Strategic Direction of Barclay
Barclays was the first UK bank to recognize the potential of credit cards. Barclays Bank negotiated a franchise from Bank of America at the end of 1965. in the following year the bank launch its Barclaycard . In just 6 months, 30,000 retailers signed up. Acceptance of the Barclaycard by the British adult population was evident in the one million Barclaycard holders by the end of 1966.
Evidently, Barclays has taken the advantage of being the first mover in the plastic credit card industry in UK. Aside from being the first bank to issue credit card in UK, Barclays is also the first to have an institutional presence in the Internet. In addition, it was also the fist bank to start a loyalty scheme in UK and also the first bank to enable to issue credit card payments over the computer. Moreover, Barclays Bank led the world with the first operation Automated Teller Machine (ATM) in 1967.
Clearly, the use of information technology application and computer technology was critical in the Barclays strategy. Barclaycard used electronic processing in its card business to facilitate the transition from paper to electronic processing. In 2003, Barclaycard claim a 27 percent of the total credit card market. Barclaycard was the only bank card which was a card holder issuer as well as acquirer and hence was in a position to gather information about its own and merchants’ customer.
However, despite being the initial and for considerable period of time the only credit card issuer in UK, Barclay made losses for the first decade of its operations as it built up its card and merchant volumes. The decade to 2003 reflected a period when competition between UK card issuers intensified and was characterized by extending activities and product development thus increasing the range of products and services available to final consumers. However, eve the emergence of numerous new entrants during the 1990’s, Barclaycard maintained its defection rates below 5 percent annually.
In 1995, unfortunately the company suffers dropped in of new cards issued by 15 percent by total new acquired customers which is below their ongoing market share of 30 percent of the market. At the same time, UK government considered that interest rates charged for outstanding credit card balances were still far higher than the level they deemed as acceptable.
Another element in the profit equation is the average value of balances settled outside the free interest period. As the number of card issued the greater is the risk of having bad and doubtful dept. Financial performance thus suggest that the aim of credit card managers is to find customers who need roll-over credit but will not default on repayments. Barclaycard’s in-house skills in measuring and monitoring credit risk have been crucial to their strategy.
Barclaycard’s strategy aims to develop and maintain market leadership by differentiating its product range. Barclaycard’s strategy in the cards market has been associated of some factors which include continued growth of the credit card market, allow Barclaycard to remain the leader in the UK, and the ability of the Barclaycard’s manager to avoid price competition.
Generally, Barclaycard’s strategy has focused on differentiation. Differentiation has been defined by various literatures (1998). According to (2003), differentiation requires that business offerings have sustainable advantages that allow it to provide buyers with something uniquely valuable to them.
According to (1999), differentiation is a competitive advantage which identifies a valuable, relevant, but overlooked dimension of a product. (2002) proposed differentiation as business strategy that brings value to your product and to your customer. (2000) suggested the essence of differentiation is offering an option that the competition cannot or does not offer.
A successful differentiation strategy allows the business to provide a product/service bundle of perceived higher value to buyers at a “differentiated cost” below the “value premium” to the buyers.
If the buyer feels the additional cost to buy the product/service is well below what the product/service is worth compared to other available alternatives, “he’s got a bargain.” The key function of the marketing persons involved is to determine where this “differentiation cost” is versus the buyers’ “value premium” pay point
Differentiation usually arises from one or more activities in the value chain that create a unique value important to buyers.
Strategists examining their business’s value chain for differentiation advantages evaluate the sustainability of those advantages by benchmarking their business against key competitors and by considering the impact of any differentiation advantage on the five forces in their business’s competitive environment. According to (2003), sustainable activities that provide one or more of the following opportunities relative to key industry forces should become the basis for differentiation aspects of the business’s competitive strategy:
· Rivalry is reduced when a business successfully differentiates itself.
· Buyers are less sensitive to prices for effectively differentiated products.
· Brand loyalty is hard for new entrants to overcome.
· Imitation narrows perceived differentiation, rendering differentiation meaningless.
· Technology changes that nullify past investments or learning.
· The cost difference between low-cost competitors and the differentiated business becomes too great for differentiation to hold brand loyalty. Buyers may choose to do without some of the frills and opt for a lower cost approach.
In addition (2003) identified skills and resources the foster differentiation opportunities. These are the following:
Ø Strong marketing abilities
Ø Product engineering-above average
Ø Across the board creative talent and flair
Ø Strong capabilities in basic research
Ø Corporate reputation for quality or technical leadership
Ø Strong cooperation from the channel of activities
Ø Strong cooperation from suppliers of major components
Moreover, there are also some organizations requirements which are required to supped and sustain differentiation activities ( 2003).
Ø Strong coordination among functions in R&D, product development and marketing
Ø Subjective measurement and incentives instead of all quantitative measures
Ø Amenities to attract highly skilled and creative persons at all important levels
Ø Tradition of closeness to key customers and target customers
A business can differentiate itself by performing its existing value activities or reconfiguring in some unique ways. And the sustainability of that differentiation will depend on two things: a continuation of its high perceived value to buyers and a lack of imitation by competitors.
There are many alternative strategic directions in which Barclaycard could implement in their current strategy of differentiation. These may include technology innovation or product/ service differentiation.
Product/service differentiation
Product differentiation occurs “when, owing to differences in physical attributes, ancillary service, geographic location, information, and/or subjective image, one firm’s products are clearly preferred by at least some buyers over rival products at a given price” (1990). For firms seeking to make their demand curve less elastic, successful differentiation provides an insulated position against competitors by enabling firms to sell a larger quantity at a given price or by allowing the firm to create brand loyalty in customers resulting in lower sensitivity to price. This uniqueness may build an entry barrier for competitors to overcome (1992;1980).
However, being unique may require a trade-off with investment if achieving differentiation requires costly effort such as extensive research, product design, high quality materials, or intensive customer support. Thus, the firms employing the differentiation strategy cannot ignore costs and risk ( 1980).
Horizontal product differentiation focuses on differences in attribute variety among competing brands. It occurs “when one brand contains more of some attributes but less of some other attributes in comparison to another brand” (). Consumers’ different tastes will exploit differing strong and weak points among brands given identical prices ( 1992).
The shift towards consumerism is accelerating with significant implications in many of the markets in which we operate. Fundamentally, our view is that consumerism involves a shift in power from institutions towards consumers.
The rapid transformation of the credit card industry – first with the severing of the traditional tie between bank accounts and credit cards and second, with the emergence of credit as a true commodity in the credit card industry – illustrates this so well.
Consumers in the past were grateful if they received credit – it was seen as a right granted to a special few by a bank and hence banks held power over individuals. The value proposition was the availability of credit.
Technology Innovation
In the case of Barclaycard, it is could improve its operations and competitive advantage through real time design data driven tools. This tool would improve their credit limit strategies and increase their interest earning balances. A Fair, Isaac Model Builder for the decision trees may be used as this tool uses historical data to assist in identifying optimal account management strategies.
Fair, Isaac Model Builder for Decision Trees is a PC Windows based application designed specifically to support data driven strategy design. It gives lenders the power to rapidly create new strategies in real time using multiple performance dimensions, to process large datasets rapidly so strategies at any point for greater understanding of the portfolio and transfers strategies to and from production application with ease, putting new strategies into production faster. This real time, highly interactive approach dramatically shortens the time between strategy creation and roll out.
With Barclaycard objectives of the new strategies to increase interest bearing balances, increase turnover, control bad debt, and address attrition, Fair, Fair Isaac can be a big help for the organization.
While the average number of cards in a person’s wallet has increased over the last five years, the value to an individual of having multiple cards will diminish in an environment where credit is a commodity.
The cards that prevail as a single card of choice will be those that consumers judge to be the most valuable in providing access to new services and actively lowering the cost of living – with or without card fees. That is where the focus needs to be and is a challenge which Barclaycard should take on readily.
Credit:ivythesis.typepad.com
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