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Statement of Research Issue
The aim of this evaluation report is to analyse the impact of Tesco Bank expansion into financial services industry. It critically analyse the strengths and opportunities against weaknesses and threats identified in the financial services market. The report also assesses the business environment which Tesco Bank is operating using the PEST analysis and Porter's five forces. Based on the analyses, the report evaluates the impact on consumers and competition by the entry of Tesco Bank.
Research Methodology Employed
The primary method of conducting research comprised of personal observation from the source documents like companies annual reports, regulatory authorities, periodical reports and quality newspaper articles. In addition, visit to the Tesco supermarket was made to observe the business. Primary data was collected from the websites and in-store observation to write analysis. The secondary method employed consists of collection of articles from leading websites such as The Economist, The Guardian, The Times, World Economic Forum, International Monetary Fund, Financial Services Authority and Bank of England. Secondary data was collected from these websites to support the report authenticity.
Tesco Bank Goals and Strategy
Tesco has opted for organic growth compared to acquisition for its expansion. To expand its banking business, it has set out several business objectives. It wants to achieve a 10 percent market share of financial services market  . In addition, it wants to see Tesco Bank make £1 billion profit in the next few years  . To accomplish these objectives, Tesco Bank has implemented tactical plans by opening its customer service centre at Newcastle and recruiting staffs from that region  . It has also opened bank branches in several Tesco stores already and further plans to open in existing stores are underway  . The benefits of choosing organic growth have translated into Tesco Bank reaching near to its goals. For instance there are no clashes in the culture and it's cheaper compared to acquisitions. If Tesco Bank had pursued acquisition of troubled bank like Northern Rock, then it could have taken a long time and be risky. Tesco Bank has a huge untapped opportunity in the value of location of its portfolio of existing stores. Compared to buying existing outdated branches of failing bank, it is cheaper and cost effective for Tesco Bank to open its bank branch inside its stores. Management at Tesco Bank are confident about its proven customer-focused approach strategy to provide innovative and value to the broad, diverse market.
S.W.O.T Analysis of Tesco Bank
Large store network
Strong brand image
Loyalty card scheme
Small share of financial services market
No mortgage and current account products
Dependant on UK market
Expansion of financial products
Capitalising location of existing stores.
Redundant qualified professionals
Capitalise on credit crisis.
Shake the dominance of high street banks
Rivals offering substitute products
Rival banks aggressive promotions
Online banking security and privacy issues
Strengths and Opportunities
Tesco Bank has an enormous opportunity to capitalise on its more than 2000 stores to deliver financial services to customers. The benefit of opening branches in existing stores reduces costs associated with time, capital, human resource and planning permission from local authority. The advantages include marketing to store customers and extra services within in-store to add value to its customer relationship with millions of customer.
Tesco brand is a trusted brand which customers recognise for its quality and good customer service. It slogan "Every little helps" permeates all layers of organisation culture and is used to communicate new products and services to the consumers. The Tesco brand provides an opportunity for Tesco Bank to exploits its brand image on the back of failure of prominent banks such as Northern Rock and Halifax. It also gears up Tesco Bank to take advantage of consumers distrust in high street banks. Financial consumers have witnessed and experienced many setbacks with their financial providers  . The current issue of charging hefty fees for going overdrawn on unarranged current account is one of those appalling service which rival banks provide. Consumers have fought back with the help of intervention from Office of Fair Trading to claw back those unfair charges. The introduction of current account towards the end of 2010 from Tesco Bank is an important strategy for Tesco Bank to capitalise on those affected consumers. Tesco is different from its rivals. It offers simple, straightforward service with no hidden charges. Tesco is careful not to put negative impression on its financial customers as it could adversely affect its brand reputation.
Strong and experienced management with considerable financial experience and expertise recruited from multinational organisation like RBS to head Tesco Bank ensures that it is serious about achieving its objectives. The current environment surrounding bankers' bonuses and too much greed among the traditional financial institutions to make profit before customers have tarnished the image of bankers. The implications have been very shocking with bankers facing heavy taxes on their bonus, some facing legal challenges and others removed from their jobs  . Tesco Bank is different. Its rewards its bank executives with option shares instead of cash bonus according to the performance  . Being a small financial services provider, Tesco Bank also has the opportunity to gain market share from rival high street banks and other small financial services providers  . It lags behind its competitors on many of its products. This is due to competitive forces such as existing competitive rivalry between the financial service providers such as First direct £100 reward for transferring current account and Halifax £5 reward current account. Others forces include threat of new entrants such as Virgin Money and Metro Bank, bargaining power of buyers such as moneysupermarket.com website which gives financial customers the power to choose from a large number of products, the power of suppliers such as Tesco Bank having to apply for licence to get authorisation from Financial Services Authority to offer new financial products and the threat of substitute products like other supermarkets financial products such as Asda travel insurance.
Tesco Bank electronic commerce (e-commerce) website allows it to reach global market and market financial products to previously unreached consumers which in turn increase sale and profit. The benefits of having e-commerce site reduce the costs linked to customer care, processing information, product inventory and marketing. It also provides opportunity for Tesco Bank to offer future products such as current account and mortgages. In addition, with the emerging mobile banking across the financial services industry, Tesco Bank has the opportunity to implement this new service across its range of financial services. For instance, the Apple iphone and Blackberry handset provides Tesco bank a platform to be a leading high-tech bank. However with every innovation, there are online threats like online phishing and privacy issues that could hinder the progress. Tesco also operates loyalty reward scheme in which customers collect points for every purchase they make through in-store and online. The loyalty scheme collects huge amount of customer data such purchasing power and consumer buying behaviours. This in turn presents huge opportunity for Tesco Bank to segment its financial customers from the non financial customers to target financial services.
Weaknesses and Threats
Coming from supermarket background, there are many different challenges that pose threats to the survival and continuation of Tesco Bank. The main obstacles consist of small market share, no current account and mortgage product and highly dependant on domestic market. Along with these internal weaknesses, external factors such as the hung parliament, the turmoil in the financial markets, recessionary pressures on the labour market and the rapid growth of overseas organised crime gangs targeting online banking poses real and serious threats to Tesco Bank to grow.
Due to small market share, it is easy target for competitors to wage war on Tesco Bank to steal market share. This could jeopardise Tesco's ability to be a trusted consumer bank. The delay in offering current account and mortgages gives the impression that Tesco Bank is not capable of implementing strong and robust system to support the development of these important products market. It could mean that Tesco is lacking behind industry rivals in developing information system. Tesco Bank's dependence on domestic market may harm its growth strategy due to its dominance in grocery market. Consumers may feel that Tesco is too powerful and may boycott Tesco Bank.
Evaluation of the Impact of Tesco expansion into banking Industry
Hence, on evaluating the strengths and opportunities against the weaknesses and threats of impact of Tesco expansion into banking industry, this report can conclude that strengths and opportunities have the potential to outweigh the weaknesses and threats. The entry of Tesco Bank in mainstream retail banking was a direct assault onto banking rivals  . As a new bank, Tesco Bank has confronted many challenges including the flaws within, competition pressures and regulatory requirements  . The government welcomes the fact that there are more new banks joining the financial services industry as it is better for businesses and consumers. Also as the financial market improves, the creation of jobs to the economy is a positive sign for the economy. Furthermore, expansion of Tesco Bank has shaken and reshuffled the oligopoly enjoyed by the high street banks although this may take some time to loosen the grip of the high street banks. Despite the huge obstacles, Tesco Bank has boosted the banking industry by marching there to capitalise potential opportunities that it can exploit to serve the consumer better by increasing the competition  .