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Chapter 4: Marketing in Retail Banking

Even though we have brought in examples of retail banking as we went through the marketing process, let us now focus speci!cally on some of the retail banking industry’s characteristics. Speci!cally, how these industry characteristics a"ect the approach to marketing.

In general, the core principles of marketing apply across all industries: the USP remains essentially the same in terms of its key attributes, whether banking or pharmaceuticals, although arguably, retail banks have struggled with developing a really powerful unique selling proposition for many products or services. The real di"erence is in the application of some of the principles, which is in#uenced by speci!c industry dynamics.

Retail banking is clearly a unique industry. All true banks have two rudimentary commonalities – accepting deposits and facilitating commerce, usually by lending funds. This process of !nancial intermediation has conferred on retail banks, a unique specialisation. Arguably, most retail banks have not capitalised on this advantage and !nd themselves on the back foot due to customer revolt (e.g., surveys show loss of trust) new market entrants (e.g., retailers) and regulatory pressures (e.g., Basel III and Dodd-Frank in the US).

Some key industry issues for retail banking which have a"ected the way marketing is being thought about and delivered include:

Technological convergence. Information technology, combined with digital explosion and the introduction of mobile devices

Banking technology – hi-tech to hi-touch in the information age, customer !rst

Customer mobility – borderless banking, anytime and anywhere

The internet – entering the global economy

Balancing customer-centricity and remote channels

New industry competitors

Clearly, much of what is changing retail banking has to do with technology. Innovation is not only driving new opportunities for banks but also new competition and complexity. For the purposes of this section, we will stick to discussing the core marketing mix and identifying some

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of the unique properties/areas of the 4Cs +P in retail-banking marketing.

Customer Value

For retail banks, as we have already discussed, the products are mostly non-physical products (including packages or bundles) or services. Because of this uniqueness, the element of service becomes even more critical as a value driver for success. Therefore, there is a need to know the customer even better, hence the extreme focus in retail banking on developing customer relationship management (CRM) systems, which we will discuss in the !nal section.

Also, not all people qualify for retail banking products, e.g., loans or credit cards. In most other industries, it is simply a matter of whether a consumer can a"ord the product or not. In this instance, however, a customer may be able to a"ord the monthly payments or fees and even have the required amount of security deposit, yet still be rejected for a loan. Therefore, when marketing lending products, an all-out push to sell can be counterproductive, as many customers may not qualify, especially in today’s tight-lending environment, which can have a negative ripple-on e"ect from a public relations perspective.

Convenience

Most of the unique points of marketing relate to distribution channels because this is where the industry trends related to technology have had the most impact. Real-world channels (branches, ATMs, kiosks, DSAs and landline telephones, call centres) are now all connected with access to the virtual world of the internet. Therefore, multi channel management is becoming increasingly important for retail banks. What this a"ects is a bank’s ability to understand and coordinate the intersections of products, segments and channels e"ectively.

Also, management of the relationship across channels is critical as it may make or break the relationship. For example, a loan product is sold to a busy customer over the phone and they need to sign some documents in person at the branch. The customer shows up to the branch at the scheduled time without documents. This relationship is probably damaged beyond repair.

The majority of payments are now made online in established retail banking markets because payment is quickly moving to the virtual world. It is fast and convenient for both the bank and the customers. Cash can still only be obtained from the branch or ATMs but payments can be made via the internet – and, increasingly, on mobile phones. It enhances the convenience factor to the customer, meets their needs and is even happening in emerging economies, although not to the same degree as cash is still popular. From a marketing perspective, the number of touch-points is growing rapidly. Therefore, retail bank marketing departments need to be coordinated both internally and with other departments now more than ever.

Though many people are computer savvy, some are still uncomfortable when using computer-based processes. Suitable alternatives have to be in place to satisfy all customer needs – so we have the branch. There was a time when the customer went to the bank branch frequently – to feel good about their money being safe, meet a banker, etc. But the world is changing fast. Branches and sta" are expensive to maintain and they do not operate 24/7. On the other hand, most remote channels are always accessible, 24 hours a day, 7 days a week, and 365 days a year.

So what does this mean for branches – the most e"ective marketing channel for retail banks in the past? The message: do not give up on branches yet. Branches will remain relevant in the future as relationship management is best done in a face-to-face setting. To date, no other channel beats branches as a sales-delivery channel (still 70 to 80 percent of the total). While new formats and styles need to be explored, the role of the branch as an advisory o$ce dealing with complex sales and service transactions will be enhanced. From a marketing perspective, retail banks need to understand this changing role of the branch.

Finally, a new and pervasive challenge for banks: Web 2.0. This has created a new wave of action that connects the internet via Facebook, Twitter and a host of new social media. Banks need to


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identify which customers are comfortable or familiar with the new virtual media and how to use this positively from both a delivery of marketing messages perspective and as a way to capture customer feedback. Though clearly, the younger generation is considerably more open to this type of contact and much more interactive with these types of media. However, the role of social media in retail banking, and speci!cally as a marketing channel, is still unclear.

Cost to Consumer

From a pricing perspective, most of the focus is on price and fees. However, retail banks cannot really compete on price – retail banking is a commodity industry and the prices are generally set by the market. A bank could price its deposits 200 basis points higher than the market and would capture share, but also would probably go out of business or be rescued by the government. That being said, retail banks do use techniques such as risk-based pricing and relationship pricing (a new concept that we will discuss in the last section). The message from a marketing point of view is simple: be competitive, o"er incentives, and reward customers. The more transactions, balances, ATMs, the more discounts and/or services received. Retail banks need to understand the price sensitivity of customers by product, but from a marketing perspective, focus your energy and money elsewhere.

Communication

Regarding promotion, there are not many important di"erences for retail banks. However, there is an important point to note here. As with other industries, there is a potential downside to direct marketing, prevalent in retail banking/CRM. Over-communication, chaos and clutter, fraud, deception, privacy invasions: all can occur, especially with the increase of touch-points as we have seen. This can clearly destroy relationships. As with channels, coordination of marketing campaigns is critical – a 360-degree view of the customer is needed.

Given all that we have discussed in this section and the impact of technology in retail banking, should your bank become an internet bank? Or will you simply have a network of branches and ATMs connected electronically? Credit cards and debit cards, accessible through the internet? Updates on mobile phone and other devices? Call centres, sales and/or service? Let’s see in the !nal section how retail banking should evolve, and the role of marketing in this evolution.

The role of the People in the 4C+P model in retail banking in particular, is now demonstrated

Marketing and Customer-centricity – Comparing CMR with CRM

For most retail banking organisations today, the way to sustainable competitive advantage is through adoption of a value discipline (proposition) focused on customer intimacy – not one based on product leadership (such as Apple) or operational excellence (such as UPS or DHL). While retail banks need to have good/competitive products and make the customer experience easy, the ultimate strategic goal should be to meet the long-term needs of customers and not simply sell products and/or services.

In looking at the operating model for customer intimacy, the ‘core’ model is always externally focused on customer needs, while around the core processes itself are culture, organisation, management systems and information technology.

As we have discussed, the USP, the core of your marketing message, needs to support the value proposition of the organisation. As a result, marketing for retail banks must be customer-centric.

Many organisations aspire to be customer-centric, yet few have !gured out the recipe for successfully transforming their business. Most retail banks have used CRM as a system (analytical engine – software; and operational piece – software, campaigns and sales tools) as the way to connect with customers (campaigns, next-best-o"er, etc). As a result, the system took the place of human interaction.


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However, retail banks will only achieve improved results in this customer-management world if marketers quickly understand and embrace a new concept called customer-managed relationship (CMR). This is a new way of thinking about marketing initiatives, di"erent from CRM (the ‘managing’ component changes), and it means that the whole organisation must understand that the customer is in control. Also, it leverages o" of the wave of technological convergence occurring in retail banking as well as the new delivery channels entering the industry.

CMR is three things:

An ability to rethink and reshape your organisation and its knowledge for increased customer engagement

Internet-enabled management tools for true customer empowerment

An ability to react to the information being generated and used by customers for an improved management of online reputation

If executed correctly, CMR generates some major bene!ts over CRM: it is easier to implement since the customer is usually the one doing the complex stu"; it creates lock-in since customers have invested their data with the organisation; and it allows your company to move faster than the competition, as a trusted relationship is being built with the customer.

In most cases, customers prefer to have a choice over how marketers reach them, what products or services are marketed to them, and who markets to them. CMR is indeed about the collaborative customer experience. It is the convergence and integration of multiple data points which leverage customer interactions and Web 2.0 applications and services. Forward-thinking companies are taking the !rst steps towards incorporating Web 2.0 applications into their marketing and CRM processes.*

The challenge for retail banks in this new approach to marketing is how to integrate the new media into the customer experience, especially in a solutions-driven environment, and how to react to the shift in power back to the customer. While this power shift may seem like a subtle point, developing an appropriate response is not easy. It emanates all the way from how the CEO communicates to the market to the tone of an SMS going to a client. Therefore, this shift borders on being a culture-change process for most retail banking organisations.

Relationship marketing

While CMR is an actual tangible process, relationship marketing, one-to-one marketing, is more of a concept or strategy. It was !rst de!ned as a form of marketing developed from direct-response marketing campaigns. These types of campaigns emphasise customer retention and satisfaction, rather than placing a dominant focus on sales transactions or making a sale. In fact, much of relationship marketing does not focus on sales at all, e.g., free product trials to good customers, etc., and may actually result in a net cost to the organisation (investing in the customer).

As a practice, relationship marketing di"ers from other forms of marketing in that it recognises the long-term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages. Clearly, the process of CMR falls into the category of relationship marketing.

Relationship pricing

Relationship-based pricing is a concept that encompasses the whole life cycle of a customer by segment. It is a customer-centric framework that helps retail banks to treat each customer uniquely, based on the overall relationship value. It requires signi!cant investment in technology; but as we said, customer-centric organisations need to have a 360-degree view of the customer relationship.

* Source: Christian Smagg, Futurelab, <www.futurelab.net>, (2007).


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“Relationship pricing involves pricing based on parameters that de!ne your relationship with your customer – this would mean taking into account your customer’s loyalty period, the total volume of business (or revenue), the volume and type of transactions over a period of time for each of the services you o"er, etc.”

The question here: is relationship pricing a compelling di"erentiator that can maximise customer-wallet share? Clearly, this approach can help maximise value for both customers and retail banks. However, we said earlier pricing was less important for retail banks as a marketing tool. Therefore, as this is a fairly new concept, we shall have to wait and see how customers react to this approach.

The role of customer satisfaction

Do you assume that your customers are satis!ed? If so, how satis!ed are they? Now that you have obtained the right customers, is the business building up well or are you having retention problems? These are questions that can be answered through the process of customer evaluation (determining their satisfaction levels). Remember, we have said that the best business development advocate is a satis!ed customer.

Therefore, knowing the state of the customer mind is essential. One of the techniques becoming more widely used today by retail banks as a measure of satisfaction is net promoter score (NPS). This is basically a measure of how willing customers are to recommend your product/service to friends and family members.

When conducting satisfaction surveys, ask customers speci!c questions about

The bank’s overall competitive rating (how does the overall service compare with others)

Products and services (solutions)

The speed of service/convenience

Suggestions on improvements

This should be done periodically (at least annually) and results should be compared with previous years to show that there are improvements. Employing a dashboard approach – senior management has service as a key component on the dashboard used to evaluate business performance – allows for commitment and frequent assessment of the organisation’s value to the customer. Also, this is owned by both marketing and sales.

The following is an excerpt from a popular website about the relationship.

“Related to customer satisfaction’s role in marketing – it plays a huge role in the success (or failure) of any marketing campaign. Creating a successful marketing strategy begins and ends with knowing your target audience. Therefore, make no mistake – an organisation will not !nd marketing success without a large measure of customer satisfaction. As we have said, word-of-mouth is a powerful marketing mechanism (in essence, NPS) – one satis!ed customer tells another and suddenly, a business is growing without spending money on traditional advertising media.

“Also, great customer satisfaction can be used in the marketing itself (di"erentiator). That being said, a well-executed marketing campaign can destroy a business that is not already skilled in the art and science of customer satisfaction. A well-run advertising campaign will bring new customers to your business… and then it’s up to the company/sta" to live up to the promises made in that advertising campaign.” * Just as a product should never be launched with #aws in its design, a marketing campaign should not be launched if a retail bank is not organisationally ready to meet all aspects of customer expectations.

* Source: Beyond Niche Marketing, <www.beyondnichemarketing.com>.


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Innovation

From an innovation perspective, marketing is being tested in the retail-banking space. One area we mentioned related to new and more e"ective marketing techniques is anticipating customer needs before they know them. From these possible drivers of decisions and unstated, unmet needs come clues to the most e"ective innovation and improvement opportunities. The answer is not always a new product. It is not always process improvement. It is not always any one speci!c thing. But it is always something that helps the customer believe that he or she is more powerful, more appreciated, more informed, and more ful!lled. From that comes not only new growth, but also more loyalty, which means sustainability.*

Some other areas of innovation: dynamic pricing (e.g., relationship pricing), and new forms of promotions and advertising in the digital media space, although social media is less an issue for retail banking currently as the industry tries to understand better the role of this channel in the future. Also, innovation is happening with new or combined electronic distribution channels, e.g., online branches, and new or combined services/providers, e.g., mobile network operators and retail banks with joint product o"erings or co-located in the same physical space.

Summary

This module has provided an overview of the key marketing principles, the process, how it applies to retail banking, and a recommended approach in the future. Other modules at higher levels (Retail Banking II) will go deeper and more extensively into these issues. As we stated in our section on the approach to customer-centric marketing, the path to success for retail banks is developing a customer-centric business model with marketing as a key contributor. The good news is that many retail banks have started to move away from product-pushing approaches and commission-based selling; however, the industry as a whole still has a long way to go.

As we wrap up this module, one thing should be clear when looking at the marketing process: all steps are connected. While some will talk about one aspect being more important than the other, all steps must be performed to a world-class level to truly achieve customer-centric marketing e"ectiveness. Also, creating an e"ective feedback loop is critical.

105.5: Marketing steps

As retail banks go from reactive to proactive, from everything-to-all to a more tailored-solution approach, from CRM to CMR; and as the industry absorbs the technological changes occurring, marketing will play a key role in separating the winners from the rest. However, this journey will be fraught with challenges, and as soon as one retail bank thinks that it has cracked the customer code; new channels, products and competitors will cause disruption in the marketplace. That being said, the key points to keep in mind are:

Develop and execute a detailed marketing plan and strategy. Do all the steps well.

Ensure your USP continually supports a customer-centric business model.

* Source: The Ball Group, <www.ballgroup.com>.


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Put the customer !rst – the customer at the centre… and listen to customers.

Market solutions – do not just sell products and services.

Coordinate the channel experience (from both a marketing and sales perspective) to provide a world-class customer experience.

Understand that marketing is not just about brand only – measure, measure, measure.

Move to CMR (and experience-management).

In the words of one of the most respected business minds today, Peter Drucker, “Marketing is the whole business seen from the customer’s point of view.”


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Multiple Choice Questions

1. Consider the following statements regarding the 4P marketing mix framework:

a) It is product-focusedb) It is customer-focusedc) Booms and Bitner added three more Ps – participants, process and physical evidenced) Judd added one more P (people) to the 4P model

Which of the following is a correct option?

I: b) and d) onlyII: a) only III: a), c) and d) onlyIV: b).c) and d) only

2. With respect to the 4C model proposed by Lauterborn, convenience in the case of a retail bank is mostly associated with:

a) Location of bank branchesb) A wide set of channels with easy accessibilityc) A product that best matches customer needsd) A price that is competitive

3. Which statement best describes the ‘heterogeneity’ attribute of bank services?

a) Bank services are not storable, leading to problems in capacity planningb) Bank services are intangible and customers may face a risky choicec) Bank services are not standardised and customers may face some level of disappointmentd) Bank services are delivered and consumed by the consumer at the same time

4. Kenrick et al criticised Maslow’s theory of hierarchy of needs on the grounds that:

a) Needs should not be categorised as high order (e.g., self-actualisation) and low order (e.g., physiological, safety, belonging and esteem)b) Consumer needs exist at all levels and even when satis!ed may reappear later when environmental cues dictatec) Maslow’s theory is too ethnocentric and omits the role of cross-cultural di"erencesd) Customers have more than needs, hence Maslow’s theory is incomplete

5. Based on the 4C+P model, a retail bank may most likely di"erentiate itself from its competitors over the long term on which of the following factors?

a) Consumer Valueb) Consumer Costc) Convenienced) People


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6 . In which of the following cases does a bank face less price competition in relation to its o"ers?

a) High customer switching costb) A positive customer-bank relationshipc) High customer service quality

Which option comprises correct statements only?

I: a) only II: a) and b) only III: c) only IV: a), b) and c)

7. Which of the following steps in the development of a marketing strategy is associated with di"erentiation and positioning?

a) Developing the bank’s unique selling proposition (USP)b) Conducting a SWOT analysisc) Determine the target customer segmentsd) Determine the marketing mix

8. In the expanded 4P model, Booms and Bitner added three additional Ps. Which refers to the surroundings in which the service is delivered?

a) Participantsb) Processc) Physical Evidenced) People

9. The main purpose of market research is to obtain information so that the bank professional can make decisions with respect to:

a) Marketing mixb) Market opportunitiesc) Strength of competitiond) Forecasting consumer current and future needs

Which option is correct?

I: a) only II: b), c) and d) onlyIII: a) and d) only IV: a), b), c) and d)


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10. There are !ve steps in the marketing process. The most complex step is to:

a) Analyse the market (SWOT)b) Develop a marketing strategyc) Create a marketing pland) Execute the plan

Answers:

1 2 3 4 5 6 7 8 9 10III b c b d IV a c IV b


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