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Relationship Marketing in the
Financial Services Industry

 © Abram, Hawkes plc, 5 April 1995

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Summary

Through frustration with traditional marketing approaches, financial services providers continue to look for new marketing models to enhance their competitive position.

This search has never been more important as demand for many financial services remains depressed, and competitive intensity increases.

Relationship marketing is, in theory, an appropriate marketing model for the financial services industry. Developed by academics in the early 1980s, the model is based upon the idea that companies responding to their customers as individuals are likely to be rewarded by greater loyalty and superior financial performance.

Relationship marketing, therefore, takes the concept of market segmentation one step further. It calls for the development of continuous relationships with individual customers across a range of related products, in personalised form. It requires, as a minimum, a good customer database, highly targeted and personalised communications and consistently high levels of personalised service.

• Identify the extent to which such companies recognise the term relationship marketing, and its perceived benefits.
• Understand the practices underlying the concept.
• Gain insight into the progress being achieved, and any barriers to progress.

Despite the apparent applicability of the concept to the financial services industry, our research suggests that adoption of relationship marketing is sporadic. This situation reflects failure on the part of marketing academics to go beyond theory, and to recognise the major cultural implications of relationship marketing. It also reflects the degree of influence typically exerted by marketing staff within the financial services industry.

The understanding of relationship marketing appears quite superficial. There is widespread familiarity with the term and the basic theory (although the term itself is little used), but there is no common understanding of how relationship marketing is applied in practice.

As a result, companies appear to be stumbling towards adoption of the philosophy, not consciously embracing it. Although many report significant progress with the basic 'building blocks' such as database development and identification of cross-selling opportunities, there remain many problem areas.

Few companies have fully personalised dialogues with customers, which in part results from a lack of information regarding customers' needs and preferences.

These findings do not undermine the inherent value of the relationship marketing concept, but they do suggest that the theory is much better understood than the practice.

Relationship marketing requires major changes in business practice across the organisation. Progress has undoubtedly been constrained by poor information systems, but our research suggests that organisational culture and capabilities remain equally significant barriers to progress.

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