Internet Banking Organizations - Example

342874 – Financial Marketing Introduction This report presents the issues faced by Internet banking organizations and the ways to deal with them. In addition, it would also include a marketing plan which would suggest how to best mitigate the existing deficiencies and market the financial products more effectively. Online banking Internet banking relates to performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website. This allows customers to do their banking outside of bank hours and from anywhere where Internet access is available. In most cases a web browser is utilized and any normal internet connection is suitable. No special software or hardware is usually needed. Services Online banking usually entertains its customers by providing such services as Bank statements,Electronic bill payment Funds transfer, Investment, Loans and advances and Account aggregation etc. Current Scenario Virtual Banks are now growing in number and are observed to have low costs compared to traditional banks, hence, they have been able to offer higher interest rates. Some banks have both physical branches as well as online banking facilities while others only operate in the cyber space. There is one serious issue which is commonly faced by most organizations and it is that of security. Though protection is provided through password authentication, safety still remains a major problem with the online banking system. It is also considered more vulnerable to fraud since a relatively small number of people use internet banking compared with the total number of banking customers world wide as mentioned in the report (13% of UK adult population in 2004). Problems with Internet Banking First and the foremost issue related to Internet Banking has been that of increasing rate of lapsing amongst Internet bank customers. According to the Research conducted by Virtual Surveys in late 2004, there exist three key barriers which are holding the majority back from banking online. These include a general lack of awareness of the benefits of online banking, concerns about security and lack of personal support in online banking. The banks, thus, thoroughly need to review their marketing campaigns and reach their audience directly rather than relying on other sources. Furthermore, customer support is also absolutely essential to be provided to the customers or else they will not be willing to switch from the traditional banking to online. Thirdly, banks also need to develop their websites’ interface to make Internet banking easy and accessible to its users. The main challenge lies in attracting the first time users towards online banking but for that, an in-depth understanding of what motivates these people has to be developed. The banks are going to have to go back to the grassroots level and conduct research directly with the customer. Marketing Mix “Marketing mix can be defined as a set of the marketing tools that the firm uses to pursue its marketing objectives in the target market” (Kotler, Ang, Leong and Tan, 1999). The marketing mix is not a theory of management that has been derived from scientific analysis, but a conceptual framework which highlights the principal decisions that marketing managers make in configuring their offerings to suit customers’ needs. The tools can be used to develop both long term strategies and short term tactical programmes” (Palmer, 2004). By understanding the impact of the Internet on marketing mix and competitive forces, E-business managers can adopt appropriate strategies for meeting the unique challenges of E-business. E-marketing strategy is based and built upon the principles that govern the traditional, offline marketing or 4Ps that form the classic marketing mix. These four P’s include price, place, promotion, and product. Place: The Place element of the marketing mix generally refers to how the product is distributed to customers. In case of Internet it is termed to have the greatest implications due to its global reach. In case of Internet Banking, the manager would need to review the options for place of purchase. To reach a bigger audience, the website should be such that users can move from a single site to representation with a large number of different intermediaries. In addition, it is imperative for a bank to have the online facilities in the local language otherwise it may be of no use at all. Furthermore, the site may need to support customers from a range of countries with different product needs; language differences; cultural differences hence, it should cater for that as well. Channel structures should also be considered, that is, the bank could also consider disintermediation or selling directly, though it might lead to channel conflicts. Product The internet bank must contain information which is in-depth or in complete detail to be provided to the customer. This might include the banking products offered at their respective rates and their usefulness and other relevant information. Promotion The Promotion element of the marketing mix refers to how marketing communications are used to inform customers and other stakeholders about an organization and its products. Since there is often a fixed budget for site creation, maintenance and promotion, the e-marketing plan should specify the budget for each to ensure there is a sensible balance and the promotion of the site and e-marketing campaigns are not under funded. Furthermore, investment in online promotion techniques have to be evaluated against the offline promotions. A balance must be struck between these techniques. Typically, offline promotion investment often exceeds that for online promotion investment. People The People element of the marketing mix refers to the how an organizations’ staff interact with customers and other stakeholders during sales and pre and post sales. An internet bank may also offer facilities to its customers which might include auto responders, e-mail notification regarding orders received, item in stock, dispatched orders, call-back facility, frequently Asked Questions (FAQ) and on site search engines. Price The Internet enables price transparency and commoditization hence, resulting in lower prices. Dynamic pricing gives the ability to test prices or to offer differential pricing for different segments or in response to variations in demand. The customers can easily compare the different types of products offered by different banks and their interest charges and other rates on various banking products. Market Research The manager of an Internet Bank must conduct a market research in the first place to get first-hand knowledge of what customers want and thus, determine how they can be attracted towards e-banking away from traditional banking. It should first collect a sample for this study consisting of respondents who are users of the e-banking services already. A data set could be gathered from self-administered survey of a convenience sample of retail banking customers. Further, a questionnaire could be distributed to 100 retail-banking customers and a cross-sectional survey design adopted question respondents on e-banking services. The design of the questionnaire should be based on a multiple-item measurement scale related exclusively to e-banking services. The questionnaire could then be divided into three parts with the first part containing general information pertaining to the respondent's service provider; second to be based on the respondent's expectations and perceptions of the e-banking services. This part would measure the respondent's attitude, opinion, perception and knowledge about the e-banking services. Items in the questionnaire must be developed through joint discussion with the experts from the banking industry and then the responses measured on a four-point Likert scale (1 = low/poor to 4 = high/good). Finally, the third part should consist of the respondent's demographic variables such as age, marital status, gender etc. Marketing Campaign Before the bank markets its products across media and acquire more customers it has to determine an optimal amount of money to be allocated to various marketing activities. The key is to find the point where the expense of marketing in a channel creates the highest shareholder value. Customer lifetime value is a recent concept becoming increasingly prevalent in the financial services industry as executives recognize that marketing success is not just the number of customers but the value of those customers over the course of their “lifetime” with the bank. It is management’s aim to increase customer equity as a means of enhancing the long-term value of the financial institution. The bank operating online can increase their customer equity by attracting new customers, improving the retention rate of customers, cross-selling of current customers to other business lines and the up-selling of current customers to a higher consumption within a business line. By taking the major elements of the marketing mix and performing a customer equity optimization, the optimal allocation can be calculated, both for the short- and long-run in concert with the bank’s strategic goals. A plan to build market share will favor a different marketing mix compared to an objective of maximizing individual customer worth. The Internet Banks may focus on media to increase acquisition in the short-term, but if it wants a long-term relationship with its clients customer equity would be developed. Most likely, the optimizations and refocused marketing spend will have a beneficial effect on short- and long-term objectives. Financial institutions are in the relationship business and thus have comprehensive customer data that can be used to optimize marketing mix resource allocation to maximize customer equity. This data includes the marketing spending by channel, new and lost customers, revenues segmented by products/services, by branches, designated marketing areas, and customer segments gathered on a weekly basis. Recommendations may increase spending for certain marketing activities and cut others. If a financial institution reallocates its marketing spending based on insights from an optimization exercise, the impact will be beneficial for both short-term and long-term profitability. Viability of Internet banking It is considered viable to a great extent that a bank set up a fully functioning operation on the Internet rather than a traditional branch as it costs a lot lesser to do that. The cost of depositing a cheque with an Internet banking system could be as low as 5p, and sometimes even lower. This is because electronic commerce opportunities for small and medium sized enterprises requires a reliable and low cost electronic payment system which, in turn, reduces cost. However, many electronic payment issues can be termed institutional rather than technical. Laws governing internet banking transactions need to be developed further so that users feel safe and secured while banking online. Developing a Marketing Plan It is vital for any business be it physical or online to plan all its activities in advance. These activities may include operating, marketing, financial, administrative, production or any other activity which the business may deal with. As a manager of an Internet-based financial institution I would give immense importance to the marketing plan of this company. it may be as follows. Vision Firstly, a broad scope of the business must be developed in terms of sky-rocketing goals which the business plans to achieve in future. This is actually the Vision Statement of the company. As the vision of the Bank of New York says: "We strive to be the acknowledged global leader and preferred partner in helping our clients succeed in the world's rapidly evolving financial markets". The Bank's vision could also be to be credible through the strength of their values such as competency, integrity, transparency Accountability Cohesiveness Objectives Secondly, short and long-term goals of the business should be set in clear terms. To realize its Mission, Vision and Strategic Values, a Bank must stipulate its medium-long term strategic objectives such as: Maintain the security and effectiveness of the payment system Increase the effectiveness of Good Governance implementation Strengthen the organization and build highly competent human resources with the support of a knowledge-based work culture Achieving an expense to income ratio of x%. An increase in the proportion of commission earnings Maintaining a return on capital ratio not less than x%. Increasing the Bank’s capital to a level more adequate to the scope of business. Increasing the Bank’s market capitalization and liquidity of the Bank’s shares Target market The online bank should target its market directly to run its business successfully. It would need to have an understanding of the size of the target market for its products and the niche it is trying to carve out for its business. The type of person or business that is likely to buy the bank's product or service and how large this market is. The demographics and psychographics of the customers have to be determined. Demographics are the basic facts like age, gender, income, location, etc while psychographics are their characteristics, values etc. Direct competition must also be clearly defined in addition to indirect competition. Furthermore, major trends in the marketplace must be carefully analyzed as well. Market Definition and Segmentation Defining the particular market and segmenting it on the basis of the bank's products, customers or any other is also equally important. The internet bank could be defined as functioning in the financial services sector of a certain country. Target Market Segment Strategy If the bank offers some unique products at attractive rates then it could make a strategy accordingly and position itself such that it stands out and is able to achieve a bigger market share. Distribution Channels In this case, since the bank is operating online, it would be the sole distribution channel of its products through its websites accessible from all over the world. Apart from this fact, the bank is a service provider and rather than giving via a distribution channel Competitive Forces As mentioned earlier, direct and indirect competition must be defined and analyzed beforehand so the institution operates effectively and be competitive at the same time. Keys to Success The critical success success factors are essential to be identified. These may include the financial institution’s service, its rates, its products, its functions on its website, easy accessibility, and other website features such as help and support for its users etc. Sales Forecast The most important of all is to forecast the sales and revenue figures for this institution so that appropriate statements such as cash flows and profitability may be estimated. This would be required for comparisons over time and across similar businesses and against set standards. Critical Issues The marketing plan’s success after its implementation should be tracked and followed up at regular intervals. Bibliography ELECTRONIC BANKING. Retrieved from http://www.martech-intl.com/best2/banking.htm Dominique M. Hanssens And Barbara Lewis, 2005. Divvying Up The Marketing Pie. BAI, Los Angeles Quentin Ashby. Virtual Surveys. Is Internet Banking in a Mid-life Crisis? Chai Lee GOI. Marketing Mix: A Review of ‘P’ Norizan M. Kassim. E-banking service quality: gaps in the Qatari banking industry. Qatar Bloemer, J., de Ruyter, K. and Peeters, P. (1998), "Investigating drivers of bank loyalty: the complex relationship between image, service quality and satisfaction", International Journal of Bank Marketing, Vol. 16, No. 7, pp. 276-286. Goodman J.A., Marra T., Brigham L. (1986), "Customer service: costly nuisance or low-cost profit strategy," Journal of Retailing, 36, pp. 36-48. 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