MIDLANDS STATE UNIVERSITY

DEPARTMENT OF MARKETING MANAGEMENT

MODULE: MARKETING OF FINANCIAL SERVICES (MMRK812)

LECTURE NOTES
CHAPTER 1: AN OVERVIEW OF THE FINANCIAL SERVICES SECTOR IN
ZIMBABWE

1. Introduction
Zimbabwe’s financial sector is relatively sophisticated and consists of the
Reserve Bank of Zimbabwe (RBZ) at the apex of banking institutions,
commercial banks (e.g. CBZ, NMB, FBC, ZB, MBCA, Kingdom, Trust, Stanbic,
Barclays, Chanchart), merchant banks, building societies (e.g. CABS, CBZ
building society, FBC building Society etc), the People’s Own Savings Bank
(POSB), insurance companies (e.g ZIMNAT, NICOZ DIAMOND, Old Mutual, First
Mutual, Nyaradzo), pension funds (e.g Allied workers pension fund, NRZ pension
fund), asset management companies (Imara and Edwards), developmental
financial institutions, the Zimbabwe Stock Exchange (ZSE), microfinance
institutions (e.g MicroKing) and money transfer agencies (e.g Western Union,
Moneygram, Homelink).

Discount and finance houses have closed and their functions taken by
commercial and merchant banks.

The growth of the financial services sector is largely attributed to the financial
liberalization of the early 1990s, through the Economic Structural Adjustment
Programme (ESAP).

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2. Structure of the banking sector
Number of operating banking institutions (including POSB) declined to 25 from
26 following the voluntary surrender of a banking license by Genesis Investment
Bank whilst one merchant bank (Renaissance) converted into a commercial
bank.

TYPE OF INSTITUTION 2003 2008 2009 2010 2011 2012

Commercial Banks 13 15 17 15 17 18
Merchant Banks 5 6 4 5 4 2
Finance Houses 6 3 0 0 0 0
Discount Houses 4 0 1 0 0 0
Building Houses 4 4 4 4 4 4
Savings Bank 1 1 1 1 1 1
Total Banking Institutions 32 28 27 25 26 25
Asset Management - 17 16 16 16 16
Companies
Microfinance Institutions 1700 75 95 114 157 172

3. Role of the financial sector in economic growth and development

The financial sector is well known for its purpose of allocating savings,
from surplus units to deficit units.
One can have plenty of resources (cash or wealth), but is not prepared to
use or consume in the current period but later in the future.
And on the other hand an economic agent may need funds for a specific
purpose currently but due to some reasons have no adequate funds.
So financial institutions help in collecting funds and match the current
needs of some investors and hence creating economic development by
avoiding idle funds.
Some researchers (Herring and Santomero, 1991), argue that the direct
impact of financial institutions on the real economy is minor, while the
indirect impact of financial markets and institutions on economic
performance is extraordinarily important.
A financial system which is efficient and healthy is a vital and necessary
component for faster economic development.

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 If a financial system is efficient, then it should show profitability
improvements, increased funds intermediation, better prices for financial
products and quality services for consumers.
If the financial system is under tight regulation, financial markets would not
be able to function efficiently and the use of resources would not provide
desired outcomes.
It should also be noted that reforms in other sectors have less impact on
the overall economic development if the financial sector is under control,
(Edirisuriya, 2007).
As part of the economic growth strategy, many economies have aimed at
improving their financial sector.
In this regard, a competitive and well-developed banking sector is an
important contributor to (regional or national) economic growth.
In a competitive banking sector, borrowing rates are higher and lending
rates are lower, so the transformation of household savings into productive
capital investment is faster (Valverde et al., 2003).

4. Zimbabwe banking sector challenges

Lack of capital due to collapse of sector in 2009;

Lack of lender of last resort function (LOLR);

Weak asset quality, i.e., high levels of non-performing loans (NPLs);

Inadequate domestic liquidity due to continued weak balance of payments

(BOP) position;

Low savings to GDP ratio due to lack of confidence due to high liquidity
risk, bank failures, etc;

Transitory nature of deposits which results in short-term loans, against

industry requirements for long-term credit;

High liquidity risk due to continued absence of LOLR function of the

Central Bank;

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 High credit risk due, among other issues, short-term loans and high
lending rates;

Skewed distribution of bank deposits;

Sub-optimal contribution to bank deposits by some sectors eg mining

CAPITAL CHALLENGES
The RBZ increased the minimum capital thresholds for the sector by an average
of 683% on 31 July 2012. This came when banks were still smarting from the
previous round of capitalization requirements.

TYPE OF INSTITUTION MINIMUM CAPITAL REQUIREMENT (US$M)

CURRENT NEW % CHANGE
Commercial Banks 12.5 100 700%
Merchant Banks 10 100 900%
Building Societies 10 80 700%
Finance Houses 7.5 60 700%
Discount Houses 7.5 60 700%
Microfinance Institutions 1 5 400%
AVERAGE 683%

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FINANCIAL SERVICE USAGE BY ADULT POPULATION IN SADC
COUNTRIES

COUNTRY FINANCIAL SERVICES USAGE (% ADULTS) SADC RANK

Mauritius 54% 1
Botswana 47% 2
South Africa 46% 3
Swaziland 35% 4
Zimbabwe 34% 5
Namibia 28% 6
Malawi 21% 7
Madagascar 21% 7
Lesotho 17% 9
Zambia 15% 10
Mozambique 12% 11
Tanzania 5% 12

Recent Mergers & Acquisitions in the banking sector

Interfin acquired CFX in 2009 and later merged the two banks into one in
2010.
Ecobank acquired a controlling stake in Premier in 2010 and transformed
the merchant bank into a commercial bank.
Afrasia acquired a 35% stake in Kingdom in 2011 and helped the local unit
meet the minimum regulatory capital requirements.
NSSA took over a controlling stake in Renaissance Merchant bank and
managed to repay the debts created by former major shareholders of the
institution. The new entity is now called Capital Bank
Trebor and Khays salvaged ZABG from liquidation after injecting capital
into the bank.
Econet acquired a 45% stake in TN Bank.

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CHAPTER 2: INTRODUCTION TO MARKETING OF SERVICES

1. Introduction
The marketing of financial services is a unique and highly specialized branch of
marketing. The practice of advertising, promoting and selling financial products
and services is in many ways far more complex than the selling of consumer
packaged goods, cars, electronics or other forms of goods and services. The
environment in which financial services are marketed is becoming more
competitive, making the task of marketing financial services increasingly
challenging and specialized. Financial services marketers are challenged every
day by the unique characteristics of the products they market. For example,
often financial services cannot be visually communicated in advertisements as
easily as consumer goods can.

Change and growth are continuously throwing up new opportunities and

challenges for the Zimbabwean financial services sector. Banks are starting to
think like retailers; longer working hours, friendly tellers and a more casual,
trendy atmosphere: Television, lounge, coffee etc.

In the liberalized era, competition between financial institutions and pressure to

maintain profitability has led to the marketing orientation, which was never the
case before.

2. Evidence of a Quickly Changing Market Environment

There is mounting evidence that suggests the environment in which financial
services are marketed is becoming more complex and challenging. In the early
1930s, a series of bank failures resulted in the heavy regulation of the financial
services sector in the US. However, in 1999 the financial services modernization
act reversed many of these regulations that had limited the development of

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 competition in financial services markets. Below is a discussion of some of the
notable changes that characterize the financial services markets today.

Figure 1 Evidence of change in financial services markets

Industry consolidation

New entrants Changing Fragmenting

marketplace consumer base

Consumer trust

Source: Estelami (2007)

a) Industry Consolidation and Concentration

Since the relaxation of regulations governing most financial services industries,
the level of marketing activity undertaken by financial services organizations and
the resulting competitive intensity has increased significantly. Deregulation has
allowed financial service markets to cross after being separated for decades. For
example prior to 1999, banks were allowed to sell insurance products but were
limited in their ability to underwrite them themselves. The new regulatory
environment is removing the barriers between the various financial institutions.
As a result, most financial institutions in Zimbabwe have, over the years, been
moving away from other forms of business towards commercial banking, where
they have been able to conduct a lot of other businesses they could not do, due
to the ability of commercial banks to mobilize funds from the public. Examples

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include NMB bank which was originally the National Merchant Bank, MBCA
(Merchant Bank of Central Africa), CABS (in the final stages of transforming into
a commercial bank), Interfin Bank (former Interfin financial services), BankABC
etc.

In addition to the changing market conditions, the process of providing financial

services is undergoing revolutionary change. The process of marketing of
financial services is also changing due to emerging regulations enforced by
regulatory bodies that control the nature and extent of marketing activities of
financial services providers. As a result of these changes, competition is
increasingly intense and it has become challenging to achieve marketing
success. In such an environment, the optimization of marketing capabilities in a
financial services organization is evermore critical for the long-term health and
survival of the organization.

b) Emergence of New Entrants in the Marketplace.

The traditional boundaries of financial services are being challenged by the
emergence of new competitors from both within and outside the financial
services sector. Examples include Econet’s Ecocash and NetOne’s Chikwama-
one wallet products which offer money transmission services, the changeover
from merchant banks to commercial banks witnessed in Zimbabwe in recent
years (BANC ABC, MBCA,), the cash-back facility offered at Point Of Sale
terminals in most supermarkets, the etranzact facility which facilitates internet
banking, the transfers of money by supermarkets, etc. These examples
demonstrate a significant shift in the type of competitors that traditional financial
services marketers have to compete with.

In other countries, you can get a loan from a furniture shop, as long as you have
an account with that shop. In Zimbabwe, TN Bank has an almost similar facility
where customers who take furniture from TN Harlequin on credit have their
monthly deductions withdrawn from their accounts at TN Bank.

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In addition to the introduction of new competitors in the financial services
marketplace, the array of financial products and services has noticeably
expanded. Some of these products and services are highly unconventional by
any measure. For example, through a “life settlement contract,” a terminally ill
person with a life insurance policy is able to sell the policy to an investor. The
investor pays an upfront dollar amount to the policyholder and also takes over
the responsibility of making the monthly payments associated with that policy.
Upon the death of the policyholder, the investor is able to collect the policy’s
payout amount. Essentially, in a life settlement contract, the investor is betting on
the policyholder’s death and using the financial product (life insurance policy) as
the means to facilitate this bet. The existence of such unconventional financial
transactions and the entrance of new competitors from outside the financial
services sector are likely to change the shape of financial services markets within
the next decade dramatically.

Financial institutions have also come up with enterprising products; for instance
the cardless withdrawals from the ATM, internet banking, sms banking etc.

c) Fragmenting Consumer Base

There is also mounting evidence that financial services markets are challenged
by a consumer base that is becoming highly fragmented. For example, despite
the fact that the banking industry in the United States has been functioning in one
form or another for centuries, there are approximately 10 million American
households today who have no bank account. Furthermore, the average
consumer has over $10,000 in non-mortgage debt. Growing consumer
bankruptcy rates, dramatic increases in consumer indebtedness, and rising
delinquency rates for both credit cards and mortgage accounts indicate a
marketplace where portions of the population are struggling for their financial
survival. While groups of consumers are increasingly experiencing economic

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hardship, the picture in other segments of society seems to be much more
positive. For example, the number of American households with a net worth level
of $1 million or more has risen to record levels. These facts indicate that the
consumer base is becoming more partitioned, and as a result, financial services
designed to serve these consumers may need to become more diverse in order
to keep up with the market’s increased fragmentation.

The population in many countries is fragmenting into two distinct groups, one
getting wealthier and the other getting poorer. The notion of “two-tier marketing” –
that of focusing on the lower class and the upper class – has become an
accepted principle in segment-based consumer marketing activities. This
principle suggests that the marketplace, which traditionally consisted of the lower,
middle, and upper-classes, is transitioning into only two classes of upper and
lower-class consumers. The potential effects of a polarizing population on
successful positioning strategies of financial services providers may only become
clear as the demographics of these populations further evolve.

In addition to the above, the consumer base in Zimbabwe is increasingly moving

into debt. This is more so given that most banking institutions are heavily lending
to individuals than companies, especially in the wake of growing levels of non-
performing loans for companies. Individuals in Zimbabwe are getting loans to buy
cars, stands and houses. In countries such as South Africa, most banks are
shunning the middle class as a result of this indebtedness.

However, the hope for many banks in Zimbabwe lies in the fact that it is
estimated that over 2.5 billion dollars remains unbanked and is circulating in the
informal sector.

d) Consumer Trust
Securing a sense of mutual trust between the consumer and the financial
institution has at times been a challenge in financial services markets. Distrust

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affects both the consumer and the company, as both may feel uncertain about
the underlying intentions of the other party. For example, a recent consumer
survey shows that one in every four consumers will not hesitate to cheat their
insurance company, if they have a chance to do so. These consumers may, for
example, choose to misinform their insurance company about their individual risk
characteristics when signing up for an insurance policy, misrepresent the
sequence of events that lead them to file a claim, or even neglect to disclose
relevant information that may invalidate the insurance policy. Similar issues of
distrust can be found in consumers’ and regulators’ opinions about financial
services providers’ underlying intentions in a variety of marketing contexts in
categories ranging from credit cards and home mortgages to securities
brokerage services and insurance. The recent growth in law suits and punitive
measures imposed by the Securities and Exchange Commission and various
other regulatory bodies against major investment and insurance companies has
helped further strengthen consumer distrust of the financial services community.
Lack of trust therefore seems to be an inherent characteristic of many financial
services transactions and a continuing challenge to the practice of marketing
financial services.

Activity: Relate the changes discussed above to the Zimbabwe financial

services sector’s evolution over the past three decades.

3. Sources of change in the financial services markets

The manifestation of the changes outlined above cab be attributed to specific
factors that have transformed the competitive landscape in the financial services
arena.
a) Regulation –as allowed financial institutions from a variety of background
to participate in markets they had not traditionally been active in.

b) Customer loyalty – in majority of financial services categories, customer

defection rates are significantly lower than they are in most other markets.

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 As a result, financial institutions often lack motivation for self improvement,
offering their customers sub-standard products and services. Consumers’
growing level of education on financial decision making and a marketplace
that is becoming increasingly fragmented will require thoughtful
approaches to the marketing practice.

c) Economic forces – most financial services are judged by consumers within

the context of the current economic environment in which they are offered.
For instance, the attractiveness of a savings account may be a function of
the prevailing interest rate and the expected rate of inflation.

Other factors

d)

e)

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CHAPTER 3: UNIQUE CHARACTERISTICS OF FINANCIAL SERVICES

What is a financial service?

Those instruments that help us save, invest, get insurance or mortgage.

Unique characteristics of a financial service

Subjective perception of quality (illusive notion of quality)
Quality of a financial service cannot be objectively measured utilizing standard
quality assessment methods and by assessing product defect rates on the
product line.
For example, the objective quality of an insurance product may be reflected by
the company’s willingness to pay out customer claims and this may be unknown
to an average customer. This is moreso given that most policy holders do not
utilise their policy benefits, as such they may never experience the process of
filing a claim. For those who do, the outcome of their experiences may not be
captured or recorded for others to examine and learn from them.
The net effect of this is that the most objective aspect of the quality of an
insurance product may never be known with certainty by the majority of
consumers.
As a result, quality assessment are often based on subjective factors such as
customer’s recognition of the company names or suggestions provided by friends
or insurance brokers, friendliness of the service providers, perception of the level
of expertise portrayed in the service process etc.
Quality assessment by the customer may be driven by highly subjective aspects
of the service experience.

Price complexity
Often, the prices of financial services comprises of multiple numbers, some of
which the consumer may not even understand.

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This makes the task of understanding various prices available in the market
place difficult for the consumer and also creates scenarios that may lead to
deceptive and unethical practices by marketers.
This call for the need of regulatory intervention to curb such behaviours.

Regulation and the need for consumer protection

Consumers often make catastrophic decisions related to financial services.
Regulation needs to be in place to limit further abuse by financial institutions.
Market clustering
Readily available data to segment the market so as to provide services that best
suit given customers.

1. There is Greater Variability In Operational Inputs and Outputs

The presence of employees and other customers in the operational

system makes it difficult to standardize and control quality in both service
inputs. Manufactured goods can be produced under controlled conditions,
designed to optimize both productivity and quality and then checked for
conformance with quality standards long before they reach the customer.
For those service that are consumed as they are produced the
dispensation of the final product must take place under real time
conditions, which may vary from customer to customer and even from one
time of day to another. As a result, mistakes are more likely to occur, and
it is more difficult to shield customers from such service failures. These
factors make it difficult for service firms to improve productivity, control
quality and offer a consistent product.

2. Many services are difficult for customers to evaluate

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 Most physical goods tend to be relatively high in search properties ie
those characteristics of the product that a customer can evaluate prior to
purchasing it, such as colour, shape, price, fit etc. Many services by
.contrast may emphasize experience properties, which can be discerned
only after the purchase or during consumption.

3. Distribution Channels Take Different Forms

Manufacturers usually require physical distribution channels to move

goods from factory to customers. Service businesses may choose to
combine the service factory, retail outlet and point of consumption at a
single location or use electronic means to distribute their services as in
electronic funds transfer. Sometimes as in banking, firms offer customers
a choice of distribution channels, ranging from visiting the bank in person
to conducting home banking on the internet. As result of advances in
information and communication technology , especially the growth of the
internet, electronic delivery of service s is expanding rapidly. Any
information based component of a service can be delivered
instantaneously to anywhere in the world.

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CATEGORIES OF FINANCIAL PRODUCTS AND SERVICES
There are basically five categories of products available in the marketplace,
which are
1. Savings products such as savings accounts, certificates of deposit and
pension plans, which allow consumers to save their funds in order to
accumulate financial assets for possible use and withdrawal at a future
point in time.
2. Credit products such as mortgages, credit cards, which enable consumers
to borrow funds in order to purchase goods and services.
3. Insurance products which provide consumers with financial protection
against risks resulting from various life events.
4. Transaction processing services such as debit cards and checking
accounts.
5. Financial advisory and brokerage services.

A. Savings Products
I. Savings Accounts
Savings accounts are typically provided by commercial banks, savings
and loans institutions and most other financial services providers that
offer deposit accounts. In contrast to current accounts which may
receive little or no interest depending on the bank, savings accounts
deposits typically earn interest. The deposits placed by customers in a
savings account form the foundation of the modern banking system.
These deposits are used by a bank to issue loans to other customers,
who then proceed to pay the bank interest o outstanding loans.

II. Certificates of Deposit

A certificate of Deposit (CD) is a relatively stable form of savings
product. When purchasing a CD, the customer deposits a lump sum
amount and promises not to withdraw the amount until a pre specified

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 time period has passed. The interest rate on a CD could be pre
determined or linked to returns on specific financial instruments such
as TBs. Customers attracted to CDs typically require a conservative
investment product that provides for relatively short term, yet restricted
access to funds. The CD is especially attractive to those individuals
who are willing to part with their funds for a short period of time and do
not require liquidity with the deposited funds.

III. Stocks
In contrast to CDs, stocks are one of the most volatile forms of savings
and investment products. Consumers can purchase stocks, which are
simply partial ownership certificates for publicly traded companies.
The shareholder of a company’s stock is then entitled to his share of
dividends paid out by the company. In addition, the consumer as the
shareholder is able to sell the stock at a future point in time and realize
the profits or losses associated with changes in the stock’s price.
Typically stocks attract individuals that are tolerant of high risk levels.
The volatility associated with stock prices is considerably high. Stock
ownership not only requires one to have tolerance for the fluctuations
associated with the ups and downs of stock prices but also to be well
informed about the fundamentals of the companies being invested in.

IV. Mutual funds (Unit trusts)

In contrast to stocks, which are relatively high risk financial products,
mutual funds provide a more stable form of investment and long term
savings. This is because mutual funds consist of not just one stock,
which may fluctuate greatly in value, but rather a portfolio of stocks.
Therefore mutual funds typically experience lower levels of volatility
than any individual stock. In addition, mutual funds have the benefit of
being managed by professional investment managers who are typically

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 better informed about market trends and company profiles than the
average investor.

V. Pension Plans
Pension plans require consumers to contribute on a regular periodic
basis to a retirement fund in order to receive benefits upon reaching
retirement age. Sometimes, pension plan contributions are
supplemented or matched by one’s employer.

B. Credit Products
Credit products facilitate consumer borrowing of funds. Examples
include loans, mortgages, vehicle finance, order financing, credit cards,
overdraft facilities. Collaterised vs non-collateralised. Eg. Salary based
loans.

C. Insurance Products
Insurance is among the oldest financial products and has been
available in most civilized societies in one form or another for
centuries. It is formally defined as a contract that provides the policy
holder with pre defined benefits in cases of specified losses.
Examples include home owners insurance, car insurance, life
insurance, medical cover, funeral cover and specialized insurance
products.
These insurance policies provide consumers with financial protection
and peace of mind in a variety of settings specific to their unique
applications.

D. Transaction Processing Services

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These services facilitate the transfer of funds, provide consumers and
service providers with critical financial information and guide
consumers in their financial decisions. Transaction processing
services include current accounts, debit cards, ATM services and
specialized services such as those provided by credit rating agencies
and financial advisors.

I. Current Accounts
Current accounts allow customers to deposit funds in a safe
location for future retrieval. Similar to savings accounts, current
accounts are often provided by commercial banks. They
normally do not pay interest.
II. Debit Cards
Similar to cheques, debit cards tap into a customer’s bank
account deposits. The difference is that debit cards function
through electronic means using established electronic fund
exchange networks. In contrast to credit cards which may result
in considerable consumer borrowing, debit cards provide users
with some degree of control. Because debit cards tap into
existing balances in a bank account, the customers are limited
in how much they can spend. The use of debit cards in retail
outlets is also convenient since the option of obtaining cash
directly from the cashier is often available.

III. Automated Teller Machines (ATMs)

ATMs are devices that facilitate fund transfers, account
information exchange and the dispensing of cash. New
technologies are being deployed to improve the functionality
and attractiveness of ATM devices for consumers. For example,
ATM, machines are being outfitted with the ability to allow
customers to link into the internet and to obtain financial

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 information relevant to their account transactions. New features
are also being tested by ATM manufacturers in order to improve
account security. For example biometric identification is being
tested as a means for ATM devices to confirm the identity of the
user of the card at an ATM location.

E. Information Services
The final category of financial services relates to information based
financial services. This includes the services offered by credit rating
agencies which provide information to lending institutions as well as to
consumers interested in obtaining credit. There are also financial
advisory services and brokerage services which are often used to
provide consumers with investment advice and to facilitate securities
transactions.

CHAPTER 8: PRICING

To the financial services organization, price represents the sole source of

revenues. Price is the most visible component of the marketing strategy of a
financial services organization. Unlike advertising style, product strategy or sales
force incentives, which might be difficult to quantify precisely, price is always
presented numerically and can be observed and compared by consumers,
regulators and competitor. Therefore, a second function of price is to
communicate to the marketplace the identity, market positioning and intentions of
a financial services organization. Lowering of prices or an upward movement of
premiums might signal a shift in marketing strategy to competitors and may
provoke reactions from them. This fact raises the strategic importance of price
and highlights the great impact that price has been found to have in shifting the
balance of power among competing financial service providers. A third function
of price is to serve as a signal of quality to customers. It has been well

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established in consumer research that in such situations where quality is not
clearly evident, consumers tend to rely on price as a proxy for quality.

Challenges in Pricing Financial Services

Financial services prices are unique in several ways and some of these unique
aspects are listed below:
Financial services prices are often multi dimensional: one of the most notable
characteristics of financial services prices is that they are complex and often
consist of multiple numeric attributes. For example, a car lease is often
communicated in terms of the combination of a monthly payment, number of
payments, a down payment, the final balloon payment, wear and tear penalties
and mileage for driving over the allowed number of miles. Therefore unlike the
sticker price for the cash purchase of a car which is a single number, the lease
price consists of many different numbers.
Elusive Measures of Quality: a second challenge in the pricing of financial
services is the elusive and intangible nature of the quality of a financial service.
Objective levels of service quality as determined for example by the likelihood
that a mutual fund will have good returns, the transaction processing accuracy
and efficiency of a commercial bank are difficult to assess. The fact that these
measures of quality are difficult if not impossible to quantify often forces
consumers to examine other pieces of information, in particular price, as an
indicator of service quality. Therefore, while a high price may discourage some
consumers from purchasing a financial service. It may also serve as a positive
signal for others and may increase their desire to use the service.
Economic Forces:
The pricing of financial services is further complicated by the fact that the
attractiveness of a financial service may be affected y the general economic
environment. For example, in order to appreciate the value of an investment
option a consumer must compare the expected rate of return with the rates of
return experienced in the financial markets. As a result, financial services
providers need to take relevant economic indicators such as interest rates and

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stock market returns into account when setting prices for specific prices for
specific financial products and services.
Poor Consumer Price Knowledge:
The pricing of financial services needs to take into account the fact that
consumer memory for financial services prices is quite weak. The unexciting and
complicated nature of financial services often results in poor recall of the prices
of financial services. For example, many consumers have a difficult time
remembering the cost of their banking services, such as the monthly
maintenance fees for current account services and ATM transaction charges etc.
As a result, the general level of price knowledge with which consumers interact
with financial services providers might be quite limited.
Difficulty in Determining Customer Profitability:
An additional challenge presented in the pricing of financial services is that the
profitability associated with a given customer may be difficult to assess. This is
because a single customer may purchase multiple services from a financial
services provider, some of which are highly profitable and others present losses.
For example, a bank customer might use the bank’s current and savings account
services, which may not be highly profitable to the bank. However, she may also
conduct her investment and retirement planning, which are typically higher
margin services, at the same bank. Therefore, while certain transactions with y
compensate for this shortfall making the individual a highly valuable customer to
the bank overall.
Indeterminable Costs: determining the costs associated with a specific financial
product r service might be a numerically challenging task given the fact that
various elements of a financial services organization contribute to the service
experience that is delivered to the customer. The limited liability to pinpoint costs
accurately therefore complicates the task of pricing a financial service.
Conflicts of Interest: the pricing of financial services is further complicated by the
significant conflicts of interest that may exist in the selling process. For example,
brokers may use different components of price, such as trading fees or
commissions earned on the sale of specific financial products, as the means for

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their earnings. Therefore, the link between price and the incentive mechanism
used to compensate the broker might influence the types of products that the
broker would be to recommend products with a price structure that provides her
with the higher commission earnings. This further complicates the pricing
decision by introducing issues of trust and ethics to the already complex pricing
process.

Common Approaches to Pricing Financial Services

Cost Based Pricing
The cost based pricing approach is one of the oldest methods of pricing in both
financial and non financial services, as well as in manufactures goods. The
motivation behind this approach is that one must cover at least the costs of
running a business in order to survive financially. As a result the cost of providing
a financial service is used as the lower bound for prices. Prices are set in such a
way that costs are covered and a particular level of profit is secured. This is
done by applying a mark up to the unit cost of the service. Price is set by this
formula:

Price=cost x (1 + markup)
The markup reflects the general objectives of the business and the financial risks
of providing the service. Higher markups would be associated wit h higher levels
of profits, while lower markups could enable the generation of a larger volume of
customer transactions

Parity Pricing
In the cost-based pricing approach there is no assurance that the determined
prices will appeal to consumers in the marketplace. The increasingly competitive
nature of financial services, driven by the deregulation of the industry in recent
years, has forced many financial services organisations to pay closer attention to
prices offered by their competitors. The thought process behind parity pricing is
to set prices in response to what the competition is charging. This does not

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necessarily imply that one’s prices will be below that of the competitors. In fact,
depending on the overall positioning of the company, one may choose to price
below or above competing prices. To conduct parity pricing one would have to
establish the primary competitor. The primary competitor could be the market
leader who has the highest market share or the company that has the closest
resemblance to one’s own service offerings. Once the key competitor has been
identified, the price that is charged is then computed by applying a multiplier
factor to the competitor’s price:

Our Price = Factor x Key Competitor’s price

The applied factor is determined by the overall marketing strategy of the

company. A factor of less than one represents scenarios in which the key
competitor is systematically being undercut. A factor of greater than one might
be justified by perceived or actual service advantages over the competitor.
Factor = Our price last year/key competitor’s price last year

Value Based Pricing

The use of cost-based pricing or parity based pricing does not necessarily
guarantee maximization of profits. This is because neither of these approaches
takes into account the unique attributes and characteristics that consumers might
value greatly in a financial service. In fact, both of these approaches may result
in prices that are either above what consumers are willing to pay or below
consumer price expectations. In the former case, this would result in a loss of
market share, while in the latter case a loss of profit would result. The principle
behind value based pricing is to determine the price based on what customers
perceive to be the value of the service. Often, financial services have specific
attributes that make them valuable and attractive for customers. For example, an
insurance company’s name may appeal to those customers who would like to
purchase their policies from established companies. Alternatively, the convenient
location of a bank branch might represent added value to customers who live and

25
or work within the geographic vicinity of that specific branch. The objective of
value based pricing is to quantify in monetary terms what each of these sources
of value is worth to the customer and to utilize this information in order to
determine the price to be charged. The price that is charged for a service using
the value based approach would have to take into account the base price of the
service, which may reflect the average market price or the prices of the most
closely comparable services, supplemented by the monetary values associated
with the additional features uniquely provided by the company’s financial service
offering;

Price= Base Price + dollar value of additional features offered by our service

Regulation Based Pricing

The final approach to pricing is driven by the forces of legislation and regulation
that may govern particular categories of financial services. In certain categories
of financial services, regulators may play a significant role in determining prices.
The motivation behind many financial services regulations is to ensure that the
prices to consumers are equitable and that all segments of the population would
have access to financial products that are essential to their economic well being.
Given this, regulators might mandate price levels, and financial services
providers may have very limited input in determining the prices that would be
charged. Therefore the computational effort related to cost-based , parity based
or value based pricing may be of limited application in this context because
regulators would dictate prices or specify the allowable ranges for prices.

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CHAPTER 4: ADVERTISING

Advertising is a fundamental part of most successful marketing strategies in both

financial and non financial services. It is the primary mechanism by which
marketers create awareness among consumers about their products an services.
However it has a special role in the marketing of financial services since financial
services are generally intangible. The intangible nature of financial services
stems from the fact that they cannot touched, tested, felt or visualized. As a
result, consumers’ perceptions of quality are often based on the image
associated with the company. This places the burden of informing consumers
about the beneficial aspects of a financial service on the shoulders of the
advertiser. The training and knowledge of a financial advisor, the transaction
accuracy of a credit card company or the financial strength of an insurance
company are largely unknown measures to the masses. As a result, the financial
services advertisers have to educate consumers on the unique and beneficial
features of their services. Financial services advertising facilitates differentiation
of a company from its leading competitors.

Advertising in financial services can be formally defined as marketing

communications carried out through the mass media or through direct marketing
means, with the intention of motivating the purchase of specific financial products
or encouraging particular forms of financial behavior. Broadcast media such as
television and radio, as well as print media such as newspapers and magazines

27
are often used to execute advertising campaigns for financial services. In
addition a growing trend in financial services marketing involves using direct
advertising methods such as direct mail and direct e-mail to elicit consumer
responses.

Unique Aspects of Advertising in Financial Services

Several factors differentiate the advertising process in financial services from
advertising in other contexts or markets.
a) Vague Product/Service Attributes:
One of the challenges in advertising financial services is that consumers
may not be fully aware of the various dimensions that constitute a financial
service. Consumers’ limited knowledge and education about the choices
facing them in the marketplace can result in inefficient and uncompetitive
market conditions. Advertising may facilitate consumer education and can
help consumers understand the unique benefits of a financial service.
b) Quality is intangible
One of the challenges facing financial services advertisers is the fact that
the quality of financial services is rarely quantifiable. This may be true for
consumers for consumers who have already used a financial service as it
is for those who are considering using it for the first time. For example,
the claims payout behavior of a car insurance company is generally
unknown to the majority of the company’s customers. This is because,
insurance companies operate through the sharing of risks across a large
number of customers, and as a result most policy holders do not
experience losses. It is the rare few that do who may have an accurate
assessment of the payout behavior of the insurance company. It is the
task of the financial services advertiser to create an understanding and
appreciation for the underlying qualities of an advertised financial offer. In
the case of a mutual fund for example, revealing the qualifications of the
fund manager or the past performance of the fund may help convey the

28
 sense of quality that consumers may expect. Without advertising, these
aspects of quality would be largely unknown to the masses.
c) Unexciting Products
Financial services transactions typically are not carried out on a frequent
basis and generally do not create a great deal of excitement and interest
for most individuals. For example, consumer involvement with the
benefits of an insurance policy, the rates of return on an investment
product or the current account services provided by a commercial bank
rarely cause a great deal of excitement and enthusiasm. In addition, the
quantitative and contractual nature of financial services requires
considerable cognitive effort and mathematical processing before
consumers can fully appreciate the merits of an advertised offer. This
makes the process of advertising financial services more difficult since the
audience will generally be uninvolved in absorbing and appreciating the
presented information. The high level of complexity associated with
financial services makes evoking positive emotional responses more
challenging than it would be for consumer goods such as cars, clothing or
electronics.
d) Limited Ability to Visually Communicate Financial Products
One of the unique challenges in advertising financial products is the fact
that they may not always be communicated to consumers in ways similar
to how consumer goods are advertised. For example, a car manufacturer
may feature pictures of a care in a magazine or footage of the car’s
handling abilities in a tv advertisement. Visualization increases the
sensory input of the consumer and creates a sensation similar to the
consumption of the product. This increases the cognitive and emotional
impact that advertising generates in the cosumer. Contrast this with a
situation in which one attempts to advertise an insurance policy or an
investment product. The challenge to the advertiser is to determine how
to present and communicate visually such abstract and intangible
products. The challenges in visual communication of financial services

29
 often require experienced, attentive and creative development of ad
content in order to excite the viewer about the useful aspects of the
financial service.
e) Regulations
The practice of financial services advertising is further complicated by the
massive number of regulations that restrict the contents of financial
services advertisements and the number of regulatory agencies that
closely monitor and influence ad content. One of the primary objectives of
regulations in financial services markets is to ensure that marketers do not
present consumers with misleading information. The advertiser’s creative
process may become restricted due to these regulations and often
requires the involvement of compliance specialists to oversee the content
of a financial services advertisement. Such restrictions and regulations
are far less present in advertising other forms of services and goods
making the task of financial service advertising a highly unique
specialization.

Success Factors in Financial Services Advertising

Several factors influence successful advertising in financial services. In
assessing the quality of an advertising of an advertising campaign, one
may use the factors outlined below as a checklist to diagnose potential
areas for improvement.
a) Having a Unique Selling Proposition : A fundamental requirement for
advertising financial services is to possess a unique selling proposition. A
unique selling proposition reflects the one attribute that a financial services
provider must possess that makes it uniquely superior to its competitors.
Not possessing a unique selling proposition implies that there is no basis
for differentiation between one’s offering and other choices that the
consumer might have.
b) Target Marketing

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 Successful financial services advertising requires that the financial
services being promoted are relevant to the targeted groups of
consumers. While this is true of all advertising, it is especially true in
financial services marketing since consumer needs in financial services
significantly vary from one consumer to the next. A mismatch between the
financial service being advertised and the target audience could result in a
complete loss of advertising effectiveness. For example, selling
homeowners insurance policies to college students most of whom may not
yet own homes, promoting high-end investment products to low income
families etc.
c) Creating memorable ads
Successful advertising often requires the completion of all phases of the
communication process – exposure, attention and processing. However
the creation of a memorable advertising message is critical to generating
long term impact. Memorable ads might be recalled years after the
consumer has been exposed to them, with subsequent effects on sales.
This can be achieved through creative execution of advertising, use of
humor or emotions and a carefully planned schedule of media exposures.
Use of memorable brand names, celebrities and creative jingles can help
improve consumers’ recall of the ad.
d) Facilitating Consumer Action
The fact that financial services are often individually customized to specific
consumer needs and typically require one on one contact in order to be
sold means that advertisers should facilitate the process for consumers to
contact the financial services provider. This may require the inclusion of
toll free telephone numbers, web site addresses, instructions on how to
obtain additional information etc. All advertisements that do not provide
this information may not be very effective, especially for financial services
providers that have a low market share and lack a well recognized brand
name or large scale presence in the retail environment.
e) Co-ordinated use of media

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 A successful advertising strategy used in a variety of markets is referred to
as co-ordinated media campaigns. This involves the simultaneous use of
various media to display ads with similar messages. For example, a TV
ad featuring the celebrity might be combined with a direct mail ad featuring
the celebrity on the outside of the promotional envelopes. Targeting
consumers through various forms of media but with the same message
significantly improves the impact of the advertising campaign.
f) Use of Direct Marketing
Financial services advertising in developed markets has recently become
more reliant on the use of direct marketing techniques , reflected in an
array of activities such as direct mail, direct email and tele marketing.
These forms of advertising are uniquely capable of initiating personal
communications between the financial services provider and potential or
existing customers.

Steps in Advertising Financial Services

Several steps are essential for successful execution of advertising
campaigns in financial services as follows:
a) Identification of Advertising Objectives
The first step is to determine the objectives of the advertising campaign,
reflecting the overall marketing strategy of the company. For example, the
objective on advertising campaign might be to generate new policies for
an insurance product or to increase the level of consumer awareness of
the brand or the company. Recognizing or identifying the exact objective
of an ad campaign is critical to accurate assessment of its merits and
potential.
b) Budget Determination
The next step in the advertising process is to determine the budget
required to carry out the ad campaign. Often, the required budget is
significantly different from what is available and may be dictated by the
organizational budgetary constraints.

32
c) The Return on Investment
The next step is to establish the return on investment associated with the
advertising campaign. Clearly negative return on investment would imply
no further action on the campaign.
d) Developing the Contents of the Ad
The next step in the advertising process is to develop the contents of the
ad. In this step, the services of advertising agencies that specialize in
producing financial services ads are required.
e) Media Selection, Scheduling and Campaign Execution
The next step is to determine the media that will be used. In general,
financial services that are more complex and require the communication of
detailed information tend to rely on print forms of advertising. Television
advertising, which capitalizes on multiple sensory inputs, tends to be the
most effective although often the most expensive. Once the media to be
used for an ad campaign has been determined by the ad agency, a media
schedule needs to be developed in order to achieve the original objectives
of the ad campaign which had been identified in the first step. This task is
often carried out by the advertising agency that has been hired to carry out
the campaign.
f) Measurement
The final step is to assess the impact of the ad campaign through formal
market research or examination of company records. It is critical to
measure and record sales levels and other advertising responses
following an ad campaign in order to determine the financial effects of the
invested advertising dollars. Such measures may help fine-tune the
advertising strategy of the company and provide estimates for optimizing
future advertising campaigns.

33
CHAPTER 6: DISTRIBUTION

This chapter looks at the logistics of how financial products and services are
made available to the marketplace. The distribution of financial services is
critical part of the marketing process that not only involves the logistics of making
the relevant products available to customers, but also involves legal and ethical
concerns that may significantly constrain a financial services organisation’s
activities. The choice of distribution systems for financial services is driven not
only by the specific norms of the specific financial service category, but also by
the changing trends in the market place and customers’ shifting preferences.
Shifts in customer preferences can, for example be witnessed in the growing use
of the internet for the trading of stocks and the steady growth of in online
banking.

Strategic Role of Distribution in Financial Services Marketing

Distribution is a vital part of the marketing process in both goods and services
marketing. Without proper distribution, products and services would have no way
to reach the consumer. This is especially true in financial services since the
distribution networks in many financial services have a significant influence on
the company’s ability to reach its target customers. For example, mutual fund
companies have found over the years that third party distributors such as

34
brokers, advisors and banks have great influence on customers’ decisions
regarding mutual funds. As a result most of the sale of funds today is done
through third parties rather than the direct sales of the funds’ shares by the fund
company itself. Similarly, insurance companies sell their policies predominantly
through agents and brokers in the retail environment because they recognize the
economic and logistic efficiencies gained by using such a process.

The choice of the distribution system used in a financial services organization

impacts all elements of the marketing program. For example, the choice of
where the product is sold may influence its pricing. Financial services that are
made available through automated channels such as the technology based
means of the internet and ATM devices are typically associated with lower prices.
Similarly, the choice of where and how a financial service is made available to
consumers has a significant on the perceptions that consumers form of the
financial services organisation. The sale of financial products through low cost
networks may be associated with a low-quality image. In contrast, financial
services that are made available through more costly channels such as branch
office locations or personal sales visits may imply a higher degree of customer
care and individualized attention, resulting in positive perceptions of service
quality. The choice of the distribution system used for a financial product or
service product or service can therefore have a profound impact on the image
associated with the company and customer perceptions of price and quality.

Distribution Systems Used in Financial Services Marketing

As in most other markets, there are twp general approaches for making products
and services available to customers. The first approach is direct distribution.\,
which requires the company’s own employees to be in direct contact with
customers to sell its products and services. For example a commercial bank that
operates several retail branches comes into contact with its customers through
its own bank tellers and retail staff. Similarly, an insurance company that sells
direct to customers would come into contact with its customers through its own

35
sales staff and the company’s customer service operations. Other examples of
direct selling include scenarios in which a financial services provider utilizes its
internet web site to sell financial services such as insurance and mortgage
products, or deploy its own sales force to call customers to pitch its products.
The second approach to distributing financial services is indirect distribution,
which involves the use of third parties to mediate sales transactions. These third
parties take on the forms of agents and brokers. For example, an insurance
company could utilize a national network of captive to sell its insurance products
to the market place. These agents while employees of the insurance company,
have the ability to represent the insurance company and its products to
consumers. In the indirect approach to the distribution of financial services, the
extent of control exercised by a financial services provider on the selling
activities of the participants (for example agents and brokers) might be limited
when compared to the amount of control available in the direct approach. With a
direct distribution approach on the other hand, the company’s own employees
are in direct communication with the customer, and the ability of the company to
control the nature of their communications and sales processes is greatly
enhanced. In the direct approach since the company’s own paid employees
carry out the customer contact activities, the ability to manage customer
relationships tends to be significantly greater than in the indirect approach.
Industry trends indicate that the selling of financial services is shifting away fro
traditional methods that involve human interactions. Technology is having a
profound impact on the distribution of financial services. Customers may come
into contact with their financial service provider through the internet, ATM devices
or by phone.

The Impact of Technology on financial Service Distribution

Technology is having a revolutionary impact on the distribution of financial

services and this technology manifests itself in various forms. While the internet
is likely to be the most revolutionary influence in the near future, phone and ATM

36
technologies are also likely to have profound impact. From the customer’s
perspective, many advantages can be attributed to the use of technology on the
distribution of financial. The widespread availability and accessibility of the
internet and ATM devices create convenient means for transacting with financial
institutions. From a financial services provider’s perspective, the use of
technology also helps remove the expensive human interface from the
transaction process. The presence of bank tellers, brokers and agents in the
exchange process not only introduces the potential for human error, but also may
at times result in incidents of moral hazard; this may result in decisions that are
not in the best interest of the financial services organization. The use of
technologies that eliminate the human bargaining process and standardize the
distribution and sale of financial services may be most appropriate for financial
services categories that are commoditized in nature such as commercial banking
services and property and casualty insurance. Online banking ha also witnessed
a significant growth in recent years. While the online interface is of financial
services is currently more attractive to the younger and more innovative
segments of consumers, it is likely to experience mass market acceptance and
will have great impact on the interactions consumers will experience in their
relationships and transactions with financial services providers in the coming
years.
Unlike the retail service encounter in which the quality of the human interactions
with the staff of a financial services organization has a great influence on
customer perceptions, the technological sophistication and informational
efficiency of the web site would guide consumer perceptions. The cost
efficiencies obtained through the use of technology are also difficult to ignore
when designing and implementing sale and distribution strategies for financial
services.

Financial Services Distribution Strategies

When considering the appropriate design for the distribution system used in a
financial services organization, it is essential to determine carefully the size and

37
scope of the organisation’s distribution needs. The distribution mechanisms used
by a financial services organization should be reflective of it company image,
target market and internal capabilities. Moving up market or down market often
requires the establishments of separate brand identities. An example would be
the entrance into the micro finance by Kingdom bank as Micro king.
One of the other challenges facing financial services organizations that use
technology to replace human based transactions is the evolving nature of the
customer relationship experience. Ever since the first ATM replaced a bank
teller, a fundamental issue in financial services marketing has been to determine
how a financial services marketing has been to determine how a financial
organization could maintain a human touch without the presence of human
interactions. This is an especially important question for the older and more
affluent segments of the population, who are adapted to the personalized human
interface in their daily transactions. On the other hand, the younger generation’s
heavy reliance on technology and their use of the internet have limited their
desire for human contacts in financial transactions. Nevertheless, meeting the
preferences of these two different population segments is a challenge that must
be addressed by almost every financial services organization.

Legal concerns must also be taken into account when developing a distribution
strategy for a financial service organization. Incentive systems and sales
instructions provided to members of the distribution system can have a great
impact on their actions and behaviours. In recent years, legal cases in which
agents or brokers insecurities and insurance markets have undertaken tasks that
have subsequently resulted in punitive measures or legal actions by regulators
have been frequent.

The distribution of financial services is currently undergoing significant changes.

The increased use of technology, consumers’ growing comfort with the use of
new technologies, elevated levels of consumer education on financial decision
making and the cost efficiencies gained by using new technologies as the means

38
for transaction processing will help direct revolutionary shifts in the distribution
methods used by financial services marketers.

Branch Location and Distribution

-branches are a channel of distribution. Channels of distribution for services
should be thought of as a means to increase the availability and/or convenience
of services that help satisfy the needs of existing the need of existing users.
in order to envisage a criteria for effective channel choice, the financial services
markets must facilitate the right product, for the right people, at the right place
and the right price. There are 2 barriers to the provision of delivery systems in
financial services – what hinders a bank from having an efficient branch network.
a) Business Barriers b) Technological Barriers
- cost - availability of software &
- staff skills hardware
- management skills - reliability of technology used
- customer acceptance - security
compatibility-

Distribution Channels for Banks and Building Societies

Distribution

Indirect Distribution Direct distribution

Agencies
Branch Tele Electronic
networks Banking Methods

ATMs EFTOPs Point Credit

of Sale cards

39
 - banking is now becoming highly automated – in fact in some countries
like Japan there are some fully automated branches that are controlled
2 -4 people to monitor the machines. The most important distribution
channel for banks and building societies is the branch. The decision to
build a branch in a certain area/location can be very costly if it turns out
to be a very wrong place. According to Carrol P many incorrect
decisions have been made concerning bank branch location. He
believes that the banking system has grown into a structure that is
overrepresented in inherently weak markets and underrepresented in
inherently strong markets. In order to be successful, the financial
services branch must be designed and located correctly. The number
of staff in a branch should never be greater than 40 according to
Median (1996) as a large outlet is difficult to manage by a single
branch manager.
The Outlet Location Decision
The Steps That Need To Be Considered
a) Evaluate the territory in terms of the customer characteristics – corporate
or retail and competitor bank strategies.
b) Decide what type of delivery system is the most appropriate for the
geographical area.
c) Select the type of location that is most appropriate for an isolated unit,
unplanned direct or planned shopping centre complex.
d) Analyse & decide between alternative sites of the appropriate location
type

Types Of Branches
A Full Service Branch
A branch that provides a full set of services it has been convectional service
delivery system within the financial service industry. For many financial
institutions nearly all branches provide a full range of services and products
offered by the institution to both retail and corporate customers. The rational for

40
continuing full service branch is increasingly difficult to justify. The traditional
reasons for establishing branches were to collect deposits, arrange loans and
convenience in conducting transactions. However technological developments
mean that there is less need for customers to go to branches for their banking
business.

Specialty Branch
focuses on either retail or corporate business only e.g in the building societies a
specialty branch deals with residential or industrial mortgage.

Corporate Branches
-aim at the middle market corporate a/c and do not handle retail financial
services. services common with corporate branches are online foreign exchange,
letters of credit, asset based financial specialization e.g securitization.
High networthy branches
these branches are located in an appropriate socio-demographic areas and they
distribute a range of financial services for up market customers. These services
are often based on minimum balance criteria and emphasis is laid on personal
financial counselor rather than conventional bank teller.

Branch Location in Shopping Centres

branch location tend to be concentrated in larger shopping centers because
financial institutions seek to attract personal savings and past experience
indicate that these are the most advantageous locations for most banks or
building societies.
Advantages
- easy market entry since many shoppers and potential customers
frequent the high street shopping centres.
- most shopping centres have built in deposit potential –security.
- transport facilities are available
Disadvantages

41
 - poor parking space, too much competition, high rentals
- in some centres, there are restrictive opening & closing business hours

Automated Teller Machines

- ATMs in the UK were introduced in 1968 and in Zimbabwe in 1982.
The main objectives of this innovation in distribution facilities were to
save costs, staff, time & to provide greater convenience that is service
outside normal banking hours. However this technology driven facility
have paused the following main problems:-
o reliability mostly as a result of machine failure
o security from fraud –chances of losing card, money etc
o volume generation at a particular location – congestion
o relatively high cost per machine networks

the decision whether or not to install a machine depends on a number of factors

as follows :-
-assess its impact branch staffing levels, branch net business and branch costs
-the cost of investing in a large network of ATMs including service support and
reciprocal arrangements with other financial institutions
-the impact of ATM installation on the financial institution’s image and its ability to
differentiate its service products.
The distribution of financial services has been further affected by the
development of Electronic Funds Transfer Systems at Points of Sale (EFTOPs).
The implementation of EFTOPs systems requires not just a large injection of
capital and the determination to be competitive there are also a number of
implications . The financial institution must establish its distinctive image and
identity. An attempt to increase cross selling thru electronic funds transfer or
other channels must be closely monitored.

Tele-banking

42
in this approach no customer visits the bank. Business is solicited by long
distance tele-marketing or direct mail. These systems can be much cheaper than
full branch operations are especially useful to institutions that do not have a large
network of branches. Computerised facilities have made it easier to conduct
business. Supermarkets are increasingly being brought in. While trends show
that EFTOPs will become an important payment it is not expected wholly to
replace cheques although successful implementation of the program is likely too
reduce cheque payments and in particular stimulate the use of debt rather than
credit cards.

Branch Location Decisions

Location decisions are extremely important as they involve the expenditure oof
considerable resources over a long period. 3 possible classes of objectives for
having a branch are as follows:-
Academic –academic arguments will be served by building model that improve
our conceptualization or generation that is explain there is partial distribution of
banking outlets entails that confirmed theories of economics or social science.

Commercial argument –this argument this is important decision. it must be

determined by business performance and prospects of business development.
Costs and other factors must be considered but the benefits of an accurate
performance prediction are clear.
Social arguments – for social reasons and corporate citizenship.

Economic factors to be considered

- commercial structure – industry base, firms in the particular location &
working population
- characteristics of the population –income increases projections,
employment characteristics of the resident population
- financial institutions structure – consider the existing banks in place
- geographical factors – accessibility, visibility

43
 - location of competition
- proximity to public transport.

CHAPTER 7: NEW PRODUCT INTRODUCTION IN FINANCIAL SERVICES

MARKETS

Define – a new product can be defined as a genuine innovation

- a modified product – improving on efficiency & effectiveness or adding
new features
The new product introduction process is a fascinating aspect of financial services
marketing. A new product can be introduced at a considerably quicker pace in
financial services markets than in most other markets. This is largely attributed
to the fact that the introduction of new financial products and services does not
necessarily require the development of entirely new physical objects or the
deployment of elaborate and technologically sophisticated product development
procedures. Extensive levels of research may not necessarily be needed for
financial services due to the comparatively lower costs of product introductions
and the limited technological nature of financial services. The rate of innovation
in financial services has been further accelerated in recent years as a result of
the deregulation of the financial services sector and the introduction of new
electronic technologies for the processing of financial transactions. The result
has been the emergence of innovative financial products and services that are
highly relevant to the unique needs of individual customers.

How New Services are Created

Financial services and other types of services and goods share a common
process for new product development. New products are introduced to the

44
market because they can significantly improve the consumer’s experience or
help serve unique consumer needs that are not satisfied by existing products and
services on the market. This is often achieved in one of two different ways. The
first is the introduction or modification of existing product attributes.

A second approach to new product development is the merger of the existing

categories in the market place. For example a debit card is a result of the
merger of the credit card and the personal current account. Similar to using
cheques, using a debit card results in the withdrawal of funds from one’s bank
account.
Methods for Identifying New Product Needs
A variety of techniques are used to identify new financial product opportunities.
a) Observational Methods
A common approach to identifying new product opportunities in financial
services is to utilize what the existing employees may already feel to be
needs of the customers. For example, managers of a commercial bank
branch may have noticed long customer lines forming in the bank teller
area inside the bank branch. Further discussion with the bank tellers and
a study of the transactions that take place may reveal that a significant
proportion of the customers who come to the branch do with the purpose
of depositing cheques and cash. This may help the management
conclude that the flow of traffic in the customer service area may be
improved by introducing an instant deposit machine whereby customers
can directly deposit their cash or cheques and not have to wait in long
lines to see a teller. These are like ATM like devices that only facilitate the
depositing of funds and unlike ATMs do not dispense cash.
New product opportunities may be identified through observation of other
modes of in which a financial services organization interacts with its
customers. For example, a surveillance video of a bank branch may be
able to reveal that long lines are accumulating at either the bank teller
area or the ATM area of the bank. This may prompt the management to

45
 examine the cause for the accumulation of the long lines, thereby
identifying the transactions that may be accelerated either through the
introduction of new services or the modification of existing ones.
While the observation method for identifying new financial services is
frequently utilized, there are several drawbacks to this approach. One
drawback is that this approach may be highly biased by what becomes
available at the time or the location where the observations are being
made. For example, the location of a bank branch may result in a series
of observations that are most relevant and specific to customers who work
or live in the vicinity of that specific branch. As a result, the views and
opinions of customers are made, and the wider spectrum of consumer
opinions and the full range of potential new product opportunities may not
be captured through this approach.
b) Open –Ended Questioning
A second approach that is frequently used in identifying new product
opportunities is what is often referred to as qualitative or open ended
questioning. This approach advances the observation method discussed
above by facilitating direct communication with customers of a financial
services organization. Often, this approach requires conversing with a
representative sample of customers through means such as intercept
interviews in a bank branch, where customers are stopped and asked to
respond to a series of general questions or reached through telephone
interviews. This technique requires one to utilize an open format of
questioning to probe the specific needs that customers might have and to
identify new services of potential interest to them. The primary
consideration in this method is not to restrict the scope of customer
responses, but rather to allow customers to express their opinions and
thoughts freely. In an interview, the customer might be asked an open
ended question such as : “what factors prevent you from using the instant
deposit machine in the bank branch?” Responses obtained from a sample
of customers on the above question can then be studied, categorized into

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 various types of answers, and then tabulated in order to identify what the
majority of customers believe is restricting them from using this service.
The open ended questioning approach is a relatively quick method for
obtaining objective evidence on the nature of consumer response to a new
financial service as well as to an existing service that may be experiencing
difficulty gaining acceptance in the market place. Typically the required
sample size associated with this method is anywhere between 50 to 300
respondents.

c) Focus Groups
Focus groups further advance one’s ability to conduct o[en ended
questioning by engaging groups of customers rather than an individual
customer. The fundamental idea behind a focus group is very similar to
that of open ended questioning with the distinct difference of the use of a
group of customers gathered in a common location rather than individual
existing customers- typically about 10 – are invited to a focus group
facility. Focus groups utilize a trained market researcher as a moderator
who presents the participants in the focus group session with a series of
general questions aimed at soliciting their opinions. The flow of the
discussion is then managed by the moderator. The focus group
participants’ thoughts are recorded through both video and audio
recording of the session, for subsequent analysis. Often focus group
results are provided in written format to the client, and these results may
then help identify new product opportunities or provide the necessary
insights into how to improve the marketing of a newly introduced financial
service.
d) Attribute Ratings
A more technical approach for identifying new product and service
opportunities is achieved by asking customers to rate the importance of
various attributes for an existing financial service on numeric rating scales.

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 The customer may be asked for example to rate the various aspects of a
commercial bank on a scale of 1 to 5 (with 5 being ‘very important “ and 1
being “not important at all”. The customers ratings of the attributes may
then provide insights into what weaknesses a particular financial service
might have or what potential opportunities might exist for the introduction
of new services.
In analyzing attribute rating data, two approaches are often used. One
approach is to examine the service attributes by computing the average
rating associated with that particular attribute. While this approach is
relatively simple, it presents the numeric challenge of establishing whether
differences in averages across the various attributes truly exist. This
problem stems from the fact that the average attribute ratings for various
service attributes are often in close proximity to one another, and
identifying significant differences across the averages can become a
difficult statistical task requiring large sample sizes.
e) Conjoint Analysis
Conjoint analysis is a technique that is used to determine how consumers
form their overall impressions of a new service or product based o its
attributes. Through the sue of this technique, one is able to explain hown
the consumers value each individual service attribute and predict how
these attribute values are combined to form an overall judgment of an
existing service, as well as new services not yet introduced to the market
place. This process can then help identify promising new services for
market introduction. For example, consider credit card offers, which vary
in term of their interest rates, annual fees as well as their refund and
benefits programs. In designing a new credit offer, a credit card company
would need to evaluate how each of these different attributes are
evaluated by the consumer and the extent to which each helps improve or
deplete consumer opinions. Conjoint analysis enables one to address
these questions in a numeric and scientific manner. In conjoint analysis,
one provides a consumer with an array of hypothetical service offerings

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 and asks for the consumer’s general perceptions of each offer using a
rating scale, such as a like-dislike numeric response scale. The service
characteristics are varied through changes in the attributes described to
the consumer, and the resulting changes in consumer ratings are then
measured. By doing this, one is able to quantify the effects that a given
attribute has on consumer preferences for the service. One would also be
able to estimate the extent to which variations in any attribute influence
consumer perceptions of the service. This enables the identification of
service characteristics that are likely to result in the most favourable
consumer responses.

The Process Of Developing a new product

1. justification for the product/ concept -tell us why we need a new product.
Possible reasons could be competitive pressure, or current product are
declining or they are no longer profitable or are now expensive to
maintain.
2. Idea generation -- brainstorming meeting/seminar (internal), external e.g
customers telling you how they want to be served , - engage consultants
ideas can arise inside or outside the org. They can result from formal search
procedures e.g market research or informally they may involve their org. in
creating the means of delivery the new service product they may involve the org
in obtaining rights to the service products like a franchise.
Market research – locating
areas of consumer
dissatisfaction

Environmental analysis –
Competitors – copying prediction of changing
from competitors New economic & social changes
Service

Subsidiaries – learning from Consumer activity analysis Market gap analysis –

overseas subsidiary or – studying activities to assessing the existence
transferring a product identify unsatisfied areas of a gap in the market

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3. Screening of Ideas
it is mainly concerned with checking out which ideas will justify the time, expense
& managerial commitment of further research & study. -organisation should do
cost benefit analysis – chose the highest benefit with the lowest cost.
- feasibility studies – ideas with possibility of performance with the resources
available i.e the Human resources, finance , IT, - set your choice criteria

4. Concept Development and testing

ideas surviving the screening process then have to be translated into product
concepts. In the service product this means concept development & testing.
Concept Development – it is concerned with translating the service product idea
where the possible service product is defined in functional and objective terms
into a service product concept, the specific subjective consumer meaning the
org. tries to build into the product idea.
Concept testing – its applicable in services context as well as in goods context.
Concept testing of taking the concepts developed after the stages ideas
generation & idea screening and getting reactions to the groups of target
customers.
- an associated stage of the development oof the service product is that
of product positioning. Service product positioning is a concept
increasing widely referred to though it remains imprecisely defined
loosely used& difficult to measure. essentially positioning is the visual
presentation of the image of an org.’s service product in relation either
to competitive service products or to other service in its own mix. The
principle underlying this method of presentation is that it enables
product attributes to be compared with competitive offering and with
the customers’ perception of products relative to his/her needs. Such a
comparison and perceptions give useful insights for developing a
programme. Some products are best positioned directly against
competition others by not confronting competition.

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Business Analysis
- this stage is concerned with translating the proposed idea into a firm
business proposal. it involves undertaking a detailed analysis of the
idea in business terms and its likely chances of success or failure. A
detailed analysis of aspects like manpower required to implemented
the new service product idea, the additional physical resources the
likely estimates of sales, costs & profits over time, the contribution of
new service to the range offer like customer reaction to the innovation
& the likely response of competitors.
4. Identify the alternative choice

5. Product development –there is need for coordination and organisation

it requires the translation of the idea into an actual service product for the market.
Typically this means that there will be an increase in investment in the project.
Staff may have to be recruited or trained facilities, may have to be constructed,
communication systems may need to be established. the tangible elements of
the service product will be designed and tested. Unlike goods the development
involve attention to both the tangible elements the service product and service
product delivery system.

6. Testing
testing of new service product may not always be possible. A bank may make a
new service available initially on a regional basis e.g ATMs. Product launch –
launch on piecemeal basis then commercialisation N.B some new products do
not have such an opportunity. There is a need to be very tactical.
7. Commercialisation
this stage represents the org.’s commitment to a full scale launch of the new
service product. In undertaking the launch Kotler suggest 4 basic decision apply:-
- when to introduce the new service product

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 - where to launch the new service product whether local, regional,
national etc
- to whom to launch the new service product
- how to launch the new service product.

Benefits of New Product Development

- reposition or rejuvenating on existing product.
- its likely to result in companies producing products that fulfill the
current need in the market.
- it minimise the chances of product failure.
- it enables companies to identify key selling points – what enables you
outcompete others
- it removes unnecessary duplication.

Segmenting financial services markets

Customer satisfaction with financial services

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CHAPTER 9: STRATEGIC MARKET PLANNING IN FINANCIAL SERVICES

What is strategy?

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The term strategy refers to the management skills needed to plan and organize
activities for individuals and organizations.

The need for financial services marketing strategies

There are many reasons why financial services organizations should proactively
develop and implement well-defined marketing strategies. The first is that
research evidence suggests that financial services providers that systematically
follow strategic plans ten to outperform those that do not. An additional reason
for organizing financial services marketing activities into strategic plans is that
financial services organizational structures are primarily dominated by human
activities. The mobilization of a larger number of skilled employees requires a
clear statement of the direction and long-term objectives of the organization.
Failure to spell out one’s strategy not only causes loss of organizational morale
but will also likely result in notable levels of inefficiency and organizational
disarray.

The extended nature of financial service agreements with individual customers,

which may span the years, requires a financial services institution to ensure its
own long-term stability. For example, customers who have life insurance policies
or pension plans with a particular financial services provider expect it to be
around for many years. Business failure in such contexts can translate into
significant inconveniences and potentially catastrophic financial results for the
customer. It is therefore essential that financial services organizations comply
with customer desire for stability by developing and implementing strategic plans
that assure the long term health of the business. The importance of strategic
market planning in financial services is further amplified by the quickly changing
environment in which financial services operate today.
Companies that are better able to gauge their environment and are capable of
redirecting their efforts in a responsive and well planned manner perform
significantly than those that fail to do so. Such a response can only be achieved

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through strategic thinking and the development of strategic marketing plans
designed to guide marketing activities in such volatile times.

Strategic Challenges in Financial Services Marketing

One of the primary reasons why formal strategic marketing plans are needed in
financial services organizations is the unique challenges that face marketers in
this area. The complexity of issues with which financial services marketers must
contend typically far exceed those influencing marketing activities in other goods
or services markets. The marketing of financial services is further complicated by
the fact that financial services and products are generally non-emotional. Rarely
would an individual find the purchase of a financial service to be associated with
the same level of interest and excitement experienced from the purchase of cars,
consumer electronics, fashion clothing etc. Therefore, financial services
marketers are challenged daily with how to communicate their services in a way
that would create excitement and interest in consumers. The communication of
the specific benefits of a financial service is further complicated by the highly
intangible nature of financial service quality. For example, the quality of an
insurance policy or the wisdom of investment advice provided by a broker may
not be evident for a long time, if ever.

Effective marketing of financial services is also challenged by the large number

of regulations that control financial services marketing activities. These
regulations may for example impact the types of financial services one could
market, the prices charged for them and the information that must be disclosed to
customers when promoting the services. Regulations also require marketing
professionals to complete specific licensing requirements in order to be active in
a given market. For example, investment brokers, insurance agents and
financial advisers must complete rigorous licensing curricula. Most of which
focus on training these individuals on regulations that govern their profession.
The activities of financial services marketers are further complicated by the fact
that the employees serving customers can significantly help or hinder the

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customer’s overall impression on the company. The manner by which these
employees interact with customers has a direct influence on the customer
experience. Strategic marketing of financial services is further complicated by
the difficulty of quantifying costs associated with an individual customer in many
financial services categories. For example, in the commercial banking business,
while customers are the purchasers of the bank’s numerous services, they can
also be suppliers of the raw material used to run the bank. this is because
customers with current or savings accounts supply the deposits that the bank
needs in order to issue out loans to borrowers. The fact that customers are also
suppliers of the funds used to run a banking institution is a unique aspect of
financial services that is rarely found in other marketing contexts. While certain
bank customers may be quite demanding because they engage the bank in
numerous costly transactions, their large deposits and the associated interest
earned by the bank in transforming these deposits into loans may far outweigh
the costs that the customer may present to the bank. Nevertheless, the difficulty
of quantifying the profits associated with individual customers makes a mass-
market approach to the marketing of financial services highly impractical. Use of
individual –level customer data associated with segmentation techniques is
therefore critical to appropriately assessing individual customers’ profitability
levels. The segment-based approach to marketing financial services is a
practical and realistic way to develop successful marketing strategies.

Developing a Marketing Plan

The development of formal marketing plans is vital to the long-term health of a
financial services organization and the steps that are involved in developing a
marketing plan for a financial services organization are as follows;

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 i. Understanding the Market Environment: the first step in the market
planning process is for the marketing managers to obtain an accurate
understanding of the environment in which the business operates. It is
critical to recognize emerging trends that have affected the business in the
past and those that will influence its future. This analysis requires one to
examine the demographics of potential and existing customers, to
understand emerging technologies that may influence the process of
selling and servicing financial products and services and to recognize the
economic forces that can affect the business. It also important to gain an
appreciation for the potential impact of regulations on the business and to
understand trends that may influence the attractiveness of the company’s
offerings to customers. Furthermore, a study of the competitive spectrum
and actions and capabilities of competitors in the marketplace is essential.
ii. Opportunity Identification
Once the environment of the financial services organisation has been
closely examined, the management must be able to identify opportunities
for improvement and growth. In this step, both the potential opportunities
in the market place, as well as potential threats that may limit the
company’s growth need to be assessed and the strengths and
weaknesses of the company when contending with these forces need to
be explicitly identified. The objective of this phase is to ensure that the
strengths of the business match the opportunities upon which it will
capitalize.
iii. Setting Goals
In this step, the management should begin to set specific goals for the
planning horizon. These goals should reflect the company’s capabilities
as well as the customers’ needs and requirements for the offered services.
The number of goals identified should be limited to avoid a loss of focus
and the inability to prioritise marketing activities. It is important that while
goals are set at high levels, they reflect realistic and achievable objectives
so that the organization as a whole can place faith on the contents of the

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 marketing plan and the overall mission it will guide. Typically, the goals
are set for time horizons ranging from six months to three years.
iv. Specifying an Overall Strategy
Once the goals have been identified it is critical to specify the overall
strategy that would help achieve them. The stran tegy should be based
on the various capabilities of the business that would have been identified
in step 2. For example the strategy could be based on competitive pricing,
though which price reductions result in higher levels of new customer
acquisitions. The strategy can also focus on image-building advertising
campaigns, cost reduction measures, or the use of referral based
marketing programs to capitalize on networks of customers. The
marketing strategy could also incorporate partnerships with other
organizations that may improve the competitive position of the company.
v. Determining the Expected Financial Results of the Company
The next step in the market planning process is to quantify the results that
may be expected as a result of implementing the plan. In this phase, the
effects of on three vital signs of business performance need to be
quantified: profits, return on investment and revenues.
vi. Specifying Actions and Timing
The final step in the market planning process is to explicitly outline and
detail the activities that will take place throughout the planning period. In
doing so, it is important to develop a chronological order to specify when
the various aspects of marketing a financial service will be carried out.

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