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					         Chapter 12
Marketing Strategies in Financial
                       Learning outcomes
At the end of the session, students will be able to
• Provide an overview of the principal components
  of marketing strategy and planning
• Outline key aspects of financial services
  marketing strategy and planning
• Review arguments for reviewing marketing
  practices and strategies
• Discuss marketing approaches for financial
  institutions (FIs) post-credit crunch.
                               Session structure
• Competitive strategies
• Marketing strategies
   – Being offensive
   – Protection strategies
• Social responsibility and stakeholder thinking
   – Relationships and brands
   – Brands as relationships builder
• The immediate future
   – The rise of the alternatives
• Marketing more than ever
• Summary
                               Competitive strategies
• Porter (1980) advocated three main ways of achieving competitive
  advantage: cost leadership, differentiation and focus.
    – Cost leadership involves a very tight control of the costs e.g. economies of scale,
      maximizing customer value . A significant difference between lowering costs and
      achieving cost leadership i.e. having lowest cost base. At same time, service
      quality levels need to match target market expectations and the value of
      employee skills and knowledge be fully appreciated.
    – Differentiation very hard to achieve in financial services. FIs have tried to achieve
      differentiation through branding but has not really been successful. New
      attempt by Santander in early 2010
    – Focus strategy requires FI to maintain such close links with its customers/target
      market leaving no room for competition. Suitable for smaller organizations e.g.
      smaller building societies. Dwindling number of smaller building societies may
      suggest that this strategy not proving successful.
• Financial services is a highly competitive industry but competition may come
  from an unexpected direction e.g. First Direct. First non-branch bank whose
  vision and strategy are benchmarks in industry. FIs now offer on-line or
  telephone banking, but First Direct, through an understanding of its target
  market, has managed to hold onto its premium position in the marketplace.
              What is strategic marketing?
• Strategic marketing creates capability of FI to adapt to
  changes in its marketing environment.
• FI aims through its strategic marketing to meet the needs of
  its stakeholders through creating value more effectively than
• FI requires a flexible and responsive organizational structure
  and culture that encompasses these stakeholders.
• FI will conduct thorough analysis of operating environment
  by grouping all variables in its environment under the
  heading of: threats, opportunities, weaknesses and
   – SWOT or TOWS analysis evaluates external variables and then
     internal capabilities in the light of the external forces.
• Three broad categories of marketing strategies: defensive,
  offensive and rationalization
                                       Marketing Strategies

        offensive                               defensive                          rationalisation

                                                                                     cost reduction
geographical     new market

                                   market niche         market follower

                                   specialist               lower risks

                                                             reduce number of       improve
                                                             branches               cost/income
               identification of
               new segments
                                                              Figure 12.1. Marketing strategies
              Marketing strategies: being offensive
•   Geographical expansion strategy
     –   FIs are seek to enlarge their geographical footprint both in domestic and international markets Physical presence is a means
         of growing (compare with Macdonalds).
•   Penetration strategy
     –   Straightforward strategy where an FI will try to grow by selling existing products to its existing customers (cross-selling).
     –   Developments in information systems, specifically data mining, have supported this strategy, as FIs have been able to
         estimate the probabilities of success of targeting individual customers or segments of customers with selected financial
     –   This is an ongoing strategy, which has largely arisen from the saturated state of most financial service marketplaces in Europe,
         with the strategy of relationship marketing arising from penetration.
•   New market strategies
     –   New countries applying to join the EU, such as Turkey, Macedonia and Croatia offer potential for new markets for established
         companies to target.
     –   The identification of new segments is of vital significance to FIs, but the saturated markets offer little chance for this.
•   Market leader strategy
     –   can involve larger FIs acquiring smaller players or those in vulnerable position. Market leaders also to advertise heavily.
•   Market challenge strategies
     –   opportunities for growth exist through alliances with supermarkets
     –   Retailers have developed strong brands and alliances have allowed the banks access to markets that they might not have
         reached on their own.
     –   Supermarkets are aware that they need to make sure that they have the largest share of a consumer’s spend, but this spend
         varies from consumer to consumer.
     –   Customers may not see financial services as being like a supermarket trolley and instead be prepared to buy insurance from
         one provider, save with another and have a current account with another still.
     –   If this is the case, then the whole concept (and metric) of share of wallet is highly questionable. If customers view the various
         financial services as quite unrelated to each other (who talks about ‘my financial services provider’?), then the aim of gaining
         as a large a share of a customer’s wallet appears misguided
           Marketing strategies: protection
• The market follower
   – pursues strategies of risk reduction. Reduce lending, limit
     lending to low risk clients, call in loans and overdrafts
• The niche strategy
   – FI identifies a small market or segment of customers whom
     they believe they can serve exclusively. In saturated
     markets, it is difficult to ‘exclude’ competition
• Diversification
   – FI will take new products into new markets. Higher risk than
     other protective strategies
   – Diversification option has been tried several times in the
     past. The credit crunch may discourage diversification
     strategies for the time being.
                                    Marketing strategies:
                                    rationalization & retention
• Rationalization strategies consist of reducing costs through improving
  cost/income ratios,
    – selling more to existing customers, with concentration on particular
      customer segments, avoiding high-risk loans.
    – cost reduction strategies such as staff cuts, branch closures, opening times
• Customer retention has grown in stature as costs of customer turnover
  (or churn) are calculated. Marketers develop stronger metrics for
  evaluating marketing strategies.
• Developments in information technology enable FIs to look at individual
  customers and calculate their value to the organization. Greater
  appreciation of existing customers as a result.
• Related marketing concepts such as relationship marketing and customer
  loyalty with some progress made
• Balance needs to be achieved between increasing market share and
  customer lifetime value (i.e. the value of a customer to a FI during the
  period of relationship).
         Social responsibility and stakeholder
•   Traditional marketing strategies are modelled on a military analogy and much of the
    terminology, such as ‘offensive’ and ‘defensive’, most FIs now promote social
•   Most FIs justify their actions on the basis that they have a duty to their shareholders, with
    customers also being cited. What if, however, there are other groups to whom they have
    a duty?
•   The term ‘stakeholder’ has already been mentioned in earlier chapters and has been
    defined as ‘any group or individual who can affect or is affected by the achievement of the
    organization’s objective’ (Freeman 1984: 25)
•   Working within stakeholder framework can enhance corporate strategy by understanding
    the roles and interactions of companies and stakeholders and moves management on
    from the ‘reigning orthodoxy of shareholder value’ (Freeman 1984).
•   Businesses engage with a range of stakeholders whose views of the business may vary
    greatly (Andriof et al. 2002). The benefits of such a strategy are that former competitors
    collaborate rather than battle, changing the business landscape.
•   Through a series of actions, FIs can direct their efforts to stakeholders to try to restore
    confidence through exhibiting trustworthy behaviours. Requires a significant change.
    Mutuals, co-operatives etc not far from this model.
                                                       Social responsibility
•   FIs have developed policies in related areas e.g corporate social responsibility (CSR), sustainability
    (Crédit Agricole), social commitment (Grupo Santander), corporate responsibility (Commerzbank)
    and community outreach (Alpha Bank).
•   CSR can be represented as economic, legal, ethical and philanthropic responsibilities. Economic
    obligations underpin the other three.
     –   Legal responsibilities require FIs to comply with local, national and international law.
     –    Ethical responsibilities might mean not financing companies engaged in unsustainable activity
     –   Philanthropic responsibilities are expectations that Fis will promote welfare and goodwill.
•   Ethical and socially responsible behaviour rests on a number of dimensions
     –   Employee diversity that includes gender, race and disability
     –   Employee support such as union relations, concern for safety and health, development
     –   Product development to include safety, suitability to customer needs, avoiding funding of unethical or
         environmentally damaging projects
     –   Collecting, storing and using information responsibly
     –   Overseas operations, in terms of behaving responsibly in new markets, understanding networks
     –   Impact on the environment, such as recycling, minimizing pollution, reduction in waste, innovation in work
     –   Community support, to include financial support for charities, the arts, the disadvantaged.
•   Evidence on FI websites that many of them have subscribed to interpretations of socially
    responsible behaviour, e.g. sponsorship of the arts, support of farming in developing countries,
•   Also information that undermines FI messages e.g. May 2008, Friends of the Earth announced that
    UK banks are funding rapid expansion of biofuel production in Latin America (
                                   Immediate future
• From a marketing perspective, FIs may cut their marketing budgets in times
  of recession. Not advisable to cut budget as consumers and other
  stakeholders have lost confidence in financial services
• Marketing and marketers have the requisite expertise to, first, gain insight
  into how stakeholders now view FIs and then to begin to develop strategies
  to deal with the long, slow haul of rebuilding confidence and trust into the
• The current environment of financial services marketing is an opportunity
  for alternatives in marketplace to increase market share.
• There are also some well-established institutions, such as National Savings
  and Investment, that could play a part, trusted by 25 % respondents,
  compared to a figure of 16 per cent with high-street banking brands (Mintel
  2008). There are constraints on how competitive they can be.
• Real opportunity for alternative providers to gain market share untainted by
  the short-termism of some of the FIs.
• Banks are, however, strongly embedded in the fabric of modern society
  customers are very disinclined to switch, especially to non-traditional FIs.
             Marketing more than ever
• The issue of trust should be strategic objective
• Findings of the FSA reveal that most FIs will mislead their
  customers if they can make more profit by doing so.
• Regulatory bodies unable to control FIs.
• Good marketing practice should focus on the role of trust
  in maintaining relationships
• Little evidence to suggest that FIs are going to radically
  reappraise their short-term approach to strategic
• Figure 12.2 suggests an approach for rebuilding trust and
  regaining confidence.
Figure 12.2. Strategy for building trust and confidence

financial institutions                                    stakeholders

    core values                                           customers
   demonstrated                      increased sales
 through the brand                   investment
                                     fewer complaints
                            trust-building:               suppliers and
                            face-to-face contact          alliance groups
 socially responsible       transparency
                            well crafted communication
 & ethical marketing

• Link between setting objectives and formulating strategy shown
• Marketing strategies for financial services have been considered
  and evaluated in this chapter, especially considering strategies for
  growth highlighting the difficulties for FIs.
• A discussion of offensive and defensive strategies has shown how
  FIs need to balance the acquisition and retention of customers.
• Developing niche strategies and following the idea of being a niche
  company is considered in financial services, pointing out the
  problems of this strategy in a mature marketplace.
• FI adoption of corporate social responsibility is considered, with
  gaps identified between the rhetoric on the websites and evidence
  from green charities.
• Opportunities for companies largely unaffected by the credit crunch
  are evaluated, and whether they are able to maximize their

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