Market Segmentation and Target Market Selection

First, marketing must determine the type of products and services that the bank needs to provide to the market.

Second, marketing organizes the process of providing products and services well and perfects the exchange relationship between customers and banks.

Third, marketing harmonizes the beneficial relationships between customers, employees and bankers.

Marketing becomes the bridge connecting bank operations with the market.

To operate effectively, banks must understand the needs of the market. Marketing will help banks know the factors of the market, the needs of customers for products and services and their fluctuations. On the other hand, marketing is a tool to guide the flow of capital, exploit the ability to mobilize capital, and allocate capital according to market needs in a reasonable way. Thanks to marketing, banks can coordinate and orient all activities and all bank employees to increasingly better meet the needs of the market, improve the ability to grasp business opportunities and achieve the bank's profit goals.

Marketing contributes to creating a bank's competitive position.

The process of creating a competitive position of a bank is closely related to creating products and services and clearly showing the competitive advantages of products and services in the target market, while at the same time making customers see the benefits and real advantages of those products and services. Therefore, creating a competitive position of banking products and services depends largely on the marketing capabilities of each bank.

To establish a competitive position, bank marketing departments typically focus on solving three major problems:

One is to create uniqueness of products and services.

Second, the importance of differentiation to customers must be made clear. That differentiation must have real value to customers and be valued by customers.

Third, the bank's ability to maintain its differentiation advantage.

Thanks to that, the image and reputation of the bank are created, consolidated and developed, increasing the competitive strength of the bank.

1.3.2. Marketing activities for banking products

The marketing process for banks in general and for bank products in particular includes 5 steps and is carried out according to the following process:

The first step in the bank marketing process is to study the marketing environment, including the micro-environment and the macro-environment. Then, the second step is to identify the bank’s target market. After identifying the target market, the third step of the process is to build a marketing-mix program, also known as the 7Ps.

of bank marketing, including Product, Price, Place, Promotion, Physical Evidence, Process and People. Finally, step four, the organization conducts a check to make sure that the four steps mentioned above of the marketing process have been implemented well or not, so that appropriate adjustments can be made.

Figure 1.3. Steps of the bank marketing process

Marketing environment research

Identify target market

Building a marketing-mix program

Organization of implementation and inspection

(Source: Banking marketing textbook by Associate Professor, Dr. Nguyen Thi Minh Hien)

1.3.2.1. Research on banking marketing environment

This is the first, necessary and extremely important task of bank marketing activities. Researching the environment to identify changes and fluctuations in the environment, through which, managers can adjust marketing strategies appropriately and adapt to those fluctuations. To have full information about the marketing environment, the bank marketing department organizes research focusing on two contents:

First, study the macro environment.

The macro environment includes the broad factors that are beyond the control of the bank but directly or indirectly affect the entire operation of the marketing system. Changes in the macro environment can create "opportunities" or cause "threats" to the bank's operations.

The macro environment includes factors: economic, political - legal, cultural - social, technological. These factors are always changing and have a great impact on customers' needs and ways of using products and services; how to build policies, regulations, and procedures in business. At the same time, through studying changes in the environment, banks have measures to adjust their business activities accordingly.

Second, micro-environmental factors.

The micro environment includes factors that the bank can control, directly affecting the ability to serve customers and the results of the commercial bank. They

including: internal factors of the bank, units supporting the bank, customers and competitors. In particular, marketers must pay special attention to researching the bank's customers and competitors.

- Bank customers - this is an important factor that determines the existence of the bank. The marketing department's customer research often focuses on studying customer needs, factors affecting customer needs and customer behavior. Through customer research, the bank will determine the needs, desires and ways of using products and services of customers, thereby classifying customers, selecting target markets and using appropriate marketing strategies.

- Competitors: There are more and more current and potential competitors appearing in the market, forcing each bank to make new marketing efforts, promote its brand, innovate product labels as well as make decisions on pricing, improve customer care services, etc. Therefore, the marketing department must specifically research each competitor, the strengths and weaknesses of each competitor, and the marketing policies that competitors are using to have proactive and effective countermeasures.

1.3.2.2. Market segmentation and target market selection

After studying the business environment, the bank segmented the market and selected its target market.

Market segmentation

- To select the target market, the bank will first conduct market segmentation: Market segmentation is the process of dividing consumers into groups based on differences in needs, personality or behavior. In essence, market segmentation is the bank's ability to focus its efforts on the right market, building its own style, its own image, strong, clear, and prestigious. We have the concept of market segmentation and market segmentation as follows:

Market segmentation is the process of dividing a market into smaller groups based on differences in needs, wants, and behavioral characteristics.

A market segment is a group of customers within the total market who have similar needs or respond in a similar way to a given set of marketing stimuli.

- Market segmentation criteria:

Firstly , segmentation by geographical criteria: this method will divide the market into different geographical areas such as: countries, regions, provinces, cities, etc. Because each different residential area often has very different characteristics in terms of lifestyle, customs, consumption and saving habits, ways of choosing and using products.

Banking products and services, so market segmentation by geographical criteria helps banks more accurately assess the needs and desires of customers in different geographical areas.

Second , segmentation by demographic criteria: This group of criteria includes: age, gender, occupation, educational level, family size, marital status, income, social class, religion, ethnicity, race, etc.

Third , segmentation by psychological criteria: This segmentation is based on criteria such as: attitudes, motivations, lifestyles, interests, views, cultural values, etc. The use of these criteria shows how psychological factors affect consumers' behavior in choosing and purchasing goods. Therefore, when segmenting, it is often used to support criteria belonging to demographic groups.

Fourth , segmentation by purchasing behavior criteria: On this basis, the consumer market will be divided into homogeneous groups in terms of characteristics: reasons for purchasing, benefits sought, loyalty, quantity, usage rate, consumption intensity, usage status (used, unused, not used...).

Select target market

After segmenting the market, the bank will proceed to select the target market. The target market is a market that includes customers with the same needs or desires that the bank is able to meet, at the same time can create an advantage over competitors and achieve the set marketing goals. To identify an effective market segment, the market segmentation must ensure measurability, accessibility, importance, and feasibility.

Depending on the bank's financial capacity, the level of product and market uniformity, competitor strategies, etc., the bank chooses the following appropriate options:

The first option is to focus on a single market segment . This option helps banks save their limited resources, focus on researching and meeting customer needs in that market segment, thereby gaining a solid position in this market segment. This option is suitable for banks that are new to the market, lacking experience, capital, prestige, reputation, etc. However, choosing a single market as a target is also somewhat risky in case that market is volatile, or easily affected by a factor that changes the demand and habits of using the bank's products and services, causing the bank to be unable to handle it in time, leading to the risk of loss.

The second option is selective specialization . With this option, the bank focuses on meeting the needs of a number of separate market segments. That is

attractive market segments that are suitable for the marketing objectives and capabilities of the bank. Compared to the method of focusing on a market segment, this option disperses the risk, because when a selected market segment is threatened with fierce competition, the attractiveness is no longer there, the bank can still continue to do business in other market segments.

The third option is market specialization . The bank focuses on satisfying the diverse needs of a particular group of customers. In other words, the bank offers all products to a well-chosen market. The risk of this option is that in case that customer group suddenly changes its needs or preferences for the bank's products and services, especially in conditions of fierce competition among banks.

The fourth option is the full market coverage option . With this option, the bank meets the needs of each customer for all types of products and services they need. Usually, large banks choose this option.

Finally, there is the option of specialization by product or service . According to this option, the bank can focus on providing one type of product or service but serve many market segments.

1.3.2.3. Building a marketing-mix program

Based on the analysis of marketing environment factors, market segmentation and selection of target markets, banks will develop appropriate marketing strategies. Bank marketing strategies focus on seven contents (7Ps): Product, Price, Place, Promotion, Physical Evidence, Process and People.

Product strategy

Banking products and services are understood as a set of characteristics, features, and functions created by banks to satisfy certain needs and desires of customers in the financial market.

The bank's products and services are the decisive factor in the bank's reputation and impression in the minds of customers. Any bank that clearly understands the needs of its target customer group and has appropriate products and services will quickly attract and create trust from customers.

Product strategy is considered the core strategy in the marketing mix strategy of the bank. In the current conditions of integration and fierce competition, banking products and services are a very effective competitive factor. Any bank that provides diverse, convenient products that satisfy consumer needs will be

choice. Therefore, the marketing department must focus on building and perfecting product strategies to attract customers and create competitive advantages.

Content of product strategy :

First , determine the list of products and services provided to the market.

The product and service portfolio is a collection of a number of product and service groups that the bank selects and provides to the bank's target customers. The basic product and service groups of the bank include:

- Deposit product group

- Loan product group

- Money transfer product group

- Consulting product group

- Risk management product group

- Information product group

Each product and service group includes many different types of products and services, each type of product and service includes many different but related products and services. Each product and service category includes many product groups. Banks base on specific conditions to decide which products and services are provided to the market. On that basis, the bank will determine a suitable product and service category.

A product and service portfolio is considered effective when it ensures diversity to meet demand, is competitive and maintains profitability. Therefore, banks must focus on exploiting their product and service portfolio to optimize the profitability of the entire product and service portfolio. In addition, customer needs are diverse and often require many different types of products and services. Therefore, banks must always strive to ensure the diversity of products and services to maintain stable profits and meet customer needs.

Second , perfecting banking products and services.

Normally, the improvement of banking products and services often focuses on the following directions:

- Improve product and service quality by modernizing technology, enhancing equipment and means to serve customers, and innovating staff's transaction style.

- Make the use of banking products and services easier and more attractive, and bring customers new values ​​and benefits by perfecting processes, simplifying business procedures and product and service features.

- Change the distribution method by opening transactions outside of business hours, increasing distribution through the modern banking system.

Third , develop new products and services.

Faced with the pressure of competitors and increasingly diverse customer needs, developing new products and services is an important task, determining the existence and development of banks. Developing new products and services allows banks to diversify their product portfolio, expand their banking business areas, and contribute significantly to enhancing the image and competitiveness of banks in the market.

New products and services are products and services introduced for the first time into the bank's business product portfolio and are divided into two types: completely new products and services and new products and services in terms of type. However, for a new product development program to be successful and highly effective, one of the important factors is that marketers must regularly research changes in environmental factors, especially the needs and desires of customers for new products, and at the same time have a flexible management mechanism to encourage the development of new products and services in the bank.

Pricing Strategy

The price of a banking product or service is the amount of money that a customer or a bank must pay for the right to use a certain amount of money for a certain period of time or to use the services provided by the bank.

In the current context of fierce competition, price is not only a competitive factor between banks but also strongly affects customers' decisions to choose products, services and banks.

Determining the pricing strategy is always a matter of concern for bank managers and how to build an interest rate policy and fee schedule to ensure the harmony of interests between customers and the bank, while being competitive with competitors. To build a suitable pricing policy, each bank must research and clearly identify the basis for pricing such as: product position in the market, the bank's marketing goals, elasticity of demand, current economic situation, the bank's supply capacity, fees and interest rates of competitors, government regulations on the basic interest rate as well as the ceiling and floor interest rates of mobilized capital or credits. From there, build a flexible and adaptable price according to market signals.

To determine the price of its products and services, banks can apply one of the following pricing strategies:

- Skimming price strategy : is a strategy in which the bank sets a price higher than the market price. This strategy is especially suitable for new products, because in the early stages of the product or service life cycle, price is not a factor.