IS2300 - Principles of Marketing Assignment 01

University Of Moratuwa Faculty Of Information Technology Level 2 Semester 2 2012

Name SIRIWARDANA A.K.G. SRILAL N.G.C. THILAKARATHNA K.M. THILINI R.S. WANASUNDARA W.M.M.H.

Index Number 104073G 104076T 104080B 104082H 104089K

Introduction
HSBC Holdings plc (commonly known as HSBC) is a British multinational banking and financial services company headquartered in London, United Kingdom but founded in China. As of 2011 it was the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine. HSBC is a universal bank and is organized within four business groups: Commercial Banking; Global Banking and Markets (investment banking); Personal Financial Services (retail banking and consumer finance); and Global Private Banking. It has around 7,500 offices in 87 countries and territories across Africa, Asia, Europe, North America and South America and around 100 million customers. As of 30 June 2011, it had total assets of $2.418 trillion, of which roughly half were in Europe, a quarter in the Americas and a quarter in Asia. HSBC Holdings plc was founded in London in 1991 by The Hongkong and Shanghai Banking Corporation to act as a new group holding company and to enable the acquisition of UK-based Midland Bank. The origins of the bank lie in Hong Kong and Shanghai, where branches were first opened in 1865. Today, HSBC remains the largest bank in Hong Kong, and recent expansion in mainland China, where it is now the largest international bank has returned it to that part of its roots. HSBC has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index. As of December 2011 it had a market capitalization of 87.4 billion, the third-largest of any company listed on the London Stock Exchange. It has secondary listings on the Hong Kong Stock Exchange (where it is a constituent of the Hang Seng Index), the New York Stock Exchange, Euronext Paris and the Bermuda Stock Exchange.

Corporate Profile
As of 2 April 2008, according to Forbes magazine, HSBC was the fourth largest bank in the world in terms of assets ($2,348.98 billion), the second largest in terms of sales ($146.50 billion) and the largest in terms of market value ($180.81 billion). It was also the most profitable bank in the world with $19.13 billion in net income in 2007 (compared to Citigroup's $3.62 billion and Bank of America's $14.98 billion in the same period). Since the end of 2005, HSBC has been rated the largest banking group in the world by Tier 1 capital. In February 2008, HSBC was named the world's most valuable banking brand by The Banker magazine. HSBC is known in banking circles for its conservative and risk-averse approach to business a company tradition going back to the 19th century. In its technical management, however, HSBC has recently suffered a series of headline-making incidents in which some customer data were allegedly leaked or simply went missing. Although the consequences turned out to be small, the embarrassing effect on the group's image did not go unnoticed. The HSBC Group has a significant presence in each of the world's major financial markets, with the Americas, Asia Pacific and Europe each representing around one third of the business. With around 8,000 offices in 87 countries & territories, 210,000 shareholders, 300,000 staff and 128 million customers worldwide, HSBC arguably has the most international presence among the world's multinational banking giants. HSBC is the largest bank in Hong Kong and prints most of Hong Kong's local currency in its own name. The HSBC Group operates as a number of local banks around the world, which explains its advertising tagline "The World's Local Bank." In response to ongoing discussions about the survival strategies for banks and the suggestion of "Living Wills" HSBC explains its structure as "separately incorporated and capitalized".

SWOT Analysis
Strengths
HSBC is having a continuous positive trend towards increasing revenues and after-tax profit. This has only been possible due to its enhanced customer relationship all over the world. They promote a corporate culture of achieving success in their organization. Success allows them to invest in new financial products and services for the customers. It enables them to pay more dividends hence benefiting and actually winning shareholders /investors for long-term relationship. Their culture has contributed as a major strength towards their growth success

The bank is well capitalized and this has enabled it to perform relatively well against other banks in recent economic events. The level of capitalization means that, going forward, the bank is unlikely to need to borrow from the UK government: this will enable it to retain more autonomy. The bank has a strong presence in high profile emerging markets, putting it in a good position to take advantage of future growth in those economies. The banks global presence in Europe, Asia and South America helps to spread risk and offers significant economies of scale. Despite rebranding relatively recently (1999), the HSBC brand has become well-established and is considered particularly valuable within the industry.

Weaknesses
Along with the strengths, HSBC has got some weaknesses too. The major weakness that is evident to even a lay man 's eye is that they have a very little foot print and hence despite having operations in several countries , it has less exposure to the much larger and potentially profitable market which is there and already being exploited by other Banking Financial organizations , especially in Asian region

HSBC associates itself strongly with investment in the small business sector, but the current economic situation has led to increased risks, potentially compromising the activity levels in this area of the operation.

The bank was involved with sub-prime markets in the US and has had to write off large figures lent to high-risk borrowers.

Despite falls in the UK interest rate, HSBC has increased its mortgage rates. This may be perceived negatively by borrowers and potential borrowers, adds pressure to an already depressed housing market and could ultimately lead to more defaulting as borrowers struggle with higher repayments.

A redundancy programme announced recently may affect morale among staff, leading to decreased production and loyalty. HSBCs branding emphasizes its global presence, and this may be seen negatively by some customers in its implication of homogenization and lack of personalization.

Opportunities
The HSBC has got a lot of opportunities in the South East Asian region especially in Pakistan, India and Bangladesh. Since India has been pacing up its economic growth and development at a positive rate and far much better rate, therefore HSBC has already started making preparations for increasing its foothold there. Recently HSBC announced the acquisition of 73 .21 holding in an Indian brokerage house IL FS Investment Limited HSBCs high level of capitalization places it in a strong position to acquire assets Banks finding trading conditions particularly difficult at present may be available at low cost HSBC also has adequate capital to purchase stronger banks such as Bank Ekonomi in Indonesia, in which it has purchased a stake to continue its Asian expansion despite challenging economic times. HSBCs generally strong position presents the opportunity to outperform competitors during the economic downturn and to build a reputation for being one of the safer banks for depositors, helping to increase resources for lending. Negative press coverage of competitors such as HBOS may encourage customers to choose HSBC instead.

Threats
One threat that is continuously being faced by HSBC is the regular series of virus attacks on its system i .e . 10 on a daily average Another threat to HSBC is Royal Bank of Scotland (RBS ) which operates a multi-brand strategy as opposed to HSBC operating a single-brand strategy . This allows the company to appeal to many different segments of the market consequently taking away the share from HSBC in regions where it is confronted by RBS

Trust in banks has decreased due to financial losses suffered by investors, who may be more inclined to invest elsewhere. Financial losses affecting banks and investors on a global scale have resulted in less credit being available to customers. In the UK this is coupled with increases in living costs resulting in less money being saved.

The falling property market has created a rise in numbers of homeowners with negative equity. If a property is worth less than was borrowed to finance its purchase, there is little likelihood that the bank will recoup all its losses if owners default.

Claims have been made that HSBC has understated losses resulting from US sub-prime markets, and this could undermine confidence in the bank.

Marketing Mix
The marketing mix is a business tool used in marketing products. The marketing mix is often crucial when determining a product or brand's unique selling point, and is often synonymous with the 'four Ps': 'price', 'product', 'promotion', and 'place'. However, in recent times, the 'four Ps' have been expanded to the 'seven Ps' with the addition of 'process', 'physical evidence' and 'people'. Marketing for financial services pose distinctive challenges to marketers because services are intangible, inseparable and cannot be inventoried. An expanded marketing mix is required to fully answer the differences between product marketing and marketing for financial services. The expanded marketing mix aims to capture the distinctive nature of financial services
Product

The product is the heart of the firms marketing strategy. Poorly designed service products that do not create value for customers are destined to fail regardless of how well the other 6 Ps are executed. The goal of the product element is to create a service concept that would offer more value to a market segment than competitors. Working to transform this concept into reality involves designing a cluster of different but mutually reinforcing elements. The product must be a means to solve a problem or satisfy a want in the market. To date, overspending is a major issue in the Western world. This is the reason why the new HSBC prepaid card is included in the new current account package as a means to ensure that customers do not overspend by ensuring prudential budgeting of financial resources. Unique Features: 1. Prepaid Card HSBC will launch two prepaid cards. Both prepaid cards come preloaded with a standard amount after the customer pays the initial card issue fee. One of the cards is a way to manage a monthly budget by transferring your spending money from your bank account onto the card. It has an annual load limit of a standard amount. The other product on the other hand has a smaller annual load limit comparatively. The new HSBC prepaid cards would be fee-free while offering the same flexibility as a credit or debit card. The prepaid card however, would need to be loaded up with cash first before allowing its users to purchase products and services. The prepaid cards can also be used to withdraw money from cash machines.

2. Real Time Balance Alerts Real time balance alerts will be sent to the customers mobile device every time a HSBC prepaid card user purchases something. This balance update will notify the prepaid card user on the amount of money spent and the amount of money left for free. HSBC may need to team up with companies like Dialog to provide this service.

3. Online Banking Another unique element of the HSBC prepaid cards are their flexibility in managing the customers financial resources. Bank customers can access the HSBC website and set standing orders on how much money to load onto the budget manager every month as long as the funds are available in their current account.

4. Optional Savings Account Bank customers that pay more than a particular amount into their current account every month would qualify for the HSBCs Current Account Advance. Regular payments can be made through the internet or by direct standing order from the customers current account to save a specific amount every month. This feature is ideal for customers with a fixed monthly income.
Price

The pricing component plays twin roles for HSBC in the sense that it must be able to first attract customers to purchase the service and also generate revenue for HSBC. There are five main factors that influence pricing decisions, namely, profit maximization, market-share maximization, survival, social considerations and personal objectives. While pricing strategy is highly dynamic for other products and services, pricing for current account services have become rather static in recent years. Most banks do not require any fees to set up a current account. Banks instead rely on the money that floats in the interval when they are deposited to when they are spent in order to profit from current accounts. It is unlikely that any increases in interest rates would be able to attract customers to open up new current accounts with HSBC. The AWLR ( Average Weighted Lending Rate) that is now at 10% provides little room to man oeuvre for banks and other financial institutions. Adding to that is the credit crunch and declining asset prices that makes borrowing at a higher rate unattractive at the moment. This is in line with what competitors are charging at the moment. The catch with the prepaid card scheme is that it encourages bank customers to save. Any money that is saved is held within the customers current account and remains available for banks to provide further

lending. This may prove to be highly beneficial to HSBC during times when raising new capital is extremely difficult.
Place

The place element involves delivering the product element to customers through appropriate methods and delivery channels. Delivery may involve both physical and electronic channels. Failure to make a service product readily available to customers would guarantee its failure regardless of how good the service product is.
Promotion

The promotion element relies on effective communications to bring awareness in the market of the service products offered by HSBC. The three objectives of the promotion element are to gain the attention of customers, provide additional information and persuade customers to purchase the product. Advertising is mass, paid communication that is used to transmit information, develop attitudes and induce some form of response on the part of the audience. The choice of media that would be utilized includes newspapers, magazines, outdoor advertising and the internet. A sales promotion will also be carried during the first three weeks after the launch date to help stimulate customer purchase and the effectiveness of intermediaries. Other promotional materials include press releases, posters and brochures.
People

Despite technological advances, many financial services still require direct interaction between customers and bank employees. The nature of these interactions strongly influences how customers perceive service quality. This is particularly true for financial services as employees are often the first line of contact with the customer. Due to the importance of this element in the marketing mix, special attention needs to be given to the training of employees concerning the new current account package. The prepaid card concept also requires some serious attention as its aim is to show HSBCs change of stance concerning the psychology of spending. Training should only be given to bank staffs that are directly involved in the new current account package. However, back office staff must also be formally notified concerning this new current account package to ensure that the entire organization have a coherent understanding on the banks products and services.

Besides that, training of IT personnel must also be stressed as new information systems may have to be put in place before the launch of the new product.
Physical Evidence

It is generally recognized that physical evidence can be subsidized into two components: peripheral evidence which can be possessed by the consumer but has little independent value and essential evidence, which cannot be possessed by the consumer but has independent value. The peripheral evidence is the prepaid card itself while the essential evidence includes bank branches, cash machines, posters and brochures.
Process

The process element focuses on the mechanisms by which the service is delivered, including business policies for service provision, procedures, degree of mechanization etc. It is imperative that the policies and procedures are written and tested before the launch of the new current account package. Bank personnel are to conduct a test to determine how efficient and effective front line staffs are at explaining the new current account package and setting up new current accounts. A step by step guide on how to set up a new current account and prepaid card system is to be issued to all front line staff to ensure that no confusion is to occur during the critical launch date. Besides that, front line staff should also be constantly monitored to ensure that the delivery of services occur smoothly. Customer feedback and complaints should be welcomed as they would provide the input needed to continuously improve service delivery and customer satisfaction.

Marketing Strategy
Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. HSBC should implement the market penetration and product development strategy by capturing current account market share from other financial institutions that have been weaken from the economic crisis. Besides that, the launch of the new prepaid card would be a step towards product development that would be useful to counter non-traditional financial institutions that are poise to enter the current account market. The market development strategy can also be carried out at a later date by bringing the new and tested prepaid card product into other geographical markets like China and India. This would be in line with HSBCs slogan of being the Worlds Local Bank and would also take advantage of HSBCs global network in more than 79 countries. In relation to the Porter Generic model, HSBC should aim at using a broad based differentiation strategy to capture market share from ailing financial institutions.