Banking in Saudi Arabia

Customers are therefore faced with an increasing choice of products/services and are becoming more demanding as they see banks competing to offer a higher level of service. If banks do not have good mechanisms for understanding customer needs, targeting customers with a segmented approach (the one size fits all principle will not work any longer), and offering superior service they are likely to face decreasing customer loyalties resulting in increasing cost of customer acquisition and retention.

TNS/NFO, the largest custom marketing research company in the Middle East, conducted the TargetMoney Survey, a large-scale syndicated banking study in Saudi Arabia in late 2000 and again in early 2004.

One thing that was obvious in 2000 was that the penetration of different products/services was lower in Saudi Arabia than in other neighbouring markets. Credit card usage was only 22% and only 11% had personal financing with banks. Penetration of value-added services such as Investment and Saving / Insurance Products was very low in 2000, primarily due to the problem of riba, and the as yet not fully developed Islamic form of banking. Other factors like high investment requirements, lack of knowledge of products, also played a part in the low usage of such products.

But things have changed. There is now an increased focus with banks offering Islamic Banking services. Now banks need to start thinking of the future - how long will Islamic banking be a differentiating factor, or will it fast become a hygiene factor? What might they need to do to attract and retain customers beyond the Islamic banking platform?

Banks in Saudi need to segment the market and identify what proportion of their customer base is made up of various customer segments and adapt their marketing initiatives accordingly. For example, in 2000 the TargetMoney study identified four customer segments based on attitudes to banking services. Each was significantly sized with at least 20% of all customers.

Segment (1) - Traditional / Conservative: more face-to-face interaction oriented and less likely to deal with foreign banks.

Segment (2) - Islamic: keen to deal with local and not international banks, offering Islamically acceptable products/services.

Segment (3) - Active: could be attracted on the basic of value-added services - advisory range of products etc.

Segment (4) - Islamic Assurance Seekers: open to foreign/joint venture banks offering Islamic products, unlike Segment (2) who looked to local banks for Islamic Banking services.

Many more banks entering the Islamic Banking space has also resulted in a blurring of image of banks, unlike in the past where only Local / Islamic Banks were perceived as strong in terms of being culturally close to the customer. As Local / Islamic Banks start to catch up with foreign banks on service standards, customers will start to select banks on higher order emotional and intangible benefits - which is where understanding the psychographic profile of the banking customer becomes all the more important.

And this is what TargetMoney 2004 focusses on - it looks at three segments - Mass Market Males, Students / Youth and Ladies. And TNS is soon to launch TargetMoney Tracker - a continuous survey to track shifts in banking attitudes and behaviors in Saudi Arabia.