Financial Analysis, Cost Budgeting, Accounting II

Master in International Finance & Economics

Prof. Julia Franco

2018

SECS-P/07

MARKETING FINANCIAL SERVICES

VALUE

Marketing Basics

•  Needs can be physical (food, shelter, transportation) or emotional (ego, security, love). Wants, however, are always emotional. Whenever we buy something, it’s because the purchase satisfies a want. It may or may not satisfy an actual need.

•  When wants and needs coincide, selling is relatively easy. •  But when wants are in conflict with needs, danger looms. Because whenever a

want conflicts with a need, the want most of the times wins. Which means if you’re selling something based on need and your prospect wants to avoid spending money right now, there’s no sale. Unless you can figure out another want the prospect has that the purchase of your product or service will satisfy. So as you’re talking with your prospect, ask about all their wants and needs, not just the obvious ones. The more wants you can uncover, the greater your chances of making the sale.

And isn’t that just what you want?

Marketing Basics

Marketing Basics

Marketing target: to increase/create value

P= C

Marketing Basics

The aim of Marketing

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Marketing function The aim of Marketing

Marketing : regulating the level of demand

Regulating the level of demand…

The financial services customer

B2C Model

•  The Financial services customer: a person or institution that needs/wants of financial products

Traditional models of consumer behaviour assume a rational a p p r o a c h t o decision-making and usually consists of five stages

Evoked set

B2B Model

Case Study

CONSUMER ATTITUDES TO FINANCE AND PENSIONS-

A SWEDISH CASE STUDY

Financial Services consumer panel (2006), Survey of consumer attitudes to Financial Services and their experience in buying them.

Case Study Analysis: concepts ¤  Lack of knowledge on both sides (customer and FI’s) are

a barrier

¤  The intangibility of financial services creates problems for consumers in making evaluations prior to consumption

¤  The way consumers perceive risk in the consumption of financial services and whether they trust FI’s are important considerations in their marketing

¤  One particular problem that occurs with services is that, unlike goods, consumers are unable to find out how the product performs in advance.

Risk : refers to a perception that purchasing a product may have negative outcomes.

In this scenario , how consumers can decide whether a (financial) service can be satisfactory?

They consider the aspects that they can assess/ the available information

The Service Experience and Involvement principle

¤  Fi’s need to assure that the customer experience is such that the customer is willing to repurchase or purchase more.

¤  An experience can be enriched with a trial in non-credence services.

¤  FI’s can develop measures that can lower the levels of perceived risk (Palmer, 2008) : a way of vc

¤  First time buyers will perceive higher levels of risk (vc is different)

A credence good is a good whose utility impact is difficult or impossible

for the consumer to ascertain.

Value proposition : creating value

¤  Value proposition

Not only the product but also the set of product-related benefits

Ex. Car insurance

EX. Value proposition

MARKETING STRATEGIES

Marketign Mix: 4 p’s

The marketing mix (also known as the 4 Ps) is a f o u n d a t i o n m o d e l i n marketing. The marketing mix has been defined as the "set of marketing tools that the firm uses to pursue its marketing objectives in the target". Kotler 2000

4 p’s into 8 p’s: The financial services marketing mix

Place and Time

Product element

Process Productivity and quality

Promotion and

education People Physical

Evidence

Price

8p’s

1. Product Element

Refers to the product and to the suplementary service elements that surround the offering

•  Product design – features •  Product assortment •  product mix/range •  Branding •  “Packaging and labeling” •  Services (complementary service, after-

sales service, service level) •  Guarantees and warranties

2. Price

•  Price strategy •  Price tactics •  Price-setting •  rebates for distributors •  Discounts – for customers

8p’s

3. Place and Time

Representing the way in which the service is delivered to the customer

•  Market coverage •  Channel selection and

channel relationships •  Assortment •  24/7? •  Response time

8p’s

4 Process

5 Productivity and quality

Inputs of the service traslated into

outputs

Through which the service is created

and consumed (or co-produced)

•  Creation of competitive advantage

•  Advice •  Co-creation

8p’s

6. People

The days of the local bank manager have passed, staff related to product development, advice, call centre, their competences and the incentives given to them are now crucial

•  Founders •  Employees •  Culture •  Customer

Service

7. Promotion and

education

•  Promotional mix - appropriate balance of advertising, PR, direct marketing and sales promotion

•  Message strategy - what is to be communicated

•  Channel/ media strategy - how to reach the target audience

•  Message Frequency - how often to communicate

•  Customer training programmes

•  Courses

Refers to marketing communications, of ehich retail financial services make great use of. Education informs how the service can benefit customers and ways in which they can derive additional benefits. Allows to make differentiation

8p’s

8. Physical Evidence

Providing tools that allow to product evaluation

•  User stories •  Testimonials

Exercise (a very ceteris paribus one)

¤  For your assigned product/service:

1.  Think on a possible value proposal and write it down

2.  Make a list of marketing tools/strategies that you will apply for the product (at least 10, better 15) in the light of the 8p’s financial services marketing mix

3. Calculate what % of the total tools/strategies correspond to each of the 8P’s

https://www.mckinsey.com/industries/financial-services/our-insights/using-fintech-to-democratize-financial-services

¤ Was the division easy?

¤ What would be missing in this analysis?

¤  Segmentation

¤  Product centric vs customer centric

¤  CRM and product material

¤  Basics of marketing accounting

¤  Fintech

Financial Services: Classification vs Segmentation

•  The Financial services customer

Retail •  Over 95% of people (Europe) over 15 years old are “financialize”

somehow •  The number of financial services that any consumer has tends to increase with age.

Institutional •  A formal company is always financialize •  Some NBFI’s have exclusively institutional customers.

Classification is not Segmentation

•  (1. common classification)

•  The Financial services customer (2. Law classification )

•  Professional (Banking Act 1) •  Non Professional All the rest

- Credit institutions, - Investment companies, - Other regulated financial companies, - Insurance companies, reinsurance companies, and pension companies, - Collective investment Schemes and management companies of such schemes, - Pension funds and companies managing these funds, -  Commodity and commodity derivatives dealers, , Other institutional investors. b) Large companies, which, at company level, comply with at least two of the following criteria: - Balance sheet value of their assets amounts to 20mln EUR, - Their annual net turnover amounts to 40mln EU

Segmentation

Segmentation is an essential marketing planning activity that involves identifying groups of customers displaying a similar responsiveness to a particular strategy; value propositions can then be developed to elicit that response from these groups.

•  Can be the starting point for establishing the target market

•  Presumes the selection of

different alternatives of value propositions and marketing mixes across segments

Marketing mix and segmentation

Target market

Existing market

Segmentation criteria

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WHAT INFORMATION TELL US ABOUT HOW THESE CONSUMERS THINK OR BELEIVE?

Some basic requirements for segmentation:

*The segments need to be big enough (but not too big)

*We need to be able to reach the segments (dist. Channels, promotion).

*The criteria cannot change drastically across time

Segmentation criteria

Geographic

G e o g r a p h i c segmentation groups customers according to where they are located (where they live or where they work).

•  Note to discuss: Target markets used to be more concentrated geographically speaking.

Demographics

¤  Demographics segmentation consists of such information as age, sex, race, income and occupation. There is a clear benefit to financial institutions here, as customers are likely to wish for certain financial services at certain times in their lives.

Examples of financial products that consider demographics segmentation:

Graduate Loans – Car insurance for women (reading)

Multilingual environments

Psychographic

Grouping is based according to lifestyle data or assumptions, including:

¤  Attitudes ¤  Beliefs ¤  Opinions

Example. A targeted message can change the mindset about a financial offering.

Behavioural

¤  Behavioural segmentation groups customer according to some extent of the way in which they have behaved in the past:

§  Frequency of purchase

§  Amount of purchases

Example. Banks, they are willing you to get the bank account as an initial product so they can track incoming money and outgoing spend and be able to make segmentation on the base of those informations

Segmentation in real life: is it easy?

¤  Segmentation is challenging because of the number of variables companies have to use to arrive at a level of accuracy in a competit ive marketplace, but, additionally, they must grasp the dynamic nature of segments.

¤  This may come about as people move house, lose their job, experience some incapacity, or go green, etc.

¤  Segmentation is a continuous process and financial services marketers need to identify and to respond to changing conditions.

Segmentation practice:

Behavioural & Psychographic segmentation

-Survey: 1,200 clients -5 underlying dimensions or factors

Segmentation practice:

1. Rational Consumers :

¤  Clear and transparent reporting, with benchmark comparison

¤  Trasparency about financial products

¤  Facts and figures more important than personal chemistry between client and advisor

2. Myopic Consumers :

¤  Clarification of facts about income after retirement

¤  Mandatory pension funds

¤  Risk disclosures

3. Anxious Savers:

q Clear decision making

q  Step by step procedure

q  Recommendations

q  Tax incentives

q  Regular automated payments

4. Gut-feeling followers:

¤  Choice of advisor important to promote ease

¤  Regular automated payments

¤  Short term restricted access to resources

5. Anxious Spenders:

•  Choice of advisor important to inspire confidence •  Restrict access to resurces •  Mechanisms to avoid modifying actions •  Mandatory pension funds, compulsory insurances

Segmentation practice:

¤  A consumer survey, collecting product/brand usage data, perhaps media usage and a range of rating scales

¤  Statistical procedure known as «factor analysis» works out which are the most useful items in the rating scales to develop a relatively small group of underlying dimensions in data.

¤  Respondents to the questionnaire are clustered, using cluster analysis on the basis of their scores

¤  The clusters are profiled, using the rest of the survey data, such as classification questions.

¤  Once clusters have been identified, it is common practice to give them distinctive names,

Or crm info in case of existing customers

Examples of segmentation

•  Affluent •  Non Affluent All the rest

Example of segmentation

Example of segmentation: In financial digital services