INTRODUCTION TO SERVICE SECTOR Service Sector is the lifeline

for the social economic growth of a country. It is today the largest and fastest growing sector globally contributing more to the global output and employing more people than any other sector. The real reason for the growth of the service sector is due to the increase in urbanization, privatization and more demand for intermediate and final consumer services. Availability of quality services is vital for the well being of the economy. In advanced economies the growth in the primary and secondary sectors are directly dependent on the growth of services like banking, insurance, trade, commerce, entertainment etc. The service sector is going through almost revolutionary change, it dramatically affects the way in which we live and work. New services are continually being launched to satisfy consumers existing needs and to meet the

Needs that they do not even know they had. Ten years ago people did not anticipate the need for email, online banking, web hosting, online reservation and many other new services, but today many of us feel we cannot survive without them. Similar transformations are happening in Business to business marketing. Service organisations vary widely in size. At one end are the huge international corporations operating in industries such as tourism, airlines, banking, telecommunication etc whereas on the other end of the scale is a vast array of locally owned and operated small businesses including parlours , hotels , laundry n numerous business to business services.

How important is the service sector in an economy? ➢ raw materials and manufacturing combined. ➢ In developed economies employment is dominated by service jobs and most new job growth comes from services. ➢ Jobs range from high paid professionals and technicians to minimum wage positions. ➢ Service organisations can be any size, from huge global corporations to local small businesses. ➢ Most activities by govt. agencies and non profit orgs involve service. In most countries services add more economic value than agriculture,

Service Sector in India:
In alignment with the global trends, Indian service sector has witnessed a major boom and is one of the major contributors to both employment and national income in recent times. The activities under the purview of the service sector are quite diverse. Trading, transportation and communication, financial, real estate and business services, community, social and personal services come within the gambit of the service industry. Service sector in India accounts for more than half of India’s GDP. According to data for the financial year 2008, the share of services, industry and agriculture in India’s GDP is 53.7% 29.1% and 17.2% respectively. The various sectors that combine together to constitute service industry in India are stated as under: • • • •

Trade Hotels and restaurants Railways Other transport and storage Communication (post and telecom) Banking Insurance Dwellings, real estate Business services Public administrations, defence Personal services Community services Other service

• • • • • • •


A bank is an institution that deals with money and credit. Different people understand meaning of a bank in different ways. For a common man, bank is a storehouse where money is stored, for a businessman it is a financial institution and for a day to day customer it is an institution where he can deposit his savings. Banks play an important role in the economy of any country as they hold the savings of the public. Provide means of payment for goods and services and provide necessary finance for development of business and change. Thus bank is a link in the flow of funds from the savers to the users hence they should render efficient customer service in order to retain the present customers and also to attract the potential customer. In the past the banks did not face any attraction in the Indian economy because of the low level of the economic activities and the little business prospects. Today we find positive changes in the national business development policy. Earlier the moneylenders had a strong hold over the rural population which resulted in exploitation of small and marginal savers. The private sector

banks failed in serving the society. This resulted in the nationalisation of 14 commercial banks in 1969.

There was a basic change in the banking concept with a beginning in the nationalisation of big commercial banks. The involvement of public sector banks, transformed the Indian economy. The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or the nationalized banks have acquired a place of prominence and has since then seen tremendous progress. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look anew at their existing portfolio offering. Conservative banking practices allowed Indian banks to be insulated partially from the Asian currency crisis. Indian banks are now quoting a higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble footed in approach and armed with efficient branch networks focus primarily on the ‘high revenue’ niche retail segments. The Indian banking has finally worked up to the competitive dynamics of the ‘new’ Indian market and is addressing the relevant issues to take on the

multifarious challenges of globalization. Banks that employ IT solutions are perceived to be ‘futuristic’ and proactive players capable of meeting the multifarious requirements of the large customer’s base. Private Banks have

been fast on the uptake and are reorienting their strategies using the internet as a medium The Internet has emerged as the new and challenging frontier of marketing with the conventional physical world tenets being just as applicable like in any other marketing medium. The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). 60% of advances. The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and Indian nationalized banks (banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The Indian banking can be broadly categorized into nationalized, private banks and specialized banking institutions. The Reserve Bank of India acts as a centralized body monitoring any discrepancies and shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The nationalized banks (i.e. governmentowned banks) continue to dominate the Indian

banking arena. Industry estimates indicate that out of 274 commercial banks operating in India, 223 banks are in the public sector and 51 are in the private sector. The private

sector bank grid also includes 24 foreign banks that have started their operations here. The liberalize policy of Government of India permitted entry to private sector in the banking, the industry has witnessed the entry of nine new generation private banks. The major differentiating parameter that distinguishes these banks from all the other banks in the Indian banking is the level of service that is offered to the customer. Their focus has always centred around the customer – understanding his needs, pre-empting him and consequently delighting him with various configurations of benefits and a wide portfolio of products and services. institutions. The popularity of these banks can be gauged by the fact that in a short span of time, these banks have gained considerable customer confidence and consequently have shown impressive growth rates. Today, the private banks corner almost four per cent share of the total share of deposits. Most of the banks in this category are concentrated in the high-growth urban areas in metros (that account for approximately 70% of the total banking business). With efficiency being the major focus, these banks have leveraged on their strengths and competencies viz. Management, operational efficiency and flexibility, superior product positioning and higher employee productivity skills. The private banks with their focused business and service portfolio have a reputation of being niche players in the industry. A strategy that has allowed these banks to concentrate on few reliable high net worth companies and These banks have generally been established by promoters of repute or by ‘high value’ domestic financial

individuals rather than cater to the mass market. These well-chalked out integrates strategy plans have allowed most of these banks to deliver superlative levels of personalized services. With the Reserve Bank of India allowing these banks to operate 70% of their businesses in urban areas, this statutory requirement has translated into lower deposit mobilization costs and higher margins relative to public sector banks. The three major changes in the banking sector post liberalization are: ➢ Step to increase the cash outflow through reduction in the statutory liquidity and cash reserve ratio. ➢ Nationalized banks including SBI were allowed to sell stakes to private sector and private investors were allowed to enter the banking domain. Foreign banks were given greater access to the domestic market, both as subsidiaries and branches, provided the foreign banks maintained a minimum assigned capital and would be governed by the same rules and regulations governing domestic banks. ➢ Banks were given greater freedom to leverage the capital markets and determine their asset portfolios. The banks were allowed to provide advances against equity provided as collateral and provide bank guarantees to the broking community

Banking sector in India
Banks are now the most significant players in the Indian financial market. They are the biggest purveyors of credit, and they also attract most of the savings from the population. The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look anew at their existing portfolio offering. Driven by the socialist ideologies and the welfare state concept, public sector banks have long been the supporters of agriculture and other priority sectors. They act as crucial channels of the government in its efforts to ensure equitable economic development. The liberalize policy of Government of India permitted entry to private sector in the banking, the industry has witnessed the entry of nine new generation private banks. The major differentiating parameter that distinguishes these banks from all the other banks in the Indian banking is the level of service that is offered to the customer. Their focus has always centred around the customer – understanding his needs, pre-empting him and consequently delighting him with various configurations of benefits and a wide portfolio of products and services. These banks have generally been established by promoters of repute or by ‘high value’ domestic financial

institutions. Today, the private banks corner almost 4% share of the total share of deposits


There are various types of banks which operate in our country to meet the financial requirements of different categories of people engaged in agriculture, business, profession, etc. On the basis of functions, the banking institutions in India may be divided into the following types: Types of Banks a) b) c) d) Central Bank (RBI, in India) Development Banks Specialized Banks (EXIM Bank, SIDBI, NABARD) Commercial Banks (i) (ii) a) (i) (ii) Public Sector Banks Private Sector Banks Central Co-operative Banks State Co-operative Banks

Co-operative Banks

Now let us learn about each of these banks in detail. a) Central Bank A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank. Such a bank does not deal with the general public. It acts essentially as Government’s banker; maintain deposit accounts of all other banks and advances money to other banks, when needed. The Central Bank provides guidance to other banks whenever they face any problem. It is therefore known as the banker’s bank. The Reserve Bank of India is the central bank of our country.

The Central Bank maintains record of Government revenue and expenditure under various heads. It also advises the Government on monetary and credit policies and decides on the interest rates for bank deposits and bank loans. In addition, foreign exchange rates are also determined by the central bank. Another important function of the Central Bank is the issuance of currency notes, regulating their circulation in the country by different methods. No other bank than the Central Bank can issue currency. b) Commercial Banks Commercial Banks are banking institutions that accept deposits and grant short-term loans and advances to their customers. In addition to giving short-term loans, commercial banks also give medium-term and long-term loan to business enterprises. Now-a-days some of the commercial banks are also providing housing loan on a long-term basis to individuals. There are also many other functions of commercial banks, which are discussed later in this lesson. Types of Commercial banks: Commercial banks are of three types i.e., Public sector banks, Private sector banks and Foreign banks.

Public Sector Banks: These are banks where majority stake is held by

the Government of India or Reserve Bank of India. Examples of public sector banks are: State Bank of India, Corporation Bank, Bank of Baroda and Dena Bank, etc.


Private Sectors Banks: In case of private sector banks majority of registered as companies with limited liability. For example: The Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd, Development Credit Bank Ltd, Lord Krishna Bank Ltd., Bharat Overseas Bank Ltd, Global Trust Bank, Vysya Bank, etc.

share capital of the bank is held by private individuals. These banks are


Foreign Banks: These banks are registered and have their headquarters foreign banks operating in our country are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard & Chartered Bank, Grindlay’s Bank, etc. The number of foreign banks operating in our country has increased since the financial sector reforms of 1991.

in a foreign country but operate their branches in our country. Some of the

c) Development Banks
Business often requires medium and long-term capital for purchase of machinery and equipment, for using latest technology, or for expansion and modernization. Such financial assistance is provided by Development Banks. They also undertake other development measures like subscribing to the shares and debentures issued by companies, in case of under subscription of the issue by the public. Industrial Finance Corporation of India (IFCI) and State Financial Corporations (SFCs) are examples of development banks in India.

d) Co-operative Banks
People who come together to jointly serve their common interest often form a co-operative society under the Co-operative Societies Act. When a cooperative society engages itself in banking business it is called a Co-operative Bank. The society has to obtain a license from the Reserve Bank of India before starting banking business. Any co-operative bank as a society is to function under the overall supervision of the Registrar, Co-operative Societies of the State. As regards banking business, the society must follow the guidelines set and issued by the Reserve Bank of India. Types of Co-operative Banks There are three types of co-operative banks operating in our country. They are primary credit societies, central co-operative banks and state co-operative banks. These banks are organized at three levels, village or town level, district level and state level.

Primary Credit Societies: These are formed at the village or town

level with borrower and non-borrower members residing in one locality. The operations of each society are restricted to a small area so that the members know each other and are able to watch over the activities of all members to prevent frauds.

Central Co-operative Banks: These banks operate at the district level

having some of the primary credit societies belonging to the same district as their members. These banks provide loans to their members (i.e., primary credit societies) and function as a link between the primary credit societies and state co-operative banks.


State Co-operative Banks: These are the apex (highest level) co-

operative banks in all the states of the country. They mobilize funds and help in its proper channelization among various sectors. The money reaches the individual borrowers from the state co-operative banks through the central cooperative banks and the primary credit societies.

e) Specialized Banks
There are some banks, which cater to the requirements and provide overall support for setting up business in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of such banks. They engage themselves in some specific area or activity and thus, are called specialized banks.

Export Import Bank of India (EXIM Bank): If you want to set up a business for exporting products abroad or

importing products from foreign countries for sale in our country, EXIM bank can provide you the required support and assistance. The bank grants loans to exporters and importers and also provides information about the international market. It gives guidance about the opportunities for export or import, the risks involved in it and the competition to be faced, etc.

Small Industries Development Bank of India (SIDBI): If you want to establish a small-scale business unit or industry, loan on easy terms can be available through SIDBI. It also finances modernization of small-scale industrial units, use of new technology and market

activities. The aim and focus of SIDBI is to promote, finance and develop small-scale industries.










It is a central or apex institution for financing agricultural and rural sectors. If a person is engaged in agriculture or other activities like handloom weaving, fishing, etc. NABARD can provide credit, both short-term and long-term, through regional rural banks. It provides financial assistance, especially, to co-operative credit, in the field of agriculture, small-scale industries, cottage and village industries handicrafts and allied economic activities in rural areas.

Chapter 4

An organization is supposed to cater to the changing needs of customers; it is only natural that all customers have their own likes and dislikes. They have some uniqueness, which throws a big imprint on their lifestyles. This makes the task of understanding a bit difficult. It has the context that we go through the problem of market segmentation in the banking service. The study of the needs of customers invites a plethora of problems since in addition to other aspects; the regional considerations also influence the hierarchy of needs. To be more specific in the banking services, the banking organizations are supposed to satisfy different types of customers living in different segments. The segmentation of market makes the task of bank professionals easier. If the market segmentation is done in a right fashion, the task of satisfying the customers is simplified considerably. The modern marketing theories advocate the formulation of marketing policies and strategies for each segment, which an organization plans to solicit. The marketing segmentation is based in the principle of divide and rule. If we divide the market into different segments, the size of market is made small and the process of study is found convenient. We find market segmentation division and subdivision of a market based on considerations. The bank professionals have to segment the market in such a way that the expectations of all potential customers are studied in a right perspective and the marketing resources are developed to fulfil the same. The marketing efforts can be made more proactive if the process and bases of segmentation are right. It is essential that the bank professionals assign due weightage to the

difference that we find in the market behaviour due to geographical, age, sex, nationality, educational background, income classes, occupation, social and other considerations. If they overlook or underestimate key bases while segmenting, the study results can’t be proactive to the formulation of creative marketing decisions. This makes it essential that the bank professionals are well aware of the criteria for market segmentation. The agriculture sector, industrial sector, services sector, household sector are found important in the very context. The gender segment is found important no doubt but we can’t underestimate institutional and professional segments. Since the banking organizations serve different sectors and segments, the segmentation should be done carefully.


Instrumental in exploring opportunities: We find market segmentation very much effective in exploring the

profitable opportunities. It is well known to us that while segmenting, the market is divided into different groups and sub-groups and this simplifies the process of studying and understanding the customers in a right perspective. If we know about the rural segment, the opportunities are explored to the rural areas. If we know about the women segment, the opportunities are identified in that area. If we know about the low- income group, the opportunities are identified in that group. Thus the segmentation helps the bank professionals in exploring the profitable opportunities.


Instrumental in designing a sound marketing strategy: We can’t deny that market segmentation makes it easier to formulate a

sound strategy. Since the banking professionals are aware of the changing needs and requirements of a segment, the marketing resources can be developed in tune with the needs and requirements of a segment. The formulation of a package is found significant and the bank professionals can do it successfully on the basis of market segmentation. The promotional measures can be satisfied in the face of receiving capacity of a particular segment. The pricing strategy can be made operational and the sales promotion measures can be made productive.


Helpful to the policy planners: In addition, the policy makers also find segmentation since they are well

aware of the emerging trends in the business environment. They get detailed information about the changing needs and requirements of a segment. The planning is an ongoing process. The banking professionals transmit necessary information to the policy planners, which simplifies the process of making a sound policy.


Enriching the market resources: In addition to other aspects, we find segmentation instrumental in

enriching the marketing potentials. If we know about the preference, needs, requirements, attitudes, lifestyles it is found easier for us to develop the marketing resources accordingly. This in a natural way makes it convenient to develop marketing resources. The process of innovation can be activated. The services, the promotional measures, the pricing tool and the process of offering can be made more competitive. The development of world-class marketing

resources thus makes it convenient prospects. The bank professionals positive results for their productive

to influence the impulse of find it easier to get the marketing efforts.

Segmentation in a right fashion makes the way for profitable marketing. This helps policy planners in formulating and innovating the policies and at the same time also simplifies the task of banking professionals while formulating and innovating the strategic decision. The following criterion makes the segmentation right.

An important criterion for market segmentation is the economic system in which we find agricultural sector, industrial sector, services sector, household sector, and rural sector requiring the weight age while segmenting.


In the agricultural sector, there are four categories since the needs of all categories can’t be identical.

The mechanization of agriculture, the improved or scientific system of cultivation, the help of nature, the magnitude of risk, the availability of infrastructural facilities influence the level of expectations vis-à-vis the needs and requirements. The banking organizations are supposed to know and understand the changing requirements of different categories of farmers.

B). INDUSTRIAL SECTOR: The banking organizations are supposed to have an in-depth knowledge of the changing needs and requirements of the industrial sector. The large – sized, small- sized co-operative and tiny industries use the services of the banks. The expectation of all the categories can’t be uniform. The banking organizations are supposed to have an in-depth knowledge of the changing needs and requirements of the industrial segment. The emerging trends in competition, the pressure of inflation, the use of sophisticated

technologies, and the business regulations are some of the important aspects influencing the hierarchy of needs.



It is an important sector to the economy where the banking organizations get profitable business. The two categories of organizations such as profit-making and non- profit making are found important in the very context.



The banking organizations need to identify the changing needs and requirements of the services sector with the frequent use of IT and with the mounting pressure of inflation and competition, we find a change in the hierarchy of needs.

HOUSEHOLD SEGMENT This also constitutes an important sector where different income groups have different needs and requirements. A). HOUSEHOLD SEGMENT The high income group, middle income group, subsistence level group and marginal income group have different hierarchy of needs which influence the level of their expectations.

B). GENDER SEGMENT: In the gender segment we find males and females having different needs and requirements. Some of the women are housewives and therefore they have different needs and requirements whereas some of them are working ladies having different needs and requirements.

PROFESSION SEGMENT: In the profession segment, we find different categories of professions and therefore we find a change in their needs and requirements. The technocrats, bureaucrats, corporate executives, intellects, white-collar and blue collar employees have different needs and requirements and therefore the banking organizations should know their expectations.


In this sector we find different categories of organizations. Some of the organizations are known as charitable organizations, some of them are cultural/ social organizations, some of them are industrial and many of them are profit making and many are philanthropic and many of them are related to trade and commerce. It is natural that the needs and requirements vis-à-vis the level of expectations can’t be identical in all cases. To satisfy and to increase the market share it is imperative that the banking organizations are familiar

with changing needs and requirements. The emerging trends in the social transformation process determine the hierarchy of needs.

Chapter 5 7 P’s of Banking sector

A product can be defined as a bundle of utilities consisting of various product features accompanying services. Bank services are viewed with not just things that are created with value but they are seen in terms of satisfaction they deliver. E.g. A bank account is seen in terms of customer satisfaction such as safety, convenience of paying dues keeping records status, transferring funds, etc.


Bank Products

Savings, current, fixed etc.


ADVANCES: Term loan Clean loan Bill discounting Advancing Pre-shipment and post-shipment finance Secured and unsecured lines of credit.

(a) Fund Oriented: • • • • • •

(b) Non-Fund Oriented: • •

Guarantees Letter of credit.

International Banking: Letter of credit Foreign currency

• •


Consultancy: Investment counselling Project counselling Merchant banking Tax consultancy

• • • •


Miscellaneous: Traveller cheques Credit cards Remittances Collections Sale of drafts Standing instructions and Trusteeship.

• • • •

• •


Core Benefit: It is the main or core reason why the customer will buy the service of the bank. But customers do not buy the core product, they only buy the benefit. The role of the bank marketer is to convert the core products into a generic product which satisfies the needs of the customer. E.G. In case of bank core value is to deposit and withdraw money. Basic Product: The core benefit is converted into a basic product. That is the service can used by the customer in order to fulfil his/her needs. It is basically colour, brand name, shape, size, quality, branding and packaging. E.G. In bank basic product is to provide savings a/c, current a/c, deposits, loans, and overdraft facility.

Expected Product: It refers to the set of attributes and conditions expected by the customers when they purchase the service. E.G. If the customer expects the loan to be given within a day and if he gets it in a day, the bank has met the expectations of the customer. Augmented Product: It is the additional feature that the banks provide which exceeds the customer’s expectations. E.G When one opens a Suvidha account with Citibank he gets an ATM card free. The bank marketer must offer a multi dimensional product or what is called a ‘product package’ Potential Product: Innovations and product differential is the bases of a Potential Product. If the banks alter its services according to the requirements of the individual customers it reaches this level. It is future oriented. E.G. In case of banks the potential product is what kind of future product they are going to introduce like low interest rate on home loan or personal loan.





Potential Product

Product The basic necessity to use banking services in order to handle finance more efficiently

Product Safety of deposits

Product Timely service

Product Goods waiting rooms Mobile and internet Banking

Loanable funds etc.

Long banking hours

Extensive ATM network

New Schemes tailored for specific customers

Low interest rates

Promotional Discounts

Thus it can be seen how a particular product passes through different levels. In today’s competitive scenario most banks try offering services at the Augmented and Potential level.

The price mix in the banking but the customer have to the interest different is the

sector is nothing rates charged by banks. In today’s scenario king, the where banks

competitive charge

them interest at a

rate in accordance

with the RBI directives. Banks also compete in terms of annual fees for services like credit cards, DMAT etc. Another important aspect of the bank’s pricing policy today is the interest charged on the Home Loans and Car Loans. With India’s economy progressing, there are more and more buyers seeking these loans but at a very competitive interest rate. Let’s understand this with an example. A particular buyer approaches a bank for a car loan for a period of 3 years. He is charged Rs. 20,000 as interest. However, if a sale representative of another bank comes to know of this deal, he will try to attract the customer by giving him a better deal i.e. a loan at a lower rate on interest. In this way, it is the customer that ultimately benefits.

Here is an example of some of the prices charged by ICICI bank for their services:

ATM Card Issue Add – on Card Duplicate Card

Free – 2 ATM cards issued free if it joint account RS. 100 – Beyond 2 cards Rs. 100

Other General Charges:
Current Account Savings Account

Transaction Charges Charges for issue of Cheques book Issue of duplicate statement Account closure

NIL NIL Rs. 25 per page Rs.100

NIL NIL Rs. 25 per page Rs.100

This example evinces some of the charges that the customer has to pay for the services provided by the bank.

The pricing factor is very important because of the kind of competition that is prevailing today in the Indian market. However it is very important to understand that in the banking sector, the main pricing policy is concerned with the interest rate charged. This interest rate is however regulated by the RESERVE BANK OF INDIA and THE INDIAN BANKING ASSOCAITION. Any one particular bank or a group of banks does not regulate it. The interest rate charged cannot be higher than that decide by the RBI and the INDIAN BANKING ASSOCIATION. Thus, in spite of the constraints in the pricing policy due to the RBI directives there are mainly three types of pricing methods adopted by banks. They are: Value pricing: Banks having unique or different products or schemes mainly do this type of pricing. They usually charge a combination of high and low prices depending on the customer loyalty as well as the products. This type of pricing strategy is usually coupled with promotion programmes.

Going Rate pricing: The most commonly used pricing technique is the going rate pricing. In going rate pricing, the bank bases its price largely depending on the competitor’s prices. The banks however have to stay within the RBI directives and compete. The banks may charge higher or lower than their competitors. After 1991 when the foreign banks entered the Indian market this method of pricing has gained increasing importance.

Mark up pricing: This is a pricing technique wherein the cost of the service is determined and a small margin is added to it and then the final price is offered to the customers. This type of pricing is not very popular since in the banking sector it is not very easy to arrive at the cost of the service. Thus most banks use a combination of mark – up pricing and going rate pricing.

The most favourable pricing strategy should ensure maximum satisfaction to both the bank as well as the customers. The price should be set in such a manner that the customer is assured that he is not being cheated or overcharged by the bank and at the same time the bank is able to reap maximum profits. Such a pricing stand helps the bank get maximum sales as well as profits since the customer feels that by entering such a transaction he is winning.

Place mix is the location analysis for bank’s branches. There are number a factors affecting the determination of the location of the branch of bank. It is very necessary for a bank to be situated at a location where most of its target population is located.

Some of the important factors affecting the location analysis of a bank are:

The Trade area 2.Population characteristics 3.Commercial structure 4.Industrial structure 5.Banking structure 6.Proximity to other convenient Outlets 7.Real estate rates 8.Proximity to public Transportation 9.Drawing time 10.Location of competition 11.Visibility 12.Access

It is not necessary that all the above conditions have to be satisfied while selecting the location but it should try and satisfy as many of them as possible.


The Trade Area: The trade area is a very important factor determining the place where a

bank branch should be set up. For e.g. a particular location maybe a huge trading place for textiles, diamonds or for that case even the stock market. Such locations are ideal for setting up of bank branches


Population Characteristics: The demography of a place is a very important factor. This includes:

➢ ➢ ➢ ➢ ➢

The income level of the population The average age The average male female population The caste, religion, culture and customs The average spending and saving habit of the people.

These factors are very important for a bank as the help them decide the kind of business the branch will get.


Commercial Structure: The commercial structure refers to the level of commerce i.e. business

activities taking place at a particular location. The higher the level of business activities taking place in a particular location the more preferable it is for setting up a bank branch.


Industrial Structure: This is nothing but a combination of the trade area analysis and the

commercial structure. However the industrial structure focuses more on the kind of industries operating in a particular location. For example, an area like SEEPZ is marked with a lot of electronic manufacturing units. Thus the industrial structure determines the kind of financial transactions that could take place in a particular location.


Banking Structure: The Banking structure refers to the existence of other banks in the area.

Whether there is already an efficient network of other bank branches operating at that particular area. Thus the overall infrastructure needed for the working of a bank.


Proximity of other convenient outlets: This refers to the other branches of the same bank as well other

commercial, entertainment and industrial outlets.


Real Estate Rates:

This is mainly dealing with the cost factor involved in opening up a bank branch at a particular location. The real estate rate is a very strong factor influencing the location decision for a bank branch.


Proximity to public transportation: The location should be proximate to public transportation facilities. This

means it should have bus stops close by as well as it should be proximate to railway stations so as to make it convenient for the common man.


Drawing Time: Drawing time refers to the time period during which a customer can

draw money from the banks. It should be convenient to the customer and somewhat flexible to accommodate the customer’s needs. No bank has more than a certain amount with them and in case a customer wants to withdraw an amount more than that available with the bank, the bank needs to draw that amount from other banks. Hence, a location must be such that it facilitates minimum drawing time.

10. Location of Competition: The existence of other banks also means competition. If the level of competition is very high in a particular location, it is necessary that a bank does a lot of market research before opening a branch so as to estimate the kind of business it would get.

11. Visibility: The location of a branch should be such that it is visible and easily noticed by the customers as well other people.

12. Access: The bank branch should be very easily accessible to the customers. If this is not the case, the customer might switch to some other bank, which is more convenient to him and very easily accessible. The location should be such that it is very convenient for the customer to reach.

Promotion Mix

Promotion is nothing but making the customer more and more aware of the services and benefits provided by the bank. The banks today can use a lot of new technology to communicate to their customers. Two of the fastest growing modern tools of communicating with the customers are: 1. 2. Internet Banking Mobile Banking

This can be better explained with the example of ICICI bank.

SMS services:
SMS functions through simple text messages sent from your cellular phone. These messages are recognized by ICICI bank to provide you with the required information. For example, when you enter ‘IBAL’ your cellular phone screen will display the current balance in your primary account. Thus with the help of SMS a wide range of query based transactions can be performed without even making a call. ICICI was the first organization in India to provide Wireless Application Protocol (WAP) based services. Mobile commerce using WAP technology, allows secure online access of the web using mobile devices. With WAP one can directly access the ICICI WAP server, check one’s account details and use other value added services. Thus different methods are used by different banks to promote its services. A bank may have very attractive schemes and services to offer to their customers but they are of no use if they are not communicated properly to the customers. Promotion is to inform and remind the individuals and persuade them to accept, recommend or use of product, service or idea. However there some very important points that is to be considered before the promotion strategy is made. These points are:

Finalizing the Budget Before the bank decides the kind of promotion that should be done, it is very important to finalize the budget for it. The formulation of a sound budget is essential to remove the financial constraints in the process. The budget is determined on the basis of volume of business of the bank. In addition to this the intensity of competition also plays a decisive role.

Selecting a suitable vehicle Another very important task is to select a suitable vehicle for driving the message. There are a number of devices to advertise such as broadcast media, telecast media and the print media. The selecting of the mode of advertising is strongly influenced by the kind of budget decided. Usually for promoting banks the most effective and economical form of advertising has been the print media.

Making possible creativity Making possible creativity is nothing but the kind of slogans, punch lines etc. that are supporting the message. They should be very creative but yet simple to be understood by the common man. It should appeal to the customers. It should be distinct from that of the competitors and should be successful in informing and sensing the customers.

Testing the Effectiveness It should be borne in mind that the advertisement is first tested for its effectiveness. This should be done with the help of various techniques like testing effectiveness on a sample group. This helps determine the success of the advertisement and in case of any problem the advertisement can be altered and remedied.

Instrumentality of Branch Managers At a micro level, it is the responsibility of the branch managers to promote and drive the message to the people in the local area. They should organize small programs in order to attract people and crate awareness in the local area about the new schemes of the bank.

Different Ways of Promotion
1. Public Relations: In today’s competitive scenario developing strong public relations is very important for any bank to be successful. Most banks today have a separate Public Relations department. However primarily it is considered as a responsibility of the various bank managers to develop a steady and strong relationship with their present customers as well as potential customers. This can be done by a constant follow up, small programmes etc.


Personal Selling: Personal selling is found to be one of the most effective and popular

forms of promoting bank business. The main reason for this is that banking is a service in which trust plays a very important role. In personal selling, a bank representative goes to the customers and explains the scheme to the customers. Also he gives the customers any kind consultation he might need. He provides the customers all the information sought by him. The representative tries to persuade the customers to go for the scheme provided by the bank by telling him all the benefits. Here are some of the important features of personal selling ➢ It is a direct relation between the buyers and the seller ➢ It is oral presentation in conversation

It is personal and social behaviour

➢ It is found to be more effective in service oriented organizations ➢ It is based on the professional excellence or expertise of an individual 1. Sales Promotion: Sales promotions are basically giving the customers some additional benefits, maybe at times just some small gifts, in order to promote the schemes. The more innovative the sales promotions the more positive are the results. Some of the most popular sales promotions techniques are gifts, contests, fairs and shows, discounts and commission, entertainment and travelling plans for bankers, additional allowance, low interest financing etc. It is very important that the sales promotions benefits are designed in such a manner that they are better than those of the competitors.


Word – of – mouth Promotion: This form of promotion is not only very effective in banking services

but in any kind of service. However it is more important in banking for the only reason that this is a service where trust plays a very important role. If a particular bank’s services are recommended by friends, relatives, or other well wishers the person is more influenced and inclined towards that bank. It is very important to note that the internal employees of the bank play a very important role in word – of – mouth promotion technique. This is because they can start the process by recommending the bank to their friends and relatives and after that it is like a chain, which spreads like a wild fire.


Telemarketing: In recent times telemarketing has gained increasing importance as an

effective tool for promotion. Telemarketing is a process of making use of sophisticated communication network for promoting the banks. This includes promoting through television, telephone, and radio. Nowadays, cell phones are used extensively for the same. This is the most popular form of promotion. Banks today have started using ‘SMS’ and many other services supported by cell phones to provide benefits to their customers and thus have tried to increase their sales. In today’s competitive and modern scenario it very important that banks makes use of telemarketing techniques very efficiently to have desirable results.



The use of Internet as a promotional tool is increasing. More and more banks are using Internet to promote their services. The online banking has made it even easier for the customers to avail the bank’s services. No longer do people have to go to their bank branches for small petty matters like checking their balance etc. All this can be done with the help of a few clicks.

Thus, these were the numerous ways in which a bank can promote its services and create more awareness amongst the people.


People are the employees that are the service providers. In a banking sector, the service provider plays a very important and determinant role in rendering the customers a satisfactory and a good service. It is extremely essential that the service provider understand what his customers expect from him. In the banking sector, the customer needs to be guided in a lot of matters, which is possible only with the help of the service provider. The position in the eyes of the customer will be perceived by appearance, attitude and behaviour of the customer contact employees. Not only does the customer contact employee influence the customer’s perception but also the customer base of the organization does so.

Process Mix

The process mix constitutes the overall procedure involved in using the services offered by the bank. It is very necessary that the process is very customer friendly. In other words a process should be such that the customer is easily able to understand and easy to follow. Today if particular banks formalities are long and the procedure very complicated the overall process fails and the customer may not be inclined towards using that banks services.

Let’s take for example the process for application for a car loan at HDFC bank. Now this mainly involves 3 things. 1. 2. 3. Producing of proper documents Filling up of application form Paying for the initial down payment.

Here the process may fail in the following cases: 1. If the customer is asked to produce a number of forms out of which

some may not be necessary at all. Thus it is very necessary that the customer be asked for the minimum but most necessary document and not the other unnecessary documents. 2. In case of application form, the application form must be in a language best understood by the customers and it should not be very lengthy or demanding a lot of unnecessary information. 3. Finally the payment of initial amount. The customer should be given options as to how he would like to pay by cheques or by credit card. Once again the amount should be very competitive not very high above the regular rates prevailing in the markets.

The smaller and simpler the procedure, the better the process, and the customer will be more satisfied.

Physical evidence is the overall layout of the place i.e. how the entire bank has been designed. Physical evidence refers to all those factors that help make the process much easier and smoother. For example, in case of a bank, the physical evidence would be the placement of the customer service executive’s desk, or the location of the place for depositing cheques. It is very necessary that the place be designed in such a manner so as to ensure maximum convenience to the customer and cause no confusion to him.

Let us see an example as to how banks try to make little changes so as to make the service better for their customers.

The Hong Kong Shanghai Banking Corporation (HSBC) had decided in introducing a common uniform for all the employees in all its branches all over India. The plan is possibly in line with the aggressive retail banking adopted by HSBC. A common uniform is nothing like a revolutionary change but however this little change makes it very easy for the customer to identify with his service provider and makes the entire process very easy for him. The more the bank does to make the service easier the better it is for the customer.

Thus, these are the 7 P’s of services. Each of them plays a very important and a pivotal role in determining the quality of the service provided to the customer.


There are many reasons why a customer should be given QUALITY SERVICES. The most of them are:

1) Industry being so competitive that a customer should be given the best services as they have many competitors (the company) and if even a single customer is lost in today’s world then it very difficult to win back the customer. 2) Most of the customers do not complain as they just opt out and do get satisfied with better services elsewhere. When it comes to services, there are 10 quality dimensions. Each of the dimensions is of utmost importance since human element is involved and it relates to services. But Zeithaml, Bitner and Parsuraman have developed a new and concise model by clubbing some points. This model consists of the following dimensions: Reliability Assurance Tangibility Empathy Responsiveness


It is defined as the ability to perform the promised service dependably and accurately. In its broadest sense, reliability means that the company delivers on its promises–promises about delivery, service provision, problem resolution, and pricing. It is also known as the “No Excuses” service delivery. Indian Overseas Bank faces stiff competition from many other banks within its vicinity and some of these banks are foreign banks. But the existing customers have faith, loyalty and trust in this bank. The customers are well aware that the bank will provide them back the best and reliable services. For e.g. No person likes to wait to withdraw his/her money. In order to correct this problem, Indian Overseas Bank has ensured that whoever comes in for cash withdrawal will receive his/her cash within five to ten minutes.


Assurance is defined as employee’s knowledge and courtesy and the ability of the firm and its employees to inspire trust and confidence. It includes the ability, knowledge, genuineness, and honesty to provide the best services to the customer from the frontline staff. In this dimension the front line staffs is more important rather than the owner. At Indian Overseas Bank, every customer who comes is treated with utmost care and any problem that takes place is solved with great enthusiasm. It assures the customers coming up to the bank that the money they invest is secure; the interest rate that is being provided to them is at par or sometimes even higher as compared to other banks. Also, it assures the customers that the money they have invested will be returned to them as and when required with proper interest. It tries to empower their customer, contact people and regularly train them in skills to build trust and loyalty between employees and the customers.


Tangibles are defined as the appearances of physical communication facilities, materials.

equipments, personnel and All of these provide physical representations or images of the service that customers, particularly new customers, will use to evaluate quality. At Indian Overseas Bank, the entire premise is air-conditioned. They have computerized systems in place and therefore quick, accurate and efficient service can be provided to the customers. The tables and chairs are conveniently located for the customers. The personnel always have a cheerful and helping veneer and are always ready to help out the customers. The entire place is done up in bright colours and thus the customer can immediately feel the warmth and the radiance of the place.


Empathy is defined as the caring, individualized attention the firm provides its customers. The essence of empathy is conveying, through personalized or customized service, the customers are unique and unique special. The empathy shown by the employees of the Indian Overseas Bank is good as they are always polite humble and helpful. There was a case where once a customer misplaced Rs. 1,00,000 within the premises of the bank. He panicked but the bank personnel put him at rest and assured him that they would locate the same for him. Since he was a regular customer, they knew him very well and took the situation under control. They quickly located the cash and thus, the customer was placated. The bank personnel went out of their way to help this customer and thus understood his predicament. This bank regularly holds seminars and training workshops so that they can understand the consumer better and thus serve him better.


Responsiveness is the willingness to help the customer and provide him with immediate and fast service. The Indian Overseas Bank is prompt at providing its customers with the information and services that they seek. It is extremely prompt when it comes to resolving the complaints of the customers. The customers, in their feedback form, mentioned this as one of the most important factor that has prompted them to continue with this bank. All the five dimensions basically aim at serving the customers to the best of their ability, giving them quality services and if things are followed as they are demanded, (i.e., according to the customers demand) then there would be no problems in facing any type of people. The successful service organizations set up speeds for service standards

Chapter 7

Technologies & Innovations in Banking

Technologies in Banking
Technology plays a very important role in bank’s internal control mechanisms as well as services offered by them. It has in fact given new dimensions to the banks as well as services that they cater to and the banks are enthusiastically adopting new technological innovations for devising new products and services. The latest developments in terms of technology in computer and telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed ‘anytime, anywhere banking facilities. Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc. Through ECS we can receive the dividends and interest directly to our account avoiding the delay or chance of losing the post.

Today banks are also using SMS and Internet as major tool of promotions and giving great utility to its customers. For example SMS

functions through simple text messages sent from your mobile. The messages are then recognized by the bank to provide you with the required information. All these technological changes have forced the bankers to adopt customer-based approach instead of product-based approach.

Electronic Banking:
With the introduction of computers in Indian banks and with the advent of ATM’s the banking services are provided across the banks. Customers need not necessarily visit the bank to do banking transactions when the bank provides them with tele banking and or remote banking facilities. This type of banking is called electronic banking and the concept is becoming popular with individual as well as corporate entities in India. 1. Automated Teller Machines (ATMs): ATM’s have eliminated the time limitations of customer service and offer a host of banking services including deposits, withdrawals, requisitions, instructions and transactions. ATM’s traditional and primary use is to dispense cash upon insertion of a plastic card and its unique PIN or personal

identification number. It is issued to Current and Saving account holders of a bank who hold a certain minimum balance. When the card is inserted into the ATM, the machine sensing equipment identifies the account holder and asks for his or her identification PIN number. This number is not even known to the bank staff and is unique and secret to the individual


Internet Banking: Banks have over a long time been using electronic and

telecommunication network for delivering a wide range of value added products and services. The delivery channels include dial-up connection, private network, public network etc and the devices include telephone personal computers including the ATM etc. With the popularity of PC’s and easy access to the internet and World Wide Web banks increasingly use internet as a channel for receiving instructions and delivering their products and services to their customers. This form of banking is often referred to as internet banking, although the range of products and services offered by different banks, vary widely both in their content and sophistication.


Mobile Banking:

Through inter –banking one can visit the web –site of each bank by entering his password and known the account balance and even pass his own credit and debit entries. This means that we can do our banking through our personal computer settings at home. Banks may soon allow zero balance savings accounts through internet facility only. Customers can now make balance enquires download statements and open fixed deposits over the net. They will soon be able to carry out all their transactions over the net. So visiting a bank would be needless. Time to come; mobile phones will drive banking transactions. These mobile phones will drive banking transactions. These mobile phones will be equipped with smart cards that are embedded with banking and other information. This mobile phone banking facility is yet to come but the mechanics of linking the banking with the cell phone is being sorted out. Teller machines are being installed in the banks for the electronic banking facility. Banking will be on wheels and mobile by the use of smart banking.


Note and coin counting machines:

To reduce the need of manual counting, note and counting machines are available which counts a bundle of notes placed on it. Loose notes are inserted into the machine. The machine then counts the notes at top speed, while simultaneously indicating the number counted on a digital display. Every time the number reaches 100, the machine stops, subject to it being fixed at 100 and allows for the bundle to be taken out. This machine does relieve the drudgery involved in counting. However, one limitation of this machine is that the notes have to be in fairly good condition for the machine to able to count properly. However, the machine requires all the notes to be in the same denomination.


Electromagnetic Cards: In the modern days of commerce credit cards have acquired a fairly

prominent and pervasive role. With the increasing use of credit cards the society is moving towards cashless transactions. In India however the use of credit cards is restricted to small value and mostly personal transactions. The two international credit card giants viz, Visa international and Master Card international are poised to make deeper inroad in untapped Indian market.

Types of electromagnetic cards:


Charge card: In such cards transactions are accumulated over a period

of time generally a month and the total amount is charged i.e. debited to the account. In charge card the amount becomes payable immediately on the debit to the account.

Credit card: This is the same as charge card where the transactions are

charged to the account with the total value of transaction debited to the card holder’s account once in a month. The difference between the credit and charge card is that in case of the credit card holder is given about 25 to 50 days time to credit his account in case there are insufficient funds in his account at the time of debit.

Debit card: A bank-issued card that allows its users to access their

funds for the purpose of paying for merchandise.


Smart card: There are two types of smart cards

intelligent memory chip and micro processor cards. The memory smart cards have been around for several years they are being used in paying phones, identification, access control, voting and other applications. Processer smart cards are the most advanced and are ideally suited for banking and financial application where re use of the card is allowed.


Member card: This is used by members of a club or a chain of hotels.

E.g. the Taj Card is a card issued by the Management of the Taj group of

Hotels to be used by patrons of their hotels .Similarly there are many other types of cards where the usage is exclusive to the members of the group.

With the development of modern communication facilities, electronic payment systems are becoming popular. These are teller machines available for bank customers within the bank as well as outside the bank premises. ATM’s which are being located even at public places, are able to provide the customers minimal banking services including cash payments round the clock. Shared ATM’s are also introduced in India where the services are provided across the banks. Customers need not necessarily visit the bank to do banking transactions when their banker provides them tele-banking or remote banking facilities. We have also seen that the various electronic and electro-mechanical aids that help the modern banker to efficiently render innovative and novel customer service. Equipments like note and coin counting machines help the banker to take care of the tedium in his task, reduce drudgery and at the same time efficiently discharge his functions. These technological aids not only take care of some of the physical routine tasks but also contribute substantially to efficient housekeeping functions and also render services that are in tune with the customer needs and satisfaction.

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