Marketing Management Assignment help on : Marketing Strategy of Santander

Different definitions of strategy and how do they apply to Santander

            There are a number of different definitions of strategy that can be applied in the context of Santander. For instance, strategy can be defined as the long term policies undertaken by the business organization for the purpose of addressing existing as well as potential issues. In the context of Santander, it can be observed that the company is facing some critical challenges related with intense competition, and dynamic nature of business environment. In order to address such critical challenges, Santander needs to undertake some intensive policies and tactics in the long term. In this way, different strategies can be proved quite effective for the organisation (Amason 2010).

            In addition to this, the strategy can also be defined as the measure that allows the organisation to undertake growth and minimize risks in its business operations in the long run. For instance, Santander has also undertaken a number of different steps such as acquisition of Abbey and entering into the UK market in order to avoid competition and building an effective portfolio of its business so that in the condition of economic downturn also, the company can be able to secure an adequate amount of profits and compensate the loses occurred in other market (Jeff 2008).

           Along with this, another definition of strategy postulates it as a long term planning in the favour of the growth of the organisation in the long run. In existing high vibrant business environment, it is quite essential for Santander to have long term planning regarding the course of actions that allow it to be sustainable in existing environmental conditions. This disposition of the company can be sighted in the context of different measures and actions undertaken by the company to mitigate different problems (Hitt, Ireland and Hoskisson 2010)

            In this way, on the basis of such discussion it can be cleared that different definitions of strategies are quite applicable in the case of Santander.

Industries and markets in which Santander competes

            Banco Santander is a Spain based banking institution, which is operating in retail banking and financial services industry at international level. Along with Spain, the company has captured the market of 40 different countries across the globe. The company has its presence in some important countries, namely Portugal, Poland, Germany, and the northeastern United States (Santander: About the Group 2012).

            In addition to this, the company is planning to tap the market of the UK also. In this relation, the analysis of the external market conditions of the country can be done with the help of PEST analysis framework explained as below:

Political Factor:

The political environment of this country has been stable and friendly for the corporate houses and banking institutions. Moreover, after the global financial depression, the government of the UK has provided a number of different attractive strategies for the purpose of development of banking sector. Moreover, easy market entry norms, favorable corporate tax policies and income tax policies have also made the market effective for new entrant (Mullineux 2012).

Economic:

The UK is known for one of the soundest financial systems in the world and this reputation has attracted FDI in many of the financial sectors. Although the financial crisis has adversely affected the economic condition of this country, it has shown good signs of recovery in post crisis period. The growth is presented in the graph presented as below

 UK has would grow between the rate of 2-3% in the coming 3 years and this is a very good sign for the bank.

Social:

            After the financial downturn customers in the UK, have started to become quite conscious regarding their savings. In this social perception of the company regarding banking institutions are quite negative. The bank is required to put more focus upon its risk mitigation strategies to win the confidence of customers (Gowers 2012).

Technological factors:

The country has access to the latest technologies relate with banking services. For a company like Santander, which is known for its technologically-apt products in the marketplace, this factor would be an additionally attractive within the market (Corporation Limited Essvale Corporation Limited 2007).

Structure and dynamics of these markets

The analysis of dynamics and structure of market of the UK for Santander can be taken into account on the basis of porter’s five force model that specifies five different forces within the market place.

Bargaining power of buyers

            The UK banking industry is highly competitive industry. There are a number of different domestic and international players operating within the industry. Large number of organizations has made the bargaining power of buyers quite high in the market place (Gowers 2012).

Bargaining power of suppliers

            For the UK banking industry suppliers are the investors and customers of the bank as they save their money in the bank. As there are a number of different options available for suppliers, their bargaining power is also high in the market (Great Britain: H.M. Treasury 2012).

Existing Rivalry

            As the banking sector of the UK is highly lucrative, there are a number of different players such as Barclay, Lloyds, HSBC holdings, and Citigroup Inc. providing stiff competition to the bank within the UK market (Pond 2007).

Threats of new entrants

            After the recession, the attitude of the government of the country towards banking industry has become quite positive, which is encouraging different new players for entering within the industry. Owing to this reason, the threat of new entrant for organizations operating within the UK banking industry has been enhanced (Pond 2007).

Threats of substitute

            Along with banking institutions, there are a number of different other investment avenues available for customers where they can deposit their savings. These avenues are insurances, T-bills, shares, properties, bonds and so on. These are some of the critical treats in front of the organizations operating within the UK banking industry (Great Britain: H.M. Treasury 2012).

Critical Success Factors

The critical success factors for operating in personal and business banking market of UK are as follows:

Prudence: One of the foremost endeavors of banks is loaning money with prudence. With every function of the bank, it is using money of other people so the function must be performed with prudence and skepticism. The customers that have a successful track record and possess long-term relationship with the bank can be able to circumvent the processes of lending, but this is possible only after successful years of having banking transactions between the two parties. Therefore, prudence is one of the critical success factors for attaining success in the banking industry (Palepu et al 2007).

Marketing: Banks have to always search for new customers and markets so as to expand the market share at the considerable level. New customers and new money are important for attaining success in the banking industry. In the UK banking industry, there is presence of large number of banks that provide banking solutions to people. The level of differentiation is not high in the industry, which makes it inevitable for the banks to stand apart from the competitors through marketing of their banking solutions and how could these solutions could prove profitable for both people and business (Palepu et al 2007).

Banking practices: Banking practices is also a critical factor in achieving success in the industry. Banks that have accurate statements to the penny and are on schedule become successful players in the industry. When the management is vigilant, employees are dedicated towards goals and objectives of the organization, and there is presence of consistent improvement in the customer service as well as technology, the bank remains in the lead in the industry. Although, no bank can be said to be perfect, but the bank with appropriate and accurate banking practices have reputation for fewer mistakes and satisfied customers (Palepu et al 2007).

Differentiation from competitors

             There are various competitors for Santander group in UK. The company differentiates itself from its competitors through its business model and technology which are its core competencies. Customer service is the main competency of the company which differentiates itself from its competitors. At the time of acquisition of Abbey with the purpose of transforming bank into one of the most profitable and efficient banks in UK, the focus of Santander was to attain the cost synergies and efficiency and the main objective of Santander was to improve the poor service of Abbey Inc. The company sets up an extensive training program for its support staff and other employees for equipping them with the required skills. This training program and acquisition of skills by employees, in turn improves the customer service which helps the company to differentiate itself from its competitors (Tallman 2010).

            The business model of Santander Inc. is such that there is optimal percentage of front office and back office staff and all of the staff is committed to deliver the customer services keeping in mind the standards of excellence set by the company for the whole organization. Technology is another core competency of the banking group that stands it apart from its competitors. The company moves its best practices from one market to the other through the single platform of global data centre situated in Madrid (Pahl and Richter 2009). It helps in moving of best practices at a very low cost, thus achieving cost synergies and maintaining a successful platform of core banking. Greater efficiencies are achieved through requirement of less back office support, and administration. The advisory relationships become more efficient for the bank and at the same time convenient for customers as all the records of customers are consolidated onto a single database platform.

Resources, capabilities and competencies

            The resources, competencies and capabilities of Santander group can be identified by studying its value chain which is as follows:

Inbound logistics: The warehousing and material handling of Santander group is quite strong. It warehouses the data of its customers on a single large platform of IT which handles all the data of the customers making it instantly available to the staff of the company whenever required (Fasnacht 2009).

Operations: The operations of the company include the core business of savings, mortgages and protection. The company uses its capabilities of organized sales-force, internal benchmarking for work, and performance based incentives for sales channels to keep its operations up to standards (Fasnacht 2009).

Outbound logistics: it includes order processing and distribution. The order processing is coordinated from receipt through shipment and tracking in an efficient order processing system that includes receiving and then processing of all the sales orders in a timely as well as accurate manner, processing of outbound shipments of sales orders, communicating with customers regarding the status of the order and availability of the stock. The staff is proactive in reviewing the backlog so as to ensure that shipments are made in timely manner. All the data and order forms of customers are recorded on the ERP system, thus increasing the capability of the company.

Marketing and sales: The Company is market oriented and marketing and sales are quite strong. Cross sales are maintained through pro-active contact, pricing is sophisticated for the customer segments, and aggressive campaign with strong product offerings offers competency to the company against its competitors (Ryan 2009).

Service: Installation of integrated IT systems is the part of the strategy of the company for maintaining the competency. The customer service is up to standards with internal benchmarking system and applying best practices.

Supporting activities

Infrastructure: The Company has a strong infrastructure build-up that makes the infrastructure quite huge. The management is clear about the business model that includes strong central control of various functions, like information technology, risk management and operations management. It is clear that it has to focus on its core banking system i.e. retail banking with efficiency and effectiveness. The back office of the company is highly centralized with an input of globalization. The front office is multi-local with local business managers holding full responsibility for the results (Parada et al 2009).

Technology development: The Company has its own developed technology system, named Partenon that consolidate all the systems of the bank and ensure smooth functioning of the acquired banks of the company. Partenon is the core banking system of the company and is considered as one of the most advanced IT systems in the banking industry. The flexibility of the IT system enables the company to adapt to different banking businesses located in different countries with an ease (Santander / Abbey: integration strategy 2012).

Human resources: Management training is central to the business of the company. There is centralized training and talent management system under which people are trained to build necessary skills, knowledge and attitude for carrying out banking operations with efficiency and effectiveness.

            The company is able to combine the resources, knowledge and capabilities that it has acquired in new markets, such as Abbey in UK, with its existing corporate capabilities (Santander / Abbey: integration strategy 2012).

Procurement: The Company invests in supply chain management scheme for boosting its own suppliers and other small businesses. It also provides financial support to its suppliers who want to purchase assets vehicles, construction equipment and machinery (Santander to invest in supply chain finance scheme 2012).

            On the basis of the value chain analysis of the company, the resources of the company are technological, human and infrastructure that also provides forms the competencies of the company in terms of superior cost efficiency and maintaining customer information. The core capability of the company is its information system which is critical for credit risk management, for assessing the credit risk better than its competitors and managing client arrears in a better manner (Guillen and Tschoegl 2008).

Sources of competitive advantage

            The sources of competitive advantage of the company are its business model, technological advancements and a dedicated workforce. The business model of the company is centralized with global factor embedded. Certain functions are centralized, such as information technology, operations management and risk management, while local adaptability is seen for marketing and sales. It ensures effective operational management with strict control over credit risk (Pahl and Richter 2009). Back office systems are highly centralized while front office systems are highly decentralized. The integrated IT system of the company is another source of competitive advantage as it enables the company to provide better customer service and attaining cost savings. The company can have single view of its every customer, across varying business lines, like mortgage, insurance and credit card. Therefore, integrated IT system is the source of competitive advantage for the company. Dedicated employees and effective human resource management is another source of competitive advantage for the company. The company involves in setting up of an intense training program for its employees to acquire required competencies for the banking industry. Retention plans of the company are good keeping the employees dedicated towards practicing standards of excellence set by the company (Parada et al 2009).

Macro/Micro environmental strategic marketing issues

            The major macro/micro environmental strategic marketing issue for Santander in the case is related to risk management. Abbey had its roots in mortgage lending, and had the habit of protecting or defending its market share without regards to the giving conditions and that had no fit with the more prudent and cautious approach of Santander. The consumer lending market in UK was at boom during the strategic decision of cutting the market share of Abbey was taken. It was, therefore, a challenge for Santander to pull back Abbey from the mortgage and consumer lending market and convert Abbey into a fully fledged commercial bank (Ryan 2009).

            This issue was an opportunity for Santander to establish its operations in UK with its core business model of providing retail banking services. The company could balance the growth and value in the mortgage market through reducing the mortgage market share. It did not quit the market considering the legacy of Abbey and its long term relationship with customers in this business line. Therefore, reducing the market share in mortgage lending was a good compromise and an opportunity for Santander to reestablish Abbey. The time frame for settling this issue is initial one year of the acquisition of Abbey by Santander. High priority should be assigned to this issue as margins that Abbey is getting from mortgages and consumer lending is trending to zero, and it is necessary to ensure even and consistent growth (Santander / Abbey: integration strategy 2012).

            Another strategic marketing issue is reduction in cost with improved customer service. Achieving cost synergy with no compromise in customer service is an issue for the company regarding reestablishment of Abbey according to the standards of excellence of Santander. Abbey has more staff in back office and is quite large when comparing the UK average. The strategic issue lies in moving the employees to commercial units and reducing the back and middle office staff of Abbey, which has long been working in the back and middle office for many years. The integration of Santander’s superior marketing and operational capabilities to the acquired bank is a strategic issue in the case (Parada et al 2009).

            The strategic issue is an opportunity for Santander to bring in uniformity in the operations of Abbey’s business while maintaining physical interface with the customers. This can happen through outsourcing of back office processes to other countries for reducing the cost to income ratio, and implementing the in-house banking system of Santander, named Partenon, for integrating all the operations leading to cost synergies, thus enabling the bank to offer to its customers attractive products and services with reasonable price (Tallman 2010). It could result in higher income and a significant decrease in the cost along-with improvement in the customer loyalty. The time-frame for this issue is three years after building the revenue growth momentum and making investments in distribution.

            The issue has to given a high priority as Santander emphasizes on cost effectiveness with improved customer service, and providing competitive products and services to customers. As the focus of Santander is to transform Abbey into a fully fledged commercial market, it is necessary to provide competitive customer service with attractive products and services, and it is possible through attaining cost effectiveness.

            Another micro-environmental issue is workforce training. Santander focuses on building a workforce that has accurate knowledge, skills and attitude for working towards the goals and objectives of the company. Abbey has 33% of its workforce in its back and middle office, which is quite high in comparison to the 8% of Santander. The issue is a threat to the working style Santander and it has to deal with it so that there can be compatibility with the global style of working of Santander. The workforce has to be given extensive training for handling front office along-with proper retention and incentive plans at place so that long-term relationship can be established with them through creation of sense of belongingness. The time frame for this issue when it is most relevant is building of revenue growth momentum as it is the employees who have to interact with customers on behalf of the company. It must be given high priority as competition is rising in UK banking industry so workforce should be well prepared and ready to work towards goals of Santander (Santander / Abbey: integration strategy 2012).

Strategic Options

            Strategic options can be identified through SWOT of Santander which is as follows:

Strengths:

• Superior technology integration into operations
• Brand image
• Standard customer service
• Cost synergies and economies of scale
• Extensive training and development programs for employees

Weaknesses:

• Dependence on only one superior in-house developed core banking system
• Less back-office employees that can be incompatible to high back-office employees in acquired banks.

Opportunities:

• Merger and acquisition of banks for full scale entry.
• Search of markets similar to home market capabilities.

Threats:

• Increasing competition from banks through development of competitive technologies (Thomson and Baden-Fuller 2010)

On the basis of SWOT of Santander, following strategic options are available to the company

Improve the customer service through technology integration: The customer service can be improved when all the database of customer can remain available instantly so that the status of the transactions of the customer can be viewed as and when required. The company has competitive advantage in terms of efficiency of operations and cost-cutting. It can be used to implement the integration of technology in operations management for establishing itself in the UK market (Guillen and Tschoegl 2008).

Outsourcing of processes to other countries: As the branches in Abbey are quite expensive, the back office and middle office workforce has to be reduced without reducing the sales force. Outsourcing of processes to other countries where the company has established and successful operations, can reduce the cost to income ratio, thus offering products and services at reasonable prices, leading to increase in customer satisfaction and loyalty (Tallman 2010).

Quitting or reducing share in mortgage market

            Santander has retail banking operations and Abbey works in mortgage market. The margin that the latter is getting through its operations in mortgage and consumer lending market are trending towards zero. It has flat deposits due to which it is necessary to build the value of the company with considerable deposits. The strategic option available to Santander is either to quit the mortgage market or reduce its share considerably. As the core business of Abbey has been mortgages and consumer lending, quitting the market can lead to damaging the relationship of the company with the existing customers. Therefore, reducing the market share is suitable option considering the background of the Abbey bank and legacy (Ryan 2009).

Santander’s strategy as market oriented

            The strategy of Santander is truly market oriented. It creates growth options in foreign markets with the help of acquiring small scale businesses or through forming strategic alliances. The company also makes large scale foreign market entries and rapidly integrates its core capabilities into the core market. It learns about the new markets and does its assessment to acquire potential targets in that market. The strategy of the company to centralize operations and technological processes, while giving responsibility to the local manager to develop the sales force and gain results on his own in the new market according to the local market conditions reflects the market orientation of the company (Guillen et al 2008). The company adapts itself to the local market needs and takes decisions according to the prevailing market conditions.

            Other considerable strategic orientations are technological and customer orientations. Santander is oriented towards integration of operations and customer service with superior and advanced technological systems (Clark, 2011). The in-house core banking system of Santander i.e. Partenon is used in every business unit of the company in home as well the foreign markets. It creates value and helps in attaining cost synergies. Through cost synergies, the company is able to provide its customers attractive product and service packages, and thus building loyalty of customers. The IT system that the company implements for its operations and bringing all the customer database to a single global platform indicates its orientation towards its customers.

Most appropriate way to compete

            Santander can compete in its market place through transferring its core capabilities developed in its home market of Spain to its new markets. These core capabilities include risk management, operational and technological capabilities. These capabilities have to be centralized, while the marketing and sales activities have to be localized with local adaptability. This strategy can be used by Santander to achieve its ambitious goals of growth and entrepreneurial initiative with ensuring effective and efficient operations management along-with practicing strict control over the risk on credit (Parada et al 2009). It is the most appropriate way for the company to compete in its market place by remaining global from the outset and always adapting to the needs of the local market. The company can continue on its strategy of acquiring business in the foreign market place, and establishing successful coordination and communication between the corporate headquarters and the operational branches transferring its core capabilities and practicing them in the new markets.

Analytical approaches primarily from the positioning school

In order to analyze the presented case and position of Santander within the case, different measures such as PEST analysis, Porter’s five force model, value chain analysis, and analysis of generic categories of strategies have been taken into account. Along with this, internal analysis of available resources is also done with the help SWOT measure have also been undertaken within the analysis process. On the basis of review of the entire research process, it can be considered that majority of proportion of analysis in the paper is done on the basis of existing positional factors related with the organization. Different factors and theories used within the paper for the purpose of analyzing the existing market positions of the organization within the marketplace (Lowendahl 2005). These all theories and models can be considered primarily from the positioning school of strategy formation. This school of strategy states that before undertaking any strategy there is a need of having some intensive analysis of position related factors. For the purpose of judging the significance of such factors, different measures such as porter’s Five Force Model, PEST analysis, generic strategic disposition of the organization can be used in the most effective manner (Van Den Bosch and De Man 1997). Although, the usage of SWOT analysis, for the purpose of evaluating the existing capabilities of the organization is reflecting the usage of resource based view of strategy for the analysis process, yet still positioning school is primarily referred in order to accomplish the analysis.

Comparing and contrasting the findings

There are two different schools of strategy, namely positioning school and the resource based perspectives of strategy, have been used within the paper. Under positioning school of strategy, as porter’s Five Force Model, and PEST analysis of the external market has been undertaken. On the other hand, SWOT framework used for analyzing internal strategies and resources available to the organization, which falls under the category of Resource Based School of strategy. The results of both the method are quite similar as both the methods are supporting the business expansion strategy of Santander. Moreover both the schools of strategy are advocating that business expansion strategy used by the business organisation will be quite effective for the organisation to address some critical challenges provided by the external business environment (Lowendahl 2005).

            However on basis of the comparison of the methods prescribed by these two different schools of strategies some contrasting results can be revealed. For instance, the nature of the recommendations made by positioning school of strategy related methods such as PEST and Porter’s Five Force is quite futuristic. It enables the firm on the basis of external environmental conditions and positional factors related with the business, which can be proved fruitful for the organisation within long term. In contrast to this, resource based methods imposes the organisation to take decision from the short term perspective. On the basis of the analysis of internal resources with the help of SWOT framework, the organization needs to take decision for the long term. In this way, this framework helps the managers to take decisions on the basis of its internal capabilities (Amason 2010).

            Along with this, PEST analysis has defined the UK market as highly lucrative effective for Santander. As per the measure, there is an intensive support available for the organisation from political, economic, social and technology related position of target market. In contrast to this, SWOT measures have also evaluated opportunities as well as threats for the organisation in existing period of time. As per the measure, several threats such as existence of high degree of competition, and some strict governmental norms for financial industry have been found out for the organisation. In the same series, Porter’s Five Force Model has also reflected some of the intensive and critical threats to the organisation but it has neglected some environmental opportunities for the organisation in the long run.  In contrast to SWOT analysis has defined all the opportunities as well as threats available for the organisation (Hitt, Ireland and Hoskisson 2010).

            In this way, although, there were some contrasts within the results revealed through both the schools of strategies, yet at last both schools were agreed upon the decision of Santander regarding business diversification within the market of UK.

Appropriate strategy approach

On the basis of comparison and contrast between the results of both the approaches of strategy, it can be reflected that positioning perspective of strategy will be the most suitable approach for the organization. It is due to the reason that form the long term perspective, before reaching on any decision it is quite essential for the management of the organization to undertake some effective and comprehensive information regarding different positional factors and aspects. In addition to this, the positioning approach also provides a comprehensive range of different methods and concepts for the purpose of scanning internal and external position of the organization within the market. For business organizations some time it becomes quite important to take decisions on the basis of external environmental conditions. In this regard, the applications of positioning schools of strategy will be proved quite appropriate for the organization in the conditions mentioned within the case (Van Den Bosch and De Man 1997).

Issues that would minimize the likelihood of implementing the option

As per the explained conditions of the case, there were several critical issues can be emerged in front of the organization in the process of expansion of its business within the UK. The first and foremost issue faced by the organization will be related with the resistance shown by the existing employees of the organization. Employment of any change within the organization is not an easy task for the management as people show their negative tendency towards any change. Moreover, other crucial issue in this regard is related with the cross culture diversity within workforce and organizational trends. As the culture of Spain (i.e. home country for Santander) is entirely different from that of the UK (i.e. host country), when the company will expand within the UK, it will have to face some critical issues (Van Den Bosch and De Man 1997).

            In order to minimize such critical issues in the proper implementation of the selected strategic option by the company, providing some effective cross culture training and development to its employee is recommended to the organization so that they can be able to accept the culture change quite effectively. Along with this, employment of an effective Management Information System implied by the organization will be proved quite helpful for the organization to reveal any crucial changes undertaken within external business environment and changes within taste and preferences of customers in a new market place. The organization should undertake a scientific change management framework that can allow the management to employ changes within the organization in the most effective manner (Jeff 2008).

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