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Strengthening the link between marketing strategy and ﬁnancial performance Received (in revised form): 1st May, 2006

Nikola Uzelac is Director of development and training at DDOR Novi Sad, Novi Sad – the leading insurance company in Serbia, and the Strategic Planning Director, Continental Bank, Novi Sad. With a background in marketing, Uzelac’s research interest is in ﬁnancial services marketing, marketing knowledge and marketing discipline.

Tomislav Sudarevic´* is Associate Professor at Faculty of Economics, Subotica, University of Novi Sad. With a background in marketing, Sudarevic´’s research interest is in ﬁnancial services marketing and agribusiness marketing.

Abstract From the perspective that integrates marketing and banking practice and theory, this work reafﬁrms the relevance of interactions between the issues of ‘what’ (marketing strategy) and ‘why’ (ﬁnancial performance). The key ﬁnding is that the marketing strategy– ﬁnancial performance link faces serious difﬁculties, but they do not inevitably prevent the promotion and greater acceptance of the basic idea. The strongest barriers include negative attitudes of marketers to the language of ﬁnancial indicators, different paradigms of people from marketing and banking, insufﬁcient presence of the key concepts in the basic literature and unrealistic requirements of academic models. On the other side, the demand that becomes more powerful and sophisticated, and intensifying competition, are the major drivers of positive changes in practice and theory. Greater respect for risk indicators, improved shortterm/long-term balance, stronger integration of marketing strategy elements, as well as more realistic general frameworks, constitute the group of encouraging trends. Journal of Financial Services Marketing (2006) 11, 142–156. doi:10.1057/palgrave.fsm.4760036 Keywords marketing strategy, ﬁnancial performance, banking, marketing function, Serbia

INTRODUCTION Every business needs financing, whether through equity stakes or liabilities. The better the communication with actual and potential investors and creditors — the better the chances to ‘sell’ the ideas of proposed projects. The essential precondition for successful communication is to speak in terms familiar to the other side. Consequently, *Correspondence: The Faculty of Economics, Marketing Department, University of Novi Sad, Subotica Segedinski put 9–11, 24000 Subotica, Serbia and Montenegro. e-mail: [email protected]

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marketing strategy, as it lies at the heart of any business project, should ultimately be expressed in key financial performance variables. The same is valid for internal relations between people from the marketing department — and finance and top management. In short, what-do-we-do is inseparable from why-we-do-it. Both in industry and within the field this simple and logical chain of statements has not yet been widely and fully accepted. A preliminary literature overview and personal experience indicate the existence of certain problems in this regard. Among them, the most critical probably are (a) negative attitudes of marketers about the language of

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financial variables, (b) conflicting paradigms of people from marketing (‘keep the customers’) and finance (‘keep the investors’), (c) insufficient coverage of the key concepts within the basic literature and (d) unrealistic assumptions of academic models. Therefore, the main objective of this work is to reaffirm the issue of the marketing strategy–financial performance link. The key hypothesis is that the aforementioned constraints — although they pose barriers — do not necessarily prevent the promotion and greater acceptance of the underlying idea. Powerful forces of intensifying competition and sophisticating demand are supposed to be the main reasons for optimism, alongside some promising contributions observed in literature and the economy. Bank marketing is an appropriate area for hypothesis testing. First, there is no industry in which financial criteria are more important than in banking. Second, an accelerating pace of competitive dynamics within this traditionally reactive business would imply the fast-growing importance of marketing, as well as the quick implementation of its principles. Third, the Serbian banking sector — as our primary interest in exploring the industry — really represents an information-rich opportunity. Attention-getting events and trends are rooted in increasing market attractiveness, semi-atomised industry structure, weak entry barriers and ambitious plans of leading regional players. The basic method of analysis is desk research of literature and data from publicly available sources. Although the emphasis is on general and bank marketing references, the imperative of interdisciplinary work requires reference to the banking journals, magazines and textbooks. Informal interviews with senior officials of several leading banks in Serbia provide important qualitative nuances for major questions. In its very essence this research is conceptual and exploratory, so the testing procedure is relaxed. Therefore, following a

summary of basic definitions, we continue with the analysis of the industry: its achievements, shortcomings and drivers and directions of progress. Then, the same aspects of the literature come to focus. In conclusion, the key points of the paper will be highlighted. It is our hope that this structure sufficiently reflects widely acknowledged ‘customer-first’ principle, as opposed to the prevailing supply-side view that puts the discipline at a forefront. Of course, if it could be possible, much greater interactivity of the practice and theory would better be noticed and stimulated through their parallel — sideby-side — presentations. BASIC DEFINITIONS There seem to be no major disputes in relation to marketing strategy definition, although differences do exist. In its simplest and the broadest meaning, marketing strategy is just the basic way to achieve marketing objectives and goals (p. 404),1 ‘big picture of what the firm will do in some market’ (p. 36),2 or ‘coherent marketing direction’ (p. 11).3 On the other side, a more detailed approach implies that it contains key directions regarding target market segment(s) and accompanying marketing mix elements — product, price, place and promotion.4,2 Naturally, the first group of definitions is favoured by marketers, because they leave the greatest opportunities for imagination, which is the prerequisite for badly needed innovative solutions. For the purpose of strengthening the link with financial performance, the latter group is more appropriate, as it contains specific and more measurable constructs/variables. Consequently, the end-result of the marketing strategy decision-making process should be the clear (preferably numerical) perspective on its key elements. In general, the banking sector and banking literature respect, to some extent, the essence

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of these definitions, although not so strictly. The practice and the discipline of banking are still strongly rooted in traditional procedures and operations, which do not fully correspond to ‘modern’ constructs like ‘target segments’, ‘marketing strategy’, ‘marketing mix’ etc. Moreover, the influence of regulatory authorities is much greater than in other businesses, and the rules imposed by the laws, directives and recommendations are overwhelmingly financially oriented. Financial performance is a more complex issue. Among many indicators, in the marketing literature the emphasis is given to shareholder value, return-on-investment (ROI), net cash-flow, contribution margin and profit before/after tax.5 The purpose of this work is not to contribute further to the debate of which one is the ‘best’ for a particular real-life situation. It is our deepest belief that this choice should be left to managers, shareholders and creditors. But, profit (maximisation) is the common name of all these financial criteria.5 In marketing literature and practice, opinions about the role of profit maximisation in companies range from ultimate purpose — to the means for acquiring the interest of investors.6 Obviously, in all cases, it is considered as very important. The fact that banks focus on the returnon-equity (ROE) and return-on-assets (ROA) is in compliance with the above mentioned financial criteria. The key measures of their efficiency are the ratios of assets-per-employee and cost-to-income (CIR). But, in the area of banking much greater attention is directed at risk considerations. They encompass major indicators of credit risk (Non-performing Loans/Gross Loans, Loan-loss-charges/ Non-performing Loans), currency risk (‘short’ or ‘long’ position per currency), liquidity risk (the balance of receivables and liabilities — per maturity), interest rate risk (flexibility of interest rates changes on both liabilities and loans) and capital adequacy (equity/ risk-adjusted assets).

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Obviously, banking literature and the industry offer a much wider perspective regarding financial performance issues. This complicates the task of marketers, but the principles of marketing are applicable in all situations. THE LINK AFFIRMATION — WHAT HAS BEEN DONE IN THE BANKING INDUSTRY? Risk-related international regulation rules for banking impose a general requirement of avoiding concentration,7 which pertains to all elements of marketing strategy. This particularly means that diversification across clients, groups of related clients, markets and geographical segments, business lines, product/services and distribution channels is imperative for all internationally active banks. Consequently, the most important achievements made in practice are those that integrate profitability, risk and marketing strategy. In this regard, we emphasise that complex software packages that incorporate this requirement facilitate the strategic planning process within the majority of banks. Segmental analysis is a notable indicator, too. It has become the standard part of reporting that contains a detailed breakdown of key income statement elements by each business line/target segment. Some world-class banks even offer them in ‘analyst-friendly’ Excel worksheet format.8 Nevertheless, the profit criterion still dominates over risk variables. In that sense, there are banks that go further from valuing market segments. By identifying individual customer profitability, they are better prepared for assessing possible target market options. But, the measurement of success is subject to the (still rare) bank’s ability to integrate the information about separate and numerous transactions performed in different departments.9 According to published banking anecdotes, the most successful efforts that ‘institutionalise’ the contribution of

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marketing strategy to profitability are those of the Bank of America. It has created and applied detailed procedures for ongoing service innovation, including testing the processes in real-world situations. Both strategic and operational aspects of the proposed ideas are considered through frontand back-office activities of carefully chosen sample of branches. Definite and reliable assessments of revenue-generation potential of every innovation alternative are the logical end-result.10 In Serbian banking, strategic marketing connections to profit criterion are most vivid in the distinctive behaviour of a leading foreign-owned bank. Managers that have been interviewed understand this approach. The core of its corporate banking strategy — directed at lucrative segment of so-called ‘blue chip’ companies — is the product: greater loan amounts for working capital and/or fixed assets, available on a timely basis. Still, superiority comes from pricing. The starting point is competitive interest rates (but still 5–7 percent above referent rate EURIBOR!), accompanied with a simpler loan approval procedure. But, the winning items are weaker collateral requirements (no pledges/mortgages), and longer-term maturity (up to one year for working capital loans, and up to five years for fixed assets loans). Normally, under these conditions, FX or an inflation loan Clause is almost inevitable, so the real value of money will be preserved.11 Alongside their high level international reputation, these arrangements open the door for the cross-selling of more profitable products/services, like demand deposits, payments, FX trading, L/C’s and guarantees. Furthermore, a special retail banking unit of the corporate department targets employees of these corporate clients. Finally, all this has been recognised by (or even rooted in) the bank’s other business — corporate finance. Its essence is superior consultative and advisory services to government institutions in charge of privatisation, which implies a rare opportunity to acquire privileged

information about (and contacts with) incoming ‘blue chips’ — leading foreign investors. This marketing strategy, strengthened by overall operational efficiency, generated the resources necessary for the bank’s extensive network development during 2002. Understandably, at the end of that year, their profitability ratio was low. But, the number of branches stabilised, and at the end of 2003 ROI reached a quite impressive level of 18 percent.12 Several years ago, major players in Central and Eastern Europe countries started the process of transferring risk management knowledge to their affiliates in Serbia. A growing number of domestic banks also implemented contemporary banking principles and procedures. Besides its supervisory and controlling functions, the central bank takes an active role in these processes, too. It (a) closely cooperates with banks regarding any questionable issue, (b) offers important supportive documents — for free, like the Handbook on Credit Risk Management and (c) constantly improves educational and training programmes within its Academy of Banking and Finance.13 Moreover, some indoor advertising elements have recently been integrated into the obligation of the banks to calculate and announce their effective interest rates. In sum, all aforementioned contributions to the affirmation of marketing strategy– financial performance link seem to indicate that the forces behind this ongoing progress could overcome certain problems. THE LINK AFFIRMATION: WHAT HAS NOT BEEN DONE IN THE BANKING INDUSTRY — AND WHY? Principally, the achievements that some banks have made in relation to the main subject of this paper are in many cases respectable. Unfortunately, in the banking sector as a whole, especially in Serbia, they

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are rather an exception — not the rule. In addition, the prevailing mentality is bounded by banking paradigm. In particular, referring to Kotler’s stages of understanding the nature and role of bank marketing,4 it is clear that the most desirable solution — marketing management — is not always the most accepted one. Naturally, the issues of target market segments and accompanying strategies occupy the attention of banks’ management very much. However, they are not predominantly considered as marketing issues but as a part of business management, or even strategic bank management. The direct banking pilot project in Canada of a Dutch bank could serve as a good illustration. All the elements of marketing strategy have been carefully designed — Target market segment: ‘… strategy addresses the need for convenience and aims to offer banking services in a costefficient manner’ — Marketing mix: enter the market with a savings account product for which ‘…we are able to offer highly competitive rates, because…we don’t have expensive branch operations to maintain’ (Mr Hans Verkoren, global head of the bank’s subsidiary14). But all these strategic issues have not been perceived as belonging to marketing. In this case, marketing is obviously an important function, but consists of little more than promotion. For the management of this bank ‘… the role of aggressive marketing was key. To increase visibility and brand awareness… ING Direct uses locally focused multi-media marketing campaigns… Data from all its systems are used to direct marketing spend. Mr Verkoren stresses the importance of clever, localised and eye-catching marketing techniques to drive interest in the products’.14 Consequently, the marketing strategy– financial performance link is determined

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in a strictly banking discipline framework, which, (despite all ‘official declarations’), more or less — favours the short-term perspective and — omits the richness of many qualitative aspects of strategy. What are the reasons for this situation? The answer probably lies in interactions between banking tradition and major ‘stakeholders’: regulatory authorities, investors, customers and competitors. Traditionally, banking is a highly regulated and formalised business, due to its specific nature and its exceptional importance for the economy — and society as a whole. Investors also prefer well-defined standardised operations, extensive reporting and, above all, attractive near-term financial results. In comparison to these forces, the customer was a little bit more than just a point at the end of the line of players, ready to tolerate his/her minor role. Of course, under the pressures that come from customers and competitors things have been changing dramatically, but the heavy burden of tradition still remains. What additionally complicates the situation is a questionable level of mutual trust between marketers and bankers. There are almost always conflicting differences in professional histories, perceptions, attitudes and beliefs regarding: — the role of the other side — which is rarely understood correctly and, therefore, rarely is considered as really important and rarely is welcomed frankly; — the level of expertise of the other side — frequently underestimated, or even doubted and — interpersonal disputes — strengthen by the preceding issues (Joni,15 adapted). After all, marketers do not feel quite comfortable with the language of numbers,16 so they could hardly be able to fully exploit occasional opportunities.

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Having in mind the level and pace of market economy development, the situation in the Serbian banking sector is similar to general relations. At first glance, it seems to be improved (in relative terms), due to intensifying promotional campaigns of numerous banks. Indeed, this was almost unimaginable just few years ago. But, managers that were interviewed posit that in growing numbers of cases, the link between marketing strategy and financial performance is over-emphasised. But, this does not have a positive meaning. First, they note that risk criteria are rather mechanically embedded into formal procedures rather than being treated as an intrinsic part of decision making. Second, marketing is frequently misused, or misunderstood — at least — as a ‘bag of tricks’, including some dirty ones. In these cases, the main objective of marketing is directed at convincing retail customers to accept ‘realities’ which are profitable for banks, but too distant from the truth, regarding: — Bank itself — On the basis of the favourable rating of its parent company from EU, one bank is heavily advertising the message that it is the safest one in Serbia and Montenegro. Actually, following this criterion, there are banks with better achievements — Product — ‘Cash-loan within 15 min’; as an advertisement — is easily processed and stored in the prospect’s memory. But as a product, it is rarely delivered on time — Price — Deposit interest rates have been presented without noting that they are subject to a substantial tax. Moreover, effective interest rates do not appear in loan advertisements, and in comparative advertising, false information has been given about competitors’ offers — Place — The number of branches/outlets available to customers is greater in an

advertisement than in practice (‘…. Bank’s branches in 70 towns in Serbia’; in fact, there are not so many towns in this country).

DRIVERS AND DIRECTIONS OF CHANGES IN THE BANKING SECTOR As indicated in the previous pages, the key chain of drivers that directs the changes in relation to the main subject of this paper is as follows: — the greater the intensity of competition — and the greater the requirements and challenges from customers — the greater the importance of both market expertise and financial aspects of marketing strategies — the greater the importance of market expertise — the greater the role of bank marketing and — under the condition of high and increasing importance of financial performance, and the greater the role of marketing — the stronger the link between marketing strategy and financial performance. Although each part of this chain of statements deserves to be the object of a brief overview, it seems that the first one is the most important — because it contains the base for the opportunity. The other two propositions just focus on the ability of people from marketing to exploit them. Following the long-term trends, it is reasonable to predict an increasing intensity of competition. It would probably be the outcome of the converging phenomena of deregulation, monetary integration, international openness and fragmented structure of the sector in some states. Nonbanking entities, like savings associations, mutual funds, insurers and financial subsidiaries of industrial giants, are attacking successfully, too. Counter-forces to these

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drivers, like country-specific regulations17 and ‘the national flagship’ treatment of leading domestic banks,18 just make the pace of change slower. The situation in Serbia is similar to general trends. For example, its international openness has already brought in some major international players, like Crédit Agricole, Banca Intesa, HVB and Société Générale. Although ‘greenfield’ investments are not allowed, foreign banks could easily enter the market through acquisitions of private and state-owned banks. They are further stimulated by the fact that approximately 50 percent of all banks represent less than 1 percent of total market share.19 Extraordinary challenges come also from the customers. In developed countries, numerous wealthy and/or fast-growing clients with diversified finance-related needs want sophisticated and tailored solutions. Emerging markets attract powerful competitors with high long-term potential. For instance, the level of financial intermediation in Serbia is pretty low, around 40 percent (measured by total banking assets/GDP ratio19). On the basis of all these expected changes, it could be concluded that under the impact of converging pressures from competitors and customers — the task of attracting and keeping clients will require more sophisticated market expertness and — any proposed strategy becomes more exposed to detailed financial performance analysis. Consequently, as the customer is at the heart of marketing expertise, the marketing community has the opportunity to take an active role in banks’ strategic operations. But, the focus of the discipline is on consumer goods, so retail banking is the more appropriate area. Concerning the corporate banking issues, people from finance will probably continue to dominate.

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THE LINK AFFIRMATION — WHAT HAS BEEN DONE IN LITERATURE? How do we, as a discipline community, stand against the processes within industry? Even a brief overview shows voluminous and studious contributions of numerous marketing academics to the linkage between marketing strategy and financial performance. These works can be found in textbooks, specialised journals and literature summaries. For example: — Essentials of financial analysis have become the integral part of leading marketing management textbooks.4,20 Philip Kotler even presents a genuine ‘step-by-step’ introductory ‘course’ about the links between marketing mix, sales and profit.4 On the basis of this simple form, readers could imagine the possible existence of complex interactions. Almost 20 years ago, some authors from the former Yugoslavia accepted this approach21 — MS/OR oriented researchers have created countless sophisticated marketing models that incorporate relationships between marketing variables and profit.22,23 Risk-related aspects of financial performance were also objects of interest, but only a few corresponding models were presented in literature summaries24 — The PIMS project (Profit Impact of Market Strategies) has been well presented and discussed throughout marketing textbooks. Although created in a slightly different framework of the strategic management discipline, it offers exceptionally well-documented findings concerning the impact that some marketing mix variables have on financial performance — The special (millennium) issue of the Journal of Marketing, devoted to the fundamentals of the marketing discipline, contains two works which emphasise and

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elaborate upon the importance and the role of shareholder value,25 and financial accountability26 — During 2004, a collection of papers appeared as a contribution of the Marketing Science Institute, bringing fresh ideas, findings based on extensive research and practical measurement tools. They concentrate on links between firm (shareholder) value and some important marketing variables, including new products,27 branding strategy28 and customer satisfaction.29 Even integrative concepts were presented, like marketing-mix interactions’ impact on ROI,30 overall marketing productivity measurement,31,32 and the return on marketing — In a literature that basically follows direct marketing and/or a relationship framework, the concept of customer lifetime value is the object of ongoing debate. It yields many creative proposals that translate marketing data into financial measures.33–36 Furthermore, the balanced scorecard is suggested as an adequate solution for the evaluation of customer relationship management effectiveness.37 — Analytical hierarchy process (AHP) software packages enable managers to rely on their judgement in relation to any decision. This is accomplished through rigorous but swift mathematical treatment of verbal pair-wise comparisons of criteria and alternatives, which assists managers to minimise imperfections of their assessments. Moreover, quantitative data could easily be integrated into the model. Therefore, AHP marketing applications are numerous, including profit considerations of products.38,39 The journals that bridge the areas of marketing and banking also advance the marketing strategy–financial performance link. During the last few years valuable

papers brought the following interesting findings: (1) a low level of service quality causes the absence of low costs–high profitability correlation in some banks40 (2) Porter’s generic competitive strategies of differentiation and focus rarely end in a bank’s superior returns, due to the unwillingness of customers to accept higher prices immanent to these solutions41 (3) strategies that focus on new markets have the greatest potential and bring superior profits, especially in comparison to those concentrated on product improvements42 and (4) for the purpose of identifying and boosting customer profitability, (a) the ‘market share’ variable is inferior to that of ‘share of customer’,43 and (b) ‘share of wallet’ criterion could be used as proxy, but the details of customer–bank relationships are necessary, too.44

In the banking literature, changes in content and emphasis have been quite the opposite: from strictly financial criteria to the incorporation of marketing strategy elements. But, the results are significant, considering the tradition and regulatory burden of this sector. For example, in the leading journal the links between marketing mix variables and financial performance have been attracting increasing attention. Data concerning margin per product and channel (branch) profitability are even proposed to be available daily, in order to ensure survival and prosperity in the highly competitive retail banking environment.45 Banking textbooks also contain brief presentations of the issues relevant for marketing strategy influence on financial performance. Koch and MacDonald46 attribute this to the impact of the balanced scorecard concept47 that integrates customer-centric variables into the network of the most important business measures. They have even devoted a whole chapter to the analysis of customer profitability. Some authors from Serbia also

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explicitly appreciate and elaborate upon the role of marketing strategy.48 THE LINK AFFIRMATION: WHAT HAS NOT BEEN DONE IN LITERATURE — AND WHY? Marketing discipline: ‘The what’ Almost every single contribution explicated in the previous section shows at least one missed opportunity. For example, it was noted that marketing management textbooks of some leading authors contain special pages/chapters devoted to the essentials of financial analysis. Unfortunately, this is rather an exceptional than dominant case. The links between marketing strategy and financial performance variables have been presented in even smaller numbers of these books. Moreover, some ideas that come from behavioural science seem to deserve wider acceptance. Profit maximisation is recognised as the ultimate criterion of shareholders and managers, but not of other coalitions that have stakes in the firm’s operations (employees, vendors, customers etc.). Therefore, profit (and marketing strategy) needs to be presented as a part of a much broader and more realistic decision-making framework.5 Risk-related aspects of finance are the object of analysis only in an international marketing context, regarding political and economic risks of investments. One workable solution is to reaffirm the choice-criterion models from marketing research textbooks.49 By using the simple form, they integrate the risk and profit issues of decision making under uncertainty. Recommended alternatives depend on choices that range between maximising the greatest profit potential — to minimising the greatest possible loss. Another option is to start ‘borrowing’ ideas from strategic management literature, in which risk objectives are considered as: (a) equally as important as profitability, and

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(b) complex issues, concentrated on both strategic invulnerability and flexibility.50 Concerning the way of presenting the links of marketing strategy and financial performance, the language of numbers has been almost exclusively used in textbooks. On the other side, earlier in the text we noted that marketers do not have quite positive attitudes about quantifications.16 Therefore, the step in a good direction would be the parallel presentations — verbal, graphical and mathematical — of the same content23 (p. 7). Marketing discipline: ‘The why’ It seems that students and managers are deprived of certain knowledge components relevant for their professional lives. Why do marketing academics in general, not fully recognise, accept and satisfy this obvious need of their customers, or (eventually) offer counter-arguments? In fact, some principal objections do exist, although they are not explicated in relation to this particular question. Among them, the most important might be the following: — Marketing should keep its focus clear and distinctive — without overlapping its subject matter with those of other areas. This approach might help the discipline to acquire or enhance its scientific status, but undermines the essence of scientific work. As stated by Karl Popper,51 ‘We are not the students of some subject matter but students of problems. And problems may cut right across the borders of any subject matter or discipline’ (p. 67) — Detailed discussions of profitability– marketing strategy interactions could harm an intellectual position of the discipline. It may look that marketing favours the ‘morally shallow’ or ‘empty idea’ of profit as a purpose of business6 (pp. 6–7). On the other side, we believe that in any case, the profit criterion remains acknowledged as an important

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objective for the purpose of attracting investors — at least. Nevertheless, the main reason for unsatisfied needs of students and managers is that marketing, as a whole, is a discipline of inadequate responsiveness to customers — and to competitive challenges. Numerous and well-elaborated warnings in this regard have appeared in the mainstream literature,52–63 but without substantial effects. How could this happen? The driving force is a long-term favourable demand for the basic knowledge about markets. In fact, strong demand for the core product of the discipline flooded our field year-by-year, decade-by-decade. Under these circumstances, the interest for customer needs has long been concentrated in a small group of enthusiastic academics. That is why, as a community, we did not notice the change: customer needs for more practical skills in relation to strategic real-life market-related issues have been irreversibly growing. There were no major changes in the content of leading marketing textbooks during the last decade,59 especially regarding the subject of this paper. Although the quality and price of the core product of a field have been occasionally reconsidered,64 subsequent corrections were minor. In addition, the state has taken a role of quasi-customer, or quasi-investor, but with counter-effect. Through its excessive financing without independent and strict control, self-sufficiency of the discipline was strongly reinforced.61 Moreover, the issue of competition was largely ignored. Market themes have been treated as an exclusive ‘territory’ of the discipline, and no competitive pressures have been perceived as threatening — or perceived at all. Actually, plenty of attacks have happened — from strategic management, logistics, statistics, information science etc.59 — mostly successful ones. Marketing even voluntarily left some of its

‘less attractive’ areas, like marketing of agricultural products and physical distribution (Bartels65). Therefore, unlike other business-related disciplines (finance, especially), marketing is faced with serious difficulties. At the symposium of leading American academics held in mid 2004, Urban’s statement reflected a common view (acc. to Sheth and Sisodia,53 p. 10), ‘…Marketing effectiveness is down…People resent marketing… Academics aren’t relevant. And we have an ethical and moral crisis. Other than that, I think we are in good shape.’ MS/OR Regarding the contributions of MS/OR, it was acknowledged that countless models incorporate marketing variables–profit relationships. But, their application in companies has been limited. This indicates that part of the problem — at least — lies in the weak correlation of the models to the real-life situations. Fortunately, this issue has been recognised in marketing literature and accompanied with substantial efforts to find workable solutions.24 But MS/OR disciplines have limitations that could hardly be resolved. Its applicative potential in marketing was questioned even by Russell Ackoff, a well-known professor. His definite opinion is that these tools are better suited for dealing with behaviours of factories, rather then those of customers.66 ‘Bridge’ literature We have already indicated that the journals and magazines that integrate marketing and banking areas keep part of their attention to marketing strategy–financial performance link. But, the papers that deal with this issue are not published so frequently. Why? In general, it seems that both editorial boards and authors predominantly follow marketing discipline ‘research tradition’. Therefore, the objections presented in

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preceding pages — in relation to marketing literature — pertain also to this academic circle. Moreover, these volumes contain papers investigating the links of specific strategy elements, (such as market segmentation,67 product/service,68,69 pricing,70 distribution,71 and advertising72) rather than that of marketing strategy in total. In particular, it looks that our goal is still to ‘embed’ marketing into banking, as much as it is possible. The best way to achieve it is to promote the subjects that ‘naturally’ belong to marketing, like consumer behaviour, customer relationship and competitor analysis. Therefore, financial variables — although unavoidable — are to be left to the ‘born-bankers’. This reasoning and the consequent practice are not harmful to anybody’s interests. Having in mind the quality of the outcomes of our field, they are highly beneficial, not just for intended knowledge users. But, assuming the prevailing impact of finance paradigms in the banking sector, we think that it is better to enrich this approach with greater emphasis on the financial aspects of marketing strategies. By doing so, marketers speak the language of those who make ultimate marketing decisions. Banking literature Contrary to the conservative image of the discipline, general banking textbooks show an increasing interest in marketing. This direction is quite encouraging to all people from the marketing discipline and — at the same time — very useful for banking academia and the industry. Without any intention to criticise, we just remind that they are still in early phases of the incorporation of the marketing process. Following the classification offered by Kotler,4 marketing is being perceived more as promotion, positive atmosphere or innovation — than positioning and management. For example, Rose and Hudgins73 do not go further from

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recognising the intensifying competition and legal framework liberalisation as drivers of the growing importance of a selling orientation in the banking sector. An overlysimplistic view of marketing strategy is also mirrored in extensive usage of some terms outdated in marketing discipline (like ‘crossselling’), and prevents the appearance of elaborated links with financial performance. At first glance, journals and magazines from this field are at least one step ahead. The intention to move forward is visible in papers that favour the role of positioning.74 The contributions that focus on relations between some marketing mix variables and financial criteria have been frequently presented, too. Unfortunately, they follow the ‘classic’ banking short-term framework (specific product–supply–demand–price chain), rather than integrative a longer-term marketing view. It seems that the impact of tradition still prevails, although the trend of ongoing progress is noticeable. DRIVERS AND DIRECTIONS OF CHANGES IN LITERATURE In the preceding pages we have shown that despite certain problems and obstacles, there are positive developments regarding the marketing strategy–financial performance link. On the basis of interactions of several drivers, we think that the pace of affirmative trends is becoming stronger and stronger. So, what are the forces behind this advancement? First of all, regarding the general marketing literature, the interactions of negative trends elaborated in previous section have strong potential to become even stronger in a near future. In short, we are approaching the point of departure. The discipline will react soon, or risk sharp decline. We believe that within the marketing community there is a ‘critical mass’ of intellectual forces capable and motivated to undertake adequate activities. Public addresses and debates that have been intensifying during last few years send encouraging signals. For example, speakers at

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the earlier mentioned symposium of leading American academics (including Kotler, Sheth, Urban, Varadarajan, Webster, Wind…) ‘…were unanimous in asserting that ‘marketing as usual’ is not working any more and that fundamentally new thinking is necessary to rejuvenate this vital… business function’ (according to Sheth and Sisodia,53 p. 12). Almost the same pertains to the literature that bridges the areas of marketing and banking — because it is predominantly driven by the marketing discipline. In addition, these journals and magazines depend more on their target market segment. Therefore, in an effort to ‘embed’ marketing into banking, they will continue to increase the respect for the paradigm and language of their customers. Understandably, financial performance mirrors the prevailing paradigm and language of the banking community — and marketing strategy is the most vivid contribution of marketing discipline. Banking literature faces challenges from demand side, also. But, serving the role of discipline gatekeepers, we expect that academics from this field will delay the changes as much as possible. In sum, all this will imply, or provoke, much faster strengthening of marketing strategy–financial performance link through: — Increasing importance of the link — real and perceived — Greater attention to long-term/shortterm balance — Greater emphasis on risk considerations — More applicable approaches/models — More realistic, broader framework/ context. These points will not happen naturally; they constitute our ‘to do’ list. On the other side, ‘don’ts’ are best explicated by Bridge, a practitioner that once was a professor, ‘The manipulating of two or three variables in an arcane situation is far a field from the day-to-day trade-offs we must make in

business with dozens of variables plus volatile political and human factors’ (according to Brown,53 p. 3). RESEARCH LIMITATIONS AND IMPLICATIONS Research limitations stem predominantly from the industry scope, especially because of specific characteristics of the re-emerging Serbian banking sector. In addition, sophisticated qualitative approaches — like field research and structured interviews — accompanied with quantitative models, would probably yield more substantive results. Nevertheless, we believe that the chosen methodology does not undermine the value of key findings. They are well-founded and provocative enough to induce wider discussion within academic circles. This kind of research has also the potential of being useful for both marketing managers and senior bankers, at least for the purpose of better mutual understanding. They could find it as sufficient incentive for reconsidering their professional perspectives. On the macro level, this paper indicates that marketing is a reliably supportive field for the never-ending process of broadening the decision-making framework for ‘fine-tuning’ regulation of banking sector. CONCLUSION Marketing as a discipline and business activity faces serious challenges. Other areas have been questioning the exclusiveness of marketing concerning market-related matters, but adequate responses have not yet been undertaken. In the context of the banking industry, we have elaborated that one practical step is to strengthen the link between marketing strategy and financial performance. Although plenty of discouraging constraints have been found (more than it was hypothesised), positive counter-forces are firmly based in long-term environmental trends. Increasing

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competitive pressures and growing market power of customers and investors create the space for the greater role of marketing strategy. At the same time, the undisputed importance of profit maximisation implies detailed analysis of the financial consequences of any strategic alternative. Throughout the text, it was shown that marketing still has the potential to meet contemporary requirements. Therefore, it is necessary to enhance some positive tendencies that start to emerge in literature and practice. This particularly pertains to greater respect for risk indicators, improved short-term/long-term balance, stronger integration of marketing strategy elements, as well as a more realistic decision-making framework. But, the affirmation of user-friendly approaches and models is important above all. In this regard, it might even be necessary to omit the richness of the knowledge created in the discipline. Simplification is a useful step back in favour of easier perception and greater acceptance of the basic idea, and it could include both qualitative and quantitative concepts and models. Better mutual understanding and tolerance of marketing and banking ‘world views’ would improve each field individually — while preserving the distinctiveness of both. Moreover, this is the best way to impose badly needed true cooperation. What is the contribution of this paper? In short, this work is a pretty rare collection of big pictures of ‘what’ (marketing strategy) and ‘why’ (financial performance) we are — in motion. From the perspective that integrates marketing and banking practice and literature, it: — Redirects the attention to the theme that is fundamental for marketers: the issue of marketing’s justification — Highlights conceptual, strategic-level challenges and alternatives, as opposed to narrow-and-deep approach that prevails in academic research53

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— Presents achievements in this regard — and shortcomings, as unexploited opportunities — Depicts the drivers and directions of progress. Above all, this is the honest call for the discussion on the profound subject matter. It comes from the part of the world that is largely ignored75, but without good reason for that. So, let’s start. Let’s see many other pictures, bigger and smaller ones, aquarelles — and precise photos. Let it be an ongoing exhibition: number-by-number, issue-by-issue, year-by-year, style-by-style, region-byregion… REFERENCES 1 2

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