Point of View 12/10 – What is the worth of service?

As a financial services professional have you ever held a meeting to discuss why clients are no longer excited by the value proposition of your products?

The answer is probably yes. The interesting theory is that in such a meeting we are all probably overly focused on the products and not the service. Because it is true that in financial services the latter word is often just a label.

This is best exemplified in the way organisations divide up their strategic thinking time. Research we have done shows that over two thirds of corporate think time is spent on product design and development, the balance on marketing and of which precious little is spent on service management strategy.

What often happens in the product life cycle is that we become so focused on marketing a product which we believe to be terrific, for all the right reasons, that we diminish the level of after sales service to that product. This may even occur to the extent that the unique selling proposition is over shadowed by the negative events in service management.

The challenge this brings to the fore is understanding the customer experience, which basically means the customer looks for experiences rather than extravagant product design in their relationship with the organisation.

Dangerous as it may be to generalise, this applies to all sectors of financial services but even more so in the areas of private banking and financial planning.

A great many organisations in these sectors are constantly seeking product design innovation as a way of winning market share, or share of the wallet. They go about developing products that are innovative to say the least and initially excite the customer into entering the marketing web and buy that product.

Once inside the customer is captured by the commitment and then proceed to enter into one or more of four categories within that web which can then be classified as:

- The Mercenary

- The Defector

- The Hostage or

- The Loyalist

In this environment the customer develops a parallel attitude toward the product value and the relationship experience. In so doing the customer makes a choice as to which category best represents their experiences.

The truth be known in private financial services many customers feel and become hostages, due to product design or structures of implementation which have locked them in for a given period of time. This same design allows the provider to diminish the effort in service management and ignore the importance of understanding the customer experience.

In other sectors such as commodity products financial services, the customer plays the role of the mercenary or defector, which means that they are constantly seeking to exit the marketing web in exchange for a better experience rather than a better product. This is most obvious when a customer moves from one bank to another, or one insurer to another.

It is in this realistic model that the words financial services become a label rather than an intent to offer real service as part of the marketing equation. If however, we retain the focus on the customer experience rather than the development of highly sophisticated and often complicated products, we may be able to set up platforms for differentiation that are capable of yielding hard to copy sustainable competitive advantages.

The value of a sincere service management strategy within the marketing model of private financial services (such as private banking and financial planning) will see a champion rise above all others. Unfortunately, to date we can safely assume that the focus has been on product design and sales and whenever there has been an attempt to offer superior service and it has not been sustainable. This has resulted in over crowding of customers in the hostage, mercenary and defector categories.

The lesson to be learnt here I believe to be simplistic product design supported by excellent customer experience will in the majority of cases create the customer we are seeking, the loyalist.

The loyalist is a great customer, for by definition they are long term, they tend to be good quality, they buy more products in greater quantities and they tend to refer, if you ask them, more customers much like themselves.

At the moment as an industry we do not have an over supply of loyalists, but yet we can create as many as we like if only we would realise that for every hour spent on product strategy we should be devoting three hours to service management strategy. Therefore one would argue that service in financial services is worth three times the profit that product design can bring.

Max Franchitto is managing director of MGF Consulting.