International Journal of Bank Marketing

Cash Management Services: Research Segmentation Strategies

Jerry White
Article information:
To cite this document:
Jerry White, (1984),"Cash Management Services: Research Segmentation Strategies", International
Journal of Bank Marketing, Vol. 2 Iss 2 pp. 15 - 27
Permanent link to this document:
http://dx.doi.org/10.1108/eb010737
Downloaded on: 30 June 2016, At: 22:59 (PT)
References: this document contains references to 0 other documents.
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

To copy this document: permissions@emeraldinsight.com

The fulltext of this document has been downloaded 174 times since 2006*
Users who downloaded this article also downloaded:
(2005),"International Cash Management in the 21st century: Theory and Practice", Managerial Finance,
Vol. 31 Iss 10 pp. 3-17 http://dx.doi.org/10.1108/03074350510769884
(2005),"International Cash Management Practices in a Russian Multinational", Managerial Finance,
Vol. 31 Iss 10 pp. 48-64 http://dx.doi.org/10.1108/03074350510769910
(1985),"International Cash Management A study of the practices of Netherlands Based Companies",
Management Research News, Vol. 8 Iss 1 pp. 12-17 http://dx.doi.org/10.1108/eb027855

Access to this document was granted through an Emerald subscription provided by emerald-
srm:187202 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well
as providing an extensive range of online products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.

*Related content and download information correct at time of download.

 Cash Management Services:
Research Segmentation
Strategies
by Jerry White
Canadian School of Management
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

Jerry White reports his research into 435 Canadian business corpora-
tions, in which he investigates their awareness of and use of a range
of banking services—in particular cash management services—and
discovers characteristics for differentiating the cash management ser-
vices needs of different market segments.
"Competitive pressures and the unstable interest rate environment
make the major banks increasingly vulnerable to profit erosion and
loss of market share...The aim is to establish a vast range of ser-
vices that customers will pay dearly for." (Business Week, April 13,
1981)
This specific quotation clearly underlines the unique opportunities and
challenges facing the world banking community. Little has changed since
this particular feature was written. New research had to be done to deter-
mine exactly what these services should be. The market's awareness of,
usage of and need for new services and possible criteria for a market
segmentation strategy must be learned. These segmentation criteria could
well include the stage of the life cycle of the service; the nature of the
specific industry; the physical size of the company in sales volume or
number of personnel and numerous other possibilities. The focus could
also be on non-credit commercial banking services, the bulk of which
fall under the category of cash management concepts. Little if any
research had been done on any of these areas and it was therefore critical
to develop a substantial data base for future planning purposes.

The Study
The initial part of the study consisted of telephone interviews with 60
US-based banks and focus groups of banking service consumers in

Researching Segmentation Strategies | 15

 both Canada and the US. These focus groups were segmented by the
sales volume of the company so that there were groups from large cor-
porations with sales in excess of $30 million a year and from smaller
corporations with sales under $30 million a year. This in turn allowed
the preparation of a more effective research methodology and
questionnaire.

Survey Methodology and Reliability

Sampling Procedure
The sampling includes four different categories of companies. Large
Canadian companies, large foreign affiliates, independent Canadian-
owned companies of medium size and independent Canadian companies
of smaller size.
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

Large companies were defined as having annual sales volume in excess

of $30 million. These companies were randomly selected from the Dun
& Bradstreet publication, Canadian Key Business Directory 1983. The
companies were identified as large by their estimated sales volume, their
status as Canadian or foreign affiliates was determined from the Statistics
Canada publication, Inter-corporate Ownership.
Medium and small independent Canadian companies were selected us-
ing the Dun & Bradstreet marketing services data base. A sample con-
sisted of the headquarters of companies with an annual sales volume
reported to be less than $30 million. These were divided into medium
or small depending on whether their sales volume was above or below
the median sales volume for their industrial sector.
Industrial sector medians were defined in terms of Canadian and in-
dustrial sectors while the sample was based on a standard US industrial
classification. This subjective equivalent between categories was used
in assigning companies to their group.
There is some bias resulting from this selection technique. About 20 per
cent of small and medium-sized companies do not report sales volumes.
About 40 per cent of large companies do not report sales volumes. These
companies were not included in the sample. The bias this creates can-
not be literally anticipated or estimated.

Representativeness
While the sampling frame was representative of provincial and central
proportions, the final sample was not to correct this imbalance. A waiting
scheme was chosen for analysing results: thus, reported results tend to
represent a proper proportion of respondents from each region and each

16 | International Journal of Bank Marketing 2,2

 major industrial sector. Note also that representatives do not speak to
the accuracy of results within a region or industrial sector. This is a func-
tion of sample size.

Accuracy
Proportions based on the entire sample (N = 435) are accurate to within
5 per cent or better. Proportions are based on 100 respondents and are
accurate to within 10 per cent or better. Proportions based on only 25
respondents are accurate to within 20 per cent or better, i.e., if 217
respondents out of 435 say "yes", the probable proportion of people
in a population that would say "yes" is between 45 per cent and 55 per
cent.
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

Conduct of Interviews
Interviews were conducted by telephone with the chief financial officer
of each company. Three attempts were made to reach this person before
giving up all contact with the company. Interviewers were people with
some business experience, at least 5 years, who were able to explain all
services and answer any questions. Interview questions were standar-
dised and answers were recorded on a standardised coding sheet. Each
interview took about 20 minutes to complete. Refusals to participate
in the interview were quite low, about 20 per cent, and it should not
represent any major source of bias.

Additional Biases
Greater difficulty was experienced in completing interviews in the Pro-
vince of Quebec. Thus, fewer Quebec corporations were sampled than
would be desirable. This may introduce some unknown bias into the
results despite weighting. In addition, any other corporate characteristics
not strictly controlled will represent a potential bias in the sample, e.g.,
net worth, number of companies, urban versus rural, etc., to the extent
that these variables are of a greater concern than regional or industrial
sector. Care should be exercised in interpretation.

Results
Who did we survey? Based on Statistics Canada data and research con-
ducted by the Ministry of State for Small Business, the sample size by
population, by industry sector and by number of employees (see Tables
I, II and III) is considered to be realistically proportionate to the actual
distribution in the total Canadian industrial sector. The distribution of
firms by total sales volume (see Table IV), however, is slightly geared
toward firms which may be classified between $1 and $30 million. This
is slightly over-representative of the total Canadian business distribution.

Researching Segmentation Strategies | 17

 Table I. Whom Did We Survey?

No. of
Size of population centre respondents %
500 million + 224 51.5
100 - 500 million 92 21.1
30 - 100 million 33 7.6
10 - 30 million 26 6.1
1 - 1 0 million 41 9.5
Rural 19 4.3
435 100.0

Table II. Whom Did We Survey?

Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

No. of
435 Businesses in these Industries: respondents %

Agriculture, Forestry, Fishing 7 1.6

Mining 3 .7
Construction 60 13.8
Manufacturing 52 11.9
Transportation, Communication
Utilities 21 4.8
Wholesale 44 10.1
Retail 138 31.8
Financial, Insurance, Land 27 6.2
Services 83 19.1
435 100.0

Table III. Whom Did We Survey?

435 Businesses* No. of

employing respondents %
1 to 9 employees 83 19.0
"
10 to 49 176 40.7
"
50 to 99 38 8.7
"
100 to 199 35 8.0
"
200 to 499 35 8.1
"
500 to 999 20 4.6
"
1000 + 37 8.4
No answer 11 2.5
435 100.0

*The vast majority of businesses surveyed (over 96 per cent) had more than one location.

18 | International Journal of Bank Marketing 2,2

 Table IV. Whom Did We Survey?

435 Businesses No. of

by sales volume respondents % Cum. %

Under $1 million 149 34 34

$1-2 million 69 16 50
$2-5 million 71 16 66
$5-15 million 46 11 77
$15-50 million 51 12 89
$50+ million 47 11 100
Not sure/No reply 2 —
435 100.0
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

Table V. Whom Did We Survey?

No. of
Company type respondents %

Large Canadian 1 56 12.8

Foreign affiliate 25 5.7
Canadian independent—medium 2 197 45.3
3
Canadian independent—small 157 36.2
435 100.0

1
Over $30 million sales.
2
Under $30 million sales and above median sales volume for its SIC sector.
3
Under $30 million sales and below median sales volume for its SIC sector.

Respondents were able to rank the services which they require in order
of importance from 1 through to 19 (see Table VI). We were also able
to identify which bank has brought the services to the customers' at-
tention, what percentage of our sample population actually used these
services or was interested in receiving the services in the near future,
and who are prepared to consider or were using these cash management
services from a second bank supplier (see Table VII).
We were able to discover that the awareness was low in many categories
of services. There is an unusually high correlation between awareness
and actual usage (see Table VIII), little correlation between interest of

Researching Segmentation Strategies | 19

 Table VI. Respondents Rank the Importance
of these Services in this Order

(1) Automatic funds transfer

(2) Foreign exchange
(3) Balance reporting
(4) Computerised payroll
(5) Cash concentration
(6) Letters of credit
(7) General business information
(8) Investment services
(9) Cheque reconciliation
(10) Pre-authorised cheques
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

(11) Cash flow management

(12) Automatic disbursements
(13) Factoring receivables
(14) Terminals on-line to bank
(15) Lock boxes
(16) Merger and acquisition advice
(17) Cash management audit
(18) Bank-customer computer link
(19) Cheque issuance

non-users and perceived importance to the users and the usage of a se-
cond bank is quite low as well. However, 38 per cent of the respondents
did indicate that they would consider using a second bank for cash
management services. This clearly highlights the fact that when bankers
make customers aware of services there is an excellent opportunity for
making a sale even by a second bank.
We were also able to rank the available services in terms of importance
to each industry segments (see Table IX), as well as establish a profile
of the most likely users of the most important non-credit services, i.e.,
those ranked from 1 through 9 (see Tables X and XI). We were able to
segment users in terms of number of employees, by their existing
operating lines of credit, by their sales volume, by their company type
and by their industry (see Table XII).
We were also able to classify the use of non-credit commercial banking
services by the life cycle characteristics of the services as well, ranging
from emerging services, growth services, mature services and extremely
mature services (see Table XIII).

20 | International Journal of Bank Marketing 2,2

 Table VII. Awareness, Sales Effort, U s a g e and Perceived Importance of Each Service

Researching Segmentation Strategies | 21

% whose % whose % % interested Importance % receiving
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

bank offers banker who use in receiving of the service

the service brought to service service in service from a
customers near future second bank
attention

Computerised payroll 66 34 24 6 4 3
Cash concentration 59 34 28 3 5 3
Lock box 52 27 15 3 14 2
Automatic funds transfer 78 44 53 4 1 6
On-line terminals (in office) 24 12 5 6 15 1
Cheque reconciliation 51 27 25 5 .8 1
Pre-authorised cheques 53 30 19 3 10 2
Automated disbursements 45 23 14 3 12 1
Foreign exchange 90 43 58 3 2 6
Letters of credit 89 43 51 3 6 3
Cash flow management 47 26 16 4 11 1
Investment services 73 39 31 3 9 3
General business information 78 43 57 3 7 4
Balance reporting 78 40 58 — 3 3
Cash management audit 24 14 6 3 16 1
Factoring A/R 37 20 4 2 13 —
Computer to computer link 12 6 2 5 17 —
Issuing cheques 27 15 9 3 16 1
Merger and acquisition advice: 43 22 14 3 16 —

The awareness is low
for several services
There is an unusually high
correlation between
awareness of usage—
nearly 90 per cent
Little correlation between
interest of non-users and
perceived importance to
users
Usage of second
bank is low but
38 per cent of respondents
indicated they would
consider using a second
bank
 Table VIII. Testing the Relationship between Awareness and Usage

Service % Awareness % Usage

Foreign exchange 90 58
Letters of credit 89 51
General business information 78 57
Balance reporting 78 58
Auto funds transfer 78 44
Investment services 73 31
Cash concentration 59 28
Cheque reconciliation 51 25
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

• Correlation coefficient .84

Value close to 1 indicates high positive correlation

• Validity test
Correlation coefficient should be greater than the test value at a given
degree of certainty
Degrees of certainty 80% 90% 95% 99%
Test values .507 .621 .707 .834

A greater than 99% correlation

between awareness and usage

Bank which makes customers aware

has best chance of making sales

Conclusions
From our analysis we have been able to observe that there are numerous
methods for market segmentation for cash management services. This
is a dynamic and growing market and the market seems extremely open
to being made aware of what new programmes are available. Awareness
of services seems to be a major factor in terms of acceptance. We have
discovered that factors such as industry, company size, sales volume,
number of employees, line of credit are just some of the characteristics
that can be used for differentiating the needs of different market groups.
We were even able to be quite specific in pinpointing the exact services
required by each individual market segment. This clearly establishes

22 | International Journal of Bank Marketing 2,2

 Table IX. How are these Services Ranked for Importance by the Various Industry Segments?

Financial, Insurance,

Researching Segmentation Strategies | 23

Overall Ser. Rank
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

Manufacturing

Transport and
Construction
Agriculture

Total Resp.
Wholesale

Services
Utilities
Fishing

Mining

Retail

Land
Computerised payroll 6 2 5-6 6 5 1 2 4 66
Cash concentration 2 6 2 5 4 3 4 5 65
Lock box 7 15 7
Automatic funds transfer 3 1 3 3 2 1 4 1 1 122
On-line terminals (in office) 14 6
Cheque reconciliation 3-4 5 5 9 33
Pre-authorised cheques 6 10 27
Automated disbursements 12 12
Foreign exchange 1-2 4-5 3-4 1 1 7 5 3 2 82
Letters of credit 1-2 2 4 4 4 6 6 6 53
Cash flow management 4-5 5-6 11 18
Investment services 6 8 30
General business information 3-4 3 7 38
Balance reporting 1 3-4 5 1 3 2 2 3 69
Cash management audit 17 5
Factoring A/R 13 9
Computer to computer link 18 2
Issuing cheques 19 3
Merger and acquisition advice 16 5
1 = most important
 Table X. The Best and Easiest Services to Sell

% % Usage Perceived
Awareness Usage awareness importance

Foreign exchange 90 58 .644 2

Letters of credit 89 51 .573 6
General business
information 78 57 .743 7
Balance reporting 78 58 .743 3
Automatic funds
transfer 78 44 .564 1
Investment services 73 31 .425 9
Cheque reconciliation 51 25 .490 8
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

Cash concentration 59 28 .474 5

Computerised payroll 66 24 .363 4

Supports
"come sell me"

the validity of this type of approach for the formation of a marketing

strategy for the delivery of these services to the different market
groups. It is extremely important that research is done in each in-
dividual market. In our research we were also able to compare finan-
cial institutions in both Canadian and US markets on such criteria
as the awareness of their client base of these services, their effec-
tiveness in creating that awareness, and how well they were perceiv-
ed by their client base in providing the types of services that the client
group actually needed.
As far as the field of cash management services is concerned, this
original study only provides us with the rudimentary perspective of
the immense opportunities available in this market. New and uni-
que strategies need to be developed in order to provide banking in-
stitutions with new competitive approaches in these changing and
emerging markets. It would appear, however, that there are excellent
opportunities in this sector. The 19 services that we looked at repre-
sent only a partial menu of the numerous options. Probably 50 or
60 different products may be developed over the next few years.
Therefore further research of this kind must be conducted.

24 | International Journal of Bank Marketing 2,2

 Researching Segmentation Strategies | 25
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

Table XL What is the Profile of the Most Likely Users of the Most Important Non-Credit Services?

No. of By line By sales By company By

Rank employees of credit volume type industry

1 Automatic funds transfer 100-199 $ 10-19 mm $2-5 mm Med. Cdn. All

2 Foreign exchange 200-499 $ 10-19 mm $5-15 mm All All
3 Balance reporting 1000+ $500-999 m $15 mm+ Lge. Cdn. All
4 Computerised payroll 50+ $500-999 m $2-5 mm Med. Cdn. All
5 Cash concentration 500-999 $ 1-4 mm $50 mm+ Med. Cdn. All
6 Letters of credit 50-499 $ 1-4 mm $5-15 mm Canadian All
7 General business information 1-9 $500-999 m $1/2-1 mm Small Cdn. All
8 Investment services 1-9 $ 5-20 mm $50 mm+ Lge. Cdn. Nearly All
9 Cheque reconciliation 500-999 $ 20 mm+ $50 mm+ Lge. Cdn. All
 Table XII. Ranking of the Most Used Services

Highest current usage by

26 | International Journal of Bank Marketing 2,2

Ranking Service
Rank of of future life cycle No. of
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

Usage Rank Service importance interest characteristic Company

type employees Sales volume
%

61 1 Foreign exchange 2 17 Mature For. Affil. Over 10 All high

61 2 Balance reporting 3 16 Maturing For. Affil. All All high
60 3 General business information 7 19 Mature For. Affil. All All high
56 4 Automatic funds transfer 1 15 Maturing Med. Cdn. All All high
54 5 Letters of credit 6 18 Mature Med. Cdn. &
for affiliated 50-500 All high
33 6 Investment services 8 14 Maturing Small Cdn. Under 100 Under $1 mm
29 7 Cash concentration 5 5 Emerging Med. & Irg. Over 100 Over $2 mm
Companies
27 8 Cheque reconciliation 9 6 Growing Lrg. Cdn. All All Rela-
tively
Equal
26 9 Computerised payroll 4 3 Growing Med. & Lrg. Over 100 Over $2 mm
Companies
21 10 Pre-authorised cheques 10 11 Maturing Small Cdn. Under 1000 $1/2 to 1 &
S5-15 mm
17 11 Cash flow management 11 4 Emerging For. Affil. 200-500 & N/A
Over 1000
16 12 Lock box 15 10 Growing For. Affil. Under 10 & Over $50 mm
Over 1000
15 13 Automated disbursements 12 12 Maturing Small Cdn. 10-100 $1/2 TO 1 mm
14 14 Merger and acquisition advice 16 8 Growing For. Affil. 200-500 $2-5 mm &
Over $50 mm
9 15 Cheque issuance 19 13 Maturing Small Cdn. 10-50 & Under $1 mm
100-200
7 16 Cash management audit 17 7 Emerging For. Affil. 500-1000 N/A
N/A 17 On-line terminals 14 2 Emerging
5 18 Factoring A/R 13 9 Growing Small. Cdn. Below 500 Under $5 mm
2 19 Computer to computer 18 1 Emerging
 Table XIII. Non-credit Services can be Classified by "Life Cycle
Characteristics"

"Emerging" (low usage/low current importance/high future interest)

— Customer-bank computer link
— On-line terminals
— Cash management audit
— Cash flow management
— Cash concentration

"Growing" (medium usage/medium current importance/high future interest)

— Merger and acquisition advice
— Lock box
— Computerised payroll
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)

— Cheque reconciliation

"Maturing" (medium to high usage/medium to high current importance/medium

to low future interest)
— Cheque issuance
— Automated disbursements
— Pre-authorised cheques
— Investment services
— Automatic funds transfer
— Balance reporting

"Mature" (high usage/high current importance/low future interest)

— Foreign exchange
— General business advice
— Letters of credit

Mature and maturing services are initially "must haves"

Visibility and the potential for long-term increased volume

are more likely in the emerging & growing services

Researching Segmentation Strategies | 27

 This article has been cited by:

1. F. Axel JohneThe City University Business School, London P. HarborneBritish Telecom Enterprises
Consumer Products, London. 1985. How Large Commercial Banks Manage Product Innovation.
International Journal of Bank Marketing 3:1, 54-71. [Abstract] [PDF]
2. Barbara R. Lewis. 1984. Marketing Bank Services Barbara. The Service Industries Journal 4:3, 61-76.
[CrossRef]
Downloaded by UNIVERSITY OF LIVERPOOL At 22:59 30 June 2016 (PT)