Marketing by Banks-A focus

 Published in Kaveripakkam College Journal Of Management Research-Vol.3-Issue N0.6-Jan-March-2013

Abstract Marketing is an essential part of organizations business philosophy, irrespective of the fact whether it is manufacturing, trading or service industry like banks, insurance, airways or railways etc. All commercial organizations are involved in marketing and selling of products. One can market anything in the present era: a product, produce, education, housing, concepts, events, religious services and even dreams.  For successful marketing one has to be imaginatory, innovative, and bubbling with new ideas having value and profit. Due to liberalisation of economy and opening of global markets, marketing has become tough.Technology has revolutionized marketing, and Internet has changed marketing dynamics. Market is no more restricted to a geographical place where buyers and sellers used to meet for purchase and sale. A person can log on to any electronic commerce site (also known as e-commerce) and can buy or sell products from any part of the globe. With the click of mouse one can find out variety of products and services, much similar in features and price wise competitive.

“… Businesses will do better in the end if they concentrate on meeting customers’ needs rather than on selling products.”

Marketing Myopia, by Theodore Levitt,

Harvard Business Review (July-August 1960).

1. What is marketing?

Marketing is arousal of dormant and latent desire which creates impulses and disturbs mind and gives a feeling to a person that he needs a particular product and its deprivation would create psychological imbalances in mind. An organization intending to introduce a new product or service has to study what consumers’ want. It is wrong to presume that if a product is good, people would buy it. People buy those products/services which satisfy their needs and are competitive pricing wise.

Marketing is a planned and organised effort of finding out opportunities in tomorrow’s market by understanding human behaviour in response to the stimuli to which they are exposed.  In fact marketing is nothing but blending innovation and creativeness with the present and future needs of customers. A skilful marketer has therefore to be a practical psychologist, who understands individual and group behaviour and can foresee changes in the purchasing pattern of the society. Once a new and attracting product is launched, the existing product is gradually phased out as new products keep generating interest. A product having high demand today may not be in demand tomorrow. Therefore, an organization has to continuously conceive new products to remain in the market. 

2. Marketing and Selling:

Marketing and selling are twin sides of a coin. Marketing is demand management forecasting, an active form of selling. The end result of both marketing and selling is to increase business.

In marketing, a feeling of necessity is induced by germinating and inciting latent needs and desires and then designing the product to suit the needs. Market creates needs that help the marketer in attracting purchasers to buy things, which they were not intending to buy.

A seller does not create needs as they pre-exists. Seller influences dormant desires, wants and makes it active that results in purchase.

 “The difference between marketing and selling is more than semantic. Selling focuses on the needs of the seller, marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert the product into cash, marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and, finally, consuming it.”¹

 “But selling, again, is not marketing. As already pointed out, selling concerns itself with the tricks and techniques of getting people to exchange their cash for your product. It is not concerned with the values that the exchange is all about.”²

“.. Businesses will do better in the end if they concentrate on meeting customers’ needs rather than on selling products.”³

 3. Marketing in banks:

       Due to liberalisation of the economy and opening of banks in the private sector these newly established banks started making a dent in the foray of both public sector and existing private sector banks. These banks were more customer friendly and provided state of the art services with pleasing environment which were missing both in public sector and private sector banks. These new banks started capturing market at the fastest speed. Both public sector and existing private sector banks woke up from long slumber and adopted combative marketing. Banks which foresighted the changes, reassessed their existing product lines from acceptability and profit angle. They started adopting new selling (not marketing) techniques and reengineered them by adding flavour to their products.

   

4. Business of Banking:

Banks are in the business of financial intermediation. Banking activities are governed by Section 5(b) of Banking Regulation Act, 1949. Section 5 (b) of the Act defines banking as accepting of money for the purposes of lending or investment of deposit of money from public repayable on demand and otherwise and withdrawal by cheque,draft order or otherwise. Section 6 (1) of the Act contains form of business in which a banking company may engage. Thus marketing of banking products and services hovers around the activities specified in the B R Act.

Since banks are governed by different rules, regulations and directives issued from time to time by the Reserve Bank of India and government of India, they are not free to do as they like. Even the method of interest calculation has been laid down. RBI has deregulated interest rates on liability products. Though banks decide rate of interest on the basis of their assets and liabilities, however, to a greater extent it is influenced by the peer group pressure.  Deposits being rate sensitive, the option lies with the depositors. Banks do not pay interest on the balances held in current account. Even in case of Asset products banks hands are tight.

 5. Marketing of Banking Products:

Marketing is an essential ingredient for bank’s progression.  Bank customers are those who have surplus or shortage of funds. They need various types of financial and related services. These customers come from different strata of economy, from different geographical locations with different professions and businesses. Naturally, the need of each individual group of customers is distinct from the needs of other groups. It is, therefore, necessary to identify different homogenous groups and even sub-groups of customers and then determine their needs, design schemes to suit them and deliver them efficiently.

Marketing in banks can broadly be classified into three areas i.e. to depositors, borrowers and casual customers. 

Depositors:

Deposits are the main source of resource around which all banking activities rotate. Depositor’s interest is the key area of the regulatory framework of Banking Regulation Act, 1949. Most of the banks generally rely on walk in business. They   are more interested in bulk deposits form corporate or big organisations. The pattern of deposit differs from location to location.

One of the bankers commented that in rural areas there are hardly one or two banks. Rural masses have no choice but to depend on the braches of these banks. Hence, what is the use of marketing?  

POPULATION GROUP-WISE DISTRIBUTION OF DEPOSITS
SCHEDULED COMMERCIAL BANKS – March
Amount in Rs. Crore
Population/ Year	Rural	Semi Urban	Urban	Metro	Total
2012	578,211	848,446	1,280,904	3,466,586	6,174,147
2011	496,857	721,202	1,116,380	3,092,071	5,426,510
2010	423,502	618,207	951,116	2,609,101	4,601,926
2009	365,491	531,944	824,463	2,215,437	3,937,336
2008	303,025	429,377	657,624	1,838,792	3,228,818
2007	258,128	356,827	531,269	1,452,599	2,588,823
Source:  Quarterly Statistics on Deposits Scheduled Commercial Banks,  RBI

Borrowers

Banks provide credit to various sectors of the economy. Credit deposit ratio of a bank indicates its lending behaviour. Since over 70 percent of banks income is derived from lending operations, marketing of loans and advances has become a major activity. Though lending is a risk prone activity (credit Risk) banks have launched multiple asset products for different set of people. Most of the banks are interested in car loans, loans for house hold items and in financing real estate business etc. It would be observed from the following tables that banks concentrate more in urban and metro areas for marketing credit (Assets) products. In urban and metro areas there being a high demand of finance for housing, purchasing white goods, educational loans for higher studies etc., banks concentrate in marketing these asset products. Banks target customers needing bank finance.

POPULATION GROUP-WISE DISTRIBUTION OF CREDIT
SCHEDULED COMMERCIAL BANKS – March
Amount in Rs. Crore
Population/ Year	Rural	Semi Urban	Urban	Metro	Total
2012	418,227	456,930	780,993	3,165,437	4,821,587
2011	294,104	383,072	684,980	2,714,712	4,076,868
2010	249,804	320,372	559,330	2,216,113	3,345,619
2009	208,694	266,736	461,870	1,920,225	2,857,525
2008	183,097	230,629	383,576	1597,263	2,394,565
2007	154,785	189,783	316,166	1288,833	1949,567
Source:  Quarterly Statistics on Credit of Scheduled Commercial Banks,  RBI

                  

                Deposit and Credit in percentage - March

	Population/ Year	Rural	Semi urban	Urban	Metro
Credit	2012	8.67	9.48	16.20	65.65
Deposit	2012	9.36	13.75	20.74	56.15
Credit	2011	7.2	9.4	16.8	66.6
Deposits	2011	9.16	13.29	20.57	56.98
Credit	2010	7.5	9.6	16.7	66.2
Deposit	2010	9.02	13.42	20.67	56.69
Credit	2009	7.3	9.3	16.2	67.2
Deposit	2009	9.28	13.52	20.93	56.27
Credit	2008	7.6	9.6	16.1	66.7
Deposit	2008	9.4	13.3	20.4	56.9
Credit	2007	7.9	9.8	16.2	66.1
Deposit	2007	9.9	13.8	20.4	55.9

It would be observed from above tables that despite banks getting enough deposits from rural and semi urban areas, they do not market credit facilities in these areas. Lending in rural and semi urban areas is mainly confined to achieving priority sector targets. Business establishments engaged in marketing of tractors, machinery, equipments etc., have tied up with banks for financial assistance in rural areas and indirectly do marketing for banks.

6. Banks and segmentation marketing:

A product may not have common utility to all consumers therefore, it is wrong to presume that consumers have common preferences. Market segmentation is categorizing and identifying the market on the basis of demographic, professionals (medical practitioners, advocates, chartered accountants etc.), geographical, income and casual customers having similar needs. It helps in distinguishing the requirements of different groups and in marketing products suitable to each group of people.  

Banks obtain detailed information while opening account. This is done to adhere ‘Know your customer (KYC) ‘norms. With the implementation of core banking, banks have established data ware houses, which contains enormous data about customers operations in addition to their name, address, marital status, number of dependents, financial status, income, educational back ground, profession, annual turnover, particulars of those banks with which customer also deals etc.  This can help banks in data based segment marketing and judging profitability of customers.

7. Segregating Market:

Banks can segregate market as under:

Demographic segmentation:

Demographic segmentation helps in devising consumers on the basis of their age, gender, educational background, income, occupation, social status, marital status, religion, nationality etc. This helps banks in developing products and services that suit their want.  

Professional Segmentation:

Customers can also be segmented on the basis of their profession and vocation such as medical professionals, chartered accountants etc., who can be marketed products suiting to their needs.

Geographical Segmentation:

Geographical segmentation is quantifying the market based on geographical location. The buying patterns of customers differ from location to location. Persons living in rural areas engaged in agriculture have quite different needs than people in metro and urban areas.

Income Segmentation:

Demand of a product depends on the earning capacity of customers. Market can also be segmented on the basis of income criteria. Those in high income group bracket can be marketed any product.

Casual Customers:

Banks provide various public utility services to their customers as well as non-customers. These services include remittances facilities (Demand Draft, Mail Transfer, Telegraphic Transfer, Banker’s cheque) lockers, safe custody, purchase and sale of foreign currency, travellers cheques etc.

8. Data Based Marketing:

Data based marketing helps banks in efficiently and intelligently managing customer’s portfolio and in analyzing their needs to serve them better. It helps banks in segmenting market, cross selling of products and in improving customer relationships. It helps banks in marketing high end products to people in higher income group.

Since most of the banks have technologically upgraded their systems, procedures and functioning by implementing ‘Core Banking Solution’ and have established ‘Data Centres’, banks by data mining  can find out the hidden pattern and can keep better track of customers.

Data mining is an analytical intelligence through which bans can find out preferences for a product, develop new products and can launch those suiting requirements of different groups and increase revenue. Database marketing is “the use of customer database to enhance marketing productivity through more effective acquisition, retention, and development of Customers” 5

"Database Marketing is an interactive approach to marketing, which uses the individually addressable marketing media and channels (such as mail, telephone and the sales force): to extend help to a company's target audience; to stimulate their demand; and to stay close to them by recording and keeping an electronic database memory of the customer, prospect and all commercial contacts, to help improve all future contacts and to ensure more realistic of all marketing."6

According to Phillip Kotler “Marketing is becoming a battlefield more on information than on sale power visible”.

9. Customer Awareness:

For facing challenges, banks have to penetrate the market, explore new markets and launch new products by aggressive marketing and creating ever-increasing demand for their products.

According to Peter Drucker “The business enterprise has two, and two, basic functions; marketing and innovation. It is not necessary for a business to grow bigger; but is necessary that it constantly grow better.”

10. Conclusion

Banks have realized that it is the knowledge and awareness of their products, services, its inherent quality and uniqueness that creates constant demand. Hence, unless masses know the range of services offered by a bank no one will have special leaning towards the bank and its products. Constant communication and touch with the consumers through e-mail, or other modes play an important role in marketing and facing competition.

With the opening of new generation private sector banks, competition has become tough. These banks have different work culture, work ethics, are technologically advanced and are not averse to change. These banks have opened floodgates of competition not only in the traditional banking operations but also in modern line of business. Since banks are operating in a highly competitive environment, a concerted effort is needed to institutionalise marketing and not individualise marketing. In real sense there is no marketing in banks but it is selling.

References:

1. Theodore Levitt, ‘Marketing Myopia’ Harvard Business Review • July–August 2004 

 2. ibid

3. ibid

4. ⁽(William J. Stanton, “Fundamentals of Marketing”, McGraw Hill International Book Company, Tokyo, 1981, p.66)

5. Robert C. Blattberg, Byung-Do Kim, Scott A. Neslin, Springer science+Business Media LLC, 2008, New York 2008 page 4

6. Shaw, R. and Stone, M. Database Marketing. New York: John Wiley & Sons, 1988.