Barclaycard's Marketing - Case Study Example

CONTENTS Page Executive Summary........................................................................................................ 2 Introduction................................................................................................................... 2 1. Situational Analysis.......................................................................................... 3 2.1. External Analysis........................................................................................ 3 a) Five Forces Analysis......................................................................... 3 b) PEST Analysis................................................................................. 5 2.2. Internal Analysis....................................................................................... 7 a) SWOT Analysis................................................................................ 7 2. Major issues facing Barclaycard................................................................... 10 3. Strategic Options for Barclaycards.............................................................. 11 4.1. Identification of four strategic options.................................................. 11 4.2. Developing a marketing strategy (4P’s)................................................. 12 4. Present credit and debit market..................................................................... 14 References................................................................................................................... 16 Marketing strategy and planning coursework Executive Summary Strategic corporate outcomes of Barclaycard have been associated with a more complex and diverse set of developments that have taken place within the industry in the recent past. Barclaycard is a value parameter and therefore managing and sustaining its growth momentum in an internationally diverse strategic operational environment is determined by a number of facotrrs. For instance as this strategic analysis shows Barclaycard has been highly affected by a variety of internal and external operational environmental influences. However its strategic environment as divided in to product and marketing strategy, competition strategy, growth strategy and financial strategy indicates that the organization has been faced with many constraints. Despite these constraints in its organizational environment, Barclaycard has successfully initiated some far reaching policy related outcomes. For instance Barclaycard related product and marketing strategy have been oriented towards achieving a series of positive mergers & acquisitions (M&A) related synergies including growth and competitive capabilities (Gaughan, 2007). This outcome is qualitativley and qunatitatively influenced by Barclay’s M&A activity. Introduction Barclaycard has been a success story of a creative media campaign saustained by a system of persistent vaslue creation. Branding is a strategic approach adopted by organizations to create favorable perceptions about products among consumers. Barclaycard too adopted such an approach with a series of products including its debit card and the credit card. However its subsequent success with the credit card came with the innovative brand value creating efforts of t of brand value management. Some hitherto unheard of concepts were adopted by its management in order to innovate, reorient, strategically position and redefine its then existing strategic branding techniques. An articulate strategy of brand value creation along with a customer loyalty management approach was adopted in response to competitors’ threat to its core business. It was around this time that the management of the company realized the relative significance of a strategic shift in its brand management and value creation approaches. Coupled with a mammoth advertising campaign, the company sought convincingly to introduce innovation, value for money and an individual value parmeter as the new dynamic concepts in a customer-oriented promotion campaign. This strategic shift in company’s brand equity policy approach worked to such an extent that soon its rivals began to copy some of its fundamental principles (Brennan & Baines, 2008). The loyalty management program of Barclaycards is a good strategic tactic that might pay handsome dividends later on. Value creation propositions have been adopted one after the other by the company in response not so much to the level of competition but as a strategic policy shift from being mere spectator to unfolding events to a proactive strategy-centric initiator. “Mass customization” or “individualized marketing” approach began here. This is a class of people that has a distinct identity and above all a high value-driven existence vis-à-vis the rest of the community. Thus Barclaycard has finally come a long way through to the current relationship marketing proposition that effectively redefines the frontiers of brand value creation in a manner that can only be called a revolution in the credit and debit card industry. It has successfully integrated the entire world into its strategic expansionist policy. Brand value management and creation are twins and if well managed the rewards would be far better. Brand equity related synergies have enabled Barclaycard to chart a different path of progress. 1. Situational Analysis of Barclaycards 1.1. External Analysis a) Porter’s Five Forces Analysis Porter’s Five Forces Model has been applied by identifying and assessing the industry environment in order to get detailed study on the supplier power, buyer power, competitive rivals, threat of substitutes and threat of new entrants into the market (Porter, 1998). i. Bargain power of suppliers The power of suppliers of the Barclaycard will affect the power of customers by either increasing the prices or decreasing the quality or quantity of the products and services. When the supplier power is high, which means that suppliers are able to create their products and services with high switching cost, it will be a threat to the customers because they are forced to pay more (Sanderson, 2001). ii. Bargain power of buyers When comes to the customer power, it is perhaps the most effective force with far reaching consequences for the business that the Barclaycard has to face. The power of customer will affect the terms and conditions of the sales which is threat to the supplier industry. Due to the large number of alternative credit card providers and other substitutes, it has created more power to the customers because most of the products are undifferentiated and with low switching cost. iii. Rivalry among competitors Competition among the existing competitors in the credit/debit card industry itself is a most significant competitive force. Barclaycard has to face off competition from many rivals of whom MBNA, HSBC and Lloyds TSB are just a few. iv. Threat of substitutes There is large number of credit card service providers in the industry and customers can easily get the same product from existing suppliers, sometimes with lower prices. Thus it’s a threat to Barclaycard. In the vast developing credit card industry numerous substitutes exist in the form of price competition and customers can switch on to the other substitute products if those items are able to satisfy the same need. v. Threat of new entrants When entry barrier is becoming low potentiality of new entrants to the market is becoming high, because of those existing companies unable to maintain their position and attractiveness to its customers. Thus through differentiating the product Barclaycard can retain their customer loyalty and relationship with the suppliers where they can create some entry barriers for new entrants. b) PEST Analysis PEST analyses have to be conducted against the current performances to determine the future possibilities. In the wake of political, economic, social and technological that took place at the country level in particular and at the global level in general, it’s all the more imperative to focus attention on the recent and current developments at the company. Figure 2: Barclaycard’s PEST Environment Source: Writer’s own diagram i. Political Influences Those events with far reaching political undertones included Barclaycard’s independent stance that sought to distance HSBC, Lloyds TSB and MBNA. For example Barclaycard’s policy of encouraging freedom was not acceptable to its rivals. The credit card market is highly susceptible to political influences such as global issues. ii. Economic Influences Economic influences assume a very formidable dimension again in the operational environment of Barclaycard. While cost cutting exercises were not feasible at the existing firm level, average and marginal costs could be reduced through expansion into the emerging markets. However, at the international level economic policies are more likely to affect Barclaycard’s operations. iii. Social Influences Barclaycard has invested so much in public relations efforts and programs that act as catalysts in bringing about desirable outcomes in both corporate goals and competitive edge. Social factors like extraneous behaviors and religious/cultural tendencies have to be accommodated with multicultural staff (Schlegelmilch, & Woodruffe, 1995). That itself shows the extent to which Barclaycard has been able to gain some leverage in social influences over the business. iv. Technological Influences Technology plays a very pivotal role in the external competitive and operational environments of organizations. In modern credit card industry that use outmoded technology, is less likely to gain advantages in this sphere against their rivals. Barclaycard has not been behind HSBC, MBNA and Lloyds TSB in updating its diverse tools. The impact of technology on the strategic competitor environment has probably been the most obvious because it is technology that gave Barclaycard its head start over the rest of competitors. Communication technology has become more and more digitized. 1.2. Internal Analysis a) SWOT Analysis SWOT - Strengths, Weaknesses, Opportunities and Threats - analysis is a technique that is utilized by writers to analyze the environmental factors, both internal and external, that impact on the performance of a business organization in a variety of ways (Dealtry, 1994). Barclaycard has been affected by its SWOT environment in its decision making and strategic operational environment, especially the competitive environment. i. Strengths Barclaycard is set to shake up the credit card sector. Barclaycard launched "broadest ever retail rewards scheme" observe in the UK credit card industry (www.theukcardsassociation.org.uk). The new scheme has been trialed in Northampton and is set to be rolled out to the company's 8 million credit card holders from up to date. Barclaycard credit card holders will automatically be registered for the scheme rather than applying "reward money" of 1% on most transactions. The scheme already has assisted over 30,000 stores in the UK. Consumer authorities have asked credit card holders to consider the pros and cons of such reward schemes against interest rates and charges applicable to both the Barclaycard and competing cards. The move by Barclaycard, (in fact the move was rather unexpected) was followed by the company's competitors and whether indeed this could be the start of a new era in the competition of the credit card sector. However any competition in the credit card industry is obviously welcomed by consumers, since it would be a help for those in the UK who are suffering from enormous credit card debt and struggling to pay their monthly bills (Worthington & Harbisher, 1997). Barclaycard Payment Acceptance provides convenient, secure, best of breed solutions for businesses that need to accept payments across the widest range of channels, methods and locations. In addition to enabling credit, debit and charge card acceptance in companies ranging from small shops to multinational businesses, telephone, mail and internet payments can also be supported on a local and international basis throughout Europe. ii. Weaknesses One of the major disadvantages in this facility is “adverse order of payments”. This means credit card companies’ force to consumers to pay off cheapest debt first. Credit card companies let more expensive ones last longer in order to earning extra interest. Time to time minimum monthly repayments on their credit card bills increased is a bad move. iii. Opportunities The main benefit to each customer is convenience. Compared to debit cards and checks, a credit card allows small short-term loans to the customer who need not calculate a balance remaining before every transaction. Credit cards also provide more fraud protection than debit cards. In the UK, most banks are jointly liable with the merchants for purchases of defective products over £100. Many credit cards offer rewards and benefits packages, such as offering enhanced product warranties at no cost, free loss/damage coverage on new purchases. Eg. Redeem for cash for products, or airline tickets. Carrying a credit card may be a convenience to some customers rather than carry cash. Credit card repayment arrangement allows customers to extra benefits such as rewards schemes in which points earned by purchasing goods with the card can be redeemed for further goods and services. UK limits the amount for which a consumer can be held liable due to fraudulent transactions as a result of a consumer's credit card being lost or stolen (Brooking, 1997). iv. Threats Credit cards fraud is the most disadvantage of this facility. Credit card issuers are increasing borrower’s credit limit without their consent. It has drawn on recent research showing that in the last year an estimated 5.7 million consumers had their credit limits changed without their consent. 2. Major issues facing Barclaycard Increasing debt levels and the increasing cost of living have led to a divide in the market: whereas some consumers have been paying off what they owe, others have become increasingly reliant on credit to fund basic living costs like mortgages and rent. Despite this, December 2008 saw a record of spending on credit cards, although spending in all of 2008 was down from previous years. Many consumers are reining in their spending, with an inevitable impact on demand for credit. Banks have been hit by larger than average losses due to bad debts on credit cards and other loans (i.e., cannot collect the money from many borrowers who simply cannot pay). Barclays, for example, had £5.4 billion of such charges to pay off. Many consumers are just walking away from their loan and credit card debts and declaring bankruptcy. There are signs that the credit card market is becoming more settled – Mintel’s consumer research shows that people are generally happy with their existing credit cards and that switching intentions have reduced. 3. Strategic Options for Barclaycards a) Identification of four strategic options An important objective of a strategic audit is to ensure that the business portfolio is strong and that business units requiring investment and management attention are highlighted. This is a vital factor- a business should always find out which markets are most attractive and which business units have the ability to achieve advantage in most attractive markets. This is part and parcel of the whole corporate strategy of ensuring the growth of its market share and profit margins. The internal and external environment in which a business operates could bring about strengths and opportunities which Barclaycard could make use of, and also weaknesses and threats which could harm a business. In order to make use of strengths and opportunities or to respond to weaknesses and threats, Barclaycards needs to have the right resources and capabilities in proper order. However according to the strengths and weaknesses, Barclays is the biggest credit card provider in the UK and Barclaycard has diversified and innovative credit card range to cater for different segments of the market, and claims to have 8.4 million credit card customers will be directly affected on present and future performance of the Barclaycard business. The user friendly technologies have had a far reaching impact on the recent organizational outreach to a variety of credit card users across the world. For instance Barclaycard has the additional advantage of aggregated technologies coming from its recent spate of acquisitions. These acquisitions have helped the company to integrate an array of diverse credit card related services into its existing scope of operations. Thus according to its opportunities and threats, it must be noted that 8.4 million credit card customers can be regarded as Barclaycards target market and also income elasticity of demand is very positive for credit/debit card market. Despite the above opportunities its threats such as price elasticity of demand for credit/debit cards and substitution products also could be directly impacted on present and future performance of the Barclaycard business. b) Developing a marketing strategy for strategic options (4P’s) Barclaycard sells a wide variety of credit and debit cards. As such the competition for its products is spread out. For the high competitive products it would have to meet the quality of its competitors to stay ahead in the market. Ansoff in his Product-Market Growth Matrix has recommended that in order to grow a business in existing and /or new products in existing and/or new markets four possible product/ market combinations could be used. They are, Market penetration (existing products, existing markets); Market penetration takes place when a firm enters/penetrates a market with its existing products. It’s possible to do this by luring the customers of the competitors to use Barclaycards or using means such as advertising to attract non-users of credit cards and debit cards or encouraging existing customers to use the credit/debit cards in more transactions. Product development (existing markets, new products); A firm which already has a grasp of the market for its current products might look to develop other new products catering to the same market. Thus these credit/debit cards need not necessarily be new to the market but they are new to the Barclaycard company (Ahmed, 2003). Constant development of new credit/debit cards is crucial for a business to stay ahead of its competitors because new products would attract new customers. Market development (new markets, existing products); An already established product in the market can be targeted to a new segment of the society. Thus the Barclaycard Company can enter to the new markets to make more profits. Diversification (new markets, new products): The Company seeks to venture in to new markets with new products. Barclaycard could find new cards and services and also new markets and diversify the existing product range. When the marketing mix – price, product, place, promotion and by extension people, process and physical evidence – is considered against the current level of market concentration ratios there are a lot of opportunities on the marketing front available to the average credit/debit card seller in the UK. Price of the product is essentially a reference to the larger context of the company’s pricing strategy and especially in the current competitive environment there is very little liberty if any available to the firm to adopt a pricing policy of its choice. In fact market skimming would seem to be the most ideal pricing strategy for Barclaycards Company. Product characteristics include those tangible and intangible benefits for the customer. A typical cross section of businessman’s and youth would be inclined to buy credit/debit cards since its innovation strategy would improve the Barclaycard users than its competitors. Place again imposes some limitations on the firm’s ability to exploit broader marketing principles. Market segmentation strategy of Barclaycard is exclusively intended for the creation of brand dependency. Along with a proper promotion policy, an ideal people-oriented marketing strategy ought to be put in place. Customer-centric product promotion is nothing new in the industry though product promotion campaigns are less likely to be determined by any other factors than the strengths of the product. While the emphasis might be placed on the overall promotion strategy to attract as many potential customers as possible there won’t be any strategic advantage in the long term if the company concentrates too much on its strengths only. This is a strategic shortcoming in the continual development process. 4. Present credit and debit market The use of credit cards and debit cards has become more popular and widespread in almost all of the countries and widely used in telephone and internet purchases. Present credit and debit card market has been evolving over the years and especially the role of Visa and Master Card service providers is marketing their products to banks and to develop the infrastructure that makes transactions fast, secure, convenient readily available anywhere in the world (Worthington, 1988). These credit and debit card companies are developing the chip and pin infrastructure in order to earn money from the fees they get from their member banks. Basically these cards have been provided according to the PIN and signature of the customer. Despite the above there are different types of credit and debit cards in the current market including Maestro, American express, Solo, Interlink, Star, Pulse and so on, although many cards are of the Visa or MasterCard brand. (www.nytimes.com). The credit and debit card market has been changing rapidly over the years and it is now characterized by huge competition amongst service providers and 0% interest offers. The credit card market is still evolving and the debit card market shows some significant growth in 2009 and the volume of credit cards in issue declined for the recent years especially due to the global financial crisis. According to the researchers worldwide purchase volume by card type is Visa credit (32%), Visa debit (29%), Master credit (22%), Amex credit (10%), Master debit (6%). However some consumers have cut back on credit card usage and have adopted a more flexible approach to spending, opting to use the money in their current account via debit card to cover living expenses (Arango, & Taylor, 2009). Debit card users are also becoming more active in terms of switching, with the five major high street banks having lost 5% points in market share over the past 12 months. Thus smaller debit card providers have also seen an increase in their collective share of the debit card market, although they still do not represent a significant threat to the big five companies (Pacheco, & Sullivan, 2006). REFERENCES 1. Arango, C & Taylor, V 2009, ‘Merchants’ Costs of Accepting Means of Payment: Is Cash the Least Costly?’ Bank of Canada Review, Winter 2008–2009, p. 19. 2. Ahmed, PK 2003, ‘Internal marketing issues and challenges’, European Journal Of marketing, vol.37, no.9, pp.1177-1186. 3. Brennan, R & Baines, P 2008, Contemporary Strategic Marketing, 2nd edn, Palgrave MacMillan, London. 4. Brooking, C 1997, ‘The UK credit card market’, Financial Stability Review, Bank of England, London. 5. Dealtry, TR 1994, Dynamic SWOT Analysis (Ring-bound), Dynamic SWOT Associates, Birmingham. 6. Gaughan, PA 2007, Mergers, Acquisitions and Corporate Restructurings, John Wiley & Sons, New Jersey. 7. “How Visa, Using Card Fees, Dominates a Market", New York Times, January 4, 2010, Retrieved from www.nytimes.com on March, 18, 2010. 8. Pacheco, B & Sullivan, R 2006, ‘Interchange Fees in Credit and Debit Card Markets: What Role for Public Authorities?’, Federal Reserve Bank of Kansas City Economic Review, First Quarter 2006, p. 92. 9. Porter, ME 1998, Competitive Strategy: Techniques for Analyzing Industries and Competitors,Michael E. Porter (Author) › Visit Amazon's Michael E. Porter Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central The Free Press, New York. 10. Schlegelmilch, B & Woodruffe, H 1995 ‘, A comparative analysis of the affinity card market in the USA and the UK’, International Journal of Bank Marketing, vol.13, no.5, pp.12-23. 11. 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