Unit I

Marketing of Financial Services Conceptual Framework

Marketing scope in banking sector should be considered under the service marketing framework.
Performed marketing strategy is the case which is determination of the place of financial institutions on
customers mind. Bank marketing does not only include service selling of the bank but also is the
function which gets personality and image for bank on its customers mind.
On the other hand, financial marketing is the function which relates uncongenitalies, differences and
non-similar applications between financial institutions and judgment standards of their customers. The
reasons for marketing scope to have importance in banking and for banks to interest in marketing
subject can be arranged as:

Change in demographic structure: Differentiation of population in the number and Composition

affect quality and attribute of customer whom benefits from banking services.
Intense competition in financial service sector: The competition became intense due to the
growing international banking perceptiveness and recently being non limiting for new enterprises
in the sector. Increase in liberalization of interest rates has intensified the competition.

Banks wish for increasing profit: Banks have to increase their profits to create new markets, to protect
and develop their market shares and to survive on the basis of intense competition and demographic
chance levels. The forces of deregulation, advancing technology and general trend towards globalization
have vastly increased the competitive pressures within the financial services market that has in turn
affected both the structure and operation of financial service providing firms like banks and non-banking
financial institutions.
Banks are providers of financial services, financial intermediaries and key participants in a nation's
payment system. As such banks play a major role in the economy and in the financial well being of a
nation. In India since 1992, deregulation, technology, and aggressive competition fostered more
changes in the banking industry than it has experienced in its entire history. Precisely because of
competition, providing financial services in an able manner requires an excellent marketing orientation.

lndia Banks were traditionally in the 'business of banking', namely borrowing from one market and
lending to another. However, since the commencement of banking sector reforms in the early 1990s,
their orientation has become the 'business: of financial services', with a much wider focus in relation to
consumer market needs and consequent marketing strategies.
Marketing as a narrow management function, appears to be in decline. Marketing as a management
philosophy and orientation, espoused and practiced throughout the corporation, is however seen
increasingly as critical to the success of any organization

Marketing of Bank's products and services implies the delivery (maintaining existing demand) and
creation (creating of new demand) of want satisfying (ie.,right) services at right price, at right time. at
right place, and to a right customer.

Types of Financial Market in India

A financial market is a market in which people and entities can trade financial securities, commodities,
and other fungible items of value at low transaction costs and at prices that reflect supply and demand.
Securities include stocks and bonds, and commodities include precious metals or agricultural goods.
In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain
good or service and the transactions between them.
The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate
the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical
location (like the NYSE, BSE, NSE) or an electronic system (like NASDAQ). Much trading of stocks takes
place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two
companies or people, for whatever reason, may agree to sell stock from the one to the other without
using an exchange.
Within the financial sector, the term "financial markets" is often used to refer just to the markets that
are used to raise finance: for long term finance, the Capital markets; for short term finance, the Money
markets. Another common use of the term is as a catchall for all the markets in the financial sector, as
per examples in the breakdown below.

Capital markets

are financial markets for the buying and selling of long-term debt or equity-

backed securities. These markets channel the wealth of savers to those who can put it to long-term
productive use, such as companies or governments making long-term investments.
Key division within the capital markets is between the primary markets and secondary markets. In
primary markets, new stock or bond issues are sold to investors, often via a mechanism known
as underwriting. The main entities seeking to raise long-term funds on the primary capital markets are
governments (which may be municipal, local or national) and business enterprises (companies).
Governments tend to issue only bonds, whereas companies often issue either equity or bonds. The main
entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, and
less commonly wealthy individuals and investment banks trading on their own behalf. In the secondary
markets,

existing

securities

are

sold

and

bought

among

investors

or

traders,

usually

on

an exchange, over-the-counter, or elsewhere. The existence of secondary markets increases the

willingness of investors in primary markets, as they know they are likely to be able to swiftly cash out
their investments if the need arises.
India in capital market
The Indian capital market is one of the oldest capital markets in the world. It dates back to the 18th
century when the securities of the East India Company were traded in Mumbai and Kolkata. However,
the orderly growth of the capital market began with the setting up of The Stock Exchange of Bombay in
July 1875 and Ahmedabad Stock Exchange in 1984. Eventually 19 other Stock Exchanges sprang up in
various parts of the country

Thus the Indian Capital Market is in transition. There has been a revolutionary change over a period of
time. In fact, on almost all the operational and systematic risk management parameters, settlement
system, disclosures, accounting standards, the Indian Capital Market is at par with the global standards.
The goal of SEBI is to make the Indian Capital Market truly world class, competitive, transparent and
efficient. A 96 perception is steadily growing about the Indian Capital Market, as a dynamic market,
among the international community. Let us dream to make our Indian Capital Market a benchmark for
the rest of the world

Regulator
The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. It
was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act,
1992

Major Players in Indian Stock Market

Bombay Stock Exchange (BSE) is an Indian stock exchange located at Dalal Street, Kala Ghoda,
Mumbai, Maharashtra, India. Established in 1875 and is considered to be one of Asias fastest stock
exchanges, with a speed of 200 microseconds and one of Indias leading exchange groups and the
oldest stock exchange in the South Asia region. Bombay Stock Exchange is the world's 10th largest
stock market by market capitalization at $1.7 trillion as of 23 January 2015. [2] More than 5,000
companies are listed on BSE.

National Stock Exchange NSE was the first exchange in the country to provide a modern, fully
automated screen-based electronic trading system which offered easy trading facility to the investors
spread across the length and breadth of the country. NSE has a market capitalization of more than
US$1.65 trillion, making it the worlds 12th-largest stock exchange as of 23 January 2015. [1] NSE's
flagship index, the CNX Nifty, the 50 stock index, is used extensively by investors in India and around
the world as a barometer of the Indian capital markets.

Commodity Market

which facilitates the trading of commodities Is a market that trades in

primary rather than manufactured products. Soft commodities are agricultural products such as wheat,
coffee, cocoa and sugar. Hard commodities are mined, such as gold and oil.

Foreign exchange market

The markets, in which participants are able to buy, sell exchange

and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies,
central banks, investment management firms, hedge funds, and retail forex brokers and investors. The
forex market is considered to be the largest financial market in the world.

Foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading
of currencies. In terms of volume of trading, it is by far the largest market in the world. [1] The main

participants in this market are the larger international banks. Financial centers around the world
function as anchors of trading between a wide range of multiple types of buyers and sellers around the
clock, with the exception of weekends. The foreign exchange market determines the relative values of
different currencies

Derivative market

In finance, a derivative is a contract that derives its value from the

performance of an underlying entity. Derivatives can be used for a number of purposes, including
insuring against price movements (hedging), increasing exposure to price movements for speculation or
getting access to otherwise hard-to-trade assets or markets. Some of the more common derivatives
include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt
obligations and credit default swaps.
Forwards
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to
buy or to sell an asset at a specified future time at a price agreed upon today, making it a type of
derivative instrument. This is in contrast to a spot contract, which is an agreement to buy or sell an
asset on its spot date, which may vary depending on the instrument, for example most of the FX
contracts have Spot Date two business days from today.
The party agreeing to buy the underlying asset in the future assumes a long position, and the party
agreeing to sell the asset in the future assumes a short position. The price agreed upon is called the
delivery price, which is equal to the forward price at the time the contract is entered into. The price of
the underlying instrument, in whatever form, is paid before control of the instrument changes. This is
one of the many forms of buy/sell orders where the time and date of trade is not the same as the value
date where the securities themselves are exchanged.
Futures
In finance, a futures contract (more colloquially, futures) is a standardized contract between two parties
to buy or sell a specified asset of standardized quantity and quality for a price agreed upon today (the
futures price) with delivery and payment occurring at a specified future date, the delivery date, making
it a derivative product
While the futures contract specifies a trade taking place in the future, the purpose of the futures
exchange is to act as intermediary and mitigate the risk of default by either party in the intervening
period. For this reason, the futures exchange requires both parties to put up an initial amount of cash
(performance bond), the margin. Margins, sometimes set as a percentage of the value of the futures
contract, need to be proportionally maintained at all times during the life of the contract to underpin
this mitigation because the price of the contract will vary in keeping with supply and demand and will
change daily and thus one party or the other will theoretically be making or losing money
Options
In finance, an option is a contract which gives the buyer (the owner) the right, but not the obligation, to
buy or sell an underlying asset or instrument at a specified strike price on or before a specified date.

The seller has the corresponding obligation to fulfill the transactionthat is to sell or buyif the buyer
(owner) "exercises" the option. The buyer pays a premium to the seller for this right. An option that
conveys to the owner the right to buy something at a certain price is a "call option"; an option that
conveys the right of the owner to sell something at a certain price is a "put option".

Swaps
A swap is a derivative in which two counter parties exchange cash flows of one party's financial
instrument for those of the other party's financial instrument. The benefits in question depend on the
type of financial instruments involved. For example, in the case of a swap involving two bonds, the
benefits in question can be the periodic interest (coupon) payments associated with such bonds.

Concept of Marketing
The marketing concept is the philosophy that firms should analyze the needs of their customers and
then make decisions to satisfy those needs, better than the competition. Today most firms have adopted
the marketing concept, but this has not always been the case.
The Production Concept
The production concept prevailed from the time of the industrial revolution until the early 1920's. The
production concept was the idea that a firm should focus on those products that it could produce most
efficiently and that the creation of a supply of low-cost products would in and of itself create the
demand for the products. The key questions that a firm would ask before producing a product were:

Can we produce the product?

Can we produce enough of it?

At the time, the production concept worked fairly well because the goods that were produced were
largely those of basic necessity and there was a relatively high level of unfulfilled demand. Virtually
everything that could be produced was sold easily by a sales team whose job it was simply to execute
transactions at a price determined by the cost of production. The production concept prevailed into the
late 1920's.
The Sales Concept
By the early 1930's however, mass production had become commonplace, competition had increased,
and there was little unfulfilled demand. Around this time, firms began to practice the sales concept (or
selling concept), under which companies not only would produce the products, but also would try to
convince customers to buy them through advertising and personal selling. Before producing a product,
the key questions were:

Can we sell the product?

Can we charge enough for it?

The sales concept paid little attention to whether the product actually was needed; the goal simply was
to beat the competition to the sale with little regard to customer satisfaction. Marketing was a function
that was performed after the product was developed and produced, and many people came to associate
marketing with hard selling. Even today, many people use the word "marketing" when they really mean
sales.
The Marketing Concept
After World War II, the variety of products increased and hard selling no longer could be relied upon to
generate sales. With increased discretionary income, customers could afford to be selective and buy
only those products that precisely met their changing needs, and these needs were not immediately
obvious. The key questions became:

What do customers want?

Can we develop it while they still want it?

How can we keep our customers satisfied?

In response to these discerning customers, firms began to adopt the marketing concept, which involves:

Focusing on customer needs before developing the product

Aligning all functions of the company to focus on those needs

Realizing a profit by successfully satisfying customer needs over the long-term

When firms first began to adopt the marketing concept, they typically set up separate marketing
departments whose objective it was to satisfy customer needs. Often these departments were sales
departments with expanded responsibilities. While this expanded sales department structure can be
found in some companies today, many firms have structured themselves into marketing organizations
having a company-wide customer focus. Since the entire organization exists to satisfy customer needs,
nobody can neglect a customer issue by declaring it a "marketing problem" - everybody must be
concerned with customer satisfaction.
The marketing concept relies upon marketing research to define market segments, their size, and their
needs. To satisfy those needs, the marketing team makes decisions about the controllable parameters of
the marketing mix.
The Marketing Mix in Banking Sector

SERVICE
Recently, banks are in a period that they earn money in servicing beyond selling money. The prestige is
get as they offer their services to the masses. Like other services, banking services are also intangible.
Banking services are about the money in different types and attributes like lending, depositing and
transferring procedures. These intangible services are shaped in contracts. The structure of banking
services affects the success of institution in long term. Besides the basic attributes like speed, security
and ease in banking services, the rights like consultancy for services to be compounded are also
preferred.
PRICE
The price which is an important component of marketing mix is named differently in the base of
transaction exchange that it takes place. Banks have to estimate the prices of their services offered. By
performing this, they keep their relations with extant customers and take new ones. The prices in
banking have names like interest, commission and expenses. Price is the sole element of marketing
variables that create earnings, while others cause expenditure. While marketing mix elements other
than price affect sales volume, price affect both profit and sales volume directly. Banks should be very
careful in determining their prices and price policies. Because mistakes in pricing cause customers shift
toward the rivals offering likewise services. Traditionally, banks use three methods called cost-plus,
transaction volume base and challenging leader in pricing of their services.

DISTRIBUTION
The complexity of banking services is resulted from different kinds of them. The most important feature
of banking is the persuasion of customers benefiting from services. Most banks services are complex in
attribute and when this feature joins the intangibility characteristics, offerings take also mental
intangibility in addition to physical intangibility. On the other hand, value of service and benefits taken
from it mostly depend on knowledge, capability and participation of customers besides features of
offerings. This is resulted from the fact that production and consumption have non separable
characteristics in those services.
Most authors argue that those features of banking services make personal interaction between
customer and bank obligatory and the direct distribution is the sole alternative. Due to this reason, like
preceding applications in recent years, branch offices use traditional method in distribution of banking
services.
PROMOTION
One of the most important element of marketing mix of services is promotion which is consist of
personal selling, advertising, public relations, and selling promotional tools.
PERSONAL SELLING

Due to the characteristics of banking services, personal selling is the way that most banks prefer in
expanding selling and use of them. Personal selling occurs in two ways. First occurs in a way that
customer and banker perform interaction face to face at branch office. In this case, whole personnel,
bank employees, chief and office manager, takes part in selling. Second occurs in a way that customer
representatives go to customers place. Customer representatives are specialist in banks services to be
offered and they shape the relationship between bank and customer.
ADVERTISING
Banks have too many goals which they want to achieve. Those goals are for accomplishing the
objectives as follows in a way that banks develop advertising campaigns and use media.
1. Conceive customers to examine all kinds of services that banks offer
2. Increase use of services
3. Create well fit image about banks and services
4. Change customers attitudes
5. Introduce services of banks
6. Support personal selling
7. Emphasize well service
Advertising media and channels that banks prefer are newspaper, magazine, radio, direct posting and
outdoor ads and TV commercials. In the selection of media, target market should be determined and the
media that reach this target easily and cheaply must be preferred.
Banks should care about following criteria for selection of media.
1. Which media the target market prefer
2. Characteristics of service
3. Content of message
4. Cost
5. Situation of rivals
Ads should be mostly educative, image making and provide the information as follows:
1. Activities of banks, results, programs, new services
2. Situation of market, government decisions, future developments
3. The opportunities offered for industry branches whose development meets national benefits
PUBLIC RELATIONS

Public relations in banking should provide;

1. Establishing most effective communication system
2. Creating sympathy about relationship between bank and customer
3. Giving broadest information about activities of bank.

Additional Reading on Augmented Marketing Mix

Definition of Marketing Mix:Marketing mix means to collect and mix the resources of marketing in the manner that object of the
enterprises may be achieved an maximum satisfaction may be provided to the consumer.
According to Borden The marketing mix refers to the appointment of efforts, the combination the
designing and integration of the element of marketing into a program me or mix which on the basis of
an appraisal of the market forces with best achieve an enterprise at a given time.
Marketing mix elements:
1. Product
2. Price
3. Promotion
4. Place
Augmented / Extended marketing mix :In case of services however, there are alternatives approaches suggested by various authors. They have
suggested the need of services has led to the extension of the mix to serve seven Ps. The additional
three Ps listed below are known as the extended service mix.
1. People
2. Physical evidence
3. Process
marketing mix provided a useful structure for marketing implementation, there is a need to strengthen
the approach through the inclusion of three other elements. Physical evidence and process.
Service Marketing Mix

The 7 Ps of service marketing mix are:

1) Service product
2) Service pricing
3) Service promotion
4) Service distribution
5) People
6) Process of operation
7) Physical Evidence

Market segmentation is a marketing strategy which involves dividing a broad target market into
subsets of consumers, businesses, or countries that have, or are perceived to have, common needs,
interests, and priorities, and then designing and implementing strategies to target them. Market
segmentation strategies are generally used to identify and further define the target customers, and
provide supporting data for marketing plan elements such as positioning to achieve certain marketing
plan objectives. Businesses may develop product differentiation strategies, or an undifferentiated
approach, involving specific products or product lines depending on the specific demand and attributes
of the target segment.

Types of market segmentation

Geographic segmentation

Marketers can segment according to geographic criterianations, states, regions, countries,

cities, neighborhoods, or postal codes. The geo-cluster approach combines demographic data
with geographic data to create a more accurate or specific profile Co Operative Banks,
Regional Rural Banks

Demographic segmentation

Segmentation according to demography is based on variables such as age, gender, occupation

and education level or according to perceive benefits which a product or service may provide.
Benefits may be perceived differently depending on a consumer's stage in the life cycle.
Demographic segmentation divides markets into different life stage groups and allows for
messages to be tailored accordingly Mahila Bank

Behavioral segmentation

Behavioral segmentation divides consumers into groups according to their knowledge of,
attitude towards, usage rate, response, loyalty status, and readiness stage to a product Bank
products for Investment purpose, Brokerage House

Psychographic segmentation

Psychographic segmentation, which is sometimes called lifestyle, is measured by studying the

activities, interests, and opinions of customers Bank for High Net Worth, NRI Bank
products and Services