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Table of Contents
1. Strategic responses to change in retail banking in the UK........................................................................... 1
Bibliography...................................................................................................................................................... 10
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Strategic responses to change in retail banking in the UK
Author: Trethowan, John; Scullion, Gerry
Publication info: The International Journal of Bank Marketing 15. 2 (1997): 60-68.
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Abstract: This paper notes how deregulation in the banking industry has increased levels of competition in what
was a highly protected sector. This increase in competition made demands on banks to manage their strategic
positioning. The banks were unused to dealing with such large and rapid changes, and recent history shows
that many mistakes were made in the strategies they adopted. The paper examines the situation which has
resulted from these mistakes and the strategies which banks should be adopting in the 1990s and beyond. A
postal survey was conducted among a population of major UK and Irish banks, strategic responses were
fleshed out and practical examples of current practice were used to reinforce these responses.
Full Text: John Trethowan: Strategic Planning Manager, Northern Bank Group, Belfast, Northern Ireland Gerry
Scullion: Lecturer in Strategic Management, School of Management, University of Ulster at Jordanstown,
Newtownabbey, Northern Ireland There has been much recent public discussion and press comment on the
services provided by banks in the UK. Articles frequently appear in the media highlighting where the service
offered by banks falls short of public expectations. These articles reflect the effects of the changes in the
banking industry without examining the causes that lie behind the issues. Retail banks exist to service the
financial needs of business and society. Over the past two decades, through advances in technology and the
movement in global politics away from central control of economies, great changes began and continued to take
place in the banking industry's operating environment. The deregulation of financial services markets in the
1980s, and in particular the growing focus of both consumers and producers on quality, has created a process
of structural change in the banking industry. Retail banking is a commodity service and the effects of these
changes are therefore experienced by most of the population. Banking has been regarded as a conservative
industry; previously the pace of change was such that strategy could be defined and implemented
incrementally, or could just be allowed to emerge. When regulatory and environmental changes became
discontinuous, in the period known as "the big bang", the larger UK banks reacted with a series of unsuitable
strategic responses that neglected their core business for illusory profit objectives. The future strategy tot these
banks will be heavily influenced by two factors: 1 The situation the larger banks now find themselves in as a
consequence of the poor strategic decisions over the past decade. 2 The culture in banking which has been
created over a much longer period. Current thinking on strategy in the industry is being shaped by the
performance of the smaller retail banks over the past decade. Through the discipline of their size and the
amount of available investment capital, the smaller regional banks have been successful by concentrating on
their core business of providing retail financial services in their local market, and being responsive to the local
communities that they serve. Their increasing market focus points the way to the strategies that banks must
continue to develop to be successful. A postal survey was conducted in 1995 to validate the findings of this
article. The survey specifically targeted individuals closely involved in the study of strategy and in the
formulation of strategic policy responses. These individuals would, consequently, be fully aware of the
theoretical and practical considerations involved in this process. The resulting population was limited to senior
executives within the banking sector and academics from the banking and finance faculties within universities in
the UK and the Republic of Ireland. The retail banking sector in theses countries is dominated by relatively few
players and therefore the number surveyed (23), represented over 80 per cent of the total involved in strategic
policy formulation in retail banking and the responses received (19), thus provided a considerable insight into
current thinking in this area. These responses are the basis of the findings set out in Table I. Asset and liability
12 October 2012 Page 1 of 10 ProQuest
strategy Banks differ from most organizations in that their trading position is directly influenced by the profile of
their balance sheets. This is due to regulations set by banking's international regulatory body, the Bank of
International Settlements (BIS). The importance of capital to bank regulators is that it is seen as the primary
insurance policy to cover risks in the industry. Bank regulators in ECmember countries were required to
implement the Base Capital Convergence agreements during 1992, as part of the arrangements for the open
market. This will, in principle, provide a pan-European market in banking. The Basle agreement regulates the
minimum capital to cover banking business with an emphasis on Tier 1 capital. The definition of Tier 1 and Tier
2 capital is shown in Figure 1. Tier 1 capital is important for its ability to act as an insurance against credit risks,
as it is this class that absorbs bad debt charges. Banks actively manage their balance sheets to maintain capital
adequacy and liquidity ratios that meet the regulatory requirements, borrowing short-term capital when
necessary from the inter-bank market, and assessing the impact on the balance sheet of marketing and pricing
policies. Indeed, Llewellyn[1] argues that capital adequacy will be the key element in the formation of strategy in
retail banking in the 1990s. The survey confirmed this with a 95 per cent agreement with this view.
Conventional wisdom sees banks as powerful organizations that make supernormal levels of profit; however, in
the period from 1987 to 1990, the "big four" clearers saw Pounds 3.8 billion, or 69 per cent, of their operating
profits disappear as bad debts. These statistics are calamitous, as profits are the main source of new finance for
any organization, and the problem is compounded by the fact that the shareholders of the banks expect no cut
in dividends irrespective of post-tax results. An analysis of the published accounts of banks over the past few
years shows 82 per cent of post-tax profit has been distributed to shareholders, some banks have even had to
pay dividends from capital; and this in an industry regulated on adequate levels of capital. The emerging capital
problem has been caused partly by bad debts, which were brought about by the economic trade cycles. The
recessions at the beginning of the 1980s, and more recently over the past two years, and the resultant levels of
bad debts, demonstrate the partnership banks have withsociety. The incidence of bad debts has been
exacerbated by the banks' response to the deregulation of the markets, and the increased competition for
business that resulted in the over-heated economy of the mid-1980s. The effect of an economy awash with
easily available credit was a boom based on grossly inflated property prices. The banks, it seemed, learned little
from a similar situation in the late 1960s. In an overheating economy, inflation began to accelerate, and the
resultant steps taken by the Government caused a fall in demand that brought such a reduction in property
prices that many people now owe more than their property is worth. This will have consequences for the
recovery in the economy and for the continuing incidence of bad debts for both banks and building societies.
The UK is now described in the Economist as a savings society, however, the technical definition of savings
also encompasses the repayment of debt, which does little to increase the revenue streams in the banking
industry when demand for new credit is low. The larger banks made a number of unsuitable strategic decisions,
against the backdrop of a saturated domestic market, which both utilized their capital and incurred even more
bad debts, these were: - Incurring large exposures to sovereign debt to African and South American countries,
whose economies were heavily dependent on commodity prices. Many defaulted as these prices slumped
during the 1980s. - Entering new markets, through acquisitions. This chiefly happened in the USA, but many UK
banks incurred huge bad debts in an "unknown" economy that was overheating through credit availability, in a
manner similar to the USA. This is now history. However, the legacy of these decisions is that the banking
industry is now under-capitalized. Access to fresh capital from the stock market is limited, as BIS regulations
place a ceiling on the amount of loan stock that can be held by banks, and the stock market also frowns on
rights issues called for merely to rectify financial difficulties. This underscores Llewellyn's prediction[1] that
capital adequacy will be a key factor in the strategies that banks employ. Consumers of banking services have
already begun to experience these strategies in their everyday dealings, as the banks seek to increase
profitability in ways that reduce their reliance on capital cover. Strategies to conserve capital include: - Banks
have been re-examining the quality of their existing lending portfolios, and taking steps to increase the quality of
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future advances. This will have implications for commerce and industry as the economy seeks recovery, as
banks will be increasingly risk averse in their lending policies to incur fewer bad debts in the future. - Many
banks are choosing to insure certain risks externally, with the cost borne by the borrower, rather than relying on
their own Tier 1 capital to provide an internal insurance fund. In the personal sector it is now common for the
final 20 per cent of mortgage risk to be insured, and many banks now offer, as an option, accident, sickness and
unemployment insurance as part of their personal sector lending packages. - Some banks have chosen to "sell
off" part of their lending to decrease their requirement for Tier 1 capital cover, while simultaneously allowing
them to offer a full range of banking services to their customers. This is akin to a business factoring its debts.
The main strategy employed to reduce dependence on capital is the growing emphasis on "off-balance sheet"
or non-interest income, for example, commissions for services that previously were performed free of charge. In
the survey, 74 per cent of the respondents agreed that this source of income would continue to grow in
importance. Non-interest income has the added attraction to banks of incurring little risk of bad debt. This
strategy is achieved in two main ways: 1 The increased emphasis on charging for services consumed through
fees and commissions. Banking is one of the few professional services where the consumer had come to
expect cheap or even free service, as costs were traditionally absorbed by the banks when they were building
market share in their mass marketing phase in more profitable times. 2 Banks have also sought to supplement
their non-interest income by expanding their operations to complementary non-core activities that are sources of
commission income, such as life assurance broking and manufacturing. Abbey National took over Scottish
Mutual Assurance in 1992 and achieved 60,000 life proposals in its first five months of operation in 1993,
capturing Pounds 191 million in new business. The most radical capital strategies involve selling off
subsidiaries, which is chiefly used when conditions prevent access to institutional capital, or, in extreme cases,
merger with another institution. Market strategy The influence of depleted capital has already been highlighted
as dictating strategy in banking in the 1990s. The other key factor that will influence progress in the industry is
the market strategy adopted by the banks. Capital is in short supply in banking, with over-capacity in the
financial services industry, therefore banks are making the classic strategic decisions as to which market
segments they wish to service and in what way. Banks had previously attempted to be "all things to all men" as
they embarked on mass marketing campaigns; now increasing efforts are being expended in determining which
customer segments provide the most profit potential. In the USA this has led to both Bankers Trust and JP
Morgan selling their branch networks to concentrate exclusively on their corporate banking business. The basic
thrust of bank marketing strategies in the 1990s will be to increase the penetration of products to their existing
customers through more effective cross-selling. Gavigan[2], has articulated this strategy as: - it is much easier,
and cheaper, to sell to "warm bodies"; and - farming an existing account base is much better than hunting for
new customers. The survey results show 84 per cent agreement that much of the banks' marketing effort will be
focused in their own account bases. The Royal Bank of Scotland has been highly successful with its Direct Line
motor insurance subsidiary. This combines an expansion into a new area of operation with a low cost,
convenient telephone delivery system. It had one million customers by 1992, becoming the UK's largest private
motor car insurance company and achieving premiums of Pounds 409 million and profits of Pounds 50 million.
Segmentation Huge relational databases are being built that will capture data on customers from their day-to-
day transactions through the bank's Information Technology (IT) systems. This will provide bank marketers with
information to improve techniques to identify customer segments and predict customer needs. Segmentation, in
the past, was a crude affair used to blanket the market with fairly unsophisticated marketing techniques such as
the ubiquitous mailshot. The objectives of segmentation in the 1990s are to profile the lifestyle of those in the
customer base (in addition to their demographics) in order to tailor products and delivery to meet the needs of
the selected segments. Price Banks are increasingly anxious to measure the profitability of their products, and
with this knowledge, to aggregate a customer's product portfolio to determine the profitability of each customer.
Similarly, by consolidating the profitability of similar customers, segment profitability can be determined, and this
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indicates which segments are attractive for bank marketing. The survey results confirm that 95 per cent agree
that customer profitability information will influence marketing strategy. Shapiro et al.[3] explain customer
profitability as falling into quadrants as shown in Figure 2. These classes of customer are increasingly being
recognized, with banks tailoring their strategies to target those segments that match their own positioning.
Crane and Eccles[4], suggest that business units be treated as a separate business. Once separated then each
division can develop its own strategy based on the segment it serves. A retail bank may adopt a relationship
strategy based on attracting the low profit cash transmission business of customers in the "carriage trade"
segment, and then deepen the relationship by superior service, to cross-sell more profitable products. The
same bank may use another division to service the "bargain basement customers", through a non-branch
telephone banking system, which has a product based focus. Obviously those banks that operate on low costs
and have good credit policies can offer lower prices, and will dictate prices in the industry. Delivery and
distribution Changing lifestyles and increased affluence have led to higher service expectations by the
customer, this has made distribution the key marketing variable of the 1990s. This statement gained 84 per cent
agreement in the survey. The traditional delivery channel is the branch network. The mass marketing era saw
the establishment of branches on every main thoroughfare, however as this investment took place it was not
fully recognized that these new non-business customers did not have the same discretionary time to visit the
branches as the business community on which banks had traditionally focused. This new mass market was
engaged in earning their incomes in the 10.00 a.m. until 3.30 p.m. slot that the banks chose to do their
business. Prior to the introduction of computers, banks needed time to perform manual account administration,
at which times the public were seen as an "inconvenience". This is now changing, with 9.00 a.m. until 5.00 p.m.
opening, and late evening and Saturday opening returning. The introduction of widespread networks of cash
machines, and the willingness of retailers to give cash on the growing numbers of debit cards is reducing the
need for personal customers to come into a branch. Survey findings show that only 70 per cent of personal
customers are expected to visit a branch, and 68 per cent of the respondents believe that fewer customers will
come into branches in the future. The delivery of products to the personal sector is an important area of
strategic thinking, as there is a perception of non-availability of branch service, and this is coupled with the
increasing number of non-branch outlets for obtaining cash. Pottruck[5] states that product innovation no longer
offers banks a source of sustainable competitive advantage, as sophistication in IT means that products can be
quickly copied. The survey shows 63 per cent agreement with this statement. Marketing strategy is thus
increasingly focused on delivery. The survey shows that 84 per cent of respondents believe that the numbers of
banks offering an alternative to the traditional branch network will increase, and 84 per cent also believe that
types of these channels will also increase: - Direct marketing. Midland Bank and the Bank of Ireland both
operate subsidiaries that are "branchless banks". Midland's First Direct is open 24 hours a day, and 365 days a
year. These channels offer the following advantages: - -Convenience. Products are delivered direct into the
customers living room, thus removing the time and place variables of the marketing mix. - -Totally sales-
oriented. Allows focus on high standards of retailing skills, rather than staff also having to be concerned with
account administration and maintenance. A highly trained staff whose only focus is on retailing skills, enables
the customer's full potential business to be realized. - -Low maintenance costs. Although there are high initial
set-up costs, there is no multiple branch network to staff and maintain in high cost commercial locations.
Economies of scale can be realized in siting this delivery channel in one location, which need not be in a high
cost prime commercial site. Midland's First Direct is open 24 hours a day, and 365 days a year. In 1992 it had
300,000 customers, of which 70 per cent were not previously Midland Bank clients. More than 50 per cent of
these customers used First Direct for their primary banking relationship and the Bank achieved a 92 per cent
customer satisfaction rating. - Branch networks. They are the primary delivery channels for bank services, and
also act as a barrier to entry in the industry. However, today's networks are largely unplanned affairs, resulting
from the merger and acquisition activity of the 1960s. They are also vulnerable to incurring excessive costs.
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This has led to a degree of rationalization in the number of branches in Britain, with a reduction of over 2,000 in
the last decade. Many branches were designed in the past to reflect the solidity of the parent bank, not the
needs of the mass market personal customer. However, their architectural features have attracted preservation
orders making them difficult to renovate for today's needs. This increasingly leads to the following strategic
issues: 1 Are all branches necessary and in appropriate locations? Is a high street presence valued over
convenient car parking? 2 Would an acceptable payback be achieved by amalgamating or relocating selected
branches? Products Products are no longer seen as providing banks with sustainable competitive advantage,
however extending the range of services that are available through branches may improve the effectiveness of
these channels. Banks have the people and the systems to distribute "information-based" products that are
linked to their core activities, such as travel services, house sales and conveyancing. Promotion Banks at
present use a mix of advertising and sponsorships at national, regional and local levels. Many banks' promotion
strategies are now turning to building a cultural identity of sales and service excellence that will be recognizable
to their customers and the marketplace in general; the type of positioning that Marks &Spencer have cultivated
in their market. Whitley[6] suggests four points to achieve good third party reputations through the quality of
their sales and service: 1 Product and service quality must be intertwined. This requires commitment to the
concept from the whole organization. The burden should not fall solely on front-line staff in each "moment of
truth" for quality, to achieve the required standards of service. The production and support process must be
tracked back through the organization and the contribution of all involved should meet these standards. 2
Achieving consistency in product and delivery standards requires careful design of both factors to minimize the
variability of the human resource. 3 Organizations must achieve control of standards by adopting techniques
that will turn service into tangible measurements. 4 Standards will continue to improve, therefore what was good
today may not be good enough in a year's time, therefore chosen quality levels must be kept under review.
Banks today need to work hard to repair their image; it is a paradox that when the consumer is seeking higher
standards of quality, much of the focus of bank strategy is on managing to survive with depleted capital
following past strategic mistakes. Human resource strategies The importance of human resource strategy is
crucial to banks, as the performance and cost of those employed in the industry are fundamental to its future
success. The survey shows 84 per cent agreement with this statement. This is another area where banks are
attempting to raise quality and at the same time cutting costs. Human resource strategies must support the
strategic direction of the organization. Cost is a major differentiator in financial services and all major
participants must pay attention to staff costs, which is their major cost driver, to remain competitive. Players in
the industry will continue to match each other around the market price, so other forms of differentiation are
needed, with service quality being increasingly important in achieving competitive advantage. The strategic
challenge of the 1990s is thus to reduce costs while simultaneously improving quality. Staff costs The
deregulation of financial services has pitted banks against building societies, especially in the personal sector.
Building societies enjoy competitive advantage in pricing, principally due to lower staff costs. During the 1980s,
banks began to address this cost area by restructuring their staff, moving towards what Handy[7] describes as
the "shamrock organization", the elements of which are shown in Figure 3. Banks, in the past, needed large
numbers of clerical staff to process the paper that snowballed because of the business generated by the mass
marketing campaigns of the late 1960s. This gave banking unions considerable leverage. Technology
increasingly is providing solutions to the administration of the banks' business. This has led to a waning of union
power and a large drop in the numbers employed in the industry. The obvious place for capital-hungry banks to
save costs, is in reducing their biggest cost area - staff. The reduction in overall numbers is being contrasted by
the rising proportion of part-time staff and contractors. The process will be achieved by voluntary and
compulsory redundancy schemes and by early retirement. It has been predicted by Brian Pitman, chief
executive of Lloyds Bank, that up to 100,000 jobs will have disappeared from the industry by the year 2000 -
75,000 of these jobs have already gone, with 23,000 redundancies announced in 1993 alone. Contracting out
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services is fairly limited at present, confined to areas such as IT development, cash transportation and cheque
printing. Banks thus all individually engage in non-core activities which leads to dis-economies of scale in
premises, capital and manpower, thus raising the general level of costs in the industry. A greater emphasis on
contractors will only happen when suppliers emerge that will provide the same services at a lower cost than the
banks currently incur for the service. As well as being part of the value chain, contractors will also be part of the
quality chain, and must therefore be as reliable as the systems that the banks currently pay dearly to control
themselves. A good example of emerging contract services can be found in the Bank of Ireland, who in addition
to retailing their mortgages in their own right, also offer to manufacture this product for smaller institutions as a
contract service. Staff Quality Culture In addition to saving costs, banks will also take the opportunity to
indoctrinate the lower cost replacements with the new emerging "sales and service" culture, rather than the
administration culture required of the last generation. This culture can achieved in existing core staff by
articulating a clear vision of "what banks are changing into", and by understanding and counselling their staff on
the psychology of change. Training Banks' current difficulties have not only led to a cut in staff numbers, but
also in training budgets, However the survey shows 84 per cent agreement that training investment will rise
significantly in the next few years. Training has been traditionally focused on administrative tasks (that reflected
the tasks that the banks required prior to automation). Now, however, there is a growing focus on market-
oriented training, with 95 per cent of respondents agreeing that this trend will continue. In addition to these
retailing skills, the following areas should also be addressed: - Credit assessment is traditionally what banks
should excel in, however, the experience of the past few years points to a need for further training in this area.
Lending account managers should have some exposure in industry to experience the trials and tribulations of
their clients. They should also spend some time in their own head office/regional office lending control function
to experience life from that side of the fence. Lessons can also be learned when a bank does lose money. The
lending can be turned into a case study, which after protecting the identity of all concerned, should be circulated
to all lenders so that the shared wisdom of the organization may increase. - Bankers receive little training
specifically on the business of retail banking, and how their own organization functions. Bankers are traditionally
more comfortable interpreting their customers' profit and loss accounts rather than those of their own banks.
There is also little formal understanding of the organizational structure, or in its co-ordinating mechanisms that
impact daily on the working life of the staff. Staff will always be more effective if they understand the process in
which they are involved. - Bankers have become highly dependent on IT but understand little about systems
and software that can make them more productive. Most bank staff understand IT only as the "batched"
commands coded on their computers. As banks become more sophisticated there is a greater need for
spreadsheet skills for planning and analysis, and there is a huge saving to be realized if text is typed directly
onto a PC, rather than copy-typing longhand notes, by the acquisition of wordprocessing skills. IT strategy
Money has frequently been described as "information in motion" and banks are among the biggest users of
information technology. Over the past two decades IT has allowed banks to expand their activities to the mass
market, however the survey results show that 85 per cent of retail bankers are not fully satisfied with their IT
systems. The first generation of automation has now passed, and in retrospect three main failings have been
identified: 1 Systems were initially designed with a product focus. This has led to systems in banking resembling
patchwork quilts, constantly in a state of repair and modification. Problems associated with systems that no
longer match the needs of the business are: - Line staff being unable to cope with the administrative burden,
caused by the work generated to achieve operating plans. - Customers of one division not being identified as
common customers of the group as the types of products that banks offer expands. This resulted in poor
performance in cross-selling, which is the very area that banks are staking out as their main marketing strategy.
2 Lack of user involvement in the design and implementation of the systems. The first generation of systems
analysts consulted with users and then disappeared until implementation date when it was too late for users to
comment on the systems that they would have to use every day. 3 Many banks set up their initial IT accounting
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systems at account level, to reflect the way they had administered their old manual systems. It was easy to
detect the extent of a customer's overall relationship by examining physical ledger pages. However, automating
this arrangement gave banks real headaches in retrieving customers' files from all around their systems.
Paradoxically, just as banks' systems are addressing this issue, the banks' voluntary code of practice is placing
constraints on how they use information on their personal customers. Although capital is scarce in the industry,
banks continue to invest huge sums in IT, as it is acknowledged that lack of investment in this area damages a
bank's ability to compete effectively. Banks are making the transition to customer-based information being held
on relational databases in their efforts to become more market-oriented and to resolve the difficulties of holding
details of customers at account level. The details of individual accounts are clustered around the customer's
static details records, such as name and age. The speed at which technology continues to develop makes
predicting the future of systems in banking difficult, but IT solutions to business problems must: - provide
information support to place the customer in the centre of their operations; - aid in-time compression in the
development of banks' products and services; and - reduce overall costs by improving productivity throughout
the organization. Organizational strategy/ operational procedures It is evident that various strategic areas
already discussed cannot be viewed discretely; capital adequacy is influencing marketing strategy, which in turn
is influencing human resource and IT strategies. These in turn are closely linked to how banks operate and
organize themselves. At present, banks are highly bureaucratized organizations that are set up to excel in
administrative procedures rather than as retailers. This is achieved by using the divisionalized form supported
by machine bureaucracies that have served the banks well and will continue to predominate. This provides tight
controls of standards and performance, both in the internal operation of banks, and in facilitating fairness and
standards to the customer, especially as a major part of their operation entails performing a number of tasks
routinely, many times and across a large number of remote locations. Banks will continue to fine-tune their
organizations to facilitate change, to be more market-oriented and to save costs. This will be achieved by
implementing wider, flatter organizations with improved internal communication by initiatives such as: - Hub and
spoke operations. IT offers the potential to reduce manual administration further and de-skill lending and
product delivery. It is increasingly feasible to lower costs by removing expensive tiers of management from
"spoke" branches, and concentrate fewer number of managers in "hub" branches, from which they will service
these spokes when necessary. Unit grouping. Banks are one of the few retailers whose staff are grouped along
the functional lines of the administrative tasks that take up most of their time. Jobs in banking are thus still
classified as cashiers, typists and keyboard operators. The official leaves his or her functional role when
retailing, and becomes a "jack of all trades" across the product range. A few banks have been moving to a
customer grouping, by which officials specialize in servicing the needs of a customer segment, and are expert at
market communication and delivery for the products and services suitable for this segment. - Internal control
systems. Banks are implementing increasingly sophisticated management planning and information systems, so
that expected performance from each unit can be planned and controlled on an exception basis, thus allowing
fewer managers to control the business. The local bank manager has become increasingly aware of his local
market, and is required to prepare an annual operating plan that includes sales and financial targets, and the
tactics to achieve them. Banks are investing in management development to improve the standards of their
managerial staff. This is being achieved by traditional formal training and career paths, which expose managers
to experience in various operational areas in branches and head office support functions, so that they can
perform their roles increasingly effectively as they progress through the bank. Conclusions Banks are going
through a crucial period of changing policies and culture, in which not all the current players will survive.
Following the removal of the barriers that once protected banks from competition, their initial strategic
responses have been unsuitable, leading to a shortage of capital and a degree of disenchantment by customers
who, in the absence of adequate levels of service quality, have objected to paying higher charges that reflect
the cost of providing the services that they consume. Sources of this increased competition were: - banks
12 October 2012 Page 7 of 10 ProQuest
recognizing their ability to generate business through marketing; Building Societies Act increased thenumber of
players, especially in the personal sector market; - foreign banks could "cherry pick" business and compete with
attractive pricing as a consequence of having a higher proportion of assets to equity, offering them a higher
return on equity. Deregulation, while increasing the level of rivalry in the industry, has allowed banks to diversify
into new areas that complement their core activity, and allow more potential revenue to be identified in existing
account bases. The demography of the UK shows an ageing population that, as the second post-industrial
generation, will increasingly have their own affluence increased by the assets inherited from the first generation
with widely held wealth. This will determine lifestyles, and banks are continually developing their product
portfolios to match the financial needs of profitable segments. Irrespective of which marketing strategy is used,
pricing will in future have to take account of: covering the cost to operate in thatmarket; - an element of pricing
will act as credit risk insurance; and - a profit margin. The attainment of a quality award should not be seen as
an end in product promotion strategy; the public quickly see through unsubstantiated claims on quality.
Improvement in customer satisfaction levels should be the objective, rather than wearing a quality badge.
Systems analysts are now more aware of the need to involve business users in the design and development of
new systems, and there is evidence of "hybrid managers" evolving who have both IT and business
competences. One of the benefits of computerization is a more consistent approach to the process of product
delivery in the industry, which enables cost accounting techniques to calculate the profitability of individual
financial products and services, thereby allowing for the equitable charging of services consumed. At the same
time, banks are striving to raise the standard and quality of their operations, in consideration for these charges.
It is the effectiveness of management at all levels of the organization that determines the success of both
development and implementation of strategies. Conventional wisdom views bank managers as a rather staid,
authoritarian and conservative breed, whose main objective is to lend money. This stereotype has been
radically altered during the last decade, with the increase in competition following the deregulation of the
industry. Banks are addressing their profitability by demand-side measures such as aggressive marketing, and
recovering costs by fees and charges, while the customers are seeking supply-side strategies from their bank.
These supply-side measures include increasing quality of products, delivery and the competence of, and way
they are treated by, staff. References 1. Llewellyn, D.T., "Bank capital: the strategic issue of the 1990s",
Banking World, Vol. 10 No. 1, 1992, pp. 20-5. 2. Gavigan, K., "Marketing financial services", Belfast Meeting of
the Institute of Bankers in Ireland, September 1992.. 3. Shapiro, B.P., Rangan, V.K., Moriarty, R.T. and Ross,
E.B., "Manage customers for profit (not just sales)", Harvard Business Review, Vol. 65 No. 5, 1987, pp. 101-8.
4. Crane, D.B. and Eccles K.G., "Commercial banks: taking shape in troubled times", Harvard Business Review,
Vol. 65 No. 6, 1987, pp. 94-100. 5. Pottruck, D.S., "Distribution systems as a strategic marketing weapon",
Retail Bankers Management Review, September 1992.. 6. Whitley, R., The Customer Driven Company: Moving
from Talk to Action, Random Century, London Business Books, 1991. 7. Handy, C., "The age of unreason",
Arrow Books, 1989. Illustration Caption: Table I; Survey findings; Figure 1; The composition of a bank's balance
sheet; Figure 2; Shapiro's matrix of customer traits; Figure 3; Charles Handy's shamrock organization
Subject: Studies; Financial services; Deregulation; Organizational change
Location: United Kingdom, UK, Ireland
Classification: 2500: Organizational behavior, 9130: Experimental/theoretical, 8100: Financial services industry,
4310: Regulation, 9175: Western Europe
Publication title: The International Journal of Bank Marketing
Volume: 15
Issue: 2
12 October 2012 Page 8 of 10 ProQuest
Pages: 60-68
Number of pages: 0
Publication year: 1997
Publication date: 1997
Year: 1997
Publisher: Emerald Group Publishing, Limited
Place of publication: Bradford
Country of publication: United Kingdom
Journal subject: Business And Economics--Banking And Finance, Business And Economics--Marketing And
Purchasing
ISSN: 02652323
Source type: Scholarly Journals
Language of publication: English
Document type: Feature
ProQuest document ID: 231339997
Document URL: http://search.proquest.com/docview/231339997?accountid=132872
Copyright: Copyright MCB UP Limited (MCB) 1997
Last updated: 2010-06-10
Database: Banking Information Source
12 October 2012 Page 9 of 10 ProQuest
Bibliography
Citation style: Harvard - British Standard
TRETHOWAN, J. and SCULLION, G., 1997. Strategic responses to change in retail banking in the UK. The
International Journal of Bank Marketing, 15(2), pp. 60-68.

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12 October 2012 Page 10 of 10 ProQuest