The Role of Marketing in Banking Industry

It is said that the banking sector mirrors the larger economy – its linkages to all sectors make it a proxy for what is happening in the economy as a whole. Indeed, the Bangladesh banking sector today has the same sense of excitement and opportunity that is evident in the Bangladesh economy. The fundamental structural changes in the recent years have taught us many lessons. A combination of developments arising from technological advancements and a liberalised marketplace – disintermediation, blurring of traditional roles and boundaries, emphasis on shareholder value-creation – has led to a transformation of the banking sector. The banking industry in Bangladesh has become more and more developed and is functioning progressively. Customers have more opportunities for selection of more suitable places to buy and use banking services and satisfy all their demands. But at the same time, they have also become more fastidious and expect higher standards from banks, such as more friendliness in service styles, more effectiveness in solving all their complaints, or more modernisation when it comes to equipment and tools. Here the terms ‘Marketing’ and ‘Banking’ blend together inextricably.

Marketing has lately entered the banking industry not in the form of marketing concept, but in the forms of advertising and promotion concept. It has been realised that marketing transcends advertising and friendliness. Earlier, it was recognised that personal selling was not necessary. The bankers even eliminated the word ‘selling’ and they called the function of customer-contact ‘business development function’. But gradually they have begun to realise that marketing is a lot more than smiling and friendly tellers.

As far as the evolution of bank-marketing is concerned, the bankers have now come out of the ivory towers and reached out to the masses. A large number of deposit and loan schemes are now being developed according to the requirements of different sections of society as per the national priorities in Bangladesh.

A personalised service-oriented industry: Banking is a personalised service-oriented industry. The marketing approach involves anticipating, identifying, reciprocating (through designing and delivering customer-oriented service), and satisfying the customer’s needs and wants effectively, efficiently, and profitably. To bring satisfaction to customers, banks have had to improve their service quality to keep their old customers and attract more new and potential ones.

Service quality can be defined as the difference between customers’ expectations of service performance prior to the service encounter and their perceptions of the service received (Asubonteng et al., 1996). Quality service for banks has a positive effect on the bottom-line performance of a bank and, thereby, on the competitive advantages that could be gained from an improvement in the quality of the service offered, so that the perceived service exceeds the service level desired by customers. Nowadays, with increased competition, service quality has become a popular area of academic investigation and has been recognised as a key factor in keeping the competitive advantage and sustaining satisfying relationship with customers.

A customer’s long-term relationship can be empirically represented by following a sequence that includes trust, which influences relational commitment, which in turn influences customer loyalty. Trust depends on confidence in another partner. The importance of trust in banks lies in its contribution to the strengthening of interpersonal relationship. For instance, regarding service failure in banks, trusting the banker may allow the costumer to believe that poor product quality was a simple error that will not be repeated or which will be addressed.

Commitment is defined as an enduring desire to maintain a valued relationship [Moorman, Deshpande, and Zaltman, 1993]. Commitment to the bankers suggests that the customer has an investment in the relationship.

Customer loyalty is a behavioural and attitudinal predisposition to stay with the seller in the long-term [Oliver, 1999].

All three ensure a successful customer service and banks will keep their strong customer-centric orientation image to the customers, which will help banks in further development. Customer satisfaction represents a modern approach for quality in enterprises and organisations and serves the development of a truly customer-focused management and culture.

Service delivery: Service is all about expectations. When it comes to products, people expect a good quality product based on the price they are willing to pay for it. When it comes to service, expectations can get a little fuzzy. When a customer begins a relationship with you, he or she already has a specific set of expectations. These expectations are based on their perceptions of you, your company and your industry. They are formed through past personal experience, and the experience of others with whom the customer interacts.

In case of the banking industry, customer retention plays the critical role in customer service. Customer retention is potentially an effective tool that banks can use to gain a strategic advantage and survive in today’s ever-increasing banking competitive environment. The key factors influencing customers’ satisfaction and ensuring customer retention of a bank include the range of services, rates, fees and prices charged. It is apparent that superior service alone is not sufficient to satisfy customers. Prices are essential, if not more important than service and relationship quality.

There are compelling arguments for bank management to carefully consider the factors that might increase customer retention rates in Bangladesh. Unless a bank can extend its product quality beyond the core service with additional and potential service features and value, it is unlikely to gain a sustainable competitive advantage. Thus, the most likely way to both retain customers and improve profitability is by adding value via a strategy of differentiation while increasing margins through higher prices. Today’s customers do not just buy core quality products or services; they also buy a variety of added value or benefits. This forces the service providers such as banks to adopt a market-orientation approach that identifies consumer needs, and designs new products and redesigns current ones.

Quality of personnel: In businesses where the underlying products have become commodity-like, quality of service depends heavily on the quality of their personnel. This is well documented in a study by Leeds (1992), who documented that approximately 40 per cent of customers switched banks because of what they considered to be poor service. Indeed, customer satisfaction has for many years been perceived as a key to determine why customers leave or stay with an organisation. Organisations, especially banks, need to know how to keep their customers, even if they appear to be satisfied.

Launching new schemes with advertisements attracts new depositors. However, what ultimately sustains the process of generation of new deposits and continues the acceleration of deposit mobilisation is the quality of customer service as perceived by clients. Banks’ performance in different banking services like withdrawal of cash, collection of cheques, quality and adequacy of infrastructural facilities available to customers, attitudes of bank employees towards customers, promptness, and general attitude have to be analysed and evaluated before strategy formulation.

Services under one roof: Innovation and renovation are the keys to success in service marketing including banks. The provision of all the financial services under one roof is the concept of modern banking. The banks are now not just the clearing houses, but are the best marketable places too. Foreign banks have realised this fact long ago and they have been providing the best services as per the requirement of their customers. In line with them, state-owned and local private banks are advancing ahead in Bangladesh. The competitive scenario has made banks to provide customised products and services. Customers have many options today.

In today’s banking, the role of information desk has become very important. Customers may require some assistance in various transactions, in which the help desk should be able to provide services promptly with dignity and honour.

Human resources: In the context of Bangladesh, banks have to understand the changing needs of customers, their aspirations and expectations to create value. Banks should also have a strong customer-tied management system. To manage growth and continuity in business, human resources play an important role. The new-generation private sector banks and foreign banks enjoy a lead in this regard when compared to state-owned and old generation private sector banks in Bangladesh. Banks may follow a feedback system to know the customers’ expectations for improving the level of customer satisfaction to the maximum level.

There is a need for professionalism and market-oriented banking in our country. Market-oriented banking will require a new culture: a disciplined, professional, and committed manpower; employees trained for specialised services; specialised branches; strong marketing organisation in different banks; aggressive selling; meeting new customers’ expectations; and cost-effective and efficient services for gaining customer satisfaction and loyalty. Banks should remember that, it is so tough to make a customer enter a bank, but it is a fraction of second for a customer to move from one bank to another. Competition is increasing at a regular basis and customers are enjoying it. The more the competition, the better the services banks need to provide for business retention.

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NGOs must consider their capacity to manage microfinance programmes

NON-governmental organisations (NGOs) must consider their capacity to manage microfinance programmes. The widespread poverty, with all the problems that come with it, is the greatest challenge of our time. Traditional aid has not helped in solving the problems. One kind of development activity, which promotes financial sustainability for the individual as well as for society, is micro finance (MF). But even micro finance institutions or MFIs, are often dependent on financial support.

Have microcredit programmes generated positive results for the poor and poor women in particular? While answering this particular question, we should say that numerous studies and evaluations have demonstrated a rise in incomes and other indicators of standard of living from microcredit programs. A large number of these programmes have focused on supporting women, who bear the brunt of poverty and have been left out of most poverty reduction programmes in the past. Under many programmes, women make up as many as 90 per cent of borrowers. Lending to women is also assumed to result in a greater multiplier effect because women pass on the benefits to children, through increased spending on the household, education and nutrition.

In many cases, microcredit has contributed to changes in attitude about women’s contribution to, and role in, economic and social development. Specifically, microcredit has resulted in increased recognition of women’s productive role. Earning our own money allows us to do what we want with it. It also brings us ‘izzat’ honour or respect because the money proves our contribution. Otherwise, we work like animals, we are never given credit for our contribution and even our own men say that we do not work. When we have our own money we are no longer ‘mohtaj’ (dependent to the point of being at the other person’s mercy. The word is often used for the physically disabled).” (The quotation here is from a Pakistani entrepreneur, in Nighat Said Khan, 1984).

Whether or not they are poor, women may take advantage of their newfound financial independence to assert themselves, stand up to abusive spouses or serve as role models in the community.

Another burning question is that why do not the poorest women and men participate in microcredit programs? There are several reasons why the poor do not participate in microcredit programmes. The leading cause is self-exclusion. The poorest, especially the poorest women, often lack confidence, skills, and market contacts. They consider themselves unable to repay debt. This may be particularly relevant to women, who may have limited control over the revenues used for repayment. Some analysts refer to the poorest as “debt-averse.” One might also say they have more to lose if their investment doesn’t pan out. Some women do not join due to social sanctions which restrict their mobility (Hashemi in Wood and Sharif, 1997).

Even where targeting is highly effective, self-selection appears to be the leading reason why the ultra-poor are excluded from microcredit programmes.

Studies on women’s control of credit in Bangladesh indicate that most women borrowers have only partial control over loans, or have relinquished all control to male members of the family. Moreover, women with greater control over loans tend to be those engaged in traditional home-based activities (Goetz and Gupta, 1994). The majority of microcredit is used to finance livelihood (survival) activities such as trading (e.g., vegetable vending) and food processing (e.g., paddy husking). These activities are more opportunistic than entrepreneurial and carry a lower risk of generating negative results (such as increased indebtedness, increased vulnerability).

However, returns on labour tend to be low, and possibilities to expand income beyond marginal increases (i.e. in the medium and long term) are minimal. Survival activities offer only limited potential for significant and sustained increases in income. There is a qualitative difference in the “entrepreneurial” businesses.

All economies rely upon the financial intermediary function to transfer resources from savers to investors. In market economies, this function is performed by commercial banks and the capital markets. The poor would borrow relatively small amounts, and the processing and supervision of lending to them would consume administrative costs that would be disproportionate to the amount of lending. The absence of commercial banks has led to non-conventional forms of lending. The recent prominence given to microcredit owes much to the success of a relatively few microcredit programmes and their increasing scale. The Grameen Bank of Bangladesh, the most prominent of the successes, now reaches over 2.0 million people, with cumulative lending of about $2.1 billion. Similar successful examples are known in Latin America (e.g., Banco Solidario in Bolivia) and less so in Africa (the Kenya Rural Enterprise Programme is a good example). Progress has also been recorded in several transition economies, mixed in some cases. Such institutions have not only achieved a degree of success, but they have also managed to attract donor support and press attention.

Pioneered by Grameen Bank, micro-credit has proved to be an exceptionally effective tool for poverty alleviation and approach to development. The Grameen Bank model of credit delivery to the rural poor – especially women – has proved that the poor can lift themselves out of poverty through their own efforts and industry provided they are given access to capital. By 2006, nearly 80 per cent of poor households have taken part in micro-credit programmes, and a majority of those have improved their economic condition. The micro-finance sector is set to push boundaries further with the development of micro-insurance schemes.

Developing countries could benefit by instituting similar comprehensive programmes, eventually involving the private sector and, where applicable, efficient NGOs. The United Nations could provide more robust technical assistance programmes in that direction. A crucial part of any future effort should be to strengthen the administrative structures of existing microcredit institutions proliferate. It is possible that economies of scale are important in micro lending. Dynamic leadership and paid management staff are probably crucial. The provision of information on available services to the poor is particularly essential. This is not at present the case, even in some advanced developing countries. Information on services for the poor is rarely made readily available.

Microcredit, however, is not a panacea. Realising its limitations, some organisations have already begun to develop new programmes and approaches to reach those presently excluded by microcredit programmes. In some areas, another way to increase the incomes of the poor and promote gender equity is to support labour movements where the poor, and poor women in particular, are involved in new economic sectors. Due to liberalised trade and rapid economic growth in many Asian economies, low-paying employment and piece-rate work in and around free trade zones is increasing rapidly, often with mixed consequences, especially for women. In many contexts, organising women to bargain for fair wages, benefits and working conditions is an appropriate intervention to fight poverty and promote gender equity.

Finally, it is important to acknowledge that microcredit may not be the appropriate intervention in all cases. If very few programs have actually helped the poorest of the poor, is this due to program failure, or because credit is not always the most appropriate approach to supporting the efforts of the poor? As one researcher noted, microfinance institutions’ apparent “failure” to reach the poor may not be a failure at all, “but rather, a realisation that microcredit is not the way out of poverty for all the poor.” (Zaman1997, 253).