Analysing the Marketing strategy of Temenos

This report focuses on the marketing strategy of Temenos and its position relative to competitors. It basically falls in the category of Business 2 Business sales. In the beginning it describes major factors affecting the sales of the core banking solution concisely and then includes the environmental analysis of US market for Temenos. Furthermore, current challenges Temenos faces in US market. In addition to that, report also comprises of 4p analysis and segementation, targeting & positioning strategies of Temenos.

Company Background

According to Temenos website, “Group AG is the market leading provider of banking software systems to retail, corporate, universal, private, Islamic and microfinance & community banks. Headquartered in Geneva with 56 offices worldwide, Temenos serves over 1,000 financial institutions in more than 125 countries across the world”.

Business Buying Decision Process

B2B decision process is mostly extracted from the study conducted by Dr. S. S. Satchidananda (2006) and from the book of Soloman(2009).

Problem Recognition

When technology is out dated and consider as hindrance for the growth of the business.

System is unable to align with other modern systems.

Maintenance of legacy system becomes too costly.

Inability to handle new regulation.

Scalability issue

Information Search

Firstly client needs to identify its current and perceptible future needs and then select the option on the basis of the requirement. Two basic options are available for the banks, advantages and disadvantages are mentioned in Appendix (A) figure (1.1).

In case of integrated solution, vendors are selected that matches the requirements and constraints of the client. Vendor’s existence and credibility is considered as the decisive factor in the selection of vendor along with the methodology proposed by the vendor.

Evaluation of Options

After evaluating above mentioned criteria, one or two vendors are selected and they will be invited to Point of care (POC) and then planned a visit to vendor’s customer for evaluating the POC scenarios on production or real time environment.

Post Purchase Evaluation

Temenos used to do post purchase evaluation by conducting structured interviews and publishing case studies that are readily available on their web sites.

The Environment

3.1 Macro Environment

3.1.1 Political

Current financial crises lead to political instability and results in the introduction of new regulations and reforms particularly effecting banking industry. US congress has recently agreed a bill containing biggest overhaul of banking regulations since 1930(BBC News Business, 25th June 2010).Banks have lobbied against the legislation and launch an active campaign against the new regulation.

Barack Obama has criticized banks for lobbying and spending huge amount of money on campaigns against the bill (BBC, 2010). Current defeat of democrats in US mid-term elections resulting in losing control over house of representative and consequently reducing majority margin in senate (Midterms Show Voters Still…, 2010).

3.1.2 Economical

United States economy is in the phase of recovering from one of the most severe financial crises. GDP has grown by 2% mostly due to consumer spending. Additionally, business investment in software and equipment has surged by 12% and government spending increased by 3.4%. Although economy is showing some sign of recovery but still dollars in continuously weakening and unemployment rate increases (Julia Kollewe, 2010).

3.1.3 Socio Culture

Socio culture environment does not have significant influence on the sales of core banking solution because It depends on the functionality and features provided by the system.

3.1.4 Technological

Operating in a technological market is never easy because you must always be expecting a competitive attack from either by a known competitor or it comes out of the blue. In addition to that maintaining a leadership is far more difficult than operating in a technological market. It requires investing heavily in R&D to develop new products and burdening the product lines with higher cost (William H Davidow, 1986).

3.2 Micro Environment

Temenos believes that the next five years will be critical because majority of bank will replace their core banking solution and consider these years as decisive for the long term leadership of the core banking solution (CBR staff writer, 2007). It seems to be very competitive and critical time for the vendors of core banking solution.

Temenos operates in an oligopoly market where the vendors need to keep close eye on the competitor’s intentions and moves along with client’s position as well. Complete core banking solutions prevents small companies from entering into this market due to high level of maturity requirement and continuous support.

The collapse of banking industry due to financial crises will result in greater number of mergers and acquisition because small and middle tier banks striving hard for surviving in these difficult time. Due to financial crises if current clients undergo mergers or acquisition that are not the client of Temenos will result in discontinuation or reduced use of services or vice versa (Annual Report FIS, 2009) as in the case of Bahraini Saudi Bank switches from finacle to T24 (IBS-intelligence, 24th Nov 2010).

Metavante, core banking solution vendor in US, had signed the strategic alliance agreement with Temenos. According to the agreement Metavante acted as a distributor for Temenos core banking platform, TCB, in the US. Whereas Temenos retained the royalties, license, maintenance and service fees (John Adams- American Banker,2007 ).Recently Fidelity Information service (FIS) a major competitor of Temenos has acquired Metavante for $3 billion. This deal is considered as the biggest and the most important financial technology deal of the decade (Fidelity Annual report, 2009). It results for Temenos in losing his US partner and hinder its spread in United States. Furthermore this deal results in reducing the competition for FIS in US.

In respond to that deal by FIS, Temenos has acquired Odyssey group for $101.3 million for gaining competitive advantage in the market by providing wealth management system as a part of T24. However advent software, competitor in wealth management has questioned and criticized Temenos for making wealth management system as a constituent of T24 because they believe clients does not need that sort of product (IBS Intelligence, 22nd Nov 2010).

In addition to that Temenos partnership with Cognizant Technology solutions and Microsoft will play the key role in targeting clients at United States but Temenos needs to find another partner in the banking industry of US or experts that could help them spreading the solution and moulding T24 according to US market because Microsoft does not have sufficient experience and knowledge of banking industry in US (Michael Sisk-American banker, 2010).

Figure 1: Swot Analysis

Marketing Mix

Temenos is providing core banking solution to different banks so that it can add value to their business. Contrary to that from Temenos perspective they are selling a product to the bank and is supported by the following statement in there competitor’s annual report.

“Solution that simplify the most complex problem. Strength that provides stability for the future. Service that goes the extra mile” (Fidelity Information Services, 2009, page 1)

On the basis of above argument since the competitor is considering the service as separate entity and Temenos also considered service as separate business. This report does not encompass the service provided by Temenos (Temenos Annual Report 2007). Although without adequate service they can’t sell their product to the bank because good and timely service is important for every bank and for all software products particularly.

Price

As extracted from Temenos annual report that they want to capture the market irrespective of retail, consumer, investment or even microfinance banks and adopting a market penetration and development strategy. Secondly, package vendors are expecting a compound growth of 18% and temenos will be main beneficiary in that case (Temenos Annual report, 2009).

Temenos tend to charge banks in terms of licensing fees for the year that does not include maintenance and service for the product. Temenos also allow client for developing additional requested functionality and raises invoices against that development. Temenos used to charge client for additional development on the basis of employee hours required for that task (Cost based Strategy).

1.2 Product

Software products are different from ordinary products in the market as it stresses on functions that are non-existent in other products but in this paper I have tried to map the characteristics of physical product to software.

Ingredients of software can be taken its hardware requirement and developers, packaging can be referred to its interface for the user or user friendly attribute of the product, core product is the support it provides to banking operations and actual product as T24 model bank.

Branding Strategies

Temenos is using umbrella brand strategy by introducing TAM (Temenos application Management) for providing support to different clients simultaneously. It can be referred as brand extension because they want to take advantage of brand equity. Temenos is trying to grow its business through partnerships and contracts.

Total Quality Management

They strive hard for maintaining and improving their product continuously which is essential in IT industry because product becomes obsolete in this world very quickly. Secondly they don’t really have any room for error since banking is very complex and even a minor mistake can cost millions of dollars and in turn results in losing the goodwill for the company. Companies leading in technology are truly balancing on razor’s edge (William H davidow, 1986).

New Product Strategy

Furthermore Temenos is broadening their product line by using filing out product strategy as it has currently acquired Odyssey group known for private wealth management. It can also be considered as a step for broadening the addressable market from Temenos. This will soon become the part of T24 model bank and they have also recently introduced temenos insight for business intelligence as a part of T24 model bank.

Third party core banking solutions are still in the growth stages as there is lots of room for this market to grow. Once most of the banks implemented the core banking then one can say that the market is turned into a matured market. But in the current scenario this market is growing and is expected to grow vigorously in the next five year particularly in United States (Michael Sisk, 2010). Temenos is following a product invention strategy for entering into the US market.

T24 comes in the category of intangible product so it strives hard for being at the top in the IBS ranking (Annual report 2009).

Promotion

Software products are never sold by advertisement; it only raises customer awareness and desire to know about the product (William H Davidow, 1986). Purchasing T24 for any bank is a high risk decision and involves millions of dollars. So it is evaluated through complex decision making processes. However Temenos needs to establish goodwill through CRM (Customer Relationship Management) and maintaining personal relations for attracting not only new clients but also encouraging existing clients for purchasing more services from them so that they can not only retain client but also able to sell new products to them.

Temenos has also uploaded few interviews conducted from the clients after the successful implementation of the solution portraying client’s post purchase satisfaction.

Push Strategies

Initial sales of the software require the push strategy where one tries to influence client by pointing out their competitive advantage. Temenos tend to market their methodologies that used to implement the solution faster than others. Temenos continuously evaluate the market and requirements for different banks. They improve their product continuously and providing added functionalities for meeting the current or future demands of the banks and then marketing those products mostly through direct marketing.

They are not only using the push strategies for directly convincing the client but also indulging themselves into partnerships with different companies. That could help them promoting their solution and product. CSC, deloitte, Capgemini and Cognizant are on the Temenos’ partner list. CSC will push the T24 model bank in Germany. Temenos want to increase revenues by partnering with different firms.

Pull Strategies

Temenos used to market their flexibility to make fully aligned new products faster than others. Banks tend to provide their requirements for different products and then they provide them with the required product.

Place

In software industry place does not matter much but in some scenarios it does. It refers to the resources Temenos has for implementing on a desired location. Since they are operating globally therefore they require the support centres at different places. Although they have already addressed this issue by implementing a centralize location for service i.e. in Chennai and by signing partnership for implementation with different multinational firms that will help them in addressing this issue.

Segmentation, targeting and positioning Strategies

Segmentation

2.1.1 Segmentation based on Industry

Software is playing a key role in almost all the industries irrespective of a financial and investment companies, manufacturing companies, Suppliers of raw materials, banks or etcetera. Banks can further be segmented into large and middle tier bank. Banks can be further segmented in to those having legacy system, modern system other than T24 and those having T24. Solution vendors other than Temenos tend to focus on a wider market segment like SAP (System Analysis and Program Development). SAP provides support to all types of industry or business. Similar is the case with Infosys.

2.1.2 Segmentation Based on Demographics

Temenos have also segmented the market on the basis of geographical location and trying to penetrate in other market’s as well including Australia and Canada without changing their main product and promoting their flexibility as major competitive advantage over others (Market Development).

Europe, Middle East and Africa

Asia Pacific

Americas – including North and South Americas

2.2 Targeting

Temenos on the other hand focus only to banks because according to boston consulting group, bank spend 14.3% of cost on IT compared to average of 7% across all industries (Annual Report Temenos, 2009). So they are only focusing on the banking industry and striving for maintaining their position as best-selling core banking solution. In the software industry you don’t need to be as big as IBM or Microsoft to make money but one has to be large in its own protected market segment (William D Davidow, 1986).Temenos basically follow mass customization strategy where they provide a basic product in the form of T24 model bank which can be then further moulded according to the requirement of the client. Temenos operates in a market where penetration in core banking solution is low and growth opportunity is high. Currently Temenos is also trying to explore new markets and trying to enter those markets through product diversification as they aims to provide wealth management embedded in T24 model bank for the banks and other financial institutions. Temenos is also targeting Saudi Arab and other Islamic countries with a modified version of T24 known as Islamic Bank model of T24 (Market diversification).

2.3 Positioning

2.3.1 Analyses of Competitor Position

Temenos keeps close eye on the market and competition. They acknowledges that package solution for core banking has increased by 20% annually from 2004(Temenos Annual Report 2009).So as competition is becoming intense in this particular segment therefore temenos tend to invest heavily in R&D annually for ensuring that their product remains at the top. Temenos invested 20% of its profits in R&D in the year 2008 and 2009(Temenos Annual Report 2008 &2009).

Positioning of different product determined mostly from IBS-intelligence journal, annual reports and from figure 3 in appendices, depicted in Figure 2. Criteria’s for measuring the standing of different solutions is extracted from Dr. S. S. Satchidananda research (2006).

Figure 2: Competitor Analysis

2.3.2 Competitive Advantage

Temenos solution claims that their solution can support new products through its flexibility. It also states that even if the competitor reacts quickly and develops the product, involves significant amount of manual work processing until and unless their system is reconfigured appropriately. This may consume time and reduced efficiency of system. Secondly T24 has customer across broad portfolio of customer product.

2.3.3 Target Market Responses

Clients at different location all around the world are convinced with the Temenos competitive advantage. Therefore it’s the best-selling solution in banking industry for the last 12 years. Secondly Temenos has also won the ‘Banking technology magazine’s reader’ choice awards-Best core banking product category. Forrester research named temenos as a leader in 2009 report.

Conclusion & Limitation

As mentioned in the economic consideration, United States is recovering from financial crises and banks were held responsible for current crises. Now as banks are under immense pressure and criticism so they need to manage risk prudently. This can only be achieved by sophisticated IT systems. As mentioned in Figure 1 and economic evaluation, most of the US banks have systems that are 20 to 30 years old so they don’t provide centric view of customer (Alex Groenendyk, 2007).

Temenos has an added advantage in this scenario because their product is not only relatively matured than others but also have an added advantage of flexibility and along with that having successfully implemented T24 in 125 countries. Temenos can reduce IT spending by considerable amount as in the case of Schroders and Shanghai banks. According to the CFO of Schroders, reduced their IT budget by one third and lowering the IT staff by 60% (Schroder Case Study 2009).

US has the most potential to grow as most of the US banks are considering to switch from their legacy system or outsource their IT to solution vendors for reducing IT cost and enhance efficiency.

It can be further extended by reviewing the services and maintenances provided by Temenos and other solution providers which are not covered in this report.