Do non-Pricing Strategies Have Important Role in Banks' Differential Performance in Iranian Banking System?

Non-Pricing strategies are used by firms to increase sales, expand market share, retain existing and attract new customers. These are methods and techniques that don’t involve a change in the price of the product. The non-pricing strategies are more important for banks, because they are restricted in using of them. Iranian banking system has recently experienced a structural change through authorizing the establishing private banks as well as recapitalization and partial privatization of the existing commercial banks. This reform has led to more competition among banks. Therefore, the banks are seeking different strategies to spread their role in the market. Due to the policies of the central bank in setting up the same rates of deposit and loan interests for all the banks, the non-price strategies have been most importance and priority. This paper attempts to investigate the impacts of such strategies on Iranian banks' performance using a sample of 12 commercial banks in the period of 2002-2007. We used a single-stage frontier approach. This model allows estimating firm level efficiency and the sources of inefficiency simultaneously. A super efficiency model has also been used for the sake of consistency and cross checking of the results. In order to control the effects of other determinant factors of banks' performance such as ownership status, experience, risk and market concentration, these factors are also included in the models. The results indicate that regardless of the method used, the non-pricing strategies such as difference in products, advertising and electronic banking have improved performance of the banks over the studied sample