Customer-led innovation in a competitive market

Successful businesses discover what customers want, research and anticipate their changing needs and requirements, and then tailor products and services to suit: they are customer-led. Less successful businesses tend to create products based on what they believe themselves to be good at, and then set about persuading customers to buy them: they are predominantly product-led.

Not all industries display the same characteristics in this regard. The UK financial services industry has tended to be product-focused. Currently it produces and promotes thousands of products about which it informs potential customers through direct mail and other means. As a result, the public is regularly overwhelmed by a mass of messages – many complex, some obscure, and a few downright misleading. What many customers feel they most need in this ‘noisy’ market place for loans, insurance, private pensions etc. is clear, helpful information that enables them to understand and manage their financial affairs with judicious support and minimum ‘hassle’.

In 2003, as a result of market research, Abbey (one of the industry’s leading players) set about simplifying its offering to provide a range of easy to understand products and services. This initiative followed on from Abbey’s attempt at diversification into other financial products and markets that had resulted in substantial financial losses for the company, then trading as Abbey National plc. In the face of this, the company decided to relaunch itself, freshen up its image, and return to concentrating on what it has traditionally done best: providing financial services for people. The most important change involved taking a new, critical look at this over-complex market with the objective of becoming the UK’s leading personal financial services provider.

As part of this process, in September 2003 the company relaunched itself, including simplifying its trading name from Abbey National to Abbey. Research highlighted when people talk about Abbey, they refer to them as ‘Abbey.’ It also signaled a change. Today, Abbey has 18 million customers, employs 27,000 staff and has an annual turnover of £3.5 billion.

The UK financial services sector has become increasingly competitive as a result of several changes. Successive UK governments have looked to encourage competition in financial services so as to give customers a better deal. An important development in this area was the so-called Big Bang in 1986. This opened up competition between firms on the London Stock Exchange, and also developed competition for High Street banking services, with new firms becoming eligible to apply for licences to carry out banking activities. Thereafter, individual institutions could carry out a range of functions such as personal banking, insurance, and offering mortgages, and the traditional distinctions between banks, building societies and insurance companies became blurred.

In particular, the Building Societies Act enabled (but did not require) building societies that had previously concentrated on offering savings and investment accounts and granting mortgages to provide a full range of banking services (e.g. current accounts, overdrafts, loans, provision of credit cards).

Given this opportunity to become banks, many building societies changed their legal status. Previously many had been mutual benefit societies run on behalf of their members (people with investment accounts). Many became public limited companies with shares quoted on the London Stock Exchange. This enabled them to raise additional finance to compete in the rapidly expanding financial services market. With increasing affluence, more and more people were seeking mortgages through which to become homeowners. They also bought other financial products e.g. private pension plans and new savings accounts (for example to save for their children’s university education) etc.

In this new, competitive market the many providers of financial services are seeking to sell a large number of different investment and savings accounts, current and deposit accounts, mortgages, loans, insurance policies, cash cards, credit cards, etc. These products are targeted at specific market segments e.g. mortgages for home buyers, savings accounts for those with surplus funds, equity release schemes for elderly home owners. Unfortunately, from the consumer’s viewpoint, sellers still tend to take a product-led view: instead of discovering what customers want, they offer whatever they find most convenient to provide.

Other changes in the market included the development of 24-hour telephone and Internet banking. This provides a new platform for banks to deal directly with customers and have a different relationship with them.

Scanning the environment

Successful organisations understand their environment and provide products and services that reflect changes within it. One important part of environmental scanning is a SWOT analysis. A SWOT analysis carried out by Abbey revealed the following:

Market research involves identifying what customers want and then meeting their requirements. An important part of this is to anticipate customers’ requirements and be ahead of the competition. Often this involves a hunch or theory that managers will test through research.

Abbey was aware of the high levels of misunderstanding among financial services customers and was determined to provide simpler, more satisfying solutions. It set up some qualitative research i.e. sitting down with small groups of customers representative of the wider population and engaging in frank, open discussion about the financial services market, desired developments in general, and what Abbey in particular might usefully do.

The research confirmed that many banks are too product-led: the financial services they provide are based on well-tried, profitable recipes rather than on customer-led solutions that prioritise emerging customer needs and requirements.

Weighing up the research evidence, Abbey decided to remove much of banking’s mystique and place itself firmly within the real world of its customers.

Communicating with customers

Good communication involves transmitting clear messages, as is demonstrated by the interaction between Abbey and its customers. Abbey uses a range of methods to communicate with its customers, including:

• Letters to all customers written in a simple, intelligible language. Prior to its relaunch, Abbey used 2000 different types of standard letters to customers. These have been simplified and rationalised.
• New literature, cheque books and cards. For example: Abbey’s 50-page Winter Warmer Catalogue for 2003-2004 sets out in simple detail all the financial products Abbey provides for personal customers.
• New advertising built around the theme ‘turning banking on its head’ and a national campaign was developed around different media channels, including TV, Press, Outdoor and Branch. Abbey has spent £11 million on this campaign.
• Abbey has also engaged in dynamic new promotional techniques as part of “turning banking on its head” including placing over 16,000 wallets containing fake £50 bank notes in major city locations such as shopping malls, bars etc. in Birmingham, Leeds, Manchester and Glasgow. Each wallet contained exciting promotional material encouraging the finder to contact Abbey to find out more. This approach was considered a break with the traditional communication methods used by banks in general.

Abbey is committed to eliminating complex financial jargon, and to communicating with customers in terms they can understand.

Part of the simplification process involved reducing the number of Abbey current accounts from six to just one and simplifying the range of mortgages and savings accounts. Research highlighted that customers have become baffled by the vast array of mortgages and savings accounts available and simply do not know where to start to find the right solution for their needs. So Abbey set about reclassifying its range of mortgages and savings accounts into 3 simple types, clearly demonstrating which mortgages or savings would be right for the customer, depending on their individual needs.

Abbey has also reduced the number of its brands to concentrate on core brands such as Cahoot, (Abbey’s Internet bank) and a few other major brands.

Abbey has developed an effective website and recognises the importance of clear, direct communications with customers through this medium. It has also developed a state-of-the-art intranet system for communications within Abbey.

Communicating with the internal audience

In service organisations such as Abbey, employees are the most important organisational resource. In financial services a high proportion of employees are regularly involved in face-to-face and other forms of direct communications with customers (e.g. in call centres). So it was vital that all employees fully understood Abbey’s new approach.

Because Abbey is a large organisation made up of branches, many of which are geographically distanced from Head Office, Abbey’s culture (typical way of working) could not be changed overnight. Abbey set aside 60,000 extra training days to ensure that the new way of communicating with customers became firmly embedded in employees’ day-to-day practice. In addition Abbey hired 600 dedicated customer services staff in branches and telephone centres to further meet the demands of customers needs.

Abbey selected a small, dedicated team to be responsible for the change programme within the overall organisation. Secrecy was essential, because a key aim is to make Abbey different from its rivals, and it is commonplace within the financial services industry for organisations to copy each other’s best ideas.

To ensure maximum impact, the internal communications campaign to employees was delivered in a relatively short period of time in 2003:

External communications quickly followed:

Abbey has set out to transform banking practice by adopting a customer-led approach rather than a product-led approach. It has produced a statement of intent designed to make itself the best provider of customer focused financial services in the market.

A key part of Abbey’s strategy is to continue to research and develop new tangible products and services, which actively demonstrate its commitment to ‘Turn Banking on its Head’ and as part of this process continually evaluating the effectiveness of its advertising and communication strategies is key. That is its ability to successfully communicate its new brand position and new products. Prior to the re-launch, Abbey established a rolling 4-week tracking study to measure how effectively the message was getting across. In addition, Hall Tests, devised to measure consumer recognition of Abbey’s communication messages, are being used to check on the advertising campaign’s effectiveness. Abbey has also placed reply cards within all of its catalogues with a view to discovering what customers think of the changes so far. Analysis of the results is ongoing.