A local bank is contemplating to expand its retail banking arm as one of its growth strategies, but is facing a conundrum. The bank would like to expand its operations to Kelantan, where it has currently no retail banking presence, but the decision between the senior management team is split in half. One half, led by the CEO of Islamic banking, supports the move, with the perspective that Kelantan—being a large, untapped market for the bank—is a logical choice for growth. The other half, led by the group CEO, is more cautious with the move, citing the bank’s stronger core competencies in non-Malay markets, as well as the associated flooding risks that came with the geography.

With the senior management team seemingly at an impasse, the CEO of Islamic banking decided to engage a team of external business consultants, to see if they could develop a solution and help find a way forward. A proposal for a strategic study with a market research component was drafted, where the findings of the study would ultimately conclude whether the strategy to expand to Kelantan should be supported or rejected. The following approach was adopted. At the end of the 3-month study, the findings provided strong market justifications on which the senior management team could make their final decision.

(I) Baselining Core Competencies

A workshop was conducted involving the bank’s internal research, product, and retail representatives during the inception of the study. The purpose of the workshop was to create a baseline of the bank’s brand perception, target market characteristics, unique selling propositions, and product features, which formed the basis of a list of specific business hypotheses that were to be tested in the subsequent stages of the study. A comprehensive discussion guide provided a structured and systematic tool to ensure that critical bases were covered and, where necessary, probed for more details. The workshop also served to understand the bank’s strategic positioning within the banking and finance industry, retail location strategy, and its vision for entering the Kelantan market—critical business factors that would steer the direction of the study.

(II) Macroeconomic Analysis

To assess the short and medium term economic outlook of the state, an analysis of the macroeconomic landscape of Kelantan was conducted across the following indicators, with the objective of capturing a holistic vignette of the economic environment and its rate of development:

  • Economic vibrancy (GDP and GDP growth)
  • Sectoral vibrancy (GDP and GDP growth of the five primary economic sectors)
  • Vibrancy of the banking, finance, and insurance industries
  • Population, households, and demography
  • Employment, salary, and wages
  • Profiles of businesses and their growth
  • Intensity of construction activities
  • National policy drivers (e.g. ECER, 10MP, etc.)

(III) Benchmarking Economic Indicators

Data on both size and growth rate of the respective indicators were captured and benchmarked against indicators of the same for all 13 states within Malaysia. By themselves, the economic indicators provided a glimpse of the Kelantan economy, but only by comparing them to the performances of other states could its magnitude be placed in the right frame and context. The benchmarking was conducted in two primary groups:

  • Group A: States that were members of the East Coast Economic Region
  • Group B: All other states

(IV) Market Research

The market research component of the study was structured to reflect the two areas of interest where the information would guide the market entry strategy of the bank in the event that the conclusion was a “Go”.

  • Consumer research: The consumer research portion examined market characteristics in terms of product usage and preferences, banking preferences, brand awareness, brand image, online/offline banking proficiency, banking needs and expectations, and other key aspects. The research was carried out via a street intercept survey (representative quota sampling) in key locations of interest.
  • Business research: The business research portion was similar to the consumer research portion but targeted at medium and large businesses (non-sector specific). The research was carried out via in-depth interviews with key persons that possessed the authority to make financial decisions within the company.
    The findings of the market research component would be used to make data-driven decisions, particularly in relation to marketing and sales operations as well as product customization.

(V) Location Feasibility Assessment

To assess the location feasibility of a potential market entry, an additional criteria was added to the traditional location feasibility assessment framework—topography. The inclusion was driven by the bank’s need to minimize the risk of seasonal, torrential floods that were synonymous to the East Coast of Malaysia, the worst being the recent 2014/2015 floods which affected more than 200,000 people. A topography analysis was carried out, in addition to on-ground interviews with local businesses to identify locations within Kota Bharu that were least prone to floods.

(VI) Strategy Development

The findings of the study were used to build the foundation of the strategy development framework which would serve to guide the bank’s consideration and next actions. While there were several key takeaways, the primary vein that underpinned the entire framework was a key insight derived from the macroeconomic and benchmarking analysis of the Kelantan market, given the bank’s market positioning and retail location strategy established at the outset of the study.