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Unit I

Marketing of Financial Services – Conceptual Framework 

Marketing scope in banking sector should be considered under the service marketing framework.

Performed marketing strategy is the case which is determination of the place of nancial institutions on

customers’ mind. Bank marketing does not only include service selling of the bank but also is the

function which gets personality and image for bank on its customers’ mind.

 On the other hand, nancial marketing is the function which relates uncongenitalies, dierences and

non!similar applications between nancial institutions and "udgment standards of their customers. #he

reasons for marketing scope to have importance in banking and for banks to interest in marketing

sub"ect can be arranged as$

• %hange in demographic structure$ &ierentiation of population in the number and %omposition

aect 'uality and attribute of customer whom benets from banking services.

• (ntense competition in nancial service sector$ #he competition became intense due to the

growing international banking perceptiveness and recently being non limiting for new enterprisesin the sector. (ncrease in liberali)ation of interest rates has intensied the competition.

Bank’s wish for increasing prot$ Banks have to increase their prots to create new markets, to protect

and develop their market shares and to survive on the basis of intense competition and demographic

chance levels. #he forces of deregulation, advancing technology and general trend towards globali)ation

have vastly increased the competitive pressures within the nancial services market that has in turn

aected both the structure and operation of nancial service providing rms like banks and non!banking

nancial institutions.

Banks are providers of nancial services, nancial intermediaries and key participants in a nation*s

payment system. +s such banks play a ma"or role in the economy and in the nancial well being of a

nation. (n (ndia since --, deregulation, technology, and aggressive competition fostered more

changes in the banking industry than it has e/perienced in its entire history. Precisely because of 

competition, providing nancial services in an able manner re'uires an e/cellent marketing orientation.

lndia Banks were traditionally in the *business of banking*, namely borrowing from one market and

lending to another. 0owever, since the commencement of banking sector reforms in the early --1s,

their orientation has become the *business$ of nancial services*, with a much wider focus in relation to

consumer market needs and conse'uent marketing strategies.

Marketing as a narrow management function, appears to be in decline. Marketing as a management

philosophy and orientation, espoused and practiced throughout the corporation, is however seen

increasingly as critical to the success of any organi)ation

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Marketing of Bank*s products and services implies the delivery 2maintaining e/isting demand3 and

creation 2creating of new demand3 of want satisfying 2ie.,right3 services at right price, at right time. at

right place, and to a right customer.

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Types of Financial Market in India

+ nancial market is a market in which people and entities can trade nancial securities, commodities,

and other fungible items of value at low transaction costs and at prices that re4ect supply and demand.

5ecurities include stocks and bonds, and commodities include precious metals or agricultural goods.

(n economics, typically, the term market means the aggregate of possible buyers and sellers of a certain

good or service and the transactions between them.

 #he term 6market6 is sometimes used for what are more strictly e/changes, organi)ations that facilitate

the trade in nancial securities, e.g., a stock e/change or commodity e/change. #his may be a physical

location 2like the 7859, B59, 7593 or an electronic system 2like 7+5&+:3. Much trading of stocks takes

place on an e/change; still, corporate actions 2merger, spino3 are outside an e/change, while any two

companies or people, for whatever reason, may agree to sell stock from the one to the other without

using an e/change.

<ithin the nancial sector, the term 6nancial markets6 is often used to refer "ust to the markets that

are used to raise nance$ for long term nance, the %apital markets; for short term nance, the Money

markets. +nother common use of the term is as a catchall for all the markets in the nancial sector, as

per e/amples in the breakdown below.

Capital markets are nancial markets for the buying and selling of long!term debt or e'uity!

backed securities. #hese markets channel the wealth of savers to those who can put it to long!term

productive use, such as companies or governments making long!term investments.

=ey division within the capital markets is between the primary markets and secondary markets. (n

primary markets, new stock or bond issues are sold to investors, often via a mechanism knownas underwriting. #he main entities seeking to raise long!term funds on the primary capital markets are

governments 2which may be municipal, local or national3 and business enterprises 2companies3.

>overnments tend to issue only bonds, whereas companies often issue either e'uity or bonds. #he main

entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, and

less commonly wealthy individuals and investment banks trading on their own behalf. (n the secondary

markets, e/isting securities are sold and bought among investors or traders, usually on

an e/change, over!the!counter,   or elsewhere. #he e/istence of secondary markets increases the

willingness of investors in primary markets, as they know they are likely to be able to swiftly cash out

their investments if the need arises. 

India in capital market

 #he (ndian capital market is one of the oldest capital markets in the world. (t dates back to the ?th

century when the securities of the 9ast (ndia %ompany were traded in Mumbai and =olkata. 0owever,

the orderly growth of the capital market began with the setting up of #he 5tock 9/change of Bombay in

 @uly ?A and +hmedabad 5tock 9/change in -?C. 9ventually - other 5tock 9/changes sprang up in

various parts of the country

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 #hus the (ndian %apital Market is in transition. #here has been a revolutionary change over a period of 

time. (n fact, on almost all the operational and systematic risk management parameters, settlement

system, disclosures, accounting standards, the (ndian %apital Market is at par with the global standards.

 #he goal of 59B( is to make the (ndian %apital Market truly world class, competitive, transparent and

eDcient. + -E perception is steadily growing about the (ndian %apital Market, as a dynamic market,

among the international community. Fet us dream to make our (ndian %apital Market a benchmark for

the rest of the world

Regulator

 #he 5ecurities and 9/change Board of (ndia 259B(3 is the regulator for the securities market in (ndia. (t

was established in the year -?? and given statutory powers on +pril -- through the 59B( +ct,

--

Major layers in Indian Stock Market

!om"ay Stock #$c%ange &!S#'  is an (ndian stock e/change located at &alal 5treet, =ala >hoda,

Mumbai, Maharashtra, (ndia. 9stablished in ?A and is considered to be one of +sia’s fastest stock

e/changes, with a speed of 11 microseconds and one of (ndia’s leading e/change groups and the

oldest stock e/change in the 5outh +sia region. Bombay 5tock 9/change is the world*s 1th largest

stock market by market capitali)ation at G.A trillion as of H @anuary 1.IJ  More than ,111

companies are listed on B59.

(ational Stock #$c%ange 759 was the rst e/change in the country to provide a modern, fully

automated screen!based electronic trading system which oered easy trading facility to the investors

spread across the length and breadth of the country. 759 has a market capitali)ation of more than

K5G.E trillion, making it the world’s th!largest stock e/change as of H @anuary 1.IJ  759*s

4agship inde/, the %7L 7ifty, the 1 stock inde/, is used e/tensively by investors in (ndia and around

the world as a barometer of the (ndian capital markets.

Commodity Market which facilitates the trading of commodities (s a market that trades in

primary rather than manufactured products. 5oft commodities are agricultural products such as wheat,

coee, cocoa and sugar. 0ard commodities are mined, such as gold and oil.

Foreign e$c%ange market  #he markets, in which participants are able to buy, sell e/change

and speculate on currencies. oreign e/change markets are made up of banks, commercial companies,

central banks, investment management rms, hedge funds, and retail fore/ brokers and investors. #he

fore/ market is considered to be the largest nancial market in the world.

oreign e/change market 

2fore/, 

L, or 

currency market3 is a global decentrali)ed market for the trading

of currencies. (n terms of volume of trading, it is by far the largest market in the world. IJ #he main

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participants in this market are the larger international banks. inancial centers around the world

function as anchors of trading between a wide range of multiple types of buyers and sellers around the

clock, with the e/ception of weekends. #he foreign e/change market determines the relative values of 

dierent currencies

)erivative market (n nance, a derivative is a contract that derives its value from the

performance of an underlying entity. &erivatives can be used for a number of purposes, including

insuring against price movements 2hedging3, increasing e/posure to price movements for speculation or

getting access to otherwise hard!to!trade assets or markets. 5ome of the more common derivatives

include forwards, futures, options, swaps, and variations of these such as synthetic collaterali)ed debt

obligations and credit default swaps.

Forwards

(n nance, a forward contract or simply a forward is a non!standardi)ed contract between two parties to

buy or to sell an asset at a specied future time at a price agreed upon today, making it a type of 

derivative instrument. #his is in contrast to a spot contract, which is an agreement to buy or sell anasset on its spot date, which may vary depending on the instrument, for e/ample most of the L

contracts have 5pot &ate two business days from today.

 #he party agreeing to buy the underlying asset in the future assumes a long position, and the party

agreeing to sell the asset in the future assumes a short position. #he price agreed upon is called the

delivery price, which is e'ual to the forward price at the time the contract is entered into. #he price of 

the underlying instrument, in whatever form, is paid before control of the instrument changes. #his is

one of the many forms of buyNsell orders where the time and date of trade is not the same as the value

date where the securities themselves are e/changed.

Futures

(n nance, a futures contract 2more collo'uially, futures3 is a standardi)ed contract between two parties

to buy or sell a specied asset of standardi)ed 'uantity and 'uality for a price agreed upon today 2the

futures price3 with delivery and payment occurring at a specied future date, the delivery date, making

it a derivative product

<hile the futures contract species a trade taking place in the future, the purpose of the futures

e/change is to act as intermediary and mitigate the risk of default by either party in the intervening

period. or this reason, the futures e/change re'uires both parties to put up an initial amount of cash

2performance bond3, the margin. Margins, sometimes set as a percentage of the value of the futures

contract, need to be proportionally maintained at all times during the life of the contract to underpin

this mitigation because the price of the contract will vary in keeping with supply and demand and will

change daily and thus one party or the other will theoretically be making or losing money

*ptions

(n nance, an option is a contract which gives the buyer 2the owner3 the right, but not the obligation, to

buy or sell an underlying asset or instrument at a specied strike price on or before a specied date.

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 #he seller has the corresponding obligation to fulll the transactionthat is to sell or buyif the buyer

2owner3 6e/ercises6 the option. #he buyer pays a premium to the seller for this right. +n option that

conveys to the owner the right to buy something at a certain price is a 6call option6; an option that

conveys the right of the owner to sell something at a certain price is a 6put option6.

Swaps

+ swap is a derivative in which two counter parties e/change cash 4ows of one party*s nancial

instrument for those of the other party*s nancial instrument. #he benets in 'uestion depend on the

type of nancial instruments involved. or e/ample, in the case of a swap involving two bonds, the

benets in 'uestion can be the periodic interest 2coupon3 payments associated with such bonds.

Concept of Marketing

 #he marketing concept is the philosophy that rms should analy)e the needs of their customers and

then make decisions to satisfy those needs, better than the competition. #oday most rms have adopted

the marketing concept, but this has not always been the case.

T%e roduction Concept

 #he production concept prevailed from the time of the industrial revolution until the early -1*s. #he

production concept was the idea that a rm should focus on those products that it could produce most

eDciently and that the creation of a supply of low!cost products would in and of itself create the

demand for the products. #he key 'uestions that a rm would ask before producing a product were$

• %an we produce the product

• %an we produce enough of it

+t the time, the production concept worked fairly well because the goods that were produced were

largely those of basic necessity and there was a relatively high level of unfullled demand. Qirtually

everything that could be produced was sold easily by a sales team whose "ob it was simply to e/ecute

transactions at a price determined by the cost of production. #he production concept prevailed into the

late -1*s.

T%e Sales Concept

By the early -H1*s however, mass production had become commonplace, competition had increased,

and there was little unfullled demand. +round this time, rms began to practice the sales concept 2or

selling concept3, under which companies not only would produce the products, but also would try to

convince customers to buy them through advertising and personal selling. Before producing a product,

the key 'uestions were$

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• %an we sell the product

• %an we charge enough for it

 #he sales concept paid little attention to whether the product actually was needed; the goal simply was

to beat the competition to the sale with little regard to customer satisfaction. Marketing was a function

that was performed after the product was developed and produced, and many people came to associate

marketing with hard selling. 9ven today, many people use the word 6marketing6 when they really mean

sales.

T%e Marketing Concept

+fter <orld <ar ((, the variety of products increased and hard selling no longer could be relied upon to

generate sales. <ith increased discretionary income, customers could aord to be selective and buy

only those products that precisely met their changing needs, and these needs were not immediately

obvious. #he key 'uestions became$

• <hat do customers want

• %an we develop it while they still want it

• 0ow can we keep our customers satised

(n response to these discerning customers, rms began to adopt the marketing concept, which involves$

• ocusing on customer needs before developing the product

• +ligning all functions of the company to focus on those needs

• Reali)ing a prot by successfully satisfying customer needs over the long!term

<hen rms rst began to adopt the marketing concept, they typically set up separate marketing

departments whose ob"ective it was to satisfy customer needs. Often these departments were sales

departments with e/panded responsibilities. <hile this e/panded sales department structure can be

found in some companies today, many rms have structured themselves into marketing organi)ations

having a company!wide customer focus. 5ince the entire organi)ation e/ists to satisfy customer needs,nobody can neglect a customer issue by declaring it a 6marketing problem6 ! everybody must be

concerned with customer satisfaction.

 #he marketing concept relies upon marketing research to dene market segments, their si)e, and their

needs. #o satisfy those needs, the marketing team makes decisions about the controllable parameters of 

the marketing mi/.

T%e Marketing Mi$ in !anking Sector

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S#R+IC#

Recently, banks are in a period that they earn money in servicing beyond selling money. #he prestige is

get as they oer their services to the masses. Fike other services, banking services are also intangible.

Banking services are about the money in dierent types and attributes like lending, depositing and

transferring procedures. #hese intangible services are shaped in contracts. #he structure of banking

services aects the success of institution in long term. Besides the basic attributes like speed, security

and ease in banking services, the rights like consultancy for services to be compounded are also

preferred.

RIC#

 #he price which is an important component of marketing mi/ is named dierently in the base of 

transaction e/change that it takes place. Banks have to estimate the prices of their services oered. By

performing this, they keep their relations with e/tant customers and take new ones. #he prices in

banking have names like interest, commission and e/penses. Price is the sole element of marketing

variables that create earnings, while others cause e/penditure. <hile marketing mi/ elements other

than price aect sales volume, price aect both prot and sales volume directly. Banks should be very

careful in determining their prices and price policies. Because mistakes in pricing cause customers’ shift

toward the rivals oering likewise services. #raditionally, banks use three methods called Scost!plusT,

Stransaction volume baseT and Schallenging leaderT in pricing of their services.

)ISTRI!UTI*(

 #he comple/ity of banking services is resulted from dierent kinds of them. #he most important feature

of banking is the persuasion of customers beneting from services. Most banks’ services are comple/ in

attribute and when this feature "oins the intangibility characteristics, oerings take also mental

intangibility in addition to physical intangibility. On the other hand, value of service and benets taken

from it mostly depend on knowledge, capability and participation of customers besides features of 

oerings. #his is resulted from the fact that production and consumption have non separable

characteristics in those services.

Most authors argue that those features of banking services make personal interaction betweencustomer and bank obligatory and the direct distribution is the sole alternative. &ue to this reason, like

preceding applications in recent years, branch oDces use traditional method in distribution of banking

services.

R*M*TI*(

One of the most important element of marketing mi/ of services is promotion which is consist of 

personal selling, advertising, public relations, and selling promotional tools.

#RS*(,- S#--I(.

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&ue to the characteristics of banking services, personal selling is the way that most banks prefer in

e/panding selling and use of them. Personal selling occurs in two ways. irst occurs in a way that

customer and banker perform interaction face to face at branch oDce. (n this case, whole personnel,

bank employees, chief and oDce manager, takes part in selling. 5econd occurs in a way that customer

representatives go to customers’ place. %ustomer representatives are specialist in banks’ services to be

oered and they shape the relationship between bank and customer.

,)+#RTISI(.

Banks have too many goals which they want to achieve. #hose goals are for accomplishing the

ob"ectives as follows in a way that banks develop advertising campaigns and use media.

. %onceive customers to e/amine all kinds of services that banks oer

. (ncrease use of services

H. %reate well t image about banks and services

C. %hange customers’ attitudes

. (ntroduce services of banks

E. 5upport personal selling

A. 9mphasi)e well service

+dvertising media and channels that banks prefer are newspaper, maga)ine, radio, direct posting and

outdoor ads and #Q commercials. (n the selection of media, target market should be determined and the

media that reach this target easily and cheaply must be preferred.

Banks should care about following criteria for selection of media.

. <hich media the target market prefer

. %haracteristics of service

H. %ontent of message

C. %ost

. 5ituation of rivals

+ds should be mostly educative, image making and provide the information as follows$

. +ctivities of banks, results, programs, new services

. 5ituation of market, government decisions, future developments

H. #he opportunities oered for industry branches whose development meets national benets

U!-IC R#-,TI*(S

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Public relations in banking should provide;

. 9stablishing most eective communication system

. %reating sympathy about relationship between bank and customer

H. >iving broadest information about activities of bank.

,dditional Reading on ,ugmented Marketing Mi$

)e/nition of Marketing Mi$01

Marketing mi/ means to collect and mi/ the resources of marketing in the manner that ob"ect of the

enterprises may be achieved an ma/imum satisfaction may be provided to the consumer.

+ccording to Borden S#he marketing mi/ refers to the appointment of eorts, the combination the

designing and integration of the element of marketing into a program me or mi/ which on the basis of

an appraisal of the market forces with best achieve an enterprise at a given time.T

Marketing mi/ elements$. Product

. Price

H. Promotion

C. Place

+ugmented N 9/tended marketing mi/ $!

(n case of services however, there are alternatives approaches suggested by various authors. #hey have

suggested the need of services has led to the e/tension of the mi/ to serve seven P’s. #he additional

three P’s listed below are known as the e/tended service mi/.

. People

. Physical evidence

H. Process

marketing mi/ provided a useful structure for marketing implementation, there is a need to strengthen

the approach through the inclusion of three other elements. Physical evidence and process.

Service Marketing Mi$

 #he A P’s of service marketing mi/ are$3 5ervice product

3 5ervice pricing

H3 5ervice promotion

C3 5ervice distribution

3 People

E3 Process of operation

A3 Physical 9vidence

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Market segmentation  is a marketing strategy which involves dividing a broad target market into

subsets of consumers, businesses, or countries that have, or are perceived to have, common needs,

interests, and priorities, and then designing and implementing strategies to target them. Market

segmentation strategies are generally used to identify and further dene the target customers, and

provide supporting data for marketing plan elements such as positioning to achieve certain marketing

plan ob"ectives. Businesses may develop product dierentiation strategies, or an undierentiated

approach, involving specic products or product lines depending on the specic demand and attributes

of the target segment.

Types of market segmentation

• >eographic segmentation

Marketers can segment according to geographic criterianations, states, regions, countries,

cities, neighborhoods, or postal codes. #he geo!cluster approach combines demographic data

with geographic data to create a more accurate or specic prole U Co – *perative !anks2

Regional Rural !anks

• &emographic segmentation

5egmentation according to demography is based on variables such as age, gender, occupation

and education level or according to perceive benets which a product or service may provide.

Benets may be perceived dierently depending on a consumer*s stage in the life cycle.

&emographic segmentation divides markets into dierent life stage groups and allows for

messages to be tailored accordingly U Ma%ila !ank 

• Behavioral segmentation

Behavioral segmentation divides consumers into groups according to their knowledge of,

attitude towards, usage rate, response, loyalty status, and readiness stage  to a product U !ank 

products for Investment purpose2 !rokerage 3ouse

• Psychographic segmentation

Psychographic segmentation, which is sometimes called lifestyle, is measured by studying the

activities, interests, and opinions of customers U !ank for 3ig% (et 4ort%2 (RI !ank 

products and Services