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ABSTRACT
The investigation was conducted on the foundation of establishing the importance derived from market segmentation and how it improves student banking. The scope was on UK based banks where secondary data was obtained from websites of banks for analysis in addition to critical review of theories and literature. The objectives which guided the study include: determining how targeted communication through market segmentation improves student banking; finding out how stimulating innovation through market segmentation improves student banking; exploring how price differentiation through market segmentation improves student banking; investigating how attraction of new groups through market segmentation improves student banking; and identifying how customer retention through market segmentation improves student banking respectively. The overall methodology employed was qualitative and quantitative in nature, while case study of UK banks was used in which 5 banks were sampled from the top 18 according to financial performance based on 2016 results. Further, a list of top 5 best student banks accounts was compiled retrieved from the internet. Results indicated that segmentation is important as it promotes attraction of new groups and retaining them as well in addition to satisfying the specific needs of different segments.
Key words: Market Segmentation, Student Banking, Targeted Communication, Stimulating Innovation, Price Differentiation, Customer Retention.
ACKNOWLEDGEMENT
I wish to accord my sincere appreciations to my supervisor who has given me great assistance in understanding how to undertake a research. Indeed, your guidance and instructions of great value and I am truly grateful for that. Thank you so much and stay Blessed! I also thank my Parents for the opportunity given to me of undertaking my Degree in this great university. To my siblings and classmates, I am thankful for your company and assistance in my studies. More importantly, I express my sincere gratitude to Almighty God for His Blessings.
TABLE OF CONTENTS
ABSTRACT. 3
ACKNOWLEDGEMENT. 4
LIST OF TABLES.. 8
LIST OF FIGURES.. 8
CHAPTER ONE: INTRODUCTION.. 9
1.0 Brief Overview.. 9
1.1 Background Information to the Study. 9
1.1.1 The Importance of Market Segmentation.. 9
1.1.2 Overview of Student Banking. 10
1.2 Statement of the Problem.. 11
1.3 Research Objectives. 12
1.3.1 General Objective. 12
1.3.2 Specific Objectives. 12
1.3.3 Research Questions. 12
1.4 Rationale of the Study. 12
1.5 Significance of the Study. 13
1.6 Assumptions of the Study. 13
1.7 Limitations and Delimitations. 14
1.7.1 Study Limitations. 14
1.7.2 Study Delimitations. 14
1.8 Definition of Terms. 15
1.8.1 Market Segmentation.. 15
1.8.2 Targeted Communication.. 15
1.8.3 Stimulating Innovation.. 15
1.8.4 Price Differentiation.. 15
1.8.5 Attraction of New Groups. 15
1.8.6 Customer Retention.. 15
1.8.7 Banking. 16
1.9 Scope of the Study. 16
1.10 Chapter Summary and Thesis Organisation.. 16
CHAPTER TWO: LITERATURE REVIEW... 17
2.0 Introduction.. 17
2.1 Review of Past Studies. 17
2.2 Theoretical Review.. 19
2.2.1 Targeting and Segmentation Theory. 19
2.2.2 Marketing Mix Theory. 20
2.2.3 Stakeholder Mapping Theory. 20
2.2.4 Consumer Decision Making Theory. 21
2.2.5 The Porter’s Five Forces. 21
2.2.6 SWOT Analysis. 22
2.3 Conceptualisation.. 22
2.3.1 Conceptual Framework. 23
2.3.2 Operationalisation of Variables. 23
2.4 Chapter Summary. 23
CHAPTER THREE: METHODOLOGY.. 24
3.0 Introduction.. 24
3.1 Research Design.. 24
3.2 Target Population.. 24
3.3 Sampling Approach.. 24
3.4 Nature, Sources and Analysis of Data. 25
3.5 Importance of Chosen Methodology. 25
3.6 Disadvantages of the Selected Methodologies. 25
3.7 Ethical Considerations. 26
3.8 Chapter Summary. 26
CHAPTER FOUR: FINDINGS AND DISCUSSIONS.. 27
4.0 Introduction.. 27
4.1 Secondary Data Results. 27
4.1.1 Presentation of 18 Most Profitable UK Banks. 27
4.1.2 Sampled Banks. 29
4.1.3 Barclays Bank Strategies. 30
4.1.4 Standard Chartered Bank Strategies. 30
4.1.5 Schroders Bank Strategies. 31
4.1.6 One-Savings Bank Strategies. 31
4.1.7 Aldermore Bank Strategies. 31
4.1.8 Top 5 Student Accounts in UK.. 32
4.2 Chapter Summary. 32
CHAPTER FIVE: DISCUSSIONS AND CONCLUSIONS.. 33
5.0 Introduction.. 33
5.1 Summary of Findings. 33
5.2 Conclusion and Recommendations. 33
References. 35
LIST OF TABLES
Table 4.1: Top 18 Performing Banks in UK........................................................................... 27
Table 4.2: Sampled Bank......................................................................................................... 29
Table 4.3: Top 5 Student Accounts in UK............................................................................. 32
LIST OF FIGURES
Figure 2.1: Conceptual Framework........................................................................................ 23
Figure 4.1: Barclays Bank Strategies..................................................................................... 30
Figure 4.2: Standard Chartered Bank Strategies................................................................. 31
CHAPTER ONE: INTRODUCTION
1.0 Brief Overview
Market segmentation is one of the strategies used in marketing where consumers are divided into groups based on certain characteristics. The groups are then approached using different strategies such as pricing where it is possible to have a similar product sold at different prices based on the segment (Andaleeb 2016, p.14). The clusters are determined based on dimensions such as the age of the consumers, their gender, geographic location, tastes and preferences, their occupation, lifestyles, levels of income, usage, and product orientation among other bases (Ellson 2004, p.128). Segmentation can be done across all the sectors in an economy but efforts should be made to clearly define the needs of each segment in order to satisfy them accordingly. For instance, in the banking industry a number of aspects have to be looked into before deciding clustering the groups as the nature of services to be offered must be tailored to meet the clientele needs.
The history of segmenting practice was first coined by Smith R. Wendell in an article on “product differentiation and market segmentation as alternative marketing strategies” in the year 1956 (Wedel and Kamakura 2000, p.2). In his document, the author observed that there are various segments. Nevertheless, the modern segments in marketing are pursued just to provide one most important solution to an existing problem that marketers face in their operation, which is the issue of conversions (McDonald et al. 2011, p.112). As such, segmenting is paramount in ensuring that personalised efforts of marketing do not create more and less effective conversions. Ideally, this works by enabling marketers to come up with better products or services that are drafted with a consideration of the needs and expectations of the consumers in each segment.
1.1 Background Information to the Study
1.1.1 The Importance of Market Segmentation
Marketing segmentation is important because it helps the business to precisely reach the customers with specific interests and wants (Strydom 2004, p.75). This is of great importance to the company since they are able to use their corporate more effectually and make enhanced marketing decisions. Moreover, organisations such as banks have found the marketing segmentation to be helpful as they cannot be able to provide all services to the people; the reason as to why banks offer different services to selected individuals based on the geographical location (Wilkinson 1981, p.101). Ideally, this enables the firms to focus on a specific offering according to the need of the targeted customers. It also enables the financial institutions to carefully listen to needs and wants of their customers.
By the use of marketing segmentation firms have been able to analyse profit realised by a certain segment since such analysis gives detailed information on who purchases a product, how often the purchase is done, and how much is spent on that purchase (Lamb et al. 2012, p.122). Thus, this provides a base to determine who are the potentials of a given segment and it also helps the marketing managers to design a market mix (Michman 1991, p.201). Marketing segmentation is also helpful in acquiring customers to support an organisation such as banks in its products and service offering such as rendering loans and allowing for deposits that help in the creation of capital to determine their financial position. Besides that, marketing segmenting also is helpful in the reposition of an organisation in branding and creation of new products as well as enhancing good communication among the parties involved; that is the customers and the organisation. Further, it also helps an organisation to develop a pricing strategy to extract considerable incomes to the organisation (Lamb et al. 2012, p.122).
1.1.2 Overview of Student Banking
Banking services are often sought by all groups of people in the society for various purposes. One of the major reasons for banking by people and businesses is to deposit or save funds and borrowing financial facilities for undertaking various ventures (depositing and borrowing). Primarily, banks act as intermediaries in the economy given that they mobilise savings from those who have surplus as deposits and offer the same to those who need financing for various functions. In the process, banking entities earn interests and transactional charges which are the main proceeds or profits for their operations (Boehm and Lees-Spalding 2006, p.757). Although banks in the modern environment have diversified their operations and activities, these are the primary objectives why banks were established. Unlike other segments and businesses in the society, students’ needs as far as banking is concerned are slightly different and unique, hence necessitating the need for banking institutions to focus on satisfying such needs. More importantly, if a bank is situated in a place where majority of the customers are in the student category, segmenting such a market with specialised attention is inevitable.
For instance, students are aptly concerned with having their funds safe throughout an academic semester and monitoring their credit cards in order to manage their funds in an economic manner (Jorgensen 2003, p.35). To some extent, students may need soft loans to be able to meet their needs while learning and repay the same in a later period. Such borrowing may on a short-term such as in a few months’ time r it can be on long-term basis where repayment can be done after one is through with academic journey. Irrespective of the nature of borrowing, the fundamental issue is that most students may not be having constant flow of income as they may not be engaged in economic activities, although there are exceptions in this as well. Based on this foundation, banks ought to be vigilant in their market planning and positioning so that these needs are given priority if students are the main customer base (McCormack 2004, p.210).
Moreover, students have various factors they consider before selecting a “student bank account”, because of the specific interest they have. For example, features of an account are given more attention. Such features include the ability to overspend (overdrafts) so that in case of a financial crisis, normal operations can be supported while learning. Secondly, if a bank gives some cash bonus for regularly depositing into an account or using it more often, as this is an added advantage to them. Thirdly, accessibility of the funds through local branches near institutions of learning or mobile Apps especially in the era of digitalisation. Fourthly, easy and quick services tailored to meet their borrowing specifications, and more other aspects. In overall, students are not interested in dimensions which are of concern to business people and entities, but they specifically need to support their financial needs in the short-term to achieve a smooth learning. Where governments give financial assistance to students in terms of loans and scholarships or bursaries, such funds are transmitted into bank accounts unless they are directly channelled into tuition fees payment in institutions. In this case, students will expect accessibility to their funds and safety respectively (Jorgensen 2003, p.36).
Due to the above needs and concerns of students, market segmentation plays a major role in ensuring that there is appropriate communication of the bank’s services to students and an enhanced relationship that is sustainable is developed to help in retaining the students and attracting more others for purposes of competitiveness. Student banking is a dynamic market that needs to be managed in an innovative manner as young people are the active adopters of digital platforms in the society. As such, banks that are able to allow smartphones applications or web banking are more competitive and suitable to students than those that do not (McCormack 2004, p.210). Additionally, price differentiation is important as students will prefer lower prices based on their economic status, and hence segmentation enables a bank to practice price discrimination in which case students are given lower prices to encourage and improve student banking.
1.2 Statement of the Problem
Student banking as already discussed is a very dynamic segment in the market. Banking in overall is a sector that is increasingly becoming competitive in the modern times with technological advancements and increased consumer awareness. There are many banking institutions accessible globally hence increasing competition internationally. Segmentation is basically founded on the premise of identifiable characteristics in a segment which can be capitalised in order to increase income and profitability. Unfortunately, one of the common characteristic among students that is a challenge is the fact that they are able to access their local banks through digital platforms, hence not needing physical banks in learning institutions. As such, banks that concentrate on student banking by having branches in institutions are facing competitive challenges as other banks can still have clientele who are students although situated in different geographical locations. Because of these dimensions and many others, banks have become more sensitive in segmenting their marketing strategies and having a special unit and focus for students, without focus on location. Important to note is that with the influx of the number of people seeking education services worldwide, financial impact by these group is of great impact in overall banking industry. As such, entities cannot afford to ignore the segment as it significantly contributes towards the overall earnings. Essentially, banks have resorted into market segmentation by striving towards reaching customers with specific needs and wants, offering selective services to different people, designing appropriate marketing mix suitable to students, creation of new products and branding their services to suit students, and developing pricing strategies that are considerable to attract and retain students. Despite these efforts, the main challenge that has not been researched extensively is the impact these tactics have in improving student banking. Due to the existing gap in knowledge, the current research is grounded on the motive of identifying the benefits of segmentation and how these benefits can actually influence and improve student banking.
1.3 Research Objectives
1.3.1 General Objective
The major aim of the investigation was to determine the importance if market segmentation and how it can improve student banking.
1.3.2 Specific Objectives
Precise goals that will guide the conduct of this investigation have been formulated below based on the introductory section above, with specific focus on the attainability, timeframe, precision, and ability to measure them respectively. They are provided under;
(i) To determine how targeted communication through market segmentation improves student banking.
(ii) To find out how stimulating innovation through market segmentation improves student banking.
(iii) To explore how price differentiation through market segmentation improves student banking.
(iv) To investigate how attraction of new groups through market segmentation improves student banking.
(v) To identify how customer retention through market segmentation improves student banking.
1.3.3 Research Questions
From objectives, questions that researcher will seek to answer can be stated as below;
(i) How does targeted communication through market segmentation improve student banking?
(ii) How does stimulating innovation through market segmentation improve student banking?
(iii) How does price differentiation through market segmentation improves student banking?
(iv) How does attraction of new groups through market segmentation improve student banking?
(v) Hoe does customer retention through market segmentation improve student banking?
1.4 Rationale of the Study
Rationale is a term used to refer to the main reasons that a researcher gives which actually validates the conduct of an investigation. Rationale is simply the justification which can be based on any reason considered appropriate by a researcher. In this specific process, the study is based on the fact that bridging the knowledge gap is important especially by identifying how specific and identified advantages of market segmentation can enhance or improve student banking. Ideally, this knowledge is imperative in identifying the reasons why banks should focus on alternative marketing strategies that can enhance competitiveness and improved performance. As a matter of fact, if students are encouraged to undertake banking (improving student banking), the implication is that more services will be offered by banks, which of course translates to higher levels of sales and income, that is a good outcome for any business entity. Just like any other business organisations, banks are concerned with performance and more precisely profits, especially in the modern era where competition is stiff. The investigation is also imperative as it will constitute to the researcher’s academic qualification given that it is a requirement for the completion of the degree being pursued. Further, from the economic point of view, it is a feasible process since the data to be utilised will freely be obtained using online platforms and websites.
1.5 Significance of the Study
Based on the justification provided above, the overall conduct of this investigation is said to be of great significance and relevance. More specifically, it will be beneficial to various stakeholders in the banking sector who include consumers (students), banking institutions, marketers, policy formulators, governments, and academicians as well. Students as consumers will greatly benefit by identifying the specific benefits they receive from banks and how banks usually strive towards attracting them to the services. As such, efforts will be made by students to analyse whether the strategies and promised benefits re actually received from the banks. Additionally, students will be able to identify the specific dimensions they should look at while selecting their bankers and bank accounts respectively.
Secondly, banking institutions will benefit especially by understanding the need for segmentation of marketing, hence ensuring that top executive and management can support marketing departments in coming up with innovative tactics of promoting products and services offered by banks. Thirdly, marketers in banks will benefit because they will have an upper hand to bargain for support from management, as well as ensure they identify the specific benefits banks can get as a result of market segmentation, in addition to the identification of the ways of improving student banking respectively. Fourthly, policy formulators especially in economic analysis will be able to device mechanisms of advising banks as well as regulators on the nature of services and how students can be assisted by banks to attain their financial freedoms. Fifthly, governments will benefit from the study for they will be able to understand the operations in the banks as well as be able to regulate the ethical and quality of services given as reflected in marketing campaigns and so forth. finally, the investigation will add incredible value to existing theories and knowledge on market segmentation with reference to banking on students as a segment hence benefiting academicians as well.
1.6 Assumptions of the Study
Assumptions are the pillars in which a research is based. The scholar assumes that a number of factors should be held constant in order to have the output of the process successful. For this specific paper, some of the assumptions made by the scholar include the fact that the envisaged data will be easy to retrieve and that the results will be able to meet the anticipated objectives. Further, it is assumed that the overall process will be completed in a timely manner by covering all the objectives in a measurable, specific, attainable, and realistic approaches. Moreover, it is assumed that the conduct of the investigation will benefit all the stakeholders that were anticipated in the significance section, hence making the research to be valid and significant. Finally, it is assumed that the methodological approaches to be employed will be imperative in attaining the desired outcomes.
1.7 Limitations and Delimitations
The factors that can potentially influence and affect the outcomes of research process are known as limitations and delimitations depending on the nature of influence by the scholar. These terminologies and specific identification of the factors are discussed under.
1.7.1 Study Limitations
It is a term used to refer to the factors that can affect, influence or cause significant variance of the results from the anticipated ones and yet the scholar has no control over them. It is important to mention limitations in the pursuit of knowledge so that those will rely on a study report will be able to known beforehand the possible hindrances or weaknesses. Since the study is purely for academic purposes, it is most likely to be influenced by factors such as the relevance of utilised data. Ideally, researcher focused on online information and previous researched documents, which implies that any weaknesses inherent to the publishers will definitely be carried over to the new document. Additionally, due to dynamism and technological changes, some of the information available online may have been passed by time and hence irrelevant. Efforts will be made to review information that is more current from the year 2010 onwards. Secondly, the methodology to be used such as the accuracy of analysis tools will be beyond the control of the scholar and hence any impact they can cause on the overall results is termed as a limitation. Finally, the paper is limited by the availability of time and the scholar worked within a stipulated time frame in order to meet the university deadline requirements.
1.7.2 Study Delimitations
Contrary to limitations, delimitations have potential effect but they are within researcher’s control. In this specific case, the delimitations include the variables and questions researcher decided to investigate. Ideally, these have an impact in the sense that the outcomes will tend to answer the focused questions, in which case if a different set of questions were sought to be investigated the answers will be different. Moreover, the decision to use primary sources or secondary sources of data are also within the jurisdiction of researcher, and each of them have their specific impacts on the overall outcomes. In most cases, delimitations are the specific things that a scholar chooses not to do and the impact they therefore cause as a result of not being done. Therefore, in this context primary data was not used since the time constraint could not allow ethical approval process and this can impact authenticity of the final output. Finally, literature to be reviewed can also be a delimiting factor but researcher will ensure up to date review with specific focus on methodologies used, findings, conclusions, recommendations, and gaps respectively.
1.8 Definition of Terms
1.8.1 Market Segmentation
It is the process of subdividing a specific market into different groups based on certain characteristics by ensuring that each segment has similar traits. Segmentation is done on magnitudes such as age, location, usage, income, gender, and many other factors respectively (McDonald et al. 2011, p.12).
1.8.2 Targeted Communication
It is a communication of the marketing information to a specified group in order to improve delivery of message and create impact aimed at convincing, attracting and persuading existing and potential consumers to a given product or a service respectively (Lamb et al. 2012, p.122).
1.8.3 Stimulating Innovation
Innovation is the tendency of creativity and invention in a given field. As such, stimulating innovation simply refers to the process of encouraging creativity and in this context in the field of banking (Strydom 2004, p.74).
1.8.4 Price Differentiation
It is the tendency of a firm to charge different prices to different people although on the same product or service. It is also referred to as price discrimination (Jorgensen 2003, p.35).
1.8.5 Attraction of New Groups
It is the process of inviting a new base of consumers in trying out a service or a product and eventually winning their loyalty and making them regular buyers of the product (Boehm and Lees-Spalding 2006, p.757).
1.8.6 Customer Retention
Once customers (both new and existing) have been attracted, the ability to keep them and ensuring that they do not opt for substitute products offered by competitors is referred to as retention (McCormack 2004, p.129).
1.8.7 Banking
Banking refers to the services or business conducted by banks in offering credit services, deposit taking, and other financial related services and products respectively (Jorgensen 2003, p.12).
1.9 Scope of the Study
The extent to which aims of a scholarly work will be pursued can be termed as the scope. It is usually a decision made by a scholar and therefore it is important to be disclosed. Fundamentally, the scope of this study will cover banks in United Kingdom with information derived from these UK based firms’ online websites on the strategies they do to offer services to students. Specifically, the scope will be limited to a few banks as opposed to all banks which will be sampled out as will be explained in the methodology section.
1.10 Chapter Summary and Thesis Organisation
In this chapter, a detailed introduction has been given that has covered the foundational information, problem to be investigated, objectives, delimiting and limiting factors, significance, scope, rationale and assumptions respectively. The remaining chapters will cover literature, methodology, results and conclusions in that order from chapters 2 to 5 respectively.
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction
Analysis of past scholarly works, theories and framework of conceptualisation will be provided in detain in this chapter as explained in the sub-sections that follow.
2.1 Review of Past Studies
Previous academic studies on the topic can be a good starting point to critically analyse and synthesise the information before considering the strategies employed by UK based banks for purposes of discussion. Firstly, a study conducted by Lynn in the year 2011 retrieved from Cornell University on “segmenting and targeting your market by focusing on strategies and limitations” was reviewed. In the document, the author acknowledges the fact that as observed by all marketing authors, the key towards having a successful marketing strategy is employing the distinguished approach of STP strategy, which stands for “segmentation, targeting, and positioning” respectively (Lynn 2011, p.3). Lynn emphasises that as opposed to the mass market that is characterised by different characteristics, a segment has homogenous traits that can help organisations to streamline their efforts in a more personalised manner so as to be more competitive (p.3). The author employed mixed approaches in evaluating different literature so as to arrive at a conclusion that segmenting a market is a strategic technique that should be utilised by marketers irrespective of the industry in which they belong. Nevertheless, Lynn was cautious to mention that although segmenting is imperative especially at brand level, it does not exclude the need to focus on a wider market and more segments especially at corporate level in order to increase the market base and likelihood of better performance (Lynn 2011, p.3). However, this assertion presents a confusion as to whether an entity should purely focus on segmenting or it should have various segments as the best strategy and therefore the main weakness of the study.
A publication on “market segmentation and its impact on customer satisfaction with special reference to commercial banks” was published in the year 2012. The investigation was carried out using a qualitative approach and found out that segmentation is a product of effective planning and careful execution of organisational tactics (Premkanth 2012, p.2). According to the numerous literatures reviewed by the author, it was established that segmentation enhances quality service by critically reviewing the four dimensions of SERVQUAL model which include, “responsiveness, assurance, communication and discipline” respectively (p.3). In essence, the assertions here imply that segmentation works by promoting the quality services dimension hence increasing customer satisfaction. However, the study did not concentrate on how service quality dimensions can enhance banking by certain segments such as students to allow the results to be applicable in the current investigation.
An empirical analysis research-based methodology was carried out in the year 2015 on “customer choice of banks’ and noted that, competition has made banking to be faced with challenges in establishing the appropriate tactics of being market leaders. Coupled with the increased sophistication of customers who have become aware and demanding in terms of the quality of the services, banks are left without any option other than finding out how to attract and retain customers as a competitive strategy (Abbam, Dadson and Say 2015, p.49). Their analysis accentuates that entities should first contemplate the factors consumers co
