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During my time at the frontline of financial services marketing, I had often observed a distinct lack of differentiation in the positioning of financial services firms – a homogenisation that is carried through into marketing materials and websites. If you took the logo and brand colours off the marketing collateral of many firms, I think you would be hard-pressed to determine which bank they refer to. Here are some typical marketing messages on banks’ websites:
“Global reach, local insight.”
“Scale and expertise”
“Connecting you to opportunities.”
What is clear is that the way financial services firms describe what they offer clients has become generic, lacking clear and distinct points of difference. This, I think, is a symptom of the commoditisation of financial services.
Increasingly, individuals and businesses perceive the services provided by financial services firms as undifferentiated, comparable, and substitutable commodities – much like bottled water and detergent. It’s easy to see why this is the case. It can be argued that a payment is a payment, or an FX transaction is an FX transaction, regardless of which firm’s logo and brand colours are on the payment instruction or transaction platform. And where there is no perceived difference between products, decision makers begin to choose on the basis of price.
This is not new, and is already widely recognised by the financial services industry as a challenge to retaining and growing their client relationships, and ultimately, profitability. In a recent survey by consulting firm Roland Berger, approximately 70% of financial services respondents expressed the worry that their firm’s products and services are at risk of getting caught in the commodity trap of heightening price and margin pressure.
A price war serves no one – not the financial services providers, and perhaps counterintuitively, not even their clients. If margins continue to be compressed, in the long run, firms may have to look to other areas where they can reduce costs in order to maintain profitability. This will potentially eat into investment in other crucial areas such as service and innovation – eroding ability to improve client service, deliver new products or capture new revenue opportunities.
If no one wins a price war, what then can financial services firms do to escape the commoditisation trap? Achieving differentiation in a highly commoditised industry like financial services requires a strong understanding of the client, what they value, and how the firm uniquely delivers this value. It means having a solid client-centric proposition that goes beyond mere high level platitudes. It also means having a client proposition that goes beyond simply describing what a product does (“process 100,000 transactions per second”) or how it does it (“using Distributed Ledger Technology”), to what it will enable their client to achieve.
Defining the proposition
A strong proposition talks about how a financial services firm solves a problem or creates an opportunity for a particular client segment. This necessitates a good understanding of the target client segments, and their core needs – both at a business and a personal level.
Everybody, whether they are day to day business contacts or the CFO or CEO, has something they need to achieve. They have issues and concerns that keep them awake at night. Start there, and define how your products and services may help them address these concerns – whether it is to help create an enabler or remove a barrier.
When you are talking about a single product or solution, this is pretty straight-forward. When you’re doing this across multiple products and services for a full-service investment bank however, this can become quite a complex challenge. You will need to demonstrate the value of the full end-to-end service that is provided to clients, not just describe the bundle of disparate products being offered. And you need to be able to do this without falling into the trap of creating a proposition that is so high level, it becomes mere platitude.
Perhaps most importantly, financial services firms need to form robust hypotheses on future client demands and needs. By looking at current client behaviour, discussing evolving needs with clients, and scanning the macro horizon for the significant trends that are driving changes in client behaviour and demands, financial services firms will be in a better position to identify potential future bases for competitive advantage. They can then dynamically adjust their propositions so they remain relevant to evolving client needs.
While 75% of financial services firms recognise the sector is falling into a commodity trap, only around 30% feel they are currently taking sufficient action to escape it. This presents an opportunity for the bolder and more innovative financial services firms to revisit their propositions and messaging with one eye on clients’ current needs and one eye on future trends. Perhaps then they will be better able to stand out and cut through the generic noise from the rest of the industry.