A perception exists among marketers that utilisation of the Western marketing concept has assisted or will assist developing nations in responding to their unique development needs (see, for example: Cundiff, 1982; Dixon, 1981; Bartels, 1977; Drucker, 1958; Rostow, 1956). However, this view fails to account for the various environmental factors of macro-marketing that make the transition to the marketing concept more complicated than appears on the surface. Differing cultural priorities, lifestyles and buyer decision-making factors, for example, call for re-evaluations of the efforts and results of the Middle East banks to implement their own unique marketing concept and to achieve the lost effective utilisation of the banking system in serving the region's economic development goals. Placed in perspective in this article the authors view the Islamic banking environment as one of the more significant case examples which may be used to evolve a better understanding of the unique aspects of the marketing concept in a developing region. 

Current developmental problems in the region include the combination of reduced oil prices, the after-shocks of the Suq Al- Manakh Stock Market collapse in Kuwait, the ongoing concerns regarding regional territorial security, and the slowdown in construction and trade activity throughout the region. These development issues have forced many local banks to reduce operations, and a number of international banks have withdrawn from the market (The Middle East, 1986a). The situation would appear to open the door of survival for the more innovative banks, hopefully to serve more profitably the needs of the region's banking consumers. Unfortunately, the lack of effective bank marketing innovation, focus and orientation thus far has precluded this possibility. Thus, in this article the authors focus on providing a framework for analysis of the macro-micro-environmental forces influencing the generation of unique marketing innovations. If utilised effectively, these innovations would enable the region's banks to survive and to serve better the wants and needs of their consumers.

Changing Banking Environment

Since appropriate marketing innovations are deemed important in developing economies to provide the basis for competitive advantage and survival in the marketplace (Hassan and Shook, 1985), it is important to place the evolution of the region's bank marketing process in a developmental perspective. In the past, both Islamic and Western financial institutions have had an impact on the development efforts of the region. Consequently, constant change towards a stronger regional financial system is desirable to enable the region to achieve broader economic development goals. Aspects of Western financial institutions and the Western marketing concept, however, must be modified to accommodate the environment conditions of the Middle East^.1

Indications of what seemed to be effective marketing management are found in the banking activities of some of the larger local commercial banks in Saudi Arabia, Kuwait and Bahrain. Service enhancements have included automatic teller machines, expanded banking hours, regional travellers cheques, and enhanced money market services. Unfortunately, however, these marketing activities have evolved towards a sales and deal-oriented approach to bank services. This process places the commercial banks in an increasingly damaging position with consumers in an Islamic society and demonstrates little with regard to the potential for effective consumer-oriented marketing management (The Middle East, 1986b; The Middle East, 1985; The Banker, 1985; Euromoney, 1985).

According to economic development and marketing thought, marketing innovations will be successful only as long as changes are not introduced so rapidly as to affect negatively the social and cultural fabric of the society (Dixon, 1981). There is considerable evidence that during the 1970s many of the practices of Western joint venture banks in the Middle East consistently detracted from the integration of the banking system as an effective development tool in the region. Accordingly, recently there have been numerous legal conflicts between the commercial banks, central banks and religious authorities regarding the payment and receipt of interest on mortgages and other loans². Meanwhile, central bankers in the region are engaged actively in the evaluation of alternative credit development facilities. Despite the view of some bank managers that the region is "overbanked", ­the truth may be that the banks in the past capitalised on Arab spending generosity to obtain short-term profits which now have disappeared (Euromoney, 1985).

Banks in the Middle East theoretically operate in the same environment in terms of the Islamic strictures on the payment and receipt of interest. Islamic banks, for example, by definition solicit and employ funds in accordance with the Islamic Shariah (legal code and system), for the purpose of building Islamic solidarity and ensuring justice of distribution and employment of funds in accordance with Islamic principles. In practice this restriction places a heavy burden on Islamic financial institutions because they must make primarily equity type investments, resulting in greater risk for the institution and its depositors.

The Islamic view of flat annual interest rates, Riba (usury), is established on the requirements of the Sharia, which views flat interest on principal as evil because it involves accepting fixed gains without sharing the risks entailed in productive enterprise. Muslim scholars contend that the Qur'an (Muslim Holy Book) clearly states that at maturity of a loan the lender is permitted to receive only his principal, without any addition. Non-Islamic commercial bank dependence on usury is believed to encourage exploitation and neglect of an important cultural element. This situation has caused many small savers in the Muslim world to turn to the Islamic banks. Since the role of the Islamic bank is to advance society in all development endeavours, the profit becomes the means and not the end. This is compared with the non-Islamic commercial bank which is designed to gather funds and channel them to those who are in need of capital in order to accomplish their profit objective.

Not only is the flexible earnings potential of Islamic banks creating a draw for the region's depositors, but these banks also are using innovative marketing concepts to draw new depositors. This situation can best be illustrated through the case of the money exchangers. The money exchangers in essence are traditional financial service providers that recently have become much more like commercial banks owing to the increase in central bank restrictions on their operations. The money exchangers have long operated as a force against bank marketing management innovation, but today they possess a unique element of service segmentation in that they provide more personalised and localised marketing services (Hassan and Shook, 1985). The money exchangers have many branches in relatively under banked hinterland areas, generally are located in less pretentious facilities and are regarded with favour since their services are perceived as more in line with local lifestyles, customs, trade and interpersonal relationships (The Middle East, 1985).

The activities of the money exchangers are on the whole very profitable as a result of their low cost of operations, perceived integrity and honesty, and because their customers often are willing only to accept changeable rates of interest and refuse to do business with commercial banks that offer lower flat annual rates. Thus, while the money exchangers have in the past operated as a force against change, their Islamic development orientation and unique approach to the market today may be considered an innovative marketing approach³.

As the activities of the money exchangers indicate, the Islamic heritage of the Arab Middle East provides cultural baggage which discourages indiscriminate adoption and application of Western bank marketing elements. Younger Arab consumers, for example, expect products and services to fit with their family and societal reference bases even though some of these perspectives have been somewhat modified in recent years through exposure to elements of Western culture. Western bankers often fail to recognise that Arab culture tends to be more; eclectic in the acceptance and use of new products and services (Hassan, 1986). Arab consumers may accept Western marketing concepts associated with the positive aspects of a service such as readily-available consumer or mortgage loans. However, owing to the fact that Middle East economic and marketing development during the 1970s moved through several economic development stages, it is understandable that during difficult economic times the region could return to more traditional Islamic principles (Schultz, 1987). Accordingly, the response to bank marketing and product innovation efforts indicates that bank marketers cannot ignore several of the more difficult-to-assess but important modifications required for assimilation into the contemporary Islamic environment.

Consequently, non-Islamic commercial banks in the Middle East today increasingly are recognising the need to take into consideration various precepts of Islamic finance. One reason is the more flexible earnings potential provided through Islamic banking. Therefore, the commercial banks in the region must become more innovative in their application of the marketing management concept, and only those banks best able to apply effective consumer-oriented marketing management capabilities within an Islamic environment will survive into the 1990s.

Opportunities for Marketing Management

There is considerable confusion among Middle East commercial banks regarding how the development and marketing of banking services would provide effective differentiation and competitive advantage. One of the most important examples of the failure of commercial banks in the Middle East to compete effectively through the use of appropriate product development, segmentation and targeting methods; is expressed in the limited view these banks have of themselves and their markets.

During the 1970s many commercial banks had an opportunity to develop consumer-oriented banking services. Instead of responding to this opportunity; they chose the easy way by viewing themselves as fee-bankers, focusing on short term strategies and high return banking activities such as trade and construction contract financing and foreign currency consumer accounts (Abdeen and Shooki 1984). By not perceiving themselves as partners in financial development with their customers and the central banks, these commercial banks failed to engage in consumer-oriented bank services that are based on long-term strategies. As a result, they failed to obtain the type of hands-on, consumer-oriented marketing experience so necessary for the coming era of intense competition they are experiencing today.

The introduction of consumer-oriented bank marketing, and modern market research and management techniques which recognise and respond to changing service needs and lifestyles, have become an irreversible element in changing the role of financial institutions in the Middle East. The region's banks must identify and enter new markets as a requirement in the economic development of the region. However, the lack of adequate marketing information needed to evaluate the potential acceptance of new banking innovations, and the lack of understanding of the marketing concept and market segmentation principles, limit the advantage of the banks in gaining a competitive edge to survive and grow.

Innovative Marketing Concepts

Managers in Middle East banks, as in many Western banks, are prone to "commanding" and "top-down" managing. These formalisation and centralisation characteristics, when combined with traditional attitudes towards change, create a tendency towards complex forms of bureaucracy. This results in a very limited capacity to accept innovative changes⁴. Such traditional marketing management style constrains the bank's ability to implement existing marketing strategies and tactics. In this situation marketing strategy is viewed as an abstract management philosophy rather than an action-oriented plan to introduce innovations in bank services that will enable the bank to achieve the desired growth (DeMoubray, 1986).

It is clear that banking organisations in the region will not be able to bring about the desired growth in a short period of time. However, the evidence suggests that where there is consistency of marketing strategy and implementation, growth can occur even in the face of a declining banking market. Bank survival today is due largely to successful implementation of consumer-oriented marketing innovations, to focusing on specific areas of bank expertise, and effective target marketing. Carried out within the context of adherence to local culture and economic needs, consumer-­oriented marketing innovations are an appropriate approach for bank survival and for achieving economic development goals in the region.

A paradigm for introducing innovative change/growth in bank services is shown in Figure 1. This paradigm offers a framework for analysis of the macro-/micro­-environmental forces influencing receptiveness to appropriate change in Middle East bank marketing. This model is useful in establishing a basic understanding of the dynamics of introducing and implementing an innovative marketing concept that takes into consideration environmental conditions. The innovative change, paradigm can aid marketing managers in other world regions to utilise such a framework for analysis of the role of innovative banks in regional economic development. Another distinguishing attribute of this paradigm is that it offers a competitive behaviour framework that enables innovative bank marketing management to become engaged in marketing innovation diffusion. Finally, this model recommends that banks must develop innovative segmentation strategies that will identify underbanked segments and target them with bank services that respond to their unique wants and needs.

This innovative approach in targeting may help many banks to respond to high competition in overbanked market segments. For example, during the last decade many banks in the region have targeted only higher income segments. These segments have been exposed to many foreign market-oriented bank services and they comprise a viable target market. However, the competition for these segments is substantial, thereby limiting overall bank growth potential.

Generally, three markets, retail, corporate and international, have provided the basis of the Arab Middle East banking infrastructure. Within each of these primary markets there are various market segments which the banks must understand and address in attempting to survive in the current era of declining government and personal revenues. Despite the opportunities presented in each of these segments, bank marketing emphasis remains focused on major corporate and. international clients and accounts. Essentially the only retail consumer services available are currency exchange services, foreign currency accounts and other basic account structures.

There have been modest increases in local medium-term corporate balance sheet lending as joint venture and local banks attempt to retrench operations, but interest in loan syndications for regional economic development has (virtually) dried up. The rush to serve select client international banking needs has discouraged consumer-oriented marketing activity (Hassan and Shook, 1986). In this demonstration of lack of concern for the long-term development role of banks in a developing economy context, the banks have opened the door for the central banks to effect major changes in the region's banking system.

For long and short-term market planners in the banks, branch banking once provided an important incremental competitive and development potential. Unfortunately, past bank branch development activity was carried out without appropriate marketing research. Today, bank branch development is slowing and receives little management support for marketing innovations and aggressive consumer-oriented marketing management. This can be corrected with appropriate application of existing marketing management tools (see Figure 2). While the consumer-oriented marketing concept may be high in the minds of bank, management in theory, the reality of past branch overbuilding, along with a focus on new reporting requirements from the central banks, has turned opportunity into an excuse for ignoring innovative marketing-management activities.

The most important aspect in effecting consumer-oriented financial institutional developments in the Arab Middle East is the problem related to the transfer of Middle Eastern social and cultural values into a set of Western financial and economic development precepts. For example, the Middle Eastern belief that the individual possesses value only within the family unit implies that marketing emphasis on the individual as an entity generally will not be well received. The main social and economic unit in the Middle East has been and still is the family, as property owner, employment exchange, social security and financial broker, compared with the depersonalisation of the Western financial system. While this factor is changing with the development process, it still performs a crucial and effective role which compares in significance with the role of religion, because Islam sets the patterns of behaviour in all areas of the society.

Another major constraining factor to the adoption of Western bank marketing concepts relates to the Islamic prohibition of the secularisation of business. While there are indications of possible resolution on this point, some matters, such as the employment of women in certain economic sectors, still are basically untouched. Attempts to restate what Islamic society can accommodate from Western ideas of bank marketing and economic development have been widely and strongly opposed in the Middle East, owing to the strong Islamic belief system. In sum, the quality of present marketing services in the region depends on the quality of understanding consumer wants and needs and addressing them in the form of effective marketing action. In the Arab Middle East nations today much of the unfettered change and growth experienced in the decade between 1973 and 1983 has diminished, and the focus must move to survival through competitive and creative responses in marketing bank services.

The banks have other opportunities to develop their micro-environment skills and establish systems for deflationary as well as inflationary economic growth. Development of risk analysis skills lagged between 1977 and 1983 when commercial bankers expanded loans too quickly, frequently engaging in no more evaluation of the loan than a review of the family connections of the borrower. This is today one of the sources of the numerous problems with the religious and central bank authorities in several Middle Eastern countries as borrowers seek relief from interest charges. The marketing lessons learned from this experience could be used to develop needed marketing and financial management skills to delimit similar problems in the future.

Adequate preparation of a marketing information data base and decision-making framework for effective credit and market analysis would provide area banks with the capability to evaluate the financial condition of individual customers and customer segments. Also, these changes would enable more effective assessment of the overall economic and financial environment. Middle East consumer market information databases, when developed, have been established along very broad demographic lines rather than oriented towards specific measures of personality, lifestyle, and other psychographic considerations which would be more effective in understanding and influencing the buying process (Hassan, 1986).

Considerable research potential exists if appropriate modifications are made to existing marketing research techniques covering such information as when bank services were purchased, the reasons for purchase, and the purchase decision makers. This information is not being developed despite the presence of a growing cadre of young educated Arab managers. The lack of effective market research information has caused branch and line managers to continue to spend a disproportionate amount of bank resources on traditional but low volume and low profit banking activities and advertising efforts which are mediocre at best (Hassan and Shook, 1986).

Service pricing is another marketing problem area, with Middle East banks not seriously interested in proactive market-oriented pricing. The demand-oriented pricing of good economic times now simply has been replaced by survival-oriented competitive pricing. While bank marketing management occasionally has vague ideas about which classes of customer can or will pay for various services, usually the available pricing information proceeds no further than the desk of the operations manager. Junior staff and management of most Middle East bank "marketing" departments generally are product-oriented and fail to relate cause and effect to suggest new operational tactics to deal with particular pricing problems.

Lastly, in the new service development area, bank management often has had no idea of what new services it might wish to undertake in the future. Most new bank services have been developed as a result of a response to external services: offered by competition. Accordingly, most service development activities have been established through crash programmes. The results have been hasty, untested services and systems as well as frequently dissatisfied customers and central bank I authorities. There has been no systematic service search and development but rather a plethora of pet ideas and ad hoc management suggestions. This could be overcome through a review of the market planning and implementation process, focused on achieving change and growth as well as bank survival.

Summary

Despite the rhetoric associated with potential acceptance of various marketing concept tools in the new banking environment of the Arab Middle East, it appears that acceptance and use of these tools has been delayed by a combination of inexperience, and a lack of preparation. Modified forms of consumer segmentation and market targeting have been attempted in some banks, but these efforts generally have been effectively filtered by short-sighted strategy planning and poorly trained staff. The result is that line operations remain years behind other sectors of the economy where marketing innovations have been deemed essential for effective competitive strategy and implementation.

Overall, Arab Middle East bank marketing strategy has not been perceived as part of a macro-marketing and implementation effort focused on a broad range of consumer and corporate market segments. While the banks have some awareness of which customer segments provide the highest profit opportunities, the turmoil occurring as a result of failing loans and deposits, combined with the lack of knowledge of customer demands and needs, has resulted in the inefficient use of bank resources. The opportunity for innovation and change indicated in this study is substantial for both micro and macro-marketers and planners.

References

Abdeen, A.M. and Shook, D.N., (1984), The Saudi Financial System: In the Context of Western and Islamic Finance, London, John Wlley & Sons.

The Banker (1985), "Renewal of Optimism Among Saudi Banks", April, p. 43.

Bartels, R. (1977), "Marketing and Economic Development", in Slater, C.C. (Ed.), Macro-Marketing: Distributive Processes from a Societal Perspective, Boulder, Graduate School of Business Administration, University of Colorado.

Cundiff, E.W. (1982), "A Macro-marketing Approach to Economic Development", Journal of Macro marketing, Spring, pp. 14-9.

DeMoubray, G. (1986), "Can 'Marketing' be Made to Work?", The Banker, May, pp. 32-6.

Dixon, D. F. (1981), "The Role of Marketing in Early Theories of Economic Development", Journal of Macro-marketing, Fall, pp. 19-27.

Drucker, P.F. (1958), "Marketing and Economic Development", in The Great Writings in Marketing, The Commerce Press. Plymouth, Michigan.

Euromoney (1985), "Learning to Live with Recession", May, pp. 223-33.

Hassan, S. (1986), "Keys to Meet Growing Consumer Demand", Advertising Age, 30 January, p. 16.

Hassan, S. (1987), "Intra-Firm Diffusion of Innovations. An Internal Marketing Communication Model", unpublished paper to be presented at the Southern Marketing Association Annual Conference, New Orleans, Louisiana (forthcoming).

Hassan, S. and Shook, D.N. (1985), "Diffusion of Consumer Oriented Retailing Innovations Among         Banks in a Developing Economy Context". in King, R.L. (Ed.), Retailing: Theory and Practice for the 21st Century, Special Conference Proceedings, Academy of Marketing Science, pp. 171-6.

Hassan, S. and Shook, D.N. (1986), "Arabs Banking on a New Market Image", Marketing News, 29 August, p. 12.

The Middle East (1986a) , "Gulf Banks Face the Future", February, pp. 39-41.

The Middle East (1986b). "Bold Bid for Travellers Cheque Market", February, p. 46.

The Middle East (1985), "Banking: A New Network", March, p. 44.

Rostow, W, (1956). "The Take-off into Self-Sustained Growth", Economic Journal, LXVI, March, pp 25-48.

Schultz, E. (1987), "Will the Middle East Heat Up Again?", ADWEEK, 1 June, pp. 12-3.

Additional Reading

Brown, L.A. (1981), Innovation Diffusion, Methuen and Company, New York.

Leonard-Barton, D. (1987), "Implementing New Technology: The Transfer from Developers to Operations", Working Paper No. 049, Division of Research, Harvard Business School, Boston,               Massachusetts.

Lovelock, C.H. (1984), Services Marketing, Prentice-HaIl. Inc., Englewood Cliffs, New Jersey.

Robertson, T. and Gatignon, H. (1986), "Competitive Effects of Technology Diffusion", Journal of Marketing, SO, July, pp. 1-12.

Rogers, E.M. (1983), Diffusion of Innovations, The Free Press, Third Edition, New York.

Zaltman, G., Duncan, R. and Holbek, J. (1973), Innovations and Organizations, Wiley, New York.

^*At the time of writing this article Professor Shook was a Visiting Associate Professor of Business at Boston University (1985-87).

¹ In this context the marketing concept, as known in the West since the early 1960s, has broadened the focus of marketing activities to meet both the bank's profit objectives and consumer wants and needs. Therefore, the bank marketing concept has evolved into a consumer-orientation in providing banking services. This orientation is requiring innovative banks to understand consumer wants and needs so that the bank, through its marketing management, is able to serve better and satisfy those wants and needs and ultimately to survive in a competitive industry.

² Among the banks that have been involved in this conflict are Saudi-American Bank and Saudi-French Bank in Saudi Arabia, the Arab Bank for Investment and Foreign Trade in Abu Dhabi. Middle East Bank in Dubai, Burgan Bank in Kuwait, and Bank of Bahrain and Kuwait in Bahrain. The major. central Banks are the Saudi Arabian Monetary Agency (SAMA), the Kuwaiti Central Bank. and the Bahrain Monetary Agency.

³ In Saudi Arabia, for example, banks are competing with what used to be the Kingdom's largest money exchanger, AI Rajhi. Recently, AI Rajhi Investment Bank Corporation received a licence to operate as a bank and to become Saudi Arabia's third largest commercial bank.

⁴ For a comprehensive treatment of the factors associated with organisational innovativeness and competitive behaviour the reader is referred to Robertson and Gatignon (1986), Rogers (1983), Brown (1981), and Zaltman et al. (1973). Also, there is a growing literature base which traces the process of innovation adoption and implementation within the organisation represented in the work of Lovelock (1984), Leonard-Barton (1987), and Hassan (1987)