The economy of any country is largely influenced by the banking sector due to the significant roles they play in the financial markets. The level of profitability and revenue margin of UK banks was greatly affected by recession that started towards the close of 2007. Due to the nature of globalization, no single country is immune to the events happening outside its borders. In spite of the global risks that may grip banking system, there has always been that need to develop new strategies aimed at maintaining profitability (Graham & Howard, 1995).
UK hosts 80% of the well established banks in Europe and hence the need to design an appropriate competitive strategy that will take into account the financial impact of recession. The consumer credit market is an important component in the UK retail banking since it has been the major drive in credit cards usage as well as mortgage growth. This essay explores some of the competitive strategies which can be enforced by UK banks as part of the recovery process after the effects of global financial meltdown.
There are quite a number of competitive strategies that can be employed by UK banks in recession economy. One of the competitive strategies identified by Porter (1985) is low cost. This refers to a scenario whereby a firm applies decides to operate on minimal costs among its competitors. By reducing costs associated with banking activities, consumers will be in a position to stick with their respective banks bearing in mind that during recession, there is a tendency towards cutting down on operating costs. Hence, banks will have to adjust their operating costs by lowering them as much as possible. In order to achieve low cost strategy, banks can initiate and pursue economies of scale by expanding their branch networks and offering a variety of services to capture large customer base and needs (Karr, 1994). In addition, proprietary technology is necessary if the banking sector is to remain vibrant amidst the weak economy. Adopting the most effective and efficient technological platform will ensure that the banking sector remains competitive throughout the recessive period. Besides, easier access to factors of production such as affordable labour which is equally competent is a major competitive factor.
The second strategy is that of differentiation. In this case, a retail bank can decide to be as unique as possible in the provision of its services or even in the mode of its operations. This kind of uniqueness should be modelled in a way that it attracts clients compared to other competitors in the market. When differentiation strategy is applied, the UK banks will be in a position to create premium price on their product and service offering.
So as to recover from the 2007/2008 recession, the commercial banks in UK have devised exit strategies so that they can remain competitive as well profitable. one the current anticipations and measures being put in place is quantitative easing of the normal operating policies before 2011 elapses (Kazmi, 2008). This is a measure which will produce optimum impact especially if enforced by the central bank. By loosening baking policies on commercial banks, the latter will be in a position to lower their operational rates thereby maintaining their customers, competitiveness and profitability. For instance, the Bank of England may decide to possess surplus securities until they mature as a way of avoiding risks associate with the dynamic financial market.
When a narrow competitive strategy is pursued, it is referred to as the focus strategy (Berman, 1995). In other words, the focus strategy aims at narrowing down in the provision of certain products and services in a manner that will satisfy clients well. In focus strategy, a bank should aim at restructuring its services so as to allow specialization in a few areas of operation with the target of providing efficient services. For instance, a UK bank facing stiff completion can decide to specialise in a few areas of operation such as offering mortgage loans with relatively friendly terms compared to other players in the market.
In order to achieve the best results when applying the focus strategy, the UK banks should bear in mind that there are two variants worth considering (Russell, 2008). Firstly, the target segment of a bank can be restructured in a way that the costs involved in operations are relatively favourable for the bank itself in the sense that profit margin can still be maintained. Banks should ensure that there is a cost advantage over its competitors. The second point of consideration when applying differentiation strategy is that a competing bank should focus at being different in a positive way in its services and operations. A bank can operate by taking advantage of the loopholes that exist in its competitors. For example, reinforcing the weak or ignored areas of operation can be a major competitive factor.
Customers have a tendency of spending additional time comparing the cost services and opting for a cheaper one during recession time (Shama, 1981). Hence, it is the responsibility of managers to enhance the demand of clients during recession. In achieving this, the target clients for certain services should be established.
Significant changes have taken place in retail banking over the past twenty years or so. For example, there has been increased competition among players both in the banking and non banking sectors. This has been caused by deregulation of quite a number of banking practices. Moreover, advances in banking technology have also contributed to massive changes in the entire banking sector. Such changes have also transformed the preferences of customers (Kazmi, 2008).
In an attempt to outdo competitors during recession period, the process of restructuring the operations of competing UK banks should be firm and sound. For instance, the branches should be redesigned in addition to providing optional channels that can be accessed by consumers alongside fitting to their needs. A lean structure that ensures low operational costs is also paramount as part of competitive strategy. As mentioned earlier, upgrading the level of technology cannot be ignored owing to changing times that require dynamic and varying approaches. The overall goal is to increase the satisfaction of customers.
The banking sector should launch a variety of services to match the growing needs of its clients. Different services meant to benefit customers from diverse background should be put in place. A case example is whereby a special banking service like tele-banking can be developed for corporate customers so that they can be able to transact business even in remote locations. Such a facility can be made available in a several branches to reach more clients
Marketing initiatives are integral part of operations for any bank. Customers can only identify with or reach consumers through a rigorous initiating in the process of marketing. Firstly, the competing UK banks can begin by identifying, segregating and aiming at customers with high profile in terms of capital flow that contributes to banking profitability. Besides, accessibility can also be improved by establishing call centres that will enable expedited acquisition and flow of information from the bank to customers. Both the large and medium sized corporate can also be reached by making use of database marketing. The trade finance clients and government are also included in this marketing initiative. Revenue derived from cross selling will be improved significantly through the process of database marketing. Furthermore, this type of marketing strategy can be used to improve the loyalty of customers alongside lowering the costs of operations.
Extending working hours is yet another way of improving the level of reaching customers during and after recession time (Khiaonarong & Liebenau, 2009). in addition, the use of the media, whether print or electronic, in marketing the products and services being offered by banks is equally a very powerful way of capturing the attention of both existing and potential customers. In regard to working hours, the UK banks can secure some additional hours even during the weekends such as on Sundays so as to reach out for its customers who may require banking services during off-working ours when most competitors are not operating.
According to Karr (1994), focus on the needs of customers is the key to success to any UK bank today. A strong presence in the market is vital if any bank is to manage competition effectively. There are marketing and personnel procedure that banks should embark on to ensure market presence with an impact. For example, the nature of public relations in place should be checked against the current standards and the varying needs of customers and updated accordingly. Banks that focus on thorough and shrewd marketing strategies will often outdo their competitors when they operate in any kind of environment. This has been found to be possible especially if the management of banks are determined enough to facilitate the process of implementing the proposed changes or competitive strategies.
In managing marketing process for banks, the development of a strong team of personnel charged with the duty of facilitating sales on a day-to-day basis is imperative. In addition, a support system that oversees the development of marketing program should be part of marketing initiative for the products and services offered by a bank so as to counter the effect the effect of recession.
A vibrant customer service department is also necessary to push sales up. This is one of the departments in the banking system that directs impacts and influences the attitude of customers. It should be restructured in a way that it captures both the immediate and long term needs of customers. In order for the plan to succeed, it will largely depend on how the staffs are motivated alongside their skills and competences in service delivery. A bank’s bottom line of operations can be improved when the management is fully convicted of the due process of a sales force that is well managed. The service philosophy of a bank is better understood by the banking community through the customer service experience. Managers in banks should not take a conservative position especially bearing in mind that regulation of the banking sector has slightly eased down, a phenomenon which calls for rigorous and diverse approach to marketing skills that can outdo completion in the market.
The level of competition in the UK banking sector is growing by the day and as a result, banks have no option but to develop sound marketing strategies that can counter this stiff completion. Bank managers should seek ways and means of developing good strategies that are sustainable. A distribution strategy like the use of ATMs is a welcome idea. This will ensure that customers can access their finances in a more relaxed way. As part of managing recession, customers will prefer to cut down on operating expensed when the economy is under recession (Clarkson & Stone, 1993). Therefore, locating ATMs in a variety of locations will not only reduce the time spent by customers to effect some banking transactions, it will also reduce their operating expenses bearing in mind that the costs associated with the use of ATMs are relatively low compared to direct transactions handled in banking halls. Hence, the distribution channel used ought to be sustainable at all costs.
In managing competitive strategy in an effective way, bank managers in UK should erect marketing barriers that attempts to restrict other competitors from gaining the major share of the market. One way of attaining this goal is by qualitatively assessing the mode of competition which has been instituted in place. It is how a particular bank will launch its competition platform that makes the difference. In addition, the rationale behind each competition package should be established in advance so as to ensure the right procedure is set forth. For any bank in UK to establish itself as a market leader, there are quite a number of strategies that are crucial to be followed. To begin with, the bank management should describe the objectives of the organisation in a coherent manner that is well understood. Finding new customers while at the same time encourage more consumption.
At the domestic level, there are options which banks can adopt in order to remain competitive. There are three main areas of strategic growth which banks can embark on. These are cost reduction, growing the revenue base, and local mergers, alliances or even acquisitions. There are several cost cutting measures that can be enforced by banks in spite of the prevailing impacts of economic recession. Besides, slim downs can be used to assess methodologies for reducing operational costs alongside improving efficiency. The slim downs are often executed when the prevailing economic conditions are not favourable as in the case of global economic meltdown (Siebert, 2002). On a practical basis, the slim downs may take the direction of making new choices especially in regard to scale of preferences and priorities. The number of working staff in the bank is critically evaluated and only those who cannot be done away with are retained. It is imperative to note that recession time calls for the need to slim down or even do away with certain operations. When the economy is performing well, banks have to optimize in profit making. During economic downturn, the profits made when the economy was doing well automatically compensate the low returns.
An optional way of reducing cost is by altering the channel of distribution. To achieve this, better innovation in terms of Information Communication Technology is necessary. Banks have to undertake heavy investment in ICT so that they can remain not just competitive but also profitable (Grosse, 2004). A multi channelling approach is the best way to go for banks in UK when distributing their products and services. One way of multi channelling is through the use of ATMs, several bank branches, internet and mobile banking that makes use of the telephone. These channels are not used at different times to meet the new goals but should be applied simultaneously.
In any case, bank customers are reducing the frequency of visits to banking halls since they tend to embrace new technological platform. Since the customer is the most important asset any bank owns, their preferences should be matter of priority (Papp, 2001). Moreover, new distribution channels such as internet and telephone banking can significantly reduce the cost of operation especially in regard to running costly ranch network. It is only those banks which will re-examine their distribution strategies that will survive the harsh economic times. Nonetheless, investing in Information and Communication Technology has proved to be an expensive affair and as a result, it is important for banks to organize again their back office operations in the most effective way possible.
The key to achieving this is by scaling transaction costs to a level that is profitable to the bank (Balling, Hochreiter & Hennessy, 2001). There are several strategies which banks can choose from when optimizing their back office operations. For example, establishing platforms with other banks through the process of co-sourcing is workable. Alternatively, sufficient scale is only possible through in-sourcing. In this case, the back office operations are carried out on behalf of other target groups while outsourcing implies the process of disposing activities and purchasing them back later from other organisations. All these operations can positively sustain banks during lean economic times.
Although cost reduction is a viable strategy that UK banks can adopt as a competitive strategy, it may not be sustainable for a considerably long period of time. The quality of services being offered by a bank may eventually be compromised if the cost cutting measures outlined above are enforced for long. Besides, the strength towards innovation especially in ICT architecture may fail to be vibrant with continual cost reduction strategy. If such a scenario happens, the competitive strength of the bank will also decline, leading to the eventual fall. In addition, employees may not be motivated when there is extreme focus on reducing costs as the competitive strategy. This will also reduce the chances of competing favourably in new opportunities especially when recession is over. Hence, revenue growth is considered to be the next available option especially when targeting long term competitive strategy (Ketchen, 2006).
Enhancing revenue growth will require banks to determine the kind of strategy they want to pursue. In order to attain growth I revenue, there are two main approaches that banks in UK can adopt. Firstly, they can work towards attracting new clients into their banking system or alternatively, sell additional products and services to those clients who already exist. For instance, loyal customers are the best to use whenever carrying out cross selling. New clients can be used whenever the existing client baseare not loyal. The level f commitment has been found to differ greatly across countries in Europe.
The use of internet banking as notably lowered the loyalty level of customers due to the transparent nature of the system. Nonetheless, customer satisfaction is key to success of any bank as observed earlier. Introducing loyalty programs could assist in improving the loyalty of customers. The Co-operative banks have a strong loyalty programs for their customers whereby the latter are rewarded in some way (Fair & Raymond, 1994).. The strategy can potentially make existing customers to stick with their respective banks and especially when the services and products being offered meet their needs.
Bank mangers should also be in a position to understand their customers. This will definitely increase their market share bearing in mind that the needs of customers will be catered for effectively. When the knowledge on customers and a wide range of product offering are combined, banks will be in the right position to remain competitive in spite of the economic ravages caused by recession. This is also the reason why certain banks have opted for niche-strategy. Additionally, it is not mandatory for banks to fully rely on the existing channels of distribution or better still, the established brand. Finally, alliances, acquisitions and mergers can also be adopted as part of competitive strategy during and after recession (Pablo & Javidan, 2004). This can be executed in the domestic market. However, the prevailing circumstances in any of the countries in UK will determine the application of this option. Some of the circumstances include but not limited to the possibility to diversify, opportunities to synergise as well as the policy of the authorities.
When mergers and acquisitions are carried out at the domestic level, both the revenue growth and cost reduction measures are taken care of (Khosrowpour, 2006).
In recap, it is imperative to note that the UK banks can sustain themselves during and after recession through a rigorous competitive strategy. The strategies that the UK banks can adopt are diverse, ranging from marketing strategies which should be customer-focussed to mergers, alliances and acquisitions which can be effected at the domestic level. Although cost reduction of banking operations is a workable competitive strategy, it may not be fruitful for a long period of time. Other competitive strategy measures such as the use of multi channels of distribution come into play. Such channels include ATMs, mobile telephone banking as well as branch networks.
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