Marketing Issues and Challenges of Retail Banking in the UK with Special

Reference to HSBC Introduction
Retailing industry occupies a prominent segment in any economy both in terms of GDP contribution and share in total employment. Retail has been acknowledged as one of the major employment sources all over the world and the number of potential opportunities in the sector is on the rise. Many changes have been occurred in the field of retailing and hence marketing functions too have been experiencing dramatic changes across the world by virtue of the unrelenting wave of globalization sweeping across the world. Real estate, franchising and retailing businesses are the most affected ones. Among these major sectors retail industry has undergone a spurt growth as a result of the emergence and mushrooming of departmental stores and malls in many cities. Many reasons can be attributed to this unprecedented growth and the insatiable appetite of the never satisfied consumers seems to the major reason. This paper examines the marketing issues and challenges of retail banking in the UK with special reference to HSBC in the banking sector. The paper attempts to dwell on the intricacies of service marketing that may arise in the efforts to sell financial services of the bank.
Retail Banking in the UK
Retail banking is not a new buzzword in the banking industry as banks have been providing retail banking services since its inception. But, the retail spurt in banking industry has only a few years history. Retail banking means and includes all dealings and transactions of a bank with its individual customers. In the words of Shyamala Gopinath, Deputy Governor of Reserve Bank of India, "Retail banking is, however, quite broad in nature - it refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed, current / savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing, auto, and educational) on the assets side, are the more important of the products offered by banks. Related ancillary services include credit cards or depository services" (Gopinath, 2005, 1). In her opinion, "Today's retail banking sector is characterized by three basic characteristics:
> Multiple products (deposits, credit cards, insurance, investments and securities);
> Multiple channels of distribution (call centre, branch, Internet and kiosk); and
> Multiple customer groups (consumer, small business, and corporate)" (Gopinath,2005, 1).
Over the last few years, retail banking in the country has been experiencing a tremendous innovation and spectacular growth owing to the rapid advances in information technology, financial sector reforms, growth of the country, increasing per capita income and several micro level demand- and supply-related factors. The retail loan segment shows an unprecedented growth in the country and there seems to have a boom in the housing sector, though badly affected by the US sub prime crisis. The official source of one of the successful retail bank (KPMGBank) in the country states that "here are some exciting opportunities in emerging markets, driven by rapid GDP and population growth. In the mature markets branch banking is being revitalized and multichannel delivery continues to evolve. Mobile payments and pre-paid cards are taking off and ageing populations are helping to drive demand for new and different products"(Retail Banking). All these can be attributed as the reasons for the sudden growth of retail banking in the UK. In terms of the economic benefits and its contribution to the populace, retail banking in the country assumes much significance. The British Bankers Association in its manifesto remarks "In 2002, UK financial services account for 5.3 % of the UK economy and it provided for 1 million jobs, which is around UK's 3.5% of total UK employment. The UK is one of the cheapest countries in the world to bank in, with free 'if in credit' banking being a unique national feature of UK bank accounts. The cost to the individual of running a typical current account in the UK is, on average, 70% lower than in comparable countries" (British Bankers Association)
Major Drivers of Retail Banking in the UK
> The growth and prosperity of the UK economy and the resultant improvement in the purchasing power of people have given a fillip to the consumer loan segment.
> The UK demographic advantage is another positive factor. Changing consumer demographics indicate a vast potential for growth in consumption, both
qualitatively and quantitatively.
> Technology has played a significant role in the growth and development of retail banking, which has developed a new phenomenon in the banking sector known as convenience banking. The offspring of convenient banking are debit cards,
ATMs, Internet and mobile banking.
> Rising Income of the Population
> Change in Consumer Behavior
> Explosion of Media
> Entry of the Corporate Sector
> New Entrepreneurs
Marketing Environment of Retail Banking Industry
Retail banking has evolved into a customer-focused industry (Karr, 1994). To sustain and develop bankers need to develop a stronger market presence and examine their operations. Banks may need to update personnel, marketing techniques, and public relations (Morall, 1994). According to Graham (1994), "marketing-oriented banks will outperform the competition under any environment if they have the determination and commitment to implement effective strategies". The marketing management process for banks involves the development of sales personnel, marketing program support, customer relations and service, market performance, and contribution to profits. The success of a marketing plan depends on the commitment of management and a qualified, well-motivated staff. A real conviction toward marketing by management and a well-managed sales force can add more to a bank's bottom line than any other present banking activity. The way in which a bank delivers customer service communicates a bank's philosophy of business to the customer (Berman and Evans, 1995). "Bank managers once could take a conservative approach to the management of their bank's operations in a highly regulated environment. However the deregulation of the banking industry has forced banks to abandon their passive role and develop a retailing concept to stand out in a suddenly crowded marketplace for financial services (Zunitch, 1994). With the banking industry now in a highly competitive environment, marketing concepts may be a bank's only route to success in the future (Motley, 1994)" (Graham Bourne, 1995).
Issues and Challenges of Service Marketing in the Banking Sector
The success of any entity in the competitive market is a function of a myriad of factors, both internal and external to the firm. Customer satisfaction is one of the most important and well accepted theories of business success. In the modern marketing environment, firms try to focus on customer-oriented marketing approach, which is popularly called Customer Relationship Management. As indicated by Dr. Thomas F. Huertas, Director Wholesale Firms Division, the Institute of Economic Affairs "from the perspective of the regulator, the future of retail banking in the UK should have three characteristics. First, it should be fair to consumers. Second, it should not be unfair to shareholders, in the sense that capital requirements should be adequate, not excessive, and they should be risk based. Third, retail banking in the UK should be open to entry from all qualified parties, regardless of nationality" (Huertas, 2007).
HSBC- A Brief Profile HSBC is one of the largest and oldest modern banking corporations in the world. Though current group holdings and its present structure was formed only in the 1990s, the financial institutions and the original Hong Kong and Shanghai Banking Corporation and the Mercantile Bank that it took over has over a generation of experience in the banking and financial sector. The company prides itself as the "World's Local Bank" and uses the words in all its sites and publications. The original Hong Kong and Shanghai Banking Corporation was started in 1865 by a visionary Scottish businessman called Thomas Sutherland to facilitate growing trade between China and India and the Europe. The company began rapid expansion in Europe and USA even though the main focus was expansion in Asian countries. The company at that time grew large enough even to fund government projects in many developing countries in Asia. World War II saw many of its operations in Asia being closed down. The bank realized that focusing only on Asia was risky and began an expansion program mainly through acquisitions in Europe, Asia and the formation of a organization in the USA. The prominent acquisitions include the Hand Seng Bank, the Mercantile Bank and the British Bank of the Middle East (all in the Asia-Pacific region), the Marine Midland Bank (USA) and the Midland Bank (UK). "The formation of HSBC Holdings plc in 1991, creating a holding company for the entire Group with its shares quoted in London and Hong Kong, showed that the Group viewed Europe and the London market in particular, as a vital part of its future development" (Group History 1980-1999, 2009). The Bank continues its growth strategies and is a very profitable organization even today. Throughout its long history, it can be seen that it was one of growth through banking strategy, innovation and acquisitions and only the major setback to the bank happened during World War I
Marketing Strategies of HSBC - From the Perspectives of the Present Issues and Challenges
The banking and finance industry is characterized by two contrasting factors, namely strict governmental regulations and innovation in lending and deposits. It is also a sector characterized by heavy competition and low margins. In such an environment, the policy as explained by the Bankers Magazine is the correct policy to follow. As per the 2007 annual report of HSBC Plc, the bank will strictly comply with the Basel II capital adequacy framework so that there will be a match between its capital and risk positions. The Bank continues to think in terms of being "The World's Local Bank". "HSBC's strategy reflects its position as 'The World's Local Bank' and is focused on delivering superior growth and earnings over time by building on the Group's heritage, skills and investment" (Report of the Directors: Strategy. 2008, P. 8). The annual report adds that the bank will leverage the brand and existing network to add more value and efficiency to its existing services. This will focus on its existing customers as well as adding new ones. The bank is also trying to portray itself as the "Best Place to Bank" as part of its strategy. To quote another sentence from the report, the bank will "Make Better Products, Sell Them Properly, and Keep Them Sold" (Report of the Directors: Strategy. 2008, P. 8). It is also trying to portray itself as a "Best Place to Work" in an effort to retain and attract the best talent possible in all the markets it operates. The Bank also conducts employee and customer survey in order to rate itself as an employee and brand. Nearly 87% of employees participated in the employee engagement survey. In the case of brand perception, it was conducted by professional external agencies and the score received by the bank was five to seven points ahead of competitor banks. The group also conducts regular customer satisfaction surveys and consistently outperforms rest of the major players in the market.
The bank provides a wide range of products and services continues its efforts to change them for the better and also create new ones. The bank is also actively engaged in expanding its market and is looking for opportunities to open its branches in new countries and markets. Another strategy is strong cost control measures to improve profitability. Its private banking division is also very active and tries its best to keep customers happy with a wide range of products including tax and investment advice, estate planning, stock and share management, mutual funds and currency exchange/ transactions.
As mentioned in the three lenses strategy, most of the strategic ideas come from senior managers of the organizations. According to the research study (titled "Strategizing routines in HSBC (UK))" conducted on the strategic planning system inside the bank, it takes three steps for an initiative, whether it is through idea, experience or design for it to be implemented as a strategy. "These initiatives met two criteria: first, the firm's members identified them as important, and secondly, they changed, or aimed to change, the firm's positioning" (McGee, 12). The top management would view an initiative under two contexts, namely traditional banking and non-traditional banking. The strategy for traditional banking was referred to as exploitation and for non-traditional banking was referred to as exploration. Under traditional banking, three further classifications would be made, namely technology, the organization and products (and services). In the case of traditional banking they would see whether the strategy if implemented would help in cost reduction and centralisation/decentralisation (technology). In the case of organisation, the focus would be whether the strategy would improve the branch network.
In the case of products and services, the focus would be whether the strategy can improve or innovate both of these factors. In non-traditional banking, (with regard to technology), the focus would be on implementation of IT and new electronic delivery channels to improve customer service and experience. For the organization, the focus will be whether the strategy will improve the delivery channels. For products (and services) the focus will be whether the strategy will enable the bank to introduce new products and services. For example, the study says that HSBC was the first to bring in the concept of TV banking in the UK.
As for strategic leadership, it should be noted that the bank is one of the oldest and largest financial institutions in the world. They also have been praised as one of the best run corporations in the world by Bankers Magazine. The leadership takes three steps in the evolution of initiatives and the ultimate implementation of that strategy. The first step is the generation of initiatives. It can include all the three lenses classifications of strategy, although the focus of the above mentioned study was on idea generation. It is obvious that the leadership of the bank has the foresight and vision to allow initiatives to develop. The leadership will also encourage initiatives to come from outside as in the case of TV banking. In this case, the initiative had come from SKY TV and British Telecom. The second stage is the development of the concept. There is a top team for initial approval which will be developed into a concrete plan at this stage. The basic concept is formed and then the roles of each department in the implementation are finalized. If the strategy involves capital expenditure, there are clear limits already set in each case as to how much can be spent on each item. The next stage is the actual implementation of the project. A steering committee and a working committee exist for this purpose. The former has the responsibility of general supervision, development and controlling expenditure. The working committee is responsible for the actual implementation of the project with the support of the steering committee. It is clear that the bank has a well developed strategic leadership setup which helps it be competitive and efficient.
Conclusion
Retail banking is experiencing radical changes and high growth in the present day market. It offers a wide range of products to suit the varied needs of individual customers, who have been considered as master key of the modern business success. The contribution of retail banking for the common good of a country and its populace cannot be over-emphasized. However, the retail sector has been facing challenges and threats from both domestic and international players. All major players are trying to capture the market to acquire more in less time. Among the successful retail banks in the country, HSBC has had a place of prominence in the country as faithful bank. The bank and its various subsidiaries are a very strong and soundly managed organisation. As qualified by Bankers Magazine, it is one of the best run corporations in the world. This requires proper development implementation of strategies. It is seen that the bank is quite capable of doing so and has strategies that are design base, experience based and ideas based. The marketing strategies of the bank are framed in conformity with the future prospects of the retail banking industry in the country. The bank is looking forward to face the challenges with its key employees and efficient management team.

References
Berman, Barry Evans, Joel, 1995, Retail Management, 6th Ed. New York, New York: Macmillan Publishing Company, Inc.
British Bankers Association, A UK Retail Banking Manifesto: addressing the challenges that lie ahead for the industry and its stakeholders, bba.org.uk, viewed 13 January 2009,
Gopinath Shyamala, 2005, Retail Banking Opportunities and Challenges, Banking Frontiers International Conference on Retail Banking Directions: Opportunities and Challenges, viewed 12 January 2009,
Graham Bourne S. & Howard W. Combs, 1995, Quality in Business: Preparing Retail Banking for a Competitive Environment, Review of Business, Vol. 17, 1995
Graham, John, 1994, "What Would You Do?" Bank Marketing 26: 5+, January.
Group History 1980-1999, 2009, HSBC - The Worlds Local Bank, Viewed 11 January 2009,
Huertas F. Thomas, 2007, The Future of Retail Banking in the UK, FSA, fsa.org.uk,
viewed 13 January 2009,

Karr, John, 1994, The Customer is at the Center of Retail Revolution, American Banker 159: 16, October 6.
Morall, Katherine, 1994, State-of-the-Art Sales Training, Bank Marketing 26: 11+, August.
McGee John & Jonathan Menuhin, Strategizing Routines in HSBC (UK), Viewed 13 January 2009,
Retail Banking, KPMG United Kingdom, kpmg.co.uk, viewed 13 January 2009,
Report of the Directors, 2008 Strategy, viewed 11 January 2009,


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