Marketing Financial Services: HSBC - Dissertation Example

 Marketing Financial Services: HSBC Company Overview: Operating 8,000 offices in 87 countries, HSBC is the banking brand in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. Until 1990’s the group was regarded as Hong Kong’s biggest financial institution. A series of acquisitions all over the world has provided it with business presence in almost all the continents of the world. The company provides lending products through the subsidiaries to middle-market consumers. With innovation being the differentiation strategy, the company is successful in securing the position of world's leader in the sector of financial products and services. Despite the tough economic conditions, the group revenues recorded an increase of 58% in 2008 as compared to revenues in 2007. HSBC provides a comprehensive range of financial services to around 100 million customers through four customer groups and global businesses: Personal Financial Services (including consumer finance); Commercial Banking; Global Banking and Markets; and Private Banking (FEI). The assignment is aimed at highlighting and evaluating the marketing strategies adopted by HSBC PESTEL Analysis Political Economical Social Technological, Environmental and Legal Analysis (PESTEL): This section of the report will present an overview of the macro-environmental factors impacting the organisation and will facilitate the subsequent discussion on the marketing strategies of HSBC (Meek and Meek 2004). Political • Disturbance in the political and economic environment in the international markets, in shape of civil unrest and unstable governments, creates a daunting effect on consumer confidence resulting in shape of reduced spending. This creates a cyclical effect on the demands for goods and hence resulting in shape of reduced economic activity. Demand can also be slashed due to the boycott of products resulting through religious or political activism. There are also possibilities of imposition of regulations to restrict cross border transfer of all the non-current assets i.e. capital and earnings can also negatively affect the profitability of Multinational Corporations. • The unstable economic and political conditions in most of the potential and big markets including Middle East and South Asian countries have reduced the profits of the MNCs. • The terrorist attacks in past worsened the conditions for most of the industries. The future threats have also adversely affected the confidence of customers (Muhammad et. Al, 2008). Economic • Like all the other economies of the world, the economic position in UK became worst in 2008. The personal sector is in retreat since mid 2008. The two consumer spending and public sectors have relied heavily on borrowings. The investments have subdued, and growth is struggling. The cost of living has risen due to the soaring oil prices. The CPI was recorded as 3.4% in March 2010. UK economy has shown weakest economic performance in the post 1945 era. However, the improvement in the economic situation is expected in 2011. The interest rate is expected to be lower at the end of 2010 and in 2011 as a result of reducing effect of VAT and energy prices (Guardian.co.uk, 2010). The decline in the interest rate is expected to result in shape of increased demand for products as saving will be less attractive. However, the increase in the CPI can reduce the customer spending. Social • With the unification of European Union, the borders of all countries are open for people. This has resulted in shape of more mobile labour and diverse nature of customers from different ethnic backgrounds. • The increased proportion of unemployed population can also reduce the demand in the future (The Economist, 2008). Technological • Information and communication technologies have transformed the means of services provision and the organizational structure all over the world. According to an estimate by Forrester the online retail sales in Europe are expected to grow at the rate of 11 percent, from $93 billion (68 billion Euros) in 2009 to $156 billion (114.5 billion Euros) in 2014. • Mobile phone shopping is just taking off but it is thought it will grow considerably in the years to come, which presents a clear business opportunity. Environmental • With the increased level of environmental safety at all levels including Government, media and the public, companies are also undertaking research for environment friendly environment. Legal • With the unification of European countries has brought economic reforms and transformed the economy in relatively liberal and market-oriented. The opportunities to undertake e-business has increased with the imposition of new market regulation and legal frameworks. It is important for businesses to gain complete knowledge regarding the laws and regulations (Inmark, 2006). • The liberty provided to customers by the legal framework to fight for their rights requires the MNCs to take good care of the requirements and rights of the customers. As failure to deliver what has been promised by the organisation regarding the product or services can lead to serious legal implications (Legal & Medical, 2008). Porter’s Five Forces Level of competition The threat of competition is high for HSBC as due to increased involvement of information technology the distance is no more a hurdle for international competitors in accessing the same customers. The problem is exacerbated by the fact that companies are trying to diversify into non-core fields thus creating additional competition. Threat of Substitutes • The threat of a substitute is high as deregulation has allowed mutual funds and insurance companies to cater the banking customers. Threat of New Entrants • The threat of new entrants is high due to the advancement in Information Technology. Customers can search for better options in terms of higher interest rate and low cost products and services. IT has reduced the dependency of customers on traditional branch networks, providing the banks with extended channels and internet banking. • The low switching cost from a bank to another will lower the entry barriers. Bargaining Power of Customers • Buyers enjoy a high level of bargaining power as the market is very concentrated. The trends in the market are governed by the tastes and choices of customers. • A long range of alternatives reduces the switching costs. • As the economies all over the world are at recovery, the customers are expected to save more. SWOT Analysis Strengths High Brand image all over the world as being a Global bank rather than regional bank due to the presence in almost all continents. The brand identity is associated with cheap products offering value-for-money, comfort and innovation. This attracts a large number of customers resulting in shape of rapid development of HSBC. In 2008 during the worst economic slowdown all over the world the group remained profitable with a consolidated net profit of £3,441 million. Strong marketing tactics, including sponsoring world class events. First Direct part of HSBC Group ranked number one in the world in terms of customer satisfaction. Weaknesses The Group faced its most difficult year in 2009. The written down of US$19.5 billion holdings by HSBC raised only US$3.5 billion of capital. • HSBC has also seen huge write downs and has loss a good deal of the public’s trust as a financial institution. Although the loss of trust is widespread in the financial industry, this factor remains an internal weakness to be dealt with. Opportunities • Opportunities to expand at international level. • Further economies to scale can be achieved by finding cheaper products and services. • Increasing trend of online sales can serve as a big opportunity by increasing the profit margins. • Increased demand of financial products and services in China and third world companies. According to the economic analysts all over the world the global economic cycle will start to recover as it reached its trough in 2009 (Economist, 25th July 2009). The end of credit crunch will be an opportunity for HSBC. The higher level of freed up credit for lending, will provide the banking institutions with financial freedom to operate. Threats • Fiscal deficits in major economies all over the world in efforts to prim and pump economy (HSBC, Economic Review, spring 2009). Change in the regulations and guidelines in the financial industry can change the nature of products and services offered to the customers. • Improper followership of corporate governance law for international corporations is very important. Failure can result in shape of daunting effects on the reputation of the company (Windsor, 2006). Entry of retail giants Tesco and Asda in financial services market posing a solid threat to banks such as HSBC (The Financial Times, 20 July 2009). Value Chain The value chain analysis singles out the set of specific activities practiced by a company that can create competitive advantage over the rival firms in the sector (Dess et al, 2004) Primary Value Chain Activities: The Company successfully perform all activities related to the provision of products and services. The successful management of linkage between the product distribution and services combined with innovation is the source of competitiveness of the organizations within the financial services industry. Outbound Logistics In order to provide convenience to its customer the company should extend its branch network on a priority basis. This will not only improve the availability of products and services to the customers but also will increase the breadth of product offering. The presence of HSBC all over UK will help the company is pursuing for the achievement of its goal to increase the level of revenues generated through controlled space up to 30%. Marketing and Sales: Online Service: While accessing new customers, retaining current customers is also important. For attaining the purpose, HSBC has an online support program, which facilitates consumer lending, credit cards, consumer finance and insurance operations. It also facilitates the organisation to launch products more quickly, improve customer service, meet compliance rules, and open for business in new markets (King, 2008). The online system provides information to customers about HSBC products and services available to customers. The company also has a 24/7 support provision help line to respond to the queries and complaints of the customers. Porter’s Generic: As argued by Porter the competitive advantage of an organisation over its competitors is dependent on two factors, cost advantages and differentiation. HSBC can attain cost leadership through targeting a broad consumer market. HSBC has implemented several technological solutions to provide services to the customers at a lower cost. Another strategy which is adopted by the organisation in recent years is to target market niches and hence become able to provide services at a cheaper cost with better quality. This strategy is becoming increasingly hard to maintain for HSBC. With internet banks that operate without a branch network, it is hard to see how traditional brick and mortar banks like HSBC are able to compete in terms of cost. However, as a big multinational bank, HSBC would still be able to gain advantage from economies of scale and scope to help lower its overall operating cost. 2. Differentiation An organisation can achieve differentiation through the development of products/services with distinct qualities. A company can charge premium against the value added uniqueness of the product/services. The uniqueness of the product attributes will minimise the threat of substitute posed to the products and services of the organisation. By using this strategy, the organisation would be able to charge a higher price with the knowledge that substitutes to its products are not easily available. In order to gain differentiation HSBC have provided its analysts with access to leading scientific research. Specialised and highly skilled teams are assigned the jobs of product development which on next step are supported by strong sales team having the ability to effectively communicate the vigorous qualities of the product. The ongoing improvements in products and services have provided HSBC with reputation for quality and innovation. The prepaid card introduced by HSBC with its current accounts is a good example of differentiation strategy adopted by the development of new product with unique features. Till the time other banks adopted it, HSBC had competitive edge through differentiation strategy. 3. Focus: By concentrating on a narrow market segment HSBC was able to achieve cost advantage through provision of efficient services. On the other hand differentiation was achieved through product development according to the requirements of a narrow market segment. Conclusion: According to the SWOT analysis of HSBC, the global bank image of the company is the main strength of HSBC. HSBC was the only bank which performed well in the credit crunch while maintaining its overall market position. First Arm can be regarded as the major strength of HSBC which supports the organisation in knowledge provision to customers regarding the products and services offered by HSBC. The main weaknesses faced by the company were costly capital write downs. Due to the current slowdown in the economy employee motivation level of employees was low. The economic downturn also negatively affected the public perception of banks. The threats from new entrants such as Asda and Tesco in finance sector have also challenged the market position of HSBC. Further threats include unstable nature of regulations and political environment which can adversely affect the operations of HSBC. Mergers with other organisations will provide HSBC with a benefit of extended operation channels, high level of exposure to customers and high level of market presence. China and India are emerging as two big markets with high GDP growth rates. HSBC has strong presence in both countries. The economies of most countries of the world are at their revival, signalling towards better business opportunities at global level. HSBC needs to retain its current market position through ongoing strategies of differentiation, cost leadership and focus. Innovative product development and aggressive marketing techniques will a key to address ongoing industry challenges. 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