ASSIGNMENT OF

STATISTICS
What is the importance of understanding probability in marketing of
financial products and services

PRATIK KUMAR SINGH

NIIT UNIVERSITY
What is the importance of understanding probability in marketing of
financial products and services?
 To know about importance of probability in marketing of financial products
and services we have to first know about probability.

Here question arises that what is probability?

So answer of this is that Probability means how likely an event is going to
occur . Probability is the branch of mathematics which deals with the
occurrence of random event or particular event .

Now what is marketing?

Marketing refers to activities a company undertakes to promote the
buying or selling of a product or service. Marketing includes
advertising, selling, and delivering products to consumers or other
businesses. 

Now what is financial products?

So financial product is an instrument in which a person can make a financial
investment, can borrow money, can save money. Financial products are
issued by banks, financial institutions, governments or companies.
Now come to main point that What is the importance of understanding
probability in marketing of financial products and services ..?

Probability plays an important role in every field of human activity.

 Many businesses uses the understanding of probability in their

business for decision making .
 Probability helps business to take good and profit making decisions.
 Investment –
The profit of business relies on how a business invests on its sources . One
important part of investment is to know the risk of investment . A wrong
investment can send a company to downfall so for investment we should
now where to invest . Business uses probability to make investment as a
calculation method . A business uses probability to calculate which
investment going to yield the greatest expected profit .

 Probability helps in increase of profitability and helps im success of a

business .
 Competitive Strategy –
Probability models such as Markov chains allow companies to
mathematically analyse long term strategies to find which ones yield the
best results .
 Probability plays vital role in marketing analysis. The higher probability
means its is the maximum chance that that event will occur .
 In marketing probability is used in analytics of website
 Hall and miles suggests an approach of estimating default probabilities
of individual banks using only their stock market valuation.
 Probability and statistics could help to shape effective monetary and
fiscal policies and to develop pricing models for financial assets such as
equities, bonds, currencies, and derivative securities .
 Scenario Analysis-
Probability distributions can be used to create scenario analyses.
 A scenario analysis uses probability distributions to create
several possibilities for the outcome of a particular course of
action or future event.
Example, a business might create three scenarios: worst-case, likely and
best-case. The worst-case scenario would contain some value from the
lower end of the probability distribution; the likely scenario would
contain a value towards the middle of the distribution; and the best-
case scenario would contain a value in the upper end of the scenario.
 One practical use for probability distributions and scenario analysis in
business is to predict future levels of sales.
 Probability distribution can be a useful tool for evaluating risk. If the risk
chances are higher then we do not have to invest there .
 Companies rely on interest rates for multiple reasons – borrowing
money, investing in the fixed income market, and trading in currencies
overseas. Any unexpected shifts in interest rate values can hit a
company hard in the pocketbook, and can negatively impact profits and
revenues. With Probabilities, companies can better evaluate systematic
changes in interest rates, and steer their financial resources to take
maximum advantage.
 In banking the most common is credit risk in which a bank can assume
that whether the borrower will repay the loan or not. It also helps to
assume the loss rate of bank given by the defaulter if the customer have
not repaid the loan.
 Operational risk can also assume by the help of probability in financial
services. If there is system hacking or internal fraud in the organisation
then the loss can be predicted by the help of probability. If we take an
example of server down in bank there is huge loss of bank and the bank
can predict their loss by the help of probability.

Example –
As shown is figure below, the age profile of a target population
(universe) is broken down into 4 groups: below 20, 20 to 30, 30 to 50
and over 50. The proportion of the population that falls in each group is
20%, 20%, 40% and 20% respectively, and the proportion of brand
buyers in each is 10%, 15%, 20% and 15%. Based on this information,
the proportion of brand buyers in the target population is 16%, as
computed in figure below.

Submitted by Pratik Kumar Singh