HSBC Pricing Strategy Analysis

As long as the wider economic situation remains doubtful, it is advisable for HSBC to adopt a wait-and-see approach – and a careful look at their businesses, stress testing them for both economic downturn and full-blown recession. And it would be useful to factor in the wider commercial and operational impacts through combined risk, valuation, economics, operations and HR teams. Certainly, for financial services firms like HSBC, crisis management still necessary in the form of asset and portfolio revaluation on a mark-to model basis for both management and constitutional accounting purposes – and this may need some independent validation.

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Within the last decade the best consumer bank HSBC garnered awards along with soaring rankings. This was just one of those awards won by the HSBC in its excellent performance. Such achievements, rankings, and awards can be directly resulting from HSBC’s business strategies. As the last decade’s success is not ever lasting due to increased competition in the industry facilitated by globalization, trade liberalization rather is become more difficult for the corporation to maintain its leading position through offering the excellence in the service. The company needs to add diverse values to its strategy to establish its position in the target segment.
Traditional views on competitive advantage have highlighted such barriers to entry as economies of scale, patent protection, access to capital, and regulated competition. More recent views have highlighted different aspects of competitive advantage, a firm’s human resources and human capital. New demands facing organizations as a result of heightened competition, globalization, and technological advances have put a premium on creativity and innovation, speed and flexibility, as well as efficiency.
The UK government is amending its regulation in an aggressive manner to secure the industry from the future crisis. Operating environments in the economy have continued to improve as the effects of government and central bank policies work through the system and it may be that HSBC has passed, or are about to pass, the bottom of the cycle in the financial markets. Reducing branded activities that present high risks has become a key governing issue for the retail banking industry. After the crunch, the key challenges the banking industry facing is the shortages of capital liquidity/lack of funding, high credit costs, and global price volatility. HSBC may modify its strategy to comply with the economic down-turn and the tightened regulation.
Financial projecting and strategy may need careful reappraisal as many expectations supporting HSBC’s strategies, plans, budgets and transactions could well need revision and material change might also have to be disclosed under regulatory, statutory or stock exchange obligations. A comprehensive contingency strategy to overcome disaster and business continuity need to be organized to gain a transparent understanding of decision making process in the case of sharp market fall. Plenty effort may need to be considered to establish changes to models, policies, processes and operations in response to lessons learned. HSBC needs to be organized to comply with the next ‘once in a lifetime’ financial shock.
The UK government, which has been widely criticised in the wake of the near collapse of the Northern Rock, wants to reform the current system by imposing new rules and regulation. HSBC may follow a flexible strategy where it can easily adopt the regulation maintaining the higher customer satisfaction level. As the crunch could well shake out further changes in regulation, or prompt further demands for change from stakeholders. Reviewing risk model adequacy by transparency of exposures or by back-testing of model assumptions on asset volatility, correlation, and liquidity may be carried out by HSBC to maintain the safeguard.
Reviewing the adequacy of the reporting system, focusing on the transparency, rationality and strength of valuation models; accuracy and quality of underlying reference data; adequacy of controls on model use and maintenance; consistency in the bases and assumptions of risk and valuation models (particularly as assumptions may not reflect recent experience); and effectiveness of risk escalation procedures in the event of serious market volatility or disruption.
HSBC may check policies, procedures and availability of skilled people to respond quickly and effectively to serious market volatility or disruption to stem losses (or even make profits). It may also review the adequacy of: Limit framework; reporting framework; Stress-testing procedures.
HSBC needs to play their pricing strategies very carefully; as it has generated many hundreds of millions of pounds per annum in revenue from these charges. Review operational capability to handle the situation, with particular focus on: effectiveness of the process, infrastructure along with functional capacity (front, middle, back office) and straight through process/workflow evaluation.
Specifically, in response to a competitors’ pioneering new product introduction, academic research finds many conditions that suggest a greater desirability of immediate market entry while many other conditions suggest a greater desirability of a delayed response. The areas where there is a consensus among decision makers with the academic literature, as well as areas where views differ from that of the literature. Changes and discusses insights gained into the decision making processes of managers for market entry timing decisions. The study can help managers in follower firms achieve greater success in formulating market entry timing strategies by reducing ambiguity in the timing implications of many internal and external conditions, as well as by drawing attention to potential action biases.
As the Crucial Official Government and Agency Economic and Financial Data are of highly questionable in terms of validity; HSBC may educate itself about the realities of the marketplace using Alternative Data Sources. Collecting and staying familiar to genuine information about the market can save one much financial grief as well as positioning one for profit. As technology plays an important role in the Banking industry, HSBC may integrate the latest features in their operational strategy to get the competitive advantage. Technology helps the company to introduce differentiation among the industry where it can help the bank to charge extra if that technology adds values to the customers.
Customers Satisfaction by providing customized service to establish the bond with the customers so that they can rely on the Bank’s activities. By redesigning product with additional facilities HSBC can attract the lower and the mid-level customers. Customer-facing business requirements are also more easily accommodated, and if these principles are applied, operational productivity and operating performance can both be raised. The key to success relies on the quality customer interface and experience, with identifying the need to offer people/individuals something they want to be identified with; fits in with their own brand choices; gives them a sense of control; and is easy for them to use at the time that they want to use it.
The expectations of the Customers of the Retail Banking industry towards the service providers is getting higher to get their transactional needs right for every time. With minimizing the tolerance level for error, politicians and regulators championing consumer rights and editors being ready to run headlines about banking mistakes, it is a must for HSBC to have resilient, available and effective transactions processing and management systems. These systems and the change environments within which they are maintained must also be capable of meeting the needs of the current and emerging market needs. It is observed that non-banks have achieved high levels of personalisation in their engagement with customers, and new entrants to the retail market such as PayPal have established the competitive standard. Although PayPal is now a bank, it has achieved a financial performance to rival that of a global bank’s transactions business by providing an interface to bank services, having an effective launch strategy and giving to customers the things that they valued: convenience and the ability to keep their financial accounts private. HSBC may create new channel to get the competitive advantage over the industry rivals.
At this time all the organisations now understand the importance of knowing their customers as individually and uniquely as possible. This means understanding individual needs and then being able to relate those individual needs to the actual priorities of each customer at any given point in time. Few systems have the ability to provide insight into a customer lifecycle or into current customer priorities as transactions’ systems do.
In mature markets with high barriers to entry and which display stable market share, data mining can be vastly effective in generating new revenue streams and in establishing a differentiated service proposition. Successful data mining will include the use of refined cross-examination tools and a periodic ad hoc analysis along with data warehouse. Success is determined by integrated process management, detailed transactions analysis and alignment with a clear customer segmentation and strategy.
Small and Medium Enterprises have become key players in the retail banking industry as its segment it getting bigger day by day with the globalization and increased competition. A careful selection of SMEs and product modification to attract those SMEs can help HSBC may generate increased revenue.
As interest rate is a parameter which plays a key role in the banking industry and investment industry, HSBC can tailor its product in a way where the customer will be attracted and communicate the benefit of the product to the target market to gain competitive advantage. Economic profit may be easier to manage though the environment is more competitive than before by simplifying the investment decision and clarifying the accountabilities.
Understanding the value of the customers and identify the sacrifice the bank will have to make to that is the vital issue. Investing in understanding and developing this aspect of their service to customers is a parallel, to develop new products, services, markets and pricing strategies. Operational and business interactions may be obtained by bringing the transactions management at the same place, and these scale efficiencies may also be applied to effective risk and incident/ disaster management.
Results for the affected banks are definitely substantial which damage to their good will, opportunity loss of potential revenue and also the cost of modification and remediation. For the people involved in managing the incident it was an uncomfortable time: dealing with imperfect and incomplete data while trying to provide coherent and reliable information to many internal and external stakeholders.