Marketing in the Banking Industry Prescott Valley,

Marketing in the Banking Industry

Prescott Valley, Arizona

Abridged Literature Review

Reflective

Annotated Bibliography

While there are many industries in the world that are growing at a rapid pace, one of them is exceedingly doing well. This is because it relies upon the monies and funds of its customers and greatly influences the other industries as well. This is the banking industry. Although a common part of every consumer's life, the banking industry has been growing and developing globally. To understand such growth, the attention instantly goes to the strategic and marketing techniques that have been applied by the people of this industry. Therefore, to gain a thorough and concise outlook of the marketing wonders that have continue to enable the banking industry to succeed at all fronts, the research topic that has been proposed for this research paper is 'marketing in the banking industry'. This topic will not only aid in understanding the marketing methods of this sector, but also help us understand the reasons that make this industry highly influential in the overall consumer market, where it supports other industries as well by means of loans, advances and guarantees to businesses and individuals. Keeping in mind the above benefits to the user of the report, the above topic has been proposed for this study.

Introduction

Banking is one of the most important service industries existing in the economy today with that affect not only the economy itself but also the social aspects as well. Being a service industry by nature, the banking industry focuses mainly on the providence of superior quality services compared to its rivals to its customers in order to gain a greater market share.

Banks have little value without a customer base. It is their deposits with which banks earn investment income, and through giving the customers advances or loans, banks earn interest income. Interest income forms the largest part of a banks' income portfolio, with income from investments coming in at second. The key for a bank's success is not only to create customers for itself, but also retain them via efficient and effective customer service (Perrien, Filiatrault, & Ricard, 1993).

One of the main aspects of providing better services to the customers is to create the perception that they are better than those being provided by the rival banks. This is where marketing steps in to the picture. Banks need to market their products in a manner that not only highlights their superior quality service as well as the product details in comparison to other rival banks that not only appeals to the customers, and convinces them to purchase those banks' services. More than anything, since banking services are value adding services, the customers must feel like that the products will add value to their current banking needs, and will serve them better (Laukkanen & Lauronen, 2005).

The basis of each marketing strategy for banks depends on the same foundations. The primary task for the marketing department of any bank is to identify the financial wants and needs of the customers in the market (Lovelock, 2011). Then accordingly develop banking products and services to satisfy those needs and to convert wants into needs. Pricing for these products and services should be a very meticulous exercise. It should reflect the quality of the product, as well as be competitive with similar products and services offered by rival banks and financial services providers in the market. The pricing will affect the strategies adopted for the promotion of the product and services as well along with the nature of the product and its target market.

The product and services should be marketed to potential as well as existing customers through channels that are available to the bank with regard to its budget. The channels of marketing include on air as well as off air advertisements with promotional schemes, discounts, special time offers and other methods being used along with the use of media like television, radio and newspapers. The products and services being marketed should be as such to meet customer expectations when they arrive at the branches to avail them.

There should be continued research into how to better their products and services, as well as come up with new ones to maintain the customer base and market share, with prospects of increasing it further with improved services, and innovative products.

A major part of marketing for banking companies is the promise of customer satisfaction which is advertised is delivered or not. This largely rests on upon the interaction of the customers with the concerned banking representatives. It must be communicated from the senior-most executives to the junior-most customer-services officers to ensure that the customer has a pleasant experience from the moment the step into the bank's premises to the communication with the bank's officers. This is forms the basis of relationship marketing.

According to Theodore Levitt, relationship marketing is described as 'an approach which emphasizes the continuing relationships that should exist between an organization and its customers.'(Levitt, 1985).

It is the belief that with the increase in the amount of transactions with the bank, the relationship intensifies with each transaction and subsequent to the sale of the product.Relationship marketing is not only at the customer service point or at relationship manager level but at every point in the organization. The call centre representative handling a query or the operations personnel processing a transaction are both drivers of relationship marketing.

Abridged Literature Review

According to Borugadda Subbaiah, as with any product, the focus point of all marketing strategies is to create such a brand image that the consumer not only recognizes and prefers over rival brands but also relates to. The relating-part is important as this shall cause the consumer to make repeat purchases and become loyal to the brand of the bank (Subbaiah, 2012).

The creation of a brand image is important, especially for potential customers of the bank who have yet to experience the quality of the products and services offered by the bank first-hand. The intangible nature of the bank's products and services makes it difficult for a potential new customer to judge its quality beforehand, unlike with manufactured products, which one can see and touch. Hence, the brand being built by the marketing department will be of crucial important here as it will be a gateway to the endless possibilities that the bank is trying to sell to the potential new customers.

It must be noted that the products and service offered by the bank is inseparable. They success of a product with each and every customer depends on the type of customer service being provided by the bank representative with regard to delivering the product capabilities to the customer. Standardization of banking products and services is not only difficult but pretty much not an option as mentioned before, they both depends upon the bank representative delivering them. Joachim Nagel, member of the Bank for International Settlements, has indicated how the banking markets can be segmented and then targeted in the current economic depression, post-banking crisis of 2008 (Nagel, 2013).

Nagel elaborates how the market segmentation process works in the banking industry. The central rationale behind the segmentation strategy lies in the nature of the bank as a financial institution set up to serve the needs and wants of the customers, rather than battling out for comfortable situations that allow for its own organizational convenience. Segmentation in the banking industry can be achieved by regrouping the products and services into separate departments for each type of customers. The customers can be segmented with regard to their business activity, keeping in mind factors such as the accessibility, measurability and sustainability. Further segmentation of customers can be performed on the basis of their profession, income levels, social status, geographical area etc.

The financial crisis had resulted in a loss in confidence in banks, and a significant rise in the risk-averse secure-investment portfolios, indicating a higher counterparty risk. Today, unsecured trading in maturities that age longer thanthree months are quite rare. One of the major factors that have propelled the marketing in the banking industry forward by a large extent is the technological advancement. Internet Banking and Mobile Banking have taken the products and service being provided to another level, with more and more customers opting for the convenient internet banking services over the inconvenience of visiting the nearby bank branch.

Member of the Board of Governors of the Federal Reserve System, Allen N. Berger, has pointed out that the technological advancements have not only resulted in cost improvements but also have served to increase the lending capacity via "back-office technologies" (Berger, 2003). The technological advancement has also led to more efficient and targeted marketing methods that personally intimate to the customer according to their banking history and their lifestyle of any new promotions and products that might interest them as Vadlamani Ravi (Ravi, 2008). As a result, productivity increases in terms of improved quality but also the variety of banking services being made available.

Since the banking industry is entrusted by the customers with their finances, the need for regulation in the banking industry becomes highly significant (Jr. & Hoskins, 2006). In different countries, various institutions are required to regulate the banking industry to keep the banks under strict control. Regulations also control the marketing aspect of a bank as they are required to market products in an ethical and professional manner. The heavy fines and the penalties charged on banks for on compliance of regulations keeps the banking industry focused on the operations of its business in a more alert and efficient manner. Gert Wehinger discusses a different aspect of the functions of the regulatory bodies. He argues that while the regulators are required to regulate the banking industry, it also become the responsibility to effectively support the banking industry by building consumer confidence and applying such policies in times of financial crunches that aid the banking industry as well (Wehinger, 2012).

Problem Statement

Like every other form of businesses, those involved in the banking industry are also involved in promoting their banking business to the general consumer market. This promotion can take many different forms normally, but unlike traditional products and services, the marketing in the banking industry follows a certain marketing style that invites customers to provide the banks with their money, while also allowing them to earn from them in return of banking services. As trends have changed, the marketing styles in the banking industry have also changed in the last century. In the modern times, the marketing strategists in the banking sector tend to focus on certain relationship-based methods to attract customers. These strategists use the help of the overall strategy of a bank and use it to perform relationship marketing, apply product marketing methods, such as digital marketing and the action and strategies of their competitor banks. However, despite of various techniques, time and focus put in the marketing of banking services and products by the banking industry, there is a need to understand that how marketing in the banking industry differs from the marketing of products and services in other industries and how does it does impact the customer base. Therefore, the research problem that has to be answered through this research report is 'how the functions of the marketing techniques in the marketing industry attract customers and aids in the growth and development of the banking industry itself?'

In light of the above statement, it becomes clear that the basic role of the marketing aspect in the banking industry is under scrutiny in this report. When we look back at the marketing techniques employed by different bank in the years before the 1950s and the years after that, the difference between the marketing methods would be drastically notable. This would aid in understanding the fact that like every other retail industry, those involved in the marketing of banks and their products and services have undertaken an aggressive form of marketing strategy. With this continuous aggressive form of marketing methods employed, customers have become accustomed to the marketing trends of the banking industry and now become less likely to fall for the marketing schemes and methods that these banks apply today.

The products and services that the banks provide are almost same as those that existed almost a century ago. Since the banking industry in more of a services industry than a retail products industry, the need to keep the customers attracted towards the industry motivates the marketing strategists to develop new marketing ideas and use innovative ideas to prolong the growth and development of the banking industry. However, one important question that arises when such details are considered in detail is 'what are the various different approaches used by the marketing strategists to ensure that the customers are attracted to the banking industry despite of the limitation of services and products available to them by the various banks existing in the banking industry?'. When questions as such are pondered, the understanding of the banking industry in terms of marketing operations begins to become clearer, thus allowing the chance to develop and understand the various aspects of the marketing in the banking industry.

Purpose Statement

The primary purpose of this report is to focus around the research problem identified previously, developing a research paper that allows the user of the report to gain an understanding of the marketing methods in the banking industry and gain an insight over the issues, solutions and the various modes that allow the marketing strategists in the banking sector to carry out and develop successful marketing schemes that are resultantly successful and are able to attract new customers to increase their customer base and allowing the banks to benefits of the marketing schemes in terms of increased monetary interest earnings. The additional purpose of the report is to allow the user of the report to acquire basic knowledge about the operations and the strategic techniques followed by the banking industry to market their products and services. Additionally, with the aid of the research questions identified previously, the user of the report would be able to understand the different approaches and techniques employed by the marketing operations of various banks in the banking industry to continue to attract customers and their deposits.

Research Questions

Throughout history, the importance of the banking industry towards all other industries has remained immense. It is through this industry that the monies and finances of all industries and businesses have to eventually pass through and dealing with this industry has been a vital part of the organizational operations in all other industries and sectors. However, in order to assess the importance of the banking industry and how its marketing techniques effectively produce efficient results, some research questions have to be assessed and analysed.

Q1. What are the challenges that the marketing of the banking industry have to counter in to order to be successful?

The banking industry is quite different from other retail industries. Therefore, the challenges they face in marketing their products and services differ greatly from other industries. In the current business landscape, technology plays a huge part in every field. Similarly, one of the challenges for the marketing industry is to tackle the disadvantage of not staying technologically updated in the banking industry. Whoever remains updated and uses the benefits of technology to its fullest extent in the banking industry is able to successfully market their products and services. This can be highlighted by the fact that acquisition and development of updated technology by the private banks, they have been able to provide their customers with secure and safe electronic banking. The concept of electronic banking has made banking easier for the consumers, with the number customers increasing day by day for the private banks as compared to banks that are public. Once the banks are able to cope up with the rapidly changing technological scenery in the consumer market, they would be able to market new products or even electronic versions of the services they already provide, thus being able to attract more customers (Pikkarainen, Pikkarainen, Karjaluoto, & Pahnila, 2004).

Another challenge that is faced while marketing a bank's products and services is the training levels, the attitude and presentation of the employees and staff of bank. On the arrival of a prospective customer in bank, if the employees and staff members are unable to fulfil the needs of the customer and attract him or her towards the services of their bank, a potential customer is lost. However, it is not only one potential customer that the banks lose, but it also loses more customers who that person might tell his or her experience with the bank (Flaunet, 2012). Thus, ineffective training about the knowledge of the banks' products and services, the presentation skills and the behaviour and attitude management of the employees have a drastic impact upon the customer base of a bank and can cause a hindrance in allowing a marketing scheme to become successful. Apart from these challenges, a major challenge that the banking industry faces in marketing its products and services is the national and global financial conditions and the implications the banks' products such as loans and advances bring for the customers. This challenge can equally be for the consumers to be able to acquire the services of the bank in times of financial hardship, but from a bank's point-of-view, being able to attract customers in such times can be difficult and the marketing of their products might fail to acquire the attention of the financially stricken customers in the market.

The competitive environment in which a bank functions can be huge challenge in terms of marketing products and services. The influx of foreign banks and increasing powers of the private banks, with ample amount of funds available at their disposal and with tested and tried marketing techniques globally, the local banks can face an uphill battle in terms of marketing their products and services successfully (Uppal, 2010). Unable to cope with rising competition and the not being able to introduce new products or efficiently provide effective services, a bank can altogether lose its complete customer base and thus, its business.

Q.2 With the products and services for banking industry being extremely limited as compared to other industries, what is the main focus of the marketing specialists when developing a marketing strategy?

Again, this question can be vitally important to understand the relationship between the marketing function of a bank and its strategic business modelling unit. When assessing the need of making a marketing campaign successful, the marketing function should focus on the production line. However, since there is no such production line for banks, the marketing function diverts its complete focus on the strategic development of the bank, and the products and services it already provides, and develops methods that would resell the existing products and services as new. One of these methods would be to increase the focus of the customers towards the deposit side of the products and services line. The banks can benefit the tax laws and relaxations and introduce products that provide the customers increased gain on their deposits while also being able to pay little or no tax. Additionally, in a similar fashion the marketing function can redesign the existing products in a more modernized manner and resell them to the customers. Another manner would be focus on the branding of the products and services.

The branding factor can be highly effective in marketing old products and services as well. Branding allows the marketing function to redesign the image of product or service in the eyes of a customer. Branding techniques might involve developing catchy phrases and titles for the products and services that are implanted in the minds of the customers (Chaneta, 2010). Considering these, branding decisions can become quite important for the marketing and strategic functions of a bank. Another known benefit of effective branding is that the products and service of one bank can be successfully differentiated from other banks and thus, result in the avoidance of direct competition. Branding the products and services with their salient features and the customer group being targeted can make the marketing scheme highly successful. In this manner, the customers will know about the products and service from the marketing campaigns with their brand names easily and would find them appealing.

Q.3.in what ways can the marketing function assist the banking industry to grow and develop in the modern business landscape?

In the process of answering this question, the importance of the marketing process for any business can be highlighted. When analysed in detail, it can be noticed that the marketing decisions can play a major part in ensuring a business remains updated in terms of latest products and services (Zeithaml, Parasuraman, & Berry, 1985). The marketing of a business can give a completely new outlook to a product or service, thus ensuring that these marketed products and services are known to the customers, whilst giving the business a competitive advantage in the market. In terms of the banking industry, several marketing strategies can be used to promote the businesses of the banks in a positive manner. One of these marketing techniques is the relationship marketing, which focuses more on the retention of the existing customers by developing relationships that the customer seem to value (Keshvari & Zare, 2012). The marketing function in the banking industry utilize the relationship marketing technique in a highly efficient and robust manner that allows the banks to learn the importance of keeping cordial relations with their existing customers, who can refer the people they know to these banks, thus resulting in growth of the bank in terms of customer base.

Another way in which marketing aids in developing the banking industry is the marketing strategies that are developed by strategists. These marketing strategies signify the outlook a bank should carry and it is upon this outlook, the products and services of banks are tailored and made available to the general public and corporate clients of the banks. These strategies are developed by the marketing function of a bank with the management of the bank and the business model of the bank is tailored accordingly. In this manner, before the products are developed or branded, the marketing function in a bank has completed one of its tasks. It can be said that the marketing aspect of a bank has a primary task of developing and setting the marketing strategy of a bank, and a secondary task to actually market the developed products. This twofold functionality results in a greater input of a marketing function in the development and growth of the banking industry.