privatization in Pakistan
marketing oriented approach
By SHAZIA ZAHID
Aug 14 - 20, 2000
This paper will
attempt to understand the relationship between Bank Privatization and
Bank Marketing. In this connection Muslim Commercial Bank Limited has
been selected as a case study. Further the bank's first five years of
privatization are being analyzed from the strategic point of view.
Hence it has been tried to evaluate the extent to which the bank's
strategies and policies reflect the basic marketing principles and
concepts so that it would be easy to justify the statement created by
the writer that Bank Privatization is basically a Bank Marketing by
To reduce the deficit
on the Balance of Payment, structural adjustment policies have been
introduced in developing countries as a result of pressure applied by
the World Bank & IMF. An important conditionally of their policy
measures is liberalization & privatization of the state owned
one of the most significant policies in the wave of market reforms
during 1980s, which swept over the global economy. The Government of
Pakistan felt the need for privatization — as a social &
economic reform — in the late 80s. An idea came up with several aims
and objectives. The broad ones are to create a liberal economic
environment, achieve rapid industrialization, facilitate access of the
private sector to financial resources, improve productivity efficiency
and profitability, and develop a viable capital market.
Without denying an
importance of the objectives of privatization, the writer in this
paper has an intention to introduce the new meaning of Bank
Privatization. That is, Bank Privatization is basically a Bank
Marketing. In this connection it has been tried to prove that both
terms have the same basic objective, that is, to create an environment
of healthy competition in order to attain maximum growth & profit.
Furthermore MCB's first five years of privatization (1991 - 1995) have
been analyzed from the strategic point of view. It has been tried to
prove that plinths of the banking strategies are based on the core
marketing elements & concepts. The basic statement of this piece
of work is that Bank privatization in MCB Ltd. is not a traditional
borrowing & lending but it is a business with marketing oriented
Research methodology: The type of this research paper is descriptive
and it involves the extraction of the secondary data.
Organization of the paper: This paper has been organized in three
sections: Section I describes the "Bank's Strategic Marketing
Management" during the first five years of the Privatization
policy. The strategic choices are being matched with one of the key
concepts in the modern marketing theory called Marketing Mix".
Section II then confirms that after establishing the mix of the basic
elements of the marketing the bank has concentrated on the growth
strategies. Hence, again the strategies have been matched with well
known marketing framework proposed by "Ansoff" and called
Ansoff's Product / Market Matrix". Finally, in the last section
findings and conclusion has been given.
Strategic marketing management of MCB Ltd: During the early phase of
privatization, MCB Ltd seemed practicing the art of adoption and
response to a continuously changing market place. The bank tried to
develop and maintain a viable fit between the organization's
objectives & resources and its changing market opportunities.
Furthermore, the bank management seemed considerate to shape &
reshape bank business and products so that they can be combined to
produce satisfactory profit growth. This managerial process can be
treated as a 'Strategic Marketing Management' of MCB Ltd.
Exhibit - 1
shows the components of strategic marketing planning of the bank. At
the first place the strategic planning of the bank involves
environmental forces around the main task. Due to these forces the
traditional orientation of the Bank has become the business of
financial services with a much wider focus in relation to
consumer/market needs and consequent marketing strategies. However,
these environmental forces can create favourable opportunities that
can be translated into overall organizational goals and marketing
objectives. At the second stage, the marketing mix is manipulated in
order to support and implement marketing strategies and plans.
Philip Kotler 
describes marketing mix as the set of marketing tools that the firm
uses to pursue its marketing objectives in the target market. There
are literally dozens of marketing mix tools. McCarthy 
popularized a four-factor classification of these tools called the
four Ps: product, price, place, and promotion.
During the early stage
of the privatization policy, the marketing managers of MCB Ltd. have
been trained and assigned the job of 'blinding or combing' of the
above mentioned four key elements of all market activity. The managers
have been trained in such a way that combination may likely prove
attractive to chosen customer market segments.
Product: The 'products' of the bank are essentially services. It has
been noticed that before the policy of privatization, MCB Ltd. was
providing a set of distinct products which include commercial and
consumer loans, demand and savings deposits, private banking services,
and risk management services. But the privatization process and the
expansion and diversification of economic activities in the country
has demanded the customer based framework and the introduction of new
banking products. MCB Ltd. took initiatives and marketed new products
and services with brand names to cater for the varying requirements of
its diverse customers. Some of them include:
Mahana (monthly) Khushali Scheme: A five year fixed deposit scheme;
targeted of persons with small savings who would desire a regular
monthly return on their investment.
Capital Growth Certificate Scheme: This product has been introduced
for long term depositors under which the amount deposited almost
doubles at the end of five years.
Constancy services: In the process of privatization of public sector
units, prospective buyers need professional assistance and MCB Ltd.,
with its expertise, has offered specialized services for valuation of
the market value of the industrial unit, preparing bid documents and
arranging finance for the purchase of the unit.
Self - Supporting Scheme: For the benefits of genuine
workers/borrowers who are poor and needy and for small entrepreneur
the bank has evolved a self supporting scheme: maximum amount of loan
(free of mark -up) Rs. 25,000 and minimal Rs. 5000 per individual [MCBs
Annual report 1991].
FAX Press: This product was first of its kind introduced by using
modern technology of the FAX machine. It facilitates speedy transfer
of finds within Pakistan. The service guarantees transfer of from one
city to another, within an hour.
Night - Banking Services: For the convenience of the account
holders, this service has been introduced at busy commercial centers.
Traders and other clients can now make deposits, with ease, at such
centers up to 8.00 p.m.
Utility - bills collection: With the aim of extending this service
to wider range of customers, the number of MCB branches collecting
utility bills have been increased to as many as 1056 branches [MCB
Annual Report: l994]
product development has served bank-marketing ends in many ways. Such
as; (i) the bank has attracted consumers from outside the bank's
market, customers of leasing companies and investment banks are
typical examples. (ii) in addition, by providing FAX Press, Mahana
(monthly) Khushali Scheme, the bank attracted core accounts from
Price: A critical marketing mix tool is price. Price is important
since it represents the amount of money that customers have to pay for
the services received and it is the only element of the bank marketing
mix that creates revenue. The most important pricing in the banking
system relates to interest rates; but as the government controls basic
interest rates therefore the use of price as an important element in
bank marketing has tended to be neglected. Bank Privatization, coupled
with the introduction of new technology and the arrival of the new
aggressive bank and non-bank competitors is forced a reappraisal of
the use of pricing strategy. In this regard the writer noticed that
MCB Ltd has an advantage of credible bank image and on the basis of it
the bank has set out particular pricing system.
Hence the bank's
strategic pricing objectives were:(i) maximization of profit, (ii)
rate of return on investment, and (iii) obtaining market share.
tool stands for the various activities the bank undertakes to
communicate its products merits and to pursue target customers to use
their services. MCB Ltd has used term promotion to decide how
information about the bank and its services can be disseminated. The
Bank widely used (still using) the four basic promotional tools for
this purpose. These are:
Advertising is the
bank's paid non - personal presentation and promotion of goods and
services by an identified sponsor; television and media are typical
examples. Bank managers have used personal selling in order to create
an impression of trust, reliance, friendliness and familiarity. Most
importantly, the bank remained quite successful in attracting
customers through sales promotion; these include the clocks, pictorial
cheques books, gifts etc. I must say that the bank's promotional tools
have enhanced the perception of the bank and its brands through
increasing awareness. This awareness was essential especially when
there was increasing competition from foreign banks, and other
Place/Means of distribution: In marketing, distribution is the means
through which a seller makes his product available to the buyer. A
channel of distribution for banking should be considered in a somewhat
different manner. It can be regarded as any means of increasing the
availability and / or convenience of a service that increases its use
or the revenue from its use.
During the early phase
of the privatization, MCB Ltd seemed to focus on two channels of
Bank branches: This is the most important channel of distribution
for the bank as the bank is conveniently serving potential customers
and from which the largest portion of business is being generated.
Following are some basic steps taken by the bank at the initial stage
of the implementation.
The bank began with
five computerized branches to provide on - line banking. One of the
facilities was the real time banking to draw and deposit amount from
any of participating branches. In order to satisfy the unique needs of
net - worth clients, MCB Ltd has opened special personal banking
branches. These branches were equipped to give the investment advisory
services to local and international capital market clients. The bank
started providing Saturday banking in almost all the major cities of
the country and such branches were equipped with ATM (Automated Teller
Bank Credit Cards: This is a means through which the bank offers its
credit services to the users. MCB cards, which have been on the scene
for the last 20 years, were not very popular. These cards were re -
launched with a photograph on the credit cards in July 1994; and this
was me first time that the credit cards with the photograph of the
owner were introduced in the country. MCB has entered into a contract
with Master Card International and made the access of the card
possible at 11 million outlets all over the world. Bank credit cards
have enabled the bank to overcome the factor of inseparability, by
offering credit to customers far outside their immediate trading area.
It has also prompted the increasing use of the bank's services by
existing customers, as well as establishing contacts with a wide
variety of traders and persons who may not otherwise use the services
From the foregoing
review it is quite obvious that the bank's basic policy has remained
the improvement of customer services and the modernization of banking,
so that international standard banking services are available in
After establishing the
mix of the basic elements of the marketing, the bank has concentrated
on the growth strategies. Of particular relevance here is a common
framework for the analysis and determination of growth strategies is
Ansoff's Product / Market opportunity matrix (Ansoff, 1965). It has
been described in detail in section II.
The notion behind
above matrix is that in developing a strategy for growth, the
organization must determine whether to concentrate on existing or new
products and existing or new markets. This suggests four possible
options, which are outlined in exhibit -2. The first three - market
penetration, market development, product development are regarded as
intensive growth strategies, while diversification is regarded as a
form of extensive growth. These strategies are further defined in
(a) Market Penetration Strategy:
With market penetration strategy the bank management first consider
whether it could gain more market share with its current products in
their current markets.
(b) Market Development Strategy: Next,
it considers whether it can find or develop new markets for its current
(c) Product Development Strategy:
Then, it considers whether it can develop new products of potential
interest to its current markets.
(d) Diversification Strategy:
Finally it will review opportunities to develop new products for new
These strategies have been
examined further as follows:
Market penetration: The bank
has focused to increase sales of existing products in the existing
market by means of increased and more effective positioning and
targeting, delivery and promotional activities. Some basic strategies
prevail the following:
i Selling present services to new
customers: Within the framework of existing customer segments, the
bank has tried to attract new customers and a higher share of market;
for example, the bank has assisted small and medium sized business
particularly in the agriculture and housing sector.
ii Selling more services to present
customers: The bank has tried to develop long lasting relationship
with the existing customers. This was perhaps the most important
strategy of the bank that demanded efficiency. In this regard, the bank
has established effective advertising and promotion, ATM network, and
iii Introducing MCB Visa and MCB
Master card: The introduction of these cards was a major marketing
operation and despite the enormous initial cost this was the highly
successful exercise in terms of the market penetration that was achieved
and the ultimate profitability.
Market development: Under this areas MCB is concerned with
developing sales of its present products / services in new markets, the examples
a) targeting of working
women within broadly defined existing markets.
b) targeting of new
markets based on geographical factors. As part of an overall growth strategy the
bank has opened two important branches in London and Beijing during the year of
l993. During 1994 the bank has further expanded its services in Sri Lanka and
Bangladesh [MCB's Annual Reports].
Product development: The objective behind this strategy was to
introduce and develop sales of new products / services in existing markets. Some
(a) MCB - Saving 365
Scheme', introduced in 1991, with the special benefit for the business community
as the profit has been paid on daily product basis. (b) 'Fund Management Scheme'
it has been offered to corporate and other customers in order to provide a
better rate of return up to 15 % per annum. One of the objective of this service
was to develop secondary market for government securities.
Diversification: This was perhaps the most difficult growth strategy
for the bank as the bank tended to grow by focusing on new services and new
markets, in an endeavor to pursue 'newness'. This was a risky strategy as the
bank had limited experience in some areas; but, due to professional experience
and dedication the bank has succeeded. A typical example is a diversification of
investment portfolios in the energy sector. In 1993, the government's new Energy
Policy has set out the framework for private participation in power generation.
Supporting this policy, the MCB has set up a special Energy Cell with the sole
task of assisting investments in this crucial sector.
An attempt has been made in this
work to justify the notion that privatization is a way to utilize the resources
of the country more efficiently. The banking industry of Pakistan seems to have
adopted this notion as the 'marketing - oriented approach ' and has changed its
strategic moves towards this direction. It has been shown that there are
positive economic, social and financial implications of this approach. This work
further confirms that privatization of the bank is the key to better and
efficient management because the society's needs are satisfied more efficiently,
effectively, and equitably. Therefore, it can be said that an inception of the
marketing concept is the more appropriate organizational philosophy that leads
the banking industry of Pakistan towards growth and more profit.
An overall reflection of bank's
successful implementation of privatization policy can be found in the fact that
MCB which was ranked fourth among the largest national banks in late 80s has
moved up to the third position [MCB's Annual Report; 1995: p 8]. In addition,
compared to 1991, in 1995 bank deposits had increased by 184 %, advances had
gone up by 143 %, investments by 237 % and profit after tax by 455% [MCB's
Annual Reports]. Above all, it must be noted that the bank has achieved the
support and confidence of customers, whose number in five years swelled by more
than 1.1 million [MCB's Annual Report; 1995].
Furthermore, the banking
industry, globally, is improving in terms of technology, competition,
knowledgeable and sophisticated consumer. Keeping in view the above scenario, it
seems that the privatized bank that has a potential and strategies to cope up
will eventually take a lead position in the next century.
The bottom line of this piece of
work is that, indeed, privatization is strategic approaches that 'causes' bank
management to adopt good management techniques because it poses a competitive
threat, but, without a radical approach to marketing banks won't win the race
against the growing number of competitors.
author has remained a Faculty Member in the Department of Management Sciences at
Isra University Hyderabad and is very much thankful to Prof. Dr. Amanat Ali
Jalbani, Chairman of the Department.