Financial service elimination: PURPOSE AND STRUCTURE

This paper attempts to make a contribution to the limited discussion on the service elimination process. Specifically, it reports on findings from qualitative research which investigates the service elimination process in the British financial services sector. The paper focuses on two key aspects of that decision- making process, namely the objectives that financial institutions wish to meet by eliminating services, and the problem situations that lead these institutions to consider a financial service as a candidate for elimination. The intention is to highlight a number of issues which have both theoretical and practical implications for financial institutions in planning their service elimination strategies. The paper concludes that there is a clear distinction between the objective of financial service product elimination, which is a high level strategic issue for the financial services industry, and the problem of financial service product elimination, which is a low level, practical and tactical issue for managers.

The paper is structured as follows. First, having outlined the need for service elimination in the British financial services sector, the literature on the elimination of physical goods and services is reviewed. The research method is then described and the key findings outlined. The paper finishes by discussing the implications of the findings for financial service institutions and concludes that it is essential that further empirical research is conducted in order to build up a body of knowledge about service elimination.

BACKGROUND

The need for service elimination in the British financial services sector

The British financial services sector has been experiencing constant regulatory changes since the end of the 1970s. In 1986, The Building Societies Act, The Financial Services Act and the Social Security Act were ‘a major turning point in the history of financial services in this country’. The new legislative environment that was created lowered the entry barriers for the sector’s newcomers, blurred the business boundaries between different types of financial institutions and created unprecedented competition between banks, building societies and insurance companies. In their endeavours to cope with this new competition, and in order to sustain existing customers and attract new ones, British financial institutions engaged in a prolific process of developing and launching new financial services, the majority of which were not demand driven. This plethora of new financial services resulted in proliferated portfolios. The negative consequences of this proliferation were: confusion to customers; too many financial services competing for finite corporate resources; and sales’ and profits’ cannibalisation between financial services within that same portfolio. Considering the vital role that a balanced service portfolio plays in the success of an organisation, especially when the external operating environment becomes more competitive, the above consequences should have forced many financial institutions to reconsider their product strategy and to start rationalising their service range by eliminating problematic financial services.

 

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