Strategic positioning – Key factor for achieve competitive targets in banking industry

 

Introduction

Positioning is the process of establishing and sustaining a unique market presence and image for a banking or financial organization, as well as for its products and services (Gheorghe ciobota and Argentina velea, 2015). This allows the organization to stand out to current and potential customers within its target segment, distinguishing itself from competitors based on key attributes. The market position of a product or service is shaped by how consumers perceive it in relation to competitors' offerings. Through a positioning strategy, banks or insurance companies aim to influence the target audience’s perception by identifying relevant competitive advantages and effectively communicating them. A strong competitive position can be achieved by differentiating products and financial services, thereby creating a distinct image of the bank and its offerings in the minds of consumers. Maintaining this position can be facilitated by raising barriers to competitors’ actions through various strategies such as,

1.      Ensure customer satisfaction by offering products and services that meet the needs and interests of both individual and organizational clients.

2.      Leverage information technology to develop new services, such as home banking and private banking.

3.      Recruit, motivate, and retain skilled personnel to foster long-term client relationships built on trust, respect, and strong ethical principles.

Minhas and Jacobs (2016) conducted a study on strategic positioning and quality determinants in banking services in Turkey. Their research found that banks differentiate themselves based on various factors, including pricing, market niche, technological innovation, superior product and service quality, specialization in SMEs and mortgage banking, credit availability, delivery systems, promotion, and overall reputation.

Wambui (2018) observed that the Kenyan banking sector has recently experienced heightened competition, prompting bank management to reassess and explore new strategies for expanding their businesses and penetrating new markets more thoroughly. Strategic positioning focuses on customer engagement, which encompasses attracting, satisfying, and retaining clients. In the process of positioning itself strategically, a company considers its decision-making, the value it aims to deliver, and how it will differentiate itself from competitors.

Positioning strategies developed by banking industry

1. Institutional positioning - The development of a bank's scope and objectives depends on its intended business operations. A bank must determine whether to focus on a local, national, regional, international, or even global scale, with the option to choose multiple areas of operation.

2. Positioning of the range of products and services - This involves a strategic approach tomarket positioning that is closely tied to the target market and product offerings. The management of a banking or financial institution will need to decide whether to provide products and services tailored to the retail banking market (for individual consumers) or the corporate banking market (for businesses and organizations). Additionally, based on the nature of its products or services, the bank can choose to fully meet the needs of a specific customer segment with tailored products or offer solutions that address only certain financial needs, such as focusing solely on credit products or investment and savings products.

3. Positioning through the distribution system and the bank staff - The distribution strategy for financial and banking organizations combines human resources, local branches, and equipment. Advances in technology and information systems have expanded access to markets, with tools like ATMs (Automated Teller Machines) and EFTPOS (Electronic Funds Transfer at Point of Sale) terminals enabling banks to provide 24/7 service. However, continual development of human skills is crucial for gaining competitive advantages alongside technological advancements and for anticipating emerging trends and opportunities.

   Banks design their distribution systems based on their development goals and target market segments. For instance, corporate clients may require extensive IT facilities, while small businesses might benefit more from branch services. Similarly, some individuals prefer direct interaction with bank staff, whereas others favor transactions via ATMs. There are four strategic positioning approaches based on the distribution system:

• High Technology - High Investment in Staff: Banks adopting this approach are often leaders in technology and pioneers in new systems. These global and multinational banks invest heavily in both technology and staff to offer comprehensive financial products and services and maintain high-quality standards for customer loyalty.
• High Technology - Low Investment in Staff: International or multinational banks following this strategy focus on technology while minimizing personal investments. They target corporate clients seeking advanced technological solutions that offer significant time savings, allowing these banks to deliver top technology at lower costs.
• Low Investment in Technology - High Investment in Staff: Typically, national or regional banks focusing on retail markets prioritize direct customer interaction. These banks invest in staff skills and motivation, using technology primarily for basic services to keep costs down and enhance sales force effectiveness.
• Low Investment in Technology - Low Investment in Staff: Smaller local or regional banks may offer a limited range of simple products and services, such as basic mortgages, low-value consumer loans, and straightforward savings and investment options. These banks often lack the resources to compete with larger institutions and thus adopt a more minimalistic approach to both technology and staffing.

         4. Positioning based on the segment/market segments identified - In a highly competitive market, it’s challenging—if not impossible—to offer a comprehensive range of products that meet every consumer’s needs. As a result, many financial institutions choose to focus on a select number of market segments identified through market segmentation. They then concentrate their efforts and resources on delivering superior benefits and value compared to their competitors. Broadly speaking, organizations operating in retail or corporate banking have three strategic options based on the identified segments:

a. Become Financial Supermarkets: Offer a wide variety of services.

b. Provide Low-Cost Services: Focus on delivering services at lower costs.

c. Specialize in Niche Markets: Concentrate on becoming experts in specific, niche markets.

    References 

Hedieh mashoof and fataneh alizadeh meshani (2014): Strategic positioning in banking industry: Evidence from banking industry, grawing science Ltd. pp 1715-1727

Gheorghe Ciobota & Argentina Velea, 2015. "The Strategic Positioning of the Financial Banking Companies - Key Factor for Achieving Competitive Advantages," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 7(1), pp103-106,

Monika dishnica and Maria dojce (2022); The impact of work position, age and banking experience on employee’s satisfaction on bank service: a case study of second level banks in korca religion of Albania, International journal of economics, commerce and management, vol X, pp 357-366

The Strategic Positioning of the Financial Banking Companies - Key Factor for Achieving Competitive Advantages [online] Available at : https://ideas.repec.org/a/khe/journl/v7y2015i1p103-106.html Accessed on 14/08/2024