Marketing of Financial Products

Dr. Karim Kobeissi

Course Objective
The basic objective of this course is to
explain for the students about the
various types of financial products
and how these are to be marketed.

Chapter I: Development of Banking Services Marketing

What is Marketing?
There are many definitions of the marketing
concept and most of them are focused on
meeting the customer needs. Here is one
that has been proposed by Kotler:
Marketing

is

the

science

and

art

of

exploring, creating, and delivering value1 to

satisfy the needs of a target market at a
profit Kotler, 2006.

Role of Marketing
Marketing identifies unfulfilled needs and
desires. It defines, measures and quantifies
the size of the identified market and the
profit

potential.

segments

the

It

pinpoints

company

is

which

capable

of

serving best and it designs and promotes

the appropriate products and services.

Goods, Services & Products?

A

good

is

something

you

can

point

at,

whereas

serviceissomethingwhichcanbe bought andsold butwhich

you cannot dropon yourfoot (Gummesson, 1987). While a
good is something that can be measured and counted, a
service is less concrete and is the result of the application of
skills and expertise towards an identified need. A product may
be a physical "good" or a "service" or a blend of both.
N.B. According to Rathmell (1966), when a service is purchased
the

buyer

pays

out

his

money

without

establishing

an

ownership right (e.g. renting a car). In contrast, when a good is

purchased the buyer acquires an asset where he can establish
his ownership right (e.g. buying a car).

Goods

Services

Tangible output.

Intangibleprocess.

Homogeneous (essentially zero

variability).

Production and distribution are

separated from consumption.

Heterogeneous (they vary from day

to day and even hour by hour as a
function of the attitudes of the
customer and the servers).
Production and consumption: A
simultaneous process
Inseparable.

Non- perishable (can be kept in

stock).

Perishable (can not be kept in

stock).

A thing.

An activity.

Core value produced in factory.

Core value produced in buyerseller interaction.

Customers do not participate in

the production process.
Delivery systems solely involve
physical channels.
Transfer of ownership.

Customers participate in
production.
Delivery systems may involve both
electronic and physical channels.
No transfer of ownership.

8
9

The Concept of Global Offer

It is very rare, in fact, that an offer is limited to a single good or
service. In practice, companies offer a more or less combinations of
goods and services to better meet their demands and differentiate
themselves from the competition.
The global offer then includes:
- The core product (either a good or service), which meets the main
customer needs (e.g. Air Condition; airline flight...).
- The supplementary services that are added to increase the value of
the offer and provide the company a competitive advantage (e.g.
installation of the AC., one year guarantee...).
Managers must select the features of both the core product and the
bundle of supplementary service elements surrounding it.

Section1: Development of Services Marketing

1.1 The Marketing Mix of Services

One of the most basic ideas in marketing is the
marketing mix. The marketing mix represents the
elements that the organization controls and that
can be used to influence consumers choice as well
as their evaluation of service satisfaction.
The first four elements in the services marketing mix
are the same as those in the traditional marketing
mix of goods (4Ps). However, given the unique
nature of services, the implications of these are
slightly different in case of services.

The 8 Ps of Services Marketing

1. Product 1
2. Price and Other User Costs
3. Place
4. Promotion
5. People
6. Process
7. Physical Evidences
8. Productivity & Quality

Product
In

case

of

equivalent

services,

the

to

offer

the

product
which

is
is

heterogeneous. Hence, there is scope for

customizing the offering as per customer
requirements. Therefore, managers must be
attentive to all aspects of

the service

performance that have the potential to

create value for customers1.

Price and Other User Costs

Pricing services is more difficult than pricing products because you can
often pinpoint the cost of making a physical product but it's more
subjective to calculate the worth of your expertise or the value of your
time.

The factors that we should consider when trying to determine what price
to charge for a service:

Costs (direct and indirect costs).

Competitors' pricing.
profit margin.
Perceived value to the customer.

Place
Since service delivery is concurrent
with its production and cannot be
stored or transported, the location of
the

service

production

assumes

importance. Service providers have to

give special thought to where the
service would be provided1.

Promotion
Since a service offering can be easily
replicated,

promotion

becomes

critical in differentiating a service

offering in the mind of the consumer.

People
People are a crucial factor in a service
delivery process, since a service is
inseparable from the person providing
it.

Process
Creating and delivering services to customers
requires the design and implementation of
effective processes that describe the method
and sequence of actions in which service
operating systems work 1. Badly designed
processes are likely to annoy customers
when

the

latter

experience

ineffective service delivery.

slow

and

Physical Evidence
Since services are intangible in nature
most

service

incorporate
elements

providers
certain

into

their

strive

to

tangible
offering

enhance customer experience.

to

Productivity & Quality1

Productivity

relates

to

how

inputs

are

transformed into outputs that are valued by

customers, whereas quality refers to the
degree

to

which

service

satisfies

customers by meeting their needs, wants,

and

expectations.

improvement

Investing

without

in

quality

understanding

the

tradeoff between incremental costs and

incremental revenues may hurt profitability.

1.2: Challenges & Solutions

As a result of the intangibility, inseparability of
production and consumption, heterogeneity, and
perishability
marketing

of

services,

challenges

arise

number

that

usually faced when marketing goods .

are

of
not

Marketing Challenges and Solutions Pertaining to

Intangibility

Characteristic

Intangibility

Resulting Marketing Challenges

Possible Solutions

Services are difficult to display

and / or explain to customers.

Develop a strong
organizational image (a
powerful and honest
bank) to reduce the
customers level of
perceived risk.
Utilize an activity
based pricing
approach.

Services are difficult to price.

Services lack patent protection.

Use personnel sources of

information to market
services.

Services can not be stocked or

inventoried.

Use of tangible clues to

help tangibilize the
service.

Marketing Challenges and Solutions Pertaining to Inseparability

Characteristic

Resulting Marketing Challenges

Possible Solutions

The service provider is physically

connected to the service.

Strategic collection and

training of public contact
personnel to ensure that the
right type of employees are
in the right jobs. In fact, a
bright, highly motivated
employee can create a more
pleasant service experience
for everyone who comes into
contact with that person.

The customer is involved in the

production process.

Effectively managing
customers.

Other customers are involved in the

production process.

Use of muti-site locations,

each of whom can produce
their own supply of services
to serve their local market.
Use of muti-site locations to
limit the distance the
customer must travel to
purchase the service.

Inseparability

The mass production of services is

especially challenging.

Marketing Challenges and Solutions Pertaining to

Heterogeneity

Characteristic

Resulting Marketing Challenges

Possible Solutions

Automation (which may

Standardization

Heterogeneity

and

control

are

difficult

service

firm

to

regular basis.

quality
for

provide

the
on

achieve
standardization).
Offering customized
services.

Marketing Challenges and Solutions Pertaining to

Perishability

Characteris
tic

Resulting Marketing
Challenges

Possible Solutions to
Manage Demand

Demand exceed supply Utilize creative pricing

of service available.
strategies
to
shift
demand.

Perishabiliy

Possible Solutions
to Manage Supply

Use part time

employees to
increase supply of
service.

Demand exceed
optimal level of supply.

Implement a
reservation system.

Share capacity
with other
providers.

Lower demand than

optimal supply level.

Shift demand to
complementary
services.
Utilize non peak
demand periods to
prepare for peak
periods of demand.

Prepare for
expansion in
advance.
Utilize third
parties to
increase sources
of supply.
Increase
customer
participation.

Section 2: The Marketing for the Bank

2.1 The Nature of Bank Marketing

What is a bank?
A bank is a commercial business, that buys
cheap

and

sold

at

high

prices.

What

differentiates a bank from other trading houses

is

that

it

buys

and

promises Arnold,1974.

sells

money

against

Defining Bank Marketing

What is Bank Marketing?
Bank

marketing

is

everything

that

allows us to attract, preserve and

satisfy

the

Badoc,2004.

banks

customers

The Main Functions of a Bank

The bank performs two distinct functions, the role of
financial

mediator

between

suppliers

and

demanders of funds (financial intermediation) and

the role of producer of services for the depositors
and borrowers . Financial disintermediation has
created a serious threat to the very survival and
growth

of

basic

banking

activities. In

such a

situation, banks have been anxiously looking for

alternatives to survive and thrive. It is here that
bank marketing came to their rescue.

The Characteristics of Banks Marketing

In addition to the four major characteristics that are common
for all service activities,

there are seven additional

characteristics that are specific for the banking services:

1)

Intangibility.

2)

Inseparability.

3)

Heterogeneity.

4)

Perishability.

5)

A strongly individual marketing system.

6)

Absence of specific identity.

7)

Geographic dispersion of the activity (national &

international).

The Characteristics of Banks Marketing

8)

Strict equilibrium between growth & risk

9)

Fluctuation of the demand 1

10) The fiduciary responsibility 2

11) Powerful impact of people in the working process
(standardization vs. customization adoption of
technology for some activity, e.g., cash withdraw,
check deposit ).

Impact of IT on Banks Service Procedure

Technologiesbringinformationincreasinglyvaried
andbulkyonthecustomers.Correctlyexploited,
thesedatamake
it
possibleto
better
know
thecustomerinalltheservicesandchannelsof
thebanks.Ifthemarketingteamsmanageto
givedirectiontothisinformation,theycanbenefit
fromitto offer interesting productsand services
for
thecustomersinatraditional
way(CRMactions)orinmoreoriginalway,
for
exampletheproposalofacustomized
offerwhichis instantly displayedonthestationof
theadvisorto helphiminhisconversation with the
client1.

Customer Relationship Management

Customer

relationship

management(CRM) is a business

strategy for managing a companys interactions with current

and futurecustomers.
CRM involves using technology to organize, automate, and
synchronizesales,marketing,customer
andtechnical support.

service,

Principles of CRM
Selecting customers according to their profiles and expected
profitability.
Retaining

valuable

customers

by

developing

personal

relationships with them.

Treating each customer individually by adapting the products
and services to meet his personal needs and priorities: Mass
consumption
Individual
services).

(standardized

consumption

products

and

(individualized

services)
products

and

The 10 Elements of Customer Relationship Management (10 I)

Due to strong competition, bankers adopted CRM which increasingly
benefit from new technologies to re-create the human contact. This
original approach in the management of customers relationships is
based on the following elements:
1) Information
For the firm, it refers to increasing the value of customers data by
collecting, analyzing, and using it at lower expenses.
2) Immediacy
Real-time information and unrestricted permanent service (24 7).
3) Interactivity
Distribution and exchange of information between the customers and
the employees (e.g.: exchange of opinion, claim of new needs...).

The 10 Elements of Customer Relationship Management (10 I)

4) Individualization
By a fine knowledge of his customers, a bank can go beyond their
simple segmentation to communicate with them in an individual
manner and adapt its offers to their profiles. For example, offer to
an extraordinary customer (100 M $) a special interest level.

5) Interconnection
Develop the banks IT (hardware and software) to provide the customer
with the possibility to connect by any mean (by Internet, by
telephone motive, by ATM, by screen plasma). This Interconnection
permits not only continuity and permanence of contacts, but also
distribution and circulation of information.

The 10 Elements of Customer Relationship Management (10 I)

6) Incorporation
A new logic of communication which allows to integrate consultation,
transaction, picture, text, and sound in a single mass media (e.g.
new ATM).
7) Iteration (marketing of memory)
Take into account previous contacts and information already acquired
to repeat the procedure of sale BUT with the purpose of rectifying
preceding errors.
8) Innovation
Every day, technological originalities appear. Marketing must take
them into account to make new offers or simplify procedures. For
instance, payment by mobile telephone instead of the ATM card.

The 10 Elements of Customer Relationship Management (10 I)

9) Intermediation
Establishing relationships and cross selling. It allow to simultaneously
increase

banks

probability

and

customers

satisfaction.

For

instance, It can be selling an existing checking account customer a

credit card or selling an existing car owner an insurance policy.
The knowledge of consumers needs and deficiencies, allows the
bank to offer them new products and services.
10) Invitation
By allowing to reverse the process of communication, new electronic
mass media give back power to consumers who see themselves
receiving and / or refusing messages. According to the new
concept of they demand , the customer will search for
information when he wishes to.