Financial Services Distribution

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Financial Services Distribution

• Customers do many of the jobs that were once
  carried out for them by organisations. Charles
  Handy

2
Distribution or marketing channel decisions

• Marketing channel means the sets of
  interdependent organisations involved in the
  process of making a product or service available
  for use or consumption (Stern and El Ansary
  1988)
• Channel decisions are linked to other marketing
  mix decisions
• Products/services are incomplete until channel
  decisions have been made and channel strategies
  implemented
• Channels can be broadly defined as direct or
  indirect

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Regulation and distribution

• Financial Services Act 1986 forced firms to
  polarise
• Strategic marketing decision for providers,
  transparency and fairness for consumers
• Independence as source of competitive advantage
• Slow emergence of multi-channel distribution
  strategies

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Distribution regulated products
5
Independent advice
6
Tied advice
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General themes in distribution

• Concerns strategic and operational decisions
  about when, where and how
• Components of effective distribution
• Changes to distribution due to legislation,
  competitive pressures and technology
• Changing sources of competitive advantage

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Direct and indirect distribution (FSA regulated)
O R G A N I S A T I O N
Direct mail
C U S T O M E R S
Direct response advertising
Distributor owned/direct sales force
Distributor owned firm (independent)
Independent adviser (independent)
9
Legal General multi-channel distributor
Direct response advertising Internet Direct
sales Independent tied firms Independent
financial advisers
Customers
L G
10
Technology driven delivery (banking)
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Technology driven delivery (regulated)
Corporate brand .com (NatWest)
C U S T O M E R S
Mortgage lenders
Furtive brand .com (HBOS/If)
Mortgage retailer.com (Charcolonline)
Joint venture.com Tesco
Fund management
Corporate brand .com (FC)
Funds Supermarket (Fidelity.co.uk)
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How customers buy (Financial Services Consumer
Panel 2000)
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How customers who seek advice prior to purchase
buy
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Cost of advice by channel
15
Reduction in yield as measure of competitiveness
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Life product sales by channel
17
Pension sales by channel
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Method of obtaining information
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Extent of shopping around
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Extent of shopping around
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Considered but didnt buy
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Advice versus execution
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Consumer misunderstanding
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Financial products bought or sold?
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The changing nature of consumer behaviour

• Institute of Actuaries Report 1988 Too many
  companies are now advertising off the
  pageindividual response rates have declined and
  costs have risen as a result. One step direct
  response business will decline in importance.
• Direct response now accounts for 18 of FSA
  products purchased

26
Important trends

• 31 FSA regulated purchases made via internet,
  phone or direct response
• 61 take some form of advice but only 50 of that
  is independent advice
• Independent share of whole market therefore is
  only 30 - down from 66 in 1985 (Institute of
  Actuaries 1988)
• 41 of purchases are made on the basis of the
  first quotation or illustration sought

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Implications for marketers

• Are consumers increasingly reluctant to shop
  around which means lack of effective competition?
• Do they avoid engaging with the market?
• Are consumers heavily influenced by brand name
  buying well known brands maybe on the basis of
  extended brand values
• Is brand being used by consumers as a proxy for
  trustworthiness?

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Towards an understanding

• Direct buying at convenient times
• Process can be conducted at leisure
• Brands are associated with satisfaction in other
  areas of purchase and consumption
• Known brands with known values
• Increased importance of extrinsic attributes
  where evaluation of intrinsic attributes is
  difficult
• Disintermediation due to scandals, pressure,
  desire to be in control
• Are consumers unable to distinguish between
  advice and information seeking information but
  not taking advice

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Emergence of the investment consumer

• Buys direct
• Strong brand orientation
• Perceptions of quality rather than search for
  knowledge and understanding
• Service
• Trust
• Easy access/convenience

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Factors for success

• Well known well respected name
• Effective distribution
• Visible marketing communications
• Sympathetic with consumer lifestyle
• Service
• Performance?