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UNIT 5 BANKING PRODUCTS AND

SERVICES
Objectives

After going through this unit, you should be able to :

0 describe the concept and significance of banking product types and product cycles
explain the concept of product and service
0 understand the product strategies as applicable to banking
discuss the process of product analysis and product development
0 evaluate the role of brand in marketing of banking services.

Structure

Introduction
Nature of Product
Products and Services in Banking
Elements of Product Mix
Product Life Cycle and Product Strategies
Using Product Life Cycle lo Manage Marketing of Banking Products
New Product Developllie~lt
Branding in Bank Marketing
Process and Product Development Cycle for Banking Services
Product Development
Summary
Self-Assessment Questions
Key Words
Further Readings

5.1 INTRODUCTION
The product/service offering is among the most crucial element in marketing o f banking
services.

The service is integral part of product in banking and is at times an indivisible part of
any banking product. Similarly whether we talk of brand or selling a product, the
institution (bank) is always the deciding factor in product design and delivery as the
customers do not look at any product in isolation but look at it as the particular bank's
product.

In this unit we will dlscuss the important concepts of the types of banking products,
product life cycle, product strategies, product analysis, product development and
innovation and role of brand in marketing of bank's servlces.

5.2 NATURE .OF PRODUCT

A product is defined as : "Anything that has the capacity to provide the satisfaction, use
or perhaps the profit desired by the customer." Product and service are the words used
interchangeably in banking parlance.

It must be remembered that whatever be the form in wliich a product or service is

provided, the focus will be on the want and need satisfying aspects of that product or
service. Without such a focus on the customer's want need satisfaction no product/ '

service can exist for long.

For a product or service, when it is marketed the following two aspects are very significant:
i) Offer-what is offered say a product at a price, and
 hiarkcting of Banking Services ii) Manner of offering - how it is offered i.e. the manner of product delivery.

The product includes quality, features, accessories, packaging, brand, warrant, etc. As the
services are marketed like the products, products also include services.

An organisation may offer different product lines, each product line comprising of
different product varieties all of which collectively represent a product mix.

Product planning, as it is called, coinprises of the process of developing and maintaining

a portfolio of products which satisfy the wants and needs of customer from different
segments. Such product planning has to ensure maximum utilisation o f skills and
resources of an organisation.

This product planning function consists of decisions on :

I) Product Line
2) Product Mix
3) Branding
4) Packaging
5) New Product Development

In the following paragraphs we shall discuss all the above aspects elaborately.

5.3 PRODUCTS AND SERVICES IN BANKING

As we have seen, a product is a bundle of all kinds of satisfaction of customer's wants
and needs.

A product can be a goods, a service or a goods + service or even just an idea. A

product is, in short, all the things offered to a market. It can involve physical objects,
design, brand, package, price, services, literature, attractive ideas, personalities or even tile
image of a bank or its branch. .

It is thus essential to define a product or service in terms of product functions i.e, what
the customer expe'cts from a product or service offered by a bank.
I

The norlnal connotation to differentiate between the product and the service is that thc
product is something tangible and service means something intangible. In general
marketing terms, word.- product is mostly used. Philip Kotler defines a product as :
I
"A product is anything that can be offered to a market for attention, acquisition, use or
,
consumption; it includes physical objects, services, personalities, places, organisations and
ideas."
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The bank's products are its deposit or borrowing scheme or other products like credit
card or foreign exchange transaction which are tangible and measurable whereas service
can be such products including the waytmanner in which they are offered which cannot
be shown but can be expressed.
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But if two banks have same or similar products and pricing; it is the service (though
abstract) which differentiates between these two banks and the better service (delivery or
offering) which wins customer's confidence and satisfies him.

It can, therefore, be said that the be'iter service is even more important than just n good
product when we talk about tpafketing of banking services.

We will discuss more elaborately about various services offered by a bank various types
of deposits and services offered by a bank.
 B a o k i ~ ~Products
g ant1 Services
Different Banking Products

.rhe discussion and process of understanding the bank marketing will not be complete
unless we know the various productslsche~nestailored by different banks to cater
effectively to the custo~ners'needs. Important among the banking products are the
following :

Deposit Accounts

Knowing the human behaviour with respect to wants and needs or rather making wants to
be felt as need is the first challenge in marketing of bank's schemes. The second
challenge is the resistance to change andlor new ideas which beco~llesa toucll barrier in
the process of marketing productslservices of a bank.

Banks, therefore, tailor various deposits schemes and market them to either theirlexisting
customer or the new segments of customers. Before selling the deposit schemes, it
becomes necessary to identify the needs and aspirations of the customers to make them
most ideal and acceptable to satisfy their needs.

From the marketing angle the different deposit schemes of the bank can be giaouped on
the basis of :

- the mode of deposit

- the mode of repayment
- additional benefits
- the end use of accumulated funds
- the calculation and payment of interest
- need for liquidity, safety, growth, etc.

Let us illustrate a few schemes on these criteria :

Need Deposit
1 Personal Saving, Liquidity, easy withdrawal Saving
2 Turnover, ~iianytranst~ctions,busincss current
3 Interest income required and lun~psumsaving fixed deposit monthly int.
dep. scheme, quarterly int.
dep. scheme, cuniulative
deposit scliemc.
4 Gift to some one Gift cheque, Festival Deposit
Certificates
5 Safe Travel Travellers Cheque
6 Deposit in small instalments Recurring deposit scheme,
daily deposit

Let us first discuss the type of 'main deposits' from the broad classification point.

Savings Deposit
Means a form of deposit which is a deposit account titled as savings account, savings
bank account or savings deposit account which is subject to restrictions about the number
of withdrawals therefrom. (RBI Directive dt.27.12.85)

Current Deposit Account

Means a form for depqsit from which withdrawals are allowed freely, any number of
times depending upon the balance in the account or upto a particular agreed amount and
shall be deemed to include other deposit accounts which are neither savings deposit nor
term deposit (RBI Directive dt.27.12.85)
 Marketing of Banking Services Delnand ~~~~~i~
Means a deposit received by a b&k which is withdrawable on demand. S.B. , CIA and
. overdue deposits are the examples of demand deposits. Customers having these accounts
can withdraw their deposits from their accounts at any time they desire.

0 Time Deposit
Are deposits which are not repayable on demand. Such deposits are repayable on a fixed
date in future which is termed as a due date. Rate of interest for the said period is '
contracted at the time of opening the account. Deposits held under these following
schemes are called time deposits.

Time Deposits

1 2 3 4 5 G

Sllort Deposit Fixed Deposit Deposit at Notice Recurring Festival Cash Certificate
Deposit Deposit

c.
1 Fixed Deposit

These deposits are :

Monthly Income

1.
2.
3.
Regular Income

With due dates

Long Terin
Higher Interest Rates
4. Each transaction : a separate contract
5. Non negotiable

Let us briefly examine the characteristics of each of the above 'Time Deposits'

1) Short (Term) Deposit : Deposits for a period of 15 days and less than 12 months
are called short: term deposit. Rate of interest is as prevailing from time to time
as directed by RBI.

2) i. Fixed Deposit : Deposits for a period of 12 months and above upto 120
months are termed as fixed deposits. Minimuin amount accepted is
Rs.1001-. Interest is paid in 112 yearly basis at agreed rate and as directed
by RBI from time to time.

ii. Monthly Income Plan : Interest is payable every month. Minimum amount
accepted is Rs.5QO1- and interest is paid at the discounted rate or if
depositor agretfto take holiday 043 months, the bank pays interest at the
stipulated rate fiom 4th month.

iii. Regular Income Plan : Interest is paid every quarter to the depositor.
Minimum amount stipulated is Rs.5001-. Interest is paid on quarterly basis.

3) Deposit at Notice ; While keeping the deposit with the bank a depositor stipulates
the notice period ranging from 15 days to 90 days. Depositor has to give
stipulated notice to bank he intends to withdraw the deposit, Due date will count
fiom the notice date. Minimum amount for 15 days to 45 days is Rs.1,000/- and
for 45 days to 90 days it is Rs,2,500/-,

L
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 Recurring Deposit : This is recurring in nature. A depositor while opening the Banking Products and Services
4) - '
account has to stipulate the period of deposit and amount of the agreed monthly
instalment - which is normally in multiples of 51- or 101- an for the periods in
multiples of 12 months upto 120 months. -a . A

Instalrnent i5 required to be deposited regularly between arly day from fiist to last
date of konth. Interest is compounded quarterly and principal + interest
(accumulated) becomes payable on due date or one month after payment of the
last instalment which ever is later.

5) Festival Deposit : Account is opened in the name of festival. Minimum amount

stipulated is Rs.251-. This account can be opened for a minimum period of 4
montl~sand maximum of 12 months.

6) Cash Certificates : This schemes is meant for persons having seasonal incomes
like farmers, artisans, etc. The face value is in multiples of Rs.50 upto Rs.10,000/-
and maturity period from 24 months to 120 months.

Some schemes combine recurring deposit and fixed deposit schemes benefits.

The prepayment of deposits at the desecration of bank attracts penalty i.e. 1% less
interest than due for that period.

When loan is allowed eg. such deposits (where allowable) interest on that loan is charged
2% above the rate of interest payable on these deposits which is a price to cover the cost
involved in that transaction.

It is interesting to observe that there is not a very large differencelvariation in the lowest
and highest deposit rates of deposits offered by a small co-operative bank, a nationalised
bank, a private bank or a foreign bank. What differs is the plqesentation,pricing strategy,
labelling and marketing style which projects quality and professional friendly approach
which makes all the difference in customer making a decision to bank with such banks
using professionally marketing.

It is equally interesting to know that although benefits are same or similar as to interest
rate or maturity value, the titles vary very much in their 'catchy' value.

One more shift is, earlitr most brochures highlighted only interest rate or benefits but
now service charges are also advertised in a subtle and friendly manner,

Activity I,

a) Just to hrzve an idca of how the deposit schemes are marketed, you must look at
some of the brochures of a (i) Private Bank (Vysya bank), (ii) Foreign Bank (ANZ
Grindlays Bank); about deposit schemes and service charges. Please go through
I them, read between the lines and note your observations as part of your
understanding,

Non-Resident Account
We have seen t h i types of deposits maintained b$ bank of Resident Indian in Rupees.

Banks authorised to deal in foreign exchange also maintain various non-resident accounts
which bring the non-resident Indian segment in their portfolio and ensure both business
and exchange profit in the conversion process.
biarkcting of Banking Sel.viees Due to the special consideration in cash reserve calculations and the exchange
communication/profit involved, many banks have been competing with each other to
attract and retain such non-resident accounts.

Who is.a Non-Resident Indian ?

As per FERA, 1973, an India11Citizen staying outside India (except in Nepal or Bhutan)
for e~nploymentor carrying out business or vocation outside India or for any other
purpose in circumstances indicating his intention to stay abroad or for an uncertain period
is called 'non-resident'.
a) Indian citizens who proceed abroad for higher studies, business visits & medical
treatment continue to be treated as persons resident in India even during their
temporary absence from India.

b) Indian citizens staying abroad on foreign government/government assignment,

world bodies or officials of CentralIState Government, Public Sector undertaking
and deputedtposted abroad to their offices including Indian Diplomatic missions
are treated as non-resident during their stay abroad.

Non-Resident Account can be opened by the names of non-resident persons and persons
of Indian origin residing abroad.,

Persons of Indian origin means a person who himself or either of his parents or any of
his grand-parent was an Indian citizen or a permanent resident in undivided India at
anytime.

A wife of an Indian Citizen or a person of Indian origin shall also be deemed to be of

Indian Origin even though she may be of non-Indian origin.

However, non-resident (E) accounts can also be opened in the names o r overseas
companies, partnership firms, societies and corporate bodies which are owned by non-
residents of Indian nationalitylorigin or trusts, wherein these persons have irrevocable
beneficial interest to the extent of 60%.
- these non-resident account have to be properly introduced.
- the followiiig types of non-residential accounts can be opened in Rupees.
a) Current Account
b) Saving Account
c) Term Deposit
d) Special Term Deposit
e) Recurring Deposit
f) Cash Certificates
g) Annuity Deposits

Such N.R.I. accounts can be even jointly opened if :

i) all the account holders are N.R.1.s

ii) all are of Indian Nationality or origin
iii) all are resident in the same country if belonging to bilateral group (now modified 01.
' in the same or different countries in Ext. group)
,
Funds in N.R. (E) accounts can be accepted in any currency if they are transferred to
India in an approved manner from the country of residence of the account holder or fiom
any other foreign country if the country of residence of the account holder and the
country from which remittance is received are both in same group (now modified).

The following local credits are accepted'in N.R. (E) account :

i) Interest/Dividend/sales proceeds of units of UTI, National Plan, Savings Certificates,

Share provided these are purchased out of external funds .
ii) Interest on Term Deposit of account holder
iii) Transfer from accounts to account holder ad the samelanother branch of bank. .

The following is difference in N.R. ( 0 ) and N.R. (E) Account :

N.R. (0) N.R. (E)

1 Conversion of resident accounts as Conversion not allowed from
account holder becoming non-resident resident account to N.R. (E)
or new account in the name of N.R.
2 Source of credit resident as well as foreign Source foreign credit only
3 Repatriation not allowed Repatriation allowed
4 Joint account with Resident Indian - Joint account with N.R. only
close relative allowed
5 No Tax exemption Eligible for tax exemption

N.R. (E) accounts are eligible for :

1) Tax Exemption
i) Income tax
ii) Wealth tax
iii) Gift tax

2) Repatriation of balances held in N.R. (E) account including interest is allowed

without prior reference to RBI.
3) Interest rates payable are higher for N.R. (E)
4) Recoversio~lfacility is available
5) Funds from NR (E) can be transferred to N.R. (Ext) Tenn Deposit Account
6) Loans1O.D. against N,R. (E) Term Deposit is allow& upto specified limit for
approved purpose and repayment hns to be made either by adjusting the deposit or
by fresh remittances in Forex from abroad,
@ Premature paynjatlt Is mllewod llke conditions for domestle dopsgit~,
@ Whm the aeeeunt holder shallgea hl8 atms fieln N,R to rosldenr the nesount should
Be ~hnngodto resldent 011gett111gI1111m~tlo11
froin aeeeunt holder,

Llke the Bepedt Assount wn life bleed or raw lvrterlril for the btznk, the ndve~icesnre,
sflaeatlnl to deploy tlleaa fl~ndeto eem revsllue for the bnnk~,
In order to balance liquidity and profitability properly, banks have to use their available
(lonable) funds judiciously keeping in mind the statutory requirements imposed'by RBI.

The employn~entof funds is made generally as :

1) Cash-certain portion has to be held to meet day-to-day demand of customers and

to hold certain portion in QRR with RBI.

2) Money to call or short notice-Refers to inter-bank borrowings. In day-to-day

requirement banks borrow from each other, the interest whereon varies day to day.

3) Investments-The investment by bank dependf upon statutory requirement as per .

Sec. 24 of Banking Regulation Act, 1949 and Sec. 42 of RBI Act, 1934.

4) Advances-As banks have to pay interest on various types of deposits eceived from
customers, in addition to salary cost, rates, taxes, insurance, stationery cost and other
administration costs, they have to earn adequate profit to meet all these expenses by
deploying funds profitably.
Marketing of Banking Services This is done depending on RBI guidelines and bank's own policies.

The advances are granted to eligible borrowers as per bank's policy, available lonable
funds, bank's corporate plan, its performance budtet and borrowers' character, capacity,
capital and credit needs.

The following principles are kept in mind :

1) Safety-the advance should be safe.
2) tiquidity-as the time deposits are slowly reducing, advances should be liquid.and
not blocked for long period.
3) Profitability-Interest and charges be remunerative
4) Sptead-decided on security, risk, type of industry, etc. which is the pricing
decision linked to bank rate prevailing.
5) Purpose-The advances are generally granted for productive purpose after verifying
utilisation and repayment capacity.
6) Security-This is the safeguard to fall back upon in case of emergency and recovery
by sale of assets. The stock or Fixed Assets or collateral securities are insisted
upon.
7) Margin-Depending on the security a cushion is required incase of recovery by sale
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of asset and this is normally dependent on the type of security which be
marketable, ascertainable, saleable and transferable.
8) Repayment-the period of repayment and quantum is linked to type of security, life
of security and fund generation capacity (cash flow).
Main Types of Advances Granted by banks :
As the bank's function is to accept deposits from customers and lend money to borrower,
the advances are granted on short-term, medium .term or long term basis depending on
the fix deposit, lonable funds, exposure to industries and bank's business policy and
profitability requirement.

The types can be classified as :

a) Funded :

Short Term Long Term

1 Overdraft Short term loans
2 Cash credit Medium Term Loans
3 Bills purchasedldiscounted Long Term Loans

b) Non-Fund :
Bank Guarantee & Letter of Credlt

, Let us briefly touch each of these types as a product by the bank :

a) Fund Facilities
i) Over draft-hnder this type of facility, bank permits a borrower to overdraw
his current account upto a decided limit,+The borrower is allowed to draw in
excess of the amount of deposits upto a specified sum. Normally, it is short
term and for specified purpose to finance current assets,

ii) Loans-The loan is normally for acquiring fixed assets and repayable within
12 months, 1-3 years, 5-7 years or 10 years.

In loan there is usually only one debit and several credit (repayment) in a
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phased predecided manner. I- .

iii) Cash Credit - It is a ,form of advance to meetr the demand of trade, industry
etc. Operations are conducted similar to the overdraft. The differennce is that
while in O.D., CIA is necessary and it is usually temporary or short term, in
 cash credit limit is assessed based on projected sales level and required Banking Products and Services
inventory. (CIA) level. A limit for 1 year is allowed and balance fluctuates
within the range. This is given for working capital requirement of a corporate
borrower.

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Technically, it has to be brought in credit once a year.

iv) Bills purchased and bills discounted - A bill of exchange coines into being
I when business transactions takes place on credit basis.
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A Bill of Exchange is an un--conditional order in writing, addressed by a
person (drawer) to another (drawee) signed by the maker, requiring the person
to whoin it is addressed to pay on demand or at a fixed or determinable future
time a certain sum of lnoney to or to the order of a specified person or the
bearer. Banks grant advance against such bills by purchsing or discounting
these bills

b) Non-fund limits

1) Bank Guarantee
I
A guarantee is a contract to perform the promise or discharge the liability of a third party
in case of his default. In such contract when the bank undertakes the function of
guaranteeing it is known as a Ballk Guarantee, where a bank issues a guarantee on behalf .
of its corporate customer to a third party. There are generally 3 parties :

I 'The principal debtor

- The creditor
i - The surety
I
In a bank guarantee the liability of surety is secondary and depends on the principal
debtor. In bank guarantee the surety undertakes the obligation at the request of the
principal debtor.

This like L/C is called as non-fund facility as irninediately parting with funds is not
required and it earns good commission to the banks.

2) Letter of Credit

A letter of credit is the undertaking given by bank at the instance of its corporate
customer addressed to a seller saying that it (bank) would honour the drafts drawn
thereunder subject to the terms and conditions stipulated therein.

An Inland LIC is when both buyer and seller are in India and Foreign L/C is issued on
behalf of Indian buyer (importer) to the Foreign Seller (exporter),

The LIC L opened on the basls of the contract between buyer and seller and the bank
undertakes to honour the commitment on behalf of the buyer to pay the ,amount In case
of satisfying stipulated condition.

The buyer gets credit and seller gets an assurance from the bank and the corporate client
either buyer or seller gets the benefit of this arrangement.

Banks earn commission for issuing L/Cs.

Products in Demand

We have seen in the earlier paragraphs, different types of deposits advances and non fund
.facilities. In the context of products of Banks in recent day Bank ~ a r k e t i n git is
essential to take a look at the following two products which attract the middle'class
customers and also are profitable to the bank:
Marketing of Banking Services a) Consumer Loans
b) Credit Cards

Due to the restrictions of loanable funds and the less demand for loanable funds by
industry the profits of banks were affected during the period when stock market and
indusdrial scenario was slack. Merely mobilising deposits does not mean sound
marketing policy. It becomes all the more necessary to market the loans as well to
improve profitability. Similarly, taking into account the customers need to buy things in
the open market either products of high value of moderate value consumer loans and
credit cards serve the purpose of satisfying such need adequately thereby matching
consumer's demand and supply.of bank's loanable funds.

a) Consumer Loans
Like financing the needs of working capital (for current assets) and loan (for fixed assets)
of an industrial customer or a trader, banks also finance 'consumer loans' under different
captions to its individual customers. The middle class bieing the largest segment of bank
depositors (savers) and their purchasing power being tapped by various colnpanies in
consumer durable industry, the job of identifying credit needs of such already tapped
segment makes it easier for the banks to market the consumer loans. As such customers
have ready needs to buy consumer durables like fridge, TV, sereo, two wheeler, etc, for
which they have comfortable cash flow but not the capital (ready cashhalance) to
purchase such items of their own.

Let us examine the modalities of such 'consumer loan' scheme

For whom ?
For existing consumers of the bank
For customers with proven ability and willingness to repay and who are interested
in starting relationship with the bank,

Strlient Fserrtrefi
It aan bs avallrad by Inrllvidu~l~
who are 18 yenre s f ago, (A8 winan vta not
rantitled)
ft IN sflrard for wo~thwhllepural~sssor approved puipsa@to yureha~ean ~rTfele,
lbmltun, TVNidee, alr~aat~dltlenot.or 8 vehlel@=2 wheeler or 4 wheelw,
The airreen€ e m be ~nlnlmumRs,b,OQOI=tie rn~xlmul.riRs,S,QQInes
The purpeee can be hesldee, pwrahaea of eonsumer du~nble~ o o d s te
, purewe hlgher
eduoatlen or fur hellday or rneetlng wsddlng expenses etc,
The security taken while avancing such loan is hypothecation of asset so purchased
or lien over another asset of adequate value to cover the loan amount.
The repayment is in equated monthly instalments (EMI) which is to be repaid over
a period of (minimum) 12 months to (maximum) 60 months. This is arrived at
after verifying the customer's income, saving/repaying potential and the life of
asset so purchased.
'The repayment can be through a standing order or by collecting post-dated cheques
from the customer.
Interest rate charged for such loans is as per bank's policy and RBI guidelines fro
time to time.

Although such loans have very good potential demand frow middle class
customers, it becomes obligatory for the banker to do a thorough scrutiny of the
customer and his creditworthiness as well repaying capacity. For this purpose a
probing scrutiny is made to cover the following important aspects.

Age-Proof like ration card or school leaving certificate.

Address-Should be in bank's command area, can be checked from ration card,
electricity bill, proof of salary/income.
1
3) Income proof -Salary slip or salary certificate regarding employees in service Dnttkltrg Products rind SCI'V~CCS
! and income prooflcertificate copy of I.T. Return in case of person on their own
(self employed, professionals)
I
4) . Creditworthiness - Saisfaqtory confidential reports from the employer.

5) Credit limit - The debt ratio is arrived at as follows :

(i) Total Monthly Expenses x -loo
- - Debt Ratio
Total Monthly Illcome 1

The acceptable ratio normally is 75%. The higher the ratio, the greater is
the rislc (minimum amount of income after all expenses + instalment of
consumer loan should not be !ess than Rs.3,500/- for individual customer
and not less than Rs.5,000/- for professional self employed).

Some banks insist that the net pay packet should not be less than 45 to 50%
I (ii)
of Gross Pay (monthly salary) after accounting for the EM1 of loan asked
forlconsidered.

6) Security-The custmer's personal worth is calculated by taking into account :

I
I
- Average balance in account
- ShareslDebentures (M.V.)
- Life Insurance Policies (S.V.)
- Real Estate Property
- GoldIJewellry
I
The ininiinuin value of such assets blocked should nor be less than Rs.50,0001-
for salaried customers and not less than Rs.1.00 lacs for professional customers.

7) Margin-Usually 75% of asset value is allowed as loan, keeping 2% as margin.

In some cases even 10% margin is considered good enough and loan upto 90% of
the asset value is considered. This 10%-25% has to be arranged by the cusomer
from his own saving/sources.

8) Repayment-In EM1 within 12-60 months

9) Costing-Let us take an example of a consumer loan say for Rs.1 lac.

Loan amount - Rs. 1,00,000

Repayment period - 36 months
Interest rate - 15% (say)

Therefore, EM1 = Principal component + ~nteiestcomponents

Principal component of EM1 = 1,00,000/36 = Rs.2778 p.m.

Interest compnent of EM1 = 1,00,000 x 15 x

..
3136 = Rs. 1250 p.m.

Therefore EM1 = Rs.2778.00

+Rs. 1250.00

Rs.4028.00

Besides interest :

i) Processing fees of 1% of loan amount subject to a minimum of ~s:5001-and

madmuin of Rs. 1,5001- is charged.

ii) For post dated cheques Rs.101- per cheque is charged,

Markrting of Banking Serviccs Banks have had very good experience about these consulller loans in terms 01customers
demand and as nationalised banks were not encouraging such loans (except loans, FD),
Co-operative banks, pivate sector banks and foreign bank have tapped this segmei~tvely
well and have deployed the funds and broadened customer base on one hand and have
earned good income as well.

b) Credit Cards

'Plastic Money' or credit cards have become very popular as bank's product and have
wide acceptance in Indian Market.

The credit card allows a holder to make purchases (upto his sanctioned credit limit)
without making purchases in lending shopslmarkets to make payment of bills-electricity
or telephone--or to withdraw funds (cash upto a predecided limit) as and when required.

The credit cards widely accepted are :

VISACARDS

Who can have it ?

The profile for the prospective visacard holders can be wide i.e, persons of 18 years to
60 years of age. Higher middle income, proressionals and financially mature segment is
the largest segment for credit cards.

Salient Features
It is open even for non-customers (non-account holders) .
No entrance fee is charged
Annual subscription fee of Rs.2501- is charged
Family add-on cards are issued @ Rs.2001- each
These are affiliated to visa international
It is valid for trai~sactionsin a chain of over 8 - 10000 mercl~ai~ts
Minimum amount payable can be as low as 1120th (5) of the principal
outstanding.
Cash advance of upto a certain limit is allowed on which 2% (porn.)service
charges are charged.
For purchases, no service charge is applied if a payment comes within 15
days.

BENEFITS
It is safe and convenient
It facilitates easy purchases
It provides confidence while travelling
The owner of the card is sanctioned
y
a reolving credit facility which satisfies his
'Ego Needs' and also 'purchases -anywhere, anytime-need as well.
Cardholder's limit is enhanced every year.
This enables bank to have higher profits and more holders xwho can be non-
customers, in its wings)

5.4 ELEMENTS OF PRODUCT MIX

By product mix is meant the total range of products offered by a bank.
In marketing terminology the product mix has three main characteristics :
 Banking Products and Serviccs
1)Width
2) Depth
3) Consistency
This can be shown as a diagram in the following way

11 &oups I Depth

Width of a product-mix depends upon the number of product groups or product lines
whereas the depth depends upon the number of products in each line. The consisteilcy
means whether the products have production affinity as well as market affinity.

For the purpose of diversification, frequent changes are made in the product mix.
Broader product mix enables better business turnover 10miilimise the risk of failure.

The following factors affect any product-mix :

1) Cost of productionldelivery
2) Demand from customers
,3) Advertisingldistribution cost
4) Policy of the bank

I Acceptability of any product or product mix depends upon :

1) Consumer acceptance
2) Satisfactory Performance
3) Adequate distribution
4) Effective PackagingIBranding
5) Good serviceldelivery

It can thus be seen from the foregoing details that in marketing of banking services,
product mix consists of.product lines which mean similar products or services like
I
deposits, loans, investment counselling services. In each product line there can be
different products like example under category of deposits there can be saving or
checking accounts, The width depends upon such number of product lines whereas the
depth means how many product types are offered in a particular product line. To cite an
'example a bank giving 12 different types of loans like education loan, housing loan,
industrial finance, consumer durable loan. etc. has a broader product mix. Depending
upon the market demand i.e. customer's needs this mix has to be widened or deepened as
a prudent marketing strategy.

I Activity 2
Looking at your bank, describe the product mix offered by you. How is this mix different
from the product mix offered by a Multinational Bank?
Marketing of Banklng Scrvlces
5.5 PRODUCT LIFE CYCLE AND PRODUCT
STRATEGIES
As tlie products volume (sales) and sales revenue follow a typical pattern, the concept of
product life cycle has been one of the important concepts in marketing which tnust be
properly understood.
,
As each product passes through certain typical but definite stages in its life-span, we will
look up into the important stages :
i) introduction
ii) growth
iii) maturity
iv) decline

It must be borne clearly in mind that the growth or decline of a products depends not on
product alone but the market in which it is launched.

Pmduct Life Cyde

f Introduction Growth Mnturity Dwline

Times

A key concept on which marketers rely is the concept of PLC i.e. Product Life Cycle. It
in essence means the stages in product life from its conception to obsolescence as
mentioned earlier. From strategic view point it provides important guidelines about
product management.

, The,figure given above depicts a typical PLC where the Y-axis shows volume of sales
(business), X-axis shows the time scale,

Introductory Stagephase

This is the stage when a new service or product has just been introduced in the market.
This stage in the product's life cycle, is characterised by low sales and most pf the tiines
negative profits which may be due to lack of awareness about the product or limited
distribution or unfamiliarity with the product.

In banking industry, however, it is different from consumer goods industry as the

groducts have been regulated for long and prices were also controlled by statutory
agencies. Promotion being the only variable which could be manipulated, advertising and
personal service were the options for enabling rapid product growth,

Growth Stage
After a product survives the introductory stage, it passes into the growth stage. At thjs
point, competitive strategies by other banks can affect the growth. The promotional
strategies tend to change during this stage to keep up the sales. The product/services are I
finetuned during this stage. Sales tend to grow and profits jncrease during this phase. I

Market acceptance of the firoduct is the key factor at this stage.

I
Maturity Stage Banking Products and Services

Having continued,at the growth stage, the product reaches a plateau in it growth curve
and thus into the maturity stage. The most notable indicator of this phase can be tlle
i~litialstability and then slowdown in volume of saleslprofit.

Products in maturity stage can give indications about changes required in product
strategies. The conlpetition at times may tend to thin up, the margin to stabilise the
p w t h at maturity phase. It may force to lower the price of the product or additional
cost in promotion and distribution of the product.

Decline Stage
After maturity, with increased competition on change in collsumer preferences a
downward shiwdrift in sales or reduction in profit nlay start. Except in case of new 01.
diversified products in banking industry, such sudden decline cases are not many. We
will see the application in the foregoing paragraphs with respect to decline, death or
obsolescence of bank products.

In real life, in banking - being a financial service industry, all products need not follow
sucll a cycle but still tlie concept of product life cycle has important place in product
illarketing strategy. The bank, knowing what happelis to clifferent products and services
at different stages in a give11 economic scenario in a market can decide and improve its
planning. In fact the trial balances, monthly MIS data and quarterly busiiiess figures
compiled by tlie planning divisions can indicate the demand and supply position of
various products as inter-se composition (vis-a-vis budgetted pattern) and as a percent
share of the total nliarket vis-a-vis the potential for each product. A suitable flexible plan
with a matching pricing strategy can ensure sustained growth of all the products ensuring
growing business and matching profits - ofcourse with growing custolner satisfaction.

Understanding product life cycle may provide inputs for strategic planning at various
stages.

5.6 USING PRODUCT LIFE CYCLE TO MANAGE

MARKETING OF BANICING, PRODUCTS
The introductory stage of the product's life cycle is characterised by low or negligible
sales and .negligible or no profit. When ally new account or product which is designed to
suit to a particular segment of customer is launclled after research by R & D or
marketing department, if the same is not properly advertised or promoted by the staff,
initial launching costs will be higher and due to unawareness resulting in low or no
response. Initially it may show very low or negligible sales. Credit card or ATMs when
introduced initially in India shared similar response.

The products like consumer loans or housing loans or automobile finance shared a very
high growth when the market was booming due to high growth rate in consumer durable,
car and housing (Real Estate) market.

It ensured both growing demand, very good sales and also very good profit due to
lucrative lending rates charged to such customers who had smooth cashflow but not
Iumpsurn money to buy the much needed car or home or TV/VCR which were strongly
marketed by the seller of these products. In this growth phase, aggressive marketing by
product launchers in these industries enabled bank to fulfill the needs created by them
through their (banks') own products and services. Here, so to say the growth phase of
real estate, consumer durable and automdbile industry coincided (matched) with growth
-
phase of products/services marketed by banks which'was a very good timing to launch
and~continueprovision of such products as loans and credit limits or loans/advance
against deposits, shares etc.

When all the banks started giving liberal loans for products marketed by these 3 sectors,
the competition went up although the deinand was growing, which resulted in maturity or
saturation of banks' productslservices and compelled some banks to adjust tlie pricing
(lending rates) downwards to coiltinue their products/services to be attractive to buyers so
as to ensure the business growth.
Marketing of Banking Services The saving accounts or pass book accounts have also reached the maturity phase as the
growing awareness amongst the customers for higher yield make such low yield products
less attractive. Due to the change in interest rate structure which is linked to the demand
and period of (short term) deposits, customers don't like to block more funds in such
type of accounts except for basic safety and liquidity criteria to meet urgentlunforeseen
expenses. To overcome the decline in such accounts some banks have started flexi-
accounts giving a combination of saving and short term investment to provide mobility at
the same time ensure retaining of low cost funds for the bank.

There has been a clear-cut decline in current account of traders who don't block any
funds in such '0' yield accounts and arrange funds to get the cheques passed as and
when the clearing cheques are received.

Due to tax-saving option in the market the short term deposits are getting diverted to
such schemes which provide safety, short term liquidity, comfortable ~'ieldand tax
concessions.

A close watch bf economy, government policies, industrial scenario and the middle class
habits provide an insight to the banks to study and watch the shift in saving/borrowing
habits of its customers. The change in macro-economy affect the customer's behaviour at
the micro-level due to which proper research and analysis of the trends of demand and
supply as well as the shifts in pattern of various deposits gives an idea and opportunity
for the bank to change its products with respect to the design, pricing and need to launch
new or innovative products/services to ensure customer's interest and loyalty to their bank
accounts.

Through observing and monitoring the product life cycle, it becomes easier to decide and
implement the product developmeilt strategy.

Generally, these are four strategies recommended for growth in business and profits
which are :

1) Market Penetration
2) Market Development
3) Product Development
4) Product Diversification

It can be show11 through the following Figure :

1 Naw Producta (-+ 1 Product Dovclanmant 1 Dlversi.flcnlion 1

Market Penetration
I
Market Penetration strategies involve'increa~in~ the sales for an existing PI-oduct in an
existing market. This, generally, involves an increase in marketing effort. This can be I

possible through three strategies :

i) Increasing current rate of use of a product I

ii) Attracting competitor's customers .

iii) Attracting non-users of a broduct

Increasing rate of usage is strategy normally used by many marketers in consumers

durable industry. Banks can use this strategy to promote increased usage of certain
services. Of course, not all services are conducive to this type of strategy.
I
Attracting competitor's customers is the second option in market penetration strategy. Bnnklng Products and Services '
Making a SWOT analysis of a bank and its competitors with respect to consumers' needs
and place, promotion, price of bank's own products enables a bank to amact customers to
its products.

The third strategy is to attract the non-users. Cross-selling of a product of a bank is an

example of such market penetration strategy. Providing trust/advisory services can be
another example of such strategy.

Market Development
Market Development strategies involve the increase in marketing effort for existing
products in new markets. The one option can be to attract new custolners for existing
products and the second - expanding areas (branch expansion policy).

Managing bank's productlservice mix in increasingly con~petitivemarket determines the

success or survival of banks in the volatile market situations.

Ltiith respect to thc D:mking services, identify some mature products. What arc the
strategies being followed by banks to I-evitalise or pl.omote these products? What
s~lggcstionswould you like to offer in this regard?

5.7 NEW PRODUCT DEVELOPMENT

The new products can be developed for a new market or existing market. New product
can also be launched in improved market or in'the new market, Innovating a product
essentially means developing a product resulting in an increase in the product line. This
enables diversifying business risks, continuing life cycle of a product and also ensuring
profits.

New product development may start with the maturity or decline of an existing product
or duo to lack of demand or due to obsolescence of a product, Stiff competition compele
a bank to think of new ideas for survival or guccees in m plven markst, Bawd en
chan~lngcuetomer wanti and needs the bank'# mnrket rerearch depsrtmermt ganeratw new
Idear,

Such Ideas are, subjected to discussions and examination by axpert bankers, aconomists,
experienced field staff and marketing experts within a bank to validate the applicability OF
such ideas to lead to new and salable product,

Normally such ideas for new products pass through following stages :

IDEA
-L
I
POTENTIAL FOR,NEW PRODUCT
L.
SELECTING A NEW PRODUCT FROM NUMBER OF OPTION

DETERMINE ACCEPTABILITY, BY BANK

L
.
I
1
L DETERMINE ACCEPTABILITY BY CUSTOMERS
&
Marketing of Banking Services DETERMINE THE PRICE 1

I DETERMINE ADVERTISING OPTIONS

-.L
I DECIDE THE MOST EFFECTIVE METHOD OF PROMOTION 1

PROPERLY TIMED LAUNCHING OF NEW PRODUCT

The very modern manifestation of new product development has been the consumer-
convenient-credit card. The major impetus of bank charge account plans began about 3
decades ago when tlie Franklin National Bank near New Yorlc city sponsored a plan
which received massive publicity within the banking conlmunity. By mid 60's, seventy-
five commercial banks had set up such credit plans. However, rislc of recovery and lack
of quick profits let to gradual withdrawal of new entrants from the plan. It took allnost a
decade to estabiisl~credibility amongst merchants regarding acceptability of credit cards
and streamline recoveries. As time passed revolving credit and shift of charges to
consumers was acceptable and then credit cards became a buzz word. This innovation has
thereafter proved to be of convenience to customers, enabled merchants in sales
proinotion and proved to be profitable for the banks as well.

Role of Product in customer satisfaction

Any product or service developed by a bank has to satisfy the needs of the customer. In
fact, the product deveIopment, positioning, launching etc, is decided based on customer
needs only. It is, therefore, necessaly that the strategies keep the custo~nerneeds and
satisfaction as the focal point.

General Need of customers are :

Financial Security
Quick Service
Convenience
Attractive yield
Low cost loans
Personalised service
Advice/Counselling
Easy Access
Simple Procedure
Attractive Package
Friendly Approach
Variety of Products

This list is only illustrative.

The product conceptualisation and development has to bear these needs in mind.

e.g. Using the PLC approach seen earlier a banker may group these needs into following
segments :

Young Customer A Family with teenage children A retired couple

Would prefer a bank Would have need for proper saving Would prefer for Iiigh
which provides security, with safety of funds, reasonable yield safety, higher yield,
convenience and quick, and availability of low cost loans for counselling advice and
friendly service at children's education, convenient personalised service at
convenient hours. location and convenient hours. convenient location.

Thus some needs like safety, liquidity, better yield, personalised service and convenient
location and timing are the common factors which have to be satisfied by any bank's
product.
 As we have seen in the earlier inputs, proper matching of market segments and needs is Banking Products and Serviccs
the key factor in deciding product strategies for existing as well as new products. An
ongoing market research about positioning strategies by other banks vis-a-vis changing
needs of customers would positively supplement such exercise to design and launch new
products which lead to custorner satisfaction and also more business for the bank.

The following are some of the real life examples of new products developed by banks to
meet the needslexpectations of its customers:

1) Flexible deposits
2) Debit cards
3) Credit cards with ATM card
4) Cumulative deposits
5) Facility of over drawing and saving bank account.

Such new products are developed keeping in mind the growinglnew demands arising out
of customers' needslexpectations within the guidelinesldirectives of IBAIRBI with
pernutation combinatiorl of interest payable on deposit accounts.

BRANDING IN BANK MARKETING

You have already studied this concept in your earlier unit on branding in MS-6 in detail.
However, to focus the concept with specific reference to bank marketing let us re-look at
the same.

A brand is the name or design which identifies the products or services of a manufacturer
and distinguishes them from those of competitors.

Brand names rnay be given to each product or to a complete product line. Branding is
the process of deciding what brands the company should offer.

1 Branding alsb differentiates a product which invites the attention of customers. It gives
/
I
details as to benefits and quality and ensures the loyalty of customers. It enables a bank
to do the market segmentation as each product from out of a product line can attract a
distinct segment of customers.
 Marketing of Banking Services , Branding decisions are taken based on market research and assessment of customer needs
and preferences.

Generally before deciding brands, the following questions have to be auswered

satisfactorily :

1) Is the brand name essential ?

2) What brand name would suit?
3) Should products be branded separately or as a product line?
4) It is necessary to segment the market for each brand?
5) Is the brand needed for strengthening existing market segment 01. form a new market?

While selecting a brand name a bank should ,

i) Chose a short and simple one

ii) Prefer one which is easy to pronounce and remember
iii) Avoid confusing or negative connotations
iv) Ensure that it suits the characteristics of a market
v) If the bank's name is highly established and accepted the brand name should
include that (bank's) name also like 'citicard' or 'Indbank' fund or 'Bobcard', etc.

Advantages of branding to buyers (customers)

a) Brands are dependable guides to contents, processes, qualities etc.

b) They make shopping of various products feasible and convenient
c) They assure satisfaction
d) They satisfy the status needs or the emotional needs of the customers.

Advantages of branding to sellers (Bank)

a) It ensures repeat sales through identification

b) It ensures product stability through customer loyalty
c) It helps segmenting a market
d) Customer may even pay a higher price for branded product than an unbranded one.
e) It shields the product from price competition
f) Successful brands add to the corporate image of the bank.

The brand establishes after undergoing following chain-

Nonrecognition-, Recognition-, Preference-, Loyalty* 1nsistenceG Repeat buying

Role of Brand in Bank Marketing ,

As the brand enables seller bank to build up a certain image which in turn ensures
receptivity o f advertising as well as repeat business and consumer loyalty, brand plays an
important role in marketing of banking services.

In banking industry as the competition is 'cut throat' and products are quite similar as to
the basic nature and benefitslreturns to the customers, the service delivery and branding
are excellent tools which enable a bank to create and maintain an image among the
cuptomers.

Like the brand names 'TATA" or "Godrej" or even "Lijjat Papad" or "Zandu Balm",
customer loyalty goes to products which are linked to' the brand names of their
established and well known producers.

Brand name has to give a positive message and create pleasant associations.

In USA there are more than 5 lacs brands registered. In India also thousands of brands
are registered. It become important even here in India where products of widely
24
 different nature are entering the selling channels. Brandiog is significant and essential in Banking Products and Services
banking until faith and confidence of the customers are firmly established.

In India the banks have been creating their distinct marks by establishing brands for their
total image like 'A bank with personal touch' or 'Friendly Bank', 'Good to Bank With ',
'Bank to bank upon' or 'Growing.with you' etc. Such brand names were not product
related but provider related and helped banks largely by positioning themselves within the
perceptual marketplace to gain a more advantageous position.

In fact at the macro level or corporate level the positioning provides a bank framework to
' view itself in the industry concerning the totality of its orientation towards the
marketplace strategy and as micro application w.r.t. a specific product or service brands
call help to establish its products in the competition market.

Some of the examples of brands are :

BANK PRODUCT BRAND

Citibank Creditcard Citi bank card
State Bank of India Mutual Fund SBI Mutual Fund
Canara Bank Growth Fund Schemes Can Growth
Can Share
Indian Bank Housing Loan Ind Sl~elter
Citibank Car loans Citimobile

It can be, therefore, said that brands are very important as product (marketing) strategy in
marketing of bank's services as branding indicates how the organisation chooses to use
branding as an integral part of its overall marketing strategy. To the customer such
brand name means a way to identify the product and differentiate the product from other
similar products in the market.

In the context of bank marketing it is important to note that as the customer loyalty and
patronage is built around bank's name and image, the bank's position and consumer's
perception of a brand in customer's mind makes it easier to market the product brands.

I
1
Logically, it is very few products which sell as brands irrespective of bank's name if they
have distinct advantage and benefits and have been so advertised constantly. In majority
of cases, the bank's overall image is what counts in the selling process and the customer
comes to know about the specific brands more beneficial to him. It is, therefore, clear
that with all its product range and brand of distinctive products/services, the bank has to
develop an image among the customers and then encashing this 'whole' brand-image, has
to market the products branded for specific customer segments to win over other bank's
products.

.In a customer's language, two questions have to answerkd satisfactorily in this branding
effort :

i) What is it in this bank which is different from other banks in terms o f its
position, sign off and product range ? ,

ii) What are the product brands which are more beneficial to me which this bank
offers distinct from other bank's products.

In summary, both bank's brand and product brand are important in the marketing strategy
for more clientele, more customer satisfaction and more business in the long run.

II in terms of brand recall and recognition, which are the most successful brands of b a n k i ~ ~ g
products, in your view ? According to the concepts just studied by you, what accounts
1
i
for the clear identity of these brands.
Marketing o f Banking Services
.. Srnntf 1 .............................................................................................................................

5.9 PROCESS AND PRODUCT' DEVELOPMENT

CYCLE FOR BANKING SERVICES
In the 7 'P's of marketing of banking services, the product related decisions are very
important. To know about the concept of product/service delive~y,it is necessaly to
know the process cycle concept. In order to have effective marketing or selling, proper
understanding of the concept of productlservice delivery is essential.

The products have to be launched through a well thought product developnlent strategy.
Launching a product or delivering a product to customers depends on whether it is a
totally new and innovative product or just modification of an existing product. Equally
important is the timing and market situation when a product is launched. It, then,
becomes necessary to have suitable pricing andlor promotion strategy.

Process Cycle in Product Development

The product development in banking depends on many factors which together with the
steps in the process decide the success or otherwise of a product launched.

The process cycle is the stages of product while it is given in the hands of a customer.
It is like a flow-chart of steps involved in this process. Let us take a simple example of
a savings bank deposit account. The following aspects are involved before opening the
account.

1) New customer approaches with a request to open the account.

2) He has to establish identitylbring introduction
3) Account opening documentslfortns have tobe completed duly signed.
4) Pay-in-slip has to be filled in to pay depositlrequired amount in cash.
5) Specimen signature cardlforni has to be signed
6) If cheque book is required, the requisite application formlslip has to be completed
and signed.
7) The pass book issued has to be collected.

Thus the Savings Deposit as a product develops froin the cash brought in by the
customer and deposited in his account opened after passing through the aforesaid process.

The acceptability of the product is facilitated by simplicifaction of the process so tht the
customer, find it easier and convenient to go for that product.

In service organisation like banks, the system bylthrough which service delivery takes
place is called the 'Process'. This process of delivering a product or service is akin to
the operation management in a manufacturing industry where.the raw material gets
-
converted into a finished product i.e. an input passing through a mechanism or process -
becomes an output.
I

The three processes applicable in delivery of service products can be indicates as :

i) Line Operations-e.g. self service hotels

ii) Job Shop Operations-combination of operations using different sequence

e.g. Hospitals or Educational institution
 Intermittent Operations-i.e. service is rarely repeated e.g. consultancy for projects. Banking Products and Services
iii)

In application of these concepts of process in banking situations a banker will have to ask
some pertinent questions.

) what are the steps involved in delivery process of a product/service ?

ii) what can be the logical sequence of event?

iii) what inodifications are necessary to smoothen athe process?

iv) at what point and how much consumer contact is involved/desirable?

v) can the technology be useful to speed up the process?

The marketing can be successful if the product development, packaging and delivery are
properly synchronised from the view point of the bank as well as the customer.

It becomes quite necessary in reviewing the process cycle to consider :

a) customer's benefit
b) concept of service as seen by customer

c) method of offering the service

d) service delivery system

This can be shown as a figure in the following manner :

Consun~erBenefit Concept
\L
Concerned with consumer's view point
\L
Translated to service concept
\L
Concurred with the benefits offered by service
\L
Translated in to a service offer
\L
Concerned with greater details
\L
Translated into a service delivery system
\L
Concerned with people and process

In such delivery of service, the process cycle and a specific market segment'has to be
considered specifically.

Packaging and Delivery

Packaging in the context of marketing of banking services means the art, science and
techniques of selling the products and services to the customers ensuring their
satisfaction, keeping in mind two salient aspects :

a) Actual delivery and sale of product

b) Packaging as a function should consider
(i) selecting proper material
(ii) behavioural aspects

27
Marketing of Banking Services Functions of Packaging
Packaging in normal marketing parlance should do the following functions :

1) Protection
2) Appeal
3) Perform
4) Convenience ,
5) Cost-effectiveness
6) The packaging must be attractive and attracting the customer, should build
confidence and indicate real intrinsic value of the product. Consumer research
indicates that the colour and design of packaging is very important as it affects the
consumer purchase decisions. Packaging also should be convenient, useful and
cost effective.

Delivery : Packaging, it must be borne in mind, is much more than just packing. It is
' a marketing necessity. As the customer doesn't just want a product, l ~ ewants an
integrated, combined, pleasant and eye catching package "get it on the top to gain action"
at the close of a sale. Packaging so to say completes the sale (process) cycle triggered off
by advertising.

A simple example can be of the Piggy Bank or Pigmy Deposits popularised by Syndicate
Bank giving small Saving Bank Boxes in the shape of Pigs or 'minty' - similar scheme
by Bank of Maharashtra - in the shape of a squirrel which promoted the product fast
among chiIdren due to the novelty and toy value of the packaging.

Colourfi~land Crisp plastic envelops of FDRs by many banks facilitate the close of sale
on a very positive note and attract other customers as well. It serves as a means of
publicity and has retention value and multiplier effect to popularise not just the product
but the image of the bank as well.

Service Delivery : When you go to a bank with an intention to withdraw your money
from S.B. Account, either with the chequebook or a withdrawal slip, it is given to a clerk
- who verifies the instruments and balance in your account and then given the monthly
corresponding to the withdrawal amount,

Here the check, withdrawal slip, become the delivery system. In product/service deliveiy
the physical evidence and the people are very important elements.

Activity Q
Wllat arc t l l c diffircntial advtantagcs that 'packaging' as explained above, call brit~g;about
tilr barnking products? From your own bank, pick up illuvtriatiorl of usl: of \,;lclsnl;ing ta)
clcatc diFi2rcntiatioi-i or salcu appeal for consumes's.

a I

5.10 PRODUCT 'DEVELOPMENT

Product Development and Delivery : Some Examples
r
I* . I

To understand better about the concept of product development and stages of delivery of
a product in banking situation let us take three illustrations :
i) The Flexi Limit Deposits Banking Products and Services
to know product development
ii) The Easy Access Deposit

iii) The classical example of fixed deposit - to know the stages of delivery of a
bank product.

Let us first take the example of a Flex Units Deposit Account of a Private Sector Bank.

~t is the facility that provides a customer freedom of transferring the excess funds in
saving bank account to a Term Deposit Accunt of his choice. It also ensures the
flexibility in transferring a portion of the term deposit back to savings bank account in
case of a need.

With this type of facility (product), the bank can offer higher interest to customers
without affecting their liquidity position which gives the attractive option to customers to
have both liquidity as well as higher yield.

Let us first understand how this scheme works as a product and then try to see the
illtricacies involved in such product development :

i) Balance in excess of the minimum required sum in Savings bank account is

automatically transferred to a term deposit of customer's choice.

ii) In case of need, to meet the cheques drawn by the customer, his term (Flexi)
deposit gets transferred to his S.B. Account.

iii) On maturity as per customer's instructions the (Term) Flexi Deposit is either
renewed autolnatically or the entire amount (principal + interest) is transferred to
S.B. account.

iv) The transfer of funds from SB Account to tern1 deposit account is made at a
nlinimuln of 5 units of Rs.10001- each and a hrther in multiples of Rs.10001-
each.

v) A statement giving details of outstanding balances under SB (Term) Flexi deposit

is furnished as and when required.

Now as a product when such a scheme is developed it requires a close co-ordination

between the following departments :

a) Corporate office - to aporove such a product as a concept as a policy- taking

into account RBIiIBA guidelines

b) Marketing Deptt. - to study the demand and products developed by other

banks

c) Operation Deptt. - to decide suitable transactions and required accounting for

the same.

d) Accounts Department - to streamline the inter department transctions

smoothly and effect the funds properly under respective heads to decide the
interest accrued and payable from the date of opening of account of passing
(converting) a transactions.

Thus the product development in case Flexi Deposit Account requires close co-ordination
between the following departments :

Corporate Office + Marketing Deptt. + Operation Deptt. + Accounts Deptt. -) Delivery.

If we take another example of easy access deposit of a foreign bank, following aspects
are important :
 Jlarketing of Bnnking Services - Minimum deposit accepted is Rs. 10,000
Deposit is accepted under any scheme of term deposit (except R.D.)
- Rate of interest and period of deposit is as per RBI guidelines
~ - A n overdraft of upto 75% is available through current accunt at a chargeable
interest.
- If such overdraft is taken, interest is paid on full deposit amount and interest is
charged only on amount of O.D. for the actual period of use.

I -

. -
The period of deposit is 46 days to years
A cheque book is given with current account
a,

- Depositor can avail cash advance upto Rs.3,000/- from any branch of the bank.
- "Interest on O.D. can be recovered from the customer's current or savings account
- Transaction charge of Rs.11- per transction is charged on all transctions n CIA.
- 0.d. is made available @ 2% higher interest than the simple base rate payable on
deposit.

Benefits
- The customer pays no service charges
- withdrawals take place through CIA cheques
Freedom to avail 75% of deposit as withdrawal
- Despite withdrawals, deposit continues to earn interest
- The customer's money is safe

Now if we look at this scheme a product development it is both a deposit as well as

advance scheme and close co-ordination between following department is essential from
conceptual state to actual delivery of product.

Corporate I+I ~ a r k e t i n ~ (loperation

+ 1 +I ~dvance1-rI Accounts -+ Delivery
office Deptt. I Deptt. I I Deptt. I Section I (
Fixed Deposit Account

Product Attraction :. It is a deposit for a fixed amount of money, for a specified period
and at a fixed rate of interest. The rate of interest opted may be simple or ccinpound. it
being higher than interest payable on S.B.account it becomes an attractive feature.

The term deposits are accepted as short term, simple fixed deposit or reinvest deposits.

Features : - Deposits can be 46 days or 5 years

- The term of deposit is fixed initially
- Rate of interest is decided as per term
1
- Premature withdrawals though allowed attract a penal rate
I

bf interest*

Benefits : - the customer earns higher interest

- funds are secure I

- Funds can be saved for specific purpose

- Funds can be withdrawn in emergency
- Free remittance of interest is allowed
- Irrespective of fluctuations, guaranteed eamingngs are
assrued
- Term Deposit (fixed deposit) is transferrable to any branch
of the bank in India.
 Process of Delivery Banking Products and Services

1 Customer Approaches with cashlchequelinstruction for fixed deposit

2 Application made on fixed deposit voucherlrecord
3 Account opening form and signaturelauthority card is completed
4 Pre-numbered certificates of deposits are issued
5 Customer's instructions regarding renewallrepayment are obtained
6 Fixed deposit receipt preparedlsignedlentered
7 F.D. actually-delivered to the customers
I
Thus the above stages involved in delivery of a sitnple case of bank fixed deposit enables
r to visualise how the product delivery process has many stages from the tiem a customer
approaches for a particular product (being attractedlconvinced by its use in fulfilling his
/ specific need) till it is actually delivered.

These stages have to be simpleleasy and quick for better acceptability of product.

5.11 SUMMARY
111 this unit an effort has been made to expose you to the concept of product and product

I lnix in the context of banking services. Basic description of the different banking
products to enable you to understand the vide range of service products on offer today
was provided.
I
The concept of productlike cycle and new product develop~nentprocess, as well as Ithe
market development strategies for banking products were discussed.

As cotnpetition becomes stronger product differentiations has become an essential element

of marketing effort by banks. Issues in branding and packaging of banking products have
been discussed to draw your attention to these important functions. Process has been
discussed as an conlponent of the product development activity.

5.12 SELF-ASSESSMENT QUESTIONS

1 . 1) Define the concept of product and pl'bduct mix for banking services.
2) Explain briefly the 'product life cycle' concept with reference to a bank's product.

1
I
3) Selection, development and launching a product are equally important Comment.

i
I
4)

5)
"People do not just buy a bank's product, they buy service". Illustrate citing
examples.
Give 10 brands in the context of marketing of bank's services 5 with a bank's

i1 6)
name included in product and 5 with brand names of products. Differentiate
between these two types as a concept.
In order to attract the customers, what strategies will you adopt in your branch.

1 7) Which deposits will be best suited for the ow persons among your customers7 Why?

5.13 KEY WORDS

Pricing : is equivalent to the total product offering which includes the brand name,
package, product benefits, service, delivery, credit estended etc.
I
1
Break-even Analysis : It is a tool which by using the concept of fixed cost and variable
cost gives us the stage of no profit, no loss.
Marketing of Banking Services
Elasticity of Demand : It tells us the response of demand to a charged product.

~ i x e dCost : It is the cost that does not vary with cost of production or sales.

Variable Cost : It directly varies with cost of production or sales.

Total Revenue : It is the proceeds of sales of a product which if more than total cost
results into profit and if less than the total cost (fixed + variable) results into loss.

5.14 FURTHER READINGS

Dynamics of Bank Marketing, R.K. Madhukar, UBS Publisher-1990

A Handbook o j Management Techniqzres, M.Armstrong, Excel Boolts- 1995.

Principles of Bank Management, Vasant Desai, Himalaya Publication-1993.

Elements of Marketing Management, Pradeep Kumar, Kedainath & Co. Meerut, 1995.
 UNIT 6 DISTRIBUTION, PRICING AND
PROMOTIONS ST TEGU FOR
. BANKING SERVICES
Objectives

After going through this unit you should be able to :

e explain the concepts of distribution, pricing and promotion for banking services
apply these concepts in bank marketing
e discuss issues in delivery of banking services
describe the effect of pricing policies in marketing of banking services
@ appreciate the role of promotion strategies in the banking services.

Structure

6.1 Introduction
6.2 Banking Services and Issues in Delivery
6.3 Channels of Distributioli for Banks
6.4 Types of Branches
6.5 Electronic Methods of Distributing Financial Services
6.6 Pricing of Banking Products/Services
6.7 Pricing Objectives
6.8 Pricing Methods
6.9 Pricing Reviews and Committees
6.10 Price Setting in Practice
I
6.11 Promotion of Banking Products/Services
6.12 Guidelines on Advertising by Public Sector Banks
1 6.13
6.14
Sales Proniotion
lnternal Communication
6.15 Marketing Infoimatioii Systems (MIS)
6.16 Summary
6.17 Self Assessment Questions
6.18 Fu~therReadings

6.1 INTRODUCTION
I In an organisation engaged in marketing, channels of distribution for financial services
should be thought of as a means to increase the availability and/or convenience of
services that help satisfy the needs of existing users or increase their use among existing
or new customers. The marketers of finadcia1 services has to ensure facilitating right
product for the right people at the right place and at the right price. Pricing can be
strategically used as the tool to meevreduce the competition. Pricing is eduivalent to the
total product offering which includes the brand name, package, product benefits, service
delivery, credit extended. It can be described a sum of expectations and satisfactions.
Promotion is a generic term used for the communication efforts of the firin that are
directed towards achieving the objectives of a marketing strategy. You will see in this
unit how the promotion mean concious efforts towards integrating its marketing strategies
with business plans,

1 6.2 BANKING SERVICES AND ISSUES IN DELIVERY

Let us now attempt to see what effect the special nature of services has, on the
formulation of banking delivery systems:

1) Tangibility : It is not often possible to illustrate, demonstrate or display the

services on offer, and therefore storage, transportation and inventory control are .
not relevant for the bank marketer. This partly explaiiis the relative absence of