Difference in reservation and computer systems

Difference in reservation and computer systems requiring IT investment and
training
x Effort spent on integration might divert focus away from operations, resulting in
potential benefit for competitors. They might gain additional market share and
grow an even stronger foothold in the growing segments
Candidates should have caught on that a 30% market share within 3 years is
unlikely through organic growth only. Knowing the consolidated state of the
market, candidates should recommend the acquisition of the local player.

138
London Business School Case Book 2007/2008
Case 21 - Postbank (New)
I
NTRODUCTION
In this case we are going to examine the performance of a joint venture between
BankCo and PostCo (referred to as PostBank) and make an assessment on the
options available to the Board of BankCo.
PostBank is a retail bank that sells price competitive lending, investment and
insurance products through the branch distribution network of PostCo.
PostCo is a widely known and trusted company. Just prior to the JV, PostCo’s
business was undermined by a government decision to shift to the electronic
payment of welfare. It did not sell financial services products.
All products are manufactured by BankCo. PostBank does not provide a current
account to its customers, a position advocated by PostCo.
Q
UESTION
1
-25
-20
-15
-10
-5
0
5
10
15
20
Year 1 Year 2 Year 3
$m
PostBank Proft – Original Plan v Actual
Original Planned
PostBank Profit
ActualPostBank
Profit
Exhibit 1 shows that profit performance has been much lower than planned. What
could explain this performance?
A good answer would identify the following
potential causes of lower than expected
profitability:
x Volume – Sales
o Account openings less than planned
o Unattractive product set
o Lack of product awareness / insufficient marketing support
o Inadequately trained or incentivised branch staff
o Expected balances not met
This question is a good warm-up.
Candidates should structure their
answer in terms of volume (both
sales and attrition), price and
cost.

139
London Business School Case Book 2007/2008
o Skew in customer base towards the older and poorer clientele who are over-
represented in PostCo’s customer base
o Original plan too aggressive
o Feasible, given that the original plan was put together in a deal environment
x Volume – Attrition
o Account closings higher than planned
o Low prices attracting product switchers – lots of hot money
o Inadequate service levels within the branch
x Price
o Product pricing keener than anticipated
o Transparent, concentrated market – high likelihood of price response to
introduction of price led offer by incumbents or other entrants
x Cost
o Fixed costs spent as planned, but spread over less volume than anticipated
o IT, branch network and, to some extent, marketing expenses are largely fixed
to sales volume
o Potential higher marketing spend than originally anticipated with managers
getting nervous in response to lower than planned sales
o Complexity of managing through the JV increasing inefficiency
Q
UESTION
2
Let’s stop now and focus on the sales performance. How feasible is the plan given