Within our society, financial institutions are becoming more abundant. Along with this present growth, the field of marketing financial services has also grown in size and scope with new entrants everyday. The relatively stable banking environment is being altered with innovation, opportunism, and government intervention. This era, marked by the governments luminous hand of deregulation (defined as the act of removing regulations or restrictions from a specific entity), has expanded consumer options to the extent that commercial banking must now become an aggressively competing member of the financial services industry.
In this new era, important marketing areas such as regulation, environment, product, competition in the market, and delivery of product can no longer be overlooked. II. What is Marketing and Its Role in the Success of Financial Institutions? What is marketing? According to the American Marketing Association, marketing is the performance of business activities that direct the flow of goods and services from producer to consumer or user. In the context of the financial institution, marketing is defined as the creation and delivery of customer-satisfying services as a profit to the bank or financial institution. (McMahon, 1986).
With further examination of the previously stated definition, it can be seen that marketing is looked upon as 1) an active process (therefore, ongoing with endless possibilities), with 2) a direct focus on the customer or consumer. Initially, it can be seen that marketing plans that result in efficient returns and profits do not appear out of thin year, but are created. (McMahon, 1986). Once created, these plans must be delivered properly to the consumer. For example, a teller at a bank, with poor delivery and selling, can ultimately destroy a thoroughly thought out creation aimed at providing superior customer service.
Also, marketing is customer-oriented, meaning that it is imperative to take into account whether customers are satisfied and their needs/wants are fulfilled by the products or services offered by the bank. (Reidenbach and Pitts, 1986). Marketing, like any other activity associated with business, is goal-directed. To meet specific goals, individuals in management of these financial institutions create a marketing strategy.
A marketing strategy consists of a very clear definition of the prospective customers and the creation of a marketing mix to satisfy them. Tillman, 1968). The marketing mix is simply terminology describing decisions about product, place, promotion, and price. Marketing strategies or schemes within a specific bank are planned, organized, directed, and controlled with the intentions of fulfilling some pre-determined goal. These goals can have various time spans. For example, a particular bank may want to introduce a new consumer loan plan or increase the total number of new accounts opened by 10% over an eight month period.
An action of this nature would result in returns to the short run. On the other hand, if the bank wanted to improve its image within the community, the bank would have a longer period of time to accomplish the goal (long run). Bank marketing serves the role of bringing the product to the consumer or customer in a way that is understandable and relatively easy to comprehend. Bank marketing also has the duty of responding appropriately and realistically to externally and internally generated change in the environment.
For example, many financial institutions, including the likes of First Union, Bank of America, and First Citizens, all offer various products and services to meet the needs of a demanding society full of varying personalities and values. Without a myriad of varied services and products, these institutions could stand to lose many customers and bigger than that, profits. In the eyes of many, bank marketing appears to be a relatively simple process, but when faced with the fact that the current financial market is extremely competitive, one may tend to rethink his/her position.
In making decisions concerning a banks strategy, the institution must take into account several initial areas that may formulate a restraint in implementation. They are the economic and cultural environment, the competitive banking atmosphere (extremely competitive), the marketing strategy to be implemented, and the pricing/promotion that goes into the marketing function. (McMahon, 1986). III. Environment The foundation of a successful bank marketing scheme lies with a strong understanding of the environment in which the institution is located.
The most important environmental variables are those operating outside the bank, known as the external environment and those within the organization, known as the internal environment. (McMahon, 1986). The external environment includes components such as legislation, prime rate, competition in the market, local business practices, and technology. Most importantly, the external environment must look and examine the effect of the national and regional economy as it pertains to the marketing situation.
First, bank managers need to examine certain forms of legislation, such as the governments present deregulation process. (Hodges and Tillman, 1968). Due to stiff pressure from customers and the business community alike, bank regulators, federal and state, are releasing their tight grip over the previously controlled industry. The governments lasses-faire approach to the situation has enabled states to enact laws that affect things such as interstate banking. For example, in 1986, Arizona and Utah passed laws permitting in-state banks to be acquired by out-of-state banks. (McMahon, 1986).
Bank managers must also take their competition into account. This requires that the managers take each one of their competitors, name and type, and prepare a plan. The identification process does not end with traditional commercial banks but includes credit unions and other institutions that are competing for the same share of the market. Along with analyzing the competitive environment, the bank must account for customer attitudes towards various services. For example, First Union offers various incentives such as free checks or zero minimum balance when new accounts are opened.
It can be seen that First Union has implemented a form of reward that appeals to a wide variety of people, enticing these individuals to become part of the bank. Technology also plays a part in the thoroughly analyzing the environment. Banks and their managers must be aware of new technological trends so that they will be more adept in handling their customers needs. For example, financial institutions from their conception have served its customers through the use of teller-manned windows, but the evolution of the ATM machine has created quite a buzz.
The ATM provides customers with quick money for those individuals who prefer not to wait around in the bank. Without the implementation of the ATM, most banks would be left short in the so-called competitive technological era. The internal environment, on the other hand, deals with factors that originate within the bank. (Reidenbach et al. , 1986). These factors are usually the end result of corporate policies and procedures established by upper management. One of the most significant internal variables is the structure of the organization.
The structure of the organization usually dictates and coordinates the efforts of the bank as a whole. For example, if a bank within its structure has no allocation for a marketing feature, its services and products will be unknown and profits will be low due to a low customer rate. Another important variable involves the resources the bank has available for use such as human, physical, and financial resources. (Reidenbach et al. , 1986). For example, if there were no human resources available for the banks use there would be no possible way for the bank to bring forth its ideas to the community.
Better still; imagine if there were no physical resources available, a bank would have no place to hold business and service customers. It can be seen that a bank, in choosing a path to follow, must take into account various scenarios that present themselves when looking at the environment. IV. Competition in Financial Services Upon the creation of the financial institution, there was within the financial arena specialization that covered broad segments such as insurance, investment, or credit.
But as the years have passed, there has been a movement that has bypassed specialization within the three known areas and progressed further into other sectors not known traditionally. (Hodges et al. , 1968). This movement has been sparked by less government restrictions, customer acceptance, and a favorable climate for action of such nature in the capitalistic market. (McMahon, 1986). Due to this movement, banks and other financial institutions are able to compete in the ever-changing market. Competitors, in the present day market, come in all shapes and sizes.
These competitors can be characterized into several major clumpings. There are direct competitors (one of the greatest sources of competition, which include banks such as First Union, Wachovia, and Chase Manhattan), specialized financial institutions (which have begun to challenge the traditional banks due to the fact that they offer a wider range of financial products and services, ones that were not offered in the past), and non-bank competition (which include mass retailers such as Sears and J. C.
Penney who have the newfound ability to satisfy customer needs just as banks attempt to). (Hodges et al. , 1968) In the fight between financial entities, regional banks hold competitive advantages over other firms due to the fact that the institution is knowledgeable of the people, businesses, and industries within its community. (McMahon, 1986). Competition is a factor that must be taken into account if a bank-marketing scheme is to be effective. Different banking institutions have varying ways of dealing with competition.
Some institutions choose to succumb to running wave of change in an attempt to keep up with the competition, while others take more drastic steps in accomplishing their goals. Recently in the news, Wachovia and First Union have been involved in a merger, which will ultimately result in large dividends for the now larger financial institution. First Union, as a self-contained unit, offers a variety of incentives that have earned it a reputation as one of the premier banks on the East Coast. Wachovia, on the other hand, is a regional bank centrally located in North Carolina.
Wachovia, with its loyal customers, have also generated large dividends within and among the Southeastern states. Why merge? What is the motivation for actions of this nature? The motivation is that the restrictions against financial institutions such as First Union have finally been released. To put is simply, mergers can be seen as a situation where little boys are looking for bigger toys. Mergers, such as the one between First Union and Wachovia, forge the market into a sector filled with only a single entity that controls and coordinates better products/services.
V. Marketing Strategies: A Basis When implementing a marketing strategy, the main focus surrounds increasing growth of the financial institution. There are four main types of marketing strategies: Market Penetration Product Differentiation Diversification Market Development On one end, strategies that promote growth are accomplished by a gain in the share of the market and increased product usage. (Benn, 1986). For example, programs such as intensive calling programs, heavy mass communication, or discount pricing usually result in growth.
On the other, non-growth oriented strategies remain untouched among the financial institution elite. VI. Pricing and Advertising of Financial Products and Services For a long time, banks were restricted in the number of products/services they were allowed to provide their customers. As stated before, deregulation and the establishment of the DIDC (Depository Institutions Deregulation Committee) have served to loosen the reins on the banks service/product offerings. (Benn, 1986).
As an end result to all of the government intervention, the financial institutions are becoming more market oriented. While still offering a variety of deposit accounts and loans, banks have now expanded their product line to include a wider range of possibilities by offering NOW accounts, Club As, senior-citizen accounts, CDs, trusts, junior savings accounts, numerous new loan products, Christmas Club accounts, discount brokerage services, plus a score of commercial related accounts. (Reidenbach et al. , 1986).
Once the product or service has been formulated, every organization has the need to put a value on their products and services. Consumers also attempt to gain a relationship between price and value. Traditionally, there have been two mechanisms available that explain the way bankers set prices. Bundling involves the aggregation of bank product/service offerings, such as checking accounts and loans, both credit and non-credit offerings, and pricing these bundles relative to compensating balances and a prime rate. (Reidenbach et al. , 1986).
The auction mechanism, on the other hand, allowed banks wishing to make loans in both the commercial and retail segments to auction their loan rates in a competitive market. (Reidenbach et al. , 1986). By following the path set by large money banks, banks eventually established a prime rate for their services (easily adjusted). These methods still serve as a part of some companys strategy in planning for pricing features. Another factor to examine when looking at pricing of products is the elasticity of demand. Elastic demand can be seen as price sensitivity. Inelastic demand indicates customer insensitivity to price.
In the pricing of products, banks are housed within a strange situation because 1) there is a large amount of competition which normally keeps prices at a low and 2) mergers of smaller companies into larger companies has allowed for banks to take a larger share of the market with their pricing strategies. VII. Conclusion Future of Bank Marketing In conclusion, survival in a buyers market depends on marketing-oriented management. Since marketing is the creation and delivery of customer-satisfying products and services at a profit, a marketing-oriented bank, like the seller of any other product, must be customer oriented.
It must view its services not in terms of what they are to the bank, but rather in terms of the satisfactions those services offer customers. Making customer oriented banking decisions involves creating an appropriate set of marketing strategies, each for a clearly defined group of target customers. The components of the various marketing mixes must be blended together with consideration of both the target customer and the areas of restraint that are always present.