Bank Innovation

When B. Joseph Pine II and James Gilmore wrote a book called “The Experience Economy,” they built on the work of Alvin Toffler (“Future Shock”) and others on the value of creating experiences. They cited Disney, Starbucks, Nordstrom and other leading brands as examples. Pine and Gilmore argue– and I agree– that our economy has been evolving, and continues to evolve.

We started as an agrarian society, and we extracted raw materials from the earth. Then we eventually began to make products from the materials we extracted, and we further evolved into delivering services. We still do all of those things, but they are all becoming increasingly commoditized. Think about banking products and services. How do you differentiate your brand from your many competitors? Interest rates? Fees? Product features?

Being able to stage memorable experiences, large or small, elevates your brand to a level far beyond the commodity discussions of features and price. Staging experiences allow you to connect with people emotionally, and surprising numbers of people decide with emotion and justify with fact—including the affluent. (How many of us can say we truly need to spend $6 for a cup of coffee, let alone a $2,700 espresso machine for our kitchen?)

Ultimately, being able to guide customers through a transformation is the highest evolution, and financial services companies are uniquely positioned to be able to do that. (Figure 1)

Winning with Affluent Clients

A KPMG study in June 2012 revealed that 9 out of 10 banks were considering a major overhaul of their strategy, and 40% said that wealth management would be an important part of that strategy. And for good reason— affluent clients hold higher balances, are better credit risks and use more fee-based services. But competition is fierce, and it is difficult to grab the attention of this busy demographic.

(See: 9 out of 10 Banks are Mulling an Overhaul of their Operating Models)

How do you become the bank your affluent clients can’t live without? There is no shortage of financial providers willing to help clients borrow, save, manage and move money. How can you add value beyond these utilities?

This may seem like a bit of a stretch for product managers typically steeped in competitive rate shops and price elasticity curves, but winning affluent clients in this new era requires some broader thinking about ‘products’ and about value propositions.

What business are banks in?

As I wrote in a recent American Banker article: Anyone who has taken even the most basic business course in the past fifty years is undoubtedly familiar with Theodore Levitt’s 1960 treatise “Marketing Myopia”:

“The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.”

So what business are banks in if they are not in the banking business? They are in the business of helping people achieve their financial and life goals, and the best brands differentiate themselves by reimagining the definition of ‘product’ beyond a typical set of tangible attributes.

For bankers, it is about moving beyond the rate and fee discussion and de-commoditizing the service offering. It is also about thinking more broadly about how to deliver value to clients, on their terms. Affluent clients have the financial assets to achieve their goals, but they are very often time-poor, and the wealthier they are, the more willing they are to trade dollars for time (and experiences).

I recently collaborated with Ten Group USA, the U.S. arm of London-based Ten Group, one of the world’s leading lifestyle management and concierge services companies to explore some ways financial institutions can deliver compelling clients experiences that might be outside of financial firms’ core capabilities.

In future posts I will discuss other ways savvy firms are innovating well beyond the typical rate/fee/feature conversation.