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Retail bank sales and services unit3
1. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Personal Services
Product Knowledge
The Competitive Environment
Selling Skills
Customers Service
Sales Interviews
MODULE COVERAGE
1
Introduction to Marketing
Customer Relationship Management
2. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Competitiveness and business environment
To analyze the market or business environment for banking and financial
services, there is need to consider four aspects of the business
environment that exist in the industry: Political, Economic, Social/ cultural
and Technological (PEST).
Political Environment:
This addresses issues such as:
• Are there current or future government policies or regulations that create
an advantage or disadvantage to you or your competition?
• What direction are the political winds blowing for your industry?
• Are there special interest groups that are at play that might shift business
and market dynamics in your favour or disfavour?
• How will the moves towards economic groupings, political integration and
trade blocks affect the banking/ finance industry?
• In what ways might the events and trends on the international scene
affect national policies in the sector?
2
3. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Economic Environment:
Analysis of the economic environment addresses questions like:
• How is the national, regional and international economy (triggers of demand for
financial services) doing?
• How is investment money flowing within and into the country? Who is getting
it? How are they using it? How much is being spent on items like advertising and
R&D?
• What are the current levels of demand and supply of banking/ financial services?
• What are the most effective and efficient channels to reach those customers, and
who is best positioned to do so?
• How sensitive are the customers to price, quality, and delivery in your market?
• Natural resources: what is happening to the weather, climatic conditions,
topography and soils, mineral deposits/ exploitation, lake/ sea fisheries resources
• Demography: the size, predominant occupation standard of living, growth rate
and age-structure of the population.
• International trade and issues of globalisation
• Types and intensity of competition
3
4. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Socio-cultural Environment
• This refers to the influence of social and cultural factors on customer tastes and
behaviour. In some places, the culture and traditional or religious beliefs are so
entrenched into the society that it affects their whole life, including their uptake of
financial services. Typical socio-cultural questions to a banker are:
• How do the different cultures and social norms affect demand for and use of
financial services?
• How best can we structure the features of our products so that they maximally
appeal to the different cultural groups represented in our customer base?
• What is people’s attitude to work in the cultures where we work, and how does
this affect their ability to become or remain viable customers?
• If the business community is comprised of closely knit kin and close persons, what
opportunities exist for customer-focused competitiveness?
• What life cycle events, ceremonies and other cyclical social occurrences trigger
demand for banking services?
4
5. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Technological Environment
• Technology in this context is the systematic application of scientific knowledge to
practical tasks. For the banking sector, the most important technological factors
are in the fields of electronic data capture/processing and communication.
Innovations in product delivery methodologies also constitute technological
opportunities and challenges for banks. Typical questions addressed by technology
in the business environment are;
• How technologically advanced are the competitors in terms of data capture and
processing?
• Are there development efforts underway that could cause a paradigm shift or
make current technology obsolete?
• If so, will you or your competition have access to that new technology?
• Will that technology create new products that will be game-changing in your
industry?
• Is technology creating cooperation among competitors that might reduce your
bank’s competitiveness?
5
6. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Porter’s five forces of competition
Michael Porter provided a framework that models an industry as
being influenced by five forces. The strategic business manager
seeking to develop an edge over rival firms can use this model to
better understand the industry context in which the firm operates.
Competition in the banking industry can be analysed using Porters’
Five Forces Model, which looks at the following triggers of
competition;
• Threat of new entrants
• Supplier power
• Buyer power
• Threat of substitutes
• Rivalry
6
7. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Rivalry between Banks
7
8. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Rivalry
• Rivalry refers to the market dynamics that result from suppliers’
strife as each tries to gain an edge. In real life, firms are not price
takers but they strive for a competitive advantage over their rivals.
• Economists measure rivalry by indicators of industry concentration.
The Concentration Ratio (CR) is one such measure. The CR indicates
the percentage of market share held by the four largest firms in an
industry.
• A high concentration ratio indicates that the market is controlled by
the few large firms while a low concentration ratio indicates that
the industry is characterized by many rivals, none of which has a
significant market share. In the latter case, this kind of fragmented
market is said to be more competitive..
• If rivalry among suppliers in an industry is low, the industry is
considered to be disciplined.
8
9. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Threat of substitutes
• A substitute is a product or service from which a customer can
derive satisfaction as an alternative to consuming the product in
question. The threat of substitutes exists when a product's demand
is affected by the price change, quality or delivery efficiency of a
substitute product.
• A product's price elasticity of demand is affected by substitute
products. A recent example of substitute products in Uganda’s
banking industry are the mobile money services of telephone
companies (substitutes for savings/ deposit accounts and money
transfer services that were formerly a preserve of the banking
industry).
9
10. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Supplier power
In an industry like manufacturing, raw material and other input suppliers can
be very powerful. Suppliers are powerful if;
• Credible forward integration threat by suppliers is likely
• Suppliers are concentrated – like in the drug industry's relationship to
hospitals
• Significant costs would be incurred to switch suppliers
• There are no close substitutes
• Backward integration by customers is impossible, difficult or very costly
Suppliers are weak if:
• Many competitive suppliers exist and the product is standardized
• Credible backward integration threat by customers exists
• Customers are concentrated
10
11. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Buyer power
The power of buyers is the impact that customers have on an industry. In general, when
buyer power is strong, the industry situation is near to what economists call
monopsony (a market in which there are many suppliers and only one buyer).
Buyers are powerful if:
• Buyers are highly concentrated (i.e. a few buyers accounting for the bulk of the market
share)
• There are many suppliers and the products are standardised; thus the buyer can easily
switch to another product
• Buyers possess a credible backward integration threat and can threaten to buy products
from a rival, or put up their own facility to produce the product in question.
Buyers are weak if:
• Suppliers are able to effect forward integration theatres
• There are significant buyer switching costs
• Buyers are fragmented (many, different) - no buyer or related group of them has any
significant market share
• The supplier produce and supply critical portions of buyers' input
• There are no suitable substitutes
11
12. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Threat of new entrants and entry barriers
It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that
new firms may enter the industry also affects competition. Industries possess
characteristics that protect the profit levels of firms in the market and inhibit
additional rivals from entering the market.
The key barriers to entry in an industry are;
• Government barriers. This is done through policy, trade protection, regulation of
utilities provision and other aspects of consumer protection
• Patents and proprietary knowledge serve to restrict entry into an industry. Ideas and
knowledge that provide competitive advantages are treated as private property when
patented, preventing others from using the knowledge and thus creating a barrier to
entry.
• Asset specificity inhibits entry into an industry.
• Asset specificity is the extent to which the firm's assets can be utilized to produce a
different product. When an industry requires highly specialized technology or plants
and equipment, potential entrants are reluctant to commit to acquiring specialized
assets that cannot be sold or converted into other uses if the venture fails.
12
13. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Entry and Exit Barrier Matrix
Easy to enter if there is:
• Common technology
• Little brand franchise
• Access to distribution channels
• Relatively low capital outlay
• Low scale threshold
• Difficult to Exit if there are:
• Specialized assets
• High exit costs
• Interrelated businesses
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Easy to exit if there are:
•Market for capital assets
•Low exit costs
•Independent businesses
Difficult to Enter if there is:
Patented or proprietary know-
how
Difficulty in brand switching
Restricted distribution channels
High scale threshold
High capital outlay
Editor's Notes
By the end of this unit, you should be able to:
Define and explain competitiveness in a business environment
Explain the forces of competition
Explain the generic strategies to counter the forces of
competition.
Competitiveness is essentially the ability of a firm, sector or economy to compete against other firms, sectors or economies. It is the combination of internal aspects (structures, products, services, policies, work methodologies, tools) and the entity’s network of external stakeholders that work together to give the entity the resilience to survive and excel amidst competition.
This is very complex and dynamic in nature and keeps on changing with time. It refers to the economic conditions of the consuming public, economic policies of the country or region, market forces at play in the industry, presence of adequate infrastructure for business facilitation, general levels of and trends in trade volumes and direction, events and business in the capital and money markets and the global economic realities.
Technology in the business environment affects banks because the faster and more accurately information can circulate, the more informed the customers become and thus the better each competitor strives to be, pushing upwards the stakes of competitiveness.
Competitive rivalry is fierce if there are numerous competitors in an industry, markets are mature (like the banking industry), with little differentiation and innovation. The threat of new entrants will be high if an industry is attractive, i.e. there are enough customers, and profit margins are attractive, entry barriers are easy to overcome and set-up costs relatively low. Substitute products are a threat if they perform the same function as the product or service they replace. A substitute which provides better value for money is a greater threat. Buyers are generally powerful if they are very knowledgeable and exposed, have the opportunity to shop around for the best deal and purchase a significant amount of a product at a time. The fewer the overall population of buyers in an industry, the more critical the buyer power is in a competitive market. Suppliers are powerful if there are few suppliers of a good or service, as the buyer has limited opportunity to shop around for a good deal.
Numerous economic studies and practical experience in all free market economies have shown that different industries can sustain different levels of profitability and co-exist. Part of this difference is explained by industry structure. The figure below shows the logic of Porters’ model.
In pursuing an advantage over its rivals, a supplier can choose from several competitive moves:
Changing prices - especially lowering prices to gain a temporary advantage.
Improving product differentiation - improving features, implementing innovations in the delivery process and trying to imply better utility of their products to consumers.
Creatively using channels of distribution - using vertical integration or using a distribution channel that is novel or more cost effective/ convenient to customers. Examples would be agency banking, partnering with mobile money service providers to use their agency network and leveraging electronic communication technology to deliver services more cost-effectively.
Exploiting relationships with suppliers - for example, working with developers of banking software to develop technology for remote agency based or POS devices to penetrate the market without spending money on opening new branches.
The intensity of rivalry is usually triggered by the following:
A larger number of suppliers increase rivalry because more firms must compete for the same customers. The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership.
Slow market growth, causes firms to fight for market share. In a growing market, firms are able to improve revenues simply because of the expanding market.
High fixed costs lead suppliers to seek economies of scale by serving more customers, thus t increases rivalry.
Low switching costs for customers increases rivalry. When a customer can freely switch from one product to another there is high mobility of customers among suppliers and this causes a greater struggle to capture customers.
Low levels of product differentiation promote higher levels of rivalry. Brand identification, on the other hand, tends to constrain rivalry.
Strategic stakes are high when a firm is losing market position or has potential for great gains. This intensifies rivalry.
High exit barriers place a high cost on abandoning the product or service, or on stopping operations. The supplier must stay on and compete because it is very expensive to close down or stop offering a product/ service
Industry Shakeout. A growing market and the potential for high profits induce new suppliers to enter the market and the existing ones to intensify production or operations. A point is reached where the industry becomes crowded with competing suppliers, and supply outstrips viably sustainable demand. A shakeout ensues, with intense competition, price wars, and company failures.
The banking sector or industry in Uganda and internationally is often characterised by fairly disciplined rivalry.
Barriers to exit do work in a somewhat similar way to entry barriers. Exit barriers limit the ability of a firm to leave the market and can exacerbate rivalry - unable to leave the industry, a firm must compete.
