Guest editorial

Citation

Estelami, H. (2007), "Guest editorial", International Journal of Bank Marketing, Vol. 25 No. 4. https://doi.org/10.1108/ijbm.2007.03225daa.001

Guest editorial

About the Guest Editor

Hooman EstelamiAn Associate Professor of Marketing at Fordham University in New York. He received his PhD in marketing from Columbia University, and has served as a consultant to several leading financial services companies. Dr Estelami has published dozens of articles, research reports, and book chapters on topics relating to financial services marketing, pricing, customer service management, and buyer behavior. He is also the author of the textbook: Marketing Financial Services. He has received several national awards for his research and teaching, and his work has been published in journals such as Journal of Financial Services Marketing, Journal of Retailing, Journal of the Academy of Marketing Science, International Journal of Research in Marketing, Journal of Business Research, Journal of Service Research, and Journal of Services Marketing. Hooman Estelami can be contacted at:estelami@fordham.edu

Introduction

The marketing of financial services is arguably one of the most fascinating sub-fields of the marketing discipline. Financial services have a significant role in the well-being of all individuals in modern society. The results of one’s labor often translate into the accumulation of financial resources which are then used to sustain economic existence, secure assets, control risks, and plan for the future. Inevitably, all of these activities require the use of one form or another of a financial service.

Despite the critical role of financial services in the economy, consumers have demonstrated limited ability to fully comprehend the financial marketing pitches being presented to them. The result of this is evident in economic indicators such as the volume of debt accumulated by consumers, the growing rate of bankruptcies, rising delinquency rates for credit products, and other related statistics. For example, in the United States, the number of personal bankruptcies filed every year has steadily grown over the past decade. During the same time period, the amount of consumer credit use, both in revolving and non-revolving forms, has increased by over 50 percent. Empirical studies examining the level of consumer understanding of financial services commonly used on a regular basis have also shown disappointingly limited knowledge among the masses, and legal challenges by regulatory and governmental bodies have questioned specific marketing practices of a wide range of financial services organizations (Estelami, 2005; Macey, 2006; Marsh, 1999).

A fundamental requirement for the social and economic stability of any modern society is the financial security of its citizens. In that sense, financial services marketers have a unique opportunity to engage in activities that help build consumer wealth and establish a mutual sense of trust with their customers. To provide a mechanism for such an engagement, in November of 2006, a conference on the Marketing of Financial Services was hosted at Fordham University in New York. The conference was intended to allow leading-edge research to be shared among academicians and practitioners. It successfully drew a large number of participants from around the globe and helped build the platform for crafting the papers included in this issue of the International Journal of Bank Marketing. Of the nearly 50 papers that were submitted to the conference, a total of four were selected for publication in this Special Issue. These papers have been selected based on their innovative focus and methodical approach to improving our understanding of consumer response to the marketing actions of financial services providers. As such, they contribute to our understanding of how financial services marketers could work hand-in-hand with consumer literacy advocates, regulators, academicians, and consumers to improve the impact of their marketing activities.

The evolution of financial services marketing:

The practice of marketing financial services is currently undergoing considerable change. While some of these changes can be attributed to the shifting demographic structure of the population, a significant amount of change is attributed to the evolution of financial regulations in most industrialized countries. For example, the financial services sector in the USA was deregulated nearly a decade ago, through the implementation of the Bank Modernization Act. This has allowed financial services providers which were partitioned from direct competition with one another to engage in the marketing and selling of financial products and services in each other’s markets. For example, prior to bank modernization, commercial banks were allowed to sell insurance products but could not participate in the underwriting activities of those products. Similarly, during that time period, insurers were prohibited from providing deposit accounts and basic banking services. Deregulation has allowed these two previously partitioned financial services categories to converge and many of the barriers that had protected companies in each category from direct competition with companies in the other category have since been removed. The result has been intensified competition, as reflected by drastic changes in pricing, advertising, and product development practices of financial services organizations, and a competitive landscape characterized by mergers and consolidations. Similar results have been observed in the financial services markets of European and Asian countries, following regulatory changes in recent years (Harrison and Ansell, 2002; Melewar and Bains, 2002; Moutinho and Phillips, 2002).

Furthermore, the deployment of new technologies to serve a market that is growing in its technical sophistication has resulted in the introduction of new products across a range of financial services categories. The emergence of new competitors and the introduction of new technologies to serve consumers’ financial services needs have required that financial services providers seek more flexible organizational structures. The growing complexity of the marketing approaches used to attract and keep customers has significantly changed the pattern by which new technologies are blending into the financial services environment. The resulting marketing strategies aspire to provide a greater range of choices to consumers and have made it essential for financial services marketers to develop an understand consumers’ financial decision processes (Estelami, 2007; Ennew and Sandler, 2007).

Understanding the customer decision process: Licata and Von Bergen

The process by which consumers make their financial decisions is distinct from decision-making processes in many other purchase scenarios. Financial services are generally complex and multi-dimensional. Even relatively commoditized financial products such as term-life insurance and deposit accounts have many attributes, exclusions, limitations, and specifications which the consumer has to consider when making informed decisions among a set of choices. This makes the consumers’ task of identifying the best deal a difficult one in most financial services categories. The complexity of financial services has therefore challenged the limitations of the human cognitive system, which is characterized by constrained information processing capabilities and an aversion from numeric processing of stimuli. The result has been reliance by consumers, on the use of simplifying decision rules, and at times coping strategies which may lead to highly sub-optimal financial decisions (Barber and Odean, 2000; March, 1988; Rode and Wang, 2000).

The sub-optimality of consumer financial decisions is further advanced by the relatively unexciting and uninvolved nature of financial products and services. While products and services in most other industries may easily trigger consumer interest and excitement, the intangible nature of financial services and their complexity often result in a state of consumer disinterest. Therefore, while the consumer experience associated with shopping for non-financial products and services may further motivate consumer engagement and help fuel the information search process, in financial services many consumers opt for a limited scope of information search and simplify their decisions by examining only a subset of the available information (Bazerman, 2002; Chen et al., 2005; Estelami, 1999).

The result of such an approach taken by consumers in evaluating financial services is a need for financial services marketers to systematically examine and understand the processes consumers undertake in choosing among financial services providers. Methods to improve consumer response, increase loyalty rates and enhance the perceived value of financial offers need to be methodically examined. The paper by Licata and Von Bergen achieves this objective by exploring the marketing tactic referred to as “negative option marketing” (NOM). In a negative option marketing campaign, a financial services marketer promotes a particular product or service by sending promotional offers to consumers, and requires the recipients to take specific actions in case they are uninterested. This tactic contrasts with “positive option marketing” practices, whereby consumers do not have to take any action in case of disinterest and only would respond in case they are interested in the product or service being promoted. In a bank marketing setting, Licata and Von Bergen find that consumer attitudes towards a bank do not change as a result of choosing one approach over the other. While the NOM strategy can result in higher perceptions of opportunistic behavior by the bank, higher levels of profitability are also associated with this promotional tactic. The systematic examination of the effects of these marketing approaches on consumer decisions, undertaken by the authors, exemplifies how financial services organizations can utilize the understanding of consumer decision processes to improve their operational performance.

The evolving service encounter: McDonnell

The deployment of technology by financial services organizations has often been associated with considerable cost savings. For example, while the average cost of conducting a transaction by a teller in a retail banking environment is estimated to be about one dollar, the cost could be cut in half if the transaction is conducted on the phone. Technology can be further deployed to reduce such costs – the cost of an ATM transaction in approximately 25 cents and online banking transactions may cost as little as a penny (Estelami, 2007; Gupta and Lehmann, 2005; Hopkins and Hopkins, 1997; Young, 1999). Such monumental cost-reductions highlight the dramatic impact of technology deployment strategies on effective management of customer service encounters, not only to achieve higher efficiency levels, but also to improve profitability.

The use of credit and debit cards, biometric customer identification, and optical scanning of financial documents has further enhanced the efficiencies gained by deploying new technologies in financial services markets (Gousnell, 2004; Zack, 2003). These methods have helped improve bank profitability and in many cases have also increased customer satisfaction and loyalty rates. Data-driven technologies have enabled customer service encounters to achieve greater levels of reliability and efficiency. The result has been an explosive growth in categories of financial services such as online banking and brokerage services, and the commoditized distribution of insurance products on the Internet, requiring little or no human interaction between the service provider and the customer in a retail setting.

While the classical deployment of information-based technologies in financial services has helped increase both consumer conveniences and business profitability, research in the deployment of other technologies in retail settings is in the early development phase. One of the papers selected for this Special Issue – the work by McDonnell – has been chosen for its innovative approach to studying the impact of basic manipulations of the service encounter on customer perceptions. McDonnell examines the effects of two intervention variables, namely music and scent, in the service environment. Using a controlled experiment and a structural equations modeling approach McDonnell finds that the introduction of music and scent to the service environment can significantly help change customer perceptions of wait time and reduce negative feelings about the service encounter. McDonnell provides specific directions on how managers can utilize these basic interventions to improve customer satisfaction levels.

Cross-cultural dimensions of financial services marketing: Worthington, Stewart and Lu

The growth of the financial service sector in various corners of the world often varies depending on the cultural differences that may exist across national and social boundaries. For example, in the USA, a significant amount of growth in the use of consumer credit has been witnessed in the past decade, while the growth in credit use in many Asian countries has been restricted only to specific types of credit products. In the USA however, the use of credit cards, home equity products, and revolving forms of credit have reached record levels. This has resulted in growing levels of consumer debt, rising bankruptcy rates, and more recently, a negative national savings rate. While some of these patterns of credit use can be attributed to economic trends, much can be associated with the impact of social norms and cultural values on consumption preferences and subsequent financial behavior (Chan, 1997; Lowe and Corkindale, 1998).

In contrast, the wide use of credit cards in many Asian countries has been challenged by cultural norms which negatively view indebtedness. The social and cultural implications of debt in many societies have limited the reach of a variety of credit products, and may have also impacted economic growth and consumption rates over the years. The paper by Worthington, Stewart and Lu, attempts to uncover some of the factors that drive credit card usage by Chinese consumers. The authors explore credit card preference patterns in the affluent segment of the Chinese population. The growing level of affluence in China makes this study of significant importance to financial services providers seeking to improve their positioning in the Chinese credit card market. Utilizing a survey methodology, the paper examines the adoption behavior and credit card usage patterns exhibited by the affluent segment of the Chinese population. By doing so, the authors document the traditional boundaries which may create consumer reluctance towards the use of credit products in China, and provide marketing prescriptions to facilitate growth in this market.

Emerging views on relational benefits: Molina, Martín-Consuegra, and Esteban

The relationship between a financial institution and its customers is often a leading indicator of subsequent performance outcomes, such as profitability, market share and customer retention rates. The complexity of many financial services categories makes the task of assessing quality a difficult one for customers. As a result quality may at times be assessed by the customer utilizing peripheral and subjective indicators. The manner in which a financial services organization manages the interactions between its employees and customers can therefore have a profound effect on customer perceptions of the organization.

The presence of relational benefits to customers is especially appealing in light of empirical evidence that suggests the marketing costs of promoting financial services to existing customers to be significantly lower than the costs of reaching out to, and acquiring new customers. This view is a sharp contrast to traditional views of marketing which often consider market share growth and the expansion of the customer base as the primary drivers of profitability (O’Loughlin et al., 2004; Verhoef et al., 2002). A relation-building strategy would instead focus financial services marketing efforts not only on the retention of existing customers, but also on the cross-selling of other financial products available through the financial services organization. Such an approach has received wide acceptance in the deregulating financial services markets of today, where emerging financial services organizations are able to provide their customers with a growing portfolio of products, ranging from commoditized services such as insurance and retail banking, to highly personalized services such as investment advice and retirement planning.

In this emerging environment, marketing practices aimed at strengthening the relationship between a bank and its customers are therefore vital. The paper by Molina, Martín-Consuegra and Esteban examines the effects that providing customers with relational benefits might have on subsequent measures of customer satisfaction. Using a survey conduced in a retail banking environment the authors demonstrate how the actions of frontline employees can help build customer confidence and result in more positive perceptions of the bank. The authors provide suggestions for managers on how to integrate their relationship marketing programs to achieve higher levels of customer satisfaction.

Conclusion

Examining the emerging trends in the practice of marketing financial services is essential to the conduct of research in this field. Financial services markets are undergoing significant change, characterized by deregulation, intensified competition, and the emergence of new technologies and products, worldwide. The wider array of choices facing customers today has made the task of customer acquisition and retention more challenging and mandates the establishment of new perspectives on best practices in the field. As such, it is hoped that the papers included in this Special Issue have served this purpose by uncovering new directions for researchers and practitioners in the field.

This Special Issue of IJBM would not have been possible without the support of a highly specialized and dedicated group of reviewers. These include: Joan Combs Durso (Bellarmine University), James Devlin (University of Nottingham) Steven Gould (Baruch College), Frederic Jallat (Paris Graduate School of Business), Paul Koku (Florida Atlantic University), Joanna Lee (California State University), Dawn Lerman (Fordham University), Jane Licata (Southeastern Oklahoma State University), Sarah Maxwell (Fordham University), John McDonnell (Queensland University of Technology), Sally McKechnie (University of Nottingham), Daniel Osterlund (Stockholm University), H.G. Parsa (Ohio State University), Robert Schindler (Rutgers University) and C.W. Von Bergen (Southeastern Oklahoma State University).

In addition, the support of Jillian Farquhar (Oxford Brookes University) as the editor of the International Journal of Bank Marketing, throughout the process is much appreciated. Many thanks are also due to Sarah Maxwell, whom I have had the privilage of working with on many projects as a colleague at Fordham, for over a decade, and from whom I have learned a great deal. Last, but not least, many thanks are due to Richard Whitfield of Emerald, for having suggested the idea of putting together this Special Issue. It is hoped that the combined efforts of all individuals involved in supporting issue of IJBM, and the accumulation of the findings reported in these papers help shed additional light on new frontiers in the practice of financial services marketing.

Hooman EstelamiGuest Editor