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.


Re-shaping corporate governance: A momentous responsibility for government

COPYRIGHT, interestingly, is often interpreted as a right to copy by Bangladeshis. Let me elaborate. Most Dhallywood movies are in effect Bollywood hits remade, with a mother or sister character added to indigenize the same. Scrape them a little, compare them a bit or even give them a cursory glance, and you would know instantly what I mean. This is not restricted to the world of cinema. In fact, most of our well researched, extensively debated and heavily studied’ reports of some of the high-power committees appointed by our government are not original works. Bluntly put, they are adopted, or adapted, from reports on the same subject already published in other countries, mostly the Western ones.

By now one can safely argue that there is a complete grammar, a well-defined code, for adopting such committee reports in Bangladesh. This practice of somehow willingly becoming a carbon copy or rubber stamp of others has been our Achilles’ heel since Independence. This has only been accentuated in the post-liberalisation era. No wonder, in the past fifteen years, for every report of the government that has gone on to shape and de-shape the economic policy formulations of Bangladesh one can readily trace its origins to an authentic source abroad. The capital adequacy norms, the competition law and the accounting standards belong to this genre.

The concept of ‘Corporate Governance’ is an innovative idea in the current business perspective which is the after-effect of de-shapes of economic policy. It is such an idea that has traditionally been associated with the “principal-agent” or “agency” problem. A “principal-agent” relationship arises when the person who owns a firm is not the same as the person who manages or controls it. Consequently, while we proceeded to ‘adopt’ the idea we failed to internally debate the various models that would be suitable to the Bangladesh business environment. Neither did we bother to observe the external debate world over on the various models of corporate governance.

Like most things in life, issues arising in the field of corporate governance boil down to a set of questions about relationships. For all the current debate about whether ‘corporate governance’ refers solely to matters affecting the structure and composition of boards of directors or a broader range of issues relating to the framework within which corporate policy is made and articulated, there is no escaping the fact that we are discussing a series of arrangements contrived by and for human beings. When it comes to the nature, form and functions of a corporation, nothing is given. Everything is a matter of choice. All is open to criticism and justification. As such, there is a critical ethical dimension to the debate – which, inevitably, forces us to consider the nature, quality and extent of the underlying relationships on which the corporation is founded.

Indeed, this is in line with the definition of corporate governance offered by Monks and Minow (1995, p. 1). In answering the question, “what is corporate governance?”, they reply; “It is the relationship among various participants in determining the direction and performance of corporations”. This may seem to be a fairly obvious point to labour. However, most of the discussion about corporate governance seems to ignore the implications of this simple observation. Specifically, advocates of various regimes for corporate governance are silent about an absolutely fundamental question; namely, “What (if anything) is the basic nature of humanity?”

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. It is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organisation through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis shareholders’ welfare. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include labour (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large.

Nevertheless “corporate governance”, despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive to meet certain well defined, written objectives. Corporate governance must go well beyond law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the Board of Director (BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organisation — these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector.

The role of corporate by and large has been understood in terms of a commercial business paradigm of thinking that focuses purely on economic parameters of success. As corporates have been regarded as institutions that cater to the market demand by providing products and services, and have the onus for creating wealth and jobs, their market position has traditionally been a function of financial performance and profitability. However, over the past few years, as a consequence of rising globalization and pressing ecological issues, the perception of the role of corporate in the broader societal context within which it operates, has been altered. But legitimacy is the thing which comes when Corporate Governance is discussed. To talk of education (as opposed to indoctrination) is to allow room for consideration of the interests of those being educated. Thus, in this environment, there will be a legitimate expectation that adherence to best practice in corporate governance will be of benefit to each of the parties bound into the relevant relationships.

These benefits may be of two types. Some will be ‘intrinsic’ benefits – such as when things are done for their own sake. These might include reforms in relations between stakeholders based on respect for the inherent dignity of persons. For example, board functions designed to ensure that accounts are ‘true and fair’ (compelling concepts despite their official demise), would just as likely be based on a belief that lying and deceit are an affront to the dignity of persons, as a desire to ensure technical accuracy as a way of securing market approval or avoiding punishment.

Then there are ‘extrinsic’ benefits — goods that flow from an action and which are external to the deed. For example, returning a lost wallet in order to secure a financial reward is to act in order to receive an extrinsic benefit. As indicated above, a decision to determine the quality of annual accounts according to the likelihood of earning praise from the market or regulator would be to act in the expectation of extrinsic benefits. In such circumstances, all manner of wrongs can be committed by otherwise decent people who have suspended their judgments in deference to the authorities.

Today, about 300 multinationals control 25% of the world’s assets. Bangladeshi companies currently comprise only a fraction of this number. However, with our economy coming of age, more and more of them will lay claim to this elite list. While this is truly a matter of great pride, we must remember that there rests an equally momentous responsibility on us to give back to the society that has nurtured our growth. Today, most companies contribute to society by means of well-defined corporate citizenship initiatives executed by their not-for-profit trusts and foundations. However, I believe it is important for corporations to look beyond charity and redefine the act of ‘giving back’. Corporations must look at cultivating and encouraging social entrepreneurship in society with the same degree of focus and energy that keeps profitable businesses running. What are we to make of this discussion? As a first point, it should be noted that it is extremely unlikely that any explicit view of human nature is informing the process of developing policies that provide the framework within which corporate governance occurs.

Such a view persists — even in circumstances where the initiative has been launched with the best and most positive of intentions. Turning around such perceptions is a major challenge, not just for companies but also for the whole community. We cannot afford to have developments, designed to foster best practice, being labeled in predominantly negative terms.

This is no more so than in the field of ethics. The grounds for serious concern already lie in the frequency with which the topic of ‘ethics’ is linked to programmes of fraud prevention and control. While it is true that a healthy, ethical culture will reduce the incidence of fraud and also lower the costs of compliance, it is a grave error to think that this necessitates the type of specific link that is currently in vogue in all too many organisations.

A proper concern about ethics is of importance for far more pressing reasons. Not least of these is the fact that a decision to include the ethical dimension, as an explicit element in the daily management environment, is a commitment to ensure that the organisation is equipped to handle new issues arising in a rapidly changing world. How might this be done? One suggestion is to amend the Corporations Law so that courts can take into account the extent to which corporations have instituted best practice in corporate governance (in its broad construction) when sentencing those that have been found guilty of an offence. Companies are still held accountable for their actions. However, the Govt. recognises that even, with the best intentions, things can go wrong. In these cases due weight is given to the effort made by the corporation. As such, the community sees the responsibility is properly apportioned, while shareholders and other stakeholders with a financial interest in the company are ‘rewarded’ for their efforts aimed at preventing wrong-doing. Under such a scheme, bodies like the Securities & Exchange Commission (SEC), National Board of Revenue (NBR), Finance Ministry, Planning Commission and other respective regulatory bodies are responsible for monitoring and investigating breaches of the regulations and would continue to recommend prosecutions. Self-regulatory organisations would then be responsible for providing support services to companies inclined to engage in best practice in this area. The final leg of the tripod would be the auditing firms which would be required to conduct independent audits of each company’s framework for compliance. Unlike normal financial or risk audit, the necessary audit would have to take into account measures designed to strengthen the ethical culture of the organisation.

Those blessed with a sharp eye for an apparent contradiction may be ready to pounce on this latest turn in this argument. It could be objected that a legislative response, such as that proposed above, would reinforce a tendency for organisations to shape their behaviour in response to external stimuli. After all, is there much difference between engaging in compliant behaviour through fear of punishment and the alternative, of engaging in positive behaviour in hope of a reduced punishment – if something should go wrong? However, the force of the objection can be nullified by being clear about that which is to be specified as best practice in corporate governance. It should be stressed that participation in these arrangements would be entirely voluntary. Companies feeling sufficiently confident about the efficacy of their own programmes could choose not to be audited. This would generate a saving in expenditure but at the price of taking on extra risk if something should go wrong.

Govt. can take a legislative solution that is specifically designed to encourage a form of education such that companies will naturally come to avoid some or all of the excessive behaviour that occurs in lightly regulated markets when largely populated by selfish egoists. Should the government consider adopting such a recommendation, it would be combining a concern for the ethics of the market place with that of promoting economic hygiene. As in public health campaigns, prevention would be better than cure. Needless to say, a great number of practical souls will be wondering about the detail of a programme designed to deliver the kind of results that I envisage. Those of a more skeptical bent may even doubt that such a programme can be devised.

The thing needed in today’s conditions is an organisation that can efficiently and effectively govern itself with a fair measure of self-regulation in which individuals take personal responsibility for applying the corporation’s ‘ethical compass’. This then allows flexible responses to changing conditions – but with well-defined cultural boundaries based on a clearly articulated ethical framework that is consistently applied across every part of the organisation. Beyond this, it is highly undesirable that an ethical culture be built on negative sentiment – such as the need to have a defense should the issue of criminal responsibility ever arise. The thing needed is a positive commitment to a set of core values and principles that help the organisation to answer the questions, “Who are we? What do we stand for?”

Unfortunately, the task of creating such a culture is not a matter of applying a ‘quick fix’. However, there is no mystery to be found in the process for developing a robust ethical environment in corporations. Indeed, there is a growing range of people able to offer practical assistance based on extensive experience. Of course, it is possible to motivate people with ‘fear of the lash’. However, it is only unhealthy cultures that tend to emerge from such conditions. The real prize is to be had by those who offer the promise of a positive workplace in which people can make meaning as they pursue that part of their life based around work.

Yet, this idea of corporate governance was celebrated as the most original idea in our reforms process by finance professionals, chartered accountants and the company secretaries. In the process we never debated it origins, potency or efficacy in the Bangladeshi context. Sadly, the very idea was marketed as ‘professional opportunities’ by various professional bodies. It would thus be difficult even to point out three genuine differences between the committee report that went on to prescribe the code for corporate governance in Bangladesh and the original report on corporate governance in the United States (the Cadbury Report).