Product strategy and distribution strategy of financial services

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Product Strategy and Distribution Strategy of Financial Services Group 8

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Transcript of Product strategy and distribution strategy of financial services

Page 1: Product strategy and distribution strategy of financial services

Product Strategy and Distribution Strategy of Financial Services

Group 8

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Financial Services

• The various services that are created and delivered by the financial system are known as Financial services.

• Financial services constitute an important component of the financial system.

• Financial services, through the network of elements such as financial institutions, financial markets and financial instruments, serve the needs of individuals, institutions and corporate.

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Insurance

For the customers’, the most important function of an insurance company is;

• Product design.• Distribution services.• Delivery performance.• Investment performance.

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Marketing Strategy of insurance company influenced by:

• The convergence of financial services.• Rise of E-commerce.• Emergence of new distribution channel.• Value proposition of time.• Cost reduction.• Effective CRM.• Profitability.

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Issues In Insurance Marketing

• Insurance is unpatented, subjective, requires prior experience.

• Physical evidence is difficult to establish.

• Mass production is impossible.

• There is an involvement of customers in production of services.

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Success Factors Of Insurance Players

• Change n the Attitude of the Population.• Open and Transparent Environment Created Under the

IRDA.• Well Established Distribution Network.• Trained Professionals to Build and Sell the Product.• Rationale Approach to the Investment Criteria.• Stringent Accounting Practice to Prevent Failures

Amongst the Insurers.• Level Playing Field at all Stages Of Development in the

Sector For all the Players.

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MARKETING STRATEGIES OF INSURANCE PLAYERS IN INDIA• Develop customer relationship that retains the loyalty of existing customers

and enable new customer segment and market areas to be served effectively and efficiently.

• Introduce new innovative products and services desired by targeted customer segment.

• Produce customized high quality products and service at low cost and with short lead times.

• Mobilize employee skills and motivation for continuous improvements in process capabilities, quality and response times.

• Deploy information technology, databases and systems in an optimum manner.

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Punch line of Some PlayersInsurance Company Punch line

Life Insurance Corporation of India "Life is Beautiful““Jindgi ke sath bhi jindgi ke baad bhi"

Birla Sun Life Insurance "Your Dreams. Our Commitment"

ICICI Prudential Life Insurance "We cover you at every step in life"

HDFC Standard Life Insurance Making life Easier for you

OM Kotak Mahindra Life Insurance "Jeene ki Azaadi"

ING Vysya Life Insurance "Adding life to insurance"

TATA AIG Life Insurance "With you always”

Max New York Life Insurance Company "Your partner for life"

Bajaj Allianz "We cover almost everything"

AMP Sanmar "Creating better futures"

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Market Strategies of Some Insurance Policies• Tied up with Corporation Bank and

Vijay Bank for distribution.• Launch customized and focused insurance

products for various sections of the society.

• Customer retention, it has launched a highly optimistic campaign of revival of lapsed policies.

• One of biggest advertiser of its products utility a wide large of products viz. print and electronic media, sponsoring events, road shows etc..

• Following both mass marketing and segmentation strategy.• Promotion activities is on tax benefit and returns from insurance

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• Achieve scale in premium income and distribution force in shortest time.

• Using tools like workstation marketing,corporate marketing, road shows,stall in trade fair, loading etc..

• Mostly pro-active in nature.

• The focus is more on direct selling apart from communication and building personal relations.

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• Direct market tactics

• Marketing at worksites and corporate customers

• Customized product offerings.

• To sell the products as long term investment plans.

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• Many flexible products with options andriders that can be customized to over250 combinations.

• Using direct marketing likeadvertisement and event sponsorship.

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• Tied up with Geojet Info fin Technologies.

• Strategy of phase-wise introductionof products.

• Following the bundle method of productofferings to enable meticulous investment planning by analyzing the needs, requirements risk profile of the customers.

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• Mass marketing

• To build its brand by stressing on the 'creditworthiness of the companyand its partners.

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• Cashless insurance products

• Advertising in local newspapers,television and hoarding for generating awareness.

• Highly cautious in underwriting risks.

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• Simple Products.

• Branch-wise segmentation and product offerings.

• Smaller Average size of policies.

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New Trends in the Insurance Industry

As per the 7th April 2010 Outlook Money

ICICI Prudential ACE

Type 1 Ulip

No Premium allocation charge• Only 2 charges;

o Policy Administration – Rs.60/-o Fund Management – 1.35%

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`

AEGON Religare Start Child

Child Plan with lowest cost

Auto-rebalancing and invest protection features

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IDBI Fortis Retiresurance

Pension Plan with lowest cost

No premium allocation charge in any year

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Reliance Life Basic Plan

Type II Ulip

Low Premium allocation of 6% first year and nil thereafter.

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Types of Insurance

• Universal Life Products– Offer flexibility by allowing a policy holder to make changes in

premium.– Can change the policy amount if the holder is not able to make the

payments.

• Demographic Plans• In-built Riders• Inflation Based Products• More Thematic Funds

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Distribution Channel

• Traditional– Agents

• Most companies in India use• Called as “insurance advisors/planners”

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E.g.: LIC It has more than 6,51,000 agents around the country

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– Brokers• Professionals who assess risk on behalf of a

client, advise on the mitigation of that risk, identify the optimal insurance policy structure, bring together the insured and insurers, carry out work preparatory to insurance contracts and where necessary, assist in the administration and performance of such contracts, in particular when claims arise.

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Benefits of Brokers

• Improvement in Customer Service.

• Transfer of Technology and Managerial Know-how.

• Benefits to Insurance Companies.

• Foreign Exchange Considerations.

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New Distribution Channels

• Direct Marketing• Brokers/Corporate Agents • Independent Financial Advisors • Telemarketing• Work site Marketing • Retail Chains • Internet Marketing • Bancassurance (Distribution of insurance products by banks)

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Mutual Funds

1. Aggressive Funds Funds invested in stocks of fledgling companies/industries; goal is maximum Price rise; current income is very low; safety is very low.

2. Growth Funds Funds invested in stocks of settled companies/industries; goal is high capital appreciation; current income and safety is low.

3. Growth and Income Funds

Funds invested in companies with solid track record; goal is price rise and moderate current income; safety is low to moderate.

4. General Money Market Funds

Funds invested in short-term debt instruments; goal is moderate to high current income; safety is very high.

5. Balanced Funds Funds invested in mixture of bonds, preference and common stocks; goal is current income and long-term growth; safety is high.

6. Tax Saving Funds Funds invested in permissible stocks/ debentures; goal is tax benefits and growth; current income is moderate and safety is high.

Types of Mutual funds

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Marketing of Mutual Funds1. Product Planning

Product line to be offered—quality, design, range of services, etc.

2. Branding Selection of product name, brand policy like individual family or corporate brand.

3. Pricing Policy Price of units, rates of incentives, rates of commission to agents/brokers.

4. Distribution Policy

Channel to use for selling the products—direct to the customers or through intermediaries like agents, brokers, etc.

5. Promotion Promoting sales through advertisement, road shows, etc.

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News on Mutual Fund

• Mutual Fund investment to become more costlier.– SEBI has recently changed the rules to encourage mutual fund

industries to increase its reach beyond the large cities.– SEBI banned entry load of 2.5%, which was used for payment of

commission to distributors.

• A 20 bps rise in expense ratio, which will compensate mutual funds for ploughing back the money raised from the exit load into the scheme instead of using it to meet the expenses.

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Existing Order

Expenses Percentage

Investment Management & advisory fee 1.25

Custodian fee 0.05

R&TA fee 0.2

Marketing & Selling Expenses 0.1

Brokerage & Transaction cost 0.51

Audit fees/fees & Expense 0.06

Costs related to investor communication 0.08

Cost of funds transfer from location to location

0.05

Other Expenses 0.05

Service tax 0.15

Total Expenses 2.5

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CHANGES IMPACT

Lower expense ratio for direct investors Higher returns for direct investors

Cash investment up to Rs.20,000 Rural population without bank accounts can now invest in mutual funds

Evolving a system of product labelling More broad categorisation of mutual fund products likely, based on risk involved, fund objective etc…

NAV only after availability of funds Removes undue advantage to large investors at the cost of smaller ones

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Mutual Fund Distribution

• Post-office agents• Retired government officials• Retired teachers• Retired bank officers.

For this, a special category of schemes that includes diversified equity funds, FMPs and index funds will be created

Members of this new cadre of distributors will require National Institute of Securities Market certification

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Banks

"Bank marketing is the aggregate of functions, directed at providing services to satisfy customers’ financial (and other related) needs and wants, more effectively and efficiently than the competitors keeping in view the organizational objectives of the bank."

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IMPORTANCE OF MARKETING FOR INDIAN BANKS

"The relevance of aggressive marketing in banks has come to the fore as never before" - M N Goiporia.

CHARACTERISTICS OF SERVICES• Intangibility• Inseparability• Heterogeneity• Perishability

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Bank marketing deals with providing;• Services to satisfy customers' financial needs and wants.• Banks have to find out the financial needs of the customers and

offer the services which can satisfy those needs.• The individuals and corporate bodies have certain needs in relation

to money commodity. To satisfy these financial needs, customers want specific services.

• Different banks offer different benefits by offering various schemes which can take care of the wants of the customers.

• Marketing helps in achieving the organizational objectives of the bank. This means that marketing is equally applicable to achieve commercial and social objectives of the banks.

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Banks’ Success

1. The bank cannot exist without the customers.2. The purpose of the bank is to create, win, and keep a customer.

The customer is and should be the central focus of everything the bank does.

3. It is also a way of organising the bank. The starting point for organisational design should be the customer and the bank should ensure that the services are performed and delivered in the most effective way. Service facilities also should be designed for customers' convenience.

4. Ultimate aim of a bank is to deliver total satisfaction to the customer.

5. Customer satisfaction is affected by the performance of all the personnel of the bank

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Marketing Function of Banks Involves

• Market research

– Identification of customers’ financial needs and wants and forecasting and researching future financial market needs and competitors’ activities

Market Research are mainly done on– New service development,– New service product acceptance,– Research and development of existing financial service,– Bank image study,– Measuring banks advertising effectiveness,– Measurement of market potentials,– Market research of competitive service products– Customer opinion study– Customer profile study– Market share analysis

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• Product development– Appropriate products to meet consumers’ financial needs

• Pricing of the service– Promotional activities and distribution system in accordance

with the guidelines and rules of the RBI and at the same time looking for opportunities to satisfy the consumers better.

• Developing market orientation– Marketing culture-among all the customer-consciousness

‘Personnel’ of the bank through training.

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Marketing approach of Banks requires

• A detailed understanding of marketing principles and activities by the top management

• Adoption and demonstrated commitment to marketing at the top management of the bank

• Conducting appropriate market research to understand the market/consumer better

• More emphasis to product development and the process of product development to the needs of the consumer

• Exploitation and adoption of new technology, systems, and procedures for marketing advantages for customers' convenience and not for only cost advantage

• A commitment to customer orientation marketing (need satisfaction) culture throughout the bank including those staff who are not in direct contact with the customers

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7 Marketing Mix of Bank Services

• Product– Formal Product– Augmented Product

• Price• Place• Promotion• Process• People• Physical evidence

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Services

• Currency option• Interest rate cap• Interest rate floor• Interest rate collar• Forward rate agreement• Total Branch

Automation

• Automated Teller Machine• Electronic Fund Transfer• Anywhere banking• Anytime Banking• Home banking• Tele banking• Plastic Card

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New Trends in Banking

• E-Newsletters

According to the website Bank Advisor, banks need to reach customers when they are not in the bank, because customers are using other channels to meet their banking needs. One example is to use teller machines in convenience stores not owned by the bank. Another example is online banking. Another option is e-newsletters. Banks can use them to educate their customers about improving their financial decisions and to educate customers about the banks' products and services.

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• Social and Mobile Media

Banks need to take advantage of social media. According to the research company Nielsen, the use of Twitter grew 1,444 percent in 2008-2009, and time spent on Twitter grew 175 percent during the same time period. In addition, web visitors using a mobile device grew 34 percent from July 2008 to July 2009.

Bank can provide mobile personal finance applications to help customers manage and improve their financial situation. It can also use social media tools to help promote special deals.

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• Fee Changes

To differentiate your bank from the competition, consider stopping charges for fees. Instead of fees, generate income by advertising other revenue-generating services such as financial counseling or long term-planning assistance.

• Innovate

Give away free money. Periodically place an extra $100 bill in ATMs. This will create a lot of conversation about the bank.

• Customer reclamation

One of the reasons customers leave a provider is because of a perceived attitude of indifference. Communicate with customers who have left you by giving them a compelling message indicating you want them back. Some will return.

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“READY TO ACCESS” “CUSTOMER SERVICE” WITH AND BY TWITTER

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New entrants – Telco & Retail

• Insurance• Credit cards• Loans• Savings

• Credit card• Payment through

phone bill

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Housing Finance• Housing demand could be simply defined as housing needs backed

up by an ability and willingness to pay.• The actual amounts that households set aside for housing

investments tend to be variable depending on household income and economic development in general

• Estimating and responding to "effective demand" i.e., the ability and willingness of households to make housing investments, is perhaps the critical first step in public policy strategies for housing development

• Housing, accounts for one of the largest components of the wealth holdings.

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• Housing is a long lived asset.• In developed countries such as the USA, housing is the largest

component of non-human wealth.• Been identified as a priority sector by the Indian Government.• Establishment of a "National Housing Bank", to support the

financing of housing activities is another proof of such a realization• All governments have a similar objective for their citizens: "to

ensure that all families have a decent house in a suitable living environment".

• The finance of housing thus assumes greater importance for households for wealth creation and tends to be a major motivation for household thrift.

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• Housing investments are inextricably linked with intertemporal investment choices that households make for acquisition of housing stock (and services) depending on the savings rate, the wealth effect, the access to long-term finance (its availability and cost) as well as the inflation rate (expected future prices of the housing stock).

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Housing Finance in India• First Pillar : 1970’s - Housing and Urban Development Corporation

(HUDCO)• Second Pillar : The cooperative movement catering largely to the

private sector. Households were encouraged to form cooperative societies, invest initial capital for land purchase and then were financed through state level apex co-operative housing finance societies

• Third Pillar : Housing Building Advance (HBA)• Final : Housing finance, as a financial intermediation process,

commenced only in 1978, with the establishment of Housing Development Finance Corporation (HDFC) as a specialized lender to households and corporate entities specifically for housing purposes

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Key Element in Housing Finance• To enhance the loan origination process for housing throughout the

country.

• To develop an institutional network that would facilitate these origination processes.

• To identify a potential resource base for the system as whole.

• To codify and simplify the legal system with respect to risk management of housing finance institutions (liquidity, interest rates and default risks in particular).

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• To rationalize and reorient the fiscal system to reallocate funds to the housing sector by providing incentives for household thrift is the vexing question as well as institutional growth.

• To link formal network with informal networks which are the major source of financial and economic activity for the rural and urban poor.

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Recent Developments• A major entry by the Life Insurance Corporation of India in direct household

mortgage loan origination (upto 1987 their total originations in the sector were Rs 2482 crores). During 1988, 4,525 loans were originated and by 1990 it grew to 10,000.

• A major initiative by the National Housing Bank to include the commercial banking system in the direct loan origination process through network of 55,015 branches throughout the country.

• Major initiatives by the commercial banks to create housing finance subsidiaries either jointly with existing housing finance institutions or on their own.

• Entry of the General Insurance Corporation of India into home loan origination through a subsidiary company.

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Factoring

• Factoring is a financial service covering die financing and collection of receivables in domestic as well as international trade.

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Function of Factor

• Providing finance against bills receivable and trade debts.

• Undertaking sales ledger administration responsibilities of the client including maintenance of books, accounting, asset management, collection of debts and furnishing information reports to the client.

• Providing debt insurance facility to the client against possible losses arising from insolvency/bankruptcy of the debtors.

• Offering relevant consultancy services in the areas of finance, marketing, etc.

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Management Issues : Marketing

• Type of Services to be Offered– Providing finance against bills receivables.– Sales ledger administration, collection of dues, accounting,

providing information reports, etc.– Providing debt insurance facility to the clients, on a selected

basis.• Price to be Charged

– Administrative cost– Discount charge

• To Whom to be Offered• Capital Required and Resources

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Marketing Factoring Services

Marketing of the factoring services essentially involves a study of The Market, Consumers and Competitors.

• The Market– How big is the market?– What is the potential growth of business, say during the next 10

years?– Is the market local, national or international?– Is the market segmented?– Who are the other players in the market?– Can a specific targeted market share be achieved, etc.?

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• The Consumers– Who are the likely consumers?– What are their buying behaviours and processes?– What type of package(s) of service would they require?– What kind of pricing can be sustained keeping in view their

profile, etc?• Pricing

– The factoring organization has to keep the cost of overheads to the minimum so that it can operate within a thin spread available to him. Discounting charges to be levied by a factor are kept at par with that of banks

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Promotion of Factoring

• Canvassing new business and contacting the people.

• Visit to their business premises.

• Getting business proposals.

• Discussion with the clients.

• Organising a survey.

• Finalization of deal

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The main sources of organising advertisement campaigns may be:

• Printed literature.

• Publicity campaign / articles in business magazines / books

• Branch managers of sponsoring bank(s)

• Existing clients/customers.

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Thank You.