Forces of Financial Services Sector Competitiveness - Coursework Example

Lecturer: presented: Introduction Organizations need to understand the factors in the external environment that may affect their competitiveness. They also need to be aware of the changes in customers’ attitudes to ensure that they respond effectively to retain them. This paper presents a critique of the ways in which customers’ attitudes towards and expectations of the financial services sector have changed in recent years and the ways in which organisations within the sector have responded. It explains the competitiveness of the financial services sector, some influences of the external environment, influence of the social environment on customer attitudes and expectations as well as ways in which customers have changed in recent years and how this has impacted on their interaction with the financial services sector. It also highlights some of the ways in which organisations within the sector have recognised these changes and the manner in which they have responded in terms of products and services and the ways in which these are delivered in order to achieve customer satisfaction and maintain their competitive position.  Competitiveness of the Financial Services Sector With increased competition, the financial sector has grown tremendously with costs for services going down thereby becoming affordable to many investors and customers. Financial services are also wide spread as financial institutions establish in new regions to escape competitions. This has enabled a greater access for the services to many people. Moreover, borrowers have been presented with a variety of financial institutions to access funds from, which has helped to eliminate over-dependence on single institutions and hence improved access to funds. Customers are the most significant component of the financial sector. Boot (2000) observes that financial firms have an obligation of maintaining customer satisfaction if their objectives are to be met. Increased competition has compelled them to ensure that they employ techniques that help them to retain customers. The increase in financial institutions has generated freedom among the consumers to shift from one institution to the other where their needs are satisfied. In essence, the cost of acquiring customers is usually high and therefore there is need to develop strong strategies that enhance customer satisfaction. This has made financial institutions to ensure that they are aware of the operating environment so as to develop strategies that match the prevailing circumstances. In recent years, globalization has increased competition in the financial sector since firms are able to expand their services to foreign markets where they find new opportunities. Moreover, consumers are getting significant information concerning financial services, which has been enhanced by the developments in communication technology. As Bekaert et al. (2005) observe, the world has become a global village and information sharing has been made possible. In general, the financial market is dynamic and requires an aggressive firm to cope with the high competition. Influences of the External Environment Competitors Gilbert (1999) observes that customers are free to seek services from any firm they wish and they certainly search for the one offering the best services. Development of new products attracts customers and financial institutions may be focused on attracting customers through unique products. Organizations need to understand what the competitors are offering to ensure that they offer their customers similar or more superior products to retain them. Technological innovations keep the laggards out of a competitive market. For example, when the ATM technology was introduced, the banks that took long to implement the new system lost customers who wanted to use these services. The same case applies to online banking and other innovations. Even though firms may be operating in a monopolistic competitive market, they need to understand the prices charged by other firms to set a standard that will help them to maintain profitability and also attract customers (Davies & Cline, 2005). In essence, the cost of services largely affects the demand for the service in the market. When there are other firms offering similar services at a lower price, it is possible for customers to shift to the firm. For this reason, it is important to remain informed regarding the market dynamics and how the competitors are likely to influence the existing customers. Financial System This is the manner in which the economy is organized and the manner in which the financial resources are shared. It also includes growth and other factors such as inflation and economic crisis. These may adversely affect the performance of an organization, hence the need to have sufficient information regarding the economy in which the firm operates. For example, the financial crisis in the US affected the earnings of many investors and borrowers in financial institutions, making them unable to repay the loans they had taken from banks (Eichengreen, 2002). The rate of borrowing before the financial crisis and the housing boom should have raised alarm for the financial institutions, which would have helped them to avoid the crisis. Such awareness is important as well as information regarding inflation and other economic aspects that may affect the firm such as the interest rates that affect the cost of business. Political/Regulatory Influences Firms need to maintain awareness regarding the rules that are developed to control business in a particular nation. Government policy needs to be understood and ensure that the products that the firm offers conform to its requirements (Schouten & Alexander, 1995). Social Organization These are the attitudes and behavioural characteristics of the community in which the organization operates. The attitudes of the clients regarding the business are significant for its productivity. The age structure and the general characteristics of the population such as the nature of employment are important in determining the type of products an organization offers. When the living standards are high among the consumers, firms should expect an improvement in their profitability (Kulviwat et al. 2009). Influence of the Social Environment on Customer Attitudes and Expectations Groups Among the factors in the social environment that influence consumer behaviors are groups. Groups usually have a significant influence on the motivation of a consumer to demand a particular product especially when the customer’s awareness changes due to new information received from groups that he is part of or which he/she is likely to be part of in future (Wilkie, 1994). Values for particular products change as well as a person’s self esteem in a bid to identify with the group. On the other hand, the group may influence the motivation of a consumer by setting standards in relation to the purchasing behavior. The more a consumer believes in the reliability of the group, the more he/she is likely to be conventional with the group’s demands. The influence is also greater when the group interacts often and also when the product applies to all members. Family Family status is a significant determinant in the consumption patterns, and a consumer associated with the family may change his/her consumption pattern as the status changes. For example, a married couple with children may be inclined towards opening a joint account or purchasing an insurance policy than single men and women who have only their individual affairs to care about. On the other hand, the consumer decision making process is affected when many people participate in the purchasing decision within the family. It is more complicated than when an individual makes his/her purchasing decision (Wilkie, 1994). On the other hand, the family may be dependent on one decision maker and hence the rest of the members may not have the authority to make a purchasing decision. Culture Culture is also a significant social influence of consumer attitudes towards a product. In essence, many cultures have different values regarding different products. Members of a particular culture share common beliefs, which guide them on what to purchase and what to leave. Any member who does against the beliefs or customs is regarded as a recluse. For this reason, individuals try to adhere to the cultural values and therefore their attitudes may change regarding particular products (Schouten & Alexander, 1995). Role and Status in the Society Role in the society affects attitude to a great extend especially due to the fact that there are certain ways in which an individual is expected to act. The expectations of the people may lead to a change in attitude regarding certain products especially if they are regarded as inferior in the community (Manrai & Manrai, 2007). Changes that have occurred in Recent Years There have been numerous changes in consumer attitudes towards the financial sector. For example, information technology advancements have generated a new perception regarding online banking. Working people appreciate banking services without wasting time. According to Kaynak & Harcar (2005), consumers use websites for transacting business and firms are able to offer services to a wide range of customers more often than it used to be before the technological inventions. On the other hand, consumers’ attitude towards brands has changed and they tend to believe in the promises that accompany the brand. In other words, as Rogers (1995) observes, branding can be significant in improving sales in a firm. Consumers need to hear that a particular commodity meets their particular need and when a firm associates a brand with that need, the brand earns itself consumer preferences. On the other hand, if the brand does not meet the customers’ expectations, it generates a negative attitude among them and may never sell any other time. In essence, customers need a brand that they can trust. Advertising is also a marketing activity in which consumers have began losing trust in the recent past. Consumers have found advertisement to be unreliable and they no longer believe in what they see in the advertisements. The more a firm tends to apply advertisements to sell its products, the more the likelihood of losing consumer trust. Since the global financial crisis struck, customers’ attitude towards spending has changed. The credit card firms have recorded decreases in their profits as many clients have reduced their spending during holidays and other occasions in which they used to spend highly through the credit cards. However, credit card business is still promising because of the group influence among college students in the UK and the US. There has also been a notable decline in borrowing among customers from financial institutions especially in the countries that have been affected by the financial crisis. Consumer attitudes have changed and most of them prefer paying in cash rather than credit, and the use of debit cards is on the rise (Manrai & Manrai, 2007). Moreover, consumers’ attitude towards risk has changed and they are less willing to engage in risky investments. Recognition and Response to the Changes As a reaction towards the growing attitude towards online banking, many banks have adopted new innovations such as the HSBC Bank, which is among the leading banks in online services globally through the desktop-banking technology. The bank offers funds transfers through online banking. The Southern Bank is also among the banks that have responded to satisfy the growing demand for online banking through offering credit card services and funds transfers. Other banks that have various innovations in online banking include; Hong Leong Bank and RHB Bank among others that offer payment for bills, cheque book delivery and download of financial statement. The credit card firms are offering highly differentiated products to attract customers, some of which have helped in acquiring new customers, not because of their usefulness but due to the variety of services that a consumer can access through his/her credit card (Page & Luding, 2003). The financial institutions, especially the brands are realizing the fact that consumers hold them in low esteem after discovering that the financial crisis was attributed to them. They are working hard towards regaining consumer confidence. The financial institutions are investing a lot in research and development to establish better ways of regaining the confidence of consumers. Many are changing the brand names to remove the image created by the original name. Consumers’ attitudes change as a result of the view that the brand is new. For example, several banks are now operating under the brand name Santander, which is using new strategies to win customers’ confidence after the original brands such as Abbey, Bradford & Bingley among others failed to meet the customers’ needs during the recession. Customers gain confidence with the new brand since they do not associate it with the recession (Atkison, 2010). Conclusions Competitiveness in the financial sector has been significant in the enhancement of service delivery as firms strive to accomplish the best quality to retain customers. For firms to be competitive, they need to be aware of the influences of the external environment and the way in which developments in these influences can have a substantial impact on organisational success. The external environment comprises of competitors, the social organization; financial system; and political/regulatory influences among others. Social factors that influence consumers’ attitudes include groups, family, culture and status in the society. Changes have occurred in the consumer attitudes in recent years leading to a change in the consumption patterns, and firms are applying many ways to retain the confidence of consumers including branding and innovativeness. Indeed, if customers change and the firms don’t, they will lose them. References Atkison, R. 2010. What does Santander re-brand mean for you? Moneywise, viewed on 24thMar. 2010 at, Boot, A. 2000, “Relationship Banking: What DO We Know?” Journal of Financial Intermediation, No. 9, pp. 7-25. Bekaert, G., Campbell, H., & Christian L. 2005, “Does Financial Liberalization Spur Growth,” Journal of Financial Economics, Vol. 77, pp. 3-56. Davies, A. & Cline, T. 2005. “A Consumer Behavior Approach to Modeling Monopolistic Competition.” Journal of Economic Psychology, Vol. 26 pp 797–826. Eichengreen, B. 2002. 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