Market Segmentation in Banking Sector

 THE CONCEPT – BANK MARKETING

In this chapter we are going to see an Overview of Bank Marketing Concept .it’s features, strategies and approach in the Indian perception.

 We define Bank Marketing as follows: “Bank Marketing is the aggregate of functions, directed at providing services to satisfy customers’ financial (and other related) needs and wants, more effectively and efficiently that the competitors keeping in view the organizational objectives of the bank”. Bank Marketing activity. This aggregate of functions is the sum total of all individual activities consisting of an integrated effort to discover, create, arouse and satisfy customer needs. This means, without exception, that each individual working in the bank is a marketing person who contributes to the total satisfaction to customers and the bank should ultimately develop customer orientation among all the personnel of the bank. Different banks offer different benefits by offering various schemes which can take care of the wants of the customers.

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 What is Bank Marketing? Deryk Weyer of Barclays Bank call it “A process, consisting of identifying the most profitable markets now and in future; assessing the present and the future needs of the customers; setting business development goals and making plans to meet them; and managing various services and promoting them to achieve the plans – all in the context of a changing environment in the market”.

 Why Bank Marketing?

 Awareness among Customers : Modern technology has made customers aware of the developments in the economic environment, which includes the financial system. Financial needs of the customers have grown multifold into various forms like quick cash accessibility, money transfer, asset security, increased return on surplus funds, financial advice, deferred payments etc. With a wide network of branches, even in a dissimilar banking scenario, customers expect the banks to offer a more and better service to match their demands and this has compelled banks to take up marketing in right earnest.



Quality as a Key Factor :

With the opening up of the economy, fast change has been experienced in every activity, and banking has been no exemption. Quality is the watchword in the competitive world, which is market driven and banks have had to face up to this emerging scenario. In fact, it may not be out of place to reiterate that quality will in future be the sole determinant of successful banking ventures and marketing has to focus on this most crucial need of the hour.

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

Growing Competition :

Increased completion is being faced by the Indian banking industry from within the system with other agencies both, local and foreign, offering value added services. Competition is no more confined to resource mobilization but also to lending and other areas of banking activity. The foreign commercial bank with their superior technology, speed in operations and imaginative positioning of their services has also provided the necessary impetus to the Indian banks to innovate and complete in the market place.



Technological Advances :

Technological innovation has resulted in financial product development especially in the international and investment banking areas. The western experience has demonstrated that technology has not only made execution of work faster but has also resulted in greater availability of manpower for customer contact.

 Marketing Approach in Banks With the need for marketing in banks having evolved out of the changing environment and constant interplay of various interdependent factors, the importance of a systematic approach to marketing cannot be overstressed. The application of a marketing approach in banks will therefore involve: a.

Identifying customers’ financial needs and wants;

b.

Developing appropriate banking services to meet these needs;

c.

Pricing for the services so developed;

d.

Setting up suitable outsells / banks branches;

e.

Advertising to promote the services to the existing as well as

prospective customers.

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 Special Features of Bank Marketing 

Banking product cannot be seen or touched like manufactured products (intangibility)



In marketing banking products, the product and the seller are in separable; they together define the banking product (inseparability)



Banking products are products and delivered at the same time; they cannot be stored and inspected before delivering’ (perishability)



Standardization of banking product is difficult (variability)

The bank marketing is than an approach to market the services profitability. It is a device

to

maintain

commercial

viability.

The

changing

perception

of bank marketing has made it a social process. The significant properties of the holistic concept of management has made bank marketing a device to establish a balance between the commercial and social considerations, often considered to the two opposite wings. A compendium of two words banks and marketing thus focuses our attention on the following: 

Bank marketing is a managerial approach to the market services.



It is a social process to sub serve social interests.



It is a fair way of making profits



It is an art to make possible performance-orientation.

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

It is a professionally tested skill to excel competition.

 Bank Marketing In the Indian Perspective The formulation of policies is substantially influenced by the emerging trends in the national and international business conditions. The level of income, expectation, and the rate of literacy the geographic and demographic considerations, the rural or urban orientation, the chances in economic systems the frequent use of technologies are some of the key factors governing the development plan of an organization. In the development sensitive welfare economy, the formulation of a sound marketing mix is found a difficult task. The nationalization of the Reserve Bank of India is a landmark in the development of Indian Banking system which in a true sense paved avenues for qualitative-cum quantities improvements. This makes it essential that the reserve Bank of India and the policy makers of the public sector commercial banks think in favor of conceptualizing modern marketing which would bring a radical change in the process of quality up gradation. The first task before the public sector commercial Banks is to formulate the marketing mix which suits the national socio-economic requirements. To be more specific the peripheral services need frequent innovations, since this would be helpful in excelling competition. The designing of a product portfolio is found significant to maintain the commercial viability of the public sector banks. The banks professionals need to assign due weightage to their physical properties. They are supposed to look smart active and attractive.

 Bank Marketing Strategies The marketing research considered being a systematic gathering, recording and analysis of data makes ways for making and innovation the marketing decisions. 5

The information collected from the external sources by conducting surveys helps bank professional in different wants. In the bank services, the formulation of overall marketing strategies is considered significant with the view point of tapping the potentials, expanding the business and increasing the marketing share. The increasing domination and gaining popularity banks, the popularity banks, the profitable schemes of the non-banking organization mounting craze among the customers for private banks have made the task of influencing the impulse of customers a bit difficult. The marketing research simplifies the task of studying the magnitude of competition by opinion surveys and the feed back customers, the multi-dimensional changes in the services mix can be made productive if it is based on marketing research.

It is submitted that the banking system is on the threshold of a momentous era of change and continuity in growth and development, of individual customer needs and corporate practices, technology and competitions. The role of marketing in the banking industry continues to change. For many years the primary focus of marketing was public returns. Then the focus shifted to advertising and sales promotion. That was followed by a focus on the development of a sales culture. Now the focus is on the individual customer meeting and even anticipating his or needs and developing trusting, long-term relationships by delivering high quality personalized service. Marketing both as a philosophy and an activity; is expected to contribute immensely to the realization of goals both immediate and future. All though all the elements of the marketing concept – customer satisfaction, profit integrated framework and social responsibility must receive the greatest emphasis in the years a head.

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They must be guided by the dictum of Mahatma Gandhi. “A customer is the most important visitor in our promises. He is most dependent on us. We are depending on him. He is not an interruption on our work. He is the purpose of it. He is not an outsider on our business. He is part of it. We are not doing him a favour by serving him. He is doing as a favour by giving as an opportunity”.

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 MARKETING CONCEPTS – IT’S APPLICATION TO BANKING

 What is Marketing? There are many definitions of marketing. The better definitions are focused upon customer orientation and satisfaction of customer needs. “Marketing is the social process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.” -Kotler. “Marketing is not only much broader than selling, it is not a specialized activity at all It encompasses the entire business. It is the whole business seen from the point of view of the final result, that is, from the customer's point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise.” -Drucker.

When we apply marketing to the banking industry, the bank marketing strategy can be said to include the following: A very clear definition of target customers. The Development of marketing mix to satisfy customers at a profit for the bank. Planning for each of the ‘source’ markets and each of the ‘user’ markets (A bank needs to be doubly market – oriented – its has to attract funds as well as users of funds and services).Organization and Administration. In an age of electronic banking, the concept of bank marketing is required to be reviewed. A number of experts agreed with this view that marketing is unavoidably a social concern. Thus a change in the concept of marketing paved the ways for a change in the concept of bank marketing. It is right to say that bank marketing is related to the product, promotion, place, pricing and people decision of the banking 8

organization which simplifies the task of restructuring or revamping their decisions in tune with the changing business environment.

 The following arguments justify the application of marketing process to banking.

Fig.1 Understandi ng the customers

Justification for applying the Marketing in Banks

Formulating and Innovating the Mixes

Satisfying the customers

Excelling competition

application of marketing process to banking.

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Marketing helps in achieving the organizational objectives of the bank. Indian banks have duel organizational objective – commercial objective to make profit and social objective which is a developmental role, particularly in the rural area.  Marketing concept is essentially about the following few thing which contribute towards Banks’ success: 1)

The bank cannot exist without the customers.

2)

The purpose of the bank is to create, win, and keep a customer.

3)

The customer is and should be the central focus of everything the banks does.

4)

It is also a way of organizing the bank. The starting point for organizational design should be the customer and the bank should ensure that the services are performed and delivered in the most effective way. Service facilities also should be designed for customers’ convenience.

5)

Ultimate aim of a bank is to deliver total satisfaction to the customer.

6)

Customer satisfaction is affected by the performance of all the personal of the bank. All the techniques and strategies of marketing are used so that ultimately they

induce the people to do business with a particular bank. Marketing is an organizational philosophy. This philosophy demands the satisfaction of customers needs as the pre-requisite for the existence and survival of the bank. The first and most important step in applying the marketing concept is to have a whole hearted commitment to customer orientation by all the employees. Marketing is an attitude of mind. This means that the central focus of all the activities of a bank is customer. Marketing is not a separate function for banks. The marketing function in Indian Bank is required to be integrated with operation.

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Marketing is much more than just advertising and promotion; it is a basic part of total business operation. What is required for the bank is the market orientation and customer consciousness among all the personal of the bank. For developing marketing philosophy and marketing culture, a bank may require a marketing coordinator or integrator at the head office reporting directly to the Chief Executive for effective coordination of different functions, such as marketed research, training, public relations, advertising, and business development, to ensure customer satisfaction. The Executive Director is the most suitable person to do this coordination work effectively in the Indian public sector banks, though ultimately the Chief Executive is responsible for the total marketing function.  Hence, the total marketing function involves the following: a) Market research

i.e. identification of customer’s financial needs and wants and forecasting and researching future financial

market

needs

and

competitors’

activities. b) Product Development

i.e. appropriate products to meet consumers’ financial needs.

c) Pricing of the service

i.e., promotional activities and distribution system in accordance with the guidelines and rules of the Reserve Bank of India and at the same time looking for opportunities to satisfy the customers better.

d) Developing market

i.e., marketing culture – among all the customerconsciousness ‘Personnel’ of the bank through training.

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Thus, it is important to recognize the fundamentally different functions that bank marketing has to perform. Since the banks have to attract deposits and attract users of funds and other services, marketing problems are more complex in banks than in other commercial concerns. Indian banking is at cross roads today. With the deregulation and liberalization process in full swing, the consequent policy changes introduced in the Indian financial system in general and banking in particular are effecting unprecedented changes in its functioning. With the emerging changes did spring up new challenges of commercial viability, cost effectiveness, effective marketing strategy, etc. Market oriented policies also gave birth to new players like foreign and private sector banks and subsidiaries offering varied high tech and cost effective Service. There was an absolute shift from sellers into buyers’ market, establishing the ‘consumer’ as the key factor in the market. The dictum “as the bank exists because of its customers, has become more pronounced and relevant in the present context”. Thus, marketing constitutes the key strategy for banks to retain good customers and also anticipate their future demands.

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 Introduction of Market Segmentation

An organization cannot satisfy the needs and wants of all consumers. To do so may result in a massive drain in company resources. Segmentation is simply the process of dividing a particular market into sections, which display similar characteristics or behaviour. There are a number of segmentation variables that allow an organization to divide their market into homogenous groups. The identification of market occupies a place of outstanding significance in the banking industry. This helps in transforming the plans into action or turning the dreams into realities. The concept Market Segmentation based on the principle of Divide and Rule. Since the very beginning of the marketing, the market segmentation has been practiced to get the productive result. Segmentation makes possible tailoring of products and marketing programmes uniquely suitable for each segment. Segmentation is a method of dividing and sub-dividing the markets into different small segment. By segmenting, by dividing, banks find it convenient to identify and thus banks succeed in understanding the changing needs and requirements, likes and dislikes and the behavioural profile of customers. Of course, no two buyers are found identical in all respects. However there are certain characteristics shared by the large groups. The segmentation is thus a process of understanding the market in aright perspective which simplifies the task of formulating a creating marketing strategy.



Definition :A number of experts have expressed their views regarding segmentation.

Philip Kotler says, “Market segmentation is the subdivision of market into homogeneous subsets of customers where any subset may conceivably be selected on a market target to be reached with a distinct marketing mix.”

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Stanton opines, “market segmentation consist of taking the total heterogeneous market for a product and dividing into several sub markets or segments each of which tend to be homogeneous in all significant aspect.” In view of the aforesaid views of different marketing experts, it is observed that market segmentation is the grouping or division or sub division of markets. It is a device to help marketers in formulating a sound marketing mix which gets a positive response.

Fig 1. The concept of segmentation can be made clear with the help of above figures:-

 The Traditional Approach to Market Segmentation 14

Historically, the traditional approach to segmentation attempts to segment the market using one (or more) of four schemes. The first scheme attempts to segment the market based on how customers and prospects behave (behavioral segmentation). The second scheme attempts to segment the market based on who they are (demographic or life-phase segmentation). The third scheme attempts to segment the market based on how much worth they potentially hold for the organization (profitability or current value segmentation). The fourth scheme attempts to segment the market based on what customers think about the features of the product or service in question (attitudinal segmentation). Each of these four approaches to segmentation contributes an important piece in understanding the market, yet, each of these approaches displays significant limitations.

 Why Segmentation? When it comes to marketing strategies, most people spontaneously think about the 4P’s (Product, Price, Place, Promotion) –

extended by three more Ps for

marketing services (People, Processes, Physical Evidence). Market segmentation and the identification of target markets, however, are an important element of each marketing strategy. They are the basis for determining any particular marketing mix. Literature suggests the following steps:

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Fig.1

The importance of market segmentation results from the fact that the buyers of a product or a service are no homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviors. Since it is virtually impossible to cater for every customer’s individual characteristics, marketers group customers to market segments by variables they have in common. These common characteristics allow developing a standardized marketing mix for all customers in this segment.

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 Market segmentation in banks : In banking services the banks are expected to satisfy all type of customers like, rural customers, urban customers, high earning and low earning customers, small scale and large scale entrepreneurs and so on. Hence segmentation of market if considered to be important in banking industry. Since bank have to deal with different types on customers from field and localities so banking industry need segmentation. A marketing plan or product launch cannot be successful without proper segmentation. Market segmentation is perhaps the most difficult and complex decision a bank must make when deciding its market strategy.

Following is the table showing segmentation in banks :

Sectors

1. Agricultural Sector

Subsegment a. 10 acre &above b. 5 to 10 acre c. 2 acre & below d. Landless

2. Household Sector

Incomes : a. above Rs.1 lack P.A b. Rs.50000 to Rs.100000 c. Rs.25000 to Rs.50000 d. below 25000

3. Institutional Sector

e.

above Rs.5000

f.

Rs.5000 to below Rs.2000

a. Religious b. Educational c. Charitable and clubs

4. Service Sector

a. Financial Services b. Non-financial Services

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5. Trade and Commerce

a. Wholesalers b. Retailers c. Merchant Exporters

6. Industrial Sector

a. Private Sector b. Public Sector c. Co-operative Sector d. Large-Scale Sector e. Small Scale Sector f. Tiny Sector

 Importance of market segmentation to the banking service : Like other goods manufacturing and service generating organization, banks find segmentation of market important to the development the banking organization. If the segmentation done in a right way, the banks finds it easier to formulate a strategic marketing plan. The following facts testify the instrumentality of segmentation in the banking services. 1 . Instrumental in exploring opportunities : -

It is right to mention that segmentation is very much effective in exploring profitable and untapped or non-optimally tapped opportunities. It is wellknow that while segmenting, the market is divided into different small group and sub-groups and this simplified the tack of studying and knowing the market in a right prospective. If banks know about the rural segment, the opportunities are explored in the rural areas. Thus banks divide the market and so they know about the market which makes it easier to identify the opportunities.

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2 . Active in formulating a sound marketing strategy : -

The market segmentation helps the banks in formulating a sound marketing strategy. The formulation of a strategy is found significant and the bank policy makers and senior executives find it possible to develop the package in the face of changing level of expectation. Package is a combination of number of services / schemes keeping in view the changing needs and requirements of a particular segment. Since the banks are found in a position to know the hierarchy of needs of a particular segment, the product strategy can be formulated. In addition the promotional measures can also finalized in the face of the receiving capacity of that segment.

3 . Helpful to policy planners : -

Whatever the policy are formulated should have a close link with the emerging trends in the business environment. The task of formulating plan is found challenging. The banks need sufficient information about the different segments, so that they succeed in formulating a strategic plan for future marketing. It helps the banks in getting the desired information for incorporating necessary improvements. The development of personnel, installation of sophisticated information technologies, innovation in the service mix, etc. take more time and require adequate finance. 5 . Enriching the marketing resources : The setting of a target the particular segment, there is no meaning when banks lack marketing resources. Since the market is competitive and foreign banks are found making the business environment more volatile, it is essential that the banks make available the adequate resources to increase the market share for excelling competition. So that banks needs due support to make the marketing resources optimal to the changing business conditions.

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 Need / factors influencing Market Segmentation : Philip Kotler has described the dilemma of the seller (especially, a seller dealing with masses, e.g. banks) as follows: “How the seller determines which buyer’s characteristics produce the best partitioning of a particular market? The seller does not want to treat all customers alike nor does he want to treat them all differently”. Banks deal with individuals, group of persons and corporates, all of whom have their likes and dislikes. No bank can afford to assess the needs of each and every individual buyer (actual or potential). Segmentation of the market into more or less homogenous groups, in terms of their needs and expectations from the banking industry, provides a solution to this problem. This involves dividing the market into major market segments, targeting one or more of this segments, and developing products and marketing programs tailormade for these segments. In the first segmentation, the market is divided from a unitary whole, to groups of buyers who might require separate products and marketing mix. The marketer typically tries to identify different segments in the market and develop profiles of resulting market segments. The second step is market targeting in which each segment’s attractiveness is measured and a target segment is chosen based on its attractiveness. The third step is product positioning which is the act of establishing a viable competitive position of the firm and its offer in the target segment chosen.

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In the process of segmentation, the market can be divided into major segments which are gross slices of the market, or into smaller specially formed segments, otherwise known as niches. Niche customers have a specific set of needs which the markerter tries to address. While a market segment attracts several competitors, a niche attracts fewer competitors and therefore, a company should clearly define its target segment and devise strategies to target the customer, so that it has a competitive advantage in the segment. These concepts can be applied in personal banking by an Indian Bank. Traditionally, Indian Banks have not had any conscious strategy for selecting customers from the personal banking area, apart from some banks which have a geographic concentration strategy such as concentrating on a particular region or state. These banks will have to segment the market on certain basis, and identify market segments or niches which they want to cater to. For example, a bank like SBI may not be able to cater high income groups (say, managers, professional, NRIs, etc. who earn above Rs. 4,00,000 p.a. and who want a higher quality of products / services and who are willing to pay for them), as the services required by such a profile of customers are entirely different from the kind of products / services SBI can offer.

The following points justify the need of Market segmentation.



Market segmentation is needed in order to concentrate attention on a specific target market.



To adjust marketing mix as per the need and requirements of specific group.



For the introduction of strategy of divide and conquer



It is needed as it acts as a base of present customer oriented marketing philosophy. As a result customer get better services

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

It is needed to create and innovate the products as per the needs and expectation of customer of each market segment

 Benefits of market segmentation in banking service: a) Helps in better understanding of the customers’ needs and wants. b) Better targeting and position of the product. c) Encourages two-way communication among the potential buyer and the banks d) Maintaining effective relationship with the customers. e) Retaining the existing customers and attracting new ones.

f) Improving service delivery standards. g) Reducing cost / expenses on various marketing activities and increases market share; resulting in higher profits. h)

Improving the marketability of banks products and services.

i)

Improving banks marketing strategies.

j)

Improving banks marketing plans.

k)

Improving banks business’s marketing position.

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 Limitations : 

Too much concentration of few segments is dangerous. If the market segments are not selected properly or marketing mix is not adjusted properly from time to time.



Rational segmentation is difficult : -



It is difficult to have accurate market segmentation in a vast country like India with diversity as regards demographic ,and socio-economic factors. Such segmentation is difficult, complicated and may not prove to be accurate.



Market segmentation strategy has special drawbacks as regards Costs and Coverage. It increases marketing costs to reach customers of different segment.



Unpredictable consumer bahaviour : -



Human being and his behaviour is unpredictable. Therefore market segments may prove to be wrong.



Inadequate information and data due to which rational segmentation may not be possible. Defective / deceptive variables used for segmentation may prove to be costly.



Changing marketing environment makes market segmentation ineffective as the bank has no control on the external factors responsible for changes in the market environment. 23



Conservative managements do not give much importance to the concept of market segmentation and conduct their marketing activities as per old methods.

 Initiation of Segmentation in India :

State Bank of India was the first Indian Bank to adopt the concept of market segmentation. In 1972, it reorganized itself on the basis of major market segments dividing customers on the basis of activity and carved out 4 major market segments, viz. 

Commercial and Institutional,



Small Industries and Small Business Segment,



Agriculture,



Personal and Services Banking.

The objectives of this scheme were: 

Deeper penetration and coverage of market by looking outwards.



Adequate flexibility of organization to accommodate growth and rapid change,



Delegation of work for releasing senior management for more futuristic tasks.

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 Market segmentation strategy

Market segmentation as a marketing strategy is a recent development. Segmentation is supplementary to marketing mix. By successfully segmenting the market, evaluating the features of each of the segments and by applying a fair combination of marketing mix, a marketing manager is likely to get good reward in terms of sale of products, profit, and goodwill. The benefits of market segmentation will be available only when the segmentation is introduced properly. This requires knowledge, experience and maturity and naturally this responsibility should be given to senior marketing executives. Market segmentation strategy is certainly useful to consumers and marketing banks.

A bank should identify the most promising and convenient segment of the total market and concentrate its marketing efforts on that segment for better results. This suggests that the target market must be selected and concentrated attack should be made on the same through the effective use of marketing mix. This is

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described as segmentation strategies or market targeting strategies. There are three alternative marketing strategies as noted below :

Fig.1

 Mass / Undifferentiated Marketing Strategy : In mass marketing sale of one product / service to the entire market. In this we find low cost of production since it is based on large scale economies which make it possible to adopt a price structure which is low and uniform. such a segmentation strategy is found suitable to the organization having a market. The strategy relies on mass marketing and mass advertising. An organization practicing undifferentiated marketing typically develops an offer aimed at the largest segments in the market. When we talk about the banking organization, we do find this strategy effective to savings accounts in the context of response and no particular marketing mix.

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 Multiple or Differentiated Strategy :This strategy adopted by the organizations where a number of products and services are sold to selected market segment in order to increase overall sales. In differentiated strategy, the cost however higher than in mass marketing. The banking services are also found differentiated into segments. In certain services the response of the market may be varied like term deposits of different maturities or mix of different deposit schemes. The impulse buying of a customer is influenced by the silent features of the concerned services hence purchasing power or spending power is found here insignificant. Thus in banking services for the undifferentiated market, we so not need a specified marketing mix but for differentiated market, we essentially need both depending upon the nature of schemes. Since the competition is found increasing, the banking organization has been found launching a number of services/ schemes in tune with the changing potentials and requirements of different segments. This strategy is thus found to increase the market share so all that all the segments are tapped optimally.

 Concentrated or Niche marketing :Organization concentrating on selling to a small market segment or niche is called as a concentrated or Niche marketing. Some points make it clear that segmentation, especially for the banking services focuses on differentiated marketing strategy. Of late, we find a number of term deposits containing a good number of outstanding features but normally all the features are not found in all the schemes. While formulating a strategy for market segmentation, it is imperative that the policy planners innovate their marketing strategies keeping in mind the segment for which the services/schemes are to be launched. This simplifies the task of bank professional, especially while influencing the potential customers of that segment. The motive is to influence the profitable segment by innovating the marketing mixes. In this

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concentrated marketing strategy, attention is concentrated on one specific target market only. More attention is given to target consumers and more satisfaction is offered to them.

 Reason for Effective Market Segmentation Strategy As already stated, segmentation is the basis for developing targeted and effective marketing plans. Furthermore, analysis of market segments enables decisions about intensity of marketing activities in particular segments. A segment-orientated marketing approach generally offers a range of advantages for both, banks and customers 1. Better serving customers needs and wants It is possible to satisfy a variety of customer needs with a limited product range by using different forms, bundles, incentives and promotional activities. Many banks organize it’s products and services by customer groups. They offer the same products to all customer groups. Nevertheless, they suggest product bundles and supporting services that are individually tailored for the needs of each particular group. Thus, segment-specific product bundles increase chances for cross selling.

2. Higher Profits It is often difficult to increase prices for the whole market. Nevertheless, it is possible to develop premium segments in which customers accept a higher price level. Such segments could be distinguished from the mass market by features like additional services, exclusive points of sale, product variations and the like. A typical segment-based price variation is by region. The generally higher price level in big cities is evidence for this. When differentiating prices by segments, banks have to take care that there is no chance for cannibalization between high-priced products with high margins and budget offers in different segments. This risk is the higher, the less distinguished the segments are. 28

3. Opportunities for Growth Targeted marketing plans for particular segments allow to individually approach customer groups that otherwise would look out for specialized niche players. By segmenting markets, banks can create their own ‘niche products’ and thus attract additional customer groups. Moreover, a segmentation strategy that is based on customer loyalty, offers the chance to attract new customers with starter products and to move these customers on to premium products. 4. Sustainable customer relationships in all phases of customer life cycle Customers change their preferences and patterns of behavior over time. Organizations that serve different segments along a customer’s life cycle can guide their customers from stage to stage by always offering them a special solution for their particular needs. For example, ICICI Bank provides various product to all members in a family, like savings account to teenagers, pension plans for retired persons, education loan for the bright future of child, savings account for house wives, etc.

5. Targeted communication It is necessary to communicate in a segment-specific way even if product features and brand identity are identical in all market segments. Such a targeted communications allows stressing those criteria that are most relevant for each particular segment .

6. Stimulating Innovation

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An undifferentiated marketing strategy that targets at all customers in the total market necessarily reduces customers’ preferences to the smallest common basis. Segmentations provide information about smaller units in the total market that share particular needs. Only the identification of these needs enables a planned development of new or improved products that better meet the wishes of these customer groups. If a product meets and exceeds a customer’s expectations by adding superior value, the customers normally is willing to pay a higher price for that product. Thus, profit margins and profitability of the innovating banks increase. 7. Higher Market Shares In contrast to an undifferentiated marketing strategy, segmentation supports the development of niche strategies. Thus marketing activities can be targeted at highly attractive market segments in the beginning. Market leadership in selected segments improves the competitive position of the whole organization. It strengthens the brand and ensures profitability. On that basis, organizations have better chances to increase their market shares in the overall market.

As much as strategies are good, bank should avoid using one strategy for all products or marketing applications effective segments or marketing applications effective segments. A strategy will vary according to what are the marketing objectives. In the case of attracting new customers who have no history with the bank. The bank will come up with a wedge product strategy where they give customers of other banks a chance to sample some of its products or services for the time being and this will enable them to cross-sell more profitable products to them and create a long lasting relationship with them.

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 Criteria for Successful Segmentation

In this chapter we are discussing about the which sectors, banks are going to segment and how sub segment . Segmentation in a right fashion makes the ways for profitable marketing. This helps policy planner in formulating and innovating the policies and at the same time also simplifies the task of bank professionals while formulating an innovating the strategic decisions. The banking organization also segment market and for the same they are supposed to assign due weightage to the following criteria which would help them in many ways. The following criteria make possible rig segmentation. The banking organization need to segment and sub-segment the sextors where they succeed in exploring the business potentials or say the profitable opportunities. An important criterion for market segmentation the economic system in which we find agricultural sector, industrial sector, services sector, household sector, institutional sector and rural sector requiring of weightage while segmenting.

1. Agricultural Sector : the agricultural sector assumes a place of outstanfing significance and the banking organization may find profitable opportunities if they segment this market into different categories In the agricultural sector, there are four category rise since the needs of all the categories cant’s be identical.

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(Fig.1) The mechanization of agriculture, the improved or scientific system of activation, the help of nature, the magnitude of risk, the availability infrastructural facilities influence the level of expectations vis-à-vis the needs and requirements. The banking organizations are supposed to know and under stand the changing requirements of different categories of farmers.

2. Industrial Sector : The banking organizations sub serves the interests of the industrial sector. The large-sized, small-sized co-operative and tiny industries use the services of banks. The expectations of all the categories cants are uniform.

( fig.2) The banking organizations are supposed to have indepth knowledge of the changing needs and requirements of the industrial segment.

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3. Services sector : It is an important sector of the economy where the banking organizations get profitable business. The two categories of organizations such as profit-making and not-for-profit making are found important in the very context.

(fig.3) The banking organizations need to identify the changing needs and requirements of the services sector. With the frequent use of information technologist and with the mounting pressure of inflation and competition, we find a change in the hierarchy of needs.

4. Household Sector : This is also constitutes an important sector where different income group have different needs and requirements. In below figure we find the different segments of the household sector.

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(fig.4) Household Segment The high income group, middle income group, low income group, substance level group and marginal income group have different hierarchy of need which influence the level of their expectations. Gender Segment: In the gender segments, we find male and female having different needs and requirements. The banking organizations are supposed to identify the level expectations of both sexes.

(Fig.5) Some of the women are housewives and therefore they have different need and requirements whereas some of them are working ladies having different needs and requirements.

5. Profession : In the profession segments, we find different categories of professions an therefore we find a change in their needs and requirements.

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(fig.6) Profession wise Segmentation The technocrats, bureaucrats, corporate executives, intellects, white and blue – collar employees have different needs and requirements and therefore the banking organizations should know their expectations.

6. Institutional sector : Organizations, institutions, industries, business, or say, the large-sized customers is an important market segment for the banking organization. In the following figure.7 we find different sub-segments in the category institutional sector. This the most profitable segment of banking organization. Some of the organizations are known as cultural organizations, some of them are not for –profit making, some of them are charitable and some of them are related to trade and commerce. The emerging trends in the social transformation process determine the hierarchy of needs.

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(fig.7) Institutional Segment

Markets segmentation thus simplifies the task of understanding the customers/prospects. The bank professional find it convenient to formulate and innovate the marketing mix of world class which simplify the process of excelling competition. In the Indian perspective where we find agrarian economy contributing substantially to the transformation of national economy, it is pertinent that the banking organizations assign due weightage to the rural sector of the economy where we find tremendous opportunities. The urbanization is likely to gain the momentum and villages, outskirts of big towns and cities are to be developed on a priority basis. Almost all the organizations are to get tremendous opportunities there. The marketing resources if of innovative nature would make the ways for capitalizing on the same profitably.

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Hence this is found essential to know the changing needs and requirements of the different segments. The launching of new products and services or an overriding priority to the innovation process cannot be meaningful unless the banks succeed in rating the exact level of expectation of different segments.

 Bases of Market Segmentation :

In this topic we are discussing on what bases banks can segregate their customers .

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When we divide any class or a subject, it is done on certain grounds. The base is created after considering the various fields and the characteristics of students, merit and so on. Similarly marketing segmentation is done on certain consistency that exists within the group. Marketers use segmentation bases, or variables, which are characteristics of individuals, groups, or organizations, to divide total market into segments. Markets can be segmented using a single variable, such as age group, or several variables, such as age group, gender, and education. Although it is less precise, single-variable segmentation has the advantage of being simpler and easier to use than multiple-variable segmentation. The disadvantages of multiple segmentation are that it is often harder to use than single-variable segmentation; useable secondary data are less likely to be available; and as the number of segmentation bases increases, the size of individual segments decreases. Nevertheless, the current trend is toward using more rather than fewer variables to segment most markets. Multiple-variable segmentation is clearly more precise than single-variable segmentation.

So in order to make sure that the product, offerings reach the right consumers and customers it is necessary that we understand the base of segmentation.

 Geographic :  Nations  States  Regions  Cities  World  M-Size  Density

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 Climate

 Demographic :  Age  Family Size  Family life cycle  Gender income  Occupation  Education  Religion  Generation  Nationality  Social Class

 Psychographic :  Life Styles  Personality  Values  Behavioral :  Occasions 

Benefits



User Status



Usage Rate



Loyalty Status



Readiness Stage 39



Attitude Toward Offerings

 Stages for segmentation : While segmenting, it is essential that the bank are familiar with the different stages to be covered for right segmentation since this would simplify the task of sensitizing the marketing efforts vis-à-vis would make the business profitable. Now we are going through the different stages of segmentation.

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1.

Conducting the Research : The first stage in the segmentation process is to conduct research which

analyses the market to identify the group of customers within the overall market who share needs and have certain behavioural properties or features in common which distinguish them from groups of customers. The research is done with help of variables (bases) which helps to conduct the research efficiently. The research would answer to the questions and so the banks bear the responsibility of intensifying the research.

2. Identify the Profitable Segment :

Market research would help the banks in knowing the segments containing the most

buyers or the most profitable buyers. It is most important that the most

profitable segment should not be too large in size. The concept of market segmentation is equally applicable to the banking or the other service generating organization also. The banking organization like Hong Kong bank and the IndusInd bank have been found treating each class in the same way as the manufacturing organization treating their products. If banks are succeed in identifying the profitable segment, the task of bank professionals would be simplified considerably.

3. Establishing the position of their service / schemes :

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The third stage in the market segmentation process is to establish the position of their products / services / schemes in the market relative to those of rival banking organizations. The product position is found different in both categories of banking organization – public sector commercial banks and the private banks. It is important that the competing banking organization assign due weightage to the positioning strategy adopted by the competitors.

4. Tailoring the Marketing efforts : This stage of segmentation is related to the channelising of marketing efforts in the face of the needs and requirements of the profitable segment. Profitable segment draw the attention because the marketing resources can be made optimal to the expectation of that segment. Since the banks are aware of the potential customers and they know about their expectations, it is natural that whatever the strategic decision they make re found creative in nature.

5. Target Markets are Identified :

Finally, the target markets are identified and the resources are developed accordingly. The development of marketing resources in tune with the expectation of the target markets simplifies the task of satisfying the customers since thay find the services in tune with their expectations. The bank would attempt to sort out the untapped prospects since it is not essential that whatever the strategies they adopt are successful in sensitizing all the prospects or the potential customers.

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6. Adopting the Rifle- shot Approach : If the banks fail in motivating the prospects, they may think in favour of the rifle- shot approach. This approach is related to aim the target market in such a way that even the untapped potential customers are motivated. Here banks find innovating the marketing resources essential and the innovation process should keep in mind the reason which resulted into the failure of their efforts taken earlier.

From the above stages we found that, the first stage occupying a place of outstanding significant since it is the quality of banks research determines the magnitude of banks success. It is due mainly to the fact that the mast profitable segment is found of the smallest size. The profitable segment is to be tapped optimally so that the marketing resources or inputs used in the process are one – hundred- percentage productive. It is in this topic that we find a study of the different stages of segmentation essentials.

 Criteria for an Effective Segmentation :

In processing the marketing activities , of course there are a number of steps and stages but of all, find segmentation significant since right segmentation simplifies the task banks and makes the marketing efforts sensitive. This gravitates our attention on effective segmentation. An important task before the banks is to have effective segmentation which makes ways for an optimal utilization of the marketing resources. 43

It is against this background that we find effective segmentation to be discussed in detail. Kotler says that any worthwhile effort for market segmentation must satisfy the following four conditions :  Measurability :By Measurability in the market segmentation, the degree to which the size and purchasing power of the segments can be measured. No doubt in it that there are certain segmentation variables which cant help us in the measurement process. In a true sense, this refers to the extent to which the size and purchasing power of the segment can be fair to a point that is measured. If banks fail in measuring the size and purchasing power of a segment, it is natural that banks fail to assess the business potentials of that segment.



substantiality :

This is refers to the degree to which the segment are large and profitable. It is essential that a segment belongs to the largest homogeneous group. If the size is very small even banks find it full of potentials, the market would hardly be profitable. Banks can’t negate that substantiality is a relative term. In the banking business we find some the small segments with tremendous potentials. Thus we can’t say that substantiality would be an essential criterion since banks can develop mix or a package even for the small segment and make the business profitable.



Accesssibility :

This is related to the degree to which the segments can effectively or smoothly be reached and served of cource, banks find it essential consideration for effective segmentation since even if market is profitable and bank can reach to that market smoothly, the bank professionals are found helpless to capitalize on the opportunities.

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

Actionability :

This is meant the degree to which effective programmes can be formulated for attracting and serving the customers. Hence banks emphasis on the potentials of customers in quick expendition of the formulation process. If the banking organization faces the problem of under staffing, the actionability would be affected adversely. This above conditions needs to be formulating effectively in which marketing resources and efforts are found more sensitive.

 Market segmentation for Mobile Banking : It is absolutely true that mobile banking is experienced different from one market to another. It is often the source of a lot of confusion when different people discuss mobile banking from different contexts. Before we discuss mobile banking it is therefore important to first define the markets that one target when deploying mobile banking. The most obvious first segmentation of the market for mobile banking is to look at those consumers with a strong, existing relationship with banks, and those that do not

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have a relationship with a bank. This segmentation should range from some-one without any banking relationship (some-one that does not have a bank-account and also never had one), to (on the extreme right) a sophisticated user of banking services. This would typically be some-one with a relationship with more than one bank, have multiple bank accounts and/or credit cards.). Another dimension should be an indication of the degree in which a consumer is connected to other consumers. Some consumers because of their work or role in society have a bigger need to interact with a more diverse group of consumers, others are much more localised in their interaction. In looking at the different segmentations, one would be able to identify an individual that are typically employed in a low income position or survives off grants, pensions or money sent from family working in the city or abroad. Life’s routine is predictable for this individual with activities organised around the work and family. The rural citizen would typically live in a low cost abode. Credit worthiness is low with access to expensive micro lending as a source of lending only. All transactions are in cash and almost no savings exist. This is an individual that either living in a village in some rural area or in slums in or around cities. These people are the masses that turn the economy with their labour. Their need for banking services is limited to small savings, money remittance and some electronic payments. They usually get access to these financial services in a very expensive way, often with high risks as all of their transactions are in cash. They are often referred to as the bottom of the pyramid, but yet they are active in the economy and represent a large portion of the population in many countries and can be reached by mobile banking with the right product or service. Another segment would consist of individuals that are much more affluent. They are the people that always have the latest gadgets and are more expansive in their exposure to financial products. They typically have the latest phones, have more than one bank relationship and travel extensively for work and pleasure. Their assets include stocks and bonds and they use the Internet extensively to transact electronically. They are often aware of transactional risks associated with card transactions and the Internet and are often uncomfortable about their exposure to fraudulent activities. In addition to providing more control and improved security, 46

mobile banking also delivers an alternative mechanism for the Power User to pay. Transactions not usually available can now be performed. Some of the transactions that the Power User requires and now becomes available are person to person payments, proximity payments, enhanced security for “card-not-present” transactions to name a few. All of these features are available in some format or another. It is clear that different market segments would require vastly different mobile banking offerings.

Case study

 Introduction

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Barclays is a global bank. It provides a range of financial services in 56 countries. Barclays provides retail banking services to customers, whether they are individuals or businesses. It offers a broad range of financial products and services including current accounts, savings accounts and general insurance.

Within the UK, Barclays communications are designed to help customers ‘Take One Small Step’ to managing their money better every day. Different kinds of customers represent distinct markets for Barclays. The market for personal banking services is very competitive. Personal customers have a choice of banks on the high street or on the web to assist them in managing their finances. For example, they can have their salaries paid into accounts, pay bills through the bank or save money to gain interest on their savings. There is also a competitive market for business banking services. Businesses require different services such as credit management, payments for suppliers or loans and overdrafts to help them to survive and grow. For example, an expanding business may need a mortgage to buy a new building.

 Market segments

Each market is capable of being further sub-divided into segments. A market segment is a part of a whole customer group that shares particular characteristics. These include such factors as age, life stages, geography or occupation. Within the market of personal banking, the segments could include categories such as students,

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graduates, ‘new to work’, mature, and families. By identifying different market segments, organizations can ensure they are providing products or services to meet the needs of these customers. In addition to this, appropriate promotional techniques can be used to reach the people in the separate segments. Through segmentation, Barclays has been able to devise appropriate banking offers for customers in different segments. This approach is helping Barclays to improve its market share of the student accounts market. Barclays believes students constitute a very important market segment for the business. Students may be choosing a bank for the first time and Barclays hopes to retain these customers. By focusing on the specific needs of this segment, Barclays hopes to attract more student customers and keep them in the long term. Using market research has enabled Barclays to identify the right product offer that will meet their needs. The case study shows how market research enabled Barclays to improve its student account offer.

 Purpose of market research

The purpose of market research is to gather data on customers and potential customers. The collected data aids business decision making. This therefore reduces the risks involved in making these decisions. In order to create a product proposition that would attract new student accounts, Barclays needed to understand fully the needs of this target market.

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Firstly, students provide an opportunity for developing a long-term relationship. As the student market segment increases each year in September/October as the university term starts, Barclays has an annual opportunity to target new student customers who need an account and who might not yet have chosen a bank. Secondly, the use of this data highlighted that in the years after opening their accounts, Barclays was able to establish a valuable long term relationship with students. This meant that students could now be seen as an extremely important market segment, and attracting new student customers became a significant opportunity.

Barclays designed a programme of market research. The purpose of this was to establish

what

students

really

needed

from

a

bank.

In

this

way

it

could offer appropriate products and services which would add value to students.

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 Types of market research Barclays began a process that involved both primary and secondary research. Primary research Primary research involves finding out new information. It finds the answers to specific questions for a particular purpose. These enquiries may take the form of direct questioning. For example, it may include face-to-face surveys, postal or online questionnaires, telephone interviews or focus groups. This type of direct contact with people is valuable as it gives specific feedback to the questions asked.. Although primary research can be expensive and time-consuming, the up-to-date and relevant data collected can give organisations a competitive advantage

For example, Barclays found from the questionnaire that 81% of students surveyed held a savings account and 32% an investment savings account (ISA). Secondary research Secondary research focuses on existing information. It uses published data that previous research has already discovered. This covers a wide range of materials, such as: 

market research reports



sales figures



competitor marketing literature



Government publications, e.g. national statistics.

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Secondary research may be quicker to carry out but may give less specific outcomes for the topic in question. This part of Barclays research revealed that student accounts in 2009 amounted to 0.4 million out of a total market of 5.4 million new accounts.

 Research findings Numeric data gives a factual basis for planning - a snapshot of a situation. On the other hand, qualitative information can find out the things that really matter to consumers. Research outcomes 

Students relied heavily on different forms of credit. These included an easily manageable bank overdraft to finance their time at university



Students wanted and often needed to own high-tech gadgets and electrical goods, such as laptops



Students wanted to have separate accounts to manage their student borrowing and spending



Any incentives offered would not alone motivate students to choose that product. They were expected as part of any deal.

This insight was a real help to Barclays when considering the most attractive proposition for students. Its objectives were to attract new student accounts. It also wanted to retain students as customers for life in a profitable relationship that met their financial needs.

Barclays could now start to put together an offer that would embrace the main concerns of the target market.

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 Implementation and evaluation In 2009, Barclays set up a working group to oversee the setting up of the new student proposition. It used the insight from the research to establish the key features and benefits of the student account. These features are valid for the life of students’ studies: 

No monthly fee – to keep costs down for students



An interest-free overdraft facility of up to £2,000 from starting the account. Previously this started at £500 in the first year and increased through the years of study. This extension helps students manage their finances.



Mobile banking and a network of local branches – for ease of access to accounts.

Having developed a student banking proposition that Barclays felt confident would appeal, it began to communicate the message and promote the new student offer. An innovative marketing plan was launched which involved: 

a word-of-mouth campaign through ‘100 voices’ which encouraged students to share their experiences of managing money whilst at college or university



Promotional literature available in branches nationwide. This proved useful information for Barclays colleagues as well as for students and their parents to take away



online advertising through barclays.co.uk



Direct mail to prospective students through the summer before going to university. 53

 Conclusion The Barclays student account proposition shows how it is crucial for a business to listen to its market. To do this effectively means targeting specific market segments to discover their needs. Barclays’ new student account proposition was an ‘insight-led’ approach. Using carefully constructed and phased market research, the bank was able to gain an overall insight into the thinking of students. In the early stages of the research, it was discovered that the student segment provided an opportunity to develop a longterm relationship. It was found that students were not necessarily ‘here today, gone tomorrow’. If the bank made a valuable and relevant offer, students were likely to remain lifelong customers. Barclays’ initial target was to increase the overall number of student accounts by 25%. This target was exceeded with an increase of 34%. As a result, Barclays increased its market share of the student market, moving from third to second among the top four market leaders. The process of meeting customer needs is an ongoing one. Barclays has a continuing plan for re-evaluating its student proposition to ensure it remains relevant to the target audience.

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VISIT REPORT I had visited to ICICI bank and HDFC Bank to gather the information about my project Market Segmentation. I had visited ICICI bank at and HDFC bank. I asked many questions which will help me to complete my project. I met Ms.Roshani Salion, branch manager of ICICI bank at dombivali and Mr. Singh branch manager of HDFC bank at kalyan branch. HDFC Bank is a young and dynamic bank, with a youthful and enthusiastic team determined to accomplish the vision of becoming a world-class Indian bank. HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments: Wholesale Banking Services, Treasury and Retail Banking Services. India’s second largest bank ICICI bank, 614 branches and extension counters. 2200 ATM’s.Biggest private sector bank in India. Most valuable bank in India in terms of market capitalization described by the competitors and industry expert in one word – “Aggressive” Both the banks are succeeding in segmenting the market. They segment the market to gain identifiable profit from the various segments. ICICI bank mostly segregates the Industrial sector because they think this sector is most profitable. And targets them by providing the multiple products and services which is suitable to that particular segment. HDFC Bank and ICICI Bank offer corporate credit cards and advisory services for their SME clients. ICICI bank uses various bases for segmentation. Like occupation - Different products for different occupational segment identified. Income - Minimum balance serves as an income segment barrier. Geographical - Concentrated on Tier 1 & Tier 2 Cities trying to extend reach. Age - Different products like student account. One thing is same that both the banks thinking that segmentation are very expensive. But they do segmentation to tap the potential customers into actual for longer period of time. 55

ICICI bank and HDFC bank are now trying to target the rural customers .they started introducing products and services for the rural people. This two banks really doing good job by segmenting the market. I am very thankful to the managers who provided such an important data about Market Segmentation Banks.

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