© Joachim Löning
The match between customer and investment is called suitability. Approaching the details, it becomes clear that only a section of a customer’s investment topics is considered and the collected data is categorised and thus coarsened – also because only a few standard products are available.
On the other hand, customised advice as offered by family offices does not require any coarsening and reflects the entire financial situation over time. We pose the question of how a comparable holistic approach could be organised on an industrial scale. One approach is too crude, the other too expensive. Mass customisation promises to solve this dilemma.
In a first article, we approached the topic in terms of definitions and looked at examples from other markets that provide valuable ideas for future mass customization offerings.
In this second part, further examples will be used to answer the question of how an individual approach can lead to more enthusiasm in financial matters.
Modern ski boot fitting as an example for Mass Customization?
Buying a ski boot from a Munich sports equipment retailer provides the customer with a special and unusual experience: despite spending the minimum amount of time in the store, you have managed to buy the boot with the best possible fit. This is done by taking a three-dimensional picture of the feet. This digital model of the foot is then compared with digital images of all available shoe interiors and the most suitable shoe is easily found.
Interestingly, the algorithm (unnecessarily) suggests 2 shoe models, because otherwise a quiet anxiety remains with customer: perhaps there could still be another shoe that fits even better. By providing two shoes, the customer remains included in the experience of identifying the shoe with the perfect (or perhaps second perfect) fit. As if this is not enough to reduce customer worries, in the rare case of a complaint a customer has, included in their purchase, access to a special process that can enhance the fitting through shoe with heating, stretching and so on.
The sporting goods retailer thus achieves a number of goals: the consultant is able to give an optimal product fit for the customer, the time-consuming trial and error procedure of repeatedly fetching shoes from the warehouse is overcome, and, finally, the requirement of special training for the consultant regarding which shoes could fit which foot is overcome.
New technologies change market relationships
From the point of view of the product provider (in our example the ski boot manufacturer), the introduction of a 3D fit optimization by the retailer brings with it a serious disadvantage: the particular value of any individual brand is largely devalued. In addition, a large part of the manufacturer’s technological innovation, for example in malleable inner boots, becomes, at best, secondary. The manufacturer’s brand becomes a secondary consideration because the retailer, in his search for the best solution for the customer, puts the fit for the customer in the foreground and searches independently of the brand. Of course, if the customer already has specific brand preferences, these can still be taken into account.
This example from the sporting goods sector explains a customization model in which the use of intelligent technology results in a combination of a considerable increase in efficiency and result of (literally) the best possible product fit for the customer. There are also some psychological mechanisms that improve the rate of satisfaction. The fitting process motivates the customer and rewards him with a positive shopping experience. In addition, due to the perfect fit the time eventually begins when the shoe is barely felt when worn and goes unnoticed; it can, therefore, to again reference Herzberg’s theory, a hygiene factor.
In this example, the introduction of new technologies has far-reaching consequences for relationship roles across the value chain. The responsibility for purchase satisfaction used to lie with the shoe manufacturer and is now being shifted to the retailer. A crucial part of this is that the product experience and brand communication (for which the ownership formerly lay with the shoe manufacturer) which focuses on the awareness of wearing an attractive product becomes eliminated as, due to the exceptional fit, the shoe is barely felt and the wearer is hardly aware of wearing them. When the customer does look down at their shoes, they do not think of the brand but instead remember the fitting process.
What does this mean for the Financial Services Market?
The role of the bank in the financial services market is analogous to the role of the retailer in the sporting goods sector. Just as the sporting goods retailer is responsible for all sports equipment, the universal bank is responsible for all financial matters. At the universal bank, investing stands for a special aspect of customer needs, just as the ski boot is only needed for a specific sport. Is it not possible, then, that the bank could introduce modern investment ‘fitting’ technology analogous to the virtual reality technologies in the ski boot sector?
In our example, the sports retailer has a strong history and expertise in ski sports, but a bank with comparable investment expertise is less common as most investment specialist branches that have long since been spun off into specialised investment managers. It is these investment managers that have the potential to introduce modern investment ‘fitting’ technology analogous to the virtual reality technologies in the ski boot sector.
What needs to be done
We said before that in the financial services value-chain investment competence lies with the asset management firm, which is equipped with the necessary knowledge and can provide technologies that deliver maximum individuality and thus true mass customization for the client.
Of considerable importance is the knowledge of future market developments, the provision of various market development scenarios, the development of new products and their management. Asset management firms have the necessary know-how to monitor, evaluate and further develop the client’s investments. Furthermore, specialists for investment advice such as tetralog already have powerful, cloud-based processes and services that the research of the investment company harmonizes holistically with the personality, life situation and the given portfolio of the customer.
Personal Finance
A well-fitting ski book is important to ski well and safely, but a well-fitting personal financial management is the pure expression of individuality and personality. Providing an inflexible product or service a surface-level match to the customer is, therefore, far more negative than an ill-fitting ski boot. The financial plan as a life plan is neither about appearances nor having, but about being.
Suitable technology enables the advisor to focus on people. If this is not done, a firm runs the risk of being degraded to an interchangeable supplier – just as the ski boot brand in our advanced 3D fitting technology retail store. The qualification of advisors should not be limited to functionalities that one would expect from a Robo-Advisor: an investment management firm should support advisors in adequately understanding, mapping and pursuing the client’s financial capabilities and life goals. This way, the financial life of the customer is mapped and organized, timing is kept in view, and liquidity channelled.
The use of digital processes when buying ski boots not only improves the quality of advice but also shifts the entire value chain. If we transfer the effects generated by intelligent augmentation when buying ski boots to the financial market, investment management firms should, as quickly as possible, realise the possibility that those concepts of consulting allow for a transition from product to fit.
An asset manager that comprehensively maps a customer’s goals on their financial deposits is able to provide a fit that binds the customer much better than is possible with a simple product sale. In addition, the assert manager also binds advisor and immunises itself against competitors with its offer.
