Financial Services Marketing - Essay Example

Financial Services Marketing Table of Contents Table of Contents 1 1.0 Promotional Mix 2 1.1Concepts and Objectives 2 1.2Tools and Factors of Promotional Mix 3 2.0 New Product Development 6 2.1 Cycle and Stages of Financial Product Development 6 2.2 Types of Products and Strategies for the Development of Financial Service 10 References 12 1.0 Promotional Mix 1.1 Concepts and Objectives The term promotional mix is referred to the combination of various promotional methods that can be adopted by an organization in order to promote the products as well as services in the market. The promotional mix related to products and services is different from financial promotional mix (Alajmi, 2011). The term ‘marketing mix’ is a broad concept in the fields of marketing and promotional mix is considered as the element of ‘marketing mix’. In today’s marketing environment, promotional mix is much essential as it communicates to customers about the new products and inspires them to buy (The Chartered Institute of Marketing, 2004). The financial services industry has been facing challenges for several years in marketing fields. Though the market of financial industries is considered as a matured one, however the industries are facing long-standing downward trend. The financial service organizations use traditional approach of promotion mix and the related tools for marketing the services. As a result, it has a negative impact on their impression of marketing. The promotional tools adopted by financial institutions and banks are inadequately received by customers (Albers-Miller & Straughan, 2000). The promotion of products in the market is conducted with several objectives. An organizational effectiveness can be increased signifying that sales force can be stimulated. There will be rise in profits as well as competitiveness of the organization in the market. The sales revenue will enhance and also the awareness level of the products may increase. Through the promotional methods information can be delivered to the target markets and may help in creating desire among the customers. The promotional tools if applied in an efficient manner may assist to improve the image of the products in consumers’ mind. The premium price will also reduce to certain extent (Jackson, 2010). 1.2 Tools and Factors of Promotional Mix Various promotional tools of promotional mix that are used by a marketer for promoting the products as well as services are advertising, promotion, public relations, sponsorship, personal selling, packaging, exhibitions as well as point of sales. In financial service marketing, these tools are used differently by a marketer (Jackson, 2010). Advertising is a paid format of non-personal communication by the utilization of mass media that involves television, outdoor, radio to reach the target market (Jackson, 2010). The financial organizations use television advertisement for creating awareness of the organization as well as their products in the customers’ mind. The constancy along with reliability of organization also assured the customers through advertisement tool. The financial organizations focus on general or corporate themes instead of product-specific themes. The intangible products are expressed through certain actions and events in order to provide its benefits associated with the desired product. Financial Services Act (1986) has set certain conditions in relation to the advertisement of financial services. The advertisement needs to show about the cause of misuse of the products to the customers (Alajmi, 2011). Personal Selling relates to the ‘interaction between a buyer and a seller’ (Jackson, 2010). It also refers to personal communication with the customers about the products as well as services and therefore encourages them to make purchase decision. Since personal selling is interactive, it acts as a vital tool in financial organization. However, the representatives from the organization can easily communicate with the customers by providing them with potential messages and relevant information. The personal selling is expensive than advertisement in financial organization (Alajmi, 2011). Sales Promotion is extensively increasing in financial organizations. The financial organizations use this tool so as to promote trial and generate switching. Through sales promotion it is possible to build up loyalty. The two types of sales promotion are ‘two for the price of one’ and ‘value adding’. The former case is suitable for credit card market and the later case involves extra offering to the customers as a free gift or through competition (Alajmi, 2011). Direct Mail is regarded as a direct selling category. The financial organizations can communicate with the customers related to the specific product information by use of direct marketing. This promotional tool also allows the customers to think over the information and react to it. The financial organizations can understand the customers’ ‘ready to buy decision’ and effectiveness of messages as soon as it reaches the customers (Alajmi, 2011). Direct Response Advertising is referred as to provide initial information of products to customers’ with smallest effort and select the interested candidates to explain further information about the products. Financial services are greater user of direct response advertising as it is less expensive and overcome several constraints imposed on advertising. Public Relation is referred to the connection with greater number of individuals who are associated with the organization. Sponsorship is considered as an essential element of promotion mix as it can reach customers broadly. The effective sponsorship is well understood by the target audience (Alajmi, 2011). This activity is performed by an organization in order to achieve the benefits related to gaining sponsor (Jackson, 2010). Several factors are considered when the promotional mix is set by the marketers such as the market type of product or service, pull versus push strategy, the buyer-readiness stage and the stages of product-life-cycle. The promotional process can be managed by coordination, cost-effectiveness and consistency (Alajmi, 2011). The impact of promotion of products in the market can be examined from the target audience to whom the messages are delivered. The customer’s perception of the products, their attitude towards the brands or products, the advantages of the messages delivered may facilitate a marketer to understand their promotional effectiveness and improve if further change is required. Market Success Factors There are various existing factors that drive the consumers’ market in relation to the products. There are two stages to identify and evaluate the success factor in the consumer financial service market. The first stage involves identification of all the attributes that may have an impact on the new financial products in the market. The second stage relates to the evaluation of the relative significance of these attributes. These stages aids in evaluating the consumer financial market (Easingwood & Storey, 1993). 2.0 New Product Development 2.1 Cycle and Stages of Financial Product Development The product or service development cycle covers four stages which involve introduction; growth during sales revenue; maturity implying steadiness of sales revenue; and decline i.e. when sales revenue falls down and ultimately disappears. The products or services move through these stages and therefore re-evaluation is done in pricing, promotion, packaging as well as distribution in order to extend the life cycle (Alajmi, 2011). The development of product consists of involvement of several people from both inside and outside the organization. There are eight developmental stages of new product development and this involves idea generation, idea screening, concept development and testing, marketing strategy development, business analysis, product development, market testing and commercialization. The products of financial services are also developed through these stages (Alajmi, 2011). The development of new product’s idea comes from competitors, technical aspects as well as concerned customers. The sources of ideas are generated from both external and internal part of organization as well as individuals related to the financial organization. The competitors in financial organization are used as major external source of product ideas. Due to the process of deregulation, there had been a significant regulatory impetus towards the product development of financial organizations as they were able to offer products beyond their traditional domain. Technological development also acts as a source of new product development along with the improvement in financial services. The idea needs to be evaluated and screened properly. The functions of screening include checking of the ideas so as to make certain about the consistencies and capabilities along with image of the organization (Alajmi, 2011). The other function involves evaluation of the ideas in order to single out the promising ones from not-so-promising ones. The study of Edgett exposed that the financial services organizations have a preference for the format of group-decision making. Besides formal screening process, informal screening is used by financial organizations. The concept of financial service for further development and testing is needed. A product idea can become product concept based on the target customers as well as perceived benefits. Flexible mortgage may appeal to several target customers. Though word-of-mouth and picture descriptions provide the whole concepts, for financial organization it is intricate to get experience of financial products (Alajmi, 2011). The initial step of marketing strategy involves the development of plan with an intention to introduce new products in the market. The strategy involves various factors such as target market, its size, structure, market sales, positioning; pricing and distribution strategy, and marketing budget includes advertising; profit goals, long run sales and marketing mix strategy among others. After the strategy development the business proposal is considered which include manpower resources, marketing as well as technical research requirements and customer reactions. There is long replacement cycle for financial products, i.e. for 10 or 20 years endowment policy. The repeat purchase cycle of financial products takes place every 4-5 years. The viability of the product idea is established at this stage and it is turned into the development of actual product. The physical products entail development of prototype products. The financial services may not build prototype (Alajmi, 2011). The seventh step is market testing. Here, the product or service with their related brand name along with packaging and other aspects of products are introduced in the market. There is disadvantage of market testing as competitors receive pre-warning about the new product. The financial services have inseparability as well as longevity, thus in financial institutions market testing involves complete information about the products by means of limited promotion in order to constrain the preliminary demand along with attention towards the products. In the last step of commercialization of products, a marketer decides on the time to enter the market. Several decisions can be adopted by financial service organizations. They may make first entry into the market; capitalize on the existing first-mover benefits; parallel entry can also be made by them with their competitors and offer similar products; they can enter late in the market and recover their previous mistakes by introducing ‘new improved’ products. The last process brings positive outcomes for financial organizations (Alajmi, 2011). 2.2 Types of Products and Strategies for the Development of Financial Service According to Booz, Allen and Hamilton there are six types of new products that are in a company and market place. These include new-to-the-world, new product lines, additions to existing product lines, enhancement as well as revision of existing products, repositioning and cost reductions (Alajmi, 2011). The product innovation encompasses introduction of innovative or considerably improved products with regard to the changes required (Alajmi, 2011). There are three types of product innovation that involve ‘continuous innovation’ of products which will lead to gradual change, for example, paying the insurance company direct debit rather than paying representatives at home. ‘Dynamically continuous innovation’ exerts disruptive influence while developing behavioral patterns. For example, renovation from cash payment to cheque payment towards debit card payment methods. Discontinuous innovation possesses huge impact on the behavior for the establishment of new model. An example related to this is innovation in home banking (Alajmi, 2011). New product development is considered as a growth and success of all services or product companies. The changes in the financial sectors have led to the development of financial services to remain competitive. There are various causes as well as opportunities for the progress of financial services and these may be brought as regards to deregulation, technological improvement, changing industry boundaries and progressively more dynamic with challenging markets (Alajmi, 2011). The financial organization is classified on the basis of their proactive strategy and reactive strategy while developing new product strategy. A reactive strategy facilitates the organization to approach for parallel entry by imitating the first-mover and introduce ‘me-too or copy cat’ types of product. The organization may also develop ‘second but better product’ types with ‘wait and see strategy’. The financial institutions may opt not to pursue the pioneer organization and try a defensive strategy in order to seek damage limitation by providing focus on the aspects of differentiation for detracting from the new product offering of the competitors. The financial service organizations develop innovative technologies and want to satisfy need of the customers. ‘me too’ strategy is widely used by financial organization in resent scenario and they are much reactive to competition rather than market. ‘Copy cat’ strategy is considered to be attractive as it reduces the risks and the associated cost for being innovator as well (Alajmi, 2011). References Alajmi, A., 2011. New Product Development Process. Financial Services Marketing in Practice. [Online] Available at: http://www.box.net/shared/95jfrypyce [Accessed May 03, 2011]. Alajmi, A., 2011. Strategy for the Development of New Financial Service. Financial Services Marketing in Practice. [Online] Available at: http://www.box.net/shared/95jfrypyce [Accessed May 03, 2011]. Alajmi, A., 2011. Promotional Mix. Financial Service Marketing. http://www.box.net/shared/yumuk8g7sp [Accessed May 03, 2011]. Alajmi, A., 2011. Definitions. NPD Lecture Slides.ppt. [Online] Available at: http://www.box.net/shared/c5fy38q3n7 [Accessed May 03, 2011]. Albers-Miller, N. D. & Straughan, R. D., 2000. Financial Services Advertising in Eight Non-English Speaking Countries. International Journal of Bank Marketing. 18, 7, 347-357. Easingwood, C. J. & Storey, C. D., 1993. Marketplace Success Factors For New Financial Services. Journal of Services Marketing, Vol. 7 Iss: 1, pp.41 – 54. Jackson, H., 2010. Promotional Tools. Financial Services Marketing. The Chartered Institute of Marketing, 2004. What Is It?. Promotional Mix. [Online] Available at: http://www.gmpua.com/Marketing/worldmarket/cim/10_min_Promotional_Mix.pdf [Accessed May 03, 2011]. Read More