Lloyds Banking Group Entering Bangladesh - Case Study Example

Marketing Case Study, Marketing Literature Review on Relationship Marketing Approach The relationship marketingapproach has become a dominant concept in marketing academic thought. Researchers have attempted to explain how this approach is suitably used in a dynamic global environment to attract and retain customers. Gordon (1999) defines relationship marketing as an integrative approach that encourages contact with customers and meeting their needs in order to develop a good business relationship with them. However, Hunt et al (2006) suggests that relationship marketing includes all the marketing activities that enhance, develop and maintain successful relational exchanges in the market. As opposed to traditional marketing or transactional marketing, relationship marketing values the long-term relationship with customers. It extends beyond the transactional mechanisms of marketing such as advertising and sales promotion. However, Hollensen (2011) suggests that transactional marketing perspectives and relationship marketing perspectives coexist separately. They can both coexist within the same marketing paradigm to improve the competitive position of a multinational corporation. Hollensen (2011) argues that relationship marketing should not be viewed as a replacement of traditional approaches by companies operating in a global environment; but rather as an integral part of the overall marketing management process of the company. There are certain differences between transactional marketing and relationship marketing as identified by different theories and researchers. First, transaction marketing is oriented to single sales while relationship marketing is oriented to customer retention (Hollensen, 2010). In this regard, relationship marketing is suitable for companies operating in international markets where competition is high because it gives them competitive advantage. Secondly, customer contact in traditional marketing is discontinuous while customer contact in relationship marketing is continuous (Muhlbacher et al, 2006). This indicates that relationship marketing enables companies to retain customers for a long time and enhance constant demand for its products. Thirdly, transactional marketing focuses on product features while relationship marketing is concerned with customer value. This ensures that an international company can satisfy and retain customers by using relationship marketing as opposed to a company that relies purely on traditional marketing. Traditional marketing is also operated in a short time scale while relationship marketing is carried out over a long time scale. Furthermore, relationship-marketing focuses on customer service while traditional marketing puts little emphasis on customer service (Souiden & Sugino, 1998). Traditional marketing also lacks commitment to achieving customers’ expectations while relationship marketing shows high commitment to achieving customer expectations. Hunt et al (2006) have recognized different forms of relationship marketing including relationship with suppliers including service and product suppliers, relationship with partners, relationship with buyers, and relationship with employees. This agrees with the definition of relationship marketing by Gronroos (1994) who suggested that relationship marketing involves the establishment and maintenance of customer relationships and relationship with other key stakeholders. Therefore, relationship marketing does not just focus on customer relationship although all other forms of relationship are generally intended to create value for customers. Relationship marketing is ascribed to the perception that customers have regarding the products and services that a company offers. Hunt et al (2006) argue that the benefits that customers perceive of a company are antecedents of their commitment to relational exchange with the company. Consumers also develop a good and lasting relationship with companies that engage with partners they can trust because trusted partners reduce the risks and costs associated with the relational exchange. Hunt et al (2006) suggests that customers enter into a relational exchange with an organisation if the benefits of such a relationship exceed its costs. Furthermore customers develop a relationship with companies that share their values (Ghauri & Cateora, 2010). Such firms can be able to provide products and services that meet their needs, interests and attitudes. For example, some customers relate positively to firms that show social and environmental responsibility. Relationship marketing is particularly important for companies operating in international markets because competition is increasing in the international market and firms are constantly relying on strategic network competition to enhance their survival (Ghauri & Cateora, 2010). In this case, independently owned firms form a partnership network that encourages inter-firm cooperation to compete successfully against other competitors in the international market (Hunt et al, 2006). This strategic network becomes successful if both firms encourage relationship marketing. Strategic partnership also becomes trustworthy if both partners proficiently use relationship marketing approach (Starr-Glass, 2011). If both partners trust each other to provide quality market offerings, then the benefits of relational exchange will increase. The partnering firm should also share the same values as the consumer in order to enhance improved relationship with the customer. International firms also use relationship marketing as a competitive strategy to gain competitive advantage. Companies use competitive marketing strategy to understand the consumer’s buying behaviour and attitudes, build trust, encourage partnerships, promote customer-focused services, and protect the wellbeing of consumers. These aspects of relationship marketing encourage consumer satisfaction and improve profitability of the organisation. However, Fitchett and McDonagh (2000) provide a negative view of relationship marketing. They argue that relationship marketing is a rhetoric that favours the corporation in relational exchanges because it does not address social welfare and risks of the society. In this case, the organisation only considers relationship marketing successful if it meets its interests. Furthermore, the organisation often controls the relational exchanges involved in relationship marketing; the consumer get little opportunity to express their terms in the exchange. Organisations also have a higher chance to arbitrate on resolutions when conflicts arise between them and customers, leading to solutions that favour the organisations over the customers. 2. Lloyds Banking Group Entering Bangladesh The concept of relationship marketing is suitable for banking companies. Banking services are highly sensitive and they should be customized to meet customers’ financial needs (Goyaland Joshi, 2011). Therefore, banking institutions should develop customer relationships that focus on customer value to enhance customer satisfaction and achieve competitive advantage in the highly dynamic international financial market. Lloyds Banking group is chosen for this analysis because it is currently focused in providing services to customers in UK, and its presence in the international market is limited. Various macro and micro factors affect the company as it enters Bangladesh, including environmental, competition, political, economic and social factors of the country. Strategic competences and other internal factors also affect the company’s entry into Bangladesh. Lloyds Banking Group is a UK-based bank formed in 2009 after Lloyds TSB acquired HBOS. The bank’s model is based on five strategic platforms: low risk, customer focus, UK relationship, low cost and commercial banking. The entry of the bank into the Bangladesh market depends on the ability of this model to fit into the macro and microenvironment of Bangladeshi financial sector. For example, the company’s focus on commercial banking is suitable for Bangladesh because the country’s economy is significantly driven by business. However, the UK-focus strategy poses a threat to expansion of the company into new markets. In fact, Lloyds Banking Group has withdrawn its subsidiaries in various markets to focus on the UK market. This report suggests that the company can benefit from expanding to international markets, especially emerging economies like Bangladesh in order to take advantage of the rising demand for financial services in the country. In terms of economic suitability, Bangladesh can be considered as a good destination for Lloyds Banking Group. The country’s economy has experienced an annual economic growth of 6% over the last two decades (CIA, 2015). This economic progress shows that the economic performance of the country is stable and chances of recession or financial crisis are low. The GDP of Bangladesh in terms of purchasing power parity in 2014 was $533.7 billion, ranking the country in 36th position worldwide. This shows that the country has a good purchasing power, so the demand for banking services is high. Lloyds’ low cost strategy can therefore increase the company’s competitive advantage in Bangladesh. More than half of the country’s GDP comes from the service sector. This shows that companies in the service sector earn significant profits. Bangladesh can benefit from this opportunity if it enters Bangladesh. Commercial firms in the garment export sector, service sector and agricultural sector form a significant customer base for banking institutions in Bangladesh. Lloyds can benefit from this commercial customer base because one of its strategies is to focus more on commercial clients than individual clients. According to BBC (2015), Bangladesh is one of the fastest growing developing countries and offers a great potential for foreign investors. The middle class consumers who form the customer base for banks in Bangladesh are also more than the population of Rahman, Sweden, Denmark and Norway combined. This shows that Lloyds Banking Group can benefit significantly from a wide range of customers in the country. The financial sector in Bangladesh is also liberal and open for foreign investors. According to the World Bank, Bangladesh leads China, Vietnam and India in terms of investor protection (The Daily Star, 2015). The interest rates of Bangladesh are also suitable for the company to implement its low-cost approach and achieve profitability. According to CIA (2014), the Central Bank’s discount rate was 5% from 2010, and its commercial banks’ lending rate was 13% in 2014. This yields a spread of 8%. Because commercial clients for banks in Bangladesh are high, the company is likely to get customers seeking loans. This gives the company an opportunity to earn profits from its banking spread. Political factors of Bangladesh are not favourable. BBC (2015) suggests that the political environment of Bangladesh is still volatile despite the democracy that was developed in 1990s. The main political parties of Bangladesh antagonize each other and express personal differences rather than ideological differences. Before democracy was achieved, the country was under military rule for 15 years. Although major civil wars were experienced in 1971, political tensions are still imminent in the country, making the environment unsuitable for foreign investment. Some of the environmental issues of Bangladesh include cyclones and floods caused by rising sea levels (BBC, 2014). This causes security threats for businesses operating in the country. However, the environment is generally suitable for business in the mainland because there are no major environmental threats. Bangladesh is a party to several international environmental agreements to ensure that the country is secure from climate change and environmental pollution, e.g. the Kyoto Protocol, endangered species agreements, desertification, and Law of the sea agreements. In terms of cultural factors, Bangladesh has 27 ethnic groups, leading to a diverse cultural environment for businesses. Therefore, Lloyds Group is faced with the challenge of managing multicultural diversity. After the merging between Lloyds Bank and TSB, the group’s financial services experienced a strong presence in regions with minority ethnic populations. For example, several branches of Lloyds TSB were located in East London where they served Bangladeshi customers (Lloyds TSB, 2009). This experience with Bangladeshi customers in UK makes Lloyds Banking Group better placed to understand the cultural values and needs of Bangladesh’s ethnic groups, considering that the company has a customer-focused strategy. Majority of Bangladeshi nationals (98.8%) also speak Bangla (CIA, 2015). This means that the Lloyds Banking Group, which is based in an English-speaking country, will face challenges when communicating and negotiating with partners, authorities and customers in Bangladesh. The prior experience serving Bangladesh customers in London makes it easier for the company to address the problem of language difference. Infrastructure is also suitable for banking in Bangladesh. For instance, the telecommunication networks in the country are well established. The government opened he telecommunication sector to private sector in 2002 (Amir & Amir Law Associates, 2011). There are approximately 62 Internet service providers, making Internet accessibility to be easy in cities (Amir and Amir Law Associates, 2011). Businesses can easily use the Internet to communicate with customers and employees. Most parts of the country, including rural areas have a good network of roads which attracts foreign investment (Amir and Amir Law Associates, 2011). This infrastructure enables Lloyds Banking Group to access the agricultural customers in rural areas of Bangladesh easily. The financial industry in Bangladesh is also suitable for foreign banks. Although there are several competitors in the industry, opportunities are still wide for entry. The financial sector in Bangladesh is generally stable and is able to channel capital into key sectors of the economy. Financial efficiency has also improved significantly in Bangladesh as the total assets of the banking industry have more than doubled since 2003 (Amir & Amir Law Associates, 2011). Competition is intense in Bangladesh. Bangladesh has several banks that will offer competition to the company. The financial sector is has 56 scheduled banks and approximately 97 non-scheduled banks. Scheduled banks are those that are licensed under the Bank Company Act while non-scheduled banks are those banks that are formed to meet specific objectives and are formed under the Acts that meet those objectives. The country has 39 non-scheduled private-owned commercial banks, 9 foreign commercial banks and 8 Shariah-based banks. Examples of the commercial banks owned by the state include Janata Bank Limited, Agrani Bank Limited and Somali Bank Limited. Some of the private-owned commercial banks include: AB Bank Limited, Bangladesh Commerce Bank Limited, and Bank Asia Limited. Foreign Commercial Banks include: Bank Al-Falah, Citibank NA, and Standard Chartered Bank. AB Bank Ltd is a leader in innovative banking. It has 82 branches throughout the country and its mission is to be the best performing bank in Bangladesh. Due to these capabilities, this bank offers a great challenge for the Lloyds Banking Group. However, the Lloyds can use its focus on customer value and commercial banking to win customers in rural and urban areas of Bangladesh. 3. Type of Relationships with Customers and other Stakeholders Based on the ten forms of relationship marketing developed by Hunt et al (2010), Lloyds Banking Group should establish strong relationships with customers, suppliers and partners. Those relationships should focus on improving the value of customers. The 10 forms of relationship marketing are shown in the figure below. Fig 1: Forms of Relationship Marketing In any kind of business setting, it is extremely important to build a lasting relationship with customers because to achieve the business objectives, the company has to position the customers at the core of its activities. Improving these relationships calls for the acknowledgment that customers are the impelling cause behind any form of day-to-day operations such as sales and marketing that Lloyds Banking Group carries out. Based on the fact that Lloyds Banking Group is a financial institution entering a new market that has different aspects and motives, in any buying and selling situation, customers are the determining in lighjt of navigating their potential strategies in such a relationship. Therefore, the marketing strategies as well as the relationship-building approaches of the organization require an in-depth understanding of diverse types of customers, their purchasing power and behaviours, along with the way consumption fits into their current routines. First, the company may benefit from developing a long-term customer relationship through customer relationship programmes, loyalty programmes and service differentiation. Khojastehpour & Johns (2014) suggest that internationalization requires commitment to customer needs and customer satisfaction. Loyalty programmes such as gifts and rewards may enhance customer satisfaction and promote loyalty that leads to long-term customer relationship. Prior to entry, Managers are also required to communicate and build trust with the customers. Trust is important for companies that seek to establish business-to-business relationships (Khojastehpour& Johns, 2014). Lloyds Banking Group will therefore have to build trust with commercial clients based on its commercial customer focus. Keeping promises is also an important relational factor that promotes strong customer relationship for Lloyds Banking Group (Ghauri & Cateora, 2010). The customer focus strategy and the high potential for commercial customers in Bangladesh can be important in establishing customer relationships. However, the bank should be able to keep its promises in order to avoid losing customers to the many competitors who are already in the market. With the bank building stronger relationships with its customers, their trust and loyalty improves for more business. Therefore, it is extremely reasonable for the bank to focus on creating a strong foundation for customer relationships. All businesses involve people, and these people prefer engaging in business activities with the people they recognize, like, and trust. Most customers will remain loyal to the bank by keeping their relationships with the employees as the priority for desirable business ventures. The more resilient the interactions with the customers and the bank are, the more business for Lloyds Banking Group. According to Muhlbacher, Leihs and Darhinger (2006), loyal customers are best placed to refer their networks to businesses that serve them well, generating effective word of mouth marketing, which is the most significant component of any marketing campaign. Partnerships are also important forms of relationship marketing for Lloyds Banking Group. As the company enters the Bangladeshi Market, it is important to form a strategic alliance with a local company with a good knowledge of the market. Understanding the market is the first step to establish a long-term customer relationship because it enables the company to know their attitudes, interests and needs (Ghauri & Cateora, 2010). A strategic alliance with a local banking institution is a good way of accessing the required information on the market and meeting the needs of local clients. Maxim (2009) suggests that partnership with competitors enhances shared values with the customers (Amir & Amir Law Associates, 2011). Furthermore, the customer experience of the local firms reduces the search costs and market risks of the company. This is relevant to the low-cost strategy of Lloyds Banking Group. Internal partnership with employees and business units is also important for the company to provide effective services and achieve customer value. The company may articulate an internal marketing orientation that meets the employees’ needs while at the same time focusing on customer satisfaction (Goyaland Joshi, 2011). Relationship marketing focuses on customer services in order to establish a strong relationship with customers. The employees are the main agents who communicate the service features and serve customers. They should therefore be trained on how to offer effective customer service. Customers can be motivated to offer better services by using a good reward system. For instance, customers may be offered paid holiday leaves and recognition for good performance. Conclusion Summative, it is emergent that traditional marketing differs from transactional marketing in the sense that relationship marketing values the long-term relationship with customers, going beyond conventions such as advertising and promotion. There are certain differences ascribed to the two forms of marketing, the main being that traditional marketing targets single sales while transactional marketing is aimed at customer retention. Relationship marketing is ascribed to the perception that customers have regarding the products and services that a company offers. Relationship marketing emerges as an essential tenet for companies operating in the international sphere owing to the fact that competition is increasing in the international market seeing that firms tend to constantly rely on strategic network competition in a bid to enhance their survival. . Business entities that relate with competitive marketing strategy understand the consumer’s buying behaviour and attitudes, proceed to build trust among them, forge partnerships with them promote service delivery that focuses on the tastes and preferences of the consumer and guard consumers’ wellbeing. In light of the pedigrees tied to relationship marketing, it is essential that Lloyds Banking Group establish a formidable relationships with its customers, suppliers as well partners in a bid to espouse customer valuation. References Amir & Amir Law Associates (2011).A Guide to Doing Business in Bangladesh.Bangladesh: LexMundi. BBC (2015).Bangladesh country profile – Overview.London: BBC. 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