Marketing Financial Products

Corporate Banking - Chapter 4

Banking products are broadly classified into fund-based products and fee-based services. Fund-based products are further sub-divided into asset products and liability products. Liability products include salary accounts, current accounts, fixed deposits, and payment cards. Asset products include various kinds of credit products like trade finance, corporate finance, project finance, and term loans. New product development and innovation are considered vital for a bank's long term sustainability. Banks need to address the changing requirements of their clients through new product development. However, financial products can be easily copied. To maintain differentiation, banks also need to come up with innovations on how they deliver the new product.

The pricing of banking products directly impacts customer retention and customer acquisition, in addition to profitability and long-term viability. For the marketer, price is a mechanism to cover the costs of operations which include production costs, distribution costs, promotion costs, and other operational expenses. The pricing decision is influenced by cost, competition, customers, and other constraints. With the advent of deregulation and the consequent increase in competition, many of the banks have adopted a competitive pricing strategy. RBI has deregulated the pricing mechanism for both asset and liability products. Every bank has to set its own Benchmark Prime Lending Rate (BPLR) to price its asset products. A bank may price its asset products (for a given customer either above or below the BPLR, depending on situational factors such as creditworthiness of the customer, stage of relationship, etc.

Personal selling is the most important component of the promotional mix for corporate banking. As personal selling is a two-way interaction, it also plays an important role in the service delivery. To reduce the overall cost of personal selling, banks may use direct-response advertising or telemarketing to identify high potential customers, who are then approached through the personal selling option. Advertising is used to reach out to a vast audience in a cost-effective manner, as at the time of introducing a new product or service. Public Relations (PR) is used to provide publicity to the bank, to improve its public image, and to overcome a negative image (if any). PR tools include press releases, annual reports, seminars and speeches, cause-related marketing, in-house magazines & newsletters, corporate social responsibility (CSR) initiatives, and event sponsorships. As part of sales promotion, banks give employees incentives to achieve business targets such as volume of new business, extent of cross-selling, etc. Customer promotions (such as gifts) are less important as banks can decide the price (interest rate) for customers on a case-to-case basis.

Corporate banking products are distributed mainly through bank branches and a direct sales force, supplemented by phone and Internet banking. Relationship officers are based at different branches; they make frequent client visits to nurture relationships and to develop new business opportunities. Banks attempt to develop an optimal distribution mix using personal/non-personal modes of delivery, in order to achieve multiple objectives such as superior customer service, operational efficiency, and profitability. Integrated banking software applications – usually referred to as Core Banking Solutions (CBS) -- are vital to the real-time synchronization of the transactions that happen through the different modes of distribution.

The small and medium business enterprises (SME) sector is considered as the growth engine of the Indian economy; it generates employment for nearly 30 million people and contributes around 30 percent to the nation's GDP. However, corporate bankers neglected this segment for a long time due to the high incidence of Non-Performing Assets (NPA) and the lack of proper methods to assess the credit rating of the SMEs. This trend is changing and the SME segment is now one of the focus areas of growth for many banks. This shift has been influenced by the policy initiatives introduced by the Government and the RBI in favor of SMEs. With large enterprises getting access to cheaper funds from other channels, their bargaining power has increased with respect to the banks. This situation has also induced corporate bankers to look at SMEs as an avenue for profitable growth.

Chapter 4 : Overview