Sunday, May 11, 2008

From 4 P’s in marketing to 3 C’s of lending

A good marketing manager would be bent on having something to offer to his customers than desperately trying to get rid of what he has. When Neil H Borden published his article “the concept of marketing mix” in 1964, he may have figured future marketers to have all those ingredients in the mix – that E Jerome McCarthy later grouped into 4 categories that are known today as 4 P’s of marketing. Product, Price, Place and Promotion.

The alpha numeric model seem to have worked since most marketers start with defining their 4 P’s. Now this is being adopted by lenders that got badly mauled in the recent subprime fiasco. They are now beginning to realize some old fashioned lending values and bottling them up in alpha numeric concepts so that there will be less billion $$ write downs in future.

They call it 3 C’s of lending. They are Character, Capital and Capacity.

But I see a problem here. When you have these three traits present in you, you won’t normally go to borrow. You live within your means, preserve capital and limit your desires in tune with what you can afford. Old fashioned, indeed. Result : Banks will have fewer customers and large swathe of idling funds. Now the pressure of holding that capital will force them to follow aggressive marketing practices that recommend relaxed norms and adoption of softer lending criteria that over a period of time build bubbles.

The way forward should be a proactive lending model where banks move closely with a customer and lend him money when he needs it for genuine purposes. Not to stuff wads down his throat when all that he needs is some fresh air and force him to repay when he can hardly get by.

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