The Retail Lending Market - Case Study Example

Executive Summary The retail lending market comprises of the mortgage segment and the consumer credit sector in the UK of which the contribution of the consumer credit market is just 24.6 percent. While there are several big players in the market not all of them sell beyond the UK. M&S Money too restricts its selling to the UK but has a strong database of customers. They have not yet tapped the mortgage market and the corporate lending. Even under insurance there are several untapped areas. M&S Money can leverage benefit by using e-marketing to augment its presence on the web and enhance customer experience. They can tap more segments, provide for interactive websites, offering real-time suggestions. M&S Money should stick to cybermediaries and eliminate the disintermediation. They should exploit their web presence to increase information and knowledge sharing within the organization and across the group. Online presence can only enhance relationships over the traditional relationship. Technology will only help it to augment its value proposition. Hence M&S Money should invest in IT solutions and keep assessing the performance on a regular basis. 2. Corporate Issues 2.1 Advantages for M&S Money The retail lending market profile covers the consumer credit and the mortgage market. M&S Money offers consumer credit services in the financial services market having a wide range of services in the credit, investment, insurance and savings sectors. They offer a range of auto and personal loans and insurance cover starting from home and car to weddings and pets. The most important advantages of M&S Money are its unit trusts, pension plans and the &MORE Credit Card. They have 24 million outlets accepting the &MORE Credit Card and reward points are added on every spend. Another advantage is that all of their services are available online. In addition to the online service, MS& Money have also opened Financial Services Center (FSC) which allows the customers to have face-to-face discussions about their requirements with their representatives. M&S Money has been in the field for over twenty years and is a wholly owned subsidiary of HSBC. More importantly, it can draw on the customer base of Marks & Spencer’s, UK. The main competitors of M&S Money are Abbey National Plc as they offer the same services. The biggest advantage that Abbey has is the size of the organization. They are in a better position to sustain competition than M&S Money. Even though M&S has the advantage of the backing of HSBC and the Marks & Spencer’s group, its advantages are not substantial in comparison to competition. Abbey operates in the UK, the US and Europe while M&S operates primarily in the UK. The UK consumer credit market accounts for 24.4% of the market’s value. The opportunities before M&S are plenty and they need to revise their marketing strategy considering that all their services are available online. 2.2 Role of IT applications The importance of the web or the internet or simply the net has heightened in recent years because of the immense potential it offers for e-marketing of products or services. Information Technology (IT) is changing the world; it has become infused in life and it brings many challenges with it. Every aspect of management today requires information on which to build the organization. While IT can be defined in different ways, it is generally associated with technology that overcomes distance barriers (Sohn, 2004). IT has a substantial influence on the locational behavior and the distribution patterns of activities. Companies have been forced to reorganize and re-profile themselves into flexible, high-performing organizations. To strengthen operational efficiency and performance effectiveness, to respond quickly and efficiently to customer needs (Mutsaers, Zee & Giertz, 1998) M&S must adopt information technology. Banks were the first users of IT while the retail industry followed much later. Research suggests that IT plays an increasingly mandatory role in achieving business objectives (Mutsaers, Zee & Giertz, 1998). IT has to be developed actively to make it an enabler in the transformation process. IT would help M&S keep pace with the speed of change and the pressure from competition. In the financial services sector technology has added value to the chain as there is no physical possession of any product. Whether the asset is a stock, bond, mutual fund or a derivative, gold bullion or an insurance contract, merely an electronic record suffices (Mulligan & Gordan 2002). It would help M&S to interact at a personal level with its customers on a daily basis and attend to their queries. Retail and institutional customers would be able to trade online, pay bills and access their accounts online. The security dealers worldwide allow brokerage firms to archive data with laser disk technology (Mulligan & Gordan 2002). This would not only reduce costs but also help M&S improve customer service levels by providing faster and more accurate access to history of transactions. In the insurance industry a virtual channel has emerged which removes the constraints of time, place and form. Information technology can help M&S reshape the customer relationships. IT improves customer intimacy, new forms of service delivery, response to customer needs is faster and it enables the customers to help themselves. Mulligan and Gordan cite that Citibank reduced costs by applying the B2B electronic commerce service in Australia in the field of financial settlement and reconciliation. As of now M&S markets its products primarily in the UK. They can even extend services to other countries within Europe. As a mark of improvement in customer service New York Life introduced a Chinese language page on its website, which has made it easier for the Chinese-American customers to find the services and products online (Mulligan & Gordan 2002). Similarly, M&S could provide options in French, German and Spanish languages to attract customers from other regions in Europe. Customers expect real time data which has been a driver in adopting technology in the financial services sector specially the banking sector. Technology is used to disseminate knowledge within an organization. Knowledge is essentially a resource which has to be ‘mined’ and ‘commodified’ as it contributes to corporate growth (Hellstrom, Malmquist & Mikaelssone, n,d). Knowledge portals in the form of internet, intranet or extranets have the most common function in communication forms (McAdam & McCreedy, 2000). IT would help M&S have regular information sharing within the organization as well as with other companies within its group about services and customer details. Portals help to attain well-versed and speedy transportation of knowledge in any form. This improves interdepartmental communication, gives easy access to information which means informed decisions (Hall, 2006). Knowledge portals lead to enhanced performance as the knowledge of the personnel who leave the company can be preserved with the company. They help to connect people with the information. 2.3 Channel factors In the electronic market place direct interaction between producers and consumers will lead to the gradual elimination of intermediaries from the value system (Giaglis, Klein & O’Keefe, n.d.). Disintermediation refers to shorter value chains in the e-market place. Intermediaries add costs to the value chain in which case the profit margins for the seller is reduced and at the same time the costs to the end consumer is increased. With the use of IT the transaction costs of the producers can be reduced, the activities can be internalized and the intermediaries can be eliminated. Since services are intangible in nature, the intermediaries cannot add any extra value to the services. M&S has Financial Services Center (FSC) where the customers can have face-to-face discussions and clarify their queries. By eliminating these intermediaries, M&S would not be reducing the value of the services. Even the reintermediaries have no significant role to play in the M&S Money business model. Cybermediaries would greatly facilitate in enhancing the sales of M&S. The e-market place has created unprecedented opportunities for cybermediaries to provide infrastructure support for such functions that have been structured in the e-commerce world. M&S can sponsor some cybermediaries who can be close to the customers. Cybermediaries in this case can seize the opportunities that the Web provides and offer innovative services. In the case of financial services and retail lending, the market is fragmented. The cybermediaries in this case can help in simplifying the information search. The cybermediaries gather and process information on users that visit their website and their role is restricted to the informational aspect. 3. Marketing 3.1 Online customer interface of M&S Money Banking services are now considered as products to be sold and aggressive marketing takes place. A firm would have to understand not only the consumers but also the environment in which they interact (Hoffman & Novak, 1997). M&S will have to discover and meet customer needs profitably. They would have to engage in marketing activities that are consistent with the new customers. It has been found that even though consumers visit the website, many are reluctant to register even when there is no fee charged for it. Maintaining consumer privacy is essential as in the traditional models all information related to consumers is strictly confidential. The same process has to be retained in an online customer interface. M&S must have a user-friendly website where privacy is assured and they would have to move away from traditional forms of mass marketing. The consumer should have control over the search process. In the physical world communication information requires physical proximity or personal interactions with the customers (Sawhney, Verona, Prandelli, 2005). This limits the number of customers that firms can engage with. Internet-based virtual environments allow the firms to engage with a large number of customers without significance compromise on the richness of interactions. Customer-interaction can take place in real time in internet based virtual environments. Relationship marketing/management is more often focused on one-to one relationships and less on mass marketing and that its core is based on what is mutually beneficial where supplier and buyer remain satisfied. M&S can have a portal for customers where all M&S would not in anyway be compromising on service compared to traditional face-to-face retail banking in maintaining and enhancing online customer interface. 3.2 Technology alters value proposition As the consumers have become highly literate and empowered, retail banking is moving towards relationship banking. In the traditional banking models, banks are moving towards relationship banking. Relationship marketing (RM) means to identify, establish, maintain and enhance, and when necessary even to terminate relationships with customers and other stakeholders. In doing do both parties gain and the objectives have been met (Durkin & Howcorft, 2003). In RM the customer is treated as a partner and their needs are identified, and loyalty developed through quality service. The same value can be provided by M&S to its customers through online services. Internet has been considered as the ultimate tool effective in relationship marketing. It provides one-to-one marketing and nurtures loyalty (Durkin & Howcorft, 2003). It provides scope for establishing enduring relationships with customers and a wider network of contacts. Through internet a high level of interaction can take place between the buyer and the seller. M&S will be able to alter the products and services catering to individual requirements because of information revolution. Thus each customer can have a unique relationship with the firm. At the same time, not having to go into a bank branch, where there may be a constant queue, e-marketing offers significant efficiencies especially now when time is a constraint for every individual or business (Ibbotson & Moran, 2003). 3.3 Integrating corporate, marketing, and e marketing strategies To integrate all its activities and devise strategies, M&S needs to make proper use of information. Mere knowledge collection is not sufficient. Knowledge has to be utilized and knowledge utilization has been defined as the extent to which a report is used directly to guide behavior and make decisions (Menon & Varadarajan, 1992). Hence one of the most factor in integrating functions and strategies is information. Information has to be collected not only on the consumers but on the market demands, market response to different services and products, competitor information, and the macro economic factors that influence e-marketing. This would lead to organizational effectiveness. M&S would also have to take into account what percentage of its existing and potential clients have regular access to the web and to what extent they utilize it for managing personal finances. M&S would have to be sensitive to the market changes on a daily basis and incorporate these changes on their website daily. The customers should not be viewed as passive recipients as this would only demonstrate that M&S has limited customer knowledge. M&S should consider approaching other regions in Europe as competitors already have marketing arrangements in those regions. The French and German markets are expected to grow and hence M&S should formulate any strategies keeping these markets in mind. Germany is an important market as it contributes 20.6% of the European market’s revenues. 4. Recommendations 4.1 Recommendations M&S Money has been concentrating on consumer credit segment and has not entered the mortgage segment. The mortgage segment is equivalent to 75.6% of the market’s overall value. In 2005 the mortgage segment was valued at $1,738 billion and the consumer credit segment at $561.6 billion. The accumulated figure is expected to go up to $3310 billion by the end of 2010. Under the circumstances, M&S Money should seriously consider entering the mortgage segment as well as augment its services in the consumer credit market. The rest of Europe contributes 37.5% of the total revenues and the UK’s contribution is 27.1%. M&S has been concentrating on the UK market and has not yet tapped the potential of the other European regions. With e-marketing, there are no extra expenses to be incurred in reaching the services to the consumers in any region. Hence M&S should market its products and services in other regions of Europe. While life insurance and pension plans may be country specific, other products like &More credit cards can be marketed in any country. Since they already have a broad customer base especially in view of their parent firm Marks & Spencer’s, they can exploit this to their advantage. They do not have the critical illness and unemployment cover under their insurance schemes and these two areas could broaden their customer base. They have not entered the stock broking market which is very lucrative now especially when growth in the economy is expected until 2010. They also do not offer services in asset management, investment banking and corporate banking. Most financial services firms offer integrated services. This has become essential because markets have become fragmented. Faith and mutual trust is essential in any online transaction and hence when a customer develops faith in any organization, they would like the company to handle all of its financial investments. Thus, while offering their existing products, M&S Money could offer related products like corporate banking and asset management. As part of its services, M&S must ensure effective two-way communication with the customers through the web interface. Communication is the formal as well as the informal exchanging of information and sharing of meaningful and timely information between buyers and sellers (Sin et al., 2005). The website should be interactive that would allow M&S to constantly monitor the customers’ behavior and the internal processes. M&S should allow customers to register, create a personal account and log in. Personal profile is collected on the website and this should help M&S to personalize the services. The information provided can be used to personalize any aspect of the user’s interaction with the site. Personalization should be treated as the foundation of the relationship. Nevertheless, privacy and security should be assured. M&S should develop a corporate brochure that is available to the customers online. Free downloading should be allowed to the registered users. 4.2 Metrics to judge online success A metric is a standard measure to assess performance. Metrics are essential to have a customer-focused process management system and any program directed at continuous improvement. For fine-tuning the business, there are six key areas that need to be assessed – personal development, business development, people development, economic security, customer satisfaction and visibility (Niemi, 2007). To gain insight it is essential to assess the strengths and weaknesses in each of the areas. M&S Money would need to monitor the website traffic growth. They would need to find out how many people visit their website and what percentage of the visitors register. They would also need to determine how many visitors translate into customers. It is essential to capture the visitors’ email addresses as this helps to develop relationships online. Email is the backbone of online marketing and communications. It remains the top online marketing channel today. M&S Money should have a system that could determine what makes the user click and then use that information to fine-tune communications. For instance, data should be available as to how many have clicked on the insurance and how many on the credit or the charge cards. They must be able measure how many browsers can be turned to buyers and how many buyers into return buyers. When M&S sends out personal emails, they must also be able to measure how many of their emails are opened. This would again give insight into which of their product or services attracts most attention. It would help them understand their own products and the channels for effective marketing in future. All these measures would give an insight to business development and customer satisfaction References: Durkin, M. 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Vol. 54, Iss. 12; pg. 16, Sawhney, M., Verona, G., & Prandelli, E., (2005), COLLABORATING TO CREATE: THE INTERNET AS A PLATFORM FOR CUSTOMER ENGAGEMENT IN PRODUCT INNOVATION, JOURNAL OF INTERACTIVE MARKETING VOLUME 19 / NUMBER 4 / AUTUMN 2005 Sin et al., (2005), Relationship marketing orientation: scale development and cross-cultural validation, Journal of Business Research 58 (2005) 185– 194 Sohn, J., (2004), Information technology in the 1990s: More footloose or more location-bound? Papers Reg. Sci. 83,467485 (2004) Read More