According to the product concept, the product is comprised of several levels, each level adding more customer value and serving as a means of differentiation from competing products and brands.
Five levels of product:
1- Core product: most fundamental level which the product provides. This relates to a core need which the product is perceived to fulfill. ‘Cash accessibility, asset security, money transfer, deferred payment, financial advice’
2- Actual product: second level, refers to the basic product and its features. ‘capabilities of the product, quality and durability, design and styling’
3- Expected product: set of attributes and conditions that buyers would normally expect from the product. Usually expressed in terms and conditions of the contract.
4- Augmented product: support systems which are put into place to serve the customer, used to meet customer’s need beyond their expectations. Ex. Delivery and payment system, warranties, after-sales support.
5- Potential product: encompasses all the product augmentations and transformations that the product may undergo in the future. Thus, it refers to the possible evolution of the product.
Table 4.1 Application of the product concept to financial services.
Scanning the environment is important to financial institutions in order that they take advantage of any opportunities created by external trends, and, at the same time, are in a position to minimize the impact of any threats on the business.
1- Customers: like personal and business consumers and intermediaries such as brokers.
2- Competitors: are a valuable source of information which can be used for a variety of decisions, not only for product decisions. ‘copy-act’ products.
3- Technology: has a significant impact on the running of financial institutions from the customer data-base to the support of back-office staff to providing the delivery service through automatic teller machines and on-line home banking.
4- Government and legislation
The development of new products or services is accepted as a requirement for the continual growth and prosperity of all companies, not just for financial institutions.
- To be a leader, institutions need to develop new products.
- Strategies for developing new products are many and may depend on a number of factors:
1- Corporate mission and goals.
2- Size of institutions.
3- Type of new product innovation.
Institutions can be classified in their responds to new product development into two categories:
1- Proactive: Take the advantage of ‘First mover’ by creating the product or service or obtaining the rights to it. (either by acquisition or license).
2- Reactive: a parallel entry whereby institution simply imitates the first-mover and launches a ‘me-too/copy-act’ type product, or it may attempt late entry to the market with a ‘second-but-better’ product.
New product orientation among financial institutions can be either “technology driven, market driven, or competitive driven’.
The Majority of financial institutions have been ‘me too’ in nature.
1- New-to-the-world products (Mondex)
2- New product lines.
3- Additions to existing product lines. ‘The problem with introducing products similar to existing products in the line is that they quite often don’t generate new business, they just shift it around.
4- Improvements to and revisions of existing products.
6- Cost reductions.
1- Idea Generation: Comes from internal and external sources and influenced by competitor, technical, and customer concerns. Internally- R&D, new procedures, sales reps, marketing research and department, and customers complaints. Externally- Advertising, Marketing agencies, competitors, channel members and intermediaries, universities, consultancies and publications.
Financial Institutions use competitors and other external agencies as a primary source of new product ideas.
2- Idea Screening: Screening serves several functions but basically involves checking out the ideas which will justify the time, expense, and management commitment of further investigations.
1- Ideas are checked out to ensure consistency with organizational strategy and to ensure that there is a fit with the capabilities and image of the organization.
2- Evaluating the ideas to single out the promising ones based on previously established evaluative criteria, then ideas are weighted, ranked and rated against the criteria identified.
Some of criteria used: Compatibility with company objectives such as profit, market share, sales volume, or customer goodwill, and or compatibility with company resources including capital, production, marketing, distribution, systems, and salespeople.
3- Concept development and testing: The service concept is the company’s idea of the product expressed in meaningful terms to consumers which includes the set of features and attributes associated with the product and its positioning.
4- Marketing Strategies and development:
1- A description of the target market, its size, structure and behavior, planned positioning, sales, market share and profit goals.
2- Planned price, distribution strategy, and marketing budget.
3- long-run sales and profit goals, and marketing mix strategy over time. How to be maintained and managed.
5- Business analysis: idea needs to be translated into firm business proposal which details the attractiveness of the idea and its likelihood of success or failure.
6- Product development: translating the new product idea from a word or a description in the mind of both developer and customer into an actual product or service
7- Market testing: This is where the full product/service complete with brand name, packaging and other peripheral and augmented aspects of the product are offered to the market.
The disadvantages of testing the product are that it gives advance warning to competitors of the new product.
8- Commercialization/ Product launch
A key decision is the timing of market entry.
- First entry into the market, capitalizing on first mover advantage.
- Parallel entry in which they wait and watch the competition and bring out a ‘me-too’
- Late entry which enables them to learn from any mistakes which the competition may have encountered and to launch a ‘new improved’ version of the product.
- A successful new innovation should exhibit the following characteristics:
1- Relative advantage: Product should possess something which express unique benefits or superiority to the customer.
2- Compatibility: with the values and experiences of its target markets.
3- Complexity: relates to the relative ease consumers have in understanding the product.
4- Divisibility: How easy it is to try a product on a limited basis.
5- Communicability: the degree to which the new product can be communicated to others.
Managing the product range involves the constant re-evaluation of the products in order to decide whether modifications or repositions are necessary, or even deletion from the range.
Product Life Cycle (PLC)- products, like humans, have a finite life.
1- Introduction: Pioneers of new products bear costs outweigh the income derived from the product. A primary task is to increase awareness and interest. Prices may be set high to skim or low to penetrate.
2- Growth: As the products takes off, the appeal widens to a wider segments of the market. Competitors, attracted by the customer interest, quickly produce their own versions of the product and start to compete.
3- Maturity: market begin to reach saturation. It is the stage that most financial services are currently at.
4- Decline: The product may lose its appeal to customers whose needs may have changed, it could be made obsolete by the introduction of new technology, or it could be displaced by changes to legislations.
Table 4.3 Marketing strategies at each stage of the credit card’s life.
Branding: A successful brand is a name, symbol, design, or some combination, which identifies the product of a particular organization as having substantial differential advantage.
- A product is made, a brand is bought. Product can be copied, brand is unique. Product can be outdated, brand is timeless.
Branding has several benefits to both buyers and sellers. Table 4.4 page 119.
Table 4.5 Financial Services branding strategies.
Two types of elimination are evident in financial services:
1- the elimination process takes the product out of existence for new customers. (and possibly existing customers)
2- the product endorse some form of (external) elimination, but retains a presence in the financial institution (because of continued contractual obligations).
Figure 4.4 The financial product elimination process.
Table 4.6 Product elimination strategies for financial services.