We've put forward two of the main planks of this book's argument in previous chapters, and in this chapter we look at them more closely. They are:
Itemising the factors that support these propositions means making two lists that are at least to some extent mirror images of each other. For example, the first list will say that for many years the regulator wasn't much concerned about marketing, so various bad practices could continue: the second list will say that these days the regulator is much more concerned about marketing, so much of the bad is being driven out by good. Still, the factors are interesting, varied and important enough that a little repetition may be no bad thing.
In Chapter 2, we discussed the growing importance of marketing from the point of view of financial services providers. With the help of the CIM, we defined marketing as the set of processes that enable firms to develop an understanding of their customers, and so to provide products and services that meet their wants and needs.
Exactly the same story can be told in terms of the benefits it offers to the customer. From the customer's perspective, if marketing is the set of processes that delivers products and services that they want or need, it must enable them to make good financial decisions and manage their financial lives successfully.
There's nothing extraordinary about this. You might say it's a statement of the bleedin' obvious. Marketing has, after all, played just this role in almost every other part of the consumer economy. What's odd is not so much that we see a need for more marketing in the future of financial services. What's odd is our contention that it hasn't been much needed in the past. With good marketing offering such important benefits for firms and consumers alike, our assertion that the industry grew strongly over many years without needing very much of it sounds unlikely.
But it seems to us that there were good and clear reasons. Across financial services, many other factors were at work, enabling firms to find buyers for their products and services, and consumers to find more or less the financial products and services they needed. Here are some of those ‘other factors’:
Taking all these factors as a whole and looking back, say, 40 or 50 years, it's easy to imagine how individuals could have made journeys through the financial world, acquiring an array of financial services, while scarcely engaging with any marketing activity at all.
While still young, someone growing up in a middle-class family might be introduced by a parent (in those days usually a father) to a full set of key financial services providers – bank and building society manager, insurance broker, stockbroker or financial adviser. He or she would likely have chosen a bank branch on the basis of its location; taken a mortgage from the building society and arranged motor insurance via the broker; joined an employer's pension scheme and taken the employer's death-in-service benefit; relied on the NHS for healthcare and State schools for children's education; in later years taken advice to save regularly in a PEP or later an ISA; and then at retirement enjoyed a generous final salary pension provided by a benign employer.
In less affluent families the cast of characters might be different – not so much of a role for the stockbroker, but more for the home-service Man from the Pru and his famous bicycle clips – but the nature of the journey would be much the same. Individuals would have little need for good marketing to help them through their financial lives.
Eventually, though, things did start to change. We identify the mid-1980s as a time when the gathering of pace was noticeable, but you could make a case for other key dates. Some might suggest a much earlier date - maybe 1966, the year when Barclays effectively broke the gentlemen's agreement among the big High Street banks to avoid the expense of competing with each other by advertising on television. In fact, Barclays' first TV commercial paid lip service to this agreement, partly by advertising its brand-new credit card, Barclaycard, rather than a pure banking service, and partly by going out under the name of its wholly-owned Scottish subsidiary, British Linen Bank, which must have rather mystified English TV viewers.1
By the turn of the millennium, financial services marketing had grown enormously. The expenditure figures for its most visible and easily measurable manifestation, media advertising, tell us that by the year 2000, financial services was by some distance the highest-spending of all sectors – more even than food, drink or even automotive.
However, the quality of much of this activity was poor. Many of the propositions expensively advertised on television were triumphs of style over substance, offering poor customer experiences and failing to meet real needs. And there was often a lack of integration, with no real thought given to the need to manage customer journeys from initial awareness, often created by all that advertising, through to the purchase and use of the product. Few providers had really come to terms with the enormous difficulties in engaging most consumers with financial propositions, in a sector where most consumers' dominant attitudes and behaviours are apathy and inertia. From an era where little was happening, we advanced into an era where a great deal seemed to be happening – but it wasn't making an awful lot of difference.
At the same time – around the turn of the millennium – another highly-visible change in retail financial services was becoming apparent. Those years were of course the years of the first dot.com boom, and the change in question was the rapid evolution of the Internet. Over the space of three or four years, dozens of new digital financial services propositions emerged – some start-ups, many new arm's-length brands launched by major players. Many were backed by very large marketing budgets. But the large majority of them had very short and unprofitable life spans.
From today's perspective, it's obvious that in every way, the Internet is supremely well-aligned with the world of financial services, to the benefit of both providers and consumers alike. It fits perfectly with the financial world's intangibility, with no need for delivery vans, drones or even 3D printers to deliver what it offers. It provides near-total accessibility – long gone are the frustrations of 9.30 to 3.30 bank opening hours. Thanks largely to social media, it's rich in opportunities for consumers to tackle what the FCA calls ‘information asymmetry’ – it's easy to overcome the lack of understanding which has so often disempowered them in their dealings with the industry. Social media, of course, also level the communications playing-field between companies and customers. The era in which ‘communication’ described a one-way process in which companies say things to their customers has now come to an end.
And from a pure business perspective, compared to any other alternative, digital offers unbelievably low-cost interactions between firms and their customers – one online bank claims to be able to process transactions at one-fortieth of the cost of branch-based processing – and with costs at such low levels companies have no problem either offering customers much better value, or making a lot more profit. Or, very probably, both.
In the light of all this, you'd expect that financial services would be one of the first sectors of the economy to be transformed by digital technology. But in truth, nearly all of those first-wave dot-coms failed – and since then, on the whole really transformational change has been slow in coming. There are hundreds, if not thousands, of small, innovative start-ups, but almost all of them are struggling for customers and for funding.
There has certainly been a great deal of substitution – consumers and providers alike now do all sorts of financial things online that they used to do by post, on the phone or in branches. But at the time of writing, we'd say that the only new major mass-market financial services business model to have achieved real success in the digital age has been the aggregators, or price comparison sites – and if we were feeling particularly churlish, we'd say that anyway, when it comes down to it these sites are only remote brokerages. (If we were feeling less churlish, we'd also add peer-to-peer lending as another sector to have been fundamentally enabled by digital, but at the time of writing you couldn't really call it ‘major’ or ‘mass market’.)
There are many reasons for this. One that stands out especially for that first wave of dot.coms back at the turn of the millennium was a failure to recognise the limitations of the technology. It really wasn't viable to move consumers' personal finances onto the Internet in the era of painfully slow dial-up modems.
But we also think that the often-limited role of marketing has had a lot to do with it. If there's one clear requirement of the digital economy which hasn't always received the attention it deserves – even though it's a requirement that applies to consumer-facing digital businesses generally, by no means just to financial services – it is that digital businesses require good marketing to achieve lasting success.
How so? Let's reprise our Seven Ps table one last time:
The seven Ps | How they're relevant to digital |
Product | Clear and meaningful propositions are essential. Digital products and services can't possibly succeed, or even survive for very long, unless their target market is absolutely clear about what's in it for them. |
Price | Digital consumers are often value-conscious and price-sensitive. They want to understand the value proposition of what's on offer, and, often, to compare it with others. And they will tend to expect to pay less for digital products and services than their offline equivalents. |
Place | Obviously, by definition, online. But it's not quite that simple. For one thing, optimisation for different devices is important – and for another, many financial services will require integration with other channels such as telephone, online chat or even possibly face-to-face to provide a total experience that satisfies customers. |
Promotion | Crucial, and potentially a major obstacle for many new and innovative digital financial services. Without adequate promotion, the target market simply won't know it's there – and ‘adequate’ promotion rarely comes cheap. |
People | Not always relevant, but potentially an essential part of the proposition when telephony, chat or face-to-face are integrated.2 |
Process | Also crucial. The quality, clarity and simplicity of the online customer journey is an absolutely critical success factor. Arguably more online services fail because of poor customer journey management than for any other reason. |
Physical Evidence | Important in that the online experience itself is a kind of physical evidence – and, of course, amid the abstractions and intangibilities of financial services, as the only clear evidence that the customer has actually bought or done something. |
By our reckoning, three of the seven – product, promotion and process – must invariably be excellent if a new digital service is to have any chance of success, and depending on the nature of the service and the expectations of the target market any or even all of the other four may matter as much.
Returning to our story of the first dot-com boom around the turn of the millennium, this analysis helps explain what went wrong. Perhaps unsurprisingly, at such an early stage in the development of digital services, these first-wave players scored poorly in most, if not sometimes all, of these seven areas. In hindsight, most also suffered from shaky digital functionality – these were, more or less, the digital equivalents of the Wright Brothers' aeroplane and the Model T Ford. But some, at least, might have overcome these limitations – after all, Amazon, eBay and Google all did – with better and more focused marketing (or, to put it another way, with a stronger focus on consumers).
That's one big reason why we believe that, of all the changes affecting the financial services industry in recent years, the exponential growth of digital is the one that makes the greatest demands on the quality – and actually very often the quantity – of marketing. Digital services give bad marketing – or, even worse, no marketing – nowhere to hide.
With this massive change in mind, let's review that list of factors that limited the role of marketing over the years. To what extent do they still apply today?
Many changes in tax rules bring about huge changes in the shape of marketing activity. An initiative such as the Pensions Freedoms introduced in George Osborne's 2014 Budget on an extremely tight timetable triggered a wave of new product and service launches right across every company with any kind of stake in the retirement sector. It's simply impossible to calculate the number of millions of person-hours, and investment pounds, triggered by those few short sentences in the Budget speech. More recently, the same can be said of the EU's PSD2 legislation, ushering in the era of so-called Open Banking – at the time of writing, we wait to see the kinds of new marketing initiatives that this will bring about.
It's true that we're biased, but it seems to us that over a long period all the important trends have been pointing in the same direction.
Once upon a time, the financial services industry was able to succeed, and consumers were more or less able to find their way to the products and services they needed, without much need for marketing to build connections and relationships between them.
For many years now that has been changing, slowly at first but at an increasing pace, especially during the period of the explosive development of digital services. Marketing now has a critical role to play, both in enabling firms to develop and promote propositions that clearly meet consumers' wants and needs, and in enabling consumers to navigate their way around a large and complex industry that has a key contribution to make to the quality of their lives. Marketing has been changing – for one thing there's a great deal more of it, and for another there are some examples of extremely good practice. But taken as a whole, there's still a long way to go. Too much of financial services marketing is still superficial, lacking in insight, unrealistic in its objectives and inadequately measured and evaluated. In this book we propose a number of specific areas where no small change is required.
Over the course of this chapter, astute readers may have noticed an apparent contradiction. On the one hand, we've said more than once that financial services firms have succeeded over the years without relying much on marketing. On the other hand, we've also said they've relied a great deal on face-to-face selling. But isn't selling a sub-set of marketing? And if so, can these statements both be true?
Our answer is that the contradiction is more apparent than real, and the reason is to do with a wide gap between theory and practice. Selling should be seen – and, more importantly, experienced by the consumers on the receiving end – as a part of the discipline of marketing. Exactly the same process, of identifying, meeting and satisfying consumer needs, should apply. However, far too often in financial services over the years, the sales function has actually operated in a sort of parallel universe, managed separately and engaging with consumers on the basis of its people's own analysis and insights on how best to make the sale.
The most effective sales-driven companies make no secret of this. The management team of one of the very best and most successful says quite explicitly that its sales force are its ‘primary target audience’ – that meeting and satisfying their needs is absolutely the management team's most important priority. At this firm's annual conference, with all staff present, there's a key moment when the sales people are asked to stand and everyone else in the company loudly applauds their achievements. The marketing people, of course, are among the seated applauders.
In companies which are both sales-driven and siloed in this way, the sales team are likely to have the authority to impose their analyses and insights on their marketing colleagues, in particular requesting sales support material of one sort or another which is based around the story as they want to tell it. What has happened in companies like these – and there are many – is that the priority has been reversed, and marketing has effectively become a sub-set of sales. In this situation, the marketing department is frequently known by the lesser term ‘marketing services’, which means ‘not really proper marketing at all’.
It's possible to be misled on the reality of current practice within a firm by the existence of a single individual in charge of both areas, very often a Director of Sales & Marketing. Surely this must mean a coherent and integrated approach, giving due weight to both functions?
In our experience, on the whole, not really. The clue, we'd suggest, is in the order of the terms in the job title. As far as we can recall, this is always ‘Sales & Marketing’ and never ‘Marketing & Sales’. We think that when push comes to shove, this pretty much always indicates that the priorities of salespeople, in terms of designing products and expressing their propositions in whatever way makes it easiest to achieve sales, will come ahead of the priorities of marketing and marketing people.