Successful businesses operate under the myriad of strategic and technical situations. The products’ or services’ value faces various opportunities and threats from the time raw materials are extracted to the time when they are released in the market. Even as such, the product or service and the market mix must click for the business to be a success. In different case scenarios, a great product or service must meet the market’s needs for the business to realize its full potential. Thus, marketing is an important component in commodity development for the realization of sales. The theoretical aspects of marketing are well documented by scholars and marketing specialists. Nonetheless, it takes massive customization to reconfigure the theories for practical application and enable the uptake of service in the market. The current paper evaluates banking services as marketed in the financial services industry of the United Kingdom. It also reviews various marketing issues in the industry.
According to KPMG (2015, p.1), financial services include banking, insurance, investment management and provisions of solutions to related investments. As such, the sector provides important function of payment linking savers and borrowers and assuring investors concerning any associated risk. In view of the wide nature of financial services, the research is limited to the banking industry. Equally, there are many banking services that are also sophisticated in nature and service delivery. The banking services form the core of other financial services. Savings, capital mobilization, lending and insurance are offered to both individuals and corporations as differentiated products and services. To demystify the complication, retail banking and corporate banking are viewed as dominant industry dynamics. Thus, special focus is placed on retail banking due to its close relation to the marketing theories (Admati & Hellwig 2013).
Retail Banking Services
Retail banking refers to the business relation between banks and individual customers. Most products in retail banking include personal accounts, mortgages, savings accounts, loans, both secured and unsecured, and insurance services. According to the House of Commons (2011, p.13), in reference to Office of Fair Trading, retail banking in the United Kingdom has three services, namely savings, which have the core function, loaning, which carries the secondary function, and insurance, pension and wealth management, which demonstrate the peripheral function. However, the institutions of Fair Trading and House of Commons only acknowledge core and secondary service as retail banking.
Size of Retail Banking in the United Kingdom
There are about five major banks in the United Kingdom, most of which are native, and about ten small banks of British origin, which belong to the retail banking sector. There are also twenty foreign banks operating in the United Kingdom. All the banks operate under the coordination of the Bank of England, which is the Central Bank of United Kingdom. Apart from the Bank of England, whose role is majorly regulatory, all the other banks offer retail and corporate banking services. The banking industry in the United Kingdom has 157 banks registered in the United Kingdom and 177 foreign banks (Spicer et al. 2014, p34).
Competition in Retail Banking in the United Kingdom
According to House of Commons (2011, p.16), personal savings accounts are controlled by five banks, namely Lloyds Banking Group, Royal Bank of Scotland, HSBC, Barclays and Santanderat at 85%. It indicates that the banks are controlling most personal savings and hold the core banking functions in the country. The competition is well cut, which means that the market value of the banks is huge compared to other industry players. Personal accounts are the core of retail banking, since they initiate the mobilisation of funds. The account defines the relation between the bank and individual customers. It also largely determines the relationship between the customers and their respective financial management capabilities. Within the personal accounts, savings, cheque, credit card and ATM transactions are made. As of 2011, 93% of adults in the United Kingdom held bank accounts translating to over 70 million personal accounts. The Lloyds Banking Group has the controlling share of the market at 30%. Spicer et al. (2014, p. 34) note that the accounts as of 2014 stand at 65 million for the Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays (77% of the market composition).
Capital mobilization, through saving, is subsequently followed by loaning. Loan products include unsecured personal loans, secured personal loans and mortgages. The mortgage market is more defined, since it is surrounded by the real estate business, which reduces risks compared to other products. As of 2011, the five major banks controlled 63% of the mortgage market (House of Commons 2011, p.17). The Bank of England (2014, p.2) notes that the banks currently control 70% of the lending business, 75% of mortgages and 50% of personal loans. The Lloyds Banking Group is again the leading banking institution offering mortgages in the United Kingdom. This bank is also a leader in offering unsecured and secured loans to the retail banking customer base (House of Commons 2011, p. 21).
Analysis of the Industry
Threats to Retail Banking
In recent times, the banking retail industry has faced the global financial meltdown of 2008/12. The financial market went into disarray failing in all its three services in core, secondary and peripheral. It saw banks lose money and ask for bailouts from the governments. The confidence customers had placed on them waned thereafter leading excessive withdrawal of savings and massive defaults in loan repayment. Until today, the sector is still recovering from the financial crisis (Bank of England 2014, p. 1). According to Spicer et al. (2014, p. 24), the financial crisis was first felt in United Kingdom in 2008 when the Lehman Brothers collapsed in 2008. In the same year, the Lloyds Banking Group that is the largest bank, as indicated above, was bailed out by the United Kingdom government to prevent its collapse. The bailout was also extended to Royal Bank of Scotland, which is the second largest bank.
The financial crisis was a collection of common retail banking problems. They include limited assessment of risks, craving for profits, manipulation of company figures, ease of lending to promote sales and customer retention, hefty compensation for notch personnel and total disregard for industry regulations and best practices. These problems threatened to wipe out financial services in 2008-2012.
Opportunities in Retail Banking
According to Spicer et al. (2014, p. 30), opportunities in the retail banking after the financial crisis lie in recovering consumer confidence in the services. As such, the retail banking industry aims at improving, diversifying services and reducing risk exposures. The opportunities thus lie in culture and technology. The banking culture offers a turn around on previous investment decisions that almost killed the industry. The opportunity in cultural shift is boosting confidence of customers in the sphere of retail banking. In recent times, 500,000 complaints have been placed in Financial Ombudsman Office. 63% of the complaints target major banks and revolve around payment protection insurance.
On the other hand, technology is also envisaged as a leading tool with the ability of reshaping the retail banking. The services of retailed banking require redefinition and reconfiguration to factor in new trends of online and mobile banking. This is known as digital banking. Digital banking reconfigures the relationship between the customer and the bank to the extent that the user limits their interaction with service provider, but the same time attains maximum service delivery and product education. This process occurs without stepping into the bank through the internet. According to Barty and Ricketts (2014, p. 52), RBS considers the mobile app as their busiest branch.
Summary of Marketing Strategies in the Retail Banking
The marketing strategy functions by creating awareness and motivating the customer to buy the available products. In the marketing strategy, the company usually considers the four Ps: price, product, placement, and promotion. The four Ps differently influence the marketing strategies (Pride & Ferrell, 2010 p. 28). Digital banking is a common product used as a marketing strategy with retail banking strategy. As noted above, it is a modern trend with capabilities of revolutionizing the banking sector. Thus, investing in these platforms has become popular. Equally, the banks offer different pricing ranges for their products. However, after the financial crisis, more caution is placed on ensuring that there is limited under- and overpricing of services and loans. The banks currently indicate reduced pressure on sales agents as well as a reduction in the incentives extended to them (Spicer et al. 2014, p. 41).
The House of Commons (2011, p. 23) builds no consensus on the competitiveness of retail banking based on concentration of branches. The report further notes that the major banks provide the same services in the same way with little or no differentiation. This factor explains why customer satisfaction concerning the banks is almost similar with Lloyds, RBS, HSBC and Barclays having margins of 49%, 55%, 58%, and 53% respectively. On the homepages of HSBC and Lloyds, for instance, the Internet and mobile banking have been given prominence.
The promotional mix is nonetheless more independent for the companies offering customers different incentives to open accounts with them. They include club benefits and interest rates on savings, as indicated on the Lloyds website, while HSBC offers free withdrawals and Loyalty Cash for customers who maintain accounts for long.
Analysis of the Market of a Single Firm
HSBC, in its strategic plan, identifies three key areas of possible growth. They include growth of the business, returns on investments, observance of international regulations and adherence to industry practices and regulations. Marketing is closely related to the growth of business that eventually guarantees returns. The company aims at expanding its global operations in relation to global growth and with reference to emerging economies. The advantages anchored on by the firms include the international network and the financial muscle (HSBC, 2013, p.13).
Relationship between Marketing Issues and Theoretical Marketing Mix
In the United Kingdom’s market, the company aims at attaining full scale business potential through the wealth management. In this strategy, investments focus on United Kingdom and Hong Kong, where profitability is guaranteed based on products and pricing. In applying the marketing mix to the company’s growth strategy in the retail banking sub sector, HSBC aims at expanding deposits and loans for the two markets. The operating tools include connectivity that is largely placed on the use of digital platforms to built products that meet current customers’ needs. The principle for marketing is asset base of the bank that builds a consumer perception concerning sustainability and confidence in savings. Finally, products are differentiated from basic banking where transactions are made on deposits to HSBC Premier that customizes services, advice and banking relationship in view of the global citizen. The promotional mix captures a mobile customer, whose service is pegged on convenience at a suitable price (HSBC, 2013, p. 15; Pride and Ferrell, 2010 p. 28).
Conclusion and Recommendation
It is evident that banks in the United Kingdom are operating under a cautionary landscape after the global financial crisis. However, the banks have managed to change their previous risk prone operations module to more responsible and ethical banking. This change is further affirmed by the regulatory pressure from the Bank of England and other supervisory bodies. It remains without question that retail banking is still the core of banking services in the country. Further, the application of digital technology continues to open new avenues for banks to engage their customers through products and services and reduced physical contact with customers.
Thus, the current paper recommends that
- Banks should market uptake of digital banking services to boost consumer confidence after the financial crisis;
- Banks should increase adequate investments for mobile financial service platforms such as security and e-markets.