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 Chuck Schaeffer Financial Services Strategy

 

The Financial Services Competitive Arena

  1. Location. Putting your retail bank in a high traffic area or your wealth management in a high rent district is beneficial. Flexible hours, convenient parking, fast turnaround and easy accessibility over both physical and digital channels still influence consumer decision making. However, these factors are all easily copied thereby depriving them of becoming competitive advantages. They are at best competitive equivalents.

  2. Products. Financial products are for the most part easily substitutable and therefore highly commoditized in the minds of consumers.

    To find differentiation, providers can increase options, decrease price or compete in other areas. A common tactic is to increase product complexity in order to shift consumer evaluation away from the product and toward the brand and credence qualities such as reputation. This is a viable but waning strategy for two reasons. First, consumers have access to more information and are much more informed. Adding complexity unnecessarily or without corresponding value will be recognized and rejected. Second, consumers are placing increased emphasis on simplicity. With more information and knowledge, they are able to cut through the complexity and focus their decision making on fundamental criteria such as price and performance.

    Financial services products can be easily copied and product commoditization will only continue to accelerate. Financial services companies must certainly create competitive products, but for most this will not be a source of sustainable competitive advantage.

  3. Customer Service. Research shows that consumers place an early emphasis in services related to products. In fact, to most consumers, customer service is an integral and indistinguishable part of the product offering and highly influential in customer acquisition and new product sales. While consumers may combine financial products and customer service into a single evaluation, financial institutions can dissect these offerings and reassemble them with varying attributes in order to create differentiation.

    Services more relevant to customer retention include account management, assistance and advice, policy administration, correspondence, incident management and multi-channel communications.

    Most financial institutions make two fatal flaws that challenge delivering consistent service for profitable results. First, they lack institutionalized knowledge that can be easily shared among client facing staff. This results in inconsistent services delivery that is only as good as any particular staff person. It also has the propensity to delay process cycles and increase client wait time. This issue is exacerbated with staff turnover. Second, staff such as financial advisors tend to allocate the bulk of their time toward clients that deliver the least revenue to the company, or at best allocate their time among clients equally. This is caused by poor customer segmentation, and not recognizing and steering effort toward the approximate 20% of clients that contribute about 70% of the company's profits. This flaw can be countered with improved segmentation, the design of premium services for high margin customers and the creation of lower-cost channels for lower margin customers.

  4. Staff. Financial services staffing as a source of competitive advantage varies greatly by sector and organizational thinking.

    Putting the marketing tag lines and empty proclamations aside ("our people are our greatest asset"), most financial services organizations view staff as expenses and not assets. That represents an opportunity for companies that seek to change the game by replacing standardized products and services designed to be delivered by minimally trained resources with staff adept in presenting more innovative solutions, capable of delivering improved customer experiences, skilled in assembling solutions to solve their clients financial goals and able to engage customers in a way that strengthens customer relationships. Staffing is the difference between a service representative and a trusted business advisor.

  5. Price and Fees. The competitiveness of price and fees is commensurate with customer type and product. For example, innovative services can mitigate price effects in retail banking. Research shows that wealth management clients are not as price sensitive as most believe — as long as other factors such as knowledgeable staff and professional services are in play. Price is clearly a consumer evaluation factor, however, unlikely to be a source of competitive advantage.

  6. Engagement. Everybody knows that it cost 5 to 8 times more to acquire a new customer than to up-sell an existing one. What's less understood is customer profitability allocation and how to increase profits across customer segments.

    According to a Harvard Business Review advisory, when viewing customer segmentation by profitability, a bell curve typically shows about 20% of customers deliver big profits, the middle 60% deliver marginal profits and the remaining result in no profitability or financial losses.

    Engagement is the single most powerful tactic to move consumers along a continuum from new customer to repeat customer to loyal customer to advocate — and the process to increase customer profitability at each stage of the journey.

    To accomplish this, financial services companies must make the shift from mass media advertising to communications that are relevant, personalized and contextual. When this change in engagement is combined with offers, loyalty programs and related outreach, the company will improve up-sell and cross-sell conversions, customer share, customer retention and profitability for each customer segment. Engagement is clearly a tool for competitive advantage.

  7. Business Intelligence. Business Intelligence is the other sustainable competitive advantage. Getting the right information to the right decision maker at the right time is not easy, and therefore not easily replicable by competitors.

    Financial services companies collect vast amounts of data, however, it often languishes in disintegrated data siloes. The organization that can apply data to create a differentiating customer experience and figure out how to deliver customer information to the resources or client engagement touch points that can use it to improve a customer transaction, decision or experience will create competitive advantage.

    Next: How to Create Financial Services Competitive Advantages >>

Financial Services StrategyFinancial Services Competitive AdvantagesFinancial Services Strategies

 

 

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Engagement is the single most powerful tactic to move consumers along a continuum from new customer to repeat customer to loyal customer to advocate — and the process to increase customer profitability at each stage of the journey.

 

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