Strategic

Management
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DEREK F. CHANNON
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 Bank
Strategic Management
and Marketing
 Bank
Strategic Management
and Marketing

Derek F. Channon

Professor of Marketing
International Banking Centre
Manchester Business School,
Manchester, UK

JOHN WILEY & SONS

Chichester • New York • Brisbane • Toronto . Singapore
Copyright © 1986 by John Wiley & Sons Ltd.
All rights reserved.
No part of this book may be reproduced by any means, nor
transmitted, nor translated into a machine language without
the written permission of the publisher.
Library of Congress Cataloging-in-Publication Data:
Channon, Derek F.
Bank strategic management and marketing.
Includes index.
1. Bank management. 2. Bank marketing. I. Title
HG1615.C46 1985 332.1'068 85-20182
ISBN 0 471 90383 3

British Library Cataloguing in Publication Data:

Channon, Derek F.
Bank strategic management and marketing.
1. Banks and banking—Planning
2. Strategic planning
I. Title
332.1'068'4 HG1616.P5/
ISBN 0 471 90383 3

Typeset by Activity Ltd, Salisbury, Wiltshire

Printed and bound in Great Britain
 u\0| I^T-O

Contents

Preface . ix
Chapter 1 Introduction . 1
1.1 Changing Patterns of Bank Strategy . 1
1.2 Banking in the 1980s . 3
1.3 The Need for Market Planning . 6
1.4 The Role of this Book . 6

Chapter 2 Bank Strategic Planning . 8

2.1 Introduction . 8
2.2 Strategic Plan Content . 8
2.3 The Process of Bank Planning . 9
2.4 Strategy Testing . 44

Chapter 3 Implementing Strategic Planning Successfully . 49

3.1 Introduction . 49
3.2 Conditions for Successful Implementation . 49
3.3 When Does Planning Fail? . 58
3.4 Evaluating the Strategic Planning System . 59

Chapter 4 Competitor Analysis . 62

4.1 Importance of Competitor Analysis . 62
4.2 Developing a Competitor Intelligence System . 63
4.3 Competitor Identification . 64
4.4 Sources of Competitor Intelligence . 65
4.5 Competitor Analysis Data Base . 68
4.6 Analysing Competitor Strategy . 68
4.7 Assessing Competitor Strategic Capability . 79
4.8 Summary . 80

Chapter 5 Purchasing Financial Services . 81

5.1 Basic Purchase Motivation . 81
5.2 Specific Needs and Wants . 84

v
VI

5.3 Corporate Purchasing Process . 86

5.4 The Organization of the Corporate
Treasury Function . 87
5.5 The Bank Choice Decision . 91
5.6 Middle Market Treasury Organization . 93
5.7 Conclusion . 96

Chapter 6 Planning Corporate Account Strategy . 97

6.1 Introduction . 97
6.2 Basic Account Screening . 97
6.3 Prospecting . 100
6.4 Needs Identification . 104
6.5 Account Strategy Assessment . 107
6.6 Account Action Planning . 108
6.7 Call Plan Development . 113
6.8 Consolidation Plans . 114
6.9 Summary . 117
6.10 Account planning checklist . 117

Chapter 7 Product Range and Development Strategy . 121

7.1 Product Range . 121
7.2 Deposit Services . 122
7.3 Lending and Credit Services . 123
7.4 Other Services . 132
7.5 Developing Bank Products and Services . 135
7.6 Developing Service and Product Knowledge . 138
7.7 Other Factors Affecting Communication . 139
7.8 Checklist for Developing New Banking and Financial
Service . 140

Chapter 8 Bank Pricing Strategy . 142

8.1 Introduction . 142
8.2 Pricing Objectives . 143
8.3 Estimating Cost Structure . 144
8.4 Strategic Impact and Cost Analysis . 146
8.5 Pricing Method Selection . 150
8.6 Factors Modifying Price Structures . 155
8.7 Summary . 157
8.8 Pricing Strategy Checklist . 158

Chapter 9 Delivery System Strategy . 160

9.1 Introduction . 160
 Vll

9.2 Types of Delivery System . 160

9.3 Trends in Delivery System Strategy .. 172
9.4 The Outlet Location Decision . 173
9.5 Summary . 177
9.6 Evaluating Delivery System Strategy . 177

Chapter 10 Communications Strategy . 178

10.1 Introduction . 178
10.2 Developing Communications Strategy . 180
10.3 Personal Selling . 180
10.4 Promotion and Public Relations . 182
10.5 Advertising . 188
10.6 Summary . 196
10.7 Communications Strategy Checklist . 197

Chapter 11 Bank Organization Structure . 200

11.1 Introduction . 200
11.2 Forms of Bank Organization . 200
11.3 Organization for Corporate Banking . 204
11.4 Assessing Account Officer Needs . 212
11.5 Specialized Organizational Skills . 213
11.6 Trends in Organization Structure . 222
11.7 Problems of Organizational Change . 226
11.8 Summary . 228
11.9 Bank Organization Checklist . 228

Index . 230
Preface

This book and its accompanying casebook have developed over a number of
years largely as a result of the development of the International Banking
Centre at the Manchester Business School and from work undertaken with
many individual banks. The banking industry is presently undergoing a
revolution world wide. Due to the twin impacts of deregulation and
technology an industry that even quite recently in many countries operated as
a relatively undifferentiated cartel is now learning to operate in a much more
competitive environment. Under such competitive conditions marketing and
the process of strategic management suddenly become much more important.
The banking and financial services industry thus provides a fascinating area
to observe the effects of rapid industrial structure change. The introduction
and use a marketing and strategic management concepts are important
ingredients in this change process. However, it has been our experience that
such concepts need to be adjusted specifically for the industry and this has
been the intent in the case of this book. There is also an accompanying
casebook, all the material in which was developed from real banking
situations, and disguise has been used to the minimum. Given the relative
secrecy of the industry we would like to thank sincerely all those banks who
have kindly released material for publication.
The text for the book is based on experience in the areas of marketing and
strategic management and how these concepts can be specifically applied to
the banking industry. Similarly all the cases in the casebook have been
classroom tested with bankers at Manchester and around the world. We hope
that both text and the case books will provide a useful contribution to the area
of management education for banking.
In its preparation we have received much support from many bankers and
banks. We would very much like to thank all those who have helped us. In
addition I would like to thank my colleagues at the International Banking
Centre and especially its Director, Dr Jim Byrne. I must also thank my
research assistants who have helped collect and prepare data used in the
cases. In particular thanks are due to John Desmond, Sally Falshawe and
Makoto Showda. My secretary Avril Rathbone has also been responsible for
much help in preparing the manuscript and I would like to thank her for

IX
X

patience and efficiency. Finally, while the work is the result of the efforts of
many, any errors that may occur are regretted, with the responsibility being
solely mine.

Derek F. Channon
Manchester Business School
June, 1985
CHAPTER 1

Introduction

1.1 CHANGING PATTERNS OF BANK STRATEGY

The world banking industry has been changing rapidly since the end of the
1960s. During the 1970s the industry in the developed countries of the world
experienced a substantial change in competitive conditions as a result of a
number of factors. First, the industry tended to go international, led by the
leading US money center banks. This resulted in market interpenetration by
established overseas competitors and led to substantial challenges to existing
indigenous banks, notably in the corporate market. Moreover, the new
entrants brought with them new approaches to servicing corporate accounts,
while the growing internationalization of the large corporations from all the
developed countries led in turn to customer demand for new banking services
to meet the specific needs of multicountry operations.
Secondly, new capital markets opened which transformed the traditional
patterns of funding for both banks and corporations. By the end of the 1970s
large percentages of bank deposits were being provided by funds from other
banks via the interbank market and the burgeoning growth of the deregulated
Euromarkets. Initially centered on London, the Euromarkets had evolved as
the world’s largest capital market, operating in an increasing number of major
financial centers around the world. Moreover, the instruments available within
the market had developed to provide a wide range of sophisticated products
meeting more or less any specific financial need in a growing variety of
currencies or currency combinations.
Third, in response to competition, indigenous banks in Europe reacted and
began to build up their own multinational presence, attacking notably the US
domestic market, where via aquisitions and new openings, they brought their
own brand of counterattack to the US indigenous banks with significant success
in many cases. Here it was the US banks that were on the receiving end of an
aggressive attack which some believed to be unfair, in that the regulations
affecting the new competitors appeared to give them advantages on interstate
branching and the like which were denied to US domestic banks.

1
 2

Next, the banking industry, despite the constraints of banking law in many
countries, began to diversify. Again in the USA the constrictive corset of Glass
Steagall prevented a number of the moves that banks were able to undertake in
some other countries, but in general commercial banks moved into the areas of
asset-based finance, consumer credit finance, merchant banking, trust and
pension management, Eurocurrency operations and syndications, credit cards
and the like, while at the same time proliferating the range of products offered
in conventional banking services. Where legal constraints did not apply,
further areas for diversification included insurance broking and underwriting,
travel, securities management and computer services. As a result, by the end of
the 1970s banks had become more complex in the range of services offered
while competitive pressures had eroded margins on commercial lending such
that fee-based services were becoming of increasing importance.
Fifth, the industry was identified, largely because of the regulatory
constraints, by a growing number of non-banks as being especially attractive to
corporations with potential operating advantages in specific areas of activity.
Thus, automobile companies such as General Motors, which had long been
engaged in dealer and personal finance for automobile purchase, saw the
opportunity to extend leasing and credit finance business to non-General
Motors customers. Travel card companies like American Express saw the
opportunity to offer a variety of financial services to its existing account-hol¬
ders at little additional cost. And retail companies like Sears Roebuck saw its
established chain of nationwide retail outlets as an obvious point of sale for a
range of interstate financial services which banks were inhibited from
providing.
Sixth, technology began to affect the banking industry. Most notably this
appeared in retail banking as, faced with a mounting tide of paper and rising
administrative costs, banks turned to plastic cards and electronic machinery in
an effort to maintain their ability to handle an increase in transaction volume
while controlling costs. Further, the need to provide increased service,
especially outside opening hours, led to the increased use of first cash
dispensers and later automated teller machines. Similarly, the back office
gradually became more automated and from the operations centres of many
banks the possibility of selling information-processing services began to
emerge as a potential new product market in its own right.
In retail banking too, competition increased. Savings and loan banks
initiated the interest-bearing transaction account to bring them into direct
competition with commercial banks. Outside the USA, savings banks and
building societies also offered a growing range of services to attract small
depositors. Larger depositors were lured by the attraction of money market
funds or by the development of new sophisticated integrated financial service
products such as the Merrill Lynch Cash Management Account. In retail
lending, competition also increased. Credit card companies, collectively
owned and operated by banks, offered easy credit, stores offered retail
 3

revolving systems, credit finance companies offered loans for specialized

assets, second mortgages and the like.
By the end of the 1970s, therefore, the banking industry had become much
more competitive. The traditional demarcation lines between the classes of
financial institutions were rapidly breaking down, while a number of major
competitors were operating on a global scale rather than as the regional or
national competitors they had been previously. Moreover, many new market
entrants were emerging which, uninhibited by the legal constraints of the
industry established as appropriate for an earlier age, allowed the newcomers a
competitive advantage. Finally, new technology and substitute products
threatened the traditional mode of banking operations.

1.2 BANKING IN THE 1980s

While change within the banking industry in the 1970s was very rapid, the 1980s
seem likely to bring an acceleration in the pace of this change. Amongst the
trends discernible for the present decade are the following.

1.2.1 Retail Banking

(a) Increased segmentation of consumer groups

A number of segments are already emerging as being especially important such

as:

The rich. A growing number of banks are establishing or are operating

specialist private banking units to provide a customized service for personal
clients with assets available for investment or management of over $100,000.
Such units are often located in no- or low-tax areas and build upon the
traditional secrecy and personal service long practised by the Swiss banks.

HNWIs. Below the level of the very rich, a segment has been developed to
cater for the special needs of those individuals of moderate wealth. Making use
of sophisticated computer systems, Merrill Lynch introduced its Cash
Management Account to provide an effective money market interest rate for
deposits of $20,000 or more coupled with a Visa card and checking account
and the ability to generate loans automatically based on the value of securities
contained in the account. The rapid success of this type of account has forced
banks to respond and offer interest on current account balances at money
market rates, while other securities companies have entered the market with
similar products to that of Merrill Lynch. As a result, the traditional deposit
base of the commercial banks has been substantially eroded.

Account Stratification. In response to attacks on their traditional deposit base.

 4

banks have begun to interrogate their existing account base with the view to
identifying accounts with potential for various specific services such as personal
loans, credit finance, insurance, first and second mortgages, insurance or
deposits. There will also be strong pressure to discard the unprofitable
segments of most banks’ retail customer base.

(b) Replacement of Paper-Based Systems

The trend of the 1970s toward machine banking is increasing as banks work to
reduce the cost of consumer banking using bricks-and-mortar branches and
human resources. Not only is the growth of more sophisticated automated
teller machines occurring but the development of home banking seems likely
by the end of the decade. At the same time, credit and debit cards are expected
to continue to grow and offer an increasing range of services as more
information is contained on a card in the striping or in an inbuilt microchip. The
substitution of machinery for human labor will continue and probably
accelerate as the relative cost of new technology delivery systems falls while
that of human tellers and back office personnel continues to rise.

(c) Increased competition for both deposits and loans

The pattern of increased competition between banks and other institutions

providing financial service to consumers experienced at the end of the 1970s
will continue. In the United States interstate banking will become finally
established, with large money center banks entering other states, especially in
growth areas of the country such as the Sun Belt and the south-west. At the
same time interstate card systems shared by multibank organizations can be
expected in an effort to counter the moves by out-of-state banks. In states such
as California and New York foreign banks such as the Japanese and the British
will provide growing competition for indigenous organizations.
In addition to the banks, new entrants will continue to penetrate against
selected retail market segments. The pattern established by Merrill Lynch will
be repeated by all major securities companies in combination with banks or
other institutions such as insurance companies, American Express and the like.
Similarly, retail groups like Sears Roebuck with a natural synergy with
financial services due to an established customer base and distribution
coverage may be expected to increase their threat to traditional bank business.
The patterns of competitive behavior in the USA will be similarly repeated in
many other countries. In the UK, additional competition can be expected from
securities companies, building societies, foreign banks and retailers. In
Germany, late to introduce card-based systems, the savings banks, foreign
banks, card companies and retailers can be expected to increase competition.
In Japan the securities companies and the Post Office offer the greatest threat
to the commercial banks.
 5

1.2.2 Wholesale Banking

(c) Continued Intensive Competition

The intensive competition that developed in the 1970s will continue and even
increase during the 1980s as banks increasingly strive for competitive
advantage and in so doing tend to cancel out one another’s efforts.
As multinational corporations find they increasingly need banks less as they
add internally the skills traditionally provided by banks and demand ever lower
rates for money, banks themselves are turning their attention to the ‘middle
market’. In so doing, however, they are forcing interest rates down in this
sector for attractive accounts while reducing customer loyalty as the companies
adopt multibank relationships. Smaller banks such as South East and Standard
Chartered have opted to concentrate on specific services such as trade finance
or geographic territories such as the Far East or the Caribbean basin. Other
banks like the Texas banks have concentrated on specific areas of lending such
as real estate and energy lending.
Further, while the American international banks led the competitive attack
in the 1970s, the 1980s have begun with the counter-attack of the large
European banks such as Barclays, Banque Nationale de Paris, Credit
Lyonnais, Algemene Bank and Deutsche Bank. As these banks build up their
global networks to match those of the leading US money center banks or build
upon already established branches, the number of major competitors entered
in all the major corporate and wholesale business centers will increase to an
average of over 50 major banks.
Still to come as major global competitors by the end of the decade are the
large Japanese commercial banks and leading specialist banks such as the
Industrial Bank of Japan and the Bank of Tokyo. These banks, which are
normally at the center of massive industrial groups, can be expected to emerge
as extremely powerful and important competitors as their industrial group
associates continue to expand overseas and develop the Japanese international
economic position. By the mid-1980s the large Japanese banks had already
achieved five positions among the top ten global banks.
Finally, a number of new important financial institutions are emerging from
the newly industrializing countries and those countries with substantial
petrodollar surpluses. Banks such as Banco do Brasil, Hong Kong & Shanghai
and those of the Gulf States can be expected to play a greater role in the world
of international banking in the future.

(b) Development of Systems Products

In the same way that banks are turning to technology to change their approach
to consumer markets, so in the corporate and wholesale markets the
development of systems-based products is becoming of increased importance.
Making use of their global networks and advanced communications, computer
 6

and information processing capabilities, the largest banks are endeavoring to

build customer loyalty and fee-based income by offering cash management,
and, in future, comprehensive data/information processing services.

(c) Further Competition from Non-Banks

Non-banks such as American Express, Merrill Lynch and the major credit
finance companies have already established a significant position in the
corporate market and can be expected to continue to do so. In addition, a
growing number of industrial companies are broadening the scope of their
financial services operations to enter external markets. Thus organizations like
General Motors Acceptance Corporation offer industrial credit finance,
leasing and the like to companies outside General Motors, many captive
insurance companies now legitimately trade with third party organizations, and
in the coming decade the emergence of trading companies such as those of
Japan can be expected in the West in major corporations like General Electric.

1.3 THE NEED FOR MARKET PLANNING

As a result of the growing level of competition and the rapid pace of change,
more and more banks are increasing their strategic planning efforts in an
attempt to allocate resources in a way which provides them with a competitive
advantage or reduces external threats. At the same time marketing is emerging
as an especially important element in bank planning. Traditionally banks have
not really paid adequate attention to either strategic planning or marketing and
as a consequence most have turned to external consultants or industrial
companies for their concepts and methodologies. During the 1970s, however,
although banks paid some attention to the new concepts, their main emphasis
remained on traditional ‘banking’ rather than on management skills. The
competitive environment of the 1980s is forcing the reappraisal of this position
and management skills are growing in importance.

1.4 THE ROLE OF THIS BOOK

While most of the conceptual skills being introduced into banks have their
origin in manufacturing industry, it is important to recognize that in many
respects banking is a very different industry. As a consequence, a number of
the concepts and relationships established in manufacturing may not be wholly
applicable in banking or have a different emphasis. This book is therefore
devoted to strategic management and marketing in the banking industry, with
particular emphasis on international corporate banking. It builds upon the
years of work undertaken by the International Banking Centre at the
Manchester Business School, probably the largest institution for specialist
education in international banking in the world. This work, which has been
 7

undertaken in conjunction with many of the world’s leading banks, has always
been practical in nature and courses have been designed in conjunction with
practicing line bankers. We are extremely grateful for all the help and
assistance these bankers have provided over the years and hope this may in
some small way repay their help.
The text examines techniques of bank strategic planning and marketing
based upon working systems in leading banks. In addition, the importance of
techniques such as competitor analysis and product development are discussed
from a banking perspective. A detailed analysis of corporate financial service
purchasing is included to try and emphasize the position of the bank customer.
To supplement and reinforce the text a comprehensive collection of up-to-date
banking cases is provided in an accompanying casebook. These range from
cases outlining various aspects of the strategy of many important named banks
and non-banks from around the world to a series of operational cases drawn
from the experiences of a number of cooperating banks. Nearly all the material
has been tested with line bankers drawn from many countries attending the
many programs run by the International Banking Centre, while others have
been prepared for specific banks’ internal management needs. We hope that
you will find the results helpful to your bank.
CHAPTER 2

Bank Strategic Planning

2.1 INTRODUCTION

Strategic planning is an essential ingredient in the process of strategic

management of the bank. It results in the development of the bank’s long-term
objectives and the design of action plans throughout the bank which lead to the
achievement of these objectives. Specifically, the bank’s strategic plan makes
explicit:

• The market priorities, which determine resource allocation

• The assumptions behind the choice of market priorities
• The changes required to capitalize on market opportunities
• The timing of strategic moves
• An estimate of the environment in which the bank will act
• The expected rate of progress in strategy implementation

The plan thus describes the strategic direction the bank will take by assigning
specific objectives and investment priorities to particular market segments in
which the bank operates, so committing resources to the desired mix of
businesses which will result in achievement of the bank's long-term objectives.
As a guide to management, the bank’s plan also describes the strategies to be
pursued in the form of action plans leading to changes in business variables
under the control of management. These variables are the levers which can be
manipulated to arrive at the desired strategic position for each bank business.
The desired changes themselves define the implementation tasks of managers.

2.2 STRATEGIC PLAN CONTENT

1 he strategic plan should include the following components.

1. Mission. This states the overall purpose or raison d'etre of the bank. It
also applies at the level of the organizational subunit, stating in
addition the nature of activities and any self-imposed constraints.

8
 9

2. Objectives. These are usually measurable characteristics and their

future value should be stated. Typically, objectives are cited for
variables such as financial return, size, efficiency and service quality.
3. Environment!market assumptions. These contain explicit statements
about future trends in strategic market segments in which the bank
participates together with factors which may affect these trends or
impact upon the bank’s organization or its freedom to act.
4. Competitive strength evaluation. The plan should explicitly assess the
bank’s relative strengths and weaknesses for specific factors such as
market share, service quality and relative costs.
5. Assessment of opportunity. For each market segment, the plan should
assess threats to and opportunities for the achievement of mission and
objectives on the basis of the environment and market assumptions and
relative competitive strength.
6. Market portfolio strategy. This ingredient identifies the desired
investment strategies for each of the markets in which bank units
participate and the objectives to be attained for each.
7. Strategic changes in controllable factors. Objectives and goals for
action plans stating changes in capabilities or resources under the
control of unit management and selected as most likely for achieving
the desired market results.
8. Action plans for change implementation. Specific programs includ¬
ing measurable goals, events and timing which will result in the changes
specified in action plan objectives.
9. Expected financial results. These indicate the anticipated financial
outcome in terms of revenue, profits and return on assets for the units.

The plan also needs to be developed for each organizational level of the
bank. The normal starting point for bank analysis is the individual market
segment. However, the bank’s organization structure may affect the responsi¬
bilities for making changes in market strategic variables. Further, organization
structure itself is a major variable under management control, and indeed it
turns out to be a key factor for bank differentiation. For major international
banks the question of market and business unit definition can be difficult to
resolve, due to conflicting claims of product and geography. In practice country
units are logical organizational planning centers, but for products and/or
customers which span national boundaries coordination or planning control
should focus on the customer/product segment. The differences between plan
content at various organizational levels are illustrated in Figure 2.1.

2.3 THE PROCESS OF BANK PLANNING

The process of bank strategy planning at the corporate level is illustrated in
Figure 2.2. At the corporate level it begins with an assessment of mission and
10

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12

objectives, which are matched against opportunities and resources. At the

departmental or divisional level current market priorities, objectives and
strategies are evaluated and compared with corporate strategies and options to
develop an integrated corporate strategy. This in turn indicates desired
changes in the positions of the bank’s business portfolio, in its levels and
direction of resource allocation and in organizational capabilities. These are
ultimately translated into action programs for implementing the changes.

2.3.1 Setting the Bank Mission

The first stage in developing the plan is the establishment of the bank’s mission
statement. Each organization has such a mission or reason for existence. This
only changes very slowly and has a major impact on what the organization
chooses to do or not to do and the way it decides to act. Understanding your
own bank’s mission and those of your competitors is an important ingredient in
establishing successful strategies, by recognizing the constraints within your
own organization and the opportunities offered by those within your
competitors’. The actual mission of the bank is determined by a number of
factors:

Corporate history
The past history of the bank will have a significant impact on behavior. Past
successes will influence the choice of future directions whilst past failures will
tend to lead to areas of avoidance. The bank’s origins will also affect its
position in relation to particular geographic areas, customer classes, and so
on. Hong Kong and Shanghai Bank thus sees its zone of influence to be the
Pacific Basin and also the USA and UK; Credit Agricole is strongly attached
to its farming depositors.

Corporate culture
Every organization has its own unique internal culture made up of the way
things are normally done, the type of people employed and the set of
organizational norms and practices which condition and govern both formal
and informal behavior. J. P. Morgan bankers thus see themselves as financial
consultants, compared with Citibank corporate bankers who are much more
lending-oriented.

Power structure
The power structure of the bank will significantly influence behaviour. This
again applies to both the formal and informal organization structure. Thus,
for example, despite protestations to the contrary, not all executives in
Barclays are perceived as equal, especially if they are descended from one of
the bank’s founding families. Similarly, a branch-oriented bank such as Bank
of America tends to structure its activities around geography, by comparison
 13

with most of its New York-based competitors where organization around

customers is more usual.

Key decision-makers
The style, aspirations and values of key decision-makers have a significant
effect on the basic purpose of the bank. Virtually no major shifts in strategy
or organization occur without a prior change of leadership, and this is
normally a prerequisite for any attempt to shift the organizational purpose.
For example, the recent change in the strategic direction of Chase
Manhattan and First Chicago Corporation required such a change of
leadership.

The basic mission of the bank can thus act as a serious deterrent to shifts in
strategy but usually represents a deep strength providing some overall
distinctive competence which can be built upon for the development of future
strategy. It must, however, be recognized that to change a basic organizational
purpose is usually very difficult and takes a significant time. Strategies which
expect to make such changes quickly are therefore unlikely to be realistic. This
concept of overall purpose for the bank needs to be identified and set down in
an overall corporate mission statement. The statement sets out the overall
direction the bank wishes to pursue and identifies the nature of the activities it
will engage in and self-imposed constraints that may apply as a result of history,
culture and management values.

2.3.2 Setting Objectives

The second stage of developing the overall bank plan is the setting of
objectives. These are set by top management, taking into account the potential
of the external environment, any self-imposed constraints identified by the
overall mission statement, the internal resources of the bank and the
requirements of external shareholders as shown in Figure 2.3.
The corporate objectives usually remain relatively stable over the medium
term and should consist of quantified variables, although many banks also
include non-quantified objectives. Later in the planning process at other levels
within the bank, strategic groups, divisions or departments will also set out
their own mission statements and objectives as part of the detailed bank plan.
In evaluating the objectives of the bank and its operating units it is extremely
important to check that they are internally consistent and that the achievement
of one does not automatically exclude the achievement of another. All too
often internal consistency is missing. Similarly, in reviewing the overall plan
check that the objectives of the operating units are consistent with those of the
bank as a whole. Again it is common to find inconsistencies. One often
encountered is that operating units will still be seeking to grow their businesses
while the bank, as part of its market portfolio strategy, might actually require
14

Figure 2.3 The relationship between bank mission and objectives

some businesses to contract in order to generate the resources required for

other elements in the portfolio to grow. In the event that inconsistencies are
identified in the bank’s objectives, aim to remove them by checking which
objectives are paramount.

2.3.3 Market Definition

The next stage in developing the bank strategic plan is strategy development.
The first step in this is to assess, and order, potential market opportunities as
shown in Figure 2.4. A market is defined as an intersection between a class of
customers and a bank product or service group. Defining the markets the bank
is engaged in is actually a very difficult task and requires a substantial degree of
creative effort. In practice, virtually no bank endeavors to service all the needs
of all potential customers. Instead the bank operates in a series of ‘served’
markets, each of which is a subset of the total market as illustrated in Figure
2.5. The concept of ‘served’ market breaks down the total market to that
segment or segments to which the bank will purposively try and sell products or
services.
Each market the bank is engaged in, therefore, should be sufficiently defined
such that you can answer each of the following questions:

• Who precisely are the customers?

• What are their needs?
• What products or services of the bank meet these needs?
• Can we provide these efficiently, profitably and at an acceptable level
of risk?
• What resources does the bank need to deliver these services?
• How will the bank manage these resources?
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Figure 2.4 The process of strategy development

15
 16

In order to evaluate the potential of served markets first complete a

customer/product needs grid such as those shown in Figure 2.6(a) and (b).
In practice, both corporate and consumer customer segments should be
subdivided and separate needs matrices completed for each key customer
class. The more precise the identification of market segment boundaries the
better but ensure that these are actually meaningful. An adequate description
of a market segment should constitute a set of boundaries to which strategies
can be specifically targeted and where a defendable position can ultimately be
established. Note the geographic boundaries for many of these served
markets will differ sharply, and it is not uncommon for banks to offer
different geographic served markets to different customer classes. Thus many
banks will provide certain worldwide services to large corporate accounts and
to some others from specific industry sectors, while services to average
consumers will be usually confined to a local area or country. A bank like
Chase Manhattan provides consumer banking services in and around New
York but offers a worldwide service to private banking clients with deposits of
over $100,000 and to large corporations with international service
requirements.

2,3.4 Corporate Market Segmentation

For the large corporate market plans are created mainly by building up from
the marketing plans for individual accounts (see Chapter 6 on account
marketing planning), while for those larger groups of customers and
prospects marketing planning is based on aggregate strategies. Middle market
corporate accounts are usefully planned by a combination of these
techniques, using improved segmentation screening variables to initiate
marketing plans supplemented by individual account plans for those
organizations whose potential, based on the screening criteria, justifies the
expense.
 17

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 19

Useful variables for this initial approach to market segmentation include:

Turnover
Turnover provides a simple crude means of segmentation. For example:
Some banks determine their mode of organization based upon turnover
measures such as accounts above $100m turnover being handled by a
director or senior vice president; some international banks will not pursue
accounts of less than $50m sales.
Turnover gives an indication of the size of business available for many
products and is perhaps the widest used single segmentation variable.
However, most banks when designing key account target lists make overuse
of this variable without coupling it with other factors such as geography,
probability of dislodging a competitor, etc. As a result, many banks are
pursuing the same key accounts and often neglecting potentially more
profitable and more readily penetrable accounts with perhaps a somewhat
lower volume of total business. The largest apparent volume segment is
seldom the easiest to penetrate or the most profitable.
Turnover is also an important variable when used in conjunction with others
to create ratios. However, remember turnover is not an available measure in
many service and public sector organizations.

Geography
Corporate accounts in fact tend to be geographically clustered. Geography
can thus be used as a variable to decide upon the allocation of business
development resources, new branches, etc., and for assessing market
potential within particular regions.

Industry classification
This is a somewhat difficult variable to use, since many companies are very
diversified and operate in a number of product market areas. Crude industry
measures are, however, useful both in terms of assigning account responsi¬
bly and developing specific products. For example, insurance broking
companies and commodity traders would be especially interested in rapid
money transfer systems. Industry specialization by account executives is a
real alternative to a geographic branch-based system of business develop¬
ment, and even if not practised it is important for bank executives to learn
about the specific financial needs of key industries.

Competitor bank relationship

One of the most useful segmentation variables is ‘Who does an account bank
with at present?’ From this knowledge it is possible to conduct competitor
analysis to assess your relative strengths and weaknesses compared with your
competitor and attack the account with those services you are especially
20

good at. Remember, whenever you take new business, it has to come either
from growth in the overall market or from a competitor.

Subsidiary structure
The majority of larger companies or industrial groups consist of different
subsidiaries and/or are multisite operations. It may be possible to gain an
early foothold at an account by taking business at a subsidiary or specific
plant. The decision process for bank appointments can rely heavily on the
attitude of subsidiary units, especially for some services, and this may
therefore represent a significant potential route for building a lead bank
relationship. It is, however, important to understand the decision process for
banking appointments before spending too long trying to gain business at a
subsidiary of a larger group.

Number of employees
A useful indicator of organization size, this can also be used to indicate
sensitivity to wage demands, and when taken in conjunction with other
factors provides a number of useful derived variables such as value added per
employee, capital employed per employee, etc. It can be used in the design
of service packages incorporating personal services, which often form a
suitable starting point for account penetration.

Level of export sales

This is an important indicator of the level of international activity, both in
absolute size and also when used as a percentage of turnover to indicate the
relative importance of this. An obvious indicator for forex and acceptance
credit business, it may also point to network matching possibilities,
multicurrency lending, confirming business, and the like.

Number and location of overseas offices and subsidiaries

This is another indicator of the level of multinational activity. It is also useful
for network matching against the bank’s own overseas network and with
reference to the location of specific branches.

Current assets
Subdivided into major components, with stocks and debtors being singled
out for specific attention, these indicate managerial ability when compared
with industry averages, degree of working capital intensity, and the like.
They also suggest specific types of banking service such as factoring,
overdraft lending, acceptance credits, transaction services, and the like.

Current liabilities
Subdivided into major components, with creditors and short debt being
singled out for specific attention, these indicate debt capacity level and
managerial control over creditors.
 21

Fixed assets
Subdivided into property and plant and equipment for use in security
evaluation and identification of capital funding needs and capital intensity,
fixed assets can be usefully examined to explore financing opportunities in all
forms including leasing commercial paper and the like.

Interest paid
Subdivided into long and short interest, this, in conjunction with earnings,
indicates capacity to repay lending. Short interest should be checked against
actual year-end balance-sheet short debt to identify seasonal overdraft
requirements.

Long and short debt

Used on their own and as a component in debt/equity and other financial
ratios, these indicate debt requirements and capacity. They may also
indicate specific service opportunities such as the conversion of short to term
debt or leasing possibilities.

Profitability
Several versions are used. EBIT indicates absolute level of earnings, also
used in conjunction with other variables to indicate gross margin and return
on investment.

Earnings before tax may also be used on its own and as a measure of ROI.
Earnings after tax indicates levels of tax paid. Industry average is useful as an
indicator of tax saving potential, managerial capability and corporate
viabilty.

In markets where suitable data are available, the preliminary screening of

corporate accounts can be usefully computerized and coupled with basic credit
assessment to evaluate market potential and relative risk.
In practice, using only one or two segmentation variables is usually
ineffective. For example, a bank might identify all multinational accounts over
$250m turnover as key accounts and devote the bulk of its business
development effort to penetrating these. Yet, if the bank does not have the
specialist services and skills required by this type of account it will often be
wasting its resources. Instead it might be better off attacking high export
oriented, medium sized companies selling mainly to Eastern Europe and the
developed countries and needing specialist foreign exchange and export credit
services if these are areas the bank is well equipped to service.
In order to home in on a narrow market segment, therefore, banks should
make use of several variables at the same time. This is where computerization
proves most helpful, since from a data base this can be done very quickly.
Usually employing three or four of these indicators or ratios derived from
22

them, it is possible to subdivide the corporate market into very small segments
which can be assigned priorities and attacked systematically. In addition, it is
possible to monitor your own accounts to assess the impact of changing market
conditions and to identify possible targets which your competitors might seek
to exploit.
For example, your bank might be interested in accounts with an overall level
of sales of more than $50m, exports of more than $8m, a debt/equity ratio
of not more than 50 per cent and interest cover of at least five times. In most
countries the number of accounts fulfilling this set of criteria would actually be
extremely small and could be quickly isolated and serviced.

2.3.5 Retail Market Segmentation

In addition to the need to segment the corporate model, there is a growing

requirement in banks to look carefully at their retail account base and aim at
segmenting this with the view to isolating special groups of customers
particularly suited to specific products or services. The traditional method used
has been to segregate out high net worth individuals or the rich and offer a
special service to this group. However, today this group has in turn been
subdivided further, as follows:

Superich
Customers with a deposit capability or net worth of $1 million and above.
While such individuals are seen as a primary source of relatively low-cost
deposits, they are also attractive prospects for investment management
services, tax advice, insurance and large loans.

Private banking group

These customers are similar to the first group but in some banks a lower
cutoff is established at, say, $100,000 or more. Again these individuals are a
primary source of deposits and require investment and taxation advice. They
may also be candidates for lending.

HNWI
Today this segment is virtually a mass market group. They provide a
substantial element of the endowment in current account balances and have
for years been neglected by traditional banks, who have offered low or no
interest on deposits. This group has been the principal segment attacked by
money market funds, Amex Gold Card and Merrill Lynch with dramatic
success, causing a massive drain on bank deposits in the USA, especially for
savings and loan banks. It is not merely a source of deposits, however: its
members are also active purchasers of investment management services,
insurance, travel services, large mortgages and other loan products. Banks
will have to look carefully at this customer group in the coming years to try to
 23

win them back from the attractive package of financial services offered by
the broking houses.

Professionals
This group of specialist, professionally qualified self-employed such as
dentists, doctors, lawyers and accountants are attractive prospects not
merely because of their net worth but also as good potential for small
business loans, data processing and pension planning services, which need to
be carefully packaged to meet their specific needs. Thus, although they
overlap with the HNWI group, they form a specific subsegment which can be
addressed separately.

Self-employed
A wider segment than the professional group and usually associated with
higher risk lending, this group is also attractive not only for loan services but
for insurance pension planning, tax advice and possibly data processing.

Students
A large number of banks make specialized marketing appeals to students in
the expectation that capturing their accounts at this stage will ultimately
leave the bank with valuable up-market accounts after the student
graduates. Regrettably, this anticipated long-term loyalty is breaking down
as other banks attempt to provide specialist services to postgraduation
groups such as professionals.

Senior citizens
A generally neglected segment until recently, senior citizens actually have a
high propensity to save. A number of savings and loan banks have found that
this segment can be kept very loyal by providing specialist services such as
group travel, social events and the like to meet a real need for companion¬
ship often felt by such customers.

Youth
Many banks are attempting to generate loyalty very early by picking off the
child and youth market. This forms a significant small savings market in
aggregate, which banks have attempted to attract with offers of higher
interest rates and free gifts.

Conventional market research techniques for segmentation can also be used

to attack the consumer market. These would involve both demographic and
psychographic variables. As a first step your bank might stratify its accounts
using consumer demographics and bank data such as average balances and
transaction rates to identify if the accounts are profitable. As a rule high
deposit, low transaction accounts are very profitable, as are accounts with a
24

substantial loan commitment. The accounts which are unprofitable are those
with a low balance and high transaction rate. Some such as student accounts
may be tolerated at this stage in the expectation that they will subsequently
mature and become attractive. Others can be improved by efforts at service
cross-selling, bearing in mind that the type of services required by particular
individuals will vary according to demographics and lifestyle. You will also
usually find a smaller group of accounts with low balances, a high level of
transactions and limited future potential. With these accounts you will have to
decide if you can raise the cost of transactions to make them economically
viable, encourage the accounts to bank elsewhere or maintain the loss-makers
on social grounds. This group of unprofitable accounts may represent some 30
per cent of the average retail customer base. An illustration of consumer
segmentation variables and their impact is given in Table 2.1, which shows
how lifestyles and demographics have been combined to create consumer
segments which account for a known percentage of the population and can be
specifically addressed as a part of bank strategy. Such segment sizes and
characteristics will of course vary according to location and it is therefore
important to conduct detailed market research before adopting specific
strategies aimed at individual segments.
Many banks pay insufficient attention to segmentation of either corporate or
consumer markets. However, segmentation is crucial to strategic management
and will be of paramount importance in the coming decade as banks strive to
differentiate themselves in a relatively fragmented and highly competitive
marketplace. In these conditions, without specialization and service differen¬
tiation, most banking activities will become price-sensitive commodity services
with few opportunities for attractive margins.

2.3.6 Market/Industry Characteristics

Having identified the appropriate customer segments for your bank, plot their
service usage on the customer/service needs matrix and for each market
endeavor to assess the following market/industry characteristics.

Market characteristics
• Market size
• Historic growth rate
• Projected growth rate
• Number of accounts in total
• Number making up 50 per cent and 80 per cent of the market
• Trend in market concentration
• Buying decision process
• Service usage characteristics
• Service delivery process
• Financial characteristics of customers
 25

Service characteristics
• Degree of service differentiation
• Relative capital intensity
• Value added
• Level and type of risk to the bank
• Relative profitabilty of the service
• Rate of service change/innovation
• Details of add-on service characteristics
• Cross-selling potential
• Impact on shared cost structures
• Service integration with other bank services

Competitive characteristics
• Identity of major competitors and their market shares (including non¬
banks where relevant)
• Bank’s market share and relative share
• Changes in number of competitors
• Trends in market share
• Degree of competitor concentration
• Relative service quality (assess the full concept of the service, including
delivery, time, accuracy, etc.)
• Relative service price
• Relative service cost
• Relative capital intensity
• Relative marketing effort
• Relative delivery system capability (includes network size and coverage,
account officer skill, etc.)
• Relative employee skills
• Relative resource availability
• Relative systems capability
• Barriers to entry or exit

Environmental characteristics
• Economic trends and their impact on the market
• Social trends and their impact
• Political trends and their impact
• Technological trends and their impact

The quality of your plans will be heavily dependent upon the information
you use to generate them. The careful selection of information is therefore
important. Japanese banks can teach Western banks a great deal about
information gathering and analysis, while the intelligence systems developed
by their associate trading companies have no parallel amongst Western
26

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28

industrial organizations. Most data required to conduct careful market analysis

are available from published sources, including:

- Annual reports
- Industry statistics
- Government consumer statistics
- Newspapers
- Trade magazines
- Industry association reports
- Company newspapers
- Company product literature

Internal resources include:

- Credit assessment reports

- Internal research facilities
- Account officer reports
- Branch/country manager reports
- Commissioned market research
- Consultancy, e.g. hire of retired treasurers, etc.

From the data on each market the relative market attractiveness can be
assessed and this, in conjunction with the current position assessment, can be
used to clarify the bank’s relative competitive position.

2.3.7 Current Position Assessment

Next, from the data collected on the bank’s markets and the relative position of
the bank, conduct an appraisal of the strengths and weaknesses, threats and
opportunities facing the organization. Using the form shown in Figure 2.7,
each executive at the corporate strategic sector and business unit level should
identify the five most important current strengths and weaknesses and the five
most important threats and opportunities facing the bank over the next five
years. Each should then complete the cross-impact matrix, indicating how the
strengths and weaknesses impact if at all on the threats and opportunities.
Where a strength for example can be expected to have a major positive impact
on a threat or opportunity, this should be indicated with a score of two pluses as
shown, while a large negative impact scores two minuses. Mark no impact with
a zero.
This exercise should be conducted periodically throughout the bank at
various levels. It is extremely useful in identifying and assessing a number of
important issues:

Key strategic issues

By restricting the number of threats and opportunities, strengths and
 Cro ss - impacts Future

Opportunities Threats

-
00
ro
in
Strengths

-
00
ro
in
Opportunities

1 Bank network

+
+
+
+
+
+
+
+
+ +

O
1 Project finance

+
+
+
+
+
+
2 Service quality

m
2 Global cash monogement

+
+
3 Lending power

+
+
+

o
o
in
3 Global HNWI bonking

in
m

Weaknesses Threats

1
i

II

1 1
1 Systems ca pa b i li t y

o
CO

1 Foreign bank threats

n
i

•
2 Geographic organization

ii

i i
r-

2 Non-bank competition

ro
ro

in
in

00
oo
ro
-
ro

Figure 2.7 Bank SWOT analysis

29
 30

weaknesses to a limited number, executives are forced to qualitatively

prioritize their thoughts. A number of issues will emerge strongly from the
exercise as being especially important. This is achieved by listing all the
issues identified and subsequently distilling them in open discussion to the
overall most important.

Key market opportunities

Identification of the key market opportunities suggests the strategic
direction for the bank. Comparison of the cross-impact scores with the
bank’s identified strengths and weaknesses suggests how these opportunities
might be realized and what internal weaknesses need to be corrected.

Key market threats

Identification of key threats should lead to a focusing on counterstrategies to
offset the effects of these threats.

Internal communications
A detailed and common understanding of the position of the bank is an
important ingredient in getting organizational acceptance of overall
strategy. Compare the key issues developed at various levels of manage¬
ment. When these are relatively similar, the organization is viewing the
internal and external environment in a like manner. When a large divergence
occurs it is an indication that a communication gap exists which needs
correction.

Management cohesion
At each level of management, and especially at senior levels, check the total
number of different issues identified. Where the responses indicate a wide
variation in issues, this implies a lack of cohesion in the way management
sees the organization and its external environment. A cohesive management
group by comparison will identify a substantial number of common issues.

Relative field forces

Sum the pluses and minuses in each direction. A bank with more weaknesses
than strengths will tend to have an overall greater negative score than
positive. Similarly, a bank facing more threats than opportunities will also
tend to have more negative than positives. Check also for the particular
strengths and weaknesses, threats and opportunities which emerge as the
strongest negatives or positives as an indication of their relative importance
for management action.

Having completed the SWOT analysis, check the outcome against the bank’s
present strategy. It is common to find that existing plans fail to address many of
the key strategic issues identified. Check therefore:
 31

• Does the existing plan deal adequately with all the strategic issues?
• Does the analysis suggest any change in short-term strategy?
• Does the analysis suggest any change in long-term strategy?
• Are any communications programs necessary to achieve organizational
understanding?
• Does top management need to improve its cohesion?
• Are any particular units of the organization in need of reinforcement as a
priority?

2.3.8 Competitive Position Measures

In addition to an overall status assessment, it is important to review your bank’s
position in each of the markets in which it is operating or plans to operate. The
following items are important measures of competitive strength. Where
‘relative’ is used the measure is an assessment of your bank relative to its three
largest competitors. In addition, it is important to identify any ‘key success
factors’ which it is essential to be good at in competing in a particular market.

Competitive Position Measures

• Absolute market share: Measured as your market share of the defined
served market.
• Relative share: Measured as your share as a percentage of that of the
combined share of your three largest competitors.
• Trend in market share: The trend in your market share over the past
three years.
• Relative profitability: The relative profitability of your business as a
percentage of the average of your three largest competitors.
• Relative service quality: An assessment of the relative level of the quality
of your service compared with that of your three largest competitors from
the customer point of view.
• Relative price: The relative price of your service as a percentage of the
average of your three largest competitors.
• Customer concentration: The number of customers making up 80 per
cent of your business. Few customers may increase your vulnerabilty to
customer pressure.
• Rate of service innovation: The percentage of sales from products
introduced in the past three years indicates the maturity of your services.
• Relative capital intensity: The capital intensity of your business as a
percentage of that of your three largest competitors. A higher capital
intensity is usually a weakness.

Competitive Position
From the competitive position measures assess the bank’s relative strength.
Score each factor from 1 to 5, with the high score representing a very strong
 32

competitive position and the low score a very weak one. Sum the position
scores for each factor and calculate the overall percentage of the total possible
score. This figure can be used to plot your competitive position on the market
portfolio matrix. You can also weight the relative importance of each of the
factors according to the consensus opinion of your managers. In general,
market share, relative share, capital intensity and product quality are usually
especially important factors.

Key Success Factors

Using the form shown in Figure 2.8, indicate the relative importance of each
of the key success factors in achieving success in each market and the relative
strength or weakness of your bank in each factor. This will give some indication
of likely strategic priorities and provide a valuable input in assessing the
practicality of attacking particular market segments.

Level of Importance Your Strength or Weakness

Capability Low High Low High

1 5 1 5

Selling
Network
Operations
Financing
Innovation
Systems
Promotion/
communications
Other (specify)

Figure 2.8 Key success factor analysis

2.3.9 Measuring Market Attractiveness

Next, from the data on market/industry characteristics, assess the relative

attractiveness of each of the markets in which the bank is engaged. The
following characteristics are useful in assessing market attractiveness. In
addition, examine those other characteristics which may suggest appropriate
strategies for each market.

Market Attractiveness Measures

• Size. The size of a market is important, and obtaining a reasonable

share should represent a sufficient volume of the bank’s business to
make it worthwhile to provide the service.
 33

• Past growth rate: Examine the past growth rate as a guide to assessing the
future trends.
• Projected growth rate: Indicate your base case assumption about future
growth prospects. Sensitivity analysis later might review other possible
rates of growth.
• Number of competitors: Indicate the number of competitors in the
market. The larger the number the less attractive the market.
• Competitor concentration: Identify the number of competitors account¬
ing for 80 per cent of the market. More concentrated markets are
generally more attractive, fragmented markets are usually more
price-competitive.
• Market profitability: Specify the average level of profitability for the
market.
• Degree of product differentiation: Indicate what percentage of services
in the market are differentiated. The higher the level of differentiation
the more attractive the market, since high differentiation reduces the
level of price competition.
• Level of capital intensity: Indicate the level of capital intensity of the
market.
• High capital intensity markets are less attractive as they have a lower rate
of return on assets.
• Relative customer power: Indicate the relative strength of customers
versus the banks. Usually a small number of large customers means high
relative customer power.
• Profitability trend: Indicate the trend in market profitability.
• Market fit: Assess the fit of this market relative to the overall position of
the bank.

Market attractiveness
For each factor score the market on a scale from 1 to 5, with the high score
indicating a high level of attractiveness and the low score indicating the market as
unattractive. Sum the scores to arrive at the overall score out of a possible
maximum. This figure can be used to plot the position of the market on the
attractiveness dimension of the market portfolio matrix. You can also weight the
relative importance of each of the factors according to the consensus opinion of
your managers. In general, market size, growth rate, capital intensity, customer
concentration and market fit are usually especially important factors.

Strategy Characteristics
Certain market/industry characteristics are useful in assessing effective
strategies. Such characteristics include:

• Importance of the service to the customer: Essential services tend to be

less subject to price erosion, involve more critical buying decisions, and
are likely to enjoy higher customer loyalty.
34

• Purchase frequency: Low purchase frequency services may be more

difficult to penetrate but less price-sensitive since customer awareness
will be lower.
• Customer concentration: High customer concentration usually in¬
creases customer bargaining power but makes it easier to change
market share by gaining relative few new accounts.
• Market saturation: Selling to new or potential users is usually different
to selling to established purchasers.
• Barriers to entry: High barriers to entry favor established suppliers.
Low barriers encourage intensive competition.
• Barriers to exit: High barriers to exit encourage intensive competition,
especially in slow growth markets.

2.3.10 Environmental Factors

The assessment of market/industry characteristics or competitive position is

based on assumptions about the general economic and social environment
which may be critical to its validity. Moreover, changes in the external
environment can affect the desirability of the potential strategies that can be
adopted to change the relative position in the market. These environmental
assumptions should be made explicit, and if there is a reasonable probability
that an external change would have a major impact on a proposed strategy its
effect should be assessed and the sensitivity identified.
Check your assessment of market/industry characteristics and competitive
position against key environmental factors. These should include considera¬
tion of the following and the results should be set out on a form such as that
shown in Figure 2.9.

Trends in economic conditions

National/regional GNP
National inflation
Foreign exchange rates
Interest rates
Unemployment levels
Money supply
Industry structure

Trends in demographics
Birth rate
Population size
Age distribution
Socioeconomic distribution
Geographic population distribution
Education/skill distribution
 35

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 36

Socio-cultural trends
Lifestyle trends
Career expectations
Education trends
Public opinion
Family formation rate
Banking usage trends

Trends in technology
Industry technology changes
Non-bank competitor investment
EFT systems
Information processing systems
Machine banking

Political!Legal trends
Bank regulations
Tax laws
Exchange controls
Attitudes to foreign banks
Attitudes to non-bank competitors

2.3.11 Strategic Market Portfolio Development

The relative positions of each of the bank’s business activities need to be
identified next, using the competitive position/market attractiveness matrix
illustrated in Figure 2.10. Each cell on the matrix suggests an alternative
investment strategy for the business contained in it as shown. Businesses in the
top left-hand corner are high in market attractiveness and have a strong
competitive position. Such businesses still enjoy high growth and should
receive priority for any investment support needed. Businesses in the
grow/penetrate cell are also primary candidates for investment in an effort to
improve competitive position while growth prospects remain high. Defend/
invest position businesses are in less attractive markets but investment should
be maintained as needed to defend the strong competitive position established.
Businesses in the bottom left corner are candidates for harvesting. The market
attractiveness is low, indicating probably that the growth is low but the relative
competitive position remains high. Such businesses are therefore usually
producing good profits which cannot justifiably be reinvested back. Surplus
cash flow is therefore withdrawn for redistribution to other businesses
requiring investment funds.
Businesses in the center are candidates for selective investment, usually
where refined segmentation options are available. Businesses at the bottom
center and right center are candidates for withdrawal/divestment or for
 37
Competitive position
Strong Weak
High

Grow/ Grow / Harvest /

balanced penetrate restructure/
m rebuild
in
o>
c
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O
o
k_
invest invest/ graceful ly/
segment seek
o niches
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Harvest Withdraw Exit fast /

graceful ly use as
attack
business
Low

Figure 2.10 Bank strategic market portfolio

seeking small niches, for example in certain geographic markets, where useful
profits can be achieved. Businesses in the bottom right cell are both in
unattractive markets and have a weak competitive position. Such businesses
may be losing money and will not be likely to produce a strong positive cash
flow. As a result they should be considered for divestment or closure. A more
sophisticated alternative might be to use them as attack businesses to be
deployed against a competitor’s harvest businesses to depress their cash-gener¬
ating capability. Detailed alternative market segment investment strategies are
shown in Figure 2.11. Although the listed investment strategies can
conceivably be used with any attractiveness/position combination the choice
should be guided by the cost and probability of success in moving from the
existing to the desired position. An ideal portfolio resembles that illustrated in
Figure 2.12.
After the bank’s portfolio has been mapped, each market should be assigned
a specific investment strategy and an associated objective which indicates the
desired results in the market segment. Examples of such objectives might
include:

Market A: Growl penetrate

Enter Middle East high net worth individual market in 1981 and achieve share
of 1 per cent by 1984 to obtain deposits of $lbn and net revenue of $10m.

Market B: Harvest
Improve ROA to 0.6 per cent after tax by 1983 by giving up customers with high
servicing costs and reduce net assets exposed by $250m in Belgium.
38

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40

Competitive position

Figure 2.12 Ideal market portfolio

2.3.12 Market Segment Plan Development

The achievement of the portfolio investment strategy objective usually
requires the manager of the operational unit involved to make strategic
changes in key variables under his control. The change in each key variable is
established as a unit objective and an action plan is developed for the
achievement of this. The bringing together of the plans to achieve the overall
investment strategy forms the unit strategy.
In developing action plans bear in mind that any changes should be strategic
in nature and within the control of the unit manager concerned. The variables
on which a manager can usually operate are as follows:

1. Market segmentation. Redefinition of existing market segments can

form the basis for improved marketing differentiation; e.g. attack the
financial services segment of the international corporate market.
2. Change served market boundary; e.g. enlarge geographic coverage
of served market for international cash management services.
3. Change breadth or mix of product!service range; e.g. introduce
multicurrency international cash management services.
4. Change rate of new/improved product introduction; e.g. introduce
‘smart’ terminals for corporate treasurers as part of new cash
management service.
 41

5. Change quality of products; e.g. reduce transaction error rate by 20

per cent.
6. Change pricing; e.g. reduce prices for international clearances by
using automated systems.
7. Change method or level of selling; e.g. retrain account officers to offer
leasing products.
8. Change method or scope of distribution; e.g. open regional branches
with on-line FX facilities.
9. Change level of productivity; e.g. introduce automated back office
systems to reduce staffing by 15 per cent.
10. Change capacity; e.g. introduce new computer systems to increase
transaction capacity by 30 per cent.

The unit strategic plan therefore mirrors the corporate and divisional plans
and comprises:

1. Mission statement. This reflects the scope of activities and strategy

assigned to the unit in developing its specific market segment or
segments. The statement should be consistent with that of the division
and bank as a whole. It should also identify the product and customer
parameters of the segment and the relationship between the unit and
others of the bank.
2. Objectives. These should be quantified for the overall unit and
provide measurable parameters for the unit mission. The long-range
objectives should address financial and strategic outcomes such as
level of return on assets, profits, growth rate and market share.
3. Assumptions. These should be identified for the specific market
segment and cover environmental change, competitive activity, service
requirements and future market expectations.
4. Competitive strength. The position of key competitors for the specific
market segment should be assessed including their market shares and
relative strengths and weaknesses. Note that specific competitors at the
market segment level may differ from the competitors which pose a
serious overall threat at divisional and corporate level. Thus in many
local markets major competitors will be indigenous banks whereas
overall corporate threats may be posed by major international banks.
5. Market opportunity. This is assessed at all levels of the bank but the
specific expectations are again spelt out at the market segment level.
6. Investment strategy. This identifies the specific investment priority
expected for this segment.
7. Strategic variable change. Identifies the action plans required to
achieve the desired change in strategic variables for this unit.
8. Implementation programs. These set out the specific programs
whereby each action plan achieves its goals. They include a beginning
42

and an end date, specific objectives, strategic milestones in develop¬

ment and detailed resource needs.
9. Expected financial results. Identifies the specific financial outcomes
which can be expected of the unit given its stratgy.

2.3.13 Action Plan Development

Action plans will each consist of one or more programs designed to change the
methods, process, staffing levels, organizational skills, equipment, systems or
premises of the bank unit. In addition each will specify the resources needed to
carry them out, covering such areas as funding, capital, country limits, systems,
equipment and personnel. An example of the hierarchy of action plans and
programs is given below:

Market segment: Multinational wholesale banking .

Market portfolio strategy: selective investment.
Objective: To improve ROA from existing average level of 0.5 per cent to
0.7 per cent level with no more than a 2 per cent loss of market share. With
market share at 9 per cent and expected market growth at 4 per cent,
earnings are expected to increase at 7 per cent in real terms over the next
three years.
Management strategy: Initiate an increased pricing policy based on actual
services delivered, selectively change market coverage to delete those
accounts producing an inadequate return, improve overall service quality
and differentiation capability and increase processing productivity by
introducing advanced systems.

Action plan 1: increase pricing

Objective: Increase pricing to ensure an average ROA of 0.7 per cent but not
more than the price leader in the market.

Program 1: Establish account/product cost measurement system.

Objective: Create a cost measurement and reporting system capable of
providing cost by service by customer on a monthly basis.
Timing: Program commencement August 1983, completion by December
1984.
Method: Unit task force with support from cashiers, corporate planning and
systems. Design of standardized format by November 1983; manual trial of
format by February 1984 for 100 leading accounts; test of computer systems
February 1984; data collection of top 250 accounts by July 1984; system
trials August-October 1984; system introduction November 1984; review
and finalization December 1984.
Estimated cost/benefit: Total cost for this program estimated at
$280,000, made up of:
Additional personnel costs $80,000
 43

Systems development $110,000

Equipment $60,000
Other $20,000
Expected benefits $280,000
Non-profitable account $500,000
Elimination
Organization: Task force chairmanship and program.

Responsibility: Manager, J. R. Shapiro.

Resources: Personnel Unit staff are available; additional staffing resources

required include:
Operations, 2 systems engineers part-time for IV2 years.
Cashiers, 1 cost accountant part-time for IV2 years.
Corporate planning, information systems design section input for ensuring
consistency with bank MIPAC design.
Systems
New systems development required linked to existing account statements.
Equipment
Existing IBM mainframe will be used as primary data base.
Additional linked micronetwork for account officers’ unit management
on-line account interrogation system.
Funding
No additional funding required.

Program 2: Introduce account-based planning system.

Objective: Introduce an account-based planning system which provides
profitability budgets by account by service line on a quarterly basis by
December 1983 for key accounts.

Program 3: Plan pricing change process.

Objective: Provide pricing schedules timing by account type for account
officer usage prior to changes. Prepare contingency plans in case market
share impact exceeds expectations.
The additional programs would also be broken down in detail, with
objectives, timing, method, cost/benefit expectations, milestones, organiza¬
tion and responsibilty and resource needs. Similarly, action plans would be
prepared for market coverage change, product quality, product range and
productivity, each of which would also be subdivided into detailed implemen¬
tation programs. Note the strategic milestones used to monitor progress
against the implementation programs do not cover financial variables since
these options usually lag the strategic changes and are unsuitable as measures.
However, at the program level it is usually possible to develop fairly realistic
preliminary cost/benefit estimates which in turn should be reflected in their
impact on key financial variables.
44

2.3.14 Divisional and Departmental Strategic Planning

At the divisional or departmental level strategy is usually determined for more

than one market segment. As a consequence a division like the bank as a whole
may be required to operate a set or portfolio of strategies for its markets. Thus
the division management may need to develop action plans to achieve its
market mix objectives which are different and distinctive from the market
segment action plans. These overall action plans may often address the
following variables:

1. Management effectiveness. Typically, programs might address division

organization structure, management information systems, manage¬
ment training and rewards and sanction systems.
2. Operations!administrative efficiency. Programs in this area might
involve creating or eliminating central processing activities, changing
shared services, or introducing new automated systems which span a
number of market segments or divisions.
3. Innovation. Programs here would cover strategy development, new
market segment identification and service development capability.
4. Resource procurement. Typical programs might cover reduction or
addition of personnel, funding, premises and equipment at the overall
divisional level.

Care must be taken in distinguishing between divisional and unit plans to

ensure that as much focus as possible is directed on the purpose of each
program so that its link to strategic objectives can be clearly identified and
measured. The use of overall divisional action plans should therefore be
carefully scrutinized to ensure they do not become dumping grounds. This
concept of divisional action plan can also be extended to those at the overall
bank level to form a hierarchy of plans each level of which supports that above
it. The plan hierarchy at the market segment end is illustrated in Figure 2.13.

Summary
The process of bank strategic planning is a vital ingredient in the development
of systematic strategic management at all levels of the bank. The plan itself
should be developed to become an important working document for
management and not produced once a year as a chore and never used again.
However, it is only a guide and framework for action; it is not and never can be
a substitute for initiative, drive and creativity, which can only be supplied by
the manager and his officers.

2.4 STRATEGY TESTING

The market plan review presents an opportunity to evaluate the strategy
chosen for a particular market. It also helps to provide a feedback to market
 45

• Market definition

• Market / industry characteristics

• Competitive position

• Environmental factors

• Market attractiveness

• Bank competitive strength

• Key factors affecting choice of strategy

• Momentum

Strategy
• Strategy (invest men t/market approach)

• Strategic objectives

Acfion plon(s)
• Action plan(s) ca pabi I i t y * change

• Action plan objective(s)

Program (s )
• Program (to ochieve change)
with milestones

• Program objectives

Figure 2.13 Bank plan hierarchy, market segment level

segment managers and give additional insights into the thinking behind the
development of unit strategy. Use the following checklist as a guide to the
review and for focusing upon items to be discussed in greater depth. In
particular, check for inconsistencies in the plan. This meeting, however, should
be seen as a constructive opportunity for two-way feedback and communica¬
tion and not as an interrogation of unit management plans, opening the way to
destructive criticism.

Strategic market plan evaluation

Market evaluation
1. Are the data sufficient to make an adequate evaluation of the market?
2. If not, what additional data are required and where should they be
obtained?
3. Is the served market clearly defined?
4. What is the size of the market in terms of volume and value?
5. What is the historic growth rate and future projection?
6. How many customers are involved? How many account for 50 and 80
per cent of volume?
7. Is the decision process of these accounts known and can the bank
reach and influence the decision process?
46

8. Are the customers’ needs known and do the banks’ services meet
these?
9. Are the relevant competitors and their relative power and strategies
identified?
10. Is the assessment of the bank’s position relative to the competitors
accurately developed?
11. Does the bank have the resources to serve this market?
12. Would serving it be consistent with the bank’s overall objectives?
13. Have environmental influences on the market been adequately
considered?
14. Is the ability to differentiate examined and is it satisfactory?
15. Is the profitability and price sensitivity of the market identified?
16. Are the key success factors for this market identified?

Plan review
Mission and objectives
1. Is the mission statement clear and appropriate?
2. Are objectives specified, quantified and identified by people and
time?
3. Are these objectives realistic?

Environment and market assumptions

4. Have all important assumptions been identified and taken into
consideration?
5. Are the assumptions reasonable?
6. What is the basis of information behind the assumptions?

Competitive strength
7. Is the bank’s market share and those of the major competitors clearly
identified?
8. Is the bank’s profitability relative to competition identified?
9. Is the bank’s relative service quality identified and evaluated?
10. Is the price of the bank’s service evaluated relative to major
competitors?
11. Is the bank’s delivery system and marketing effort identified relative
to major competitors?
12. Is the bank’s level of resources committed relative to major
competitors identified and evaluated?

Opportunity assessment
13. Are the opportunities clearly defined and assessed as to direction and
potential impact?
 47

14. Are any external threats clearly identified and assessed as to direction
and potential impact?

Market segment portfolio strategy

15. Is the market segment portfolio strategy of each business clearly
established?
16. Is the strategy proposed consistent with the market portfolio strategy
position?

Action plan objectives

17. Are the action plan objectives clearly identified and quantified for
each strategic factor in terms of the level and nature of change
planned?
18. Does each subprogram have its expected objective specified in terms
of its contribution to the desired change in the relevant strategic
factor?
19. Are the attack plan objectives supportive and consistent with the
market strategy and market segment objective?
20. Is the action plan objective consistent with the inputs and assess¬
ments, including anticipated competitor responses?

Program plans
21. Are the steps required to implement the programs clearly identified
together with appropriate milestones?
22. Are the necessary staffing levels needed identified within the unit?
23. Is the necessary skill mix needed identified within the unit?
24. Are any training and/or recruitment procedures identified?
25. Are the personnel/staffing skills needed from elsewhere in the
bank identified?
26. Are the communications/organizational linkages between the unit
and other parts of the bank identified?
27. Are the funding resources needed identified? Are they costed?
28. Are the credit procedures and risks identified?
29. Are any systems/operations requirements identified and costed?
30. Are any equipment requirements identified and costed?
31. Are the potential competitor reactions identified?
32. Has ‘what if analysis been conducted to assess the impact of
changes?
33. Have contingency plans been developed?
34. Have the cost/benefit estimates been prepared and are they
reasonable?
35. Has the organization for each program been spelt out together with
the identification of the individual responsible?
48

36. Does the program seem feasible in the light of resource availability,
past experience and unit capabilities?
37. Will the accomplishment of the program achieve the program
objective?
38. Will the accomplishment of all the programs in each action plan
achieve the action plan objective?
CHAPTER 3

Implementing Strategic Planning

Successfully

3.1 INTRODUCTION

There is no one right way to plan in any organization. The methodology

proposed in this book works in banks but the ideal system for any bank is likely
to be an adaptation that fits its own particular strategy, structure, values and
internal culture. As a general rule, however, bankers have not traditionally
been good at strategic planning and may still have strong reservations about
its value to them and their banks. While this attitude is now breaking down,
there is no doubt that in order for the strategic management and marketing
skills introduced within the industry to have a better chance of successful
implementation certain conditions need to be present. This chapter examines
these requirements and provides a checklist to enable you to evaluate your
existing strategic planning system and check that it is working and that it
adequately meets the needs of the bank.

3.2 CONDITIONS FOR SUCCESSFUL IMPLEMENTATION

3.2.1 A Recognized Need

For strategic planning to be fully accepted within a bank there must be a clear
and unequivocal recognized need that increased attention should be paid to the
forward direction of the bank. Normally such a need is first recognized by
groups within the bank, especially those under pressure. It is not always
recognized by the bank’s leadership until it is too late for the leader currently in
power. Need recognition thus usually comes about through the emergence of
the following factors:

Unsatisfactory Financial Performance

When financial performance has deteriorated in relative terms by comparison
with major competitors top management will come under increasing pressure

49
 50

from large shareholders, and especially institutions, to reestablish their relative

market position. For example, the relative decline of Chase Manhattan
compared with Citibank in the mid-1970s eventually prompted the board to
introduce strategic planning by bringing in expertise from the US General
Electric Company.

Successful Competitive Pressures

The superior performance of key competitors often prompts a management

reaction in the form of the introduction of strategic plans to counter the
competitor’s strategy. This phenomenon is especially likely when rivalries are
seen as being particularly close. For example, the apparent success of
Continental Illinois over its close rival First of Chicago was to lead the latter’s
board to bring in a new chief executive with the specific task of introducing
strategic planning to counter this success.

Sudden and Unplanned Serious Loss

When sudden and unplanned losses occur there is always a major inquest inside
any bank. The result of such an inquest usually means changes in control
systems in an attempt to prevent any recurrence of the problem; reorganization
to penalize those responsible for the area of loss; and reappraisal of the
planning system to try to reduce business uncertainty. Thus the failure of
Chase Manhattan at Drysdale and Penn Square has resulted in a review of
control systems and reorganization of the sector concerned.

Strategic Shock

A strategic shock takes place when a major unexpected event occurs for which
top management has no prepared response. This could be an unexpected and
unwelcome acquisition bid or tender offer. If management has not adequately
planned for the future the shock of such an event forces rapid and rigorous
reappraisal of plans and the planning system.
Without the presence of such a recognized need by those with the power to
ensure that planning system change should take place, it is unlikely that it will.
Indeed in banks where strategic planning is not well established its introduction
is likely to be strongly resisted, especially within line banking units, since it
threatens the existing power structure and provides a potential check on
perhaps previously unmonitored and essentially uncontrolled autonomy.

3.2.2 Leadership Commitment

Without the clear commitment of the chief executive officer planning is

unlikely to be successful, since planners will lack the necessary political muscle
 51

to gain line management commitment. This does not mean that the planning
unit itself should be overpowerful but rather that it should be acting as the
arm of senior executive management in the construction and implementation
of bank strategic plans. Moreover, if senior management is not seen to take
the planning process seriously it will lack credibility within the bank.
In practice the introduction of planning, and certainly significant changes in
the system of planning, usually takes place shortly after a change in the
chairmanship or chief executive officer of the bank. In part the change in
planning may be seen as an element of the new chief executive’s method of
adjusting the culture of the bank to take on new strategic directions.
Examples of this type of shift where the strategic planning system becomes a
more important element in the management of the bank include the
appointment of Barry Sullivan as chairman at First Chicago and that of Sam
Armacost to the presidency of Bank of America.

3.2.3 External Catalyst

Most of the major changes in bank strategic planning systems that have
occurred in leading banks to date have been undertaken in conjunction with
the use of external catalysts, mainly management consultants. This is perhaps
not altogether surprising for two main reasons.
Firstly, if the bank had the internal skills to introduce the strategic planning
system itself then it would probably already have done so. However, banks
have not long been concerned with the industrial concepts of strategic
management and few line bankers have been trained in an understanding of
them. Therefore it is perhaps natural to turn to external consultants as a
source of assistance and conceptual advice. Unfortunately, few consultants
have used their conceptual tools within the banking industry and as a result a
number of major contracts have been conducted to introduce strategic change
in banks where the consultants have spent much of their time learning about
the banking industry and trying to modify their concepts to fit its needs.
Secondly, consultants are often used by incoming chief executives as an
element in modifying the power base and culture of the organization. One
essential ingredient in achieving such a change is the introduction of
management information, planning and control systems suited to this
purpose.

3.2.4 Suitable Reorganization

The introduction of a suitable strategic planning system potentially provides a

significant new tool for the management of the bank as a whole. A carefully
developed strategy will normally subdivide the bank’s business into a
portfolio of opportunities with alternative investment strategies. This con¬
cept, once established, has an important impact on the way the bank is
52

organized. Structure will be adapted to fit the needs of strategy rather than, as
is common, the strategy being unsatisfactorily fitted on to the existing
structure.
With the introduction of strategic planning top management has a
substantially improved knowledge of the bank’s businesses and can delegate
authority with more confidence. The flow of information and the manner of
central management intervention will, however, be changed. In practice this
shift in organization very often forms a further element in the succession
strategy of a new chief executive officer.
While the structure of the bank should fit its strategy appropriately,
successful planning will usually require the creation of a separate planning unit
which is concerned with the bank as a whole. Planning also takes place in the
line divisions, but the central unit should be perceived as an arm of the board
and in particular the chief executive officer. It is also important for strategic as
distinct from financial planning that such a unit should not form part of the
finance department or treasury. However, it is desirable that planning and
control should be separated, the controller’s function being that of plan
monitoring, utilizing control systems in whose design the planning unit is
concerned. The controller’s function in this respect is not that of the bank audit
unit, and it is noticeable that some banks have found it desirable to create a new
management information systems unit.

3.2.5 Development of an Information Base

A key problem in initiating a strategic planning system is the lack of availability

of suitable data for strategic analysis. This is ironic in that, as organizations,
banks contain more data than most about the transactions they conduct.
Unfortunately, however, these data are not usually organized to produce
information suitable for management purposes. Further, banks do not collect
some information of particular value to the strategic planner such as market
share, systematic competitive intelligence, and the like.
As a consequence, one of the first prerequisites for successfully introducing
strategic planning is the collection and organizing of suitable data for strategic
analysis. Typical information required would include data to allow for:

— Correct market identification

— Market segmentation
— Market attractiveness measurement
— Competitive position measurement
— Business/customer/product profitability analysis
— Strategic resource requirements assessment (human, systems and
financial)
— Control system design
— Reward system development
— Organizational change
 53

The development of an integrated data base for management information

purposes is a critical ingredient in developing bank marketing strategy. Very
few banks have to date introduced such data bases because to do so takes a
considerable period of time and expense and requires the transformation of
basic transaction accounting procedures. However, without such a data base it
is not normally possible for the bank to plan accurate segmentation of either
retail or corporate accounts. In practice the introduction of an integrated data
base usually also means a specific segregation of corporate and retail business
because the data needs for each customer base are normally significantly
different. Moreover, such segregation permits different service offerings to be
efficiently made to each major customer class.

3.2.6 Suitable Control System Design

Without adequate monitoring of progress towards strategic goals it is

impossible to tell whether planned strategies are succeeding or not. By and
large the development of control systems in banks has not been strong. In part
this is due to difficulties of measurement. However, it is also substantially due
to management neglect. For example, many banks claim it is extremely
difficult if not impossible to assess adequately the costs of individual services. It
is true that shared costs are common in banking, making precise measurement
more difficult. But for strategic purposes it is possible, with adequate
management, to generate an approximate cost structure with only limited
effort. A more detailed discussion of service costing is made in Chapter 8.
As shown in Figure 3.1, however, the components of bank control systems
vary widely in their quality and in most banks strategic controls do not exist at
all. Most branch-based banks have relatively good measures of profitability by

Qualitative assessment
Control system component Report Concept
Report
availability clarity validity

Profit measurement
Branches/departments Very good Fair Fair
Services Fair Fair Poor
Accounts Poor Poor Poor
Funds management Very poor Very poor Very poor

Risk measurement
Credit risk Very good Good Good
Interest rate risk Poor Poor Very poor
Exchange rate risk Fair Poor Very poor

Figure 3.1 Qualitative assessment of bank control systems

 54

branch, although this can be influenced by the internal pool rate for funds. In
the main, however, controls are satisfactory. Control systems which provide
adequate information on either individual services or customers are much less
well developed. Few banks have to date developed worldwide controls for
large accounts like those referred to in Chapter 6. Similarly, with a few
exceptions such as foreign exchange execution and other major services, few
banks have developed satisfactory controls over individual non-interest
fee-based products.
The development of an appropriate management information and control
system allows the bank to better decide on segmentation, delivery system,
market communication and pricing strategies. Without such information, for
much of the time the bank may be providing uneconomic services, to customer
groups which may be unattractive, through an inappropriate and overexpen-
sive delivery system. Further, marketing and advertising may be devoted to
exacerbating the difficulties. While profitable services and customers thus
exist within a bank, without adequate management information the bank does
not know which of its customers and services these are. At the same time, the
bank cannot measure its progress towards the achievement of strategic
objectives since these cannot really be set without some way of measuring
them.
The assessment of risk is similarly weak in some areas. While banks have
long been concerned with credit analysis, the ‘lemming syndrome’ reappears
regularly every few years when heavy losses occur as a result of individual
banks rushing into a fashionable marketplace and in so doing abandoning all
their normal credit assessment procedures. In the mid-1970s this occurred in
property, in the late 1970s in shipping, and in the early 1980s in sovereign risk
lending and some areas of energy and project finance.
The precise choice of what controls to concentrate on will vary for individual
banks depending upon the primary strategy. This is illustrated in Figure 3.2
for banks with different emphases in their core strategy. Bank A is primarily a
bank with multiple branches servicing retail and small business customers. The
bank has a lesser emphasis on servicing large corporate accounts, in investment
management and in related banking services such as credit finance and leasing.
The control system priority for Bank A is to gain a clear understanding of
profitability by branch and secondly, to evaluate the profitability of the
individual services offered. Customer-based controls are of less significance,
while extensive funds management and detailed key account controls are not
required. Similarly, the priority risk assessment in Bank A relates to credit
assessment, while exchange rate risk is of less significance since the bank’s
customer base is likely to be localized.
By contrast, Bank B is primarily a corporate bank with only a limited retail
activity, usually within a limited geographic environment by comparison with
the large account needs which may well be international. The control priority in
such a bank is for an account-based profit system, with branch-based profits
 55
Risk measurement

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Control system priorities

Control system design priority varies with bank strategy

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Figure 3.2

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 56

second and profits by service line third. Similarly, the primary risk for such a
bank is interest rate variation, with credit assessment second and exchange rate
variation third.
In addition to these formal financial controls, however, banks also need
strategic controls to monitor the progress of strategic plans and point to
contingency action as appropriate at specific predetermined trigger points.
Unlike financial controls, strategic controls require not only the analysis of
internal factors but also external market characteristics such as market share
change, relative cost, relative product quality, relative market coverage, and
the like. Further, the data are future oriented, whereas financial control tends
to monitor historic performance. As a consequence strategic control data are
less accurate, more sporadic and less regularly available, less processable by
computer and less susceptible to variance analysis. Nevertheless, careful
attention must be paid to introducing suitable monitoring systems to measure
progress towards strategic plan goals based upon the implementation of
detailed action programs.

3.2.7 Reward and Sanction System Balance

The successful implementation of strategic planning is significantly enhanced

by ensuring that the bank’s reward and sanction system reinforces the planning
process. It is therefore important that the motivation system should be
consistent with bank strategy, with behavior positive to plan being rewarded
and negative behavior sanctioned. Traditionally banks have tended to reward
more on seniority rather than performance but a growing number are now
giving significant levels of variable reward which are based upon plan
performance. Plan achievement should thus be seen as important and line
managers should know that their performance against plan will be taken
seriously. Dependent upon the culture of the bank, this may require the taking
up of an interventionist role by the planning unit. Such intervention can be
positive in that planners will work alongside line banking units in the
preparation of plans or negative in that pressure can be applied to improve line
plans or to intervene in cases of non-performance.
In aligning reward and sanction systems, however, it should be recognized
that the same standards of performance do not apply to each area of bank
business. Thus for those businesses assigned a growth strategy, the principal
control might be to measure and reward market share growth rather than
return on assets. Similarly for a harvest business, maximization of cash
resources might be the principal for measurement and reward. One particular
problem which must be recognized is that the achievement of strategic
objectives cannot usually take place within a short-term time frame. This
means that managers must be rewarded for endeavoring to achieve such
strategic objectives and undue emphasis should not be placed on short-term
performance goals in the reward and sanction system. Unfortunately, all too
 57

many banks force executives to focus on short-term, one-year operating budget

performance and so neglect the longer-term strategic perspective.

3.2.8 Good Communications

It is imperative for successful strategic planning to communicate the desires of

top management and the aspirations held about individual business units.
Banks lacking leadership which does not adequately communicate its
intentions will find that there is inconsistency in the strategic objectives of
individual bank units and the bank as a whole. Communication also aids in
creating a commonality of purpose, helps to overcome the ultimate inertia that
tends to exist in most organizations and acts as a positive motivating force.
Finally, communication is necessary in isolating and reducing any potential
resistance.
There are a number of ways that good communication can be achieved:

— Most important, clear and positive leadership is required. The caliber

of the leadership of an organization can make a disproportionate
difference to the way in which the structure functions.

— In addition to providing leadership itself, the leadership of the bank

should adopt a well-communicated and easy to understand corporate
mission. Often a superordinate goal can be helpful in this respect,
providing it is believable, relevant and demanding in terms of the task
that needs to be fulfilled in order to achieve it.

— ‘Indoctrination’ programs to introduce participants to the corporate

culture can be an important ingredient in establishing strategic plan
goals. J. P. Morgan, for example, brings all its executives to the bank in
New York for a period of initial training which in the main is concerned
with introducing them to the culture and norms of the bank.

— An initial approach to introducing strategic planning after commit¬

ment by top management is to gradually broaden the initial group to
create a ‘central values’ group of top management. This central values
group can then be expanded to ensure a growing cadre of executives
who identify with the planning system and strategy adopted by the
bank.

— A similar method of breaking down potential line unit resistance is the

creation of cross-organizational task forces designed to address
specific strategic issues identified as being important for the future of
the bank.

— Finally, the basic essentials of the bank’s strategy, within the

appropriate limits of confidentiality, need to be continuously commu-
58

nicated throughout the organization by all forms of internal and

external media so that in the end it becomes self-fulfilling. In many
ways, if all those involved in the bank believe the outcome will be
achieved and they have a clearly defined role in that achievement, the
psychological motivation is such that it often is.

3.2.9 Time

The final ingredient required for successful planning system introduction is

time. Most banks’ earliest plans are of poor quality. It is important therefore
that sufficient time is given to permit the development of good quality plans
which are credible and acceptable to line banking units. Care must be taken
during this formative state to nurture, educate, cajole, guide and even coerce
line units in their preparation of plans such that this becomes an integral part of
their own management activity. Normally it will take at least three plan
iterations before a planning system settles down and begins to produce
meaningful results.

3.3 WHEN DOES PLANNING FAIL?

Substantial evidence exists on the conditions under which strategic planning

systems are seen to fail. You should therefore check to ensure that your system
fulfils the following ideals if it is to avoid being seen as unsatisfactory at one or
more points in the bank:

— The primary purpose should be to help the author manage his own
operations better.

— The second purpose should be to establish a mutually acceptable

commitment between the author and his superior.

— The plan must be strategic in orientation.

It must focus on the critical issues, threats and opportunities which

management must address.

— It must identify the action options open and their expected conse¬
quences.

The plan must contain enough of the appropriate information to make

it credible.

— It should not be so long as to be unmanageable.

— The plan must be clearly linked with the process of resource allocation.

— Top management must spend adequate time on the process to

ensure it is credible to and understood by other managers.
 59

— Planning must be woven into the bank such that it becomes an integral
component of the corporate culture.

— Planning should be adjusted to suit the needs of the bank as they evolve
over time.

— Rewards and sanctions should not discourage strategic planning by

overemphasizing short-term performance measures.

3.4 EVALUATING THE STRATEGIC PLANNING SYSTEM

Check the effectiveness of your strategic planning system by using a planning

system audit such as that shown below. In employing such a form remember
that different people will interpret the questions in different ways and different
evaluations may be given to the same question by people from various parts of
the bank. However, such differences can be useful in developing a dialogue on
the system and on elements within it which need to be corrected.
The opinions of different people are also not all of equal weight. Thus if the
chief executive feels the system fails to produce the appropriate strategic
decisions the system clearly needs improvement. However, if the CEO finds it
acceptable but other key division managers find it a waste of time or
overbureaucratic, this too is a serious cause for concern. The audit should be
conducted at various planning levels throughout the bank, with top manage¬
ment evaluating all parts of sections A, B and C but only selected items in
sections D and E. These latter sections, however, should be completed by unit
and divisional management. When the audit is completed, compare and
evaluate the results for the bank as a whole and for the various levels of the
management hierarchy. This should lead to discussions and the introduction
and testing of methods to improve the shortcomings identified. In this way you
will hopefully find that your planning systems will significantly improve your
bank’s ability to make the appropriate strategic decisions.

Planning system audit1

Overall management perceived value

The chief executive officer believes Not effective Very effective

the system helps him to do his job (No) (Yes)
better. 1 i j_l_1
Other key line managers find the
system useful to them. 1 1 J_1_1

‘Adapted from G. Steiner, Strategic Planning — What Every Manager Must Know (New York:
Free Press) 1979, pp. 301-303.
60

3. Overall, the benefits of planning are

seen as greater than the costs by
most managers.
4. Major changes are needed in the
strategic planning systems.

B. Does the planning system give the

‘right’ substantive answers and
results?

5. Developing the bank’s basic mission

and business activities.
6. Foreseeing future major opportuni¬
ties.
7. Foreseeing future major threats.
8. Properly appraising bank strengths.
9. Properly appraising bank weaknes¬
ses.
10. Effectively identifying and evaluat¬
ing key competitor strategies.
11. Identifying action program priori¬
ties.
12. Developing useful long-term
objectives.
13. Developing useful long-term strate¬
gies.
14. Developing short- and medium-
term action programs to implement
strategies.
15. Detecting and preventing strategic
shocks.
16. Improving the bank’s indicators of
financial performance:
Assets
Liabilities
Profits
Return on assets
Earnings per share
17. The performance of the bank has
been better than others not doing
comprehensive planning.

C. Does the system provide valuable

ancillary benefits?

18. The system has improved the qual¬

ity of management.
19. The system provides a unifying
coordinating force in the bank.
20. The system improves communica¬
tions and collaboration throughout
the bank.
D. Design of the planning system
21. Top management has accepted the
idea that strategic planning is its
major responsibilty.
22. The system fits the management
style of the bank.
23. The system fits the needs of the
bank’s strategic decision-making
process.
24. Corporate planning works well
with other line managers and staff.
26. The system of reaching strategic
decisions works well within the
bank.
27. The system uses appropriate
understandable concepts for the
bank’s business.

E. Are the planning processes effective?

28. Top management spends an
appropriate amount of time on
strategic planning.
29. Line managers accept planning
and don’t just pay lip service to it.
30. Line managers spend an appropri¬
ate amount of time in developing
strategic plans.
31. The procedures in the plan are
acceptable and appropriate.
32. The procedures are well under¬
stood within the bank.
33. The workload to complete the plans
is acceptable to managers and staff.
34. The process is effective in inducing
in-depth strategic thinking.
35. The process is not too routine,
inflexible and rigorously numerate.
36. New ideas are generally welcomed.
37. Managers really do face up to bank
weaknesses in developing plans.
38. Divisions get sufficient guidance
from central office for effective
planning.
39. Divisions are encouraged and hel¬
ped to prepare plans by central
office.
40. The ability of managers to under¬
take planning is taken into account
in measuring their performance.
CHAPTER 4

Competitor Analysis

4.1 IMPORTANCE OF COMPETITOR ANALYSIS

The majority of banks operate within a competitive environment. In many
markets the degree of competition has been increasing in recent years
following the entry of foreign banks, the expansion of domestic ones and the
entry of non-bank competitors into traditional banking markets. One result of
the growth in competitive activity has been an increasing recognition that the
key to business success is more than just the careful analysis of a market and
its customers and includes also a detailed analysis of major competitors.
Banks have been slow to engage in the former and relatively few have as yet
undertaken the latter. Yet in most markets banks that attempt to grow do so
most of the time by taking business from an actual or potential competitor
and not necessarily through great real growth in the market. Thus, deciding
on which competitor to attack or defend against, where, when and how are
essential tactical decisions which form a major element in strategic planning.
To improve their ability to take the initiative in competitive situations some
banks are therefore now following the practice of leading industrial
companies and developing competitor intelligence systems. This chapter is
designed to assist bank marketing planners and line officers to improve their
ability to analyse competitors and so increase their chance of achieving
success.
Specifically, understanding and analysing competitors enables you to:

— Plan your strategy so as to neutralize competitor strengths wherever

possible, emphasize those services where you are relatively strong,
and carefully select accounts where you will have a greater chance of
business success.
— Help a potential customer to realistically evaluate your services
versus those of your competitors.
— Demonstrate with conviction why a customer should choose your
bank over that of your competitors.

62
 63

— Be more confident by increasing your understanding of the relative

strengths and weaknesses of your own bank’s services.

In seeking corporate banking business you should therefore remember:

— In gaining new business your initial objective will probably be to become

one of a number of banks with which a corporate account does business.
The middle market will be the most heavily contested segment.
— In most cases your gain will be a business loss by one of the existing
banks. Only in very rare situations will you actually completely
displace an established lead bank relationship and it is often not very
profitable to do so if you are a foreign bank.
— You should try to provide those services in which you have a
competitive edge and which are profitable to you whilst leaving aside
those services which are unprofitable to you. This requires you to
understand both your own and the competitor’s cost structure. Beware
of cross-subsidization within your own product range.
— Examine your own accounts carefully and select those to defend
because your competitors will be trying to do the same to you as you
are doing to their accounts. Remember that at attractive accounts it is
usually a buyer’s market.

In seeking retail banking business remember:

— Traditionally HNWI accounts have been neglected and used to

cross-subsidize poor accounts. In this segment narrow, well-defined
attacks from new specialist competitors can be expected.
_ Understand your cost structure carefully and identify the costs and
benefits associated with each retail segment.
— Select those accounts you wish to service well and match or exceed
competitors’ service offerings. Be prepared to shed accounts you can’t
service profitably or which reduce your ability to service your
attractive customers.

4.2 DEVELOPING A COMPETITOR INTELLIGENCE SYSTEM

Developing a competitor intelligence system is an important element in
strategic and market segment planning. Normally, focused segment attack will
not only be based on account or customer cluster plans but also on strategies for
dealing with specific competitors. Developing an appropriate intelligence
system which examines existing and potential competitors is therefore an
important ongoing task conducted at all levels of the bank. The details required
and the specific competitors covered will, however, vary according to where in
the organization the information is required.
 64

At the corporate level, the competition for analysis will be those banks or
other financial institutions it is felt impact most strongly on the bank’s overall
corporate mission and objectives. For example, competitors studied will
normally include all those other local banks drawing funds from the same
equity market. Care should be taken, however, not to exclude other
competitors outside this area. For example, most US banks compare
themselves with other indigenous banks but often fail to examine important
international competitors such as those from Britain, Germany, France and
Japan. The review of competitor strategies should examine the impact on
overall bank mission and objectives and check where the strategic position of
particular competitors threatens those. The theme of such analysis therefore
tends to be broad in scope, the appropriate time frame being medium to long
term.
At the local market level, however, competitors will usually be the
indigenous banks in home or host countries within the appropriate geographic
served market. At this level details are required of individual bank operational
programs, organization, account structure, branch coverage, and the like, with
the view to pinpointing appropriate market segment strategies which can be
used to penetrate competitor banks’ markets.
The corporate and unit systems of competitor intelligence should be
integrated and, in addition, should be linked to the account planning process,
which is a particular source of information on competitor activities and
intentions. The collection of intelligence data is thus a responsibility for
everyone in the bank, but specific resources need to be allocated to it,
especially at the corporate level, and the results systematically collated. Today
such systems are becoming computerized.

4.3 COMPETITOR IDENTIFICATION

In conducting competitor analysis it is necessary to examine those key

competitors that presently or in future might be expected to have a significant
impact upon your own strategy. Usually this means the inclusion of a wider
group of organizations than just your direct competitors. This is likely to be
especially true in the banking industry, where major competititve threats will
emerge from non-bank financial and industrial corporations. Competitors thus
include the following:

Existing direct competitors. Concentrate upon major bank competitors or

those with a high growth record, especially when they are operating
apparently successful strategies. Note some competitors will not compete
with you across the board but in particular products/markets. Different
competitors will therefore need to be examined at different levels of depth.
Those which already do or could have an ability to substantially impact upon
core businesses need closest examination. Be careful not to neglect important
competitors which have not been historically significant.
 65

New bank competitors, notably foreign banks or those expanding their

domestic geographic coverage.

Potential new market entrants—new non-bank competitors. The major

threats facing banks do not necessarily come from direct competitors, who
may have much to lose by breaking up established market structures. New
competitors include a variety of institutions with an established customer base
which can be easily reached by extensions to existing distribution or via the use
of low-cost technology:
— Firms with low barriers of entry, such as those where entry could make
use of shared distribution or systems facilities, a common salesforce,
extension to an established brand name and common technology.
Examples include major retailers like Sears Roebuck, J. C. Penney and
Marks & Spencer or high-technology companies such as IBM and
Geisco.
— Firms with a clear experience effect or synergy gain. Examples include
American Express/Shearson, Merrill Lynch and Beneficial Finance.
— Forward or backward integrators. Examples include major trading
companies such as Inchcape, Mitsui and Mitsubishi. Other examples
might include industrial firms such as General Electric and General
Motors.
— Unrelated product acquirers where entry offers financial synergy.
Examples would include ITT and Bethlehem Steel.

Some firms may enjoy more than one of these advantages.

4.4 SOURCES OF COMPETITOR INTELLIGENCE

Collecting detailed information on competitors is actually surprisingly easy if

you approach it systematically and dedicate a relatively limited level of resource
to the task. It is surprising, however, how few organizations actually do try to
monitor their competitors in other than a financial sense. Key sources of
competitive information include the following:

1. Annual reports and lOks, and where available the annual reports or returns
of subsidiaries/business units.

2. Competitive product literature.

3. Bank internal newspapers and magazines. These can be very useful for
details of all major appointments, staff background profiles, business unit
descriptions, statements of philosophy, new branches and services and
activities, and strategic moves.
66

4. Bank and company histories. These volumes are very useful to gain an
understanding of the organizational culture, the rationale for the existing
position and details of the internal systems and politics.

5. Advertising. This illustrates and identifies themes, choice of media, spend

level and the timing of specific strategies.

6. Bank directories. These are an excellent source for identifying organiza¬

tion, mode of customer service, depth of specialist segment coverage,
attitudes to specific activities and relative power positions.

7. Financial industry press. Most banks make use of the financial press for
announcements and this is a very useful source for details of all significant
changes in products, prices, sales and marketing persoinnel, new units and
investments. Also, check bank press releases if available. Libraries such as
the Financial Times’ will have most of these and will allow access to library
service subscribers.

8. Financial, national and international press. These sources are useful for
bank financial and strategic announcements and analysis and senior
personnel/organization announcements. Specialist agencies such as
McCarthy may provide a clippings service to obviate the need for internal
press monitoring. A check of the local press where the competitor has
major branches, subsidiaries, divisional or corporate headquarters is also
useful when the competitor’s activity is significant relative to the area. This
is especially true in the US, where local coverage is often all there is on
regional banks. Funk and Scott provide an international index. Index
facilities are available for WSJ, NY Times, The Times, Financial Times,
Frankfurter Allemande, Euromoney, The Banker, etc.

9. Papers and speeches of corporate executives. These are useful for details of
internal procedures, organization, senior management philosophy and
strategic intentions.

10. Account officer!branch manager. Although often biased, used and

directed systematically, intelligence reports from field officers provide
front-line market intelligence on competitors, customers, prices, products,
service, quality, delivery, and the like.

11. Customers. Reports from customers can be actively solicited internally or

obtained via external market research agencies and provide first-hand
market intelligence. The corporate banking industry places heavy reliance
on Greenwich Research Associates, where the methodology is on occasion
suspect. Few banks do enough systematic market research but good
 67

success has been reported with individual customer studies, focus groups,
and the like.

12. Suppliers. Reports from suppliers are especially useful in assessing

investment plans, activity levels, efficiency, etc. This is particularly true
of systems products, which are likely to be of increased importance.

13. Professional advisers. Many banks are making active use of consultants to
improve their strategic planning, cost control and marketing systems. Who
these consultants are will usually tell you a great deal about the sort of
systems and procedures the bank is likely to adopt.

14. Stockbrokers’ reports. These often provide useful operational details

usually obtained from internal information coupled with financial analysis.
Similarly, industry studies may provide useful information about specific
competitors within a particular country or region. For US banks, Keefe,
Bruyette and Woods specialize in a great variety of bank financial and
other data.

15. Bank association and society contacts. The industry is one where formal
associations such as the ABA and Institute of Bankers are primary forums
for discussion. Education programs, informal discussions and the like are
major opportunities to learn about competitors’ activities and procedures.
The present frankness which pervades these may reduce as bank industry
competition intensifies and approaches that found in other industries.

16. Competitor service analysis. Look closely at the services offered by

competitors but be careful not to just search for negative characteristics in
them. Try to be objective, possibly using external panels, and look
carefully at service features superior to your own which can be copied,
modified or improved upon.

17. Recruited competitor personnel. There is substantial movement of

personnel within the industry and such moves can be systematically used to
improve information on competitor activities and operations. Remember,
in developing and introducing a new service rather than inventing it from
scratch internally it is often cheapest to hire a key person from a successful
service-innovating bank or company.

18. Retired executive consultants. Retired executives from competitors can

often be hired as consultants, and information about their former
employers can be effectively determined by requesting their assistance in
specific job areas.
68

4.5 COMPETITOR ANALYSIS DATA BASE

In order to evaluate competitor strengths and weaknesses, it is necessary to
systematically collect data on each significant actual or potential competitor.
The most important competitors should be comprehensively and continuously
monitored. For those organizations which are a less direct immediate threat
annual periodic reviews are acceptable, but be ready to upgrade your analysis
when appropriate. The data to collect should include:

1. Name of competitor bank or potential competitor.

2. Number and location of offices, branches, operations complexes,
non-bank subsidiaries.
3. Number and nature of personnel attached to each unit.
4. Details of bank organization and business unit structure.
5. Financial details of bank group and individual bank and non-bank
business units, stock market assessment, details of major sharehol¬
ders, potential acquirers/acquisitions.
6. Corporate and business unit growth rate, profitability.
7. Details of service range, including pricing, and service quality.
8. Details of market share by segment, by geography.
9. Details of advertising and promotion, spending levels, timing, media
choice, promotions, advertising support.
10. Details of line and branch field operations, including numbers,
organization responsibilities, special procedures for key accounts, any
team selling capabilities such as multinational corporations, means of
integrating related banking services, operations based services such as
personal banking, small corporate, middle market, multinationals.
11. Details of major customer segments served, key accounts. Estimates
of customer loyalty, relative market image.
12. Details of specialist markets served such as real estate, energy,
shipping, project finance. Euromarket syndication.
13. Details of research and development spending, facilities, develop¬
ment themes, special skills and attributes, geographic coverage.
14. Details of operations and systems facilities, capacity size, scale, age,
utilization, assessment of output efficiency, capital intensity, replace¬
ment policies.
15. Details of key suppliers.
16. Details of personnel numbers, personnel relations record, relative
efficiency and productivity, salary rates, rewards and sanctions
policies, degree of unionization.
17. Details of key individuals within the bank/individual business units.
18. Details of control, information and planning systems.

4.6 ANALYSING COMPETITOR STRATEGY

The strategy of key competitors should be analysed and evaluated with a view
 69

to assessing their relative strengths and weaknesses in order to identify strategic

alternatives for your bank and establish likely competitor responses to your
own strategic moves. Most large banks today are multibusiness concerns so
competitor strategy needs to be evaluated at several levels, including:

1. By function.

2. By business unit. A business unit is normally a fully developed business

activity which contains within it all the necessary functions to be measured
and monitored as a separate profit center. However, definitions of a
business unit differ widely, and it is quite possible that some competitor
banks may not include all the same aspects of a specific business in their
definition as you do. Indeed, in many banks the concept of business units is
still new and relatively undeveloped and as a consequence many have
inadequate knowledge of costs structures, customer segmentation, and the
like.

3. By the bank corporation as a whole. The modern large bank corporation is

usually made up of a portfolio of businesses each of which may be required
to perform a different task in meeting the corporate objectives and strategy.
At present most banks do not operate a portfolio system because their
internal planning is not adequately developed. While this may yield a
significant competitive advantage to well-disciplined banks, it can lead to
apparently irrational competitive behavior.

4.6.1 Function Analysis

For each particular business, identify and evaluate the main functional
strategies of key competitors using a format such as the following. It will often
not be possible to be strictly accurate but careful study and constant revue of
key competitors will usually allow you to guestimate relative differences
whenever these are significant. While identifying specific functional policies of
each competitor also track trends in these policies over time and look carefully
for any significant changes and the reasons for them.

Marketing Strategy

1. What service strategy is adopted by each competitor relative to yours?

What is the market size by product market/customer segment? What is
the market share by competitor by segment?

2. What is the growth rate by service market/customer segment? What is

the growth rate of each competitor by service line/customer segment?

3. What is the service line strategy of each competitor?

70

Competitor
1 2 3 Your bank

Narrow line V
Full line V V V

4. What is the policy toward new services adopted by each competitor? What
has been the rate of new service introduction in the past five years? What
particular approaches to new service launches have been used consistently?

Competitor
1 2 3 Your bank

Service line A L F _ F
B L F F F
C F F F L

L, leader; F, follower.

5. What is the relative service quality of each competitor by service line

compared to yours?

Competitor
1 2 3 Yours

Service line A S I S
B S A I A
C S A I A

S, superior; A, average; I, inferior.

6. What pricing strategy does each competitor adopt by service line/con¬

sumer?

Competitor
1 2 3 Yours

Service line A H L A
B A A A A
C H A L H

H, higher than average; A, average price; L, lower than

average.
 71

7. What are the relative advertising and promotion strategies of each

competitor?

Competitor
Total expenditure 12 3 Yours

As percentage of deposits
By geographic region
By customer segment
By media type
By month
By season

8. For wholesale businesses, what are the customer servicing strategies of

each competitor and how do these compare?

9. What do you believe the marketing objectives of each competitor to be?

10. How quickly is each competitor able to modify its marketing policies to
meet a new entry situation? In what way has such modification occurred in
the past?

Competitor
12 3 Yours

Lower spreads or prices

New service introduction
Increased advertising
Decline in market share
Increased calling officer
capacity

11. How do operations/credit/marketing/selling fit into each competitor’s

organization? Has marketing historically been a background for any key
executives/chief executives? How does this compare with credit?

Operations Strategy

1. What are the number, size and location of each competitor’s branches and
offices? How do these compare with one another? What service range does
each offer? What is the estimated capacity of each service range by
competitor, e.g. estimated total loan capacity for given equity base,
. estimated transaction capacity for given computer capability?
72

2. What is each competitor’s actual volume? Capacity utilization?

3. What is the level of each competitor’s capital employed in depreciable

capital equipment? Owned property? How does each of these compare to
equity capital?

4. How many people are employed by branch/office? By businesses? By

subsidiary? What wages are paid?

5. What is the relative loans and services output/capital employed for each
competitor?

6. What is the loans and services output per employee for each competitor?
What is the relative employee cost?

7. What is the degree of unionization for each competitor? What is the

relative record for labor unrest for each competitor?

8. What percentage of liabilities is supplied from other internal business

sources? What percentage of output is supplied to internal businesses?

9. What service costs do you estimate each competitor has relative to your
own?

10. What man-management/organization incentive systems are used by each

competitor?

11. What services if any are subcontracted for each competitor? Is this
increasing/decreasing?

12. How does operations fit into each competitor’s organization? Has
operations historically been a major background for key executives/
chief executives?

13. How flexible is each competitor to a change in market conditions service

volume? What have been typical historic responses to fluctuating demand?

Dimensions of Product!Service Development

1. Where are new services developed?

2. What is the estimated new service development expenditure level of

each competitor relative to yours? How has this changed over the past
three years?
 73

3. How many people are employed at each competitor in specialist service

development? How many of these do you estimate are qualified?

4. What is the record of each competitor in service introduction/product

improvement over the past five years?

5. How rapidly can each competitor respond to another’s new service

introductions? What sort of reaction has traditionally been evoked?

Financial Strategy

1. What is the financial performance of each competitor for this business in

terms of return on assets/cash flow/spread/loan loss rate?

2. What is the dividend/payout ratio of this business for each competitor?

Are funds being extracted in any other way? Is cash being injected in any
other way than from operations?

3. What is the calculated sustainable growth rate based on existing equity

base?

4. What are the liabilities needs of this business in its present position? What
flexibility does the business have for improving its funds utilization? What
are the most sensitive variables for using/relaxing cash?

5. What liabilities/other funds sources are open for this business?

6. How does each competitor’s growth rate compare with average industry
rate (with and without allowance for inflation)? In the event of a shortage
of adequate deposit base what additional capital resources are available?
What would be the cost of these funds? What alternative uses might have
priority for these funds?

7. How adaptable is each competitor’s liabilities management to changing

market conditions such as rising interest rates, increased inflation, rising
wage costs? What typical reactions has each competitor made historically
to such events?

4.6.2 Business Unit Objectives

The starting point for evaluating each competitor bank at the market segment/
business unit level is to assess what is expected of the strategic business unit
(SBU). This will not be spelt out for you but will be apparent from a variety of
factors such as management speeches, choice of managers to run the unit, top
74

management attitudes to the unit, amount of resources allocated, and the like.
In assessing the objectives of a business unit the following questions are
helpful.

1. What are the stated (and unstated but obvious from management actions)
financial objectives for the business in terms of return on assets, cash flow
and market share penetration?
2. What is management’s attitude to risk? How are profits/market
share/asset growth and unit risk balanced?
3. What non-economic objectives, values or beliefs prevail? How, where and
when do these supersede economic objectives? Typical non-economic
values/objectives might be as follows:

‘People’s bank’: Sanwa Bank

‘Pacific Rim market leader’: Security Pacific
‘World’s largest merchant bank’: J. P. Morgan
‘Trendsetting innovator’: Citibank

4. What is the competitor business unit organization structure? How are key
decision responsibilities allocated? How well are separate functions
coordinated within the business unit? Between this business unit and
others which are integrated with it? Organizational differences are a key
distinguishing feature between banks and lack of inter and intra business
unit coordination is a principal reason for competitive weakness.
5. What control and incentive systems operate? What behavior is rewar¬
ded/sanctioned? What is the nature of the existing incentive/sanction
system? Again significant differences between banks may be identified.
Relatively few have well-developed cost systems for example and few
presently offer significant variable reward schemes which are related to
quantified performance goals.
6. What kinds of managers lead the competitor SBU? What are their
backgrounds and experience? What is the make-up/style/skills/back-
ground of junior managers?
7. What social/government/union/legal constraints on behavior occur in
this business?
8. Where does the SBU fit into the bank group organization structure? Who
does the SBU head report to? Check.
— Direct to CEO/chairman
— To senior executive VP
— To divisional executive with influence
— To corporate hitman
— Other (specify)
9. What is the status of the SBU head? Check.
— Sharetaker
— Caretaker
— Undertaker
 75

10. What economic relationships exist between this SBU and others in the bank
portfolio? Check:
— Source of funds
— Use of funds
— Integrated operations
— Geographic integration
— Horizontal integration
11. Do integrated relationships affect strategic behavior within the SBU?
Check for:
— Cross-subsidization
— Profit movement/transfer to other SBUs
— Unit hold/grow strategy to protect/help other SBUs
12. Does this SBU enjoy sacred cow status? Likely signs are positive answers to
any of the following:
— Are any former SBU heads in top management positions?
— Was this SBU one of the bank’s earliest businesses?
— Does the SBU have special emotional appeal to top management?
— Was the SBU originally developed by the present top manage¬
ment?
13. How does the performance of this SBU compare with that of the bank
as a whole?
— Underperformers are usually under pressure
— Overperformers are usually pampered
14. Why did the parent enter this business? Check:
— To exploit global network
— Pressure from customers/competitors
— Planned diversification move
— Random chance or accident
— Personal whim of senior management
15. What is the strategic importance of this business to the parent bank? Is it a
core business or peripheral to the bank’s major activity? Where does the
SBU appear to fit in a corporate portfolio? Check the portfolio strategy
position:
— Growth
— Maintenance
— Harvest
— Divest
16. Where does the SBU fit in bank diversification strategy? Is the bank
diversifying and directing financial people/resources in this direction or
away from it? Will its diversification moves help/hinder this SBU?

4.6.3 Bank Group Business Objectives

Companies also need to be evaluated at the level of the total bank corporation or
group. Surprisingly, perhaps, a variety of factors which influence the entire bank
76

group will significantly influence behavior at the SBU level. An understanding

of group attitudes and strategy is therefore a requisite component in evaluating
competitor strategies and designing countermeasures. This is especially true
for key competitors faced in a global arena. At the group level try to evaluate
the following factors:

1. What are the the overall group financial objectives? Check the impact of:
— Inflation
— Technology change
— Wage costs
— Foreign exchange rates
— Interest rates
— Capital needs
— Equity costs
2. What is the competitor’s growth capability? Check.
— What is short-run growth capacity?
— What is long-run growth capacity?
— What is financially sustainable growth rate?
—- How does competitor’s strategic capability change with growth?
3. What are the competitor’s key strengths and weaknesses?
— What capability changes seem likely?
4. How adaptable is the competitor’s overall strategy? Check:
— What is fixed vs variable cost structure? Cost of unused capacity?
Influence on strategic change capability?
— What is competitor’s ability to adapt to functional change?
• Ability to compete on cost
• Ability to introduce new services
• Ability to increase marketing support
— What is competitor’s ability to adapt to environmental change?
Check adaptability to:
• Sustained high inflation
• Technological change
• Recession
• Higher wage costs
• Changing regulatory environment domestically/interna¬
tionally
5. Can you sketch the competitor's business portfolio?
— Don’t forget to use his classification scheme
— Identify relative SBU positions and size from the competitor's
perspective
— Use a similar three by three matrix to that in Chapter 2 (Figure
4.1). Score competitor business units in the same way as you did
your own.
The matrix summary can also be utilized to show the expected trends in
 77

Compet i t i ve posi tion

</> Strong Average Weak
tS)
0)
c
a> High
>
()
O
o
o
Medium
o
o O o
>»
Low
</>
ZD
TD
C
O
Figure 4.1 Competitor portfolio matrix

Competitive position Competitive position

Industry attractiveness

Figure 4.2 Current portfolio trend Figure 4.3 Desired portfolio

objective

position if no changes are made in strategy (Figure 4.2) and the apparent
desired competitor trend (Figure 4.3).
6. Interrogate the competitor’s business portfolio by asking:
— Which businesses stabilize the portfolio?
— Which are the core businesses?
— Which are the growth businesses?
— Which are the problem businesses?
— Check if competitor appears to be following the suggested
investment strategy for specific business. Check if not then why
not?
— Which businesses defend the core businesses?
— Which businesses look most promising for further investment?
— Which have the greatest ‘leverage’ on bank performance?
— Which businesses are employed as attack businesses or could be
used to reduce another competitor’s strength?
7. What does the competitor bank appear to believe about his relative market
position? Check relative position on:
78

— Costs, notably funds, premises, people, systems

— Service quality
— Technology/skills capability
— Marketing/selling capability
— Price
— Account penetration
— Account solicitation
Assess these positions from public statements, service/media claims, and
the like. Are these views realistic?
8. Does the competitor appear to follow any generic strategies? E.g. Barclays
Group—multiple office, consumer orientation, international credit fin¬
ance.
9. Are there any strongly inculcated cultural norms which affect corporate
behavior? Note especially any norms established by the company founder.
E.g. Deutsche Bank—resistance to consumer credit cards; Citicorp—re¬
luctance to take direct equity stakes.
10. What are the prevailing values/aspirations of top management? E.g.:
— Does the bank seek to be a technical leader or follower, e.g.
Citicorp vs Bank of America?
— Does the bank seek to deal with only a limited customer base, e.g. J.
P. Morgan?
11. Are there cultural/regional/national differences which affect ways each
competitor perceives and acts? E.g.
— German banks are universal investment/commercial banking
institutions
— Japanese banks are closely related to formal or informal corporate
customer groups
— American banks outside California are corporate vs retail in
orientation
— British banks are branch and retail oriented
12. Does the competitor have strong historical or emotional ties to particular
businesses/services/policies? How strongly will these ties be main¬
tained? Are they valid assumptions?
13. What is the current performance of the competitor compared with the past?
Banks will try to regain past glories if they exist.
14. Where has the competitor failed previously? Banks will try to avoid areas of
past failure.
15. Where has the competitor previously been successful? Banks will often try
to repeat past successes.
16. How has the competitor reacted to earlier competitive moves? Emotion¬
ally? Rationally? Slowly? Quickly?
17. What is the experience background of top management, e.g. domestic
branch banking, international corporate banking, credit finance, etc.?
Internal vs external appointments? This background will probably
influence their strategic direction and interests.
 79

18. What strategies have previously worked for top management? What
strategies have previously failed for them? Successful strategies will often be
tried again and failing strategies avoided.
19. What other businesses have top management worked in? How successful
were they? Why did they leave? This history will also influence their
strategic behavior, e.g. Aboud at First Chicago.
20. What major events have top management lived through which might
influence them, e.g. German bank management attitudes to inflation?
21. What attitudes do top management portray in their speeches/writings?
What are their interests/pastimes and how do these influence their
behavior, e.g. Rockefeller at Chase?
22. Who advises top management? What strategic patterns have these
advisors installed in other companies, e.g. McKinsey at Continental
Illinois, Boston Consulting Group at Bank of America, General Electric
at Chase Manhattan?
23. What sort of executives seem to get on in the competitor?
24. How fast do managers move in and out of SBUs? How is performance
rewarded/sanctioned?
25. What does the competitor appear to believe about future demand and
industry trends? How well has the competitor estimated in the past?
26. What does the competitor appear to believe about its competitors? Are
there any over or under estimations?

4.7 ASSESSING COMPETITOR STRATEGIC CAPABILITY

The objective of conducting competitor analysis is to identify likely competitor
strategies and responses to strategic moves adopted by you. In most industries
success is dependent on gaining an edge on competitors and this type of
evaluation is therefore as important as basic market or customer analysis.
Assessing competitor strategic capability involves taking the answers to the
above checklists and attempting the following:

1. From the analysis of competitive goals, present strategy and capabilities,

assess:
— What are the likely competitor offensive moves? Use the competi¬
tor’s assumed logic, not your own.
— What are the competitor’s likely defensive strategic capabilities?
_ What would be the best battleground on which to tackle the
competitor?
2. Evaluate competitor offensive strategies:
— Given the competitor’s present strategic position and goals, how
likely is he to start an offensive strategy?
— Which offensive moves seem most likely?
_ What gains can the competitor expect to make from these moves?
Short term? Long term?
 80

3. Evaluate competitor defensive strategies:

— What moves is the competitor most vulnerable to?
— What moves will provoke maximum/minimum retaliatory action
from the competitor? Which will result in the most unprofitable
retaliation? For him? For you?
— What moves is each competitor least able to respond to quickly/
effectively?
— What ‘blind spots’ does the competitor have which would provoke
low retaliation probability?
4. Assess your goals and strategy:?
— What positions allow you to meet your objectives without excess
threat/retaliation from competitors; e.g. it is relatively easy to gain
market share against a competitor harvesting a business providing
this does not prevent the competitor achieving his ROA objectives.

4.8 SUMMARY
The competitor intelligence system of the bank is an important ingredient in the
development of market and corporate strategy. The relative competitive
position of the bank needs to be systematically established as a component in the
allocation of market investment strategy. Check the analysis of the appropriate
competitors at corporate, division or market level using the following checklist:
1. Are the appropriate competitors correctly identified?
2. Are all major competitive new entries identified, including non-banks?
3. Have all appropriate sources of competitor intelligence been reviewed?
4. Is the data base on each competitor adequate for competitor analysis? Are
any essential data missing and, if so, where can they be obtained, how, by
when and at what cost?
5. Has the analysis of each key bank function been undertaken at the
appropriate level for each market segment?
6. Is the competitor business unit strategy adequately identified? Is its position
within the competitor bank’s overall portfolio assessed realistically?
7. Have the business units’ objectives been determined adequately?
8. Are the competitor bank’s overall mission and objectives identified?
9. Has the competitor’s market portfolio been developed and interrogated
adequately?
10. Have the competitor s culture, organization, leadership and history been
analysed and the impact of these factors on strategy been assessed?
11. Has the competitor’s strategic capability been assessed and likely offensive
and defensive strategic moves identified?
12. Have your bank’s relative strengths and weaknesses been assessed
realistically and the most appropriate strategic moves to adopt against
specific competitors identified?
CHAPTER 5

Purchasing Financial Services

5.1 BASIC PURCHASE MOTIVATION

Purchasing behavior is triggered into action by the recognition of ‘needs’ or
‘wants’ which stimulate an urge or drive to take action which will lead to the
‘satisfaction’ of the need. This process is referred to as ‘motivation’. The
process applies to the individual and in a more complex form in organizations.
Understanding how people are motivated therefore helps you to:

— identify future customer needs more effectively;

— improve your bank’s ability to communicate with potential customers in
terms they can understand;
— emphasize those features of your bank’s service that will be likely to have
the most appeal;
— plan marketing strategy to produce the desired results;
— obtain the confidence of customers by showing how your bank
understands their point of view.

What you need to know is: Who buys? How do they buy? When do they buy?
Where do they buy? and Why do they buy? Changing technology and the
development of alternative delivery systems are providing a growing choice of
possibilities to both individual and corporate customers, making an under¬
standing of customer behavior even more important. As illustrated in Figure
5.1, buyers respond to external stimuli with specific patterns of behavior. The
role of marketing is to understand the intervening process which influences
buying decisions.

5.1.1 The Purchase Decision Process

Customer behavior is influenced by a number of cultural, social, personal and
pyschological factors. For individual bank customers the emotional and
pyschological factors tend to be more important, while industrial and corporate
purchasing tends to be substantially more rational. It would be incorrect,

81
82

External stimuli Buying process Buying behavior

Marketing Environment Service Choice

Product Social Buyer Buying Bank Choice
Price Political needs decision Service Timing
Place Technological objectives process Service Amount
Promotion Economic Service Frequency
Cultural

Figure 5.1 The buying decision process

however, to assume that emotional factors do not influence corporate buying

behavior.
External factors influencing buying behavior include the following:

1. Culture. The society in which both the individual and corporations develop
significantly influences behavior. Attitudes to risk, degree of competitive¬
ness, efficiency, degree of individualism, personal freedom, pursuit of
success and the like are all key values significantly influenced by the
culture in which we exist. Moreover, most of us also belong to subcultures
within the wider society. For example, ethnic groups, regional differences,
climatic and religious differences can all influence behavior. Similarly,
each corporate organization tends to have its own internal subculture
influenced by its own history, the participants, established norms and
practices and company’s leadership.
2. Reference groups. Individuals and corporations are also usually members
of various groups which in turn influence behavior. Primary groups with
which an individual interacts regularly include family, neighbors and
fellow workers. Secondary groups can include professional association
memberships, trade unions, trade associations and industry confedera¬
tions. It is an important element in marketing strategy for banks to
identify and reach those opinion leaders in appropriate reference groups
for personal and corporate clients to gain service endorsements which can
be used in the relevant personal or media communication channels.
3. Personal factors. Personal factors influence the type of service required,
the location of purchase, the price to be paid and how to reach the
individual. While personal factors are critical for retail banking, they also
influence the corporate decision purchasing process. Significant personal
factors include:
(a) age and life-cycle stage;
(b) occupation;
(c) economic status, including disposable income, savings and assets,
borrowing power and attitude to spending vs saving;
(d) lifestyle.
 83

4. Organizational factors. Each corporation has its own structure, systems,

procedures, objectives, politics and individual personalities. These factors
will all blend together to influence the corporate buying decision process.

The reasons for utilizing specific bank services reflect the desire to satisfy both
rational and emotional needs on the part of both the individual and the
corporation. The principal emotional motivators which apply in both individual
and corporate purchase situations include the following:

1. Ego enhancement. Individuals have a need for achievement and personal

recognition. People want to be appreciated, to be complimented, to be made
to feel important.
2. Personal power and influence. Individuals have a need for personal power
and influence; to be able to dominate and control their immediate
environment and to achieve increased success.
3. Personal risk reduction. Organizational purchasers are by nature somewhat
risk-averse and need to feel reassured that any services contemplated do not
place them at an unacceptable level of personal risk.
4. Personal gain or profit. This can be an emotional as well as a rational
motivation. The motive of pecuniary gain has two phases—the one prompts
the buyer to spend money to make money, a positive implication, while the
other is concerned with the saving of money, a negative implication.
5. Desire for affiliation. In addition to a desire to be recognized, individuals to a
greater or lesser degree want to be liked and socially accepted by others.
6. Physical and aesthetic pleasure. The satisfaction of basic physical needs is the
most fundamental human drive, while the satisfaction of aesthetic needs is
one of a higher order but which can also be an important influence upon the
individual.
Similarly, the key rational purchase motivations include:
1. Profit or economy. Profit is probably the dominant motive in most
commercial enterprises. For non-profit organizations, while the concept of
profit may not be relevant, economies will still be important motivators in the
form of cost reductions or savings on existing operations. For individuals,
costs and interest rate margins are also extremely important although the
inertia effect tends to be much stronger.
2. Flexibility. Services which are flexible or can be adjusted and adapted to
meet changing needs appeal to the motive of flexibility.
3. Speed. Services which increase speed of operation may be especially
attractive to some corporations by reducing funding needs, improving cash
flow and accelerating payments. The speed with which services can be
introduced and benefits provided can also be an important motivator. Speed
credits tend to be popular with consumers, but direct debits are not
necessarily attractive unless accompanied by financial advantages like lower
prices.
84

4. Service quality. Price or cost is by no means always the key determining

factor in the choice of services purchased either by individuals or
corporations. Perceived quality of service is one of the most important
factors governing choice, and indeed in many cases too low a price might
well have a negative effect on perceived service expectations.
5. Protection and security. Company personnel are influenced by service
features which will protect the company’s property or its employees.
Individuals too need security and rely heavily on banks to be safe
repositories for deposits.
6. Back-up service. Most companies are not merely concerned with the short
term when purchasing banking services, but rather with a long-term
relationship. As a result, back-up service is important to ensure that
benefits obtained are continuous and not merely temporary.
7. Convenience. Geographic and/or organizational convenience may be
secondary motivators in the choice of bank. This is especially true for
mobile individuals.
8. Reputation and perceived technical skill. The reputation and perceived
technical skill of a bank are important motivators in assessing whether its
services are considered credible by both individuals and corporate accounts.
Most corporate decision-makers are by nature conservative and will not
tend to take risks with institutions of unknown reputation in areas of activity
such as banking services. Consumers tend to be even more risk-averse,
although a fringe segment can usually be lured into making investments in
dubious institutions. It is such investors that the regulatory authorities are
always at pains to protect.

5.2 SPECIFIC NEEDS AND WANTS

The basic motives outlined above describe the factors that will help convince
prospective customers that they should do business with your bank. To be of
value in marketing planning these basic motives must be analysed and defined
in terms of specific needs and wants that the bank is capable of satisfying.
The key task therefore is to develop a checklist of the specific needs and
wants which you believe influence the decision-making process in each major
account and then plan to satisfy these needs.
For example, the criteria used for the selection of lead banks by large
multinational corporations (MNCs) have been identified as shown in
Table 5.1.
MNCs from the US and Western Europe tend to have somewhat different
emphases in their choice of lead banks. American MNCs attach great
importance to global branch network cover, to the bank being their lead
domestic bank and to it having account executives knowledgeable in
international services. By contrast, European MNCs emphasize foreign
exchange services and relative efficiency in international operating services as
 85

Table 5.1
Criteria Used in Selecting Lead Banks by MNCs (%)

Criterion US MNCs European MNCs

Have global branch network 57 44

Have officers knowledgeable in interna- 34 N/A
tional services
Have as domestic lead bank 32 24
Are efficient in international operating
services 28 46
Have high-quality forex services 27 49
Provide most foreign credit needs 26 21
Have outstanding specialists in wide range
of international services 24 N/A
Have ability to meet multicurrency bor¬
rowing needs 21 N/A
Are competitive in pricing international
credit services 19 38
Are efficient in international money trans-
fer services 19 26
Have strong reputation among foreign
governments and banks 13 N/A
Have strong international cash manage-
ment services 9 12

Source: Greenwich Research Associates.

well as a global branch network. Moreover, European MNCs seem much more
concerned with competitive pricing than their US counterparts. The relative
difference in emphasis reflects in part the strategic differences between MNCs
from the two continents. US MNCs tend to be more concerned with the
operation of a global strategy, with substantial product interflows across
national boundaries. European MNCs, however, are presently much less
organized on an integrated global basis and many of their subsidiaries tend to
operate purely within local rather than regional or global markets.
While these criteria apply to MNC parent companies, their subsidiary
companies operating in Europe or North America use somewhat different ones
for the selection of lead banks for operations within their host countries. The
criteria used by subsidiary companies are shown in Table 5.2.
The subsidiaries of European MNCs emphasize four criteria in selecting lead
banks:

— The provision of most credit needs

— Quality operating services
— Flexibility in tailoring services
— Efficient international money transfer services
86

Table 5.2:
Criteria used in Selecting lead Banks by Subsidiary Companies (%)

European American
subsidiaries subsidiaries
Criterion in US In Europe

Provide most credit needs 42 31

Have high-quality operating services 36 44
Are flexible in tailoring services 34 42
Are efficient in international operating
money transfer services 32 30
Are parent company’s worldwide lead
bank 27 21
Have high-quality forex services 27 41
Have most attractive loan pricing 22 28
Have knowledge of US financial conditions 19 23
Have global branch network 15 26
Have officers knowledgeable in interna-
tional services 13 30
Have good reputation among local firms 12 7
Are innovative and imaginative in provid-
ing credit 11 11
Are efficient in international cash manage-
ment 7 10

Source: Greenwich Research Associates.

American MNC subsidiaries are even more concerned with operating

service quality, flexibility in tailoring services, foreign exchange services and
international services knowledge.
The differing levels of importance of various services illustrated above
demonstrate the need to examine carefully the precise characteristics of
individual target accounts and to plan in detail the marketing approach to be
adopted.

5.3 CORPORATE PURCHASING PROCESS

The decision to ‘purchase’ corporate banking services involves interactions
between at least two individuals, one from the bank and the other from the
customer organization. The most usual contact between the bank and the
customer is the finance director or corporate treasurer, but in large accounts it
may be difficult to gain the attention of the top finance executive in the
customer organization.
While the personal motivation of the financial officer is extremely
important, it is also essential for the banker to recognize that his personal
interaction with the treasurer is not the only interaction which takes place. The
treasurer is subject to a variety of influences within his own organization and
 87

significant decisions regarding banking arrangements are usually the subject of

discussion at board or board committee level. It is therefore necessary to bear
the following points in mind:

— The decision to purchase financial services will often be taken by a

number of influencers who may not actually understand the technical
nature of the services.
— The corporate financial officer will act as a surrogate ‘salesman’ for the
banker. While there is a tendency for non-financial executives to be
strongly influenced by the financial specialist this is not always the
case, and bankers should also strive to gain the support of other key
influencers.
— Financial officers are not professional purchasing agents. Emotional
motivations may therefore tend to be somewhat more important than
with professional purchasing agents.
— Financial services are seen as support facilities and not as primary
supplies for a company. Banking service decisions are thus often
tertiary factors, made after primary decisions on which businesses to
invest in, etc.
— To contribute significantly in meeting the needs of executives engaged
in operations who can influence the choice of banking services, the
banker should aim to become involved in operating decision-making at
an early stage.
— Bankers must think in terms of ‘buying centers’ rather than individual
customers for financial services. The individuals involved in the buying
center should be identified, their role understood and the criteria they
use in decision-making established.
— The decision-making on financial services varies within industrial
groups in line with the organization of the corporate treasury function.
It may well be a multitier decision process where, for example, the
banking services used by an MNC subsidiary may result from a
decision involving treasury executives in several parts of the organiza¬
tion in several countries. The ‘sale’ of banking services may therefore
involve a joint or team marketing approach and require coordination
within the bank that cuts across established organizational boundaries.
— An important criterion for many large accounts in selecting bankers is
that the calling officer should appear to have the power to negotiate or
at least be able to ‘sell’ any deal within the bank. Without this power he
may well lack credibility.

5.4 THE ORGANIZATION OF THE CORPORATE TREASURY

FUNCTION
An understanding of the way in which corporations organize the corporate
88

treasury function is useful, and depending upon how this is conducted so the
approach to individual accounts may vary.
The organization of the corporate treasury function varies in relation to a
number of factors, including:

— Size
— Degree of geographic diversification
— Degree of product diversification
— Role of product diversification
— Number and location of sites/subsidiaries
— Formal corporate structure

In particular, international activities have an important effect on the

corporate treasury function. In addition to the range of problems faced in
one-country trading, the parent headquarters’ treasurer in an MNC must cope
with problems such as international taxation rates, remittance policies, foreign
exchange exposure, local capital market variations, exchange control restric¬
tions and different legal and accounting conventions. He must probably also
coordinate separate finance/treasury functions in a number of other countries
which by their nature will enjoy some degree of local autonomy in the choice of
banks and banking services.
Three particular modes of treasury management have been identified. The
elementary organization which is found in companies with limited inter¬
national activity is also similar to a relatively diversified domestic organization.
The three forms are illustrated below, together with the conditions under
which each structure is most commonly found.

1. Elementary international treasury organization

This is illustrated in Figure 5.2. It is usually found where there is:

— Low level of international activity

— Little or no international trading across geographic borders
— Domestic organizational structure functional or possibly divisional, or
an overseas holding company structure

This system allows substantial autonomy amongst the subsidiaries of the

corporation and there is little or no central coordination of the financial and
cash systems. The appointment of banks may be ultimately subject to approval
at the central office of the parent company, but it is worth contacting
subsidiaries since the financial officers in these will have significant opportuni¬
ties to influence decision and for many services may be able to appoint banks on
their own initiative.
 89

Features :

• Small staff
• Receives reports
but a I lows high
subs id iary autonomy
• No international
f inance specialists

independent Iy
of porent
• Manages local
cash position
• Initiates capital
investment
proposals

Figure 5.2 Elementary international treasury organization

2. Intermediate international treasury organization

This is illustrated in Figure 5.3. It is usually found where there is:

— Modest levels of international activity (c. 15-40 per cent of sales) with
some intercompany activity
— With all forms of international organization structure, but common
with international division type organizations
— Previous history of serious international loss in a subsidiary, especially
due to foreign exchange losses or uncovered devaluation
— Corporate financial staff who have responsibility for both domestic
and international operations. Global financial planning is not conduc¬
ted

To gain acceptance as a banker to companies organized in this way, it is often

essential to be appointed via the parent company central finance function,
except for basic local banking services. Subsidiary companies have little or no
autonomy and the only services which may be used tend to be transaction/o¬
perating type or other services coordinated under guidelines laid down by the
corporate center. The key target for account planning is therefore the central
treasury and until a favorable position is developed here it is seldom
90

Features
• Large staff
• International
finance skills slowly
added
• High centralization
of finance decisions
including capital and
operating budgets,
exchange risk
management, invest¬
ment appraisal cash
management, capital
sourcing and control
system design

Figure 5.3 Intermediate international treasury organization

worthwhile to spend expensive account officer time trying to penetrate at

subsidiary units.

3. Advanced international treasury organization

This is illustrated in Figure 5.4. It is usually found where there is:

— High level of geographic and product diversity. High intercompany

trading activity between overseas subsidiaries as well as with the parent
— Controlled decentralization within a well-developed set of corporate
rules
— With matrix area-based organization structures. Finance function
becomes three-tier
— Large, international financial skills, including specialist tax advice,
treasury and controllership

This type of organization has multiple banking relationships usually with

many local and international banks. The ultimate appointment of banks is
often authorized by the central treasury but recommendations are usually
 91

Features:

• Large staff

• Global planning of
long - and short -
term money

• Heavy use of
formal rules
and guide I ines

• OveraI I forex
ex posure
management

• Capital investment
appraisal conducted

• Limited autonomy
within regional and
H Q guidel ines

• Possible capital
investment initiation
involvement

• Coordination of product
activities within a
country

• Meets local legal and

fiscal requirements

Figure 5.4 Advanced international treasury organization

made at local and regional level. Such organizations require global financial
servicing as well as local transaction and lending facilities. An increasing
number of major international banks are developing specialist organizational
units to service the leading MNCs which enjoy the finest lending rates and
require high levels of service sophistication.

5.5 THE BANK CHOICE DECISION

Amongst MNCs from both Europe and the US, the principal decisions about
92

new banks are made at the corporate headquarters. Amongst US MNCs, while
the chief financial officer typically decides when to add a bank, the analysis of
the decision is usually delegated to a treasurer or assistant treasurer for
international banking. European MNCs do not tend to have as well developed
a central treasury function and decisions are more likely to be taken by the chief
financial officer or a treasurer for international banking. When these questions
are asked at the subsidiary level, however, a somewhat less centralized picture
emerges. The local subsidiaries of both European and US MNCs claim that
bank appointment decisions are shared about equally between headquarters
and the subsidiary treasury management. The truth probably lies somewhere
between the two, but it is essential if banks wish to gain a substantial share of
business at such accounts that a coordinated team marketing effort be
developed for each account involving calling both on the central treasury and at
major international subsidiaries (and, in particular, regional headquarters
units where these exist, as in the advanced treasury management organiza¬
tion). Details of the bank appointment decision process are shown in Table 5.3.

Table 5.3:
How MNCs Make Banking Relationships for their International Operations (%)

Executive When to add Which banks Which bank What balances

responsible a bank to consider to select to maintain

US Euro US Euro US Euro US Euro

Parent co.
President or chief
executive 2 11 1 5 2 9 1 4
Chief financial
officer 37 51. 17 49 32 47 28 35
Treasurer for int.
banking 18 19 16 30 18 25 16 23
Ass. treasurer int. 11 0 25 4 17 0 18 2
Other officer 4 5 7 4 4 7 9 9
Total 72 86 66 92 73 88 72 73

Subsidiary co.
Chief executive
officer 0 9 0 7 0 5 0 5
Senior financial
officer 7 9 11 11 8 9 13 7
Financial officer of
parent & overseas
co. jointly 7 9 11 5 7 11 2 5
Other officer 2 2 1 2 0 2 0 4
Total 16 29 23 25 15 27 16 21

Source: Greenwich Research Associates.

 93

5.6 MIDDLE MARKET TREASURY ORGANIZATION

Because the profit margins available from providing services to large MNCs are
so fine, an increasing number of banks are turning their attention to middle
market companies where it is expected that loan spreads may be more
attractive. Whether this is true or not will remain to be seen. It seems likely that
many of these accounts, especially those which are most attractive in terms of
growth and the like, will be able to attract very fine rates like the larger
multinationals as banks compete for their business. Nevertheless, in servicing
these accounts it is important to recognize the differences in their treasury
systems by comparison with those of large corporations.
Most middle market companies have a centralized treasury or finance
department. This is generally small and similar to the elementary treasury
organization, consisting of less than five people in the majority of cases. Many
do not have a formal treasury at all, responsibilities resting with the company
finance director and some of the accounting staff. In some cases the chief
executive is supported only by the accounting function. Thus, as companies get
smaller, a less formal approach to treasury management is normal and a small
ad hoc team of senior company officials tends to deal with finance questions as
they arise. These officials are often not financiers or bankers. It is therefore
extremely important to recognize this difference and endeavor to communicate
in a language appropriate to the customer and not in banking jargon.
Most treasury functions in middle market accounts are strongly centralized
in terms of where the responsibility for decision-making resides. For most
banking services, therefore, it is essential to gain the support and approval of
the central office. Calling patterns which emphasize local or even overseas
subsidiaries have only a low probability of success. A list of functions which are
likely to be strongly controlled at the center and those where decision-making
is shared or delegated is given below:

Centralized functions

• Company/group capital structure

• Subsidiary capital structure
• Company/group finance policy
• Subsidiary finance policy
• Company/group cash management
• Company/group working capital
• Company/group tax planning
• Subsidiary tax planning
• Company/group long-term financial planning
• Company/group investment appraisal
• Remittance policy
• Company/group foreign exchange
94

• Company/group banking relations

• Negotiation of domestic short-term credits
• Negotiation of domestic subsidiary bank relations
• Bank choice for domestic subsidiaries

Shared decisions

• Management of subsidiary foreign exchange

• Subsidiary capital investment
• Subsidiary float
• Domestic subsidiary cash balances
• Global invoicing
• Choice of overseas subsidiary banks
• Negotiation of overseas subsidiary short-term credits
• Negotiation of overseas subsidiary bank relations

Subsidiary-dominated functions

® Management of subsidiary working capital

• Management of invoices
• Stock levels
• Subsidiary bank account
• Overseas subsidiary cash balances

Decentralized functions all relate only to the subsidiary and also generally
only apply to short-term financial considerations. Overseas subsidiaries
receive slightly more freedom than domestic ones. For bank product design
this position suggests that corporate customers might be interested in
mechanisms that provide them with better or cheaper control system
information to so allow greater decentralization.
The major factors considered by middle market accounts in choosing their
lead bank are shown in Table 5.4 for a sample of around 160 such accounts in
the UK. The most important factors are the breadth of services offered, the
price of loans and an understanding by the bank of the company’s needs and
problems.
The lower level of interest in international services is immediately apparent
in middle market accounts, and this negates one of the key strengths of large
international banks. These banks are also less likely to be able to provide the
wide service range offered by local banks in overseas countries, are likely to
have a higher-cost deposit base which reduces their chance of loan competitive¬
ness, and are less likely to understand local needs than domestic banks. Those
international banks wishing to penetrate overseas middle market segments will
therefore need to modify their marketing strategies and adjust to the
requirements of local middle market accounts if they are to be successful.
 95

Table 5.4:
Factors in the Choice of Principal Bank

Percentage saying
‘very important’

Can provide most services 79

Are price-competitive on loans 76
Understand our needs and problems 70
Are fast on processing transactions 50
Are flexible in tailoring services 50
Are price-competitive on forex 36
Are efficient in international money transfers 29
Are knowledgeable about our industry 20
Have global branch network 21
Knowledgeable about wide range of international services 19
We have used them before 17

Source: Centre for Business Research.

Account officer requirements by middle market accounts are also somewhat

different. The main requirements expected of calling officers are shown in
Table 5.5.

Table 5.5:
Middle Market Requirements of Bank Calling Officers

% company mentions

Prompt and efficient follow-up 93

Able to convince bank to meet credit needs 71
Know company’s banking needs 60
Know company’s operating structure 53 59:
Make good use of time 53
Know full range of domestic credit services 50
32 50
Know international banking services
29
Personable
Have detailed industry knowledge 25
Know non-credit services 23

* Applies to companies with international subsidiaries.

Source: Centre for Business Research.

The most important factors are the prompt and efficient follow-up of
promises made, an ability to convince the bank about the customer’s credit
needs and a proper understanding of what the customer’s actual needs are. The
second of these reasons is perhaps especially interesting, implying that selling
takes place as much within the bank itself as it does to external customers.
 96

5.7 CONCLUSION
It is extremely important to understand the purchasing process at the personal
and corporate accounts you are servicing or wish to penetrate in order to
improve the chances of marketing success. Check your understanding of your
customers and main prospects by asking the following questions:

Corporate banking

1. What is the structure of the customer’s treasury function at both

central and subsidiary level?
2. Who are the key individuals involved in the purchase decision
process?
3. What are their personal motivations?
4. What are the critical motivations for the company in purchasing
specific bank services?
5. Are the account needs fully known and understood?
6. Where is the locus of decision-making for each specific service the
bank is interested in?
7. Does this knowledge affect the existing account plan strategy, and if
so how?
8. Is the bank s market segment strategy appropriate given the
customer s purchasing motivations, and if not what charges should be
made?

Retail banking

9. Which are the key individual banking account segments that you wish
to service?
10. What are the key factors that determine the decision process for each
of these?
11. Who are the critical opinion leaders who might influence individual
behavior?
12. How can these opinion leaders be best reached and influenced?
13. What specific needs do your actual and potential customers have?
14. How well do your services meet these needs?
CHAPTER 6

Planning corporate account strategy

6.1 INTRODUCTION
The underlying support for market segment/business unit plans in the
corporate banking market is the analysis of individual accounts and the
preparation of account strategic plans setting out objectives for each account
and supplying a strategy to achieve these. The development of such account
plans will be a major element in the business unit plan. Account planning will
not, however, normally apply to market segments concerned with mass
markets such as very small business sectors or normal consumer markets,
where the preparation of individual account plans would be impractical. For
large corporate and high net worth individual markets, on the other hand, such
plans form an essential part of a systematic marketing approach.
The development of account plans provides the market manager with an
essential tool for utilizing and monitoring his account officer resources in
achieving the overall business unit plan. Account plans fit into the business unit
planning structure as shown in Figure 6.1.

6.2 BASIC ACCOUNT SCREENING

From the decision as to what investment strategy should be adopted for each
market segment, existing and potential accounts are first screened to identify
their basic potential prior to calling.
This initial screening should aim to ensure that adequate potential exists and
the account is basically creditworthy. The base data on each account should
cover the following:

Basic account data

Financial
— Sales
— Gross margin
— Sales growth rate
97
 Figure 6.1

Net margin
Margin trend
Sales percentage by major line of business
Stocks
Debtors
Creditors
Trends in working capital items
Plant and equipment
Property
Trends in fixed capital investment
Short-term debt
Long-term debt
Debt maturity schedule
Interest paid
Times interest covered
Equity capital
Major shareholdings
 99

— Net cash flow

— Trends in cash flow
— Detailed ratio analysis
— Trends in ratios
— Credit ratings (e.g. Dun & Bradstreet)

General business
— Lines of business
— Production/service sites (number and location)
— Subsidiaries (domestic and overseas)
— Number of employees
— Market position
— Main brand names
— Names and position of board and financial officers

Industry background information

— Industry economic trends
— Growth rate (historic and projected)
— Capital intensity
— R & D intensity
— Marketing intensity
— Profitability
— Industry competitive environment

Competitor analysis
— Existing lead bankers
— Other bankers

Advisors
— Accountants
— Lawyers
— Consultants used

Review the basic data to ensure that the potential account is consistent with
bank exposure and risk requirements and that an adequate apparent profitable
potential exists at the account which might be expected to be open to a competitive
approach. Assuming the potential is evaluated as positive, the account is added
to the list of active prospects. This list of prospects will often exceed available
calling officer capacity, especially where the bank is operating outside its home
country. In this event it is important that the available call capacity is allocated
to the best prospects. Bear in mind this will not always mean the largest
accounts but rather those where the open market potential is highest. Indeed,
many large multinational accounts despite their size are probably now
unattractive in profitability terms to most banks. Such accounts are operating
 100

in a buyer’s market, where there are almost as many banks anxious to provide
them with funds and services as there are accounts to be serviced. As a result
these large accounts with a high credit standing can command the finest rates
for lending and other services.
As a consequence many banks have turned their attention to the ‘middle
market’. Here too, however, the bank which provides nothing better than an
average service will find that competition is intense and profits difficult to
achieve. It is important to remember that for banks operating abroad or
outside their normal territory most business must be won from indigenous
competition by finer rates, superior service or some combination of these two
factors. Banks that rely on price alone, however, to win business are unlikely
to hold it in the long term unless they can maintain a superior cost of funds
position, which will be extremely difficult.
Within each market proposed for expansion as part of the overall bank
strategy endeavor to establish an attack order for your accounts for
preliminary prospecting. This can usually be achieved by ranking the
potential prospects in three or four dimensions drawn from the basic account
data such as size, growth rate, capital intensity and competitor lead banks.
Having ranked potential prospects, assign these to the available account
officers.

6.3 PROSPECTING
After the potential accounts have been screened to identify priority pros¬
pects, the second stage of account development is contacting the account with
a view to establishing a call program. For those prospects which are priority
targets, contact should be made usually with the central finance function.
Where this is outside the territory you are planning for, check first that the
local subsidiary has autonomy over local bank service choice, and if not clear
with account officers in the territory containing the central treasury that your
approach is welcome. Don't be discouraged if you are unable to meet with the
top finance officer at the first meeting. Indeed, it is often preferable to meet
with junior officers initially as the main priority of early meetings is the
identification of customer needs, which junior officers may sometimes reveal
better than their superiors.
Bear in mind also that at most good corporate accounts you are operating
in a buyer s market. The treasuries of most major corporations in developed
countries are today almost besieged by a wide array of bankers all seeking to
sell their organizations’ services. As a result, in many corporate treasuries of
major corporations interviewing new banks is delegated to less senior
treasury managers. Some companies have even installed a ‘bank relationship
manager’ to shield their line treasury officers. Further, in some countries such
as Japan, the status of the calling officer will determine the level of the per¬
son seen at the corporate account. Thus one of the tasks in the early stages of
 101

account development will be for account officers to identify the structure of

the potential client’s treasury and recommend an appropriate calling prog¬
ram, making use of tiered calling involving senior bank management as
appropriate.
Because of the high cost of account officer time, and despite the initial
screening process undertaken, it is still better to try to improve your chances
of successful account development by using warm lead contact techniques
rather than cold calling. Accounts which do not respond to warm lead
techniques can be approached completely cold if it is felt essential, but a
failure to respond to such techniques usually indicates the account should be
recycled back to the screening data base. Such warm lead techniques include:

1. Referrals Generated from a wide variety of sources including bank

customers, other banks, bank suppliers, etc.
Many such referrals are random and come without solicitation. Such
referrals should be checked first of all by a telephone call to see whether a
personal call would be welcome and worthwhile.
Referrals can be actively solicited from all sources. Internal bank cross-sell¬
ing can be one of the most rewarding business development areas. Most
banks study contact lists for other subsidiaries/branches, etc., but carefully
designed cross-selling programs are unfortunately rare.

2. Corporate advertising Financial service advertising to the corporate market

has been growing rapidly.
Most such advertising seems poorly planned and conceived, badly aimed,
lacking impact, and unsure about what it is supposed to do.
Advertising, even to the corporate market can be useful as a means of lead
generation for:

— general image and awareness generation;

— attacking specific segments, e.g. small business, vehicle fleet oper¬
ators, etc.;
— promoting particular products or services.

Advertising lead generation should be carefully monitored and checked

to assess its value:

— check how many responses;

— check changing awareness level;
— check enquiry/conversion ratios;
— check media variation.

3. Mail shots Mail shots skim the market and although response levels are
low they can be used to identify likely warm prospects.
102

Many mail shots are seen as ‘junk mail’ and never reach the person intended.
They should therefore appear personalized, not as a bulk production.
Always try to address an individual by name; never just refer to the
company.
Mail shots can be very selective in terms of product, customer group, time,
geography, etc.
They can be used to spread news quickly.
They can be used to cover market prospects for which the business
development executive doesn’t have time and as a foil to competitors.
Mail shots should contain news. However, brochures should be used
carefully, because if you put too much information in the prospective
customer’s hands he may decide it’s not worth meeting you.
Covering letters should cover no more than one side of paper. Ideally, such a
letter should consist of four paragraphs:

i) State its objective: ‘I am writing to invite you to a special meeting of

exporters to Eastern Europe at the Grand Hotel on March 8 at 11.30
am with lunch to follow.’
ii) Show why the topic is relevant: ‘This meeting will give details for the
first time of our new acceptance credit facilities for Eastern bloc trade
and our new money transfer service which speeds money flows from
Eastern Europe.’
iii) Show why the topic is especially interesting to the letter recipient: ‘We
feel that with your growing trade to Eastern bloc countries these
services can help increase your exports and speed up your cash flow
from these countries.’
iv) Restate the objective: ‘I hope therefore you will be able to join us at
the Grand Hotel on March 8, and I shall telephone you next Thursday
to confirm your place at the meeting.’

The mail shot should indicate the action you intend to take. Only in exceptional
circumstances or when you know you will get the answer you want should you
leave the recipient to take action and reply.
Mail shots should be sent out at a rate at which the necessary follow-up can
be handled.

4. Seminars and demonstrations All products and services really need to be

demonstrated to gain conviction and acceptance — the more difficult the
product or service is to demonstrate, the more important it is that a successful
demonstration is made.
In banking services, to generate leads, new products and services can
usefully be introduced by seminars and demonstrations. Those attending
clearly have an interest and a successful demonstration provides prospective
customers with a very high probability of conversion.
 103

Relative to the cost of personal calling, seminars and demonstrations are

very cheap. If your expertise is really credible they can even become profitable
in their own right. Indeed, look actively at charging for seminars in specific
subjects: a free seminar will often bring the wrong person whereas a paid-for
seminar in a pleasant location may be an excellent opportunity to attract senior
treasury managers. The use of existing customers employing the bank’s service
as speakers at such seminars is particularly useful provided such accounts are
themselves appropriate and/or prestigious.
Seminars and demonstrations require considerable effort to set up and
professional presentations are important.
Demonstrations at existing customers’ premises also add credibility.
Prospective customers can see how the product or service works in operational
conditions and can talk to your customer about problems and advantages.

5. Telephone calling The telephone can be used for many purposes. It is far
cheaper than a personal call, enables you to cover substantial numbers of
customers quickly, and can be used to substantially improve your probability of
business development success. The telephone can be used for:

— setting up appointments for new, follow-up and user calls;

— extending invitations to seminars, demonstrations and social events;
— confirming dates and times of meetings;
— seeking information;
— keeping in touch with existing customers and potential problems.

The telephone is by far the best way of seeking an initial appointment unless
the appointment is overseas. If your contact won’t talk to you on the ’phone the
probability of success is so low that you should either try another contact at a
higher level in the company or try another company.
Always retain the initiative on the telephone. If your contact is not in, make
sure you telephone back at a time you know he will be in. If he is in but asks you
to call back, try to set a provisional appointment with him which it is his
responsibility to break.
Don’t give away too much information on the telephone — it offers the
customer the opportunity of saying there is no need for you to call.
Make sure you speak to the person you want. Do not be sidetracked by
secretaries or telephonists.
The objective of a first telephone call is to arrange a meeting. Offer a benefit,
sound interesting and commit him to action.
Keep the initiative in arranging the meeting. If your initial contact is not the
decision-maker or key decision influencer get him to give you an introduction
and arrange a meeting with the decision-maker.
104

6.4 NEEDS IDENTIFICATION

When contact with a prospective account has been established the primary
purpose of the initial meeting is to begin to try and identify the particular needs
of the company and of its financial services decision-makers. Until this is done
adequately, selling cannot be undertaken with confidence that a sale will
actually satisfy customer needs.
After contact has been made review the preliminary account information
base to prepare for your initial meeting. Endeavor to gain an understanding of
the prospective account’s business activities, the scope of its strategy, the
geographic location of subsidiaries and the biographical details of senior
officers, in addition to financial and credit details. Where possible also identify
which competitor banks provide which services.
The early meetings with the account will be primarily concerned with
establishing the size and nature of the account’s banking needs. Try to
complete the needs/supplier matrix in Figure 6.2. In addition you should aim
to gain a detailed understanding of the decision-making structure for buying
banking services at the account. When you have performed a detailed needs
analysis you should be able to answer the following questions about each
account:

Service analysis

— What banking services and in what volume are used by the account?
— What service usages are growing? Stable? Declining?
— Are there any new services presently unused which might meet account
needs?

Competitive analysis

— Which banks supply each service and in what volume?

— What is the customer’s opinion about the quality of service of each of
its bankers?
— What are the strengths and weaknesses of each competitor? Check:
• Service cover
• Product quality
• Price
• Accuracy
• Advice
• Quality of calling officers
• Legal advantages
• Personal relationships
— How important is this account to each competitor bank?
What reaction would each have to a competitive move?
 105

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What would be the weakest competitor to move against and with what
service?

Decision process

— What is the organization structure of the account’s treasury function?

— Where is the basis of decision-making power for each service?
— How loyal is the customer to its bankers?
— How frequently are new banks added or old ones discarded?
— Are there any specific personal needs or whims of treasury officers that
we should know about?
— What is the formal and informal power structure of the treasury
organization? How can this be best influenced?
— Which services do subsidiary companies/units have any control over?
— How are new bank addition decisions taken?
— What other functions are important in the power structure?
— What are the personal ambitions/aspirations of the key decision¬
makers?
— How may we best influence these?
— What are the account’s future ambitions and what do these mean for
long-term financial service requirements? Check:
• Product strategy
• Investment policy
• Mergers and acquisitions
• Overseas expansion

Bank factors

— What services that the bank offers appear best suited to attack this
account?
— Are interest rates and services prices stable enough and profitable
enough to be attractive?
— How should we best service this account?
— How many calls should be made by whom and where?
— Is it necessary to set up inter busines unit coordination?
— Is specific industry/service advice required?
— What would be the expected cost of servicing the account?
— What revenue might the bank expect to receive?
— Would the bank be asked to provide loss-making services to penetrate
the account?

Your aim should be to demonstrate the competence and reliability of your

bank with the expectation that in time you gain the confidence of the account.
In this way you will hopefully develop an ultimate lead bank relationship. Do
 107

not therefore aim to sell inferior quality services to your customers but rather
concentrate on those which are as good as or superior to those of competitors
but which are also profitable to your bank.

6.5 ACCOUNT STRATEGY ASSESSMENT

In the same way as deciding on a portfolio of market strategies, account
strategies can be determined qualitatively based on account attractiveness and
competitive position as shown in Figure 6.3.

Competitive position

High Low
High

Hold and Penetra te Improve or

grow withdraw
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Figure 6.3 Account strategy matrix

Accounts with high account attractiveness and a good competitive position

are those for concentrated attention, to be held and grown with concentration
paid to cross-selling and cementing a strong existing relationship. High
account attractiveness where a moderate account strength qxists should be
priority targets for increased penetration. Those where the competitive
position is high and the attractiveness moderate should be defended vigorously
to keep out other competitors. Accounts low in account attractiveness should
be maintained for those services which are profitable, and competitors
threatening these should be discouraged.
Other account strategies are less positive. Those accounts which are
moderately attractive and where a moderate competitive position occurs
should be attacked selectively, picking off those services which are especially
profitable and where a competitive opportunity exists; low competitive
position, high attractiveness accounts should either be attacked vigorously or
let go. This will depend in large part on account officer availability. An
alternative suggested for moderately attractive accounts with a weak competi-
108

tive position is to reduce calling needs and cost by offering standardized

products or services which can be sold without heavy personal selling support.
Low attractiveness accounts with a moderate position should receive only
minimum maintenance service so as to reduce the high cost of calling and
account support. Finally, accounts with both a low level of attractiveness and
low competitive advantage should be abandoned. This tends to be an
emotional and difficult decision for many bankers, who often seem to want all
the business at every account irrespective of its profitability.

6.6 ACCOUNT ACTION PLANNING

When the appropriate strategic position of your main corporate accounts has
been identified, each should be planned accordingly. Where accounts involve
several geographic or product-based business units this planning needs to be
coordinated and responsibility assigned to an overall account executive,
usually the senior officer responsible for servicing the central treasury. This
area is often one which can create severe organizational difficulties in many
banks due to their existing structures, control systems and reward systems,
which lead to problems over internal transfer pricing, the location of credit for
transactions booked in a business unit in which the transaction did not occur,
and in meeting the needs of accounts in matters such as country limits. By and
large, when such difficulties occur it is important to look at the position from
the customer’s point of view. If the bank is unable to integrate its internal
organization and other resources effectively this is a competitive strategic
weakness and the customer will so identify it, transferring business to those
banks able to provide an integrated service. This problem occurs particularly in
geographically organized banks dealing with multisite or multinational clients.
The problem of country limit assessment for large multinational accounts is a
common one which some banks find it difficult to resolve. Again, this can be
planned when each country-based account officer identifies the account’s
country limit requirements by currency as part of the annual account planning
process. When the account has been identified as one where a growth, defend
or penetration strategy is appropriate the planned need can be deducted from
the bank’s overall country exposure position and effectively allocated to the
account. The residual funds are then the responsibility of the geographic
business manager charged with optimizing profitability on the free funds
allocated to him. Where account demands exceed plan then additional funds
need the approval of the bank credit committee, who should bear in mind the
potential profit losses at the local country level versus the potential overall
account profitability gain.
For each account, therefore, the account plan consists of the following:

— Objectives
— Strategy summary sheet
 109

— Action plan description, resource needs, constraints

— Account profitability budget
— Call plan
— Consolidation plan (for multisite accounts)

Account objectives

Using a form such as that shown in Figure 6.4, identify the objectives for the
account both short and long term. These should indicate in quantified terms the
expected service volume to be achieved, the level of resulting profitability and
the market share to be obtained. In addition, a summary strategy statement
should be included on how the objective will be achieved. This should identify
precisely where other market units or parts of the bank will be involved in this
achievement. Finally, specify the dates by when short-term and long-term
objectives will be achieved. It is important that the objectives and strategy
summary should be sufficiently precise for the result to be clearly and
unequivocably measured and progress monitored. All too often plans are
written and objectives specified in such general terms that there is virtually no
way of assessing whether or not they have been achieved.

Action plans
Using a form such as that shown in Figure 6.5, set out the marketing plan for
attacking the account. This form should identify the key account needs
established by preliminary calling and account analysis. The needs should be
specified in terms of particular service requirements and their estimated
priority, the expected volume involved and the level of resulting profitability
which might be achieved.
Secondly, the present competitive position should be outlined, indicating
realistically the bank’s relative strengths and weaknesses compared with the
entrenched competition. Where possible an attack should be directed towards
a specific competitor, and an indication of what that competitor’s strategy is,
why yours is superior and what reaction can be expected from such an attack
should be included in the action plan.
The plan should also outline the resource needs required to service the
marketing strategy. These needs should be indicated in terms of people,
including existing account officer calling and any specialist or senior
management requirements, any new systems or operations development,
specific additional facilities and the level and type of funds required.
Finally, the plan should set out the precise services which you propose to
introduce and by when. Indicate how this will be achieved and outline the call
program and follow-up strategy you propose to pursue. In the event of a
significant under or over achievement of your plan indicate what contingencies
you have established to cope with the deviation.
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Market unit: Brazil

Customer name: XYZ Corpn SA Account officer: R. Constanzo
Existing status: SBU prospect ^ SBU customer _ Bank customer

Marketing action plan

Key account needs

— Credit services (Identify key account needs in terms of
— FX priority, volume, profitability)
— Cash management
— Trade finance
Bank competitive position
— Strengths (Identify bank’s relative strengths and
— Weaknesses weaknesses relative to entrenched com¬
— Competitor strategy petition. Where competitive displace¬
— Competitor reaction ment is expected, indicate which com¬
petitor, what that bank’s strategy is, and
what reaction should be expected)
Resource needs
— People (Identify precise resource needs and
— Systems dates by which they would be required)
— Facilities
— Funds
Marketing strategy
Services to introduce (Identify precise services to be intro¬
Mode of introduction duced and by when. Indicate how this
Support services required will be achieved, what support services
Call programme required will be expected from other units within
Follow-up strategy anticipated the SBU and the bank. Outline ex¬
Contingency plans pected call programme and follow-up
strategy. Specify contingency plans)

Figure 6.5 Account planning form 2: action plans

Account profitability budget

The profitability expected from the account should be budgeted using a form
similar to that shown in Figure 6.6. In addition the management control system
should produce a regular printout of performance against budget together with
a variance report for under and over performance of more than 10 per cent. In
some banks this type of system produces monthly reports while in others
account printouts are prepared quarterly. Such a system provides a vital
control and monitoring service which can also be used to check product,
geography and industry performance as required right down to the.level of the
individual account officer. As a result changes can be made in strategy and/or
expected outcomes through early control system signals rather than finding
 Customer Name: Market Unit
Account profitability budget 19 Account officer
112

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 113

performance is different from budget when it is too late to take corrective action.

6.7 CALL PLAN DEVELOPMENT

The cost of making bank personal calls is expensive both in terms of actual cost
and in account officer time. The call intensities of leading banks vary widely and
this is a primary mechanism for bank differentiation. For large multinationals
some banks employ very intense calling, where the account officer or
‘relationship manager’ might look after as few as four or five accounts. Such an
individual is trained as a generalist rather than as a lending banker and acts as the
principal contact for most bank services making use of specialists or senior
management calls as required. These officers may also enjoy significant
seniority, being paid the equivalent of relatively senior management grades. In
addition they may also possess a substantial lending discretion so that they can
negotiate from a position of seeming equality with the corporate treasurer.
Where the size of the financial requirements of the account is beyond his normal
lending capacity, the relationship manager can still be allowed to negotiate
within predetermined limits established by the bank’s central lending committee
or its equivalent. Such officers may also visit the account around the world as
required while making use of local calling officers for day-to-day subsidiary
company contact.
The global account officer (GAO) concept is a variant of this system. In banks
using this form of organization it is common that an officer has global
responsibility for two or three accounts and also serves in a local account officer
role for another seven or so. The GAO is then usually responsible for a
worldwide team of officers all calling on units of the multinational client. Each
local officer prepares his own account plan which is in turn consolidated by the
GAO before final management approval or rejection. A large multinational can
thus be serviced by up to 20 or 30 local officers, or the equivalent of some three
full-time officers servicing the one account. Given the high cost of such officers
the level of business needing to be generated to ensure the account is profitable
to the bank is obviously substantial, especially in view of the fine spreads such
accounts command.
Other banks operate less intensive calling systems or ones which are less
coordinated. Banks such as those in Western Europe tend to appoint a senior
manager as a global account officer, but this is often for a large number of
accounts. Alternatively, such officers are not employed full-time to deal with
these accounts, being perhaps principally responsible for other bank activities.
Further, these banks rarely coordinate their officers’ activities around the world.
They are therefore less able to provide an intensive level of calling and hence may
find it more difficult to develop a close working relationship with the treasury
managers. By comparison, those banks offering an intensive calling program
aim to develop the position of their relationship managers into that of a confidant
or advisor to the central treasury.
 114

Call intensity also varies significantly with size. For middle market accounts
banks vary their account loadings from around 15 to 60 accounts per officer.
Again wide variations occur, with European banks in general tending to give
less intensive call cover than North American banks.
No precise rules, therefore, apply to establishing call patterns. For each
account the call strategy should be determined on the following basis:

— Bank policy and organization

— Account decision-making process
— Account organization and site location
— Account financial requirements
— Bank resource availability
— Account potential
— Competitive bank practice

By and large the policy of one call a year to review existing overdraft
arrangements is unsatisfactory for building a close relationship, and for grow,
defend or penetrate strategy accounts a minimum call value of four per annum
would be reasonable. For large accounts requiring a substantial range of bank
services call intensity should obviusly be greater and involve different tiers of
the bank’s management in order to broaden the personal base of the account
relationship. This is in addition to the use of specialists for relevant services
such as foreign exchange or cash management. In setting your call strategy,
therefore, plan, using a form similar to that in Figure 6.7, for the following
factors:

— Number of calls
— Timing of calls
— Who to contact
— Who to make the call

Each time a call is made it should then be reported using a form similar to
that shown in Figure 6.8. Firstly, the call objectives should be specified to
indicate what it was you expected to achieve. Secondly, details should be
provided of who was present and what was discussed, together with any action
which was required. Such initiatives should always involve the bank rather than
relying upon the customer to take action if positive selling techniques have
been used. Further, a successful close should always aim to commit the
customer to at least an incremental step towards your account objective

6.8 CONSOLIDATION PLANS

For those accounts serviced by a number of calling officers and involving
multiple sites usually in a variety of countries an integrated marketing strategy
 115

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 116

Company Name:_ Account officer:

Interviewed:_ date:_
_ Date of last call:

Call objective:

Topics discussed in detail:

Other topics discussed:

Discussion summary:

Follow-up required by account Officer:

By others:

Other information, e.g. competitive activities, business activity, etc.

Figure 6.8 Call report form

is required so as to achieve the full potential of the resources committed by the

bank to service the account. Where this is not done local branches may, for
example, attempt in vain to penetrate at account subsidiaries where the
ultimate responsibility for changing bank relationships is held by the central
treasury. Similarly, using a GAO concept without providing the GAO with the
necessary account management responsibility makes this task unnecessarily
difficult.
A consolidation plan for such accounts should therefore be prepared by the
GAO which brings together the individual country/market unit account
plans. This consolidated plan should indicate the global expected commitments
of resources by country and by currency, and the expected returns together
with a breakdown of precisely where specific commitments will actually be
made and by whom. In this way account trade-offs can be examined and
decisions taken so as to maximize the general profitability of the account. For
Company Name: Market:
Global account profitability report, month, year Global account officer:

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Figure 6.9 Global account profitability report form

117
118

example, an acceptance of, say, poor sovereign risk lending in one country
which leads to a loss can be accepted if at the same time a compensatory
arrangement can be made elsewhere such that the overall level of return is
satisfactory. Overall responsibility for global account plan achievement rests
with the GAO, with each local unit account officer being responsible for the
component under his or her control. In a similar way the bank’s control system
should report on consolidated account performance at regular intervals using a
form similar to that shown in Figure 6.9.

6.9 SUMMARY
Account analysis and marketing planning is an important method of
systematically attacking your key accounts and an essential component in
wholesale banking market strategy. From the strategic decision of what
markets you intend to adopt particular strategies in, account planning involves
a six-stage process. Firstly, an account data base should be built which can be
interrogated in order to identify account potential and so determine whether
the account is worth actively soliciting. For those accounts seen as being
attractive to call on, active prospecting begins with an attempt to contact the
account with a view to establishing a call program. Initial contact should be
made using warm lead techniques where possible. The primary purpose of
early calls should be to clearly establish account needs, the decision process for
purchasing banking services and needs, the decision process for purchasing
banking services and the existing structure of competition at the account. This
information established, the account can be classified and assigned to an
appropriate marketing strategy. Once this has been done detailed account
marketing plans are drawn up which identify the objectives set for the account
and the action plans for achieving them. This stage also includes a budget of
services to be used and the expected profitability. In addition, where
appropriate, consolidation plans are prepared for accounts involving several
bank business units. Call plans are also established for each account consistent
with bank resources policy and the nature and complexity of the individual
account needs.

6.10 ACCOUNT PLANNING CHECKLIST

In evaluating account plans check that the plan is satisfactory by asking the
following questions:

Screening and prospecting

1. Are the basic account data sufficient to judge the account? If not,
what additional information is required and where can it be obtained?
2. Is the review of account potential realistic?
 119

3. Does the potential meet the bank’s criteria for profitability and risk?
4. Has the account been correctly ranked as to its priority for
development consistent with overall bank strategy?
5. Has the account been allocated to an account officer with adequate
time to undertake business development?

Needs identification

6. Are the account needs clearly defined?

7. Are the account’s present banking service requirements identified by
volume? Price? Usage pattern?
8. Has the position of existing and potential competitors been clearly
identified?
9. Have the competitor strengths and weaknesses been analysed relative
to the bank?
10. Are these assessments realistic?
11. Have potential competitor reactions been assessed and the weakest
competitors identified?
12. Is the decision process clearly understood at both corporate and
subsidiary level and the locus of power for major service identified?
13. Is the formal and informal organization of the account treasury known
and the key individuals identified together with their needs,
personalities and what influences them?
14. Are the future intentions of the account specified and the long-term
financial service implications identified?
15. Have the appropriate bank services to penetrate the account been
specified together with expectations on price and profitability?
16. Has a strategy been identified on how to approach the account
together with estimates of resource requirements and the expected
financial returns?

Strategy assessment
17. Has the appropriate strategic category for the account been specified
and is this accurate?
18. Is the strategy category consistent with the bank’s strategy assessment
for this market?

Action planning
19. Is the action plan drawn up for the account complete and does it sound
feasible?
20. Are the short-term and long-term moves suggested appropriate to
the account strategy?
120

21. Are the account objectives specified in a measurable form with clear
milestones as to when they will be achieved?
22. Are the resources identified as necessary to implement the
proposed account strategy realistic and available?
23. Are any critical constraints identified and if so are measures
indicated on how to overcome these?
24. Has the account profitability budget been prepared and is it realistic?
25. Has an appropriate call plan been specified and can this be met from
existing officer and management resources?
26. Are areas for interunit coordination identified and steps proposed to
ensure that adequate integration actually occurs?
27. Has a global account plan been developed if appropriate and do all
concerned know and accept their role in its implementation?
28. Have contingency plans been developed in the event of over or under
achievement and are these plans realistic?
CHAPTER 7

Product Range and Development Strategy

7.1 PRODUCT RANGE

Corporate bankers today offer an ever-increasing range of products and
services. The traditional lines of demarcation which existed between types of
banks such as those between commercial banks and merchant banks have
gradually disappeared so that today most international banks will offer a
service range covering mosf aspects of banking-and related financial services.
However:

— banks are not all the same in their skill at delivering particular services;
— banks do not organize to offer similar services in similar ways;
— may banks specialize in particular services in which they will have a
distinctive competence relative to their competitors;
— most banks service the corporate market without adequately integrat¬
ing their own organizational capability, resulting in multiple calling
and individual bankers having only limited knowledge about their own
bank’s service range;
— many bank’s product manuals are overcomplex and do not act as a
marketing guide to the account officers responsible for servicing
individual accounts;
— many calling officers who are allegedly generalist bankers are weak in
product knowledge, especially of non-credit services.

The most important basic services offered by a bank are the generation of
deposits and the subsequent lending of these for interest. The majority of bank
profitability is presently still obtained from the interest differential between
these services. However, there are many specific forms or alternative products
which can be generated within these basic services. It is largely the way that
individual banks can develop specially tailored lending and deposit-generating
products that enables them to differentiate themselves from competitors and to
build market share within specific market segments.

121
122

7.2 DEPOSIT SERVICES

The range of deposit services which might be found includes:

— Current accounts
— Savings accounts
— Term deposit accounts
— Treasury certificate accounts
— Bank certificates of deposit
— Foreign currency hold accounts
— Collections and float (cheques, notes, money drafts, trade accept¬
ances, letters of credit)
— Interbank deposits

Personal deposits have traditionally been the main source of bank funds.
These were collected as savings and also constituted the balance on current or
checking accounts. It was a popular misconception that such current account
credit balances constituted a ‘free’ resource to large commercial banks. This is
not so, the real cost of such deposits being around 6-8 per cent dependent upon
the efficiency of individual banks in servicing such accounts. In many countries
these accounts are now being forced to pay interest as consumers become more
sophisticated and competition for deposits develops.
In the UK, the share of personal deposits held by the major banks has been
subject to a steady decline in the postwar period due largely to the attack of
building societies, so that today banks are increasingly dependent upon the
interbank market and other wholesale deposit sources, notably the eurocur¬
rency markets, as sources of funds. This trend, together with intensified global
competition between banks, has sharply reduced the spreads between deposits
and lending. Banks have still not been forced to pay money market interest
rates on current account balances nor do they voluntarily offer sweep facilities
between savings and current accounts.
In the United States, by contrast, banks have been forced to pay competitive
rates for virtually all forms of consumer deposits. In the late 1970s, seizing on
the interest rate ceiling of around 5 per cent imposed on banks by Regulation
Q, brokerage houses offered an alternative service, packaging small parcels of
retail deposits into large money market funds which were mainly invested in
bank certificates of deposit at current money market wholesale rates. During
the inflationary early 1980s the gap between wholesale rates and bank deposit
rates widened dramatically, with the result that banks suffered a severe loss of
retail deposits as money market funds grew.
From 1981 US banks were allowed to offer interest-bearing checking
accounts, NOW accounts, although these were still restricted to 5.25 per cent
interest. To stem the flow of deposits, banks moved to sell their own certificates
of deposit direct but it was not until early 1983 that they were able to offer
 123

competitive interest rates on savings deposits. These new accounts, dubbed

Supernow accounts, tended to offer two-tier interest rate facilities. The first
$1500 or so of the account balance paid 5.25 per cent interest plus charges for
individual transactions. Balances above this level paid a rate close to prevailing
money market levels. The introduction of such accounts, while a competitive
necessity, significantly increased the average cost of funds of those banks,
traditionally heavily dependent on retail deposits, such as Wells Fargo or Bank
of America. Nevertheless, the introduction of Supernow’s has helped to
reverse the flow of funds to low cost delivery system brokerage houses.
The critical segments for retail deposit gathering have become the high and
medium net worth individual market accounts. For such individuals, originally
highlighted by the Merrill Lynch Cash Management Account, more and more
banks have begun to offer superior services, including automatic credit lines,
brokerage, investment management services and the like as well as money
market interest rates on deposits. Specialist private banking units have also
been established by many banks, usually in low tax areas, to provide an
additional level of service for very wealthy private depositors.
As a result of the rising cost of retail deposits, the basic raison d'etre of
conventional branches has come into question. Traditionally, conveniently
sited to collect personal savings as well as provide ease of access for
withdrawals, bank branches in the mid-1980s look an increasingly expensive
way of collecting such deposits and delivering banking services. Further, new
delivery systems make it less likely that individuals as well as corporations need
visit a physical branch. Banks without such expensive branch structures are
therefore finding that they are not significantly disadvantaged in raising their
deposits in the wholesale market, while those with many branches are forced to
examine carefully their operating cost structures.
Deposit-generating products and the whole area of liabilities management
have tended to be neglected by banks. In the 1980s deposit generation and the
design of a wider, more selective range of liability products is likely to be much
more important. Many such products are likely to try to lock in deposits for
longer periods, while short-term liabilities management will become more
critical as banks tend to lose both corporate float and consumer savings and
chequing account deposits. Overall, the cost of funds can be expected to rise to
around money market rates.

7.3 LENDING AND CREDIT SERVICES

Lending has traditionally been the most important single banking function and
the principal source of revenue. The range of lending and credit services is
extremely extensive, perhaps the most important single area of banking
activity, and includes:

— Overdraft
124

— Fixed-rate short term

— Acceptance finance
— Multicurrency lending
— Term loans
— Commodity and stock loans
— Accounts variable loans and factoring
— Industrial sales finance (secured equipment loans)
— Merchanting loans
— Parallel loans
— Multicurrency credits
— Import finance
— Leverage leasing
— Tax leasing
— Sale and leaseback
— Hire purchase
— Project finance
— ECGD finance
— Eurocurrency loans
— Syndicated loans
— Fixed rate Eurobonds
— Floating rate Euromarket notes
— Retail instalment financing for dealers
— Property construction loans
— Merger and acquisition finance
— Mortgage finance
— Currency and interest rate swap loans

7.3.1 Usage of Lending and Credit Services by Multinational Corporate

Accounts
A recent survey of international credit services used by a sample of 505 US and
European MNCs revealed some variations between the enterprises of the two
continents in terms of the range of services most used. See facing page.
Amongst US MNCs the services most rapidly increasing in use are private
placements overseas, project financing, parallel loans and long-term Eurocur¬
rency bond issues. In addition, some one-third of US MNCs had added a new
bank for one or more international credit services in the past year.
The pattern of service usage was somewhat different for European MNCs.
American MNCs used performance letters of credit more frequently than
European MNCs, which in turn made more use of medium-term export
finance, import financing, US domestic loans for investments. Eurocurrency
lines of credit and project financing. In addition, the fastest growing services in
European MNCs were medium-term export financing, project financing and
loans abroad for foreign investments. Like the American MNCs, more than a
 125

How Use of International Credit Services Varies among MNCs (%)

Credit service US MNCs European MNCs

Performance letters of credit 58 42

Eurocurrency lines of credit 43 54
Eurocurrency medium-term loans 33 33
Multicurrency lines of credit 32 N/A
Project financing 21 31
Parallel loans 21 N/A
Short-term export finance N/A 44
Medium-term export finance 18 36
Import financing 14 28
US loans for foreign investments 13 24
Foreign loans for foreign investments N/A 54
Eurocurrency long-term bond issues 11 N/A
Export letters of credit N/A 62
Multicurrency borrowing advice N/A 50
Private placement of equity or debt overseas 9 N/A

Source: Greenwich Research Associates.

third of the companies had added a bank for an international credit service
during the past year.
The list of lending products is long and many others exist. However, a
number of factors should be borne in mind regarding these:

— Money can be borrowed at fixed and floating rates.

— Loans may be secured against specific assets—this is common practice
in specialist lending areas such as shipping and construction.
— Loans may be unsecured—this is normal practice in the non-specialist
corporate market.
— Loans may be guaranteed—this is common where the borrower is part
of a group of companies. Guarantees can vary from a full guarantee to
lesser commitments such as letters of support, or guarantees against
part of a project, etc.
— Loans may be in one currency or in a variety of currencies. The
exposure risk can be offset or carried by the borrower.
— Loans may be repayable on demand or committed to the borrower for
a specific term.
— Term commitments may be for:
• short or long term;
• fixed or floating interest rate;
• repayment may be amortised over the life of the loan or as full
amount at the end of the loan ;
• facilities can be revolving.
126

The traditional pattern of UK commercial bank lending has been to use

overdraft. In theory, such money is effectively available at call and security is
taken as a charge against specific assets or as a floating charge against all assets.
The evaluation of risk in such cases has tended to be mainly by historic balance
sheet evaluation on a ‘gone’ basis. Overdraft lending is designed largely to meet
short-term working capital need fluctuations. However, many banks use this
form of lending to cover most of the lending needs of corporate clients. This
tends to be unimaginative in that it does not attempt to tailor lending products
to customer needs and inefficient in that take-up rates of overdraft facilities are
only around 60 per cent on average.
The introduction of American banking techniques has led to the widespread
adoption of term lending practices. Loans are made usually unsecured, carry a
slightly higher rate than overdraft and run for periods of 3-10 years (depending
upon specific company situations and market conditions). Such loans can be
better tailored to company needs and arranged to meet cash flow and similar
requirements. They are useful for covering hard-core debt or financing specific
term related projects. They are relatively efficient in that they are normally
wholly taken up. Credit assessment for such loans requires the analysis of the
future position of a company and relies much more on future cash flow analysis.
Standard US banking practice usually demands regular financial reviews with
the company to whom a facility has been granted and the adoption of a loan
document incorporating carefully developed covenants which act as a
discipline on corporate management.
Such financial disciplines are less used by European commercial bankers,
and as a result term lending, while being increasingly adopted, has often been
undertaken without adequate financial analysis, careful assessment of cove¬
nants and the provision of adequate ongoing financial information.
A detailed understanding of forward financial projection credit assessment
procedures and the strategic analysis of potential accounts together with an
ability to evaluate the ongoing business as well as financial position of a loan
account are considered to be important ingredients in corporate banking product
knowledge irrespective of the type of loan under consideration.
Increasingly important alternatives to straightforward lending are also
emerging, in particular, perhaps notes and bonds, which are a significant
medium-term loan alternative.
In the mid 1980s the market for lending has changed dramatically. Instead of
making loans to carry on their own book, banks have ‘securitized’ them by
converting loans into notes or bonds which can be traded in secondary markets.
Floating Rate Notes (FRNs) and Note Issuing Facilities (NIFs) have become
especially popular with corporations and credit worthy governments. Banks
have also actively packaged and ‘sold’ loan participations to other banks
although this has still not developed into a formal secondary market. This trend
to disintermediation was being forced on banks as their cost of funds has
increased and even become higher than that of some of their customers. It has
 127

also enabled banks to reduce their balance sheet exposure. For the commer¬
cial banks this trend was leading them to strengthen their merchant
or investment banking groups and to run down their traditional lending
activities.
Bankers need to understand about such products in order to recommend the
most appropriate service. Unfortunately, many bank executives have poor
product knowledge of service ranges immediately outside those offered by the
bank component of a related financial services corporation such as most major
banks now are.
Not all loan services are normally offered by one section of the bank. Large
term lending, currency loans and the like are often handled by international or
merchant banking divisions, while credit finance, leasing and specialist loans
may well be made by specialist subsidiaries.

7.3.2 Retail Lending Areas

Despite higher loan loss rates than with corporate accounts, banks in the
mid-1980s have returned to increasing their lending to the retail market. This
segment offers the opportunity for high spreads which if the loans are written
with low cost offer significant profit opportunities. At the bottom end of the
market, therefore, such loans are largely becoming automated, with credit
scoring and electronic card delivery systems. This applies in credit card
operations, retail revolving credit and the smaller levels of individual credit
finance. For upmarket consumers automatic credit lines can be triggered
against holdings of securities, bank certificates of deposit and the equity
content of home ownership. Mortgage finance is also becoming recognized as
an especially attractive product for delivering credit services. Thus while first
mortgage finance tends to be provided at a relatively low cost, it is not only
secured against the value of property but offers the opportunity to sell
insurance services, home improvement loans, real estate brokerage and the
like. Further, the mortgage customer base usually remains ‘loyal’ during the
period of home occupancy.

7.3.3 High Growth and Specialist Lending Areas

In the 1980s specialist lending products will probably take on increasing
importance as banks strive for improved profitability by concentrating on
niches which offer better returns. Key areas for specialization include the
following:

Sovereign Risk
In the mid-1980s sovereign risk lending had become an area of major difficulty
as a growing number of developing economies loomed close to default. Forced
to borrow to finance energy deficiencies and to fund economic growth, many
countries took advantage of the Eurocurrency markets’ recycling of oil-pro-
 128

ducing country trade surpluses. Having placed their surpluses with Western
banks, the oil producers’ funds were recycled to the developing economies,
building a sovereign risk loan portfolio which had grown to a massive $800b by
1984. Unable to pay these sums back, the developing economies were forced to
seek rescheduling agreements which rolled up not only the repayments of
principal but also of interest, causing a potentially massive problem for the
leading Western private banks. As a result, sovereign risk lending, while still
important, was an area which banks were extremely reluctant to increase
unless coupled with adequate guarantees.

Real Estate.

For some large commercial US banks real estate lending constitutes around 25
per cent of the loan portfolio. This usually consists of a combination of
activities some of which are more profitable than others. Fixed mortgage
lending is a poor area for lending in times of high interest variation and many
US banks have significant portions of their portfolios locked in at low rates for
mortgage finance. Variable rate or medium-term bullet loans are an alternative
which reduces the risk of such lending. In specific segments first mortgage
lending can thus be relatively attractive.
The second mortgage market for home improvement/personal spending is
also attractive since interest rates are closer to credit finance rates and still
involve the security of personal property. Commercial real estate lending tends
to be mainly short and medium term, covering construction finance, although
some long-term mortgage finance may be attractive, especially if it can be
designed to incorporate elements of capital gain. Banks have been periodically
caught by fluctuating real estate values, particularly when rising markets fall
sharply for a period. However, good spreads are achievable given a sufficient
core of expertise. Those banks successful in commercial real estate lending are
likely to have a full core of specialists including construction engineers, valuers,
progress inspectors, and the like. Further, they will be focused on particular
geographic areas and/or industrial sectors such as shopping center com¬
plexes. Geographic markets such as South Florida, Texas and Southern
California in the US have constituted such high growth areas, offering excellent
lending and profit opportunity for the knowledgeable bank but also serious
potential pitfalls for the unwary.

Energy

Like real estate, energy is a high potential sector presenting good opportunities
(including capital gains) for knowledgeable bankers offering creative financing
packages. The most attractive opportunities are likely to be in particular
segments of the energy market, such as large projects which require both
long-term and interim construction finance as well as forex, and in intermedi¬
ate sized energy companies, where collateral may well consist of oil in the
 129

ground or the like. Again direct equity participation (where permitted) may
be attractive or cash flow financing may provide a similar opportunity for
non-interest profits. In energy, as in real estate, superior ROAs can be
achieved by banks with expertise. Some US banks, notably those based in
areas such as Texas, have high energy elements in their loan protfolio and
specialize in lending to independent operators rather than large MNC oil
companies. Such banks carry a full staff of energy specialists including
petroleum engineers, geologists and the like capable of evaluating oil or other
energy deposit potential. Banks unable to provide such expertise should not
engage in speculative investment because risks can be high without adequate
knowledge. The recent disaster of Penn Square is a timely reminder of how a
lack of adequate loan evaluation can end in disaster.

Minerals and Mining

This is closely related to energy and project finance and the same rules tend to
apply. Such lending, however, may be more international in its make up and
potentially vulnerable to sovereign risk; this, while true in oil, can be
constrained there by the choice of geographic areas of concentration.

Trade Finance

Long an attractive area for bankers, trade finance still offers potential
opportunities of above-average prospect. In particular, the potential develop¬
ment of more interventionist roles by the banker in stimulating all elements of
a trade finance chain may well offer high growth. Japanese commercial
banks, which are usually part of a highly diversified industrial group which
also contains a major trading company, offer a prime example of an
integrated organizational model which many Western banks would do well to
take note of. Successful banks concerned with trade finance will also require
adequate knowledge of the geographic areas in which they wish to specialize,
e.g. South-east Bancorp in the Caribbean Basin, Hong Kong and Shanghai
covering the Pacific Rim. In addition, good operations processing skills are
important.
The area of trade finance, however, may develop into one which presents
future dangers for the banking industry. Many banks and non-banks are
creating international trading companies similar in concept to the Japanese
Soga Shosha but clearly lacking the latter’s depth of product, communications
and trading experience. Moreover a growing element of such trading is likely
to be in the form of counter or barter trading, since many developing
economies are already at or beyond prudent country limit exposures. In
practice, counter trade and barter also represent a variant of sovereign
lending coupled with commodity futures, and considerable care will be
needed if banks stake exposed positions in countertrade to ensure future
difficulties do not occur.
 130

Correspondent Banking
This is an area which has tended to be neglected in the past and has now
reemerged as fashionable. While lending per se is not seen as a primary
product, the provision of correspondent banking financial services in a variety
of areas from operations, transactions and correspondent provisions to joint
venture lending is all of potential interest for large commercial banks. Again,
specialization to identify service needs and provide service quality is the key to
success.

Project Finance

Often treated somewhat differently to conventional lending, project finance is

positioned within the merchant banking units of many banks rather than
forming a part of line lending operations. As a merchant banking activity,
project finance may require the managed syndication of large loans often
involving sovereign risk. For the bank such a loan will usually carry a coupon
spread plus management fee. However, many projects actually also require the
involvement of line lending officers since such investments could involve
participants from many industries and countries. Creative financing opportuni¬
ties which may well require significant line lending and merchant banking
integration are therefore keys to success, together with competent specialist
project appraisal skills.

Credit Finance

The area of credit finance has been seen as attractive by many banks. A variety
of products exist under this general heading for both consumer and corporate
markets. Credit finance products usually cover medium-term loans and are
supported by the value of the article which is being financed. Generally, rate
structures are significantly higher than with conventional loans, although
administrative costs together with risk are also higher, both due to default and
mistakes in the calculation of residual values.
Credit finance has traditionally been treated by most banks as a separate
business. It is also seen by many bankers as different and of lower status. As a
consequence, most banks manage their credit finance subsidiaries (many of
which were independent before being acquired and added to bank business
portfolios in recent years) via a separate organization. This often means
suboptimal performance by banks who do not maximize any synergy that may
exist with other banking products. A recent trend has been the development of
global credit finance businesses, notably in consumer lending.

Leasing

Leasing has been an area of significant growth for banks in recent years. It
 131

usually offers a customer a lower interest rate when the leasee is unable to use
the investment tax benefits normally available for capital investment. These
are taken by the lessor and passed back to some extent in the form of a lower
interest rate. However, leasing usually provides the bank with a superior rate
of return to that obtained on conventional lending.
Leasing is potentially a form of lending which offers substantial opportuni¬
ties for creative financing to tailor the final product to the customer’s need. It
also effectively provides a tax shield to bank earnings. Cross-border leasing
may be expected to continue to grow substantially and for large ticket items
banks will be able to continue to develop the business by moving to leveraged
leasing if and when internal profitability or balance sheet constraints make the
use of internal funds undesirable.
Like credit finance, leasing still tends to be organized separately from
conventional banking activities. As an activity it developed in a similar manner
to credit finance and outside mainstream banking. In practice, however,
leasing clearly represents an alternative to conventional term lending and its
fundamentals need to be clearly understood by lending bankers. There are
some signs that in future leasing in particular may be integrated with banking
services and, while specialist officers may be used to develop creative leasing
contracts, the service may be actively sold by relationship officers.

Notes and Bonds

The securitization of corporate lending has led to substantial growth in the

volume of money raised in the form of tradeable instruments. In the United
States a variety of commercial paper based products have developed and in the
Euromarkets a growing profusion of new, flexible instruments have been
produced since the early 1980s.
The growth in tradeable securities, rather than syndicated loans, has
accelerated the trend of commercial banks to build their investment banking
capabilities. Historically the main competitors in the bond markets had been
the major US investment banks and major brokerage houses, and commercial
banks were actively trying to break in to this sector via the use of acquisitions
and the addition of a new generation of generalist bankers.

Swaps and Futures

New forms of creative finance which have emerged in the past few years and
which are growing rapidly are interest rate and currency swaps and the
provision of medium- and long-term funds via the financial futures market.

Venture Capital
A number of banks have begun to take a very active interest in venture capital
132

situations, for many years a neglected product in the banking industry. In many
of the leading Japanese and US banks specialist units have been established to
provide advice, consultancy and finance to venture corporations, especially
those engaged in high technology areas. In return the banks have taken
significant equity positions which it is hoped will ultimately produce substantial
capital profits.

Middle Market

The key corporate market segment for competitive attack in the mid-1980s has
become the ‘middle market’. Loosely defined in most banks as organizations
with turnovers of between $10 and £150m per annum, many banks are
beginning to carefully segment this group of companies and endeavor to offer
their less sophisticated treasury functions a range of asset- and fee-based
services.

7.4 OTHER SERVICES

In addition to lending and deposit products, banks also provide a range of other
general and specialist services which are usually fee-generating or provided
free or highly subsidized to customers making use of other revenue-producing
services. These services would include:

1. General banking services

— Domestic transfers
• Cheques
• Credit transfers
• Standing orders
• Bank-to-bank transfers
• Direct debits
• Banker payments
• EFT transfers
• Lock boxes

— International transfers
• Mail transfers
• EFT transfers
• Bank draft
• Customers’ cheques
 133

— Commercial credits
• Clean credits
• Documentary credits
• Import and export credits

— Foreign exchange services

2. Specialist services

— Consultancy services
• Money management
• Invoicing centers
• Treasury management services
• Pension fund management advice
• Insurance management advice
• Foreign exchange rate forecasting
• Banking and financial education

— Trust services
• Stock and bond purchases
• Executorships
• Trusteeships
• Pension fund management
• Life insurance
• Corporate trustee services
• Stock registrars
• Dividend payments
• Investment portfolio advice and management
• Safety deposit services
• Estate planning
• Tax planning

— Other services
• Payroll management and acountinb
• Data processing services
• Factoring
• Travel arrangements
• Correspondent banking services
• Non-life insurance
• Life insurance
• Economic study services
• Consumer banking services
134

7.4.1 The Growing Importance of Fee-Based Services

The range of non-lending and credit services offered by banks is becoming

increasingly large as the organizations become more diversified. Banks are also
now placing greater emphasis on the provision of specialist services, especially
for the corporate market, as a means of generating fee income (such services,
unlike loans, do not require counterbalanced deposits, and thus supporting
additional equity finance), to establish credibility as a bank with specialist
skills, to gain an initial entry to corporate accounts (payroll and foreign
exchange are two well-used services for this purpose) and to achieve a
distinctive competence. In particular, a wide variety of electronic banking
services including information processing are becoming of great significance.
One particular problem which must be understood is the use of cross-subsidi¬
zation. Many bank services are offered free as a courtesy, the cost being borne
by income-generating activities. There will be increasing pressure to unbundle
these courtesy services and to let them reflect their true economic cost. Many
corporate treasurers are also keen to unbundle bank services so that customers
only pay for services used, rather than being charged for those which are really
unnecessary.
Nevertheless, non-credit services play an important role in establishing
corporate banking relationships, which in turn normally lead to the develop¬
ment of future lending business. Amongst multinationals the most widely used
non-credit services are:
Most companies make use of foreign exchange services and international
money transfers, and amongst US MNCs, for the nearly one-third of
companies which had added a bank during the past year foreign exchange
advice had been the most common single reason. The most rapidly growing
international service for US MNCs, however, in both absolute and relative
terms was international cash management services. Amongst European MNCs
there was a slightly lower tendency for companies to add banks for internation-

Use of International Non-Credit Services Amongst MNCs (%)

Non-credit services US MNCs European MNCs

Forex trading and advisory services 78 N/A

International money transfers 78 81
Foreign economic advice 58 44
Documentary collections 56 76
Foreign credit investigations 45 N/A
International cash management services 43 N/A
Time deposit accounts overseas N/A 48
Merger and acquisition advice overseas N/A 37
 135

al non-credit services. However, of the 19 per cent of companies which

intended to add a bank, nearly a third were doing this because of a rapid
increase in the demand for overseas merger and acquisition advice.
Product life cycles in international banking non-credit services tend to be
relatively short unless electronically based, and it is important for banks to stay
up with the level of service offerings if they intend to compete fully in this
sector. In particular the growth of systems based services is seen as a major area
for development over the next decade, especially by those large commercial
banks seeking to continue to differentiate themselves. Some banks see this area
of activity opening up a range of data processing, information management and
communication services which provide an opportunity to enter areas of high
growth substantially outside the existing bounds of conventional banking.
Electronic banking services will be of great importance in both corporate and
retail banking. Once established via intelligent terminals, plastic cards or home
banking terminals, electronic banking provides a new delivery system which
allows the bank to offer an ever-increasing array of services via this conduit. In
the corporate market therefore cash management products are becoming a
necessity for corporate treasurers, offering the opportunity to centralize
corporate funds and improve the efficient use of liquid funds, net foreign
exchange exposures and the like. New products coming on stream will permit
global account interrogation, multicurrency transactions, forward funds
forecasting and similar services. In the future, such intelligent terminals can be
expected to link to a wide variety of economic and credit data bases and
securities data and to permit off-site securities trading. Similarly in retail
banking, apart from the widespread use of automated teller machines
increasingly in off-bank site locations, electronic systems will be used for direct
debit at point of sale, automated bill payments, brokerage dealing, electronic
shopping, automatic credit lines and the like. By the mid-1990s electronic
banking, both corporate and retail, will become a major delivery system posing
a severe threat to conventional branch banking. Further, the strategy for
successful electronic banking will open up the financial service market to new
competitors from outside the industry and potentially change the entire
balance of competitive advantage.

7.5 DEVELOPING BANK PRODUCTS AND SERVICES

The development of new products and services for banks is an important
element in marketing. Many services can be developed and introduced with
little cost when an establisdhed network of facilities is in place. Similarly, the
introduction of many particular services requires the addition of special people
and/or systems skills which may well involve a substantial commitment in
time and money. As in other industries, it should be remembered that most
new services do not prove to be successful and many actually lose money.
136

Unfortunately the banking industry has traditionally been extremely lax in

managing costs, on the grounds that so many bank services share joint facilities
and resources that it is impossible to differentiate the costs of specific services.
This argument is usually false. As the industry comes under a greater level of
competition from both other banks and new industrial and commercial
competitors, strict control over service costs will be much more important than
in the past.
In addition, it is often argued that banking services are very price-sensitive.
This argument too is false. For many services higher product quality can justify
higher prices. Careful analysis of service offerings, however, will probably
reveal that some services will be highly profitable and relatively price-insensi¬
tive while others may be very marginal or even negative in rate of return. As a
result, some system for reviewing products or services is required which
attempts to optimize the contribution from successful services and terminates
inessential loss-makers. One major bank has ranked all its main services using
a series of criteria including the following:

1. Operational services which are essential to or closely related to the bank’s

basic business and which interrelate with other services are desirable.
Services unrelated to the bank’s business are less desirable.
2. Profitable services are best.
3. Services generating credit and operating risks are less desirable than those
that don’t.
4. Labour-intensive services are less desirable than automated ones.
5. Float generating services are undesirable.
6. Unique/distinctive services are desirable.
Services within the bank were ranked using such criteria and recognizing
that some services might be essential even though they were loss-makers.
Each criterion was also weighted to reflect its relative performance and
positioned in a two-dimensional matrix such as that in Figure 7.1. The
expected future position of the service was also predicted and resource
allocation in terms of system/service development made according to its
matrix position.
The importance of service quality is becoming increasingly recognized by
Japanese banks, who are utilizing techniques developed in manufacturing
industry, notably ‘quality control circles’, to improve this and customer
orientation. In one bank 2400 such quality control circles were created, with
the groups taking initiative for their own work and looking at how services
provided might be better conducted. As a result of these circles, plus other
systematic attempts to better understand customer needs, a separate corporate
quality control function has been created. The idea of quality control circles is
relatively new in Western companies but many manufacturing firms have
begun to use the technique with considerable success in Europe and the USA.
 137

High
Desirable Desirable services-
services - well received
poorly
>s
received

JD
O

0) Undesirable Undersirable
o> services - services-
o
poorly well received
>
0) received
CO

Low
Low High
Competitive position

Figure 7.1 Quality/desirability matrix

In designing new financial services, remember:

1. Most new products and services fail as shown in Figure 7.2.

2. The closer you get to actually introducing a new product or service the
higher the costs will be, as shown in Figure 7.3.

Cumulative time

Figure 7.2 Most new products or services fail. Source: Booz Allen
138

Cumulative time

Figure 7.3 Cumulative development expenses rise rapidly approaching commer¬

cialization

3. Ruthlessly screen new product and service development with a view to

eliminating or amending any doubtful ones before launch and before they
have consumed financial and non-financial resources.
4. Phase new service introductions to prevent customer/operations/line
management overload. Be especially careful of systems products, which are
expensive in cost/time/people and can cause serious loss of customer
goodwill if they don’t work.

7.6 DEVELOPING SERVICE AND PRODUCT KNOWLEDGE

It is important that the account/branch officers have adequate product
knowledge to recognize customer needs and be able to design the correct mix of
bank services to satisfy those needs. To achieve the desired level of knowledge
substantial attention and effort is needed and regular briefing/motivation/
training is required at all levels. This is especially true in those banks where
account officers are seen as relationship managers and represent all bank
corporate services to customers.
The service marketing guide is therefore an extremely important vehicle for
 139

providing product knowledge. Unfortunately many such marketing guides do

not perform the task required of them to assist account officers in their selling
duties.
In designing the service marketing guide it is therefore important to ensure
that adequate guidelines are established which encourage active business
development; such guides should include the following.

Service marketing guidelines

1. Customer needs. The customer needs to which the specific service is

directed should be clearly identified.
2. Customer profile. This should identify the specific segment customer
characteristics for whom the service is specifically intended.
3. Service description. Outlines the major features of the service which can be
used for communication purposes.
4. Customer service benefits. Identifies the specific benefits which a customer
would expect to gain from using the service.
5. Bank choice rationale. Should set out why a customer should choose your
bank for this service rather than your competitor.
6. Problem-solution case. Should establish in a general way the case ‘before'
and ‘after’, showing the typical customer with a problem before adopting
the service and the improved result after accepting it.
7. Instructions for implementation. Detailed instructions for you to follow
when you have gained customer acceptance of the service.
8. Expected objections and suitable responses. Should identify the main
expected objections from customers and suitable responses which can be
adopted by you in your business development presentation.
9. Follow-up suggestions. Suggestions for the layout and content of follow-up
letters and proposals which describe the service in detail and what the next
action steps are for the customer.
10. Formal acceptance documentation. Any documentation required to be
completed by the branch and/or the customer when the service has been
accepted.

7.7 OTHER FACTORS AFFECTING COMMUNICATION

Product range and knowledge alone are not enough to convince and give
conviction to customers. They will also be influenced by other characteristics
which will color their view of your service range and your ability to deliver the
benefits you claim. Most important in this are the image of your bank and of
you as an individual.
140

Factors affecting bank image

— Size
— Nationality
— Awareness
— Perceived image of the market
— Organization structure
— Branch network domestic and international
— Correspondent relationships
— Industry knowhow and specialization
— Geographic knowhow and specialization
— Product and service range
— Management philosophy and policy
— Skills, personality and knowledge of account executive

7.8 CHECKLIST FOR DEVELOPING NEW BANKING AND FINANCIAL

SERVICE

In designing banking services, therefore, use the following checklist to ensure

you have thought through the key factors for success:

1. What is our purpose in developing this product? Is this consistent with

overall unit/division/bank objectives?
2. Which customers is the new service designed for?
3. What precise need is the service designed to meet?
4. How is this need currently met?
5. What share of the market is considered to be open? Attainable?
6. What is the volume and value of the total market? Open market?
Attainable market?
7. What will be the reaction of any competition displaced by our entry?
8. What financial resources will be required to develop the service? (Include
both on and off balance sheet commitments.)
9. What premises, computer, operations/line lending/branch/staff resources
will be required to develop the service?
10. How sensitive is the service to labor cost? Automation?
11. Are these available — if so where and at what cost?
12. What is the lead time for concept development? Service trial? Service
introduction?
13. How are the service features expected to compare with those offered by
competitors? (Don’t forget to also compare expected costs.)
14. How long would it take for competitors to respond?
 141

15. Does the service have distinctive selling features and are these sufficiently
attractive to persuade potential customers to adopt our service?
16. Is the service one which would be seen as consistent with our present range
and image?
17. Is there any synergy/competition with existing services?
18. What pricing strategy should be adopted for the service? How price-sensi¬
tive is the market?
19. How does this compare with that of competitors? Other bank services?
20. Prepare crude expected financial statements for the service. What is the
breakeven market share? What is the target ROA market share?
21. Test financial statements for volume/credit risk/country risk sensitiv¬
ity. Does the service have an acceptable risk profile? If not can this be
improved? If not should the service be killed before heavy expenditure is
incurred?
22. How would we advise potential customers about the service’s existence?
Assess advertising spending level/message/media/target audience. Assess
personal selling time/training/motivation/opportunity cost.
23. How would we advise those in the bank about the service’s existence?
Identify training or product literature/targeting/incentive/motivation/
time needs.
24. How would we monitor progress? How should we make any necessary
amendments to the launch/product/servicing?
25. What back-up services/guarantees/contracts does this service require/
imply?
26. What would be the effect of not providing this service on other aspects of
the bank’s business?
CHAPTER 8

Bank Pricing Strategy

8.1 INTRODUCTION
Price is the key determinant of revenue, while other factors in the marketing
mix affect costs. Yet pricing strategy in the banking industry is usually badly
developed. Prices tend to be set without reference to overall marketing
strategy and without any real understanding of underlying cost structures. This
results from the traditional method adopted by banks of bundling their service
offerings in a way which disguises the price of individual services in favor of
concentrating on overall profitability, usually based on branch economics.
Historically the pattern of bank control systems failed to identify the specific
costs of providing individual services or servicing individual customers,
concentrating rather on profits only at the branch level. Moreover, the
principal source of profitability came from the bank intermediary role of
achieving an adequate spread on interest rates between the average cost of
deposits and the rates charged for loans.
The changing nature of competition in the banking industry is removing the
traditional regulatory barriers which encouraged commonality in pricing
between similar institutions restricted to operating within specific market areas
such as ‘commercial banking’. With the breakdown of traditional sector entry
barriers as a result of deregulation, new competitors have been able to exploit
cost advantages and use pricing tactics to gain market share relative to those
institutions still adopting service bundling tactics. In addition, other competi¬
tors have been able to maintain price but offer differentiated service quality in
order to pick off selected segments on both the retail and wholesale markets.
The transformation from reliance on interest spread differential caused by
rising costs of deposits and lower relative interest rates on assets has also led to
the growing importance of fee-based income. Here pricing strategies have
tended to emphasize one of two directions. In the first of these based on ‘skill’,
product or service differentiation is achieved by the relative uniqueness or
creativity of service offerings provided by variable levels of individual skill
from different banks. Notably in the corporate market, investment or

142
 143

merchant banks have capitalized on relative skill differentials. However, there

has also been a clear trend towards market share gain by the large commercial
banks, which have entered this market because of their placing power and ability
to commit funds from their own asset bases.
The second direction for pricing strategy has more of a efficiency orientation.
With the growing importance of technology-based distribution systems in
banking, some form of ‘experience’ or economy of scale effect has grown in
significance. This is especially noticeable in both corporate and retail electronic
banking, where costs of providing services have fallen sharply as a result of
transaction volume gains. This has tended to emphasize pricing strategies based
on market share gain on the part of high technology banks. This in turn has forced
those institutions with weak technological positions to either franchise in
services from high technology institutions or introduce inefficient competitive
services made up of a patchwork of non-integrated systems.

8.2 PRICING OBJECTIVES

In setting price the bank should include this factor as an important ingredient in
its overall marketing strategy. For each product market segment it should
establish overall strategic objectives and use price as an element in achieving
such objectives rather than treat it as an independent factor. Failure to include
price in this way will usually lead to inconsistency in the design of segment
strategy and contribute significantly to difficulties in achieving desired
outcomes. Alternative major objectives that can be established for pricing
strategy are as follows.

Current profit maximization

Many banks will wish to set price to maximize current profits. This usually means
charging as much as they think the market will bear even when they are unsure of
underlying costs and irrespective of long-term strategic consequences. For
example, banks have been reluctant to pay reasonable rates of interest on
current account balances for up-market consumers until forced to by new-entry
competitors such as brokerage companies. As a result many banks have tended
to be seen by this customer segment to be offering a poor service and when
superior alternatives have become available clients have tended to move to
them. This in turn has forced rapid increases in the costs of funds of the banks as
they have had to respond by offering money market interest rates to retain their
deposit base.

Market share leadership

Although traditionally the impact of market share on the economics of bank
services has been limited, the introduction of high technology electronic banking
is rapidly changing this. As a result some banks are now actively pricing to
maximize market share in order to establish a market leadership position early
in service life cycles so as to achieve a higher long-term level of profitability.

Product quality leadership

Some banks may adopt the objective of endeavoring to be the product quality
leader in a specific product market segment. This usually means customers will
be prepared to pay a somewhat higher price for perceived superior service
quality. J. P. Morgan, for example, is seen as providing excellent investment
banking services and deep long-term client relationships with the Fortune 500
companies. As a consequence it is able to price its overall service offerings at a
level which provides it with superior profitability compared with other US
money center banks and despite intense competition for these large accounts.

Capacity maintenance

Many banks faced with substantial overbanking in many countries, especially

with the introduction of new delivery systems, and not understanding their
underlying cost structures, price services to maximize volume in their branch
networks. In many cases this may fail to cover full costs and merely cover
variable costs. In some cases, because of inaccuracies in cost analysis, not even
marginal costs are fully covered. This is particularly true when banks face new
market entrants, especially from non-banks as the result of deregulation. Such
organizations, notably retailers, may well have substantially lower cost
structures for the delivery of conventional banking services as a result of lower
staff, premises and even computing transaction costs.

8.3 ESTIMATING COST STRUCTURE

A critical problem within the banking industry has been the estimation of
underlying cost structures. Many bankers have traditionally claimed that it is
very difficult to accurately measure service costs due to shared facilities such as
branch and central expenses such as computing. As a result they have tended to
price on the basis of judgement of the value of the service to customers and
without knowledge of underlying costs. Secondly, and again without knowing
costs, banks price to meet the levels established by competitors.
An increasing number of banks are now moving towards ‘cost visible’ pricing
where care is taken to establish the underlying costs of individual services by
the use of standard costing and operational research techniques. The
procedure for establishing such costs is as follows:

1. Service identification and measurement

(a) Service identification. Rather than bundling services, these should be

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carefully separated and individually identified together with a definition of the

actitivies making up each one.
(b) Service measurement. Each activity element of the service should be
measured to establish a standard time for its performance using established
time and motion study methods. Less precise systems involve statistical activity
sampling and self time-logging techniques.

2. Cost data base establishment

(a) Staff direct costs. The staff costs per hour for each grade of staff involved in
providing a service should be computed. This cost, multiplied by the standard
time for each activity element when summed to cover all the activities, provides
the direct staff cost of each service.
(b) Other direct costs. All other direct unit costs associated with a service,
including telephone, postage, office space rental, computer processing costs,
advertising and the like, also need to be identified and added to the direct staff
costs.
(c) Overhead costs. Any branch and head office overhead costs not incurred
directly in providing a service can also be identified and absorbed to provide a
fully absorbed standard cost using an appropriate basis. This area is often one
of considerable debate and some banks prefer to use only direct cost standards
and contribution margin analysis. In practice both need to be considered.
Once an appropriate basis for overhead cost absorption has been agreed,
however, the total standard unit cost of a service can be calculated.

3. Transaction volume analysis

To arrive at the total cost of specific services the unit costs should be multiplied
by the appropriate transaction volume. The total service costs calculated can
then be compared with actual total costs to test the accuracy of the costing
system.
In practice individual accounts make use of a mix of bank services, and given
the costs associated with each the relative profitability of each account can be
calculated. To undertake such an analysis, however, the bank will usually also
require an integrated data base which readily permits the calculation of the
cumulative service usage of all the individual accounts of a particular customer
and for costs to be compared to revenue. In corporate banking this can be
justifiably done on an individual account basis. As a consequence, since the
data needs and service usages are usually different to those of retail customers,
a growing number of banks are developing two such integrated data bases, one
for each class of customer. For retail accounts such an individual customer
analysis is usually not an economic proposition for large customer base banks.
Here the tendency would be to cluster the account base using cut points in the
numbers of transactions, levels of deposit and the like. Such clusters can also be
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used in conjunction with sociodemographic/lifestyle data for specific customer

segments.
The use of standard costing techniques is perhaps best established among
Japanese banks. In these institutions the use of standard costing is normal and
service standards are checked every six months to ensure continued accuracy.
As a result Japanese branch managers are provided with an individual account
profitability statement on all their medium and small business accounts on a
regular quarterly basis, while profitability analysis for large corporate accounts
is available on an online basis. US banks which have introduced standard
costing techniques have usually done so by importing specialist cost accounting
groups from outside the bank. For example, both J. P. Morgan and Bank of
America made use of specialists introduced from the Ford Motor Company.
For many European banks, however, the introduction of costing specialists is
still in its infancy and heavy use of the major accountancy firms as consultants
can be expected over the next few years to introduce relevant techniques and
systems.

8.4 STRATEGIC IMPACT AND COST ANALYSIS

The development of standard costs not only provides a basis for establishing
the relative profitability of services but more importantly enables the
development of strategic options for individual market segments.

8.4.1 The Pareto law Effect

In the banking industry, as in other industrial sectors, the Pareto law effect is
normally found. In retail banking it is relatively common that 85 per cent of cost
structure on staff, premises, central computer processors and even marketing
expenses can be attributed to the bottom 15 per cent of the account base in
terms of deposits. This is because the majority of accounts tend to be low on
deposits and relatively high on transaction volume.
The traditional bundling of branch operations, where ‘free’ current account
balances were used to cover losses on transaction business, is now giving way to
a recognition of the cost of branch operations as interest rate spreads diminish.
Banks now increasingly accept that they must recover transaction costs from
those customers which incur them, while rewarding with market related
interest payments the accounts of low transaction volume and high relative
balance customers. As a consequence, many banks are introducing prices
related to costs for transaction business, charging differently for machine
versus human teller transactions and offering different interest rates for
different levels of account balance. A few are going further and actually
attempting to shake out unprofitable accounts by discriminatory pricing or
deliberate account closures, while introducing superior service at higher prices
to preferred accounts.
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In the New York retail market Citibank subdivided its retail account base
into seven segments. Those with $15,000 or more on deposit were given
service by a personal financial advisor in a pleasantly equipped part of the
bank. Customers with lower balances were allowed to use the human teller
system but were also encouraged to use teller machines. Customers with less
than $1000 in deposits were encouraged to bank elsewhere.
This system of segmentation created significant consumer resentment and
eventually segregation against low value accounts was technically withdrawn.
However, by this time Citibank had largely purified its customer base. This
purification even included those corporate accounts for whom Citibank
undertook payroll processing and where the bulk of employees instantly
withdrew their funds after pay day. As a consequence, because the bank was
able to offer a superior service to its better customers by partially eliminating
worse customers over a period of five years, it actually doubled its share of the
New York retail market. At the same time, the bank reduced its branch
network from 260 to 220 branches and its staff from 7000 to 5000, while
achieving 70 per cent of cash withdrawals on ATMs, thus substantially reducing
its overall cost base.
As a generalization, therefore, you should carefully examine the cost and
revenue structures of both customers and services. As shown in Figure 8.1, the
probability is that 20 per cent of customers and 20 per cent of services will
contribute 80 per cent of revenue. Therefore, rather than continuously adding
customers and services indiscriminately and thereby increasing costs but not
necessarily profits, look carefully also at rationalizing those accounts and

Service revenue
80% -20%!
1 20% - 80 %-
No. of services

Customer Service range

revenue
Candidates for
No. of customers rationalization
80% 20%

i
Clear customer/
20% 80% service candidates
t _L_ / for elimination

-T
Customer account candidates for
purification

Figure 8.1 Customer service revenue matrix

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services which may be making losses. The 80 per cent of customers and services
which only contribute 20 per cent of revenue are candidates for service
rationalization or account purification, and that group of customers and services
which intersect in the bottom right-hand corner will almost certainly be running
at a loss. Such services or customer accounts should clearly be eliminated unless
they can be justified for specific strategic reasons.

8.4.2 The Experience Effect

In many industries a regular decline in costs has been found to occur with
cumulated experience. For example, as shown in Figure 8.2 which plots the log
of transaction cost in real terms against the log of the cumulative number of
transactions, the marginal cost of the one millionth transaction is $1.00. As the
bank gains in experience it learns how to do the transaction more efficiently as a
result of improvements in systems, staff skills, mechanization, and the like. Thus
by the two millionth transaction the marginal cost in real terms has fallen to only
80c and by the four millionth to only 64c. This transaction is therefore said to
exhibit an 80 per cent experience effect curve, as every time the cumulative
number of transactions doubles there is a 20 per cent decline in costs.
This cost decline does not occur automatically; the assumption is that
management is constantly seeking to improve its productivity of operations.
Note also that the experience effect applies only to the value added element in

Figure 8.2 Transaction experience effect curve

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the provision of a service; that not all competitors need be on the same curve; that
‘shared’ experience effects are possible as a result of synergy between services
using the same facilities such as central processing units; and that the experience
effect is volume and not time related.

Cumulative transaction volume

Figure 8.3 Experience effect strategy

Traditionally, experience effects were not especially significant within the

banking industry due to regulatory barriers enforcing similarities in cost and
price structures. However, deregulation coupled with the introduction of
technology-based alternative distribution systems is transforming this pattern.
As a result competitive strategy, especially in services affected by electronic
technology, favors the adoption of an experience based strategy as illustrated in
Figure 8.3. Here bank X has achieved a cumulative transaction volume of Vl7
and as a result the bank’s marginal cost of further transactions is Q. To achieve a
satisfactory margin for this service the bank offers it to customers at price P,
which establishes the market price. Bank Y in contrast has only a cumulative
volume of transactions V2, and assuming it is operating on the same experience
curve will have achieved a marginal cost of C2. However, since the bank must be
competitive it can only charge price P for its equivalent service, and hence while
still profitable must operate at a lower margin than bank X. Finally, bank Z,
which has only achieved a cumulative volume of V3, will have a cost of C3. This is
above the price P, and hence if bank Z wishes to continue to offer its service it
must be prepared to lose money on every transaction.
In high experience effect markets such as electronic banking the achievement
of cumulative volume therefore tends to be especially important. As a
consequence pricing strategy should endeavor to develop market share rather
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than achieve short-term profit maximization. Similarly, to increase the effect

banks should drive for shared experience by maximizing the range of services
using the common delivery system.
In both corporate and retail electronic banking the experience effect is
high. As a result, banks like Citibank and Chemical Bank have driven for
high market share but by different methods. Citibank has operated indepen¬
dently, building its retail ATM and corporate terminal base as rapidly as
possible and utilizing shared experience effects by increasing service range
and geographic coverage. Thus its corporate electronic banking is offered on
a global basis and by 1984 the bank had some 14,000 terminals on customers’
desks offering an increasing array of services. A joint venture with Reuters
also enabled Citibank to gain access to the financial information services
market and potentially to provide services to Reuters’ 39,000 worldwide
terminals.
By contrast, Chemical Bank has not sought to take on Citibank head to
head but has built cumulative volume and amortized central processor and
software development costs over around 8000 worldwide terminals. These
terminals, however, have not been placed by Chemical Bank but rather by
some 80 bank franchises of its Chemlink corporate cash management systems
in the USA and elsewhere.
Competitors unable to build their cumulative experience in electronic
banking face similar costs to those of the market leaders but will be unable to
price their services to ensure an adequate contribution. Unless such organiza¬
tions can achieve superior productivity and so move to another, steeper
experience curve they should either withdraw from the market, join franchise
arrangements with other banks or non-banks, or be prepared to accept that
electronic banking will not be the fee income and profit-generating service
that many believe it can be.

8.5 PRICING METHOD SELECTION

The selection of a pricing strategy for the bank is a function of three key
determinants.

1. Demand. The level of demand will be a function of market segment size

and service price elasticity. Corporate markets tend to be more price-sen¬
sitive than consumer markets. However, different classes of customer will
be more or less price-sensitive to specific services and in identifying
consumer buying motivations care should be taken to assess these
sensitivities.
2. Competitor prices. While demand may establish a price ceiling and costs a
floor for a service, competitor prices will also help establish pricing range
limits. The price and quality of competitor services thus needs to be
carefully evaluated as part of competitor analysis. Your bank’s services
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can thus be evaluated in terms of its overall ‘value’ compared with

competitors to judge what price premium or discount should be charged to
best suit your desired strategic position.
3. Cost structure. Service cost structure sets the floor for pricing strategy
unless for strategic reasons it is considered desirable or necessary to price
to make a loss.

Based upon these three criteria a number of pricing options are open to the
bank. These alternatives include cost plus pricing, breakeven and profit impact
target pricing, value in use pricing, market rate pricing, relationship pricing,
penetration pricing and skimming pricing.

8.5.1 Cost Plus Pricing

Cost plus pricing is a simple system of establishing price. Under this method a
standard markup is added to the costs of a product or service. Although widely
used in the retail trades it is not often employed in banking due to a lack of cost
knowledge in many cases. However, because of the similarity with retailing and
the expected growth of competition from retailers, especially in retail banking,
cost plus pricing may become more important for individual banking services.
As a generalization, however, a pricing method which does not take into
account customer price sensitivity and competitive prices does not often lead to
the best strategic price. Even in retailing, varied markups for different product
groups within the same store have become the norm.
The advantages of cost plus pricing, however, are several. Firstly, if cost
structures are well known it simplifies the pricing task. Second, when all similar
competitors use this method price competition tends to be reduced. Third,
competitors do not have to pay significant attention to demand variations
caused by price. Unfortunately, with deregulation the entry of new bank and
non-bank competitors with different cost structures may allow the low cost
service deliverer to operate a cost plus system (especially in high experience
effect services) but force higher cost deliverers to operate a market price
related pricing system.

8.5.2 Breakeven and Profit Impact Target Pricing

A second cost oriented pricing method is that of profit impact target pricing.
Under this system the bank endeavors to decide on the price which will enable
it to achieve a specific level of profitability for a particular service. The method
makes use of a breakeven analysis as illustrated in Figure 8.4.
The breakeven chart shows the total cost and total revenue expected at
different levels of service transaction volume. First, for each service the level of
fixed cost associated with the service is shown. Direct variable costs are added
on to these to show a total cost rising with service volume. The total revenue
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Figure 8.4 Breakeven analysis

curve, starting at zero, usually rises in a linear form with increasing volume.
Where the two curves meet is the breakeven volume position Vj, while to meet
the desired profit impact target a higher level of volume V2 is required. In
banking fixed costs tend to be relatively high unless staff and premises are
treated as variable, and historically these have both tended to be fixed.
In calculating breakeven and profit impact target prices, it is important to
check what market share position such a strategy implies. Where it is necessary
for the bank to take a high market share to achieve its desired profitability it is
important to understand where this share gain will come from. Unless the
market segment is high growth, it will usually be necessary for the bank to take
share from existing competitors. Since in many cases there is service over
capacity, unless the precise competitor has been carefully targeted the likely
reaction may be price erosion as established competitors use price in an effort
to maintain share. This may substantially change breakeven and profit impact
target volumes as revenues decline, and strategies that are very sensitive to
competitor price reaction should be examined carefully to test whether the
probable end result is worth the effort.

8.5.3 Value in Use Pricing

A number of banks and financial institutions are following industrial

companies and basing their price not on cost but on perceived consumer value
for a service. This system of pricing requires management to estimate the
volume of a service it expects to sell at a specific quality and price. Compared to
competitive service offerings it is necessary to assess relative service quality,
reliability and the like and to estimate the value that customers would be
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prepared to pay for these facilities. Adding these to the average competitive
base price provides an overall ‘value’ price for the service. Actual offered prices
usually represent a discount from this overall value price, but at the same time
such prices are usually above the market average.
An example of such added value service prices is the Merrill Lynch Cash
Management Account, which offers up-market consumers not only a checking
service but also a Visa card facility, brokerage account, automatic margin
loans, money market rate interest on credit balances and investment
management facilities. As a result of offering this superior quality of service
Merrill Lynch attracted some $70 billion in funds in a few years, much to the
chagrin of the banks, who have found it difficult to compete with such an
attractive package.
The use of such a pricing strategy, however, infers substantial understanding
of your own cost structure as well as that of your competitors. Without such a
detailed understanding it is impossible to calculate relative service quality and
price between competitors. Moreover, without ongoing market research it is
also difficult to check the impact of alternative pricing strategies on customer
demand.

8.5.4 Market Rate Pricing

With this system of pricing the bank cedes the initiative to key competitors to
set price. Smaller banks ‘follow the leader’ in pricing services, and while price
leaders are usually other banks, non-bank competitors are increasingly
influencing service prices as these new entrants may well have operational cost
advantage and use price as a conscious weapon to gain market penetration.
For example, the entry by brokerage houses into the market for money
market mutual funds had a dramatic efect on the deposit base of US banks,
especially those of savings and loan institutions. Offering money market
interest rates compared with low fixed rates by the banks, the money funds
grew rapidly from the late 1970s. Much of this money was subsequently lent
back to the banks in the form of certificates of deposit, significantly raising the
banks’ cost of funds. When banks were later allowed to compete with the
money funds, they were also forced to price their deposit products at
competitive rates. In practice, however, most banks were also operating with a
substantially higher cost structure due to the high premises and staff costs of
their expensive branch delivery system compared with the simple mail or
telephone system used by the fund operators.
Nevertheless, market rate pricing remains common with the banking
industry due to the lack of cost knowledge. The dangers of this system come
from ceding the strategic initiative to competitors and the potential threat of
sudden price shifts caused by new entrants or changes in delivery system
capability.
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8.5.5 Relationship Pricing

While customers are becoming increasingly sophisticated in both corporate
and retail markets, leading to service unbundling, there are occasions when
services may be provided at a low margin or even at a loss. When it is possible to
improve the overall profit from a relationship by cross-selling high margin
services, it may be worthwhile to provide relationship-building services in this
manner. For example, lead banks may well be prepared to provide difficult
sovereign risk facilities at below local market rates to multinational customers
provided the overall profitability of the account justifies the decision.
Similarly, when corporate customers give the first piece of business to a new
bank it tends to be loss-making and is being used as an entry test for the bank.
Such business, correctly costed, can be accepted as a marketing cost provided
future business from the relationship is expected to yield an adequate level of
return.
The concept of relationship pricing is not the same as market rate pricing. It
implies the bank clearly knows its cost structure and willingly accepts a low
margin or loss in favor of optimizing return on the total relationship. For
example, the corporate treasury of ICI asked a number of its lead bankers if
they would be prepared to provide the company, at the bank's expense, with
one of their best foreign exchange specialists for a year to improve the
company’s skills at currency arbitraging. All the British clearing banks declined
the invitation but the Bank of America willingly accepted in order to improve
its overall relationship with the customer. Further, the bank was able to use the
publicity associated with its move to gain additional business from other
corporations on the premise that if its skills were sought by ICI they must be of
an extremely high quality.

8.5.6 Market Penetration Pricing

For new services when high experience effects are present and if the market is
price-sensitive, it is best to deliberately price low in order to rapidly build
market share and so gain a cost advantage over competitors. Failure to use
penetration pricing may well encourage new market entries and provide a price
umbrella for the higher cost competitors. Ultimately such a strategy usually
leads to a shake-out when a number of competitors exit from the market as a
result of a price war due to market overcapacity. The banking industry is
perhaps particularly prone to possible overcapacity due to the large number of
competing institutions in most countries and an historic tendency to
overbanking.
The use of penetration pricing in electronic banking products has proved to
be a preemptive weapon and has already led to the forced exit of some
competitors while causing other low share competitors to operate at a
continuing economic disadvantage. In the New York retail banking market for
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example, faced with the need for major systems investment to compete
effectively. Bankers Trust made the clear decision to withdraw from the
market in order to concentrate on wholesale operations.

8.5.7 Skimming Pricing

Skimming price strategy applies when a competitor endeavors to price a service

above the normal level of such an activity. For a skimming strategy to be
successful there should be a sufficiently large customer segment to justify
adopting a skimming price; the costs of operating at lower volume should not
be such as to cancel the revenue gain from charging a higher price; the high
price should not stimulate the entry of competitors; and the concept of a higher
price should add to the image of a superior product.
Within the banking industry, long-term skimming price strategies are not
common due to the difficulty of building effective competitive entry barriers.
Bankers estimate that in the corporate market most innovative lending
products can be rapidly duplicated within a few months at most by new
competitors. Further, such innovations cannot be patent protected due to their
service nature and the relative ease of creating substitution services.
In the area of electronic banking, it has been possible to generate a
distinctive product which has permitted some moderate skimming strategy.
The Merrill Lynch Cash Management Account was such a true product
innovation, and indeed the systems architecture was sufficiently complex that it
did gain limited patent protection. Merrill Lynch, by comparison with
subsequent new entry competitors, also priced its product at a somewhat
higher rate as a mechanism to indicate exclusivity and superior service image.
Copies of this product are now being offered to lower qualifying customers,
however, in a variety of forms and some form of cash management account is
now becoming a mass market product.

8.6 FACTORS MODIFYING PRICE STRUCTURES

8.6.1 Bank Image

The image of an individual bank or financial institution affects its ability to
adopt a specific pricing strategy. For example, a medium-size domestic bank
would be unlikely to be able to charge high fees for specialist multinational
corporate advice while a retail savings bank would be unlikely to be able to
charge a high price for a high net worth private banking advice. It is important
therefore that the bank monitors its perceived image to check what services
customers believe it can credibly offer and at what level of price.

8.6.2 Impact on Third Parties

The bank must also consider the impact of its pricing policies on others such as
156

shareholders, consumer pressure groups and governments. In the California

retail market, for example, consumers are beginning to pressurize banks to
provide ‘lifeline’ banking services for small savers as the banks endeavor to pass
on the true cost of operations to customers according to their use of services.
Governments, too, are beginning to apply similar pressure on banks which try
to purify their customer bases by using price to discourage unprofitable
accounts.

8.6.3 Geography
Generally, banks charge different prices for services in different parts of the
world dependent upon local money market conditions and regulations. In the
large corporate market, however, there is a growing need to price on a global
basis. Banks which continue to operate on a localized pricing basis may well
find themselves at a strategic disadvantage compared to those which have
moved to global account profit planning and hence can allocate price and
country risk, for example, against overall account profitability. Such pricing
strategy can also be used for global services such as corporate cash
management.

8.6.4 Discounts
Discounts in banking usually apply for both volume and value. Large users of
services can normally negotiate price with the bank and few banks have clear
policies for pricing services to such customers. In part this is due to the failure of
banks to adequately understand their costs, but also many banks tend to be
volume rather than profit oriented.
Value discounts are offered for example for early payments for debit
products, while price premiums may be provided for longer maturities on
credit balances. Similarly users of debit cards in point of sale terminals
purchasing gasoline in the United States are being offered the same price as
cash purchasers. Credit card users by comparison pay a slight premium. In the
same way, higher rates of interest are usually offered for term versus demand
deposits.
In adopting discounts for value or volume, check that the effect is actually
consistent with the bank’s product market strategy rather than merely
responding to either competitor or customer pressure.

8.6.5 Price Discrimination

Banks will often modify their basic pricing to discriminate between customers,
product or service form, place and time. With deregulation, price discrimina¬
tion is becoming of increasing importance in heightening segment entry
barriers. Examples of bank service price discrimination include the following.
 157

Customer Discrimination

Different customers pay different prices for the same service or are provided
with different service packages at the same price. For example, many banks
offer especially favorable terms for students, including promotional items like
book allowances. Similarly, a growing number of banks are offering collective
discount packages for senior citizen savings account holders.

Product-form Discrimination

Here different versions of the same product or service are priced differently
but not proportionately to their respective costs. For example, the relative cost
of the American Express green and gold cards is not the threefold price
differential which is charged for the use of the latter.

Place Discrimination

Prices differ according to the place in which the service is delivered. For
example, many banks now charge a lower price for transactions made on
ATMs versus the use of counter service tellers.

Time Discrimination

Prices vary according to the time of use of a service. Time discrimination has
not yet been used extensively in the banking industry, although such factors as
branch opening hours seem likely to become of major importance as
deregulation continues.

8.7 SUMMARY
Price is a critical ingredient in the marketing mix for a service or product.
Because of regulatory constraints, the use of price as an important element in
bank marketing has tended to be neglected. Deregulation, coupled with the
introduction of new technology and the arrival of new aggreessive bank and
non-bank competitors, is forcing a reappraisal of the use of pricing strategy. At
present many banks sacrifice their strategic position by operating market rate
pricing because they do not know their own underlying service cost structure.
In the future, banks will be required to undertake regular specialist service
cost analysis, build integrated corporate and personal banking data bases and
so identify losing services and/or customer segments. Overall marketing
strategies will then need to be designed utilizing pricing policy as an essential
ingredient to meet the needs of specific customer segments.
158

8.8 PRICING STRATEGY CHECKLIST

Check your pricing strategy by asking the following questions:

1. What is your present pricing strategy for your service range? Is this policy
consistent with overall bank marketing strategy?
2. If you are intent on current profit maximization, will this have a negative
impact on your long-term strategic position?
3. If you wish to maximize market share, is this share gain attainable and will
it be profitable if you achieve it? Is market share a critical factor in service
profitability?
4. If you wish to drive for service quality leadership, do the customer
segments for your services perceive your bank as offering superior quality?
Remember the only measure of service quality is that of the customer, not
of the bank.
5. If your objective is capacity maintenance, have you tested your overall
strategy for a volume versus a profit orientation? Would sacrificing volume
for improved profitability be acceptable to top management, who may be
size-motivated?
6. How well do you know your services cost structure?
7. Have standard costs been developed for each service? Are these standards
regularly updated?
8. Have you checked the contribution effect from particular groups of
accounts and services?
9. Have you questioned whether particular services and/or customer groups
should be rationalized?
10. Included in such analysis, have you checked whether you are servicing the
needs of your best customers as well as you might? Are any new
competitors threatening your best customers with superior services priced
lower than your own?
11. What services do you offer that exhibit a substantial experience effect?
How does your market share compare with leading competitors? Can you
compete effectively in the long term in these services?
12. Do you know the effect on demand of different price levels for particular
services?
13. Do you really know the pricing strategies of competitors for specific
services and/or customer segments?
14. What services could appropriately use cost plus pricing?
15. Do you develop breakeven and profit impact calculations for specific
services and alternative pricing strategies? Do you post-audit your
successes or failures to find out where you miscalculated?
16. Have you attempted to build up value in use calculations for your services
relative to your competitors?
17. If you use market rate pricing, are you satisfied you know whether or not
particular services are profitable?
 159

18. Do you make use of penetration pricing for appropriate services?

19. Have you considered skimming price tactics for appropriate services?
20. Are your overall pricing strategies consistent with customer image of your
bank?
21. In deciding on pricing strategy, have you contemplated the impact of your
decisions on shareholders, external pressure groups and government as
well as customer segments?
22. Do you have a global pricing policy for large multinational accounts or
global services, or do you operate on a localized geographic branch
basis?
23. Do you have a consistent policy on discounting services by volume
and/or by value? Is this policy in turn appropriate for your overall
product market strategy?
24. Have you adequately segmented your customer base to practise
discriminatory pricing where appropriate?
 CHAPTER 9

Delivery System Strategy

9.1 INTRODUCTION
In a major review of strategy concluded in 1980, Citibank identified one
particular trend which is having a fundamental effect on bank delivery system
strategy. The bank concluded that as a result of the development of new, and
particularly electronic, delivery systems, by the end of the decade the
customer, whether individual or corporate, would determine the time, the
place and the method of the banking transaction. If this trend is correct, and the
evidence increasingly suggests that it may well be, it potentially transforms the
traditional delivery system strategy of banks, which was based on branch
banking. In this chapter we will examine branch and alternative delivery
systems for financial services, exploring modifications in conventional branch
design, branch coverage, electronic banking, telephone banking, home
banking, automated teller machine strategy and electronic service delivery
systems.

9.2 TYPES OF DELIVERY SYSTEM

Bank delivery systems can be classified according to size, type and the range of
services they provide. The most important variants are the full service branch,
limited service branch, specialty branch, fully automated branch, thin branch,
automated teller machine, financial supermarket and department store
financial superstore. In addition, a number of remote electronic delivery
systems are growing in importance. These include electronic point of sale
(EFTPOS), intelligent terminals, telephone banking and home banking
services.

9.2.1 Full Service Branch

The conventional delivery system within the banking industry has been the full
service branch. Although graded by size, it is still the case that in many banks

160
 161

virtually all branches, irrespective of size, are said to be able to deliver the full
range of products and services offered by the bank to both individual and
corporate customers. Since the late 1960s, however, the range of bank services
has increased dramatically as deregulation has gradually proceeded and banks
have also moved to significantly extend their range of conventional banking
service variants. In North America branch architecture has tended to move to
an open plan mode as illustrated in Figure 9.1, to encourage the sale of
non-transaction services, but in many other countries, notably in Western
Europe, branch architecture still tends to stress transaction operations as
shown in Figure 9.2.

Management offices

The sale of non-transaction financial services in such a branch is made

difficult by its reliance on customers taking the initiative to purchase a service
by making enquiries at a specific place along the counter system. Such
enquiries then require the presence of an executive to handle the request for
information. To make the sale it is usually necessary to conduct an interview in
a back office area.
This system makes it very difficult for the branch to cross-sell financial
services, since it not only relies on preliminary customer initiatives but also on
the branch manager or his deputies being available and trained to sell a growing
 Management offices

Foreign and enguiries position

Thro the wall Counter and

ATM display Back office
operations

Teller
positions

Figure 9.2 Traditional branch architecture layout

profusion of retail and corporate financial services. Except in large financial

center branches, there is not usually the necessary level of traffic to justify the
presence in the branch of many service specialists. As a result, the limited
number of branch management staff have a relatively poor knowledge of many
of the services offered in the bank’s product manual. Further, branch
managers, many of whom were recruited when the sale of financial services via
the branch network was neither required nor desired, are often ill-equipped in
terms of personality to sell such an array of financial services. Indeed, for
several years many branch managers were actively discouraged from selling
credit in a seller’s market; moreover, their training was to inquire into their
customers credit background, and this has given bank managers a negative
image in the eyes of many customers, especially among individual and small
business clients.
The rationale for full service is becoming increasingly hard to justify. The
traditional reasons for establishing branches were to collect deposits, make
local loans and provide a convenience for conducting basic transactions. With
the cost of branch-gathered deposits rising rapidly as banks are forced to pay
actual or near money market rates of interest, it is possible that wholesale
collected funds may actually be cheaper than those taken in the branch.
Further, with the advent of alternative transaction methods, especially those
that are card or electronic based, there is less need for customers to go to
branches to conduct transactions, so reducing the possibilities of any impulse
cross-service sales. Finally, again loans can be provided via the alternative
delivery systems together with some form of automated credit-scoring system
for increasingly higher levels of loan.
 As a result, the number of full service branches can be expected to be sharply
reduced. Those remaining will be able to justify themselves by the provision of
specialist staff handling different segments of retail accounts, and small and
medium size corporate accounts while large corporate customers will tend to be
handled via a non-branch based account executive system.
Reorganized full service branches will tend to be transformed into limited
service operations or specialty branches, or closed. The first stage in full service
branch cost reduction is usually to eliminate the existing manager and to
downgrade the branch by reducing the level of the future manager. Second,
teller positions can potentially be sharply reduced by the use of additional
automated teller machines and cash dispensers. Third, the use of online till
systems, connected either to central mainframes or to local concentrator
branches, can convert many full service branches into satellite operations. This
can significantly cut the overall level of personnel needed to manage branch
back office operations. Security Pacific, for example, has since 1981 reduced its
number of full service branches in the bank’s 600 plus branch network in
California to around 50, while at the same time the average number of
employees per branch has fallen from 14 to eight.

9.2.2 Limited Service Branch

The limited service branch has emerged as an alternative to the full service
operation. Offering a strictly limited menu of available services, the
‘MacDonalds’ style of branch eliminates the need for expensive management
and specialist service personnel. In addition such branches, tied to main
branches for their data processing, have lower back office costs. Further,
reduced personnel needs also allow for smaller space requirements and the
average square footage for such branches has fallen from 4000 sq ft to around
2000-2500 sq ft. Even smaller branches are possible when the service range is
restricted to basic transaction operations.

9.2.3 Specialty Branch

As deregulation has proceeded, a number of specialty branch operations have
begun to emerge as alternatives to full service operations. Such branches tend
to focus on either retail or corporate business, but not both. Among the
specialist units that have appeared are the following:

Real estate branches. Centered upon mortgage finance, such branches have
emerged from conventional savings and loans and building society opera¬
tions. They have reduced the space devoted to savings and withdrawals and
deposit transactions and focused on mortgage customers. In addition to
mortgage finance such branches also offer real estate brokerage for both the
sale and purchase of property; personal loans, especially for home
 164

improvements at higher rates of interest than basic mortgage loans; personal

and property insurance; outlets for financial institution backed property
development where the bank may be either an equity based developed or
construction financier; and potentially, conveyancing and legal services.

High net worth individual branches. Located in appropriate sociodemog¬

raphic neighborhoods, or inside apartment and condominium complexes,
such branches offer a range of banking services for up-market consumers.
Based usually on some minimum account balance criterion, such branches
offer personal financial counsellor services rather than conventional teller
positions and such facilities as previsit telephone withdrawal service,
investment counselling and brokerage services, usually in an exclusive,
luxurious environment.

Corporate branches. Aimed usually at middle market corporate accounts,

such branches do not normally handle retail banking business but offer a
range of services specifically directed at medium-sized corporate accounts
within a particular geographic area. While the accounts are primarily
serviced by an account officer structure centered on the branch, the outlet
itself will usually offer specific services such as online foreign exchange,
letters of credit, asset based finance specialization, corporate cash manage¬
ment services and the like, rather than expecting the account officers to be
specialists in all those service offerings.

Representative offices. A low-cost variant of a full corporate branch,

technically representative offices cannot write business but merely act as an
introductory system for full service outlets. Such offices are cheap to
operate, and are often a prelude to expansion to full branch status.

Loan production offices. These are non-deposit taking offices which can
write asset business and have been used especially in the United States by
corporate oriented commercial banks to cross state boundaries.

9.2.4 Fully Automated Branches

In a drive to improve productivity and cut costs still further, the fully
automated bank branch has begun to appear in a number of countries. Perhaps
most advanced in Japan, such units provide a range of machines within the area
of the branch which enable the customer to undertake most basic bank
transactions. Such a branch is illustrated in Figure 9.3.
In this branch, which does not use especially advanced technology, cash
deposits and withdrawals, balance enquiries and interaccount transactions can
be conducted by the customer without bank employee intervention. Two
employees are present in the branch to assist customers in using the machines
 165

and also to provide advice on non-automated services such as investment

management and the like. Such branches, while operating with few or no staff,
have also substantially reduced space requirements of 800-1500 sq ft since
there are no on-site back office operations. The use of fully automated
branches appeals to only a limited segment of the population, however. These
individuals are usually younger than 35 and relatively well educated. The most
advanced automated branches in Western Europe are operated by the
Verbrauche Bank in West Germany. This bank, which only operates
automated branches, was acquired early in 1984 by the largest German mail
order retail company, Schickendanz, which intends to use the bank s
technology to link its mail order and retail store operations in order to provide a
comprehensive automated consumer shopping and financial services range of
activities.
166

ATM

Drive-up
^ teller

Figure 9.4 Prefabricated thin branch alternatives

9.2.5 Thin Branches

Positioned somewhere between fully automated and limited service branches,

these branches operate from readily available sites such as supermarket car
parks and petrol stations and come in a portable form from the back of a
truck. Two such variants are illustrated in Figure 9.4. The first of these is a
prefabricated structure which incorporates a drive-in teller at one end and a
24 hr automated teller unit at the other. Such a unit can be delivered to
convenient sites as available and can be subsequently moved to other sites if
required. The second structure is a two-teller version which enables a limited
range of desk services to be provided such as account opening and the like.
The use of such prefabricated units enables banks to substantially increase
their number of distribution points at a fraction of the cost of full branch
openings.
Thin branches offer a similar low-cost alternative to permanently sited thin
branches. Such units are especially useful for providing service to industrial
customers for whom the bank may undertake a payroll service. Because
conventional branch opening hours are highly inconvenient for many
industrial workers, banks have found it difficult in some countries to convert
cash-based wage payment systems into magnetic tape based bank credit
accounts. The use of mobile branches and remote on site ATMs to provide
cheque or card based cashing facilities is a mechanism for giving some form of
service to customers who would otherwise find the use of banks unacceptably
inconvenient.

9.2.6 Automated Teller Machines

The installation of automated teller machines has expanded rapidly during the
1980s. By the end of 1984 the number of ATMs installed in the United States
was estimated at 45,000, up from 13,800 in 1979. In Western Europe at the end
of 1982 the number of machines installed was estimated at over 11,000,
similarly up from 3850 in 1980. In Europe around half these machines were
installed in France and the UK, while installations in Western Germany were
notably lower. In Japan, however, compared with their relatively small
number of branches, the major city banks had the highest number of ATMs
installed per branch than any other banks in the world. A list of major banks,
their branch coverage and ATM installations is shown in Table 9.1.

Table 9.1
Bank ATM and Branch Network Coverage 1984

Bank No of ATMs No of domestic ATMs/branch

offices

Credit Agricole 2400 10,800 0.22

Lloyds Bank 1556 2467 0.63
National Westminster 1349 3637 0.37
Dai Ichi Kangyo 1346 345 3.9
Mitsubishi Bank 1082 227 4.7
Fuji Bank 1052 257 4.09
Sumitomo Bank 1030 232 4.44
Taiyo Kobe Bank 976 335 2.91
Sanwa Bank 966 252 3.83
Bank America Corp. 409 1243 0.73
Mibui Bank 843 194 4.35
Citicorp 547 980 0.56

Source: Retail Banking International.

The use of automated teller machines has also expanded rapidly as

consumers have increasingly come to accept them. In fact, market research
studies in a number of countries have shown that in many cases bank customers
actually prefer to conduct their transactions on ATMs rather than using human
tellers. As machines have gained in acceptance and the number of installations
has risen, the cost of transactions by machine has gradually fallen.
In the USA it is estimated that the cost of conducting a transaction on the
ATM versus using a human teller was approximately the same in 1982. Since
that time machine transactions have been lower in cost as machine prices have
168

fallen and transaction volume has risen, while transactions with human tellers
have increased in cost as labor rates have risen. In other countries similar
trends can be detected, and by the end of 1985 it is estimated that in most
developed countries ATM transaction costs will be lower than those involving
human tellers.
Initially the great majority of ATMs were installed in the lobbies or
through the walls of existing banks and savings and loan institutions. For
suburban banks ATMs were also provided on bank sites for drive-in
utilization. Increasingly, however, new ATM installations are occurring in
off-site locations with high levels of traffic flow such as airports, railway
stations, shopping centers and especially supermarkets and convenience
stores. In the USA a substantial number of supermarket and convenience
store retailers are installing on their own behalf, or in conjunction with banks
or non-bank ATM operators, extensive machine networks. Moreover, unlike
many banks, retailer installed ATMs strive for universality to maximize the
number of card holders who can access machines on their premises. In this
way the retailers anticipate being able to provide a convenience attraction
which will help to lure retail custom for their traditional services while at the
same time generating significant revenue from effectively renting their floor
space to ATM operators in return for a percentage of individual transaction
charges. The same trend of growing retail involvement is also occurring in
Western Europe, where a number of major retailers in the UK, France,
Belgium and West Germany are experimenting with or have announced plans
to install ATMs in their stores.
The desire by retailers for universality for all card holders to be able to
access machines on their premises has been shared by a number of banks. As
a result in the United States there has been a rapid growth in the number of
ATMs linked by some form of shared network. Some of these work in
localized geographic areas while others cover much of the country. In France
the largest overall shared network links the electronic point of sale and ATM
networks of all the leading banks. In Germany moves are in train to create a
Europewide electronic card access system based on the Eurocard. Finally, the
two leading credit card companies Visa and Mastercard are endeavoring to
create global ATM access systems for the cardholders of member banks.
ATMs have become an important delivery system for cash withdrawal,
deposits, balance reporting and interaccount transfers in retail banking. The
number of ATMs installed is still increasing at around 30 per cent per annum
worldwide and their growing numbers pose a substantial threat to traditional
transaction based branches. This is especially true for new ATM installations,
which will tend increasingly to be off bank sites and relatively universal in the
cards that will be able to access them. For banks the installation of further
ATMs must be carefully considered as a component in overall delivery system
strategy, and where such installations are undertaken consideration should at
 169

the same time also be given to the size and shape of the existing branch
network.

9.2.7 The Financial Supermarket

As a result of deregulation it has become possible either directly or indirectly to

operate a supermarket for financial services within the retail market. Such a
concept brings together normal banking services and services traditionally
handled by other specialist institutions with barriers to entry created largely by
official regulations. Such services usually include stocks and shares brokerage,
and as part of their product market strategies many banks have moved rapidly
to acquire outright or to achieve strategic stakes in, leading brokerage
companies around the world. They also include insurance which is still not a
permitted service offering for banks either as brokers or as underwriters in
some leading countries, notably the United States. This restriction where it
persists can still be avoided, however, by franchising branch space to
established insurance brokers or direct sales underwriters. Finally, the
financial supermarket may well offer real estate finance and brokerage
services, and already Lloyds Bank has become the largest real estate broker in
the UK while Sears Roebuck and Merrill Lynch have both built national retail
real estate brokerage chains in the USA.
By offering all these financial services under the same roof, banks hope to
spread branch overhead expense costs while at the same time increasing the
appeal of the branch to users of each of the specialist services offered. As
a result it is hoped branch space utilization will improve. In addition such
branches may be laid out so as to stimulate the use of extra services by placing
the transaction component of the bank towards the back. Under such a system
it is necessary for transaction users to pass open plan desks or areas offering the
additional services. Conventional financial services may not, however, be
sufficiently popular to generate substantial branch traffic volume of them¬
selves, and as a consequence some institutions have been exploring the use of
related services which have better capability of generating floor traffic. Such
other traffic generator services which have been considered and in some cases
offered include travel services and consumer credit finance facilities. Whether
this multiservice strategy offered by banks and other financial institutions will
succeed is, however, still unclear.

9.2.8 The Department Store Financial Supermarket

Deregulation has brought the invasion of the financial services industry by

major retailers. A number of these are beginning to offer a range of financial
services to their established customer bases. Moreover, for such institutions
the entry barrier into financial services is relatively low. They already possess
large established client bases. For example, while the largest bank card client
170

base in the USA is Citibank’s, with around 11 million card holders. Sears
Roebuck’s charge card base is over three times this number. Further, they
have traditionally been strong in retail revolving credit finance, usually written
on their own book.
After purchasing the brokerage firm. Dean Witter Reynolds and real estate
brokerage operator Coldwell Bank, Sears Roebuck began experimentally to
open financial service centers in their existing retail stores in 1983. In the state
of California, Sears also offered banking services after purchasing a savings and
loan bank. Following successful experiments by the end of 1984, Sears planned
to have 300 in-store financial centers open offering insurance, real estate and
investment brokerage services. By 1986, the number of such outlets was
expected to rise to 600 nationwide.
In offering financial services in-store. Sears Roebuck has a number of
significant advantages. Firstly, the store group’s image for quality and
reliability inspires confidence, especially among middle American consumers.
Second, Sears automatically has the store traffic generated by its department
store merchandise range, unlike a competitor bank which has no such traffic.
Third, Sears has an established customer base using its in-house credit card
facility, and also its catalog sales purchasers who can provide automatic target
audiences for advertising messages about Sears’ financial service offerings.
Fourth, in its advertising Sears stresses the relative differences in its store
opening hours compared with those of the banks. Sears' financial centers are
open 10 am till 9 pm Monday to Friday, 10 am till 5 pm on Saturdays and 12 am
till 4 pm on Sundays. Finally, relative staff and premises costs for the retailer
have been estimated at around 60 per cent of those of a commercial bank due to
lower relative rental costs and a combination of lower actual costs and longer
opening hours for employees.
Sears’ pattern of entry into financial services has been eagerly monitored by
many other lending retailers who believe they have a similar retail image to
Sears. As a result leading department stores, mail order operators and
up-market supermarket groups are actively contemplating or have decided to
enter the financial services industry in a significant way. Around the world,
therefore, the financial services supermarket concept is being developed as an
active component of strategy by leading retailers.

9.2.9 Electronic Point of Sale

Electronic funds transfer at the point of sale (EFTPOS) offers a cashless

method of payment to the consumer at the point of purchase. The leading
exponents of electronic point of sale are not bankers but actually the gasoline
retail companies. These organizations not only wish to provide consumer
convenience but also to reduce their float tied up in credit operations. Further,
they see electronic point of sale as a prerequisite to the introduction of
unmanned gasoline stations. EFTPOS will, however, also be important in all
 171

areas of retail transactions, although at present there remain considerable

differences between retailers and bankers about who manages the EFTPOS
network and also who pays for hardware and software development.
In many countries EFTPOS schemes proposed by banks have run into
difficulty as the banks have endeavored to charge more than retailers have
been prepared to accept. While EFTPOS will doubtless become an important
payment mechanism it is not expected to wholly replace cheques, although
successful EFTPOS systems are likely to reduce cash payments and in
particular stimulate the use of debit rather than credit cards. As with ATMs,
EFTPOS also reduces the need for consumers to visit the branch network.

9.2.10 Intelligent Terminals

In the corporate market, developments in electronic banking have led to the

introduction of intelligent terminals. With these, and backed up with their own
central processing units, corporate treasurers can interact with the bank’s own
mainframe computers to undertake cash management, transactions, letters of
credit and the like, receiving timely transaction data and other economic and
financial information services.
The introduction of intelligent terminal delivery systems has advanced most
rapidly in the United States, where it is quickly becoming the norm in the large
and increasingly the medium corporate market. In Western Europe such
systems are being introduced but, apart from large multinational corporations,
penetration is still low. In Japan, ‘firm’ banking was only permitted by the
regulatory authorities in 1983 but is gaining rapid acceptance. The strong
experience effect in this service means that competing banks should drive for
early market share gain. As a result, aggressive competitors such as Citibank
and Chemical Bank have been striving to quickly build up their installed
terminal base during the rapid growth phase of this delivery system.

9.2.11 Home Banking

The corollary of intelligent terminals in retail banking has been the

introduction of home banking. Utilizing a microcomputer or other form of
terminal and linked by telephone or videotex, home banking experiments are
taking place in most developed economies. In the United States some such
systems have already been launched commercially but the number of
subscribers are currently few, although with the rapid expansion of home-
based microcomputers the potential user base is expanding rapidly.
Normally home banking is likely to be just one of a range of services
provided as part of a home information system which also offers shopping,
news, entertainment and information data. The home banking service itself
will usually permit account interrogation, interaccount transactions, bill
payments, loan generation and electronic mail. In addition some systems are
172

adding brokerage, insurance and mortgage banking facilities. By the end of

the decade home banking is expected to become a significant alternative
delivery system to conventional branch systems but is presently still of limited
importance.

9.2.12 Card-Based Systems

Card-based delivery systems have rapidly expanded the array of services they
are capable of delivering via a variety of distribution outlets including banks,
stores, airports, ATMs and the like. The future potential of cards still seems
considerable as ‘smart’ cards with memory capability provide new opportuni¬
ties for service expansion. Already Citibank’s Focus Account Card based
service is stated to be able to deliver some 30 products or services to card
holders, with services being accessed in a variety of bank and non-bank
outlets.

9.2.13 Telemarketing and Distance Delivery Systems

The larger ‘branch’ of Manufacturers Hanover with $250m of deposits has no

customers visit it. The ‘branch’ customers reside throughout the USA and
their deposits have been solicited by long line telemarketing and direct mail.
There has been a substantial growth in both credit and deposit service sold via
direct mail, telemarketing and direct response newspaper advertising. These
systems are much cheaper than full branch operations and are especially
useful to banks which do not have high involvment in nationwide bricks and
mortar.

9.3 TRENDS IN DELIVERY SYSTEM STRATEGY

As a result of deregulation and increased market segmentation, there has

been a sharp increase in bank service distribution outlets. However, while the
number of traditional branches grew slightly or was stable in most countries
during the 1970s, the 1980s have seen a sharp decline trend in their numbers.
Meanwhile the numbers of machine and electronic delivery system outlets
have grown dramatically. Overall, in both corporate and retail banking there
has been a growing choice of delivery system, much greater time flexibility
and a variety of methods of undertaking financial transactions. Moreover,
distribution outlets have tended to become increasingly specialized and
directed towards specific groups of customers. The most obvious of these
trends has been the growing move to provide different outlets for retail and
corporate accounts as part of the strategy of dividing individual and
institutional banking.
The squeeze on interest margins, pressures for service unbundling and the
need to provide improved quality to selected customer groups has forced
banks to both add expensive new delivery systems and reexamine the cost of
 173

maintaining traditional distribution methods. While heavy investment has

therefore been taking place in electronic delivery systems, disinvestment,
closures and cost rationalization are now occurring in traditional branch
systems.
For branch-based banks the critical costs in operations have always been
staff and premises. While spread differentials remained high, banks could,
and did, afford to pay above average in salaries and fringe benefits. Today
banks can no longer afford such luxuries as loan loss rates rise, spreads
narrow and return on equity falls to levels which make the raising of new
equity funds difficult. As a result, with the introduction of more machine and
remote distribution outlets banks are being forced to cut the costs of traditional
branch offices. This is occurring in a variety of ways, notably:

Branch closures. In the United States many banks have announced branch
closure plans. For example, the Bank of America in California is closing
around a third of its overall network while increasing its number of ATM
installations and introducing home banking. Branch closures are also
occurring among international branch networks which were expanded
rapidly during the 1970s. Many of these branches, operating largely in the
corporate market in world financial centers, have consistently been
unprofitable. In Japan, for example, the majority of most international bank
branches were operating only marginally profitably in 1983. For many banks
the initial desire to service large-scale multinationals via a global branch
network has given way to a more focused strategy on a more limited
geographic, customer or service base, leading to a rationalization of
unnecessary, expensive international branches.

More limited service branches. To cut costs, a growing number of banks are
relying more on limited service branches or thin branches. For example, in
the United Kingdom Barclays has announced plans to cut its 3000 plus
network of full service branches by half. After some 100 closures, half the
remaining branches are being converted either to limited service satellite
branches or to agency or support branches of the machine and teller variety.

Increased specialist branches. Many banks are trying to convert existing

branches into specialist units where the level of customer support will justify
it. In particular, medium corporate branches are emerging as important in
major cities, while real estate and high net worth individual branches appear
to be of growing importance in retail banking.

Automated branch experimentation. Many banks are experimenting with a

variety of automated branch formats. Operating a limited number of services
notably for retail customers, existing automated branches have proved only
partially successful, appealing to a special technologically oriented customer
174

segment. At present, therefore, automated branches are not a significant

element in delivery system strategy and it is still unclear as to how well the
concept will be accepted.

Electronic and machine banking. Virtually all banks are incorporating

greater elements of electronic banking in their delivery system strategies.
ATM utilization is growing, although many banks do not enjoy good
utilization rates for machines as a result of poor marketing, bad siting or
both. For successful ATM introduction great care must be taken to ensure
easy use, good site selection and adequate marketing to build the customer
card base. For smaller banks linkages to joint networks are also important
to reduce overhead and systems development costs.

Electronic terminal banking for both corporate and retail sectors is also of
growing importance. Corporate intelligent terminal banking will rapidly
become common, although retail home banking is unlikely to form a major
element in customer services for some years. Again for smaller banks the cost
of electronic service development are potentially prohibitive and therefore
such institutions are likely to rely more on franchised or shared systems.

9.4 THE OUTLET LOCATION DECISION

In deciding upon its delivery system strategy, the established branch bank
today is forced in most cases into a mixed delivery system strategy. For new
entrants the choice of delivery system strategy may be more open; dependent
upon the service range and customer base covered by overall product market
strategy. Thus organizations without established branch networks may seek
to reach a segment of a wider market by adopting only electronic, telephone
or direct mail service delivery systems, using price to offset the lower service
quality of a non-physical presence. Some form of physical presence is usually
necessary, however, for anything other than a limited segment service range
strategy. A critical ingredient in such a strategy is the outlet location decision.
In this decision process the following steps need to be considered:

1. Evaluate the territory in terms of the customer characteristics, corporate

or retail, and competitor bank strategies.
2. Decide what type of delivery system outlet is most appropriate for the
geographic area.
3. Select the type of location that is most appropriate for an isolated unit,
unplanned business direct or planned shopping center complex.
4. Analyse and decide between alternative sites of the appropriate location
type.

The area over which a banking outlet operates can be divided into three
parts as shown in Figure 9.5, namely primary, secondary and fringe. The
 175

primary operating area embraces 50-75 per cent of branch customers and is
the area closest to the branch with a minimum of overlap with other branches.
The secondary operating area contains a further 15-25 per cent of
customers. Customers from this area are more widely dispersed and there
may be different overlaps with different branches or outlets. The circular
pattern shown in Figure 9.5 need not be characteristic and the actual
operating area will be determined by a number of other factors such as
number and type of branch outlet, location and density of competition, actual
travel time and mode of travel, and location surroundings. For example, bank
branches are relatively low traffic generators, even parasites, whereas certain
types of retail stores are high generators and adjacent bank branches may well
gain from spin-off traffic.
The size and shape of the branch operating area can be determined relatively
accurately from a study of branch records. Such investigations can be improved
by additional trend analysis and specific surveys to measure actual and
potential changes in operating area traffic volume. The value of specific areas
 176

for individual service volumes can also be calculated based on patterns such as
Reilly’s law1 or refinements proposed by Huff2 and Gautschi3 as follows:
Expected annual service use = number of customers by segment in the area
X
percentage of customers in area using your
outlet
X
annual expected service use per customer.
Thus the nature of the customer base and the type of services used by different
sociodemographic groups can be included to assess branch or outlet potential.
For this analysis it is possible to assess the total value of a particular area and,
coupling these data with the degree of competitive activity, some estimates can
be made as to the economic viability of alternative branch or outlet strategies
for particular areas as shown in Figure 9.6.

Figure 9.6

William J. Reilly, Method for the Study of Retail Relationships, Research Monograph No 4
2 (Austin University of Texas Press, 1929), University of Texas Bulletin No. 2944.
‘ David L. Huff and Larry Blue, A Programmed Solution for Estimating Retail Sales Potential
^ (Lawrence: University of Kansas), 1966.
3 David A- Gautschi, Specification of patronage models for retail choice,
 177

9.5 SUMMARY
The choice of delivery system for the individual bank has become a critical
strategic issue. In evaluating delivery system strategy the bank must first
evaluate its overall product market strategy and determine the most
appropriate geographic coverage and outlet type to meet the service needs of
its served market customer base. Moreover, care must also be taken to
evaluate the future trends in these served market customer needs and in
various delivery system cost structures. Evaluating specific outlet sites should
be done in a rational manner, by evaluating various service modes and
estimating the economics of such alternatives. In particular, care must be taken
not to treat the existing branch network as an inflexible system which must be
preserved at all costs. Such an attitude will lead to more agile competitors
potentially gaining and using important cost advantages to achieve a
competitive edge.

9.6 EVALUATING DELIVERY SYSTEM STRATEGY

Delivery system strategy is becoming a critical area for bank strategic
decision-making as a result of new technology and deregulation offering a
growing choice of channel. Evaluate your present and proposed strategy using
the following checklist.
1. What is the make-up of your existing service delivery system?
2. How appropriate is the system for reaching the customer segments you
have identified in your served market?
3. What delivery systems are being used by competitors and with what degree
of success?
4. How saturated is your served market with each type of delivery system?
5. What is the trend for each type of delivery system?
6. How do you estimate the costs of each alternative system? How do your
costs compare with system averages and those of critical competitors?
7. Have you evaluated your overall delivery system strategy to ensure it is
consistent with technological, customer and competitive trends?
8. Is any part of your delivery system a sacred cow?
9. Where necessary, have your systems been rationalized?
10. Where significant experience effects operate, can you afford to play the
game? If not, what franchise/acquisition or technology buy-ins are
available?
11. Is your research and development of delivery system development
adequate in terms of money, people, software and hardware?
12. Do you adequately evaluate site alternatives for various delivery system
options? .
13. Do you consistently monitor demographic changes in ypur branch
operating areas to ensure that your delivery system strategy is current?
14. Have you developed adequate decision support systems to undertake
quantified site evaluation?
 CHAPTER 10

Communications Strategy

10.1 INTRODUCTION

Communications strategy has become an important ingredient in bank

marketing strategy. Since the early 1970s when banks paid little attention to
communications they have been forced to spend heavily on advertising,
publicity and personal selling, the relative mix depending upon the specific
market segment to which they have attempted to appeal. The four major
elements in communications strategy are as follows:

1. Advertising. This is a non-personal vehicle for presenting and promot¬

ing services and image for a bank or financial institution. A dramatic
growth has occurred in the level of bank spending for services directed
both to individuals and to corporations. Banks have also engaged in
image advertising.
2. Public relations. This form of non-personal communication attempts to
present the bank in a favorable light in news stories and other media
coverage which is not specifically paid for directly. Such activities
include news releases, officers’ speeches, sponsorship of external
events and the like. Banks have made substantial use of sponsorship of
sporting, cultural and charity events for image public relations.
3. Promotion. Important for retail banking, this involves the use of
short-term incentives to encourage the purchase of specific services. In
the late 1970s, for example, the New York ‘toaster wars’ involved
giving away consumer appliances of various values in return for
different levels of deposits.
4. Personal selling. Because of its expense, personal selling tends to be
used in the banking industry only to those segments which can justify
the cost. Account and relationship managers are becoming the norm in
middle and large corporate banking, but in individual banking personal
selling tends to be confined to high net worth individuals.

There are many variants of each of the four main communication elements as
shown in Figure 10.1. One problem for banks which makes the communication

178
 179

Advertising Public relations Promotions Personal

selling

Print ads Press kits Giveaways Branch managers

TV & radio ads Speeches Fairs & trade shows Account officers
Cinema ads Seminars Exhibits Relationship
managers
Mailings Annual reports Demonstrations Personal inv.
managers
Directories Sponsorship Special discounts Telemarketing
In branch leaflets Free banking Seminar selling
Display signs Special investments
Promotional magazines
Audiovisual
materials
Brochures & bulletins

Figure 10.1 Communications system variants

task more difficult is that for most service offerings there is no physical product
that consumers can see. This makes it especially important to describe the
service clearly and to identify the benefits that can be expected to accrue from
its use and that satisfy customer needs.

Figure 10.2 The communication process

A message is sent from the sender to the desired audience via a communica¬
tion channel. (Figure 10.2) This in turn results in feedback from the audience
which may or may not be the action desired by the sender. When an unwelcome
result occurs, this is due to system noise, which results in the wrong message
being received. This communication failure occurs for a variety of reasons,
including:

1. Selective attention—Occurs when the audience only listens to part of

the message because of heavy exposure to many other and often
conflicting messages from other senders.
2. Selective distortion—Occurs when the audience twists the message it
hears to mean something else.
3. Selective recall—Occurs when the audience only recalls a small part of
the message.
 180

4. Feedback distortion—The response by the audience may be similarly

misinterpreted by the sending bank as a result of noise in the feedback
mechanism. The role of communications strategy is therefore to cut
through the noise to provide a clear message to the receiver which
results in actions desired by the sender.

10.2 DEVELOPING COMMUNICATIONS STRATEGY

The process of developing communications strategy is illustrated in Figure
10.3. Communications strategy forms an essential component in the design of
overall marketing strategy. As such, an appropriately developed strategy will
identify what message to communicate, to whom, where, when, how often, by
what means and at what cost to achieve expected objectives. The strategy, once
implemented, should be carefully monitored to check if it is achieving its
objectives, and if not either the marketing strategy, objectives or communica¬
tions plan will need to be modified.

10.3 PERSONAL SELLING

Personal selling has traditionally been the principal communication channel in
the banking industry, although until recently the concept of selling financial
services was very poorly developed. Nevertheless the branch delivery system
and the branch manager in particular were seen as the key to client interface. In
corporate banking personal selling is still the preferred means of communica¬
tion and in the large and medium corporate market specialist account managers
have tended to supersede traditional branch managers as the main mechanism
for the bank to sell its services. The role of this form of personal selling is
discussed in detail in Chapter 6.
In the small corporate market the role of the branch manager remains critical
but in this sector non-personal selling is also important, especially in lead
generation. The branch manager operates on a geographic territorial basis,
covering the area around his branch and being responsible for selling an
exceptionally wide product range for a full service branch. In addition, the
branch manager and his staff are also an important interface for the sale of
personal financial service products. In this area, however, branches have
become of significantly less importance due to greater use of direct mail, the
press, tie-in deals with providers of other products and services and the
development of electronic delivery systems. The rising cost of personal selling
also threatens to continue to restrict the level of service which can justify the
provision of person-to-person communication. Moreover, the emergence of
alternative delivery systems means that customers, both personal and
corporate, have less and less need to visit branches, where banks have
traditionally concentrated their personal selling efforts.
Unfortunately most branch bank managers were also recruited not as
 181

Figure 10.3 Developing communications strategy

 182

salesmen but rather as administrators, and banks face a major reeducation or

personnel replacement task to convert their existing branch outlets into
attractive centers for the sale of financial services. The role of personal selling
as a commuinication channel may therefore change significantly in banking.
Customer, rather than geographic, specialization is likely to grow in
importance for larger corporate markets, and also the provision of personal
finance counsellors for the high net worth individual segment in retail banking.
The provision of services to other personal clients and for small business will
tend to rely less on personal selling and more on the use of off-site
semi-automated or automatic services such as retail revolving credit loans,
credit-scored in-store consumer finance, and off-site salespersons in centers
such as car showrooms, retail stores and the like.
Innovative, more cost-effective personal selling techniques such as telemar¬
keting and seminar selling for both corporate and personal finance services will
also be introduced. Such vehicles tend to be best used for product-specific
concepts such as Bank of America’s foreign exchange management seminars or
Chemical Bank’s IRA seminars. These seminar techniques do not rely wholly
on personal selling but are usually enhanced by the use of audiovisual
techniques such as videos and audio cassettes which may incorporate popular
actors; these improve presentation and allow for the development of consistent
professional standards. Such standardized presentations are then supported by
personal selling professionals in after-presentation discussions to follow up or
complete service sales.
In developing the role of personal selling in the bank’s overall communica¬
tions strategy, the requirements for each key client group should be assessed
and objectives for different forms of personal selling developed. Strategies to
provide the necessary resources including retraining, sales skills education and
sales support materials should then be established. The impact of introducing
these policies then needs monitoring against the objectives to ensure that they
achieve the desired results.

10.4 PROMOTION AND PUBLIC RELATIONS

Sales promotion and public relations have increased sharply in importance in
recent years, especially in consumer markets. Promotion tools include a wide
variety designed to stimulate or enhance market response which may be
generated by other components of communications and marketing strategy.
Such tools include samples, contests, prices-off, premiums and demonstra¬
tions. Trade promotions may also be offered when bank services such as
consumer finance are provided through third parties like retailers or
automobile distributors. Such promotions include special volume discounts,
free goods, cooperative advertising, dealer sales contests and dealer salesmen
incentives. Within banks themselves incentives are being increasingly offered
for superior performance. Many banks now offer bonuses for meeting sales
 183

objectives or other incentives such as contests, free goods and holidays.

Promotion techniques tend to be faster in operation than advertising but the
response to them is also usually shorter in duration and not especially likely to
affect basic customer loyalty. As such, promotions attract deal-oriented
consumers who are likely to switch banks rather than new long-term accounts.
By contrast, advertising is more likely to capture new ‘permanent’ accounts.
Promotion can be especially helpful, however, in increasing awareness and
image of new services by existing customers and used in this way can form a
valuable element in communications strategy.
Public relations is more of a background activity and is designed to enhance
the bank’s position with specifically targeted audiences. Sponsorship has thus
become an important activity in developing bank image. Such sponsorship can
be directed to specific target customer segments such as accountants, farmers,
culture lovers and sports players. The key objective of publicity is to obtain
editorial coverage, as distinct from paid space, in media seen by the bank’s
desired customer base. It may be used to promote services, places, ideas,
people, activities and organizational image.
The results of publicity can, however, be especially important and close
attention to public relations can lead to substantial strategic advantage. This is
especially important for institutions with low communications budgets since
publicity is generally much cheaper than direct mail and media advertising.

10.4.1 Setting Sales Promotion Objectives

It is important to establish what the objectives are for a sales promotion before
it is introduced and to anticipate the likely competitive response. Such
objectives might be to encourage more usage, to develop trials amongst
non-users and to attract new accounts. For trade accounts objectives usually
center on offsetting competitor promotions, building bank loyalty and gaining
increased distribution coverage. Within the bank, objectives include preferen¬
tial development of specific services, encouraging new account openings and
cross-selling additional services.

10.4.2 The Choice of Promotional Tool

The tools available for achieving these objectives are many and varied. In
choosing specific tools the bank should consider the market target, prom¬
otional objectives, likely competitive reactions and cost. The major tools
available include the following.

1. Samples, premiums and coupons. Samples, widely used in consumer

promotions, are normally more difficult to use in financial services where
physical products rarely exist. Normally samples are therefore provided by
offering customers free use of a service for a trial period to enable them to test
184

its value to them and to become familiar with its usage. Examples would
include the offering of its Diners Club service by Citibank to new users free for
six months; the provision of free corporate cash management interactive
terminals to corporate treasurers for several months; and free home banking
terminals for trial periods by a number of banks.
Premiums are products offered at a relatively low cost or free as an incentive
to use a particular service. Premiums come in a wide variety of forms, and
although the use of consumer appliances and the like as incentives for opening
different levels of deposits which developed in the later 1970s when interest
rates were controlled in the USA has diminished, they are still widely used.
They include the provision of free T-shirts, specially shaped children’s piggy
banks, low-price telephones, home computers, book vouchers for students and
the like. Coupons, which are certificates entitling the holder to a specific saving
on a specific service, are not widely used in the banking industry. They are,
however, effective in stimulating sales of new services and have been used to
increase penetration in specific segments such as student, young people and
senior citizen groups, where free banking services may be offered to new
accounts. The travel and entertainment card concerns American Express and
Diners Club also make extensive use of coupons as part of tie-in deals with
restaurants and airlines to stimulate extra card usage.

2. Point of sale displays and demonstrations. Point of sale displays are used as
silent salesmen in most bank branches. In general, however, such displays are
weak and rely on impulse selection of bank service literature. This is often
unattractive, being in leaflet form and rarely advertised to stimulate consumer
awareness or interest. Demonstrations are, however, becoming much more
important activities in bank marketing via the use of seminars and out-of-bank
displays presented to focused corporate and individual customer groups.
Professional demonstration teams and multimedia techniques are becoming
common today and this area of activity is likely to increase in all market
segments.

3. Contests, sweepstakes and games. The banking industry usually likes to

consider itself above the use of such promotional devices. However, there is
again growing employment of these tools to stimulate share and usage. For
example, in the USA some banks have successfully endeavored to stimulate
ATM usage by having customers record and submit transaction numbers as
entries for sweepstakes. Others have developed contests for prizes in particular
segments such as among young and senior citizen account holders. In the
business market contests have also been use by Amex, again to stimulate card
usage.

4. Distribution system promotion. Banks have used many techniques to

stimulate the preferential use of their services with third parties. Tie-in
 185

advertising allowances are common, especially by American Express, but also

by other major card companies. Similarly Barclays, Citibank, American
Express and others have provided special prices and allowances to participat¬
ing banks distributing their travellers cheques. Credit finance subsidiaries of
the banks have offered push money bonuses and contests to dealers to push
their credit services. Specialty advertising items carrying the bank’s logo such
as pens, pencils and the like are commonplace. Some companies, notably
American Express, will also reward account introductions by individuals with
packs of wine and other free gifts. Overall, for services offered via third parties
the banks have found it increasingly necessary to use sales promotion
techniques to develop their market positions in the face of greater competition.

10.4.3 Developing Sales Promotion Programs

In designing the bank sales promotion program, determine the following:

1. Nature of audience participation. Decide precisely who the bank

wishes to participate in the promotion and target on this customer
segment.
2. Nature of incentive. Determine what form and size of incentive the
bank should offer, aiming to establish one large enough to encourage
the level of usage desired but bearing in mind that effectiveness
diminishes beyond a certain point.
3. Nature of delivery system. Decide what delivery system the bank
should use to disseminate the promotion. Each channel, branch, direct
mail, press, in-store and the like will have different levels of reach and
cost.
4. Duration of promotion. Ensure the length of time the promotion is
offered is adequate for the selected audience to take advantage but still
short enough not to lose impact.
5. Promotion timing. Most promotions are best undertaken at particular
periods of the year. Thus home improvement loans might be best
promoted in spring, student loans in the autumn.
6. Determine promotion budget. Normally sales promotion is treated as a
component of the overall communications budget. The cost of
individual promotions is calculated as the incentive cost multiplied by
the expected usage plus the cost of administration. This can be
compared with the expected gain in contribution from increased
service usage.

10.4.4 Evaluating Promotion Performance

As a prelude to undertaking a full-scale promotion it is wise to attempt to
pretest its effectiveness. Relatively few banks do this but alternative
186

promotions can and should be tested in selected markets prior to any

large-scale launch. Unfortunately, banks have a very bad history of post-pro¬
motion evaluation. It is, however, strongly recommended that such efforts are
made.
At least banks should check the level of service utilization before, during and
after a promotion. This latter should include both a short-term and a long-term
effect measurement. Consumer panel data should be used to check the types of
people who responded to a particular promotion and which ones remained
affected over the long term. Finally, an attempt should be made to assess the
overall effect on bank profitability of specific promotions.

10.4.5 Setting Public Relations Objectives

Specific objectives should be established for the public relations function so
that the bank’s money and effort is not dissipated over a wide spread of
unfocused activities. Lloyds Bank, for example, has established a set of
guidelines for its public relations with four main rules, namely:1

1. We do not sponsor individuals, only organizations

2. We do not put money into bricks and mortar
3. We do not support events outside the UK
4. We do not do any sport

The bank’s reasons for these guidelines are that, as there are too many
individuals to choose between it would be dysfunctional to make choices;
bricks and mortar projects are not noticeable because they fail to involve
people; sponsorship relates to the retail banking market which for Lloyds is
largely in the UK; and sport is much too expensive for the bank's limited public
relations budget. As a result the bank targets its activities very closely to
specific groups such as the better educated young, farmers, young businessmen
and the like. In its regional sponsorship the bank is looking mainly for
opportunities for regional head offices and branches to combine customer
entertainment with a demonstration of the bank's commitment to the
community. As a result the bank is a strong supporter of agricultural shows,
concerts and cultural events by touring national arts companies. Care should
also be taken to link public relations strategy to overall communications policy.
For example, the Midland Bank launched a major TV and press campaign to
stress its friendliness and interest in customers under the theme of the ‘listening
bank’. However, when a number of press stories broke about court cases by the
bank against individual customers who appeared to have overextended their
credit positions this friendly image campaign looked like rebounding badly.

1 Lloyds Bank News 1984, p. 5.

 187

Strenuous public relations efforts were required to reduce the negative impact
the court cases had on the overall effect of the campaign.

10.4.6 The Choice of Publicity Vehicles

The choice of suitable newsworthy, image-appropriate activities for the bank

to engage in is critical to the success of public relations strategy. The public
relations specialist is therefore interested in creating news rather than
identifying it. The appropriate choice of events for support or sponsorship
provides a vehicle to reach a variety of audiences with many stories. The wide
variety of promotional opportunities arising from football sponsorship is
illustrated below:1

— Providing tickets in a VIP box for good customers

— Sponsoring pre-and post-game receptions
— Using a coach or star as a spokesperson
— Developing point of sale materials and displays
— Providing schedules in a mailing
— Offering fan team shirts, photographs and the like
— Running advertising in scorecards and programmes
— Purchasing stadium advertising
— Circulating a highlight film in the offseason to clubs
— Recruiting and training a retired player to work
— Sponsoring half-time entertainment competitions
— Holding a lunch for key accounts with leading players at each table
— Sponsoring a young players’clinic
— Getting a top player to visit schools
— Arranging special seating for the handicapped at the stadium

10.4.7 Evaluating Public Relations Results

The precise measurement of the effect of public relations is difficult because it

usually forms only a small part of the bank’s overall communications strategy.
One technique, which is not necessarily satisfactory, is to measure in terms of
column inches of publication coupled with the circulation of these newspapers
and magazines plus airtime and audience measures for TV and radio. While
this physical measure monitors the level of exposure of the bank, it is also
important to evaluate the changes in consumer attitudes, comprehension and
attitude to the bank as a result of media exposure. This involves their measured
evaluation before and after particular publicity campaigns. Finally, the overall
profit impact should be measured wherever possible. This should be based on

1 ABA Banking Journal, September 1984, p. 42.

188

the estimated effect of public relations on service performance. When

estimated costs of providing the service have been deducted, the net
contribution can be measured against direct costs of the publicity program to
provide an estimated rate of return.

10.5 ADVERTISING

Advertising may be defined as a controlled form of non-personal presentation

message about specific ideas or services from an identified sponsor via a
specific communication medium designed to inform and persuade selected
audiences to undertake actions desired by the sponsor. In recent years the role
of advertising in the banking industry in both personal and corporate markets
has expanded dramatically and the financial services industry is now one of the
most important sources of advertising revenue. In developing advertising
strategy the bank must first ensure that it conforms to overall marketing
strategy. The process of developing advertising strategy then consists of the
following steps:

— Set advertising objectives

— Establish copy platform
— Develop the media plan
— Set the advertising expenditure level
— Measure advertising effectiveness

10.5.1 Setting Advertising Objectives

Advertising objectives are generally identified as being of two types — direct

action objectives, leading to measurable increases in variables such as sales or
sales leads; and indirect action objectives aimed at communicating ideas and
image and changing consumer habits, which affect sales in the long term. Both
sets of objectives are usually difficult to measure objectively. Normally a mix of
both direct and indirect objectives is adopted for the individual bank's
advertising strategy. Popular advertising objectives include the following:

Induce trial. With new products or services’ the advertising objective

will be to induce trial. Ads will therefore tend to stress benefits
coupled with coupons and free trial offers. For example Bank of
America, to promote its home banking service, used a mixture of
direct mail and press ads to sign 7500 participants with the inducement
of three months free service if they signed within a set period.

Increase usage. Ads which encourage users to increase usage of bank

services are designed in particular to promote the cross-selling of
other services. Direct mail is especially useful for this type of
advertising when services require regular mailings such as state-
 189

ments. Barclay Card therefore uses its monthly mailings to promote

a series of other services such as personal and household insurance
and personal loans. A Midland Bank campaign which demonstrates
the wide variety of uses to which personal loans can be put similarly
encourages increased service usage.

Build differentiation. Much advertising is designed to build differen¬

tiation between banks. Some such advertising is image-generating,
such as that of J. P. Morgan, which emphasizes its strength in depth in
providing large multinationals with specialized services. By contrast.
Citibank has built its differentiation around its electronic banking
skills, using ads to stress its position as the ‘citi of tomorrow’.

Confirm image. Many ads are aimed at providing confirmation of a

bank’s image. Thus Trustee Savings Bank ads stress that the bank is a
consumer oriented institution and is the bank ‘that likes to say yes’.

Change behavior. Advertising can be used to help change people’s

behavior. Citibank has used advertising to help sell the concept of 24
hour cash availability via ATMs; similarly in the corporate market the
bank emphasizes the value of speed in its ad to change corporate
treasurers over to using global electronic banking rather than
paper-based systems.

Increase awareness. Such campaigns are designed to demonstrate and

to remind customers that specific banks can and do provide specific
services. The Bank of Boston thus stresses that it not only has an
extensive international network but also knows the local banking
markets in the 38 countries in which it operates. Many geographic
specialist banks around the world adopt similar awareness campaigns
to encourage correspondent bank and foreign business.

Generate sales leads. The objective of such ads is usually centered on

obtaining names of prospective customers. In banking relatively few
ads generate leads by offering inducements but rather aim to provide
additional information. Business expansion scheme ads from a
number of banks and investment houses in the UK illustrate sales lead
ads. They are also commonly used in corporate bank advertising,
where individuals are nominated to receive suitable incoming
enquiries.

Increase sales. An advertising objective which leads to a direct

increase in sales is highly desirable. Relatively few campaigns enable
such an objective to be immediately achieved. Typical campaigns
190

where such an effect can be demonstrated tend to be press or direct

mail dominated, such as the development of money fund deposits in
the United States.

Build image. The demonstration of ambiance in an ad campaign helps

to build image irrespective of actual costs. Thus Visa, Mastercard and
American Express stress the added features and relative exclusivity of
their gold card products by demonstrating their use in exclusive
locations.

Provide information. Many ads are designed to demonstrate how a

service actually works. This is especially true of complex services such
as the Merrill Lynch CM A ads, which endeavor to stress the
comprehensiveness of the service being offered.

10.5.2 Establishing Copy Platform

Having established the objectives of advertising strategy, it is important next to

establish what an ad should say. A review of the product attributes and benefits
together with an assessment of consumer needs should establish the foundation
for developing the copy platform. This is a critical element in designing ad
strategy and such platforms incorporate the following features:1

1. Principal product benefits

(a) The big advantage
(i) Exclusivity points
(ii) Differentiating points
(b) Secondary advantages
(i) Quality features
(ii) Quality workmanship
2. Ad objectives
(a) Desired initial response from prospect
(b) Desired future behavior of prospect
3. Creative tasks
(a) Selling theme
(b) Verbal approach
(c) Visual approach

Once the overall platform has been established the copywriter has a number
of further decisions to make:

1
W. K. Hafer and G. E. White, Advertising Writing, West Publishing Co., p. 48.
 191

— To determine the format of the ad

— To structure the ad
— To set the ad style

Copy format. Having decided upon what the ad platform should be, the next
step is to determine which to select from among the choice of copy formats
open to the copywriter. The copy format establishes the way in which the ad
message will be presented. Major formats include the following;

Testimonial—the ad message in this format is presented as a testimonial by a

client stressing the benefits of working with the bank. Chase Manhattan s
campaign stressing the theme of the ‘Chase Partnership illustrates such a
format, with companies such as Parfums Christian Dior acting as testimonials.

Humorous—not used heavily in the banking industry for corporate markets,

humor has been used more commonly in retail markets. Funny ads do not
necessarily sell services, however, even though they may have high awareness
and retention characteristics. An example of such a campaign is the National
Westminster Bank cinema campaign on the opening of a bank account by a
punk youth, which stresses that bank accounts are not restricted to upper class
citizens.

Cartoons—cartoon formats are often used in combination with humor and may
be employed by banks to lower their forbidding image. The use of a cartoon
version of the Midland Bank’s Griffin corporate identity in its listening bank
campaign illustrates this.

Straight sell—Ads using a straight sell format stress the expected conscumer
benefits and aim for direct action. The Trustee Savings Bank home contents
insurance services campaign illustrates such a format. The ad stresses the
dangers of burglary and the benefits of TSB cover; it ends with an application
form to complete including a table enabling the applicant to calculate the
precise premium to be paid for a particular level of cover.

News—such a format reads like a magazine story and gives the impression of
being part of the newspaper or magazine in which it is contained. News ads tend
to generate high readership levels because of their format.

Educational—this copy format is used to stress corporate services to create

primary demand or to provide information about a product. The ‘citi of
tomorrow’ campaign illustrates how Citibank’s worldwide electronic banking
services can be employed to solve complex problems by using the bank s
advanced technology. ... * r a
In addition to the choice of format, the size, color and visual content of an ad
 192

can dramatically affect its appeal as well as its cost. Larger ads do gain more
attention but this is not necessarily proportional to the addition in cost.

Copy structure. Irrespective of copy format, the critical task of an ad is to be

structured to gain the attention of the audience to which it is directed.
Traditionally, the content of well-structured ads should reflect AIDA,
standing for Attention, Interest, Desire, Action.
The first task of the ad is to create attention. For press ads this is critically
determined by the use of visuals and headlines. For TV the storyboard is
important. In practice many bank ads are boring, being weak in attention and
interest and totally lacking in the ability to develop desire and action. Some ads
tend to be more designed to placate internal management desires for image
rather than to sell. Despite the massive growth in ad spend therefore, relatively
few financial service industry campaigns have been memorable.
The second task of the ad is to generate interest. While the headline and
visual are used to gain attention, the first paragraph of an ad should stress the
important benefits that can be expected from using the service. The body of the
copy aims to create desire while the closing part of the ad should generate
action. Many bank ads fail to close, and omit to provide a contact point where
the potential client can satisfy any aroused desire. Additional maxims for good
advertising are that ad copy should be believable, retain simplicity and be
readable. Successful ads should also possess good stopping power as a result of
their visuals and headline; should have strong, powerful headlines; make
significant promises; be persuasive; create a positive feeling; and be distinctive
relative to competitive offerings.1 Banks should judge their ad campaigns with
these concepts in mind.

10.5.3 Media Planning

Media planning is concerned with identifying the most cost-effective way of

deliverying the desired number of ad exposures to a target audience, bearing in
mind also the competitive traffic aimed at the same audience. Key factors
which influence the media plan include the following:

Advertising budget. The size of the ad budget is a critical determination in

media planning since certain media will be excluded or reduced as a result of
time and space costs. The cost of specific media will also be affected by the
discount structure they offer.

Media Reach. Each medium has its own specific audience. The media
planner must identify from this audience how well the specific medium

, S; ^hnstian- Stopping power: one of six characteristics of great ads. Marketing News
,
14 No. 6 (February 6, 1981), p. 18.
 193

reaches the target audience he is interested in, since rates will not normally
be related to this group but rather to the coverage as a whole.

Media availability. Not all media are available in all markets. Media plans
must therefore take account both of specific media and of time and space
slots which might be desired for particular campaigns.

Competition. Media plans should take into account the activities of

competitors and endeavor to differentiate from these, although similar
media should be used if these are seen as traditional. Specialist agencies such
as Leading National Advertisers in the USA and MEAL in the UK
respectively provide detailed analysis of competitive media usage.

Relative dominance. The relative weight of advertising a particular

advertiser can bring to a medium compared with competitors is an indication
of its ability to dominate or be dominated. Obviously, awareness and impact
will be significantly affected by ad relative weight and media planners should
ensure that this will be strong enough to achieve overall advertising
objectives.

Today media planning models are commonly used to optimize the choice of
specific media to reach given target audiences with the desired frequency. The
advantages and disadvantages of particular media are summarized in Figure
10.4. The use of broadcast media by banks has grown substantially in recent
years although in the United States the regionalization of banking has tended
to militate against national broadcast campaigns. In countries allowing
nationwide branching, however, TV and radio for retail and mortgage banking
services have become the main media used. Press is still used heavily and has
grown in real terms in line with the overall rise in bank advertising. It has been
found especially important in the growth of direct response retail services,
notably for the sale of savings and insurance products. Corporate service
advertising has tended to stress press, with financial journals, the specialist
international financial press and general business magazines being the major
media. Direct marketing has also grown in importance for both retail and
corporate banking services. Point of sale is used in branches but has not been
developed to a significant degree, while outdoor media have not been heavily
used by banks except for promotion purposes.

10.5.4 Setting the Advertising Appropriation

Many bank advertising campaigns have been badly conceived and conducted in
a haphazard manner at great cost. The advertising appropriation decision and
the allocation of these funds to specific campaigns need to be carefully
determined and the rationale for the decisions established as part of the bank’s
overall marketing program. Unfortunately, there is no clearly superior method
194

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of fixing these sums. In practice a variety of methods are in use. The main such
methods include the following:

Percentage of deposits method. A popular method used by a substantial

number of organizations checks the bank’s level of advertising spend against
that of other comparable banks and companies’ relative levels of deposit
bases. Thus if the industry average ad spend is 0.2 per cent of deposits this
sets the level of appropriation for the bank.

Care must be taken in the use of this method since it may not be an
appropriate one in achieving desired marketing strategy outcomes. It is
popular, however, due to its simplicity and because as deposits rise so too
does advertising appropriation.

Match competitors method. A second method used occasionally sets

advertising spend to match that of competitors. The banking industry, with
its strong follow-the-leader tendency, has tended to watch competitor spend
levels closely and maintain relative parity. One peculiar result of this form of
advertising is the heavy weight of appropriation used to create ads such as
tombstones placed in journals largely read by other bankers as distinct from a
strong readership of potential clients.

What you can afford method? A number of banks, notably smaller ones,
decide on an advertising appropriation based upon what they believe they
can afford. The determination of this amount is, however, obviously
subjective.

Market share method. In order to increase market share, some banks

attempt to spend more than their relative market share position would
suggest. There has been some empirical evidence to suggest that a
correlation exists betwen market share and share of advertising. However,
this does not consider advertising quality, the role of advertising in the
marketing mix or the role of other marketing factors. For example, the
Midland Bank launched a heavy corporate advertising campaign which
stressed the bank’s international services and challenged potential customers
to test the bank to deliver. This campaign was run with a relative ad weight
several times that of Midland’s interest rivals but failed to substantially shift
the bank’s image among large multinationals.

Objective and task method. This method is different to those discussed

above as the appropriation is developed based on the procedure of first
setting marketing objectives; followed by advertising objectives and media
 196

plans to achieve a specific task. This is the approach that emerges by

following the model developed at the beginning of this chapter. The task
method assesses what is needed to achieve objectives, thereby reducing
potential for wastage or forcing the revision of objectives if adequate funds
are not available. Relatively few organizations use this method, however,
and it is still subjectively dependent upon the choice of appropriate
objectives and the correct understanding of the linkage between these
objectives and the selected media plan and copy platform.

Quantitative models. A number of quantitative modelling methods have

been reported to determine the optimal advertising appropriation.1 These
methods have found little use at present in the banking industry.

There is no best method of determining the size of the advertising

appropriation. In most banks it would be appropriate to make use of a
combination of several of the above methods. These should include a task
oriented approach together with qualitative methods which take account of
competitive actions and also what the bank can afford.

10.5.5 Measuring Advertising Effectiveness

In a recent study of 300 US banks and financial services companies,2 the

Financial Research Council, a subsidiary of the Advertising Research
Foundation, found that the companies had little knowledge of the effectiveness
of their advertising expenditure. Specific findings included the fact that little
research was conducted prior to ad campaigns to adequately define market
boundaries or assess customer needs. Second, there was little commitment to
research designed to evaluate advertising before major expenditures were
made. Third, the banks did not have strong in-house skills to conduct research
nor did they use external organizations effectively. Finally, as a result, four out
of ten respondents did not conduct any advertising research at all. Given the
rapid rise in advertising expenditure by banks, this failure to evaluate the
effects of such expenditures is dangerous and should be corrected.
Most work actually undertaken is concerned with the pretesting of given ads
rather than post-evaluation. Where post-evaluation is conducted, most
advertisers try to measure the indirect objective effects on awareness, image
and preference. Direct objective effects tend to be more difficult to measure
except for direct response and direct mail advertising.
Pretesting of ads is undertaken before actual media expenditure is
committed. There are three main methods used, namely:3

' 9Lary L' Jr'11*:" and P' Kotler’ Marketing Decision Making, Harper and Row, New York
IVMJ, pp. 492-501.
2 ABA Banking Journal, October 1983, p. 31.
1 P. Kotler, Marketing Management, 5th edn., Prentice Hall, London, 1984, pp. 655-656.
 197

Direct ratings. A method which asks a selected panel of consumers exposed

to alternative ad’s to rate them in order of preference. Ads may also be rated
according to their attention, readthrough, cognitive affective and behavioral
strengths.

Portfolio tests. In this method consumers are asked to look through a

portfolio of ads and are then questioned, either aided or unaided, on their
ability to recall specific ads and their content. This suggests a measure of an
individual ads ability to stand out and its message to be retained and
understood.

Laboratory tests. Some researchers use instruments to measure physiologi¬

cal reactions to an ad. These tests mainly measure the attention-getting
power.

Ad post-testing methods include:

Recall tests. Researchers test consumers who have been exposed to ads to
recall ads and copy themes. Such recall scores measure impact and
memorability.

Recognition tests. In this method readers of a magazine, for example, are

given particular issues and asked to point out what they recognize. These
tests enable advertisers to compare their ads’ impact with those of
competitors.

Sales effect measurement is harder. It is most difficult to measure in

corporate image-building advertising. Researchers do try to measure effective¬
ness through historical and experimental analysis techniques. Historical
analysis usually correlates past sales with past advertising expenditure on a
current or lagged basis using various statistical techniques. With experimental
designs, particular campaign ad weights can be tested against specific sales
levels achieved to assess relative weight effectiveness.

10.6 SUMMARY

The emergence of communications as a critical ingredient in bank marketing

strategy means that a professional approach must be adopted to the integrated
management of this function. The roles of the relevant elements in the
communications mix between personal selling, promotion and public relations
and advertising need to be carefully identified and modified if necessary in line
with changing marketing strategy. This is especially true as the cost of providing
personal selling increases in retail and corporate banking market segments.
198

For each element of the communications mix, objectives need to be

developed. These objectives should be achieved by an appropriate choice of
policy. The results from adopting specific policies should be carefully
monitored and if necessary the mix or the objectives should be modified to
ensure the strategy is both internally consistent and achievable.

10.7 COMMUNICATIONS STRATEGY CHECKLIST

Use the following checklist to evaluate your bank’s communications strategy:

1. Does your bank communications strategy specifically identify who

you wish to communicate with, where, when, how often and by what
means?
2. Does it also estimate at what cost and what the expected results
should be?
3. Is the role of personal selling clearly identified for each customer
segment?
4. Have you evaluated whether traditional personal selling methods are
still appropriate? Is the role of the branch manager in particular
clearly identified?
5. Have you introduced suitable sales training programs to reeducate
and improve the selling skills of branch staff? Is your reward system
appropriate to the achievement of personal selling objectives?
6. Have you explored the use of specialist personal selling teams such as
account executives for both corporate and high net worth personal
clients?
7. Have you tested seminar selling, telemarketing and other more
efficient uses of personal selling?
8. Has your bank established suitable objectives for its sales promotion
activities?
9. Have sales promotion methods been adopted which support these
objectives?
10. Have you developed appropriate sales promotion programs and the
means of evaluating them?
11. Has your bank established suitable objectives for your public relations
activities?
12. Has the appropriate choice of publicity vehicles been made to fulfil
these objectives?
13. Have you established appropriate means of evaluating the results of
your public relations efforts?
14. Has your bank set out clear objectives for its advertising communica¬
tions?
15. Have you estalished appropriate copy platforms for your advertising?
 199

Do your ads possess AIDA and conform to other successful ad style

elements?
16. Have you made adequate allowance to pretest your ads for qualitative
content to check their ability to create awareness, interest, desire and
action?
17. Have you effectively evaluated competitor advertising against your
own?
18. Has media planning been undertaken to identify the most cost-effec¬
tive way of reaching your desired audience with the planned number
of exposures?
19. Have you evaluated the alternative media choices available in terms
of their advantages and disadvantages and your specific communica¬
tion message needs?
20. Have you developed a logical advertising appropriation budget
taking into account the task of your advertising and competitor
actions?
21. Have you developed ways of testing your advertising effectiveness
both in terms of direct and indirect objective effects?
CHAPTER 11

Bank Organization Structure

11.1 INTRODUCTION

A key factor which differentiates banks in servicing the markets in which they
operate and a crucial element in successful strategy implementation is the
form of organization adopted. Some structures do appear more appropriate
than others in serving particular markets, but history and the nature of the
bank’s core business tend to significantly influence the form of organization
adopted for other markets. These differences can thus provide a particular
bank with a specific advantage or disadvantage. While the overall
administrative requirements of the bank must be taken into account
therefore, it is important to bear in mind that under normal circumstances the
requirements of particular customer clusters should receive priority.

11.2 FORMS OF BANK ORGANIZATION

As banks have developed differently in different countries and states due

largely to regulatory variations several particular bank organizational models
have emerged. The major organization forms that can be identified are as
follows:

11.2.1 Retail/Commerical Branch Based Structure

This is found commonly in many European banks where countrywide

branching is permissible and where early development usually centered upon
retail/small business transaction based banking. During the 1960s and 1970s
these banks expanded their international branch coverage, the activity of
which was usually more wholesale/corporate in orientation. In addition they
usually diversified their product range both domestically and internationally
into related banking services, notably credit finance and leasing. The structure
of these banks emphasizes organization by geography, based historically upon
the structure used to manage the local branch network. Related banking

200
 201

services are seldom integrated within mainstream bank operations but are
organized as loosely coordinated separate subsidiaries. Many such banks have
recently developed key account units for major corporate customers whose
brief is to provide a global account officer and international coordination
crossing the normal geographic divisional boundaries. However, profit
responsibility is usually left with the regional units. Examples of banks like this
would include Barclays, Lloyds and AmRo Bank. Details of this type of
structure are shown in Figure 11.1.

11.2.2 Customer/Service Based Structure

Many US banks with limited local state branching capability have organized
with structures based around customer clusters. These banks have primarily
focused upon corporate accounts and have relatively small retail businesses.
They tend to organize around local banking and international operations, with
the latter being primarily concerned with large corporations. Locally the focus
will be retail banking, local metro-business and out-of-state US corporate
banking. Corporate banking is therefore handled at the level of the branch for
very small business, with geographic account officer structures dealing with
middle market accounts and industry specialization being quite common for
large corporate acounts. International activities tend to be organized largely on
a geographic regional basis, but below this level in large branches and in the
USA customer structuring by industry specialization is also common. Many
such banks also have a key multinational account unit responsible for servicing
around 500 or so major global MNCs. Related banking services, trust and
investment services tend to be organized firstly by function and separately from
retail and commercial banking. Such banks tend to have only limited retail
aspirations away from their local geographic areas although many have offered
high net worth private banking as a special service for a limited number of
individual accounts. Examples of such structures would include Continental
Illinois, Chemical New York Corpn and Manufacturers Hanover. Details of
this type of structure are shown in Figure 11.2.

11.2.3 Customer Based Structure

A recent adaptation of the customer/service based system is the customer

based structure where, for example, the bank has clustered all its relevant
services for a particular customer group under the same global organization.
Thus all consumer banking services around the world ultimately report to the
head of consumer banking. Similarly, corporate or institutional banking
incorporates all the bank’s services designed to service the corporate market,
including activities such as asset based finance which are more commonly
handled by separate subsidiaries. Omitted from such structures are merchant
banking and investment and trust services, which together with international
 202

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203
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private banking and securities information and dealing are tending to be

brought into capital markets groups. Further, banks adopting this structure
may have segregated systems based products as separate product based units
covering retail, correspondent and institutional banking. Examples of this
form of organization are Citicorp and Chase Manhattan and the structure is
illustrated in Figure 11.3.
Different banks emphasize different product customer segments and these
are reflected in their organizational structures. Some therefore place a greater
or lesser emphasis on retail or wholesale business. Some like Citicorp or
Barclays endeavor to provide a comprehensive level of international coverage,
others like J. P. Morgan a more limited degree of overseas branching. Some
banks have emphasized credit finance or leasing, while others have only
developed these services to a limited extent.

11.2,4 Centralized International Division Structure

Relative to the position in Western banks the large commercial city banks in
Japan tend to be less diversified both in terms of the service range offered and
also in terms of loan maturity. This is a function of industry structure in Japan,
which limits the deposit type and maturity open to such banks. By comparison,
however, these banks, although providing retail services, lend mainly to the
corporate sector.
While operating through a branch network, the banks are also subdivided by
both geography and industry in servicing the corporate market. Large
customers may be serviced by account officers from the central office while
branches look after smaller local accounts. Credit review and economic
analysis are, however, conducted by industry and a very detailed level of
industry understanding is the norm.
These banks are also the central short-term funds provider to a large group of
companies based around the old Zaibatsu concept or formed in the post-war
period around the banks themselves. Such an industrial group, which usually
covers almost the entire spectrum of the economy, may well embrace over a
thousand companies.
Outside Japan these banks operate via an international division, although
the principal contact with domestic based companies occurs via the domestic
corporate banking divisions. In decision-making Japanese banks operate a
consensus approach, with loans being decided by a formal ‘Ringi’ system
involving all relevant departments. Discretion limits at individual units are thus
low. An example of a Japanese-type structure is illustrated in Figure 11.4.

11.3 ORGANIZING FOR CORPORATE BANKING

Apart from service range, branch network cover and nationality, one of the
most notable competitive differences observed amongst banks is the way in
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207
 208

which they organize their marketing and selling effort for the corporate
market. In organizing to service the corporate market a number of variables
have to be carefully balanced. In particular, organization structures must take
account of:

Geography This variable plays a major role in branch based banking systems
and in international banking, where time zone, language, currency and
national boundaries all influence structure.

Industry Many industries have particular banking service needs which it

requires specialist skills to deliver if a bank is to manage its services to the
industry competitively, efficiently, profitably and with acceptable risk.
Industry specialists are therefore common in some industries and many banks
now use industry as a primary variable for organizing their customer calling
capacity for large and even medium sized corporate accounts.

Product The days when corporate commercial bankers were primarily

concerned with lending have gone. Today and increasingly in the future,
servicing the corporate market will require calling officers with the skills to
analyse a customer’s needs and select from and recommend one or more of a
range of diverse financial service products to satisfy those needs. Further, the
growing specialization of services, especially for off balance sheet products, is
leading to the introduction of product managers in a growing number of banks
in order to ensure balance in marketing effort.

In order to service many segments of the corporate market, bank

organizations will need to integrate elements of all three of these variables. The
relative emphasis placed on each, however, is notably different from bank to
bank. Often such differences are not based upon a careful analysis of the bank’s
customer base but upon history, the informal culture of the bank and the
maintenance of the status quo by vested organizational interests. It is usually a
fundamental requirement that a bank change its structure if it wishes to
implement a significant change in its mode of servicing the corporate market,
as was recently the case at Chase Manhattan and First Chicago. Analysis of
competitive bank organization can be an extremely powerful indicator of
relative strength and weakness in capability to service segments of the
corporate market.
Six main organizational forms are common for servicing corporate accounts.
These are as follows:

Account executive

This is the system historically adopted by US commercial banks both

domestically and internationally to service medium and large corporate
 209

accounts. An individual officer or coordinated group of individual officers is

responsible for servicing a particular account domestically or globally. These
officers, while taking account of geography, tend to be primarily concerned
with accounts drawn from a specific industry or industries. Where accounts
cross territorial boundaries, global account officers may also be appointed
responsible for managing or coordinating a team of local field account officers
each of whom services a specific unit or group of units of a large, usually
geographically diversified account. The account executive structure developed
in banks where retail branches were relatively rare and where the banks
therefore relied more on servicing specific corporate accounts rather than
individual consumers. A cutoff clearly exists at which time it becomes
preferable to service accounts at the branch level, but most US banks will use
direct calling officers for medium size accounts with a turnover of say more
than $10 million per annum. Some have also opened corporate branches to
provide a specialized service to accounts with a turnover substantially below
this figure.

Relationship manager

The modern variant of the account executive is the relationship manager.

Banks with account executive structures have been increasing the responsibili¬
ties of their account officers as they have expanded their product range. The
relationship manager is seen as the principal interface between the bank and its
customer. He is expected to possess sufficient product knowledge to provide a
comprehensive level of service to the account and be able to diagnose customer
needs sufficiently to recognize when and what specialist skills are required to
supplement his own knowledge.

Branch manager
This was the system historically operated by banks in countries or states
allowing branch banking. The local branch manager was traditionally
responsible for servicing all the accounts within the geographic boundaries of
his branch with all the bank’s products. Where corporate accounts might have
operations in several branch territories or overseas, integration of bank
services was largely informal.

Corporate branches
A recent variation of the branch manager system has removed responsibility
for larger accounts from local branches and concentrated it in a regional
corporate branch where specialist corporate bankers look after the affairs of
institutional customers only. Integration between regions and internationally
in such structures tends to remain informal.
 210

Mixed systems

A further variation of the branch manager system involves the use of bank
directors and/or account executives to provide a coordination role for very
large dispersed accounts in conjunction with branch manager and/or
corporate branches. The location of the coordinating role varies according to
account size and may be at regional or head office level.

Product managers

As corporate banking has increased in complexity, the dominating position of

lending as the key task of the account executive has changed. In particular, new
products and services have been added to the portfolio of corporate bankers
which have been developed outside the line credit function. The new systems
products have notably emerged from operations. In order to provide added
impetus to the marketing of these new services a growing number of banks are
appointing product managers charged with developing marketing plans for the
products/services under their control. Some are actually going to the point of
creating new profit center divisions concerned with systems products.

11.3.1 The Branch Manager System

The traditional use of branch managers in many European banks to service

corporate accounts is being shown to be impracticable. The task of the branch
manager in providing an adequate level of corporate service is almost
impossible, since he must act as:

— administrator of his branch;

a principal reference point for personal banking services;
a salesman for an increasing range of non-banking services;
— a specialist corporate banker.

At the same time, the branch manager rarely has sufficient lending discretion
to adequately meet the needs of even medium-sized accounts. He therefore
runs the risk of being perceived as a form of ‘messenger’ rather than as a
responsible executive.
The branch manager system is not without advantages, however, including
the following:

Branch managers are generally very experienced practical bankers and

are trained as generalists.
— While lacking in some aspects of credit evaluation, they are generally
more skilled than young account executives at personal evaluation.

The corporate branch system also gets around many of the negative aspects
 211

of the traditional branch system and is well suited to handle middle market
accounts. Thus, coupled with industry specialized large corporate account
bankers operating from national or regional centers, European bankers have
substantially improved their capability to handle corporate accounts.

11.3.2 The Account Officer System

As a result of competitive pressures European banks have moved more
towards account officer systems similar to those used by the US banks. The
account officer is expected to:

— find his own customers;

— be responsible for the whole relationship with a customer, including
the recommendation of a facility, negotiating its details and the loan
agreement where relevant, following up the loan and the customer to
ensure both remain sound;
— understand the customer’s needs and problems and be able to provide
help and guidance;
— familiarize himself with the customer’s industry and with his cus¬
tomer’s customers and suppliers;
— be constantly seeking new opportunities to provide additional services
up to the credit levels deemed desirable;
— maintain and update his account plans and strategy by continuously
seeking new information and financial analysis of the ongoing
situation;
— constantly monitor and record competitive activity at his accounts;
_ be fully responsible within the bank for his own lending recommenda¬
tions and subsequent follow-up;
— unlike the traditional branch manager, be wholly dedicated to a
relatively small number of corporate accounts.

The US bank mode of corporate servicing, although possessing advantages

over the conventional branch manager system, is not without disadvantages:

— Account officer systems are expensive.

_ Coordination for accounts utilizing many bank branches/territories
may not be good.
— Account officers are usually trained as lending officers, and as a
consequence tend to be loan volume oriented and have weak non-loan
product knowledge.
— Account officers may block or deter the development of non-loan,
fee-based products because they do not have adequate knowledge to
recognize and recommend help for specialist service needs at an
account.
 212

— US banks particularly tend to be somewhat parochial in their view of

the world. For example, they tend to see other US banks abroad as
their principal competitors in overseas markets despite the fact that
any increase in market penetration normally comes from indigenous
banks. This parochialism tends to infiltrate into the account officer
force, even though many will be non-US nationals.
— Many banks use relatively young and inexperienced bankers as
account officers. Further, they change them frequently, so making
relationship building especially difficult.

The account executive system tends to provide a much more detailed (and
expensive) level of service to corporate accounts. To recover its cost good
penetration and a high volume of profitable business is important. This mode
of servicing, therefore, should normally not be used below medium sized
accounts where a minimum call rate of four per year for an active account is
profitably sustainable.

11.3.3 The Relationship Manager System

An increasing number of banks are now moving toward a relationship manager

system for servicing large corporate accounts. The key global officer is
identified as the primary contact point within the bank for the corporate
customer and the officer himself is expected to be able to introduce all the
bank’s mainline services. While the relationship manager is not expected to be
fully aware of the details of the entire range of bank services, he is expected to
be a generalist banker rather than being primarily oriented to lending. To help
build such long-term relationships some banks are keeping the same
relationship managers in an account for a considerable number of years. In this
way they hope to avoid the criticism concerning young, inexperienced and
frequently changing account officers leveled at many banks.
The relationship manager system is also not without problems. Firstly, the
conversion of specialist lending oriented bankers to generalists is difficult and
the organizational culture of many banks makes this transition doubly difficult.
Secondly, a very substantial improvement in both bank product knowledge and
corporate needs identification is required of traditional lending officers.

11.4 ASSESSING ACCOUNT OFFICER NEEDS

The cost of servicing corporate accounts can be very high, depending upon the
type of calling system used, and the level of calling intensity will be related to
the size and scale of business at the individual account. When assessing the
resource requirement for a particular business development approach, the
following factors need to be taken into account.
 213

— How many calls can your account executive/branch managers make a

year? This will depend upon the size of accounts called upon and the
degree of activity at each one.
— What is the cost of their operation and how does this translate in costs
per call? This is usually high, and management time can be usefully
devoted to reducing costs per call by increasing call rates and/or
cutting operating costs.
— How many times do you think accounts should be called on and how
much business must be generated to cover these costs? As part of the
account planning process calculate the approximate breakeven per
account even when a strong account based financial control system is
not in place.
— How many accounts are there where the available potential permits
you to expect to recover your costs? Remember when assessing
account potential that it is that business you have a reasonable ability
to win that is relevant.
— What is the total number of new/existing business calls you need to
make on these accounts?
— Does the presently available/planned call capacity match the number
required?
— If not, what management action is required?
— For multisite accounts, what coordination mechanisms have been built
in to ensure overall adequate calling/servicing/information inter¬
change/account planning?

The account planning process is discussed in detail in Chapter 6.

11.5 SPECIALIZED ORGANIZATIONAL SKILLS

Today many banks have added a series of specialized skill areas which may
operate in either a line or account manager staff support capacity. With the
division of banks into strategic business units such organizational groups are
tending to become line profit centers. These are usually designed to attack
particular customer/product segments. The most common such specialist
organizational units are as follows.

11.5.1 Large Multinational Corporation Accounts

Most major commercial banks have a target or hit list of large worldwide MNCs
which are considered to be priority accounts for the bank. Such hit lists usually
identify around 500 accounts, and although a jealously guarded secret, tend in
about 80 per cent of cases to duplicate the hit lists of other major banks.
However, all the banks are distinctively not the same in their capability to
service these accounts. As a result many banks have found it difficult to
 214

penetrate them profitably. An increasing number of banks are therefore

questioning their large corporate strategies and turning more to serving smaller
accounts.
In servicing such accounts a coordinated team approach is necessary since
the account, while based in one country, may require services in many markets
around the world. In 1974, for example, Citicorp established its World
Corporation Group to service some 450 global MNCs, about half of which were
based outside the USA. Each of these accounts was assigned an account
executive responsible for dealing with the organization headquarters in
whatever country it might be located. This executive was held profit
accountable for the client and was manager of a group of 20-30 account
officers assigned to manage profitably the affairs of each company in their own
countries. Each officer handled a mix of, on average, between eight and ten
accounts, in some cases dealing with the parent company treasury and in others
with a purely local subsidiary or division treasury. Similarly, each account
officer prepared account plans each year against which he was measured in
terms of personal performance.
In 1980 Citicorp restructured its World Corporation Group and extended its
global account coverage to around 2500 accounts making up the bulk of the
corporate loan portfolio. Each such account was profit planned, with the global
account officer being responsible for the overall plan and individual country
based executives responsible for their subcomponent of the account plan.
Progress against plan was closely monitored by an account based control
system which measured return on total assets (including committed rather than
merely outstanding lines). Such a customer based system also potentially
allows the allocation of country limit to the account rather than leaving this
solely to the discretion of country managers. An example of a multinational
corporation specialist service unit is shown in Figure 11.5.
By comparison relatively few European banks provide this level of global
service and seldom effectively coordinate their calling efforts on a worldwide
basis. Moreover, such banks have rarely developed the specialized products
and services needed by such accounts. Even many US banks do not offer the
same level of coordinated calling effort for MNC accounts, hence Citicorp and
a few other US banks have achieved a high level of account penetration in such
accounts around the world. By comparison, even within Europe, the leading
European banks have achieved only limited market penetration outside their
indigenous home market.

11.5.2 Project Finance

A second area of recent specialization has been that of large-scale project

finance. In some banks project finance is dealt with within merchant banking
subsidiaries, while in others it remains within the commercial bank organiza¬
tion.
 215

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Project finance usually involves the provision of large-scale funds to

governments or large (often publicly owned) institutions which brings together
construction engineering and specialist equipment usually from many coun¬
tries. For example, a hydroelectric project in Egypt might involve Italian
construction engineering, Japanese turbines, US generators and West German
steel. All of these contributors to the project may require financing in a variety
of currencies in a variety of ways.
Coordinated project finance marketing will begin early during the formative
stage of the project, looking for syndication possibilities for the project as a
whole. At the same time liaison by country/company bank units in other
countries will work with local suppliers to the project, meeting their specific
needs for working capital finance, foreign exchange, and the like.
Most banks have relatively small project finance teams whose major role is in
working with the overall client and/or primary contractor, arranging
syndication and sharing with the normal line commercial banking officers in
dealings with project suppliers. A few banks, however, have begun to
formalize this liaison activity with a global network system designed to
maximize penetration in particular projects.

11.5.3 Real Estate

The real estate industry is one with which the banking industry has periodic
love/hate relationships. In the mid-1970s banks around the world committed
a basic banking error of borrowing short to lend long to real estate developers
(often undercapitalized) to finance speculative developments where expected
capital profits would enable the developer to ultimately repay outstanding
loans and accumulated interest. The temporary collapse of real estate values
left many developers bankrupt, and many banks with heavy loan losses. As a
result many banks were extremely suspicious of real estate investment by the
late 1970s.
In practice the real estate market, like any other, is much more risky for the
unwary and unprepared than it is to those with specialist knowledge. Further,
the market can be subdivided into many sectors including:

— Short-term construction financing

— Consumer mortgage finance
— Industrial mortgage finance
— Shopping center finance
— Office finance
— Condominium finance
— Hotel and leisure complex finance

Knowledge and understanding of such markets can make the difference

between success and failure.
 217

Many banks have added real estate and mortgage specialists or sub¬
sidiaries, including construction engineers, quantity surveyors, and progress
monitors to evaluate construction projects both before and during building.
Successful banks tend to specialize in particular sectors and also particular
geographic areas. Confidence is also developed from long-established
relationships with particular developers. An example of a real estate specialist
unit is shown in Figure 11.6. Many US regional banks have large real estate
loan portfolios either as components of direct lending or via mortgage
subsidiaries. The same function is also provided by many European banks but
UK based institutions have only recently entered the mortgage market.
The involvement of many US banks in housing and property finance has
been a major source of problems as the US domestic inflation rate has risen.
Traditionally US mortgage lending was at fixed rates. As a result much of the
US banks’ domestic property portfolio has been at a fixed rate. This has in
recent times been substantially lower than the bank's marginal cost of funds,
which has been high due to a rising inflation rate. The savings and loans banks
which specialized in mortgage lending have been under particular pressure
but even major US banks have found themselves severely affected.
European banks, where they have real estate specialists, tend to have
substantially fewer than their US counterparts, have few if any engineers and
progress chasers, and treat such specialists as staff as distinct from line
officers.

11.5.4 Energy

As with real estate, many banks have added specialists in energy and
particularly oil (and more recently coal) to their commercial banking staff.
The scale of lending and services to this industry is usually large and
syndications are common. Evaluation of lending propositions usually requires
a careful analysis of specific energy investments, while collateral may well be
based on oil in the ground or the like. As a result specialist energy units may
include geologists and petroleum engineers in addition to specialist account
officers. Lending to the sector may also involve peripheral areas such as
drilling platforms, oilfield safety equipment, offshore harbour facilities, pipe¬
line construction, and the like.
Banks like the Texas commercial banks may well employ 100 or more
officers in energy departments embracing many aspects of the industry. An
example of such an energy department structure is shown in Figure 11.7. By
comparison most European banks would have only a handful of specialists
and these would be staff rather than line lending positions. Japanese banks
have only limited in-house technical expertise but might rely on their
industrial group associates in a particular industry to provide technical
expertise. The lack of adequate expertise in many banks suggests that energy
 218

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Figure 11.6 Real estate specialist unit structure

 219

Figure 11.7 Energy and mineral resources unit structure

lending may well present similar problems for the banking industry in the 1980s
as real estate did in the 1970s.

11.5.5 Commodities

Commodity markets are a more recent area for the appointment of specialist
officers and the development of special products. Relatively few banks have
such departments, which tend to be concentrated in major commodity market
centers, notably New York, London and Chicago. An example of the
organization of such a worldwide market is shown in Figure 11.8.

Team 1 Team 2 Team 3 Team 4 Team 5 Team 6 Team 7

Groins Cotton Genera 1 Ferrous metals H ides Precious Non- ferrous

Sugar merchan¬ Crude oil Leather metals metals
Rubber dise Catt le Secondary
Coffee meta 1 s
Cocoa

Figure 11.8 Commodity finance specialist unit structure

11.5.6 Shipping

Many banks have added shipping specialists, although like real estate this has
been an area of unfortunate lending experience for several. Shipping
departments are usually smaller than other major specialist sectors. Geog¬
raphic concentration is normally centered upon London (handling the UK and
220

Scandinavia), Piraeus (dealing with the Greek market), New York, Tokyo and
Hong Kong.

11.5.7 Correspondent Banking

After a number of years in the doldrums, correspondent banking has again

become popular as large commercial banks perceive opportunities for
deposits, transaction handling, travellers cheques, card operations and systems
products. A number of major banks have therefore been gearing up their
correspondent bank services, adding expertise and emphasizing joint venture
cooperation. Major areas of core banking services are New York, other major
domestic US cities and London. As a result separate financial institutions’
organizational units have begun to emerge in a number of banks, while others
treat such concerns as merely an area for industry specialization.

11.5.8 Aerospace

This speciality is not found in every bank but is a common one of West Coast
US based banks, where the US aerospace companies tend to be centered.
Sometimes aerospace departments also cover airline transportation companies
but these are usually serviced by transportation units. The number of
aerospace specialists is usually small and this speciality is less common in
international banking.

11.5.9 Trade Finance

While virtually all major banks provide trade finance services of various kinds
there are now a number of specialist units being created which may actually
initiate trade activities and act as an intermediary. This type of activity is
somewhat similar to that of the international confirming house, and indeed it
seems likely that a number of banks may acquire such companies rather than
developing internal units. The Japanese banks have long been part of industrial
groups which invariably contain major international trading companies. These
organizations are always core concerns in Japanese industrial groups and are
much larger and more sophisticated than activities presently contemplated or
undertaken by Western banks. Nevertheless, the development of specialist
trading company units reminiscent of the Japanese concerns seems likely to be
important in the 1980s both within banks and in many industrial companies. A
specialist trade banking unit is illustrated in Figure 11.9.

11.5.10 Electronic Banking

The rapid growth of electronic banking in both wholesale and retail sectors is
leading to the introduction of a wide range of possible fee-generating products.
 221

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While operations traditionally formed the back office of the bank, the
development of new products such as money management services with
customer operated intelligent terminals essentially places banks in the
international information processing business.
During the 1980s the range of electronic banking products is likely to
increase significantly. As a result some banks have begun to split out
electronic banking as a separate profit center with its own direct customer
interface capability. An example of such a system unit is shown in Figure
11.10. In addition advanced systems banks have created additional informa¬
tion provision and processing units within correspondent banking groups,
merchant banking and capital market groups to provide financial information
and securities trading service and in retail banking divisions for card based
services.

11.5.11 Industry Specialization

While a number of industries have been singled out as above for specialist
unit attention the general trend in wholesale banking is towards the division
of corporate expertise by industry sector. Many US banks are organized in
this way in their corporate banking but this pattern is still less common in
Western Europe. Japanese banks, while perhaps servicing accounts via their
branch network, are also very strongly divided by industry in their central
economics evaluation and credit assessment units. A typical industry-based
corporate banking organization unit is shown in Figure 11.11.

11.5.12 ‘High Net Worth Individual’ (HNWI) Banking

A substantial number of banks have begun to provide specialist service

arrangements for wealthy clients. These services center on deposit gathering
and investment management. The criteria for admission varies from bank to
bank, but generally private banking services do not normally apply to deposit
levels of less than $100,000. The services provided tend to be international in
character and are usually based in low or no tax environments while providing
discrete facilities for transactions in some major international centers. The
structure of such a unit is illustrated in Figure 11.12. These units are also
found in capital market units as key sources of funds for the asset generation
activities of these groups.

11.6 TRENDS IN ORGANIZATION STRUCTURE

Competitive pressures are forcing banks to reorganize their approach to

servicing medium and large corporate accounts. Even small accounts are
seeing the development of more personalized services rather than being
serviced by traditional branch management systems. While the general trend
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223
 224

petroleum
& mining
engineering

Figure 11.11 Industry specialization unit structure

will be towards customer sector based structures, within this a number of

additional trends are also discernible.

Increased industry specialization

In order to provide both specialist product development and delivery and to

reduce loan risks, increased industry specialization seems likely to emerge over
and above the more common specialist areas which have already developed.

Increased system selling

The need to provide multiple calling on accounts with many subsidiaries or

units operating in many countries will require coordination and team-selling
effort. This will lead to account based planning and control systems with global
account officers/relationship managers responsible for the profitability of an
account overall and unit account officers responsible for their profits within
their unit/country area. This type of account based planning will be a critical
marketing strategy tool, especially for the small number of key accounts which
will make up the bulk of wholesale bank profitability.
This team-selling approach will also tend to require coordinated multiple
calling involving product specialists, notably those concerned with global
money management, merchant banking and automated systems.

Specialized corporate banking

While net loan interest will continue to represent the bulk of bank earnings for
the next decade, the ability of a bank to obtain credit business will increasingly
Figure 11.12 Global private banking unit structure
225
 226

rely upon its ability to supply creative specialist financial services. Bank calling
officers trained as credit or lending bankers will need to become more like
merchant bankers, knowledgeable in a wide range of services and able to apply
this knowledge to solve the financial problems of corporate treasurers. This
will require substantial retraining of existing calling officers and the probable
recruitment of many new executives with different backgrounds and attitudes.

Specialized product development

Specialist product packages designed to meet the needs of particular customer

groups will be developed. Automated systems products will be an especially
important area of product development and such activities, traditionally a
background service area in banks, are likely to become significant profit
centers, with operations executives being brought into increasing direct
customer contact.

Integration of related banking services

The present common dividing lines between conventional banking and asset
based finance products are likely to diminish to provide a comprehensive
financial service offering to corporate accounts.

Specialized retail banking units

As with corporate banking, special service areas are emerging in retail

banking. Notable amongst these is mortgage or shelter banking, which may
well be linked with home improvement lending, real estate development and
brokerage and house and personal insurance.

Development of industrial corporate staff functions

Modern banking requires the development of staff functions more similar to

those found in industrial organizations. These include not only staff strategic
planning units but also management information service units in addition to the
conventional bank audit and inspection units. In addition, premises manage¬
ment and personnel need to become more proactive to cope with changes in
property needs and people skills. Deregulation also tends to require a
proactive legal department, able to develop strategies to cope with the threats
and opportunities that global deregulation brings.

11.7 PROBLEMS OF ORGANIZATIONAL CHANGE

As banks endeavor to adjust to the changes posed by the next decade,
organizational change will be necessary in order to ensure that structure adjusts
 227

to meet the needs of revised strategies. Normally, structural change occurs

more by revolution than by evolution and periodic major reorganizations can
be expected. However, to be successful organizational modification must take
cognisance of the following factors.

Top management commitment

Without adequate commitment by top management organizational change is

rarely successful since it normally involves the modification of the existing
power structure. This will be resisted unless specifically supported by the
leadership. As a result major reorganizations normally only occur immediately
after a change in bank leadership.

Adjustment of corporate culture

Every organization has its own unique culture developed from a blend of
corporate history, environment, norms and traditions, participants and
leadership. Such a culture is very difficult to change. However, many banks fall
into the trap of trying to emulate other organizations they feel are successful
but without undertaking the necessary cultural adjustment. Again leadership
change is normally a prerequisite for organization cultural change.

Retraining existing executives

The changing strategies of banks will require a different mix of people skills.
Some of these can be obtained by the retraining of existing personnel but the
process of achieving the desired skill changes requires training that is extensive,
ongoing and carefully planned.

Adding specialist skills

The move to add new services may well require the introduction of new
specialist skills such as merchant banking, project finance, energy specialists
and the like. The integration of such specialists into the structure of the bank
requires careful planning to ensure adequate communication and coordina¬
tion.

Service integration
Growing diversity adds complexity to banking operations and increases the
need to ensure that adequate organizational integration takes place. This is
especially true in banks which were traditionally retail branch based operations
and which have extended their international corporate interests. Great care
228

must be taken to ensure the development of a common organizational purpose

and identity and to so reduce internal rivalries.

Redundancy and unionization

Much of the change taking place in the banking industry is likely to lead to staff
reductions in less skilled parts of the bank organization while additions are
made to specialist skills in merchant banking and systems. While staff turnover
is relatively high among such personnel enforced redundancy is likely to be
required in many banks as they are forced to trim their cost structures. Few
banks know how to handle such redundancies and also how to cope with the
increased militancy of trade unions anxious to protect members’ jobs. It is
therefore important for them to develop appropriate policies in these areas to
reduce the difficulties of organizational change.

11.8 SUMMARY

The form of organization adopted by a bank is an extremely important element

in successful strategy implementation. A variety of organization forms can be
identified and the appropriate choice of structure will depend upon the product
market position of the bank. Structures are also evolving, with the continued
diversification of bank services leading to changing demands on account
officers and the need to introduce product managers and market segment
specialists leading to the creation of market based business units.

11.9 BANK ORGANIZATION CHECKLIST

1. What is the existing organization structure of the bank?
2. Is this structure clearly consistent with the chosen product market
strategy?
3. Is the present structure a function of history and the present power
structure? Does this power structure need to be changed to achieve a
successful customer orientation?
4. In your bank s corporate banking operations how do you compare with the
key competitors along the dimensions of geography, industry and product?
5. Do you decentralize decision-making to appropriate levels to be seen as
legitimate in your chosen areas of competition?
6. What mode of servicing corporate accounts has your bank chosen? Is this
appropriate, and if not how can you move to change your structure and key
personnel?
7. Do you have the correct level of account representation? How does your
level of representation compare with competitors?
8. What specialized corporate product market segments have you specifically
organized to serve?
 229

9. Are these specialist organizational units able to match competitors in

terms of quality and/or quantity of personnel?
10. Are your specialist staff units adequately developed in management
information, planning and control, treasury, personnel, legal, audit,
external affairs and property?
11. Are you adjusting your structure in line with changes in the marketplace
and competitors?
12. Are you able to maintain appropriate expertise within the bank or do you
suffer from significant labor turnover for critical skills?
13. Have you developed appropriate manpower planning, training and
management succession policies to meet future bank strategic needs?
14. Have you developed appropriate rewards and sanction systems?
15. Are your recruitment procedures adequate to cope with changing
personnel needs?
16. Have you developed policies for checking with trade unions, potential
forced redundancy and branch closure programs?
- '
Index

Proper names are in Italics

Acceptance credits, 17, 20,105,124 Merrill Lynch Cash Management

Account Account, 2, 3, 123,152,154, 189
action planning, 98,108-113,119, 120 NOW, 122, 123
attractiveness, 107,144, 145 potentially profitable, 99, 100, 106,
based profit system of control, 54, 111 107,155
calling with warm lead, 66, 67, 101, profit margins on MNC, 99, 100
102,103 profitability of in retail banking, 23, 24,
elimination, 145, 146 42
executive officer needs, 211,212 prospecting for new, 100-103, 212, 213
executive system, non-branch based savings, 122
and corporate accounts, 162, 205, SUPERNOW, 122, 123
208,209,210-211 term deposit, 18, 122
marketing plans, 16,109, 111 treasury certificate, 122
objectives, 108, 109, 110, 119,120 unprofitable and discriminatory
officers’ reports, 28 pricing, 147
planning, market segments for, 97 Action plan development, 42, 44
profitability budget, 109, 111, 112, 113, Action plan objectives, 47
117 Action planning, 8, 9, 41, 44, 45
purification, 146,147 Advertising
screening, 97, 98, 99, 100,101, 117, 119 as an intelligence source, 66
strategic plans, 97-120 corporate, as a warm lead technique,
strategic planning checklist, 117-120 101
strategy assessment, 107, 108, 109, 119 effectiveness, measuring, 195, 196
stratification, 3, 4 image, 177, 188
Accounting sale of services and, 169,177,178,
advice, 18 187-196
conventions binding MNCs, 88 Aerospace as specialist lending, 219
procedures, transformation of transac¬ Aerospace companies, 17
tion, 53,143-149 Age distribution, 34
Accounts AIDA in advertising, 190, 191,197
childrens’, 18, 23 Algemene Bank, 5
current, real cost of to bank, 122, 145 American Bankers Association, 67
current with interest, 3,122, 123,142 American Express, 2, 4, 6, 65,183,184,
deposit, 3, 4 188
foreign currency holding, 122 Gold Card, 22,156,188,189
local checking, 17, 18, 105 Green Card, 156

231
 232

AmRo, 200 marketing strategy, and integrated

Annual reports as source of intelligence, data-bases, 53, 54
28,65 Bank of America, 12, 13, 51,78, 79, 123,
Assets 145,153,166, 172, 181, 187,200
current as indicator of corporate mar¬ Bank of Boston, 188
ket segmentation, 20 Bank of Tokyo, 5
fixed, 21 organization structure, 199, 228
Assumptions of the corporate plan, 41 organizational structures, trends in,
Attack businesses, 36, 37 221,223,225
Attention, selective and communication owned credit card companies, 2
process, 178 plan hierarchy, market segment level,
Audit unit, bank’s, 52 45
Automated pricing policy and sensitivity to third
bill payment, 135, 170 party pressure, 154,155
branch experimentation, 172 product manuals, overcomplexity of,
branches, fully resistance to use of, 121,138
163,164, 172 regulations, 36
Teller Machines (ATM), 2, 4, 134, 146, related factors in customer service
149, 156, 159, 162, 165,166-168, buying decision, 106, 138, 139
170, 171,172,183 reorganization and strategic planning,
access systems global, 167, 188 51,52
strategy, 159,188 transaction place and time, revolution
Automatic credit lines, 135 in, 159
Banker payments, 132
Bachelors, young, as a consumer market, Banker, The, 66
18 Bankers Trust, 154
Banco do Brasil, 5 Banking
Bank and financial education, 132
calling officers corporate
importance of status of in Japan, 100 and competitor analyses, 63, 121
middle market requirements of, 93, for the middle market, 17, 54, 55, 56,
95 63
need of product knowledge, 121, for the MNCs, 17, 55
138,160,161 for the small business market, 17
calling plan development, 113, 114, organizing for, 203, 205, 208, 209,
115,116,117,212 210,211
card client base, 168, 169 electronic, 134, 135, 142,143, 148, 149,
certificates of deposit, 122, 127, 152 153,154,159, 161, 162,163, 164,
choice of by middle market corpora¬ 165,166, 167,169,170,171,172,
tions, 94, 95, 100 173, 188, 190,219,221,222
choice rationale, 138 free as a promotional tool, 182, 183
differentation, 9, 46, 188 industry changes to world, 1-3
directories as intelligence source, 66 industry diversification, 2, 3, 121
drafts, 132 outlet strategy for location of, 173, 174,
group business objectives, 75, 76, 77, 175
78,79 private for the middle market, 18
image as a factor in price structure, 154 private for the very rich, 18, 22, 123
image factors affecting, 139, 185, 186 retail, 3-4
market corporate customer/product and competition analysis, 63, 141
needs matrix, 17 and control systems, 54, 55, 56, 144
market retail customer/product needs 145
matrix, 18
and new technologies, 2, 3, 4, 142
 233

telephone, 159, 173 fully automated, 163, 164

usage trends, 36, 104, 105 limited service, 159, 162,172
wholesale, 5-6, 42, 141 local concentrator, 162, 172
and new technology, 5, 6, 142 manager and servicing of corporate
Banks accounts, 208, 209-210
attitudes to foreign, 36 manager’s
branch-based, profitability of, 53, 54, image and roles, 160, 161
145,146,147 reports, 28
British, 4, 64,78,126, 153 as an intelligence source, 66
correspondent, 17, 129,130,133,188, mobile thin, 165
219 retail, 162
customer loyalty to, 23, 33, 106 satellite for limited service, 172
French, 64 thin, 159,165, 166
general commercial, 2, 3, 4,121, 126, speciality, types of, 159, 162, 163,172
142 traffic volume and sale of services, 168,
German, 64, 78, 79 169, 173, 174
indigenous and competitor analysis, Breakeven and profit impact target
64,100 pricing, 150, 151
Japanese, 4, 5, 25, 64, 78, 129,131, British banks, 4, 64, 78,126,153
136,145,163,172,203,216 Brokerage companies, 142, 168
lending orientated, 12 Brokerage dealing, 135, 168, 171
MNCs rationale for selecting lead, 84, Budget, arriving at an advertising, 192,
85,86,87,91,92 194,195
orientated to financial consultancy, 12 Building societies, 2, 122, 162
regional market orientated, 12, 16 Business profitability analysis, 52
saving and loan,2,22,23,162,169,216 Business unit
US, 1,4,78, 131, 143 definition, 9
Bank-to bank transfers, 132 objectives, 73, 74, 75
Banque Nationale de Paris, 5 organization structure, competitors’,
Barclaycard, 188 74
Barclays Bank, 5, 12, 78, 172, 184, 200, plan,97
203 Buyer credits, 17, 105
Beneficial Finance, 65 Buying
Bethlehem Steel, 65 decision process for, 81-84
Birth rate, 34 motivation for basic, 81,82
Bonds and private placements, 17, 105
Boston Consulting Group, 79
Branch Calling
-based inefficiency of multiple, 121
organizational structure, 199, 200, officers and Global Account Officer
201 system, 113, 116, 117,223
profits, 54, 55, 56, 172 program development, 113, 114, 115,
system of business development, 19 116,117
closure, 172 program and new account prospecting,
corporate, 162, 163, 172, 208 100,101
design, 159-166 Capacity maintenance, 143
move to open plan in USA, 160 Capital
traditional layout, 160, 161 funding needs, identification of, 21
transactions vs. non-transactions intensity, degree of working, 20, 21,98
and,160 market variations, local, 88.
downgrading of, 162 needs, 76
full service, 159-162 relative intensity, 25, 31,32, 33, 100
234

Card 138,139
access system, Europe wide and ATMs, importance of good, 57, 58
167 internal, 30, 31
-based delivery systems, 171 strategies, bank’s, 54, 177-198
German, 4, 78,164, 166 strategy checklist, 196-198
credit, 2, 4 Competition, growth of, 2, 3, 4, 5, 6, 76,
debit, 4, 155, 170 100
smart, 4, 171 Competitive
Career expectations, 36 position market attractiveness matrix,
Cash dispensers, 2, 162 36,37,52
Cash flow, 73, 74, 99, 126 strength evaluation, 9,10, 31, 32, 34,
Cash management services, 17, 40, 105, 41,45,46,52,68,69,76
134,155,163, 170,183 supplier/customer needs matrix, 104,
Catalyst, external and strategic planning, 105
51 weakness, sources of, 74, 78
‘Central Values’ Group of top manage¬ Competitor
ment, creation of, 57 analysis, 19, 25, 28, 46, 47, 62-80,104,
Centralized international division organi¬ 105, 106, 107, 149, 150, 191,192,
zational structure, 203, 206, 207 205
Change data-base, 68,104,105
implementation of, 12 bank relationships and corporate mar¬
organizational, problems of, 52, 225- ket segmentation, 19, 21, 22, 25,
227 49,64
Charge card, Sears Roebuck, 169 concentration, degree of, 25, 31,33
Chase Manhattan, 13,16, 50, 79, 190, intelligence sources, 65-67
203, 205 intelligence systems, 62
at Drysdale, 50 development of, 63, 64
at Penn Square, 50, 129 investment, non-bank, 36, 62
Chemical Bank, 149, 170, 181 prices as determinants of pricing
Chemical New York Corporation, 200 method, 149,156
Chemlink, corporate cash management strategic capability, assessing, 79, 80
systems, 149, 170 strategy, analysing, 68-79
Cheques, 122, 132, 165,170 success and need of strategic planning,
Citibank Corporation, 12, 50, 74, 146, 50,62
149, 159, 166,169,170,183, 184, Competitors
188, 190,203,213 attitudes to non-bank, 36
Focus Account Card, 171 existing direct, 64, 65
Clearing, international via automated new bank, 65
systems, 41 new non-bank,65,135,156
Coldwell Bank, 169 Competitors’ business portfolio, asses¬
Collections, local, 17,105 sing, 76, 77, 78
Commercial credits, 132 Computer services, 2, 5, 6, 17, 105, 134,
Commodity and stock loans, 124 135
Commodity futures, 129, 218 Computerization and analysis of corpo¬
Commodity trading companies, 19,129 rate market segmentation, 21
Communication Confirming business, 20
failures, 178,179 Consistency of strategic mission state¬
of bank intentions, 177-198 ments, importance of, 13, 14
process, 178 Construction companies, 17
Communications Construction loans, 17, 105, 125, 128
banking and advanced, 5, 6, 129 Consumer
clear and good customer relations, 93, banking services, 133
 235

-credit finance, 2, 130,168 estimating, 143, 144, 145

groups, increased segmentation of, 3, in pricing strategy, 150-156
4, 14, 15, 16, 17, 18, 171 visible pricing, 143, 144
markets in corporate banking, 17 Counter trade and barter, 129
markets in retail banking, 18 Coupon spread,130
product companies, 17 Coupons as promotional tools, 182, 183
statistics, government as information Credit Agricole, 12, 166
source, 28 Credit
Contests as promotional tools, 183 analysis, dangers of abandoning, 54,
Continental Illinois, 50, 79, 200 55,126
Control Systems and lending services, 123-131
account-based profit system, 54, 111 assessment procedures, forward finan¬
changes in, 50 cial projection, 126
design of, 52, 53-56 assessment reports, 28, 97
for costing services, inadequacy of, card services, 2, 4, 17, 18, 105
141, 143, 144, 145 finance, 4, 18, 126, 130, 131, 199
Copy platform, establishing and advertis¬ companies, 3, 6, 184
ing, 189,190,191 Credit Lyonnais, 5
Copy structure in advertising, 190, 191 needs, provision of and MNCs, 85
Corporate ratings, 99
advertising as a warm lead technique, scoring, 127
101 system, automated and loans, 161,
bankers, Citibank as lending orien¬ 181
tated, 12 transfers, 132
branches, 162, 163, 172, 208 Cross-selling potential of services, 25,
culture and establishing bank mission, 101,107, 153, 161, 187
12,49,51,56,57,74,78,226 Cross-subsidization of accounts and ser¬
history and bank mission, 12 vices, 25, 63, 135, 143
market, 1,5,6 Culture, corporate and establishment of
advertising to and lead generation, bank mission, 12, 49, 51, 56, 57, 74,
101 78, 226
on-line profitability analysis for, 145 Culture and decision to purchase, 82
plans, 16 Currency and interest rate swap loans,
segmentation, 16-22, 40, 42, 97, 205 124,131
mission, 10, 13, 14, 15 Currency arbitrating, 153
statement, overall, 13, 41 Current accounts, real cost of to banks,
objectives, 10, 11, 41 122,145
planning, process of bank, 11,41 Current accounts with interest, 3,122,
treasury function, organization of, 87- 123,142
91 Customer
trustee services, 133 based organizational structure, 200,
Correspondent banks, 17, 129, 130, 133, 203,204
188,219 concentration, 31,33, 34
Cost cost-structures, 146,147
data-base establishment, 144, 156 loyalty to banks, 23, 33, 106
knowledge,142,143,144,145, 150, needs, identification of, 81-86,100,
152, 155 104-107,117, 119,134,136,138,
plus pricing, 150 205
standard, 144, 145 needs/supplier matrix, 104, 105
structure, 63, 141,150 power, relative, 33, 34
and regulatory barriers, 148 /product needs matrices in banking, 17,
delivery systems’, 175 18
236

profitability analysis, 52 and the Experience Effect, 148,149

/service based organizational structure, Deutsche Bank, 5, 78
200, 202 Diners Club, 183
/service needs matrix, 24, 25 Direct debits, 132
Customers at point of sale, 135
importance to of services, 33, 138 Discounting and price structure, 155
reports from, as intelligence sources, Discriminatory pricing and unprofitable
66,67 accounts, 147
Distortion, selective and communication
Dai Ichi Kangyo, 166 process, 178
Data-bases, development of integrated, Distribution system promotion, 183, 184
52, 53, 68,134,144 Diversification, bank and SBUs, 75
Data-processing, 17, 23, 133, 134 Dividend payments, 133
Dean Witter Reynolds, 169 Divisional vs. unit action planning, 44
Debt, long and short, and corporate Documentary collections, 134
market segmentation, 21 Dun and Bradstreet, 99
Debt capacity level, 20, 98
Debt/equity ratio, 21,22 EBIT, earnings before tax, 21
Decision-makers, key and bank mission, ECGD finance, 124
13 Economic study services, 133,170
Decision-making structure for buying Economic trends and their impact on the
services, 81-96,104,105, 106 market, 25, 34, 35
Defend/invest, 36, 37, 38 Education
Delivery system strategy, 159-176 financial and banking, 132
trends in,171-173 loans, 18
types of, 159-171 /skill distribution, 34
Demand as a pricing method strategy trends, 36
determinant, 149 Efficiency, operations/administrative, 44
Demographic trends, 34, 35, 145 EFT, Electronic Funds Transfer, 36, 132
Demographic variables in conventional EFTPOS, Electronic Funds Transfer
market research, 23, 24 Point of Sale, 159,167, 169-170
Demonstrations as a warm lead techni¬ Electronic banking, 134, 135, 142, 143,
que, 102, 103 148, 149, 153, 154, 159, 161, 162,
Deposit accounts, 3, 4 163,164,165,166, 167, 169, 170,
term, 18, 122 171,172,173,188, 190, 219, 221, 222
Deposit based services, 17,18, 105, 121, cumulative, 148,149
122,123 services, 134, 135, 142, 143, 148, 149,
Deposits 153,154, 159, 161, 162, 163, 164,
consumer and interest in USA, 122, 165,166, 167, 169, 170, 171,172,
123 173
demand vs. term and interest spread, Electronic card delivery systems, 127,
155 134,161,164,166,167
increase in cost of branch collected, Electronic service delivery systems, 159,
161 173,179
interbank, 122 Electronic shopping, 135
HNWI as a major source of, 22 Emotional needs in decision purchase,
De-regulation 81,82,83
and competition from non-banks, 156, Employees, number of as corporate
160, 162,168,169 market segmentation indicator, 20,
and increase in range of bank services, 99
160,162,168,169, 171 Energy
and price discrimination, 155 and bad credit analysis, 54, 128, 129
 237

as specialist lending, 216, 218 industry press as intelligence source, 66

companies, 17,128 outcomes, anticipated, 9, 10, 42
lending and the Texas banks, 5, 128, performance, unsatisfactory and need
216 of strategic planning, 49, 50
Engineering companies, 17 strategy and competitor analysis, 73
Environment/market assumptions, 9, 34, supermarket, 159, 168
35,36,41,45,46 Financial Times, 66
Equity capital, 98 ‘Firm’ banking, Japanese, 170
Equity costs, 76 First Chicago Corporation, 13, 50, 51,79,
Equity stakes, reluctance to take direct, 205
78 Flexibility in tailoring services, 85, 86
Estate planning, 133 Focus Account Card, Citibank’s, 171
Eurobonds, fixed rate, 124 Ford Motor Company, 145
Eurocard, 167 Foreign
Eurocurrency credit investigations, 134
lines of credit, 125 currency holding accounts, 122
loans, 124,125 drafts, 17, 105
long-term bond issues, 125 economic advice, 134
markets, 122, 127 exchange
syndication, 2 exposure, 88,134
Euromarket notes, floating rate, 124 management seminars. Bank of
Euromoney, 66 America’s, 181
Exchange controls, 36, 76, 88 rate forecasting, 132
exchange rate risk, 54, 55 rates, 34, 76
Executorship, 132 services, 17, 21,54, 85, 86, 105, 132,
Experience Effect, the, and transaction 163
costs, 147, 148, 149 subsidiary finance, 17, 105
Expert advisers as information source, 28 trade services, 17, 105, 134
Export credits, 132 Forex, 20, 128, 134
Export finance, 17,21, 105, 124, 125 Fortune 500 Companies and J. P. Mor¬
Export sales, level of as corporate market gan, 143
segmentation indicator, 20 Forward funds forecasting, 134
Franchising branch space, 168
Factoring, 17, 20,105, 124, 133 Frankfurter Allemande, 66
Family formation rate, 36 French banks, 64
Farming depositors and Credit Agricole, Fuji Bank, 166
12 Function analysis of competitors’
Fee-based services vs. commercial lend¬ strategy, 69-73, 76
ing, 2, 54, 133, 141 FX facilities, on-line, 41,163
Feedback, distortion and communication
process, 179 Games as promotional tools, 183
Fee-generating bank services, 131, 132, Gasoline petroleum companies and
133, 134, 135 EFTPOS, 169
Field forces, relative in SWOTS, 30 Geisco, 65
Finance vs. accounting functions in treas¬ General Electric Company (US), 50, 65
ury organizations, 93 as advisers to Chase Manhattan, 79
Financial General Motors, 2, 6, 65
characteristics of customers, 24 General Motors Acceptance Corporation,
consultants, 7. P. Morgan, as, 12 6
controls, historic orientation of, 52, 56 Geographic coverage and ‘served mar¬
department store, 159, 168, 169 kets, 12, 16, 40
futures market, 131 Geographic population distribution, 34
238

Geography as corporate market seg¬ Industrial Bank of Japan, 5

mentation indicator, 19 Industrial classification as corporate mar¬
German banks, 64, 78, 79 ket segmentation indicator, 19
German card-based systems, 4, 78,164, Industrial sales finance, 124
166,167 Industrial statistics as an information
Glass Steagall Law, US, 2 source, 25
Global account interrogation, 134 Industry
Global Account Officer system (GAO), and corporate banking organizational
113,116,117,223 structure, 205, 221,223
GNP, national/regional, 34 association reports as information
Government consumer statistics as in¬ sources, 28
formation source, 28 specialization, increased, 223
Governments as corporate markets, 17 structure, 34
Greenwich Research Associates, 66 technology changes, 36, 79
Gross margin, 97 Inflation, national rate of, 34, 73, 76
Grow/balanced, 37, 38, 75 Information
Grow/penetrate business, 36, 37, 38, 75 gathering and analysis, 25, 28, 52
Growth rate of market processing systems, 36
historic, 24, 33, 41, 45 systems, management, 44, 52
projected, 24, 33, 41,42, 45, 100 systems unit, development of manage¬
Growth sources, 19, 20, 73 ment, 52, 53,54
Guarantees, 125,127 Institute of Bankers, 31
Insurance
Harvest, 36, 37, 39, 75 broking, 2,4, 6,17,19, 22, 168.169.171
businesses, 37, 56 companies, 17
Hire purchase, 124 life, 18, 133, 163
Histories, bank and company as intelli¬ management services, 132
gence sources, 66 non-life, 18, 133, 163
History, corporate and a bank’s mission, underwriting, 2,168
12 Intelligence gathering and analysis,
HNWIs, Hight Net Worth Individuals, 3, sources for, 25, 28, 52
18,22,23,63,97 Intelligence systems of Japanese banks,
branches, 163,172, 221, 224 25,28
personal finance counsellors for, 181 Intelligent terminals, 40, 134, 135, 159,
Hold, 37, 39 170,173 ,
Home banking, 4,159, 170, 171, 173,183 Interbank deposits, 122
Home improvement loans, 127, 163 Interbank market, 1, 122
Hong Kong and Shanghai Bank Corpora¬ Interest
tion, 5,12,129 current accounts with, 3,122,123,142
deposit to loan spread, 141, 142, 145,
IBM, 65 152,171
ICI, 153 paid as corporate market segmentation
Implementation programs for market indicator, 21, 98
segments, 41, 42 rate differentials, 121,141,171
Import credits, 132 rate variation as risk source, 55, 56, 73
Import finance, 17, 105, 124, 125 rates, 34, 76
Incentives, promotional, 182-185 fixed or floating, 125
Inchcape, 65 in credit finance, 130
Indexes, Funk and Scott’s International, Internal research facilities, 28
66 International
Indoctrination programs and corporate banking and organizational structure,
culture, 57 203, 205
 239

International Banking Centre, Manches¬ Leverage leasing, 124, 131

ter Business School, 6, 7 Liabilities, current as corporate market
cash management services, 134 segment indicator, 20
credits, 18 Lifestyle trends, 36
currency lending, 17, 105, 124 Line lending, 130
money transfer services, efficient, 85, Line unit resistance to strategic planning,
86,134 57
Internationalization of banking industry, Lloyds Bank, 166, 168, 185, 200
1,9 Loan loss rate, 73, 127, 171
Investment Loan production offices, 163
advice, 17, 18 Loan syndication, 17, 105,124, 130
international, 105 Loans, 18, 22
management services, 22, 55, 123, 133, unsecured vs. secured, 125,126
141, 142,163, 169 Local authorities as corporate markets,
policy, 106 17
priorities, 8 Losses, sudden and serious unplanned,
strategies, 36, 37, 38, 39, 41 50
Invoicing centers, 132 Loyalty, customers’ to banks, 23, 33,
IRA seminars, Chemical Bank’s, 181 106
ITT, 65
McCarthy's Press Clipping Services, 66
Machine banking, 17,18, 36, 105
Japan, importance of status of bank
McKinsey as advisers to Continental
calling officer in, 100
Illinois, 79
Japanese banks, 4, 5, 25, 64, 78, 129, 131,
Macro-economic environment analysis,
136, 145,163,172,203,216
35
Japanese Post Office, 4
Mail
Japanese trading companies, 6, 129
direct as communications strategy, 173,
179,187
Keefe, Bruyette and Woods, 67 order tie in to banking, 164,169
Key account target lists, 19 shots as warm lead technique, 101,102
Key customers and identification of transfers, 132
market, 14, 15, 16, 17, 19, 21,55 Management
and establishment of strategic objec¬
Lead generation and corporate market tives, 13,14,42,51,52
advertising, 101 cohesion, 30, 31
Leadership, changes in and organization¬ consultants and strategic planning, 51
al purpose, 13, 49, 51 effectiveness, 44
Leadership and importance of good information systems unit, development
communications, 57 of, 52, 53, 54
Leadership commitment to strategic skills and interbank competition, 6
planning, 50, 51,74,226 values and bank mission, 12, 13,226
Leasing, 17,21,105,126,130,131, 199 Manchester Business School, 6
Legal conventions binding MNCs, 88 Manufacturers Hanover, 200
Legal trends, impact of, 35, 36, 74 Margins, 97, 98,153
Lending and retail market segmentation, 24,
capacity to re-pay, 21 148
high growth and specialist areas, 127— Market
attractiveness, measuring, 32, 33, 34,
131
retail areas, 127 36,37,45,52
Letters of credit, 122, 125, 163, 170 concentration, trends in, 24
performance, 124, 125 definition, 14, 15, 16, 45
240

/environment assumptions, 9, 34, 35, vs. short-term profit maximization,

36.41.45.46 148,149
expectations of bank services, future, size, 24, 32, 33, 45, 69
41.46 threats, key, 30
fit, 33 Marketing
identification, correct, 52 guides, service, 138
/industry characteristics, 24, 25, 26, 27, of ATM services and utilization, 172
28,32,33,45 of services and motivation to purchase,
opportunities, key, 30, 32, 41, 153 84-96
penetration pricing, 153, 154, 213 plan for attacking an account, 109, 111
plan, corporate, 16 plans, account, 16
planning, need of, 6 strategy
portfolio and analysis of competitor strategy,
ideal, 40 69,70,71,94,95
matrix, 32, 33 and communication process, 179-
strategy, 9, 10, 13, 14, 15, 40, 42, 44, 198
47,51,75 bank and integrated data-bases, 53,
potential, open and account acquisi¬ 54
tion, 99 bank and pricing, 141-151
priorities, establishment of, 8, 9, 10, Markets
14.16.32.45.46 high capital intensity, 33
rate pricing, 150, 152,156 ‘served’, 14,16, 45, 64
research, commissioned, 28, 66 changes to boundaries of, 40
research, conventional and retail mar¬ Marks and Spencer, 65
ket segmentation, 23, 66 Marrieds
saturation, 34, 176 ‘full-nest’, as a consumer market, 18
segment action plans, 44 white-collar older, as a consumer mar¬
segment identification, 44, 52, 138, 142 ket, 18
segment plan development, 40, 41, 42, young, as a consumer market, 18
97 Mastercard, 167, 188
segmentation Media planning for advertising, 191, 192,
and strategic management, 24, 44, 193
97,98 Merchant banking, 2, 121, 130, 142, 213
corporate, 16-22, 40, 42, 97, 205 Merchanting loans, 124
need of integrated data-base in, 53, Mergers and acquisitions, 17, 105, 106,
54 124, 134
retail, 18, 22-24, 26, 27,146, 171 Merrill Lynch, 2, 3, 4, 6, 22, 65, 123, 152,
screening variables, 16-24, 26, 27, 40 154,168
segments Cash Management Account, 2, 3, 123,
development of strategic options for 152,154,189
individual, 145 Mibui Bank, 166
for account planning, 97 Middle market, awareness of the profita¬
strategic, 8, 9, 36-41 bility of, 97-100,131
share Midland Bank, 185, 188, 190,194
absolute, 31 Minerals and mining, specialist lending
bank’s and competition, 25, 31, 32, in, 129,216,218
41,42,46,52,69, 141, 148, 149 Mission
growth and reward, 56 and strategic plan, 8, 9, 10
leadership, 142,143 corporate, 10, 13, 14,15
penetration, 74,141, 153 statement of overall, 13, 41
relative, 31,32 selling the bank, 12-13, 46
trends in, 25, 31, 69, 142 Mitsubishi Bank, 65, 166
 241

Mitsui, 65 Off-site trading via electronic banking,

Mix of business, achieving desired, 8, 14, 134, 135, 165, 167-171, 172,181
16 Oil, specialist lending in, 128, 129, 216
MNCs (Multinational Corporations), 1, On-line profitability analysis for corpo¬
5, 17 rate accounts, 145
accounts, profit margins on, 99, 100 On-line till systems, 162
and organization of corporate treasury, Operating area traffic volume, 174
87, 88, 89, 90, 91 Operating service quality, 85, 86
European vs. American, 84, 85, 86 Operations/administrative efficiency, 44
rationale for selection of lead bank, 84, Operations strategy and analysis of com¬
85,86,87,91,92 petitors’, 71, 72
specialist skills needed for servicing, Opportunities, assessment of, 9, 10, 46,
212,213 47
usage of international non-credit ser¬ Options, pricing, open to a bank, 150-
vices, 134 154
usage of lending and credit services, Organization structure and bank diffe-
124, 125,126 rentation, 9, 12, 51,52, 199
Money Organizational change, 52, 225-227
drafts, 122 Organizational factors and decision to
management, 132 purchase, 83
market funds, 2, 22, 122, 152 Organizational forms, bank, 199-203
supply, 34 Outlets, strategy for location of banking,
transfer systems, rapid, 19 173,174,175
Morgan, J. P., 12, 57, 74, 78, 143, 145, Overbanking, 143,153
188,203 Overdraft loans, 17,18, 20,105, 123,
Mortgages, 3, 4, 17, 18, 105, 124, 127, 126
128, 162,171 Overdraft requirements, seasonal, 21
fixed rate, 128, 216 Overseas expansion, 106
Multicurrency
borrowing advice, 125 Papers and speeches of corporate execu¬
credits, 124 tives as intelligence sources, 66, 73,
international cash management ser¬ 79
vices, 40,134 Parallel loans, 124, 125
lending, 20, 124 Pareto law effect, the, 145, 146,147
lines of credit, 125 Payroll management and accounting, 133
Multisite operations Payroll provision via mobile thin bran¬
and account action planning, 108 ches, 165
and corporate market segmentation, 20 Penney, J. C., 65
Pension management, 2, 17, 18, 23, 132
National Westminster Bank, 166, 190 Personal
New York Times, 66 factors and decision to purchase, 82
Newspapers as information source, 28 loans, 4,18,162
company, 28, 65 selling, relative cost of, 179
NOW accounts, 122, 123 selling as a communication strategy,
177,178, 179-181, 196
Objectives Personnel, competitors’ as information
banks’ long-term, 8, 45, 46 sources, 67
corporate, 10, 11, 41 Petrodollars, 5
of strategic plan, 9, 10, 13, 14, 41, 45, Place discrimination, and pricing
56,57 structures, 156
long-term nature of, 56, 57 Placing power, 142
pricing, 142-145 Planning system audit, 59-61
242

Point of sale displays and demonstra¬ Profit

tions, 183 accounts of potential, 99, 100, 106,
Point of sale terminals, 155, 159,169,170 107,155
Political trends, impact of, 25, 35, 36, 74 maximization, current, 142
Population size, 34 relative in different accounts, 99, 100
Portfolio development, strategic market, Profitability
36-40, 47 analysis, 52, 53, 54, 144, 145
Portfolio strategy, market, 9,10, 13, 14, as an indicator of corporate market
15,40,42,44,47,51,75 segmentation, 21
Power structure and establishment of awareness of in the middle market,
bank mission, 12 97-100,131
Premiums as promotional tools, 182,183 of accounts in retail banking, 23, 24, 42
Press, national and international as in¬ relative in interbank competition, 31,
formation sources, 66 33,46
Pressure exerted on banks by third relative of bank services, 25, 46, 54, 55,
parties, 154, 155 56, 63,135,136,141,143,144,145
Price Profits by service-line, 54, 55, 56, 135
discrimination and structure, 155 Program plans, 45, 47^18
sensitivity of the market, 148, 150, 153 Progress, rate of in strategy implementa¬
structures and regulatory barriers, 148 tion, 8, 9, 56
Pricing Project finance, 17,105, 124, 125, 130,
method selection, 149-154 213,215
on a global basis vs. local, 155 and bad credit analysis, 54
policy, 42, 46, 54, 85 Promotion of services, 177, 178, 181-185,
strategy checklist, 157, 158 196
strategy in banking, 141-158 Property and bad credit analysis, 54
Private banking group in retail market Property companies, 17
segmentation, 22 Psychological variables in conventional
Product market research, 23, 24
development, dimensions of, 72, 73, Public opinion, 36
135, 136, 137,138, 139,140, 223, Public Relations, 177, 178, 181, 182, 185,
225 186, 187,196
-form discrimination, 156 Public sector and turnover as corporate
knowledge, calling officers’ need of market segmentation indicators, 19
adequate, 121,138, 160,161 Publicity vehicle, choice of, 177, 186
literature as source of information, 28, Purchase
65 decision process, 81-84
managers and servicing corporate frequency of services, 34
accounts, 209 motivation, 81
market areas and corporate market Purchasing process, corporate, 86, 87
segmentation, 19, 168
profitability analysis, 52, 135, 136, 137, Quality control circles used in Japanese
138 banks, 136
quality leadership, 143 Quality of bank services, relative, 25, 31,
strategy, 106 32,41,84,85, 135, 136
Productivity and costs, 147, 148, 149
Professional advisers as sources of in¬ Ratio analysis, 99
formation, 67 Rational needs in decision to purchase,
Professional associations as sources of 83,84
information, 67 Real estate
Professional people as consumer mar¬ and the Texas banks, 5, 128
kets, 18, 23 as specialist lending, 128, 215, 216, 217
 243

branches and services, 162, 163, 168, Safety deposit services, 133
169,172 Sale and leaseback, 124
Recall, selective and communication pro¬ Sales, volume of, 97, 98
cess, 178 Samples as promotional tools, 182, 183
Redundancies of personnel and bank Sanwa Bank, 74, 166
organization, 227 Saving accounts, 122
Reference group and decision to purch¬ Saving-conscious, the, as a consumer
ase, 82 market, 18
Regulatory barriers, removal of in bank¬ SBUs, Strategic Business Units, 35, 73,
ing, 141,143,148,156 110,111
Reilly’s Law, 174 and bank group organization structure,
Relationship manager and servicing 74,75,76,97,212
corporate accounts, 208, 211 management of, 74, 79
Relationship pricing, 153 performance vs. bank as a whole, 75
Remittance policies of MNCs, 88 reasons for establishing, 75
Representative offices as corporate Schickendanz, 164
branch variant, 163 Sears Roebuck, 2, 4, 65, 168, 169
Resistance to strategic planning, 50 Securities companies, 4
Resource allocation, 8, 9, 12 Securities management, 2
Resource procurement, 44 Securities trading, off-site via electronic
Resources, internal and establishment of banking, 134, 135
strategic objectives, 13, 14, 41, 42, 46 Security deposit services, 18
Restructure/rebuild, 37, 39 Security Pacific, 74, 162
Retail Selectively invest, 37, 38
instalment financing for dealers, 124 Self-employed people as a consumer
market segmentation, 18, 22-24, 26, market, 18, 23
27, 146,171 Seminars as a warm lead technique, 102,
revolving systems, 2, 3, 125, 127, 169, 103,181
181 ‘Served’ markets, 14, 16, 40, 45, 64
transactions and EFTPOS, 170 Service
bundling techniques and costing, 141,
Retailers, 17
Retirees as a consumer market, 18, 23, 143,171
costing and strategic planning, 53, 107,
156
108, 135,136,137, 143,144,
Reuters, 149
Revenue, bank’s and pricing strategy, 145-149
-line innovation, analysis of competi¬
141
Revenue structures for customers and tors’, 70, 135
services, 146, 147 -line profits, 54, 55, 56,135
Reward and sanction programs, manage¬ -line strategy, competitors, 69, 70
marketing guides, 138
ment, 44
Reward and sanction system balance, 56, rationalization, 146, 147
sector and turnover as corporate mar¬
57,74
ket segmentation indicator, 19
Reward system development of, 52, 56
Ringi system, 203 unbundling, 153
Risk, level and type of, to bank, 25, 54, usage characteristics, 24, 104
Services offered by banks
55,74,99
and analysis of competitors’ services,
Risk assessment, quality of, 54
Risk generating services, desirability of, 67, 104, 105, 108,109
assessment criteria for, 135, 136, 137,
135,136
ROA, Return on Assets, 33, 37, 41,42, 139, 140
barriers to entry or exit, 25, 34,168
56, 73, 74, 80
checklist for developing new, 139, 140
ROI, Return on Investment, 21,38, 39
 244

common delivery systems for, 149 Shareholders, external and establishment

costing, problems of accurate, 135, of strategic objectives, 13, 14, 49, 50,
136,137,138, 143 155
courtesy, 133 Shearson, 65
credit and lending, 123-131 Shipping as specialist lending, 218, 219
cross-selling potential for, 25, 101, 107, Shipping and bad credit analysis, 54
153, 161,187 Shipping companies, 17
and bank layout design, 160, 161 Skill differentials and pricing policy, 142
customer discrimination in pricing of, Size of accounts and attractiveness, 100
156 Skimming pricing, 154
decision making structure for buying, Small business loans, 18, 23
81-96,104,105,106 Smart cards, 4,171
degree of differentiation in, 25, 33, 40, Smart terminals, 40, 134, 135, 159, 170,
42,46,121,141 173
deposit based, 121,122,123 Social trends, impact of, 25, 74
electronic, 134, 135, 142, 143, 148, 149, Socio-cultural trends, 35, 36
153, 154, 159,161, 162, 163,164, Socio-economic distribution, 34
165,166,167,169,170,171,172, Soga Shosha, 129
173 Southeast Bancorp, 129
failures in new, 136, 137 South East Bank, 5
fee-generating, 131,132,133,134, 135 Sovereign risk, 127,128, 129, 130, 153
impact of on shared cost structures, 25, lending and bad credit analysis, 54
63,135,143 Specialist staff for specialist lending, 128,
increase in range of with deregulation, 205-226
160,162,168,169,171 Sponsorship and public relations, 177,
integration of with other banks’, 25, 185, 186
167 Spread, loan,73, 93
market saturation of, 34,176 Standard Chartered Bank, 5
non-credit, 133 Standing orders, bank, 132
product cycle in international, 134, 143 State authorities as corporate markets, 17
rate of change/innovation in, 25, 31, Stock and bond purchases, 132, 168
40,41,72,73, 134, 135 Stock registrars, 133
relative costs of, 25, 53, 135, 136,137, Stockbrokers’ reports as sources of in¬
138 telligence, 67
relative delivery system capability, 25, Strategic
41, 46, 54, 121,123, 152, 159-176 account plans, 97-120
relative employee skills, 25, 41, 121, analysis, paucity of suitable data for,
138 52,53
relative marketing effort for, 25, 46, direction, 8
71, 138,139, 177-196, 205, 223, issues, key, 28, 30, 31, 45
225 management
relative prices of, 25, 31, 41, 46, 70, applicability to banks, 49
135,152 market segmentation and, 24, 44, 97,
relative profitability of, 25, 46, 54, 55, 98
56, 63,135, 136, 141, 143, 144, 145 market
relative qualities of, 25, 31, 32, 41, 42, plan evaluation, 45-48,142
46, 70, 84, 85, 106, 107,135, 136, portfolio development, 36-40, 47
142, 150,151, 152 segments, 8, 9, 36-41
relative resource availability and, 25, variables, 9
46, 121,135, 136, 137, 138 moves, timing of, 8, 9
relative systems capability, 25, 41, 134 options, development of for individual
synergy through sharing facilities, 148 market segments, 145
 245

plan, contents of, 8, 9 Term loans

planning fixed rate short, 124
banks' need of, 6, 8, 44, 45, 49 local, 17, 105
checklist, 49, 59-61 Threats, assessment of, 9, 10, 46, 47
divisional and departmental, 44 Tie-in advertising, 183, 184
factors in recognized need for, 49, Time deposit accounts overseas, 134
50,51 Time discrimination and pricing struc¬
failures in, 58, 59 ture, 156
importance of good communications Times, The, 66
in,57,58 ‘Toaster Wars’ in New York and promo¬
need to monitor progress of, 56 tion, 177
process of, 9-44 Trade acceptances, 122
system, evaluation of, 59-61 Trade finance, specialist lending in, 129,
systems, 52, 53 219,220
time taken to develop, 58 Trade magazines as information sources,
unit and chief executive officer, 52 28,65
resource requirements assessment, 52 Trades Unions and bank organization,
shock and need of strategic planning, 227
50 Trading companies, 17, 129
testing, 44-48 Traffic volume and sale of services,
unit plans, 40, 41,44, 45 branch, 168, 169, 173, 174
Strengths, assessment of, 9, 10 Training, management, 44
Structure of treasury organization, need Transaction
to identify, 101, 104, 106 accounting procedures, transformation
Students as a consumer market, 18, 23, of, 53,143,144,145,146,147,
24,156 148, 149
Subsidiary structure and corporate mar¬ based banking, 199, 200
ket segmentation, 20 costs in retail banking, 23, 24, 143, 144,
Sumitomo Bank, 166 145
Super-rich, banking for, 18, 22, 123 differentials in, 156
Sweepstakes as promotional tools, 183 costs on ATMs, 166, 167
Swiss banks, 3 error rate, 41
SWOTS, 9, 10 Experience Effect, The, and, 147, 148,
and competitor analysis, 19, 28, 29, 30, 149
31 losses, 145
Systems products, development of and operations and branch design, 160
wholesale banking, 5, 6 volume analysis, 144, 145,148, 149,
150, 167, 170
Taiyo Kobe Bank, 166 volumes, cumulative, 147, 148, 149
Tax advice, 17, 18,22,23,133 Transport companies, 17
Tax laws, 36, 88 Travel services, 2, 18, 133, 168
Tax leasing, 124 Travellers’ cheques, 18, 184
Technological trends, impact of, 25, 35, Treasury
36,76 advice services, 17,105
Technology, new and banking, 2, 3, 4, 5, certificate accounts, 122
6 function corporate, of MNCs, 87-91,
Telemarketing, personal selling, 181 133
Telephone banking, 159, 173 management services, 132
Telephone calling as a warm lead techni¬ organization
que, 103 middle market, 93-96, 131
Teller transactions, human vs. machine MNCs’ advanced international, 90,
and price, 145, 146 91
246

MNCs’ elementary international, 88, Value in use pricing, 151, 152

89 Variables in corporate market segmenta¬
MNCs’ intermediate international, tion, 16-22
89,90 Variables in strategic market, 9
structure, need to identify, 101, 104, Venture capital, 17, 18, 105, 131
106 Verbrauche Bank, 164
Trust management, 2 Very rich private banking, 18, 22, 123
Trustee Savings Bank, 188, 190 Visa Card, 3, 152,167, 188
Trustee services, 17, 18, 105, 132, 133 Volume discounts, 155
Turnover as market segmentation indica¬
tor, 19 Wage payments, 17, 105
Wall Street Journal, 66
Uncertainty, attempts to reduce business, Warm lead calling techniques, 66, 67,
50 101,102,103
Unemployment level, 34 Weaknesses, assessment of, 9, 10
US banks, 1,4,78, 131, 143 Wells Fargo, 123
US Glass Steagall Law, 2 Withdraw, 36, 37, 39
US interstate banking, 1, 4 World Corporation Group, Citibank’s,
213
Value, perceived customer, 151
Value discounts, 155 Zaibatsu system, 203
Bank Strategic Management
and Marketing
Derek F. Channon
Professor of Marketing
International Banking Centre, Manchester Business School
Manchester

This book is the first of its kind to address the issues of strategic management and
marketing in the banking industry in an international context. Developed over a
number of years at the International Banking Centre at the Manchester Business
School, the text provides practical information and unique guidelines to help
bankers apply the concepts of marketing and strategic management specifically
to the banking industry. Bank Strategic Management and Marketing is based on
experience, and has been tried and tested throughout the world. It will provide an
invaluable contribution to the area of management education for banking in a
time of rapid change. An accompanying book of case studies is also available.

About the author

After a number of years' experience with the Royal Dutch Shell Group, Derek
Channon became Ford Foundation Doctoral Fellow at Harvard Business School.
He returned to the Manchester Business School in 1972 to become responsible
for the area of business policy and served for a time as joint managing director of
Evode Holdings Ltd. He is presently Professor of Marketing and is responsible for
the areas of marketing and strategic management at the Manchester Business
School. In recent years he has been engaged in worldwide research on interna¬
tional banking and is an adviser to a number of leading banks in Europe, North
America, Africa and Asia.

Contents
Preface
1 Introduction
2 Bank Strategic Planning
3 Implementing Strategic Planning Successfully
4 Competitor Analysis
5 Purchasing Financial Services
6 Planning Corporate Account Strategy
7 Product Range and Development Strategy
8 Bank Pricing Strategy
9 Delivery System Strategy
10 Communications Strategy
11 Bank Organization Structure
Index

JOHN WILEY & SONS

Chichester ■ New York ■ Brisbane ■ Toronto Singapore
ISBN 0 471 90383 3