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FINANCIAL SERVICE PRODUCT LIFE CYCLE (PLC): STRATEGIES TO GROW SALES

(DEPOSITS) AND PROFITS OF ORDINARY SAVINGS ACCOUNTS

By: Njekwa Njekwa MSc (UK), ACIB (UK), ACIM (UK), PGDiP M (UK), Dip BCM (SA)

INTRODUCTION

This publication is a follow up on the earlier article I had published in July 2004, in the Banking and

Finance Journal of the Zambia Institute of Bankers, entitled: Practical Analysis of the Personal Saver

Market in the Zambian context.

The follow up amplifies the winning strategies I have already cultivated, in dealing with the Personal

Saver market, by focusing on alternative Bank Strategies that may be implemented at each stage of

the financial service Product Life Cycle (PLC) in this case, of the “ Ordinary Savings Bank Account” in

order to grow Bank sales (Deposits) and profits.

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PERSPECTIVE

The concept of a service product life cycle is a tool that is widely used for market planning. It can be

employed both to guide an organisation in the determination of the appropriate balance of service

products in its portfolio (product mix) and in the development of suitable strategies for marketing of

these service products.

Unfortunately, many organisations, notably financial Institutions experience great pain in knowing

the extent at which the well researched and developed financial services products are performing in

terms of sales revenue and profits. This has resulted into many financial Institutions, recording only

marginal returns of their investments.

From the outset, I must be clear and I need to emphasise that both products and service products go

through a life cycle, as indicated below. The Intangibility nature of financial services products has left

many financial Institutions in a quandary and state of perplexity and has wondered how correctly,

performance of these service products may be measured in terms of sales revenue (deposits) growth

and profits. Gone are the days of distinction between a product and service. They are the same and

share the same platform of marketing principles and hence the extensions of the marketing mix

variables to now 7ps of marketing to accommodate the complex nature of marketing the intangible

service products (Savings Bank Accounts).

My extensive financial services marketing experience and research in various Banks has revealed

that, marketing of financial service products has been difficult and the ordinary savings account is

not an exception. Thanks to the advanced Bank technological innovations and creation of tangible

cures (example: Mobile Banking on phones, ATM Savings debit cards, etc) that have eased all

promotions of intangible service products (Savings accounts).

Characteristics of each stage of the Service Product Life Cycle

Traditionally, the service product life cycle is marked by the following five distinct stages:

Product development:

A period during which a new Service product idea is developed into a specific form,

following an idea generated.

Sales and profits are Zero

Investment costs are high

Introduction:

It is a period of slow sales growth as the Service product is being introduced in the

market

Sales and profits will typically be negative (costs of service product launch still

higher than cash flows generated)

Target market segment little aware of the service product and its value offering.

Competitors little aware of the service product and its offerings

Growth:

It is a period of rapid market acceptance

Sales volumes increase steadily

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Service product begins to make a significant contribution to profitability (profits

increase rapidly)

New service product will begin to attract significant competition

Maturity

Service product is now known to the majority of target consumers in the market

It is the highest level of sales and profits, making the product to qualify to be a Cash

cow

It is a period when sales start to slowdown because the service product has achieved

acceptance by most of its potential buyers.

It is a period when profits start to slow down because the service product has

reached most consumers who now make only moderate buys, are satisfied with the

product, do not want more of the same service product but looking for alternative

and more value offering service products.

Competition is at its highest level

Market share of the service product is at its highest, but slowly declining due to

intense competition and change in customer taste in favour of new service products

offering value added features.

Decline:

It is a period when the service product sales fall off and profits drop heavily.

Value of service product offering to target customers is dying

The product has become a dog, offering nothing in return but just consuming and

increasing the costs.

Movement of Sales (deposits) and Profits of Ordinary Savings Bank Accounts from

introduction to decline is as per PLC model below:

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Discussion of PLC model above

The diagram above focuses on the ordinary Savings Bank Account service product, a common and

long term Cash cow service product for most Financial Institutions which provides rich deposits for

re-investments by Financial Institutions. I will determine the Bank Strategies that must be applied at

each stage of the PLC that the Savings Account has reached, in order to extend the PLC of the savings

account with the aim of sales and profit maximisation.

It is worth to mention that financial Institutions and marketers must understand the characteristics

of each stage of the PLC as described above and where the Savings Account service product has

reached. It is only then will appropriate strategies at each stage be formulated and implemented. I

must give an early highlight that; it has proved to be true: “If you cannot find or see the problem, it

will be difficult to find a relevant solution.”

From my experience, the first problem normally faced by financial institutions is to determine or

know where the Savings Account service product has reached at each stage of the Product Life Cycle

in terms of sales (Deposits) and profits. This has remained a puzzle today and as a result, many

financial Institutions have formulated and implemented wrong strategies which have little or never

worked, despite the heavy cost input. As an example, financial Institutions have used strategies

applicable to the introduction stage, when the Savings Account has reached the maturity stage or

even decline. It does not work like that and this has resulted into a fruitless outcome, despite a

heavy spend on strategy formulation and implementation.

I reiterate, financial institutions must first of all determine the stage the Savings Account service

product has reached and only then will appropriate strategies to grow the sales (deposits) and profits

can be formulated and implemented.

Savings Account strategies to Grow Sales Revenue (Deposits) and Profits

I will mention a few marketing models that can be used and the actual strategies that can be

employed to grow sales (deposits) and profits of a savings Account service product.

The AIDA model can be linked to each stage of the PLC and will give a guideline of the kind of

strategies that can be used to create Awareness or attract the attention of the target consumers to

the Savings Account service product, create Interest, Desire and Actual decision to open a Savings

Account Service product.

The main strategies that can be implemented from Introduction up to decline stages are as follows:

Stage in the Life Cycle of a Savings Account

Savings Account Strategies applicable Commentary

Introduction Extensive promotion using the appropriate promotional mix that will create greater awareness to the target market (choose the appropriate media that will reach and inform the consumers clearly of the

Any promotion that will be used to create awareness to the target consumers must be

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aspects of the new service product)

Use of penetration strategies to woo customers and to enable them open Savings Accounts:

o Easier and simpler account opening procedures (process element of the marketing mix).

o Affordable minimum balance to open a Savings account (product element of the marketing mix).

o Zero or Lower monthly administration fees depending on balance held in the Savings account (price element of the marketing mix).

o Interest bearing account daily on available and cleared credit balance (Price element of the marketing mix)

o Savings available immediately for withdrawal as long as you maintain the minimum required balance (Place element of the marketing mix).

detailed and informative, carrying benefits (features of the Savings Account) that the consumer will gain

Need to measure the effectiveness of the kind of promotion used at the end of each promotion at every stage of the PLC.

Print media promotions recommended especially for new savings account to enable the prospective customer comprehend the offering and make an effective choice due to the intangibility nature of Savings accounts.

It is a period of slowdown in sales, so there is need to speed up awareness to increase sales before competitors copy the product.

Growth Savings account features reviewed and improved, more quality features introduced, new features introduced to attract and to ensure complete acceptance of the Savings Account.

Target new market segments as sales increase, indicating acceptance of the Savings Account.

Quality product delivery (JIT) and new Savings distribution channels introduced (example: telephone banking, ATMs), quality product management (TQM), quality relations with consumers (CRM),

Link of Savings to other accounts like a cheque account, etc.

Increase promotional spend to counter

This is the stage where new competitors will enter the market.

There is need to sustain rapid market growth of the Savings Account.

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competitors as they try to win the market share of Savings deposits.

Continue with reminding advertising, to inform the consumers that the Savings account with ABC financial institution is still the best.

Maturity Introduce Savings account guarantee scheme for total customer satisfaction (TCS)

Introduce augmented products for loyal customers, like affordable or subsidised Insurance.

Introduce varied Savings Accounts (Savings modification strategy) to meet the needs of different consumers (old age, retired, children, pensioners, students, NGO, Savings for business, Savings for holidays, Savings for a rainy day)

Qualify for a Prize draw (example: paid holiday for two) for maintaining a certain amount of savings in an account for a specific period.

More free Savings features introduced to loyal customers and will attract other consumers to be loyal.

Corporate Social Responsibility (CSR) to be introduced as a financial institution that belongs and shares its profits with the communities within which it operates (will make customers to feel they own the financial institution and will have what it takes to safe guard its existence and no competitor may creep in). Publicity of CSR by any media, particularly word of mouth (WOM) of CSR will retain and attract more customers to open Savings Account.

Market modification strategy (new Savings users and new market segments sought),

Product modification strategy (new Savings product features and improvements to existing features)

Marketing mix modification strategy (balancing the application weight of promotional mix elements, example more emphasis on fees (price element) charged on savings account).

Savings Account differentiation strategies (it is all about different ways on how to offer the same Savings Account offered by

Stronger marketing is exhibited by competitors and pause a marketing challenge to management.

These are product extension strategies aimed at extending the life of Savings Accounts at Maturity stage.

More loyal customer will increase, resulting into lower costs and improved profitability of the financial Institution from Savings Accounts.

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competitors using the marketing mix ingredients) that will be rewarding through increased deposits and profits by way of customer retention and acquisition of new Savings customers). It is not only what we offer (savings accounts) which is important, but how we offer Savings accounts)

Decline Cut on promotional spend strategy as the Savings Account is now a loss maker, Savings deposits are declining and so as profitability.

Complete review of Savings account product suit of offerings.

Immediately, initiate market research on customer perception of the Savings product offering to determine why the needs and wants of consumers seem not to be satisfied.

Complete review of the marketing mix elements (7 Ps) application by the financial institution.

Carrying a weaker Savings Account in terms of sales (deposits) and profits on the balance sheet can be very costly to the firm.

The weaker Savings Account may take much of management time for a lower return, when such efforts could have been used on more profitable products or even introduce a new product in the same market or complete new market segment.

Sales(deposits), profits, market share and costs of declining Savings Account must be reviewed from time to time to determine if it is still worthy to maintain the Savings Account service product.

Conclusion:

I have to give a reminder that markets today are dynamic and therefore technological developments

are key to drive service innovation in order to keep abreast of changing customer needs and to

maintain a competitive age.

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The dynamic environment of services today places a premium on effective marketing and skills of

formulating and executing marketing strategies are a challenge to many Financial Services

Institutions. While employees must be customer service oriented, the service product must also be

tailored to meet customer needs, priced realistically, distributed through convenient channels

( example: a number of financial institutions today have added Internet capabilities so that

customers can access their accounts and conduct certain transactions via their mobile phones from

wherever they may be)and actively promoted to customers.

It is very important that an organisation must monitor what its competitors are doing and must

have a clear strategy for achieving and maintaining competitive advantages.

Finally, financial services products are all the same and most evolve from copying. The only

difference is how they are offered, which is difficult to copy (personal relationships).