Marketing strategy for FDI banking in Vietnam International Bank (VIB) until 2015

MBAVB4 NGUYEN LE DUC HANH MARKETING STRATEGY FOR FDI BANKING IN VIETNAM INTERNATIONAL BANK VIB UNTIL 2015 MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION PART-TIME TUTOR’S NAME: D

MBAVB4

NGUYEN LE DUC HANH

MARKETING STRATEGY FOR FDI BANKING IN VIETNAM INTERNATIONAL BANK (VIB)

UNTIL 2015

MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION

(PART-TIME)

TUTOR’S NAME: DR LE THAI THUONG QUAN

HO CHI MINH CITY

(2012)

COMMITMENT

I would like to commit that I have myself prepared and conducted my project titled

“ Marketing strategy for FDI Banking in Vietnam International Bank (VIB) until 2015” by the knowledge obtained from the MBAVB4 program and discussions with

my tutor, professors and classmates All information, data and survey results are retrieved and obtained from reliable sources and have been properly referred

Ho Chi Minh City, February 2012

NGUYEN LE DUC HANH

ACKNOWLEDGEMENTS

This thesis is my effort throughout two years working, studying hard at Solvay Brussels School in Ho Chi Minh City By that time, I have been accompanied and supported by many people It is a pleasure to convey my gratitude to them all in

my humble acknowledgement

First of all, I would like to express my sincere gratitude to my tutor, Prof Le Thai Thuong Quan for his patience, motivation, enthusiasm, and immense knowledge His detailed and constructive comments have been of great value for me No words can express my heartfelt thanks to him

It is a pleasure to show my thankfulness to VIB FDI Banking Division, to all who assisted me in collecting data, supported me with useful information, especially the managers with their supports during the writing project period

I would also like to thank to all professors, lecturers, tutors and my classmates who have shared with me not only knowledge, experiences but also special moments during my learning time at Solvay Brussels School in Ho Chi Minh City

Last but not least, I would like to express my special gratitude to my parents, my husband and my sister for their love, support and encouragement throughout my entire life To them I dedicate this thesis

Ho Chi Minh City, February 2012

Nguyen Le Duc Hanh

EXECUTIVE SUMMARY

Vietnam International bank (VIB) was established in 1996 under Decision No.22/QD/NH5 issued by the Governor of the State Bank of Vietnam (SBV) Over more than 15 year operating, VIB has been consistently in the top 5 joint stock commercial banks in Vietnam The year 2010 marked a significant development of VIB by a strategic partnership with the Commonwealth Bank of Australia – a leading retailer of Australia

In order to maintain exclusive position, since early 2011, VIB has set up a newly dedicated Foreign Direct Investment Division within VIB to serve foreign invested companies in Vietnam Given the fact that there are huge opportunities for VIB as foreign direct investment is increasing year by year in Vietnam, VIB has to realize its internal and external environment, their strengths and weakness so as to compete in a very huge but severe market with a lot of big & experienced competitors

This thesis is carried out to assess the current marketing strategy of VIB FDI banking and provide some recommendations for FDI banking so as to obtained objectives assigned by the Board of Directors By determining the marketing segmentation using the quantitative and qualitative combination methodology, the project explores that VIB is still a new brand name to FDI enterprises in Vietnam and most FDI enterprises are not impressed by VIB quality of services Thus, it is necessary to suggest a suitable marketing strategy so VIB can compete effectively

in this severe market

TABLE OF CONTENTS

COMMITMENT i

ACKNOWLEDGEMENTS iii

TUTOR’S COMMENTS iv

EXECUTIVE SUMMARY v

TABLE OF CONTENTS v

LIST OF ABBREVIATIONS ix

LIST OF FIGURES xi

LIST OF TABLES xii

Chapter 1: Introduction 1

1.1 Rationale of the study 1

1.2 Problem statement 2

1.3 Research objectives and questions 3

1.3.1 Research objectives: 3

1.3.2 Research questions: 3

1.4 Scope and limitations of the study: 3

1.5 Research method: 4

1.5.1 Desk Research (Secondary data) 4

1.5.2 Quantitative research (primary data) 4

1.5.3 Qualitative research (primary data) 5

1.6 Structure of the study: 5

Chapter 2: LITERATURE REVIEW 7

2.1 MARKETING STRATEGY 7

2.1.1 Concept of Marketing strategy: 7

2.1.2 Marketing environment: 7

2.1.2.1 External environment: 7

2.1.2.2 Internal environment: 9

2.1.3 Marketing mix in banking sector: 9

2.1.3.1 Product or Banking services 10

2.1.3.2 Pricing 10

2.1.3.3 Place (Sales and Distribution) 11

2.1.3.4 Promotion 11

2.1.3.5 People 14

2.1.3.6 Physical evidence: 14

2.1.3.7 Process 14

2.1.4 Development in marketing scope at the aspect of service marketing: 15 Internal marketing 15

2.2 UNDERSTANDING BANKING BUSINESS CONSUMER BEHAVIOR 17

2.2.1 Defining Services marketing: 17

2.2.2 Challenges for services 17

2.2.3 Characteristics of services and the different between goods and services: 18

2.2.3.1 Different between goods and services: 18

2.2.3.2 Characteristics of services: 19

2.2.4 Factors that influence customers’ expectations of services: 21

2.2.5 Major influences on enterprise banking services buying: 22

2.3 THE PURCHASING/ PROCUREMENT PROCESS: 26

CHAPTER 3: ANALYSIS OF FDI BANKING MARKET 30

3.1 OVERVIEW OF FDI INVESTMENT IN VIETNAM: 30

3.1.1 Definition of FDI enterprises: 30

3.1.2 Vietnam government policy to develop FDI 30

3.1.3 FDI attraction in Vietnam during 2006 – 2011 31

3.2 FDI CUSTOMERS ANALYSIS: 33

3.2.1 FDI Enterprises segmentation 33

3.2.2 Understanding the FDI enterprises’ banking services need and purchasing process 38

3.2.2.1 Korean enterprises: 38

3.2.2.2 Taiwanese enterprises: 39

3.2.2.3 Japanese enterprises: 40

3.2.2.4 Other FDI enterprises: 41

3.2.2.5 Conclusion 42

3.3 Banking services for FDI enterprise in Vietnam and VIB’s opportunity 45

CHAPTER 4: ANALYSIS OF VIB’S INTERNAL ENVIRONMENT 52

4.1 VIB FDI BANKING INTRODUCTION: 52

4.1.1 VIB FDI banking business overview: 52

4.1.2 FDI banking organization structure: 53

4.1.3 FDI banking business objectives 54

4.2 CURRENT FDI CUSTOMERS ANALYSIS: 58

4.3 CURRENT MARKETING MIX ANALYSIS: 60

4.3.1 Product: 60

4.3.2 Price: 63

4.3.3 Place: 63

4.3.4 Promotion: 64

4.3.5 People: 65

4.3.6 Physical evidence: 65

4.3.7 Process: 66

4.4 SWOT ANALYSIS: 66

4.5 CONCLUSION: 69

CHAPTER 5: DEVELOP MARKETING STRATEGY FOR FDI BANKING IN VIB 70 5.1 RECOMMENDATIONS 70

5.1.1 Customer target and segmentation 70

5.1.2 Marketing mix 71

5.1.2.1 Product 71

5.1.2.2 Price 74

5.1.2.3 Place 74

5.1.2.4 Promotion 75

5.1.2.5 People 76

5.1.2.6 Physical evidence 77

5.1.2.7 Process: 78

5.2 CONCLUSION 78

REFERENCE x

APPENDIX 1 xii

APPENDIX 2 xv

APPENDIX 3 xix

LIST OF ABBREVIATIONS

Evidence

FI department Financial Institutions Department

SMEs Small and Medium Enterprises

LIST OF FIGURES

Figure 3.1: FDI registered and disbursed capital in Vietnam during 2006 to 2011 31

Figure 3.2: FDI investment contribution to GDP in Vietnam 32

Figure 3.3 FDI’s contribution to Vietnam export, import value 12 months/2011 33

Figure 3.4: FDI segmentation by investment form 34

Figure 3.5: FDI Segmentation by industry 35

Figure 3.6: FDI Segmentation by Country of Origin 36

Figure 3.7: FDI investment segmentation by Top cities 37

Figure 3.8: FDI investment segmentation by Top Region 37

Figure 3.9: FDI loan balance in JSC banks 50

Figure 3.9: FDI loan 2009 and 2010 (by VND) 50

Figure 4.1: Business objectives 2012 - 2015 56

LIST OF TABLES

Table 2.1: The different between goods and services 19

Table 2.2: Major influences on Industrial Buying behavior 23

Table 3.1: FDI enterprises description 45

Table 3.2: State owned financial institutions’ strengths and weaknesses 46

Table 3.3: Joint stock commercial banks’ strengths and weaknesses 47

Table 3.4: Foreign banks and joint venture banks’ strengths and weaknesses 49

Table 3.5 Market competition – Industry landscape 51

Table 4.1: VIB’s competitive advantages in the period 2012 -2015 56

Table 4.2: Gap analysis – where we want to go in the period 2012 -2015 58

Table 4.3: VIB FDI banking SWOT analysis 68

CHAPTER 1: INTRODUCTION

1.1 RATIONALE OF THE STUDY

Since the Foreign Investment Law was promulgated in 1987, amended in 1990 and 1992, Vietnam’s attraction of FDI flow has overcome 20 years and has experienced a lot of changes According to FIA Vietnam, after Vietnam became an official member of WTO, FDI flow doubled in the year 2007 in comparison with

2006 and three-fold increased in 2008, reached 71.7 billion USD In the context of economic crisis in 2009, FDI investments continued to increase 21.48 billion and reached to 13.3 billion USD of registered capital till the end of November 2010

In 2010, FDI contributes 15.5% to Vietnam GDP and accounts for 54% of the country’s export volume (USD 40 billion) and 43% of import volume (USD 37 billion) Investor base are well-spread across all continents, with Asian countries taking the top 5 positions (Taiwan with 2,139 projects, Korea 2,621, Japan 1,273, Malaysia 362, and Singapore 852) FDI has proved its role to be an important segment of the economy and has always outpaced the growth rate of the economy (19% in 2010)

The issue how to supply the best service to FDI companies among local banks is not paid much attention The banking service for FDI companies is just now shared between foreign banks and some local banks such as Vietcombank, Vietinbank, Agribank, Sacombank, ACB…Besides more than 45 foreign banks & joint venture banks and 4 state-owned banks, 30 JSCBs are holding 33% of overall enterprise lending, but only 12% of overall FDI lending It proves that, in JSCBs, the supplying of services to FDI segment is still a normal day to day business, not a strategy of these banks to penetrate in this kind of potential customers

Vietnam International bank (VIB) was established in 1996 under Decision No.22/QD/NH5 issued by the Governor of the State Bank of Vietnam (SBV) Since the establishment, VIB has been consistently in the top five joint stock commercial

banks in Vietnam, with 148 branches & transaction offices around the country and

a strong work force of almost 3,500 dedicated banking staffs In 2010, VIB became strategic partner with Commonwealth bank of Australia (15% ownership) Since then, VIB Board has identified FDI as one fast growing business opportunity for the bank and has set up a newly dedicated Foreign Direct Investment Division within VIB to serve foreign invested companies in Vietnam with an aim to create a fully focused effort within the bank to penetrate the FDI segment

1.2 PROBLEM STATEMENT

VIB originally has an independent FDI business which was merged into the now bigger Wholesales Banking Division Since then, there is no longer a dedicated team to look after the FDI business, and RMs are not generally equipped with necessary resources and skills (language, service standards, products, etc) to be able to focus on this segment

As of the end of 2010, the bank has 242 FDI clients of which 20 has credit limits in place with VIB with a total loan outstanding of VND 400 billion and 68 depositors, most of them having very low balances in their accounts The other clients have limited transactions with only about 10% -20% of the total transactions maintained with VIB The kinds of products used are also very limited

Under the increasingly strict competition in Vietnam banking industry, especially after the full operations of foreign banks and financial institutions in Vietnam, VIB board and strategic partner CBA have stayed together to restructure the bank We have set the target for FDI Banking in the next 5 years to contribute 10% to the bank’s bottom line profit The thesis will aim at building a marketing strategy for FDI Banking Division to reach this target

Therefore, the problem to be addressed in this research is to evaluate the current policy for FDI segment in VIB and propose a marketing strategy for FDI Banking in Vietnam International Bank until the year 2015

1.3 RESEARCH OBJECTIVES AND QUESTIONS

• How can we evaluate the SWOT of VIB & FDI Banking Division?

• What are the key values of VIB in the clients’ perceptions? What are the key values of the competitors? How can VIB change these perceptions?

• How to satisfy FDI customers’ expectations better than what VIB’s competitors are offering?

• What kind of marketing strategy should VIB develop to grow its FDI banking business and reach the sales target assigned by VIB’s Board of Directors until 2015?

1.4 SCOPE AND LIMITATIONS OF THE STUDY:

Because FDI customers have activities not only in big cities but in more than 15 cities and provinces all over Vietnam, the research will be limited on analyzing the FDI customers’ expectations in Ha Noi, Ho Chi Minh city, Dong Nai, Binh Duong Vung Tau, Phu Tho, Vinh Phuc where VIB’s FDI Banking concentrates on building its business

The research will also focus on analyzing VIB’s current policy for FDI customers, its current internal and external environment so as to develop a marketing strategy for VIB’s FDI banking until the end of 2015

1.5 RESEARCH METHOD:

1.5.1 Desk Research (Secondary data)

FDI banking is a quite new segment in Vietnam banking industry which has no official market data In fact, we can collect information of corporate banking about market share, penetrating products, contributions of each product to whole results

of a bank from State bank or annual reports of each bank However, these information are not classified into FDI enterprises, local enterprises (including state owned enterprises, big corporations and SMEs) Therefore, the data used for this thesis are gathered from VIB different sources as followed:

- VIB’s internal reports on sales, competitors’ policy, market research, annual reports

- Publications of SBV or foreign financial institutions, international credit rating organizations about Vietnam banking industry, business and industry journals, annual report of other banks

- Data collected from website of Ministry of Planning and Investment, SBV, GSO, FIA Vietnam, VIB’s competitors

- Other sources

1.5.2 Quantitative research (primary data)

A customer survey is conducted to identify customer requirements and their potential needs The questionnaire was sent to chief executive officers, chief financial officers, chief accountants of 299 FDI companies in Hanoi, HCMC, Dong Nai, Binh Duong, Vung Tau, Phu Tho, Vinh Phuc… who are existing customers of VIB Information to collect from this research are: (a) customers’ concepts about VIB current services, (b) what kind of services and services standard they expect from VIB, (c) how they allocate the use of services to each bank depending on the

bank’s advantages and disadvantages, (d) pricing of VIB banking services, (e) what should VIB improve to better serve them

1.5.3 Qualitative research (primary data)

In-depth interview and group discussion with Head of FDI division, FDI banking’s Head of Sales teams, Head of Project team, Head of CS team, RMs, CS staffs… were also conducted to understand more about FDI customers, how to approach them, how do they think about VIB, what VIB should do to win long term relationships with each kind of customers etc

1.6 STRUCTURE OF THE STUDY:

This thesis is divided into five chapters as followed:

CHAPTER 1: INTRODUCTION

This is a preliminary chapter which includes the rationale of study, problem statement, research questions and objectives, scope of the study, research method, structure of the study and contribution of the research to FDI banking in VIB

CHAPTER 2: LITERATURE REVIEW

This chapter reviews the main theories relating to marketing strategy, marketing mix, competitive advantage and competitive strategy Services marketing will be reviewed in combination with B2B marketing as a guide for analysis in following chapters

CHAPTER 3: ANALYSIS OF FDI BANKING MARKET

This chapter analyzes the external factors including political, economic, social factors affecting the banking services of corporate banking in general and FDI segment in detail

Customer analysis and competitor analysis are also discussed in detail in this chapter

Based on the theoretical framework in chapter 2, this chapter goes deeply into analyzing the VIB’s external environment, its customers’ needs so as to find out the current position of VIB in this segment, VIB’s opportunities and threats

CHAPTER 4: ANALYSIS OF VIB’S INTERNAL ENVIRONMENT

This chapter analyses VIB current organization, business performance, sales performance, policies related to products, current marketing strategy in order to realize VIB’s strengths and weaknessess and make a proper recommendations in the next chapter

CHAPTER 5: DEVELOP MARKETING STRATEGY FOR FDI BANKING IN VIB

Based on the SWOT analysis, a marketing strategy will be proposed in this chapter

CHAPTER 2: LITERATURE REVIEW

2.1 MARKETING STRATEGY

2.1.1 Concept of Marketing strategy:

Marketing strategies are developed as multi-year plans, with a tactical plan detailing specific actions to be accomplished in the current year

According to Phillip Kotler (1999), marketing strategy is the marketing logic by which a business focus to achieve its marketing objectives and help accomplish the overall strategic objectives

Another definition of marketing strategy by Baker (2008) states that Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage

In general, marketing strategy involves careful scanning of the internal and external environments Internal environmental factors include the marketing mix plus performance analysis and strategic constraints External environmental factors include customer analysis, competitor analysis, target market analysis, as well as evaluation of any elements of the technological, economic, cultural or political/legal environment likely to impact success

2.1.2 Marketing environment:

Philip Kotler in his Marketing Management book, Millenium Edition classified the overall marketing environment into two groups: the task environment (internal environment) and the broad environment (external environment) B2B marketing planners also rely heavily on performing SWOT analysis to examine their market environment and opportunity, especially when marketing environment is changing

at an accelerating rate from local/ national to global marketing, from buyer needs

to buyer wants and from price to non-price competition How the marketing environment affects the B2B marketing will also be studied carefully in the Buying Criteria part

2.1.2.1 External environment:

In B2C marketing, the broad environment consists of six components:

technological environment, political-legal environment and social-cultural environment (Kotler, 2003) In B2B marketing, the broad environment also shares some similarities and a little difference

Political Factors:

The political environment includes all laws and regulations relating to ecological, environmental, economic, religious, cultural, intellectual, labor B2B marketers also must pay attention to taxes, trading policies, import/export restrictions, bilateral trade agreements, sanctions, stability of political environment of each country and even lobby rule that influence or restrict individuals or organizations

Economic Factors:

Economic environment consists of all economic factors-such as employment, income, inflation, interest rates, productivity, taxes and interest rates, short and long term financial outlook, market cycles…

Social and Cultural Factors

The social and cultural influences on business vary from country to country It is very important that such factors are considered:

• Language, education, religion, ethics and public opinion

• Cultural roles & attitudes – gender, class structure, lifestyle

• Consumer spending/buying, leisure and geographic distribution

(Source: www.marketreacher.com)

It is also noted that B2B marketers should pay attention to social and cultural factors that affect both the end-users and the decision makers of the B2B buyers

• Retirement of targeted technology

• Technology versus cost (reducing or increasing costs)

• Distribution methods

• Intellectual ownership-patents

• Changing factors due to technology

• Regulations related to technology

(Source: www.marketreacher.com)

2.1.2.2 Internal environment:

The task environment or internal environment includes the immediate actors involved in producing, distributing and promoting the offering, including the company, suppliers such as marketing research agencies, advertising agencies, website designers, banking and insurance companies, transportation and telecommunications companies…, distributors and dealers such as agents, brokers, manufacturer representatives and others who facilitate finding and selling

to customers, and the target customer

2.1.3 Marketing mix in banking sector:

Marketing mix in this FDI segment will be the combination of services marketing and B2B marketing

Services marketing is selection of services developed to offer customers a choice within a particular range The elements of a services marketing mix are sometimes called the seven Ps: the four Ps of the marketing mix plus three Ps of services: People, Physical Evidence and Process

2.1.3.1 Product or Banking services

According to Phillip Kotler (1999), product includes Product variety, Quality, Design, Features, Brand name, Packaging, Sizes, Services, Warranties, Return Recently, banks are in a period that they earn money in servicing beyond selling money According to Professor Günal önce of Dokuz Eylul University, the prestige

is get as they offer their services to the masses Like other services, banking services are also intangible Banking services are about the money in different types and attributes like lending, depositing and transferring procedures These intangible services are shaped in contracts The structure of banking services affects the success of institution in long term Besides the basic attributes like speed, security and ease in banking services, the rights like consultancy for services to be compounded are also preferred

Because business customers of FDI banking are focused on creating shareholder value for themselves, the cost-saving or revenue-producing benefits of products and services are important factors in throughout the product development and marketing cycles

policies because mistakes in pricing cause customers’ shift toward the rivals offering likewise services Traditionally, banks use three methods called “cost-plus”, “transaction volume base” and “challenging leader” in pricing of their services

The business market can be convinced to pay premium prices more often than the consumer market if you know how to structure your pricing and payment terms well This price premium is particularly achievable if you support it with a strong brand (Source: Kotler & Pfoertsch: "B2B Brand Management", page 53, 2006)

2.1.3.3 Place (Sales and Distribution)

Kotler (1999) stated that place included company activities that make the product available to target customers The importance of a knowledgeable, experienced and effective direct (inside or outside) sales force is often critical in the business market If you sell through distribution channels also, the number and type of sales forces can vary tremendously and your success as a marketer is highly dependent

on their success

The complexity of banking services are resulted from different kinds of them The most important feature of banking is the persuasion of customers benefiting from services Most banks’ services are complex in attribute and when this feature joins the intangibility characteristics, offerings take also mental intangibility in addition to physical intangibility On the other hand, value of service and benefits taken from it mostly depend on knowledge, capability and participation of customers besides features of offerings This is resulted from the fact that production and consumption have non separable characteristics in those services

Most authors argue that those features of banking services make personal interaction between customer and bank obligatory and the direct distribution is the sole alternative Due to this reason, like preceding applications in recent years, branch offices use traditional method in distribution of banking services

2.1.3.4 Promotion

Kotler (1999) stated that Promotion meant activities that communicate the merits

of the product and persuade the target customers to buy it

Professor Günal önce wrote in his report that one of the most important elements

of marketing mix of services was promotion which consisted of personal selling, advertising, public relations, and selling promotional tools

PERSONAL SELLING

Due to the characteristics of banking services, personal selling is the way that most banks prefer in expanding selling and use of them

Personal selling occurs in two ways:

• First occurs in a way that customer and banker perform interaction face to face at branch office In this case, whole personnel, bank employees, chief and office manager, takes part in selling

• Second occurs in a way that customer representatives go to customers’ place Customer representatives are specialist in banks’ services to be offered and they shape the relationship between bank and customer

ADVERTISING

Banks have too many goals which they want to achieve Those goals are for accomplishing the objectives as follows in a way that banks develop advertising campaigns and use media to:

• Conceive customers to examine all kinds of services that banks offer

• Increase use of services

• Create well fit image about banks and services

• Change customers’ attitudes

• Introduce services of banks

• Support personal selling

• Emphasize well service

Advertising media and channels that banks prefer are newspapers, magazines, radios, direct posting and outdoor ads and TV commercials In the selection of media, target market should be determined and the media that reach this target easily and cheaply must be preferred

Banks should care about following criteria for selection of media

• Which media the target market prefer

• Activities of banks, results, programs, new services

• Situation of market, government decisions, future developments

• The opportunities offered for industry branches whose development meets national benefits

PUBLIC RELATIONS

Public relations in banking should provide:

• Establishing most effective communication system

• Creating sympathy about relationship between bank and customer

• Giving broadest information about activities of bank

SELLING PROMOTIONAL TOOLS

Another element of the promotion mixes of banks is improvement of selling Mostly used selling improvement tools are layout at selling point, rewarding personnel, seminaries, special gifts, premiums, contests

2.1.3.5 People

An essential ingredient to any service provision is the use of appropriate staffs and people In her article published in 2008, Medha Behera mentioned that People refer to the customers, employees, management and everybody else involved in it

It is essential for everyone to realize that the reputation of the brand that you are involved with is in the people's hand Recruiting the right staff and training them appropriately in the delivery of their service is essential if the organization wants to obtain a form of competitive advantage Consumers make judgments and deliver perceptions of the service based on the employees they interact with Staff should have the appropriate interpersonal skills, aptitude, and service knowledge to provide the service that consumers are paying for

2.1.3.6 Physical evidence:

Medha Behera (2008) noted that physical evidence referred to the experience of using a product or service It is also the environment in which the service is delivered and where the company and customer interact, and the performance of tangible components or communication of services The tangible components here include facility design, equipment, employee dress, brochures, letterhead, transaction forms, presents for customers….which can send strong messages from the service providers to customers Physical evidence is an essential ingredient of the service mix, consumers will make perceptions based on their sight of the service provision which will have an impact on the organizations perceptual plan of the service

2.1.3.7 Process

As stated by Zeiththalm (2009), Process included procedures, mechanisms and flows of activities by which the services are delivered In banking services, some processes are standardized, making some services very complex Services suppliers must have a thorough knowledge on the processed and provide the services in time to best serve customers

2.1.4 Development in marketing scope at the aspect of service marketing:

According to Prof Dr Günal önce, marketing scope in banking sector should be considered under the service marketing framework Performed marketing strategy

is the case which is determination of the place of financial institutions on customers’ mind Bank marketing does not only include service selling of the bank but also is the function which gets personality and image for bank on its customers’ mind On the other hand, financial marketing is the function which relates uncongenitalies, differences and non similar applications between financial institutions and judgement standards of their customers The reasons why marketing scope is important in banking sector are the change in demographic structure, intense competition in financial service sector and bank’s wish for increasing profit

Marketing scope develops day to day These developments carry special significance for service sector in which customer and service producer interact closely

Network marketing

This approach takes the organization as a sequence which involves producer and customer that market services to each other in the organization In this structure, the activities of departments that compose organization would be more focused on market This will also affect the structure of organization

Relationship marketing

It was mentioned that close relationship was established between producer and customer in service sector In addition to this, life cycle of a customer relationship was also mentioned under the product outline

According to the Prof Dr Günal önce, maintaining the relationship for extant customer increases the profit of firms It should be emphasized that this fact has

an importance for service sector

Life cycle of a customer relationship is composed of three stages At the first stage, firms try to be well known and to acquire new customers At the second stage, the connection between customer and firm has been achieved During the stage, firms intensified their activities on acquired customers and both of them promises mutually At the third stage, these promises are accomplished and the service is consumed During the stage, firms face “Reality Instants” which could possibly achieve satisfaction of customer and continuous relationship This could

be also true for second stage So, these instants should be managed successfully Implementation of close relations with customer successively and true applications

at reality instants could not be accomplished by responsibilities of a marketing personnel

Besides, it should be remembered that consumption and production of service are closely interrelated At this context, marketing should have role not only in production-consumption between instants, but also at points that these intersect

In this case, 4P that was mentioned at second section would be insufficient So,

we could divide service marketing into two parts as specialist function (marketing mix, marketing researches) and marketing function (buyer - seller interactions) Efforts in first stage in which customers are not so clear, at the customer relationship life cycle could be minimized for lasting customers This is achieved

by successful customer relations In this approach, marketing may be defined as;

“Marketing is for establishing, keeping, developing relationship with customers in a

manner that profit is got (especially in long term) So, objectives of two relevant sides would be achieved This would be accomplished by shared promises and carrying out the promises.”

Conclusion: The achievements in communication techniques and e-trade gave

rise to many results for marketing practices and perceptions But, one of them is especially important that occurred in banking sector in marketing Today, marketing services are of great emphasis on both customer and bank The quality and quantity of banking products increased and a result of this, recent developments in marketing thoughts in services such as internal marketing, network marketing, data base marketing and relationship marketing became more favorable practices

2.2 UNDERSTANDING BANKING BUSINESS CONSUMER BEHAVIOR

2.2.1 Defining Services marketing:

Services marketing typically refers to both business to consumer (B2C) and business to business (B2B) services, and includes marketing of services like telecommunications services, financial services, all types of hospitality services, car rental services, air travel, health care services and professional services The range of approaches and expressions of a marketing idea developed with the hope that it be effective in conveying the ideas to the diverse consumers who receive it

Christopher Lovelock and Jochen Wirtz defined that Services are economic activities offered by one party to another Often time-based, performances bring about desired results to recipients, objects, or other assets for which purchasers have responsibility In exchange for money, time, and effort, service customers expect value from access to goods, labor, professional skills, facilities, networks, and systems; but they do not normally take ownership of any of the physical elements involved

2.2.2 Challenges for services

According to Prof Donna J Hill, there are some challenges for services that a services supplier should take into consideration, they are:

• Defining and improving quality

• Communicating and testing new services

• Communicating and maintaining a consistent image

• Motivating and sustaining employee commitment

• Coordinating marketing, operations and human resource efforts

• Setting prices

• Standardization versus personalization

2.2.3 Characteristics of services and the different between goods and services:

2.2.3.1 Different between goods and services:

There has been a long academic debate on what makes services different from goods The historical perspective in the late-eighteen and early-nineteenth centuries focused on creation and possession of wealth Classical economists contended that goods were objects of value over which ownership rights could be established and exchanged Ownership implied tangible possession of an object that had been acquired through purchase, barter or gift from the producer or previous owner and was legally identifiable as the property of the current owner Valarie Zeithaml clarified in her Services marketing book the different between goods and services in 4 characteristics as bellowed:

The different between goods and services:

• Services cannot be patented

• Services cannot be readily displayed or communicated

• Pricing is difficult

satisfaction depend on employee actions

uncontrollable factors

• There is no sure knowledge that the service delivered matches what was planned and promoted

Production

separate from

consumption

Simultaneous Production and Consumption

• Customers participate in and affect the transaction

• Customers affect each other

• Employees affect the service outcome

• Decentralization may be essential

• Mass production is difficult

Non

perishable

Perishable • It is difficult to synchronize supply and

demand with services

• Services cannot be returned or resold Table 2.1: The different between goods and services

2.2.3.2 Characteristics of services:

According to Valarie Zeithaml, the services have unique characteristics which make them different from that of goods The most common characteristics of services are:

buyer generally employs in alternative evaluation prior to purchase So, as a result

of this, the services are not known to the customer before they take them The service provider has to follow certain things to improve the confidence of the client:

• The provider can try to increase the tangibility of services For example, by displaying a plastic or a clay model showing patients an expected state after a plastic surgery

• The provider can emphasize on the benefits of the service rather than just describing the features

• Not all the service product has similar intangibility Some services are highly intangible, while the others are low

Inseparability

Services are typically produced and consumed simultaneously In case of physical goods, they are manufactured into products, distributed through multiple resellers, and consumed later But, in case of services, it cannot be separated from the service provider Thus, the service provider would become a part of a service Inseparability of production and consumption increases the importance of the quality in services Therefore, service marketers not only need to develop task-related, technical competence of service personnel , but also , require a great input of skilled personnel to improve their marketing and inter personal skills

Perishability

Services are deeds, performance or act whose consumption take place simultaneously; they tend to perish me the absence of consumption Hence, services cannot be stored The services go waste if they are not consumed simultaneously value of service exists at the point when it is required

The perishable character of services adds to the service marketer problems The inability of service sector to regulate supply with the changes in demand; poses many quality management problems Hence, service quality level deteriorates during peak hours in restaurants, banks, transportation etc This is a challenge for

a service marketer Therefore, a marketer should effectively utilize the capacity without deteriorating the quality to meet the demand

Variability

Services are highly variable, as they depend on the service provider, and where and when they are provided Service marketers face a problem in standardizing their service, as it varies with experienced hand, customer, time and firm Service buyers are aware of this variability So, the service firms should make an effort to deliver high and consistent quality in their service; and this is attained by selecting good and qualified personnel for rendering the service

2.2.4 Factors that influence customers’ expectations of services:

The followings are some factors which influence expectations of customers when using a service:

• Explicit services promises: these are the promises made by a service

provider in which he explicitly declares to provide a certain level of service through ads, communications, brochures, personal selling…This heightens

or elevates the desired and predicted services expectations of a customers

• Implicit services promises: These are the promises which are not openly

or clearly spelt out One has to understand them by some hints or clues, like the general or uniform policy of some service provider

• Word of mouth publicity: as the term stated these are the opinions of the

people who have already availed the particular service This may be positive or negative depending on the individual reaction of the customer

• Past experience: Past experience of a customer plays a vital role here

This influence the predicted and desired level of expectation If a company has visited a big branch of a bank, they will expect the same when visiting small branches or transaction offices

The services expectation of a customer is a complex function of his opinion, experience, impressions, intentions, mood at the time of service encounter Even

at times it is controlled by some thoughts which he himself is unaware of Mostly, the customers evaluate their service experience on the basis of these factors:

• Speed: Often the service is evaluated on the basis of speed, which

includes not only the time spent by a customer in defining, selecting, ordering and purchasing the desired services but also the time taken by the service provider in delivering the services to the customers

• Ease: Customer also assess the service experience based on the ease

involved in experiencing the service Thus, they evaluate the service based

on the ease with which the service transaction is carried out

• Personal recognition: every human being likes to be recognized as a

unique individual and so as an enterprise Customers like a service provider who delivers his service keeping in mind a customer’s unique needs and wants Such gestures by the service providers guarantee customers delight and make them evaluate the service in the positive light

Services firm, especially banks should learn how to manage customer expectation

to gain competitive advantage by:

• Managing promises: The first thing is to manage customer expectation If

the marketer raise the expectation too high, the buyer is likely to be disappointed If the expectations are set too low then the company won’t attract many buyers, although it will satisfy all those who buy Today, successful companies raise the expectations and delivering performance to match

• Reliability: “Getting right for the first time” Reliability is another critical

factor which customer gives much importance First impression is also the long lasting impression Communications and promises must be reliable and delivered positively Hence the service firms should practice delivering what they promise, the first time and every time, this is reliability, credibility and accountability

• Effective communication: effective communication is another important

tool, through which service providers can manage the expectations of customers Communication can be both ways, firms to customers or customers to firms Not only the firm initiate communicate from their side, they also should encourage the reverse communication from them This will give the customers timely, updated and useful information

2.2.5 Major influences on enterprise banking services buying:

In the opinion of Kotler (2000), business buyers respond to many influences when they make their decisions When supplier offerings are similar, they tend to place more weight on the personal treatment they receive When supplier offerings differ substantially, buyers are more accountable for their choices and pay more attention to economic factors Business buyers respond to four main influences: environmental, organizational, interpersonal and individual; culture is also a factor

Table 2.2: Major influences on Industrial Buying behavior

Environmental factor:

- Within the macro environment, business buyers pay close attention to numerous economic factors, including interest rates and levels of production, investment and consumer spending In a recession, business buyers reduce their investment in plant, equipment and inventories so business marketers must pay attention on the level of demand in each period

- Companies that fear materials shortages often buy and hold large inventories and sign long term contracts with suppliers to ensure steady availability

- Business buyers also actively monitor technological, political-regulatory and competitive developments They push suppliers with technical expertise to be more socially conscious

Organizational factors:

Every organization has specific purchasing objectives, policies, procedures, organizational structures and systems Business marketers need to be aware of the following organizational trends in purchasing:

- Purchasing department upgrading: Spurred by competitive

pressures, companies are staffing their purchasing departments with MBAs who aspire to be CEOs More strategically positioned

“procurement departments” seek out the best value from fewer and better suppliers In many multinationals, purchasing departments have been elevated into “strategic supply departments” with responsibility for global sourcing and partnering In response to this trend, business marketers must correspondingly upgrade their sales personnel to match the higher caliber of the business buyers

- Cross-functional roles: In a recent survey, most purchasing

professionals described their job as more strategic, technical, team oriented, and involving more responsibility than ever before Sixty – one percent of buyers surveyed said the buying group was more involved in new-product design and development than it was 5 years ago More than half of the new-product design and development than it was 5 years ago More than half of the buyers now participate in cross-functional teams with suppliers well represented

- Centralized purchasing: Some companies have centralized their

purchasing, identifying materials purchased by several divisions and buying them centrally to gain more purchasing clout

- Decentralized purchasing of small ticket items: more companies are

decentralizing selected purchasing operations by empowering

employees to purchase small-ticket items such as special binders and coffee makers This has come about through the availability of corporate purchasing cards issued by credit card firms By doing this, buyers and suppliers can spend less time on paperwork, so purchasing departments have more time for building partnerships

- Internet purchasing: By 2003, B2B buying on the internet is projected

to reach 1 trillion dollar per year The move to internet purchasing has dramatic and far reaching implications Companies are not only posting their own web pages to sell to business buyers, they are establishing Intranets for internal communication and extranets to link with regular suppliers and distributors

- Long term contracts: Business buyers are increasingly initiating or

accepting long-term contracts with reliable suppliers In addition, business marketers are setting up electronic data intercharge (EDI) systems so their customers such as hospitals and bookstores can enter and transmit purchase orders electronically

- Purchasing performance evaluation and buyers’ professional development: Many companies have set up incentive systems to

reward purchasing managers to increase their pressure on sellers for the best terms

- Lean production: Many manufacturers have moved toward lean

production, which enables them to produce a more hign-quality product

at lower cost, in less time, using less labor

Interpersonal factors:

Buying centers usually include several participants with differing interests, authority, status, empathy and persuasiveness Successful firms must strive to find out as much as possible about individual buying individual buying center participants and their interaction and train sales personnel and others from the marketing organization to be more attune to the influence of interpersonal factors

Individual factors:

Each buyer carries personal motivations, perceptions, and preferences as influenced by the buyer’s age, income, education, job position, personality,

attitudes toward risk and culture Understanding these factors can better prepare marketers for dealing with individuals within the buying center

Cultural factors:

Savvy marketers carefully study the culture and customs of each country or region where they want to sell their products, to better understand the cultural factors that can affect buyers and the buying organization

2.3 THE PURCHASING/ PROCUREMENT PROCESS:

Business buying committees follow a predictable course of behavior when making

a B2B purchase, so having a deep understanding of the overall process can help B2B marketers focus on sales and marketing efforts

There are many models of organizational decision making behavior, with different levels of details such as Sheth (1973), Webster and Wind (1972), Robinson et al (1967), Hill and Hillier (1977)…However, we will examine each of the eight stages for a typical new-task buying situation as stated in the Marketing Management Millennium Edition of Kotler (2000):

Stage 1: Problem recognition

The buying process begins when a problem or need triggered by internal or external stimuli is recognized and can only be solved by acquiring a good or service Internally, problem recognition commonly occurs when a firm decides to develop a new product and needs new equipment and materials, when a machine breaks down and requires new parts, when purchased materials turns out to be unsatisfactory and when a purchasing manager senses an opportunity to obtain lower prices or better quality Externally, problem recognition can occur when a buyer gets new ideas at a trade show, see a supplier’s ad, or is contacted by a sales representative offering a better product or a lower price

For their part, business marketers can stimulate problem recognition by direct mail, telemarketing, effective Internet communications and calling on prospects

Stage 2: General Need Description

Once a problem has been recognized, the buyer has to determine the needed item’s general characteristics and the required quantity For standard items, this is not a very involved process For complex items, the buyer will work with others,

such as engineers, users and so on, to define the needed characteristics These may include reliability, durability, price or other attributes In this stage, business marketers can assist buyers by describing how their products would meet such needs

Stage 3: Services Specification

With a general need description in hand, the buying organization can develop the services’ requirements Often, the company will assign a group of people to involve in the services specification Services analysis is an approach to cost reduction in which components are carefully studied to determine if they can be redesigned or standardized to best fit the company’s needs and requirements Normally in banking sector, the salesperson will contact the enterprise to introduce about the bank and offer a specific package of products based on the needs of the enterprise By studying the company’s need, propose a solutions that best fit the enterprise’s requirements, the banker can significantly increase its chances of being chosen

Stage 4: Supplier Search

The services buyer now tries to identify the most appropriate bank, by examining different sources of information Marketer must understand the major sources of information and their relative type and nature of influence on the final purchase decision These sources fall into four major groups:

• Personal sources: relationships between the bank and mother company, board of directors, CFO, chief accountant…, introduction from suppliers, customers, partners…

• Commercial sources: advertising, salesperson, dealer, trade development organizations, tax agency…

• Public sources: mass media, consumer rating organizations, business events and workshops, tradeshows, introduction from IPs and EPZs, ratings from big organizations such as state bank, Fitch, Moodys, Standard & Poors…

• Experiential sources: handling, examining, using the products…

After evaluating each company, the buyer will end up with a short list of qualified suppliers

State 5: Proposal Solicitation

In this stage, the buyer is ready to invite qualified suppliers to submit proposals When the item is complex or in big volume, the buyer will required a detailed written proposal from each qualified supplier

Business marketer must thus be skilled in researching, writing and presenting proposals Their written proposals should be marketing documents, not just technical documents Their oral presentations should inspire confidence, positioning their company’s capabilities and resources so that they stand out from the competition

State 6: Supplier selection

Before selecting a supplier, the buying center will specify desired supplier attributes (such as product reliability and service reliability) and indicate their relative importance It will then rate each supplier on these attributes to identify the most attractive one

At this point, the buyer may attempt to negotiate with preferred suppliers for better prices and terms before making the final selection

As part of the supplier selection process, buying centers must decide how many suppliers to use In the past, many companies preferred a large supplier base to ensure adequate supplies and to obtain price concessions However, companies are reducing the number of suppliers, especially for large component systems

State 7: Order-Routine Specification

After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the delivery schedule and so on…

State 8: Performance Review:

In the final stage of the buying process, the buyer periodically reviews the performance of the chosen suppliers Three methods are commonly used:

The buyer may contact the end users and ask for their evaluations

The buyer may rate the supplier or several criteria using a weighted score method

The buyer might aggregate the cost of poor supplier performance to come

up with adjusted costs of purchase, including price

The performance review may lead the buyer to continue, modify or end the relationship with the supplier Therefore, to stay in the running for future purchases, suppliers should monitor their performance carefully using the same criteria applied by the product’s buyers and the end-user Smart suppliers also analyze the rivals who compete for the same business