Services Marketing

Chapter 25 : Marketing of Financial Services(Banking, Insurance, Mutual Fund & Portfolio Management Services)

Banking Industry

Definition
Market Segmentation in Banking Industry

Marketing Mix

Product Pricing
Place
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 »