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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
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.
Marketing Strategies
offensive
defensive
rationalisation
cost reduction
geographical
new market
market niche
market follower
specialist services
lower risks
Penetration strategy
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
FIs have developed policies in related areas e.g corporate social responsibility (CSR), sustainability (Crdit 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. 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 practices 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 (www.foe.co.uk).
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 system. 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.
Figure 12.2. Strategy for building trust and confidence financial institutions stakeholders customers
confidence
increased sales investment fewer complaints
competitors
staff
Summary
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 advantage.