BANK PRIVATIZATION IN PAKISTAN
A 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 the bankers.
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 enterprises.
Privatization became 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 approach.
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]
The above-mentioned 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 competitors.
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.
Promotion: This 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 financial institutions.
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 distribution, viz:
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 Machines) network.
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 provided.
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 Pakistan.
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 following paragraphs:
(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 products.
(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 markets.
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 Saturday banking.
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 include:
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 examples include:
(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.
* The 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.