BBFH405

B.
Com Banking and

Finance (Honours)
Marketing of Financial Services
VOLUME ONE
UNITS 1-5
BBFH 405
Authors: Barbara Mbuyisa
Master of Business Administration (NUST)
BCom(Honours) in Banking (NUST)
Tawanda Dzama
Master of Business Administration Degree (MSU)
BCom(Honours)Marketing Management (MSU)
HND in Marketing Management (Gweru Poly, Hexco)
ND in Marketing Management (Gweru Poly, Hexco)
NC in Marketing (Salesmaship) (Gweru Poly, Hexco)
Content Reviewer: Kenell Madzirerusa

MSc in Finance and Investment Degree (NUST)
Bachelor of Commerce Honours in Banking (NUST)
Institute of Bankers of Zimbabwe Diploma
Editor: Amos T Munzara

Master of Business Administration (ZOU)
BSc in Mathematics and Statistics (ZOU)
Diploma in Education (Gweru Teachers' College)
Published by: The Zimbabwe Open University
P.O. Box MP1119
Mount Pleasant
Harare, ZIMBABWE
The Zimbabwe Open University is a distance teaching and open

learning institution.
Year: March 2014
Cover design: T. Ndhlovu
Layout : S. Mapfumo
I.S.B.N: 978-1-77938-473-7
Typeset in Times New Roman, 12 point on auto leading
© Zimbabwe Open University. All rights reserved. No part of this

publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior permission of
the Zimbabwe Open University.
Forewor d To the student
The demand for skills and knowledge
and the requirement to adjust and
administrators of varied backgrounds,
training, skills, experiences and personal
change with changing technology, interests. The combination of all these
places on us a need to learn continually qualities inevitably facilitates the
throughout life. As all people need an production of learning materials that
education of one form or another, it has teach successfully any student, anywhere
been found that conventional education and far removed from the tutor in space
institutions cannot cope with the and time. We emphasize that our
demand for education of this magnitude. learning materials should enable you to
It has, however, been discovered that solve both work-related problems and
distance education and open learning, other life challenges.
now also exploiting e-learning
technology, itself an offshoot of e- To avoid stereotyping and professional
commerce, has become the most narrowness, our teams of learning
effective way of transmitting these materials producers come from different
appropriate skills and knowledge universities in and outside Zimbabwe,
required for national and international and from Commerce and Industry.
development. This openness enables ZOU to produce
materials that have a long shelf life and
Since attainment of independence in are sufficiently comprehensive to cater
1980, the Zimbabwe Government has for the needs of all of you, our learners
spearheaded the development of in different walks of life. You, the
distance education and open learning at learner, have a large number of optional
tertiary level, resulting in the courses to choose from so that the
establishment of the Zimbabwe Open knowledge and skills developed suit the
University (ZOU) on 1 March, 1999. career path that you choose. Thus, we
strive to tailor-make the learning
ZOU is the first, leading, and currently materials so that they can suit your
the only university in Zimbabwe entirely personal and professional needs. In
dedicated to teaching by distance developing the ZOU learning materials,
education and open learning. We are we are guided by the desire to provide
determined to maintain our leading you, the learner, with all the knowledge
position by both satisfying our clients and skill that will make you a better
and maintaining high academic performer all round, be this at certificate,
standards. To achieve the leading diploma, undergraduate or postgraduate
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team approach to producing the varied settle comfortably in the global village
learning materials that will holistically and competing successfully with anyone.
shape you, the learner to be an all-round Our target is, therefore, to satisfy your
performer in the field of your own quest for knowledge and skills through
choice. Our course teams comprise distance education and open learning
academics, technologists and
Any course or programme launched by ZOU asynchronously, with peers and tutors whom
is conceived from the cross-pollination of ideas you may never meet in life. It is our intention
from consumers of the product, chief among to bring the computer, email, internet chat-
whom are you, the students and your employers. rooms, whiteboards and other modern methods
We consult you and listen to your critical of delivering learning to all the doorsteps of our
analysis of the concepts and how they are learners, wherever they may be. For all these
presented. We also consult other academics developments and for the latest information on
from universities the world over and other what is taking place at ZOU, visit the ZOU
international bodies whose reputation in distance website at www.zou.ac.co.zw
education and open learning is of a very high Having worked as best we can to prepare your
calibre. We carry out pilot studies of the course learning path, hopefully like John the Baptist
outlines, the content and the programme prepared for the coming of Jesus Christ, it is
component. We are only too glad to subject my hope as your Vice Chancellor that all of you,
our learning materials to academic and will experience unimpeded success in your
professional criticism with the hope of educational endeavours. We, on our part, shall
improving them all the time. We are continually strive to improve the learning
determined to continue improving by changing materials through evaluation, transformation of
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economic circumstances, technological materials and organisational structures and
development, changing times and geographic culture that are central to providing you with
location, in order to maintain our leading the high quality education that you deserve. Note
position. We aim at giving you an education that your needs, the learner ‘s needs, occupy a
that will work for you at any time anywhere and central position within ZOU’s core activities.
in varying circumstances and that your
performance should be second to none. Best wishes and success in your studies.
As a progressive university that is forward

looking and determined to be a successful part
of the twenty-first century, ZOU has started to
introduce e-learning materials that will enable
you, our students, to access any source of
information, anywhere in the world through _____________________
internet and to communicate, converse, discuss Prof. Primrose Kurasha
and collaborate synchronously and Vice Chancellor
The Six Hour Tutorial Session At
The Zimbabwe Open University
A s you embark on your studies with the Zimbabwe
Open University (ZOU) by open and distance
learning, we need to advise you so that you can make
This is where the six hour tutorial comes in. For it
to work, you need to know that:
· There is insufficient time for the tutor to
the best use of the learning materials, your time and
the tutors who are based at your regional office. lecture you
· Any ideas that you discuss in the tutorial,
The most important point that you need to note is originate from your experience as you
that in distance education and open learning, there work on the materials. All the issues
are no lectures like those found in conventional raised above are a good source of topics
universities. Instead, you have learning packages that (as they pertain to your learning) for
may comprise written modules, tapes, CDs, DVDs discussion during the tutorial
and other referral materials for extra reading. All these
· The answers come from you while the
including radio, television, telephone, fax and email
can be used to deliver learning to you. As such, at tutor’s task is to confirm, spur further
the ZOU, we do not expect the tutor to lecture you discussion, clarify, explain, give
when you meet him/her. We believe that that task is additional information, guide the
accomplished by the learning package that you receive discussion and help you put together full
at registration. What then is the purpose of the six answers for each question that you bring
hour tutorial for each course on offer? · You must prepare for the tutorial by
bringing all the questions and answers
At the ZOU, as at any other distance and open that you have found out on the topics to
learning university, you the student are at the centre the discussion
of learning. After you receive the learning package, · For the tutor to help you effectively, give
you study the tutorial letter and other guiding him/her the topics beforehand so that in
documents before using the learning materials. During cases where information has to be
the study, it is obvious that you will come across gathered, there is sufficient time to do
concepts/ideas that may not be that easy to understand so. If the questions can get to the tutor
or that are not so clearly explained. You may also at least two weeks before the tutorial,
come across issues that you do not agree with, that that will create enough time for thorough
actually conflict with the practice that you are familiar preparation.
with. In your discussion groups, your friends can bring
ideas that are totally different from yours and In the tutorial, you are expected and required to
arguments may begin. You may also find that an idea take part all the time through contributing in every
is not clearly explained and you remain with more way possible. You can give your views, even if
questions than answers. You need someone to help they are wrong, (many students may hold the same
you in such matters. wrong views and the discussion will help correct
The Six Hour Tutorial Session At The Zimbabwe Open University
the errors), they still help you learn the correct thing as the tutor may dwell on matters irrelevant to the
as much as the correct ideas. You also need to be ZOU course.
open-minded, frank, inquisitive and should leave no
stone unturned as you analyze ideas and seek
clarification on any issues. It has been found that Distance education, by its nature, keeps the tutor
those who take part in tutorials actively, do better in and student separate. By introducing the six hour
assignments and examinations because their ideas are tutorial, ZOU hopes to help you come in touch with
streamlined. Taking part properly means that you the physical being, who marks your assignments,
prepare for the tutorial beforehand by putting together assesses them, guides you on preparing for writing
relevant questions and their possible answers and examinations and assignments and who runs your
those areas that cause you confusion. general academic affairs. This helps you to settle
down in your course having been advised on how
Only in cases where the information being discussed to go about your learning. Personal human contact
is not found in the learning package can the tutor is, therefore, upheld by the ZOU.
provide extra learning materials, but this should not
be the dominant feature of the six hour tutorial. As
stated, it should be rare because the information
needed for the course is found in the learning package
together with the sources to which you are referred.
Fully-fledged lectures can, therefore, be misleading
The six hour tutorials should be so structured that the

tasks for each session are very clear. Work for each
session, as much as possible, follows the structure given
below.
Session I (Two Hours)

Session I should be held at the beginning of the semester. The main aim
of this session is to guide you, the student, on how you are going to
approach the course. During the session, you will be given the overview
of the course, how to tackle the assignments, how to organize the logistics
of the course and formation of study groups that you will belong to. It is
also during this session that you will be advised on how to use your
learning materials effectively.
The Six Hour Tutorial Session At The Zimbabwe Open University
Session II (Two Hours)

This session comes in the middle of the semester to respond to the
challenges, queries, experiences, uncertainties, and ideas that you are
facing as you go through the course. In this session, difficult areas in the
module are explained through the combined effort of the students and
the tutor. It should also give direction and feedback where you have not
done well in the first assignment as well as reinforce those areas where
performance in the first assignment is good.
Session III (Two Hours)

The final session, Session III, comes towards the end of the semester.
In this session, you polish up any areas that you still need clarification on.
Your tutor gives you feedback on the assignments so that you can use
the experience for preparation for the end of semester examination.
Note that in all the three sessions, you identify the areas
that your tutor should give help. You also take a very
important part in finding answers to the problems posed.
You are the most important part of the solutions to your
learning challenges.
Conclusion for this course, but also to prepare yourself to

contribute in the best way possible so that you
In conclusion, we should be very clear that six can maximally benefit from it. We also urge you
hours is too little for lectures and it is not to avoid forcing the tutor to lecture you.
necessary, in view of the provision of fully self-
contained learning materials in the package, to BEST WISHES IN YOUR STUDIES.
turn the little time into lectures. We, therefore,
urge you not only to attend the six hour tutorials ZOU
Contents
Overview __________________________________________________ 1
Unit One: Marketing of Financial Services
1.0 _______ Introduction ________________________________________________3

1.1 _______ Objectives __________________________________________________4
1.2 _______ Definitions of Important Terms ________________________________4
1.3 _______ Assumptions and Attitudes about Marketing ______________________5
1.4 _______ What is Marketing of Financial Services? _________________________6
_________ 1.4.1 Characteristics of financial services _________________________7
_________ Activity 1.1 _________________________________________________8
1.5 _______ The Marketing Concept ________________________________________8
_________ 1.5.1 Evolution of the marketing concept _________________________9
1.6 _______ Challenges Facing Financial Institutions ________________________ 10
1.7 _______ Traits of a Good Financial Service Marketer ______________________ 11
_________ Activity 1.2 ________________________________________________ 12
1.8 _______ Summary __________________________________________________ 12
_________ References _________________________________________________ 13
Unit Two: The Financial Market Environment

2.0 _______ Introduction _______________________________________________ 15
2.1 _______ Objectives _________________________________________________ 16
2.2 _______ Marketing Audit ____________________________________________ 16
_________ 2.2.1 Benefits of marketing audit ______________________________ 16
2.3 _______ Market Analysis ____________________________________________ 17
2.4 _______ Marketing Environment ______________________________________ 18
_________ 2.4.1 Micro- environmental factors _____________________________ 18
_________ Activity 2.1 ________________________________________________ 21
_________ 2.4.2 Macro- environmental factors _____________________________ 21
_________ Activity 2.2 ________________________________________________ 24
2.5 _______ Summary __________________________________________________ 24
_________ References _________________________________________________ 25
Unit Three: The Strategic Dimension of Marketing of Financial
Services
3.0 _______ Introduction _______________________________________________ 27

3.1 _______ Objectives _________________________________________________ 28
3.2 _______ Marketing Strategy __________________________________________ 28
_________ 3.2.1 Features of a good marketing strategy ______________________ 29
3.3 _______ How to Develop a Strategic Plan _______________________________ 29
_________ Activity 3.1 ________________________________________________ 35
3.4 _______ Tools for Strategy Development ________________________________ 35
_________ 3.4.1 Selecting the product portfolio _____________________________ 35
_________ 3.4.2 Matrix -based approaches ________________________________ 35
_________ 3.4.3 Product Life Cycle _____________________________________ 38
3.5 _______ Growth Strategies ___________________________________________ 39
_________ 3.5.1. Ansoff strategies ______________________________________ 40
3.6 _______ Strategic Challenges _________________________________________ 41
_________ Activity 3.2 ________________________________________________ 41
3.7 _______ Summary __________________________________________________ 42
_________ References _________________________________________________ 43
Unit Four: Segmentation, Targeting and Positioning

4.0 _______ Introduction _______________________________________________ 45
4.1 _______ Unit Objectives _____________________________________________ 46
4.2 _______ Market Segmentation ________________________________________ 46
_________ 4.2.1 Attributes of effective segmentation ________________________ 47
_________ 4.2.2 Effect on financial institutions that fail to segment the market __ 48
_________ 4.2.3 Benefits of financial service market segmentation ____________ 48
_________ Activity 4.1 ________________________________________________ 49
_________ 4.2.4 Criteria used to segment the market ________________________ 50
_________ 4.2.5 Consumer markets ______________________________________ 50
_________ 4.2.6 Corporate market segmentation / Business markets ___________ 52
_________ 4.2.7 Key attributes to segmenting the market ____________________ 53
_________ Activity 4.2 ________________________________________________ 53
4.3 _______ Targeting __________________________________________________ 53
_________ 4.3.1 Process of choosing the target market ______________________ 54
_________ 4.3.2 Factors to be considered when selecting a target market ________ 55
_________ 4.3.3 Attractiveness of a market segment ________________________ 55
_________ 4.3.4 Target market strategies _________________________________ 56
_________ 4.3.5 Decisions involved in targeting a segment ___________________ 56
4.4 _______ Positioning _________________________________________________ 57
_________ 4.4.1 Types of positioning concepts _____________________________ 57
_________ 4.4.2 Approaches to positioning ________________________________ 58
_________ 4.4.3 Different positioning bases _______________________________ 58
_________ 4.4.4 Steps for product positioning ______________________________ 59
_________ 4.4.5 Issues in product positioning______________________________ 59
_________ 4.4.6 Issues in brand positioning _______________________________ 60
_________ 4.4.7 Criteria for successful positioning __________________________ 60
_________ 4.4.8 Repositioning __________________________________________ 60
_________ Activity 4.3 ________________________________________________ 61
4.5 _______ Summary __________________________________________________ 61
_________ References _________________________________________________ 63
Unit Five: Customer Care and Service Quality

5.0 _______ Introduction _______________________________________________ 65
5.1 _______ Objectives _________________________________________________ 66
5.2 _______ Definition of Customer Care __________________________________ 66
5.3 _______ The Need for Customer Care __________________________________ 66
_________ 5.3.1 Benefits of customer care ________________________________ 67
5.4 _______ The External Customer ______________________________________ 67
_________ 5.4.1 The Elements of Customer Care ___________________________ 68
_________ 5.4.2 Dimension of customer care _____________________________ 69
5.5 _______ Measuring of Customer Care or Service _________________________ 70
5.6 _______ Measurement Problems ______________________________________ 72
_________ Activity 5.1 ________________________________________________ 73
5.7 _______ The Internal Customer _______________________________________ 73
5.8 _______ Service Delivery _____________________________________________ 75
_________ 5.8.1 Service Guarantees ______________________________________ 75
_________ 5.8.2 Service recovery ________________________________________ 75
_________ Activity 5.2 ________________________________________________ 77
5.9 _______ Summary __________________________________________________ 77
_________ References _________________________________________________ 78
CONTENTS
Unit Six: Product
6.0 _______ Introduction _______________________________________________ 79

6.1 _______ Objectives _________________________________________________ 80
6.2 _______ Financial Services as Products _________________________________ 80
6.3 _______ Common Financial Products __________________________________ 80
6.4 _______ What Customers want from Financial Products? __________________ 81
6.5 _______ Product Hierarchy in Financial Services _________________________ 81
_________ Activity 6.1 ________________________________________________ 83
6.6 _______ Product Management ________________________________________ 83
_________ 6.6.1 Factors affecting product management _____________________ 83
_________ 6.6.2 Managing existing product lines ___________________________ 84
_________ 6.6.3 New Product Development ________________________________ 86
_________ Activity 6.2 ________________________________________________ 88
6.7 _______ Summary __________________________________________________ 89
_________ References _________________________________________________ 90
Unit Seven: Pricing
7.0 _______ Introduction _______________________________________________ 91

7.1 _______ Objectives _________________________________________________ 92
7.2 _______ Key Roles of Pricing in Financial Marketing _____________________ 92
_________ Activity 7.1 ________________________________________________ 92
7.3 _______ Challenges in Pricing Financial Services _________________________ 93
_________ Activity 7.2 ________________________________________________ 94
7.4 _______ Financial Services Pricing Strategies ____________________________ 94
7.5 _______ Determining Which Price to Use _______________________________ 95
7.6 _______ Factors Affecting Financial Service Pricing ______________________ 95
_________ 7.6.1 The demand function ____________________________________ 96
_________ 7.6.2 Price complexity ________________________________________ 96
_________ 7.6.3 Promotional pricing _____________________________________ 96
_________ 7.6.4 Environmental forces influencing pricing ___________________ 96
7.7 _______ Price Determination _________________________________________ 97
_________ Activity 7.3 ________________________________________________ 99
7.8 _______ Summary __________________________________________________ 99
_________ References ________________________________________________ 100
Unit Eight: Promotion
8.0 _______ Introduction ______________________________________________ 101

8.1 _______ Objectives ________________________________________________ 102
8.2 _______ What is Promotion? ________________________________________ 102
8.3 _______ Planning a Promotional Campaign ____________________________ 102
_________ Activity 8.1 _______________________________________________ 105
8.4 _______ Forms of Promotion Mix ____________________________________ 105
_________ 8.4.1 Advertising ___________________________________________ 106
_________ 8.4.2 Sales promotion _______________________________________ 107
_________ Activity 8.2 _______________________________________________ 108
_________ 8.4.3 Public relations _______________________________________ 108
_________ 8.4.4 Personal Selling _______________________________________ 109
_________ 8.4.5 Direct marketing ______________________________________ 110
_________ Activity 8.3 _______________________________________________ 110
8.5 _______ Summary _________________________________________________ 110
_________ References ________________________________________________ 112
Unit Nine: Place (Distribution)

9.0 _______ Introduction ______________________________________________ 113
9.1 _______ Objectives ________________________________________________ 114
9.2 _______ Distribution: Distinguishing Features __________________________ 114
9.3 _______ Distribution Methods _______________________________________ 114
_________ 9.3.1 Direct distribution _____________________________________ 115
_________ 9.3.2 Indirect Distribution ___________________________________ 115
_________ Activity 9.1 _______________________________________________ 116
9.4 _______ Distribution Channels _______________________________________ 116
_________ 9.4.1 Specialist financial services branch outlets __________________ 117
_________ 9.4.2 Non-financial services retailers (NFSRs) ___________________ 118
_________ 9.4.3 Quasi-financial services outlets (QFSOs) ___________________ 119
_________ 9.4.4 Face-to-face sales channels ______________________________ 120
_________ 9.4.5 Telephone-based distribution _____________________________ 120
_________ 9.4.6 Internet-based distribution ______________________________ 121
_________ 9.4.7 Direct mail ___________________________________________ 123
_________ 9.4.8 Banc assurance _______________________________________ 124
_________ 9.4.9 Other distribution channels ______________________________ 126
_________ Activity 9.2 _______________________________________________ 126
9.5 _______ Summary _________________________________________________ 126
_________ References ________________________________________________ 128
Unit Ten: Physical Evidence
10.0 ______ Introduction ______________________________________________ 129
10.1 ______ Objectives ________________________________________________ 130
10.2 ______ Visible and Invisible Elements of Services ______________________ 130
_________ 10.2.1 Managing the financial service provider's physical evidence ___ 130
_________ 10.2.2 The strategic role of physical evidence ____________________ 131
_________ 10.2.3 Packaging ___________________________________________ 132
_________ 10.2.4 Facilitating the service process __________________________ 132
_________ 10.2.5 Socialsing employees and customers ______________________ 132
_________ 10.2.6 A means for differentiation _____________________________ 133
_________ 10.2.7 A Framework for understanding the use of physical __________
_________ evidence in creating environments _____________________________ 133
10.3 ______ The Development of Service Scapes ____________________________ 134
_________ 10.3.1 Remote, self service and interpersonal services _____________ 134
_________ 10.3.2 Physical environment dimensions ________________________ 135
_________ 10.3.3 Holistic environment __________________________________ 135
_________ 10.3.4 Types of Customers ___________________________________ 136
10.4 ______ Internal Response Moderators ________________________________ 136
_________ 10.4.1 Internal responses to the environment ____________________ 137
_________ 10.4.2 Behavioural responses to the environment _________________ 138
_________ 10.4.3 Specific tactics for creating service atmospheres ____________ 139
10.5 ______ The Location of the Bank ___________________________________ 140
_________ 10.5.1 The bank's architecture ________________________________ 141
_________ 10.5.2 The bank's sign ______________________________________ 141
_________ 10.5.3 The bank's entrance __________________________________ 141
_________ 10.5.4 Lighting ____________________________________________ 141
_________ 10.5.5 Music ______________________________________________ 142
_________ 10.5.6 Announcements ______________________________________ 142
_________ 10.5.7 Sound avoidance ______________________________________ 142
_________ 10.5.8 Scent Appeals ________________________________________ 142
_________ 10.5.9 Touch and taste appeals ________________________________ 143
10.6 ______ Facility Location ___________________________________________ 143
10.7 ______ Facility Layout ____________________________________________ 143
10.8 ______ Product Design ____________________________________________ 144
_________ 10.8.1 Process Design _______________________________________ 144
_________ Activity 10.1 ______________________________________________ 144
10.9 ______ Summary _________________________________________________ 144
_________ References ________________________________________________ 146
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Module Overview
F inancial services marketing has, evolved rapidly over the past decade.
As a result, the very nature of the marketing function in financial services
firms is undergoing a dramatic modification as more attention is paid to
marketing-driven processes that impact the entirety of all financial service
organisations. The more progressive financial services organisations are
currently going through an intellectual and practical transition that is forcing
the re-examination of the role of marketing within their operations. Many
have begun to realise that financial marketing responsibilities include not only
developing the firm's mission statement and key messages, but also defining
its business focus, relevant differentiation, competitive advantages and value
proposition in line with the marketing concept.
Marketing of Financial Services BBFH 405
In Unit 1 we define the marketing concept, financial service and its

characteristics. We also discuss the evolution of marketing of financial services,
challenges faced by financial institutions, assumptions and attitudes about
marketing.
In Unit 2 we discuss the financial market environment which consists of macro

and micro environment. We also explain how the market environment is
analysed through marketing audit and SWOT analysis. We explain how to
develop a strategic plan and tools for strategy development in marketing of
financial services in unit 3.
In Unit 3 we looked at how to develop a strategic plan and tools for strategy
development in marketing of financial services while in unit 4 we discussed
the importance of market segmentation, targeting and positioning as well the
criteria used to segment financial services. The importance of customer care
for both internal and external customers in the financial services industry is
covered in Unit 5. In the we unit also explained the reasons for developing
customer care and service quality initiatives.
In Units 6, 7, 8 and 9 we discussed the elements of the marketing mix: product,

price, promotion and distribution (price) respectively. Issues concerning the
nature of financial products, pricing strategies and approaches, development
of a financial institution financial campaign and distinctive nature of distribution
of financial services are discussed.
In Unit 10 we discussed the strategic role of physical evidence which captures

the tactics for creating service atmosphere and the role of location in financial
services.
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2 Zimbabwe Open University
1
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Unit One
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1.0 Introduction
I n developing and developed countries, marketing plays a vital role and has
taken the lead. In this unit, we undertake the study of the evolution of
marketing of financial services. Furthermore, we will discuss the concept of
marketing of financial services, challenges faced by the financial sector as
well as the sources of change in financial services markets.
1.1 Objectives
By the end of this unit, you should be able to:
define the marketing concept, services and financial services marketing
and its characteristics
describe the evolution of marketing of financial services
explain the challenges faced by financial institutions in marketing financial
services
explain the assumptions and attitudes about marketing
1.2 Definitions of Important Terms

The marketing concept is the philosophy that urges organisations to focus on
their customer needs analysing their needs and making such decisions that
satisfy those needs in a better way than competitors. The marketing concept
relies upon marketing research that helps in identification of segments, their
sizes, needs, target market and then by using the right "marketing mix". The
marketing team makes such decisions that result in customer satisfaction. The
core ideas contained in the marketing concept are as follows:
the main focal point in marketing is customer needs

in order to maintain long-term relations with customers, future needs
have to be identified and predicted
marketing is not the duty of the marketing department only but of
everyone in the organisation
The marketing concept superseded the production concept (whereby firms
will produce what they can produce in the market and then sell to the market)
and the sales concept (where by firms were not only producing the product
but also selling it to customers through personal selling and advertisement)
A service is defined as an act or performance offered by one party to another,

that is, essentially intangible and does not result in the ownership of anything.
Although the process may be tied to a physical product, the performance is

transitory, often intangible in nature and does not normally result in the
ownership of any of the factors of production. A service is purchased by
consumers not for itself but for the benefits it offers to consumers. Zeithamal
(2002) gives a limitation of a service by stating that a service is; all economic
activities whose output is not a physical product and is generally consumed at
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Unit 1 Marketing of Financial Services
the time it is produced, and provides added value in forms such as convenience,
amusement, comfort and health.
Steinhoff (2000:113) further states that the raw material of service is people.
"The main material of service is in fact people; nevertheless there are many
other supporting factors from the raw material of service such as advanced
tools, clean, secured, comfortable, physical environment, accurate, advanced
and up to date technology and service."
A service can also be defined as an economic activity that creates value and
provides benefits for customers at specific times and places, by bringing about
a desired change in or on behalf of the recipient of the service. Therefore a
service is purchased because it fulfils certain needs.
Lamb (2001:483) also mentions that a service has several unique characteristics
which differ from others, namely intangibility, inseparability, heterogeneity and
perishability.
Irawan (2002:85) reaffirms that one important characteristic of a service is

that it is produced and consumed at the same time. Therefore consumer's
satisfaction on service depends on interaction process or time when customers
and service providers meet.
Zeithamal (2003:85) further states that a service quality is focused evaluation

that reflects the customers' perception of specific dimensions of service:
reliability, responsiveness, assurance, empathy, tangibles, satisfaction and on
the other hand is more inclusive. It is influenced by perceptions of service
quality, price and personal factors.
1.3 Assumptions and Attitudes about Marketing

It is assumed that:
marketing is a distinct function in the firm, separate from other core

functions of the firm;
its main function is to identify groups of potential customers and find
ways to convince them to buy the firm's products or services;
at the heart of Marketing, is image building, creating and projecting a
false sense of the firm and its offerings to lure customers away from the
firm's competitors; and
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Zimbabwe Open University 5
marketing helps to design a systematic process for the interaction that

will create a permanent relationship.
1.4 What is Marketing of Financial Services?

The concept of marketing of financial services emanates from the marketing
concept. Marketing is recognised as a key to success for any organisation
and it is used to describe the range of activities performed by organisations
such as advertising, branding, packaging, pricing, product management and
distribution (Ennew, Watkins & Wright, 2005).
Marketing is a total system of business activities which are designed to

distribute goods which can satisfy wants and reach the target as well as the
objectives of the organisation( Staton, Etzel & Walker, 2001:2).
The American Marketing Association (Lamb 2001:6) defines Marketing as

"the process of planning and executing the concept of pricing, promotion and
distribution of ideas, goods and services to create exchanges that satisfy
individual and organisational goals."
Marketing of financial services is defined as the process of researching and

promoting a market with non-physical goods known as services. Financial
service marketing focuses on the distinctive characteristics of services and
how they affect both customer behaviour and marketing strategy. Many financial
services are produced and delivered with the customer present at the service
firm's facility. The presence of the customer in the service facility means that
capacity management becomes an important driver of the firm's profitability.
The marketing of financial services is a unique and highly specialised branch

of marketing. The practice of advertising, promotion and selling financial
products and services is in many ways more complex than the selling of
physical products. The environment in which financial services are marketed
is becoming very competitive, making the task of marketing financial services
increasingly challenging and more specialised. Financial service providers are
mostly challenged by the unique characteristics of the products they market.
Furthermore, the relatively unexciting nature of financial services makes the
task of attracting consumer attention and inspiring consumer desire a difficult
one. However, the study of financial service marketing is far more fascinating
than other areas of marketing.
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1.4.1 Characteristics of financial services

Financial services are distinguished from goods on the basis of their
characteristics of intangibility, inseparability, heterogeneity and perishability
and these characteristics tend to create problems for services marketing. The
characteristics of services tend to have an impact on buyer behaviour.
Intangibility - financial services unlike physical goods cannot be possessed

and are difficult to grasp mentally. Financial services are high in experience
qualities and this refers to the attributes which can only be assessed after
purchase or during consumption. To overcome problems associated with
intangibility, the firm will also try to facilitate positive word of mouth and
tangibilise the intangibles through issuing things like cheque books. (Ennew et
al, Barron and Harris, 2003)
Inseparability- The fact that financial services are processes and experiences
suggest that they must be produced and consumed simultaneously. Customers
are viewed as partial employees in that they take part in the production of
financial services. To overcome problems associated with inseparability,
employees providing the financial service must make sure that customers know
what to do in order to participate in the service production. The process of
financial service delivery is often as important as the function of the financial
service. A service is a process from the organization's point of view but an
experience from the customer's perspective. The quality of the experience is
a function of the design of customer service process, adoption of standardised
procedures, and rigorous management of service quality and high standards
of training.
Perishability- financial services cannot be stored for future use, hence the
need for short distribution channels so that they can be produced on demand.
The front line services employees and the consumers themselves play an
important role in the production of financial services. Therefore there is a
considerable interaction between the supplier and the buyer and this helps in
understanding the buyer behaviour. In this case there is high potential for
variability in the service performance. To overcome problems associated with
perishability, careful attention is paid to production scheduling and demand
forecasting. Pricing and promotion are used extensively to encourage customers
to utilise services at the time that is convenient to the service provider (Ennew
et al, Barron and Harris et al, 2003).
Heterogeneity- The potential for greater variability in quality is high. This

suggests that the quality of service will vary when offered by different
employees, probably at different times. To overcome problems associated
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with heterogeneity, financial institutions make use of service design methods

and these reduce variability (Ennew et al, Barrons and Harris et al ,2003).
Fiduciary responsibility-refers to the implicit responsibility of financial

institutions for the management of their customers' funds and the nature of the
financial advice supplied to their customers (Ennew et al, 2003).
Two way information flows between the buyer and the seller- In financial
service transactions, what is exchanged is a set of promises between the buyer
and the seller. For example, it is difficult for consumers to evaluate the promise
on long term savings plans in the absence of full information. It is assumed that
a satisfied customer will remain with the institution.
Activity 1.1
?
1. Define the concept of Marketing and marketing of financial services.
2. In your own words define a service.
3. Describe the characteristics of financial services and show how these
can be overcome.
1.5 The Marketing Concept

Ennew et al postulates that the analysis about the marketing concept was
imposed on financial institutions by changes in the operational environment.
Increased competition brought about by the deregulation of financial services
which was the key driver to change in the industry. This forced leading
institutions to discard supply oriented approaches which had characterised
service provision till then. In the 1980s', financial institutions were sales-oriented
focusing on changing customers' minds to fit the product.
As technology developed and competition increased, financial institutions

shifted their approach to become customer-driven. Leading firms expressed
their willingness to go out in the market to identify the needs and wants of
customers and satisfy them at a profit. That is implementing a marketing
oriented concept (Cook, 2001). Most importantly, the new marketing
orientation draws on the knowledge and experience that exists in the
organisation. The old marketing approach was about: getting an idea,
conducting traditional market research, developing a product, testing the
market and finally going to the market. This proved to be slow and
unresponsive in terms of producing results. Moreover, given the fast-changing
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market environment, there is less and less reason to believe that the traditional
approach could keep pace with customer demands or the competition. The
alternative is knowledge based and experience based marketing. Knowledge
based marketing requires a service provider to master:
A scale of knowledge,
A scale of technology on which it competes
A scale of its competitors and customers, and
A new source of technology that can alter its competitive environment
and of its own organisation capabilities.
This suggests that firms must:
Integrate the customer into the design process to guarantee a product
that is tailored to the customers' needs and wants;
Generate a niche and use the service provider's knowledge of distribution
channels and markets to identify segments of the market it can own;
and
Develop the infrastructure of suppliers, vendors and users' whole
relationships will help sustain and support the service provider's
reputation and technological edge.
In addition to this approach, would be experience based marketing which
emphasises interactivity, connectivity and creativity. With this approach, firms
spend time with their customers, constantly monitor their competitors and
develop a feedback analysis approach that turns this information about the
market and the competition into new product intelligence. In order for financial
service providers to retain customers, they have to practice better marketing
and this is marketing that finds a way to integrate the customer into the firm
and to create and sustain a relationship between the firm and the customer.
1.5.1 Evolution of the marketing concept

The marketing orientation views organisational success as being driven by the
provision of the long term consumer satisfaction and emphasises the importance
of ensuring an organisation-wide commitment to meeting market needs.
Needless to mention that the development of marketing in the financial services
industry has been slow and over the years, the industry was product oriented
(Ennew et al, 2005).
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Evidence of a quickly changing market environment
There is mounting evidence that suggests the environment in which financial

services are marketed is becoming more complex and challenging. During the
1930s, there was a series of bank failures in the United Kingdom which resulted
in the heavy regulation of the financial service sector. These bank failures
forced legislators to implement stringent regulations that prohibited commercial
banks from participating in investment banking activities.( Ennew et al, 2005)
Industry consolidation and concentration
Ennew et al reaffirms that since the relaxation of regulations governing the

United States financial services industry in 1999, the level of marketing activity
undertaken by financial service organisations and the resulting competitive
intensity, has increased significantly. Deregulation has allowed the financial
services markets to operate on a wider scope. In line with the changing market
conditions, the process of providing financial services is undergoing
revolutionary change. The process of providing financial services is also changing
due to emerging regulations enforced by regulatory bodies that control the
nature and extent of marketing activities of financial services providers. As a
result of these changes, competition is increasingly intense and it has become
more challenging to achieve marketing success. In such an environment, the
optimisation of marketing capabilities in a financial services organisation is
ever-more critical for the long -term health and survival of the organisation.
1.6 Challenges Facing Financial Institutions

The principal challenges facing financial institutions in the recent past can be
summarised as follows:
Consumer Trust- securing a sense of mutual trust between the consumer

and the financial institution has at times been a challenge in financial
service markets. Lack of trust can be found in consumer's regulators'
opinions about financial services providers' underlying intentions in a
variety of marketing context in credit cards and home mortgages to
securities brokerage services and insurance.
Management of size and complexity- today's services offered by
commercial banks, life or non-life insurances and securities displayed
three strategic dimensions namely geographic, product and client.
Management of size depicts that motivating and guiding an institution
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requires a totally different set of leadership and management skills from

those of the earlier ages. Different nationalities, skills set and orientations
offer the leader an imposing three dimensional challenge across
geography, product and client segment.
Building a service and client oriented culture-leading securities firms
have built their success on focused performance oriented culture. Banks
and insurers are losing ground to rivals who measure success in terms
of customer satisfaction.
Management of different cultures- explains that the clash between
performance oriented investment bankers and their lending colleagues
in the same organisation is well documented. At the same time, fund
managers tend to keep a distance from the structure, culture and
compensation of their commercial banking colleagues. Examples of
cultural differences are fixed interest versus equity fund, direct telephone
bankers versus branch based bankers. The role of marketing is to
harmonise the cultural differences.
Management of technology calls for the need to control new risk faced
by financial institutions and the requirements of educating management
in the use of technology.
Penetrating new markets- in order for financial institutions to grow and
to maximise shareholder value, there is need to enter new markets,
geographical, product or client. Managing the delicate balance among
risk, price and culture is a particular leadership challenge.
Managing risk- all dimensions of the financial services deal with risk in
its various forms. For example, credit risk, market risk (such as interest
rate risk, currency risk, price risk) and operational risk such as fraud
and human error risk. As a result, the management challenge of gathering
and interpreting data on risk exposure multiplies geometrically. Although
management risk can be viewed as a technical dimension of managing
a financial institution, experience shows that leadership sets the cultural
framework in which such expertise is exercised (Ennew et al, 2005).
1.7 Traits of a Good Financial Service Marketer

A financial service marketer must be an integrator, both internally, synchronising
technological capability into the market needs and externally, bringing the
customer into the financial service provider as a participant in the development
and adaptation of products and services. It is a fundamental shift in the role
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and purpose of marketing, from manipulating the customer to genuine customer

involvement. Playing the role of an integrator requires the marketer to command
credibility. In a market place characterised by rapid change, credibility adds
value to the financial service provider.
Activity 1.2
? 1. Explain the evolution of marketing in the financial sector.
1.8 Summary
In this unit, we have provided a contemporary and historic context for the
study of marketing of financial services. The characteristics of services which
make them different from physical products were also outlined. In this unit,
more emphasis was paid on the fact that financial service providers are
operating in a more complex and challenging environment and this calls for
the implementation of various marketing strategies which will make each
financial service provider to remain competitive in the industry.
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References
Ennew. C Watkins. T & Wright, M. (2005). Marketing Of Financial
Services(3rd Edition).Tata McGraw-Hill.
Ennew C Watkins, T Wright, M (1995). Marketing Financial Services,
2nd edition , McGraw -Hill.
Etzel, M Walker, B and Stanton, W. (2006). Principles Of Service
Marketing, 3rd Edition, McGraw Hill.
Lamb, R P (2001). The American Association, University Of Florida
Harrison T, Financial Services Marketing, Illustrated Edition, Pearson
Education.
William J, Winston Editor, Journal of professional services marketing,
Volume 1 number 3, Spring 1986.
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2
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Unit Two
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The Financial Market

Environment
2.0 Introduction
E nnew, Watkins and Wright (2005) observe that all organisations are
operating in an environment which is composed of various factors such
as micro-environmental and macro-environmental factors. These factors can
impact negatively or positively on the operations of the financial service
provider. In this unit we focus on how the analysis of the financial service
provider, its markets and environment determine strengths and weaknesses,
opportunities and threats. We also focus on how the analysis of the financial
service provider determines set objectives; develop strategies and tactics as
well as implementation, evaluation and control of the total marketing
programme.
2.1 Objectives
define marketing audit
explain the benefits of audit
discuss the aspects of financial marketing analysis
explain the SWOT analysis of the financial market environment.
analyse the macro- environmental factors and micro-environmental
factors
2.2 Marketing Audit

Marketing audit is a fundamental part of marketing planning process. It is
conducted at the beginning of the process and also during the implementation
of the plan. The marketing audit considers both internal and external influences
on marketing planning. Kotler (1993) defines marketing audit as a
comprehensive, systematic, independent and periodic examination of the
external marketing environment, internal marketing environment, goals,
objectives, operations and efficiency of a business.
There are a number of tools and audits that can be used, for example SWOT
analysis of the internal environment and the external environment. Other
examples that could be used include PEST and Five Forces Analysis which
focus on the external environment. The market audit can be conducted under:
the internal marketing environment

the external marketing environment
a review of the current marketing plan. (Review of the objectives,
marketing strategies and marketing mix).
Financial service providers require marketers who can systematically assess,
evaluate and improve the marketing planning needed to enhance competitive
advantage. Therefore marketing audit attempts to achieve these advantages
by examining internal and external environmental factors that influence
marketing plan and by reviewing the plan itself.
2.2.1 Benefits of marketing audit

Ennew, Watkins and Wright (2005) point out that conducting marketing audit
has the following benefits:
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Unit 2 The Financial Market Environment
marketing audit provides a thorough evaluation of marketing

performance.
marketing audit encompasses the entire range of marketing activities;
marketing audit can reveal problems and opportunities, internal and
external environments (Kotler, 1993);
marketing audit can help bank managers to understand what employees
require from the financial service provider. (Providing real time
information and providing on the job training); and
since firms are operating in a dynamic environment, marketing audit is
deemed appropriate for individual businesses and covers as many aspects
of marketing as possible with minimal time and cost. Marketing check
list must fit different businesses in different industries to maximise its
effectiveness. The performance of a marketing audit depends on whether
a firm periodically examines internal and external environmental
influences on marketing planning and whether marketing officers adopt
the recommendations of the audit and effectively implement the
marketing plan.
The failure or success of a marketing strategy depends on how marketing
staff implement the marketing plan and how they respond to customer needs.
Thus understanding marketing staff cognitions toward a particular marketing
strategy can help marketing auditors clarify the causal connection between
business performance and marketing activities.
2.3 Market Analysis

Kotler (2005) and Ennew (2005) make an emphasis on the need to conduct
market analysis.
The main objectives of market analysis are:
to monitor the trends relating to size and market share

to monitor competitive position and growth potential
to investigate customer profiles, their needs and market segments
to consider influences on the customer decision making process in
relation to buying financial services.
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2.4 Marketing Environment

Kotler (2005) concurs that for a financial service provider to operate
effectively, it has to identify opportunities and monitor threats within the
marketing environment. The marketing environment consists of external forces
that affect the marketing management's ability to develop and maintain a
successful relationship with its target customers. These factors can be divided
into micro-environmental and macro-environmental factors. Marketing
management must collect and process data on these environmental factors
and must be able to develop opportunities and deal with threats. Most
successful firms are competent enough to have a sense of appreciating both
their customers and the environmental forces swirling around them. Consistent
environmental analysis help companies adapt to change, prepare long term
strategy, meet the needs of customers and compete with the intense competition
present in the global market. Being a successful financial service provider
means:
being able to adapt the marketing mix to trends and changes in the
environment;
changes in the marketing environment are often quick and are
unpredictable;
the marketing environment offers both opportunities and threats;
the financial service provider must effectively use its marketing research
and marketing intelligence systems to monitor the dynamic environment;
and
systematic environmental scanning helps marketers to revise and adapt
marketing strategies to meet new challenges and opportunities in the
market.
2.4.1 Micro- environmental factors

The micro- environment comprises of the internal environment of the business.
A financial service provider needs to make an analysis of its internal resources
which include people, production capacity, financial/ investment capabilities,
management expertise, together with its product range and branch network
and delivery systems. As a result, the financial service provider must identify
its internal strengths and weaknesses, to match its strengths to the opportunities
in the environment and the market. In the process, the financial service provider
must be in a position to convert its weaknesses to strengths thereby avoiding
environmental / marketing threats and to move towards marketing planning.
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(Setting objectives and marketing strategies)
Micro-environmental factors consist of:
the organisation's internal environment, its internal structure as it affects

marketing management's decision making;
the marketing channel firms that create value, the suppliers and marketing
intermediaries; and
the five markets in which the organisation can sell and these are the
consumer, producer, reseller, government and international markets.
i) The company itself
Top management is responsible for setting the mission, objectives, broad

strategies and policies of the company. Marketing managers must make
decisions based on the parameters laid down by the top management.
Marketing managers must work closely with other company departments in
order to attain the same goals and objectives. This will enhance the success of
the financial service provider as all departments work towards providing
superior customer value and satisfaction.
ii) Producers and suppliers
Suppliers are firms and individuals that provide the resources needed by the
financial service provider and its competitors to produce goods and services.
It is important to monitor the supply availability and to monitor the trends of
key inputs. Ennew et al points out that during the 1980s period, in the United
Kingdom, many financial service suppliers expanded and diversified their
operations. Some players in the market preferred product or market
specialisation in cognition of the difficulties associated with competition with
major players. Quality of service and customer care inevitably remains as key
components in the overall service offer, but subject to the constraints of
remaining price competitive.
iii) Marketing intermediaries
Marketing intermediaries are firms that help the company to promote, sell
and distribute its goods to final buyers. Resellers are distribution channel firms
that help the company to find customers or make sales for them. These include
wholesalers and retailers who buy and resell merchandise. Although resellers
perform an important function more cheaply than the company itself, working
with resellers is not easy because of the power that some demand and use.
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Physical distribution firms help the company to stock and move goods from
their points of origin to their destinations. Marketing service agencies such as
marketing research firms help the company target and promote its products.
Financial intermediaries such as banks and credit companies help finance
transactions and ensure against risks.
iv) Customers
Changes in consumers' tastes and preferences and environmental changes

have served as a driving force for the financial service providers to be customer
oriented. Consumers are now better informed, educated and lead complex
lives and therefore their financial expectations are higher than before (Cook,
2001). Customers now consider the following two factors in choosing which
financial service provider to deal with:
Value for time
Customers are now leading complex lives, are mobile and therefore would
need service delivery, which is convenient, effective and efficient. For example,
the use of ATMs allows customers to have access to their funds at any time
since ATMs work for 24 hours. The use of e -banking is another innovation.
Customers consider their rights
Today's customers know their rights and are more likely to make their opinions
known if they feel that their rights have been violated. This brings a point that
customers are confident with the quality they expect and their expectations
remain high.As a result of fierce competition in which financial service providers
are operating, customer focus becomes key to success. Cook (2001) observes
that mass market is no longer viable and therefore financial service providers
will only remain financially sound if they customise their services. Customers
must feel that:
financial service providers are willing to establish a long term relationship

with their customers.
it is very important for a company to study its customer markets closely
since each market has its own special characteristics. These markets
include:
i) consumer markets mainly individuals and households that buy goods
and services for personal consumption;
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ii) business markets buy goods and services for further processing or for
use in their production process;
iii) reseller markets buy goods and services in order to resell them at a
profit.
iv) government markets include agencies that buy goods and services or
transfer them to those that need them; and
v) international markets include all types in foreign markets.
v) Competitors
Every company faces a wide range of competitors and this call for a financial
service provider to secure a strategic advantage over competitors by positioning
their offerings to be successful in the market place. No single competitive
strategy is best for all financial service providers.
Activity 2.1
? 1. Discuss the micro-environmental factors and show how they are critical
to the success of a financial institution.
2.4.2 Macro- environmental factors

The financial service provider's macro- environment is a force that shape
opportunities and pose threats to the company. These include:
Demographic environment
Demographic is the study of human populations in terms of size, density,

location, age, sex, race and occupation. Marketers are interested in the study
of demographic environment because it involves people and people make up
market. The changing age distribution of the population and how increasing
education levels affect people's financial services needs.
Economic environment
The economic environment includes those factors that affect consumer

purchasing power and spending patterns. One of the factors that make the
marketing of financial services has to be judged by consumers within the context
of the current economic environment in which they are offered. The
attractiveness of a savings product for example might be a function of the
interest rates and expected rates of inflation. Similarly, investment options
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may largely relate to ones' expectations of how the stock market might behave
in the near future. Personal consumption, value marketing and income
distribution must be monitored by marketers since their changes may need
the implementation of various marketing strategies.
Technology
The nature of how financial services are marketed is changing rapidly due to
emergence of revolutionary data exchange technologies. This is due to the
fact that financial services are largely information based. Technology has an
influence on the nature of interactions between the customer and the financial
services provider. Many customer service contacts are increasingly automated
through online means, banking by phone or the use of ATMs.
Technology shapes our destiny. New technologies create new markets and
opportunities. Marketers should be aware of any possible negative aspects
of an innovation that might harm users. Technological developments are evident
in the operations and management of financial service providers, and have
emerged as important considerations in product design, delivery channels and
promoting individual products and overall corporate image.
Political, legal and regulatory environment
In all countries, in a number of important respects, government continues to

play a major role. New patterns of consumer behaviour are encouraged in
terms of share ownership, pension planning and taxation. Deregulatory
legislation in the form of the Banking Act and the Building Societies Act in the
United Kingdom has been designed to eliminate competitive barriers and create
open and free markets, although this has been accompanied by regulatory
supervision. The political environment includes laws, government agencies
and pressure groups that influence and limit various organisations and individuals
in society. All marketing activities are subject to a wide range of laws and
regulations and some trends in the environment include:
increasing legislation to protect companies from each other, protecting

consumers from unfair business practices as well as protecting interests
of society against unrestrained business behaviour;
New laws and their enforcement will continue or increase; and
socially responsible firms seek ways to protect the long term interests
of their consumers and the environment.
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Social and cultural environment

The cultural environment is made up of institutions and other forces that affect
society's basic values, perceptions, preferences and behaviours. Certain cultural
characteristics can affect marketing decision making. Changing lifestyles and
public opinion has a number of effects. For example, traditional values with
respect to thrift and the stigma of credit are disappearing with the emergence
of a credit culture and the consequent changes in attitudes and behaviour with
regard to spending and the use of a wide range of credit services. Moreover
consumer attitudes towards technologically based bank services continue to
become more favorable and consumers are more discerning with respect to
expectations of services quality and the quality of service actually received.
Natural environment
The natural environment involves natural resources that are needed as inputs
by marketers or that are affected by marketing activities. The areas of concern
include:
i) Shortages of raw materials such as water has been seriously damaged

and non renewable resources such as oil, coal and various minerals
have been seriously depleted during industrial expansion
ii) Increased pollution is a worldwide problem. Industrial damage to the
environment is very serious. Far sighted companies are becoming
environmentally friendly and are producing environmentally safe and
recyclable goods
iii) Government intervention - Natural resource management has caused
environmental concerns to be more practical and necessary in business
and industry. Instead of opposing regulation, marketers should help
develop solutions to the material and energy problems facing the world.
Competition
In Zimbabwe during the late 1990s' the changing legislative environment

created both opportunities and threats for the financial service provider in
terms of the level of competition from existing bank competitors, new bank
competitors and new market entrants to include building societies, retailers ,
current and potential providers of financial services. In the United Kingdom,
retailers have few barriers to entry into financial services and can take advantage
of their store networks and technological capabilities which are alternatives to
the traditional bank branch. A number of retailers will eventually offer a wide
range of financial services. Some retailers in the United Kingdom have moved
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beyond credit cards and loans into insurance, mortgages and other financial
services. This would enable them to focus on long-term relationships with
households and meet their changing financial needs over time. An appropriate
strategy might be to offer innovative products/ services on the basis of superior
value/ quality and to provide excellent customer service. Examples are e-
banking, usage of POS machines in supermarkets.
Activity 2.2
? 1.
2.
Why is environmental analysis essential to the success of any marketing
oriented financial institution?
How has marketing audit contributed to the success of a marketing
oriented financial institution?
3. Choose the financial service provider of your choice and discuss the
opportunities and threats that the macro-environment creates for that
organisation.
2.5 Summary
The environment in which suppliers of financial services operate in is very
dynamic. Deregulation in conjunction with developments in information
technology and fluctuations in economic performance have resulted in an
increasingly competitive market environment. The traditional institutional
boundaries which existed between suppliers of financial services are breaking
down; banks, insurance companies and building societies are all competing
across the same broad markets. Since financial service providers are operating
in a dynamic environment, there is need to analyse the micro and the macro-
environmental factors.
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References
Armstrong and Kotler, (2005). Financial Service Marketing. London:
Prentice Hall.
Ennew, C Trevor Watkins and Mike Wright, (2005). Marketing of Financial
Services, 3rd Edition, Tata McGraw-Hill.
Etzel, M Walker, B and Stanton W, Principles Of Service Marketing, 3rd
Edition, McGraw Hill.
Pride W M , Ferre O C. (2010). Marketing( 4th Edition). Western Cengage
Learning.
Lancaster G, Massingham L, (2010) Essentials Of Marketing Management,
Illustrated Edition, Taylor and Francis.
Kotler P, (1993) Marketing Management ( Analysis, Planning,
implementation and control), 7th Edition, Prentice Hall International,
New Jersey.
Kurtz D L, Boone L E, Beckman M D, (2010) Foundations Of Marketing,
Foundations of SAGE Publications
Reinhold P Lamb, (2001) The American Association, University Of Florida
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Unit Three
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The Strategic Dimension of

3.0 Introduction
T he services sector has been slow to adopt a strategic approach to its

marketing activities. For a long time, the marketing of financial services
was largely concerned with how best to advertise and sell existing products in
a given market. In order for a marketing financial service provider to achieve
its organisational goals, it has to implement marketing strategies. In this unit
we will focus on strategic aspects of marketing planning, with strategies for
growth, sources of competitive advantage and methods of planning the product
portfolios.
3.1 Objectives
define the term marketing strategy
develop a strategic plan
explain the tools for strategy development in marketing of financial
services
3.2 Marketing Strategy

A marketing strategy is essentially a statement of how an organisation plans to
compete for business in its particular market.
The strategic dimension of marketing focuses on the direction which a financial

service provider will take in relation to a specific market or set of markets in
order to achieve a specified set of objectives. The tactical component refers
to the more specific tasks and activities which have to be undertaken in order
to implement the desired strategy. Both the strategic and tactical dimensions
of marketing of financial services are embodied in a marketing plan. Developing
a planned, strategic approach ensures that the marketing efforts of any
organisation are in tandem with organisational goals, internally coherent and
tailored to the needs of identified consumer markets (Kurtz, Boone and
Beckman, 2010).
Ennew (2005) observes that for many years, marketing has played a tactical
role for most suppliers of financial services and there is enough evidence to
suggest that the strategic element of marketing has become more prominent in
financial service organisations. Furthermore Ennew et al postulates that, in
recent years, there appears to be a move towards recognising the integral
role of marketing in organisational strategy. Within any organisation, strategies
are developed at various levels. A marketing strategy enables a financial service
provider to work effectively and efficiently by having the right products in the
right markets and at the most appropriate times. For example, banks are
expected to supply the right type of money transmission facility, which best
meets the needs of the bank's customers and which exploits the bank's own
skills and capabilities. The financial service provider can only be effective if it
is aware and responsive to the environment in which it operates.
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Unit 3 The Strategic Dimension of Marketing of Financial Services
3.2.1 Features of a good marketing strategy

A good marketing strategy will:
identify specific objectives that the firm wishes to achieve

commit both human and financial resources to help achieve these
objectives
involve a thorough evaluation of the marketing environment
aim to match environmental opportunities and organisational capabilities
focus on the delivery of superior value
3.3 How to Develop a Strategic Plan

A strategic plan involves the following:
i) Establish corporate mission
The financial service provider must define the area of business within which it
operates and must also define it in such a way that will give it focus and
direction. The main purpose of the mission statement is to outline the goals of
the financial service provider and identify in broad terms the ways in which
the institute will achieve those goals.
ii) Conduct situation analysis

1. There should be a strategic fitness between the financial service provider
and its environment and thus development of a strategy requires
continuous environmental scanning. The analysis involves both the
internal and external environmental scanning. (SWOT Analysis)
Conducting situation analysis requires information relating to :
the size of the current market
market share
market trends
identifying major competitors
statement of current product range
its features
its basis for competitive advantage
the analysis of patterns of distribution and promotion
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the nature of product and sales trends.

One widely used approach to the market environment analysis is through the
use of Porter's Five Forces Analysis. Porter's argument is that in order to
develop an effective strategy, it is necessary to understand the factors that
determine the overall attractiveness of the industry. The five key features are:
bargaining power of suppliers
Suppliers in financial services include the suppliers of essential business goods

and services. For example, computer equipment and software and the extent
that these suppliers are strong enough to affect the prices paid for relevant
goods and this affects costs. Customers making deposits with financial
institutions act as suppliers and can impact on the cost of providing certain
related financial services.
bargaining power of buyers
Consumers can ensure that services are available to them on more favorable
terms. The bargaining power of buyers in financial services depends on the
market segment.
threat of entry
A profitable industry will generally attract new entrants and this will eventually
erode the profits. Although there are barriers to entry into the financial market
place, there is threat from new entrants.
availability of substitutes
The existence of close substitutes enhances customer choice and provides an

alternative way of meeting a particular need. Therefore in markets where
there are close substitutes, the bargaining power of customers is effectively
enhanced since they have a variety of choices. However, substitute for financial
services is limited although investment services may be regarded as substitutes
for investments in unit trust or other forms of saving.
rivalry between firms
The greater the degree of competition, the more likely it is that the industry
will be less profitable and less attractive. Building societies are now competing
with banks in the provision of money transmission facilities.
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SWOT analysis
SWOT Analysis (Strengths, Weakness, Threat and Opportunity) is widely

used by financial service providers for organising information relating to the
marketing environment and providing guidance on strategy development.
Kurzt et al, 2010 defines an opportunity as any feature of the external

environment which creates advantageous conditions to the firm in relation to
the set objectives, while a threat is any environmental development which will
hinder the attainment of set objectives.
A strength is any distinctive competence within the financial service provider

which will assist the financial institution in the attainment of set objectives, for
example, specific skills possessed by employees in relation to production,
research and development or marketing. Another example can be a financial
service provider's reputation for quality and good customer service may be
regarded as a significant strength.
A weakness is any aspect of a financial service provider which may hinder the
achievement of specific objectives. For example, lack of experience within
building societies of money transmission facilities. It should be noted that threats
and opportunities are conditions presented by external environment and are
independent of the firm. Strengths should match any available opportunity.
Where there are no matching opportunities, the alternative is to convert
weaknesses into strengths in order to take advantage of some particular
opportunity. Another alternative is to convert threats into opportunities which
can be matched by existing strengths. Figure 3.1 shows the SWOT analysis
of a financial institution.
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Internal to the STRENGTHS WEAKNESSES

company
CONVERSION
Exits independent of
the company OPPORTUNITIES THREATS
CONVERSION
Source: Piercy and Giles (1989)
Figure: 3.1 SWOT Analysis of a Financial Institution
(iii) Statement objectives
Marketing objectives should be specified soon after the analysis of the

marketing environment.
The objectives set for any marketing plan must be:
achievable
consistent
stated clearly and preferably quantitatively. The marketing plan must
be guided by a coherent set of objectives which are determined by the
overall corporate strategy and the mission statement.
(iv) Formulation of strategy
Once the objectives are set, planners must develop suitable strategies in order
to identify which market that the financial institution intends to enter and how
it anticipates entering the market. This process is known as STP (segmentation,
targeting and positioning) , is conditioned by the overall corporate strategy
and this helps in assessing how the financial service provider is to develop its
business in relation to its particular markets.
(v) Market specific strategy
The market specific strategy constitutes the set of policies and rules which
guide the marketing effort for a specific service. The essential components in
market specific strategy are:
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determining the appropriate level of marketing expenditure. This suggests

that any marketing plan requires a statement of the budget required to
implement it.
developing the marketing mix means selecting the appropriate
combination of product, price, promotion and place which ensures that
the service is appropriate in terms of its features, its image and the
perceived value.
Implementation means identifying the specific tasks which are to be performed,
the allocation of those tasks to individuals and the establishment of a system
for monitoring their implementation. Since the market environment is dynamic,
it calls for planners to keep on restrategising. Another important factor to
consider is internal marketing which deals with the way in which a financial
service provider manages the relationship between itself and its employees at
all levels. It plays an important role in creating and maintaining a market oriented
corporate culture. Internal marketing helps to ensure that staff understand the
product itself and believe in what the financial service provider is trying to do.
Chances of successful plan implementation are minimal if the organisation's
own employees are not oriented ( Kurzt, Boone and Beckman et al, 2010).
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Strategic marketing plan
Corporate Mission and Objectives
External Analysis Internal Analysis
The Macro Environment SWOT/TOWS

The Market
Customers
Competitors
SWOT Analysis
Marketing Objective
Marketing Strategy
Competitive Advantage Strategies Global
Competitive Strategies
Marketing Mix and Life value Strategies Relationship Building Strategies
Marketing Strategy
Target Markets and Marketing Value

Mix
Implementation
Scheduling of key tasks
Resources Allocation
Budgets
Control
• Assumptions made
• Critical success factors
• Benchmarks established
How measured
Source: Ennew C,Watkins T & Wright M, (2005)
• Financial forecasts
Figure: 3.2 Strategic Marketing Plan Costs Revenue
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Activity 3.1
? 1. Describe how a marketing strategic plan is developed.
2. Why is it important to scan the environment?
3.4 Tools for Strategy Development

Armstrong and Kotler postulate that the formulation of a financial service
provider's strategic approach to its marketing activities is concerned with
developing some match between the organisation and its operating environment.
The result must enable the financial service provider to meet the specific needs
of its consumers and does so more effectively than its competitors. The number
of analytical techniques that management can employ provides a framework
for the financial service provider and analysis of ideas and information.
3.4.1 Selecting the product portfolio

Furthermore, Arstrong and Kotler et al reaffirm that diversification has become
an increasingly common trend in the financial services sector. In response to
an increasingly competitive deregulated environment, the major suppliers of
personal financial services have been changing their product ranges, adding a
range of new products and deleting others. Managing the product portfolio
raises broad issues such as what role should a product play, how resources
should be allocated between products and what should be expected from
each product. It is very important to maintain some balance between well
established and new products, between cash generating and cash using
products and between growing and declining products. The approaches mainly
used to plan product portfolios are the matrix-based approaches of the Boston
Consulting Group (BCG), the General Electric (GE) and the concept of the
product life cycle.
3.4.2 Matrix -based approaches

The matrix-based approaches of BCG and GE matrices require a classification
of products/ business units according to the attractiveness of a particular
market and according to the strengths of the company in that market. The
BCG matrix's classification scheme is purely on market share and market
growth while for the GE matrix is on the attractiveness of the market as well
as the business strengths.
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Matrix Based Approach

MARKET SHARE
Existing New
MARKET High QUESTION MARK

STAR
GROWTH OR PROBLEM CHILD
RATE
Low CASH COW DOG
Source: Ennew C, Watkins T & Wright M (2005)
Figure: 3.3 Matrix Based Approach
The division on the horizontal axis is based on a market share that is identical
to that of the firm's competitor. The location of division on the vertical axis
depends on the rate of growth in the market with 10%. The products are
positioned in the matrix as circles with a diameter proportional to their sales
revenue. The appropriate strategy for a particular product will depend on its
position within the matrix.
Question Mark(problem child)
These are products which have a big and growing market potential, but existing
low market share, normally because they are new products. New business
development and project management principles are required here to ensure
that these products' potential can be realised and disasters avoided. Business
is quite competitive and pioneers take the risks in the hope of securing good
early distribution arrangements, image, reputation and market share. Gross
profit margins are likely to be high but overheads in the form of costs research,
development, advertising, market education and low economies of scale, are
normally high and can cause initial business development in this area to be
loss- making until the product moves into the rising star category. Examples
are money gram and Real Time Gross Settlement (RTGS).
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Cash Cow
Cash cow is based on the idea of "milking" the returns from previous
investments which establish good distribution and market share for the product.
Products in this quadrant need maintenance and protection activity, together
with good cost management, not growth effort because there is little or no
additional growth available. Examples are cheap deposits.
Dog
This is any product or service which has low market presence in a mature or
stagnant market. There is no point in developing products or services in this
quadrant. Many financial service providers discontinue products or services
that they consider fall in this category, in which case consider potential impact
on overhead cost recovery. Businesses that have been starved or denied
development find themselves with a high proportion on their products or
services in this quadrant. Examples are treasury investments and DSTV
subscriptions.
Star/ Rising Star
Rising star products are those which have good market share in a strong and
growing market. As a product moves into this category, it is commonly known
as a "rising star". When a market is strong and still growing, competition is not
yet fully established. Demand is strong, oversupply does not exist, and so
pricing is relatively unhindered. This means that these products produce very
good returns and are profitable. The market is receptive and educated, which
optimises selling efficiencies and margins. Production and manufacturing
overheads are established and costs minimised due to high volumes and good
economies of scale. These are great products and worth continuing to invest
on provided good growth potential continues to exist. When it does not, these
products are likely to move down to cash cow status, and the company needs
to have the next rising stars developing from its problem children. Examples
are cheap deposits and students savings accounts.
The BCG matrix must be interpreted with care and it assumes that market
share is the key objective for the organisation and that a large market share
will mean lower per unit costs and high profits due to either economies of
scale or experience curve effects.
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3.4.3 Product Life Cycle

The patterns of product development implied by the BCG matrix are consistent
with those implied by the product life cycle. The product life cycle is a market
planning tool in that it can be employed both to guide a financial service provider
in the determination of the appropriate balance of products and in the
development of a suitable strategy for the marketing of those products. It also
helps in the allocation of resources among service products. There are
difficulties in considering the life cycles of certain financial services in that the
cash flow from the product can easily be confused with the product itself.
Introduction Growth Maturity Decline
Sales
$
Revenue
Profit
Time
Source: Ennew C, Watkins T& Wright M (2005)
Figure: 3.4 Product Life Cycle
The stage in the product life cycle shows that the financial service provider
can obtain some guidance as to the appropriate marketing strategy. The
following are the stages in the product life cycle:
Introduction Stage
Introduction stage is a period of slow growth and possibly negative profit, as

efforts are being made to obtain widespread acceptance for the service. At
this stage, cash flows are negative and the priority is to raise awareness and
appreciation of the product with the result that the marketing mix will place a
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high degree of emphasis on promotion. In the financial services sector, new

products should be introduced quickly and this phase should be shortened
because of the case with which new products can be copied. For example,
pension mortgages and money gram.
Growth Stage
Sales volume increase steadily and the product begins to make a significant
contribution to profitability. Increase in sales can be maintained by
improvements in the features, targeting at more segments or increased price
competitiveness. New products will begin to attract significant competition.
Examples of growth services are telephone banking.
Maturity Stage
At maturity stage, sales begin to stabilise, with replacement purchases becoming

more common than new purchases. The market itself is mature and the
marketing campaign and the product are well established. Competition is tense
at this stage. At maturity stage, it may be necessary to consider modification
and rejuvenation of the service to arrest future decline. For example, bank
current accounts.
Decline Stage
At decline stage, sales begin to drop, leaving management with the option of
withdrawing the product entirely although with long-term investment products,
this may not be feasible. In the financial sector, barriers of product withdrawal
are high, for example, life insurance. The most convenient strategy will be to
minimise the marketing effort rather than to withdraw the product.
3.5 Growth Strategies

In developing a growth strategy, the financial service provider must determine
whether to concentrate on existing or new products. Ansoff (1918-2002)
developed a useful planning tool in respect of markets and products which is
known as the Ansoff product- market matrix. The Ansoff product-market
matrix helps to understand and assess marketing or business development
strategy.
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EXISTING NEW PRODUCT

PRODUCTS
EXISTING MARKET PRODUCT
MARKETS PENETRATION DEVELOPMENT
NEW MARKET DIVERSIFICATION

MARKETS DEVELOPMENT
Source: Ennew C, Watkins T & Wright M (2005)
Figure: 3.5 Ansoff's Product/ Market Matrix
3.5.1.Ansoff strategies
Market penetration
Market penetration involves developing sales of existing products to existing

markets. The financial service provider aims at selling more in its current
markets persuading existing users to use more or by persuading non-users to
use or attracting consumers from competitors. Strong market share suggests
they are likely to be better returns from extending the range of products or
services that can be offered to the market.
Product development
Developing or finding new products to take to the existing markets. This is an

attractive strategy if the financial service provider has a strong market share in
a particular market. The strategy is suitable when acquiring another company
or product/service capability provided it is relevant to the financial service
provider's market.
Market development
Market development requires that the financial service provider sells its existing
products to new markets. These new markets could be geographically, new
market segments or new uses for products. This strategy requires effective
and imaginative promotion, but it can be profitable if markets are changing
rapidly, for example, student loans offered by the banks. The most common
form of market development is the movement into new markets geographically.
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Diversification
Diversification means taking new products into new markets. This strategy
entails both developing new products and modifying existing products to appeal
to current markets. This is a high risk strategy in that not only does the financial
service provider not know the products, but neither do they know the new
markets. Furthermore, this strategic option is likely to mean working through
new distribution channels and routes to the market. This activity should be
regarded as additional and supplementary to the core business activity and
should be rolled out carefully through rigorous testing and piloting. The most
common form of diversification among providers of financial services has been
concentric diversification which involves developing new products which are
related to existing products in terms of both markets and technology, for
example, movement by banks into mortgage provision. With the recent
deregulation and increase in competition in the United Kingdom, there has
been an increase in the levels of diversification which involves services which
are technologically dissimilar but are appealing to the same broader customer
groups, for example, building societies are moving into money transmission.
Conglomerate diversification which involves both new markets and new
technology is very rare in the financial service sector since there are limited
opportunities for synergy and the greater risks involved.
3.6 Strategic Challenges

Restructuring process and mergers have an impact on the retailing of financial
services and may be one route to address the underlying problem of
overcapacity in branch networks. The issue of pricing remains a major
constraint despite the fact that banks should maintain quality of service and
customer care. The impact of strategic marketing issues such as environmental
changes needs close monitoring. The issues of ethics and social responsibility
have an impact on financial services. There is a growing need on how best to
manage strategic decisions in a socially and ethically responsible way.
Activity 3.2
? 1. Demonstrate how the Ansoff's Matrix is used to develop strategies in

the financial sector.
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3.7 Summary
Competitive dynamic market environment, deregulation and technological
changes have necessitated a planned and strategic approach to marketing for
financial services. A financial service firm must come up with a clear vision,
objectives and strategy which should be consistent with the distinctive
competencies of the organisation and the environment in which it operates. It
is very important to note that in a turbulent environment, strategies are not
fixed and need to be adjusted to match the environmental change.
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References
Armstrong & Kotler, (2005). Financial Service Marketing, Prentice Hall
International.
Channon, D. F. (1986). Bank Strategic Management And Marketing,
Illustrated Edition, Wiley
Ennew, C. Watkins, T. & Wright, M. (2005). Marketing of Financial
Services 3rd Edition, Tata Mcgraw-Hill.
Etzel, M. Walker, B. And Stanton, W. (2005), Principles of Service
Marketing, 3rd Edition, Mcgraw Hill.
Ferrel, O. C, Hartline M D. (2008). Marketing Strategy, 4th Edition,
Thomson- South Western.
Hoffman K D, Bateson J E G, (2010) Service Marketing: Concepts,
Strategies And Cases, , 4th Edition, South Western.
Harrison, T. (2000). Financial Services Marketing, Illustrated Edition,
Pearson Education.
Pezzullo M A, (1993) Marketing For Bankers, 4th Edition, American
Bankers Association.
Kotler, P. (2000) Marketing For The Millennium, , 10th Edition, Prentice
Hall International.
Kurtz, D. L. Boone, L. E. M Dale Beckman, (2010). Foundations Oo
Marketing, Foundations of SAGE Publications.
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Unit Four
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Segmentation, Targeting and

Positioning
4.0 Introduction
M arket segmentation, targeting and positioning plays a vital role in the

marketing of financial services. A financial service provider cannot
afford to have similar strategies for product promotion amongst all individuals.
Not every individual has the same requirement and demand. The marketers
thus came with the concept of STP which stands for Segmentation, Targeting
and Positioning.
In this unit more attention will be paid market segmentation, targeting and
positioning. We will discuss the benefits of segmenting the market, criteria
used to segment the market, target market strategies and product positioning.
4.1 Unit Objectives

explain the importance of market segmentation, targeting and
positioning
discuss the criteria used to segment the market
describe the criteria for segmenting corporate market for financial
services
4.2 Market Segmentation

Financial services have been slow to realise the full potential of market
segmentation. Driven by changes in the regulatory environment, increasing
competition and pressures on product profitability, financial institutions now
realise the need to identify customers offering the greatest potential to which
the greatest marketing effort should be directed.
Market Segmentation, Targeting and Positioning lie at the heart of modern

strategic marketing. The first step in the process of product promotion is
segmentation. Market segmentation is the division of a broad market into
small segments comprising of individuals who think on the same lines and
show inclination towards similar products and brands.
Market segmentation refers to the process of creation of small groups

(segments) within a large market to bring together consumers who have similar
requirements, needs and interest. Harrison (2002) defines market segmentation
as the process of viewing a heterogeneous market, consisting of smaller and
more homogeneous parts called segments. Market segmentation involves
dividing the markets into homogenous groups of customers, each of them
reacting differently to promotion, communication, pricing and to other variables
of the marketing mix. For example, prestige banking for customers who are
not price sensitive. Market segmentation results in each customer being served
differently - individual marketing. However, due to its high cost, individual
marketing is rarely the case in consumer markets. Market segments exist and
need to be treated separately because there are many differences in the buying
process that customers follow. Market segmentation and identification of target
markets are an important element of the marketing strategies, the 4Ps, namely
products, price, place and promotion. The individuals in a particular segment
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Unit 4 Segmentation, Targeting and Positioning
respond to similar market fluctuations and require identical products. In simpler

terms, market segmentation can also be called grouping. For example, the
financial service provider may have students belonging to a particular segment
whereas professionals and officers can be kept in one segment.
Targeting-Once the marketer creates different segments within the market,

and then various marketing strategies and promotional schemes according to
the taste of the individuals of a particular segment can be devised. This process
is called targeting. Once market segments are created, the financial service
provider then targets them. Targeting is the second stage and is done once the
market has been segmented. Financial service providers with the help of various
marketing plans and schemes target their products amongst the various
segments.
Positioning-Positioning is the last stage in the segmentation, targeting and

positioning cycle. Once the financial service provider decides on its target
market, it strives hard to create an image of its product in the minds of the
consumers. The marketers create a first impression of the product in the minds
of consumers through positioning. Positioning helps financial service providers
to create a perception of the products in the minds of target audience. For
example, a professional will never open a student account as it is meant for
students and vice versa and that is brand positioning.
4.2.1 Attributes of effective segmentation

Kurzt and Boone (2002) observe that market segmentation is useful in
developing and implementing effective marketing programmes and for this to
happen, the segments must meet the following criteria:
Identifiable- the segments must be measurable so that they can be

identified
Accessible- the market segments must be accessible through
communication lines and distribution channels
Sizeable- The segments must be sufficiently large enough to justify the
resources needed to target them
Profitable-the segments must be sizeable and profitable
Unique needs- the segments must respond differently to different
marketing mixes
Durable- the segments should be relatively stable to minimise the cost
of frequent changes
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Measurable- the potential of the segments must be measurable

Compatible- segments must be compatible with the firm's resources
and capabilities.
4.2.2 Effect on financial institutions that fail to segment the

market
Financial institutions that fail to segment the market face the following challenges:
customer satisfaction and customer retention decline

customers with different requirements are being approached with the
same financial service, the same pricing, a standard communication
policy and an inflexible service delivery process
the market perceives the financial institution as having either a product
orientation or a production orientation and not a market orientation
4.2.3 Benefits of financial service market segmentation

Segmentation is the basis for developing targeted and effective marketing
plans. The advantages of segmenting the market benefit both financial service
providers and customers.
The following are the benefits of adopting a segmented approach:

it operationalises the concept that a company cannot be all things to all
people;
by excluding certain segments, a financial institution focuses its efforts
and resources on a narrower target and gains deep knowledge of the
needs of that market;
market segmentation drives costs down, by enabling a closer match of
corporate resources with a segment's resources. It is difficult to increase
prices for the whole market and this call for the need to develop premium
segments in which customers accept a higher price. Such segment could
be distinguished from the mass market by features such as additional
services;
customer requirements are addressed more accurately and thereby
enhancing customer satisfaction;
market segmentation enhances customer retention since target segments
observe that they are being valued by a financial institution. Market
segmentation facilitates tapping of the market, adapting the offer to the
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target. Segmentation enables the marketer to analyse an accurate

prediction of the likely responses from each segment of the buyer;
market segment helps to perceive a financial institution as a brand.
Segmentation provides information about smaller units in the total market
that share particular needs and this enables a planned development of
new or improved products that better meet the wishes of these customer
groups. If a product meets and exceeds the expectations of the
customer, the customer is willing to pay a higher price for that product
and profitability of the innovating firms increase;
it enables the financial institution to foresee changes in the buying
behaviour of the target market and to respond timely with new offerings;
it helps financial institutions to detect target market segments which are
small in size but have a greater potential, that is, a niche segment;
segmentation makes the marketing effort more efficient and economic.
Segmentation ensures that the marketing effort is concentrated on
chosen segments seeing that any financial service provider has limited
resources and therefore cannot tap the entire market. The financial
service provider will benefit if its efforts are concentrated on segments
that are productive and profitable;
segmentation benefits customers in that it enables firms to anticipate the
wants of customers while customers can anticipate the capabilities of
the firm and thereby creating a permanent relationship;
sustainable customer relationships - Customers' tastes and preferences
are dynamic and therefore firms that serve different segments along
customers' life cycle can solve the needs of their customers;
targeted communication- communication is easier when product features
and brand identity are identical in all segments; and
higher market shares - segmentation supports the development of niche
strategies and this marketing activities can be targeted at highly attractive
market segments.
Activity 4.1
?
1. Market segmentation plays an important role in the financial service
sector. Discuss.
2. How can you segment the financial service sector in Zimbabwe?
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4.2.4 Criteria used to segment the market

Armstrong and Kotler et al point out that the market can be segmented into
consumer markets and business markets. Types of common characteristics
that can be used to segment consumer markets fall into two broad categories
namely customer oriented segmentation and product based segmentation.
4.2.5 Consumer markets

a) Customer characteristic: Customer oriented segmentation
i) Geography has been a useful segmentation basis for companies unable
to serve the entire area. A market can be segmented according to
countries, cities and regions.
ii) Demographics involves segmenting the market based on ageing
population:
Age involves segmenting a market by the age of the consumer and this
shows that the age of a person has discriminatory power in the usage of
financial services. Individuals with similar age may exhibit similar needs
for financial services. Age based segmentation aims at developing adhoc
relationships, for example, university students may need loans and
overdraft accounts (student accounts).
Gender- traditionally men were the target segment of financial institutions
compared to women who are viewed as less confident with financial
services. However, recent societal developments have made women
more knowledgeable about financial services. Most employed women
have a stable income and are the target. Gender based segmentation is
always useful for financial services marketers in order to adopt their
communication policy to the degree to which the genders understand
the complex nature of financial services.
Family life cycle-different generations have different experiences and
expectations.
Life cycle based segmentation creates life time relationships, thus
enabling customer retention.
iii) Socio -economic data is a measurement of the type of a person's
educational background and occupation. Lower classes tend to have:
spending aspiration
easy understanding of financial services
favor investments that can be easily turned into cash.
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favor bank accounts that are accompanied by some tangible evidence,

for example, cheque books.
On the other hand, high social classes tend to have:
saving aspirations
favor financial services of a more complex nature, for example, internet
banking.
high social classes are open to riskier types of investments.
tend to favor intangible long-term investments with high returns.
iv) Psychographics segmentation refers to basic personal characteristics
of an individual such as attitudes, beliefs, preferences, knowledge,
personality and interests. For example, since financial services are
intangible, this poses problems to marketers who cannot have visual
pre-purchase information so they have to rely on their past knowledge
and experiences.
b) Customer needs and behaviour: Product oriented segmentation
Variables that define the nature of the utility that consumers seek to gain from
consumption of a product or service are:
i) core financial needs- Banking

savings
investing
life assurance
retirement planning
ii) Product usage - frequency of purchase
frequency of service usage
means of assessing a service
means of purchasing a service
timing of purchase
iii) Product attributes
value
features
simplicity
complexity
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ownership status of product/ service
4.2.6 Corporate market segmentation / Business markets

Business markets should be segmented in order for the financial service provider
to effectively develop a successful marketing program. Establishing the basis
of segmentation, the corporate market utilises some similar components as
the unique consumer market, but may have vast differences in the process
involved in obtaining that specific account.
The main segmentation bases used in business markets include:

geographic location- where does the organisation operate? This could
be multiple locations in the city and in the country.
business description - what sort of business is it, where does it fit into
its industry? For example, Barclays bank is a commercial bank which
offers commercial banking services.
behavioural / operating practices - how does the financial service
provider undertake its purchasing decisions?
cultural / personality - what is the management style of the financial
service provider?
Armstrong and Kotler et al observe that corporate clients can have their own
segment since:
i) Corporate customers of financial services differ from personal customers

in terms of structure and characteristics;
ii) Corporate customers are generally smaller in number but large in size;
iii) They have more complex needs for financial services than those of
personal customers;
iv) Corporate customers have a complete understanding of their financial
needs;
v) They often require tailor-made financial services to suit their
requirements;
vi) Corporate decisions are influenced by the state of the economy; and
vii) Corporate customers often exert influence on the terms and conditions
of financial services.
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4.2.7 Key attributes to segmenting the market

The following are key attributes to segmenting the market:
segments must be identifiable so that they can be measured. Identifying
a segment also will allow for greater reporting and more accurate
tracking. Results will help in future decision making;
segments must be accessible by communications and distribution
channels. Evaluating a segment that is accessible will allow more flexibility
in marketing budgets and cost of sales efforts;
segments must be substantial so as to be profitable and justify the
resources required to obtain and maintain them; and
segments must be durable to maintain stability of cost and impact to
profits.
Activity 4.2
? 1. How best can the financial service markets be segmented?
2. Why is it important to segment the market?
4.3 Targeting
Armstrong and Kotler (2003:255) define a target market as "a set of buyers
sharing common needs or characteristics that the company decides to
serve."Choosing the target market is part of marketing strategy formulation.
Right targeting helps a firm to formulate effective strategy and a firm can pick
the right group of consumers through careful segmentation and targeting. It is
through this process that a firm gains knowledge about consumer behaviour
in each segment.
Market targeting is the second step in the process of product promotion and
it involves devising various marketing strategies and promotional schemes
according to tastes of the individuals of a particular segment.
Once the service provider has successfully identified the segments within a
market, the next step is to target these segments with products that closely
match the needs of the customer within that segment. There are a number of
targeting strategies and these include:
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1. Niche/ Concentration marketing

This is concerned with targeting one particular, well defined group of
customers (a niche) within the overall market. For example, low income
group niche markets can be targeted profitably by Post Office Savings
Bank who have relatively small overheads and therefore do not need
to achieve the volume of sales required by big financial institutions. The
main disadvantages of niche markets are that the potential for sales
growth and economies of scale may be limited and the survival of the
financial service provider may be seriously affected if sales begin to
decline.
2. Mass / Undifferentiated marketing
This is concerned with selling a single product to the whole market.
This strategy is based on the assumption that, in respect to the product
in question, customers' needs are very similar if not identical for, example,
savings accounts and current accounts. The main disadvantage of mass
marketing is that, increasingly in today's markets, consumers are less
interested in standardised products and often prepared to pay premium
prices for products that cater for their specific needs.
3. Differentiated / selective marketing
This is concerned with targeting each segment with a product with its
own marketing mix designed to match the needs of the consumers within
the segment. By tailoring products to meet consumer needs more
closely, financial service providers are likely to increase consumer
satisfaction and generate a greater degree of consumer loyalty. The
differentiated approach allows the firm to spread risks, so that it will be
less affected by a decline in demand from one segment.
The main disadvantages of this approach include confusion amongst customers
when faced with dozen of brands and lost economies of scale from shorter
production to advertise several rather than one brand.
4.3.1 Process of choosing the target market

The process involves the following:
choosing the target market is related to market segmentation.

Segmentation is the tool and choosing the target market is the purpose;
segmentation can be viewed as the prelude to target market selection;
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choosing the target market involves several tasks that are in line with
segmentation and each segment is viewed as a distinct marketing
opportunity;
evaluating the worthiness of each segment and whether the segment is
distinguishable, measurable, sizable, accessible, growing, profitable and
compatible with the firm's resources;
examining whether to choose the whole market or few segments;
evaluating the financial service provider's resources that are in line with
the marketing programmes required for capturing the chosen segments;
and
selecting those segments that are most appropriate for the firm.
4.3.2 Factors to be considered when selecting a target

market
Target marketing tailors a marketing mix for one or more segments identified
by market segmenting. Two important factors to consider when selecting a
target market segment are the attractiveness of the segment and the fit between
the segments and the firm's objectives, resources and capabilities.
4.3.3 Attractiveness of a market segment

The following factors are considered when evaluating the attractiveness of a
market segment:
size of the segment (Number of customers within that segment);

growth rate of the segment;
competition in the segment;
brand loyalty of existing customers in the segment;
Attainable market share which is proportional to the budget and competitors'
expenditures;
required market share to break even; and

sales potential for the firm in the segment.
The impact of micro- environmental and macro-environmental variables on
the market should be taken into consideration.
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4.3.4 Target market strategies

There are target market strategies that are used by financial service providers
in order to remain competitive in the market and these include:
single segment strategy- This means that one market is served with one
marketing mix and this strategy is normally implemented by smaller
companies with limited resources;
selective specialisation is a multiple segment strategy or differentiated
strategy where different marketing mixes are offered to different
segments of the market although the product itself may not be different;
product specialisation - The financial service provider specialises in
serving a particular market segment and offers that segment specific
products;
market specialisation - the financial service provider specialises in serving
a particular market segment and offers that segment an array of different
products; and
full market coverage- the financial service provider attempts to serve
the entire market. This coverage can be achieved by means of either a
mass market strategy in which a single undifferentiated marketing mix is
offered to the entire market or by a differentiated strategy in which a
separate marketing mix is offered to each segment.
A financial service provider that seeks to enter a market and grow must first
target the most attractive segments that match its capabilities.
4.3.5 Decisions involved in targeting a segment

The decisions involved in targeting a segment include:
the size of the target market.
which segments should the firm target?
the number of product to offer.
which products to offer and in which segments?
The target strategy decisions are influenced by:
market maturity
diversity of buyers' needs and preferences
strength of competitors
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the volume of sales required for profitability

Therefore the choice of target market for a given industry can decide the fate
of the industry in the market and this is because firms differ in their
competencies, resources, objectives and strategies.
4.4 Positioning
In the financial service sector, a product and a service is one and the same
thing. Kurtz and Boorne (1997) reaffirm that positioning is what you do to the
mind of the prospective buyer/ customer and the position of a product is the
sum of those attributes normally ascribed to it by the consumers. The attributes
include the quality of the product, the type or class of people who use the
product, its weaknesses and strengths. A product's position is how the
prospective buyers perceive the product in their mind set and is expressed
relative to the position of competitors. Positioning is a platform for the brand
and it helps get through to the mind of the target market. Therefore positioning
is an organised system for finding a window in the mind of the consumer.
4.4.1 Types of positioning concepts

The positioning concepts include:
Functional positions
problem solving
provide benefits to customers.
get favorable perception by investors and lenders.
Symbolic positions
self impact enhancement
ego identification
belongingness and social meaningfulness
affective fulfillment
Experiential positions
provide sensory stimulation
provide cognitive stimulation
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4.4.2 Approaches to positioning

Product positioning is either developing or reinforcing a particular image for
the brand in the mind of the consumer and the main approaches are:
Customer Benefit Approach
Customer benefit approach involves putting the brand above competitors based
on specific brand attributes and customer benefits.
The Price Quality Approach
Financial service providers tend to offer brands that offer more attributes in
terms of service, features, quality and product performance. Product quality
positioning and price positioning cannot be used simultaneously because there
is a risk that high quality-low price positioning technique which may infer the
image of the product in the mind of the consumer.
The Use And Application Approach
The product is positioned with a use or application in the mind of the consumer.
The Product User Approach
The brand identifies and determines the target segment for which the product
is positioned.
The Product Class Approach
This approach entails that the brand is associated with a particular product
category and is normally used when a category is too crowded.
The Cultural Symbol Approach-is based on an entrenched cultural

symbol which helps to differentiate the brand from that of competitors.
The Competitor Approach
This approach is an offensive strategy whereby many brands use competitor
as a bases in their campaign.
4.4.3 Different positioning bases

There are different positioning bases that a firm can implement in order to
remain competitive in the market and these are:
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product positioned towards a particular segment keeping in mind its

economy
product positioned with some beneficial features
product positioned for a particular segment (gender based)
product/ services positioned toward luxury segment
product positioned for fashionable elite class or member of the society
product positioned according to its technological advancement and value
added features
4.4.4 Steps for product positioning

There are steps for determining and implementing the product positioning
and these include the following:
define the segments in a particular market

decide which segment to target
understand what the target consumers expect and believe to be the
most important considerations when deciding on the purchase
develop a product that caters for consumer needs and expectations
evaluate the positioning and images, as perceived by the target market
of competing products in the selected market segments
evaluate the market leader's position
select the image that sets the product apart from the competing products
so that the chosen image matches the aspirations of the target market
inform targeted consumers about the product
4.4.5 Issues in product positioning

There is a relationship between product positioning and brand positioning.
The main issues in product positioning are:
where is the new product going to compete?

which product function/ customer need is it trying to meet?
where are the real gaps, where is the new product welcome and wanted
by the market?
what are the company's competencies?
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Product positioning is a situation whereby a firm attempts to bridge a gap

between the product offer with the right market.
4.4.6 Issues in brand positioning

The issues in brand positioning include addressing the following questions:
which are the competing brands in the chosen product strategy?

what are the unique strengths of the various brands?
what position do they enjoy in consumer's evaluation and perception?
is there a wide gap in expectation performance?
what kind of a product/ new attribute/ new functions will attract the
new consumer?
what is the most favored position and can the new brand claim the
needed distinction and take the position and satisfy that need?
4.4.7 Criteria for successful positioning

The criteria for successful positioning include the following:
clearly positioning its brand in both distinct value, proposition and to its
target audience
consistency in positioning means keeping the positioning bases in place
for a long time. The financial service provider must adapt to
environmental changes
credibility- The firm must deliver trust worth and believable value
proposition. There should be a perfect match between promise and
action
competitiveness-For surviving in this competitive and dynamic
environment, innovative resources, competitive advantage and strong
financial back up are essential
4.4.8 Repositioning
Repositioning involves changing target market distinct positioning to bring the
saturated attention of the existing customers back into the limelight once again
to survive safely and happily in the market. The main objective of repositioning
the product is to enlarge the reach of the product offer and to increase the
sale of the product by appealing to a wider target market. The product is
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provided with some new features or it is associated with some new uses and
is repositioned for existing as well as new target market.
PRODUCT
Same Different
Same
Image Repositioning Product Repositioning
Different
Intangible Repositioning Tangible Repositioning
Source: Ennew C, WatkinsT&WrightM(2005)
Figure:4.1 Product Repositioning
Activity 4.3
? 1. Why is the understanding of the concept of market segmentation,
targeting and positioning necessary to a financial service marketer?
4.5 Summary
Total process of financial service market segmentation, targeting and positioning
is a very important attribute of marketing mix. Segmenting the market involves:
considering variables for segmenting the market;

looking at profile of emerging segments;
validating emerging segments;
deciding on targeting strategy;
deciding which and how many segments should be targeted;
understanding customer perceptions (positioning); and
positioning products in the mind of the consumer.
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Once the financial service provider has decided which customer groups, within
which market segments to target, it has to determine how to present the
product to the target audience. This allows the financial service provider to
address the needs and expectations of the target groups with a tangible
marketing mix that consists of product characteristics, price, promotional
activities and places to present the product. In order for strategies of
segmentation, targeting and positioning to be effective, a thorough SWOT
analysis of the market must be conducted.
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References
Alam, I. (2002). Managing the fuzzy front end of service innovation. The
Role Of Customer Interaction, Proceedings Of The American
Association.
Cook, S. (2000). Customer Care Excellence, 4th Edition, Institute of
Directors.
Ennew, C. Watkins, T. and Wright, M. (2005). Marketing of Financial
Services 3rd Edition, Tata McGraw-Hill.
Etzel, M. Walker, B. and Stanton W,(2006). Principles of Service
Marketing, 3rd Edition, McGraw Hill.
David, L. Kurtz, Louis, E Boone, M. Dale Beckman, (2010). Foundations
of Marketing, Foundations of SAGE Publications.
Harrison T, (2000) Financial Services Marketing, Illustrated Edition,
Pearson Education.
Valarie A Zeithamal, Mary Jo Bitner, Dwayne D Gremler, (2005). Service
Marketing, Intergrating Customer Focus Across The Firm, 4th Edition,
Mcgraw-Hill/ Irwin.
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5
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Unit Five
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Customer Care and Service

Quality
5.0 Introduction
I n the financial services industry, the provision and delivery of services

involves a variety of interactions between service providers and their
customers. Personnel are instrumental in the creation and provision of service
quality and in doing so; they need to care for the customers. In this unit, we
will focus on customer care, the benefits of customer care and the treatment
of both internal and external customers.
5.1 Objectives
discuss the importance of customer care for both internal and external
customers in the financial service industry
explain the reasons for developing customer care and service quality
initiatives
discuss the dimensions of customer care / service quality
explain the measurement of care and service quality problems
5.2 Definition of Customer Care

Customer care is concerned with customer satisfaction, that is, putting the
customer first, anticipating needs and problems of customers, tailor making
products and services to meet customer needs. Customer care is also
concerned with maintaining a good relationship between employees and
customers, internal relationships between employees and management.
Customer care involves developing strategies and programs that will create
efficiency in service delivery.
5.3 The Need for Customer Care

Customer care plays a vital role in the financial service because the customer
is at the centre of the organisation. Marketing oriented financial service
providers consider customer care as a very critical factor for their success.
The following emphasize the need for customer care:
i. the need for customer care is driven by customers, employees and the
dynamic business environment. Today's customers are learned and they
know exactly what they need as well as the alternative on offer in relation
to financial products/services and service provider organisations.
Therefore as their expectations rise, customers become more critical
of the quality of service on offer;
i i. knowledge of the costs and benefits of keeping existing customers
relative to attracting new ones serves as a push factor for companies to
pay attention to existing customers;
iii. looking after customers adds value to the organisation in terms of profit;
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Unit 5 Customer Care and Service Quality
iv as the organisation grows, there is need to keep a good relationship

between employees (internal customers ) and management should
communicate with their internal customers, maintain staff morale, even
if there in a recessionary climate. This will make the business grow as
long as internal customers are committed; and
v. superior customer care may be seen as a mechanism to achieve
differentiation and a competitive advantage and so became integral to
the overall direction and strategy of an organisation.
5.3.1 Benefits of customer care

Failure for financial service providers to meet customer's requirements and
services quality may result in the loss of customers since one dissatisfied
customer complaints and tells a number of others thereby destroying the image
of the financial service provider. The following are the benefits of customer
care:
i Customer loyalty through satisfying and retaining present customers

can generate repeat and increased business and may attract potential
customers from positive word-of-mouth communication.
Customer's retention is a cost effective strategy than trying to attract
new customers.
ii Increased opportunities for cross selling.
Knowledgeable and technologically advance sales, team is able to identify
customer needs and suggest relevant products/services.
iii Employee benefits
These may be realised in terms of increased job satisfaction, high
morale, commitment to the service provider, successful employer-
employee relationships and increased staff loyalty, which contributes to
reducing the rate of staff turnover and the associated costs of
recruitment, selection and training activities.
iv Good customer care enhances cooperate image of the service provider
and may provide insulation from price competition, some customers
may pay a premium for reliable services.
5.4 The External Customer

External customers are outside customers who buy goods and services from
a service provider. Customer care for the external customer requires an
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organization to pay attention to its products / service, delivery systems, delivery

environment, technology and employees which are highly interdependent.
5.4.1 The elements of customer care

The following are the elements of customer care:
i. production /service range
This includes basic products (such as deposing and withdrawal of funds) and
augmented service offerings such as ATM cards, cheque books.
ii. delivery system
Delivery systems and procedures need to operate efficiently in that they should
be responsive and reliable, for example, to avoid queuing in branches, financial
service providers, have introduced ATMs in all strategic places in the city
centres and in the industrial site, and POS machines in supermarkets.
Furthermore, financial service providers have also introduced e-banking.
Customers are free to choose between an interaction with an ATM or with a
bank employee by telephone, letter or face to face in a branch. Every time the
customer comes into contact with any aspect of the bank and its employees,
he or she has an opportunity to form an impact on employees in relation to
their motivation performance and job satisfaction and their rewards.
iii. the delivery environment
The delivery environment includes both physical design and access aspects
and also emotional or atmospheric impact and is experienced by both
customers and employees. Physical design includes lay out, furnishing, noise,
music, space, colour, lights, temperature and comfort and is evidenced in
recent redesign of financial service providers. Bitner ( 2002) has carried out
significant research relating to the physical environment. In this regard, she
introduces the concept of service scapes which may involve customers only
(for example, in self service, e-banking) employees only , for example, remote
services or customer-employee interaction. Furthermore, Bitner etal indicates
that the physical environment needs to be conducive for both customer
satisfaction and employees' ability to work and that perception of the
environment leads to emotions, attitude, and subsequent behaviour.
Favourable environments lead to positive customer evaluation of services and
a desire to spend more time and money there.
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iv. technology
Technology may be integral to a service product, its environment and delivery

and financial service .Recent technological advances have made major
contributions to facilitating customer company exchange and to increasing
level of services. In recent years, technological advancement through
mechanisation and computerisation has increased speed, efficiency and
accuracy of services. Depersonalised service can free staff or internal customers
either for other activities which may detract from customer contact and lead
to less customer loyalty or to concentrate on developing interactions and
relationships to maintain customer loyalty .However, technology will not replace
people in the provision of financial services and "hightech" and "high touch" go
hand in hand with enhanced use of technology acting as basis for the provision
of better personal services.
v. employees
The role of employees in customer care includes their personal qualities,

ability to understand and satisfy customer needs, and their skills and knowledge.
5.4.2 Dimension of customer care

Dimension of customer care involves the way in which the service is delivered,
in relation to staff in a financial services organisation and this includes attitudes
and behaviour, appearance and personality service-mindedness, accessibility
and approachability of customer contact personnel. Furthermore there exists
the corporate image dimension of service quality, which is the rest of how
customers perceive a service organization and is built up by the technical and
functional quality of its service (Gummesson and Gronroos : 2002)
Parasuraman, Zeithamal and Berry (1998,2002) make an emphasis on ten

dimensions which are :
Tangible: physical evidence

Reliability: getting it right the first time, honoring promises.
Responsiveness: willingness, readiness to provide services.
Communication: keeping customers informed in a language they can
understand.
Credibility: honest, trust worthiness.
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Security- physical , financial and confidentiality , for example, A.T.M's

Competence: possession of required skills and knowledge of all
employees.
Courtesy: politeness, respect, friendliness.
Understanding or knowing the customer, his or her needs and
requirements.
Access: ease of approach and contact, for example, opening hours,
queues, phones.
5.5 Measuring of Customer Care or Service

The success of the financial service provider is measured by customer
satisfaction. Customer service is defined in terms of the difference between
customer expectations and perceptions. Expectations are desires or wants.
The customer service quality gap (that is, the difference between customer
expectation of the service and their perception of the actual service delivery
by a financial service provider) is influenced by four other gaps or shortfalls.
These are:-
i customer expectations
Managers may not necessarily know the needs or the expectations of
both internal and external customers from their company. If managers
perceive that customer expectations will be lower than the actual level
of delivery of services, then this gap may be remedied by market
research activities and better communication between management and
personnel throughout the financial service provider.
ii management perception of customer expectations -service quality
specifications actually set although customer needs may be known,
however, they may not be translated into appropriate service
specifications as a result of lack of resources , organisational constraints
or absence of management commitment to a service culture and service
quality. Thus actual specifications for service may be below what
management believes those specifications should be. Therefore there is
a need for management commitment and resources for service quality.
iii service quality specifications - actual service delivery
This gap is known as the service performance gap and occurs when
the service that is delivered is different from managements specifications
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for services due to variations in the performance of service personnel.

Where delivered service is below service specification, this outcome
may be a consequence of employees not being able or willing to perform
at a desired level. There is also a possibility that highly motivated
employees may deliver services in excess of specifications which may
mitigate the effects of gaps in the perceptions and specifications stage
of service delivery
iv. actual service delivery- external communications about the service.
Advertising and promotions can influence customer's expectations and
perception of service. It is essential not to promise more than what can
be delivered or fail to present relevant information. In order to be
successful, financial service providers must provide appropriate and
timely information or communications both internally and to external
customers.
Servicescape Model
Cognitive Emotional Physiological

-Beliefs – mood -Pain
Phy sical -Symbol - Attitude -Comfort
Enviro nment meaning -Physical Individual behaviors
• Ambien ce fit appro ach
Conditions • Affiliation
Internal Internal Responses
• Temperature • Exploration
Respon se
• Air quality Moderato rs • Stay lon ger
• Noise • Commitment
• Oud or • Carryout plan
Employee Avoid op posites of approach

Response Employee
Moderators responses
Space/ Functions
• Layout Social interactions (between
• Equipment Perceived & among customers and
servicescape employees)
• Furnishings
Individual behaviors
Signs, Symbols approach
Customer • Affiliation
and A rtifacts Customer
• Stay/explor e
• Sign age
• Spend money
• Personal • Return
artifacts Cognitive Emotional Physiological • Carry out plan
• Style of décor -Beliefs – mood -Pain
Avoid Opposites of
-Symbol - Attitude -Comfort Approach
Source: Bitner, (2002)

Source: Bitner, (2002)
Figure 5.1 : Impact of Physical Surroundings on Customer and
Employees
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5.6 Measurement Problems

The measurement of service dimension is surrounded with methodological
problems relating to the dimensions themselves, variations in customer
expectations, and the nature of the measurement tool.
i. dimensions
The financial service providers must be aware that some elements of service
are easier to evaluate than others, for example, tangibles and credibility are
known well in advance. However some elements are experience related and
may make it difficult if not impossible to evaluate even after purchase and
consumption. Consumers rely on experience properties when evaluating
services.
ii. customer expectations
Customer expectations are usually reasonable. For example, they expect

A.T.Ms to have sufficient cash all the time and they expect basics from a bank
with respect to security, cleanliness and to be treated with respect. Financial
service providers need to consider non-routine service encounters which may
have a major impact on customer and employee evaluations and satisfaction.
For example, would be service recovery situation, that is, what happens when
the financial service provider is offline and external customers want to transact.
iii. measurement tools
More emphasis must be made on the culture differences in attitude and

behaviour of both internal and external customers -with respect to all the
elements of customer care ,and the cultural context of a rating scale assessment
and consumer willingness to respond and if necessary criticise financial service
providers.
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Activity 5.1
?
1. Why is it necessary to develop customer care in the financial service
industry?
2. What are the main dimensions of customer care?
5.7 The Internal Customer

The internal customer refers to the employees who are expected to be taken
care of by the employer in order to offer quality service to external customers.
The role of a financial service provider's employees in customer care has
come increasingly important and investment in people becomes integral to the
service profit chain. (Schlesinger and Heskette 2002)
Internal Service Quality Employee Satisfaction Employee Retention External

Service Quality Customer Satisfaction Customer Retention Profit.
Much of the attention given to employees relates to the concept of internal

marketing, view s employees as internal customers and their jobs as internal
products. Gronroos (2002) denotes that satisfying the needs of internal
customers add value to the capability to satisfy the needs of external customers
and make an emphasis on three objectives of internal marketing:
overall: to achieve motivated, customer conscious and oriented personnel

strategic: to create an internal environment that supports customer-
consciousness and sales mindedness among personnel
tactical: to sell service campaigns and marketing efforts to employees-
the first market place of the financial service provider- via staff training
programs and seminars
Internal marketing has a close link with human resources management in any
organisation. Human resources have responsibility for developing enlightened
personnel policies which include recruitment, selection and training for
employees. Successful personnel policies include recruitment and selection of
the right people in the right positions. Key characteristics for employees to
perform effectively may relate to: process and technical skills, interpersonal
and communication skills, team work skills, flexibility and adaptability and
empathy with the external emphasizes that employees must be able and willing
to deliver desired levels of services in order to minimise gaps between service
specification and delivered service. Furthermore (Zeithamel etal, 2002) points
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out that employees' contributions in meeting customer needs cannot be over-

emphasised.
Financial service organisation needs to manage effectively product /technical

knowledge and relationship management, personal skills and interpersonal
communication skill development. This allows organisations to empower
employees to exercise judgement and creativity in responding to customer
needs and problems.
Zeithamel etal (2002) indicates that the successful training programmes will
lead to:-
teamwork: evidenced by a caring management, involved and committed

employees.
employee-job fit: the ability of employees to perform a job.
technology -job fit: are the tools appropriate for the employee and the
job?
perceived control: for example, do employees have flexibility in dealing
with customers? If not stress levels may rise and performance decrease?
supervisory control system: based on behaviours rather than output
quality.
avoidance of role conflict: for employees in satisfying employees'
expectations of the company and expectations of customers.
avoidance of role ambiguity: employees should know what is expected
of them and how performance will be evaluated.
Financial service organisations were amongst the first major companies in the
U.K to invest significant amounts of money in customer care training
programmes and were researched by (Smith and Lewis 2002)at an early
stage of their development.
Expenditure was viewed as long term investment and the programmes were
designed to move a financial service provider to a service -oriented culture by
breaking down barriers and improving internal communications, which
necessitated changes in employee and management's attitudes.
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5.8 Service Delivery

Service delivery has to be managed in order to minimise any possible gaps
between the service promised to customers and the service delivered
(Zeithamal etal, 2002)
5.8.1 Service guarantees

As consumer expectations and company standards rise, service providers
become competitive in the promises they make to consumers and there is
now increasing evidence of "service guarantees" in both the public and private
sectors. A good service guarantee should be unconditional, easy to understand
and communicate, easy to invoke and easy to collection.
Some customers may be dissatisfied and decide to keep quiet for the following
reasons:-
fear of hassles or too much trouble to complain

no one is available to complain to or there is no easy channel by which
to communicate disquiet
no one cares and it will not do any good
do not know where to complain to
customers attributing themselves as a source of service problems by
their failure to perform in the creation of a service
However, financial service providers encourage dissatisfied customers to
complain, in order to discourage negative word of mouth, communication
and to retain rather than replace customers and in doing so they are managing
service recovery
5.8.2 Service recovery

Service recovery is defined as a planned process or strategy of returning an
aggrieved or dissatisfied customer to a state of satisfaction with a company or
service making a special effort put things right when something goes wrong.
Financial service providers strive for zero defects in their service delivery in
order to retain customers. Consequently, they develop their service quality
systems which are rigid with sophisticated techniques and structured personnel
policies -to try to provide consistent high quality services. Mistakes such as
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lost cheque books or incorrect statements, the system being down, failure to
manage long queues by employees may happen.
The challenge with service providers is to recover the problem or mistake

and get it very right the second time to turn frustrated customer into loyal
ones.
Service recovery includes focus on critical service encounters and anticipating

and preventing possible failure points; identifying problems, making it easy to
complain ,conducting research , for example phoning customers to check on
services delivered , tracking and analysing failures , offering reward for
improvement suggestions and measuring performance standards. When
problems occur, financial services providers have to expedite service recovery
to meet customers recovery expectations.
Financial services providers are not expected to be defensive when a problem

occurs, but should acknowledge the problem, take responsibility and should
apologise for and then fix the problem.
Key issues to successful customer care strategies:-
research and understand customer needs and expectations at all service

encounters.
develop enlightened personnel policies. Recruit the right people for the
right positions.
develop products or services to meet these needs, system and
procedures which are customer and employee focused, responsive,
flexible and reliable and a suitable delivery environment.
make best use of technology in products, service systems and
environment - to ensure speed, accuracy and efficiency.
manage the delivery process. Pay attention to potential failure points,
complaint handling and service recovery procedures which become
integral to employee training.
monitor the customer care or service quality programme. Develop
systems to research and evaluate customer satisfaction and
dissatisfactions and employee performance. Review customer care
objectives. Financial service providers need to have commitment to
customer care and the creation of an organizational culture.
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Activity 5.2
?
1. Should the internal customer and the external customer be considered
equally important within a financial service organisation? If so, why?
2. What are the important aspects of service delivery, service guarantees
and service recovery?
5.9 Summary
In this unit, the need for excellent customer care and service quality initiatives
in financial service organisations has been explained and focus was made on
both internal and external customers. Focus has been given to the elements
and dimensions of customer care or service quality and how they might be
measured. The final section has focused on an increasingly important aspect
of service delivery, namely service guarantees and service recovery. Customer
care programmes are a priority in the financial service organisation with
expenditure treated as long- term investment for future growth and profitability.
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References
Bitner, M.J. (2000). Servicescaps: The Impact of Physical Surrounding
On Customers and Employees, Journal of Marketing.
Gummesson, E And Gronroos,C. (2002). Quality of Products and Services,
Services Research Centre, University of Karlstad,Sweden.
Gronroos,C. (2002). Internal Marketing- An Integral Part of Marketing
Theory. American Marketing Association, Chicago.
Parasuraman, A. Zeithaml, V. A. And Berry L.l (2002) More On Improving
Quality Service. Journal Of Retailing
Schlesinger, L .A and Heskett, J. L (2002) The Service Driven Company.
Harward Business Review
Smith, A. M. and Lewis, B. R. (2002). Customer Care In The Service
Sector. The Suppliers'
Perspective. Financial Services Research Centre, Manchester School of
Management
Zeithaml, V. A. Berry , L.l .and Parasuraman, A. (2002) Communication and
Control Process In the Delivery of Service Quality. Journal of Marketing
April 2002.
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CONTENTS
Unit Six: Product
6.0 _______ Introduction _______________________________________________ 79

6.1 _______ Objectives _________________________________________________ 80
6.2 _______ Financial Services as Products _________________________________ 80
6.3 _______ Common Financial Products __________________________________ 80
6.4 _______ What Customers want from Financial Products? __________________ 81
6.5 _______ Product Hierarchy in Financial Services _________________________ 81
_________ Activity 6.1 ________________________________________________ 83
6.6 _______ Product Management ________________________________________ 83
_________ 6.6.1 Factors affecting product management _____________________ 83
_________ 6.6.2 Managing existing product lines ___________________________ 84
_________ 6.6.3 New Product Development ________________________________ 86
_________ Activity 6.2 ________________________________________________ 88
6.7 _______ Summary __________________________________________________ 89
_________ References _________________________________________________ 90
Unit Seven: Pricing
7.0 _______ Introduction _______________________________________________ 91

7.1 _______ Objectives _________________________________________________ 92
7.2 _______ Key Roles of Pricing in Financial Marketing _____________________ 92
_________ Activity 7.1 ________________________________________________ 92
7.3 _______ Challenges in Pricing Financial Services _________________________ 93
_________ Activity 7.2 ________________________________________________ 94
7.4 _______ Financial Services Pricing Strategies ____________________________ 94
7.5 _______ Determining Which Price to Use _______________________________ 95
7.6 _______ Factors Affecting Financial Service Pricing ______________________ 95
_________ 7.6.1 The demand function ____________________________________ 96
_________ 7.6.2 Price complexity ________________________________________ 96
_________ 7.6.3 Promotional pricing _____________________________________ 96
_________ 7.6.4 Environmental forces influencing pricing ___________________ 96
7.7 _______ Price Determination _________________________________________ 97
_________ Activity 7.3 ________________________________________________ 99
7.8 _______ Summary __________________________________________________ 99
_________ References ________________________________________________ 100
Unit Eight: Promotion
8.0 _______ Introduction ______________________________________________ 101

8.1 _______ Objectives ________________________________________________ 102
8.2 _______ What is Promotion? ________________________________________ 102
8.3 _______ Planning a Promotional Campaign ____________________________ 102
_________ Activity 8.1 _______________________________________________ 105
8.4 _______ Forms of Promotion Mix ____________________________________ 105
_________ 8.4.1 Advertising ___________________________________________ 106
_________ 8.4.2 Sales promotion _______________________________________ 107
_________ Activity 8.2 _______________________________________________ 108
_________ 8.4.3 Public relations _______________________________________ 108
_________ 8.4.4 Personal Selling _______________________________________ 109
_________ 8.4.5 Direct marketing ______________________________________ 110
_________ Activity 8.3 _______________________________________________ 110
8.5 _______ Summary _________________________________________________ 110
_________ References ________________________________________________ 112
Unit Nine: Place (Distribution)

9.0 _______ Introduction ______________________________________________ 113
9.1 _______ Objectives ________________________________________________ 114
9.2 _______ Distribution: Distinguishing Features __________________________ 114
9.3 _______ Distribution Methods _______________________________________ 114
_________ 9.3.1 Direct distribution _____________________________________ 115
_________ 9.3.2 Indirect Distribution ___________________________________ 115
_________ Activity 9.1 _______________________________________________ 116
9.4 _______ Distribution Channels _______________________________________ 116
_________ 9.4.1 Specialist financial services branch outlets __________________ 117
_________ 9.4.2 Non-financial services retailers (NFSRs) ___________________ 118
_________ 9.4.3 Quasi-financial services outlets (QFSOs) ___________________ 119
_________ 9.4.4 Face-to-face sales channels ______________________________ 120
_________ 9.4.5 Telephone-based distribution _____________________________ 120
_________ 9.4.6 Internet-based distribution ______________________________ 121
_________ 9.4.7 Direct mail ___________________________________________ 123
_________ 9.4.8 Banc assurance _______________________________________ 124
_________ 9.4.9 Other distribution channels ______________________________ 126
_________ Activity 9.2 _______________________________________________ 126
9.5 _______ Summary _________________________________________________ 126
_________ References ________________________________________________ 128
Unit Ten: Physical Evidence
10.0 ______ Introduction ______________________________________________ 129
10.1 ______ Objectives ________________________________________________ 130
10.2 ______ Visible and Invisible Elements of Services ______________________ 130
_________ 10.2.1 Managing the financial service provider's physical evidence ___ 130
_________ 10.2.2 The strategic role of physical evidence ____________________ 131
_________ 10.2.3 Packaging ___________________________________________ 132
_________ 10.2.4 Facilitating the service process __________________________ 132
_________ 10.2.5 Socialsing employees and customers ______________________ 132
_________ 10.2.6 A means for differentiation _____________________________ 133
_________ 10.2.7 A Framework for understanding the use of physical __________
_________ evidence in creating environments _____________________________ 133
10.3 ______ The Development of Service Scapes ____________________________ 134
_________ 10.3.1 Remote, self service and interpersonal services _____________ 134
_________ 10.3.2 Physical environment dimensions ________________________ 135
_________ 10.3.3 Holistic environment __________________________________ 135
_________ 10.3.4 Types of Customers ___________________________________ 136
10.4 ______ Internal Response Moderators ________________________________ 136
_________ 10.4.1 Internal responses to the environment ____________________ 137
_________ 10.4.2 Behavioural responses to the environment _________________ 138
_________ 10.4.3 Specific tactics for creating service atmospheres ____________ 139
10.5 ______ The Location of the Bank ___________________________________ 140
_________ 10.5.1 The bank's architecture ________________________________ 141
_________ 10.5.2 The bank's sign ______________________________________ 141
_________ 10.5.3 The bank's entrance __________________________________ 141
_________ 10.5.4 Lighting ____________________________________________ 141
_________ 10.5.5 Music ______________________________________________ 142
_________ 10.5.6 Announcements ______________________________________ 142
_________ 10.5.7 Sound avoidance ______________________________________ 142
_________ 10.5.8 Scent Appeals ________________________________________ 142
_________ 10.5.9 Touch and taste appeals ________________________________ 143
10.6 ______ Facility Location ___________________________________________ 143
10.7 ______ Facility Layout ____________________________________________ 143
10.8 ______ Product Design ____________________________________________ 144
_________ 10.8.1 Process Design _______________________________________ 144
_________ Activity 10.1 ______________________________________________ 144
10.9 ______ Summary _________________________________________________ 144
_________ References ________________________________________________ 146
6
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Unit Six
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Product
6.0 Introduction
T he product is fundamental to any marketing activity, since it is by

consuming the product that a customer experiences enjoyment and utility.
Clearly, a product which does not offer what consumers want at a price they
are prepared to pay will never succeed. This unit is dedicated to the product,
an element of the marketing mix which deals with issues such as developing
an appropriate product range and product line, as well as considering decisions
relating to the attributes and features of individual products. In this unit, we
also cover the nature of financial services, product policy issues, new product
development and factors that affect product management.
6.1 Objectives
explain the nature of financial services products
outline the issues influencing product policy
provide an overview of issues relating to the management of existing
products
outline the issues associated with the development of new products
6.2 Financial Services as Products

Financial services are either products or services though they have elements
of both. According to Lee, (2002) financial services relate to physical products
in the following ways:
Perishability. As opposed to services like hotel room reservation, the financial

service for example, the credit card will always be there when the customer
wants one. Credit card is not perishable as hotel room reservation. This makes
it easy for the financial provider to manage demand.
Mass production. Products are mass produced, while services are usually
produced and delivered one at a time. Mostly financial services are
individualised such as financial advice while some are mass marketed such as
insurance policies and college savings accounts. Mass production is
advantageous in that it enables mass distribution and cost savings.
Separability. Generally most services are produced and consumed at the same
time but in financial services, the production of financial products can be
separated from consumption.
6.3 Common Financial Products

Sasanee (2004) identified the following common financial products:
Personal Banking
Credit Cards
Home Loans
Car loans
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Unit 6 Product
Two wheeler loans

Commercial vehicle loans
Personal Loans
CD Loans
Loans against shares
Bonds/Fixed Deposits
6.4 What Customers want from Financial Products?

The majority of organisations offer a range of products to a variety of customer
groups in order to meet a variety of customer needs. In financial services, the
prime customer groups are personal, institutional and corporate. In personal
markets, financial institutions will often separate high net-worth individuals
(HNWI) from other customer groups. In the corporate markets, banks will
typically separate large corporate from small and medium-sized enterprises.
These customer groups have a wide variety of financial needs. The diversity
of customer needs can be classified into six main headings:
The need to move money and make payments (e.g. current accounts,
ATMs debit cards)
The need to earn a return on money (e.g. savings accounts, unit trusts,
bonds)
The need to defer payment or advance consumption (e.g. loans, credit
cards, mortgages)
The need to manage risk (e.g. life insurance, general insurance)
The need for information (e.g. share price information services, product
information)
The need for advice or expertise (e.g. tax planning, investment planning,
advice on IPOs, advice on mergers and acquisitions).
6.5 Product Hierarchy in Financial Services

Organisations provide products to meet customer needs. One common way
of thinking about products is to see them as a series of hierarchical layers
surrounding the central core:
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1. The core: The core product represents the basic need that is being
provided - in the case of a bank current account, the core product is
money transmission. At the core-product level, all organisations in the
market are basically the same - all current accounts offer money
transmission, all credit cards offer the opportunity to delay payment,
and all unit trusts provide an investment opportunity.
2. The tangible product: The next layer of the product is usually described
as the tangible product, and at this level the organisation will make the
product identifiable by adding certain features, facilities, brand name,
etc. The products of different organisations will be slightly differentiated
although, from the consumers' perspective, all the features offered in
this layer are what they would expect as a minimum before purchasing.
This suggests that it would be difficult really to differentiate products at
this level.
3. The augmented product: The third layer, which is described as the
augmented product, is usually used to refer to those features which
organisations add to make their products distinct from the competition,
such as the special customer service offered to holders of platinum
credit cards. It is at this level that an organisation hopes to gain a
competitive edge by offering attractive features that competing products
do not offer.
4. The potential product: The final layer of the product is described as
the potential product. This refers to features that are either very new or
not yet available, but which can potentially be added to a product to
make it very distinct.
Example of a unit trust
The core element of a unit trust is that it provides customers with a way of
investing existing wealth and generating a return in the future. The tangible
elements would include an association with a specific supplier (branding), a
choice of investment realisation method (income v. capital growth), projected
returns, accessibility, etc. The augmented element would then incorporate
additional features which go beyond those that would be expected by the
consumer. In the case of a unit trust, this might include the option to invest
only in environmentally responsible companies. Finally, the potential product
might include a facility that allows consumers to buy and sell over the Internet.
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Unit 6 Product
Based on this way of thinking about products, marketing managers must:
Understand the core benefit that their product offers, and the needs of
customers
Identify the tangible elements that consumers would expect the product
to offer
Identify augmented product features that would provide the basis for
differentiating the product
Monitor developments that could provide the basis for potential future
features.
Activity 6.1
1. Identify ways financial services (products) differ from physical products.
? 2. Choose a financial product with which you are familiar. What are the
different layers in that product?
6.6 Product Management

Financial services organisations will look to develop services that meet some
or all of the financial needs of some or all customer groups. Some organisations
will concentrate on serving a subset of customers. First it is important to discuss
the factors that affect the product management relevant to financial service.
6.6.1 Factors affecting product management

Ananthakrishnan, (2004) postulates the following as factors affecting product
management:
1. Customers- Consumer needs, wants and expectations are a major
influence on product management. In personal markets, factors such
as customers' tastes and preferences, lifestyles, patterns of demographic
change and income levels will be of particular importance. For corporate
customers, marketing managers must focus on the objectives and
strategies of customers and on understanding the environment in which
customers' businesses operate in order to identify likely financial needs.
Understanding consumers, particularly retail consumers, can be very
difficult. Financial services are often complex and seen as uninteresting,
and are therefore difficult to research. One important factor to take
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into consideration is the idea of trying to understand consumers' changing

lifestyles and the implications that these will have for customer financial
needs. For example, an awareness of the increasing time pressure on
many consumers and the increased desire for flexibility should lead
banks consistently to look for ways of delivering service in a more
flexible and convenient fashion (24-hour ATMs, WAP phones, Internet,
etc.).
2. Competitors- The regular monitoring of competitors is an important
source of information for product managers, for several reasons. First,
changes in a competitor's product range and product features will
indicate a possible change in the pattern of competition. Secondly,
because it is relatively easy to copy financial services, monitoring what
competitors are doing can be an important source of new product ideas.
3. External environment- Marketing managers must be aware of general
trends in the environment so that they can identify new threats and
opportunities. For example, China's accession to the WTO created a
major opportunity for non-domestic financial services providers to
access a market with one of the highest savings rates in the world.
Internal factors- To make good product decisions, managers must have a
clear understanding of the resources available to the organisation and its
particular strengths and weaknesses in order to understand how best to
respond to a particular opportunity or threat.
This analysis of self, customers, competitors and the external environment is a

continual process. Marketing managers must keep abreast of these factors
and consider how best to respond to key changes. It is not operationally or
financially feasible for an organisation to react to every change in the marketing
environment; at the same time, no organisation can afford to miss key
opportunities that may be presented by legislative, social or economic change.
6.6.2 Managing existing product lines

Patnaik, and Chhatoi, (2006), posit that the management of existing product
lines covers two broad areas: the first deals with decisions about the features
to attach to a particular product; the second deals with product line
management and, in particular, issues relating to product modification and line
length modification.
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Unit 6 Product
Product attributes
One of the most basic sets of decisions relates to the choice of product
attributes (features, brand name, quality, etc.). These attributes are used to
create a tangible or augmented product. Thus, the generic service product
(life insurance, for example) has to be developed into some tangible or
augmented form through the addition of various features such as cover for
total and permanent disability, premium waivers in the event of disability and
so on. The features that are offered as part of a particular service product are
one means of differentiating the service. However, the actual range of distinct
features which can be attached to a particular financial service is limited and
may not provide a long-term basis for differentiation, since such features are
easily copied. Offering interest payments on chequering accounts will be an
extra attraction for customers, but is one that can easily be copied by
competitors. It therefore becomes very difficult to differentiate in terms of
product attributes. Thus, any attempt to differentiate a product at the expected
or augmented level must look beyond simple product features and consider
instead issues such as quality, branding and organisational image.
Quality is regarded as an increasingly important product feature, and refers to

the ability of a product to perform its intended task. Some researchers
(Grönroos, 1984) suggest that customers should assess service quality based
on both technical and functional quality:
a) Technical (or outcome) quality is concerned with how the product

performs (for example does a capital growth investment trust provide
an acceptable rate of capital growth?)
b) Functional or (process) quality is concerned with the way in which the
service is delivered, and might include factors such as the way staff
behave towards customers, and the speed of response to questions.
Product modification/product development
Once a product is established, there are two broad areas that require attention:
product modification and product development. Product modification is
concerned with changing the attributes of a product to make it more attractive
to the marketplace. Product development involves creating a new variant of
an existing product, and is typically associated with either product-line stretching
or product proliferation. Product modification in financial services aims to
improve the performance of an existing product. This may mean making the
service easier to use (fixed annual repayments on existing mortgages, for
example), improving the quality of the service (personal account managers
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for corporate clients) or improving the delivery system (redesigning an on-line

banking site to make it more useable). With increases in competition and with
high consumer expectations, product modification is important for organisations
seeking to maintain and expand the customer base.
Obviously, if a product is at the mature or decline stage in its lifecycle then

additional expenditure on that product may be risky. At the same time, trying
to develop completely new products is also risky, so an approach that
concentrates on modifying existing products can be very attractive. Product-
line stretching or product proliferation involves adding new services to an
existing service line, and has traditionally accounted for much of the new product
development activity in financial institutions.
6.6.3 New product development

Developing new products is an important aspect of product management
because it ensures that the range is up to date, innovative, and meets changing
consumer needs. The term New Product Development (NPD) covers a range
of types of innovation; some new products are genuinely new, but others are
actually developments of existing products. It should be borne in mind that
innovation can be in areas concerning service features as well as utility features.
In this section we will consider two specific types of new product development:
Major innovations- these are new products to the organisation and to the
market. As such, while they offer great potential in terms of returns they are
also more risky since they will typically require a much higher level of investment
and the use of different and new technologies.
Whether considering genuine innovations or the addition of new service lines,

there are many benefits from operating a structured process to consider which
developments are most suitable. The basic components of a new-product
development process are as follows:
1. New-product development strategy
A clear strategy is important to ensure that all those involved understand the
importance of NPD and what the organisation wishes to achieve. For example,
it is essential that all those involved should understand whether the process of
NPD is to be orientated towards taking advantage of new market segments,
seen as crucial to the continued competitiveness of the organisation, required
to maintain profitability, or designed to reduce excess capacity or even out
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Unit 6 Product
fluctuating demands. The ideas that should be considered are likely to vary
according to the purpose of the NPD programme.
1. Idea generation
Ideas may be generated from both inside and outside an organisation. Ideas
may be generated internally from specialise NPD teams, from employee
feedback or suggestions. Externally, ideas may be generated based on customer
feedback, market research, specialist new product development agencies or
by copying competitors. One common failing in idea generation is a tendency
to focus on what is possible rather than what the market wants - this has been
particularly apparent with new technology-based products, where too much
attention has been paid to what the technology can do and not enough to
what consumers want.
2. Idea screening
The variety of ideas produced at the idea generation stage must be screened
to check that they are suitable. This usually means deciding, in advance, a set
of criteria to be used when ideas are evaluated. The sort of criteria used can
vary, but questions asked are likely to include the following:
Does the idea fit with the organisation's strategy?

Does the idea fit with the organisation's capabilities?
Does the idea appeal to the right market segments?
Is the idea viable in terms of cost and profit?
3. Development and testing
Ideas that have survived the screening process are then worked up into specific
service concepts - that is to say, the basic idea for the new product must be
translated into a specific set of features and attributes which the product will
display. At this stage it is common to test this newly defined product and to
identify consumer and market reactions in order to make any necessary
modifications to the product before it is launched. The problem with test-
marketing in the financial service sector is that it gives competitors advance
warning of an organisation's latest ideas and thus offers competitors the
opportunity to imitate. As a consequence, test-marketing of financial services
is comparatively unusual. Many organisations argue that the actual costs of
developing new products are often low, but the losses from giving advance
warning to competitors may be quite high.
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4. Product launch
The product launch is the final stage and the true test of any newly developed
product; it is the point at which the organisation makes a full-scale business
commitment to the product. At this stage, the major decisions are essentially
of an operational nature - decisions regarding the timing of the launch, the
geographical location of the launch and the specific marketing tactics to be
used in support of that launch.
Effective new product development is clearly important to the maintenance of

a competitive position and leads to the following advantages:
Maintain regular contacts with the external environment to identify

changes in market characteristics and customer requirement
Encourage a corporate culture which is receptive to innovative ideas
Operate a flexible approach to management to stimulate and encourage
the NPD process
Identify key individuals with specific responsibility for the NPD process
Encourage a supportive environment
Ensure support and commitment from head office/senior managers
Ensure effective communications both internally and externally
Choose a product that fits well with the company
Develop strengths in selling
Offer product quality
Use market knowledge and customer understanding
Activity 6.2
1. Choose what you think is the main points of differentiation between
? 2.
CBZ products and other competing products.
Critically analyse how a financial service institution can manage its
products? Choose a Zimbabwean case study.
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Unit 6 Product
6.7 Summary
The key to successful product management is the development and maintenance
of an appropriate product range. This requires that a financial service be
developed with a set of features which correspond to consumer requirements,
and that this range is constantly monitored so that existing services can be
modified and new services can be developed. The process of new product
development in the financial services sector has tended to concentrate on the
redesign of existing products within an organisation's portfolio, and the
development of products which are new to the organisation though not
necessarily new to the sector. The perennial problem that faces the provider
of financial service products is the ease with which such products may be
copied and the consequent importance of ensuring rapid market penetration
in the desired segment when new products are launched.
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References
Ananthakrishnan, G. (2004) "Marketing of Bank Products", IBA Bulletin,
(April),s .9
Dwivedi, R. (2007) "Managing Marketing-Finance Interface", Journal of
Commerce and Trade, Vol.2, No. 2 (Oct.), p. 32
Patnaik, U. and Chhatoi, B. (2006) "Bank Marketing" edited book by Sonali
Publications, New Delhi.
Sasanee, M.K. (2004). "Marketing Bank Products", IBA Bulletin, (April),
p.5.
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Unit Seven
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Pricing
7.0 Introduction
P ricing is one of the most important decisions in the marketing of financial

services. Price serves multiple roles for the financial services organisation
as well as for the individuals who use those services. To the financial services
organisation, price represents the sole source of revenues. Most activities
that an organisation undertakes represent costs and an outflow of funds.
Therefore this unit explains the roles of pricing in financial marketing, identifies
problems encountered in financial services pricing, and common pricing
strategies.
7.1 Objectives
By the end of the unit, you should be able to:
explain the roles of pricing in financial marketing
identify the challenges involved in financial marketing pricing
explain the pricing strategies involved in financial marketing
7.2 Key Roles of Pricing in Financial Marketing

Pricing according to Lee (2002) plays very important roles in financial
marketing. Some of the roles are as follows:
Price is the most visible component of the marketing strategy of a

financial services organisation. Unlike advertising style, product strategy,
or sales force incentives, which might be difficult to quantify precisely,
price is always presented numerically.
Price communicates to the marketplace the identity, market positioning,
and intentions of a financial services organisation.
Lowering of prices or an upward movement of premiums might signal a
shift in marketing strategy to competitors and may provoke reactions
from them. This fact raises the strategic importance of price and highlights
the great impact that price has been found to have in shifting the balance
of power among competing financial services providers.
Price serves as a signal of quality to customers. It has been well
established in consumer research that in such situations where quality is
not clearly evident, consumers tend to rely on price as a proxy for
quality. They might therefore assume that higher-priced financial services
are of better quality, and the lowering of prices may not necessarily be
associated with more positive consumer impressions of the financial
service.
Activity 7.1
? 1. Using a Zimbabwean financial organisation(s) you are familiar
with show the important roles that price play.
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Unit 7 Pricing
7.3 Challenges in Pricing Financial Services

According to Lee (2002) financial services prices are unique in several ways:
Financial services prices are often multi-dimensional: One of the most notable
characteristics of financial services prices is that they are complex and often
consist of multiple numeric attributes. The complex numeric nature of financial
services prices and the requirement of a minimal number of numeric
computations make financial services prices among the most complex items
that consumers have to evaluate in their purchase decisions. Research has
established that conducting arithmetic tasks associated with the evaluation of
a financial service price can be highly stressful, and consumers have a tendency
to simplify such tasks by finding mental short-cut strategies that would allow
them to avoid carrying out the demanding arithmetic.
Elusive measures of quality: the intangibility of financial services makes them

elusive. As opposed to manufactured goods, which can be scientifically tested
in laboratories and rated by qualified organisations such as CCZ. The quality
of financial services is far more difficult to determine.
Economic forces: The general environment complicates the attractiveness of

financial services, for example, in order to appreciate the value of an investment
option a consumer must compare the expected rate of return with the rates of
return experienced in the financial markets. A change in the exchange rate
might make an investment option look more or less attractive to the consumer.
Poor consumer price knowledge: The pricing of financial services needs to

take into account the fact that consumer memory for financial services prices
is quite weak. The unexciting and complicated nature of financial services
often results in poor recall of the prices of financial services. For example,
many consumers have a difficult time remembering the cost of their banking
services, such as the monthly maintenance fees for checking account services
and ATM transaction charges.
Difficulty in determining customer profitability: Profitability associated with a

given customer may be difficult to assess. This is because a single customer
may purchase multiple services from financial services provider, some of which
are highly profitable and others that represent losses. For example, a bank
customer might use the bank's checking and savings account services, which
may not be highly profitable to the bank or may conduct an investment and
retirement plan which are very profitable.
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Indeterminable costs: Determining the costs associated with a specific financial

product or service might be a numerically challenging task given the fact that
various elements of a financial services organisation contribute to the service
experience that is delivered to the customer. The limited ability to pinpoint
costs accurately can therefore complicate the task of pricing a financial service.
Conflicts of interest: The pricing of financial services is further complicated by

the significant conflicts of interest that may exist in the selling process. For
example, brokers may use different components of price, such as trading fees
or commissions earned on the sale of specific financial products, as the means
for their earnings.
Activity 7.2
1. Explain why it is difficult to price a financial product. Stimulate your
? answer to practical examples from the Zimbabwean environment.
7.4 Financial Services Pricing Strategies

Claessens and Jansen, (2000), identified the following four groups of financial
service pricing strategies:
1. Cost-based pricing
The cost-based approach to pricing is one of the oldest methods of pricing in

both financial and non-financial services, as well as in manufactured goods.
The motivation behind this approach is that one must cover at least the costs
of running a business in order to survive financially. As a result, the cost of
providing a financial service is used as the lower bound for prices.
2. Parity pricing
In the cost-based pricing approach, there is no assurance that the determined

prices will appeal to consumers in the marketplace. The increasingly competitive
nature of financial services, have led financial institutions to pay closer attention
to prices offered by their competitors. The thought process behind parity
pricing is to set prices in response to what the competition is charging. This
does not necessarily imply that one's prices will be below that of the
competitors. In fact, depending on the overall positioning of the company,
one may choose to price below or above competing prices.
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Unit 7 Pricing
3. Value-based pricing
The use of cost-based pricing or parity pricing does not necessarily guarantee
maximization of profits. This is because neither of these approaches takes
into account the unique attributes and characteristics that consumers might
value greatly in a financial service. In fact, both of these approaches may
result in prices that are either above what consumers are willing to pay or
below consumer price expectations. In the former case, this would result in a
loss of market share, while in the latter case a loss in profits would result.
4. Regulation-based pricing
The final approach to pricing is driven by the forces of legislation and regulation
that may govern particular categories of financial services. In certain categories
of financial services, regulators may play a significant role in determining prices.
7.5 Determining Which Price to Use

The pricing approaches discussed above are often used in combination. For
example, one may use cost-based pricing to arrive at a price. Parity-based
pricing may be used to arrive at another price, and value-based pricing could
be used to arrive at another price. The task of determining the final price may
involve managerial judgment as to which of the estimated prices should weigh
more heavily in determining the price charged for a financial service. For
example, in a market that is highly competitive, a parity-based price might
have more weight than the other pricing approaches. Alternatively, in a market
where customers might value the unique features of a financial service, value-
based pricing might be most relevant. As a result, the task of setting prices is
a combination of the science involving the numeric derivation of the price
points discussed earlier, and the art of judging what the ultimate price should
be. The ultimate price might take one of these computed prices more into
account than the others, or it may reflect an average of these prices.
7.6 Factors Affecting Financial Service Pricing

In determining the price of a financial service, several factors and tactical
issues need to be taken into account. The long-term strategic framework of
the service, as well as short-term profit and customer acquisition tactics that
may be required can influence the final determination of price. Some of these
considerations will be discussed below (Lee, 2002).
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7.6.1 The demand function

The most important consideration in setting prices in any market is the level of
the demand in the market. The demand function shows the relationship that
might exist between price and sales volume. However, as a minimum, a financial
services marketer responsible for setting prices needs to have an approximate
estimate of what the impact of a price change would be on sales volume. It is
very difficult to determine the demand change because of financial service
due to price change. The estimate is often based on managerial judgment but
may also be validated by formal market research techniques and test marketing.
7.6.2 Price complexity

An additional tactical pricing concern discussed earlier in this chapter is that
financial services prices are intrinsically complex and multidimensional. As a
result, consumers may have a difficult time determining what the exact price is
that they are paying. For example, credit card companies charge customers
interest, for balances carried over from one month to the next. However, they
can also realize revenue by charging transaction fees, late payment penalties,
fees on ATM cash withdrawals, and other forms of non-interest charges.
7.6.3 Promotional pricing

Many financial services organisations provide promotions that, in one way or
another, find their way into the pricing of their services. For example, an
investment company might offer customers who invest a minimum amount of
funds a lump-sum dollar rebate.Alternatively, a bank might offer new customers
small home appliances in return for opening new accounts with a minimum
amount of deposits.
Several advantages can be associated with promotional pricing. Promotional

pricing generates a sense of connection and excitement about financial services
which may otherwise be considered dry and boring by customers. In that
sense, it is able to elevate consumer involvement and generate excitement for
relatively uninteresting products.
7.6.4 Environmental forces influencing pricing

Several environmental considerations that are likely to influence the future of
pricing in financial services also need to be taken into account. The first is the
significant impact that the Internet has had on the price search behaviour of
consumers. The Internet has made the process of looking for the lowest priced
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Unit 7 Pricing
financial services provider easier for consumers, and it has also made detailed
product information readily available to the masses. For example, it is estimated
that seven out of every ten homebuyers search the Internet for mortgage rates.
7.7 Price Determination

Some form of process is required for an organisation to arrive at the finally
agreed selling price. A number of steps are considered when setting price.
Brassington and Pettit, (2000) the nature of these steps will vary according to
whether the cost-based, competitive or market-orientated approach is used.
The steps are discussed below;
Step 1: Decide upon pricing objectives
At the outset, there needs to be clarity regarding the financial and non-financial
objectives that are being sought. Typical financial objectives might include:
Sales value
Margin
Profit
Return-on-capital
Non-financial objectives may comprise one or more of the following:
Sales volume
Market share
Market position
Customer value
Step 2: Assess influence of 10 pricing factors
Having formed a view on the desired pricing objectives, it is important that an

assessment be carried out of how the following 10 factors might be expected
to exert an influence on the final price:
Marketing strategy
Price-quality relationships
Product line pricing
Negotiating margins
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Political factors
Costs
Effect on distributors
Competition
Explicability
Value to customer
Step 3: Propose indicative pricing approach
Armed with a clear set of price objectives and an assessment of relevant

influences, an indicative price can be proposed. This stage in the process can
be relatively complex in the case of insurance-related business, where there is
a huge array of individual premiums to be calculated.
Step 4: Model price/demand relationships
It is advisable to model how price elasticity of demand might operate, given

the pro-posed price. This can be used to make various trade-offs, such as
whether a lower price could result in significantly enhanced results in terms of
market share or sales volumes. Such outcomes will need to be judged in the
light of their impact upon the break-even point and emergence of profit. For
a life assurance policy, this could have a material impact upon new business
strain and hence capital requirements.
Step 5: Assess impact on pricing objectives
The modeling carried out in step 4 is a key input to assessing the likely impact
of the indicative price on the achievement of the desired pricing objectives.
An unfavorable outlook may result in the need to make changes to the pricing
objectives or indicative pricing approach. It is advisable to ensure that relevant
parties are aligned at this stage, before committing further resources to the
overall process.
Step 6: Assess responses expected from competitors and distributors
To some extent, certain aspects of this stage will have already been incorporated
into steps 3, 4 and 5. However, this is the point at which a more explicit
assessment needs to be made. Scenario planning may be a useful approach
to adopt as a means of considering the range of distributor and competitor
options.
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Unit 7 Pricing
Step 7: Set up implementation project
There is a wide range of complexity when setting prices in financial services

and in some cases extensive project management will be required. It is
especially important that pricing events involving a significant amount of IT
resources are planned well in advance - probably well before step 1 of this
process. Systems resources are usually key elements on the critical path, and
the availability of relevant personnel has to be scheduled at an early stage if
target launch dates are to be met. Staff from other functions may have an
equally significant role to play.
Activity 7.3
1. What role does pricing play in the marketing mix?
? 2. What are the particular difficulties that marketing managers face when
trying to set prices for financial services?
3. Which type of pricing strategy do you consider most appropriate for
banking services?
7.8 Summary
In this unit we highlighted the importance of pricing in the marketing process.
Pricing is the only element of the marketing mix that contributes to revenue
rather than cost, so its importance must not be underestimated. For any
organisation, the pricing decision is influenced by a range of internal and external
factors. Financial services organisations do face some additional challenges
when dealing with pricing decisions because of the greater complexity of
costing, the need to deal with risk, the problems of variability, and the difficulties
that consumers have in understanding price.
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References
Brassington, F and Pettit, S. (2000) Principles of Marketing, Second Edition,
Harlow Pearson Education Limited.
Claessens , S. and Jansen, M. (2000), Internationalisation of Financial
Services, Forthcoming Khuwer Academic Press. WTO and World
Bank
Lee, J. (2002). A key to Marketing Financial Services: The Right Mix of
Products Services,Channels and Customer. Journal of Services
Marketing, Vol 16, No 3 238-258
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8
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Unit Eight
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Promotion
8.0 Introduction
P romotion is critical in marketing of financial services. A promotion enables

the organisation to communicate with their customers, current and
potential about their products. In this unit we identify and explain the promotion
elements, examines the promotion campaign process and postulates the
advantages and disadvantages of using each promotion mix elements.
8.1 Objectives
explain the basic promotional mix elements
examine the process of planning a promotional campaign
provide an overview of the strengths and weaknesses of different
approaches to promotion for financial services
8.2 What is Promotion?

The term 'promotion' refers to the range of methods used by an organisation
to communicate with actual and potential customers (e.g. advertising, publicity/
public relations, personal selling and sales promotion) in order to evoke an
attitudinal position and an appropriate behavioural response. In service
businesses in particular, internal communication and promotion is also important
in helping to build a market orientation. Thus, promotion (or marketing
communications) increasingly focuses attention on employees as well as
customers. Marketing communications play a key role in the process of building
a brand and giving value to that brand, both by creating awareness and also
by building favourable images/associations in the minds of customers. Building
a clear brand image or brand association in the minds of consumers (and
employees) depends on a high degree of co-ordination across promotional
activities. The message presented by TV advertising needs to be consistent
with what press advertising says, with what sponsorship implies and with the
message communicated by sales staff. As with the marketing mix overall, if
marketing communications are consistent and integrated, the impact of the
overall campaign will be that much greater (synergy). Promoting financial
services is very similar to promoting physical products in many respects.
8.3 Planning a Promotional Campaign

Planning a promotional campaign involves the following stages:
Stage 1: Objectives
Defining objectives is important so that all involved in a promotional campaign

know what they are trying to achieve. Often objectives are specified in terms
of an increase in sales, but other objectives may concern themselves with
raising awareness, creating a particular image, evening out patterns of demand,
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Unit 8 Promotion
etc. In general, there are two broad types of objective that may underpin any
promotional campaign:
1. Influence demand. Promotions may be directed explicitly towards

influencing the level of demand for a service or range of services.
Normally, this would imply increasing the level of demand through
attracting new customers away from competitors, increasing usage by
existing customers, and encouraging non-users of the product to use.
2. Corporate image. Many promotional campaigns are directed towards
creating and maintaining a particular corporate image. Such campaigns
are particularly noticeable in the financial services sector because the
characteristics of financial services mean that organisations must pay
particular attention to their brand and reputation.
Stage 2: Target audience
The next stage in promotional planning requires the identification of which

groups are to be the target of the promotional activity - that is, which groups
are to receive the message. At one level, this may simply involve defining the
target market for a specific service or specifying 'the general public' (if the
promotion is concerned with corporate image). However, it is also important
to recognise that there will be differences between consumers in terms of their
knowledge and awareness of an organisation's image and range of services.
In particular, researchers have suggested that consumers pass through four
different stages when considering a purchase. This is known as the AIDA
model, because consumers are expected to move from Awareness to Interest,
to Desire and finally to Action. Defining the target audience should consider
which stage in the AIDA sequence consumers have reached. A pro-motional
message and medium which is concerned with creating awareness of (or
interest in) a product is likely to differ from one that is trying to create a desire
to purchase or stimulate an actual purchase.
Stage 3: Formulate message
Having identified the target audience, the next stage is to establish what form
the message will take. Any message can be divided into two key components
- the message content and the message form. The message content relates to
the basic ideas and information that the sender wishes to convey to the receiver.
It should make clear why the product is different, what benefits it offers and
why the consumer should buy this product rather than one of the available
alternatives. Once the basic content of the message has been established, the
next stage is to consider the form this message should take. It is at this point
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that the creative input from out-side organisations such as advertising agencies
becomes important. This process involves finding the most appropriate
combination of verbal, audio and visual signals that will present the content of
the message in a form which is most suitable for the target audience. This
means that great care must be taken with the process of encoding, to avoid
possible misunderstandings. At the same time, the information must be
presented in a form that will attract attention and maintain sufficient interest in
an advertisement or a leaflet to enable the potential consumer to absorb the
information being conveyed. Sometimes this may involve using humorous
sketches or indirect comparisons with competitors, or it may simply focus on
the product or the organisation itself.
Stage 4: Budget
A budget must be established for the promotional exercise as a whole, and, at

a later stage, for the individual components of the promotional mix. There are
no hard and fast rules for determining the size of the promotional budget and,
even within the same broad market, organisations will vary enormously in
terms of promotional expenditure. There are a number of different approaches
to the formulation of promotional budgets, including:
1. The affordable method - This simply suggests that the organisation's

expenditure on promotion is determined according to what the overall
corporate budget indicates is available. The organisation basically
spends what it thinks it can afford.
2. Sales revenue method- This approach sets the promotional budget
as some percent-age of sales revenue. By implication, this means that
sales 'lead' promotion rather than promotion 'leading' sales - which is
what might be desired. That is to say, the size of the promotional budget
will be dependent on past sales rather than desired future sales.
3. The incremental method- The budget is set as an increment on the
previous year's expenditure. This is widely used, particularly by smaller
firms. However, it offers no real link between the market and promotional
expenditure, and does not allow promotional or marketing objectives
to guide the level of expenditure.
4. The competitive parity approach- This approach focuses on the
importance of promotion as a competitive tool, and entails setting budgets
to match those of competitors.
5. The objective/task method- This is probably the most logical approach
to the establishment of promotional budgets, but perhaps also the most
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Unit 8 Promotion
difficult to implement because of the complexity of many of the

calculations. As a consequence, it is not used widely. It relies on specific
quantified objectives, and then requires that a precise cost is calculated
based on the activities required to achieve these objectives. The budget
is then based on these costs, so that marketing man-agers have a
precise budget which should allow them to achieve their stated
objectives.
Stage 5: Implementation and monitoring
As with any plan, the final stage concerns the process of implementation and
monitoring. Implementation concerns itself with the allocation of tasks and the
specification of timescale. Monitoring focuses on the regular evaluation of the
progress of the promotional campaign and the identification of any areas where
changes may be necessary. The problem that faces many organisations is the
difficulty of measuring the effectiveness of promotional activities.
Activity 8.1
1. Discuss the reasons which can influence a financial institution to intensify
? 2.
promotion.
What do you understand by the term AIDA? How can this framework
be used to help choose the best method of promotion for a particular
financial service?
3. Outline the promotion budgeting methods that can be used by a bank.
8.4 Forms of Promotion Mix

Brassington and Pettit, (2000) has categorised promotional tools into five
main elements:
advertising
sales promotion
public relations
personal selling
direct marketing
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8.4.1 Advertising
Brassington and Pettit, (2000) define advertising as any paid form of non-
personal communication directed towards target audiences and transmitted
through various mass media in order to promote and present a product, service
or an idea. The major difference between advertising and the other promotional
tools is that it is impersonal and communicates with large number of people
through paid media channels.
Meidan, (1996) further states that financial service organisations can use its
advertising for either its short-term or its long-term objectivities. A bank
attempting to build its name image would use institutional advertising while the
bank interested in promoting its brand name and its different services would
use a brand advertising policy.
Institutional advertising consists of promotion of the firm's image as a whole

and promotes the products offered, with extra emphasis on the specific firm's
name organisation. The organisation seeks through its marketing communication
to build awareness and to impress customers looking for the best range of
financial services. Due to the former impression of banks as impersonal
institutional with no interest on their customers as people, and of financial
service as abstract and quite similar, the institutional advertising has become
more and more important. Brand advertising follows closely on the footsteps
of institutional advertising. Its purpose is to create awareness of the bank's
name and to advertise the different services it is offering. Since financial firms
are serving a mass of people, the problems of brand advertising are to know
who to advertise to, and how to advertise. While institutional advertising is
directed towards the whole population, the brand advertising of particular
products has to be much more selective, since it has to show that the consumer
will benefit from the service. Furthermore, all individual campaigns of brand
advertising have to be compatible in tone and presentation, and match the
image the bank has created through its institutional advertising.
Mortimer (2001) states that an important part of advertising is to make the

service tangible in the mind of the consumer in order to reduce perceived risk
and provide a clear idea of what the service comprises. Furthermore Mortimer
(2001) considers it important to advertise consistently, with clear brand image,
in order to achieve differentiation and encourage word of mouth
communication.
Meidan (1996) identified two types of advertising channels appropriate for

financial advertising as "above-the-line" and "under-the-line" advertising.
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Unit 8 Promotion
Above-the-line advertising contains different channels of communication, such

as television, radio, posters, magazines and newspapers.
Under-the-line advertising constitutes a huge part of a financial organisation's

advertising activities. It is the invisible advertising of bank's services, including
leaflets, pamphlets, explanatory guides and manuals that can be used to support
selling of a specific service. It is hard to draw definite distinctions between
under-the-line advertising and sales promotion. Under-the-line advertising is
very easy and cheap to produce, but it must be used discreetly. Also this kind
of advertising does not attract new customers and it is depending on personal
selling for effectiveness.
8.4.2 Sales promotion

According to Brassington and Pettit, (2000) sales promotions are short-term
incentives, which are designed to add value to the product or service, in order
to achieve specific sales or marketing objectives. It has two distinctive qualities.
First, it provides a "bargain chance" since many sales promotion tools have an
attention-gaining quality that communicates an offer that will not be available
again to purchase something. The disadvantage is that although they appeal to
a wide range of buyers, many customers tend to be less brand loyal in the
long run. Secondly, if sales promotions are used frequently and carelessly, it
could lead to insecure customers, wondering whether the service is reliable or
reasonably priced.
Meidan (1996) indicates that due to the conflicting ideas concerning the benefits
of sales promotion, a financial service organisation must base its decisions
upon relevance and usefulness of sales promotions, as well as cost effectiveness.
Coupons, special offers and other forms of price manipulation are normally
the dominant forms of sales promotion (Peattie and Peattie ,1994). However,
price-based promotions are difficult and probably dangerous to use for financial
service markets. This is due to the fact that the price setting of a financial
service is already a difficult process and that consumers often see lower prices
as a result of lower quality. Sales promotion within financial services appears
to be most effectively used in combination with advertising. The primary
objectives with sales promotion within financial services are to attract new
customers, to increase the level of deposit accounts, thereby increasing the
banks' share of savings; to increase market share in selected market segments
and to lower the cost of acquiring new customers by seeking to avoid direct
price competitions with other financial institutions.
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Activity 8.2
1. Show how a marketer would use advertising to make financial services
? 2.
tangible.
Differentiate between the conditions that favour institutional advertising
and those that favour the use of brand advertising policy.
3. Identify and explain sales promotion activities that can be adopted by
a bank to attract new depositors.
8.4.3 Public relations

Too many marketers fail to exploit the image-building potential of public relations.
PR is the most effective means of shaping attitudes and building credibility for
a person, company, or product. According to Brassington and Pettit, (2000)
the essence of public relations (PR) is to look after the nature and quality of
the relationship between the organisation and its different publics, and also to
create a mutual understanding. PR covers a range of activities, for example
the creation and maintenance of corporate identity and image; charitable
involvement, such as sponsorship, and community initiatives; media relation
for the spreading of good news, as well as for crisis management, such as
damage limitation.
The Tools of Public Relations
PR encompasses a wide variety of disciplines, including investor relations,

crisis management, internal communications, influencing government policy,
and community relations. This chapter will look primarily at PR as a marketing
tactic -that is, how to use public relations to achieve your marketing objectives.
1. Press kits. The classic PR tool is the press release or press kit. A
press release is a structured document. It is written like a news story,
beginning with the headline. The headline should convey something
newsworthy or something contrary to expectations, and must serve
your objective.
2. Video news releases (VNRs). These tapes can be sent to local

television stations, which may run a VNR as part of a news show, often
as a feature, and sometimes without even mentioning that it came from
a corporation. Local news budgets are low, and a slickly produced
feature story about, say, a bicycle race sponsored by a local bank
could well make the cut. The more a VNR looks like a real news
segment and is tied to news of interest to a general audience, the more
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Unit 8 Promotion
likely it is to run. The VNR needs to be of equal or better quality than

the footage shown on the news program.
3. Radio. Although radio may not reach as broad an audience as television,
it should be considered for every press campaign. It is a highly
segmented medium, which means that there is probably a radio program
in your local market that is targeted to your particular demographic
segment. There are stations directed at every age group and ethnicity.
There are thousands of talk radio shows, all looking for editorial content-
that is, someone to speak intelligently about a topic of interest to listeners.
Radio interviews can be conducted at the studio or by phone and can
be done on a low budget.zs
8.4.4 Personal selling

Brassington and Pettit (2000) define personal selling to be a two-way
communication tool between a representative of an organisation and an
individual or group, with the intention to inform, persuade or remind them, or
sometimes serve them to take appropriate actions. Personal selling is a crucial
element in ensuring customers' post-purpose satisfaction, and in building
profitable long-term buyer-seller relationship on trust and understanding.
Ennew, Watkins, T and Wright(2005) state that the increased competition

within the fast changing environment of financial services has led banks to
develop and maintain comprehensive relationships with their customers.
Lee(2002) states that personal selling is probably the most important element
in the communication process within the financial services industry. Personal
selling can be performed either face-to-face or through technological aids as
the internet.
According to Julian and Ramaseshan(1994) the relationship between the

salesman and the customer is perceived as being of great important for
marketing of a bank. The sales force within the financial services needs not
only to be trained in the art of selling, but also to be aware of all the services
available and be able to clearly explain what each service offers. Since
customers' needs and motivation are likely to be complex and their ability to
assess alternative courses of action without professional assistance is likely to
be limited, it is of great significance for sales force to know their customers as
well as their products. Verhallen et al (1997) indicate that banks should see
the selling as a problem-solving process in which the sales force engages and
co-operates towards the customer, trying to find a solution to the customer's
problem.
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8.4.5 Direct marketing

According to Brassington and Pettit(2000) direct marketing is an interactive
system of marketing, using one or more advertising media to achieve measurable
response anywhere, forming a basis for creating and further developing an
on-going direct relationship between an organisation and its customers. To be
able to create and sustain quality relationship with sometimes hundreds or
even thousands of individual customers, an organisation needs to have as
much information as possible about each one, and needs to be able to access,
manipulate and analyse that information. Thus the database is crucial to the
process of building the relationship.
Lee (2002) states that the fast advances in technology have reshaped how
consumers today interact with their financial institutions. The financial sector
has extended its face-to-face selling towards direct marketing of products
and services in the form of phone, mail or computer transaction.
Activity 8.3
1. Identify and critique the strengths and weaknesses of the four main
? 2.
promotional tools?
Explain how public relations can be of help to a financial institution of
your own choice.
8.5 Summary
Promotional strategy deals with all aspects of communication between an
organisation and its customers, its employees and other interested parties.
Five main promotional tools are available to an organisation - advertising,
Public relations and Publicity, sales promotion and personal selling and direct
marketing. The balance between these tools will vary according to the nature
of the overall marketing strategy, the characteristics of the product, the
resources of the organisation and the nature of the target market. Whatever
promotional mix is chosen, the effectiveness of the communications process
depends on the development of a clear and unambiguous message that is
presented to the right target audience, at the right time and through the most
appropriate medium. Promotion has always been important in financial services,
but if anything its importance is increasing. The market for financial services is
going through a period of rapid change, and levels of competition are increasing.
Deregulation, increased consumer sophistication and technological
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Unit 8 Promotion
developments have encouraged a rapid growth in marketing, and particularly

in promotional activity. Financial services institutions now spend significant
amounts on communicating a variety of product and brand messages to a
range of target audiences. With promotion attracting a significant level of
marketing expenditure, it is important that promotional activity is carefully
planned and implemented and that it is consistent with the rest of the
organisation's marketing activities.
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References
Anthony Santomero (2003). "Knowledge is Power: The Importance of
Economic Education," Business Review.
Ennew, C. Watkins, T and Wright,M. (2005). Marketing of Financial
Services, 3rd Edition, Tata McGraw-Hill.
Lee, J. (2002). A key to Marketing Financial Services: The Right Mix of
Products Services,
Channels and Customer. Journal of Services Marketing, Vol 16, No 3 pp
238-258.
Peter Lunt (2005), "Consumer Choice and Financial Services," Consumer
Policy Review, Vol. 15, Iss. 3, pp. 104-112;
Meidan, A (1996). Marketing Financial services, Hampshire and London:
Macmillian, Press Limited.
Tina Harrison (2000). Financial Services Marketing. Pearson Education
Ltd: Essex, pp. 55-57.
Tina Harrison (2000). Financial Services Marketing. Pearson Education Ltd:
Essex, pp. 55-57.
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9
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Unit Nine
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Place (Distribution)
9.0 Introduction
I n any marketing mix, the place component (distribution) is concerned with

making sure that a product reaches the target market at a convenient time
and place. Distribution in financial services marketing is concerned with how
the service is delivered to the consumer, making sure that it is available in a
location and at a time that is convenient for the customer. This unit explores
the distinguishing features of distribution, then moves on to examine in detail
the different channels that may be used to deliver financial services to the
target market and discusses their advantages and disadvantages.
9.1 Objectives
By the end of the unit, you should be able to:
describe the distinctive nature of distribution of financial services
discuss the different forms of distribution used by financial services
providers
analyse the strengths and weaknesses of different distribution channels.
9.2 Distribution: Distinguishing Features

As far as financial services are concerned, distribution fulfils the following
roles:
The provision of appropriate advice and guidance regarding the suitability

of specific products
The provision of choice and a range of product solutions to customer
needs
The means for purchasing a product
The means for establishing a client relationship
Product sales functions
The provision of information concerning relevant aspects of financial
services
Access to the administration systems and processes required for the
ongoing usage (consumption) of the product or service
The means for managing a customer relationship over time
The cross-selling of additional products to existing customers.
9.3 Distribution Methods

Brassington, F and Pettit, (2000) highlighted that direct distribution concerns
the provision of a good or service from manufacturer/provider to customer in
the absence of an intermediary, that is, under separate ownership, management
and control. Indirect distribution, on the other hand, involves the use of agents
of one form or another that are owned by a third-party organisation. Direct
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Unit 9 Place (Distribution)
distribution facilitates a far greater degree of control over the customer

experience than indirect distribution.
9.3.1 Direct distribution

The advantages and disadvantages of direct distribution are as follows.
Potential advantages:
Control of brand values

Control of customer experience.
Control of corporate reputation
The maintenance of competitive advantage from unique products and
features
Control of regulatory obligations
Freedom of action
Strategic flexibility
Clarity and consistency of internal communication.
Potential disadvantages:
Direct distribution limits distribution coverage
It restricts sales volumes
It limits market share
Requires considerable amount of capital.
9.3.2 Indirect distribution

In many ways the potential advantages and disadvantages of indirect
distribution are the obverse of those given above. However, it is helpful to see
them presented as a discrete list (Brassington, F and Pettit, 2000).
Potential advantages:
The provider can focus on core competencies, of which distribution

may not be one
The ability to focus on product quality and costs
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The avoidance of set-up costs associated with new forms of distribution

Allows for rapid penetration of markets, nationally and internationally
Access to higher sales volumes may result in lower aggregate costs that
could feed into enhanced price competitiveness
The added cachet of having products distributed by high-profile
intermediaries with strong brand reputations
Flexibility to experiment with new sales channels within limited cost
parameters
It may limit access to marketplace by competitors
It can enable provider and major distributors to test a working
partnership that could ultimately result in a merger
Can reduce need for capital.
Potential disadvantages:
Lengthy and variable communication arrangements can slow down
reactions to tactical events
It restricts sales volume
Activity 9.1
1. What is the difference between direct and indirect distribution? Provide
? one example of each form of distribution channel for a financial services
organisation.
2. Identify the advantages of using direct distribution over indirect
distribution.
9.4 Distribution Channels

There is a diversity of channels used in the distribution of financial services.
These include the following:
Specialist financial services branch outlets, such as banks, building

society branch offices, credit union offices
Non-financial services retailers, such as supermarkets, electrical goods,
motor dealers, clothes shops, department stores
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Quasi-financial services outlets, such as post offices, real estate agents

Face-to-face sales channels, such as financial advisers, direct sales-
forces, credit brokers, insurance agents
Telephone selling via both outbound and inbound call-centres
The Internet
Direct mail Direct-response advertising, including newspapers and
magazines, commercial radio and television
Affinity groups, such as employers, trades unions, football clubs,
universities.
9.4.1 Specialist financial services branch outlets

The branch outlet has until recently been the dominant means of gaining access
to the mainstream products associated with banking and mortgages. In this
context, the branch has performed the dual roles of acting as a retail outlet in
which buying and selling activities could take place as well as providing a
range of processing functions to facilitate the ongoing administration of products.
The importance of the branch network in retail banking is evidenced by the
fact that there are very few banks worldwide which operate without a branch
network.
Advantages
Focused customer base

Assume financial and inventory risk
Additional sales force
Cover more geography
Technically trained
Disadvantages
Control issues
Added costs
Training/education costs
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9.4.2 Non-financial services retailers (NFSRs)

A wide range of retail outlets has some involvement in the distribution of financial
services as an adjunct to their core business. Some of these outlets are involved
in the direct distribution of their own manufactured products, whereas others
act as agents for third-party product providers. Additionally, some retailers
are hybrids in that they distribute their own products (direct) as well as products
manufactured by other providers on an agency basis. A characteristic of most
forms of NFSRs is that financial services are not their core business. For
example in Zimbabwe, OK, and TM act as non-financial service retailers.
Advantages
Very wide distribution, size, exposure.

Offers aggressive marketing, up sell opportunity.
Can offer personal consumer assistance, service
Data rich environment, market research
Create markets by offering clusters of competing brands
Adds its own brand luster to our brand
Might offer financing
Trusted by consumer
Impulse purchase possible, and instant gratification
Some people like shopping stores, comparison, hands-on for customers
Assumes some overhead: sales, inventory, promotion
Disadvantages
Long channel-lots of work, complexity
Low level of control by the financial firm, they set price
Can be expensive, e.g., slotting, volume return, and promotional
allowances
Store reputation may be neutral or negative
May offer poor customer service
High employee turnover
Customer must leave home to buy
We don't know the ultimate customer
Lose control of product presentation
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9.4.3 Quasi-financial services outlets (QFSOs)

This term refers to channels that, whilst not being traditional financial services
outlets, have a strong affinity with them. The best examples of QFSOs are
post offices and real-estate agents. Throughout the world, post offices are
often the channel through which state social security payments are made, and
this positions them as having a money transmission role e.g POSB assumes
this role.
Advantages
Expertise
Broad network
Good relationships with customers
Personal, face-to-face
Minimal distribution costs
Established channel
Quick access to market, mores sales people
Can add quickly, flexibility
They assume some promotional duties
They assume some overhead
Disadvantages
Very independent, difficult to control

Expensive commissions
Expensive/difficult to train
No direct customer contact by the financial firm.
They also represent others-focus is limited
Less loyalty
No control over their tactics
More sensitive to competitive pricing, customer price pressure
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9.4.4 Face-to-face sales channels

Direct sales-forces have been the backbone of the life assurance industry
throughout the world for decades. However, their role, culture and style of
working have changed radically as more and more markets are adopting strict
standards of regulation.
Advantages
They have a relationship with the customer

Customer knowledge, especially, BIG customers
Better/expert/technical product knowledge
Loyalty, pride in company/product
Very focused/total mind share
Possibly high ROI
Repeat business
Control brand image, positioning
Less expensive, more profitable than agents
Faster communications
Disadvantages
Very expensive, not suitable for most goods/services, or for most

customers
Limited coverage
Limited network
Salesman can leave with the business
Lacks overview
Cannot call on large customer base
Big commitment to recruiting and training
Large territories may limit contact
9.4.5 Telephone-based distribution

The telephone has become a powerful means for the achievement of a range
of purposes in the field of retail financial services. At its simplest, it can act as
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a cost-effective means of prospecting for potential new customers by seeking

to secure sales leads. At its most complex, it can provide a fully-functional
banking service.
Advantages
Direct contact
Inexpensive
Efficient
Quick
Can reach remote areas
Can be part of a CRM system
Easy
Personal contact
Can be a good source for leads
Disadvantages
Cold calls
Actually is impersonal
Regulations
Unpopular with customers
Intrusive
Annoying
Unsolicited
Order-taking vs. selling
Poor follow-up
9.4.6 Internet-based distribution

The rapid development of the Internet from the mid-1990s onwards has had
far-reaching implications for financial services. In common with telephone-
based developments, the Internet has resulted in new sales as well as
administration solutions to customer needs. The comparisons between the
Internet and the development of telephony are marked. Both offer lower-
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cost alternatives to traditional branch-based or direct sales-force-based

methods of distribution. The Internet has obvious advantages in countries that
are characterized by a geographically dispersed population and where branch
networks are patchy. There is a growing body of evidence that consumers
are using the Internet in growing numbers as a means of conducting information-
gathering, and are then buying either face-to-face or via the telephone (Hibbard,
(2004).
Advantages
Low cost, overhead

Higher profit potential
Instantly global if desired, wide exposure
Always current
Instant access for the customer, convenient
Easy to use
Can be cross-sold by other sites
Can obtain high visibility on right sites
Open 24/7/365, access growing wide wireless
Good source of customer feedback/research
Less data entry error
"Free" customer information
Can be customer friendly
Disadvantages
Limited audience (not everyone has it or will use it for shopping)
Lack of one-to-one interaction, impersonal
Spamming/laws
Security problems, trust
Requires a big logistics investment (inventory, warehousing, packing,
shipping, record keeping, billing,)
So far limited to price-driven customers
Fear of fraud, ID theft, security
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Lack of post-purchase service, returns an issue

May not reach late majority and laggards
Cannot touch, feel, smell products, concerns about colors, not tangible
9.4.7 Direct mail

In contrast with the recency of the development of the Internet, direct mail is
one of the longest-established forms of distribution. Direct mail performs a
number of roles, from simple awareness-raising and information-giving through
sales-lead generation and onto the actual closing of a sale. The use of direct
mail by the financial services sector has grown on a worldwide basis. In certain
respects, this medium has a particularly important role to play within the context
of financial services.
Advantages
Relatively inexpensive
Measurable results
Can reach a large audience
Can be altered segment by segment
Can be personalised
Non-threatening
Can build brand recognition
Introduce new products
Offer can foster goodwill
Catalog shopping is fun
Disadvantages
Low levels of effectiveness/response

Postage costs rising
Targeting may be questionable
Huge waste-will it be opened
Low ROI
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Requires investment in logistics (like the Internet)

Not prestigious, negative image, "junk mail"
Customer must buy without touching/seeing
Considered a nuisance, "junk" mail
May foster emotional backlash
Not environmentally sound
Catalog shopping is fun
9.4.8 Bancassurance
Bancassurance is the partnership or relationship between a bank and an
insurance company whereby the insurance company uses the bank sales
channel in order to sell insurance products. It allows the insurance company
to maintain smaller direct sales teams as their products are sold through the
bank to bank customers by bank staff and employees as well. Bank staff and
tellers, rather than an insurance salesperson, become the point of sale/point of
contact for the customer. Bank staff are advised and supported by the insurance
company through product information, marketing campaigns and sales training.
Both the bank and insurance company share the commission. Insurance
policies are processed and administered by the insurance company (Hibbard,
2004).
Advantages of Bancassurance
Banks enjoy several advantages compared to insurance companies that

make them ideal vehicles to carry the message of insurance to the masses,
across a wide cross section of society, and in the process increase their
business and improve their bottom-line. By marketing a whole range of
insurance products in the life and non life sectors, Banks, not only spread
awareness of these products and facilities among the people, but also
make a handsome amount of money by extending this service.
It is felt that Banks have a more personal relationship with the public
and a better understanding of their financial needs. Hence people are
more responsive to their Banker's advice.
Bank personnel are familiar and comfortable with financial language
and terminology, and so can easily learn the subject of insurance, in
order to sell these products.
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Banking and Insurance products can often be combined to offer a better

product mix to the consumer, in order to leverage the benefits of both
the products and services.
The provision of insurance products through the banking channel enables
the insurance companies to depend less upon the agents to sell their
products. It costs the insurance companies a lot to select, train, motivate,
and remunerate the insurance agents to push their products.
It is mutually beneficial for the Banks and the Insurance companies,
when Banks cross-sell insurance products, as both of them can leverage
each others' products and services.
Banks get an additional source of income from commissions and fees
from their insurance business. Especially the excessive competition for
interest based products
Disadvantages of Bancassurance
Bancassurance is not rosy all the way for both bankers as well as insurers.
There are several issues that both of them are concerned about.
One of the most important issues and indeed the fear of bankers is
losing business to the insurers, in relation to similar products. For
instance, a basic banking product like a fixed deposit may be placed at
a disadvantage compared to a money market related insurance product
that offers both growth as well as insurance cover.
Insurers have their own perceptions of bankers as their marketers and
feel that often bankers do not do enough to push their products.
Banks feel that insurers gain more from Bancassurance, as they do not
incur expenditure on infrastructure, manpower, etc., whereas, the returns
accruing to banks from this business are not worth the trouble taken by
them.
When banks are trying to cut costs by providing more and more services
offsite, it is felt that servicing insurance clients onsite (by banks), may
not be practicable, as it only adds to their costs.
Banks also stand the risk of facing the wrath of the customers for poor
follow up service, like claim settlement, etc., on part of the insurers.
Bankers may not appreciate certain finer points of insurance products
they sell, and consequently face administrative and legal hassles from
the customers.
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9.4.9 Other distribution channels

Direct-response advertising using methods other than direct mail include direct-
response radio, television, press, magazine and poster advertising. These forms
of direct response are less controllable and less easily targeted than direct
mail, but offer their own discrete creative advantages. For example, direct-
response television advertising using daytime schedules has become
commonplace for organisations targeting the retired sector of society. Equity
release schemes and simple forms of life insurance plans are of particular note
in this regard. Direct-response press advertising is used extensively by
organisations marketing secured loans (some-times called second mortgages).
A final form of distribution is the use of affinity groups such as trades unions
and sports clubs. These often provide a means of access to people, using
methods such as telesales, direct mail and direct sales. As such, they are not
so much a distribution channel as a means of generating sales leads; therefore,
they should be more correctly viewed as forming part of the promotional mix.
Activity 9.2
1. What are the advantages and disadvantages of distributing financial
? 2.
services through a branch network?
What are the advantages and disadvantages of distributing financial
services using the worldwide web? Why might some customers be
unwilling to use the worldwide web to manage their financial affairs?
3. Which channels of distribution does your organisation use? Which are
direct and which are indirect? Which is the dominant channel, and
why?
9.5 Summary
This unit has argued that distribution channels play a central role in the marketing
of financial services because they provide the opportunity for a purchase or
sale to be made. Financial services organisations often employ a multi-channel
strategy, using a number of different distribution channels to reach different
target markets. These channels may be the organisation's own direct channels
or they may involve the use of intermediaries (indirect distribution). The range
of possible distribution channels available is determined partly by technology
and partly by regulation. Cost, customer and competitor influences will
determine which channels are actually chosen. Of the different distribution
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channels available, the branch network is still the most important for traditional
current and savings accounts, while personal selling is probably the most
common method of distribution for pensions and investments. However, new
electronic-based channels are developing rapidly, and are likely to increase in
importance over the next five years. Already, ATMs, telephone and web-
based distribution systems are well established. Web-based distribution is
expected to experience the greatest growth, with the most important
developments being concerned first with the method of access, and secondly
with what can be done via the web.
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References
Brassington, F. and Pettit, S (2000). Principles of Marketing, 2nd Edition,
Harlow Pearson Education Limited.
Hibbard, J. (2004). "Banks Go beyond Toasters," Business Week, Dec 20,
citing research by the TowerGroup;
Harrison, T (2000), Financial Services Marketing. Pearson Education
Ltd: Essex, pp. 55-57;
Lunt, P. (2005). "Consumer Choice and Financial Services," Consumer
Policy Review, Vol. 15, Issue. 3, pp. 104-112;
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10
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Unit Ten
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Physical Evidence
10.0 Introduction
P hysical evidence plays a vital role in the financial sector as they contribute
to customer retention. In this unit, we will focus on how financial service
providers manage physical evidence, the strategic role on physical evidence
and physical environment dimensions.
10.1 Objectives
explain the strategic role of physical evidence
suggest tactics for creating service atmosphere
discuss the role of the location for a financial service
10.2 Visible and Invisible Elements of Services

Physical evidence refers to the exterior and the interior environment of the
service setting, the equipment and technology that customers may encounter
in their dealings with the service provider. The equipment and technology
have been designed to operate independently of any contact persons. These
forms of self -service are of great interest to all service providers as they
increase hours of business, for example, ATMs and e- banking.
The visible elements are front stage and the invisible elements are backstage.
Banking services are difficult to differentiate from competitive offerings. Cheque

accounts, savings accounts, home mortgages and car loans are essentially the
same in all banks. As a result, banks are faced with the task of differentiating
themselves based on factors other than their core business functions, for
example, tangibles are used to differentiate their services.
10.2.1 Managing the financial service provider's physical

evidence
The physical evidence of a financial institution includes everything tangible,
from the bank's physical facilities, to brochures and business cards to the
bank's personnel. Physical evidence affects the consumer's experience
throughout the duration of the service encounter. Prior to entering a bank,
customers begin to evaluate it based on advertising they may have on television
or on newspapers. As the customer drives to the bank, the ease with which
the location can be found, the bank's sign, the availability of the parking space
and the building itself all enter into the consumer's evaluation process. Upon
entering , the bank's furnishings, cleanliness and overall ambience provide
further evidence regarding the quality of the ensuing experience .The
appearance and friendliness of the bank's personnel and the ease with which
customers can move about and get transaction slips, for example , getting
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Unit 10 Physical Evidence
deposit slips without asking from the bank's personnel also enters into the
consumer's mind.
The customer also considers how frontline staff interacts with customers. Once
a customer is served, the presentation of the service is yet another indicator of
the bank's quality. Consumers will make comparisons of the actual service
offered and the way it is advertised. Service delivery enters into the customer's
evaluation. Upon completion of a service, the copy of the transaction is given
to the customer, for example, a copy of an RTGS transaction or a copy deposit
slip becomes a tangible clue.
10.2.2 The strategic role of physical evidence

Due to the intangibility characteristic of services, service quality is difficult for
customers to objectively evaluate. As a result, consumers rely on the tangible
evidence that surrounds the service to help them on their evaluations. Physical
evidence include :
i. facility exterior
ii. facility interior
iii. other tangibles
The physical exterior of the service facility includes the exterior design, signage,
parking space, landscaping and the surrounding environment. For example,
the bank may built within the Central Business District. The facility interior
includes interior design, equipment used to serve customers directly, for
example, computers or any other equipment used to run the business, signage,
layout, air quality and temperature. Other tangibles that are part of the bank's
physical evidence are bank statements, brochures, employee appearance and
uniforms. It is essential for banks to recognise the importance of managing
their physical evidence in its role of:
i. packaging the service

ii. facilitating the flow of the service delivery process
iii. socialising customers and employees alike in terms of their respective
roles, behaviours and relationships
iv. differentiating the bank from its competitors
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10.2.3 Packaging
The bank's physical evidence plays a major role in packaging the service. The
service itself is intangible and does not require a package for purely functional
reasons. Utilising the bank's physical evidence to package the service does
send quality cues to consumers and adds value to the service in terms of
image development. Image development thus improves consumer's perceptions
of service while reducing both levels of perceived risk associated with the
purchase and levels of cognitive dissonance after the purchase. The bank's
interior and exterior and other tangibles create the package that surrounds the
service. The bank's physical facility forms the type and quality of service
provided. The bank's physical evidence also conveys expectations to
consumers.
10.2.4 Facilitating the service process

The bank's physical evidence also facilitates the flow of activities that produce
the service. Physical evidence can provide information to customers on how
the service production process works. Examples are signage that specifically
instructs customers' menus and brochures that explain what the bank offers
and facilitate the ordering process for consumers and service providers, physical
structures that direct the flow of consumers while waiting.
10.2.5 Socialsing employees and customers

Socialisation is the process by which an individual adapts to the values, norms
and required behavior patterns of an organisation. The bank's physical evidence
plays an important part in the socialization process by conveying expected
roles, behaviours and relationship among employees and between employees
and customers. The purpose of the socialisation process is to project a positive
and consistent image to the public. The service bank's image is only as good
as the image of each employee conveys when interacting with the public.
Physical evidence such as the use of uniforms facilitates the socialisation of
employees towards accepting organisational goals and affects consumer
perceptions of the caliber of service provided. Studies have shown that the
use of uniforms helps in identifying the firm's personnel, presents a physical
symbol that embodies the bank's attributes, implies a coherent bank structure,
facilitates the perceived consistency of performance, provides a tangible symbol
of an employee's change in status and assists in controlling the behaviour of
errant employees.
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10.2.6 A means for differentiation

Banks often experience difficulties in differentiating themselves from competitive
offerings. The bank's physical evidence provides a means for service
differentiation. The appearances of personnel and facilities often have a direct
impact on how consumers perceive that the bank will handle the service aspects
of its business. Research has revealed that well dressed individuals are
perceived as more intelligent, better workers and more pleasant to engage in
interactions. Nicely designed facilities are perceived to be having the advantage
over poorly designed and decorated alternatives.
Differentiation can also be achieved by utilising physical evidence to reposition

the service in the minds of customers. Upgrading the bank's facilities often
upgrades the image of the bank in the minds of consumers and may lead to
attracting more desirable market segments, which further helps in differentiating
the bank from its competitors. On the other hand, too elaborate of a facility
upgrade may alienate some customers who believe that the bank may be
passing on its costs of upgrade to consumers through higher bank charges
and service fees.
10.2.7 A Framework for understanding the use of physical

evidence in creating environments
The use of physical evidence to create service environments and its influence
on the perceptions and behaviours of individuals is referred to as environmental
psychology. A model known as the stimulus- organism response, developed
by environmental psychologists helps to explain the effects of the service
environmental stimuli, emotional states and responses to those states.
The main components of the stimulus organism responses model are:

i. stimuli which constitutes the various elements of the bank's physical
evidence.
ii. organism which constitutes the recipients of the set of stimuli in the
service encounter includes employees and customers.
iii. responses (outcomes) refer to the consumer's reaction or behaviour in
response to stimuli. The response of employees and customers is
influenced by three basic emotional states, namely, pleasure- displeasure,
arousal and non arousal, and dominance submissiveness.
pleasure- displeasure refers to the emotional state that reflects the degree
to which consumers and employees feel satisfied with the service
experience
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arousal - non arousal refers to the emotional state that reflects the degree
to which consumers and employees feel excited and stimulated
dominance-submissiveness reflects feelings of control and the ability to
act freely within the service environment
Consumer and employee responses to the set of environmental stimuli are
characterised as approach behaviours or avoidance behaviours. Approach
behaviours refers to consumer responses to the set of environmental stimuli
that are characterized by a desire to stay or leave an establishment, explore
or interact with the service environment or ignore it or feel satisfaction or
disappointment with the service experience. Consumer approach and
avoidance behaviors and outcomes can be demonstrated in any combination
of four ways. (Employees exhibit similar behaviours of service providers to
communicate with customers):
i. a desire to stay (approach) or leave (avoid) the service establishment.

ii. a desire to further explore and interact with the service environment
(approach) or a tendency to ignore it (avoidance)
iii. a desire to communicate with others (approach) or to ignore the attempts
of service providers to communicate with customers (avoid).
iv. feelings of satisfaction (approach) or disappointment (avoidance) with
the service experience.
10.3 The Development of Service Scapes

The servicescapes model is a more comprehensive SOR model that directly
applies to the influence of the service bank's physical evidence on consumers
and employees' subsequent behaviours. Service scapes refer to the use of
physical evidence to design service environments. Due to inseparability
characteristics of a service, the model recognises that the bank's environment
is likely to affect consumers and employees alike. The facility should also be
designed to meet the needs of those individuals who spend the most time
within the confines of the facility.
10.3.1 Remote, self service and interpersonal services

i. Remote services are those services in which employees are physically
present while customer involvement in the service production process
is at arm's length. Examples of these are opening of bank accounts,
processing of RTGs, telephones.
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ii. Self services refer to service environments that are dominated by the
customer's physical presence such as ATMs.
iii. Interpersonal services refers to service environments in which customers
and service providers interact. Examples of these are withdrawals and
cash /cheque deposits. The environments of interpersonal services
should be developed with the needs of both parties involved and should
facilitate the social interaction between and among customers and
employees, for example customers service desk.
10.3.2 Physical environment dimensions

The servicescapes model begins by recognising the set of stimuli that are
commonly utilised when developing service environments. These include
ambient conditions, space/ function and signs, symbols and artifacts.
i. Ambient conditions refers to the distinctive atmosphere of the service

setting that includes lighting, air quality, noise and music. Environment
dimensions that pertain to the use of space/ function include elements
such as the layout of the facility, equipment/ computers and the banks'
furnishings.
ii. Signs, symbols and artifacts refers to the environmental physical evidence
that includes signage to direct the flow of the service process, personal
artifacts to personalise the facility and the style of décor, for example,
the direction where customers queue for telling and for customer service
counter.
10.3.3 Holistic environment

Holistic environment is the overall perceptions of the servicescape formed by
employees and customers based on the physical environmental dimensions.
In other words, the holistic environment is a perceived overview or image of
the bank based on the physical evidence, which is refered to in the model as
the perceived servicescape. Perceived servicescape is a composite of the
images of the service bank's physical facilities. Strategically managing the
perceived servicescape helps in establishing a positioning strategy that
differentiates the bank from competitors and ultimately influences the customer
decision process when choosing among competing alternatives. The bank
develops the servicescape with its target market in mind.
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10.3.4 Types of customers

i) Economic customers are consumers who make purchase decisions
based on price. Economic customers tend to be attracted to
environments that are simple yet reflect quality and those that are clean
and modern. Examples of these are building societies in that their bank
charges and service fees are relatively cheaper than those of commercial
banks.
ii) Personalised customers are consumers who desire to be attended to
and who are much less price sensitive. Banks catering for personalised
customers create environments that reflect the status of their customers
by investing more in items such as water glasses and drinks, brass
fixtures and furnishings that encourage customers to bank with them,
for example, prestige banking.
iii) Apathetic customers are consumers who seek convenience over price
and personal attention. Examples of these are insurance and funeral
policy holders.
iv) Ethical customers are those customers who support smaller or local
banks as opposed to larger or national service providers. Examples
are customers who prefer to bank with local banks such as Agribank
and FBC as opposed to banking with Standard Chartered Bank or
Barclays Bank.
10.4 Internal Response Moderators

Internal response moderators pertains to the three basic emotional states of
the SOR model that mediate the reaction between the perceived servicescape
and customers and employees' responses to the services environment. These
are pleasure- displeasure, arousal- non arousal and dominance-
submissiveness, for example, if a customer desires to remain in a state of non-
arousal and prefers to do his/her transactions with prestige banking, that
customer will avoid conducting his/ her bank transactions in a commercial
banking hall where people make noise and it is crowded. Similarly, the
employees' responses to the bank's environment will also be affected by their
own emotional states. Sometimes employees anticipate holding conversations
with customers. Sometimes employees would prefer to minimise conversations
with customers and process customers' transactions. Response moderators
help explain why services are characterised by heterogeneity as the service
varies from provider to provider and even from day to day with the same
provider.
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10.4.1 Internal responses to the environment

Customers and employees internally respond to the firm's environment at
different levels namely, cognitively, emotionally and physiologically.
i) Cognitive responses are the thought processes of individuals that lead

them to form beliefs, categorise and assign symbolic meanings to
elements of their physical environment.
a) Beliefs are consumers' opinions about the provider's ability to perform
the service. In the formation of beliefs, the firm's environment acts as a
form of non- verbal communication and influences a consumer's beliefs
about the provider's ability to perform the service. For example, a
customer may blame the customer service officer for an RTGS which
has failed to go through as a result of failing to complete the form. This
type of a problem shows that the physical evidence assists customers
with beliefs about the provider's success, price for services and
competence for employees. Employees form similar types of beliefs
about the bank based on physical evidence.
b) Categorisation is the second type of cognitive response. Some are high
class establishments such as prestige banking while others cater for
low income earners or specific market segments such as building
societies. Consumers assess the physical evidence and often categorise
new service establishments with existing types of operations. They then
access the appropriate behaviour script for the type of operation and
act accordingly. Individuals also infer symbolic meaning from the bank's
use of physical evidence. For example, if a bank features portraits of
some banking activities with specific reference to that bank, then the
bank evokes a symbolic meaning to its employees and customers.
Symbolic meaning through the use of physical evidence helps in
differentiation and positioning.
i) Emotional Responses
Emotional responses do not involve thinking, they happen, often
unexplainably and suddenly. For example, specific songs may make
individuals feel happy, feel sad or create other past feelings that were
associated with the particular piece of music. Most financial institutions,
especially banks have DSTVs and play relevant music or adverts while
transacting with their customers. The goal of effective physical evidence
management is to stimulate positive emotions that create atmospheres
in which employees love to work and customers want to spend their
time transacting with the bank.
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ii) Physiological responses

In contrast to cognitive and emotional responses, physiological responses
often described in terms of physical pleasure or discomfort. Physiological
responses are responses to the bank's physical environment based on pain or
comfort. For example, environments in which music is played very loudly
may lead to employee and customer discomfort and movement away from
the source of the noise. The lack of a non-smoking section may cause some
customers difficulty in breathing and further discomfort. Instead of being
arousing, environments that are brightly lit may cause eye discomfort. All these
responses determine whether a customer will approach and explore the bank's
offering or avoid and leave the premises to minimise the amount of physiological
discomfort. In banks, smoking is not allowed at all to avoid discomfort to
some customers. Adequate work space, proper equipment to get the job
done, and appropriate ambient conditions such as temperature and air quality
are directly related to employees' willingness to continue to work, increase
their productivity, their job satisfaction and their positive interactions with co-
workers.
10.4.2 Behavioural responses to the environment

i) Individual behaviour to environmental stimuli is characterised as
approach and avoidance behaviours. In financial institutions settings,
the bank's environment influences approach behaviors such as the
willingness of the customer to become loyal to the bank and do all the
transactions with the same bank.
ii) Social Interactions
Due to the inseparability inherent in interpersonal services, the bank's

servicescape should encourage interactions between employees and
customers, among customers and among employees. The challenge in creating
such an environment is that what the customer desires, employees would
prefer to forgo so that they can complete their tasks with a minimum of customer
involvement. Environmental variables such as physical proximity, seating
arrangements, facility size and flexibility in changing the configuration of the
land scape define the possibilities and place limits on the amount of social
interaction possible.
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10.4.3 Specific tactics for creating service atmospheres

The bank must develop facilities with a particular target market in mind and
therefore should be able to address the following questions before implementing
an atmosphere development plan:
i) who is the bank's target market?

ii) why does the target market seek the service experience?
iii) what atmospheric elements can reinforce the beliefs and emotional
reactions that buyers seek?
iv) how do these same atmospheric elements affect employee satisfaction
and the bank's operations?
v) does the suggested atmosphere development plan compete effectively
with competitor's atmospherics?
Ultimately individuals base their perceptions of a bank's facilities on their
interpretation of sensory cues. How banks can utilise the sense of sound,
sight, scent, touch and enhance customer and employee attraction responses.
Sight Appeals
Sight appeals can be defined as the process of interpreting stimuli, resulting in

perceived visual stimuli that appeal to customers' size, shape and colours.
Consumers interpret visual stimuli in terms of visual relationships, consisting
of perceptions of harmony, contrast and clash. Harmony refers to visual
agreement associated with quiter, plusher and more formal business settings.
Clash refers to visual effects associated with exciting, cheerful and informal
business settings. Hence based on the shape, size and colours of the visual
stimuli utilised and the way consumers interpret the various visual relationships,
extremely differing perceptions of the bank emerge. Consider how different
target market might respond to entering a new bank which has recently opened.
Some segments would find the environment inviting, while other might be
completely overwhelmed by too much stimuli.
Size perceptions
The actual size of the bank's facility, signs and departments conveys different
meanings to different markets. The larger, the size of the bank and its
corresponding physical evidence, the more consumers associates the bank
with importance, power, success, security and stability. For many consumers,
the larger the bank, the lower the perceived risk associated with the service
purchase. Such consumers believe that larger banks such as Barclays and
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Standard Chartered are more likely to engage in service recovery efforts

when problems arise.
Shape perceptions
Shape perceptions of a bank are created from a variety of sources, such as

the use and placement of shelves, windows and the design of wall paper.
Shapes arouse different emotions to consumers. Vertical shapes or vertical
lines are perceived as rigid, severe and lend a masculine quality to an area. It
expresses strength and stability, gives the view an up and down eye movement,
tends to heighten an area, gives the illusion of increased space in a particular
direction. The use of several different shapes in one area might be utilised to
distinguish an area of emphasis.
Colour perceptions
The colour of the bank's physical evidence often makes the first impression,
whether seen in the bank's brochure, the business cards of its personnel or
the exterior or interior of the facility itself. The psychological impact of colour
upon individuals is the result of three properties namely hue, value and intensity.
Hue refers to the actual colour such as blue, yellow or green and are classified
into warm and cool colours which symbolise different things to different
consumer groups. Offices painted in lighter colours may make large, empty
spaces look smaller. The lighter colours normally use on fixtures help the
fixtures blend in the bank's environment. On the other hand, darker colours
can be used to grab consumer's attention. Value defines the lightness and
darkness of the colours, while darker values are called shades and lighter
values are known as tints. Intensity defines the brightness or the dullness of
the hue.
10.5 The Location of the Bank

The bank's location is dependent on the amount of customer involvement
necessary to produce the service. Customers prefer banking with banks that
they are familiar with. The bank's visibility is essential in creating awareness.
Ideally, banks should be strategically located, should be visible from major
traffic arteries and can enhance their visibility by facing the direction of traffic
that maximises visibility.
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The size of the site should be suitable for customer convenience.

The site must be accessible.
The site must have ample parking space or alternative parking options
nearby.
Customers who use mass transit systems must have reasonable access
to the bank.
10.5.1 The bank's architecture

The bank's architecture conveys a number of impressions and communicates
information to its customers such as the nature of the bank's business, the
bank's strength and stability as well as the price of the bank's services.
10.5.2 The bank's sign

The bank's sign helps in identifying the bank and to attract attention. All logos
on the bank's sign remain physical evidence, such as letterhead and business
cards should be consistent with the bank's sign to reinforce the bank's image.
Ideally signs should indicate to consumers the who, what, where and when of
the service offering. The sign's size, shape and colouring and lighting all
contribute to the bank's projected image.
10.5.3 The bank's entrance

The bank's entrance and foyer areas can dramatically influence customer
perceptions about the bank's activities. For example, worn carpet, scuffed
walls, cheap looking artwork, torn and outdated reading materials and unskilled
and unprofessional personnel form a negative impression. A neatly appointed
reception areas, the creative use of colors, distinctive furnishings and friendly
and professional staff create much positive impression. This also includes lighting
that clearly identifies the entrance, doors that are easy to open, flat entry ways
that minimize the number of customers who might trip, non skid floor materials
for rainy days, and doors that are wide enough to accommodate customers
with disabilities.
10.5.4 Lighting
Lighting can set the mood, tone and pace of the service encounter. Customers
talk more softly when the lights are low and the service environment is perceived
as more formal while brightly lit service environments are louder, communication
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exchanges among customers and between customers and employees are more
informal, exciting and cheerful.
10.5.5 Music
Studies have revealed that background music affects sales in several ways:
i) Background soft music enhances the customer's perception of the bank's

atmosphere which in turn influences the consumer's mood.
ii) Music often influences the amount of time spent transacting with the
bank. Studies have revealed that banks that play soft music in the banking
hall care more about their customers.
iii) Music directly influences customer buying behaviour. Playing faster
tempo music increases the pace of consumer transactions while slowing
down the tempo of the music encourages customers to stay longer.
Some studies have revealed that consumers find music distracting when
considering high involvement transactions yet found that listening to music
during low involvement purchases make the choice process easier. More
often, employees tend to be happier and more productive when listening
to background music, which in turn leads to a more positive experience
for customers.
10.5.6 Announcements
The professionalism in which announcements are made directly influences
consumer perceptions of the bank.
10.5.7 Sound avoidance

When planning the bank's facilities, it is important to understand the avoidance
of undesirable sounds as it is to understand the creation of desirable sounds.
Desirable sounds attract from the bank's overall atmosphere. For example,
placing loud central air conditioning units in the banking hall can impact
negatively to customers. The tactics for eliminating unwanted noise include
strategically placing loud central air conditioning units in areas away from
those where the bank conducts the majority of its business.
10.5.8 Scent appeals

The atmosphere of the bank can be strongly affected by scents and the bank
manager should be aware of this fact. When considering scent appeals, bank
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managers should pay attention to scent avoidance as to scent creation. For

example, poor ventilation systems that fail to remove odors and poorly placed
trash receptacles are common contributors to potential odors problems. On
the other hand, pleasurable scents often create comfort to customers when
transacting with the bank.
10.5.9 Touch and taste appeals

Touch appeals are associated with being able to touch a tangible product or
physical evidence of a service such as shaking hands with the service providers
and engaging in face to face communications with potential and existing
customers. Banks that engage in creating touch appeals are perceived as
more caring, closer to their customers, genuinely concerned and interested in
their customers' welfare.
Taste appeals refer to the equivalent of providing the customer with free
samples. Within the service sector, the usefulness of taste appeals when
developing service atmospheres is dependent upon the tangibility of the service.
While sampling the services, the customer will have the opportunity to observe
the financial institutions' physical evidence and form perceptions regarding the
financial institution and its performance capabilities.
10.6 Facility Location

The choice of location for the bank's service operation depends on the amount
of customer contact that is necessary during the production process. With
banks, customers are an integral part of the process, convenient locations
such as ATMs within the city centre and STP in supermarkets offer the bank
a differential advantage over customers.
10.7 Facility Layout

Attractive personnel, clearly marked signs explaining the process, enough
room to comfortably move about the facility are among consumer expectations.
Designing facilities for high- contact services is often more expensive than
designing for low contact counterparts.
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10.8 Product Design

Since the customer is involved in the production process of high contact
services, the customer will ultimately define the product differently from one
produced by low contact service. High contact services that produce purely
intangible products such as banks and insurances are defined almost solely by
the physical evidence that surrounds the service and by the thoughts and
opinions of others. In low- contact services, the customer is not directly involved
in the production process so the product is defined by few attributes. For
example, mail order operation for the distribution of bank statements in which
the customer never physically enters the facility. The customer will define the
end product by the physical product itself, the conversation that took place
with personnel when ordering a cheque book.
10. 8.1 Process design

In high contact operations, the physical presence of the customer in the process
must be considered. Each stage in the process will have a direct and immediate
effect on the customer. In contrast, since the customer is not involved with
many production steps in low- contact services, their evaluation is based
primarily on the outcome itself.
Activity 10.1
1. Why is it important to manage the financial service provider's physical
? 2.
evidence?
Which physical environment dimensions are used by financial service
providers?
3. "Customers and employees internally respond to the firm's environment
at different levels" Discuss.
10.9 Summary
The effective management of physical evidence is important especially to the
service industry such as banks. Due to the intangibility of services, consumers
lack objective sources of information when forming evaluations. As a result,
customers often look to the physical evidence includes facility exterior design
elements such as the architecture of the building, the bank's sign, parking,
landscaping, and the surrounding environment of the bank's location, interior
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designed elements such as size, shape, colors, the bank's entrance and foyer
areas, equipment utilised to operate the business, interior signage, layout, air
quality and temperature, and other physical evidence that forms customer
perceptions including business cards, stationery, bank statements, the
appearance of personnel and the bank's brochures. From a strategic
perspective, the importance of managing the bank's physical evidence stems
from the bank's ability to:
i) package the service

ii) facilitate the flow of the service delivery process
iii) socialise customers and employees alike in terms of their respective
roles, behaviours and relationships
iv) differentiate the bank from its competitors
The design and management of the bank's sensory cues are critical to the
bank's long- term success.
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References
Alam I. (2002). Managing The Fuzzy Front End of Service Innovation.
The Role of Customer Interaction, Proceedings of The American
Association.
Blackwell and Minniard, (2002). Consumer Behaviour, 9th Edition,
Thomson Asia, Singapore.
Cook S. (2000). Customer Care Excellence, 4th Edition, Institute of
Directors.
Ennew, C. Watkins, T. and Wright, M. (2005) Marketing of Financial
Services( 3rd Edition) Tata McGraw-Hill.
Etzel, M. Walker, B. and Stanton, W. ( 2009) Principles Of Service
Marketing (3rd Edition) McGraw Hill.
Kurtz, D. L.Boone, L. E. Beckman M .D. (2010) Foundations of Marketing
Foundations of SAGE Publications.
Harrison T, (2000) Financial Services Marketing, Illustrated Edition,
Pearson Education.
Zeithamal, V. A. Bitner, M. J. Gremler, D. D, Service Marketing, Intergrating
Customer Focus Across The Firm, 2005. 4th Edition, Mcgraw-Hill/
Iriwn.
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B.

Com Banking and

Marketing of Financial Services

Content Reviewer: Kenell Madzirerusa

Editor: Amos T Munzara

P.O. Box MP1119

The Zimbabwe Open University is a distance teaching and open

Year: March 2014

Cover design: T. Ndhlovu

Typeset in Times New Roman, 12 point on auto leading

© Zimbabwe Open University. All rights reserved. No part of this

As a progressive university that is forward

The six hour tutorials should be so structured that the

Session I (Two Hours)

Session II (Two Hours)

Session III (Two Hours)

Conclusion for this course, but also to prepare yourself to

Unit One: Marketing of Financial Services

1.0 _______ Introduction ________________________________________________3

Unit Two: The Financial Market Environment

3.0 _______ Introduction _______________________________________________ 27

Unit Four: Segmentation, Targeting and Positioning

Unit Five: Customer Care and Service Quality

Unit Six: Product

6.0 _______ Introduction _______________________________________________ 79

7.0 _______ Introduction _______________________________________________ 91

8.0 _______ Introduction ______________________________________________ 101

Unit Nine: Place (Distribution)

In Unit 1 we define the marketing concept, financial service and its

In Unit 2 we discuss the financial market environment which consists of macro

In Units 6, 7, 8 and 9 we discussed the elements of the marketing mix: product,

In Unit 10 we discussed the strategic role of physical evidence which captures

Marketing of Financial Services

1.2 Definitions of Important Terms

 the main focal point in marketing is customer needs

A service is defined as an act or performance offered by one party to another,

Although the process may be tied to a physical product, the performance is

Irawan (2002:85) reaffirms that one important characteristic of a service is

Zeithamal (2003:85) further states that a service quality is focused evaluation

1.3 Assumptions and Attitudes about Marketing

 marketing is a distinct function in the firm, separate from other core

 marketing helps to design a systematic process for the interaction that

1.4 What is Marketing of Financial Services?

Marketing is a total system of business activities which are designed to

The American Marketing Association (Lamb 2001:6) defines Marketing as

Marketing of financial services is defined as the process of researching and

The marketing of financial services is a unique and highly specialised branch

1.4.1 Characteristics of financial services

Intangibility - financial services unlike physical goods cannot be possessed

Heterogeneity- The potential for greater variability in quality is high. This

with heterogeneity, financial institutions make use of service design methods

Fiduciary responsibility-refers to the implicit responsibility of financial

1.5 The Marketing Concept

As technology developed and competition increased, financial institutions

1.5.1 Evolution of the marketing concept

 Evidence of a quickly changing market environment

There is mounting evidence that suggests the environment in which financial

 Industry consolidation and concentration

Ennew et al reaffirms that since the relaxation of regulations governing the

1.6 Challenges Facing Financial Institutions

1.0 _ Introduction __________________________________________3

3.0 _ Introduction _________________________________________ 27

6.0 _ Introduction _________________________________________ 79

7.0 _ Introduction _________________________________________ 91

8.0 _ Introduction ________________________________________ 101

the main focal point in marketing is customer needs

marketing is a distinct function in the firm, separate from other core

marketing helps to design a systematic process for the interaction that

Evidence of a quickly changing market environment

Industry consolidation and concentration

Consumer Trust- securing a sense of mutual trust between the consumer

the internal marketing environment

marketing audit provides a thorough evaluation of marketing

to monitor the trends relating to size and market share

the organisation's internal environment, its internal structure as it affects

Value for time

Customers consider their rights

financial service providers are willing to establish a long term relationship

Political, legal and regulatory environment

increasing legislation to protect companies from each other, protecting

Social and cultural environment

identify specific objectives that the firm wishes to achieve

the nature of product and sales trends.

bargaining power of suppliers

bargaining power of buyers

rivalry between firms

determining the appropriate level of marketing expenditure. This suggests