A cowboy nation
A cowboy nation - Financial Marketing magazine April 2006
Around the time that Wolfgang Amadeus Mozart was touring Europe as a child prodigy, Adam Smith wrote in The Wealth of Nations: “Consumption is the sole end and purpose of all production and the interests of the producer ought to be attended to only as far as it may be necessary for promoting that of the consumer.” If only people still listened to Smith as well as Mozart.
Of course Adam Smith lived in the age of production rather than services, but his advice still applies to our life and times.It is only a slight exaggeration to say that all the great commercial mistakes have been made when the producer’s interest has been allowed to eclipse the consumer’s, as spectacularly demonstrated by recent events in the financial services sector.
The remedy is an eerie echo of Adam Smith’s words, with the FSA’s website pledging to ensure that firms meet the requirements of principle 6 “to pay due regard to the interests of its customers and treat them fairly.”
Where did it all go wrong? In a word, marketing. Definitions of marketing seem to divide into two types: those that make reference to the customer’s interests and those that don’t. Another division is between those that are integrated with the sales function and those that are not. The ultimate recipe for disaster is marketing that achieves the worst of both worlds by equally ignoring (or misunderstanding) the needs of the buyer and the seller.
Not so long ago, the only financial service that was the subject of recognisable selling was insurance, and even then the emphasis was often on signing up friends and acquaintances – the buyer’s low financial awareness being offset by the seller’s integrity and the value of their relationship.
Meanwhile the banks looked after people’s money whilst the state combined with their employers to take care of pensions. This happy equilibrium might have continued for years to come, but for the 1986 'big bang' that removed many traditional barriers by deregulation.
Suddenly it became difficult to tell a bank from a building society, and everyone was selling financial products in competition – which almost by definition puts the providers’ interests first, and certainly does so when the basis of remuneration is high commission. Not to put too fine a point on it, people were being sold what they did not understand, what they did not need and what they could not afford.
The industry might have got away with it but for the fact that its endowment and pension products were predicated on a buoyant stock market. Once the market exercised its inalienable right to behave unpredictably, there was a predictable ending in tears of suffering, blame and retribution.
Companies in the financial services sector were sent what Iain Duncan Smith might have called a simple and stark message to reform or die. The cowboys were to be run out of town, and only allowed back in if they promised to respect and obey the law. Either because of the incorrigibility of their employees or the paucity of their resources, some companies chose to ride off into the sunset; others saw an opportunity to regroup and retrain on a field that was flatter and smoother.
We applaud this rehabilitation. Our philosophy is to focus on the process of selling, on the basis that if the means are in place the ends will inevitably follow. The reformed financial services environment is home from home to this approach, which argues that you don’t make someone a better salesman by offering incentives for selling more: you make them a better salesman by showing how to discover and satisfy more customers’ needs. And, particularly in this industry, you provide them and their customers with evidence of their competence.
The role of marketing in this new environment is to prepare the seller’s ground and light the buyer’s way. It needs to make compatible, attractive and credible promises to both parties, seeking to engage them in a long-term relationship rather than a brief affair, however exciting. The financial services experience shows what can go wrong when producer sales volume is valued more than customer satisfaction: the new regime would be music to Adam Smith’s ears.