Editorial»
Segmenting the banking market
JAN 07 - Marketing is one of the important function in any organisation. Marketing has become important function in banking industry because of the existence of intense competition, not only within the industry but also from development banks, finance companies, insurance companies, capital markets, etc. This has resulted in banks paying increasing attention to marketing techniques.
Banking industry has unique nature compared to that of manufacturing or trading industry dealing with tangible products. Marketing of banking products is a field of study that is evolving rapidly. The emergence of global market place, the breakthrough achieved in the field of information technology, increasing complications faced in the world trade have further increased the importance of the managing banking services. The popular ‘4 Ps’ propounded by McCarthy was not found adequate in pursuing marketing objective of banking industry. As a consequence of this, Mary Jo Bitner expanded the marketing mix into ‘7 Ps’ by including 3 additional Ps – People, Physical Evidence and Process – that are unique to the service industry.
Banks deal with various types of customers e.g., individuals, group of people, corporate entities, etc. who have their likes and dislikes. No bank can afford to assess the need of each and every individual customer separately. It is nearly impossible for banks to market all these categories of customers on a one-to-one basis, particularly if they simply rely on predictable socio-economic data like age and income as the base for dividing customers into segments. To overcome this problem, banks adopt market segmentation strategy, which recognises the wisdom of specialising to suit the need of a segment of the market rather than trying to address the requirements of each and every customer separately. Market segmentation divides the whole market into groups of customers who have the requirement of similar kinds of products and services.
The need for market segmentation arises as markets are becoming increasingly diverse and it is rare for mass marketing to be a profitable strategy. Market segmentation enables more accurate and effective communication of benefits in relation to needs. Market segmentation also helps to identify growth opportunities for the bank.
Market of banking products can be segmented in a number of different ways. Market segmentation must have certain qualities that make it possible to specialise the marketing approaches. The segmentation must be measurable in terms of the criteria used for segmentation; accessible through the distribution system; and sizable in volume in order to generate the economy of operations. One of the rational ways of segmentation could be diving the banking market into retail and wholesale market and subdivide the market into various segments.
Retail market can be segmented on the basis of demography, geography, social class and cultural values. Demographic segmentation divides the market in terms of the characteristics of populations such as age group, sex, size of family, level of income, occupation. For example, fixed income earner demands different product than the variable income earners. On the Other hand, geographic segmentation divides the market on the basis of different geographic units such as urban market, rural market, eastern market, western market, etc.
There exist a major difference between bank customers of different social class. On the basis of social class, the market can be segmented into higher class, middle class and the lower class. Higher-class customers are generally complicated one, selective in choosing the products and they may be willing to take risk for earning higher returns. Such customers may also demand for customisation of products to fit their requirement. On the other hand, the lower class customers have limited sense of choice and are very much concerned on the risk inherent in the product. The market can also be segmented based on the cultural values of the customers. The segmentation may be on the basis of religion, nationality, region etc. A bank can gain competitive edge by programming different marketing strategies for customers of different segments.
Wholesale market can be segmented on the basis of the classification of the companies. Such segmentation may be based on status of the company (e.g., private company, public company, government corporations, partnership firm, proprietorship firm); industry classification (e.g., manufacturing industry, trading industry, service industry); requirement of funds (e.g., company needing Rs. 20-50 million, Rs. 50-100 million, above Rs. 100 million); life-cycle of the company (e.g., start-up company, growing company, mature company); market served by the company (e.g., domestic market, export market); and profitability of the company. A bank can segment the wholesale market and target the particular segments of customers.
As discussed above, a bank segments its market into more or less homogeneous groups, in terms of their needs and expectations from the banking industry. Marketing strategy of a bank should involve dividing the market into major segments; targeting the segments to be catered by the bank; and developing the products and marketing programs to take care of the selected segments.
Each segment of the market may demand different products and require different marketing mix to address the demand. The bank should, therefore, develop the profile of different market segments. Then the targeted market segments should be selected based on their attractiveness. Once the bank has identified the market segments that it might address, the next steps will be positioning of the product into the targeted market segment.Posted on: 2004-01-07 02:16
Headlines
Advertisements
