critical analysis of ing direct

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Liverpool John Moores University

Critical Analysis of ING Direct

Course Name: Module Name: Submission Date: Submitted to:

Master of Business Administration International Business And Trade 1st December 2008 Dr. Tim Harris

Submitted By

Tom Jacob Isa Nadada

Gagandeep Gill Abdul Azeez Ettuveettil

Shaju Mohan Vagaparambil

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Contents

Introduction & Company Overview............................ Financial Analysis of ING Direct.................................. Marketing Overview of ING Direct Issues and Analysis using 7p’s of marketing

BCG Model Analysis

Operations................................................................. Analysis of input/output model

Problems of current operations

Possible Solutions........................................................ Recommendation........................................................ Reference.................................................................... Appendix..................................................................... Ratios & Key Figures of ING Direct 2004-2007

Comparison of Different Savings Accounts

Share Prices of ING Group & Competitors in FY 2007

Analysis of ING Direct using Porter's Five Forces

SWOT Analysis of ING Direct

PEST Analysis of ING Direct

Seven Ps of ING Direct Marketing Mix

3 4 5

9

11 12 14 15

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Introduction & Company Overview

ING Direct reported a decline in „profit-before-tax‟

in 2007. This report tries to gain insight in to the possible causes of this decline. A

decline in the financial performance is, more often than not, an indicator of problems

elsewhere in the company; be it in operations or marketing. So, we as a group looked in

to the current marketing strategy of the company, giving recommendations for the

future. The companies‟ operations are analysed systemically and suggestions for

improvement are given.

ING Direct is the world‟s leading branchless online

savings bank, active in 9 countries with over 21 million customers worldwide. It is a

subsidiary of the Netherlands based „Internationale Nederlanden Groep‟, one of the

world‟s largest financial services organisations. ING Direct started its operations in

Canada in 1997 with the aim to become the world‟s most preferred consumer bank. ING

Direct quickly gained market share by positioning itself as a „no-frills‟ bank. It offers

basic savings accounts with high interest rates with no banking charges. ING Direct

focuses on making banking simple for customers by offering a range of straightforward

and transparent banking products at low costs, combined with excellent services. The

company went through a rapid expansion phase between 1999 and 2004 when it started

operations in eight countries. As of April 2008, it is the leading direct bank in each of

the nine countries in which it operates. According to the 2007 annual report, ING Direct

constitutes to 6% of the group‟s underlying profits. (Source: ingdirect.com)

According to Arkadi Kuhlmann, ING Direct‟s

mission is to make it easy to save by offering the same great values to everyone. The

purpose of the company is to be a servant of an average person, to return to the values

of thrift, self-reliance and building a nest egg. A pure savings bank, ING Direct offers

consistently great rates and high quality service; by exhibiting a simple, no trick and no

catches approach to banking.

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Financial Analysis of ING Direct

(For the full ratios & figures used in this section, see Appendix 1, 2 & 3)

From the key figures in the Appendix 1, we can see

that ING Direct‟s total income has grown consistently over the period of 2004 - 2006.

This decreases by 1.68 % over the financial year of 2007. While this can be a cause of

concern, a quick look at the market space (Appendix 3) shows that the banking sector as

a whole had a bad year in FY 2007, partly due to the sub-prime crisis in U.S.

Traditional heavy weights like Barclays (-33.42 %), Lloyds TSB (-14.24 %) and HSBC

(-3.20%) have all experienced a down turn in share price over the same period. Even

ING Group‟s (-7.01%) shares have been hit by the market conditions.

If one is to look at ING Direct‟s market sector, it can

be seen that in that FY 2007, ING Direct shares have lost 26.98% of its value. But the

shares of E-Trade, a direct competitor of ING Direct, fell almost 80 % in the mean time.

According to these figures ING direct have done better than its competitors. One should

also take in to factor that, the market competition was much more intense during this

period and ING Direct is no longer a marker leader in saving rates (Appendix -2).

According to ING Direct‟s figures, we can see that

the underlying profit before tax which was growing until FY2006 has gone down by a

margin of 23.6%. This is mainly due to the massive increase (+7.8 %) of operating

expenses. Expenses have increased over the period partly due to the increase in the

number of staff the bank hired to achieve rapid growth. Expansion of ING Direct to

Japan and the restructuring of the Benelux activities also caused the operating expenses

to increase. We should also take in to consideration the fact that in this fiscal year

interest margin rate narrowed from 0.89% to 0.75% as a result of higher central bank

rates. These are the main causes for the increase in Cost/Income Ratio which jumped

from 0.66 to 0.73 (Appendix 1).

ROC after tax improved due to lower tax charges

supported by a tax asset in Germany. Strategic decision to maintain the competitive

client rate in challenging markets left the income lower and a similar net profit ratio,

24.13. Excluding the UK figures, where the repositioning was taking place, the change

in net profit could be positive. Also investing building and other investments have

increased the depreciation and amortisation expenses.

In spite of falling net profit the rate of return on the

capital is strengthening from 11.8 to 14.3. This reflects the efficiency of operations

achieved.

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Marketing Overview of ING Direct

Position Analysis of ING Direct Using PEST, SWOT & Porters five forces:

ING Direct is facing fierce competition from its

competitors in its market segment with its cost leadership strategy being adopted by other banks.

The bank tries to keep the competition to a minimum by focusing on its core products. The bank

operates in a segment where customer loyalty is nonexistent. The Customers are concerned only

about interest rates & quality of service. Although the internet banking sector has high growth

potential, due to present economic conditions, growth may be stagnant for some time. ING Direct

has passed the storm almost unscratched and this fact improves its image as a reliable online bank.

The Brand ING is known to be in more than 50 countries so it augments as an opportunity for

geographical expansion. ING Direct has used technology effectively to stay ahead of times. It has

kept cost low by re-engineering basic products like mortgages. (For details, see Appendix 4, 5 & 6)

Issues and Analysis using 7p’s of marketing.

(The 7Ps of ING are identified in Appendix 7)

1) Product:

ING direct has mainly four products Home

Insurance, Savings Accounts, Investment and Mortgages. The number of products is far

less than the traditional bank. It does not offer cash cards for their customers. The main

characteristic that sets it apart from traditional banks is that its products can be accessed

through the internet.

There are some positive aspects; it saves cost and

time for the bank and customers respectively. But the negative aspect for the bank is

that it loses opportunity to create customer relationship due to lack of human

interaction. Traditionally ING Direct has relied on high interest rate to attract customers

.The problem with strategy is that it is difficult to sustain and can be easily copied by

other banks. And also, it does not provide emergency access to the money

2) Price

ING DIRECT was offering the highest interest

rate on savings and low interest rates on loans but now there competitors (Refer

Appendix 2) offer better rates. There are chances customer will switch to competitors

because of no loyalty. The reason might be poor financial outlook for year to come

(www.thisismoney.co.uk) and it could be due to higher central bank rates. A shift in

customer target could also be another reason.

3) Place

Internet is the only place where the bank exists

and the success and efficient website is the key for the success of ING Direct. As in a

shop where the display of products is the key for an impulse purchase, a good web

design and eye-catching display of product links is essential for success. At the moment

the web design is very simple without use of any java or flash. Another limiting factor

for this type of place (internet) is that only computer literate can use the bank

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4) Promotion

ING Direct have a good promotional budget, it

allocates one third of its budget to marketing programmes. .It uses all channels of

advertising like internet, television, outdoor advertising etc. It also has innovative

promotion campaign for e.g. „Save your money at the movies‟ the promotion

programmes are highly successful. Promoting a bank through cafes was a novel idea

which met with great success. The problem at the moment will arise due to financial

crisis as they might not be able to spend on promotions at least in the short term. If the

same amount is spent it will not give good results as previous years. ING Direct needs

to find new cost effective ways of promotion.

5) People

The use of people or employees is limited in

ING Direct. Although, they train their staff more than a traditional bank does. The

products that are offered by the bank are automated. The main contact points of direct

customer interaction are cafes and over the phone through call centres .In the cafes it

has excellent customer service staff who can discuss financial product while serving a

coffee. Call centres staff are allowed to go live only after considerable training. ING has

policy of lowering interactions between its staff and its customers. The reasons for call

centre limitation is that ING Direct does not wants its customers to spend money for

services they will be offered. The down side to this is that some customers might be

confused as if the bank does not really care about its clients. It will then create mistrust

between client and company which will lead to suspicion, that generates anger, which

leads to separation.

6) Process

ING direct has the most cost efficient

process benefits of which is being passed to the customers. The process is design in

such a way that it is major part is automated and does not need any human interaction.

Website does not holdup people in lines so it delivers a professional service. A transfer

of money to traditional bank will take three working days to reach. This is also a

possible bottleneck in the efficient customer service. The business model of keeping the

interaction at smallest possible time may lead to customers feeling poor service.

7) Physical Evidence

ING group as whole and its cafes provide the

evidence o ING Directs existence. It also gives customers a fair idea of the groups‟

service standards. .ING Direct does not have a physical presence which will create

doubts in some customers who are no familiar with group.

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BCG Model Analysis:

Cash Cows: Savings account of ING direct was in the star region but as market matures the savings

accounts then runs down from their market growth position to cash cow region. The savings

account is the main source of cash flow in ING Direct. Savings account was the first product which

ING introduced in the market after careful research.

Stars: There is no star right now in ING direct product portfolio and companies need to have some

balance portfolios for their continuous growth and market expansion. As time passes, there is a

chance for the product in the Questions mark (?) becomes star. This is referred to as new product in

which company invest their resources for development.

Question Mark: This is also referred to as problem child. ING direct have launched new innovative

product “Share Builder”. This product have low market share but potential to grow, because of

current market condition which is outside the control of ING Direct. Due to economic downturn

share builder may not perform well. But, it has potential to become a star after some time when

economic crises are over. Share Builder may also become a dog after some time if the investment of

ING Direct does not recover in time, and thus result in loss of investment.

Dog: Mortgages offered by ING direct were cash cows but as market moves into different stages,

the mortgages moved into dog stage. This is because of heavy investment in these products with

little or no return on investments due to loses in global market.

Savings

Account

Market

growth

Market Share

Dogs

?

Mortgages

/ insurance

Cash Cow

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ING CURRENT BCG ANALYSIS

Figure 2

Conclusion and Recommendation

The company should launch new product(s) that can quickly become star(s). ING Direct should

have more cash cows and star products that will give strength to the company portfolio and it will

help in revenue generation.

More products in offering will differentiate it from competitors.

As we can see the ING Direct product portfolio is not a balance one,(Because of limited products

finance can a issue in future )become we can suggest to ING direct for stars and more cash cows

they will develop new products like credit cards or cash cards for their future implication. Products

also consider who gives strategically ING direct a competitive advantage over competitors.

Savings

Account

Share Builder,

Credit Card?

Market

growth

Market Share

Dogs

?

Mortgages

/ insurance Cash Cow

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Operations

ING Direct is an online bank that delivers it

services through the internet. The customers can access the services of the bank mainly through

internet, phone, and cafes which are limited to certain locations. Customers can lodge complaints to

the bank wire, mail or phone.

The input/output model was applied to study the

processes in ING Direct. The core process of ING Direct involves the use of technology to give

services to its customers. The major inputs to produce the services offered would include; cash,

hardware, software, information (Experian credit score), employees etc.

Analysis of input/output model

ING Direct has designed its process in such a way that

the delivery product is fully automated. This automation helps it to save cost and use its resources

most effectively. One of the major benefits with the current process is that even if the customers

increase by two-fold or three-fold, bank can provide its services without the need of high

infrastructural expenditure.

If you look at the centre of the figure () you can see the

main processes that takes place. For example, account updates, transfer between accounts, and

verification of customer details. All the inputs and the process are combined to produce services

like saving accounts, mortgages, and investment products.

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Problems of current operations

Customers have limited access to money

ING Direct does not have any ATMs or debit cards. It also does not provide any place to withdraw

money in person. The only way customer has access to his money is by transferring the money to

his traditional account and then withdraws from there. This process takes at least 3 days to be

transferred. Many customers will not prefer the delaying service and may not open an account.

Call Centre services

ING Direct tries to minimise the number of call to its centre. They even close some customers

account because they tend to call the centre very often. Sudden increase in number of customers can

not be handled by INGs call centres. For example, when they took over Net bank in America, they

could not stand the number of calls that come in. But they are losing the opportunity to build

customer relationship.

Unsustainable Competitive Advantages

The main feature of INGs process is its cost efficient. The problem with this strategy is that it can

be copied by any of the competitors. It‟s only a matter of time that competition catches up ING. It

will lose its unique selling position of higher savings rate and no service charges. It is limited to

computer literates. It does not well with the old age group.

Website

At the moment it does not come up with ING Directs savings account at the optimum level when

searched using the search engine e.g. Google. ING Directs customers are internet users.

Potential solutions for operations

According to Porter (1985) value chain analysis is an analytical tool which can be used to apply to

competitive strategies. We use value chain analysis to bring out the possible solutions from the

current operations. We can use value chain analysis to access the cost effectiveness of each

component mentioned in the value chain and also understand the competitors cost structure.

ING Direct has got an excellent website which is highly interactive. The bank has an excellent

security features, no major issues of security failure have ever been reported. ING Direct should add

features like confirmation of transaction, to be sent via email or SMS to the customer. This feature

will save the trouble of customer logging in to check their balance. An instant chat facility should

be also added to facilitate customers clear their doubts.

Call centres facilities should be upgraded by making provisions for by standby staff. If the call

volume goes up the staff then should be helping out. There should be coordination between the

marketing department and call centre operations. Any significant promotions should be

communicated in advance to the call centre department, this will help in planning.

ING Direct operates in nine countries; there are plenty of emerging markets around the world. ING

Direct needs to geographically expand to increase its profit.

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Possible Solutions

1) Continuation of the present model and employ TQM

ING Direct can continue with the existing model. It is a proven model and is very cost

effective. We can from the financial results that the return on the capital is strong at 14.3.

This means that the business in giving goo rate of returns. The dip in profits can be a

temporary thing due to the market conditions & the high operation expenses incurred by the

company at some areas. So it would be foolish to meddle with a highly successful modal

By employing TQM, company can set performance indicators and then work towards

becoming more efficient

The main disadvantage of the present model is that it is being successfully copied by rivals

who offer the advantage of traditional banking as well. From the BCG Model, we can see

that the star product the savings account has moved in to cash cow region and may become a

dog. To counter this, the company may have to launch new products.

2) Employ BPR and start afresh

The youthfulness and the rebel nature of the company have been lost as it has become

more and more acceptable in the system. But, ING Direct was at its most successful

when it did things which were different & innovative E.g.: Promotion which gave free

tank of gas made headlines & forced customers to sit up and notice. According to the

CEO there is no sector or market which does not lend itself to reengineering that is what

ING Direct it bests. This would be good time to reposition itself and to adjust to the

change market condition

3) Tying up with Western Union

ING DIRECT main drawback with the current business model is it does not allow

customers to withdraw money and deposit without the help of traditional banks.

Arrangements can be made with western union where the customer gives instructions

online or via mobile to transfer his money to any of Western Union locations and

withdraw it from there.

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Recommendations

ING Direct should tie up with western union

The challenge before ING DIRECT is that it has

created a cost effective process and product that has mass appeal. The big question is

to distribute and provide access to its services without incurring cost. Associating with

Western Union provides excellent opportunity to achieve this aims and possible

revenue generation source.

Western Union is a trusted brand in money transfer

and has more than 150 years of tradition. All its agents are verified and vetted before

they are given Western Union Agency. This would provide customer with an easy

deposit point while deposits can be free of charge, withdrawal could be charged. This

gives an opportunity for western union and the bank to generate revenue. The

customer would feel that Western Union is charging for its service and keep the image

of bank intact

Another major advantage is the reach of Western

Union it is operating in more than 200 countries associating with it also help in

building the brand image of ING DIRECT, as it one of the most trusted brands around

the world. The POP space which western union has could be shared and would be

excellent way of making the ING DIRECT popular. Customer who is going to travel

abroad may use the service to withdraw money from international locations.

Traditional banks charges at least 1% to 3% of the money withdrawn using the debit

card .We would be competitive as we can charge a flat fee for the transfer equal to

what Western Union charges for its services.

Tying up with Western Union will not incur us the

cost. We can provide excellent deposit rates to customers which is a sure way of

generating business. Since deposit and withdrawal can also be done using Western

Union branches customers who are not computer literate with the help of friends or

relatives can open an account and then operate it. It will attract customer who leave

the money in fixed deposit for a long period of time, because of the high interest rate.

Occasional withdrawal is possible using Western Union

Mobile Technology to be developed: The next

revolution in banking will use the full facilities of mobile information technology. Just

like ING Direct revolutionised the banking sector by only using a website, the next big

thing will be use of mobile (for e.g. mobile phone) system for baking on the go. The

stage is set for ING Direct to reengineer and harness the power of mobile information

systems. From giving the facility for customers to transfer funds between accounts it

can also be developed to view account statements.

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Online Chat Facility: Customers who have any

doubts or issues with their account while they are logged in can use this facility to

clear their doubts. This will lead to speedy dispersal of issues and also an employee

can at least chat with two customers at a time Since the customer is logged in there

won‟t be need for verification of customer details which is needed over the phone. A

query can also be left on the site for further clarification

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Reference

• Laudon, J. & Laudon, K. (2007), Management Information Systems: Managing the

Digital Firm, New Jersey: Prentice Hall.

• Naylor, J., 2002. Introduction to Operations Management. 2nd

ed. UK: Prentice Hall.

• Porter, M. E. (1985), Competitive Advantage: Creating and Sustaining Superior

Performance, New York: Free Press

• Ingdirect.com

• Thisismoney.com

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Appendix-1

Ratios & Key Figures of ING Direct 2004-2007

Description 2004 2005 2006 2007 Change

Total Income 1,709 2,119 2,233 2,196 -1.68

Operating Expenses 1,185 1,396 1,482 1,598 7.8

Additions to Loan Loss Provisions 89 106 57 68

Underlying Profit Before Tax 435 617 694 530 -23.6

Total Profit Before Tax 435 617 691 530 -23.3

Risk Adjusted ROC 11.3 14.9 11.8 14.3

Number of Clients 14,706 17,511 20,262 15.7

Total Assets 232,773 253,160 262,560 3.7

Economic Capital 3,100 3,430 2,831

Depreciation and Amortisation 63 74 87

Impairments 14

Net Profit Growth 29.50 10.71 -30.38

Cost/Income Ratio 0.66 0.66 0.73

Return on Economic Capital 14.9 11.8 14.3

Changes in Operating Expenses 5.80 7.26

Changes in Income 19.35 5.11 -1.68

1) Net Profit Ratio

2007 2006 2005

Net Profit Ratio 24.13 30.94 29.12

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

𝑇𝑜𝑡𝑒𝑙 𝐼𝑛𝑐𝑜𝑚𝑒

The net profit margin ratio tells us the amount of net profit per £1 of turnover a business has earned. That

is, after taking account of the cost of sales, the administration costs, the selling and distributions costs and

all other costs.

2) Net profit growth

2007 2006 2005

Net profit growth -30.38 10.71 29.50

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟 − 𝐿𝑎𝑠𝑡 𝑌𝑒𝑎𝑟

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟

This ratio reflects the movements in percentage in the net profit over a year's period.

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3) Cost/Income Ratio

2007 2006 2005

Cost/Income Ratio .73 .66 .66


𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

This ratio shows the efficiency of the operations, lower ratio reflecting a higher efficiency

4) Return on Economic capital

2007 2006 2005

Return on Economic capital 14.3 11.8 14.9


𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

The ratio shows what the return company is generating on the shareholders funds. A higher ratio is

needed to attract new funds and to maintain the existing ones.

5) % Change in Operating Expenses

2007 2006

% Change in Operating Expenses 7.26 5.80



This ratio reflects the movements in percentage in the operating expenses over a year's period.

6) % Change in Income

2007 2006 2005

% Change in Income -1.68 5.11 19.35



This ratio reflects the movements in percentage in the total income over a year's period.

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Appendix -2

Comparison of Different Savings Accounts

U.S.A.

Bank or Account Name Interest Rate

(APY)

Easiness to Maintain the Account

Required

Opening

Balance

Required Monthly

Minimum Balance

No. Of Links to

External

Accounts

FNBO Direct Savings 3.25% $ 1 Non required 3

E-Trade Complete Savings 3.30% $ 1 Non required Unlimited

HSBC Direct Savings 3.00% $ 1 Non required Unlimited

Dollar Savings Direct 1.00% - 4.00%1 N.A Non required N.A

Washington Mutual Special

Savings Account 2.50% $ 1 Non required N.A

Citibank Ultimate Savings

Account 2.27%- 3.00%

2 $ 1 Non required N.A

ING Direct 2.75% $ 1 Non required 3

Source: mymoneyblog.com 1-

4.00% with $1,000 balance, otherwise 1.00%. 2-

Earn 3.00% if two bill payments per month from a linked Citi checking account is maintained, otherwise 2.27%.

U.K.

Bank or Bank Account Interest Rate

(AER)

Easiness to Maintain the Account

Required

Opening

Balance

Required

Monthly

Minimum

Balance

ICICI Bank Hisave Savings Account 5.50% £1 Non required

Principality BS E-Saver 5.35% £1 Non required

First Direct Everyday E-Saver 2.75% £1 £1

Alliance & Leicester Online Tracker 4.75% £1 Non required

Abbey Esaver Direct 2.25 % -6%1 £1 Non required

Bradford & Bingley Esavings 6 4.60% £1,000 £1,000

Sainsbury’s Finance Internet Saver 4.00% £1 Non required

ING Direct 2.75% £1 Non required

Source: moneysupermarket.com 1-

6.00% if no withdrawals are made in a year, 5.69% assuming there is just one withdrawal an year, otherwise 2.25%.

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Appendix -3

Share Prices of ING Group & Competitors in FY 2007

Same Sector – Compared with E-Trade

Traditional Competitors

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ING Group

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Appendix -4

Analysis of ING Direct using Porter's Five Forces

A. Bargaining Power of Suppliers ING Direct‟s Suppliers are its staff who supplies

labour, its depositors & parent company that provides it with its raw material to do the

business i.e. the Capital, external agencies like credit check agencies & software

providers that provide it with services. We can see that the bargaining power of

depositors, provider of the companies‟ capital is very high. But other suppliers like its

staff and service providers have little bargaining power as they can be easily replaced.

This means:

1) It cannot bargain with its investors and will have to keep its interest rates high.

2) It can negotiate with its staff and service providers and get favourable deals thereby

keeping the costs down.

B. Bargaining Power of Buyers ING Direct has millions of investors. Almost all of

these investors are individuals who think and act independently. These factors bring

down the bargaining power of customers. But then again, the market is saturated with

countless banks that fight for these investors. It is easy for investors to switch to other

banks with little or no lost of productivity. Bargaining power of buyers will also depend

on how expensive his choices will be. E.g.: Customers who same small amounts will

not be bothered by small interest cuts. We can also see that the bank‟s customers are not

loyal. They switch over to different competitor as soon as the bank lowered its interest

rate.

This means:

1) Bargaining power of the investors is high due to the choices available.

2) Customers with small savings have only little bargaining power.

3) There is no or little brand loyalty which prohibits the customers from switching.

C. Threat of New Entrants

It is very easy to enter ING Direct‟s Market

segment; the online savings banking. The barriers like technology, cash, license

&infrastructure are easy to overcome. Any traditional bank can start up an online saver

bank with little or no effort. This will offer the customer an attractive proposition i.e.

benefits of online bank coupled with safety associated with a traditional bank. This is

evident as Citibank and HSBC where among those offering no fee, no-minimum-

balance web-only accounts with well-above-average interest rate.

This means:

1) Threat of new entrants is very much real making the business very competitive

2) As ING Direct‟s customers are not loyal there is a danger that new entrants with

better deals will have no difficulty in gaining customers.

D. Threat of Substitutes The market is flooded with similar products which

directly compete with ING Direct‟s products. We should also consider indirect

substitutes like government bonds and traditional banks which is not the same product,

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but give similar benefits. This means that ING Direct should have a cutting edge which

keeps the customers. Factors like brand loyalty, advertising and penalties for switching

will prevent the customer from folding to a substitute.

This means:

1) ING Direct should strive to maintain the unique element to its product which is the

above average customer service.

2) ING Direct charges no penalties for switching to a competitor making it tempting for

an investor to jump ship to a different bank.

E. Rivalry Among Competitors Rivalry among competitors is intense in banking

sector. In a sector where success formulas are fast copied, ING Direct should

continually innovate to stay one step ahead of rivals. This also means that profit margins

are kept at minimum. Being the market leader in all the countries which it operates will

help ING Direct in keeping the competitors at bay.

This means:

1) ING Direct tries to keep competition to a minimum by focusing on a unique sector of

the market. More the products, more the competition.

2) ING Direct should try foreign markets where there is less competition in its unique

sector.

3) ING Direct should try to differentiate its product from the rivals by focusing on its

strong points.

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Appendix -5

SWOT Analysis of ING Direct

A. Strengths ING Direct has the strong backing of its parent

company, the global giant ING. The fact that ING Direct came early into this segment

means it got time to build up a strong franchise. This also gives ING Direct a clear

competitive advantage in the sense that it knows its target customers better than any

competitor. It should also be noted that despite getting some funding from their parent

company, their products are their main source of income. This gives them the necessary

freedom to take strategic decisions without consulting the parent company. A unique &

proven business model is one of the strengths of ING Direct. The use of cafes to market

their product gives them a cool factor and helps the customers to differentiate them from

their competitors. The „clear and simple‟ advertisement strategy is a big asset as

customers associate these as characteristics of the bank. The products itself, a simple no

strings attached savings accounts and „easy to apply‟ mortgages are big strengths of the

bank. Use of well trained staff in their call centres & cafes make sure that the customer

satisfaction levels are above average. The cost effectiveness of the bank, due to its use

of innovate technology, is also the strength of the company. The cost per customer is

very low. Also, ING Direct has a clear picture of its target customers „young to middle

age, techno-savvy enterprising types‟ which helps in marketing its products.

B. Weakness. The biggest weakness of ING Direct is also its

biggest advantage, its online business model. Most customers prefer the personnel touch

offered by the traditional banks while ING Direct can only offer its website & telephone

banking to its customers. Even the cafes are just a means of introducing the brand to

customers. ING Direct „„sell products & commodities not solutions‟‟. This is a radical

change to the traditional banking system where emphasis is on solutions and customers

might not relate to this new system. The product portfolio of ING Direct is small when

compared to other banks. This is a weakness as the bank can never fulfil the complete

needs of a customer. Again, from the case study we understand that the cross selling

rate within ING Direct is „rather low‟.

C. Opportunities Internet banking is a high-growth segment and ING

Direct is the market leader of the sector. The fact that that it operates in only nine

countries sheds light to the vast opportunities the bank has in relation to expansion. As

the world is moving towards a „net-enabled community‟, ING Direct has got a proven

business model with which in can move in to new markets. ING Direct has a choice of

widening its product portfolio in an attempt to target new customer pools. If it combines

it‟s „no nonsense policy‟ with traditional banking products like current accounts, there is

a sure winner on the cards. The recent banking crisis has left some banks wounded and

ING Direct, who is in a seemingly better position, can acquire new customers. E.g.:

ING Direct has acquired Kaupthing Edge and Heritable Bank customers recently.

D. Threats

The treat of new entrants in to its segment is very

real. As there are no substantial entry barriers, the market will only get more crowded.

Again, the threat of substitutes is also substantial. E.g.: More and more traditional banks

are offering competitive rates. The bargaining power of the customers is very high and

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the bank has to remain very competitive in order to survive. E.g.: Savers moved almost

three billion pounds from ING Direct accounts to rival banks when the bank reduced

interest rates in 2007. It should be noted that the company faces a question of autonomy

from its parent organization, the ING Group. The group might decide that it needs

tighter control of the affairs in this rough climate. The implications of this move cannot

be calculated. The turbulent climate is also a threat as customers might shy away from

saving in online banks as some of the „direct‟ banks have recently collapsed. Internet

security is another threat which will adversely affect ING Direct‟s ambitions.

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Appendix -6

PEST Analysis of ING Direct

A. Political Factors

ING Direct operates in nine countries which have

completely different taxation laws and accounting systems. The further expansion will

depend on how well the company can adapt to the local laws. E.g.: ING Direct‟s ability

to penetrate the Middle East markets will depends on its ability to adhere to the Shariah

law. The employment laws also differ according to countries. E.g.: It is much harder to

fire permanent employees in U.K. than in U.S. Again, the industry is regulated by

governmental agencies in different countries which will force ING Direct to make

changes to its products. E.g.: FSA in U.K makes sure that ING Direct adherers to its

guide lines while operating in its borders. The marketing efforts of the company will

also be affected by the governmental agencies like „British Advertising Standards

Authority‟. The stability & economic policies of the local governments will also affect

the bank policies. E.g.: Recently, UK government put pressure on all banks to pass the

rate cut to its customers.

B. Economical Factors

The world economy is facing a banking crisis which

has affected customer confidence in a big way. Among the bankrupted where some

internet savings banks which has raised the question whether the business model is a

reliable one or not. This means that ING Direct is facing an uphill struggle to gain new

customers. But, it is also an opportunity to takeover ailing competitors, and achieves

inorganic growth. The economic growth in the countries it operates is at best slow and

at worst, bordering on recession. E.g.: U.K. economy is in serious danger of going in to

recession. This normally means that the public have to break in to their savings account

which is a bad proposition for ING Direct. The interest rates have been brought down

by most central banks. This means that the operating profits of ING Direct will shrink,

forcing the bank to further bring down its costs. We can also see that the exchange rates

are highly volatile and so is the inflation rate in different countries. We should also

consider the productivity of employees across countries. We should also take in to

account that unemployment is rising in countries like U.K.

C. Social Factors

The biggest social factor affecting ING Direct is the

customer perception that a bank should have a physical presence in the high street. Even

though effective marketing & advances in technology have made internet banks

acceptable, major sections of customers are still vary of these banks. The recent failures

of Icesave have just cemented their opinions. The fact that ING Direct has a „rebel‟

status in the banking sector will appeal to the young customers. This will also alienate

older customers who like to follow age old practices. ING Direct should also look in

country culture like „emphasis on safety‟, „attitude to foreign products‟ and language

when it thinks of expansion.

D. Technological Factors

ING Direct depends on technology for its operations

around the world. The main channel of distribution is a website. Supporting this website

is state of the art call centres which facilitate some human touch in the operations. This

means that the company can operate only in techno-savvy communities. ING Direct

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tries to educate the masses about its website through heavy marketing. Also, the website

is kept very user-friendly so that the learning curve of the new customers is kept to a

minimum. The staffs at the call centres is given extra training to handle the customers

who are less fluent at using the technology based banking system the company offer.

When expanding, the company should look in to the factors like penetration of internet

facilities, familiarity with information technology & the learning culture of the people.

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Appendix -7

Seven Ps of ING Direct Marketing Mix

1. Products

ING Direct has four core products which are simple & easy to use

Saving accounts

Mortgages

Home insurance

Broker dealing

2. Price

No monthly charges

No withdraw fee

No minimum balance

Competitive mortgage rates and savings account rates

3. Promotion

Prominent display of the insignia and corporate colour orange

Simple TV advertisements

Association with prime time sports like Formula 1

Competitive Mortgage Rates and Savings Account Rates

Effective use of ING Direct cafes

Innovative localised marketing campaigns.

Use of advertisements in popular websites like Facebook.com

4. Place

Simple user-friendly web site with 24/7 access

Telephone banking

ING Direct cafes

Presence in nine countries

5. Physical Evidence

Placement of ING in the name of the bank.

Association with prime time sports like Formula 1

Usage of advertisements

ING Direct cafes & call centres

Letters & statements send by the company

ATM cards where they are available.

6. Process

Call centre management

Website management

Cafe management

Mortgages & Accounts application processing

Collaboration with outside agencies like credit checking agencies

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Automated money management i.e. moving money to and from various

accounts

7. People

Management team lead by the visionary CEO Arkadi Kuhlmann

Central IT group

Well trained call centre & cafe staff

critical analysis of ing direct

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