Financial service elimination: Problem situations evoking the elimination of financial services

Nine problem situations, outlined in Table 5, were identified which led to consideration of financial service products as candidates for elimination.

Poor profit performance The most frequently cited problem situation (18 cases) was the declining or unsatisfactory profitability of a financial service. This finding is in line with the research on physical goods elimination that ranks poor profit performance first in a set of problem situations evoking the elimination of a physical good. Although nearly all of the studied financial institutions stressed the importance of profit performance to the future of a financial service, smaller companies showed a tendency towards short-term profitability, while larger ones adopted a more long-term approach. The marketing manager of a small building society suggested:

‘If a product does not make us money we have to look at it more closely. In our building society we do not really operate on a policy of launching a product that does not make enough money just because it is fashionable. We are a small firm and we cannot afford to have loss leaders.’

The marketing manager of a large building society commented:

‘A key driver for us is to ensure that our products give maximum value to customers. However this is not to say that balance sheet considerations are not important. Of course they are because, as in every business, we have to continue to make profit.’

Taking into account that the profitability of financial services is directly related to the pricing objectives of financial institutions, the implication behind this finding could be that larger companies set different and more long-term pricing objectives than their smaller counterparts. Although profit maximisation is the main long-term strategic pricing objective, it is not necessarily the main short-term tactical pricing objective for financial institutions. The authors’ findings suggest that large and financially stronger companies were more likely to be able to afford this pricing strategy than smaller companies.

Table 5 Problem situations
Declining profitability
Legislative changes and new regulations
Declining customer demand and customer rejection
Service obsolescence
Incompatibility with the current corporate focus
Changed business positioning
Technical problems with the service delivery process
A person with a vital role in the delivery process leaves the company
A major client ceases to do business with the company

Legislative changes

Thirteen companies reported that if a financial service was not in compliance with new legislation, this could be a major reason for it being examined more closely, with elimination as a choice. This finding is not in line with the research on product elimination, where government policies and regulations were not found to be such an important precipitating circumstance for possible elimination of a physical good.┬áThis may have changed, though, since Antonitis conducted his research in 1987, given increased government intervention in both goods and services. However, the authors’ finding does confirm the literature on financial services which clearly stresses that the legislative environment in the British financial services sector exerts a significant impact on the operations of financial institutions. Despite the importance of this factor, the interviews suggested that legislative changes could differ according to the time they allowed financial institutions to comply. The marketing manager of a large bank commented as follows:

‘Of course new legislation is a very important reason that can make us think that elimination may be needed sometime in the future. Very often we find ourselves in a situation where legislative changes make our products illegal to sell, so elimination is the only possible solution to us. But some new legislations are less strict and give us the option to think about the future of our product, so we can either comply by implementing some modifications or eliminate it ultimately.’

Declining customer demand and customer rejection

The declining customer demand for a financial service was found to be an important problem situation (ten companies) and this finding is in line with the research in manufacturing settings. The interviewees referred to customer demand either by the number of ‘requests for information’ or by the ‘conversion rates’, that is, the percentage of requests for price quotations which is actually transformed into new business.

Service obsolescence

Another trigger for possible elimination was service obsolescence (seven companies), mainly because the advent of a new form of technology made a financial service expensive to deliver. The finding can be explained by the need for British financial institutions to follow the rapid changes in the technological environment.

Incompatibility with the current corporate focus and business positioning Four firms reported that a change in the corporate focus could eventually lead to the elimination of a financial service. To illustrate, a medium-sized insurance company reported that it had made a decision to eliminate all life assurance services because its corporate focus changed from diversification to consolidation. The finding is supported by the literature on the development of marketing strategies for financial services, where it is stated that the strategies are not fixed, but adapted to the changes in the core competencies of financial institutions and in the external environment. The trend developing among the sampled companies was a move from expansive marketing strategies, such as new product development, to more defensive strategies, such as rationalisation. In that way, financial institutions wanted to have a more rational service range and be able to do fewer things more successfully. An interesting implication at this point is that shifts in the marketing strategies can also result in the relaunch of financial services that have been eliminated due to a prior change in the marketing strategy. For example, a financial service that has been eliminated in a period of environmental turbulence as a result of a rationalisation strategy, can be re-marketed if future environmental circumstances allow it.

Technical problems with the delivery process Two of the interviewed firms reported that a technical problem with the delivery of a financial service was likely to lead to its elimination, if the problem was either uneconomical or difficult to fix. Both of the cases referred to newly launched financial services, facing start-up difficulties in their delivery processes.

A person with a vital role in the delivery process leaving the company The director of one medium-sized bank specialising in the provision of investment banking services, reported that they had made the decision to eliminate a service because an employee with a very vital role in its delivery process had left the company. This was an isolated example of triggers for elimination and could be attributed to the special nature and complexity of investment banking services. However, it could also indicate the very important role that service personnel have to play in the delivery of a service.

A major client ceases to do business with the company

Finally, the director of a small-sized bank specialising in private banking, reported that the bank examined the future of a financial service if a major customer ceased to use it. In such cases the bank checked the business volumes generated by other less ‘heavy’ customers and a retention or elimination decision was made on the basis of whether or not the production and delivery of that service was still cost- effective. Although this trigger was only mentioned once by the firms of the sample, it could be an indication of the importance of individual customers in private banking.

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