Wells Fargo is a $222 billion bank with diversified financial services that provides consumer finance services, mortgage, insurance, banking and investment services. It is the leading internet bank and has over 5300 stores globally (Han-Yuh 2007). Wells Fargo is a publicly traded corporation and was founded back in 1852 (DeYoung & Rice 2004). Based on the recently released Forbes report, Wells Fargo was ranked at position 26 in the world based on market value, assets, sales and profits. It is vital to note that this company prides in operating as the first national bank charter in the US and recently based on the brand finance study it was ranked as the most valuable banking institution among other 400 banks.
Currently, the company has its headquarters in San Francisco California. Over the years the company has recorded a growth on its revenue and this is as a result of the strategies that the company has employed (Han-Yuh 2007). This paper therefore delves to analyses the business-level and corporate-level strategies utilized by the company. Additionally, it will seek to analyses the company’s competitors and further analyses the effectiveness of the company’s strategy both in the slow cycle and fast cycle markets.
Business level-strategies are strategies which undertaken by companies as they try to seek a competitive edge over the competitors. It elevates the corporations’ position relative to its competitors (DeYoung & Rice 2004). It puts customer satisfaction first while ensuring a long-term relationship with the customer, generating a dedicated customer base (Han-Yuh 2007). In the analysis of a company’s competitive position, companies are required to review the porters five forces model. This model is vital as it assists in the evaluation of the shifts in the competitive market. Cost leadership and differentiation are some of the common strategies adopted by corporations to give them that competitive edge in the market. Cost leadership, in particular, aims low-cost operations to ensure the company has the accrued little in terms of expenses to maximize on profits.
Wells Fargo provides a representation of companies that are low cost producers in the market and is in the same class as Walmart (Muheki et al 2014). Such companies have implemented very strict accounting and financial controls that have helped in the attainment of cost leadership strategies. The bank operates under the notion a penny saved is a penny gained. Expense management is one of the strategies that this company is well known for and is the best in terms of expense management in the US banking industry.
Wells Fargo being the second largest bank in America in terms of deposits has huge emphasis on traditional banking. The company specifically has a cost advantage best in the banking industry which stems from the best in class distribution model. The distribution systems enable the company to have lowest cost of funding within the banking sector. This has in turn made it grow its market niche while on the other hand generating returns on assets with limited risk (DeYoung & Rice 2004).
It is important to note that the company’s target audience is diversified to include: upper and lower middle-class customers, small businesses and customers of all ages (Dess et al 2016). The company has a vast retail presence all over the country in all the 50 states. Additionally, the company has its operations in 35 countries worldwide. The individual customer is the main focus of the company rather than large corporations; this is however not to say that large corporations are ignored by the bank. Many other American banks’ main target audience is large corporations and big businesses.
The cost of deposits at Wells Fargo are about 0.5% which is the best when compared to other industry partners which charge about 1.3%. Based on this the company has managed to accrue a huge customer base in the US (Mermod 2015). The past ten years has resulted to a revenue growth of 11% while the industry growth has been 4%. Therefore, it is certain that the company’s cost leadership strategy has been effective in the past. It is certain that through this strategy the company will increase its revenue growth not only in the short term but also in the long run.
Corporate level strategies are those strategies that influence the strategic decisions made by companies and which affect the entire organization (Han-Yuh 2007). They are decisions that the corporation must get right to ensure its success over the next years. Corporate level strategy could include: E-business strategy, Global strategy, growth strategy, cooperative strategy and finally consolidation strategy. The corporate level strategy that Wells Fargo has utilized is the cooperative strategy. This strategy involves the formulation of a strategic alliances between different market players where each party expects that they will benefit financially not only in the short run but also in the long run.
The strategic alliance between Wells Fargo and American Express is a perfect example of a corporate level strategy that the company has adopted as it tries to expand the company’s operations. Wells Fargo has formed a strategic alliance with American Express Financial Corporation which is a division of the American Express Company. The alliance is to distribute annuity products and investment through the retail financial networks. The combination of the two companies presents incredible opportunities to the shareholders and customers of the companies as there will be a wider reach to customers.
The alliance will additionally ensure that Wells Fargo becomes the first bank in the United states to provide investment management, private banking, full line of trust and brokerage services all under one roof. The fact that American Express is a more than century old company with over $262 billion in terms of assets makes it a strategic partner that Wells Fargo has chosen to form an alliance (DeYoung & Rice 2004). The alliance is certainly going to create new capabilities for both of the companies to better handle the financial requirements of its clientele. Therefore, in the long run this alliance will ensure that the company gains a huge market share and additionally expand its market capitalization.
It is also important to note that Wells Fargo in the past has merged and acquired a few companies (Mermod 2015). It merged with First Interstate in the 90s and with Norwest in 1998. However, one acquisition worth noting is the acquisition of Wachovia during the crisis-era for $14.8 billion (DeYoung & Rice 2004). Through this acquisition Wells Fargo expanded its market reach into the Southern and Eastern states enabling it to grow into the best bank in terms of capitalization.
The banking and financial industry in the US has a lot of competition, there is direct and indirect competition. There are market leaders, market followers and market challengers in the bank industry. Citibank, The Bank of America and finally J.P. Morgan Chase Bank are the company’s main direct competitors. The company doesn’t face competition from the aforementioned companies but also with indirect competitors, one of them being ING Direct, which is a US based financial institution. Despite the stiff competition, Wells Fargo has over the years managed to acquire a significant market niche. in the second quarter of 2016, Wells Fargo experienced an increase in its revenue by 0.33% while its competitors experienced a revenue contraction of 0.17% (DeYoung & Rice 2004).
Bank of the America, is the leading financial institutions in the US. This Charlotte based American giant based on assets boosts of 21% of the entire market share while Wells Fargo is the biggest based on market capitalization (Dess et al 2016). The latter company’s share trade at an impressive 1.63 times more its book value while that of the Bank of America are 0.76 times the book value. Bank of America is Wells Fargo main competitive rival and both of them have different business and corporate strategies. Bank of America is more inclined to large corporations rather than individual customers and small businesses; Wells Fargo main market target. The Bank of America serves over 50 million business accounts and consumers in all the 50 states within the US.
Bank of America is mainly set up in high-end commercial districts and not near residential areas. Therefore, their market focus strategy has ensured that Bank of America is the biggest in the banking industry and based on this it is Wells Fargo biggest threat not only in the short run but also in the long run. It certainly is not an individual-centered people’s bank like Wells Fargo. Their major weakness is that they are not connected to individual clients, however their relationships with big businesses has ensured that they maximize their profits. Of significance is that Bank of America their strategic alliance with Merril Lynvh made the company to be the biggest investment bank in the world and additionally it became the biggest wealth management company globally. Recently in 2015 the bank made the biggest earnings per share growth of 45% in its history.
Slow-cycle markets entails markets where a company’s competitive edge is safeguarded from imitators for a significantly long period and those that want to imitate would have to incur higher costs. These markets have entry and exit barriers; a characteristic of a monopolistic market. A corporation with a unique set of products may be able to dominate the market for years. Their resources and capabilities will be difficult to imitate thereby rendering the competition useless and have high price increments over time.
Many may think that the banking industry is a perfect competitive market however 40% of all the deposits were held by the top five banks which include Wells Fargo, Bank of America, PNC, Citi group and JP chase. The percentage has since risen ever since. Therefore, in such a slow cycle market Wells Fargo would thrive as there exists no barriers to enter into market as it is only controlled by a few.
Currently, Wells Fargo has designed its customer base in a way that it has a wider reach on the individual consumer-small businesses, upper and lower middle classes and foreign families among others- more than any other bank. However, the cost leadership approach may mean that the company would be in apposition to maximize its costs as other players in the market. On the other hand, in fast-cycle markets a company’s competitive edge is vulnerable to imitation by other companies willing to join the market. These markets are unpredictable, unstable, complex and additionally they are very competitive.
In such a market Wells Fargo’s cost leadership would be very significant not only in the long run but also in the short run. Being the cost leader therefore means the company would be in a better competitive position to attract more customers. The company’s broad market focus would also aid in the company maximizing its profits over its competitors. This approach would therefore force other market players to reduce their prices to be competitive. In such a market pricing plays the most vital role followed by quality, then speed then the innovativeness in the products.
References
Dess, G. G., McNamara, G., & Eisner, A. B. (2016). “Strategic management: Creating competitive advantages.” McGraw-Hill Education.
DeYoung, R., & Rice, T. (2004). “How do banks make money? A variety of business strategies.” Economic perspectives-federal reserve bank of Chicago, 28(4), 52.
Han-Yuh, L. (2007). “Development of a framework for customer relationship management (CRM) in the banking industry.” International Journal of Management, 24(1), 15.
Mermod, A. Y. (2015). “Customer's Perspectives and Risk Issues on E-Banking in Turkey; Should We Still be Online?” The Journal of Internet Banking and Commerce, 2011.
Muheki, M. K., Lueg, K., Lueg, R., & Schmaltz, C. (2014). “How business reporting changed during the financial crisis: a comparative case study of two large US banks.” Problems and Perspectives in Management, 12(1), 191-208.
