The financial services environment

Learning outcomes 

At the end of the chapter the student will:

Comprehend the key external influences in the marketing of financial services,

Appreciate the importance of environmental scanning in the marketing of financial services,

Integrate a stakeholder perspective into environmental scanning

Lecture structure 

Environment of financial services Macro-environment: model and variables Stakeholder environment: importance of stakeholder approach Contribution of scanning to marketing planning

Background to UK financial services environment 

United Kingdom background o one of the most competitive, efficient and secure banking

systems in the world and o one of the cheapest countries in the world to bank – with ‘free

if in credit’ banking (www.bba.org.uk). In 2008 witnessed a global financial crisis

o largely attributed to high risk lending e.g. ‘toxic mortgage-backed assets’

o Crisis originated in the United States but spread rapidly to the United Kingdom and other European countries. Iceland, Lithuania brought to brink of collapse. UK still in recession in later 2009.

Banks considered too ‘big’ to fail and propped up by governments. Little evidence of changes in behaviour in late 2009.

Environmental  scanning 

Sound marketing strategies result from understanding company environment

Achieved through environmental scanning. o to scan in a systematic way the environment in which they

operate, such as PEST (Kotler et al. 2008) or STEP (Brassington and Pettitt 2006)

o which are acronyms covering similar elements: political/regulatory, economic, social/cultural and technological (see Figure 2.1).

Financial services operate in a global marketplace with transactions take place across continents all the time, banks provide funds to each other to lend on and large companies operate across the world and need the financial infrastructure to support their activities.

A systematic framework is needed that serves to remind financial service companies of the world in which they operate, encouraging them to look outside their immediate environment, which might prompt a more objective evaluation of their business situation.

Macro-environment 

Macro-environment: various  models but the four-step model of STEP  or PEST is used here, as follows:

o Political & regulatory: governments, regulatory bodies, international agreements

o Economic: Eurozone, exchange rates, levels of debt o Socio-cultural: attitudes towards debt, social diversity,

sustainability o Technology: new product development, growth of new

channels The aim is to provide a means for systematically scanning the

environment

Political  & regulatory environment 

Reasons for providing  a regulated environment for financial services:

o To protect the investor: quality of many financial instruments not easily assessed; investor must be made

aware of the risks, although investor expected to assume some degree of responsibility.

o To encourage competition in the marketplace by opening encouraging new entrants. Avoids over concentration of dominant (FIs). Credit crisis of 2008 has reduced number of FIs. Mergers and takeovers overseen in UK by Competition Commission, the Department of Business, Enterprise and Regulatory Reform (BERR).

o To reduce the amount of illegal activity on the part of criminals who might use the system to ‘launder’ money (see www.hm-treasury.gov.uk/2643.htm).

o To attempt to address externalities – actions that could undermine the stability of the financial services system, activities of casino banking

financial institution 

Macro-environment:  political, economic, socio-cultural, technology  

Stakeholder  environment  

Figure 2.1 The macro  and stakeholder environment for FIs

Stakeholder  model 

Refers to the  micro-environment of financial services Borrows from stakeholder theory, argues that management

decisions need to take account of all stakeholders within and close to the FI.

Value to FI is to widen awareness of actors in their immediate environment

Financial institution 

Macro-environment:  political, economic, socio-cultural, technology  

Stakeholder  environment  

employees 

management 

competitors 

suppliers 

intermediaries 

customers 

strategic partners 

shareholders 

Figure 3.2 FI  Stakeholders

Stakeholders 

Competitors Brokers and intermediaries Suppliers Employees Management Strategic partners Customers Shareholders/members

Type  of environment 

Environmental  variables 

Examples 

Macro-environment 

political/regulatory 

Financial service regulators,  international agreements 

economic 

Currency zones, international  trading, sustainability 

socio-cultural 

Cultural and religious  banking 

technology 

Cashless cards, IT-based  systems 

Stakeholder  environment 

competitors 

Interbank lending, undifferentiated  marketplace 

brokers 

Independent advisors 

suppliers 

IT suppliers, consultants 

employees 

Branch, call-centre staff 

managers 

Non- marketing managers,  senior executives 

strategic partners 

Supermarkets, mobile phone  operators 

customers 

new/existing 

Table 2.1 Examples of  environment and variables 

Summary 

Systematic method of analysing macro-environment essential for FIs to include political, economic, socio-cultural and technology variables.

Regulation by governments, central banks, financial authorities and other agencies failed to bring about responsible and sustainable behaviour in banks and other financial institutions.

The micro-environment analysed stakeholder model to include managers, customers, suppliers etc

FIs closely linked, lending and borrowing from each other. Need to adopt sustainable behaviours for an improved chance of a longer term horizon being taken.

Marketing is generally concerned with developing strategies that have a medium to long term horizon so environmental scanning is central.