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Chapter 2: Connecting with Customers

This chapter is concerned with identifying the primary needs of consumers. Psychology and human resource management literature has provided some guidelines about people’s needs during their lifetime. A popular approach is de!ned by Maslow’s theory of hierarchy of low-level and high-level needs.

Maslow’s* hierarchy of needs is a theory that serves as a basis for understanding the motives of consumers. Recall that a need exists when there is a gap between the current state of the consumer and his/her desired state. For example, a !nancial need exists if the consumer’s current !nancial state falls short of their long-term !nancial goals.

Bank marketing professionals must understand how and why people are motivated to purchase the bank’s product or service for the !rst time or do so repeatedly. Accordingly, marketing professionals then try to meet the challenge of reducing or eliminating this needs gap. The following pyramid describes Maslow’s hierarchy of needs.

* AH Maslow “A theory of human motivation”. Psychological Review, 50(4), 370-96 10, (1943)

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Physiological Needs

105.4: Maslow’s hierarchy of needs

Open Question #2

When a consumer has reached the level of ‘self-esteem’, they prefer to do things for themselves. Do you agree that the bank marketing professional must be cognisant of the value of alternative channels (i.e., digital channels) to these consumers?

One implication of Maslow’s theory is that once the lower level of needs are satis!ed, the consumer is then concerned with needs at the next level. In other words, once a need is satis!ed, it is no longer a motivator. But recent research shows that needs do not !t nicely into a Maslow pyramid. For example, Kenrick et al (2010)* assert that needs co-exist at all levels.

For example, they claim that even when certain needs are met, they may reappear when prompted by certain environmental signals. For example, consumers in relatively safe countries may be prompted to seek physical security and even purchase guns when there are reports of a mass shooting in their neighbourhood. The Kenrick pyramid shows that needs overlap and do not completely replace one at the lower level by another just above it.

Open Question #3

“When a new one comes in, it doesn’t just cover up the old one the way a new city is built on ancient ruins. The old and new continue to coexist.”

Do you agree?

Another important criticism of Maslow’s theory has been levelled by Hofstede (1984).† He

* D. T. Kenrick, V. Griskevicius, S. L. Neuberg, and M. Schaller “Renovating the pyramid of needs: Contemporary extensions built upon ancient foundations”. Perspectives on Psychological Science, 5, 292–314, (2010).

† G. Hofstede, “The cultural relativity of the quality of life concept”. Academy of Management Review, 9(3), 389-398, (1984).

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criticised Maslow’s theory as being ethnocentric and more of a statement of the US middle class. He asserts that cross-cultural di"erences in societies have an important e"ect on the hierarchy of needs. Hence, Maslow’s pyramid may take a di"erent form in emerging or traditional societies from that found for the US.

Open Question #4

What are the implications for the bank marketing professional when the critiques of Maslow’s theory o"ered by Kenrick et al and Hofstede are taken into account?

The next principle in services marketing is a formulation of the company’s unique selling proposition (USP).

What makes the bank exceptional?

Open Question #5

What makes your bank exceptional?

Be speci!c. It’s not as simple as saying that Price, Product, Place and Promotion are hard for competitors to duplicate.

The Unique Selling Proposition (USP)

An important principle of services marketing is the creation of a USP. This USP is the bank’s marketing ‘drumbeat’. It is incorporated into the bank’s brand and it is what makes the bank exceptional as perceived by the consumer.

It is the answer to the question: what is the bank’s key di"erentiator?

There are essentially three components of a bank’s USP: there must be a transfer of customer value; it must be unique when compared to other bank’s o"ers or be a new o"er in the market and, !nally, it must address a large consumer needs-gap over an economically viable market segment. The last component is critical.

Long-term success in a bank’s marketing strategy is based on addressing a large enough customer needs-gap for a large enough market.

Examples of USPs in the service industry are:

Domino’s Pizza’s unique selling proposition is not based on best price or highest quality product. Rather it is just fast delivery. Their unique proposition is: Fresh hot pizza delivered in 30 minutes or less, guaranteed.

ING Direct’s unique selling proposition is not the best price or best product. Rather it is no fees – entry or exit. Their slogan – money does not grow on fees – captures its USP.

However, it should be recognised that these examples of USPs will not remain unique over the long term as competitors seek to duplicate and guarantee even better propositions. For this reason, many !rms seek to add another dimension to their USP – an emotional component. Examples of this added emotional dimension are Rolex watches and Ferrari cars. Neither product is unique in functional terms when compared with competitors. But there is an emotional attachment to owning a Rolex or a Ferrari that is not necessarily present in similar products even at higher prices.

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We propose that retail banks cannot create USPs based on the 4P or even the 4C model over the long term. Indeed, it is the main reason why we propose the 4C + P model where P represents people. Retail banks should create a USP based on customer intimacy driven by the unique professional and ethical qualities of its people. A USP that is truly based on the bank’s culture of customer care* will be ‘emotionally-driven’ and persist over the long term.

Relationships

Another principle of services marketing is the recognition that services companies must view the customer as a partner over the long term. While marketing strategies are intended to identify customer needs and to create products and services to meet these needs, the bank seeks to accomplish this objective, pro!tably. From an end-goal perspective, the bank seeks to address the following issues:

1. Customer retention: a poor retention (i.e., attrition) rate means that the !rm must spend relatively more on promotion and sales to replace the customers that are lost to competitors.

2. Customer acquisition: it is generally easier to identify the !rm’s best customers and target new customers with similar pro!les.

3. Cross-selling: it is generally easier, and therefore more pro!table, to make an additional sale to an existing customer than to make a !rst sale to a new customer. This additional sale may be increased volume of existing or new products – as viewed from a customer perspective.

In the 4C model, convenience is viewed as the bank’s suite of channels. While alternative channels such as internet and mobile may be convenient for customers to transact payments or make deposits etc, they give banks more opportunity to interact directly with the customer.

The key for this approach is that it should be customer-directed not ‘directed-at-customers’. Therefore, it is a two-way, not one-way process. Dialogue is key and this type of marketing is central to supporting a customer-intimacy business model that is recommended when considering the bank’s USP.

Segmenting for success

Market segmentation has assumed even greater importance today, as channel and product choices expand. This is especially true for retail banks as new technology has created signi!cant inroads in the industry over the last decade. Competition on price alone is a ‘no-win’ strategy (especially for retail banks, unless the organisation is a direct bank). A strategy of mass selling was tried in the past by many retail banks and it failed. Targeting creates focus, and focus equates to e"ectiveness.

Therefore, the key to success with segmentation is identifying new, di"erent and better ways of providing solutions to each customer group. Of course, an organisation needs to get the segmentation right (e.g., choose the right factors and parameters that de!ne the di"erences) for maximum impact. Enhancing customer value through target segmentation is one of the primary means of delivering superior shareholder returns.

Selling all things to all people is the path to ‘averageness’.

We end this section with useful advice from a leading marketing expert. It captures, succinctly, the set of principles outlined above:

* Retail Banking II includes a module on Customer Care.

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“If the marketer does a good job of identifying customer needs – developing good products; and pricing, distributing and promoting them e!ectively – these goods will sell very easily.” *

We now describe the marketing process that culminates in a marketing plan.

* Philip Kotler and Gary Armstrong, Principles of Marketing (9th Edition, Prentice Hall, 2001).

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