Financial Services Marketing in Barclays Bank - Case Study Example

Since the emergence of the financial services industry, the services have gained more and more popularity. Many financial service providers have sprung up offering customers a wide array of financial products and services. Consumers of the finance industry require banking products and services. Just like any other product or service, products of this industry also have to me marketed to consumers and just as the case with any other industry there is an ongoing need to communicate with the consumers. Marketing influences many of our decisions especially the selection of products and the objective of all marketers is to reach their set goals (Pezzullo, 1998). Pricing is a very integral part of marketing. Decisions about price are those which determine profitability (Stephenson, 2005). It is also one of the factors which determine whether the customer will actually acquire the product or service. Customers base their purchase judgments based on price (Stephenson, 2005). Pricing of the financial products is one of the most crucial decisions. Some of the most common pricing strategies used by the marketers include both cost-based strategies and non- cost based strategies (Winston, 1986). Price refers to the value of a good or service for both the buyer and the seller in a market exchange. Therefore price can be considered the measure of value for both the customer and the provider. For customers price performs the following functions: It is used as a measure to compare competing options. It is the means by which value is assessed. It serves as an indicator for the product or service quality. It shows the costs associated with the goods or services. It influences the frequency of purchase. For goods and services providers pricing performs the following functions: It serves to determine the margins and profits. It influences the levels of demand for a product or service. It plays an important role in affecting the competitive position of the goods or services. It can be varied at different stages in the life cycle of the product as well as the marketing mix. It can rapidly be adjusted under various conditions to obtain short term volume and margin goals (Ennew &Waite, 2007). Ethics are moral principles and values that govern the actions and decisions of an individual or group. These serve as guidelines as to what is the fair and right thing to do. Customers have the right to be informed, and it is the marketers' responsibility to ensure they are providing customers accurate and complete information about their products and services, i.e. they should disclose complete costs associated with financial services, but this is not always practiced(Kerin, Hartley & Rudelius, 2003). Social responsibility is an important part of the marketing concept of any organization in any given industry. This is especially important for financial institutions since they serve the public. They need to not only focus on profits but also on the society as a whole. At times it is possible for a company to satisfy its customers yet fail to meet social responsibility. Despite the fact that banks and other financial institutions play a active role in the society, they still manage to conduct practices that abuse the environment discriminate in hiring employees, manufacturing unsafe products or engaging in misleading advertising or labeling. At times these organizations are still focuses on meeting their goals rather than meeting customer needs (Pezzullo, 1998). In the article 'Interest rate clustering in the UK financial services market' (2008), Ashton and Hudson explain through empirical evidence the price and interest rate clustering practices used by retail banks. In their study they explain how financial services marketers capitalize on the difficulties customers face in recalling and processing price information. They do this to maximize their revenue from deposits made by customers. Ashton and Hudson (2008) explain that price and interest rate clustering occur as a result of an individual's limited number recall. They explain that this is so because the human brain is an estimation and prediction tool and not one that calculates. Individuals tend to estimate to save time and effort. Two of the most commonly employed estimation or mental elimination techniques employed by individuals are truncation and rounding. Truncation refers to the encoding strategy which involves the cutting off of digits on the right to leave the most important digits on the left. And example of truncation would be the number 199 truncated to 190 or 100 (Ashton & Hudson, 2008). Rounding refers to the encoding strategy which attends sequentially to each digit of the price considered. These elimination processes of manipulation and limited recall by customers are exploited by price setters. Price clustering practices are undertaken by price setters to maximize returns from consumers with less ability to recall and process number information. Using various models for interest and mortgage, the researchers explain how interest rates are set to maximize profits. The study revealed that to maximize profits from investors and borrowers who truncate numbers, price setters cluster interest rates at integers. In the same way, in order to maximize profits from investors and borrowers who round off, interest rates are set mi point between integers (Ashton & Hudson, 2008). In the same study it was also noted in the study that clustering occurs at integers for deposit rates. For mortgage rates, clustering mostly occurs just below the round number. For both deposits and mortgage truncation is more important than rounding. Both of these can be used to the advantage of marketers due to the nave number processing strategies used by customers. Finally the research concluded that price clustering results from either structural factors, outside the organization or behavioral attempts to aid customers in decision making. The purpose of price clustering in retail is used to maximize profit or returns from customers least able to recall and process numerical information. It was also mentioned that investors investing smaller sums of money have poorer comprehension of financial products as compared to those investing larger amount. Therefore, clustering is exaggerated for deposits of smaller monetary value. In order to see the extent to which these practices are implemented we will take a look at the interest rates offered by Barclays bank. Barclays Group headquarters is at 1 Churchill Place in London, UK, but it has operations all over the world, with products and services to meet the needs of customers and clients in local markets.They aim to ensure our products and services meet the needs of customers and clients, and to develop innovative solutions to enhance performance, relationships and satisfaction. Barclay's claims to offer a range of products and services tailored to meet the specific needs of its customers all over the world. As a responsible global citizen, Barclays is committed to ensuring the sustainability of the communities in which the business operates, and strives for sustainable relationships with customers and clients worldwide. Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate banking, investment banking, wealth management and investment management services with an extensive international presence in Europe, the Americas, Africa and Asia. The bank operates in over 50 countries and employs approximately 145,000 people. Barclays moves, lends, invests and protects money for more than 49 million customers and clients worldwide. It is made up of two 'Clusters': Global Retail Banking, and Corporate and Investment Banking and Investment Management, each of which has a number of Business Units. The third major area of the business is Group Centre, which comprises all our essential support functions. (http://group.barclays.com/Home) Barclays is currently offering a mortgage plan with fixed rate mortgages that offers customers fixed remotely payments for a certain period of time regardless of the interest rates. A look at their detailed list of mortgage products shows that the bank uses various decimal numbers for the interest rate as well as the cost of comparison. Some examples are as follows: Product Interest rate The overall cost for comparison is Initial Following on to 2 year Fixed 3.79% until 31/01/2012 BBBR + 1.99%, currently 2.49%, variable for the remaining term of the mortgage 2.8% APR 2 Year Fixed (Minimum loan 50,000) 3.89% until 31/01/2012 BBBR + 1.99%, currently 2.49%, variable for the remaining term of the mortgage 2.8% APR 2 Year Fixed 3.99% until 31/01/2012 BBBR + 1.99%, currently 2.49%, variable for the remaining term of the mortgage 2.9% APR 2 Year Fixed 4.09% until 31/01/2012 BBBR + 1.99%, currently 2.49%, variable for the remaining term of the mortgage 2.8% APR 2 Year Fixed 5.49% until 31/01/2012 BBBR + 1.99%, currently 2.49%, variable for the remaining term of the mortgage 3.1% APR (http://www.woolwich.co.uk/mortgages/fixed-rate-mortgages.html) Another product offered by the bank is loans. Currently the bank is offering Barclays loan Plus at 10.9% APR. For those customer's willing to apply for the loan there is ample information available about the loan as well as information form customers who have applied for a loan. Apart from this information, the bank also provides an example of how the loan works and how much the customer will eventually have to pay with the applied APR. This serves to further clarify the process for customers. The bank's savings and deposit schemes also quote figures such as 4.25% and 3.03% AER. The investment plans offer various plans with returns of 25%, 37.5% and 24.0% percent depending on the investment plan. According to the model presented by Ashton and Hudson (2008) banks usually set interest rates below whole numbers for the purpose of maximizing profits. An example of this would be setting the interest rates at 4.99% or 4.95% instead of 5%. This makes the interest rate seem lower to customers with limited ability to recall or process number related information. If we take a look at Barclays mortgage plans we see that they employ the same practices. Their stated interest rates a for all products are a few decimal points lower than the next integer, making the interest rate appear closer to the lower integer to customers who truncate or round the figures for better understanding them To maximize profit from deposit accounts they tend to set the interest rates at whole numbers such as 4%, half points such as 4.5 % or quarter points such as 4.75%. Interest rates for Barclays bank deposit plans show some what the same trend as mentioned in the study. The first plan uses 4.25% at the quarter point whereas the second plan uses 3.03% which can be rounded off to 3%. Due to such practices, consumers at times suffer economic loss doe to their in ability to understand the financial products. As it was revealed in Ashton and Hudson's (2008) research the customers who fall victims to these misleading pricing practices by banks are most often those nave investors or borrowers involved in transactions with of small monetary value. It is the responsibility of financial service providers to endure they communicate complete and accurate information to their customers rather than focusing on maximizing profits by playing on their lack of understanding and recall limitations. Although there are many regulations which exist to monitor marketing practices of banks and other financial service providers, more attention needs to be paid to curbing practices and educating consumers against such manipulative practices. References Ashton and Hudson (2008) Interest rate clustering in UK financial services markets. Leeds University Business School. UK. Barclays Bank Official Website. 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