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Marketing of Financial Services: Strategic Issues

ProfS,Anand & Dr.V.Murugaiah

Introduction

The financial s er vl c e s s e c t o r p l ay s Cl predominanl role in stimulaUng and sustaining economic growt.h of a natton Till recently, the public sector institutions have been showing dominance in all the areas of financial s crv tc e s like banking, insurance, term lending, housing finance etc., in lndian Financial System. Bul after the initiative of economic liberalization by the Government, the private and foreign play 1'5 are also putling rapid slrid s in this sector.

Cons .quently. the Jlnancial services s .ctor in India started growing rapidly in t h e economy to intermediate between savers a n d seekers of money. Thus. the compelilive climate in the Iridian financial servi sector has changed dramatically over the last few years.

Major Players

At presen t, (he players in Indian financial service sector are bclorigtng Lo one or (he following Indian Financial Markets:

• Commercial ancl Personal Credit Market (domina Led by Commercial Banks)

• Developmental Financial Credit Market

• Irrsu rance Market

• Housing: Finance Market

• Money Markel and Debt Market

• Capilal Market

• Gove r nrnen t Secu ri tics M arkct

• Hire Purchase and Leas' Finane" Market

• FOREX Markel'

Consumer Profile

There are two types or cu s l o rner s in t h e business of ftn ancial services. They are:

I. Individual customer for products such as ban k depos i t s , company fixed deposHs. mutual fund units. insurance p o l t c e s . company shares and debentures, consumer durable loans. credit cards, clepositories. housing: loans etc.

2. Consumer as corporate entity for term loans from financial ins ilulions. wo rki n g capita I loan fro rn ~0111 mereta] banks. tnter-corporare deposits, equity by way of shares Zdebcntures etc.

In the first category, con s urncr has also been defined in terms of social class te , NRT class, high net-worth class. upper middle class. middle class, lower middle class, working class etc.

New Challenges

In this new competitive environment and globalized trading practices. the markettng of Itnanctal services posed Io ltowtng new cna lleriges to the financial sector in the market place.

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• Deregulation in the financial service sector gives rise to the emergence of various spurious companies and many malpractices in the capital markets have badly affected ! h e marketing act ivi ties of n n a ncia 1 servi ec sector.

• Increased cornpctn ion from global and domestic players threatening the survival of many industries ..

•

Integration with global market and growing volumes of financial ira n sa ct iori s

• Coping with the advanced informailon technology in the marketing functions

• High level of volatility of the financial market

• Increased customer demands and

sophistication of markets and

customers

• Coping wHh fast growing rate of IT, communication and multimedia.

New Age Marketing Strategies

The basic riat ur e of" financial services ie , intangibility and inseparability from the provider creates many a hurclle for the service marketers. 1 n tangibility makes it dlfflcu lt for the provider to communicate to customers in very precise terms. It also poses problems [or the customers as they find it dtfftcu It to dIfferentiate and evaluate the services of various providet s. In order to create a distinction in the market. the players have to perform three major tasks.

Designing Services Strategy

It is aimed at building credibility and professional relationship among the customers. Credibility is built over a period of time by way of fulfilling the promises

through

compelitive

performance.

Designing Service Strategies

Tangibi] isation of Services

Devcl opi ng Services' System

Fig~ 1

Professional

relationship

can be

maintained with the customer offering,. quality service La them.

Tangibilisation of Services

The customers do not sec or touch anything to decide before buying the services. In order to create enough transactional trust in the investors, the firm has to tangtotlise its services in the fcllowtug ways.

• Providing accurate, timely and rcgular information to the customers through IT enabled services (Ernal l. Websiies etc.)

• Sending the proof of performance regularly by way of bulletins, reports, letters etc.

• Providing membership ID number to the customers.

• Providing pleasant. professional ambience at the service counters.

Developing Service System

The success of ftnanclal services industry depends 011 the perception of the investors with regard to the firm. The firm should have a robust, reliable and user-friendly system. The service system consists of two parts:

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a) Operating sysLem (Back o_[ficel Operating system mean s i n.t.c r n a I function of the industry for achieving guaranteed arid consistent performance as promised La the customers.

b) DelivenJ system (Front office)

Delivery system refers to an appropriate use of people, equipment and technology to s e rv e the specific needs of the customers arid to satisfy the customers and butldmg the long lasting customer rela ti ons hips.

Elements of Financial Services .Marketing

In the formulation of overall marketing strategies of financial services industry, the following de ct s to n s are considered significant in the liberalized business envtronrnen t.

• Product Ptaruunq

The financial companies should aim at creating new generic prod u cts as per customer needs. Creation of attractive tchemes has to be coupled wilh cfftctent delivery to 0 p ti III ize customer sa ti sfac tton. lt is always better to bring modtftcatton in the existing products by adding some new features and elimination of outdated products. In the competitive market. the task of selling is found tougher since the COre products are the same. This necessitates product differentiation. There should be different products in the arrays oi lhe company, so that company can cater to the needs of differenL groups of the Investors/customers. For designing and developing a new product one should lake the help of market research to assess the needs of the customers, availability of existing product and future growth in demand.

- Selection oj' suitable place

This involves searc:hing of suitable places for offering the services. That is. locating Ihe branch at a s en stl ive poi nl., which is accessible to the actual and p oLe n t.ia l customers for aclivating the business. The important considerations while making location decisions are availability of transportation. parking, cornmu n tea tto n. electricity and other necessary facilities for the smooth Iu ncuoru ng and convenient disposal.

- Prtciru; policy

The potential cu ato mers generally frame their investment s t r a t e gt e s in the background of pricing dectsion. The price takes different dimension depending upon the type of financial services. Price of financial services are always linked with return. For an insurance company the price means the premium, for bank it is rate of interest and for mutual funds it is net asset value. However, while deciding pricillg. other factors Uke incentives, brokerage. agency commission are also to be decided in advance because the expenses towards these Hems will affect the ultimate returns to the investors. In all cases only the competitive price and the promised return catch the sentiments of the customers.

»Brondinq

Brand name (scheme name) very often signifies the market segments, inherent benefits and investment objectives and also customers' loyalty. This process consists of selection or product narnc , designing brand policy like in dtvidual. Iarnrly or corporate brand,

- Customer service

Marketing of services is significantly influenced by the quality of service and

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interpersonal relationship between customers and service organization. How and in what manner they offer services to the c u s t o m e r s assume a place of signifiC',tllce. especially to motivate the pot.en ttal customers. Markel orienta lion of product and cus t o m.c r orientation of servictn g arc th e two key faclors in th e competiLive world of financial services. Prompt and timely service as per the customers need woul d make a distinct difference. The personal touch in service has shown positive results In recent times. The qual! ty of the services offered in turn helps to develop loyalty among Lhe customers. Services can be provided either directly by the company through service department or through trrterrned iartes like registrars or external agencies. Customers are involved in a very real relationship with the company, and even one weak link can signiftcantly damage their trust. In other words. the demeanor and behavior of the service personnel at all levels p lay an important Tole in shaping cuslomer s attsfac lion

-Market segmentation

The financial service industries are expected to satisfy various categories such as the rural and urban customers, small and large scale entrepreneurs, high-earning and low-earning customers .. retail and institu tional customers etc. This makes the task of assessing the needs of customers a bit difficult. Here the segmentation of mark e t-baae.d on the changing needs of customers is con stder e d to be the finest solution. Identification of market segments is crucial to take further action regarding promotion and distribution of the PI'OelUCt. Market segments will be identified on the basis of nature of the product. direct and

indirect benefits of the product on the one band and b e hav io ur or at titude of the customers, product usage rate etc on the other hand. If the segment-wise formulation of m arlcet mg policies and techniques is right. the task of satisfying the customers would bc easier. H ere market research plays on important rote to identify all these factors and plan appropriate dlstribulion and promotion policy.

«Disiributiori policy

The determination of proper channel to be useel for sellmg the product is also a key issue in the mark etj ng of financial product. Defore launching of a product .. there shoulj be clear cuLidca about channel 0/ dis Lr i bu tio n of the pro du ct to make it accessible to the ultimate customer.. The channels reach direct to the customer or through intermediaries like agents. brokers or franchises should be determined based on the internal marketing strength of the organiza tion.

- Promotional policy

In order to promote the business in highl] compeU t ive world, it is the ttrne to develoj creative promotional tool kits so thai impulse buying is stimulated among lhE potential customers. The promoting of salt may be through adverttsernent, road shows personal finance shows and contests. Th: various promoUonal tools used by the rnajoi players are given in Ftg.Z.

Managing Market Inform.ation System

In the modern business world. the MIS V in close touch with the day -t.o-rl aj developments. The financial services rieer inform ati on regardi ng poten tial i ty p r oIi La bilHy. compe ti Lio n and so c Io economiC condition.

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Fig ~ 2

Personal promotion .... • Person to person
". • Person to persons
• Persons to persons
• Advertising
• Puhlicity
lrnpersonal promotion ..
JIll"'" • Sa I e promotion rncas 1I res There are numerous measures ancl sources for colle ling information at different lev Is. Depending upon the need, suitable sources can be used to lap the relevant information for markeling plans. The information so collected should be used immediately in the marketing activities, as the Ilow at" r h e

information is free in the market. otherwise the ornpctltor may use lh same and take the advantage. Hence U1C marketing information should be processed instantly and implemented quickly. The reliability or the- marketing information should always be cautiously looked into at every stage while implementing.

Fig~ 3

1VIISLEVEL USF.s
At branch ... Effective execution of market plans to know
level the changing expectation of the customers
At regional ... Regional planning, implementation
level and review of the situations
.... Corporate planning
.... Setting of business objectives and gouls
... Identi [icatlon of profitable market
At corporate ... Diagnosing the emerging trends in competition
level ... Knowing the position of the competitors
... To expand and diver ify the bu iness
... To project a fair image of the company
.... Reviewing the market plans _ 4G

Fig - 4

Information Sources
Primury Internul market research, Survey, Personal contact, Telephone contact.
M a j l question naire. Semi nars .. Group j ntervi ewing e tc.
Experts opinion, National dail ies, Trade association, Chamber of commerce,
Secondary Reports or Union and State governments, Corporate results or reports.
Reports of other agencies li ke R HI, CRISIL and CI ME. An effective marketing intelligence system should essent.ially be practised by the executives of th e financial service industries to obtain everyday information about. Important. d ev e l o p m e n Ls in the rnarkettng environment to enable them to make d a.y-Lo-xl a y s ca n n m g of t h e environment. The scanning of the market environment can be made by reading business rela ted books, newspapers. trade publications and by talking to the> users of services. The executives have to be trained in an effective way in this regard and are to be motivated to spot and report new developrnen ts.

Financial Product Ad.vertising

Financial advertising is a very useful too] for promotion of financial products to persuade the new breed of investor 10 hring his money into the market. Financial advertising can distinguish the financial products of the company from those of its competitors. It has to be noted that financial advertising should adhere to certain gUidelines issued by the regulatory au thorny. Financial market displays trends towards two types of advertising.

1. Corporate awareness advertising:

It is done by the companies so that the I prospective and existing customers will feel comfortable with the producllhey arc using and also help to differentiate a product through building a brand personality.

2.. Pr-oduct adssertisinq:

AdvcrHsing spectftc features. benefit.s. and other relevant information of a particular product to induce. the investors.

In India, as the investor is still new to the gamut of many new financial products and services being offered to him. the task of p r o m o tt o n has become much more challenging anrl exmng.

Branding of Financial Services Brand identity is an important marketing fa c tor. w hie 11 fa c il it ate s pro duct identification at the market place. Brand is a broad term that includes practically all means of ldeniifylng a product by way of 'I o go' or 'punch lines' or product names. Brand name is that part of the brand whf ch can be verbalized where as brand mark is that part of brand which can be recognized.

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The Iech ntqu e of branding is of two types:

1. Individual brandrng-whtch is exclusive to the prod uct under consrdcrat inn.

2. Umbrella branding-is practice of labeling more than one product with a single brand name. (UTI's MIPs. Dhanavarsha series of UC Ml" etc}. Here due care has to be taken to avoid the name repetition of t he brand wh ich otherwise leads to confusion to the investor.

In India. most of the products are linked to the names of their company (LIe MF Bond Fund. Can Star and UUPs. This technique is always advantageous for product. Identification. which in turn helps to build the company's corporate image. Brands command customer loyalty for the product. Financial products aim at a ltract i ng the investor to bring his savings into the market. MosL of the financial products available in the market are very similar in na tu re , This is where the advantages of branding can be explof ted. Branding can

I help in creating product differentiation. and also create a distinctive product identity.

Developing a brand requtres a great deal of tong-term investment. especially advertising and promotion. It is a quite expensive proposition and hence is worth for long-term plans like hank's schemes or mutual fund schemes.

Emerging Functions in marketing of Financial Services

The follOWing are the emerging functions in marketing of financial service m du s t rIe s and having greater significance in this competitive market.

SCAI . .\" )1}li/1/(t! nj filil"'! AlUi/(lj!.""Ii'//I, }11!j'-J"rplt'lIlbtr. 201N

l Product: development

• To assess the potential Ior retail as set business based on market feed back and to enhance existing products or develop new products.

• To monitor and deliver proftt abll ity for each product line

2. Channel management

• To identify third party agencies such as d tr e c t s a l e s agents, collection agents. verification agencies find finalise terms and conditions, res ponsfblltucs and pricing with each agency.

• To monitor the performancE' or Lh e s e agencies on an ongoing basts and e ns urrng a high quality channel operation over time.

3.Appraisal tnariaqement

.. To scrut tntzc and recommend approval or rejection of re ta il loan proposal received from branches by way of credit scoring system anc! sound judgment.

4. Territory sales management

• To build the retail asset business in liaison with direct selling agents and branch heads in order to achieve the business target for the region.

• To identify and recommend suitable third party agencies Io r marketing, collection and vertfrcat.to n in t.heir area of operations as well as to ensure quality of lhe credit portfolio and to follow up delinquent cases.

5.Branch management

• To achieve the business target of the branch with a predominantly retail business focus,

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6.Brand manaqenicni

• To develop strong brand name for the product and corporate image for the company through various innovative devices ..

Conclusion

Today's financial services industries require new strategies to survive and continue to operate. They have to adopt new marketing strategies and tactics which enable t hcrn to capture the maximum opportunities with the lowest risks in order to enable Lhem to survive and meet the tough competition from global players of domestic and foreign origin,

References

Agrawal.M .. L .. "Marketing of Services: Concept & Application (IGNOU)" Branding & Advertising ojFtncuiciol Services,

Avadharu, V.A .. "Marketing of Financial Service," Mumbai: Himalaya Publishing House.

"Changing Trends in Indian Banking", Business Today May 2001 ..

http://WW\v.pm.a.phiJonline.com/bpi.htm

Ramdas.R .. "Marketing of Services: Concept & Application(IGNOUr Mar.keting cfFinanciai Services: Indian Scene.

Sad ak, H ... Mutual Funds in India Marketing Straieqte« & Investment Practices .. New Delhi:

Response Books, 1997.

Sankar, Ravi "Portfolio Management Services," Service MaTketing Indian Experience Newt Delhi: South Asia Publication, 1999.

Jha.S.M .. SERVICES MARKETING Bombay:

Himalaya Publishing House.

"Tomorrow's leading retail banks" ICFAI Reader April, 1999. 0