BANK MARKETING MANAGEMENT

MACMILLAN STUDIES IN MARKETING MANAGEMENT

General Editor: Professor Michael J. Baker

University of Strathclyde

This series is designed to fill the need for a compact treatment of major aspects of marketing management and practice based essentially upon European institutions and experience. This is not to suggest that experience and practice in other advanced economies will be ignored, but rather that the treatment will reflect European custom and attitudes as opposed to American, which have tended to dominate so much of the marketing literature.

Each volume is the work of an acknowleged authority on that subject and combines distillation of the best and most up-to-date research findings with a dear statement of their relevance to improved managerial practice. A concise style is followed throughout, and extensive use is made of summarles, checklists and references to related work. Thus each work may be viewed as both an introduction to and a reference work on its particular subject. Further, while each book is self-contained, the series as a whole comprises a handbook of marketing management.

The series is designed for both students and practitioners of marketing. Lecturers will find the treatment adequate as the foundation for in-depth study of each topic by more advanced students who have already pursued an introductory and broadly based course in marketing. Similarly, managers will find each book to be both a useful aide-memoire and a reference source.

The titles so far published in the series are:

Michael J. Baker (ed.), Marketing: Theory and Practice Michael J. Baker and Ronald McTavish, Product Policy and Management J. R. Bureau, Brand Management Gordon R. Foxall, Consumer Choice Roy W. Hill and T. J. Hillier, Organisational Buying Behaviour Frank Jefkins, Public Relations for Marketing Management Geoffrey A. Lancaster and Robert A. Lomas, Forecasting for Sales and Materials

Management Joanna Kinsey, Marketing in Developing Countries James M. Livingstone, International Marketing Management Arthur Meidan, Bank Marketing Management

BANK MARKETING MANAGEMENT

ARTHUR MEIDAN Senior Lecturer

Sheffield University

M MACMILLAN EDUCATION

© Arthur Meidan 1984

All rights reserved. No reproduction, copy or transmission of this publication may be made withot.lt written permission.

No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with th~ provisions of the Copyright Act 1956 (as amended), or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 33-4 Alfred Place, London WC1E 7DP.

Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

First published 1984 Reprinted 1988

Published by MACMILLAN EDUCATION LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world

British Library Cataloguing in Publication Data Meidan, Arthur Bank marketing management.-(Macmillan studies in marketing management) 1. Bank marketing I. Title 332.1'068'8 HG1616.M3 ISBN 978-0-333-36585-4 ISBN 978-1-349-86033-3 (eBook)DOI 10.1007/978-1-349-86033-3

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Contents

Foreword by Professor Michael]. Baker xi

Acknowledgements xiii List of Tables xv List of Figures xvii

1 The Roles of Marketing in Bank Management 1

Introduction 1

The marketing concept 7 The comparative development of marketing for banks 9

The elements of marketing 15

2 Customer Behaviour and Market Segmentation 21 Introduction 21 Consumer behaviour and attitudes 22

Types of market segmentation 31 Segmentationofretail v. corporatemarkets 42 Implications of segmentation for effective banking 44

3 Branch Location and Distribution 47

Introduction 47 Means of distributing bank services 48

Locating bank branches 51 New technology and branching 60 Creating the branch image 61

4 Advertising and Communications 65 The roles of advertising 66 Advertising channels 74

Promotions 78 Personal selling 80

vüi Contents

Publicity 83 The contribution of advertising and communications to the bank

marketing programme 86

5 Product Development and Pricing 91 Product development and segmentation 92 Special features of product development 97 Product development strategies 101 The implications of new technology for bank product

development 108 Pricing systems 110 Methods of pricing 111 Price policies: strategie v. tactieal goals 117 The bank marketing programme 118

6 Marketing Research 121 The roles and functions of marketing research in banking 121 The research methodology 124 Evaluating marketing research programmes 128 Applications of marketing research in banking 132 Recent trends in bank marketing research 141

7 Controlling the Marketing Programme 145 Bank marketing control 146 Control in bank branches 152 Performance appraisal 157

8 Bank Marketing Strategies 165 Introduction 165 Corporate planning 166 Formulating a marketing strategy 171 Types of marketing strategies for banks 175 Selecting a bank marketing strategy 179

9 Marketing of Bank Credit Cards 185 Introduction 185 The main types of credit cards 187 The development of bank credit cards in the USA and western

Europe 191 Advantages and lirnitations of the credit card system Credit cardholders' profiles 198 Bank credit cards' market segmentation Marketing strategies for bank credit cards

202

205 Conclusions: the future of credit cards 208

195

Contents ix

10 Bank Marketing Administration 211 Adrninistering themarketing programme 212

Administration of retail v. corpora te bank markets 219 Future outlook 227

Notes and References 231 Index 241

Foreword

Although there is a tendency to regard 'marketing' as arecent phenome­non, there can be little doubt that the function which it performs has existed ever since human beings first entered into exchange relationships as a means of improving their overall weH-being and standard of living. In the ca se of barter the two parties are in direct contact with one another and it seems reasonable to assume that any exchange would be seen as acceptable to both in terms of their particular needs and wants at the time of the exchange. Certainly both parties would have the opportunity to state their requirements and any conditions attached to their mutual agreement.

With industrialisation and the development of international trade in the nineteenth and twentieth centuries the opportunity for producers to interact with consumers diminished significantly. Thus there can be little doubt that the 'rediscovery' of marketing is a direct consequence of the physical and psychological separation which had developed between manufacturers and end-users of products with a major emphasis being to re-establish contact between the parties.

I used the word 'manufacturer' in the preceding sentence advisedly, for until very recently few were prepared to acknowledge that providers of services might possibly have become distanced from the consumers of those services. After aH, an intrinsic characteristic of a service is that production and consumption occur simultaneously, which must presume a high degree of contact between the supplier and the user. The appear­ance of this book is a timely reminder that this is no longer the ca se and that the application of marketing concepts and techniques is equally as relevant to service industries as it is to manufacturing industries. No­where is this more so than in the ca se of banking services.

In recent years one can detect many changes in service industries of the kind that prompted Theodore Levitt to write his famous article 'Marketing Myopia', which many now regard as the watershed which separates the present marketing orientation of industry from the production and sales orientations which preceded it. It is ironie that Levitt used a service industry - the US railroads - to show how an enormous, powerful and

xü Foreword

once-dominant industry could be reduced to a shadow of its former self within a few decades. According to Levitt, the cause of the raüways faüure was complacency - a belief that no one else could improve on the service they provided. In turn this developed out of a faüure to define their business in terms of the benefits enjoyed by the consumer - transportation - rather than in terms of the hardware, the software and the systems needed to deliver the benefit, in short a failure to innovate and keep pace with the changing requirements of the customers.

Even the most casual observer of the banking scene in recent years cannot help but be aware of the immense changes which have occurred and continue to take place. Money is the classical undifferentiated pro­duct, and the only way which those dealing in the commodity can secure any competitive advantage is through the range and quality of the services they offer. To determine what these service needs are they must undertake market research, to cater for these needs they require a product develop­ment function, to promote the existence of their new products they need advertising, and to sell them they need good packaging, competitive prices and sales incentives. In sum, then, banks need a marketing approach to their business, and this book has been written especially to show how to develop and apply such an orientation.

Arthur Meidan is eminently well qualified to write what I am sure will be seen as a valuable contribution to the growing literature on bank marketing. With extensive knowledge of current thinking on the subject Dr Meidan also possesses two other distinct advantages. First, he has actively participated in management development programmes for bank managers, and so is more than familiar with the phüosophical problems of persuading professional people that 'marketing' is not an anodyne de­signed to disguise what formerly was discarded as high pressure selling. By the same token he knows from personal experience just what topics are oE interest to bank managers and how to present these clearly and succinctly. Second, Arthur Meidan has had the benefit of direct comment and criticism from senior practitioners and, being a marketing man, has incorporated this consumer feedback into his product design.

As Editor of the Macmillan Studies in Marketing Management series I am more than pleased with the result and commend it wholeheartedly.

Chinese University of Hong Kong December 1983

MICHAEL J. BAKER

Acknowledgements

Many people have been influential in the successful completion of this book. It is with gratitude that these individuals are acknowledged here.

I am particularly indebted to Professor Michael J. Baker of the Universi­ty of Strathclyde, Scotland, for reading the full preliminary draft of the manuscript and councelling me on how to better organise and alter certain parts and sections, as well as for writing the Foreword. Professor Baker has been instrumental in securing advice and helpful criticism from some of his bank marketing doctoral students (particularly Mr E. ElSahn), as well as from other experts in the Held. For all of his extremely helpful assistance and support I am very grateful.

To Mr B. McKenna, the secretary of the Institute of Bankers in scotland, I offer my thanks for reading the whole manuscript and for offering very useful comments and advice that have substantially contri­buted to improving both the content and the format of this book.

The author is grateful to Mr B. J. Walter, the DirectorofEducationand Training at Midland Bank, and his team of assistants in bank marketing who have assisted with thorough and useful professional inputs. The final version of this text is greatly improved because of their suggestions and comments.

Acknowledgements are extended to the editors of the following journals for their permission to use and reproduce material that originally appeared in my own articles in these journals: International Journal of Bank Marketing, International Journal 01 Physical Distribution and Materials Management, Quarterly Review of Marketing.

I am also indebted to my secretary, Rebecca Jackson, and to Mrs A. Rixham, who have both assisted with the typing of this manuscript.

Last, but not least, I must thank my wife and family for considerable patience, understanding and support.

Responsibüity for any errors or omissions is mine.

ARTHUR MEIDAN

List 01 tables

1.1 External and internal factors aHecting the change in attitudes towards bank marketing 15

2.1 Stages in bank customers' decision process 30

2.2 Some major bases for segmentation in banking 35 2.3 Some major differences between bank customers of different social

classes 37 3.1 The decision-making process for setting up a new bank

branch 55

3.2 The major quantitative methods for optimising bank branch locations 58

4.1 Clearing bank advertising expenditure between 1971 and 1980 75

5.1 Planning bank product strategies 107 6.1 The advantages of some major survey instruments - a

comparison 126 6.2 The dis advantages of the major survey instruments - a

comparison 127 7.1 Criteria for appraising bank marketing performance 159 8.1 Stages in formulating a bank marketing strategy 173 8.2 Appropriate strategies for small and large banks in a given market

segment 182 9.1 Bank and T & E credit cards activity comparison 191 9.2 Comparison of bank credit cards usage in the USA v. Western

Europe 192 9.3 Advantages and limitations of bank credit cards - to the cardholder,

retailer and the card company /bank group compared 196

List of figures

1.1 The bank management system 5 1.2 The marketing approach to banking service 16 1.3 Banking' s dual marketing task 17 1.4 Thebankmarketingmanagementsystem 18 2.1 The main factors influencing bank customers' behaviour 2.2 Theconsumerprocess 30 2.3 Save-spend behaviour and sodal dass 36 2.4 The segmentation of corporate markets 43 3.1 The elements of marketing mix and distribution channels in

banking 50 4.1 Advertising and communication mix in banking 70 5.1 A taxonomy of bank products/ services on offer 99 5.2 Alternative sources of new bank product/services ideas 5.3 The bank marketing programme 119 6.1 The roles of marketing research in banking 6.2 Main stages in a bankmarket survey/research

123 125

128

23

100

6.3 The four main types of market survey instruments 6.4 The process and techniques for market segmentation 6.5 Recent trends in the roles of bank marketing research

134 141

7.1 Typesofbankmarketingcontrol 147 7.2 Comparison of expenses and deposits/ lending ratio' deviations' by

bank branches 156 8.1 The role of marketing strategy in bank management 171 8.2 Alternative offensive strategies 176

8.3 Defensive and rationalisation bank marketing strategies 178 8.4 Bank'smarketingstrategyplan 181

10.1 Typical banking organisation: staff functions and main divisional lines 216

10.2 Introduction of bank premium promotions 221 10.3 Important aspects in marketing of cash-management

services 224 10.4 The relationships between banks offering international services and

multinational corporations (MNC) customers 227