PNC Financial Services is based in Pittsburgh, Pennsylvania and was found in 1845 and became operational in 1852 (Schultz, 2017). It is a bank holding company and provides financial services. PNC Bank is a subsidiary of this company. The company provides a variety of financial services such as wealth management, asset management, loan servicing, estate planning, and information processing. The company operates more than 2480 branches across the nation. In 2017, the company generated revenue of $16.329 billion and had more than 52900 employees (US SECP, 2018)
Following is a detailed Porter Five Forces Model Analysis of PNC Financial Services:
Competitive Rivalry – High
The financial services industry is highly competitive. PNC competes with Wells Fargo, SunTrust Banks, Citigroup, Capital One, Bank of America, and many others. The industry continues to grow. However, the fixed costs of doing business are relatively high in terms of arranging outlets, marketing, and so on. The products the various competitors offer differ in terms of benefits and services offered. Each customer develops long-term commitments with the company making it difficult for the company to exit the business. Also, if customers switch to another firm, the switching cost is high as there are long-term contracts in place. Products are also complex and require detailed interaction and sessions with each customer to determine their needs and the most suitable services for them. This creates intense competition for PNC.
The Threat of New Entrants – Moderate
The companies already in the financial services industry have developed performance and cost advantages over the years. The products are standardized. Also, if customers switch they incur a significant cost. A new company entering this industry would be required to rent space, create branches, hire staff, and market its services before it can gain momentum. All of this has excessive costs making it difficult for new entrants. However, companies operating in other similar industries can easily enter this industry and start offering their services using their brand name and marketing techniques. Experience helps in this industry to gain a competitive advantage over newcomers. Government licenses, regulatory compliances, and audit requirements play an important role. This makes the threat of new entrants moderate.
Bargaining Power of Suppliers – Low
The suppliers of PNC include the banks which deposit their money with the company, utility companies, and employees of the company providing labor (Maverick, 2018). All of these are standardized inputs in this industry. The company can switch to other employees and utility companies but cannot bargain with the depositors of the company as they are important for the company. It cannot easily switch to other depositors as they deposit amounts in millions of dollars. However, since the company offers them business in terms of large amounts, the company is important for them. At the same time, numerous suppliers are willing to work with the company. This reduces the bargaining power of these suppliers to low.
Bargaining Power of Buyers – High
The number of buyers of the company is large and each of them invests in large amounts of money. The services can be in terms of thousands and millions of dollars of assets and estate being managed by the company. If a customer wishes to switch to another seller, it would violate its contract and would lead to switching costs. The buyer needs a significant amount of information before it can decide to invest with the company. Customers can also manage their assets and investments if they have the required knowledge. The products each competitor offers are similar. The customers are not sensitive to price as they want the best of services. This provides them with high bargaining power.
The Threat of Substitutes – High
The substitute for letting PNC manage one’s assets and investments is to manage them on their own. Many customers avoid financial service companies and manage their own assets. They can also hire a consultant or a lawyer to manage their assets and estate for them. There is a switching cost involved as there are contracts in place. The available substitutes have minor performance limitations as they do not generate the same level of returns. Many customers are likely to go for substitutes to avoid paying fees and commissions to businesses. Therefore, the threat of substitution is high for PNC.
References
Maverick, J.B., 2018. Analyzing Porter’s Five Forces on JPMorgan (JPM). [Online] Available at: https://www.investopedia.com/articles/markets/020916/analyzing-porters-five-forces-jpmorgan-chase-jpm.asp [Accessed 17 Dec. 2019].
Schultz, A., 2017. Family Lessons Learned, From Hawthorn, PNC Family Wealth’s Nicole Perkins. [Online] Available at: https://www.barrons.com/articles/family-lessons-learned-from-hawthorn-pnc-family-wealths-nicole-perkins-1513401594 [Accessed 17 Dec. 2019].
US SECP, 2018. THE PNC FINANCIAL SERVICES GROUP, INC. [Online] Available at: https://www.sec.gov/Archives/edgar/data/713676/000071367618000032/pnc-12312017x10k.htm [Accessed 17 Dec. 2019].