Digitalization in Retail Banking – Implications for Private Retail Banks with Branches

Digitalization in Retail Banking – Implications for private retail banks with branches

Report of Final Class Project

Submitted by

Team 3

Submitted to:

J.-Prof. Simone Wies

Strategic Market Management

M.S. Program Marketing Analytics

Goethe University Frankfurt

Faculty of Economics and Business Administration

Winter Term 2017/2018

Table of Contents

List of Figures and Tables        III

List of Abbreviations        IV

1        Introduction        1

2        Historical Development        2

3        Market Analysis        3

3.1        Macro-environmental analysis        3

3.2        Competitor Analysis        7

3.3        Customer Analysis        10

4        Strategic Proposition        12

References        21

Number of words: 8310

File name: Project Report Team 3.doc

List of Figures and Tables

Figure 1 Future population development in Germany (Statistisches Bundesamt, 2015)        5

Figure 2 Three-pillars structure        7

Figure 3 An example of a repositioning        18

Figure 4 The “Omni-Channel” (Right on Interactive, 2015)        19

Table 1 Needs based segmentation        14

List of abbreviations

ATM        Automated Teller Machine

CD        Compact Disk

DKB        Deutsche Kreditbank

GfK        Gesellschaft für Konsumforschung

IT        Information Technology

STP        Segmentation, Targeting and Positioning

1. Introduction

To what extent is the private retail banking business still competitive nowadays? Can banks even expect to have a profit-yielding branch business in the near future? These are some of the key issues that major German banks are dealing with while confronting rising competition from new fields in the face of digitalization.

Various media, companies and science use the term digitalization for describing a ‘process of moving to a digital business’ (Gartner, 2016). With heavy impact on prevailing business models, making the move towards digitalization is seen as a monumental challenge for many enterprises (Butler & Hackney, 2015; Veit et al., 2014). Due to the increasing acceleration of technological change in the past years leveraging pressure to perform, discussions on strategies for conquering the digitalization have ignited in the retail banking sector (Cziesla, 2014; Graupner, Melcher, Demers, & Maedche, 2015). Additional environmental impacts such as the global financial crisis of 2007–2008, the persistent level of low interest rates and a high number of regulatory interventions is forcing retail banking towards developing new strategies in order to retain profitability (Schmidt, Drews, & Schirmer, 2017). Furthermore, the satisfaction of existing as well as new customers has gained unprecedented importance as the groups leverage significant influence on operation of enterprises in the face of digitalization (Schmidt et al., 2017).

Considering other industries that were faced with similar challenges, the strategies implemented differ widely. The apparel retail industry for instance, feared to undergo a significant setback due to the immense rise of online retailers. At first, it was slower than other sectors in adopting e-commerce, with the difficulty of translating the in-store experience in the high involvement product category to an online environment (Blázquez, 2014). Nevertheless, the introduction of online shops parallel to constant adaptation of the store concepts has enabled the industry to retain its standing partially as online, but also as a branch business (metamorf business consulting, 2016). Clearly communicating the activity of shopping as an exciting experience has aided in developing the given trend. An opposing example is suggested by the compact disk (CD), precisely the music CD market. The decoupling of digital content from the physical carrier has led to incremental changes in the product characteristics (Gosain & Lee, 2001).  Reducing the costs of reproduction to zero, yields the inference of bundling the goods into infinitely large bundles with a single price, seen in examples such as Napster or Spotify in recent years (Zhu & MacQuarrie, 2003). For a flat fee, consumers are given access to a vast database of music, anywhere and at all times. This trend has practically made brick and mortar stores redundant in the given industry.