We've put forward two of the main planks of this book's argument in previous chapters, and in this chapter we look at them more closely. They are:

1. The retail financial services industry has enjoyed much success over many years with little need for marketing (and even less need for good marketing).
2. Things are changing, and we're convinced that good marketing will be much more important to ensure continued success in the future.

Itemising the factors that support these propositions means making two lists that are at least to some extent mirror images of each other. For example, the first list will say that for many years the regulator wasn't much concerned about marketing, so various bad practices could continue: the second list will say that these days the regulator is much more concerned about marketing, so much of the bad is being driven out by good. Still, the factors are interesting, varied and important enough that a little repetition may be no bad thing.

In Chapter 2, we discussed the growing importance of marketing from the point of view of financial services providers. With the help of the CIM, we defined marketing as the set of processes that enable firms to develop an understanding of their customers, and so to provide products and services that meet their wants and needs.

Exactly the same story can be told in terms of the benefits it offers to the customer. From the customer's perspective, if marketing is the set of processes that delivers products and services that they want or need, it must enable them to make good financial decisions and manage their financial lives successfully.

There's nothing extraordinary about this. You might say it's a statement of the bleedin' obvious. Marketing has, after all, played just this role in almost every other part of the consumer economy. What's odd is not so much that we see a need for more marketing in the future of financial services. What's odd is our contention that it hasn't been much needed in the past. With good marketing offering such important benefits for firms and consumers alike, our assertion that the industry grew strongly over many years without needing very much of it sounds unlikely.

But it seems to us that there were good and clear reasons. Across financial services, many other factors were at work, enabling firms to find buyers for their products and services, and consumers to find more or less the financial products and services they needed. Here are some of those ‘other factors’:

• The further you go back in time, the more important it is to recognise that people simply had less money. Over the past 50 years, average incomes after tax have very nearly doubled in real terms, and personal savings have increased by over 500% to a total in excess of £1.5 trillion. People needed far fewer financial services to look after what they had simply because they had so much less.
• The same is true of financial services connected to what is now the most important financial commitment for most people: home ownership. That means not just mortgages, but also types of insurance, investments used as repayment vehicles, loans secured on property and eventually, in some home-owners' later years, equity release. (Largely as a result of affordability issues, in England the level of home ownership actually peaked at 71% of households in 2003 and has now fallen back to 64%. That's still a high figure by historic and by international standards, but it will be interesting to see if it continues to decline especially among the young, and if so what the financial consequences will be.)
• In the past, family traditions and regional ties were much stronger. Anthony grew up in the north-east, so his family were Northern Rock customers. Lucian grew up in Surrey, so his family were with Abbey National. Our first choices of mortgage lender had nothing to do with marketing. Our fathers introduced us to the managers of the appropriate local branches – who, provided that we had maintained passbook savings accounts for the past few years, might with luck be willing to grant us a mortgage.
• In a similar way, in sectors like banking where access to branches was important, branch locations mattered. Lucian grew up in a village where the only bank branch was Lloyds, so it's no surprise to discover where he opened his first savings account. The bank with a branch nearest his college at university was NatWest, so guess where he opened his first current account. (Branch locations mattered, because other methods of dealing with your bank were limited. Telephone banking wouldn't have been a good option in Anthony's earlier years: he can remember the excitement when the very first telephone was installed in his Newcastle street, at the doctor's house.)
• For many, over many years, employers played a key role in providing financial services as employee benefits, particularly in pensions. There were no personal pensions in the UK until 1988: those who had pensions were members of an employer's group scheme.
• At the same time, in the postwar period more people were more content to depend on the State without making private provision. For some years from the late 1940s, the new Welfare State seemed to have all the answers: if you paid your taxes and your National Insurance, in return the State would provide you with education, healthcare, unemployment benefit and in due course a pension. Perhaps because of lower standards of living and lower levels of income during working lives, or perhaps because of higher levels of confidence in State benefits, or both, far fewer people felt the need to supplement these benefits with private provision.
• The market for general insurance was much smaller because people had less to insure. Fewer owned cars and homes, and most had less need for home contents or travel cover. Car insurance was a legal requirement, and for homeowners home insurance was more or less required by mortgage lenders – no need for marketing to stimulate demand. And in any case, the market was largely controlled by brokers, whose customers would usually accept whatever cover they recommended. (In fact, though, as we'll see, this market sector was arguably the first to start feeling the winds of change.)
• General insurance was by no means the only market controlled by intermediaries. In most sectors, one of the most important reasons – perhaps the most important – for the limited role of consumer marketing over many years has of course been the central and continuing role of face-to-face salespeople of one sort or another. At every level, and in almost every part of the market, financial services has been an exceptionally sales-driven industry. Salespeople can do even better when supported by consumer-facing marketing, but they can do well enough when there's little or none. For decades, the industry chose to spend billions on motivating salespeople with commissions, not on marketing, to win business from its customers.
• As a result, while relatively little marketing activity was focused on consumers, a great deal was and still is focused on intermediaries. Much of it, though, has been very poor marketing indeed. Whether you look at grotesque levels of commission (investment bonds routinely paying 8% of the customer's capital to the person selling them) or at dangerous gimmicks designed primarily to give salespeople seductive stories to tell (the old Equitable Life's unaffordable retirement income guarantees), what was good for advisers in the short term was often very bad indeed for their clients in the longer term.
• Many of the bad sales practices that persisted for so long were the result of a lack of focus on the part of the regulator. Looking back on the sequence of regulatory interventions on the processes of sales and marketing, you can't help remembering the comedian Eric Morecambe's famous line that as a musician he played all the right notes, but not necessarily in the right order. For example, introducing the requirement for financial advisers to ‘polarise’, choosing whether to become ‘tied’ or ‘independent’, some 24 years before acting to eliminate sales commission does bring an expression involving the words ‘cart’ and ‘horse’ to mind.
• Much marketing activity responds to change, and in financial services much change is driven by government in legislation or fiscal policy. By today's standards, there was relatively little of this over a long period. (In hindsight the mid-1980s look like a turning point. The Thatcher government was highly active in the field of personal finance, launching many initiatives with major implications, some positive and some negative, for consumers. These included the big public sector privatisations; the introduction of Personal Equity Plans (PEPs), the tax-privileged precursors of today's Individual Savings Accounts (ISAs); the launch of personal pensions; and the abolition of Life Assurance Premium Relief, which dramatically reduced the role of life assurance policies as savings vehicles. All this happened within the space of three or four years – and at the same time, the government set about reshaping the entire industry with its Financial Services & Markets Act, passed in 1987. Directly or indirectly, all these initiatives triggered new waves of marketing activity.)

Taking all these factors as a whole and looking back, say, 40 or 50 years, it's easy to imagine how individuals could have made journeys through the financial world, acquiring an array of financial services, while scarcely engaging with any marketing activity at all.

While still young, someone growing up in a middle-class family might be introduced by a parent (in those days usually a father) to a full set of key financial services providers – bank and building society manager, insurance broker, stockbroker or financial adviser. He or she would likely have chosen a bank branch on the basis of its location; taken a mortgage from the building society and arranged motor insurance via the broker; joined an employer's pension scheme and taken the employer's death-in-service benefit; relied on the NHS for healthcare and State schools for children's education; in later years taken advice to save regularly in a PEP or later an ISA; and then at retirement enjoyed a generous final salary pension provided by a benign employer.

In less affluent families the cast of characters might be different – not so much of a role for the stockbroker, but more for the home-service Man from the Pru and his famous bicycle clips – but the nature of the journey would be much the same. Individuals would have little need for good marketing to help them through their financial lives.

Eventually, though, things did start to change. We identify the mid-1980s as a time when the gathering of pace was noticeable, but you could make a case for other key dates. Some might suggest a much earlier date - maybe 1966, the year when Barclays effectively broke the gentlemen's agreement among the big High Street banks to avoid the expense of competing with each other by advertising on television. In fact, Barclays' first TV commercial paid lip service to this agreement, partly by advertising its brand-new credit card, Barclaycard, rather than a pure banking service, and partly by going out under the name of its wholly-owned Scottish subsidiary, British Linen Bank, which must have rather mystified English TV viewers.¹

By the turn of the millennium, financial services marketing had grown enormously. The expenditure figures for its most visible and easily measurable manifestation, media advertising, tell us that by the year 2000, financial services was by some distance the highest-spending of all sectors – more even than food, drink or even automotive.

However, the quality of much of this activity was poor. Many of the propositions expensively advertised on television were triumphs of style over substance, offering poor customer experiences and failing to meet real needs. And there was often a lack of integration, with no real thought given to the need to manage customer journeys from initial awareness, often created by all that advertising, through to the purchase and use of the product. Few providers had really come to terms with the enormous difficulties in engaging most consumers with financial propositions, in a sector where most consumers' dominant attitudes and behaviours are apathy and inertia. From an era where little was happening, we advanced into an era where a great deal seemed to be happening – but it wasn't making an awful lot of difference.

At the same time – around the turn of the millennium – another highly-visible change in retail financial services was becoming apparent. Those years were of course the years of the first dot.com boom, and the change in question was the rapid evolution of the Internet. Over the space of three or four years, dozens of new digital financial services propositions emerged – some start-ups, many new arm's-length brands launched by major players. Many were backed by very large marketing budgets. But the large majority of them had very short and unprofitable life spans.

From today's perspective, it's obvious that in every way, the Internet is supremely well-aligned with the world of financial services, to the benefit of both providers and consumers alike. It fits perfectly with the financial world's intangibility, with no need for delivery vans, drones or even 3D printers to deliver what it offers. It provides near-total accessibility – long gone are the frustrations of 9.30 to 3.30 bank opening hours. Thanks largely to social media, it's rich in opportunities for consumers to tackle what the FCA calls ‘information asymmetry’ – it's easy to overcome the lack of understanding which has so often disempowered them in their dealings with the industry. Social media, of course, also level the communications playing-field between companies and customers. The era in which ‘communication’ described a one-way process in which companies say things to their customers has now come to an end.

And from a pure business perspective, compared to any other alternative, digital offers unbelievably low-cost interactions between firms and their customers – one online bank claims to be able to process transactions at one-fortieth of the cost of branch-based processing – and with costs at such low levels companies have no problem either offering customers much better value, or making a lot more profit. Or, very probably, both.

In the light of all this, you'd expect that financial services would be one of the first sectors of the economy to be transformed by digital technology. But in truth, nearly all of those first-wave dot-coms failed – and since then, on the whole really transformational change has been slow in coming. There are hundreds, if not thousands, of small, innovative start-ups, but almost all of them are struggling for customers and for funding.

There has certainly been a great deal of substitution – consumers and providers alike now do all sorts of financial things online that they used to do by post, on the phone or in branches. But at the time of writing, we'd say that the only new major mass-market financial services business model to have achieved real success in the digital age has been the aggregators, or price comparison sites – and if we were feeling particularly churlish, we'd say that anyway, when it comes down to it these sites are only remote brokerages. (If we were feeling less churlish, we'd also add peer-to-peer lending as another sector to have been fundamentally enabled by digital, but at the time of writing you couldn't really call it ‘major’ or ‘mass market’.)

There are many reasons for this. One that stands out especially for that first wave of dot.coms back at the turn of the millennium was a failure to recognise the limitations of the technology. It really wasn't viable to move consumers' personal finances onto the Internet in the era of painfully slow dial-up modems.

But we also think that the often-limited role of marketing has had a lot to do with it. If there's one clear requirement of the digital economy which hasn't always received the attention it deserves – even though it's a requirement that applies to consumer-facing digital businesses generally, by no means just to financial services – it is that digital businesses require good marketing to achieve lasting success.

How so? Let's reprise our Seven Ps table one last time:

By our reckoning, three of the seven – product, promotion and process – must invariably be excellent if a new digital service is to have any chance of success, and depending on the nature of the service and the expectations of the target market any or even all of the other four may matter as much.

Returning to our story of the first dot-com boom around the turn of the millennium, this analysis helps explain what went wrong. Perhaps unsurprisingly, at such an early stage in the development of digital services, these first-wave players scored poorly in most, if not sometimes all, of these seven areas. In hindsight, most also suffered from shaky digital functionality – these were, more or less, the digital equivalents of the Wright Brothers' aeroplane and the Model T Ford. But some, at least, might have overcome these limitations – after all, Amazon, eBay and Google all did – with better and more focused marketing (or, to put it another way, with a stronger focus on consumers).

That's one big reason why we believe that, of all the changes affecting the financial services industry in recent years, the exponential growth of digital is the one that makes the greatest demands on the quality – and actually very often the quantity – of marketing. Digital services give bad marketing – or, even worse, no marketing – nowhere to hide.

With this massive change in mind, let's review that list of factors that limited the role of marketing over the years. To what extent do they still apply today?

1. As incomes, savings and most of all borrowings have grown, so has the range of financial products and services available. Fifty years ago, there were a couple of hundred unit trusts and investment trusts: now there are nearly 9,000. Other categories didn't exist at all – in the years since Barclaycard, the UK's first credit card, arrived in 1966, over a thousand others have followed. The marketing challenge required to build and maintain a consumer franchise in such overcrowded markets is gigantic.
2. The huge increase in home ownership has caused an explosion in the number of products and services available to – and needed by - consumers. The number of mortgage products on the market has actually declined slightly since the peak just before the financial crisis of 2008 – not quite so many options for sub-prime borrowers – but there are still over 6,000.³ The same point about the struggle to compete for a consumer franchise applies.
3. Family traditions still count for something, but, not least because of the Internet, much less. Most younger people, including the much-discussed Millennials, don't see any reason to stick with the providers chosen by their parents and grandparents. According to Derek White, of global bank BBVA, their customers spend an average of two hours a year in bank branches, compared with 45 hours on their mobile banking app. They want services designed to meet their needs, optimised for mobile and drawn to their attention by digital channels and networks, and with a look and feel and customer experience to match.⁴
4. Geography is history, as the saying goes, thanks again mainly to the Internet. Regional building societies struggle to maintain families' allegiances across the generations, and a dwindling number of people care where the nearest branch of their bank is located. Choices are made on the basis of marketing, not local presence. What's more, there has been a significant change in regulatory policy. Local building societies were established so that people living in, say, Rotherham could save with their local Rotherham building society and then use those savings to obtain a mortgage in Rotherham. The UK regulator now believes that this causes ‘concentration risk’, so the Rotherham building society is encouraged to use the savings of the people of Rotherham to enable people living pretty much anywhere other than Rotherham to buy a home.…
5. In personal finance, one of the most significant developments of recent years has been the rapidly-increasing reluctance of employers to guarantee the retirement incomes of their workforces.⁵ At the time of writing, hardly any final-salary pension schemes in the private sector are still open to new members (although of course it's a very different story in the public sector, where final salary pensions still represent a colossal drain on the public finances). This trend has created such a crisis in retirement savings that the government has been obliged to take action, compelling employers to offer workplace pensions on the basis of auto-enrolment. With contribution levels remaining low, the very high initial take-up of these schemes reflects a triumph of behavioural economics rather than marketing. But as contribution levels rise sharply over the next few years and the temptation to opt out increases, we suspect this may well change, and marketing may have an increasingly important role to play in encouraging people not to opt out of schemes either at the outset, or over the years as financial pressures increase.
6. As the quality and availability of State-funded services have continued to decline (or at least to be perceived to decline), and as people's expectations of the kind of treatment they want for themselves and their families – for example, in education, in healthcare and in old age – continue to increase, the amount of money people choose to divert into private provision goes on increasing too. Some of this goes into dedicated financial products, like private healthcare and long-term care insurance: much just goes into mainstream savings and investments.
7. We've seen dramatic and continuing change in general insurance, and perhaps most of all in the biggest category, motor. With car ownership continuing its long-term upward trend, with insurance still compulsory and annually renewable, and with most consumers rightly or wrongly feeling confident about serving themselves without an intermediary's involvement, the direct-to-consumer sector began to show growth as long ago as the mid-80s and has carried on growing and evolving since. Dozens of direct writers have followed in the footsteps of Direct Line, the original pioneer - and of course the coming of the Internet resulted in the next generation of consumer services, the aggregators or price comparison sites (now spanning a much broader range of sectors, but with a core strength in car insurance). Today, just as when the direct writers emerged over 30 years ago, this sector is worth close scrutiny once again for signs of really disruptive, breakthrough innovation: with scores of insurtech start-ups already piloting radical ideas and new technologies such as telemetry, it can only be a matter of time until some start to get real traction.
8. Face-to-face selling is still important in some sectors of the market, but it is under attack from all quarters. Gradually, regulation, in its strange and rather random cart-before-horse kind of way, has stamped out many of its worst excesses, especially in the area of long-term savings and investments and to a lesser extent in mortgages. Commission has gone from many sectors of the market, and with it commission bias. And the required standard for the suitability of advice is now so high that the face-to-face advice process has become too long and complex, and so too expensive, to make sense for consumers with modest amounts of money. Meanwhile, financial services providers have had their own reasons to move away from face-to-face advice: as well as the regulatory risk, all that face-time does take a big bite out of their profits. As a result, the number of financial advisers has fallen dramatically, from some 250,000 at the peak to about a tenth of that number today, and as a result millions of consumers have to make financial decisions on the basis of their own judgement. (In many other sectors, though, such as banking and life and health insurance, sales practices continue largely unchanged.)
9. The recent influence of regulation on financial services marketing – now mainly involving the Financial Conduct Authority (FCA) and previously the Financial Services Authority (FSA) – could fill a book in its own right, although not a particularly enjoyable one. While our regulators have recognised sales processes as a key source of consumer detriment for many years and tried to tackle the most damaging with frequent rounds of intervention, it's fair to say that broader marketing has only moved more recently toward the centre of their field of vision. As a result, many of their interventions so far – arguably most – while well-intentioned, have suffered from unintended consequences and have often proved counterproductive. So far, it would be difficult to argue that the regulator has done much to support or encourage good marketing.
10. The effects of changes in legislation and taxation continue to increase from each year to the next. A large proportion of marketing initiatives are driven by legislative or fiscal change, with tax being still by far the most powerful tool in the public policy toolbox to change or manage people's financial behaviour, where it plays much the same role that commission used to play among advisers. The quantity of tax-related legislation on the statute book continues its relentless rise.

    Many changes in tax rules bring about huge changes in the shape of marketing activity. An initiative such as the Pensions Freedoms introduced in George Osborne's 2014 Budget on an extremely tight timetable triggered a wave of new product and service launches right across every company with any kind of stake in the retirement sector. It's simply impossible to calculate the number of millions of person-hours, and investment pounds, triggered by those few short sentences in the Budget speech. More recently, the same can be said of the EU's PSD2 legislation, ushering in the era of so-called Open Banking – at the time of writing, we wait to see the kinds of new marketing initiatives that this will bring about.

It's true that we're biased, but it seems to us that over a long period all the important trends have been pointing in the same direction.

Once upon a time, the financial services industry was able to succeed, and consumers were more or less able to find their way to the products and services they needed, without much need for marketing to build connections and relationships between them.

For many years now that has been changing, slowly at first but at an increasing pace, especially during the period of the explosive development of digital services. Marketing now has a critical role to play, both in enabling firms to develop and promote propositions that clearly meet consumers' wants and needs, and in enabling consumers to navigate their way around a large and complex industry that has a key contribution to make to the quality of their lives. Marketing has been changing – for one thing there's a great deal more of it, and for another there are some examples of extremely good practice. But taken as a whole, there's still a long way to go. Too much of financial services marketing is still superficial, lacking in insight, unrealistic in its objectives and inadequately measured and evaluated. In this book we propose a number of specific areas where no small change is required.

A NOTE ON SELLING VS MARKETING

Over the course of this chapter, astute readers may have noticed an apparent contradiction. On the one hand, we've said more than once that financial services firms have succeeded over the years without relying much on marketing. On the other hand, we've also said they've relied a great deal on face-to-face selling. But isn't selling a sub-set of marketing? And if so, can these statements both be true?

Our answer is that the contradiction is more apparent than real, and the reason is to do with a wide gap between theory and practice. Selling should be seen – and, more importantly, experienced by the consumers on the receiving end – as a part of the discipline of marketing. Exactly the same process, of identifying, meeting and satisfying consumer needs, should apply. However, far too often in financial services over the years, the sales function has actually operated in a sort of parallel universe, managed separately and engaging with consumers on the basis of its people's own analysis and insights on how best to make the sale.

The most effective sales-driven companies make no secret of this. The management team of one of the very best and most successful says quite explicitly that its sales force are its ‘primary target audience’ – that meeting and satisfying their needs is absolutely the management team's most important priority. At this firm's annual conference, with all staff present, there's a key moment when the sales people are asked to stand and everyone else in the company loudly applauds their achievements. The marketing people, of course, are among the seated applauders.

In companies which are both sales-driven and siloed in this way, the sales team are likely to have the authority to impose their analyses and insights on their marketing colleagues, in particular requesting sales support material of one sort or another which is based around the story as they want to tell it. What has happened in companies like these – and there are many – is that the priority has been reversed, and marketing has effectively become a sub-set of sales. In this situation, the marketing department is frequently known by the lesser term ‘marketing services’, which means ‘not really proper marketing at all’.

It's possible to be misled on the reality of current practice within a firm by the existence of a single individual in charge of both areas, very often a Director of Sales & Marketing. Surely this must mean a coherent and integrated approach, giving due weight to both functions?

In our experience, on the whole, not really. The clue, we'd suggest, is in the order of the terms in the job title. As far as we can recall, this is always ‘Sales & Marketing’ and never ‘Marketing & Sales’. We think that when push comes to shove, this pretty much always indicates that the priorities of salespeople, in terms of designing products and expressing their propositions in whatever way makes it easiest to achieve sales, will come ahead of the priorities of marketing and marketing people.