Success of a firm can be gauged by the fact that how well it can place its products in the mind of consumers. But, what kind of positioning works when it comes to entice customers in the retail banking arena, an industry that lacks product differentiation?
Beyond a point, this question haunts every business in the world irrespective of which industry it operates in. However, the root to this question lies in the classic viewpoint whether the business is offering a commodity or a service.
Business is a ‘commodity’ if there is no difference between the product offerings of Company A and Company B, whereas, business is a ‘service’ if the customer can sense the difference between the product offerings of the two. In case of former, that is commoditised businesses, the only way to face the competition is by cutting prices. This naturally results in the squeezing of margins for all the players in the industry as everyone tries to compete by undercutting the prices. However, in case of latter, that is in service businesses, as there is differential factor in the product offerings, the customer will be willing to pay extra price for the product of a company that is offering superior service. Meaning thereby that the company offering higher quality product stands in a position of strength to charge higher price.
Hence, the companies in the finance industry have to position their product offerings in a manner that the customers start perceiving them as ‘service’ and not ‘commodity’. One factor is, designing of such product offerings as ‘services’, while the other is positioning them as such.
Further, in case of retail banking in specific, the single most important factor is ‘credibility’. In fact, the terms ‘banking’ and ‘credibility’ are synonyms. Some of you can recall in how little time a banking institution can come crumbling down (remember the panic that spread about the survival of ICICI Bank in October 2008 in a matter of just few days). Once the confidence of the depositors and investors is lost, it just takes few days to wipe out giant institutions. Hence, the top most factor that any retail banking company should focus on is credibility and dependability.
Besides credibility, the banking institutions should be able to differentiate themselves with deeper penetration and locational reach. Thanks to its legacy of generations and its majority ownership with the government, SBI has penetrated into every nook and corner of the country with more than 11,111 branches. This gives it an unique advantage of wide spread distribution capabilities of its products and certainly adds to the confidence of its customers.
Then, of course, the most important differentiator is ‘the quality of service’. It should be professional, effective, timely and efficient. For this, the banks should adopt the latest technological advancements and innovative methods so that it’s in a position to provide better quality of service to its customers. For instance, some banks have tied up with leading stock broking companies, so that the online trading facilities can be made available to all the account holders of the bank. These kinds of tie-ups help banks to provide better service and also attract more clients.
No doubt, the banking industry circles around the concept of ‘interest rates’. But, as the entire banking industry of the country is regulated by the RBI, more or less, the interest rates will fall in line across all the banks in the industry. Hence, beyond a point, it’s not the interest rate factor that can really form the basis of competition amongst banking institutions. Moreover, broadly speaking, ‘interest rate’ for a bank is a ‘commodity’.
Therefore, it is always sensible and profitable for any banking institution to entice customers by providing ‘service’ elements such as credibility, deeper penetration, technology and innovation.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Management guru Arindam Chaudhuri’s latest blockbuster book, Discover The Diamond In You
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Delhi/ NCR B- Schools get better By Swati Sharma
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Detail of all IIPM branches
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IIPM - Admission Procedure
IIPM, GURGAON
Beyond a point, this question haunts every business in the world irrespective of which industry it operates in. However, the root to this question lies in the classic viewpoint whether the business is offering a commodity or a service.
Business is a ‘commodity’ if there is no difference between the product offerings of Company A and Company B, whereas, business is a ‘service’ if the customer can sense the difference between the product offerings of the two. In case of former, that is commoditised businesses, the only way to face the competition is by cutting prices. This naturally results in the squeezing of margins for all the players in the industry as everyone tries to compete by undercutting the prices. However, in case of latter, that is in service businesses, as there is differential factor in the product offerings, the customer will be willing to pay extra price for the product of a company that is offering superior service. Meaning thereby that the company offering higher quality product stands in a position of strength to charge higher price.
Hence, the companies in the finance industry have to position their product offerings in a manner that the customers start perceiving them as ‘service’ and not ‘commodity’. One factor is, designing of such product offerings as ‘services’, while the other is positioning them as such.
Further, in case of retail banking in specific, the single most important factor is ‘credibility’. In fact, the terms ‘banking’ and ‘credibility’ are synonyms. Some of you can recall in how little time a banking institution can come crumbling down (remember the panic that spread about the survival of ICICI Bank in October 2008 in a matter of just few days). Once the confidence of the depositors and investors is lost, it just takes few days to wipe out giant institutions. Hence, the top most factor that any retail banking company should focus on is credibility and dependability.
Besides credibility, the banking institutions should be able to differentiate themselves with deeper penetration and locational reach. Thanks to its legacy of generations and its majority ownership with the government, SBI has penetrated into every nook and corner of the country with more than 11,111 branches. This gives it an unique advantage of wide spread distribution capabilities of its products and certainly adds to the confidence of its customers.
Then, of course, the most important differentiator is ‘the quality of service’. It should be professional, effective, timely and efficient. For this, the banks should adopt the latest technological advancements and innovative methods so that it’s in a position to provide better quality of service to its customers. For instance, some banks have tied up with leading stock broking companies, so that the online trading facilities can be made available to all the account holders of the bank. These kinds of tie-ups help banks to provide better service and also attract more clients.
No doubt, the banking industry circles around the concept of ‘interest rates’. But, as the entire banking industry of the country is regulated by the RBI, more or less, the interest rates will fall in line across all the banks in the industry. Hence, beyond a point, it’s not the interest rate factor that can really form the basis of competition amongst banking institutions. Moreover, broadly speaking, ‘interest rate’ for a bank is a ‘commodity’.
Therefore, it is always sensible and profitable for any banking institution to entice customers by providing ‘service’ elements such as credibility, deeper penetration, technology and innovation.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Management guru Arindam Chaudhuri’s latest blockbuster book, Discover The Diamond In You
IIPM fights meltdown, places 2300 students By Education Mail Bureau
Delhi/ NCR B- Schools get better By Swati Sharma
Events at IIPM
Detail of all IIPM branches
IIPM set to beat economic slowdown
IIPM - Admission Procedure
IIPM, GURGAON
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