A clearly defined market strategy is one of the preconditions for creating competitive advantage. Banks have three broad strategies to choose from:

• cost leadership strategy,
• product differentiation strategy,
• focusing on a separated market segment.

Cost leadership strategy can be applied successfully only by the largest banks. Product differentiation strategy is rare in banking, as financial products are difficult to differentiate. Therefore it is the third strategy, focusing on a separated market segment, which provides the best opportunity for creating competitive advantage in the banking services market.

The most attractive market segment is the High Net Worth Individuals Segment estimated at 7.2 m people. It is to those customers that the most sophisticated and personalised service called private banking is addressed. Private banking market is dominated by two types of banks: traditional private banks, and private banking departments of large commercial banks. Traditional banks aim to reach the wealthiest customers of the old profile. Their strongest points are a long history, discretion and select clientele.

Modern private banking targets the new group of rich customers, namely investors and entrepreneurs. It strives to specialise in investment and asset management. Key positions in modern private banking are held by large global banks with well-developed investment departments.

The competition from large commercial banks, as well as the changing expectations of the wealthy customer segment are gradually forcing changes to operations of the traditional private banks.