How to Step Up Your Financial Services Strategy

An unprecedented shift in consumer behavior now demands a compensating shift in financial services business strategy.

The rise of consumer technologies such as mobile, social and FinTech have empowered consumers with on-demand information and real-time collaboration with other consumers. These personal technologies gather vetted customer opinions of financial products, policy comparisons, service experiences and a host of factors which consumers use to determine what policy to purchase or where to put their money.

The rise in consumer technologies have contributed to an even bigger shift in behaviors. Whether evaluating retail banking or wealth management programs; life or P&C insurance policies; or capital market, asset management and even investment banking services, consumers are more connected, informed, empowered and demanding.

This sea change in behavior has created a perfect storm for financial services institutions (FSI). Customer expectations are rising, customers are readily sharing their bad experiences publicly, and customers are switching their providers at an increased pace.

FSIs that fail to adjust their business strategy to this new reality will most certainly see their market share erode. But on the flipside, those financial service leaders that can transition from policy-centric to customer-centric business models, meet consumers in the channels they communicate, engage them in ways they find relevant and helpful, and find competitive differentiation in the areas most important to consumers, will increase their existing customer tenure, pick-up those customer defections from flat footed competitors, and clearly be the beneficiaries of a changing market.

The Competitive Arena

Competitive advantage must be built on qualities that consumers value and apply in their purchase decisions. The below diagram shares the top 9 factors that most influence consumer acquisitions and retention in the financial services industries.

Financial Services Competitive Advantages

The key is to pick your battles. Nobody can or should attempt to win in every dimension. Instead, rank these factors relative to your brand promise, target markets and competitive landscape. Then craft your strategy with a unique mix of factors that create differentiation and competitive advantage. And remember, that an advantage must be relevant, measurable and unique to be a competitive advantage.

Consider the below options.


Customer Experience

Start here as Customer Experience Management (CXM) has become the newest battleground to grow and retain customers, and is one of only four sustainable competitive advantages. It also drives big improvements to customer share, customer lifetime value and retention. But it's hard.

Most FSI executives get the Customer Experience (CX) concept, but struggle to define it in a way that it can be designed, implemented and measured on the financial statements.

CX requires a lot of moving parts – Voice of the Customer analysis, customer segmentation, consumer personas, journey mapping and even changes to the business model, which cascade into changes to culture. Make no mistake, consistently delivering rewarding customer experiences which then drive performance measures is no easy task.

But also recognize that unlike your locations, branches, products and almost every other consumer evaluation factor that can be quickly copied by your competitors, CX is one of only four factors that heavily influence customer acquisition and retention, and cannot be easily copied.

A financial services strategy must recognize that success is based on customer relationships and the CX is the top contributing factor to successful and long-term relationships. While CX and Customer Relationship Management (CRM) are often discussed as separate topics, it's important to recognize that they are symbiotic and should be designed in tandem. CX objectives and processes can be automated with financial services CRM.



Brands have long distinguished banks, insurance companies and other FSIs. However, while far from worthless, they are increasingly worth less to consumers who often distrust or otherwise remain highly skeptical of what FSIs say about themselves and put much more weight into what other consumers say about them.

Research shows that brand advertising is losing its effectiveness as consumers turn to social media to form their impression of the brand. Research also shows that consumers often consider other evaluation factors more relevant, thereby diluting brand value.

Brands are most valuable with complex financial products. For solutions which are difficult to understand, consumers turn to credence qualities and consider trust and confidence inspired by the brand as a source of risk reduction.

However, for most other consumer decision making, the brand may add value, but will take a back seat to the particular product offerings under consideration.

It's also important to recognize that the long time practice of building brands through repeated mass communications and advertising is in decline. Research shows that a high majority of consumers don't trust vendor advertising and instead develop their impression of financial services companies from social media—be it the comments of friends, the commentary of complete strangers or the reviews on countless websites and social networks.

Depending upon  your customer markets, you may need diversify your brand investment to include social media engagement.



Putting your retail bank in a high traffic area or your wealth management practice in a high rent district is beneficial. But your physical location must be matched with an equally impressive online presence.

Flexible hours, convenient parking, fast turnaround and easy accessibility over both physical and digital channels still influence consumer decision making. However, these factors are all easily copied thereby depriving them of becoming competitive advantages. They are at best competitive equivalents.



Financial products are for the most part easily substitutable and therefore highly commoditized in the minds of consumers.

To find differentiation, you can increase options, decrease price or compete in other areas. A common tactic is to increase product complexity in order to shift consumer evaluation away from the product and toward the brand and credence qualities such as reputation.

This is a viable but waning strategy for two reasons. First, consumers have access to more information and are much more informed. Adding complexity unnecessarily or without corresponding value will be recognized and rejected. Second, consumers are placing increased emphasis on simplicity. With more information and knowledge, they are able to cut through complexity and focus their decision making on fundamental criteria such as price and performance.

Financial service products can be easily copied and product commoditization will only continue to accelerate. Financial service companies must certainly create competitive products, but for most this will not be a sustainable competitive advantage.



Research shows that consumers place an early emphasis in services related to products. In fact, for most consumers, customer service is an integral and indistinguishable part of the product offering and highly influential in selling new products.

While consumers may combine financial products and customer service into a single evaluation, financial institutions can dissect these offerings and reassemble them with varying attributes to create differentiation.

Services more relevant to customer retention include account management, expert assistance and advice, helpful policy administration, timely correspondence, incident management and multi-channel communications.

Most financial institutions make two fatal flaws that challenge delivering consistent service for profitable results. First, they lack institutionalized knowledge that can be easily shared among client facing staff. This results in inconsistent services delivery that is only as good as any particular staff person. It also has the propensity to delay process cycles and increase client wait time. This issue is exacerbated with staff turnover.

Second, staff such as financial advisors often allocate a disproportionate amount of their time toward clients that deliver the least revenue to the company, or at best allocate their time among clients equally. This is caused by poor customer segmentation, and not recognizing and steering effort toward the approximate 20% of clients that contribute about 70% of the company's profits. This flaw can be countered with improved segmentation, the design of premium services for high margin customers and the creation of lower-cost channels for lower margin customers.



FSI staffing as a source of competitive advantage varies greatly by sector and organizational thinking.

Putting the marketing tag lines and generic proclamations aside ("our people are our greatest asset"), most FSIs view staff as an expense and not an asset.

That creates an opportunity for companies that seek to change the game by replacing standardized products and services designed to be delivered by minimally trained resources with staff adept in presenting more innovative solutions. Staff are more empowered to solve their clients financial goals, propose more personalized solutions, deliver improved customer experiences and develop more meaningful customer relationships.

Staffing is the difference between a service representative and a trusted business advisor.



The competitiveness of price and fees is commensurate with customer type and product. For example, innovative services can mitigate price effects in retail banking. Research shows that wealth management clients are not as price sensitive as most believe — as long as other factors such as knowledgeable staff and professional services are in play.

Price is clearly a purchase evaluation factor, however, unlikely to be a source of competitive advantage.


Customer Engagement

Everybody knows that it cost 5 to 8 times more to acquire a new customer than to up-sell an existing one. What's less understood is customer profitability allocation and how to increase profits across customer segments.

According to a Harvard Business Review advisory, when viewing customer segmentation by profitability, a bell curve typically shows about 20% of customers deliver the biggest profits, while the middle 60% deliver marginal profits and the remaining result in no profitability or financial losses.

Engagement is the single most powerful tactic to move consumers along a continuum from new customer to repeat customer to loyal customer to advocate — and the process to increase customer profitability at each stage of the journey.

To accomplish this, you have to make the shift from mass media advertising to communications that are relevant, personalized and contextual. When this change in engagement is combined with offers, loyalty programs and related outreach, the organization will improve up-sell and cross-sell conversions, customer share, customer retention and profitability for each customer segment. Engagement is clearly a tool for competitive advantage.


Business Intelligence

Business Intelligence is another sustainable competitive advantage. Getting the right information to the right person at the right time is not easy, and therefore not easily replicable by competitors.

FSIs collect vast amounts of data. However, it often languishes in disintegrated data siloes. The organization that can apply big data or high specific customer data to create a differentiating customer experience and figure out how to deliver customer information to the resources or client engagement touch points that can use it to improve a customer transaction, decision or experience will create competitive advantage.

Creating Financial Services Competitive Advantages

Once you have analyzed the consumer driven factors that create the competitive arena, you can apply a business strategy framework to create your strategic differentiation. Here's a high level approach to use as a guide.

  1. No financial institution no matter how large can be all things to all people so begin your strategic planning by defining the intersection of your brand promise and target markets. Your brand promise sets the tempo for your business model, your culture and everything you deliver. Maybe your brand casts you as a premium service provider, or a low cost provider, or a niche provider or anything else. It's important to recognize this as your brand is linked to your competitive positioning. A low cost provider is unlikely to be successful in pitching full service solutions to high net worth individuals. Brands can change, but not quickly. Changing the brand means changing consumers' recognition of the company, its reputation, image and place in the market.
  2. With your brand promise recognized, you can change the focus from analyzing yourself to analyzing your customer target markets. Your goal is to create customer segments which can later be linked to products, services and competitive advantages. It's important to identify your market characteristics from the customers' perspective. This is a break from the norm as most companies have a strong tendency to rely on supply-side definitions of markets. Also, avoid the common mistake of describing customer segments by product attributes and instead define them by a combination of demographics and behaviors.
  3. Once you have identified your market boundaries and customer segmentation, you are ready to determine which advantages in the competitive arena you will make competitive advantages. This is a multi-faceted exercise as competitive advantages are relative to the combination of customer segments, products and competitors.

Customer segments are continuously refined but remain relatively constant. Products can be manipulated for increased competitiveness and competitors will vary across markets and geographies. Because any particular competitive advantage is only relative to a segment, product and competitor, it's quite possible a competitive advantage in one market is not an advantage in another. This realization underscores why it is important to understand the complete market and not create differentiation in siloes.

Also, when considering criteria in the competitive arena, don't make the all too common mistake of believing you know what customers want. To really know what customers want, and how they prioritize among alternatives, you need to ask them. If you haven't already, implement a voice of the customer program.

Once you have crafted your competitive advantages, you need operationalize their delivery. This includes assessing your culture and capabilities, designing repeatable processes for consistent delivery, applying enabling technology for automation and measurement, and creating a learning environment that continuously refines your strategy.


The market shift is underway and undeniable. Consumers are more empowered, informed and demanding. They are also switching their global financial service companies, community banks, investment banks, brokers, credit card providers, insurance companies, credit unions, mortgage lenders, thrift institutions and related financial institutions at an increased pace. These trends show no signs of abating.

FSIs that fail to adapt to rising consumer expectations provide the consumers and business growth opportunity to firms that do. For many financial services sectors, particularly in Western nations, the markets are near saturation. This creates a zero sum game, whereby a customer acquisition for one company results in a loss for another.

A financial services strategy driven by consumer demand and built on differentiation should begin by firmly understanding the competitive arena. Aligning your financial institutions brand, customer markets and competitors provides the intersection to select and design from consumer decision making criteria that can deliver competitive advantages. But remember, advantages must be relevant, measurable and unique to be competitive advantages.

Financial institutions will be increasingly challenged to differentiate themselves from the competition. Financial products, services, pricing, locations and delivery are quickly copied and easily imitated—a trend that accelerates commoditization and creates pricing pressure.

However, more innovative and consumer driven strategies will place increased emphasis on new types of engagement and Business Intelligence used to acquire new customers. They will also double down on customer strategies such as Customer Experience (CX) Management and Customer Relationship Management (CRM) in order to solidify existing customer relationships and retain those customers longer.

Make no mistake, new consumer driven business strategies will distinguish leaders from followers, and separate those who thrive from those who fail to survive.

FSI leaders which take a wait and see approach are inviting more innovative competitors to make them irrelevant.