CHAPTER 4

MARKETING MIX
FOR FINANCIAL SERVICES

PART ONE & PART

TWO
3.1 DIFFERENCES IN SERVICES:
RECAPITULATION
 As described in Chapter 1, services differ
from goods in a number of ways. The four
(4) unique characteristics of services are
heterogeneity, intangibility, perishability, &
inseparability.

 These leads to eight (8) major

differences as shown in figure 3.1. These
differences that have important
implications for the financial services mktg
mix!.
 FIGURE 3.1 FIN. SERVICES-DISTINCTIVE FEATURES
HETEROGENEITY
PERISHABILITY
Service quality depends
Services cannot be
on who provides it, when,
stored
where & how

SERVICES
different from
GOODS

INSEPARABILITY
INTANGIBILITY
Consumption &
Services cannot be
production of service
touched or seen
take place at the
CONTD: same time 3
 CHARACTERISTICS OF SERVICES

The Acronym (HIPI) will help you remember

the characteristics of services.

Heterogeneity (Variability)
-Services are not standardized. The
sources of variability was due to:-
i) Customers are different from each
other
ii) Customers have different needs

- Although all bank branches sell the same

services, the standard of service is not 4
uniform from branch to branch.
- It is this individual who is judged as the
“bank” rather than the underlying service
being sold.

- Hence, marketing manager must pay great

attention to:
product knowledge, sales training, selling
skills and interpersonal skill of the seller.

5
Intangibility

- Marketing of financial services must

necessarily stress the Benefits because
services cannot be touched, tasted or in
Any way experienced by the senses.

- While a service may have some tangible

representations like: cheque book covers,
bank statements, plastic cards, these
represent only a small part of the
intangible service.
6
- Purchase of financial services often involves
a highly emotive decision.

- Different services also present a different

level of risk to the customer.
e.g current account may be considered low
risk mortgage account may be considered
high risk.

7
Perishability

- Services are highly perishable since they

cannot be stored
(e.g. time when sales persons are not
serving customers cannot be utilized to
expand service at peak periods.)

- Demand for services fluctuates from day

to day, week to week, month to month,
especially for branches in tourist areas.

8
Inseparability

- Most of the time services cannot be separated

from the sales consultants (e.g. investment
advisor, corporate manager).

- If a customers need investment advice, they

must go to an investment advisor duly
authorized by the bank to provide an advisory
service.

- Services are frequently created at the time

they are used, unlike the tangible products,
which must be produced before they can be
9
sold to customers.
 Fiduciary responsibility
 -It is implicit responsibility of the financial
service organizations for management of their
customers’ fund and also nature of the
financial advice supplied to their customers.
 Promise made by FI to take a responsibility
for look after the buyer’s fund and financial
welfare.
 Trust and confident of customer toward FI
and personnel. 10
DISTINCTIVE CHARACTERISTICS OF SERVICES:
1. Service are performances
2. Customers are involved in the production process of
services
3. People as part of the service product
4. Quality of service is difficult
5. Harder for customers to evaluate service quality before
hand (suggestion box)
6. No inventory for services
7. Time factor is important since value of service depends
on possibility to match customer’s time & service offers
8. Non-traditional distribution channel
Distribution of service implies distribution of production
facilities (branches/ATM)
3.2 Services Marketing Mix: 4Ps or 7Ps
 Traditionally, the mktg mix has been defined to
include “FOUR” elements called 4Ps (product,
price, place & promotion-this concept has been
applied successfully to mktg of goods)
 In, mktg of services, h/ever due to distinctive
characteristics of services, some NEW Ps have
been proposed.
 They are:
 People
 Processes
 Physical evidence
 “PEOPLE” play an integral part in production &
delivery of various services.
 “PROCESSES” made up of a number of sequential
steps.
 “PHYSICAL EVIDENCE” in the form of facilities &
equipment & other tangible cues become important
determinants of quality perceived by customers.
 According to others view, the services mktg mix
should therefore be made up to :
 7Ps (product, price, place, promotion, people,
processes & physical evidence).
 On closer examination, h/ever, it is evident that
the three new Ps are not really new elements, but
are in fact themes that could be easily
incorporated in the traditional mktg mix.
 Eg: PHYSICAL EVIDENCE” & “PEOPLE” can be
encompassed in product & promotional issues,
while
 “PROCESS” can easily be seen as falling within the
real of service distribution (place).
 Today’s mainstream thinking describes the
services mktg mix as including only the
traditional 4Ps, as adapted to the services
sector by the new themes of:
 “PEOPLE”, “PROCESS” & “PHYSICAL
EVIDENCE”.
3.3 The Financial Services Marketing Mix
 The Financial Services mktg mix is a combination
of tools which a financial organisation uses to
satisfy customer needs & reach its mktg
objectives.
 It is made up of FOUR (4) elements called 4Ps,
Product Strategy, Pricing Strategy, Distribution
Strategy, & Promotion Strategy.
 These FOUR (4) elements are interdependent &
create value together.
 Organisations offering premium services must not
only offer superior products, but also……….
 Service to match them,
 Charge above average prices to convey the quality
 Engage in heavy advertising to promote the brand
image
 Offer it through exclusive channels of
distribution.
 Therefore, it is important to be remembered, if
any of these strategies is not consistent with the
other elements, there will be confusion & loss of
goodwill in the marketplace.
 “THE DECISIONS IN EACH DOMAIN,
THEREFORE CANNOT BE MADE
INDEPENDENTLY OF EACH OTHER”..!!!
 (must be dependently.!)
3.3.1 Product Strategy (4Ps)
(3.3.1.1Core & Supplementary Services)
 Financial products, like many other services, tend
to be complex & multidimensional.
 A useful way to conceptualise the product is to
distinguish between “CORE SERVICES” &
SUPPLEMENTARY SERVICES”.
 The “CORE SERVICES” is the firm’s substantive
offering that addresses the principal need of
being served.
 “SUPPLEMENTARY SERVICES” are secondary
services offered to add value to the core service,
& help differentiate it from the competition.
 Eg: a bank may offer a savings account to a
customer. This is the core service being offered
by the bank.
 H/ever to make the service more valuable the bank may
offer a variety of supplementary services such as as:
 Friendly service,

 Convenient locations

 Phone banking

 Detailed account summaries

 Advice on alternative etc.

 The competition in most financial service sectors is

intensifying a to a point that differently by means of
supplementary services, is becoming important.
 When designing core services in the financial services
sector, one has to identify the main generic needs that
people attempt to fulfill through financial services.
 According to one author, there are “SIX GENERIC
NEEDS” Figure 3.2, depicts the need & the financial
services products that potentially satisfy them.
 Figure: 3.2 Fin. Services Satisfy Six Generic Needs

Need to earn a return on

Need for money money “Saving &
“Loans” Investments”

Need to Need to
move money SIX GENERIC NEEDS manage risk
“Money OF CUSTOMERS “Insurance”
Transmission
”
Need for advice
Need for or expertise
information “Comment on
“Appraisal of Appropriate
market Strategy”
Situation”
 According to Christopher Lovelock, SUPPLEMENTARY
SERVICES can be broadly classified into 8 categories.
 These are listed below, highlighting services relevant to
financial services customers:

“ICOHSEBP”:
I=INFORMATION
C=CONSULTATION
O=ORDER-TAKING
H=HOSPILITY
S=SAFEKEEPING
E=EXCEPTIONS
B=BILLING
P=PAYMENT FOR SERVICE
A) INFORMATION: Direction to service site,
schedules/service hours, prices, instructions on using
the service, reminders, warnings, conditions & terms
of sale, notifications of change, summaries of account
activity, receipts, etc.

B) CONSULTATION: Advising, auditing, personal

counseling, training, management or technical
consultancy

C) ORDER-TAKING: Applications for accounts, loans,

etc., screening applications, appointments,
reservations, etc.
D)HOSPITALITY: Greeting, food & beverages, toilets
& washrooms, waiting area, security & transportation

E) SAFEKEEPING: Caring for customers’ possessions,

parking facilities, safe deposits, etc

F) EXCEPTIONS: Special requests (deviations from

standard operating procedures), complaints,
compliments, suggestions, problem solving, guarantees,
restitution, etc.

G) BILLING: Periodic statements of account activity,

invoices, verbal statements of amount due, etc.

H) PAYMENT FOR SERVICE: Self-service, check

handling, automatic deduction from financial deposits,
etc
 Figure 3.3 illustrates the core & supplementary
elements of the MBF VISION debit-card service.
 As can be seen., the product is not a single entity. It
is a cluster of offerings.
 The mgt challenge is to identify what supplementary
services to offer.
 Obviously, the starting point is to assess the
preferences of the customers in the target market,
what competitors are offering, & which
supplementary services add incremental value to the
firm’s offering.
 At one extreme, you have firms that pursue a no-
frills, low-cost strategy in which the number of
supplementary services offers is kept to a minimum.
 At the other extreme, you have “full-service”
providers who provide any and all of the
supplementary services listed.
Figure 3.3-Core & Supplementary of the MBF Vision debit-card service

Feature
SUPPLEMENTARY
Nets is BENEFITS Brand
accepted in all
Nets carries a
shopping
good reputation
centres
of its issuer
Tangible
CORE BENEFIT
A specially- Process
designed card for “Convenient cash
Use a process
easy keeping in for shopping”
of opening
pocket
account, free
of charge
Package
Quality
Users are each given a Accessibility
small wallet & a discount No limit on
card for the first two the amount Available at any
months of using nets of payment bank counter
 (3.3.1.2 Role of People & Physical Evidence)
 Becoz of the inseparable nature of services, people
become part of the product.
 Eg: when people buy insurance @ invest their money
in funds @ banks, the interaction they have with
customer-contact employees (tellers, customer-
service reps, sales reps, etc) has determining
influence on which firm’s service they buy.
 In the financial services sector, the trust &
confidence factor is very-very important.
 Physical evidence, in the form of modern & appealing,
etc. is also important. Customers attempt to evaluate
intangible services by examining tangible evidence.
 (3.3.1.3 Influences on Product Strategy)
 Product strategy is affected by the environment in
which the strategy is implemented.
 The role of mgt is to adapt the strategy & respond to
the environment changes in a way that could ensure
the achievement of the company’s objectives.
 There are “THREE” (3) main aspects of the
environment that particularly influence “PRODUCT
STRATEGY”:
 I) CONSUMERS
 II) COMPETITORS
 III) GOVN,LEGISLATION & POLITICAL CHANGES
i) Consumers
 The product @ service developed has to meet
some customer needs.
 In designing product strategy, “existing” & “future
needs” must be identified & anticipated.
 Eg: Midland Bank, for instance, launched a
telephone banking service called “FIRST DIRECT
IN 1989” (new product introduction) to meet
consumer demand for greater convenience &
flexibility in accessing banking & financial services
(environment changes).
 The highly successful new product strategy
proved that Midland had precisely anticipated the
environment changes.
ii) Competitors
 Activities of competitors are a good source of
information for perceiving trends in market place.
Particularly under watch are introductions of new
services.
 In the banking industry, in particular, banks often
“develop & introduce services” that imitate their
competitors’ own new product introduction.
 Few services can be protected through patents &
so can be easily copied.
 Furthermore, imitation reduces the cost & risk of
new product development.
 Most of the major banks followed the same
telephone banking service strategy as Midland’s
after First Direct had been launched proves this
point.
iii) Govn, Legislation & Political Changes

 Govn policy, legislative & political changes can

make established products less effectives @ can
create opportunities for the development of new
products.
 Budgetary change for instance has provided tax
relief on Personal Equity Plans (PEPs). Thus, it has
created an opportunity for organisations to
develop PEP mortgages.
(3.3.1.4 Service Quality)

 Quality is becoming increasingly important in the

financial services sector. It is an effective means
in differentiating financial services since it is
more difficult to copy than other features.
 The customer’s assessment of service quality is
based on the process (functional) & outcome
(technical) of that service.
 The process relates to the way in which the
service is delivered & includes factors such as the
way staff behave towards customers, the quality
of information provided, speed of response to
questions & the extent to which the institutions
creates trust in the customers.
Parasuraman, Zeithaml & Berry suggested that service
quality is appraised by customer through 10 criteria
as follows:
1) Tangible: Physical evidence
2) Reliability: Getting it right the first time &
honouring promises.
3) Responsiveness: Willingness & readiness to provide
service
4) Communication: Keeping customers informed in a
language they can understand
5) Credibility: Honesty & trustworthiness
6) Security: Physical, financial & confidentiality
7) Competence: Possession of required skills &
knowledge of all employees
8) Courtesy: Politeness, respect & friendliness
9) Understanding: Knowing the customers needs &
requirements
10) Access: Ease of approach & contact such as opening
hours, queues & phones
(3.3.1.5 Branding)

 Branding is another service feature that creates

its identity in the marketplace.
 Eventhough branding is very important to goods, it
becomes more important for services.
 Given that intangibility makes it more difficult to
evaluate the quality of services, customers tend to
use the brand name as an indication of the
service’s quality.
 The customers’ reliance on brand name becomes
even more critical for “financial services”, given
the heavy risk involved.
 The success of a bank or an insurance company
depends a lot on the trust & confidence generated
by the brand name. Maybank, Citibank, Public bank
are excellent examples.
 3.3.2 Distribution Strategy (4Ps)
 Traditionally, distribution of financial services was
done primarily through establishment of “full service
bank branches”.
 H/ever not always feasible nowdays because of their
high “cost of operation”.
 Customers’ expectations have dramatically changed
toward emphasising “convenience, availability &
competitive” elements of banking service products.
 To meet the new requirements of customers &
remain competitive, banks have employed advanced
technology in delivery of banking services such as
ATMs, & EFTPOS.
 ATMs are now located within stores, schools,
supermarkets, train stations, airports, workplaces &
virtually everywhere with substantial human traffic.
3.3.2.1 Roles of People, Process & Physical
Evidence
 “PEOPLE” are a critical component on providing
financial services.
 The customer’s evaluation of the financial services
organisation depends upon his/her interactions
with the customer-contact people (what we called
as “interactive marketing”.
 For such service customers may also perceive
great variation between services provided by
different individuals.
 Organisation must, therefore pay particular
attention to hiring, training, & motivating
personnel who provide these services to ensure
good quality & consistency in service delivery.
 Delivery of financial services is often a Sequence
of events.
 The delivery of financial services is a “PROCESS”
that involves a large number of interactions
between the customer & the service organisation.
 .
It is not a one-stop transaction as is
common in the distribution of goods.
 “PROCESS”

1. A customer meets the bank’s customer service

representative (CSR) seeking a loan

2. She may ask several questions about the terms

3. The CSR will in turn ask several questions for preliminary

screening. Later an application is made for the loan

4. The application is then evaluated more thoroughly, & the

credit-worthiness of the customer is assessed.

5. If everything is in order, the loan may be approved &

the customer is informed.

6. There may be other steps before the customers gets to

use the money

7. Collecting the payments on interest & principal, keeping

the customer informed on the account.
 As mentioned, most financial services tend to be
intangible in nature.
 The physical facilities of a financial services
provider therefore become important in providing
customers “PHYSICAL EVIDENCE” about the
quality of a distributions systems.
 They provide tangible cues to let customers
evaluate the services of the provider.
 The building, layout, location, ambience,
professional certifications, security are all
examples of physical evidence. Even, the
appearance of customer-contact personnel & the
clothes they wear could be part of physical
evidence!!!.
 Moreover, home banking facilities are linked to the
“telephone, the internet & videotext network &
telemarketing” is increasingly used to approach
customers at their home @ place of work.
 CORPORATE ELECTRONIC BANKING is a new
means of distributing bank services targeted at
corporate customers. Its unique features bring a
large number of benefits to banks & their customers.
 For instance, a customer can retrieve information
related to accounts, investments in other projects @
companies & price of securities in real time.
 The bank can initiate necessary transactions
automatically in response to customers’ request (such
as funds transfer, opening of letter of credit, etc)
through its e-banking network.
 The result is fast, reliable, accurate & personalised
service for corporate customer located anywhere in
the world.
Self –study.!!
 3.3.2.2 Influences on Distribution Strategy

 Financial services distribution is subject to

changes in the environment. The changes come
from THREE main sources:

Technology

Influences on
distribution
strategy Customers’
Competition
Preferences
COMPETITION: The way fin. Services is distributed
by competition usually contributes to the change in the
buying behavior of customers.
Eg: When certain insurance companies started
providing their services at home beyond normal office
hours, other companies were forced to follow suit.

TECHNOLOGY: the application of technology in fin.

Service delivery allows improvement of the bank
distribution system’s productivity, enlarge the
geographical & timing availability of services offered &
generates more convenience for the service user.
Eg: Today, many insurance companies, credit card
companies & banks provide customer service around the
clock thanks to the development of computer &
telecommunications technology.
CUSTOMERS’ PREFERENCES: Customers are now
increasingly seeking greater control & greater
convenience in receiving fin. Services. Services
transactions need to be more transparent to meet
the control requirement of customers & a huge
number of new distribution methods.
Eg:Long-hours banking & telebanking have been
develop to give more convenience to customers.
DISTRIBUTION CHANNELS:
Fin. Service distribution channels come in many
forms ranging from high to low personal contact
between providers & receivers.

Below are some main distribution channels:

1. Branch Networks
2. Direct Sales force
3. Telemarketing
4. Direct Mail
5. Technology Facilities
1) BRANCH NETWORKS: This is a traditional
distribution channel where personal contact is at the
highest degree.
H/ever, there is decreasing emphasis on this distribution
channel in the more developed economies because of its
high investment & operational cost, & the rise of new &
cheaper distribution facilities such ATM, EFTPOS,
credit cards, etc

2) DIRECT SALES FORCE: Similar to benefits provided

by the branch network, direct sales force is
characterised by “high interaction with customers”.
It is also a flexible channel since it has the ability to
provide services at the customers’ convenience & place.
Insurance companies rely a great deal on salesforce.
3) TELEMARKETING: Thanks to the telephone,
telemarketing is an efficient way to reach customers.
Telephone conversation enables the financial services
provider’s salespeople to identify the customer’s specific
needs & tailor-make suitable services.
First Direct is a successful example of bank
telemarketing

4) DIRECT MAIL: Many financial services are offered

by mail. Direct mail helps provide information &
promotes the service to customers. Although it does not
have a high personal interaction in relation with branch
network & telemarketing, advise could be offered,
money could be withdrawn & deposited, & insurance
policies delivered through mail.
5)TECHNOLOGICAL FACILITIES: To increase the
productivity of fin. Service distribution & to meet
customers’ preferences, banks have been using
technologies such as ATMs, & automatic vending
machines (e.g. those that sell insurance policies for
flight travel in airports).
The application of technology not only helps reduce
operation costs of the distribution system, but also
creates more opportunities to create customer value.
 3.3.3 Promotion Strategy

 “Promotion involves efforts by an organisation to

communicate with its customers to build image &
reputation, differentiate it from competition, attract
customers & educate them about its service products”.
 PROMOTION MIX inclusive several elements such as:
i) Advertising (TV, radio, movies, newspapers)
ii) Personal selling (sales presentations, telemarketing,
meetings)
iii)Sales Promotion (contests, coupons, rebates, gifts)
iv) Public relations (speeches,reports,media publication)
 There are some critical points of difference.
According to George & Berry (1981),
a) It is important to recognise that financial
services are intangible performances not
objects)
b) Advertising should be directed not only at
customers but also employees. It is better to
use employees, not professional models, in
advertisements
c) Advertising must “tangible”, intangible financial
services by providing tangible clues, such as
employees, physical facilities, & physical symbols
(such as the Travellers Insurance Company’s
umbrella, T-Shirt, Beg, Coin box & etc)
d) Capitalise on word-of-mouth advertising by
trying to stimulate this very credible form of
communication for financial services.
e) Ensure continuity over through the use of
recognisable symbols, spokespersons, music &
etc.
f) Finally. Advertising must create realistic
expectations of the service, without promising
too little @ too much…
3.3.3.1 People, Process & Physical Evidence

 PEOPLE play not only a big role in distribution but

also promotion of financial services.
 Personal interactions & relationships between
customers & providers are critical for the success
of many financial services.
 This is due to the intangibility & risk factors
associated with financial services.

Self study.!!
 Promotion of a financial service is also a PROCESS.
Customers might not accept the service the first
time they receive the promotional message.
 They need time to perceive the benefits & become
knowledge able about it. They also “comparison-
shop” with competing products before making a
final decision.
 It is critical for financial services providers to
recognise this process, and guide their customers
through it.

Self study.!!
 The need for PHYSICAL EVIDENCE is provided in
product packaging.
 To facilitating the communication of information,
such as brand name & directions for usage, it also
helps in promoting the product by differentiating
the product features & benefits.
 E.g. A bank may have an integrated card product,
I.e. At the same time a credit card, ATM card &
discount card for participating retail
establishments. Hongkong Bank had a housing loan
scheme available to employees of Rothmans, who
were charged a lower interest than market rate.

Self study..!!
3.3.4 Pricing Strategy
 Price in Fin. Services industry goes under
different names, (e.g.interest rates, fees,
commissions)
 Pricing of fin. Services like other products is
subject to some basic influences as follows:
 i) COSTS
 ii) CUSTOMERS SETS
 iii) COMPETITORS
 iv) CONSTRAINTS
i) COSTS

 Cost include “variable” & “fixed costs” associated

with producing the service.
 Variable costs tend to be relatively small
compared to fixed costs in most service
organisations, including fin. Services.
 In. fin. Service organisations, the risk associated
with lending money @ writing an insurance policy
could also be included as part of the costs.
 “THE HIGHER THE RISK, THE HIGHER THE
PRICE NEEDED TO COVER THE COSTS”.
ii) CUSTOMERS
 The value of the service as perceived by the
customer determines the maximum price he/she is
willing to pay for the service.
 “note:it is the “PERCEIVED” & “NOT ACTUAL”,
value the matter.
 The organisation benefits if it is “able convince
customers” that the value of its service is
extremely high.
 A strong “brand name”, “company reputation”,
“past performance”, “reliability”, etc, are factors
that affect the value associated with service.
iii) COMPETITION

 Financial service providers often use competitor’s

prices benchmarks!.
 THREE OPTION ARE AVAILABLE:

A) Their price can be higher than their competitors

(premium price)
B) Lower than competitors (penetration pricing)
C) At par with the competitors (parity pricing)
 COMPETITOR’S
PRICES Highly differentiated
BENCHMARKS!. services tend to be
“premium priced”.

Where price In market where

competition is injurious customers are price
(e.g. no company has sensitive, companies
superior cost with lower cost
advantages), companies structure may become
are better off successful with
maintaining “price “penetration pricing”
parity” & competing on
other factors
iv) CONSTRAINTS

 Financial service industries in may countries are

regulated by the government & much of pricing is
really beyond the control of the individual firm.
 Central bank (BNM) set the interest rates & the
individual banks may not have a lot of freedom in
influencing them. SRR, Liquidity ratio, CAR & etc
 The organisation has to take the price as given &
work backwards to cut down its operating costs in
order to make profits.