A formal approach to the marketing of financial services is a relatively recent phenomenon, even within the developed nations of the world. Included in this part are details of the product lines that make up the financial services domain.
Context and Strategy
The role, contribution and context of financial
Learning objectives
- Introduction
- Economic development
- Government welfare context
- Lifetime income smoothing
- The management of risk
- Financial exclusion
- Mutual and proprietary supply
- Regulation of financial services
- Summary and conclusions
Finally, there is an overview of the issues related to the regulation of financial services. In the UK, the mid-1980s was a turning point in the restructuring of the financial services market and the approach to regulation.
Review questions
The financial services sector has a crucial role to play in securing the prospects for economic development around the world. Finally, financial services should be provided for the benefit of everyone, not just the wealthy few.
The financial services marketplace: structures,
Introduction
This chapter aims to provide an overview of the financial services sector from two perspectives. Second, this chapter will attempt to lay a solid foundation for the products that make up financial services.
Some historical perspectives
In the last years of the eighteenth century, a type of insurance company called the friendly society was born in England. Similar to friendly societies, the later part of the eighteenth century marked the beginning of building societies in Britain.
The geography of supply
Breadth and depth are therefore still embedded in the product set of the company's heritage. A further feature of the geography of supply is the evolution of what are often called 'new entrants', although they are no longer quite so new.
An outline of product variants
The consumer's perception of an organization's core competencies has important implications for the marketing strategies of those involved in the provision of financial services. The following sections of this chapter aim to connect consumer needs with product solutions and delivery methods to enable the reader to develop a sense of the real world of financial services.
Banking and money transmission
A secure repository for readily accessible cash Current accounts a way to manage receipts of funds and current accounts. OEICS6 and Unit Trusts A means of investing a lump sum for long-term growth Mutual Accumulation Funds.
Lending and credit
ALL PRODUCTS (EXCEPT CASH BACK AND EASY RE-MORTGAGE) AVAILABLE UP TO 95 PERCENT WITH A HIGHER LENDING COST PAYABLE ABOVE 90 PERCENT. Figures from the Bank of England indicate that the ratio of household debt to household income in 2003 was around 200 percent for the Netherlands; around 140 percent for the UK, US and Australia;.
Saving and investing
- Background
- Saving Deposit accounts
- Investing
However, it contains the essence of the most important forms of this essential form of saving. For the duration of the term, the borrower usually simply pays interest on the outstanding loan to the lender of the mortgage funds.
Life insurance
- Life insurance
- Health insurance
- Annuities
The nature and extent of private health insurance are closely linked to the health care services provided by the state of a given country. For example, the scope of private health insurance in Britain is relatively limited, given the role played by the National Health Service (NHS).
General insurance
Reinsurance works by reimbursing a portion of each claim to the insurer under a reinsurance contract (often called a reinsurance contract). When an insurance company is expanding into a new line of business and has little or no hands-on industry experience.
Summary and conclusions
What is meant by the term gateway product and to what extent do you think the current account fulfills such a role in your market?
Introduction to financial services marketing
- Introduction
- Defining financial services
- The differences between goods and services
- The distinctive characteristics of financial services
- Intangibility
- Inseparability
- Perishability
- Heterogeneity
- Fiduciary responsibility
- Contingent consumption
- Duration of consumption
- The marketing challenge
- Classifying services
- Summary and conclusions
Services are produced and consumed simultaneously, and often (but not always) in the presence of the consumer. The nature of the act of service (whether it involves tangible or intangible actions) and the recipient of the service (people vs. things). The number of points and the nature of the interaction between the customer and the service provider.
As a result, they are also inseparable, being produced and consumed simultaneously, with the customer involved in the production or delivery of the service.
Analysing the marketing environment
Introduction
However, an analysis of the external environment must be accompanied by a good understanding of the internal environment to enable an organization to deploy its resources and capabilities most effectively to meet the challenges presented by the changing market . As such, it is very broad, and any analysis of the environment will generate a large volume of information. Subsequent sections will review the process of analyzing the external environment (both at a macro and a market level) and then examine the analysis of the internal environment, focusing particularly on resources and capabilities.
The nature of the operating environment and the ways in which it changes is one of the main sources of uncertainty facing marketing planners.
The marketing environment
By its very nature, the process of analyzing the environment and trying to predict how a market will develop in the future is not a one-time process, but rather a continuous process. An overview of the most important elements in the marketing environment is presented in figure 4.1. This may mean adjusting and adapting the organization's marketing activities to respond to external changes in the environment.
It can also mean trying to change the environment to make it more suitable for what the organization wants to do.
The macro-environment
- The political environment
- The economic environment
- The social environment
- The technological environment
The financial services sector is perhaps one of the more politically sensitive sectors of any economy because of its role in a country's economic development and economic well-being (explained in Chapter 1). Two aspects of the policy environment, defined in the broadest sense, are of particular relevance to financial services – namely, industry regulation and consumer protection. The demographic environment includes all factors relating to the size, structure and distribution of the population.
In the US, for example, marketers must be sensitive to the different heritages and cultures of the Hispanic, African and white communities.
The market environment
Rapid developments in processing power (based on hardware and software improvements) allow financial services organizations to collect and process large volumes of customer information. In the US, General Motors offers credit cards, while in the UK, supermarkets such as Tesco and Sainsbury's offer a wide range of financial services alongside their traditional grocery products. Richard Branson's Virgin Group, originally in the music business, now offers a range of financial services ranging from credit cards to personal pensions.
Although there are few direct substitutes for financial services (as noted above), there is significant competition within the sector.
The internal environment
- Resources
- Competences/capabilities
- Auditing the internal environment
Also, in the banking sector, current accounts and home financing may be offered by companies that traditionally specialize in insurance. In the UK, the insurance company Prudential launched the Egg online bank, which offers a range of traditional banking products with very competitive terms. Working in the banking sector requires competences related to deposit acceptance, lending, service provision, financial management, treasury, etc.
In the US, Wachovia's expertise in human and systems-driven lending has allowed it to report much lower write-off rates than the industry average, resulting in a significant positive impact on return on equity (Coyne et al., 1997).
Evaluating developments in the marketing environment
A weakness describes any aspect of an organization that may hinder the achievement of certain goals. Any feature of the external environment that is beneficial to the organization in terms of its goals is classified as an opportunity. For a SWOT analysis to be useful, it is important to ensure that strengths and weaknesses are internal factors specific to the organization, and that opportunities and threats are factors present in the external environment and independent of the organization.
Matching, which involves finding (where possible) a match between the organization's strengths and the opportunities presented by the market.
Summary and conclusions
Choose a market you know well (eg checking accounts, mutual funds, credit cards, home finance) and analyze the five forces. Prepare a SWOT analysis of an organization in the market you analyzed in question 3. What are the market-level opportunities and threats and the macro-level opportunities and threats that you think may be important.
How factors in the physical environment, such as climate-related issues, affect financial services.
Strategic development and marketing planning
- Introduction
- Strategic marketing
- Developing a strategic marketing plan
- Company mission and objectives
- Situation analysis
- Marketing objectives
- Marketing strategy
- Market-specific strategy
- Implementation
- Tools for strategy development
- Growth strategies
- Selecting the product portfolio
- Competitive advantage
- Summary and conclusions
The timetable for achieving outcomes must be specified – e.g. before the end of the second quarter. The process of internal marketing is seen as particularly important in the financial sector, not least because of the importance of people in the marketing process. Market penetration means trying to sell more of the existing product in the existing market.
At the same time, the customer must feel that it is worth paying extra for the distinctive image of the product and the additional features offered.
Internationalization strategies for financial
- Introduction
- Internationalization and the characteristics of financial services
- The drivers of internationalization
- Firm-specific drivers of internationalization
- Macro level drivers of internationalization
- The extent of internationalization in the financial services sector
- Globalization strategies
- International strategies
- Global strategies
- Multi-domestic strategies
- Transnational strategies
- Strategy selection and implementation
- Which markets to enter
- Method of market entry
- How to market in international markets
- Summary and conclusions
Firstly, there is often strong pressure on a financial service provider to have a physical presence in the market in which it provides its services. Such cost savings are often considered relatively unimportant in the services sector, including financial services. Historically, this is likely the strategy that many financial services firms adopted in the early stages of internationalization.
This chapter has introduced some of the major issues regarding internationalization in the financial sector.
Understanding the financial services
- Introduction
- Consumer choice and financial services
- Problem recognition
- Information search
- Evaluation of alternatives
- Purchase
- Post-purchase behaviour
- Summary
- Consumer buying behaviour in financial services
- Industry responses
- Intangibility
- Inseparability/perishability
- Heterogeneity
- Fiduciary responsibility
- The long-term nature and uncertainty of products
- Summary and conclusions
Indeed, trust is a concept that is at the heart of the relationship between a financial services provider and its customers. The previous section has highlighted some of the difficulties that customers encounter when purchasing financial services. The first part of this chapter highlighted some of the issues that consumers face when choosing financial services.
Finally, in terms of fiduciary responsibility, there is the issue of the purchase process (sales process) itself.
Segmentation targeting and positioning
- Introduction
- The benefits of segmentation and targeting
- Successful segmentation
- Approaches to segmenting consumer markets
- Customer characteristics
Some financial service providers are affinity-based, and this allows for particularly narrow targeting of the marketing mix. The promotional element of the mix makes full use of specialist forms of communication, such as police magazines and publications. Managers who wish to segment a market must demonstrate a good understanding of the market in which they operate.
Science is required in terms of gathering factual information, analyzing it and using various modeling and simulation processes.
Customer needs and behaviours
- Approaches to segmenting business-to-business markets
- Targeting strategies
- Undifferentiated targeting
- Differentiated targeting
- Focused segmentation
- Customized targeting
- Positioning products and organizations
- Perceptual mapping
- Repositioning
- Summary and conclusions
Positioning is thus about how a company or brand wants to be perceived in the minds of the individuals who make up its target segments. Headquartered in Manchester, England, CIS is the only co-operative insurance company in the UK and is one of the largest providers of personal financial services in the country. Here we look at how the needs of the ethically oriented segment have been reflected in CIS' approach to investment management.
A variation on product/service positioning is positioning that is based on serving the needs of the specific target segment – i.e.
Customer acquisition
Customer acquisition strategies and the
- Introduction
- Short-term marketing planning
- The role of the financial services marketing mix
- The financial services marketing mix
In other words, the marketing mix is the practical expression of the marketing strategy. The strategic dimension of the marketing mix is primarily concerned with decisions about the relative importance of the different elements of the marketing mix. In contrast, the tactical dimension of the marketing mix is concerned with specific decisions about the individual marketing tools.
This part of the plan can also be used to summarize the set of Key Performance Indicators (KPIs) that emerge from the marketing mix activities.
- People
- Process
- Physical evidence
- Customer acquisition and the financial services marketing mix
It is also important for the production element of the mix, as it can significantly affect service quality. In the production element of the marketing web, brand building is important in the process of service tangibility. So far, this chapter has provided an overview of the key elements associated with the marketing mix for financial services.
An additional aspect of the mix that can be challenging in a financial services context is location.