The Product Concept
According to the product concept, the product is comprised of several levels,
each level adding more customer value and serving as a means of differentiation
from competing products and brands.
Five levels of product:
1- Core product: most fundamental level which the product provides. This
relates to a core need which the product is perceived to fulfill. ‘Cash accessibility,
asset security, money transfer, deferred payment, financial advice’
2- Actual product: second level, refers to the basic product and its features.
‘capabilities of the product, quality and durability, design and styling’
3- Expected product: set of attributes and conditions that buyers would normally
expect from the product. Usually expressed in terms and conditions of the
contract.
4- Augmented product: support systems which are put into place to serve the
customer, used to meet customer’s need beyond their expectations. Ex. Delivery
and payment system, warranties, after-sales support.
5- Potential product: encompasses all the product augmentations and
transformations that the product may undergo in the future. Thus, it refers to the
possible evolution of the product.
Table 4.1 Application of the product concept to financial services.
Factors affecting product
strategy
Scanning the environment is important to financial
institutions in order that they take advantage of any
opportunities created by external trends, and, at the
same time, are in a position to minimize the impact of
any threats on the business.
1- Customers: like personal and business consumers and intermediaries
such as brokers.
2- Competitors: are a valuable source of information which can be used
for a variety of decisions, not only for product decisions. ‘copy-act’ products.
3- Technology:
has a significant impact on the running of
financial institutions from the customer data-base to the support of
back-office staff to providing the delivery service through automatic
teller machines and on-line home banking.
4- Government and legislation
Development of new financial
services
The development of new products or services is accepted as a requirement for
the continual growth and prosperity of all companies, not just for financial
institutions.
- To be a leader, institutions need to develop new products.
- Strategies for developing new products are many and may depend on a
number of factors:
1- Corporate mission and goals.
2- Size of institutions.
3- Type of new product innovation.
Institutions can be classified in their responds to new product
development into two categories:
1- Proactive: Take the advantage of ‘First mover’ by creating the product or
service or obtaining the rights to it. (either by acquisition or license).
2- Reactive: a parallel entry whereby institution simply imitates the first-mover
and launches a ‘me-too/copy-act’ type product, or it may attempt late entry
to the market with a ‘second-but-better’ product.
New product orientation among financial institutions can be either
“technology driven, market driven, or competitive driven’.
The Majority of financial institutions have been ‘me too’ in nature.
Types of new products
1- New-to-the-world products (Mondex)
2- New product lines.
3- Additions to existing product lines. ‘The problem
with introducing products similar to existing
products in the line is that they quite often don’t
generate new business, they just shift it around.
4- Improvements to and revisions of existing
products.
5- Repositioning
6- Cost reductions.
New Product Development
Process
1- Idea Generation: Comes from internal and
external sources and influenced by competitor,
technical, and customer concerns. InternallyR&D, new procedures, sales reps, marketing
research and department, and customers
complaints. Externally- Advertising, Marketing
agencies, competitors, channel members and
intermediaries, universities, consultancies and
publications.
Financial Institutions use competitors and
other external agencies as a primary source
of new product ideas.
New Product Development
Process
2- Idea Screening: Screening serves several functions but
basically involves checking out the ideas which will
justify the time, expense, and management commitment
of further investigations.
1- Ideas are checked out to ensure consistency with
organizational strategy and to ensure that there is a fit
with the capabilities and image of the organization.
2- Evaluating the ideas to single out the promising ones
based on previously established evaluative criteria, then
ideas are weighted, ranked and rated against the criteria
identified.
Some of criteria used: Compatibility with company
objectives such as profit, market share, sales volume, or
customer goodwill, and or compatibility with company
resources including capital, production, marketing,
distribution, systems, and salespeople.
New Product Development
Process
3- Concept development and testing: The service
concept is the company’s idea of the product expressed
in meaningful terms to consumers which includes the set
of features and attributes associated with the product
and its positioning.
4- Marketing Strategies and development:
1- A description of the target market, its size, structure and
behavior, planned positioning, sales, market share and
profit goals.
2- Planned price, distribution strategy, and marketing
budget.
3- long-run sales and profit goals, and marketing mix
strategy over time. How to be maintained and managed.
New Product Development
Process
5- Business analysis: idea needs to be
translated into firm business proposal
which details the attractiveness of the idea
and its likelihood of success or failure.
6- Product development: translating the
new product idea from a word or a
description in the mind of both developer
and customer into an actual product or
service
New Product Development
Process
7- Market testing: This is where the full
product/service complete with brand
name, packaging and other peripheral and
augmented aspects of the product are
offered to the market.
The disadvantages of testing the product are
that it gives advance warning to
competitors of the new product.
New Product Development
Process
8- Commercialization/ Product launch
A key decision is the timing of market entry.
- First entry into the market, capitalizing on first
mover advantage.
- Parallel entry in which they wait and watch the
competition and bring out a ‘me-too’
- Late entry which enables them to learn from any
mistakes which the competition may have
encountered and to launch a ‘new improved’
version of the product.
Factors affecting the adoption of
new financial services
Factors affecting the adoption of
new financial services
- A successful new innovation should exhibit the
following characteristics:
1- Relative advantage: Product should possess something
which express unique benefits or superiority to the
customer.
2- Compatibility: with the values and experiences of its
target markets.
3- Complexity: relates to the relative ease consumers have
in understanding the product.
4- Divisibility: How easy it is to try a product on a limited
basis.
5- Communicability: the degree to which the new product
can be communicated to others.
Managing of existing products
Managing the product range involves the constant re-evaluation of the
products in order to decide whether modifications or repositions are
necessary, or even deletion from the range.
Product Life Cycle (PLC)- products, like humans, have a finite life.
1- Introduction: Pioneers of new products bear costs outweigh the
income derived from the product. A primary task is to increase
awareness and interest. Prices may be set high to skim or low to
penetrate.
2- Growth: As the products takes off, the appeal widens to a wider
segments of the market. Competitors, attracted by the customer
interest, quickly produce their own versions of the product and start
to compete.
3- Maturity: market begin to reach saturation. It is the stage that most
financial services are currently at.
4- Decline: The product may lose its appeal to customers whose needs
may have changed, it could be made obsolete by the introduction of
new technology, or it could be displaced by changes to legislations.
Table 4.3 Marketing strategies at each stage of the credit card’s
life.
Managing of Existing Products
Branding: A successful brand is a name, symbol,
design, or some combination, which identifies
the product of a particular organization as
having substantial differential advantage.
- A product is made, a brand is bought. Product
can be copied, brand is unique. Product can be
outdated, brand is timeless.
Branding has several benefits to both buyers
and sellers. Table 4.4 page 119.
Table 4.5 Financial Services branding
strategies.
Product Elimination
Two types of elimination are evident in financial services:
1- the elimination process takes the product out of
existence for new customers. (and possibly existing
customers)
2- the product endorse some form of (external) elimination,
but retains a presence in the financial institution
(because of continued contractual obligations).
Figure 4.4 The financial product elimination process.
Table 4.6 Product elimination strategies for financial
services.