Facing the new challenges of consumerism in financial services : market segmentation and value chain re-engineering at Old Mutual

Potgieter, Christopher (2000-12)

Thesis (MBA)--Stellenbosch University, 2000.


ENGLISH ABSTRACT:The financial services industry in South Africa, and indeed internationally, is facing enormous challenges in terms of defining and implementing effective business models to compete in the new economy. Dated paradigms, such as market share being the main driver of profitability and product-push sales models, are increasingly being challenged by a shifting balance of power towards the consumer. The consumer's purchasing power is being strengthened by the increasing commoditisation of financial products and the proliferation of channels through which products can be purchased. Competitive differentiation purely on the basis of price, product, place and promotion is thus becoming more difficult. Financial services companies have to reinvent their business models to account for the fast changing consumer landscape. The ownership and management of customer relationships and the lifetime value of customers are key factors influencing the revision of business strategies. This study serves as a case study of the strategies that Old Mutual has put in place and is now implementing to rise to the challenges of the new market. The requirement for market segmentation and value chain re-engineering is investigated in detail. These strategies are critically evaluated against the modern thinking of international business strategists. The specific subordinate focus points for the study comprise the following: i. Industry and competitive conditions ii. Key success factors for organisational transformation and customercentricity iii. Market segmentation and value chain re-engineering iv. Customer relationship management (CRM) and the role of technology v. Product and channel dynamics vi. Organisational implications for Old Mutual It becomes evident from the case study that financial institutions such as Old Mutual must continue and even accelerate their transformation from product-centric to customer-centric enterprises. This transformation will enable them to address effectively the issues they face today: decreasing customer satisfaction, increased competition, and multiplying customer management costs. A valid approach to initiating customer-centricity is through the segmentation of the market - identifying customer segments that are distinct in terms of demographics, attitudes and behaviours. New value propositions can then be developed that fit the needs and wants of the segments. These propositions should encompass the total value delivery chain - brand, product, channel and service in such a manner that it makes economic sense. Companies need to assess existing propositions and marketing initiatives in the light of the segmentation exercise to determine whether there any opportunities to fill gaps, create new businesses or to terminate value destruction. The development of segment specific propositions must be underpinned by business processes and complimentary structures, controls and systems. This requires a fundamental alignment of the organisation to deliver customer focused value propositions. Entrenched interests in existing structures and an inward focus as opposed to an outward (market) focus are major obstacles in this alignment process. Intervention and leadership is required to affect the necessary transformation. Alignment is needed throughout the organisation for this type of transformation to succeed. Old Mutual is acutely aware of these obstacles and has committed to the new strategy at executive level. Many institutions are tempted to spend time and effort building CRM capabilities in the belief that these alone will deliver success. However, without a clear, compelling value proposition, the power of marketing is limited. Instead institutions must develop value propositions that give them an edge over product focused rivals. They can then use CRM tools to extract maximum value from their competitive advantage. An emphasis on relationships can indeed become part of their strategy, but first they must make sure that enough customers value the proposition sufficiently to make it profitable, and that they can deliver on that promise. Technology investments alone will therefore not allow a company to transform to a customer-centric enterprise. These investments must be coupled with commensurate investments in organizational restructuring, process improvements and definition of enterprise-wide metrics for establishing the present and potential value of each customer. It is for these reasons that Old Mutual is implementing CRM incrementally. With the development of a segmented approach to the market and the advance of technology, new and superfluous distribution channels are equally likely to appear. Institutions such as Old Mutual will have to manage the conflicts that arise with care. There is great risk in alienating or cannibalising existing channels prematurely. The issue is to decide when and how to creatively destroy a distribution model that is no longer appropriate. The alignment of channels and service to the market is as important, if not more so, than products in delivering the brand promise. It is critical that there is total alignment of brand, marketing, product, channel and service. Consumers are really purchasing branded solutions, not products. Old Mutual has superior brand recognition, but needs to focus the brand in particular segments and ensure delivery of the brand promise through every customer interaction. In the final analysis Old Mutual, like its peers, has recognised the imperative for total value chain re-engineering and organisational re-alignment along market segments where the brand has appeal. These institutional transformations will remain work-in-progress for some time and constant adaptability to market forces will become the modus operandi.

AFRIKAANSE OPSOMMING: Die finansiële dienste bedryf in Suid-Afrika en inderdaad, wereldwyd, staar groot uitdagings in die gesig in terme van die definisie en implementering van effektiewe besigheidsmodelle om in die nuwe ekonomie te kompeteer. Uitgedateerde paradigmas soos markaandeel as aanduider van winsgewindheid en produkgerigte verkoopsmodelle word al hoe meer bevraagteken deurdat verbruikers al hoe meer die hef in die hand het. Verbruikers se koopkrag word versterk deurdat finansiële produkte toenemend kommoditeite word en deur die toevloei van kanale waardeur die produkte gekoop kan word. Dit word spoedig moeiliker om op grond van prys, produk, plek en promosie te kompeteer. Finansiële dienste firmas moet hul besigheidsmodelle hersien om tred te hou met die snel veranderende verbruikersmark. Die besit en bestuur van kliënteverhoudings en die leeftydwaarde van kliënte is kernfaktore in die herformulering van sakestrategië. Hierdie gevallestudie ondersoek die strategië wat Ou Mutual in plek gesit het en tans implementeer ten einde die nuwe markuitdagings die hoof te bied. Die vereistes vir marksegmentasie en die hernuwing van die waardeketting word in diepte ondersoek. Hierdie strategië word krities ge-evalueer teenoor hedendaagse internationale sakestrateë. Die spesifieke fokuspunte van die gevallestudie behels die volgende: i. Bedryfs- en kompeterende toestande ii. Sleutelfaktore vir die sukses van organisasie-transformasie en kliëntgerigtheid iii. Marksegmentasie en waardekettinghernuwing iv. Kliënte-verhoudingsbestuur (CRM) en die rol van tegnologie v. Produk- en kanaaldinamika vi. Organisatoriese implikasies vir Ou Mutual Die gevallestudie dui aan dat finansiële instansies soos Ou Mutual moet voortgaan en selfs versnel met hul transformasie van produkgesentreerdheid tot kliëntgesentreerdheid. Hierdie transformasie sal hulle in staat stelom effektief aandag te verleen aan die hedendaagse uitdagings van afnemende kliënttevredenheid, toenemde kompetisie en snelgroeiende kliënte-bestuurskostes. 'n Geldige benadering tot die aanvang van kliëntgerigtheid is om die mark te segmenteer op grond van demografie en die benadering en optrede van kliënte. Nuwe waardeproposisies wat die behoeftes van die mark aanspreek kan op grond hiervan ontwikkel word. Hierdie proposisies behoort die hele waardeketting aan te spreek - bemarking/handelsmerk, produk, kanaal en diens op so 'n manier dat dit ekonomies sin maak. Firmas is genoop om bestaande proposisies en bemarkingsinitiatiewe te evalueer in die lig van segmentasie ten einde uit te vind of daar geleenthede is om leemtes te vul, nuwe besighede te skep of waardevernietiging te staak. Die ontwikkeling van segmentgerigte proposisies moet ondersteun word deur besigheidsprosesse en aanvullende strukture, beheer en stelsels. Dit vereis 'n fundamentele belyning van die organisasie ten einde kliëntgerigte proposisies te lewer. Gevestigde belange in bestaande strukture en 'n interne fokus in plaas van 'n markgerigte fokus, is groot struikelblokke vir die proses van belyning. Intervensie en leierskap is nodig om die nodige transformasie te bewerkstellig. Die hele organisasie moet belyn wees ten einde hierdie tipe transformasie te laat slaag. Ou Mutual is deeglik bewus van hierdie struikelblokke en is op uitvoerende bestuursvlak verbind tot die proses. Vele instansies staar die versoeking in die gesig om tyd en moeite spandeer ten einde kliënteverhoudingbestuurs-vermoëns (CRM) te ontwikkel met die vertroue dat dit genoegsaam is vir sukses. Sonder 'n duidelike en aangrypende waardeproposisie is die krag van bemarking egter beperk, ondanks al die voorafgenoemde ontwikkelings. Daarom moet instansies fokus op proposisies wat hulle sal bevoordeel relatief tot die kompetisie. Dan alleen kan kliënteverhoudingsbestuur (CRM) benut word om maksimum waarde uit die kompeterende voordeel te trek. 'n Fokus as verhoudingsbestuur kan inderdaad deel word van die strategie sodra daar genoeg winsgewende kliënte bestaan wat die proposisie aantreklik vind en hul verseker is dat hulle die belofte van die proposisie kan vervul. Investering in tegnologie alleenlik is dus nie genoeg om 'n firma te transformeer tot 'n kliëntgerigte organisasie nie. Sulke beleggings moet gekoppel wees aan soortgelyke beleggings in organisasievernuwing en prosesverbeterings en die definiëering van maatstawe vir die bepaling van huidige en potensiële kliëntwaarde. Dit is daarom dat Ou Mutual kliënteverhoudingsbestuur inkrementeel implimenteer. Met die ontwikkeling van 'n gesegmenteerde benadering tot die mark en die voortuitgang van tegnologie, is dit waarskynlik dat verskeie distribusiekanale oorbodig sal word. Instansies soos Ou Mutual sal die konflik wat ontstaan met sorg moet hanteer. Die risiko is groot om bestaande kanale te vroeg te vervreem of te kannibaliseer. Die uitdaging is om te besluit wanneer en hoe om oorbodige distribusiekanale kreatief te vernietig. Om verkoopskanale en diens markgerig te kry is net so belangrik, indien nie meer belangrik nie, as om produkte te ontwikkel wat die handelsmerk uitdra. Dit is krities dat daar deeglike belyning is van die handelsmerk en bemarking, produkte, kanale en diens. Kliënte koop handelsmerk-oplossings en nie produkte van handelsmerke nie. Ou Mutual het 'n uitstekende handelsmerk, maar moet dit fokus op spesifieke segmente en moet verseker dat die handelsmerk se belofte gestand gedoen word met elke interaksie met die kliënt. Op die keper beskou, erken Ou Mutual, soos sy eweknieë, die imperatief om die waardeketting en die organisasie te hernu ooreenkomstig die marksegmente waarin die handelsmerk hom beroep. Hierdie transformasies sal lank duur en die vermoë om aan te pas by markkragte sal die modus operandi word.

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