Marketing Issues Facing the HSBC Bank in the UK

Key marketing issues facing HSBC Bank in the United Kingdom and globally: How it can be improved for entering in to 2011

Abstract

Today’s global banking environment is highly volatile, but this does not hinder competition from being intense. Consequently, organisations such as HSBC Bank plc, “the world’s local bank”, need to align their marketing strategies to improve on their brand value and positioning. To enter into the year 2011, they need to address both internal and external environment(s) which inevitably affect their competitive advantage, positioning and performance.

In the following, the researcher aims to explore these avenues with the view to propose an extended study on new strategies to improve upon HSBC’s current standing.

Table of contents

Chapter 1: Introduction

Chapter 2: Methodology

Chapter 3: Literature Review

Chapter 4: Evidence

Chapter 5: Conclusion and Recommendations

References

Appendices

Introduction

In the last few years, the banking industry has undergone tremendous change in the face of global transformation. As a result, executives are finding it difficult to meet competitive challenges as the pressure to become global intensifies. HSBC Bank plc, headquartered in United Kingdom, is a global business which faces the same challenge and is being investigated in the following dissertation. The aim is to survey the key marketing issues that challenge the bank, in the UK and globally so that the researcher could further its study in developing solutions for the same. Some of the objectives that the researcher aims to achieve in this dissertation proposal are as follows:

Objectives

1. To explore key external and internal environments to address major issues that plague HSBC to function successfully as a global bank.

2. To identify the marketing mix that should be adopted to be integrated in the bank’s marketing and competitive strategies.

3. To investigate organisational functions like MIS (Management Information System) and CRM (Customer Relationship Management) to align them with the market structure.

4. To evaluate the brand value at HSBC, and perhaps identify new strategies for improving its global positioning.

Background

Today, change catalysts are being integrated by major consolidated organisations to adapt and become flexible to the changing needs of consumers. The banking industry, likewise, has been following the same trend of consolidation through mergers and acquisitions (M&A), despite the fact that these M&As are creating even more complex organisations. This can be gauged from HSBC’s organisational spread. HSBC has over 100 million customer base, spread across the globe through its Customer and Global businesses. With 9,500 offices and 335,000 staff in 85 countries and territories, it is considered to be one of the world’s top financial brands by The Banker Magazine (HSBC Official Web site 2008). While it is regulated by the Financial Services Authority in the UK, the global nature of its operation subjects it to be regulated by 510 central banks and authorities around the world as well (HSBC Official Web site 2008). To ensure that HSBC meets global challenges, the bank has been constantly evolving its strategy. For the past decade, it has focussed on being “the world’s local bank” with a wide network spread to mostly international emerging markets to develop unique cosmopolitan customer base to strengthen its financial standing. The four key business areas – private banking, commercial banking, personal financial services and global banking markets – help HSBC to align its presence with global trends such as fast growing emerging markets, world trade, and longevity in business (See Appendix 1). In line with this focus, is the strategy to leverage brand and network to increase revenues and maximise efficiency (HSBC Official Web site 2008).

This conservative positioning strategy had been adopted for the past decade and has paid off in terms of higher earnings, and improved performance (BBC 2001). However, recently there has been a fall in profit earning (UK Annual Report 2007)(See Appendix 2), which has been translated to low performance. Some of the factors that have afflicted the bank include inflation in developed markets; slow down in emerging economies; and the ongoing credit crunch, especially in the UK and neighbouring Europe (HSBC Annual Results 2007; “Toxic Shock” 2008). The growing importance of globalisation only emphasises on the need for integrating marketing strategies within competitive strategies to leverage future performance. According to a Deloitte report (2007), banks like HSBC, with a global focus, need to understand external and internal factors that affect them, in order to devise comprehensive competitive strategy. While experts (Dietz, Reibestein, and Walter 2008) predict growth in global banking revenues estimated at 7 to 8 percent from 2006 to 2016, how to harness this forecast is dependent on the individual firms’ strategy. For this purpose, HSBC need to revise its strategic orientation.

The purpose of research is to gain new knowledge through logical and systematic methods. According to Smith (1981 qt. Gliner and Morgan 2000), research is a broad discipline which must be carefully examined before adopting methods for evaluation. Whether the researcher chooses the naturalistic, experimental, survey or historical methods, the choice should be consistent with the inquiry defined. Accordingly, research approaches in the social science discipline can be divided into the positivist or quantitative, and constructivist or qualitative approach (Mangan, Lalwani and Gardner 2004). Depending on the quantitative or qualitative paradigm, a researcher must choose the approach of research. A quantitative paradigm is associated with scientific methods in acquiring research results and identifies causal relationships (Phillips 1992; Lincoln and Guba 1985 qt. Gliner and Morgan 2000). On the other hand, the qualitative approach is a constructivist approach that studies humans and physical objects with the meanings inherent in their social roles and symbolism. Considering the qualitative nature of the topic, the researcher proposes to adopt a constructivist approach which would be more appropriate in exploring the issues that affect HSBC. This is a logical proposition as it would allow the researcher to predict the causes and market behaviour based on theoretical frameworks studied through comprehensive literature review, a gist of which shall be explored in the next section. Furthermore, the researcher proposes this choice of research approach based on the premise that social science researches often seek to predict and control (Bryman 1995). Research questions raised are often open-ended and encompass extensive avenues before decisions can be made. Therefore, a qualitative method shall be suitable for the study of key issues challenging HSBC in the future.

To take a brief overview of banking, the researcher has carried out a brief literature review to study the issues that surround the organisation. In the following section, the researcher shall explore the current market environment, as well as attempt to understand it through theoretical frameworks.

Banking Industry

As the world’s banking industry globalises and consolidates, cross border investment barriers have fallen to give way to new and volatile markets. To serve evolving markets, banks have been observed to develop new competitive strategies that capitalise on operations, resources and functionality, and serve new types of customers. The challenge for banks today is the geopolitical risks and structural market challenges which they need to adapt to, for addressing international compliance of standards, demographic shifts, and developing relationships with customers. The diversified nature of the banking environment makes it difficult for global organisations, like HSBC, to focus. A global bank can be defined as having the widest reach in providing services to affiliates, while a local bank has narrower reach in provision of services to institutions in the country. Some of the challenges that affect these organizations are explored below:

1) External Environment

The basic premise for gaining competitive advantage in a global environment according to experts like Porter (1990) and Weihrich (1982), is through formulation of strategies that reflect the conceptual framework of the TOWS Matrix (See Appendix 3). The TOWS (Threats, Opportunities, Weaknesses and Strengths) Matrix is a systematic analysis model which identifies factors that surround the industry, and, thereafter, help identify solutions by maximising opportunities and strengths. By identifying the competitive advantage against competitors, the industry or firm can maximise the attributes it posses at the international level. These competitive advantages can be factor conditions such as skilled labour or infrastructure; demand conditions such as demand of the product or service; related and supporting industries; and firm strategy, structure and rivalry (Porter 1990). However, critics are of the view that Porter’s formula does not provide the key to success (O’Shaughnessy 1996) as it does not address operational and environmental issues like culture, competitive advantage in emerging markets; political and national history; or role of government. In today’s global banking environment, these issues play critical roles (Jones 2005). These are evident from the Deloitte report (2007) on key issues challenging the banking industry, which include off-shoring; local insights for global branching; cost-reduction; emergence of hedge funds; and complex anti-money laundering regulations (Deloitte 2007). Not only is the global business environment of today strived with uncertainty due to emerging markets’ participation (Fahy 1993; Bansal and Penza 2000), but also the technological, political and regulatory environments have heightened competition.

In the past decade, HSBC has focussed its competitive strategy on Europe after the slow down in Asia-Pacific region. Europe is an ideal setting for international integration based on a single market program (Berger, Smith, and Judge 2003; HSBC 2008). There are, however, issues that hinder development and competition including loyalty to local banks, regulatory restrictions, demand for global banking services, and technological advancement of banks. As a result, HSBC needs to rethink its current strategy.

2) Internal Environment

As a result of the above factors, the internal environment of global banks has to be revolutionised. At the forefront is the adage “the customer is king”. Global banks are changing their strategies to alter banking environment congruent to customer’s needs, rights and choices. Services and products are tailored to the living conditions and customer patterns of banking use. These conditions set off alternative marketing strategies that emphasise on individuality and relationship building. Investment in technology, skills and branch networks, for example, has helped traditional banks to grow and profit from new sources of income (Jayawardhena and Foley 2000). In the UK, especially, the scale of investment in knowledge management and technology has helped transform the banking industry to succinctly harness potential businesses and create advantage for organisations. Learning organisations, however, is still a relatively new concept for many to understand and appreciate its implications (Harris 2002).

Besides the above, global banks are also undergoing structural changes. As more and more banks become global, the traditional role of retail banking has to be revisited. (Bansal and Penza 2000).Issues that affect HSBC like credit and market risks, competence and expertise have come to the forefront, as banks diversify their businesses. For these reasons HSBC needs to be prepared for change management in its internal environment.

3) The Marketing Mix

Given the diversified nature of the global banking industry, Jagersma’s report (2006) suggests that banks need to rethink marketing strategies to meet the challenges in the future by improving customer focus, innovating products, pricing products competitively and organising product information for its strategic positioning. The challenge that awaits organisations is to rethink strategic objectives that would align with the new environment. One approach is to develop a visual identity and develop a communication network to establish relationships with customers. The communication strategy would be the life line for the organisation’s strategy in adapting or changing its market context or other environmental alterations, according to Melewar, Bassett, and Simoes (2006). Similarly, Gummesson (2002) is of the view that relationship marketing is the new approach to marketing that focuses on customer, suppliers and organisations in a complex network environment or society. It is only through these new communication frameworks that the banking sector can address the core and brand values it has to develop for successful marketing mix. (See Appendix 4) HSBC needs to re-evaluate its marketing mix in order to generate newer ones.

4) Market Segmentation and Targeting

Indeed, the nature of the marketing mix is no longer simply the 4 Ps of Price, Product, Position and Promotion but involves complex analysis of the target market and its segments. In fact, Papasolomou and Vrontis (2006) are of the view that today’s banking organisations have different sets of customers and expectations. Customers are no longer limited to the walk-in type, but extend to internal customers such as employees, stakeholders and shareholders; service delivery is not limited to providing service, but extends to standards and expectations; development involves training and development in motivation, and inspiration; and employee incentives. To be successful, organisations must adopt alternative strategies. Market segmentation in the banking industry has changed from niche segments to accumulated customer base of corporate, private or commercial customers, although the principles for targeting them remain the same – customer relationship building; ease of access; delivery of service through diverse workforce; and collaborative banking strategies. As a result, banks like HSBC would need to improve upon customer focus, introduce new ideas to customers and drive aggressive campaigns (“Wells Fargo and First Direct” 2007) using a strong communication network (Berner and Kiley 2005) to build brand image.

5) MIS and CRM

What differentiates and establishes brands depends on the power of the brand to communicate its value to the market. According to Sinek (2008), successful communication is dependent on the bank’s ability to offer different products and services reflective of the customers’ needs. Hence, branding alone would not differentiate banks, but the humanness of the bank’s philosophy would. Thus, Umpqua Bank and FirstDirect’s popularity with customers is due to their understanding of the need for convenient banking, need for alternative products and services, and their understanding of the ever-changing world of banking. By harnessing the online banking technology, direct banking has become possible to their customers. The attractiveness of these banks to their customers is inherent in the shift away from traditional transaction-based to customer based banking (“Branching out” 2007).

Furthermore, banks have also capitalised on technological networks to expand globally to bring customers closer to their banks by defying geographical dispersion (Lefton 1997; Branching out 2007). However, in the process, issues like outsourcing labour to foreign regions, which are alien to the customers, and low quality service delivery compromise the overall expectations. Banks, especially, rely on outsourcing companies for their customer service which constitutes a major part of their service/product delivery (Gottfredson and Phillips 2005). This reliance on external organisations for the bank’s success is volatile and, at times, detrimental to its relationship with customers. Whether HSBC should rely on these systems or not shall determine its performance in the future.

6) Brand Positioning

The objective of competitive advantage is dependent on positioning of the product. A firm’s communication strategy and its effectiveness depend on the positioning strategies. In marketing strategies for service-oriented brands, positioning is even more critical as it modifies the intangible perceptions of the service in relation to the competition (Blankson and Kalafatis 2007). For these reasons, strategic implications of brand positioning are critical for the organisation’s competitive strategy. Service positioning differs from tangible product positioning as its characteristics are different from physical goods. Customers differentiate the service from goods through communication, standard of service delivery, and the quality of the benefits reaped. Thus, marketing communication plays a vital role in establishing the marketing positioning of brands. Consequently, Papasolomou and Vrantis (2006) emphasise on the importance of internal marketing throughout branch network to strengthen relationship marketing and the brand. In banking, this could be achieved by launching internal marketing campaigns to sustain the brand through employees and their experiences such as brand proposition, overcoming internal barriers, continual improvement and expansion. These HSBC needs to explore in to incorporate into its future strategies.

From the above brief literature review, the researcher is of the view that HSBC, as a global bank, faces tremendous challenges in the near future to improve upon its marketing strategy. The above literature also suggests that, while the current marketing strategy has been successful in launching the HSBC in the international market, the bank needs to revise and develop its marketing strategies which would sustain HSBC in global environment. Issues that plague the world’s global banking industry need to be evaluated in the future study to understand the extent and breadth to which HSBC has complied with, before competitive strategies can be evaluated.

The brief literature review also indicates that today’s marketing strategies are different from traditional methods adopted, especially for a service-oriented organisation. Consequently, marketing strategies for HSBC needs to be re-valuated to gauge its future performance, and perhaps devise new ones to address current and future issues. Issues like MIS, CRM, brand positioning and marketing mix shall be revisited in this extended dissertation in order to tackle the issues that plague its internal and external environment.

From the above evidence, the researcher proposes an extended study in the form of a dissertation to review HSBC’s performance and how it can improve upon its current marketing strategy in order to develop an integrative competitive strategy for the future. Considering the fast-paced and highly volatile banking environment of the UK and globally, HSBC needs to improve its performance in order to sustain competition. With the extended study, the researcher hopes to achieve the following objectives:

a. A detailed investigation of the external and internal environment of HSBC in order to identify its strengths, weaknesses, opportunities and threats.

b. Identify the marketing mix that it should adopt and integrate within its organizational strategies to enter into 2011.

c. To study the current organisational function such as MIS and CRM to the advantage of HSBC and integrate into its future marketing strategies.

d. Improve on its current brand value and global positioning.

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Appendix 1

Appendix 2

Appendix 3

Appendix 4