The Marketing In Banking

Published Date: 02 Nov 2017

2.1 Definition of Marketing

According to Kotler (2000), the term marketing can be defined as being a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others.

But as Cooke et al. (1992) state, definitions of marketing change as a result of environmental changes, or because our knowledge of the subject improves, or indeed through a combination of these two reasons.

This statement from Cooke et al. (1992) is proven true by a new definition issued by the AMA in 2004 (Keefe 2004), which now defines marketing as "an organizational function and set of processes for creating, communicating and delivering value to customers and for managing customer relationships in a way that benefits both the organization and the stakeholder."

While this new description still puts emphasis on process – that is fundamental to marketing – we also notice that the words ‘value’, ‘managing customer relationships’ and ‘stakeholders’ have been brought to centre stage.

2.2 Marketing in Banking

Deryk Weyer, ex- president of the Institute of Bankers and ex- chairman of Barclays Bank UK, defines the bank marketing as "a process, consisting of identifying the most profitable markets now and in future; assessing the present and the future needs of the customers; setting business development goals and making plans to meet them; and managing various services and promoting them to achieve the plans – all in the context of a changing environment in the market" (B. Subbaiah, 2012)

Marketing scope in banking industry is to be considered under the framework of service marketing. P. Ekerete (2005) divides banks’ offerings in two broad categories namely consumer finance and corporate finance. This study focuses on consumer finance, which is, retail banking.

Retail banking has been undergoing a revolution since the abolition of controls and apart from size there is little to differentiate banking institutions from one another (Richardson & Robinson, 1986).

The adoption and implementation of the marketing concept by banking institutions have been slow but profitable in many countries while in many other ones they are still product-oriented. Nevertheless, the traditional product-oriented banks are becoming increasingly customer-oriented focusing more and more on customer loyalty.

This change is due to the fact that every business wants profit, and to increase profit they need to increase their customer base. Through marketing, banks introduce their offerings to the target market. Through marketing, potential customer is generated; and when these customers use the service of the organization it increases its profitability (Mansor, Abdullah & Rahim, 2011).

According to Önce (2000), sited by Mubeen (2012), marketing in the banking sector is considered of great importance because of change in demographics, intense competition in the industry and to increase the profits. Prof. Dr. Günal Önce also divides the bank marketing activities into 5 categories:

Promotion oriented marketing comprehension

Marketing comprehension based on having close relations for customers

Reformist marketing comprehension

Marketing comprehension that focused on specializing in certain areas

Research, planning and control oriented marketing comprehension

2.3 Marketing Mix in Banking Industry

According to Chai Lee Goi (2009), Borden (1965) asserts that the term marketing mix was first used by him; and that Culliton’s (1948) had suggested it to him. But (Bennett, 1997) mentions that McCarthy (1964) had put forward the "marketing mix", common known as the "4Ps", as a way of putting marketing planning into practice.

This 4Ps concept has been criticized by number of studies, examples Lauterborn (1990), Möller (2006), Popovic (2006) and Fakeideas (2008). Nevertheless, regardless of its limitations, the 4Ps still is a staple of the marketing mix. For Chai Lee Goi (2009), the main reasons why the marketing mix is a powerful concept are: it makes marketing seem easy to handle, allows the separation of marketing from other activities of the firm and the delegation of marketing tasks to specialists; and – The components of the marketing mix can change a firm’s competitive position (Grönroos, 1994).

Marketing in the banking industry will be considered to be under the service marketing umbrella throughout this study.

Palmer (2001) declares that many researchers have tried to refine the marketing mix for general application; but the expansions by Booms & Bitner (1981) and Christopher, Payne & Ballantyne (1991), provide more useful structures for analysis, even though they are not theories of services marketing that have been empirically verified.

Both frameworks propose the additional elements of People and Process to the traditional 4Ps. And a seventh ‘P’ for Physical Evidence according to Booms & Bitner (1981) and Customer Service for Christopher, Payne & Ballantyne (1991).

2.3.1 Elements of the Marketing Mix

2.3.1.1 Product

Both Palmer (2001) and Kotler (2001) define products as anything that can be offered in a market that is satisfying consumer wants or needs. A product could be a physical good, service, idea, experience, event, etc. Developing new products that satisfy needs will have great impact on banks profitability. Banks products or services include: (1) retail banking product such as current account and saving deposit. (2) Corporate banking products such as loan syndication, equipment leasing, treasury and foreign operation. The success of institutions on the long run is affected by the structure of banking services (Önce, 2000).

2.3.1.2 Price

Price means the value of a commodity or service expressed in monetary terms. Price in banks includes: interest charges on loans and advances, interest paid on deposits, commission and fees charge as well bank services. It is believed that banks fees and charges should not be exploitative but should reflect the true value of the service. Price as one of the marketing mix in banks is a major marketing strategy, because it has major impact on profit (Zethaml & Bittner, 2000). Moreover, price in itself can turn out to be an extremely important indicator of quality due to the intangible nature of service (Palmer, 2001).

Banks must very carefully determine their prices and price policies, as any mistake in pricing can cause customers to shift toward the rivals offering likewise services.

2.3.1.3 Place

This is simply the distribution strategy. It is concerned with making the banking products and services available at the desired time and place (Abolaji, 2009). Channels of distribution in banks include automated teller machine, branch network, credit cards, mobile banking, telephone banking, and e-mail banking among others. The more channels of distribution a bank has, the more customers it serves and the more returns it makes.

2.3.1.4 Process

Service delivery is an essential process as it guarantees that the same standard of service is continually delivered to the customers. Consequently, nearly all companies have a service blue print that gives details of the process of service delivery. It even goes down to the extent of defining the greeting phrases and the service script that are to be employed by the service staff.

2.3.1.5 People

People are crucial to service delivery process, as a service cannot be separated from the person providing it. Hence, a restaurant will be known not only for its food but also for the service delivered by its staff. The same applies for banks. For this particular reason, many organisations nowadays view customer service training for staff as being on the top of priority list. As Gummesson (1999) quoted by Palmer (2001) stated, in service industry, everyone happens to be a ‘part time marketer’ as their actions have a much more direct impact on the output received by the customers.

2.3.1.6 Physical Evidence

It is the strategic tool for the bank marketer. Tangibilising intangible banking products is a major challenge to the bank marketer. One among the important methods is to upkeep of branch premises and interior decor. Another strategy is imaginative designing of bank stationery used by customers (Seth, 1997).

The presentation is important for banks; since people will develop an according image and style for the bank. If a bank, for example, wants to have the image of a user-friendly bank, its interior will look somewhat like a living room, with sofas, plants, and smiling employees. On the other hand, if a bank wants to have a hi-tech and efficient image, the interior will show a lot of computers and latest technology as well as hard working and busy employees (Klaus & Marie, 2006).

Greenland and McGoldrick (2005) noted that "effective retail environments are crucial for customer acquisition and retention". They empirically examined the impact of retail banking environment on consumer behaviour and found that modern branch styles are statistically more likely to induce favourable customer reaction. Additionally, a successful store layout not only increases operational efficiency, but also facilitates customers’ navigation inside the store and gives them the impression that they have a sense of control during their stay inside the store (Vrechopoulos & Atherinos, 2009).

2.3.1.7 Promotion

Promotion is regarded as being the marketing function concerned with persuasive communication to target audience so as to facilitate exchange between banks and their customers. Promotion mix include –advertising, personal selling, sales promotion and public relations (Brassington & Pettitt, 2000). Promotional activities of banks in Mauritius have increased greatly because of the level of competition in the industry. Thus, promotional activities are believed to have great impact on banks returns.

2.4 Marketing Communications

In the field of marketing, there are numerous publications, journals and books that have discussed and explained about the meaning and the role of marketing communications mix, which is critical for all business organizations in terms of how to effectively communicate with customers.

McCarthy (1960) has developed the traditional 4Ps marketing theory. The business world at the time is different from what we are living in now. The traditional marketing was more product-oriented (Fill, 1999). Because of that, the communications mix with the traditional way of marketing did not really focus on understanding or interacting with customers. Moreover, the traditional way did not have precisely defined target markets, and its key focus was on the products. In the old days, there were no marketing communications mix; instead it was called promotion mix. (Fill, 1999)

In our modern business world, the way has changed and there are more meanings in the marketing communications. Although the name "promotion mix" is still employed, the common name most marketing professionals use now is "marketing communications mix" or "integrated marketing communications" (Crosier, 2000).

Fill (1999) argued that the marketing communications mix should include "advertising, sales promotion, direct marketing, public relations and personal selling". Banking firms use these five tools to exchange information with the target market segments and customers through various kinds of ways. According to Fill (1999), the marketing communications mix is a way to re-assure customers by promoting a company’s services. It is true that marketing communications mix is a system with a structure covering various communications tools.

Other than Fill’s theory (1999), Kotler (2000) also states the importance of marketing communications mix in the integrated marketing strategy. Kotler defines it as "consists of a specific blend of advertising, personal selling, sales promotion and public relations tools that the business uses to follow its advertising as well as marketing objectives."

2.5 Importance of Marketing Communications

Marketing communications improves attitude and feelings towards a product/service. It ensures the customer attains information and ideas which are important for the customer’s decision about the product/service. Marketing communications is therefore critical as an information and knowledge dissemination tool.

Conviction and purchase are the actions that a customer takes in response to the ‘stimulus and energy’ that will have been ‘induced’ by product awareness, knowledge, liking and preference (Lavidge and Steiner, 1961). The customer can thus end up acquiring the service. After the purchase, the customer still needs to be reminded, persuaded and convinced that they made the right choice opting for services offer by a specific organisation.

Once the customer is convinced that the initial purchase was a right decision, they are inclined to do a repeat acquisition, and ultimately become loyal customers. In today’s markets, customer loyalty is critical. Bowen and Chen (2001) pointed out that ‘there is a positive relationship between customer loyalty and profitability’.

If successfully planned and implemented, marketing communication can ultimately lead to a company’s growth through increase in sales volumes. Sales are made much easier, and sales volumes can increase when consumers are informed, are knowledgeable, and possess much more interest in a product due to prior advertising (Lancaster and Reynolds, 2005).

Baker (1979) and Doyle (1985) stated that the major factor for business failure is the lack of marketing orientation. There is an inadequate use of advertising and other methods of marketing. Marketing communications is the only way to creating awareness of their innovations and stimulating consumers to action.

2.6 Marketing Communications in Banking

Over the past decade, marketing communications have played an increasingly important role in service industries (Belch & Belch, 1998). Marketing communications are designed to synthesize various marketing aspects, such as advertising, sales promotion, public relation, technology, and direct marketing (Belch and Belch, 1998).

Modern banking encounters many challenges such as regulation, intensifying competition from non-bank financial service firms, internationalization of the banking market and continuing innovations in technology and automation (Rose, 1999). Therefore, each bank must strive to increase its revenue and market share to stay in business.

2.7 Marketing Communications Mix in Banking Industry

Marketing communications mix plays a vital role in informing consumers about services and/or products, including where they can be bought or acquired and in creating positive images and perceptions (Kotler, 2006). Okyere, Agypong and Nyarku (2011) affirmed that firms use various tools of communication to promote their offerings in order to achieve their promotional objectives under the marketing mix. From the study of Donelly and Peter (1998), three marketing communications tools were recorded: advertising, sales promotion and personal selling. Etzel, Walker and Stanton (2001) noted advertising, personal selling, sales promotion and public relations. In addition to these, Kotler and Armstrong (2008) added the fifth which is direct marketing.

2.7.1 Elements of the Marketing Communications Mix

2.7.1.1 Advertising

Advertising is one of the elements of the promotional mix which is considered prominent in the overall marketing mix. This attribute is as a result of its visibility and pervasiveness in all the other marketing communication elements (Okyere, Agypong & Nyarku, 2011). Advertising plays a major role in promoting a bank’s products and services on a large scale.

Advertising can also be viewed as a major social event results in key changes in values, beliefs, behaviour and buying patterns of the people as it influences the lifestyles of people (Polly & Mittal, 1993). Petrovici and Marinov (2007) said that core reasons for the change in the lifestyle and buying patterns of a person are the economic transformation and certain market opportunities.

However developing advertising campaigns for services is a difficult aspect because of the intangible attribute of service. Banks should involve front line employee in designing the advertising campaign as service personnel directly interact with customers during the process of marketing. A bank can improve its brand image and brand equity with the help of advertising. It also helps the bank in differentiating and positioning its services from those of competitors.

2.7.1.2 Personal Selling

Because of the characteristics of banking services, most banks prefer to expand the selling and usage of their services through personal selling. Personal selling can be explained as an interpersonal influence procedure involving a business promotional presentation carried out on a one-on-one basis with the potential buyer (Reid, 1981). Kotler (2006) defines personal selling as face-to-face interaction with one or more eventual buyers with the aim of making presentations, answering questions and procuring orders. Jobber (2007) also describes personal selling as the marketing task that involves face-to-face contact with a customer

There are two ways in which personal selling occurs. The first takes place in a way that customer and banker make face to face interaction with each other at branch office. In this process personnel, bank employees, chief and office manager, take part in selling. The second happens when that bank’s representative go to customer’s places. Bank’s representatives are specialist in bank’s services and have update knowledge about the banks services that can be offered and they shape the bond between bank and customer.

All this illustrates that, unlike the other tools within the communication mix, personal selling permits a direct interaction between buyers and sellers. Okyere et al. (2011) noted that this two-way communication means that the seller can identify the specific needs and problems of the buyers and tailor the sales presentation in the light of this knowledge.

2.7.1.3 Sales Promotion

Sales promotion is often used by the companies to improve the sales of a product or service either by encouraging the existing customers to use the service more frequently or by attracting new customers to use their service. Sales promotions are temporary enticements that encourage the acquisition or sale of a product (Okyere, Agypong, & Nyarku, 2011).

Blythe (2006) portrays sales promotion as any activity expected to cause a short-term increase in sales. This includes numerous communications activities practised in an effort to provide added value or incentives to customers, wholesalers, retailers, or other organisational customers to stimulate instantaneous sales. Such types of efforts are usually geared towards provoking product interest, trials or purchase. It is exclusively designed to boost quick sales and in the end create loyalty. Banks also aim to pull customers to use their services by attracting them with free offers, coupons, cash discounts, warranties; prizes etc.

2.7.1.4 Publicity & Public Relations

Banks use publicity campaigns to make existing and potential customers aware of their offers. Publicity is the dissemination of information by personal or non-personal means, which is not directly paid for by the organization, nor is the organization the source. Grasby et al. (2000) describe publicity as the use of the media to provide free coverage in their stories related to their product.

Public relations (PR), on the other hand, is the overall term for marketing activities that raise the public’s consciousness about a product, an individual or issue (Okyere, Agypong & Nyarku, 2011). Bruning and Ledingham (2000) explain PR simply as the management of the relationships between organizations and their stakeholders. Fill (2005) stipulates that there are three major roles public relations play within the communications programme of an organization. It involves using the information in a manner that focuses attention on a company, event or person. Public relations in banking helps in: 1) Creating communication systems that are most effective. 2) Establishing a relationship of sympathy between customer and bank. 3) Giving broadest information where bank activities are concerned.

2.7.1.5 Direct Marketing

Direct Marketing has defined direct marketing as an interactive system of marketing that use one or more advertising media in acquiring a measurable response and/or transaction at any location. Similarly, direct marketing is described as the use of mail, internet, e-mail or fax to communicate directly with or ask for response or exchange of ideas from specific customers and prospects (Kotler & Keller, 2009; Kotler & Armstrong, 2010). Thus, it is aimed at creating and exploiting a direct relationship between producers/sellers and their customers/buyers (Okyere et al., 2011).

Moreover, as computer literacy and the availability of computers increase and the costs decrease, internet banking consumers are increasing considerably (Mols, 2000). Through internet banking, customers can identify what interests them. Furthermore, through internet technology banks can follow individual customer usage, gather information and satisfy customer needs. This knowledge can also be used by banks for different kinds of direct marketing.

2.8 Effectiveness of the Marketing Communications Tools

Every element of the marketing communications mix possesses the power to communicate and to attain different objectives. Promotional tools enable customers move from a state of unawareness to service comprehension, and eventually to acquisition.

Figure 1

Source: Marketing Communication (Fill & Jameison, 2000)

As depicted in figure 1, among the five elements of the marketing communications mix, advertising is more effective in creating awareness; whereas personal selling is much better at promoting action and purchase behaviour.

2.9 Developing an Effective Communications Mix Process

Organisations can be viewed as being open social systems (Katz and Kahn, 1978). Consequently, all the components of the system are interactive and inter-reliant (Goldhaber, 1986). This symbiosis is illustrated in figure 2. Hence to develop an effective communications mix process, all these should be taken into consideration.

Figure 2

Source: Marketing Communication (Fill & Jameison, 2000)

Burnett & Moriarty (1997) came up with an effective marketing communication mix process which comprises the following steps:

Determine problems or opportunities

Determine the objectives

Select the target audience

Select the marketing communication mix

Select the message strategy

Select the message delivery systems or media

Determine the budget

Implement the strategy

Measure the effectiveness of the efforts

2.10 Importance of Evaluating Effectiveness

The statement "I am certain that half the money I spend in advertising is wasted. The trouble is, I do not know which half" is credited to both John Wanamaker (1838-1922) and Lord Leverhulme (1851-1925). Organisations have been developing in that shadowy perspective for decades.

The real cause of the problem comes from this preconceived idea that "persuasion is an art", as stated by Bernbach (1911-1982). This idea shaped a very restraining approach in which measurement didn’t truly matter.

According to Moeller, Mathur & Rothenberg (2003), "Marketing executives, almost from the beginning of mass marketing, have believed that they should intuit the "Big Idea", and all else would follow."

Nowadays, such an approach is neither possible nor effective. Marketers are now more than ever being asked to give hard proof that their investment is actually working and they are constantly feeling the increasing pressure to do so.

Hence, it has now become imperative to measure effectively the impact of marketing communications. As Moeller, Mathur & Rothenberg (2003) state it: "ROI marketing will become a requirement for survival..."

2.11 Evaluating the Effectiveness of Marketing Communications Elements

Evaluating the effectiveness of any business activity is very important and decisive. So is assessing the effectiveness of marketing communications components. The major issue here is that how can we actually appraise the these marketing communications elements.

Burnett & Moriarty (1997), states that there are four questions to be ask before conducting an evaluative research on marketing communication:

What should be tested?

Communication factors which include message variables, source variables, and delivery variables.

Behavioural factors which include intention to buy, purchase, and brand loyalty.

Should we test?

When should we test?

If evaluation marketing communication is worthwhile, the timing of the evaluation process is also of great importance. Burnett & Moriarty (1997) stated that it is possible to categorise that into 3 categories:

Pretesting

It is research conducted before the audience is exposed to the marketing communication.

Concurrent testing

It evaluates the marketing communication effort while it is running in the market place.

Post-testing

It is research conducted after the audience has been exposed to the message, medium, or spokesperson.

How should we test?

There is a wide range of tests that can be used to evaluate marketing communication. And all these measurement devices can be categorised in three groups: experiments, surveys, and mechanical techniques.

Hence, this study will be focusing on using survey design based on both communication and behavioural factors to post-test the marketing communication mix elements to be evaluated, which are advertising and personal selling.

Moreover, though among the categories selected there are various methods that can be employed to assess whether advertising and personal selling are effective, the researcher would prefer to focus on what these activities add to make the Mauritian retail banking sector’s communication with its customers more effective. Hence, the evaluation will primarily and dominantly concentrate on the effects of communication. This is why the assessment of both marketing mix elements, will be done by gathering primary data from customers.

2.11.1 Measuring Advertising Performance

Burnett & Moriarty (1997) mentioned that there are various post-testing methods for assessing advertising effectiveness such as:

Readership

An advertisement is broken down into its more important components, and researchers determine how these elements are remembered by a sample of consumers.

Sales tests

Sales are compared before and after an advertisement is run

Inquiry tests

A certain number of advertisements are run and some inducements are offered so that people reply to them in order to check media, adverts or campaigns.

Recall tests

Recall tests give little or no aid to respondents because the object is to measure the penetration of the advert.

Attitude change measures

This measurement assesses the effectiveness of advertising in changing the customer’s evaluation of the company and/or its brands.

For the purposes of this research, inquiry tests, recall tests and attitude change measures will be used.

Measuring Personal Selling Performance

Burnett & Moriarty (1997) state that personal selling can be measured by:

Evaluating the sales production

Evaluating the performance of salespeople

According to Crosby, Landry, Kleine & Evans (2000), performance of salespersons can be assessed based on:

Objective sales effectiveness

Objective personal selling effectiveness is represented by whether the salesperson closed a sale with the prospective customer.

Subjective sales effectiveness

The subjective aspects of personal selling effectiveness can be assessed via perceived consumer satisfaction and relationship building, two important subjective outcomes of many sales encounters (Crosby, Evans, and Cowles, 1990).

Satisfaction captures the customer’s perceived satisfaction with the specific sales episode. Relationship building is the customer’s perception of the degree to which the salesperson laid groundwork such that future business interaction becomes desirable.

According to Potluri (2000), such a research would involve asking customers questions like: "how willing are salespeople to resolve problems that customers are facing?, how competent are the salespersons in providing satisfactory information about the product?, and how are they providing personalized service to customers based on the customer’s needs?"