Instructor’s Manual CASE TEACHING NOTES Barclaycard1 Bernardo Batiz-Lazo and Nurdilek Hacialioglu with contributions by Jarunee Wonglimpiyarat and Douglas Wood 1. Introduction The case study is concerned with how a long-standing market leader tries to maintain market share and develop its business in an industry undergoing significant change. Students are challenged to formulate, evaluate and compare a range of strategic options and to choose the best way forward for Barclaycard 2. Position of the case
The Barclaycard case study lends itself to illustrate how to identify and evaluate possible courses of action. In particular, evaluate • • • the development of direction for Barclaycard’s strategic alternatives (chapter 7 of Exploring Corporate Strategy), possible courses of action against the criteria of suitability, acceptability and feasibility (chapter 7 of Exploring Corporate Strategy), issues of synergy and parenting advantage (chapter 6 of Exploring Corporate Strategy). 3. Learning objectives
The Barclaycard case study develops students’ understanding of how to identify, evaluate and rank possibilities for growth. In particular, the case study will illustrate the issue of how, despite growth in the number of participants and claims of increased competition, credit cards remain a remarkably profitable component in a bank’s This note was prepared by Bernardo Batiz-Lazo (London South Bank University) and Nurdilek Hacialioglu (Open University) with contributions by Jarunee Wonglimpiyarat (The National Science and Development Agency of Thailand) and
Douglas Wood (Manchester Business School). It is intended for class discussion rather than as an illustration of either good or bad management practice. The contribution by Professor Douglas Wood (1942–2003) was published posthumously. ? Batiz-Lazo, Hacialioglu, Wonglimpiyarat and Wood (2004). Not to be reproduced or quoted without permission. 419 © Pearson Education Limited 2005 Instructor’s Manual portfolio. 1 Also, it provides students with insights to forces altering competitive stalemate when competitors use credit cards as loss leaders while incumbents try to run for profit.
Specific goals include allowing students to: • • develop a sensibility for the business environment of a sector with diminishing profitability margins; assess business strategy as a stretch (i. e. based on developing resources and capabilities) by identifying directions and methods to develop strategy (for example, by using exhibit 7. 1 of Exploring Corporate Strategy); identify key success factors in retail financial services by ranking alternatives for growth against each other. • 4. Teaching process
It is important that students are familiar with the case before class discussion. This will ensure that the debate about alternatives for growth is specifically related to the market position that Barclaycard had established at the turn of the millennium. It must be a debate specifically about Barclaycard and not about credit card issuers in general. A “straw poll” before starting to analyse the case should confirm that students understand that Barclaycard had both the technological and a business platform to maintain industry leadership.
However, managers at Barclaycard effectively let their position of advantage slip. Damage has been done and Barclaycard’s managers’ immediate concern is how to stop continued loss of card market share rather than mount a comeback. The straw poll, therefore, can help put the whole student cohort in the same mind set and deal with students being bothered about little information on Barclaycard’s customer groups, channel management or the like (more below). Student preparation could be done individually (prior to the session) or in smaller groups prior to plenary discussion.
It is also possible to ask some of the smaller groups to look at the success of Barclaycard’s competitors to gain market share in the UK at the expense of Barclaycard. Tutors are alerted to the fact that the background of the student cohort could influence the initial selection of alternatives. For instance, a marketing group would want to know more about efforts to make the customer base more profitable, whereas a cohort of business policy or MBA students might wish for more information on the drivers of competition and individual competitors.
Tutors are thus to consider whether preparation for class discussion should include research about trends in their local credit card industry. This comparison will be of particular interest to students outside the UK, particularly if Barclays or Barclaycard is 1 “It would be foolish to suppose that a market that has become more competitive has necessarily become very competitive”, John Vickers, Chairman, Office of Fair Trading, 27 February 2001. 420 © Pearson Education Limited 2005 Instructor’s Manual active in local markets.
If tutors decide against that type of assignment and were students to find the case somewhat weak in some areas, tutors should then point out that that apparent “weakness” in the case reflects Barclays and/or Barclaycard being less than excellent in that area rather than procrastinating or lacking capabilities. 5. Questions for discussion 1. What alternative strategic directions are open to Barclaycard in its future development? 2. Evaluate these alternatives by using the criteria of suitability, acceptability and feasibility. 3. Which alternative(s) would you recommend? Why? 6. Case analysis 6. “Warm up” discussion (i. e. preparation) As a pre-discussion activity tutors may ask students to bring a Schumer box (see footnote 3 in case) to the actual discussion and then have them talk about why they think it has been successfully used in the US and whether that success may or may not transfer to the UK. The “warm up” discussion (i. e. before students have actually read the case) can then dwell on students’ own experience with credit cards: • • • • • • How many of them read “the small print” or find application forms “obscure”? How many know their rights and responsibilities in credit markets?
Has anyone made a formal complaint (either to a credit card issuer, citizen advice bureau or regulator)? What practices do they consider to be “unfair” in their local credit markets? Why? Which of the local players are “responsible”? What does it take to be a “responsible” consumer of credit? Tutors will then ask students to read the case for the next session and where appropriate, compare developments in the UK with the local market. 6. 2 Items for general discussion (i. e. setting the scene) What follows is a list of topics through which tutors can help students summarise their findings and set the tone for the day.
Participants should be encouraged to bring them out themselves rather than have the tutor go through the list. Appendix 1 (or 421 © Pearson Education Limited 2005 Instructor’s Manual alternatively Appendix 2) could be distributed as a handout to help complement the list and develop greater understanding of the credit card market. Key topics that pre-case discussion should include: • Industry origins can be traced to the 1900s but it was not until 1952 that the Franklin National Bank (New York) developed a card that simultaneously allowed the transmission of payments and the granting of credit.
Growth of credit cards in the US during the late 1950s and internationalisation (Barclaycard was the first issuer of credit cards outside the US) during the 1960s further reflect banks’ growing in the retail customer group segment. Development of ATMs in the 1960s and expansion through the 1970s and beyond ATMs could be said to have given cash transactions an extra lease of life and thus dampened the growth of card payments by preventing people from going cash less. Tutors could prompt students to tell of their experiences in high ATM density countries (such as Spain or Belgium).
During the early 1980s electronic funds transfer at point of sale terminals (EFTPOS) were introduced and the merchant network was widened. Currently the right to issue Visa and MasterCard cards is extended to an increasing number of banks as well as non-banking institutions. However, non-banks need the backing of a bank for processing. There is a dispute about how the cost of card payments will be shared between the retailer and the card acquirer (the bank which provides the EFTPOS – card swipe – machine to the retailer). The use of biometric and other confidential information on smart cards is highly controversial.
This could potentially affect the success of smart cards. • • • • • In the late 1980s and during the 1990s: • • • Co-branding and loyalty schemes emerge. These signal the market is “maturing” (i. e. steep and sustained decline in profitability margins). Another sign of ‘‘pressure” is the introduction of annual fees (see below). New developments to segment customer groups are evident. These include added features within the Gold Card (notice that Barclaycard acquired 90,000 Gold customers in 1995 but note that all them would necessarily be new customers) and the introduction of company cards.
Other trends also starting in the last decade are greater use of debit cards as well as the use of credit cards and mobile phones as payment systems. Improved technology is primarily responsible for this trend. • 422 © Pearson Education Limited 2005 Instructor’s Manual • • In the mid-1990s e-commerce is born. Credit and debit cards benefit from the failure of the first generation of electronic money. Banks initially issued their credit cards to their own customers. But at the end of the 1990s the profile of the typical customer is no longer confined to an account holder of the same bank.
By rejecting the potentially profitable opportunities of servicing other card issuers until 2003, Barclaycard failed to take full advantage of scale economies. The 2003 white paper was the first major update of the 1974 Consumer Credit Act. Consumer bodies and the financial services industry agreed the rules were in desperate need of revision. (As an activity tutors may ask students to bring a Schumer box to the discussion and then have them talk about why they think it has been successfully used in the US and whether that success may or may not transfer to the UK. ) •
It should be kept in mind that since the 1970s credit cards have been at the centre of the consumer revolution. Initially credit cards were a status symbol and awarded to wealthy individuals – people who earned the privilege of access to credit through a history with the bank and potential future cashflows. This is why annual card fees were applied by almost all banks until recently. For instance, Barclaycard introduced a discretionary annual card fee in 1990 and withdrew it in 2001. As shown in exhibit 3, estimates suggest annual fees represented 14% of annual income.
Annual fees came on the back of a period where issuers sent unsolicited, pre-approved, credit card application forms to individual customers. An annul fee was then introduced as a way for customers to feel there was “added value” in a credit card. For Barclaycard the move initially had the desired effect: “… whereas previously we’d been struggling to recruit … new card holders when we gave Barclaycard away for nothing, as soon as we put a charge on it and added value we found it easier and cheaper to recruit large numbers … If people don’t see something as good value, even if it’s free, they won’t want it.
It they see it as good value they’ll be prepare to pay a fair price” (Sir John Quinton, at the time Chairman and Chief Executive of Barclays Group, interviewed in 1998). Ten years later that effect had dissipated and added competition had turned the annual fee into a burden for Barclaycard. At the turn of the millennium, access to credit is a commodity. Credit card issuers act as if individuals have a right to credit. Not surprisingly by 2002, aggregate consumer debt in the US (estimated at $7. 8 trillion) exceeded that of corporations ($4. 9 trillion) and the government ($6. trillion). Looking at the UK market, only 6% of the total adult UK population were considered to be over-indebted, that is, using 50% or more of their monthly income to service debt. Given the growth in personal debt, the challenge for the regulators was to manage the (undisclosed) number of individuals who could have mis-read economic conditions and, thus, become over-indebted as a result of a small increase in interest rates. There are a host of strategic marketing issues that tutors can choose to discuss as part of the introduction including: 423 Pearson Education Limited 2005 Instructor’s Manual • • • Channel management (who owns the customer of a co-branded card? ). Customer profiling. Brand emphasis by the more established and conservative players (such as Barclaycard), while many new entrants have brands created in other industries (for instance, supermarkets) or no recognisable brand at all in the case of many new Internet providers. Barclays has had a deliberate strategy to retain the Barclaycard brand as part of all its products. Lack of brand dilution suggests this is a strong differentiator from the others.
Issues dealing with increasing profitability without substantial increase in the overall risk of the business portfolio. For instance, decreasing the minimum amount to pay or occasionally practising “0 minimum payment – payment holidays –”. These aim to increase the average amount spent on a credit card per person (with or without increasing risk for the issuer). • 6. 3 Alternative strategic directions Using exhibit 7. 1 in Exploring Corporate Strategy as a checklist of general categories, students should be able to produce a specific list of options. Examples of these are shown in Appendix 3. 6. 4 Evaluation against criteria
Appendix 3 also shows how these particular directions could be evaluated against the criteria of suitability, acceptability and feasibility. This is where parenting advantage issues should emerge the strongest. In particular, the fact that throughout the case Barclays Plc and Barclays Bank are used indistinctively. Tutors could then point out the underlying trend of diversification in financial services as the bank turned from “parent” to “elder sibling”. Tutors should point out how Barclaycard seems to have done little to help its parent by developing “excellence” in ascertaining the behaviour of the established customer base (i. . customer profiling, cross sales, etc. ), lagging in the adoption of Gold Cards, lagging in the development of business to business cards or, more recently, having to re-launch its website. However, these could also be a result of a very traditional and conservative culture within the Barclays group. Tutors could also point out how the parent could limit Barclaycard’s competence development. For example: • limit the number of markets as in new geographies (foregoing turning into a processing specialist for other European banks because the Barclays group has had 24 © Pearson Education Limited 2005 Instructor’s Manual poor international experience as a universal bank or because of its “sole issuer, sole processor” ethos); • limit the number of customer groups (as preference should be given to customers of other services of the Barclays group or group-wide loyalty schemes could be imposed); limit the number of products (the Barclaycard culture rejects the idea of joint cards while responsibilities to manage the group’s debit card are shared with the retail banking arm); • • ccess to ATM and EFTPOS networks (this when the UK market will open to ATM specialists). Notice that the introduction of non-charging of Barclays customers for using ATMs (while charging non-Barclays users) was badly handled from a PR point of view; but in fact the bank was offering something extra to its own customers and bringing the charge issue into public view. In brief, development method(s) or enhancing capabilities through organic growth, acquisition or alliances will be subject to Barclays Plc’s corporate strategy and market performance. 6. Choosing options Students will probably give different weights to specific options. Tutors should point out that Barclaycard’s behaviour suggests a strong, traditional corporate culture which might not change easily. Tutors should also bear in mind that the purpose of the session is to see whether students can justify their choice. The ultimate goal of the session is for students to ascertain which is the best combination of suitable, acceptable and feasible alternatives that will be needed to create a coherent strategy (and why this is the best combination).
A coherent strategy must address the positioning or the basis for strategic direction. Here students should realise that at present, Barclaycard’s managers have a clear preference for differentiation (position 4 in the strategy clock, exhibit 5. 2 of Exploring Corporate Strategy). Tutors can then guide students to challenge Barclaycard’s preference for differentiation. For instance, are customers really sensitive to interest rate charges (i. e. APR)? A report by Datamonitor, the research firm, found that 70% of UK banking customers would not swap their current account to get a high interest rate.
David Parry, who wrote the report, said: “this research shatters the myths which have build up around high interest rate bearing accounts. It is no good offering high interest rates when the majority of customers are saying they want their bank to focus on the basics of good1service. ”2 Polite, prompt, accurate service is what consumers want – which the majority feel most banks repeatedly fail to deliver. Hence, is Barclaycard’s chosen strategy “rational”? 2 The Scotsman, 3 December 2003. 425 © Pearson Education Limited 2005 Instructor’s Manual
The case itself provided “ammunition” when stating that “marketing has traditionally been an area where the management team has invested heavily”. Tutors could prompt students to agree or disagree with this statement. It should be evident that advertising and promotion have taken the lion’s share of Barclaycard’s marketing budget. Students should therefore find this as an opportunity to discuss why marketing is much wider than the promotional side and includes all the other aspects of market positioning and overall strategy that have been discussed throughout the case.
At this stage tutors can also choose to bring out issues about parenting advantage (chapter 6, section 6. 4 of Exploring Corporate Strategy). Students are likely to have judged potential alternatives as if Barclaycard was a stand-alone credit card issuer business. However, “parenting” arguments must be used to make students consider that the centre/SBU relationship can reduce possible courses of action. If this line of enquiry is chosen, then tutors must inform students that empirical studies suggest a preference for strategic planning (approx. 0%) as a style of management in bank markets, over strategic control (30%) or financial control (20%). 31This suggests that creating synergy, cross sales or economies of scope is an important driver for strategy selection within established participants in the markets for financial services. Evidence of this behaviour can be found in the case by pointing to the fact that the credit card business at Citibank, the world’s card market leader, is such that it has been estimated to be worth 50% more as a stand-alone business than the entire value of the bank.
Barclays Plc, therefore, uses Barclaycard as a channel to place deposits as midterm loans and, as a result, the parent company is unlikely to go along a proposed course of action that threatens the bank. 6. 6 Competitor analysis In answering this question tutors could point out that there is a wide range of different types and sources of consumer credit available to individual and business users of credits cards. These alternative sources include bank overdrafts, budget accounts, revolving credit accounts, personal loans, retailer accounts, retailers’ free credit schemes, hire purchase, etc.
At this point, it will be important for students to consider criteria to downsize the initial list. For instance, the focus on credit card issuer vs processing specialist, as it will be important to assess strategic options. Answering questions that help to identify competitors will also provide the means to assess how robust the selected strategy is for Barclaycard. Tutors should ensure that the discussion identifies a wide range of competitor strategies including: • Competition from long established UK issuers (such as Lloyds TSB, National Westminster Bank and Bank of Scotland)
See further Batiz-Lazo, B. and Wood, D. (2003) ‘Strategy, competition and diversification in European and Mexican banking’, International Journal of Bank Marketing, vol. 21, nos 4&5, pp. 2002–2016. 426 © Pearson Education Limited 2005 3 Instructor’s Manual • • • • Competition from foreign mono-lines (such as MBNA, Capital One and Morgan Stanley) Competition from internet based financial institutions (such as Egg, Cahoot and IF) Competition from non-financial UK institutions (such as Virgin, GM card and Acucard) Competition from retailers (such as Tesco, Shell and Marks & Spencer)
Assessing competitors’ strategies will result in students identifying two strategic groups. Namely, established participants looking to make money out of the credit card business; and new/recent entrants willing to accept losses to establish market share. In general, it is accepted that it takes 4 to 5 years for new card issuers to reach break-even point. The credit card business is “mature” in the UK market (i. e. annual profit growth is not expected to surpass annual GDP growth). Therefore, we suggest alternative “i” or “h” in appendix 3 as the best way forward. However, students may have valid reasons to choose another alternative.
In brief, the way forward for Barclaycard should consider the possibilities of: • • • • • • further low price competition, continuity of Barclaycard differentiation strategy (additional services, etc. ), erosion of competitive positioning by new concepts of differentiation and low cost providers, further segmentation of the market by niche players, loyalty cards, etc. , possibilities to increase profitability of customer base while maintaining brand intact, cross-border growth. 6. 7 Industry analysis The table below shows the development of plastic and cash transactions in the UK.
As is illustrated, annual growth of cash withdrawals is very similar to the growth of credit and charge card withdrawals, raising concerns about how “cashless a society” the UK is becoming. 427 © Pearson Education Limited 2005 Instructor’s Manual Table: Growth of transactions in the UK card market, 1991–2001 (million of transactions per year) 1991 Debit Cards Annual increase Credit & Charge Cards Annual increase Store Cards Annual increase All Card Purchases Annual increase Cash Withdrawals by Cards Annual increase Source: APACS and own estimates. 1992 522 45% 724 4% 70 52% 19% 8% 1993 659 26% 748 3% 82 17% 13% 7% 994 23% 815 9% 100 22% 16% 7% 1995 24% 11% 109 9% 17% 10% 1996 26% 13% 118 8% 19% 10% 1997 18% 10% 128 8% 14% 9% 1998 16% 9% 134 5% 12% 6% 1999 19% 10% 131 –2% 14% 6% 2000 13% 8% 125 –5% 11% 4% 2001 Average 1,360 23% 1057 8% 105 11% 2,523 15% 1,659 7% 15% 7% 117 –6% 12% 8% 359 699 46 808 1,004 1,270 1,503 1,736 2,062 2,337 2,696 908 1,025 1,128 1,224 1,344 1,452 1,558 1,104 1,316 1,488 1,723 2,023 2,413 2,759 3,094 3,537 3,914 4,381 1,112 1,199 1,277 1,372 1,512 1,656 1,809 1,917 2,025 2,102 2,269 Appendix 1: Service components of a credit card Main components and market segments
The main component associated with the fundamental service a credit card offers is access to an unsecured line of credit, where customers are free to choose when and how much they will borrow (at least within the credit limit), as well as the repayment schedule. During the 1950s these features were quite opposite to the concept bankers had been accustomed to for years, namely that the branch manager would maintain complete control over credit, approving it on an item-by-item basis. Customers would earn the privilege of having access to credit through a history with their bank (and in particular the branch manager).
Today practically anyone carries a credit card. There are at least two market segments: A) Users of Revolving Credit. The difference between the amount of the total balance (in a credit card statement) and the payment made is said to “revolve to the next statement” (called billing cycle). This is treated as a loan and charged a borrowing interest rate (APR). The bulk of credit card charges for cardholders is generated from those revolved balances, balances which change from issuer to issuer depending on their APR rates and method of calculation. Cardholders are also subject to other interest charges or fees due to, for example, ithdrawing cash, exceeding the credit limit, late payment and so on. B) The Convenience Users. These are individuals (or companies) who occasionally or never revolve their credit card balances. In other words, they pay their bills in full within the grace period most of the time or always. These types of card users are said to be insensitive to changes in the APR. In fact, revolving cardholders finance nonrevolving users and this is one of the reasons behind high APR rates. 428 © Pearson Education Limited 2005 Instructor’s Manual Direct components
The largest share of income for card issuers depends on the interest rate charged (APR), length of the grace period (i. e. customer repays without interest being charged), the method of calculating the interest charge and the default rates. Until recently the annual fee was among the direct components. Even if an issuer does not want to differentiate its cards from competitors’ cards, the issuer will want to segment the market for its own cards. It can then offer lines of credit geared to a particular part of the market and will consider a mix of expected revenue potential, risk profile and non-price (i. e. indirectly charged) features.
The non-interest generating components of the card include a series of fees. The most common ones include penalty fees (triggered by late payment or exceeding credit limit), up-front cash advances (in addition to the APR on cash advances) and foreign exchange income from using the card abroad. Indirect components These mainly include interchange fees. Such fees emerge from commissions imposed on merchants who accept credit cards for payment. The merchant’s bank charges retailers for enabling them to accept card payments and a certain percentage of this merchant fee is paid to the issuer under the name of interchange fee. 1 Also there is other indirect income generated from a number and quality of alternatives which aim to reinforce efforts to differentiate the card from other providers or segment customer groups. The most common ones are frequent flyer miles, several types of insurance or preferential pricing/treatment at retailers. Table: Sources of revenue (1997)* Small issuers Interest Annual fees Interchange fees Other fees Other Source: American Bankers Association * Survey of the biggest 250 card issuers in the US, where “small” are those with up to $50 million dollars in cards outstanding or up to 50,000 card account with balances. Large” issuers are those with at least $750 million dollars in cards outstanding or at least 750,000 card accounts. Midsize issuers 65% 8% 17% 7% 3% Large issuers 78% 1% 9% 10% 2% 67% 4% 20% 8% 1% See also exhibit 3 in the case. Their set fee is one of the items in the interchange rate formulae. But each issuer’s rate is different depending on their own cost structure as well as the set rate. 429 © Pearson Education Limited 2005 4 Instructor’s Manual Appendix 2: SWOT analysis for Barclaycard, 1998 In 1998 Barclaycard was the subject of an MBA student project at Cranfield School of Management in the UK.
The student groups produced detailed analyses of Barclaycard’s strategic position, summarised as a SWOT analysis. The strengths of Barclaycard were: • Market leadership with a market share of 34% in terms of credit cards issued, and 27% in terms of transaction value provided the company with a strong financial base. Low-cost production, resulting from accumulated experience as the first credit card issuer in the UK and economies of scale derived from its high market share. However, this was being rapidly eroded. Brand status; the Barclaycard name was almost a generic term for a credit card and was widely recognised by consumers.
A well-established distribution network, through Barclays Bank and other members of Barclays Plc, other financial institutions and large retail organisations which made its product available to a wide range of potential customers. Information technology capability, which allowed Barclaycard to develop improved products through alliances with companies such as British Telecom and Cellnet. • • • • However, Barclaycard had at least two weaknesses: • • The annual transaction value per card of ? 1,719 was low in comparison with NatWest’s figure of ? 2,121.
Its typical APR of 25% was twice or even three times larger than the interest rate offered by new competitors. Although defection rates were low, average transaction value was at risk of dropping further. In the late 1990s there appeared to be a number of possible opportunities for Barclaycard: • • • Spending on credit and debit cards amounted to 43% of total retail sales, leaving scope for further development. Only 54% of UK adults owned credit cards, leaving room for increased market penetration. Technological developments and new products would improve security and flexibility of payment by plastic systems. 30 © Pearson Education Limited 2005 Instructor’s Manual • Company branded cards and store cards provided access to a base of new users and the opportunity to develop loyalty based ties. This could enable further marketing of discounts, new products, etc. Company cards also provided an opportunity to expand into the charge card market for business customers. The short-term macroeconomic situation in the UK was encouraging, with real income increasing, low inflation and strong economic growth. The expansion in the credit card industry was expected to continue in the foreseeable future. •
However, there appeared to be a number of threats: • • New entrants such as building societies and non-bank providers offering similar products. Low APR cards were being offered by some new entrants. This included some American banks that were used to operating in a home market where APR had been driven down by “no frills” operators who had continued to gain market share. The cannibalisation of the credit card market by debit cards and electronic purse (smart) cards. Increased availability of other forms of credit, e. g. point-of-sale interest-free credit. Increased opportunities for potential card fraud.
Reliance on electronic communications – the effect of a major breakdown in national communications (e. g. a strike at British Telecom) could be catastrophic. • • • • 431 © Pearson Education Limited 2005 Instructor’s Manual Appendix 3: Analysis of strategic options Suitability Exploits core competencies. Improves value for money. Fits with life cycle of the product. Low risk. Unlikely to be contentious with shareholders. Defends market share. Will reduce financial performance (in the short term). Doesn’t fit the life cycle stage and, by itself, would be a defensive move against competition.
Low/medium risk. Requires substantial investments by customers and retailers to be acceptable. Differentiates product. Improves brand value. Exploits core competencies. Could improve financial performance. Required resources are available to proceed. Required competencies are available. Introductory rates and “gifts” are an increasing necessary feature to remain competitive in a saturated market. Will reduce returns to shareholder when the group is trying to retake growth. Therefore, could result in adverse shareholder reaction. Could eliminate main competitive threat but could attract card “hoppers”.
Builds on financial performance and would require substantial cost-cutting to change from financial performance based on interest income to a fee income platform. Option Acceptability Feasibility Required financial resources are available internally. Required competencies already present within the organisation. a) Maintain current strategy b) Compete on price (APR) c) Introduce multi-purpose card or electronic purse Long-term maturity. Trials elsewhere have performed poorly and the innovation risks disintermediating the bank operation (lowers barriers for nonbanks to issue cards directly).
Could gain shareholder approval but would face resistance from other parts of the group. Risks limited improvement. Large investment for “cash cow” business. Most competencies are available internally but to cover the gap alliances with other providers (i. e. Visa) and technology companies are likely. d) Grow market share (by acquisition) Internal financial resources unlikely to be sufficient for large-scale acquisition. Few likely candidates. In buying balances it could become a bigger issuer and enhance data-mining possibilities.
Acquisition of another stand-alone issuer could bring limited benefits to shareholders (unless part of a take-over of another banking group). 432 © Pearson Education Limited 2005 Instructor’s Manual Option Exploits core competencies. Financial resources available. Improves financial performance. Strengthens balance of activities. Fits life cycle stage. Exploits core competencies. Fits with life cycle. Potential improvement of financial performance. Medium to high risk. Reduces internal costs of processing receipts as well as treasury operations. Exploits core competencies.
Should improve financial performance through economies of scale. 46% of individuals don’t yet use credit cards. Opportunities in corporate market (travel, entertainment and purchasing supplies). Exploits core competencies. High returns. Attracting new customers is costly. Financial provisions could rise associated with attracting individuals (more bad debt? ). Risks cannibalising debit card business. Corporate clients expect high level of service. Offer payment plans according to customer life style. Exploits core competencies. Could create a platform for customer loyalty scheme for the group as a whole.
Could increase average margin per customer. Risks problems to share benefits with rest of the group/retailers. More market research. Medium to low risk. Likely to gain shareholder approval. If sufficient volume business is attracted, will improve financial performance. Performance of parent bank overseas has been poor (i. e. unlikely to gain shareholder approval). The best partners have already been lined up. Risks eroding brand value. Will improve returns to shareholders. Suitability Acceptability Feasibility e) Issue co-branded cards Capabilities to attract co-branding partners are needed. ) Expand overseas Financial resources unavailable for major endeavour. No experience with multinational business within Barclaycard (but available at parent bank). Need to develop business-to-business marketing capabilities. EU Commission would protect from Visa bylaws. g) Become processing specialist h) Increase market participation Could need new products to be developed. Substantial investment in marketing effort. i) Increase profitability of current customer base Substantial investment in IT and marketing. 433 © Pearson Education Limited 2005