Good Example Of A Critical Assessment Of The Marketing Challenges Facing Wells Fargo AND Company AND Recommendations For The Development Of Competitive Advantage Report
Competitive advantages are a concentrated expression of superiority over the competition in the economic, technical, organizational areas of the company, which can be measured by economic indicators (additional profits, higher profitability, market share, sales volume). It should be stressed that competitive advantage cannot be equated with the potential of the company. In contrast to the possibilities it is a fact that is fixed as a result of real and apparent preferences of buyers. That is why the practice of business competitive advantage is the main purpose and results of operations. The purpose of this paper is to analyse the process of formation of competitive advantages, as well as tools for their development, for Wells Fargo and Company. To achieve the purpose of the work it is necessary to solve a number of interrelated tasks, namely to research marketing environment in order to define crucial problems the company faces through the application of PESTEL-analysis, identify the attractiveness of the market place using Porters’ five forces model, explore the company’s product portfolio applying BCG matrix, explain company’s segmentation, targeting and positioning strategies, identify the factors contributing to the formation of competitive advantage, consider the process of formation and development of competitive advantages and provide with the necessary strategic recommendations.
Marketing Analysis 3
Porters’ Five Forces Model 4
BCG matrix 4
Developing Competitive Advantage .5
Strategic Recommendations ..7
Appendix A 9
Appendix B .10
Appendix C .11
Effective economic development involves the production and sale of products on the market at a price and quality to meet both producers and consumers. A key factor in this process is a factor of competitiveness. This is a complex problem, which solution is connected with the improvement of the whole complex of development, manufacture and sale, i. e. the implementation of targeted activities related to establishment, building and maintenance of the required level of quality and competitiveness in all phases of the product life cycle, as well as the competitiveness of the organization as a whole. Kotler and Armstrong (2012) considered that competitive advantages are now the core activities of the formation of the company’s ability to survive and thrive in the market. The study of the formation of competitive advantages, as well as methods for their development, has the important impact on the company in current market conditions. Wilson and Gilligan (2005) added that competitive advantage is the result of low production costs, a high degree of product differentiation, intelligent market segmentation, innovation, rapid response to market demands, etc. They may also include a higher level of productivity and qualification of production, technical and sales personnel; quality and technical level of manufactured products; management skills, strategic thinking at the various levels of government, reflected in economic growth, etc.
Wells Fargo & Co. is one of the largest US banks. It provides diversified financial services and life insurance in America, as well as in Canada and Puerto Rico. The company is based in San Francisco, while the headquarters of the banking division is located in Sioux Falls, South Dakota. To date, Wells Fargo has more than 9,000 branches. The number of its customers exceeds 70 million (Wells Fargo & Company, 2015).
The company has well-known name with over 160 years of history and its famous symbol – the carriage. History of Wells Fargo began in March 1852. Wells Fargo & Company was founded by Henry Wells and William Fargo (Wells Fargo & Company, 2015). The company was founded during the gold rush, and its main activity was the provision of postal and financial services to miners (Autry, n. d.). For the financing of Wells Fargo & Company investors were attracted. The Bank was restructured through the merger of California-based Wells Fargo & Co. and companies from Minneapolis called Norwest in 1998. Its name and symbol the Bank inherited from the most famous parent company. In 2008, Wells Fargo had acquired Wachovia, which allowed it to become the largest mortgage lender in the country. The transaction price amounted to 12.7 billion dollars. The largest shareholder is an American entrepreneur and the second largest by the wealth US resident Warren Buffett, who controls about 6.5% stake in Wells Fargo.
The Bank uses a business model of diversification of services provided, thus, trying as much as possible to meet the needs of customers. The company offers both banking and financial services, and insurance services. This development model is very successful for Wells Fargo: 80% of revenue growth the company has by selling more services to existing customers. Wells Fargo suggests a variety of financial services through the 80 divisions of the company. Wells Fargo is one of the first banks to provide their customers with access to bank accounts via the Internet. Since 1995, customers can check the status of accounts, pay bills, buy or sell securities. Wells Fargo lobbied the abolition of laws adopted even during the Great Depression, limiting the expansion of the company, in particular Glass-Steagall Act (Wells Fargo & Company, 2015).
In 2013 Wells Fargo & Company occupied the top position in the ranking of Best Consumer Internet Bank in the United States, which is held by the Global Finance magazine. In 2014 it was awarded as the Best Mobile Solution Provider (Wells Fargo & Company). Wells Fargo is one of the Big Four banks in the United States, along with Bank of America, Citigroup and JP Morgan Chase. According to Forbes (2015) with market capitalization of $261.38 billion the company occupies 52nd position in Forbes World’s Most Valuable Brands list.
PESTEL-analysis (Appendix A)
It operates in the most diverse national economies in the world, the USA, which holds the leadership in the global economy the last 100 years. It has favorable conditions for doing business, namely political elections, toughening state control over the activities of the banks, political steadiness, principles of free market and perfect competition, active participation and leading in the diverse global organizations, GDP growth of 2.2%, appropriate level of inflation rate, increase in population, high background of innovations application and high literacy level. Wells Fargo can follow changing needs of the end client, lifestyle trends, active development of the Internet and company’s presence in social networks and Internet banking service application. Based on the positive opinions of journalists and their publications and functioning under Dodd-Frank Wall Street Reform and Consumer Protection Act, the company developed its Wells Fargo Environmental Grant Program.
However, the company faces different threats, because the USA has the largest trade deficit, which means the preference of international goods and services over national. The country still observes the consequences of financial crisis 2008. The bursting of the financial bubble has produced shocking results: 8.8 million people have been faired and households’ wealth declined by &19.2 trillion. The main task of the state is in effective limit of the growth of the financial sector to the peak stage of general economic development, to smooth the business cycle allowed to pass the possible subsequent recession without a deep recession and without the heavy pressure on public budgets. Its unemployment rate restricts citizens from earning and depositing money in banks. Also, the USA has the highest nominal corporate tax rate among OECD-states. In consideration of the local feature the weighted average nominal income tax rate is 39.2%, which incontrovertibly distresses the investment attractiveness and effectiveness of its economy.
Porters’ Five Forces Model (Porter, 1998) (Appendix B):
According to the Porters’ five forces model Wells Fargo has main competitors, which are Bank of America, Citigroup and JP Morgan Chase. The company operates in monopolistically competitive market, offering diversified products. The companies in the market are price makers. Its new competitors face the threat of high barriers of entry, consolidation process in banking business and the development of sub-industries. The barraging power of buyers is in high switching costs. Insurances, fixed income securities and mutual funds are considered to be some banking services provided by non-banking institutions, which are substitutions for Wells Fargo’s services. There are four major suppliers, namely consumer deposits, mortgages and loans, mortgage-baked securities and loans from other financial institutions. Their power is mostly grounded on the market, and is regularly measured to vary between moderate to high.
According to Kotler and Armstrong (2012) Wells Fargo & Company is a star. It is highly competitive business in fast-growing market, which corresponds to an ideal position. The main problem associated with the definition of the stars is the right balance between income and investments. Concerning Wells Fargo, the company will practically positively turn into a cash cow due to the fact that its Wachovia acquirement is now completely integrated in Wells’ and the U.S. banking system is improving quickly, which will in addition benefit the company’s alteration into a cash cow.
The company segments its customer geographically (operating in the USA, Canada and Puerto-Rico) and demographically (it can provide services only to adults). Unfortunately, geographical presence is narrow. Online banking services Wells Fargo focused on attractive customer segment. These customers have a number of common characteristics: average age – 38 years, the income – from 75 000 to 100 000 dollars, the state – at the stage of accumulation loans – medium and large amounts (personal loans, credit cards and car loans).
Based on customers’ preferences and available range of products the company targets its customers by age, income, occupation (socio-demographical targeting) and geo-behavioural targeting (identification of the interests and habits of customers through the information of their location and movements, the most haunted places and institutions that are subsequently measured at the targeting of advertising materials) (De Kluyver, 2010).
Wells Fargo positioned itself by cultural elements. Wells Fargo has become one of the most profitable banks in the US by using in its advertising the stagecoach that pulls team of horses under the nostalgic music to position itself as a bank that was opened by the West (Wells Fargo & Company, 2015). However its advertising campaign is quite poor.
SWOT-analysis given in Appendix C was properly performed after the investigation of internal and external environments.
Developing Competitive Advantage
Griffin (2008) states that competitive advantages are the basis for the existence of any company; they are the conditions of survival in the market. In order to maintain competitive positions in the market, it is necessary to maintain a competitive advantage once established, because after a while competitors can create a better competitive advantage, or buyers can change the priority in the selection of goods or services. The development of competitive advantage must include the development of a product or service; development of service or complementary services; development of business processes; staff development; and development of clients (to increase their competence in this product, loyalty policy).
Michael Porter (1985) was the first, who described the concept of competitive advantage through the lower cost (by better understanding costs and squeezing them out of the value-adding activities) or differentiation (by focusing on those activities associated with core competencies and capabilities in order to perform them better than do competitors) over competitors. The economist highlights productivity development as the attention of state approaches. Stutz and Warf (2009) considered that competitive advantage emphasizes maximizing scale economies in products and services that bring in superior prices. The term competitive advantage refers to the ability gained through attributes and resources to perform at a higher level than others in the same industry or market (Chacarbaghi, 1999).
The main areas of competitive advantage of the organization are the concentration of the firm’s resources to anticipate the actions of competitors, holding the initiative in competition, ensuring resource potential to attain specified objectives, and the expansion of a flexible structure of forecasting companies in the market by a substantiation of an effective strategy for interaction with rivals. Competitive advantage is considered exterior in case it is grounded on the unique characteristics of the merchandises which form the value to the buyer in view of reducing costs or increasing efficiency. External competitive advantage increases the market power of the company, i.e. the company’s ability to make the market price of the goods higher than the priority (most dangerous) competitors that do not provide the distinctive quality. Internal competitive advantage is based on the supremacy of the company in respect of the costs of production, management of the company or product that creates a value for the manufacturer and lower costs than its competitor. This advantage can be created through the implementation of the strategy of domination on the costs due to the introduction of organizational innovations (Hollensen, 2014).
Different companies consider different competitive advantages. For example, many retail clothing companies use product differentiation as competitive advantage (Marks & Spencer, Inditex, H&M, Gap, etc.), as well as supermarkets (Tesco, Walmart, Carrefour, Metro, etc.). The competitive advantage of Chanel is mainly its marketing and human resources. Social networks are one of the most important components for luxury brands. Apple’s competitive advantages include greater financial flexibility that allows to be one step ahead of the competitors; careful monitoring of the demand in the market of digital technologies and the ability to quickly show the consumer what he needs; serious approach to business, which ensures a high level of reputation; the ability to select only highly qualified employees in its workforce; presentation of any new product as relatively simple to use for the consumer, as well as an element of the image of a person or company.
Thus, a competitive advantage is the ability a company has to produce goods and services better than other companies in the economic market. Companies may also develop a competitive advantage through customer service interactions or skilled employees.
Wells Fargo with assets of $1,543 billion is the banking company that provides diversified financial and insurance services in the US, Canada and Puerto Rico. The largest by market capitalization and fourth largest bank in the United States is included in the so-called “Big Four” banks in the US (along with Bank of America, Citigroup and JP Morgan Chase), it is also included in the ranking of Fortune 1000 (Nicholson, 2012).
Concerning Wells Fargo’s competitive advantage, the company has wide range of services. The product can be used as a competitive advantage when the company has well-known brand and strong positive reputation. Product differentiation can be the source of a competitive advantage because customers view these products as unique or superior. Wide assortment of products impacts on the performance through reducing directness of competition. Wells Fargo was the first among banks, which implemented an online service through which customers can online perform many banking transactions, such as check account and credit card balances, pay bills, transfer funds to carry out the sale of shares and bonds, order checks, and obtain information about the services (Rao, 1999). By early 1998, the Internet service of Wells Fargo was used by 350,000 online-clients. Reaching by 1997 certain advantages as an innovator, it has got an extensive share of all electronic banking users in the US (Staler, 2014). Maintenance or increase of this share was a difficult task, as other banks, credit unions, brokerage firms, insurance companies and even non-financial institutions have also entered the electronic banking market. As a result, Wells Fargo strategy for the next period of time was the desire to get as many customers as quickly as possible. Based on this strategy, Wells Fargo soon focused on the design of new services in order to meet the needs of customers using WebTV, mobile phones, as well as other devices to access the web. It was an attempt to find clients in any location where they can carry out their banking transactions (Epstein, 2004).
Currently, Wells Fargo has an average of 5.9 banking products per customer – more than any other bank in the US, including other members of the “Big four of the USA”. The key to successful cross-selling at Wells Fargo is the quality service and properly trained personnel. Before offering a solution, it is necessary to thoroughly deal with the problem of the client. It is obvious that for the bank this approach to working with clients is extremely important. Wells Fargo largely achieved its success through effective method to sales (Staler, 2014). Consistent with the view of its CEO, John Stumpf, there are three key ways to ensure the growth of the company (Touryalai, 2012):
1. Sell more to existing customers.
2. Entice customers and competitors to sell their products.
3. Buy (absorb) another company together with its customers.
Wells Fargo uses all three methods, but the key, according to Stumpf, is precisely the method of cross-selling. Because if the employee is not able to sell more to its clients, meeting their needs and constantly improving company’s products and service, he will not be effective in dealing with clients of competitors or newly acquired company. The more related products and services the company sells to customers, the more profit it will get from them, and the more difficult it will be to refuse the services of the organization. That is the reason of the existence of the phrase that the old loyal consumer is much better than new two doubters (Post, 2014).
However, Wells Fargo has some gaps in its activity, which should be filled. Its competitive advantages are sustainable, but not successful. The improvements should include attributes and resources, namely advertising campaign, geographical presence and cost control program.
Wells Fargo & Company should focus its attention on the following aspects for improving the organization’s current strategic position
1) The adoption of highly recognizable advertising campaign. Currently, advertising accompanies virtually all goods, works or services. It is because of advertising the consumer can learn about services provided by one or other organization. Often, advertising is the main criterion for selection of a company. Proper organization of an advertising campaign promotes rapid implementation of uninterrupted production. Wells Fargo actively promotes new mobile payment service through sending its customers e-mails with information about the system and carrying out various promotions. However, it needs more comprehensive strategy and different aspects.
2) Expansion of international presence. The operation only in the USA, Canada and Puerto-Rico restricts company’s potential. The expansion will open new borders, namely additional investments, customers, profit growth, increase of brand awareness, the improvement of services’ range, etc.
3) Build a solid reputation. Solid reputation is the result of the company’s transparency in the conduct of affairs. Reputation affects primarily sustainable long-term behavior of the external auditor in relation to the company and allows being successful among competitors. Wells Fargo has positive reputation, but only within the countries of its presence, therefore, it should expand its activity and strengthen the reputation globally.
4) Strengthen retail presence. Wells Fargo & Company offers its customers retail, money-making and corporate amenities. The company presents the range of deposits, including current accounts, money market accounts, individual retirement accounts, savings accounts, time deposits and debit cards; credit products, including credit lines, loans and secured loans, loans for equipment and transportation, education loans, mortgages and credit cards (Wells Fargo & Company, 2015). Therefore, the development of healthy competition, expanding the range and quality of banking services lead to a better functioning of the banking system and increase the standard of living. One of the key moments of the bank’s participation in the retail market is making a profit by attracting customers. The most successful for the bank is the activity associated with ordinary people, society. An important role belongs to the wide range of services and their availability.
5) Improve cost control program. One of the most effective methods of cost control is the method of best practices – benchmarking. It allows maximizing shareholder profits, reducing costs and increasing profit at the expense of research and development of best industry and (or) international standards. To this end, the management based on the owner’s decisions should compare costs (per unit of output) of the company with the costs of other companies and the industry average. In the course of this work, the best values of costs are chosen for other companies, the factors that allow achieving this level of costs are analyzed, and the optimization of business processes is made.
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