Is a branch of economics that applies microeconomic analysis to specific business decisions. It bridges economic theory and economics in practice. Managerial economics provides a set of tools, techniques, methodologies, guidance and insights that can help in making better and value-adding decisions in business and for analyzing decision problems and developing criteria for choosing the best possible solution to problems. Consumer Behavior
Is the study of how individuals, groups, and organizations select, buy, use and dispose of goods, services, ideas, or experiences to satisfy their needs and wants (Kottler, P; Keller, K. L. 2009) Consumer Behaviour Referred to as the study of when, why, how, where and what people do or do not buy products. It blends elements from psychology, sociology, social, and anthropology and economics. it attempts to understand the buyer decision making process, both individually and in groups.
It studies characteristics of individual consumers such as demographics and behavioural variables in an attempt to understand people’s wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general. Belch and Belch define Consumer Behaviour as the process and activities people engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs and desires. Demand
Is the willingness and ability to purchase a product. Consumer’s total demand for a product for a product is reflected in the demand curve Demand Curve Is a line showing the relationship between the price of a product or factor of production and the quantity demanded per time period. The demand curve is usually downward sloping, since consumers will want to buy more as price decreases. Shift in demand curve Is a movement of the demand curve from one position to another (left or right) as a result of some economic change other than price.
A given demand curve is always drawn on the ceteris paribus assumption that all other factors affecting demand (income, taste, etc) are held constant. If any of these changes, however, then this will bring about a shift in the demand curve. For example if income increases, the demand curve will shift to the right, so that more is now demanded at each price than formerly. Application of managerial theory in the place of work a case of National Microfinance Bank Managerial Economics theories are also applicable in banking sectors, National Microfinance Bank as a case study.
Some of the theories which are applicable to National Microfinance Bank are pricing theories, Demand Analysis and theory of consumer behavior. Pricing theory National Microfinance Bank has always maintained a pricing strategy for its products that keep them affordable to the general public. The bank’s aim is to remain at the same level or below the key competitors, mainly CRDB and NBC. This strategy has worked well and resulted in a significant growth of NMB Personal Accounts as well as NMB ATM Cards.
For some products, price influences consumers’ perception of overall quality (Kerin R. A; et al 2004) Penetration Pricing National Microfinance Bank used penetration pricing in setting a low initial price on a new product to appeal immediately to the mass market, for example NMB Internet Banking, has started for Corporate Customers with free registration, compared to other Banks which have registration and transaction fees, this has caused many corporate customers to convinced to join this service and hence increase the deposits for the bank during this hard time of Economic Crisis.
Also with launching of Mobile Banking which came with low initial pricing for money transfers services, balances and bank statement enquiries, has encouraged many customers to register for the service to its affordability, with now over 150,000 customers have registered for NMB Mobile Banking. There were also no charges for ATM’s in balances and bank statements enquiries while other Banks do have charges in balances and bank statement enquiries. From 1st February, 2010 National
Microfinance Bank has introduced new tariff guide whereby for the first time NMB charges Tshs 50/= for Teller withdrawal fee and Tshs 100 for ATM mini statement. Demand Analysis Refer to the demand theory as want, need or desire for a product backed the money to purchase it. Due to high demand of consumers, the bank has been forced to add some products to meet the consumers’ demand. Up to 1st January, 2010 the bank has over 134 branches all over the country, 276 ATMs and different product and services. Some of the new products and services which introduced to meet the consumers demand were as follows.
NMB Junior Account Is the account whereby a customer can get extra bonus above normal interest rate, no service fee, quarterly interest payment and it encourages savings for future use. NMB student Account As the bank seen the high demand of students to save their money they decided to open NMB student Account. By looking in their earnings they put affordable opening balance of Tshs 2,000/= only. Many students now opt for this type of account. Money Transfer Is the transfer of money through mobiles phone. As today world is more advanced in technology, bank decided to introduce this service to meet the customers demand.
Customers can be able to view their balances, recharge their mobiles phone, transfer of money through ATM and Mobile Banking. This product is of high demand nowadays as many customers enrolled in this programme. Internet Banking Through this service the consumers can easily have the access to their bank account, National Microfinance Bank has introduced this service starting with Corporate Customers, where in next phase will be able to do transactions through this service. No registration fee at 1st phase where corporate customers can view their account transactions and print their bank statement online.
Demand for NMB Internet Banking has been increasing due to many of the corporate customers has a lot of operations and vast network country wide, and many requires online statement to simplify their operations including selling of different products after making collections through NMB. Demand function As it is a form of notation that links the dependent variables, quantity demanded with various independent variables that determine quantity demanded such as price of a product, income, price of substitute products and advertising.
Changes in any of these independent variables will affect quantity demanded differently. As to relate with our case study, this demand function will also apply. Price is an independent variable that determines quantity demanded of some product. In order to penetrate the market NMB offered free of charge in checking balance, mini statement and cash withdraw. It only charges Tshs 400 per month for personal accounts as service fee regardless of how many times someone use that service.
NMB introduces charges for withdrawal of Tshs 500 through ATM per month previously it was Tshs 400, balance check cost Tsh 50, ATM mini statement cost Tshs 100. This rise in price charges affects the quantity demanded. This shows that price is an independent variable to quantity demand. As the price rises the quantity demand goes down. Advertisement is another independent variable that determines quantity demanded of some product. Advertisement is an art of keeping people aware with some product or service you need people to know.
NMB Mobile Banking launched September, 2009, up to October, 2009 few customers were registered to this service and few were aware of this service, so NMB decided to engage in advertisement for this service through posters, Television, Radio, Brochures, Newsletters, promotions, the records shows high response of people to use NMB Mobile Banking from November till to date as over 150,000 customers have registered to this service compared to 100,000 registered in previous months. This shows that advertisement affects quantity demanded as many customers were able to use that service due to awareness of that service advertisement.
Moreover, price of a substitute product is another Independent variable that determines quantity demanded of some product. NMB offers free charges in registration for Internet Banking for Corporate Customers compared to other banks such as NBC and CRDB which have registration fee, and due to its large network country wide, these caused many corporate customers to be convinced to join NMB Internet Banking services and hence quantity demanded of this service to be high due to the above factors. Determinant of Demand Demand for a good or service is determined by many different factors.
In relation to our case study, they also applied as follows The price of the Commodity The amount one buys will depend on the price. The lower the price of the commodity the greater the quantity they will buy. In NMB there is no charge for opening account for government salaried workers, this plays a high demand for government employees to open account with NMB, after they enroll with NMB they enjoy using other products such as NMB Junior, NMB Bonus account and NMB mobile which have initial price, this tend to increase number of customers.
As the lower the price of the commodity, the greater the quantity he will buy, this also cause many government employees to open account with NMB, this is where ceteris paribus and vice-versa will apply. Consumer Income As consumers Income change, the demand for goods and services will change. For most products, demand Increase when consumers have larger incomes. In relation to our case study, NMB main customers were from government salaried workers. This tends to increase the demand for them to save due to surplus they have. Price of Related goods When the prices of related goods change; demand may Increase or decrease, ceteris paribus.
This also applies in NMB as many people were in belief that DECI SACCOS pays higher Interest, they withdraw their money from their accounts and transfer to DECI SACCOS accounts, and quantity demanded for NMB services decreased during that period. Taxation levels on goods Higher taxes on goods causes rise in their prices and hence cause the demand for the products to fall and vice versa. Due to high tax on the machines imported and experts operating those machines, NMB rises the ATM charges that causes a slightly fall in demand of that service due to those charges.
Theory of consumer behavior and its applications in NMB Consumer behavior is how consumers allocate their money incomes among goods and services. A consumer is a unit of consumption and one of the agents in the commodity market. A consumer has a certain amount of income he can use to buy goods and services from the market. Given the fixed income and fixed prices of the goods, the consumer has to decide whether to buy a particular good and what amount of it to buy. So, the consumer faces the problem of choice of commodity.
This problem can be solved on the basis of the economic theory of consumer behavior – consumers choose the best bundle of goods they can afford. This applies also in our case study as how people allocate their money in the different services offered by NMB example they choose to use ATM services, mobile banking services, internet services and different bank accounts offered. This theory helps bank to improve in their strategies by looking in the psychology of how consumers think, feel and select between different alternative products offered. They sometimes conduct a survey to know how customers perceive their services.
Surveys can be in different groups users example to students, farmers, government employees, individual person and different organizations used NMB services. The results obtained help to improve some services and sometimes to know what they need and introduce new product according to their needs. They tried to compare their services offered with other banks they offer. Moreover the psychology of how consumer is influenced by his or her environment e. g. culture, family, signs, media etc. This also applies in our case study as NMB has many branches all over the country compared to other banks.
When they win to get customers they tried to offer good services to them as being attracted to convince their families and other co-workers to join with their bank. They use also media to advertise their products as they have advertisement which shows the importance of mobile banking. When people saw that advertisement and compare with the really life they saw the importance of it and engaged in that mobile service. As they see they can buy LUKU even in late hours, they can transfer money at any time they wish using their mobile phones, check balance and mini statement without going counter.