The most aggressive direct competitors for First direct are Royal Bank of Scotland’s Direct Line, Citibank Direct & Bank of Scotland’s Banking Direct. Traditional branch based institutions remain competitive despite dramatically lower service levels, particularly for customers for whom direct banking appears daunting. Private banks are traditionally a substitute for retail banking operations, as they offer personalised service, although First Direct does attempt to match this through their CRM systems.
Customer Buying Patterns
Market segmentation
Direct banking has been embraced by the 25-34 year old age group (29% of industry). Indeed, the 21 – 44 age bracket accounts for 53% of customers. In the case of first direct, 72% of customers are aged between 21 & 44 years. While direct banking as a market is skewed towards individuals earning less than 17.5K annually, First Direct has deliberately targeted affluent clients, with 50% earning greater than 25.5K per year.
Of note, 73% of First Direct’s customers formally conducted their banking through one of the four ‘High Street’ Banks.
INTERNAL ANALYSIS
Competitive Strategy
First Direct employs a differentiation strategy, emphasising high quality service as its distinguishing feature. This strategy effectively capitalised on consumer dissatisfaction with what was effective a supply led market up until the late 1980s.
Positioning Statement
Unlike the majority of direct banking services, which are complementary to branch based services, First Direct essentially positions itself as a substitute to the more traditional model. It aims to attract and service affluent clients appreciate the benefits of private banking but without the associated cost.
Sourcees of competitive advantage
- Lower operating costs are achieved in not having physical branches – these savings are used by First Direct to improve the quality of service, employ leading edge CRM technology and spend more on targeted promotional activities.
- Back office procedures are handled by parent company Midlands, allowing First Direct to focus on its core competence of high quality direct banking.
- Customer screening during application means that 50% of its customers are affluent, earning 25.5K annually. Additionally, 86% are homeowners. First Direct essentially runs its chequing & saving accounts as loss leaders, and makes its money from offering higher end investment services to these relatively high net worth clients.
The Marketing Mix
First Direct aims to offer a similar product range to branch-based banks. Its basic service is the chequing account, held by over 95% of customers, which acts as a base for other investment and financial service offerings. Over 29% of new customers to First Direct have been recommended by friends or family.
While First Direct pursues a differentiation strategy, there are also elements of cost leadership in its pricing. The bank strives to offer a private bank level of service without the associated cost.
Place is the key component of the marketing mix for First Direct. Branchless banking is clearly the way of the future, whether it be via telephone, internet and physcal ATMS. Direct banking allows First Direct to avoid overheads associated with maintaining branches, in addition to allowing them to service the entire country from 2 call centres in Leeds. Furthermore, this distribution channel is attractive to younger, affluent customers who are looking to save time and expect a greater quality of service.
First direct focuses on producing witty, trendy advertisements in print & television, supported by direct mail activities that enable easy account application. Over 26% of new customers are sourced from direct mail. Up to date technology and data mining drive First Direct’s promotion to existing customers, with call centre operators trained to recognise situations where products may assist customers.
A reversed organisational chart is also a key component of First Direct. Well over half of the employees deal directly with customers, and all have been through a seven week training program. Prior banking experience is not required to join the call centre team, but rather a proven ability in customer service is valued.
Financial Situation
As a subsidiary of Midlands Bank, First Direct has access to considerable capital which enables the company to make acquisitions, such as the purchase of Britain’s Forward Trust in 1997, which introduced B2B services to the organizations product mix. Although specific financial results are not available publicly, First Direct is both profitable and geared towards long-term success.
SWOT
- Strong brand, associated with high quality service;
- Distribution model is highly attractive to young, affluent people;
- Back office activities conducted through Midlands, allowing First Direct to concentrate on its core competencies;
- No longer a novelty – almost every financial services organization offers Direct banking to some extent;
- Call centre capacity is straining;
- Create new market channels through B2B activity;
- Internet banking;
- Other FS companies have already introduced internet banking – looks like it will explode in popularity in a similar fashion to telephone banking a decade before;
- Increased concerns of customers about security associated with banking over the phone and net.
CRITICAL MARKETING ISSUE
The critical marketing issue facing First Direct is maintaining quality of service while still targeting rapid growh.
As First Direct’s customer base grows, distribution of its services is the key element of its marketing mix. The company must look at either extending its existing distribution channels, or finding new channels in which to service customers.
Ideally, the new distribution element should include any increase in cost to First Direct or the customer, and indeed ideally represent substantial cost savings. As with telephone banking, there should effectively be no limits as to where and how the customer can access the products.
Marketing objectives
- Achieve stated goal of 1,000,000 customers by 2000.
Alternative Strategies
- Introduce a new distribution channel in Internet based banking, which effectively offers a greater level of flexibility for users than telephone banking, and relies only on the quality of infrastructure rather than staff. By being First Direct customers in the first place, its clients have shown a willingness and capacity to embrace new technology, and as such in order to continue to grow its business First Direct must extend its distribution channels to incorporate PC-based banking.
- Create a new call centre in Leeds to support growing customer numbers.
- Create a new call centre in a different geographic location to support growing customer numbers.
Evaluating Alternative Strategies
Internet Banking - By being First Direct customers in the first place, its clients have shown a willingness and capacity to embrace new technology, and as such in order to continue to grow its business First Direct must extend its distribution channels to incorporate PC-based banking. Otherwise it runs the risk of losing customers to competitors who have embraced the channel.
Leeds Call Centre – First Direct already draws some 1600 call centre staff from Leeds, suggesting that perhaps higher quality staff could be sourced from a different geographic location. Given the reported customer satisfaction with the Leeds based centre, market research could be undertaken to determine whether geography (such as accent) plays any role in customer satisfaction levels.
New Call Centre (New location) – Higher quality staff may be able to be sourced from an untapped market, that may also prove less costly in which to run a call centre.
Cost Benefit Analysis
Internet banking is highly efficient, with a very low transaction cost per customer compared with call centre activities. It demands only staff to run the infrastructure, as no face to face service is required. Existing call centres could manage any telephone enquiries relating to the website.
Establishing a new call centre is costly, although would appear to be a necessary capital outlay to ensure service quality is maintained. Utilising a different geographic location may offer cost savings.
Competitor Reactions
Telephone banking took just ten years to be embraced by the FS industry, and as such history suggests that internet based banking will be adopted in a similar fashion.
Recommendations
Internet banking should be introduced within the next year, and with it a new promotion strategy that introduces the new channel in a similar fashion to that used by First Direct to introduce telephone banking a decade earlier.
Following market research into the affect of geography on call centre customer satisfaction, a new call centre should be established outside of Leeds that is both scalable and will directly support the internet activities outlined above.
