Bank marketers should use this strategy to get beyond the

stage of what does it cost us to deliver this service? to

what is the perceived value (benefit) of this service to the

customer?.

The more tangible and intangible features (including say

Prestige) that can be added to a service, the higher thevalue perceived by the customer.

This enables the bank to charge a higher price.


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A bank must consider changing the price of the existing

products/services in certain circumstances.

The strategies may be considered along those lines:

(a) Cost Plus Pricing,

(b) Break-Even Pricing,(c) Relationship Pricing,

(d) Loss-leader Pricing,

(e) Competitive Pricing,

(f) Pricing for Market Share, and

(g) Differential Pricing.

The marketing committee or team is usually responsible

to feed the strategist or the management team of the

best approach, considering the market circumstances.

Cost Plus Pricing Methodology


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Cost Plus Pricing MethodologyThis approach identifies the basic cost of the product/service

first, then adds a worked out margin to ensure that the

product/service is sold at a profit.

The methodology is practically similar to the sales of tangible

commodities.

For such a strategy to be very productive, it is essential that

the true cost is obtained from the outset before the final

price is determined.

No business wants to operate at a loss, let alone, a bank orfinancial institution.

Break-even Pricing


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Such a pricing strategy speaks for itself break-even where

the product/service sold does not realized a profit or loss.

Both the fixed and variable costs are taken into account

when such a price is determined by the management.

One would ask, this is not in line with sound commercial

practice?

This strategy can be used by management to adjust the price

to fit in with expected demand and customer sensitivity

until a price is arrived that fits the target sales and equallyproduces the desired profit result.

Unless, this practice is closely monitored by the marketers

and report to the management the bank can loose a lot of

money within a short period of time.

Relationship Pricing


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This is particularly important when a bank is trying to deal

with the corporate clientele and high net worth individuals.

In order to cross-sell other services, other prices may be

adjusted downwards in order to keep the business, while

increasing the profits overall from these customers.

It is an important development that the management of a

bank must be able to track down the trend in the revenue

generation process.

Otherwise, the bank will be placed at a serious disadvantagewhich can cost the shareholders very dearly.

Loss-leader Pricing


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The term loss-leader means that you need to sell one

particular product at loss, which is necessarily linked to

other more profitable products/services.

This is not a bad strategy, subject that the marketing team

together with the management team are in control of the

entire campaign.

In the case, a bank would know that it is operating a service

at a loss, but on the other side, it provide the bank with the

opportunity to cross-sell other services.

The loss-leader service would be usually a service that is

not mutually exclusive (i.e. standing on its own).

This strategy resembles buy one item- get one free

Competitive Pricing


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It is absolutely crucial that when a bank is considering its

marketing plan, which is embodied in the strategic plan,

the various pricing strategies are considered.

Customers normally would base their buying decisions after

considering all the built-in features including the price.

The typical psychological behaviour I will buy it if the

price is right. Financial services marketing is not different

from the other commodities.

If the market is fiercely competitive, then the bank may haveto price its products/services at the price that the market

is expected to bear.

Pricing for Market Share


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Again, any smart management team has to consider the

motive (s) of its pricing policy as a priority rather than simply

put a price on a service.

To apply such a commercial strategy is to engage the banks

resources into a meaningless plan, which can be very costly.

In the case of pricing to gain the market share so as to

operate as a cost leader in the market the marketing team

must be able to tune the whole campaign in line with the

overall corporate philosophy of the bank.

In order to gain the market share, the banks profits will

suffer in the short-term, but grow in the long-term if the

strategy is implemented successfully.

Differential Pricing


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What does differential means? It means to be different!

Different from whom? Externally, different from yourcompetitors, and internally, different from service-service.

Internally, certain methods of conducting business

transactions are cheaper for the bank & customers.

It encourages customers to move away from voluminous

payment of say salaries by cheques, but by means of

electronic transfer.

It is less expensive for the bank to handle thousands of

salaried payments electronically, than by cheques due

to the time involved.


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The marketing campaign of banks services has always been

dynamic since de-regulation of the financial services sector

took effect in the 80s.

The competitive pressure by various players in the financial

services sector will not diminished in any form or substance.

Instead, it is expected that as competition intensified from all

fronts, the marketing campaign by banks to retain, let alone,

increase their market share will equally become more

aggressive.

Banks can only retain customers loyalty through the delivery

of service quality combined with risk-based pricing method.

Banks must also pay attention to their customers needs.


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I wish you all,

good luckin your studies.


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Documents

22620124 Marketing of Financial Services