BAC 413 Marketing of Financial Services Notes

Definition of Financial services

The term Financial services in its broader sense refers to “ mobilizing and allocation
of savings’’. It is identified as all those activities involved in the process of converting
savings into investment. Financial services also include used broadly to cover a
whole range of banking services, insurance (both life and general), stock trading,
asset management, credit cards, foreign exchange, trade finance, venture capital and
so on.

These different services are designed to meet a range of different needs, and take
many different forms. They usually require a formal (contractual) relationship
between provider and consumers, and they typically require a degree of
customization (quite limited in the case of a basic bank account, but quite extensive.
Marketing is the process of creating, distributing, promoting, and pricing goods,
services, and ideas to facilitate satisfying exchange relationships with customers
and to develop and maintain favorable relationships with stakeholders in a dynamic

Marketing is a process of perceiving, understanding, stimulating and satisfying the
needs of specially selected target markets by channelling an organization’s
resources to meet those needs.

The marketing issues that arise with a variety of financial products are considerable:
● Some financial services may be very short term (e.g. buying and selling stocks),
while others are very long term (mortgages, pensions)
● Products vary in terms of complexity; a basic savings account for a personal
consumer may appear to be a relatively simple product, whereas the structuring of
finance for a leveraged buy-out may be highly complex
● Customers will vary in terms of both their needs and their levels of understanding
– corporate customers may have considerable expertise and knowledge in relation
to the types of financial services they wish to purchase, while many personal
customers may find even the simplest products confusing.

The distinctive characteristics of financial services


Since services are processes or experiences, intangibility is generally cited as the key
feature that distinguishes services from goods. In practice, this means that services
lack a substantive physical form and so cannot be seen, touched, displayed, felt or
tried in advance of purchase.

Since services are processes or experiences, intangibility is generally cited as the key
feature that distinguishes services from goods. In practice, this means that services
are impalpable – they lack a substantive physical form and so cannot be seen,
touched, displayed, felt or tried in advance of purchase. A customer may purchase a
particular service, such as a savings account, but typically has nothing physical to
display as a result of the purchase.

  • Experience qualities: relate to the attributes which are only discernible either
    during consumption or after purchase, thus not prior to the purchase.
  • Credence qualities: are characteristics which the consumer may find
    impossible to evaluate even after purchase and consumption. Ex. pensions
    and investment

In some cases, services may also be described as ‘mental intangibility’ – i.e. they are
complex and difficult to understand

Physical intangibility (impalpability) and mental intangibility (complexity) means that financial services consumers are much less sure of what they are likely to receive and, consequently, rather more likely to experience a significant degree of perceived risk when making a purchase decision. Thus, financial services marketing must pay
particular attention to ways in which the buying process can be facilitated. The following issues may be particularly important:

1. Providing physical evidence or some physical representation of the product.
Physical evidence per se may take the form of items directly a service (e.g. the policy
documentation that accompanies an insurance policy) or the environment in which
the service is delivered (e.g. the rather grand premises in prime locations occupied
by banks). An alternative or even a complement to actual physical evidence is to
create a tangible image such as ‘Citibank – where money lives’

2. Placing particular emphasis on the benefits of the service – customers do not
want a mortgage as such, but they do want to own a house; they do not want a
savings account, but they do want to be able to pay for their child’s education.

3. Reducing perceived risk and making consumers feel less uncertain about the
outcome of their purchase, perhaps by encouraging other customers to act as
advocates for the service, by seeking appropriate endorsements or even by offering
service guarantees. For example, the State Bank of India Mutual Fund reassures
prospective customers by drawing attention to its links with the State Bank of India –
‘India’s premier and largest bank’. In the US, US Bank promotes itself with the slogan
‘Other Banks Promise Great Service, US Bank Guarantees It’.

4. Building trust and confidence to reassure consumers that what they receive will be
of the appropriate quality. Many financial services organizations make particular
efforts to emphasize their longevity – the fact that they have been in business for, in
some cases, hundreds of years serves as a mechanism for signalling their reliability
and trustworthiness. In the US, Bank of America’s private banking arm emphasizes
its longevity as a means of building confidence – ‘For more than 150 years, The
Private Bank has been the advisor of choice for the affluent’. Others, such as HSBC
and Axa Insurance, emphasize their worldwide coverage and the size of the
organization in order to reassure customers that their money and business will be
safe and secure.


The nature of services as a process or experience means that services are
inseparable – they are produced and consumed simultaneously. A service can only
be provided if there is a customer willing to purchase and experience it.
Inseparability presents some interesting challenges. Given the interactive and
inseparable nature of service provision, the following issues will be of particular

1. Ensuring that the processes of service delivery are clearly specified and
customer orientated – in effect, the service should be designed to suit the
customer rather than to suit the organization. For example, many banks might
find it preferable to have product specialists.

2. Ensuring that all staff involved in service provision appreciate the importance
of a customer-orientated approach and are empowered to be responsive and
flexible in customer interactions.

3. Identifying methods of facilitating customer involvement in a way which will
enhance the quality of the service provided.

4. From a marketing perspective, then, inseparability presents some interesting
challenges. Given the interactive and inseparable nature of service provision


The fact that services are produced and consumed simultaneously also means that
they are perishable. Services can only be produced when consumers wish to buy
them, and when there is little or no demand the service producers cannot
‘manufacture’ surplus services for sale when demand is high.

This characteristic of perishability presents marketing with the task of managing
demand and supply in order to make best use of available capacity. Issues that
require particular consideration include:

1. Assessing whether there are identifiable peaks and troughs in consumer demand
for a particular financial service. Bank branches, for example, may be particularly
busy during lunch breaks, while tax advisers may experience a peak in the demand
for their services as the end of a tax year approaches.

2. Offering mechanisms for reducing demand at peak times and increasing it at off peak times. Tax advisers, for example, might consider offering discounted fees for customers who use their services well in advance of tax deadlines.

3. Assessing whether there is the opportunity to adjust capacity such that variability
in demand can be accommodated (either through changing work patterns or some
degree of mechanization). Many banks employ part-time staff to boost capacity
during periods of heavy customer demand, and ATMs provide many standard
banking services quickly as an alternative to queuing for face-to-face service.


The inseparability of production and consumption leads to a fourth distinctive
characteristic of services: variability or heterogeneity.

Service variability can be interpreted in two ways. The first interpretation is that
services are not standardized – different customers will want and will experience a
different service. This source of variability essentially arises from the fact that
customers are different and have different needs. To varying degrees, services will
be tailored to those needs, whether in very simple terms (such as the amount a
consumer chooses to invest in a savings plan) or in very complex ways (such as the
advice provided by accountants, consultants and bankers to a firm undertaking a
major acquisition).

The second interpretation of variability is that the service experienced may vary from
customer to customer (even given essentially similar needs), or may vary from time
to time for a particular customer. services centrally.

Growth Balanced with Risk

Selling financial products, particularly loan products, involves risk. Accordingly, organizational growth must be well balanced with the capacity of a financial institution to manage risk.

Fiduciary responsibility

The primary responsibility of a depository is to guard the interests of the depositors.
Systems and procedures, as well as financial services, must be structured

Fiduciary responsibility refers to the implicit responsibility which financial services
providers have in relation to the management of funds and the financial advice they
supply to their customers. Although any business has a responsibility to its
consumers in terms of the quality, reliability and safety of the products it supplies,
this responsibility is perhaps much greater in the case of a financial service provider.

There are probably two explanations for this.

First, many consumers find financial services difficult to comprehend.
Understanding financial services requires a degree of numeracy, conceptual thinking
and interest.

Secondly, the ‘raw materials’ used to produce many financial products
are consumers’ funds; thus, in producing and selling a loan product, the bank has a
responsibility to the person taking out a loan but at the same time also has a
responsibility to the individuals whose deposits have made that loan possible.

Similarly, insurance is based on pooling risk across policyholders. When taking risks
(selling insurance) and paying against claims, an insurer has a responsibility to both
the individual concerned and to all other policyholders.

Contingent consumption

It is in the nature of many financial services products that money spent on them
does not yield a direct consumption benefit. In some cases it may create
consumption opportunities in the future; in other cases it may never result in tangible
consumption for the individual who made the purchase. Saving money from current
income reduces present consumption by the same amount. In the case of general
insurance, most customers would not wish to consume many aspects of the service
– they would hope never to have to make a claim against a given policy. contingent
consumption presents major challenges to marketing executives as they seek to
market an intangible product that reduces current consumption of consumer goods
and services for benefits that may never be experienced.

Duration of consumption

The majority of financial services are (or have the potential to be) long term, either
because they entail a continuing relationship with a customer (current accounts,
mortgages, credit cards) or because there is a time lag before the benefits are
realized (long-term savings and investments). In almost all cases this relationship is
contractual, which provides the organization with information about customers and
can create the opportunity to build bonds with them that will discourage switching
between providers. The long-term relationship between customer and provider
creates considerable potential for cross-selling, reinforced by the amount of
information that providers have about their customers.

Labor Intensity. Financial service provision is highly labor intensive. While
automation, especially computerization, can effectively make transaction
management more efficient, financial services, particularly savings services, remain
dependent on the personal relationship between customers and the front-line staff of the

Limited Differentiation. Financial services are very much alike. Reasons for
choosing one provider over another are often related to convenience. This is
especially true for small depositors whose demand for a savings product in often not
excessively dependant on interest rates.

Customer-Specific: Financial services are usually customer focused. The firms
providing these services, study the needs of their customers in detail before deciding
their financial strategy, giving due regard to costs, liquidity and maturity
considerations. Financial services firms continuously remain in touch with their
customers, so that they can design products which can cater to the specific needs of
their customers. The providers of financial services constantly carry out market
surveys, so they can offer new products much ahead of need
and impending legislation. Newer technologies are being used to introduce
innovative, customer friendly products and services which clearly indicates that
the concentration of the providers of financial services is on generating

Two-way information flows

Financial services are not simply concerned with one-off purchases but involve a
series of regular two-way transactions over an extended time period.

Like: issuing statements, account handling, branch visits, use of ATM. This provides
the potential for a wealth of information to be gathered on consumers.

Components of financial services marketing mix

Marketing mix is the important internal elements or ingredients that make up an
organization’s marketing programme.

Essentially the marketing mix represents the factors, which need to be considered when determining a service firm’s marketing strategy. The starting point for making any decisions about marketing mix depends both on how the service is to be positioned and the market segments to be addressed.

In developing a marketing mix strategy we need to consider the impact of each marketing mix element on the market segments selected.

This implies ensuring that there is:

• A fit between the marketing mix and each target segment.
• A fit between the marketing mix and the company’s strategic capabilities, emphasizing its strengths and minimizing the impact of its weaknesses.
• A recognition of competitors’ capabilities, which involves evading their strengths and capitalizing on their weaknesses.

In developing a marketing mix strategy service marketers need to consider the
relationships between the elements of the mix.

It has been pointed out that there are three degrees of interaction between the marketing mix elements.
Consistency, where there is a logical and useful fit between two or more elements
of the marketing mix .
• Integration, which involves an active harmonious interaction between the elements
of the mix.
Leverage, which involves a more sophisticated approach and is concerned with
using each element to best advantage in support of the total marketing mix.

Thus effective relationship marketing is based on the choice and design of
marketing mix elements that are mutually supportive and leveraged together so that
synergy is achieved.

Marketing mix is what determines the customer experience. Thus, it is the role of the
mix to deliver customer satisfaction and result in a stream of margin that delivers
shareholder value. Purchase decisions are made by consumers on the basis of the
overall service offer and how well this meets their needs.

A service offer can simply be decomposed into the elements of product, price, promotion, place, people,
process and physical evidence, and these form the basis of the traditional marketing mix

1. Product Element: the features of the core offering and the bundle of supplementary
service elements that surround it. The benefits of the service must be of value to the includes financial product design which Includes specific features of the
product, such as terms and packaging, loan review and disbursement time, collateral
or guarantees, grace periods, amortisation schedules and repayment structures

2. Place and time: these elements represent the way in which the service is delivered
to the customer. It refers to distribution. It is a marketing activity that makes product
available to consumers at the right time and in convenient location. The location and
channels used to supply services to target customers are two key decision areas.
Most services are limited to direct channels of distribution because of the
inseparability of production and consumption.

However indirect channels can be used if a physical symbol can be created, then the service can be separated from the provider (to make the service tangible.) For instance, bank credit cards, which are physical symbols of credit, enable retailers to as indirect intermediaries in the distribution of an intangible service-credit.

3. Promotion and education: refers to marketing communications, of which retail
financial services make great use of. Education informs how the service can benefit
customers and ways in which they can derive additional benefits. Promotion
includes advertising, public relations, direct marketing, and personal selling as well
as sales promotions – in short, everything that the financial service provider does to
promote its corporate image and its products. Because financial services are
intangible-dominant products, they are difficult to advertise. Something intangible is
not easily depicted in advertising, whether the medium is print, television, or radio.
Therefore, advertising of services should emphasize tangible cues, or symbols, of
the services that are more easily perceived and understood by consumers.
Advertising can also be used to facilitate internal marketing. A service provider’s
employees are an important secondary audience for services advertising.

4. Price and user costs: customers pay for their financial services either directly or
indirectly, although pricing is highly competitive. Pricing of financial service Includes
the interest rate, loan fees, prepayment penalties, prompt payment incentives and for
savings products ledger and withdrawal fees as well as interest paid to the account holder, premiums on insurance, commission and fees on investment funds. The intangible nature of financial services makes establishing prices difficult.

Determining the cost of producing service for the purpose of setting a price is more
complicated. Marketing two or more services together as a single package for a
special price is a practice called bundling. The use of bundling to simulate demand
for services has been expanding in recent years.

5. People: the days of the local bank manager have passed, but branch staff, call
centre staff and back office staff are vital for the creation of new services,
developing systems, selling the services, building and maintaining relationships;
investments in training and career development, remuneration and appropriate
incentives all form part of a lean but effective workforce.

People in financial services can be classified into mainly four categories,
Contactors have frequent or regular customer contact and are typically heavily
involved with conventional marketing activities. They hold a range of positions in
service firms including selling and customer service roles.

Modifiers are people such as receptionists, credit department and switchboard
personnel; while they are not directly involved with conventional marketing
activities to a great degree, they nevertheless have frequent customer contact. As
such they need to have a clear view of the organization’s marketing strategy and
the role that they can play in being responsive to customers’ needs. Modifiers need
to develop high levels of customer relationship skills. Training and monitoring of
performance are especially important here.

Influencers, while involved with the traditional elements of the marketing mix, have
infrequent or no customer contact. They include those with roles in product
development, market research, etc

Isolateds perform various support functions and have neither frequent customer contact nor a great deal to do with the conventional marketing activities. Staff falling
within this category include purchasing department, personnel and data processing.

Such staff need to be sensitive to the fact that internal customers as well as external
customers have needs which must be satisfied. They need to understand the
company’s overall marketing strategy and how their functions contribute to the
quality of delivered value to the customer.

6. Process: this refers to means through which the service is created and consumed
(or even co-produced). The consumer plays a significant role in the process or
creation of the service. Includes the way or system through which the product or
service is delivered.

Processes can be considered in two ways: in terms of complexity and in terms of
divergence. Complexity is concerned with the nature of the steps and sequences
that constitute the process, while divergence refers to the executional latitude or
variability of the steps and sequences.

Process can be changed in terms of complexity and divergence to reinforce the
positioning or establish a new positioning.

Reduced divergence. This tends to reduce costs, improve productivity and make
distribution easier. It can also produce more uniform service quality and improved
service availability. This is especially important to financial services which are
targeting mass market or automated.

Increased divergence. This involves greater customisation and flexibility which may
command higher prices. This approach suggests a niche positioning strategy based
less on volume and more on margins.

7. Physical evidence: a traditional means of overcoming the intangibility of most
services by providing some element of tangible evidence.

8. Productivity and quality: Productivity refers to the way in which the inputs of the
service are translated into outputs that are valued by the customers. In financial
services where economies of scale are considered to be critical in driving down
costs (not necessarily prices), efficient production has to be central. It is also
essential to maintaining quality, without which customers will switch to competitors who offer better quality. However, what constitutes quality and how consumers perceive quality is complex and varied.

Switching Cost: The negative costs that a consumer incurs as a result of changing
suppliers, brands or products. Although most prevalent switching costs
are monetary in nature, there are also psychological, effort- and time-based
switching costs

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