An intensely competitive environment characterizes the present day investment banking. This is due to the proliferation of Internet and advancement of information and communication technologies, which have not only widened the range of financial products and services, but also provided an extensive knowledge to the customer about the products and services including the quality levels offered by different players in the industry. This has necessitated the adoption of a suitable marketing strategy by the investment banks. This study investigates the role of marketing in the promotion of business by investment banks. The role and impact of relationship marketing is the central focus of the study. The study discusses the salience of relationship marketing through the case studies of HSBC and Citigroup. The study suggests the identification of the proper customer segment to realize the full potential of relationship marketing, in view of the costs involved in implementing the relationship marketing.
The success of a bank depends more on the perceptions and preferences of its customers. (Yavas et al., (2004) have identified the significant impact of customer perceptions and preferences on the growth of a banking institution. According to Chumpitaz & Paparoidamis, (2004) analyzing markets based on the perceptions of the customers and designing a customer delivery system based on such analysis enables the banks to gain competitive advantages. When a bank follows the objective of meeting the customer needs and enhancing the quality of its services, the bank is sure to gain and sustain distinct competitive advantages. The development of information and communication technology has as significant influence in the way a bank or other financial services organization conduct its business and maintain the relationship with its customers (Dabholkar & Bagozzi, 2002). The pressure on banks to enhance their profitability has forced them to move away from the traditional transactional and quick sale approach towards an improved relationship-based approach to market their products and retain the customers (Duddy & Kandampully, 1999; Moria, 1997).
Number of studies have analyzed the relationship between service quality and customer retention in the context of banks and other financial institutions (e.g. Ranaweera & Neely, 2003); Caruana, 2002). In this context, Bei & Chiao, (2001) identified the quality of service level as an important element in attracting and retaining customers by financial institutions. Reichheld & Schefter, (2000) reconfirm that by providing superior quality service using automated services, the financial institutions could accomplish higher rate of customer retention. Within this context, this study analyzes the role of marketing strategies by investment management institutions including investment banks in attracting and retaining customers. The study focuses on the concept of relationship marketing.
Investment Banking – an Overview
There exists a close relationship between banks, financial markets and the macro economy. This relationship has been studied in the past in detail by several researchers (Cameron, 1997; Goldsmith, 1969) ). These studies reveal that well-developed financial markets are necessary for the overall economic development of any nation. The investment banks form the foundation for the development of financial markets.
In broad terms, investment management companies consist of firms whose activities relate to issuing, distributing and selling securities and other related financial products. The activities of investment banks include underwriting, brokerage and market making. Commercial banks and several other financial institutions are involved in investment banking activities. The firms operating in this industry appear to have significant competitive advantage in undertaking investment banking activities and other brokerage related activities. “Historically many of the securities firms have specialized in one or more of the product market areas, such as institutional brokerage, retail brokerage, exchange floor brokerage or corporate and municipal finance. Other firms have engaged in a relatively full range of securities activities, but limited themselves to a particular region of the country.” (Hayes et al., 1983)
Competition among the investment banking institutions has received great attention during the recent period. Proliferation of Internet and other information and communication technologies has increased the customer knowledge on the availability of various financial products and services and their relative merits and demerits. Consequently, the customers have become well informed of the intricacies of investing their surplus funds and their choices and expectations of services from the investment banks have gone up tremendously. This has necessitated the investment banking institutions to adopt suitable marketing strategies to market their products and services successfully.
Economic globalization, cross-border activities and consolidation have made the investment banking industry go through incredible transformation. The business environment today witnesses a number of banks crossing international borders to market their products and services in various geographical locations across the world. The role and importance of investment banking can be seen from their engagement in public and private market transactions for corporations, governments and investors and in providing a number of benefits to these participants. Importance of investment banks is also enhanced because the services and efficiency of them affect the financial markets and ability of investment banks in minimizing the cost and maximizing profits is important for both the banks and their clients. Investment banks also contribute to the improvement of various industry segments. (Radic & Fiordelisi, 2008)
Investment banking can be defined as the service of intermediation between issuers of stocks and investors through their involvement in advisory, mergers and acquisitions, debt capital markets and equity capital markets. There are a number of factors, which have acted as key drivers for the proliferation of investment banking institutions and their expansion on a global basis. Some of these drivers include globalization initiatives aided by cross-border investment flows, increased accumulation of investment assets owned by large corporations, securitization and economic deregulation measures adopted by different countries in the wake of economic globalization. Gardner and Molyneux (1997) have identified similar factors, which facilitated the evolution of the present day investment banking like the advancement in technology, changes in regulatory frameworks, distribution of property rights and other economic forces that have an effect on the investible funds of individuals and entities.
Considering the scope of this research and the complexity of the investment banking business, the literature definition of investment banking is provided below:
“Investment bank’s business can be categorized in to five main areas: broking (the broking of securities is commodity business in which firms appeal to customers mainly on price and integrity); trading (the trading of securities drives on market volatility); investment banking (represents the underwriting of new issues and advisory work also referred to as Mergers and Acquisitions); fund management (includes both retail and wholesale fund management); interest spread (income derivatives from borrowed funds).” (Gardner & Molyneux, 1997).
Full service and boutique are the two kinds of investment banks. Full service investment banks offer clients provide a range of services to their clients to meet their specific needs. These services include “underwriting, mergers and acquisition advice, trading, merchant banking and prime brokerage.” (Radic & Fiordelisi, 2008) For example, Goldman Sachs is one of the investment banking institutions that offered services in investment banking, trading and principal investments, asset management and security service. In contrast to the full service investment banks, boutique investment banks offer specialized services in specific segments of the market and they do not form part of any larger financial services institutions. An example may be found in Greenhill, which specializes in “Advisory services in Mergers and Acquisitions, financial restructuring and Merchant banking.” (Radic & Fiordelisi, 2008) Similarly, Lazard offers “Financial advisory and Asset Management services.” (Radic & Fiordelisi, 2008)
The role of marketing in investment banking can be seen from the fact that investment banking is mainly a revenue-motivated business. For most of the investment banks, earnings from the investment banking activity constitute only a part of total earnings. In order that the investment banks maximize the contribution to the total revenue from the investment banking activity, it becomes important that suitable marketing strategies are developed and implemented.
Marketing – a Background Note
“The concept of marketing is the exchange process in which two or more parties give something of value to each other to satisfy perceived needs.” (Kurtz, 2008) People exchange money for goods or services depending on their needs and preferences. The services may be both tangible as well as intangible and exchange of money can take place in return for a combination of goods and services. Although marketing has always been regarded as a part of business, the importance of marketing has varied through time and the history of marketing has passed through, different periods concerning manufacturing, sales and customer relations. After the periods of Great Depression and World War II the marketing era emerged during which there had been a shift in the focus from products and sales towards satisfying customer needs.
The shift from the seller’s market to buyer’s market created the need for consumer orientation by the businesses. The need for the companies to market their products and services increased and this brought changes in the marketing concepts. Marketing assumed a conceptual base in which a company-wide customer orientation to achieve a long-term success of the business became the primary element (Kurtz, 2008).
The objective of marketing strategies has undergone major changes in the last decades towards building the commitment of the customer towards a brand or a dealer. The development has taken the forms of (i) creating customer satisfaction through the delivery of superior quality products and services, (ii) building brand equity, which is facilitated by factors like perceive quality, brand loyalty, association of the customer towards the brand, trademarks, packaging and convenience of distribution channels, and (iii) creating and maintaining relationships. Of these three forms, customer satisfaction by delivering quality products and services and creating and maintaining customer relationships have been particularly pursued by bankers.
Relationship marketing enables financial institutions develop mutually beneficial and valuable long-term relationships with the customers (Ravald & Gronroos, 1996). O’Mally & Tynan, (2000) observe that relationship marketing works more effectively in cases where the customers are highly involved in the services provided by the institution. More specifically in the case of investment banks and other financial institutions, customer oriented relationship marketing programs facilitate free and meaningful flow of information between the institutions and the customers. Such a flow of information enhances the positive feeling of the customers towards the bank, which leads to increased satisfaction and relationship strength (Barnes & Howlett, 1998; Ennew & Binks, 1996). Past studies provide knowledge about the nature and importance of relationship between customers and banks from the perspectives of customer and business (O’Laughlin et al., 2004; Madlill et al., 2002).
Although relationship marketing can be extended to all types of customers of banking institutions, Carson et al., (2004) are of the view that it need not be directed towards all the customers. Usually, banks have both profitable and unprofitable customers and in most cases the profitable customers subsidize the unprofitable ones (Zeithaml et al., 2001). Investment banks find it difficult to retain profitable customers, because of the increasingly competitive environment. The financial institutions specialize in offering attractive services and prices to the profitable customers to lure and retain them. Since investments in all the customer segments are not likely to result in yielding similar returns, relationship marketing is directed towards the most profitable market segments only. The profitable segments are identified by the associated income and wealth (Abratt & Russell, 1999).
Within the realm of investment banking, relationship marketing has a significant role to play, as the present day customers are well informed about the level of service quality they can expect from the financial institutions offering various investment services and other financial services products. The objective of this paper is to analyze the role and function of relationship marketing as one of the marketing strategies of investment management companies especially the investment banks.
Aims and Objectives
The central focus of this study is to evaluate the role of marketing in promoting the investment banking activities of investment banks and other financial institutions. In the process of studying this central aim, the research accomplishes the following goals.
- To study the impact of changes from the traditional transaction-based marketing towards relationship-based marketing on the business of investment banking
- To examine and evaluate the different marketing strategies being followed by investment banks in managing their business including the product offerings and service offerings by the investment management institutions
- To make a comparative study of the marketing strategies of HSBC and Citi Bank to compare and contrast the strategies for their effectiveness
The current research through a comparative case study and a review of the relevant literature attempts to find answers for the following research questions.
- What are the usual marketing strategies adopted by the investment banking institutions to market their products and services?
- What are the significant motivating factors for the investment banks to turn towards relationship marketing?
- What is the target population for the marketing strategies of investment management companies and how effective the marketing communications of these institutions in reaching the target population?
This research uses a ‘positivist case research’ approach, and a qualitative research method of multiple-case study design to analyze data and information relating HSBC and Citi Bank. Even though this study does not differ greatly from other studies, it identifies the effectiveness of the role of relationship marketing in investment banking activities as compared to a transactional marketing approach and to this extent; the study differs from past studies. This study is different as it evaluates the major reasons for the investment banks to take up relationship marketing as one of the prime marketing strategies.
Significance of the Study
In the present day competitive business environment and global exposure of investment management institutions, devising an appropriate marketing strategy has assumed prominence. It becomes essential that the managers should have a thorough understanding of the marketing concepts and latest developments in the application of marketing concepts in the field of investment management. Relationship marketing has been found to be of relevance in the context of marketing by the investment banks. From the customer perspective, the relationship with a particular bank becomes important to decide and maintain such relationship for a longer period. From the bank’s perspective retaining of profitable customers is of prime importance ad this involves the implementation of relationship marketing strategies in conducting the business. Therefore, the study of the role and impact of relational marketing strategies on the investment banking becomes important. To this extent, the current study attempts to add to the existing knowledge on the different facets of relationship marketing in investment management field.
This dissertation is structured to have different chapters concentrating on the different aspects of research. Following the first chapter introducing the topic of study and laying down the research boundaries in the form of research aims and objectives and research questions, is chapter two presenting a review of the available literature. Chapter three describes the research method. Chapter four contains the findings of the research from the case studies and an analysis of the findings. Concluding remarks and few recommendations for future research are presented in the final chapter five.
The objective of this chapter is to present a review of the relevant literature on the topic of role of marketing in investment banking. The review will add to the exiting body of knowledge by reviewing the past research findings and theoretical contributions on the concept of relationship marketing and its influence on customers for financial service products. The determinants of customer satisfaction and customer loyalty in investment banking are also reviewed.
The investment banking industry across the world has gone through significant transformation due to cross border activities and consolidation taken place in the industry (Radic & Fiordelisi, 2009).. A higher disposable income available with the consumer increases the chances marketing more investment products. Transformation in fiscal policies and deregulations and improvements in the financial services sector help the growth of the market for investment banking products (Radic & Fiordelisi, 2009). Traditionally, the preponderance of these products is distributed through financial intermediaries who work on a commission basis. However, with the development of newer financial service product offerings and intense competition among market players, the necessity for evolving new techniques and strategies for marketing of these products has evolved (Kunst & Lenmink, 2000; Stafford, 1996). Once again, this information needs to be substantiated One of the relevant concepts in marketing is the relationship marketing, which is found to be more influential in establishing and maintaining customer loyalty and satisfaction for improved performance of retail as well as investment banks (Berry, 1983; Dwyer et al.,1987; Gronroos, 1994; Gummesson, 1994; Sheth & Parvatiyar, 2000).. This may be so, but who says so – is it your opinion? If so, it is not valid in a literature review
In the modern customer centric competitive business environment, customer satisfaction, service quality and customer loyalty have proved to be the major factors in establishing a casual and cyclical customer relationship, which is vitally important for the growth of investment banking business (Jamal & Naser, 2002) With a higher perceived level of service quality, the customer remains more loyal and satisfied which in turn increases the business of the investment banks (Lloyd-Walker & Cheung, 1998). More specifically, financial institutions such as investment banks have increasingly understood the strategic importance of customer value. With this realization, the institutions are continuously striving to evolve and implement innovative strategies that could enhance customer relationships. (Kunst & Lenmink, 2000; Stafford, 1996). In this context, it is to be noted that the product offerings of many financial service products are almost similar and only slight product differentiation is possible (Lim & Tang, 2000). This characteristic of the products makes the value of the loyal customers more important for the financial institutions. Such loyal customers are likely to use the services of the investment banks more, spread word-of-mouth, withstand the offers from the competitors and recommend the services of the particular banker to other potential customers. Developing close ties with clients is sure to result in the growth of business of business entities (Reichheld, 1993). In view of the excessive cost to be incurred in attracting new customers, the institutions seek to develop and maintain long-standing relationship with the customers, so that they can increase the profitability of the organization (Ennew and Binks, 1996). The present day banks have started using relationship marketing in the place of transaction-based marketing, which considers the relationship with the customers as an important element. For developing sustained relationship, customer satisfaction has been identified to be one of the essential prerequisite (Oliver, 1980).
Crosby and Stevens (1987) have attributed satisfaction in the service of organizational members, satisfaction at the quality level of customer service and satisfaction with the functioning of the whole organization as the determinants of better customer relationship.
Within this context, this review presents an analytical description of relationship marketing and its influence on business growth of financial service providers including investment bankers.
Marketing Function – an Overview a general marketing definition will suffice – Done
“The concept of marketing is the exchange process in which two or more parties give something of value to each other to satisfy perceived needs.” (Kurtz, 2008)A simple marketing model promoted by Kotler & Armstrong, (2000) explains marketing as the process of handing over the goods and services against tendering of money in return. Effective marketing implies the transfer of details about the products from the trader to the potential purchaser as an important element. An effective advertising message informs the consumer, about the attributes of the product or brand of the company and the feedback from the consumer to the company will inform the company about the perception of the customers on the quality of the product or service marketed by the company.
Consumer behaviour is one of the important determinants of marketing strategies. Blackwell et al., (2001) define consumer behaviour as actions taken by people, when purchasing, using and getting rid of products or services. Consumer behaviour with respect to certain product or service is analyzed to ascertain the response of the potential customers to different advertising strategies of an organization. The firm makes an analysis of consumer behaviour for creating unique selling point. This selling point is developed to attract target audience so that the firm can reach its objectives of growth. The company must have a thorough understanding of the client attitude in order to maximize the return on its investment on sales promotion activities.
Based on the analysis of the consumer behaviour, a firm will create and implement its marketing strategies around those factors, which influence customer behaviour. There are a number of factors, which influence the buying decision of the consumers. These factors include the prior purchasing habits of the purchasers, their present preferences, impact of environmental factors and the influence of the advertising and sales promotion programs launched by the company. Other demographic factors like age group, profession, qualifications, personal traits and standard of living of the consumer influence the customer’s choice. Brand loyalty represented by the preconceived thoughts about the quality and functionality of the products or services also has influence on the buying decisions of the consumers. Kotler, (2006) identifies culture as one of the basic determinants of the consumer choices (p. 124). Culture in this context represents the norms and beliefs of the society. In addition, culture also covers the customs learnt from the society, which ultimately become the value of the society (Fill, 2002, p. 83).
Customer satisfaction with respect to the quality and utility of the product or service is another major factor, which needs to be considered in attracting and retaining customers for any product or service. In this context, relationship marketing is the new paradigm in marketing literature, which has challenged the existing marketing theories and philosophies (Kotler, 1991; Gronsroos, 2004; Gummesson, 1997). Relationship marketing is a strategic tool used to study the needs and preferences of the customers and their attitudes, so that a firm will be able to build long-term relationship with them. In the investment-banking context, relationship marketing is of particular importance, as the investment banks have to establish and maintain successful relationships with the customers to thrive among stiff competition. The following section presents a review of relationship marketing and its application to investment banking.
Review of Relationship Marketing
Establishing, developing and maintaining successful relational exchanges characterize the process of relationship marketing. “The essence of these activities is to decrease exchange uncertainty and to create customer collaboration and commitment through gradual development and ongoing adjustment of mutual norms and shared routines.” (Anderson, 2001) When the customers are retained over a number of transactions, there is the likelihood that both the buyers and sellers may profit from the experience gained through undertaking the previous transactions. The basic aim of relationship marketing is to enhance the profitability of the organization by accessing a larger proportion of specific customers’ lifetime spending instead of trying to maximize the profitability because of individual transactions (Palmer, 1994). The competitive environment of businesses forces the firms to find a different route to garner competitive advantage by forming relationships with the customers so that there is significant improvement in business outcomes such as quality, efficiency and effectiveness (Nowak et al., 1997). The approach of relationship marketing involves a deviation from the traditional competitive approach to one that involves collaboration. Characteristic of relationship marketing involves collaboration, long-term focus, commitment to and trust in relationship among partners, establishing and achieving mutual goals and objectives and a relatively fewer number of business partners and inter-dependence (Dwyer et al., 1987; Kanter, 1994; Iacobucci & Ostrom, 1996; Nowak et al. 1997). Based on these characteristics, reciprocity can be identified as the core concept of relationship marketing. According to Bagozzi, (1995, p 275) reciprocity is a disposition and a feeling that one should “return good for good in proportion to what we receive.” Gronroos, (1990, p 138) has reflected the concept of this relationship in his definition of marketing as:
“Marketing is to establish, maintain, and enhance (usually but not necessarily long-term) relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met (Gronroos, 1990).
Relationship marketing in a conceptual context developed during the 1980s. The concept emerged as an alternative to the then prevailing transactional view of marketing, because of the realization that many exchanges particularly in the service industry were mostly relational in nature rather than transactional (Berry, 1983; Dwyer et al.,1987; Gronroos, 1994; Gummesson, 1994; Sheth & Parvatiyar, 2000). Within the context of a banking setting, relationship marketing has been defined as “the activities carried out by banks in order to attract, interact with, and retain more profitable or high net-worth customers.” (Walsh et al., 2004 p 469) Therefore, the objective of relationship marketing can be identified as increasing the profitability of the customer while ensuring the provision of a better service to the customers. A number of studies with their empirical findings have established the positive association between relationship marketing strategies and effective business performance (e.g. Naidu et al., 1999; Palmatiyar & Gopalakrishna, 2005).
In the marketing of banks, relationship marketing has attained a significant position (Holland, 1994; Stone et al., 1996). In respect of banking services, Keltner, (1995) has observed that German banks as compared to the American banks have been able to maintain a consistency in their market position during the 1980s and early 1990s by following the principles of relationship marketing concept. Nevertheless, it is important to understand that relationship marketing by itself will not automatically result in stronger customer relationships. When the financial institution follows the principle of relationship marketing, the customers will exhibit different levels of closeness in their relationship with the banks, which could strengthen the ties between the bank and its customers (Berry, 1995; Liljander & Strandvik, 1995). Relationship marketing strategies will become more attractive when they are made to enhance the perceived benefits of engaging in relationships (O’Malley & Tynan, 2000). However, O’Laughlin et al., (2004) argue that not all customers will like to engage in relationships with banks. The authors further argue that close customer relationships in banks are rare and the relationships are weakened by the increase in the proliferation of Internet and other self-service technologies. Sweeney & Morrison, 2004) advocate finding new technologies as relationship facilitators and make strategic use of them in building customer relationship (Payne & Frow, 2005).
Several scholars have studied customer satisfaction in the banking industry in detail (Ahmad, 2002). These studies have focused on the integration of customer management with customer services and optimization of customer relations (James, 2004). Before the role of relationship marketing in investment banking is reviewed, the following section reviews the desired level of relationship outcomes, customer satisfaction and customer loyalty aspects as they apply in the context of banking in general. This review is expected to expand the knowledge on different aspects of relationship marketing in the context of customer service in banking industry.
Customer Relationship and Satisfaction
Customer orientation and satisfaction is identified to be one of the basic tenets of relationship marketing. Saxe & Weitz, (1982) argue that sales personnel who are customer oriented always strive to improve the customer satisfaction on a long-term basis. Subsequent research has shown that a firm’s relationship with its customers is influenced more by the customer orientation (Clark, 1997; Yavas et al., 2004). On the study of customer satisfaction in the field of marketing of financial services, it was observed that while customer oriented employees are able to evolve positive influence, sales oriented employees could develop only a negative impact on customers’ relationship satisfaction (Bejou et al., 1998). Customer relationship quality and customer relationship satisfaction are the customer evaluation measures normally used to reflect transactional and relational types of exchanges (e.g. (Bejou et al., 1996; Crosby et al., 1990; Lang & Colgate, 2003; Abdul-Muhmin, 2002; Rosen & Surprenant, 1998). Research has established a positive relationship between service quality and satisfaction in the banking sector (Ennew & Binks, 1999; Jamal & Naser, 2002; Ting, 2004). However, the constructs in this context are highly correlated and sometimes it might become difficult to separate them to transactional interactions. This has been found to be even more difficult from a relational perspective. Therefore, it can be stated that in long-term relationships of banks with customers, perceived service quality and satisfaction are likely to be merged into one phenomenon, which helps in an overall evaluation of relationship satisfaction.
In the context of service market, especially financial services, the market environment has become even more competitive, with the increasing intensity in price competition. This has made shifting of loyalty of customers as an acceptable practice. Many of the industries have started focusing on rearranging their marketing budgets such that more resources are diverted to defensive marketing with the intention to retain the customers (Patterson & Spreng, 1998). According to Gummesson, (1998) there are a number of initiatives undertaken to improve customer retention, including value chain analysis, customer satisfaction and loyalty programmes. Customer satisfaction has been regarded as the basis for firm success as satisfaction is inextricably linked to customer loyalty and retention. Studies have established the link between customer satisfaction and customer retention and they have identified other factors such as “the level of competition, switching barriers, proprietary technology and the feature of individual customers” (Bloemer & Lemmink, 1992; Bloemer & Kasper, 1995; (Sharma & Patterson, 2000). Fournier & Mick, (1999) have observed the relationship between customer satisfaction and customer loyalty to be more complex than it was perceived earlier. Sharma and Patterson (2000) identify a significant impact of customer satisfaction on customer loyalty. Customer satisfaction as a direct antecedent leads to a greater commitment in business relationships (Burnham et al., 2003) and it greatly influences the repurchase intentions of the customers (Morgan & Hunt, 1994). However, it is worthwhile to mention that the impact of satisfaction on commitment and retention is likely to vary in accordance with the nature of industry, product or service or environment.
Burnham et al., (2003) present another view in that they argue that customer commitment cannot be construed to depend only on satisfaction. Relational switching costs are expected to strengthen the relationship commitment, since such costs represent a barrier to exit from the existing relationship. High switching barriers would force the customer to stay or to perceive that they have to stay with service providers who do not consider the satisfaction created in the relationship. On the other hand, Jones et al., (2000) observe that customer satisfaction is usually the key element in ensuring repeat patronage of customers and this outcome generally depends on the intensity of switching barriers in the context of providing effective service. Under certain circumstances, even though a customer is less satisfied with a service provider, he would still choose to continue with the same provider because of the higher perceived cost of leaving the services. The customer has to consider the costs in switching a supplier. It involves set-up costs and termination costs. The set-up costs include the cost of finding the new service provider who would be able to provide the same or better performance as the previous provider or the opportunity cost of foregoing exchange with the incumbent. The termination costs include the relationship-specific idiosyncratic investments created by the customer, which might have no value outside the relationship (Dwyer et al., 1987). This is applied more particularly in the context of investment banking in the form of exit and entry charges on investments routed through the investment bankers.
The service encounters can be viewed as a social exchange in the light of interactions between the service provider and customer becoming a crucial component of satisfaction. This provides a strong reason for the continuance of the relationship (Barnes, 2002). “In a services context, considering the level of interpersonal contact needed to produce services, there is a range of psychological, relational and financial considerations that might act as a disincentive for a hypothetic change of service providers.” (Petruzzellis et al., 2008)
Relationship Marketing in the Context of Banking
Fierce competitive trends and saturation in the financial service product markets have enhanced the need to garner effective competitive advantages by banking institutions. The growing demand for the banking products and service through new media like Internet have forced banks to respond quickly to new changes challenges in customer demand and to meet them, with new and improved business models (Methlie & Nysveen, 1999; Jun & Cai, 2001; Bradley & Stewart, 2003). Gronroos, (1994 and Berry, (2002) have identified the long-term relationship with customers as the key success factor in the service industry, which enormously increases with the electronic channels. “The proliferation of new channels and the high demand for differentiated products has presented customers with a wide choice in terms of which service to use in order to profitably interact with the bank.” (Petruzzellis et al., 2008)
The latest extension in portfolios benefits both the customers and banks alike. Banks are provided with the opportunity of capitalizing on the beneficial characteristics of the newer product lines and channels of marketing. For example, electronic channels enable the banks to reduce the costs of interacting with the customers through the substitution of labor-intensive processes with the use of automated devices and sales processes (Campbell, 2003). In addition, the interactions resulting from face to face consultation enhance the opportunities for cross selling of the products (Clemons et al., 2002).
It is imperative that the banks undertake an active management of the usage of customer’s service so that the bank would be able to benefit from the different strengths of its portfolio. In this process, the banks are under an obligation to understand the ways the customers may adopt for choosing between the portfolios. The banks should also understand the circumstances under which the customers make these choices. This understanding will help the bank in identifying the factors that are relevant in influencing the customer choice and their relative importance in making the choice.
Eastlick & Liu, (1997) observe that the decision by the customers to adopt a service is driven primarily by the perceived benefits and perceived costs of using the new product. The adoption of the product thus depends on the ‘value’ the product can provide to the customer. The ‘value’ in this case is represented by the service quality of the product Montoya-Weiss et al., (2003) and the convenience the customer can derive out of using the product (Black et al., 2002; Devlin and Yeung, 2003). The customers will also consider the risk involved in conducting the transaction using the product (Black et al., 2002; Grewal, Levy, and Marshall, 2002; Reardon and McCorkle, 2002) and the costs of carrying out the transactions through the product (Devlin, 2002; Fader, Hardie and Lee, 2003). Perceived convenience, service quality and price are the key bank attributes which influence the perceived value of a service (Bhatnagar and Ratchford, 2004). The perceived value of service therefore depends on the moderating effects such as circumstances under which the customer chooses the service and the distinguishing features of the customer himself (Mattson, 1982). It is to be inferred that the importance of the bank attribute among convenience, quality and price for choosing a service is most likely to vary depending on the situations and customer features. In consistent with the literature, it is possible to distinguish between two dimensions of loyalty. They are: (i) a past loyalty that is more associated with the customer’s behavioral loyalty (Snehota and Söderlund, 1998; Chaudhuri and Holbrook, 2001). This loyalty represents the relative importance of a specific banking service in the previous transactions decision of the customer (ii) a cognitive loyalty, which implies the behavioural intention of using the banking service in future (Methlie and Nysveen, 1999; Van Rail et al., 2001).
“ The perceived service quality, satisfaction and past loyalty are antecedents of the intention of continuing to use the service or future loyalty.” It is therefore important that the banks should ensure that they provide a service of high quality for surviving in the highly competitive market and for garnering a sustainable competitive advantage in the long-term, which cannot be replicated by the competitors (Mefford, 1993; Jun and Cai, 2001).
In the context of social capital effect on the usage or choice of banking service and its consequent impact on customer loyalty, commitment on the part of the bank becomes a key construct as identified by the social exchange literature (Thibault and Kelly, 1959) and the relationship marketing literature (Berry and Parasuraman, 1991). As perceived by the customer, the relationship with a particular bank is so important that the buyer may decide that it is worth investing in special effort to maintain such relationship for an indefinite period of time (Tellefsen, 2001; Coote et al., 2003). Such long-term relationship enhances the exchange relationships and acts as stimulation for promoting the willingness of partners’cooperation and complying with mutual requests. The partners are able to share information and engage in joint problem solving exercises (Morgan and Hunt, 1994). Commitment also acts to prevent the negative effects of switching costs (Fullerton, 2003). Lack of commitment on the part of the customers will make them switch the service provider more frequently than the committed customers, and thus results as being a more powerful determinant in retaining customers than continuance commitment.
Relationship Marketing with respect to Investment Banking and Financial Products
There are a number of factors, which influence the marketing of the financial service products. These products are service based offers and therefore are characterized by a high degree of intangibility and complexity. These characters in turn provide a high level of variability depending on the market situation. Factors such as type of demand, delivery style, duration, and significance to the client also influence the marketability of these products. The peculiarities of financial services products may lead to a conclusion that relationship marketing is the right approach applicable only within the financial services product categories. However, it must be understood that the specificity of relationship marketing to the financial services products is attributed mainly because of the high risks involved and the necessity for a long-term relationship in view of the involvement of the client for carrying out the service delivery process (Ennew & Binks, 1996). In the case of investment banks, it becomes necessary to establish a balance between the transactional marketing and relationship marketing strategies for arriving at an optimal position. However, the point at which the investment bank balances both marketing strategies cannot be permanent because of the interaction of various factors enumerated above. “The existence of the changing circumstances determines an instable area or a danger area for both parts of the optimal position, following the calculation difficulty or even impossibility at a certain time of the results generated by the different relationship or transactional strategies.”
The main risks arising out of the calculation of this optimal point between transactional marketing and relationship marketing can be described as below:
- In respect of implementing transactional marketing strategies, the bank may not be able to recognize the wishes of the customer for a higher level of involvement on the part of the organization (to be reckoned as the customer service type activities undertaken by the investment bank)
- In respect of applying relationship-marketing strategies, the bank is likely to overestimate the quality level of the service expectations by the customer. This might result in the client migrate towards a competing institution, that offers a higher qualitative level to a lower price.
A hybrid managerial approach can be thought of a possible solution, which might take into account the possible changes in the business situation. According to Gronross, (1995, p 252) irrespective of the investment bank or the institution adopting mostly transactional or relationship marketing strategies, there may be situations when the company may have to address the needs and preferences of customers in different market segments. The hybrid managerial approach requires the application of multiple marketing strategies, which would provide for the development and maintenance of discreet changes necessitated by shoppers segments. In this case, the bank has to be satisfied with lesser degree of profitability. At the same time, the bank should strive for maintaining and intensifying the relationship with profitable clients. “In conclusion it cannot be possible neither profitable for an organization to create close relationships, personal and long lasting with all the clients, which involves a differentiated approach, based on segmentation principles that will combine elements of relational marketing and transactional marketing in accordance with the clients profile and its importance for the company.” (Filip & Pop, 2007)
Just in the same way, the clients may also adopt a differential approach depending on the type and complexity of the products involved. According to a study conducted in the banking market in the United States, there are differences between transaction oriented and relationship oriented clients (Quoted in Mohamed et al., 2002). Sixty-two percent of the clients interviewed confirmed that in general tend to be confident, based on their own strengths acquired by searching and analyzing financial information. They also seem to be price sensitive. The remainder 38% of the interviewed clients responded that they are mostly interested in personal service and are not sensitive to the price. A similar study conducted in the UK financial services market has developed a model that typifies the shopping behavior in the market in accordance with two basic factors, which are instrumental in motivating and determining the individual choices of the clients. The two factors are (i) the level of involvement and (ii) the degree of uncertainty (that generates some level of trust in the banker) (Beckett et al., 2000). The following figure represents these customer behavioral patterns.
Customer Loyalty and its Dimensions in the Banking Services
According to Zeithaml et al (1996), behavioral consequences lead to either retention or rejection by the customer, which in turn affects the profitability of the banks. There are a number of secondary factors, which influence the involvement of the client in relationship with the investment banking organization. Successful customer relationship management focuses on a complete understanding of the factors that affect the needs and preferences of the customers (Fox, Stead, 2001).These factors include the control of the client, participation of the client and the level of contact. The risks perceived by the client influence the uncertainty or degree of trust the client places on the banker. The risks in this case are determined primarily by the complexity of the products and services and the uncertainty of the results associated with the contracted product. The model exhibited, generates four types of client behavior. They are (i) repeated – Passive Behavior, (ii) rational active behavior, (iii) decision not to buy/not to contract and (iv) rational dependent behavior. A short description of these behaviors forms part of the later part of this section.
Behavioral intentions are construed as the indications of the intentions of the customers as to whether to remain with the bank or not. Zeithaml et al (1996) view customer loyalty as a bonding to the organization. Following the study of Zeitaml et al (1996) Sirdemukh, Singh, Sabol (2002) have defined customer loyalty as a state of intentions, which signals the motivation of the customers to allocate a higher share of the category wallet to a particular service provider. Ganesh, Arnold and Reynolds (2000) found loyalty as a combination of commitments to the relationship and other explicit loyalty behavior. The authors however have established an important distinction. Ganesh, Arnold and Reynolds (2000) have made a classification of loyalty behaviors into active and passive loyalty behaviors. Active loyalty behaviors signify the proactive behaviors of customers or behavioral intentions, which need conscious and deliberate efforts on the part of the customers to develop. Repeat patronage, positive words of mouth and expansion of service usage can be considered as parts of the active loyalty behaviors. On the other hand, passive behaviors are caused by a state of resistance to change to the existing relationship with the service provider. Passive behaviors include resistance to switching; even significant changes take place in the relationship with the service provider. Passive behavior also arises because of service environment, price insensitivity and self-state retention.
Repeated – passive Behavior
In this case, the clients show a reduced level of involvement towards the financial product because the clients have full knowledge and are conscious of the principal characteristics of the products on offer. With a low level of involvement and limited perception of uncertainty, the clients can be said to be behaving in a passive manner. This implies that the clients would involve them in repeated interactions without actively looking for alternative service providers or offers. The relationship marketing literature describes this type of behavior as “behaviorist loyalty.”
The strategic organizational approach in respect of repeated – passive behavior clients would be different for a new bank and the one that has already consolidated its position in the market. The new banks will encourage clients to enjoy an active relational context in order to win a higher market share. With a view to meet the competition from the newcomers, the existing banks will maintain the clients in the present relational context and at the same time will bring new developments to the products and services and they will improve upon the existing delivery systems.
In the investment or any other financial banking system, the institutions have the chance of retaining the repeat – passive behavior customers for a longer duration, because of the low perception of the clients about the offers of rival service providers and the higher migration costs involved.
The Rational Active Behavior
In this relational context, the involvement of the customers in terms of their control on the processes, participation and contact is high. With the complexity of the products and services, the degree of trust of the clients is also high. “Clients that buy in accordance with the rational factors are those that have enough personal abilities and information that allow them to understand the nature of the products and to realize pertinent comparisons between offers of the players on the market.” (Filip & Pop, 2007)
These types of customers do not exhibit any loyalty nor do they consider having any relationships with an organization. They do not mind changing the insurers every couple of years. This behavior of the clients is also encouraged by the lack of communication from the service providers on a periodic basis on the development of new facilities, awards and products. Increased level of consciousness, involvement and information of the consumers in this sector enable the clients to transfer them from a repeat – passive behavior to an active rational behavior. This transformation necessitates the banks to increase the value of their services to the clients.
Decision not to Buy/Not to Contract
In this relational context, those consumers who do not buy or contract any financial services products are included. The consumers do not buy or do not contract because they do not show any involvement towards the offer of financial products or services; neither do they have the means to conclude any transactions with the banks. However, they represent a potential client base for any financial service provider or an investment bank.
Rational Dependent Behaviour
The clients in this relational context show a dependent relational behaviour, in which there is a high degree of involvement from the clients but a low degree of control and safety level because of their need for complex financial products. The clients are in need of consultations from the banks or any third party agencies to decide on the specific product choice for investment. That is why these clients are described as dependent clients. They form a relationship with the banks on their will so that they can reduce uncertainties and perceived risks in their investments. In the process, they structure a typical model of buying pattern.
The results of the study by Beckett on the financial market of United Kingdom reveal that contracting complex financial products or instruments display large proportion of dependent-relational behaviour from the clients. The financial instruments or products in this case include investment or pension plans, in respect of which majority of respondents conveyed lack of confidence and information to make well-informed investment decisions. Therefore, these clients choose to resort to the services of the specialized personnel from the bank or insurance companies or to the services of an external consultant for enabling them to take complex investment decisions.
Moorman et al. (1992) define trust as “the willingness to rely on an exchange partner in whom one has confidence.”Since the customers of banks pay in advance to buy the products and services of the bank based on the promises of the bank, they must be willing to rely on the ability and skills of the bank to deliver its promises (Berry, 1996). Reichheld & Shefter (2000) argue that trust is an essential prerequisite for loyalty in banking services, especially where the transactions take place at a distance and away from the perceptions of the customer. Morgan and Hunt (1994) reiterate the importance of trust in retail banking, as the trust can influence the chances of retention of the existing customers. Trust is an important element in the relationship between bank and its customers than even the price.
Success of word-of-mouth marketing depends largely on the trust that a bank can create in the minds of the existing customers (Jones & Sasser, 1995). Customer perception of the trustworthiness of a bank is valuable not only from the point of view of satisfaction of the existing customers but also in attracting new customers. Bowen & Shoemaker (1998) are of the opinion that because of the high-level risk perception inherently involved in the financial service product offerings, it is usual that potential customers are more likely to get personal recommendations from friends and relatives when they have to choose a service provider. The potential customers would rely more on the opinions of the existing customers rather than relying on the claims made by the banks. Foster & Cadogan (2000) observe when an existing customer recommends a bank to a third party; he undertakes a certain level of risk on his own credibility towards the third party. This credibility is likely to erode if the bank fails to provide quality service and backs up the recommendation of the existing customer.
The level of commitment maintained by the banker and the customer through shared values and relationship termination costs has a positive relationship with the level of trust the customer invests in a bank (Morris et al. 1999). Commitment has a key role to play in the relationship-marketing concept (Morgan & Hunt, 1994). The quality of customer-service provider relationship is largely influenced by the level of commitment exhibited by the bank. According to Moormann et al. (1992), commitment is “an enduring desire to maintain a valued relationship.”Commitment thus implies a positive evaluation of a long-term relationship (Bowen & Shoemaker, 1998; Moorman et al, 1992; Morgan & Hunt, 1994). This makes commitment as a key to customer retention for a long-term (Amine, 1998). Bendapudi & Berry argue the customer relationship with the bank may be constraint-based, where the customer has the necessity to maintain the relationship or it may be dedication-based, where the customer wishes to maintain the relationship. Commitment can also be considered as a good predictor of the future intentions of the customer and his loyalty (Baldinger & Rubinson, 1996).
In summary, commitment can be considered as a function of the personal attachment, the customer develops towards the service provider. It can also be related to the perceptions of the customer about the bank vis-à-vis its competitors and commitment is the orientation towards a long-term relationship with the bank.
In meeting its objective of presenting a review of relevant literature, this chapter described the factors instrumental in establishing a customer-centric competitive business environment. The review identified satisfactory interaction with the clients and developing a sustained relationship with the clients as the base for developing marketing strategies by institutions offering financial service products. This chapter provided an overview of marketing and discussed in details the salient aspects of relationship marketing. Relationship marketing has been identified to be the development of interactions between purchasers and marketers and the purpose of relationship marketing is to ensure that the seller profits from the experience of such continued exchanges. The review identified customer orientation and satisfaction as the basic tenets of relationship marketing and provided a detailed discussion on these tenets. There has been a detailed review of the strategic implication of relationship marketing in the context of banking. The relationship marketing in the context of investment banking and financial service products was discussed in detail. The chapter presented discussion on different types of consumer behaviour with respect to the investment and other banking services and financial services products. Because of the feasibility, the competitors are able to imitate the product and service differences, which prevent any one financial institution acquiring sustainable competitive advantages. This forces the institutions to work continuously on finding new sources and taking efforts to make them stand out from the crowd. For this, the organizations use a brand image, interactive channels of distribution, and marketing communication for the promotion of long-lasting relationship with the clients.
The next chapter on research methodology will describe the research method adopted for conducting the current study.
The objective of this chapter is to provide a brief account of the research design engaged for completing the research on the role of marketing in investment banking. Denzin and Lincoln (1998), suggest that the research design is to be chosen based on the topic of study and the research objective to be accomplished. The research design is to be based on the context of the proposed research and the availability of resources to conduct the research. The current study aims at examining the role of marketing in promoting investment banking. Considering the nature of the research, it was proposed to use a qualitative research approach.
This chapter while providing a basic idea on different aspects of social research, it deals with the justification for using the qualitative research method. Significance of case study method and its suitability to the current research also forms part of this chapter.
Research philosophy accounts for the manner of gathering and analyzing information on a particular social phenomenon taken for study. Research philosophy also describes the method of interpreting the findings of the research. Different philosophies of research approach are contained in the term Epistemology. Epistemology differs from doxology, in that epistemology deals with the things identified to be true in nature, while doxology deals with what is believed to be true. Any scientific research attempts to transform things from the state of what is believed to be true to a state where everyone knows things based on facts and interpretations, and this transformation is done through the process of enquiries of different types. Positivism and interpretivism are the two major research philosophies identified by Western scientists in the realm of social and scientific research.
“Post-positivism” is a research approach, which is an offshoot of positivism identified as a research philosophy at a later stage. Critical realism advocates that scientific knowledge and approach cannot alone clarify certain issues. There is a difference between positivism and post-positivism. All observations gathered through interpretations are considered fallible under post-positivism. Therefore, post-positivism consider all the observations to have some sort of inherent shortcomings and that it is possible that all theories can be modified by looking at them closely. “Where the positivist believed that the goal of science was to uncover the truth, the post-positivist critical realist believes that the goal of science is to hold steadfastly to the goal of getting it right about reality, even though we can never achieve that goal,” (ResearchMethods, 2006). The discussion has led to the adoption of critical realism, which is the common form of post-positivism as the appropriate research philosophy for completing the current study on the role and influence of advertising in the promotion of investment banking. Post-positivism suggests the use of qualitative research as it is possible to address the social phenomenon from a subjective perspective through qualitative research. This supplements the decision to adopt a qualitative research method for the current research.
Characteristics of Quality Research
Denzin & Lincoln, (1998) enumerate the basic elements of qualitative research through their definition of the term, which is as follows:
“Qualitative research is multimethod in focus, involving an interpretative, naturalistic approach to its subject matter. This means that qualitative researchers study things in their natural settings, attempting to make sense of, or interpret, phenomena in terms of meanings people bring to them,” (Denzin & Lincoln, 1998).
The comprehensiveness of this definition explains the nature of qualitative research, in which it identifies the purpose of qualitative research, is to address and interpret complex human experiences and situations. Such experiences and situations become the nucleus of qualitative research approach, which is followed in many of the social researches. Qualitative research does not stop with the mere testing of the hypothses. It extends to the provision of greater insight, discovery and interpretation into the issue under study to enlarge the knowledge of the researher as well as those who follow the findings of the research. The salience of qualitative research is that the approach recognizes the importance of understanding people and their inclination towards functioning under social and cultural contexts. Therefore, there is a high level of motivation for engaging qualitative research in studying social issues. Kaplan & Maxwell, (1994) argue that quantitative research does not enable the particiants to interpret the phenomenon from a social and institutional context. Statistical and quantitative analysis will not be able to do a subjective analysis of the issue. This is one of the shortcomings associated with the quantitative research approach. In view of the inherent ability to adapt to different social situations, qualitative research approach is used for the current research.
Case Study Research
Yin (1984) is the pioneer in shaping the case study method of social research. Subsequently several researchers and theorists have contributed to the development of this research method and thus case study is made to assume an important position in the social research methods. The attractiveness of case study is improved because this method studies the phenomenon in a natural setting, which is the essence of any qualitative research and this makes the method a viable research approach.
“Case studies become particularly useful where one needs to understand some particular problem or situation in great-depth, and where one can identify cases rich in information,” (Noor, 2008).
The consideration of case study as a research method depends on a number of factors, which need to be evaluated before the researcher decides on the method. Case study can be considered as an ideal one, when the research focuses on contemporary social issues or events that occur in a natural setting. Case study also proves to be of immense value and support in respect of studies on social phenomenon, where there are no established and strong theoretical base for the research. However, in those cases, where there are a number of variables, which need to be manipulated to conduct the research, case study cannot prove to be the appropriate design. The selection of case study as the research method, therefore, depends on the nature of the research issue rather than the decision of the researcher to use the method.
Strengths and Weaknesses of Case Study Research
There have been various critical analyses on the nature and utility of case study as a research method. Lack of scientific rigour and reliability has been identified as one of the major shortcoming of this method. This makes case study unreliable for generalizing the findings of the research. However, case study method can be construed as dependable for obtaining a holistic and contextual view of the social issue or a series of social phenomena under observation. With the investigation of multiple sources involved in the research process, case study has the ability to provide an overall view of the social problem under research. Yin (1984) confirms that there is the possibility of generalizing under case study, when the researcher compares the findings from multiple case studies. With this comparison, the researcher can arrive at some generalized pattern or form of replication in the process of the social issue studied.
According to Yin (1984) there are different forms of case study. Exploratory case study method is used normally in conducting research in respect of business related issues. Explanations on how and why certain social phenomena take place are provided by descriptive case study. Studying organizational processes is facilitated by explanatory case studies. For the research on the role of marketing on investment, banking a descriptive case study method has been used. In this method, the researcher observes the process and sequence of operations in a selected organization and reports on the findings. Data can be collected using any of these six types of data collection methods involved in case study research approach. They are; (i) documents, (ii) archival records, (iii) interviews, (iv) direct observation, (v) participant observation and (vi) artefacts. The researcher has the option to use one or a combination of more methods to collect data and the choice of method depends on the nature of the study. For the current research documents, archival records in the form of professional journals, books and other relevant literature have been used for data collection.
This chapter provided a basic idea of various research philosophies. Brief description of the qualitative research approach and case study method formed part of the chapter. Next chapter presents the findings of the case study along with a detailed analysis of the findings.
Case Study – Analysis and Findings
Relationship marketing is today becoming a major element for the investment banks and other institutions providing financial services to different classes of customers. There has been increased competition within the market due to increased regulations and globalization. Attracting and retaining the customers has become more and more important for the financial service providers. In order for the financial service providers to retain the customers, there has to be a certain degree of trust among the actors in the relationship. The objective of this research is examine the influence of marketing strategies including relationship marketing on the promotion of business by investment banks and other financial institutions.
The current study uses a case study method for data collection on the role of marketing on the promotion of business by investment banks and for relating the findings of the case studies to the salient aspects of transaction marketing and relationship marketing discussed under the review of the relevant prior studies. Eisenhardt (1991) indicate that the number of studies can be decided based on the quantum of information gained from the case about the social issue. Secondly, the number of cases can also be arrived at based on the volume of information, which the study of other cases may provide. This study embarks to study the marketing strategies of HSBC and compare them with those of Citibank. Both of these institutions have many banking and financial related services and they are operating worldwide through different branch and regional offices. These institutions adopt different marketing strategies to promote and sell their products and services to their customers. These banks have established a certain level of reputation among the clients. Therefore, HSBC and Citibank are considered as the best choices for case study. The study analyzes the role of marketing in these institutions from the perspectives of the effectiveness of their marketing strategies, the need to increase the customer base to capture additional market share and the ability of them in meeting the needs of the customers. The multiple sources offered information and data on the marketing strategies adopted by these banks and the influence of marketing in promoting their respective businesses.
HSBC – an Overview
Hong Kong and Shanghai Banking Corporation (shortly known as HSBC) is one of largest banking and financial services provider in the world. The bank has established businesses in different parts of the world including Asia-pacific and African countries. There are offices established in Europe and the American continent. ‘HSBC holdings Plc’ was registered in the United Kingdom with its head office located in the city of London. HSBC established its international brand name in the year 1999, which subsequently became a popular brand name among the customers of banking companies. HSBC makes use of information technology as one of the major communication tool with its customers. The bank also maintains its own private network and the HSBC website attracted more than 900 visits during 2004.
The international network of HSBC includes 8,000 properties located in more than 88 countries. The bank earned a net income of US $ 7,079 million for the year ended December 31, 2009. The company has around 30,000 employees to carry out its international operations (Google Finance, 2010).
Financial Services Provided by HSBC
HSBC provides a comprehensive range of financial services to its customers worldwide. The division of personal banking by the bank include usual banking services and investment services. HSBC is one among the top 10 credit card service providers. Consumer finance is another major business division of HSBC. Commercial banking segment provides financial services to more than two million small, medium and middle market entities. The bank had established more than 200 branches in the UK to ensure that the bank provides better services to high value customers. The Business Centres established in Hong Kong, provide all services to the customers from one location as part of the marketing efforts to improve customer relationship.
Corporate investment banking segment of the bank is engaged in providing specially made financial service products to large corporations and other investment firms. The bank pursues several business lines such as investments in international stock markets, corporate banking, international investments and banking. Lending business using relationship management takes the central focus in serving corporate and institutional clients. The function of international investment bank is to render advisory services and financing of international investment transactions.
Marketing Strategies of HSBC
Harris (2002) observes that big four retail banks – HSBC, Barclays, Lloyds TSB and Royal Bank of Scotland – use generic marketing strategies for promotion of their banking businesses. The banks identify target markets and analyze it, to formulae the marketing strategies. Based on the strategies evolved the bank develops the marketing mix to satisfy the needs of the different classes of customers. The banks based on the future strategic goals can formalise the appropriate marketing moves. As observed by Jun & Cai (2001) and Bradley & Stewart (2003), this has become importanat for HSBC to focus on new marketing strategies to respond to the challengs in customer demand. Branding becomes important in creating specific identities of the banks and in positioning the banks in respect of different financial services offered by the banks (Polito, 2005). By creating effective brands, the banks would be able to distinguish its product offerings from the competitors. This becomes particularly important in the case of financial services products, where the banks may not be able to offer much differentiation in their products. As stressed by Gronroos (1994) and Berry, (2002) the long-term relationship with customers is considered as the key success factor in the service industry. HSBC adopts the corporate branding strategy with the aim of establishing long-term relationship with the customers. However, corporate branding elevates the approach a step further to incorporate additional issues, around relationship among the stakeholders especially towards the customers.
HSBC uses corporate branding as the major marketing strategy in promoting its business and in retaining the customers. The branding strategy adds substantial value to HSBC in implementing its vision. The branding strategy also enables to create specific position in the market. HSBC adopted the policy of acquiring a number of companies across the world to promote its international corporate brand. The creation of strong corporate brand enabled HSBC to develop and to sustain strong feeling of loyalty in the clients. The ultimate objective of corporate branding is to increase the customer loyalty. However, there is the need for customer satisfaction. Sharma & Patterson (2000) have focused on the link between customer satisfaction and commitment. HSBC was able to strengthen its market presence in the banking industry by the number of key mergers and acquisitions the bank was able to achieve using its brand name.
The availability of branches of HSBC in many countries helps the bank to provide its important clients with a wide spectrum of services. HSBC provides investment-banking services across the world. This has provided HSBC a unique competitive advantage over the competitors. With this competitive advantage, HSBC was able to improve its profits during 2001, despite the economic downturn. The bank also improved tremendously on its core business relationship. HSBC is engaged in serving a number of subsidiaries and offices World over in addition to a large contingent of customers located in more than 88 countries across the world.
HSBC added client service teams as a part of its marketing strategy. This strategy initiated the appointment of relationship and product managers. These managers are trained to understand the needs and preferences of the customers. HSBC uses highly automated processes for supporting various customer services provided by the bank. The bank installed and used several software applications for risk management apart from installing central systems, to support relationship management. HSBC established intranet sites to share the knowledge on industry, product and other related information for enhancing the quality level of customer service. Petruzzellis et al. (2008) have stressed the necessity for frequent interaction of the customer with the bank, as there are wide choices of products avvalable to the customers.
Relationship Marketing by HSBC
There is frequent mention of positive relationship between service quality and satisfaction in the research relating to customer service by banking sector, which is the focus of relationship marketing (Ennew & Binks, 1999; Jamal & Naser, 2002; Ting, 2004)..Relationship marketing in HSBC has taken many steps in developing its relationship marketing strategies. HSBC adopted effective Customer Relationship Management (CRM) systems to maximize customer satisfaction. This has enabled the bank to revolutionize customer empowerment and with this, the bank has been able to beat its customers in the banking industry. In the traditional banking services, the customers had to go personally to the banking premises even for effecting simple transactions and this helped the bank to develop personal interaction with the customers through face-to-face meetings. Later developments in the provision of banking customer services were the Automated Teller Machines (ATMs) and phone banking, which use information technological developments. However, there have been tremendous changes in the banking business with the development of various financial services products and investment banking services offered by the banks. The customers are demanding more than what the traditional banking services could offer in the past. The customers expect the banks to provide financial advice to meet their needs and they expect the banks to provide one-stop financial services to meet the banking, insurance and investment needs of the customers. The increase in the number of products and services has forced HSBC to provide a high quality service. According to Jun and Cai (2001), the bank has to ensure a level of quality service that cannot be replicated by the competitors. This will provide HSBC sustainable competitive advantages. HSBC realized that the provision of these services would lead to increased earnings than the traditional transaction-based banking services. Therefore, HSBC started consolidating its services and products in these areas to implement an effective relationship marketing strategy. The following are the objectives of adopting a relationship marketing strategy by HSBC.
- Promotion of long-term loyalty among the customers in terms of relationship building
- Increasing the lifetime value of customers – the bank proposes to achieve this through cross selling of its products among the existing customers
- Enabling instant and swift action on the part of the bank to retain the most valued customers
- Identifying customers who need to be placed in high-risk category and adjusting or enhancing the quality of service to meet the needs of this class of customers
- Fulfilling the customer needs by making the right offer of appropriate products at right time and
- Increasing the rate of return on marketing initiatives by improved business opportunities
These objectives have been designed in line with the recommendations of Gronroos (1990) as laid down in his definition of marketing. Several other practitioners have endorsed this view in that they state many exchanges in service industry are relational in nature rather than transactional (Gronroos, 1994; Gummesson, 1994; Sheth & Parvatiyar, 2000).
In order to meet the above objectives, HSBC has to categorize its customers into different segments. There is the need to have large amount of customer information and sales figures for analysis so that the bank can make precise customer segmentation. Customer segmentation allows more in-depth analysis of customer performance to point out the segment where 20% of profitable customers are located. The bank can look into more customer value parameters for assessing the relative profitability of the customers. Literature review points out Perceived convenience, service quality and price are the key bank attributes which influence the perceived value of a service (Bhatnagar and Ratchford, 2004).
High Profitability Customers
The customers in this group use many of the personal banking products like investment and insurance products from HSBC. HSBC tries to sell cross sell its products to customers in this category. On the other hand, money deposits are the lowest profitable products.
HSBC has to look into the amount per transaction entered into by the customers. This amount signifies the amount of money involved in every single transaction. When a customer always has a transaction involving higher amount, the cost for serving that customer will be small for HSBC. This implies that dealing with such customer is more profitable for the bank. Gronroos (1995) points out that the bank has to maintain and intensify its relationship with the profitable clients by addressing the specific needs and preferences of the customers.
Relationship over Time
Relationship established with customers over time will indicate the levels of customer loyalty. When a customer stays for a long time with HSBC, that customer can be regarded as highly loyal to the bank.
Referral record shows the number of customers that have been brought to deal with the bank by the existing customers. This also shows the willingness of the existing customers to refer the products of HSBC to his/her friends.
The customer profitability grouping based on the above factors is shown below:
Highly Profitable Customers are in the top and big categories. These customers use the highly profitable, multi-product packages. The transactions by these customers have large amounts per transaction. These customers establish a long relationship with HSBC over a long period. These customers also refer a number of new customers to HSBC. Bowen & Shoemaker (1998) talk of the likelihood of the potential customers to get personal recommendation from friends and relatives, when they are looking for a service provider.
Sustainable profitability customers are the customers placed in the medium category. These customers use medium profitable and multi-product packages. The transactions by these customers have medium amounts, which are less than the transactions by the highly profitable customers. These customers have a medium range relationship with the bank and have few referral records.
Negative profitable customers represent the customers in the small customers’ category. These customers never use higher profitable products. These customers apart from having a limited period of relationship with HSBC have smaller amounts per transaction. These customers have no referral records.
The objective of implementing relationship marketing is to retain the profitable customer. Customers become retainable only when they become loyal to the bank on their satisfied with the quality of products and services offered by the bank. The service quality depend on the superior features of the products, the prices of the products and the level of services offered by the bank. In addition, the customers always evaluate the risk, convenience, and cost of dealing with a particular bank in assessing the quality of service offered by the bank (Black et al., 2002; Grewal, Levy, and Marshall, 2002; Devlin, 2002).
Citibank – an Overview
Citibank belonging to Citigroup is a banking institution of international repute. The bank occupied a position among the top ten banking companies of the world in the year 2006. There were more than 200 million customers, who were provided service by Citibank through its 300 and odd branches situated in the Americas, Asia, Europe and African countries. The year of establishment of Citigroup was 1817 and the company continued to register consistent growth since the inception. Citibank as an exception has an extended exposure to information technology backed marketing and growth initiative (Butterworth-Heineman, 1991). The following sections provide a detailed description of the marketing strategies adopted by the bank including relationship-marketing initiatives taken by the bank.
Relationship Marketing in Citibank
Relationship marketing as practised by Citibank can be defined to include the marketing strategies employed by the company for greater retention of the existing clients. The actions of Citi Bank have taken into account the needs and preferences of the customer as successful customer relationship management focuses on the understanding of these factors as laid down by Fox, Stead (2001). Relationship marketing by banks and other financial institutions has gained momentum in view of the shortcomings found with traditional transactional marketing techniques. Traditional transaction based marketing focused on attracting new clients and it does not provide any strategy for retaining the customers. The scope of relationship marketing extends to the business of the bank over the customer’s cycle instead of just limiting to individual transactions entered into by the customers. Most of the efforts in relationship marketing focus on satisfying the customer needs so that the customers become loyal to the bank. Relationship marketing from the purview of Citi Bank becomes important in view of the fact that, as perceived by the customer, the relationship with a particular bank is so important that the buyer may decide that it is worth investing in special effort to maintain such relationship for an indefinite period of time (Tellefsen, 2001; Coote et al., 2003)
Three elements have been identified as essential for the successful application of relationship marketing in the context of the functioning of any marketing organization including banks. They are: (i) when the demand for the products from the customers is continuous, (ii) when the customers make a specific choice of a product among the available alternatives and (iii) when there is a wide range of products and services available to the customer for making his/her choice. This is in line with the observations of Ennew & Binks (1996).
The relationship managers of Citigroup have realized that the above three essential elements for the successful implementation of relationship marketing exist in the business environment of the company. First, Citigroup offers different services and products, which imply that the clients have a big range of services to choose. The demand for the customers of Citigroup is continuous for the products and services of the bank. Finally, the customers who would like to deal with Citigroup choose one specific product among the available alternative products and services. In the case of Citibank, some of the customers approach the bank just for getting some loans. Other customers would like to deal with the bank only for their regular banking needs like saving their money, but they like to have access to the bank easily as and when they have the need to do so (Jackson, 1985).
Citigroup has introduced relationship marketing using its strength of information technology base. The company because of its IT capabilities has used its extensive customer database to analyze the needs and preferences of its customers. Citigroup is the market leader in undertaking marketing communications. The company has gathered the opinions of the customers on their preferences of the services offered by the bank and made changes in the product offerings according to the preferences of the customers. Through the analysis of the clients’ database, the company could gather information that the customers keep returning to the bank for certain types of products and services. This analysis enabled the bank to establish a pattern and to focus the energies on products, which provide maximum profits to the bank. These products also provide increased value to the customer. Value as perceived by Montoya-Weiss et al. (2003) is repersented by the service quality of the product. With the available information on the returning customers the bank is able to provide value added serive to them. These initiatives were topped up with improvements in services where the customers have expressed dissatisfaction. For instance, the clients seemed quite satisfied with the provision of housing loans by the bank. This made the bank to focus more on this product. The clients who came to the bank to avail housing loans were given special attention. With the result that there has been increased sale of this product and the clients were also retained.
Personalized marketing is one of the salient features of relationship marketing and Citigroup quickly identified the potential of this aspect in helping the business grow. Beckett et al. (2000) identify that certain categories of customers are keen on service quality and these customers are not sensitive to prices. This technique involves the use of tools to study the profiles of customers to increase the sale of certain financial services of the organization. The organization gathers information on the products and services in which the customer is interested. Based on this information, the organization forms a model of the customer’s buying habits and suggests products to the customer based on the fashion established. The bank is also able to distinguish the customers, who respond to the bank positively to concentrate on developing business with these customers by giving them prompt and quality service. The organization is able to improve the quality level of their performance and strengthens its market position. This reiterates the essence of relationship marketing in which customer relationship quality and customer relationship satisfaction reflect relational type of exchanges (Rosen & Surprenant, 1998). Citigroup followed this marketing strategy as one of its relationship marketing techniques. This practice enables the bank to gather useful information and data about the new customers by following them closely for one month. From this point onwards, the bank has in possession the complete information about the nature of response from the customers and therefore treats the customers according to the potential of the customers in providing better earnings to the bank.
Citigroup Approaches to Relationship Marketing
Citigroup adopts a specific approach in practicing relationship marketing to promote its products and services among the customers. Citi Bank invites clients to send their views about the products and services in the form of responses to customer surveys through email. The bank asks the clients about the services they prefer and the improvements they expect in the service offering by the bank. The survey also collects the views of the clients on the prices of the products and services which the bank offers. Based on the replies to the queries, the bank is able to decide on the customer needs and take suitable action. This improves the customer satisfaction level. This means that the company was able to secure the customer loyalty that solidifies the relationship between the bank and the clients. Such a strategy has enabled Citibank to place itself ahead of competition from other banks, because the bank already has the knowledge of the preferences of the customers through the relationship marketing approach. Grronroos (1995) stresses the need for the banks to focus on the needs and preference of customer in different market segments for a firm to be successful. Other banks that have not implemented relationship marketing may not be able to ascertain the customer preferences on their services, since they have not established a close relationship with their clients. Such banks are not in a position to retain their customers and are in continuous search for new customers. Consequently, new customers come to these banks for a single transaction and they do not prefer to come back. Although the banks may earn profits from the business with the new clients, the banks would also lose, when the old customers leave the bank. As a result, the banks would have made only minimal profits. Citigroup has made it a point not to ignore old clients and this has ensured the success of the bank and its competitive position among other banks.
Citigroup has been able to enlarge its profitability by adopting relationship marketing. The adoption of relationship marketing enabled the bank to reduce its expenses on acquiring new customers and ultimately the bank has to invest less in conducting its business. This is because the bank has to spend only very less amount for convincing a long-term customer to purchase a particular product. On the other hand, it might be an expensive affair for any other bank to convince a client to deal with that bank leaving Citibank. Moreover, the services of the competitor must be extremely convincing. Citigroup does not have this problem, as with the old clients retained, the bank was able to save considerable expenses and improve upon its profits. Berry (1995) and Liljander & Strandvik (1995) observe when the financial institution follows the principle of relationship marketing; the customers will exhibit different levels of closeness in their relationship with the banks, which could strengthen the ties between the bank and its customers. It is often found that old clients respond positively than the new clients. This is because the new clients are interested only in specific products or services from the bank. The new clients do not have the adequate relationship to trust the bank for getting any other additional services from the bank. This is more so in the case of investment banking, where the element of trust plays a significant role in establishing the relationship between the bank and the clients (Prahalad et al., 1998).
Citigroup has evaluated the customers based on the volume of business the customers had with the company. This implies that the company is in a position to decide on placing the customers in particular categories. Some of these categories include the following in the order of importance.
Citigroup recognized the fact that the most significant customer is its business partner. Customer as a partner has the highest sense of loyalty towards the bank. This type of customers will only approach the bank and not any other company whenever there arises a banking need for the customer. Sirdemukh, Singh, Sabol (2002) have identified this type of customers who will be willing to allocate a higher share of the category wallet to a particular service provider. This type of customers is interested in some specific services from the bank like normal banking and investment banking. The bank tries to transform most of the potential customers as partners. The bank places this responsibility on the relationship managers. A client may be termed prospective if he/she is undecided about establishing banking relationship with the company. Customer evaluation is done to place all the customers in any one of these six positions. By categorizing the customers, the bank is able to identify the important customers. Through categorizing the clients, the bank can avoid risks in doing their business, as the bank may not entertain high-risk clients. Clients who have very little potential will be avoided and the bank will not entertain any further business dealings with these customers (Berry, 1983).
Citigroup has placed its clients into different segments using the time the customer stays with the bank as the basis. Ganesh, Arnold and Reynolds (2000) found that customers stay with a bank based on their loyalty towards the bank and the loyalty is a combination of commitments to the relationship and other explicit loyalty behavior. For retaining the customer, the bank ensures its commitment in several ways. One such way is to calculate the customer retention rate. The customer retention rate is calculates as the ratio of clients stayed with the company through the year. Based on the customer retention ratios the bank determines the most valuable services. The bank uses the customer retaining rates for determining which services are the most important ones.
The relationship marketing in Citibank has been implemented by ensuring better treatment for its staff. The favourable working environment encourages the staff to communicate with clients about relationship marketing. This has resulted in enhanced customer affinity to the bank (Gale & Chapman, 1994).
Methlie & Nysveen (1999) identify that tthe growing demand for the banking products and service through new media like Internet have forced banks to respond quickly to new changes challenges in customer demand and to meet them, with new and improved business models Relationship marketing is one of the new concepts that aims at improving the customer retention. It has to be dealt with in congruence with the functions of all the departments. This marketing strategy has to take the support of all the departments in selling the products and services of the organization. Efficient marketing professionals have the knowledge that they have to integrate the marketing function into all the other functional areas of the organization. It is not possible to leave the marketing function to be handled by only certain departments or organizational members. From the research on the marketing practices of HSBC and Citibank, it is observed that Citibank has understood this concept more clearly than HSBC. HSBC has largely believed in corporate branding than relationship marketing for promoting its products and services. HSBC by establishing itself as an international brand has approached the customers across the world. The company has used other marketing strategies like email communications to reach the customers and inform them about the products and services in offer. In addition, HSBC adopted relationship marketing in the matter of customer satisfaction to ensure customer commitment. This is in line with the theoretical considerations, as Jones et al. (2000) observe that customer satisfaction is the key element in ensuring customer patronage.
At the close of year 2003, HSBC launched a strategic marketing plan. This marketing plan provided the blueprint for the growth of the business in the next five years, by adopting new marketing strategies. The strategy was built on the strengths of HSBC and it addressed the areas where further improvements were required. T The communication with the customers about the core values of the bank is intrinsic to the marketing strategies of the bank.
The marketing plan of HSBC was called “Managing for Growth”. This plan provided for the marketing strategies to be adopted during the years 2004-2008. The strategy focused on enhancing the revenue generation by the bank. The strategy also provided for ensuring the maintenance of an efficient credit/market risk position in addition to strengthening the human capital. The bank used acquisition as an important element of marketing strategy. The company has not considered the advantages of relationship marketing in evolving its marketing strategies. The core values added to the strength of the marketing strategy. These values include an emphasis on a long-standing and ethical relationship with the clients. The company also aimed at achieving higher productivity by encouraging teamwork among the employees. The increased productivity was expected to result in excellent customer service. Previous research findings have substantiated this strategy for the success of financial service companies as they have provided customer relationship quality and customer relationship satisfaction are the customer evaluation measures normally used to reflect transactional and relational types of exchanges (e.g. Lang & Colgate, 2003; Abdul-Muhmin, 20029). The company was keen on becoming an international entity in outlook and attitude towards the clients by underpinning the necessity of creativity and customer focused marketing. Although there is mention of maintaining ethical long-term relationship with the clients, it seems that the bank has not taken serious steps for implementing relationship marketing which will help the company to enlarge its growth. The company claims that its brand name has helped the company to achieve outstanding success. The marketing strategy therefore has a strong bearing on the brand image of the company rather than on the long-term relationship with the customers.
On the other hand, Citibank has been very astute in implementing relationship marketing and the bank has introduced relationship marketing in its important business function of investment banking in addition to consumer loans and mortgage loan departments. Anderson (2001) states that the essence of relationship activities is to create customer collaboration and commitment through gradual adjustment of mutual norms and shared returns. Because of consumer loan and mortgage loan segments proved more sensitive, Citibank realized the importance of establishing strong relationship with the clients especially in investment banking sector and focus on the growth of this division. Even though the departments within the bank function independent to each other, the bank is able to interlink all the functional departments by adopting the concept of relationship marketing (Gordon, 1999).
Another distinct advantage gained by Citibank through relationship marketing is that the bank could estimate the level of predictability of long-term customers. The bank will be able to determine in advance the type of services that a particular consumer will require and the bank will be able to determine the time at which such demand will surface. This has also helped in increase the cross selling of the products (Clemons et al., 2002). In addition the bank has to invest only little time and resources in educating the clients about the ongoing programs of the bank. Most of the old clients will be able to know in advance about the products and services the bank is likely to introduce in the near future. For example, the long-term clients of the bank, who have been dealing in capital market trading, will be able to gain knowledge on the process of obtaining a consumer loan from it.
The long-term relationship strategy of the bank deterred the entry of other banks. Within the context of a banking setting, relationship marketing has been defined as “the activities carried out by banks in order to attract, interact with, and retain more profitable or high net-worth customers” (Walsh et al., 2004 p 469). The customers would like to continue to deal with the company instead of purchasing products and services from other companies.
These initiatives of Citi Bank, just as the case with HSBC can be found to go along with the findings of Gronroos (1994) and Berry, (2002), who have linked the long-term relationship with the increase provision of services through electronic means. Long-term clients have brought most of the business to the company. Whenever a company has invested in establishing long-term relationship with the clients, the clients will become more loyal to the company. This implies that even sight changes in service charges will have no adverse impact on the purchasing behaviour of these clients. Based on this concept Citibank has increased its volume of business by retaining vast number of old clients who remain loyal to the company. A number of empirical studies (e.g. Naidu et al., 1999; Palmatiyar & Gopalakrishna, 2005) have established the association between relationship marketing and strategies and effective business performance.
The bank has adopted an additional strategy of product bundling to support the relationship marketing strategy. Product bundling takes place when a company consolidates some of the services it offers into a package. The objective of product bundling is to improve the performance of some of the services included in the bundling. The product bundling will make the customers feel that they have a huge bargain and it will induce the customers to return to the bank for purchasing further products or services. The bank included the product strategy as a supplement to the improvement in service. Cross selling is another marketing strategy used by Citigroup for improving its sales and growth. Through an analysis of customer preferences, the bank has made serious attempts to sell some services, which are related to certain clients. The company has also engaged in some cross-promotional strategies as supplement to relationship marketing strategies.
This chapter presented the case studies of HSBC and Citigroup as a part of the research on the role of marketing in investment banking. The case studies provided knowledge on the marketing strategies of these banks in promoting their business growth. HSBC adopted a marketing strategy, which is based on its international brand image. Further, the bank has also based its marketing on its expansion strategy, which the bank has implemented through acquisitions. On the other hand, Citigroup has adopted relationship-marketing approach. Citigroup has followed different approaches for applying the relationship marketing strategy. The bank created a lifecycle for some of its services by seeking the opinions of the customers on the service and price levels of those services. Depending on the feedback from the customers, the bank marketed its products and services by suitably amending the service quality and by bundling the services. Finally, the bank allocated adequate resources to practice effective relationship marketing. The company encouraged the staff to work with commitment towards establishing the right type of relationship with the clients. The bank provided better working environment and encouragement to the relationship managers who could extend a cordial relationship with the clients with commitment.
Conclusion and Recommendation
The purpose of this research is to investigate the role and impact of marketing on investment banking. Banks gain competitive advantages based on the quality level of services provided by these institutions. With the advancement in the information technology, there has been tremendous growth in the number and nature of banking products and services. Economic globalization has also contributed to the increase in the number and range of products and services offered by banks and other financial institutions. On one hand, the number of financial products and services has increased. On the other hand, there have been increased anticipation from the customers in the service attributes from the banks. This study observes that the development of information and communication technology has significant influence in the way the banks conduct its business and maintain the relationship with the customers.
This goes with the finding of Gronroos (1994) and Berry, (2002) who have identified the long-term relationship with customers as the key success factor in the service industry, which enormously increases with the electronic channels. Service quality and customer retention in the context of banking business has an important relationship in that the financial institutions could accomplish higher rate of customer retention by providing superior quality of service.
The study identified the need for well-developed financial markets for the overall economic development of any nation. The competition among investment banks has increased in the recent period. Proliferation of Internet and other information and communication technologies has enhanced the customer knowledge on the availability of various financial products and services. Petruzzellis et al. (2008) support this view by stating that the proliferarion of new channels has resulted in increased demand for differential products. The research has found evidences to support the fact that economic globalization, cross-border transactions and consolidation in the financial services industry has made the investment banking industry undergo a complete transformation. Since investment banking is mainly a revenue-motivated one, marketing has an important role in promoting the business of investment banking.
The current research provided an overview of marketing in general and a detailed discussion on relationship marketing. Relationship marketing has an important role to play in the marketing of certain kinds of goods and service of which, financial products and services are one type. This study has reviewed the relevant literature to lend theoretical support to the point that relationship marketing will enable the banks and other financial service providers to ensure customer retention (e.g Methlie & Nysveen, 1999; Jun & Cai, 2001; Bradley & Stewart, 2003). The study noted the different approaches of transactional marketing and relationship marketing and the suitability of relationship marketing to banking services. However, it is the observation of this study that relationship marketing needs to be extended only the profitable customers of the bank. Investment bankers usually find it difficult to retain profitable customers because of the intense competition in the investment banking industry. Many of the other industries have diverted to defensive marketing with the intention to retain the customers (Patterson & Spreng, 1998). The enhanced knowledge of the customers about the service level provided by different banks also makes it difficult for the investment banks to retain good and profitable customers unless they implement and practice effective relationship marketing.
The ideas generated by the customers will improve the customer satisfaction level, which is essential for successful marketing by financial service providers like the investment banks. This will also result in increased customer loyalty towards the banks and other financial institutions. Jun & Cai (2001) state the factors of perceived service quality, satisfaction and past loyalty signify the intentions of continuing to use the bank’s service. In the case of Citigroup, the company could successfully employ this strategy of getting the customer suggestions to be incorporated in their products and services. However, it is to be noted that the investment banks can involve themselves in relationship marketing only with the consent of the customers. Following customers without their consent might create a negative effect on the sales growth of banks. Similarly, effective communication between the investment bank and the clients is important to make the strategy work successfully. The clients should get a feeling that the company regards their viewpoints and incorporates their suggestions in amending the product offerings. Identifying the appropriate market segment will improve the result of any marketing strategy and relationship marketing in particular. The cost involved in implementing relationship marketing makes it exclusive only to those customers who are profitable to the banks. Therefore, the banks should be careful in identifying the client segment for implementing the relationship marketing. Assessing customer behaviour is another important aspect in introducing relationship marketing. There are certain customers who have the tendency that they will not decide to transact or enter into any contract with the bank. Applying relationship-marketing concept in respect of those customers will prove futile. On the other hand, there are other customers seeking the advice of the bank, where relationship marketing may be effective.
The current research attempted to provide answers to the research questions established based on the theoretical framework of the role of marketing in investment banking business.
The first research question is on the usual marketing strategies adopted by the investment banking institutions to market their products and services. The research provided theoretical support to the view that relationship marketing is one of the marketing strategies applied by investment banks in promoting the sale of their products and services. The view of Ennew & Binks (1996) that the necessity for a long-term relationship is created by the high-risk nature of the investment banking products adds to the knowledge from the study. The multiple case studies on HSBC and Citigroup has provided adequate evidence on different marketing strategies used by the investment banks in promoting their businesses. The strong support to relationship marketing provided by Citibank has more than proved the role of relationship marketing in furthering the business objectives of the bank. Although no distinction could be made between investment banking and other banking services on an overall analysis, relationship marketing has provided adequate support to the business growth of the bank.
The second research question focused on the significant motivating factors for the investment banks to turn towards relationship marketing. Through the review of the relevant literature and case study on HSBC and Citigroup, the current research has clearly established that the retention of the old customers by extending the relationship is the main motivating factor for adopting relationship marketing by the investment banks. By retaining the old customers, investment banks are able to garner significant competitive advantages in cross selling of their products and reduced expenses in promoting new products and services. This results in increased profits for the investment banks. Retaining customers provide several advantages to the banks.
The third research question intended to find the target population for the marketing strategies of investment management companies and the effectiveness of the marketing communications of these institutions in reaching the target population. The current research could not address the issue in detail in the absence of detailed information and past literature providing answers for this question. However, the review of literature addressed the issue of customer behavioural patterns in the case of investment banking (e.g. Zeithaml et al., 1996; Fox, Stead, 2001). The classification of the customers into loyalty behaviors into active and passive loyalty behaviors by Ganesh, Arnold and Reynolds (2000) is of relevance to the study. This behavioural classification of the customers identified the target customer population for directing the relationship marketing. Customers of banking institutions are classified into major categories based on their behaviour into customers having repeated passive behaviour, active rational behaviour and dependent rational behaviour and customers with decision not to buy or not to contract. Of these customers, those having active rational behaviour and dependent rational behaviour are those towards whom relationship-marketing efforts can be directed by investment banks.
The current research has been extended to the evaluation of the role of marketing in investment banking. A quantitative study of the relationship between the advertising budgets and the improvement in business of major banks in a particular geographical location will throw light on the return on marketing investments. The knowledge out of such a study will supplement the role of marketing on improving the banking business. Further study of the role of relationship marketing into the cross selling of products by the commercial banks will add to the existing knowledge on the subject. Research on the role of other specific marketing strategies like Internet and personal marketing on improving the sales of banking institutions is another area that is worth considering.
The current research had a major limitation on the availability of past research studies as there is dearth of relevant studies on marketing strategies of investment banks on which the research questions can be established. Secondly, there can be no generalization of the marketing strategies from the current research as each of the banking institutions has its own marketing strategies to attract and retain the customers. With the intense competition among the investment banks and the expanded knowledge of the customers on the products and services of the banks in general, satisfying the individual customers, the study leaves a question on the affordability of relationship marketing by the investment banks.
Abdul-Muhmin, A.G., 2002. Effects of suppliers’ marketing program variables on industrial buyers’ relationship satisfaction and commitment. Journal of Business and Industrial Marketing, 17(7), pp.637-51.
Abratt, R. & Russell, J., 1999. Relationship Marketing in Private Banking In South Africa. International Journal of Bank Marketing, 17(1), pp.5-19.
Ahmad, J., 2002. Customer Satisfaction and Retail Banking: An Assessment of Some of the Key Antecedents of Customer Satisfaction in Retail Banking. International Journal of Bank Marketing, 4(5), p.146.
Alavi, M. & Carlson, P., 1992. A review of MIS research and disciplinary development. Journal of Management Information Systems, 8(4), pp.45-62.
Anderson, G., 1993. Fundamentals of Educational Research. London: Falmer Press.
Anderson, P.H., 2001. Relationship Development and Marketing Communication: An Integratie Model. Journal of Business & Industrial Marketing, 16(3), pp.167-82.
Bagozzi, P.R., 1995. Reflections on Relationship Marketing in Consumer Markets. Journal of the Academy of Marketing Science, 23(4), pp.272-77.
Baker, M.J., 2003. The Marketing Book. London: Butterworth-Heinemann.
Barnes, J., 2002. The impact of technology on customer relationships. Australian Marketing Journal, 9(1), pp.21-31.
Barnes, J.G. & Howlett, D.M., 1998. Predictors of Equity in Relationship between Financial Services Providers and Retail Customers. Inernational Journal of Bank Marketing, 16(1), pp.15-23.
Beckett, A., Hewer, P. & Howcroft, B., 2000. An exposition of consumer behavior in the financial services industry,. International Journal of Bank Marketing, 18(1), pp.15-25.
Bei, L. & Chiao, Y., 2001. An integrated model for the effects of perceived products, perceived service quality, and perceived price fairness on consumer satisfaction and loyalty. Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behaviour, 14, p.125.
Bejou, D., Ennew, C.T. & Palmer, A., 1998. Trust, ethics and relationship satisfaction. International Journal of Bank Marketing, 16(4), pp.170-75.
Bejou, D., Wray, B. & Ingram, T.N., 1996. Determinants of Relationship Quality: An Artificial Neural Network Analysis. Journal of Business Research, 36(2), pp.137-43.
Berry, L.L., 1983. Relationship Marketing,” in Emerging Perspectives on Services Marketing, Leonard L. Berry, G. Lynn Shostack,and Gregory D. Upah, eds. Chicago. American Marketing Association, pp.25-28.
Berry, L.L., 1995. Relationship Marketing of Services – Growing Interest, Emerging Perspectives. Journal of the Academy of Marketing Science, 23(4), pp.236-45.
Berry, L., 2002. Relationship marketing of services – perspectives from 1983-2000. Journal of Relationship Marketing, 1(1), pp.59-77.
Blackwell, R., Minard, P. & Engel, J., 2001. Consumer Behaviour, 9th Edition. London: Prentice Hall.
Bloemer, J.M. & Kasper, H., 1995. The complex relationship between consumer satisfaction and brand loyalty. Journal of Economic Psychology, 16, pp.311-29.
Bloemer, J.M. & Lemmink, J.A.G., 1992. The importance of customer satisfaction in explaining brand and dealer loyalty. Journal of Marketing Management, 8(5/6), pp.351-64.
Bradley, L. & Stewart, K., 2003. The diffusion of online banking. Journal of Marketing Management, 19(9/10), pp.1087-109.
Brassington, F. & Pettitt, S., 2003. Principles of Marketing 3rd Edition. London: Prentice Hall.
Burnham, T.A., Frels, J.K. & Mahajan, V., 2003. Consumer switching costs: a typology, antecedents and consequences. Journal of the Academy of Marketing Science, 31(2), pp.109-26.
Butterworth-Heineman, 1991. Relationship Marketing. Oxford: Oxford University Press.
Cameron, R., 1997. Banking in the Early Stages of Industrialization. New York: Oxford University Press.
Campbell, D., 2003. The Cost Structure and Customer Profitability Implications ofElectronic Distribution Channels: Evidence from Online Banking”. Job Talk Paper. Cambridge: Harvard Business School.
Carson, D., Gilmore, A. & Walsh, S., 2004. Balancing Transaction and Relationship Marketing in Retail Banking. Journal of Marketing Management, 20(3/4), pp.431-55.
Caruana, A., 2002. Service Loyalty: the effect of service quality and the mediating role of customer satisfaction. European Journal of Marketing, 36(7/8), pp.811-28.
Chumpitaz, R. & Paparoidamis, N., 2004. Service quality and marketing performance in business to business markets: exploring the mediating role of client satisfaction. Managing Service Quality, 14(2/3), pp.235-48.
Clark, M., 1997. Modelling the impact of customer-employee relationships on customer retention rates in a major UK retail bank. Management Decision, 35(4), pp.293-301.
Clemons, E.K. et al., 2002. Impacts of eCommerce and Enhanced Information Endowments on Financial Services: A Quantitative Analysis of Transparency, Differential Pricing and Disintermediation. Journal of Financial Services Research, 22(1/2), pp.73-90.
Crosby, L.A., Evans, K.R. & Cowles, D., 1990. Relationship Quality in Services Selling: An Interpersonal Influence Perspective. Journal of Marketing, 54(3), pp.68-81.
Dabholkar, P. & Bagozzi, R., 2002. An attitudinal Model of Technology-based Self-Service: Moderating effects of Consumers Traits and Situational Factors.. Journal of Academy of Marketing Science, 30(3), pp.184-201.
Denzin, N.K. & Lincoln, Y.S., 1998. Strategies of qualitative inquiry. Thousand Oaks CA: Sage Publications.
Duddy, R. & Kandampully, J., 1999. Relationship marketing: a concept beyond the primary relationship. Marketing Intelligence & Planning, 17(7), pp.315-23.
Dwyer, R.F., Schurr, P.H. & Oh, S., 1987. Developing Buyer-Seller Relationships. Journal of Marketing, 51, pp.11-27.
Eastlick, M.A. & Liu, M., 1997. The influence of store attitudes and other non-store shopping patterns on patronage of teleshopping. Journal of Direct Marketing, 10, pp.19-29.
Ennew, C.T. & Binks, M.R., 1996. Good and bad customers: the benefits of participating in the banking relationship. International Journal of Bank Marketing, 14(2), pp.5-17.
Ennew, C.T. & Binks, M.R., 1999. Impact of Participative Service Relationships on Quality, Satisfaction and Retention: An Exploratory Study. Journal of Business Research, 46(2), pp.121-32.
Filip, A. & Pop, N.A., 2007. Strategic Views regarding the Relationship Marketing Approach and the Transactional Marketng Appraoch within the Financial and Banking Segment.
Fill, C., 2002. Marketing Communications – Contexts, Strategies and Applications, 3rd Edition. UK: Prentice Hall.
Fournier, S. & Mick, D.G., 1999. Rediscovering satisfaction. Journal of Marketing, pp.5-23.
Gale, B. & Chapman, W., 1994. Managing Customer Value: Creating Quality and Service That Customers Can See. New York: Free Press.
Galliers, R.D., 1991. Strategic information systems planning: myths, reality and guidelines for successful implementation. European Journal of Information Systems, 1, pp.55-64.
Gardner, E. & Molyneux, P., 1997. Investment Banking: Theory and Practice. London: Euromoney Books.
Goldsmith, W.R., 1969. Financial Structure and Economic Development. New Haven: Yale University Press.
GoogleFinance, 2010. HSBCHoldingsPLC. Web.
Gordon, I., 1999. Relationship Marketing: New Strategies, Techniques and Technologies to Win the Customers You Want and Keep Them Forever. London: John Wiley & Sons.
Gronroos, C., 1990. Relationship Approach to Marketing in Service Contexts: The Marketing and Organizational Behavior Interface. Journal of Business Research., 20, pp.3-11.
Gronroos, C., 1994. From Marketing Mix to Relationship Marketing: Towards a Paradigm Shift in Marketing. Asia-Australia Marketing Journal, 2(1), pp.9-30.
Gronross, C., 1995. Relationship marketing: the strategy continuum. Journal of Marketing Science, 23(4), pp.252-64.
Gronsroos, C., 2004. The relationship marketing process: communication, interaction, dialogue, value. Journal of Business & Industrial Marketing, 19(2), pp.99-113.
Gummesson, E., 1994. Broadening and Specifying Relationship Marketing. Asia-Australia Marketing Journal, 2(1), pp.10-30.
Gummesson, E., 1997. Relationship marketing as a paradigm shift: some conclusions from the 30R Approach. Management Decisions, 35(4), pp.267-72.
Gummesson, E., 1998. Total relationship marketing: experimenting with a synthesis of research frontiersl. Australian Marketing Journal, 7(1), pp.72-85.
Hayes, S.L., Spence, A.M., Van, D. & Marks, P., 1983. Competition in the investment banking industry. United States: Harvard University Press.
Holland, C.P., 1994. Bank lending relationships and the complex nature of bank-corporate relationships. Journal of Business Finance and Accounting, 21(3), pp.367-93.
Iacobucci, D. & Ostrom, A., 1996. Commercial and interpersonal relationships; Using the structure of interpersonal relationships to understand individual-to-individual, individual-to-firm, and firm-to-firm relationships in commerce. International Journal of Research in Marketing, 13, pp.53-72.
Jackson, B., 1985. Build customer relationships that last. New York: Harvard Business Review.
Jamal, A. & Naser, K., 2002. Customer satisfaction and retail banking: an assessment of some of the key antecedents of customer satisfaction in retail banking. International Journal of Bank Marketing, 20(4/5), pp.146-61.
James, D.L., 2004. Customer-Centric Marketing ROI. Marketing Management, 1.
Jones, M.A., Mothersbaugh, D.L. & Beatty, S.E., 2000. Switching barriers and repurchase intentions in services. Journal of Retailing, 70(2), pp.259-74.
Jun, M. & Cai, S., 2001. The key determinants of Internet banking service quality: a content analysis. The International Journal of Bank Marketing, 19(7), pp.276-91.
Kanter, R.M., 1994. Collaborative Advantage: the Art of Alliances. Harvard Business Review, 72, pp.96-108.
Kaplan, B. & Maxwell, J.A., 1994. Qualitative Research Methods for Evaluating Computer Information Systems,” in Evaluating Health Care Information Systems: Methods and Applications, J.G. Anderson, C.E. Aydin and S.J. Jay (eds.),. Thousand Oaks CA: Sage Publications.
Keltner, B., 1995. Relationship Banking and Competitive Advantage: Evidence from the U.S. and Germany. California Management Review, 37(4), pp.45-72.
Kotler, P., 1991. Philip Kotler Explores the New Marketing Paradigm. MSI Review, Spring, p.45.
Kotler, P., 2006. Marketing Management, 12th Edition. Englewood Cliffs NJ: Prentice Hall.
Kotler, P. & Armstrong, G., 2000. Marketing – An Introduction 5th Edition. Upper Saddle River NJ: Prentice Hall.
Kurtz, D.L., 2008. Contemporary Marketing. Stamford Connecticut: Cengage Learning.
Lang, B. & Colgate, M., 2003. Relationship Quality, On-line Banking and the Information Technology Gap. International Journal of Bank Marketing, 21(1), pp.29-37.
Liljander, V. & Strandvik, T., 1995. The Nature of Customer Relationships in Services”, in Swartz, T. A., Bowen, D. E. and Brown, S. W. (Eds.). London: JAI Press Inc.
McCarthy, E.J., 1960. Basic Marketing – A Managerial Approach. Illinois: Irwin.
Madlill, J.J., Feeney, L., Riding, A. & Haines, G.H.J., 2002. Determinants of SME Owners’ Satisfaction with their Banking Relationships: a Canadian Study. International journal of Bank Marketing, 20(2), pp.86-98.
Methlie, L.B. & Nysveen, H., 1999. Loyalty of on-line Bank Customers. Journal of Information Technology, 14, pp.375-86.
Mohamed, R.A., Fisher, R.J., Jaworski, B.J. & Cahill, A.M., 2002. Internet Marketing: Building Advantage in the Networked Economy. New York: McGraw-Hill.
Montoya-Weiss, M.M., Voss, G.V. & Grewal, D., 2003. Determinants of online channel use and overall satisfaction with a relational, multichannel service provider. Journal ofthe Academy of Marketing Science, 31(4), pp.448-58.
Morgan, R.M. & Hunt, S.D., 1994. The commitment-trust theory of relationship marketing. Journal of Marketing, 58(3), pp.20-38.
Moria, C., 1997. Modelling the impact of customer-employee relationships on customer retention rates in a major UK retail banks. Management Decision, 35(4), p.293.
Naidu, G.M., Parvatiyar, A., Sheth, J.N. & Westgate, L., 1999. Does Relationship Marketing Pay? An Empirical Investigation of Relationship Marketing Practices in Hospitals. Journal of Business Research, 46(3), pp.207-18.
Noor, K.B.M., 2008. Case study: a strategic research methodology. Web.
Nowak, L.I., Boughton, P.D. & Pereira, A.J.A., 1997.. Relationships between businesses and marketing research. Industrial Marketing Management, 26(6), pp.487-95.
O’Laughlin, D., Szmigin, I. & Turnbull, P., 2004. From Relationships to Experiences in Retail Financial Services. International Journal of Bank Marketing, 22(7), pp.522-39.
O’Malley, L. & Tynan, C., 2000. Relationship Marketing in Consumer Markets. Rhetoric or Reality? European Journal of Marketing, 34(7), pp.797-815.
Palmatiyar, R.W. & Gopalakrishna, S., 2005. Determining the Payoff from Relationship Marketing Programs”. MSI Reports: Marketing Science Institute Working Paper Series, Issue 1 No 05-001.
Palmer, A., 1994. Relationship Marketing; Back to Basics. Journal of Marketing Management, 10, pp.571-79.
Patterson, P.G. & Spreng, R., 1998. Modelling the relationship between perceived value, satisfaction and repurchase intentions in a business-to-business context: an empirical examination. International Journal of Service Industry Management, 8(5), pp.414-34.
Payne, A. & Frow, P., 2005. A strategic framework for customer relationship management. Journal of Marketing, 69(4), pp.167-76.
Petruzzellis, L., Romananzzi, S. & Gurrieri, A.R., 2008. Loyalty and Customer Satisfaction in Retail Banking: The Role of Social Network. Web.
Prahalad et al. , 1998. The end of corporate imperialism. New York: Harvard Business Review.
Ranaweera, C. & Neely, A., 2003. Some moderating effect on the service quality-customer retention link.. International Journal of Operation & Production Management, 23(2), pp.230-48.
Radic, N. & Fiordelisi, F., 2008. Cross Country Comparisons of Efficiency in Investment Banking. Web.
Ravald, A. & Gronroos, C., 1996. The Value Concept and Relationship Marketing. European Journal of Marketing, 30(2), pp.19-30.
Reichheld, F. & Schefter, P., 2000. E-loyalty: your secret weapon on the Web. Harvard Business Review, pp.105-13.
Rosen, D.E. & Surprenant, C., 1998. Evaluating relationships: are satisfaction and quality enough? International Journal of Service Industry Management, 9(2), pp.103-25.
Saxe, R. & Weitz, B.A., 1982. The SOCO Scale: A Measure of the Customer Orientation of Salespeople. Journal of Marketing Research, 19(3), pp.343-51.
Sharma, N. & Patterson, P.G., 2000. Switching costs, alternative attractiveness and experience as moderators of relationship commitment in professional consumer services. International Journal of Service Industry Management, 11(5), pp.470-90.
Sheth, J. & Parvatiyar, A., 2000. Handbook of Relationship Marketing. London: Sage.
Stone, M., Woodcock, N. & Wilson, M., 1996. Managing the change from marketing planning to customer relationship management. Long Range Planning, 29(5), pp.519-33.
Sweeney, A. & Morrison, M., 2004. Clicks vs. Bricks: Internet-facilitated relationships in Financial Services. International Journal of Internet Marketing and Advertising, 1(4), pp.350-70.
Ting, H., 2004. Service quality and satisfaction perceptions: curvilinear and interaction effect. International Journal of Bank Marketing, 22(6), pp.407-20.
Walsh, S., Gilmore, A. & Carson, D., 2004. Managing and implementing simultaneous transaction and relationship marketing”,. International Journal of Bank Marketing, 22(7), pp.468-83.
Yavas, U., Benkenstein, M. & Sthuldreier, U., 2004. Relationships between service quality and behavioral outcomes: A study of private bank customers in Germany. International Journal of Bank Marketing, 22(2), pp.144-57.
Yin, R., 1984. Case Study Research: Design and Methods. Beverly Hills CA: Sage Publishing.
Zeithaml, V.A., Rust, R.T. & Lemon, K.N., 2001. The Customer Pyramid: Creating and Serving Profiable Customers. California Management Review, 43(4), pp.118-42.