TOPIC 5

CONSUMER BEHAVIOUR AND

CONSUMER BANKING

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 5.1 The Study of Consumer
Behaviour
• The study of consumer behaviour is the study of
how individuals make decisions to spend their
valuable resources, such as time, money and
effort, on consumption related items.
• Beyond the facets of how and why decisions,
marketing researchers also consider the uses
consumers make of the goods they buy and their
subsequent evaluations.
• Thus, consumer behaviour refers to the
behaviour that consumers display in searching
for purchasing, using, evaluating and disposing
of products and services that they expect will
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SATISFY THEIR NEEDS.
 MARKET SEGMENTATION

Pembahagian Pasaran adalah merupakan

langkah pertama dlm membuat pemasaran
pasaran.
Kotler & Armstrong (1996) – Merupakan
satu proses membahagian pasaran yg
besar & mpyi pelbagai keperluan, ciri &
gelagat kpd pasaran yg lebih kecil, yg
mana individu2 di dlm setiap segmen mpyi
keperluan, kehendak & gelagat pembelian
yg sama.
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MARKET SEGMENTATION PROCESS

SEGMENT 1

MARKET SEGMENT B
MARKET
SEGMENT

SEGMENT C

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 5.2 Market Segments
• In developing a marketing strategy for
financial services, a bank must
determine their target in a product
market to whom it will direct its
marketing efforts.
• This is known as market segmentation;
one of two pillars of marketing, in
addition to positioning.

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• OBJECTIVE OF MARKET SEGMENTATION
TO SUBDIVIDE POPULATION FOR DIFRENT
GROUP OF CONSUMERS IN WHICH THE
INDIVIDUAL IN THE GROUP IS HAVING
HOMEGENOUS NEED.
• VARIABLES FOR MARKET SEGMENTATION
AS FOOLOWS:-
• I) DEMOGRAPHIC
• ii) GEOGRAFY
• iii) PSYCHOGRAFIC &
• Iv) BEHAVIOURAL

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• Buyers of bank services have unique needs and
wants, and each buyer is potentially a separate
market.
• Banks would do well trying different segmentation
bases, alone or in combination, to find the best
way to identify a market structure.
• This is better known as CUSTOMER PROFILING.

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 5.2.1 Demographic
• Demographic segmentation divides the
market into groups based on variables
such: religion,
age, race and
nationality
gender,
Education
family size,
income,
occupation,
•This list is not exhaustive as other variables may from
time to time be adopted as a segmentation variable. 8
• DEMOGRAPHIC VARIABLES ARE POPULAR
for segmenting customer groups as the
variables are easier to measure than other
types of variables.
• The demographic characteristics are also
commonly used in conjunction with other
segmentation bases to assess the size and
potential of the target market and to reach it
efficiently.

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 5.2.2 Geographic
• Geographic segmentation divides the market
into different geographic regions such as
States (kedah,perlis,penang,perak, etc)
Regions (NR,SR,ER & WR)
Cities (Asetar,Kangar,Spetani,Ipoh,Kelang)
Countries (Msia,Thailand,Indonesia).

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• The bank may decide to focus on a few, paying
attention to the distinguishing characteristics
associated with each location.
• The needs of urban customers would differ
significant from that of rural dwellers.
• If the majority population are Malay, bank will
embarks on ASB loan, for chinese community
bank focus for saving/fixed deposit. Industrial
estate bank will fokus on commercial loan.
• Urban area –Housing loan
• Rural area –Micro credit loan
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 5.2.3 Psychographic
• Psychographic segmentation divides the
market into groups based on their social
class , lifestyle or personality
characteristics .
• . Psychoraphic factor may resulted
demographic differences seems not
important because consumer in similar
demographic factor will has different
psychoraphic factors.

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• Eg: Housewife age 30 from upper social class
buy groceries from supermarket, while
housewife from middle class buy groceries from
retail shop.
• Eg: Old consumer like to withdraw money from
bank counter vs young generation prefer use
ATM machine.
• Eg: Youngster like sporty motorbike muda suka
sporty Yamaha Rx-Z vs old generation like to
ride Honda ex-5.
• Young people like -stria neo,honda jazz, Old
people like -Waja/Volvo
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• Tdpt beberapa pemboleh ubah yg boleh
digunakan pemasar utk mensegmenkan
pasaran menggunakan asas psikografi
iaitu:
• 1) Kelas sosial –cth: masyarakt kelas
atasan memilih kws eksklusif bagi
pembelian rumah, perabut import & kereta
mewah. Sebaliknya masyarakat kelas
bawahan hanya akan membeli rumah
murah, perabut tempatan yg lebih murah
& kereta biasa.

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• 2)Gaya/corak hidup- cth: seseorg yg
pentingkan kesihatannya tdk akan
keberatan utk membelanjakan
pendapatannya utk membeli vitamin,
barangan herba & sbginya. Sebaliknya
seseorg yg tdk mementingkan kesihatan
lebih rela membelanjakan wangnya utk
keperluan lain drp membeli pil2 kesihatan.
(kos tinggi & mahal!)

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• 3)Personaliti- sering digunakan di dlm
membuat segmentasi bagi produk
kosmetik & pakaian. Cth: pengguna yg
bersifat agresif sering dianggap
berkeinginan utk mencuba sesuatu yg
baru & luar biasa. Oleh itu rekaan
kosmetik bewarna terang & pakaian yg
unik biasanya diperkenalkan utk pengguna
jenis ini.
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 5.2.4 Behavioural
(Segmentasi menggunakan asas
gelagat)
• A similar segmentation base, behavioural,
categorised the market based on their
knowledge, attitudes, uses or responses to
a product
• Life cycle marketing focuses on the idea
that a consumer at each different stages of
life will have different buying behaviour
that can be influenced by his/her social
class and lifestyle.
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• Consumers use products to express their social
identities. Credit card-exclusive image.
Ferari,merz vs toyota.
• The use of symbols provides a powerful means
for marketers to convey product attributes to
consumers.
• For example, expensive cars, designer fashions
and diamond jewellery - all widely recognised
symbols of success - frequently appear in
advertisements to associate products with
affluence or sophistication.
• Executive loan offer by Maybank. Reflect
status/symbol elite. Gold card-reflect exclusive 18
member!
 contd
• Pemasar selalunya menggunakan
pembolehubah dalam asas gelagat seperti
situasi penggunaan, faedah dicari, status
pengguna, kesetiaan, peringkat kesediaan
untuk membeli, dan sikap dalam usaha
mentakrifkan segmen2 yang wujud dalam
pasaran

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 Contd.
• 1) Usage – Japanesse use tea not only as
routine drinking but for celebration.
• 2) benefit sought- buy Colgate toothpaste with
extra mints for breath freshness.
• 3) user status- non-user, potential user, 1st time
user and regular user.

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 5.2.4
Psychographic/Demographic
• Psychographic/Demographic profiling is
particularly useful in creating customer
profiles for service marketers.
• It provides a meaningful insight for
segmenting mass markets, providing
direction as to which promotional appeals
to use, and selecting advertising media
that is most likely to reach the target
market.

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 5.2.5 Geo-demographic
• This segmentation scheme is based on the
notion that people living close to one another are
likely to have similar financial means, tastes,
preferences, lifestyles and consumption habits.
• This technique is useful when potential
prospects can be isolated in terms of where they
live.
• Mumbai-India
• Sri Hartamas- KL
• Darulaman Golf Club- Jitra

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5.3 Maslow's Hierarchy of Needs
• Maslow's hierarchy seeks to explain why people
are driven by particular needs at a particular
time of their lives.
• His answer is that human needs are arranged in
a hierarchy, from the most important to the
least important.
• In order of importance, they are :
 physiological needs,
 safety needs,
 social needs and
 Esteem needs 23
 self-actualisation needs
 Figure 5.1 - Maslow's Hierarchy of Needs

Source: Marketing, 4th ed., by Philip Kotler and Gary

Armstrong, 1997. Prentice Hall. 24
 5.4 Segment Characteristics in
Banking
• In consumer banking or corporate
banking, the banks target the segment that
adheres to the common characteristics
that typify an "ACE" customer. These
customers are likely to be
• Asset-Rich (the ability to pay),
• Credit-worthy (the willingness to pay), and
• Exclusivity (possess the desire for
exclusivity).
***ACE-JAGUH/HEBAT/ORG YG PANDAI DLM SATU2 PERKARA!
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• Firstly, the competition among banks in
consumer banking is targeting customers who
have the ability to repay, and a banker will look
for assets that can provide security to the bank.

• Secondly, the customer must be credit-worthy.

• Even for credit card customers, he must have
the ability to repay and the inclination to repay.

• The third characteristic is the exclusivity desire.

• A bank product should be designed in such a
way that the customer likes it because of
exclusiveness.
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• The first two criteria also apply for
corporate customers.
• However, in targeting small- and
medium-enterprises, the bank will have to
assess the credit worthiness of the board
of directors because they control the
company.

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• The need for the exclusivity design of bank
products is one of the reasons why banks
adopt the account relationship
management.
• The relation manager is hired
exclusively to service corporate
customers.
• He is likely to know what kind of products
to provide for his customers needs.
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 5.5 Segmentation Criteria
• It is evident that there are several ways to
segment a market, although; not all
segmentation are effective.
• In order for segments to be useful in selecting
the target market, they must fulfil the criterion of
effective segmentation.
• Also the optimum number of segments must be
identified beyond which overall profits will begin
to decline.
• The application of the following criterion may
help define the potential profitable market
segments.
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1) The segment should be large or
profitable enough to justify the expense
in serving the segment in terms of
product development, promotion, etc.
2) The segment should preferably be the
largest homogenous group worth
pursuing with a tailored marketing
programme, e.g. high network individuals
(HNWI). The customer profile fits the
ACE characteristics.
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3) However, it should be sufficiently
heterogeneous (different) in relation to
other markets so that customers will
respond differently to some aspects of
the marketing strategy. Otherwise, this
defeats the purpose of the above
qualifying criteria.

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4) The segment characteristics should be
measurable as to the size, purchasing
power; among other variables, to
determine the potential of the segment.

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5) The segments should exhibit adequate
stability over time so that the marketing
efforts will have enough time to get the
desired response from targeted
segments.

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6) The variables used to segment the
market must provide directions on how
to reach the segments, so that the
segments could be effectively served.

THE FIRST THREE (1,2 & 3) CRITERIA

ARE QUALIFYING CRITERIA, WHILE
THE REMAINING ONES (4,5 & 6) ARE
DETERMINING CRITERIA..
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 Continue!
• 5.6 MARKET TARGETING
• 5.6.1SEGMENT STRATEGIES
• 5.7 COGNITIVE DISSONANCE
• 5.8 CONSUMER BANKING
• 5.8.1 WHY IS THERE A SUDDEN INTEREST IN
CONSUMER BANKING?
• 5.8.2 PRODUCT & SERVICES
• 5.8.3 TECHNOLOGY IN CONSUMER
BANKING
• (self –study!)
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 5.6 Market Targeting
• Market segmentation reveals a bank's
market-segment opportunities.
• The bank then evaluate the various
segments and decide on the target
segment based on the segment size and
its growth potential, its structural
attractiveness and the bank's objectives
and resources.

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 Contd..
• The largest or fastest growing segments
are not always the most attractive for
banks.
• Small banks may lack the skills or
resources to serve these segments, or that
these segments are very attractive to
banks with larger resources, thus making it
too competitive for the smaller banks.

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 Contd..
• A segment may have the desirable size
and growth but still may not be attractive
due to low profitability.
• For instance, the segment would be less
attractive if it has too many current and
potential competitors and potential
substitute products already exist.

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 Contd..
• Some segments would also be dismissed
as they are not congruent with the bank's
long-term objectives.
• Although the segments may be tempting in
it self, it may divert the bank's attention
and energies away from its main goals.

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 Contd..
• The bank could adopt one of three market
coverage strategies for a target segment,
consisting of a set of buyers which share
common needs and characteristics, that it
decides to serve.

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 5.6.1 Segment strategies
• The bank may decide to ignore segment
differences and go after the whole market
with a single offer.
• The offer will focus on the common needs rather
than the differences in the needs of the
consumers.
• Product designs and marketing programmes are
aimed at appealing to the largest possible
number of buyers.
• This form of undifferentiated marketing provides
cost economies due to the narrow product line
and lower 'production' costs
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 Contd..
• In adopting a differentiated marketing
strategy, the bank targets several segments
by designing different offers for each.
• This strengthens consumers' overall
identification of the bank with the particular
product category as focus is on specific needs of
the consumers.
• There will be a greater incidence of repeat sales
because the offer would better match customer
needs.

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 Contd..
• The third form of market coverage
strategy, concentrated marketing is
most appealing to banks that have
limited resources.
• Concentrated marketing (niche marketing)
is an excellent way for attaining a large
share of one or a few sub-segments.

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 5.7 Cognitive Dissonance
• Cognitive dissonance theory advocates that
discomfort or dissonance occurs when a
consumer holds conflicting thoughts about a
belief or an attitude.
• For instance, when consumers have made a
commitment to buy a product, particularly an
expensive item such as an automobile, they
often begin, to feel cognitive dissonance when
they think of the unique, positive qualities of the
brands not selected.
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 Contd..
• When cognitive dissonance after a purchase or
purchase commitment, it is called post-purchase
dissonance.
• Because purchase decisions often require some
amount of compromise, post-purchase
dissonance is quite normal.
• Nevertheless, it is likely to leave consumers with
an uneasy feeling about their prior beliefs or
actions - a feeling they tend to resolve by
changing their attitudes to conform with their
behaviour.
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 Contd..
• Possible post-purchase experience has
significant ramifications for marketers, who have
to build post-purchase strategies into their
promotional campaigns.
• What makes post-purchase dissonance relevant
to marketing strategies is the premise that
dissonance propels customers to take cognitive
steps to reduce the unpleasant feelings created
by rival thoughts.

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 Contd..
• In addition to such consumer-initiated tactics to
reduce post-purchase uncertainty, a marketer
can relieve consumer dissonance by including
messages in its advertising specifically aimed at
reinforcing consumer decisions, offering
stronger guarantees and warranties, increasing
the number and effectiveness of its services, or
providing detailed brochures on how to use its
products correctly.

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 Contd..
• Segmentation is one of two main pillars of
marketing. Segmentation identifies the
target market and provides a profile of the
target customers.

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 5.8 Consumer Banking
• Consumer banking refers to the provision of
financial services to individuals and small
companies.
• The customer base mainly consists of
individuals from all walks of life - students,
clerks, factory workers, professionals and
company executives.
• Thus consumer-banking products range from
the all-in-one deposit accounts to flexible
personal loans.
• The examples include educational loans,
housing loans, lifestyle loans, club membership
loans and margin financing on stocks.
• These are commonly advertised and promoted 49
in the newsprint media.
 5.8.1 Why is there a sudden
interest in consumer banking?
• There are three main reasons that account
for the banks' entry into this market sector.
1.Firstly, banks realise that economic
development has brought about a growing
middle class with strong purchasing power
and certain affluence. They want the
comfort and prestigious things in life and
they are confident of earning more.

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 Contd..
2. Secondly, banks are also experiencing
shrinking profit margins from their
corporate banking. Thus, they might
find it easier to levy higher charges on
retail clients. Banks generally price 2%
to 3% higher in lending rates on
consumer loans than corporate loans.

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 Contd..
3. Thirdly, consumer banking provides a
steady source of fund to the bank. Not
only is there stability in deposit growth,
retail deposits are often a cheaper
source of fund. It helps the bank to
lower the cost of funds and therefore
further improve interest margins. This
leads to higher profitability.

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 5.8.2 Products and services
• Since the 1980s, basic consumer banking
facilities, such as cash and cheque
deposits and withdrawals, have undergone
tremendous changes from limited branch
operation hours to extension of business
into off-office hours to 24-hours
self-service ATM electronic banking
services.

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 Contd..
• The emergence of home and telephone
retail banking delivery systems have also
brought about greater convenience to'
the-customers. Joint marketing effort
between retailers and banks is common.

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 Contd..
• Personal loan products, e.g. residential loans,
car loans, margin financing, and study
assistance schemes, are neatly tailored to match
individual needs.
• Citibank even allows its customers to choose
their own repayment terms.
• In addition, it also takes the initiative to
consolidate accounts such that credit balance in
the deposit or investment product account would
automatically be transferred to offset the debit
balance in the loan accounts.
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 Contd..
• "All-in-one" deposit products are one of
the many innovative packages.
• In Singapore, Hong Kong Bank attempts
to attract customers from different levels of
income group by implementing a
multitiered interest rate to its Prime
account holders.

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 Contd..
• Credit cards, free gifts, lucky draws and frequent
flyer programmes are not unusual as
promotional gimmicks to gain market share.
• With the liberalisation of the Employees
Provident Fund and increased public education
in financial investment, it is possible that in
future consumers’ interest will shift to
non-deposit investment instruments.
• New consumer banking products and services
will be offered by banks.

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 5.8.3 Technology in consumer
banking
• In the past, customers could only withdraw cash
over the counter at bank branches.
• Today, they can withdraw cash at ATMs outside
bank branches, supermarkets, petrol kiosks and
bus terminals at their own convenience.
• Bank transactions through ATMs are processed
on-line and linked to the bank's central
mainframe where customer records are updated
almost instantaneously.
• Besides cash withdrawals, consumers can also
request for account balances, new cheque
books, transfer funds across accounts and even
apply for new shares on the screen. 58
 Contd..
• Home and telephone banking also helps
consumers to execute their requests.
• One typical example is Citibank's 24-hours
phone banking system.
• It is a telecommunication system directing
customer enquiries to a specific banking officer
or banking facilities, not through a receptionist,
but through a centralised computer processing
unit.
• Advances in technology make telephone
banking more user-friendly and thus there will be
a push for more electronic products in banking
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 Contd..
• As technology is taking consumers into a
cashless society, credit cards, debit cards,
stored value cards and smart cards are
commonly used to settle purchases for
groceries, air tickets, petrol, bills for meals at
restaurants, making telephone calls and even
taking public transportation.
• Such purchasing habit has become a major
concern to banks so much so that those banks
who do not follow the trend would seem
antiquated and may lose out in the consumer
banking battle.

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 Contd..
• The bricks-and-mortar distribution system
will be playing a less important role in the
future.
• This is largely because branch network is
costly to maintain and more risky (exit
price is involved).
• However, it will continue to be an essential
step in establishing physical footholds in
new markets.
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 Contd..
• The business activities carried out at the counter
will also be different, with more new products
being offered.
• The major function of the branch will soon be
replaced by more consultation and advisory
services for financial planning, investment, tax
and legal matters.
• A new generation of skilled and knowledge
based employees will be stationed in the branch
to answer customer enquiries.
• Banks have also upgraded the appearance of
banking halls to keep up with the customer
expectations and to induce an atmosphere of
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trust and confidence.
 Contd..
• McCoy et al (1994) reported a market
research which showed that consumers'
choice of distribution channel is dependent
on market segment and geography.
• Thus, banks need to have a thorough
understanding of their existing consumers'
wants and preferences before committing
any heavy investment in developing new
delivery systems.

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 Contd..
• A study conducted by the Bank Administration
Institute in 1993 further highlighted that 95% of
self-service oriented consumers would prefer
doing banking facilities outside of the branch to
in-house branch services.
• The mix-channel users felt more comfortable
with slightly more branch service and equal
basis on self-service channels.

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 Contd..
• All these changes to bank delivery systems have
become a race for market competence and
survival.
• Customers are demanding greater convenience,
flexibility and accessibility.
• Changing lifestyles and spending patterns have
led to the need for more appropriate distribution
channels too.
• As consumers become more computer literate,
they become more sensitive to the speed of
product delivery.
• Thus, increased emphasis is given to
automation of delivery systems. 65
 Contd..
• On the supply side, significant economic growth
has contributed to the increase in middle class
and a more affluent customer base.
• Singapore, Hong Kong, Japan and Australia
enjoy a high level of retail banking products and
services.
• Changes in the mix of delivery systems are
further supported by the existence of established
infrastructure and communication networks.

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 Contd..
• The compliance with bank capital adequacy
requirements (CAR) has compelled banks to be
more efficient in their deployment of funds.
• Every dollar lent must be accounted for in terms
of risk and return.
• Therefore, consumer banking with its high
interest margin and fee-based income provides
an attractive alternative to generate high returns.

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