Marketing Islamic Finance Products in Pakistan: Trends and Analysis

Marketing Islamic Finance Products in Pakistan: Trends and Analysis

There are 5 fully-fledged Islamic banks operating in Pakistan and 15 conventional banks with Islamic banking branches. The share of the industry in the banking system has risen to over 7 percent from just 0.5 percent in 2002, according to Reuters.

Citing the challenges for the industry, people usually opine that the industry needs to create awareness about itself, its products and the concepts underpinning their development.

One listed Islamic bank in Pakistan showed Rs 47 million on the expenditures side in 2010 which was more than the Rs 41 million in profits it reported for the same year. Of note is that it is the first time the bank had reported profits and, as odd as this ratio might appear, it nevertheless tells us that a good sum of money was spent on advertising. Another listed Pakistani Islamic bank had also spent Rs 43 million on publicity in 2010.

Creative advertising is also finding its way into these marketing campaigns as evidenced by the few examples of original marketing slogans used by some Islamic banks, which names will not be revealed.

Sample slogans

"Finally, a car that lets you fly. Finance your dream car."

"Live in your dream home."

"Drive your dream car."

"Shariat Mein Barkat. (It means blessing is only in Islamic law)"

Sadly, though these slogans have contributed their share in promoting consumerism in Pakistani society they failed to hail Islamic virtues of Shukr (thankfulness), Sabr (patience), Tawakkul (steadfastness), Infaaq (payment to charity), refraining from Israaf (extravagance), hubb-e-maal (love of wealth) and hubb-e-dunya (love of materialism).

The prevalent practice of marketing efforts includes billboard advertising, TV commercials, print media and additionally running paid content in the form of discussion programs on TV. But, in the name of creating awareness, serious discussions and arguments usually lie missing in the paid discussion programs run on TV.

The proponents of Islamic banking repeatedly try to give some logical answers to support the case of Islamic banking and argue that the end result of many activities could be similar, but their interpretation for Halal and Haram could still be different. These logical arguments are analyzed briefly.

A McDonalds burger in the West may taste the same as in the East, but one may be permissible i.e. Halal and one may be prohibited i.e. Haram if the animal from which the meat was prepared was not slaughtered in the prescribed Shari'ah manner. The forbidden burger is not prohibited on the basis of taste, but rather due to the manner of slaughtering. But regardless of the argument, the way the burger is advertised fails to remind the consumer of the fact that it is God Almighty who has given man permission to take the life of an animal for food consumption.

Similarly, pre-marital and post-marital sex may prompt similar physical and emotional responses, but in Islam, the former is prohibited while the latter is permissible. Here again, the reason for prohibiting pre-marital sex is not biological or utility related, but rather social i.e. Islam treasures the family system and wants to protect its sanctity at all cost, else, from a social point of view, humans would be no different than animals.

If one does not wish to invest money for profit purposes, but has some surplus funds, Islam has encouraged spending on charity over lending for interest and it is supported through many verses. "They ask thee how much they are to spend; Say: "What is beyond your needs." Thus doth Allah make clear to you His Signs: In order that ye may consider." (Al-Baqarah: 219).

"In their wealth, there is a known right for those who ask for it and those who have need for it." (Al-Muarij: 24-25).

Instead of those Islamic institutions who are working in conformity with Islamic rules and principles trying to create awareness about these virtues, emphasis has been on creating wealth. By not using the Islamic virtues mentioned above, Islamic banks have essentially failed to create brand affinity among the masses on the basis of what Islam promulgates as core to its followers beliefs. This is not to deny the efforts and achievements of Islamic banks, but rather meant to point out the shortcomings which need to be looked at and addressed right away.

BOX: Islamic Credit Cards: A Necessity or Luxury
By Salman Ahmed Shaikh
Islam never encourages one to become indebted unless it is absolutely necessary. Many a -hadith show the viewpoint of Islam on debt creation, especially when it is beyond ones capacity to repay, and points to what extent it should be avoided and used to meet ones necessary requirements.
Prophet Muhammad (pbuh) said:

-O Allah! I seek refuge with Thee from sin and debt. [Sahih Muslim]

The Prophet Muhammad (pbuh) said:

-After the grave sins which Allah has prohibited, the greatest sin is that a man dies while he has debt due from him and does not leave anything to pay it off, and meets Him with it.

The following supplication is related to the Prophet Muhammad (pbuh) for salvage from debt:

-O Allah! I seek refuge in You from all worry and grief. I seek refuge in You from incapacity and slackness. I seek refuge in You from cowardice and niggardliness, and I seek refuge in You from being overcome by debt and being subjected to men.

But, the currently practiced and widely used Islamic finance contracts are more based on debt financing than equity financing.

Some financial institutions in Islamic countries have developed Islamic Credit Cards for consumer financing. Problems arise due to the fact that credit cards could be used for impulsive buying or even the fulfillment of ones needs while not involving a tangible asset. Even when a transaction may involve a tangible asset, it is hard to fulfill all the necessary requirements of Murabaha in quick time.

One way to deal with this is to use the credit card not as a mode of financing but simply offer it as a convenience product that carries a transaction fee.

But, charges must be realistic, i.e not excessive. It must also be noted that a credit card might still be provided to the customer (else it will be same as a debit card), but no additional amount is to be charged over the credit amount. The charges so taken from the customer must be transaction-based and not time specific. In the current practice, they are time specific. Monthly charges have to be paid irrespective of whether one uses the card or not. This is not recommendable.
As a matter of fact, banks aim at making a profit out of the business of providing finance, even for consumption purposes. This is not recommendable looking at the various principles and philosophy of Islamic faith. Islamic Economics and its basis, principles and objectives will be increasingly compromised if such products are launched.

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Brand Loyalty and Relationship Marketing in Islamic Banking System

Brand Loyalty and Relationship Marketing in Islamic Banking System

 

Abstract

Islamic banks' ability to withstand the global downturn has fuelled an expansion of Islamic finance around the world. Islamic banks have learned that customer loyalty and brand loyalty must be earned. Brand loyalty and relationship marketing among banking consumers particularly in the islamic banking system in Malaysia has captured great interest among the Malaysian public as a whole (i.e. relationship between employees and customers). Relationship marketing is not more than just getting the customers but it is also how to maintain the existing customers as much as possible. There are important dimensions that supported the strength of relationship marketing that can lead to brand loyalty. In relation, brand loyalty refers to the favorable attitude towards a brand in addition to purchasing it repeatedly by the customer. The customer tends to be loyal since there is relationship marketing between them and the organization. This study will show the influence of relationship marketing through Bank Islam employees in Malaysia on Brand Loyalty. The data for this study will be acquired from 3 Bank Islam business premises in Pulau Pinang, Kedah, and Perlis which represent the northern states of Peninsular Malaysia. Various data-analytic tools will be used to analyze the data such as test of differences, reliability analysis, factor analysis, and multiple regression analysis. The study tries to determine how relationship marketing which is measured through three dimensions, that is Customer trust on Bank Islam staff, Bank Islam Staff commitment during the service delivery, and the communication skills among Bank Islam Staff can have an influence on Brand Loyalty among Bank Islam customers.

1. INTRODUCTION

In recent years there has been growing interest in relationship marketing (i.e. relationship between employees and customers) since there has been a change in terms of marketing philosophy which is marketing orientation. One of the most important areas in marketing orientation includes relationship marketing. Relationship marketing is not more than just getting the customers but it is also how to maintain the existing customers as much as possible.

There are important dimensions that supported the strength of relationship marketing that can lead to brand loyalty. In relation, Brand loyalty refers to the favorable attitude towards a brand in addition to purchasing it repeatedly by the customer. The customer tends to be loyal since there is relationship marketing between them and the organization. This study will show the influence of relationship marketing through Bank Islam employees in Malaysia on Brand Loyalty. The data for this study will be acquired from 3 Bank Islam business premises in Pulau Pinang, Kedah, and Perlis which represent the northern states of Peninsula Malaysia.

Various data-analytic tools will be used to analyze the data such as test of differences, reliability analysis, factor analysis, and multiple regression analysis. The study try to determine whether relationship marketing which is measured through three dimensions, that is Customer trust on Bank

Islam staffs, Bank Islam Staff commitment during the service delivery, and the communication skills among Bank Islam Staff do have an influence on Brand Loyalty among Bank Islam customers. Finally the study also attempts to determine if Customer Overall satisfaction would have a mediating effect on the relationship between relationship marketing and Brand Loyalty in the case of Bank Islam.

2. LITERATURE REVIEW

Brand management is an area of increasing importance to marketers today, particularly as organizations attempts to communicate the ever complex and intangible messages as part of brand management strategies (Davis, 2000; Goodchild & Callow, 2001). One of the many interesting questions facing today's brand managers concerns how to develop a better understanding of the appropriate relationship between constructs such as relationship marketing and brand loyalty, particularly in relation to the myriad of known antecedents to brand loyalty in the marketing literature (Taylor et al., 2004). In this study we assess the relative importance of many of the known antecedents to brand loyalty, including overall customer satisfaction.

By having a strong brand, companies not only could facilitate the differentiation of their offer from the competitors. With branding, financial companies are able to create customer confidence and loyalty in their performance, exert greater control over promotion and distribution of the brand, as well as commanding a premium price over the competitors; all while impacting the valuation of the business (Holverson & Revaz, 2006; Pass et al., 1995).

The added value that a brand name gives to a product is now commonly referred to as "brand equity"

(Aaker, 1991). Brand name adds value to each of these interested parties which include the investors, manufacturers, and the retailers. Brand equity and brand loyalty provides a strong platform for introducing new products and insulates the brand against competitive attacks. From the perspective of the trade, brand loyalty contributes to the overall image of the retail outlet. It builds store traffic, ensures consistent volume, and reduces risk in allocating shelf space (Cobb-Walgren et al., 1995). However, if the brand has no meaning to the consumer, automatically there wouldn't be of any value to the investors, the manufacturer, and the retailer unless there is value to consumer (Farquhar, 1989; Crimmins, 1992).

Over the past 15 years, a major shift has occurred in the ways that industrial companies deal with their customers and suppliers (Christopher et al., 1991; Ellram, 1995). This change has come about as companies have recognized that sustainable competitive advantage in the global economy increasingly requires companies to become trusted participants in various networks or sets of strategic alliances (Morgan & Hunt, 1994). Relationship marketing which is powered by the employees of an organization has emerged over the years as an exciting area of marketing that focuses on building long-term relationships among employees who is a proxy to their employer and customers that frequent to their business premises. As Gronroos (1993) observed: establishing a relationship, for example between an employee and a customer, can be divided into two parts: to attract the customer and to build the relationship with that customer so that the economic goals of the organization are achieved through that relationship.

THE RESEARCH MODEL

3.1 The Objectives of This Study

a. To determine whether Relationship marketing between Bank Islam staff and their customers will have any influence on Brand loyalty.
b. To determine whether Relationship marketing within Bank Islam will have any influence on customer's overall satisfaction.

c. To determine whether customer Overall satisfaction with Bank Islam employee will have any influence on Brand loyalty.

d. To determine whether customer Overall satisfaction on Bank Islam employee mediates the relationship between Relationship marketing and Brand loyalty.

3.2 Hypotheses

Hypothesis 1: There is positive relationship between relationship marketing and brand loyalty.

1a: There is positive relationship between trust and brand loyalty.
1b: There is positive relationship between commitment and brand loyalty.

1c: There is positive relationship between communication and brand loyalty.

Hypothesis 2: There is a positive relationship between relationship marketing and overall satisfaction.

H2a: There is a positive relationship between trust and overall satisfaction.
H2b: There is a positive relationship between commitment and overall satisfaction.
H2c: There is a positive relationship between communication and overall satisfaction.

Hypothesis 3: there is a positive relationship between overall satisfaction appeal and brand loyalty.

Hypothesis 4: Overall satisfaction mediates the relationship between relationship marketing and brand loyalty.

3.3 Research Questions

From the previous discussion, we infer specific research questions for this study, they are:

Does customers trust towards the Bank Islam employee during their interaction influences Bank Islam Brand Loyalty?

b) Does Bank Islam employee's commitment towards their customers during employee/customers interaction influence Bank Islam Brand Loyalty?

c) Does Bank Islam employee's communications skills delivered during employee/customers interaction influences Bank Islam Brand Loyalty?

d) Does customer's overall satisfaction towards Bank Islam employee influences Bank Islam Brand loyalty?

e) Does customer's overall satisfaction mediates the relationship between Bank Islam relationship marketing and Bank Islam Brand loyalty?

4. METHODOLOGY

The area of study for this research is limited to three Bank Islam business premises located in Pulau Pinang, Kedah, and Perlis. All the three states are located in the Northern States of Peninsular Malaysia.

A structured questionnaire will be distributed by four research assistance at the entrance/exit of the Bank Islam business premises that was selected for this study. Questionnaire will be collected right after respondents completed the survey. Thus a non-response as well as early and late response analysis is not required for this study. The unit of analysis for this study is individual customers who patronize the Bank Islam business premises.

4.1 Description of Methodology

To have a representative finding, the sampling technique used must be objective. This is an important effort adopted by most researchers in order to furnish a finding pertinent to the general. To choose the sample for this study, probability random sampling was used. A probability sample is necessary if the sample is to be representative of the population (Reeves, 1992). Therefore, a two-stage sampling technique is employed in this study.

The unit of analysis for this study is individual customers who patronize the Bank Islam business premises. Studying primary consumer groups permits a more valid and reliable clarification to the model research in this study. A total number of 500 samples will be collected from 3 different locations (Bank Islam business premises) in the state of Pulau Pinang, Kedah, and Perlis. In determining the sample size for this study, sample size selected was based on 3 considerations. One of the considerations is the criteria set according to Roscoe's rule of thumb (Sekaran, 2003) i.e. a sample that is larger than 30 and less than 500 are appropriate for most research, and the size must be several times larger (10 times or more) for multiple regression analysis to be conducted.

For this study, a survey method is employed. Surveys are a better source of primary data collection in marketing and social sciences in contrast to observation and experiments (Baker, 2001). According to Robson (2002), surveys are use in accord with a cross-sectional design, that is, the collection of information from any given sample of the population only once. The data are collected using a set of questionnaires or structured interviews with the objective of generalizing from a sample to a population to determine attitudes and opinions and to help understand and predict behavior (Baker, 2001; Mokhlis, 2006). Questionnaires will be distributed personally to customers who exit Bank Islam business premises and have had an interaction with any Bank Islam employees.

4.2 Population and Sample Size

Since the mailing list of Bank Islam customers/clients is not made available, a 2-stage systematic sampling technique will be employed.

4.3 Sampling Design

A two-stage sampling technique is employed in this study. During the 1^st stage = A random sampling technique is used to select the Bank Islam business premises. List of Bank Islam business premises will be retrieved from Bank Islam listing. 2^nd stage = systematic sampling. A skip interval of 2 will be utilized in the selection of Bank Islam clients as our respondent (Arithmetic progression will be utilized).

4.4 Sample

A sample of 480 will be collected (16 items (independent variable) X 10 = 160 samples X 3 locations = 480 samples). To accommodate for non-responses, an additional of 20 samples will be collected. Therefore a total of 500 samples will be collected altogether for this study. Sample selected was based on 3 considerations:-

a) The first consideration, Sample size selected was based on the criteria set according to Roscoe's Rule of Thumb (cited in Sekaran, 2003).

30< sample < 500. The size must be several times larger (10 times or more) for multiple regression analysis to be conducted.

Therefore, 16 items (questionnaire) X 10 = 160 samples x 3 independent hoteliers – 480 samples.

b) Second considerations, Cohen & Cohen (1977); Sawyer & Ball (1981), believes that very large sample sizes usually allow even small effects to be statistically significant. It is especially important with highly powered research designs to measure and report effect sizes in addition to statistical significance.

Sawyer and Ball (1981) estimated that a proportion of 13% of the explained variance to effect size values, as a medium effect size for regression analysis. According to Sawyer and Ball (1981), the medium effect of 13% is sufficient for testing an existing model.

f² = R² = 0.13 = 0.1494

1- R² 1 – 0.13

ŋ* = L+K+1

f²

= 13.62 + 3 + 1

0.1494

= 117 samples.

Therefore, 117 samples x 3 locations = 351 samples (to be collected)

Thus, 500 samples will be collected to accommodate for non-responses.

c) The third considerations, Issue's on response rate were covered. Response rate in Malaysia is between 15% - 30% base on the previous research/study/theses.

Therefore, the samples that will be collected are 500 samples, (The sample size was increased to 23%, to accommodate the non-response rate).

4.5 Questionnaire Design

Questionnaire consists of 3 Sections. Section A =Relationship marketing (Caceres & Paparoidamis, 2007). Section B = Overall customer satisfaction ( Bloemer & Ruyter, 1998). Section C = Brand loyalty (Aaker, 1996). An interval scale data (use for independent variable, mediating variable, and dependent variable) and a nominal scale data (demographic data) will be collected from the questionnaire distributed to the hotel guest. A Likert Scale of 1 to 5 will be used to frame answers in the questionnaire.

4.6 Translation Procedure

A back-to-back translation procedure will be utilized. The original instrument in English was literally translated into Bahasa Malaysia and back to English by a bi-lingual lecturer from Universiti Teknologi MARA Kampus Kedah. The instrument will be pre-tested for reliability and language accuracy.

5. CONCLUSION

To ensure success, it is recommended that Bank Islam follows the suggested model above to ensure that they significantly improved their overall brand management particularly building up Brand loyalty among their customers, without losing a large part of their uniqueness, independence and management control. The essence of Bank Islam management is to be able to relate relationship marketing through their employee, customer overall satisfaction, and Brand loyalty as part of their property management. To do so it requires the management of Bank Islam to spend time, effort and commitment, as well as to put in some financial resources, blended with management experience and knowledge of market plus courage to take risks. This venture is achievable and can be used as a strategy to speed up corporate growth and success of Bank Islam. The value of this study lies in the fact that it places the role of brand management firmly in Bank Islam. The employees of Bank Islam play a key role in enhancing good relationship with Bank Islam customers and exert considerable influence on the structure and culture of a company.

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