business game:
banks in action
creator = bill glass, usa
owner = junior achievment
Youth Business Center:
about banks...
Bankers all deal with one kind of product: money. Unlike detergent, automobiles,
or fast food, there are not different brands of money. Everyone within the same
country uses the same currency. All banks transact in this currency. This type
of product, which is the same no matter where you obtain it, is called a
commodity.
When all producers offer the same product, getting customers to deal with one
rather than another presents a special marketing challenge. When all producers
offer the same commodity product, often the key differing feature between them
is the price. You have already mastered this part of a banker's job by setting
the prices, in the form of interest rates, on the money you borrow from depositors and loan to borrowers. As you have seen, more deposits go to the bank
with the highest price or interest rate on Savings Accounts and CDs. The bank
with the lowest price or interest rate on Lines of Credit and Loans has the most
borrowers.
Even though money is the same for everyone, banks can differentiate themselves
in some ways. Some banks strive to be convenient for customers, with many locations or ATMS in high traffic spots such as supermarkets or airports. Some
banks stress their long history and conservative practices, wanting consumers to
regard them as a safe place to deposit their money. Other banks advertise that
they understand the businesses of their borrowers and work closely with them.
Many banks offer special discounts or prizes for new customers. Even if the
money is the same, the toaster oven for new customers at one bank is different
from the temporarily discounted interest rate at another.
The efforts a bank uses to persuade customers to use its services rather than
those of its competitors are called marketing. Marketing activities attempt to
establish an image of the bank in customers' minds, and because of that image
persuade customers to utilize that bank.
Banks in Action offers the opportunity to pursue these activities through the
Marketing decision. The Marketing expenditure is the money your bank is spending
on establishing its image and persuading customers to use its services. Marketing is a direct cost which is subtracted from a bank's Net Interest, or
the difference between interest earned from borrowers and paid to depositors,
before profit is determined.
The more money a bank spends on Marketing, the more customers it will attract. A
bank with more Marketing will have more customers, including both depositors and
borrowers, as a bank with the same interest rates and less Marketing.
Marketing can also be used to overcome interest rate differences. Banks made
popular through their marketing activities can often get by with paying a bit
less to depositors and charging a bit more to borrowers. If this extra difference is more than the extra Marketing expenditure, then profit goes up and
the banks moves ahead of its competitors. If more is spent on Marketing than the
extra earned in Net Interest, then the bank is in a worse situation than before.
Marketing spend by one bank benefits all banks to some degree since it raises
consumer awareness of banking services. This may cause some customers to go to
the nearest bank, rather than the one that paid for the Marketing. After all,
money is a commodity.
In addition to setting interest rates, you can now establish your bank's
Marketing expenditure. Examine what your bank is currently spending on
Marketing. You will want to adjust the figure to improve your bottom line, or
your profit. Increases must bring in enough new business to pay for the
increase. Savings from any decrease should not cause business to drop off enough
to overwhelm the savings. Good luck!
