Mar 8 - 14, 2010

Peter F. Drucker once said: "Marketing is so basic that it cannot be considered a separate function... Its is the whole business seen from the point of view of its final result, that is, from the customer's point of view."

We, despite being a developing (or underdeveloped) economy, are living in an over-advertised and thus over-priced product market, banking industry being no exception.

The basic marketing philosophy embodies four different marketing approaches namely product concept, selling concept, marketing concept, and societal marketing concept. Philip Kotler summarizes these four basic approaches in the following words.

PRODUCT CONCEPT: The product concept is a management orientation that assumes that consumers will respond favorably to good products that are reasonably priced and that little company market effort is required to achieve satisfactory sales and growth.

SELLING CONCEPT: The selling concept is a management orientation that assumes that consumers will normally not buy enough of the company's products unless they are approached with a substantial selling and promotion effort.

MARKETING CONCEPT: The marketing concept is a customer orientation backed by integrated marketing aimed at generating customer satisfaction as the key to satisfying organizational goals.

SOCIETAL MARKETING CONCEPT: The societal marketing concept is a management orientation aimed at generating customer satisfaction and long-run consumer and public welfare as the key to satisfying organizational goals and responsibilities.

Pakistan's banking industry started with the product concept assuming that banking service was the need of the people who would come to the banks without the later making any conscious effort to attract the former. The trick of the trade was to provide personalized service to the clients. Since the pricing issue was not at hand in view of the State Bank's explicit directives with regards to the deposit and lending rates (and allied service charges), the competing banks mainly relied on better service standards and connections with the business and industrial communities. With the passage of time, selling concept replaced the product concept and marketing efforts came to the fore in the shape of radio advertisements and other forms of publicity. One might be reminded of that popular HBL radio advertisement: mera bank, mera bank; mela bhi to hay. Surprisingly, till that time the banks did not have their marketing divisions. Some of the banks used to saddle their public relations officers with the responsibility of carrying out marketing programs.

It didn't take too long when the marketing concept took over and customer needs and satisfaction got the centre place in bank-executives' marketing strategy design. Arguably, Habib Bank dominated the scene by excelling in product innovation. School banking and infant banking, when bank vans would visit schools, hospitals and maternity homes to open accounts of students and the newly-born, were genuine yet unique marketing efforts.

Unit-branch-banking, drive-in-banking, evening banking, traveler cheques etc. were the other innovative products that facilitated bank customers. Habib bank also holds the distinction of introducing for the first time "deposit insurance" scheme that created ripples in the entire banking industry. Habib Bank's deposits went suddenly up and the other banks filed a petition with the regulator. The scheme was discontinued on the basis of unfair competition. A pragmatic approach would have been to allow the other banks too to adopt the scheme.

The societal marketing concept that focuses on organizational responsibilities could hardly be put into practice anywhere in the world. The out of tune and excessive marketing efforts, the wasteful and high-cost fancy packaging, creation of cartels, all add up to increase the product cost manifold for the end consumer. The corporate social responsibility objectives get lost in the heat of aggressive promotional competition and profit maximization. The banking sector too, in line with the business and industry sectors, has failed to show concern for its social responsibility. With the help of the historically highest banking spread, the banks have made incredibly huge profits without significantly contributing to the social sectors of the economy.

It is not possible to discuss marketing without focusing on 4 P's (product, price, place, and promotion). No doubt, the product range of the banking industry has kept widening with the passage of time. The conventional business of accepting deposits and lending depositors' money has now stretched to such products as credit card, car finance, mortgage and personal loans etc. The technological changes and modernization have created such products as online banking, e-banking, tele-banking, on-the-spot money transfers, 24-hour cash withdrawal facility etc.

Islamic banking, perhaps, has been the most revolutionary product innovation. In line with the dictates of the marketing concept, the banks responded to the customers' need of an interest-free banking system. The expansion of Islamic banking business and the supporting network has been phenomenal. The banking sector can rightly boast of such Islamic products as Modaraba, Morabaha, Musharika, diminishing Musharika, Ijara etc.

On pricing side, banking sector's performance, especially during the last eight years or so, has been highly questionable, to say the least. Historically, banking sector's price mechanism depends on the SBP policy rate. Banks' profitability increased manifolds during the recent past, but their main business partners the depositors were left high and dry. With the each upward revision of SBP rate, the banks not only raised their future lending rates but also scaled up their rates for existing borrowers taking advantage of the floating rate system. A corresponding increase in the rate of return to the depositors never took place with the result that the bank's spread kept moving up, in some cases touching the double digit mark. The State bank failed to properly regulate the banking sector to the great disappointment of the depositors.

The third P (place) refers to the distribution channels i.e. the branch and supporting office network. The banking sector has a well developed and well coordinated branch network that caters to the banking needs of the entire nation. The outreach of the network extends to far-flung and remote areas of the country. During the downsizing era, the overall branch network of each and every bank shrank drastically when all loss-making branches were closed down. This step was in contravention of the societal marketing concept that lays emphasis both on organizational and social goals. The closure of branches satisfied the organizational goal of profit maximization but ignored the banking sector's social responsibility that demands easy and inexpensive accessibility to banking services for all people of the country.