With the competitive nature of the modern business environment, companies are striving to place themselves ahead of competitors in order to appear attractive to the customers and thus maximizing their profits and attaining their goals. For this reason, companies may adopt different pricing strategies depending on their unique marketing goals and objectives as well as the information at hand – information of the industry, production variables and market demography. As a result, businesses have developed various pricing models appropriate to the business itself and the industry explains Olbrich, Jansen and Hundt (2017). The Barclays Bank UK as a case study illustrates how these strategies are instigated in the business world.
Cost-plus pricing model is quite straight-forward and usually adopted by the management of a business if they can estimate the demand and the cost function of the product and are thus able to compute the profit maximizing price. An average standard mark-up measured as a percentage of profit is added to the average cost of the product to determine the price. Johnson (2014) argues that for the model to be effective, an in-depth understanding of the industry to ascertain standard mark-up ranges is essential. It means that the mark-up figures vary with the market. Johnson (2014) further says that this model is simple and brings stability but is somewhat inefficient (reduces incentives for cost cutting) and tends to ignore the role of competitors.
Price discrimination is a strategy where a firm charges different prices to different people for the same service or good or the same customer is charged different prices for a particular service or product based on a number of factors that are not reliant on cost as defined by Bergemann, Brooks and Morris (2015). Price discrimination can be implemented according to quantity or category (of customer) and the model can only be effective if the firm is largely the price maker and segmentation of the market is possible, states Bergemann, Brooks and Morris (2015). Firms must pay attention to price elasticity for the units of the products to ensure effective results. This model of pricing is common in car sales, professionals such as architects and lawyers and with the Middle Eastern bazaars where bargaining is popular.
Predatory pricing is a form of price discrimination where a firm charges a price below the average costs in one market and offsets that reduction with higher prices in another market where it faces less completion, explains Areeda (2016). This method is sometimes used by firms to force competitors out of the market according to Areeda (2016).
Another strategy for pricing is multiple product pricing used by firms offering more than one product. The firms adopting this strategy will have to assess the prices of all the products together, making close considerations to the price elasticity of demand of the loss leader (bargain buys) explains Yu, Chen and Wu (2014). This form of multiple pricing is referred to as full range pricing. For the multiple pricing policy to be effective the firm has to consider the relationship of the products as being complements or substitutes so as to reap fully.
Barclays UK prides itself as a banking franchise built around the needs of its customers and that its pricing models are usually customer oriented (Barclays, 2015). Because of the several services the bank offers, it has adopted the model of price discrimination for the same service accomplished through different platforms. For instance, the company has two payments plans; Mixed Payments Plan (use cash, cheques or a range of ways) and e-Payments Plan (Online Banking and debit cards) where the charges per item differ depending on the category of the service (Barclays, 2016).
Figure 1Barclays Bank price plan (Source: Barclays, 2016)
The charges for transacting online or use of debit cards are higher than other forms of transactions for the same service. The nature of the services offered by Barclays UK also calls for multiple pricing method. School loans and health bills are offered at a cheaper rate compared to mortgages, making the school loans and health bills loss leaders (Barclays, 2016). This is a way of attracting customers to cheaper financial loans with the hope that they will stick with the bank and take up other businesses with the bank. Also notable model by Barclays is the international price discrimination. The bank uses a higher mark-up for its services in the US and UK where the market is so robust and it enjoys higher returns than in the African states, according to Gudin (2016).
Barclays UK should try and adopt discriminatory approach where it offers significantly lower interest rates to SMEs in Africa and other Asian countries and offset the reduction in returns with higher prices in other markets. According to Ngoasong, Paton, and Korda, (2015) SMEs make up to 80% of business in Africa.
Competitive advantage, strategy and innovation
According to Porter (1996), Operational Effectiveness (OE) refers to performing similar tasks better than how the rivals perform them. Besides incorporating efficiency in carrying out activities, OE also entails good practices that allow a company to utilize its resources in a superior way i.e. getting the best out of the inputs. OE involves developing better products faster and eliminating wastes and defects in products. Porter (1996) states that strategic positioning on the other hand means performing different activities from what the rivals do or doing the same activities in a different way. Operational Effectiveness allows a firm to obtain the maximum value in delivering its services or products at a particular cost, with the available technology, management techniques, skills and resources. Porter (1996) argues that although Operational effectiveness aids a firm in getting maximum value from the available resources and techniques, other competitors in the industry may adopt the same strategy resulting in absolute improvements for the companies but no relative improvement for any company. As a result, there is need for strategic positioning as a way of attaining sustainable competitive advantage and eliminate the competitive convergence occasioned by common efforts to improve OE.
Competitive advantage is a concept in which specific attributes of a company allow it to outperform its rivals and sustain profits that exceed the industry average (Porter, 1985). Porter and Heppelmann (2014) further claim that sustaining competitive advantage is strongly underpinned by a company’s ability to identify its distinctiveness from the competitors and preserving it. The distinctiveness of a company may allow it to acquire the same benefits as competitors at lower costs or differentiate its benefits to exceed those of competitors at the same cost. So, companies should strive to combine its resources and capabilities in order to form its distinctive competitiveness states Magretta (2013).
In the spirit of attaining competitive advantage, Porter (1996) argues that firms may have to make trade-offs i.e. focussing on one competitive activity at the expense of another. Companies may have to choose what to dispense with in the case of incompatible competitive activities where improvements in one area results in a setback to another. Strategic positions are better deepened rather than broadened according to Hatch and Howland (2015). Additionally, Porter (1996) contends that for competitive advantage to be sustainable there must be a ‘fit’ among the company’s activities, meaning that relationship of the activities should such that they reinforce each other. This means that companies should align all their activities in ways that emphasize their uniqueness to achieve either low costs or differentiation or both.
For companies to clearly figure out the activities that lead to competitive advantage, they ought to critically analyse their value chain and identify the relevant firm-specific activities that may be carried out differently from the competitors, referring to Asiedu (2015). It is imperative that firms identify the linkages between the identified activities on the value chain and can obtain competitive advantage by optimizing and coordinating the linked activities (Asiedu, 2015). Firms should also consider links to the value chains of the downstream buyers and the upstream suppliers so as to form a larger comprehensive chain of activities of the value system. Thus, the best practice in developing a competitive advantage involves looking into the entire value system and not just the firm-specific value chain and then competing to be unique in the best possible way according to Wagner and Hollenbeck (2014).
Operational Effectiveness alone is necessary for improved profitability bus it is not sustainable in the long run to make a firm enjoy competitive advantage. Therefore, strategic positioning is necessary to place the company in a position to effectively compete with rivals through focusing on creating uniqueness that ensure superior profitability in the long term. Barclays UK has also been able to employ some marketing tools that enable it enjoy competitive advantage over rivals in some areas.
According to Chorafas et al. (2016), Barclays UK enjoys a competitive advantage in the payment sector with both retailers and consumers. With new entrants coming into the British banking system, Barclays UK has had to cement its relationship with retailers as the best institution for payments through developing payment plans that are convenient and friendly to both retailers and customers. According to Kazan, Tan and Lim (2015) Barclays embraces the need-based approach by tailoring its payment schemes in a unique way that is more attractive to retailers. Its relationship with retailers has been strengthened by narrowing its incentive plans in the retail banking through streamlining the payment plans.
Secondly, under Jes Staley Barclays UK decided to focus on its reputation and strength by committing the bank to being a tier one investment bank. In October 2016, the bank announced its intentions of “ ‘doubling down’ on the future of Barclays’ investment bank at the expense of selling its large African operations and cutting the dividend in half” (Times, 2016). This is a move that forces the company to trade-off part of its investments in Africa in order to ensure sustainable competitive advantage in the European and American market. According to Gudin, (2016), the gamble seems to be paying off as the Barclays shares have outperformed most European rivals since November 2016.
Another way that the British bank has been able to sustain a competitive advantage over its competitors is by serving an array of needs of many customers in selected markets as stated by Adesara, (2016). The bank uses its grand name and reputation by venturing into regions with relative stable financial systems and considerable population such as Europe, the Americas and select countries in Asia and Africa (Adesara, 2016). This strategy allows the bank to position itself as a unique option and offer different sets of services that are suitable for the target populations.
Growth and internationalisation
Business growth is vital for the survival of any company since the market is dynamic in the sense that customers may change their preferences or the product or service might become out-dated according to Strategies (2014). Also, the market share is constantly being attacked by competitors who bring better products or services. As a result, managers are trying to initiate appropriate growth strategies and building on opportunities to defend and grow their market shares. Carman and Langeard (1980) define growth strategies as methods that firms’ plan and implement to expand their business and win large market shares, and the strategies are dependent upon the competition, financial situation and also government regulations. Following the factors and opportunities at hand, a firm may either choose internal strategies, external strategies or a combination of both as stated by Kowalkowski, Gebauer and Oliva (2017).
Although Barclays UK is a highly respected company ranked as the third largest bank in terms of assets, it operates in a dynamic and competitive industry where it has to strategize ways of expanding its business according to Gudin (2016). One strategy that Barclay UK has excelled in over the years is diversification of its services in all its markets (Gudin, 2016). In February 2012 the bank rolled out a new online banking interface and introduced a new mobile payment app called Pingit (Barclays, 2012). This app allows its customers to make payments to anyone within the UK, identifying the recipient with only his or her mobile number. This move was to align the company with contemporary trends in which the use of mobile phones is increasingly becoming pervasive. The strategy can also be classified as product expansion where new features are added to the existing services in order to increase its sales and/or reach out to new customers, according to Coad et al. (2014).
The bank has also implemented external growth strategies majorly through acquisitions and mergers. In October 2009, the bank announced an agreement to acquire Standard Life Bank Plc. from Standard Life Plc. for 226m pounds (Barclays, 2012). In the transaction, Barclays acquired the savings book and the mortgage book thereby extending its services to the new customers. Also in October 2012, Barclays Bank agreed to buy ING Direct UK, acquiring its deposits and mortgage book. The deal involved Barclays taking 750 ING Direct employees and 1.5 million new customers (Barclays, 2012).
In a separate deal in 2009, Barclays UK Retail Banking and Standard Life also agreed terms of entering into strategic agreements for exploring joint opportunities in the UK long term savings and investments division (Barclays, 2012). The joint agreement was to initially focus on the development of a multi-channel, streamlined pension product. The joint venture is also an external business growth strategy that will help the two companies to quickly and efficiently exploit business opportunities in long-terms savings and the investments sector according to Reuer, Klijn and Lioukas (2014).
Besides the recent growth strategies outlined above, Barclays has a rich history of growth strategies that have led the company to become a financial powerhouse it is today. In 1996, Barclays bought Wells Fargo Nikko Advisers based in San Francisco and merged it with its own BZW Investment Management unit forming the Barclays Global Investors. In 2005 Barclays acquired majority shares of 60% of South African bank ABSA for GBP 2.9 billion (Molyneux et al, 2014). There are many more examples but these are just some of the growth strategies that Barclays Bank has taken over the years.
Current growth opportunities for Barclays Bank may entail business evolution towards a model that will become a digital full-service bank according to Simpson (2015). Alam and Lee explain that the rationale and preference for specific models vary with banks and it is imperative that banks find a suitable partner to help take on the new strategy.
The new UK regulation that forces the big lenders like Barclays UK to split into two has raised the question of integrating with a new partner. The new law commonly referred to as “ring-fencing” forces large banks to move their operations in retail to separate subsidiaries by 2019, hence detaching these operations from other activities such as investments (Cullen, 2017). Barclays will have to acquire the extra licence needed by complying with the new regulations through hiving off its retail bank.
A possible way for Barclays to meet the new requirement is through an acquisition of a company in the same industry. A possible candidate for the acquisition could be Arbuthnot Latham & Co Limited, which has substantial operations in the UK. This acquisition also serves as an opportunity for the bank to grow externally and acquire an entity with a banking licence. The bank should acquire majority shares to of the subsidiary which will look after its retail sector as a way of complying with the new regulation. Barclays will also be able to enjoy significant control of the subsidiary as stated by Pearl and Rosenbaum (2013). According to Pearl and Rosenbaum (2013), the main advantage of an acquisition is that it is a speedy way of acquiring resources. In this case it will also help Barclays acquire the important licence and overcoming an entry barrier. Beside the speed, Barclays will also diversify and build market presence in the new segments. (Pearl & Rosenbaum, 2013)
Molyneux et al, (2014) argue that an acquisition will bring integration challenges and take up too much of managerial focus, which could be detrimental to internal growth. Additionally, Barclays may have to incur financial consequences in the acquisition as the process is costly.
Expansion into foreign markets is “at the heart of Barclays’ strategy” aiming “to build on its strength as a transatlantic consumer, corporate and investment bank anchored in its two home markets of the UK and the US.” (Barclays, 2012) Barclays bank greatly values investing in international markets.
Mulder and Westerhuis (2015) defines internationalization as the increasing developments of business entities to operate beyond national boundaries. The process includes enterprises increasing their operations in international markets. Barclays bank is one of the companies in the world that has its footprints in several countries and regions around the world (Gudin, 2016). To get to this position, the company has had to employ suitable internationalization strategies according to Gudin (2016). This section focuses on the bank’s retail banking services entry into international markets.
Barclays Bank uses a degree of its comparative advantage to attack new markets according to Guo and Liang (2016). The bank leverages on its financial strength, world-class expertise and international footprints to capitalise on the potentials of foreign markets. The bank has used this strategy to increase its presence in the various African nations under Barclays Africa Group, which is one of the largest financial services providers in Africa (Gudin, 2016).
Barclays UK enters into new markets through external growth in the way of alliances and joint ventures (Gudin, 2016). In 2005 Barclays bought 60% of South African bank ABSA and in 2013 Absa Group Ltd. Entered into an agreement in which Barclays would trade its operations in eight African nations outside of South Africa to Absa Group in exchange for $129.5m new Absa shares. Gudin (2016) states that Barclays previously prevented Absa from growing into other African markets outside of South Africa, where Barclays also had direct business. This deal included change of names from Absa Group Limited to Barclays Africa Group Limited (Nartey, 2015). This approach by Barclays Bank uses external growth strategies to capture foreign markets is also dependent on the comparative advantage the bank enjoys.
Barclays bank’s entry into China was always impossible because of the Asian nation’s regulation that imposed restrictions on foreign banks, but in 2005 Barclays bank opened its first branch office in mainland China (Molyneux, 2014). The office opened in China only offered money market and foreign exchange services and provide advice on risk management and debt financing. According to Molyneux (2014) Barclays UK did not buy stakes in local Chinese banks. By narrowing its services in the Chinese market, Barclays got into the market as a local optimizer by focusing on a newly opened up opportunity (Molyneux, 2014). With its vast resources, and reputation as a global dynamo, Barclays bank easily became a bank of choice for money market and Forex services among many locals and foreigners in the country.
Another foreign market that Barclays bank expanded to is India, where in 2006-2007 the bank chose to enter the retail banking sector. The country’s banking sector was soaring because of improved purchasing power of Indians and the higher interests levied in the country. The Indian market for corporate banking, retail banking, small-and-medium size enterprises, micro finance and consumer finance offered ample opportunities for the banking sector in which Barclays opted to venture into the country. According to Nag (2015) the bank used an aggressive approach to enter the Indian market owing to the huge economies of scale that it enjoyed as global company. Barclays played the role of a Global Consolidator by using its excellence in design and production to seize the opportunities in domestic market that is growing, explains Tabassum (2015).
Having opened an office in the Chinese market, Barclays Bank may expand beyond the current services it is offering and introduce retail banking services in the country. As stated by Qin and Shaffer (2014) the Chinese retail banking returns have grown by 30% annually from 2009 and could surpass US$430 billion by 2020, placing China as the leading retail banking market in Asia. Wong and Cheung (2014) say that the intense competition in the retail banking sector in China is accompanied by trends in both the consumer behaviour and market adjustments. Wong and Cheung (2014) further claim that Chinese customers are not firmly loyal to their banks (they can jump ships with little incentives) and that they are becoming increasingly similar. Furthermore, the country’s ‘top 4’ banks are less dominant and that digital banking is steadily going mainstream. These trends in the Chinese market could tempt Barclays to venture into the country’s retail banking.
Barclays Bank will be better placed to implement an internationalisation model that focuses on external growth in its strategy to introduce retail banking in the Chinese market. A vertical integration where the bank acquires an established and renowned bank could be vital in rolling out the retail banking services. According to the 2016 China Retail Banking Satisfaction Study (RBSS) Hua Xia Bank was ranked third in customer satisfaction and it could be an important candidate for acquisition to be the bank’s subsidiary in China. After the acquisition, Barclays could employ a policy of consistent acknowledgement of retail banking services as the group’s core business and embark on an effective post-acquisition integration based on a deep appreciation of the group’s underlying capabilities.
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