A lot of the conversation revolved around pricing and service offerings, and we all shared ideas around what we were doing in this area. The changes set to occur in our industry provide us with a good chance to take a step back and analyse what it is that we currently do for our clients and look at ways we can improve in the future.

One of the main concerns of the financial planners in Australia is the increased competition that will come from industry funds and fund managers, both of whom will seek to provide limited advice to their members. This will place a lot of pressure back onto financial planners to justify the value that they bring to their client relationships.

In my opinion, these changes provide a great opportunity for progressive financial planners to differentiate their businesses.

Unfortunately, if you ask most financial planners, they think they already are differentiating their businesses.

By this I mean that most financial planners feel that their point of differentiation is providing tailored advice or tailored service to their clients. The problem with this approach is that almost every financial planner says that this is their point of difference.

Do you see the problem?

They all think they’re doing / saying something different from their competitors but they’re actually not.

How can you stand out from the crowd?

The benefits of differentiation

The more I study service businesses like financial planning, the more I believe in the need to differentiate.

When you’re perceived as being the same as everyone else, your service becomes a commodity. And buyers make purchasing decisions for commodities largely based on price.

If you’re able to provide something that is different from everyone else, things change. Your customer now sees you as having something different. And because you’re different from everyone else, it’s more difficult to compare based on price – it’s not an apples versus apples comparison, it’s more like apples and oranges!

The other benefit of differentiation for financial planners is that it makes it harder for an existing client to go elsewhere. If you’re providing something completely different that they perceive as valuable, they’re not going to go anywhere else if you’re the only place that can provide what they want.

What does it look like?

I can’t say do ______ and you’ll be different because how you’ll differentiate your business is unique to you.

Things you need to consider include:

• Do you (or your staff) have unique skills or abilities?
• Is there a particular niche that you can focus on?
• Is there a certain area of advice that you’re good at?
• What are the outcomes that your clients want? What can you do to deliver these outcomes?
• Can you re-package something you already do in order to make it unique?

These are a few suggestions to get you started.

I believe that in the future differentiation will be a key strategy for financial planners to focus on. It will be a way we can stand out from the crowd and deliver something that is of great value to those who need it.

What do you think? How do you differentiate your services? What can you do differently?

I had a think about who my competitors are in the financial planning industry in Adelaide, and listed out the differences between their businesses and mine.  I looked at things like pricing, service offers, how personal the service is, the investment philosophies etc.

I did a similar exercise a few years ago before I started this business.  In my old job, I managed a group of different financial planners, all of whom ran their own businesses.  I also met with a number of planners all over my city who ran different businesses that were not part of the group I worked for.

The thing that struck me this time was how difficult the task of producing a competitor analysis actually was. 

For almost two years I’ve been running my own business, and have been pretty detached from other planning groups.  I don’t meet with a lot of other planners so I’ve discovered I’m a little isolated from some of the things they’re doing.

I realised I don’t know how a lot of my competitors actually charge for their services and I don’t know what they offer.

I don’t really know who my major competitors are.  Sure, I know who some of the high-profile firms are, but they’re not necessarily my competitors.

I think it’s a very valuable exercise to do an analysis of your competitors.  It helps you understand how your business is positioned in relation to your peers, and helps you focus on the things you do that are unique to your business.

But it’s also important to make sure you do it well.

How well do you know what your competitors do?  Do you know what they offer and what they charge?  Do you know why some prospects use your competitors instead of using you?  Do you know how you’re different?

Have a think about this.  Then do your research and make sure decisions and assumptions you make are based on fact, not just your perception.

Comments are welcome – please let me know what you think.

What we learn from Apple

I have a Creative MP3 player, and I recently bought a Samsung player for my son.  I bought my Creative a few years ago.  It was priced at a similar price point to the comparable iPod, but had a couple of extra features the iPod didn’t – FM radio and a voice recorder.  It had the same memory capacity, better video display and these two extra features.  Yet the iPod outsold it.

You see, when you buy an iPod, you’re not just committing to the player.  You also commit to the iTunes store.  And once you commit to the iTunes store, you’re locked in.  Because up until this year, the songs sold through iTunes had digital rights management (DRM) restrictions which were designed to stop these songs being shared.  But because the songs were encoded in a format unique to Apple, it made it difficult for an iPod user to replace their iPod with anything but an iPod.  Why?  Because the songs won’t play on the new player unless it’s an iPod.

When I buy songs through iTunes, I have to burn them to disc and then rip them to the MP3 format before I can add them to my MP3 player.  But if I had an iPod, they’d be ready to play immediately.

The restrictions have been relaxed now, but if I have a library of DRM music, I need to pay extra to upgrade each track if I want to remove the DRM restrictions.

By creating a complete system of buying and then playing music, Apple has created some barriers around its customers that make it difficult for them to move elsewhere.  The simple fact is this…if I have an iPod and it needs to be replaced, it’s too hard to look to any other players, even if they have better features.

This is an example of switching costs.  It costs me too much in time, money or some other commodity to change.  Because of this, I stay.

Creating Switching Costs

When I did my MBA I was introduce to Porter’s Five Forces analysis.  Within this framework was this concept of switching costs. 

Where there is little diversification, and a product is seen as a commodity, then the buying decision is primarily based on price and service.  The sellers embark on price cutting strategies, or offer higher levels of service to win the sale.  Both these strategies could end up costing more over the long term.

Where a product is differentiated and there is little perceived competition, it can command a higher price.  Because it appears different to its competition, consumers are less likely to move elsewhere because they’re not convinced they’re going to receive the same value somewhere else.

Porter, in his book Competitive Strategy outlines some major sources of switching costs:

• Costs of modifying products to match a new supplier’s product;
• Costs of testing or certifying a new supplier’s product to ensure substituability;
• Investments in retraining employees;
• Investments required in new ancillary equipment that is necessary to use a new supplier’s products (tools, test equipment, etc);
• Cost of establishing new logistical arrangements;
• Psychic costs of severing a relationship.

                                           Porter, Competitive Strategy pg 114

This blog is aimed at people who sell services.  If you’re good at selling your product, you should be aware of the relevant switching costs for your product.  This can be helpful if you’re trying to win a new client (so you can understand possible impediments to the sale proceeding) and it can also help you keep clients.

For many clients, the depth of the relationship is a huge switching cost.  Consider the client of an accountant.  They’ve probably spent years with the one accountant, and that accountant probably knows a lot about their personal and financial affairs.  If they switched to a cheaper accountant, whilst they may save some money, they’d see a massive cost in having to build a relationship with someone new.  There’s also the fear of making a mistake – ‘what if we move to this new accountant and we don’t like them?’.

In the above example we can see that in a service environment, cost may not be the deciding factor.  The important thing is to understand what is.

What Are Your Switching Costs?

Have a think about your product or service.  What are some of the switching costs that may inhibit a client moving to you from somewhere else.  How can you reduce the perceived level of pain of those costs?

What about your existing clients?  What are some things you can do to make yourself invaluable to them so they won’t leave you and go elsewhere?

In many cases, switching costs are not financial in nature.  They may be intangible, they may be time-based and they may be relational-based.

I’m not advocating being dishonest and locking clients in to service agreements that stop them from going elsewhere.  This is about respecting your clients, but also respecting yourself and having enough faith in your services that you’re confident in differentiating yourself from the crowd.

What do you think about switching costs?  Do you have any examples to share?  Leave a comment below.

The Ansoff Matrix is a tool a business can use to help come up with innovative ways to grow.  It’s divided into four quadrants and looks at the options of selling new or existing products to new or existing markets.  Have a read of my original article to get an understanding of it.

I was recently working with a local financial planning business and we used the Ansoff matrix to come up with some ideas they could use to grow their business.  In today’s article I’ll share some of those ideas.

Market Penetration

This particular business had focused on people aged 50 – 65.  The products it sold ranged from managed funds (mutual funds) to retirement savings products to insurance.  When we examined the client base we determined that many of the clients were unaware of the range of products the business provided.  Some clients only had one product when they were prime candidates to have more.  A huge opportunity existed for that business to meet with existing clients and see if any of the additional products were appropriate for them. 

You can see from this that the market penetration strategy could be the least risky for this business.  It involves meeting with existing clients who they already have a strong relationship with and suggesting things that could also help them.

Market Development

We then looked at the option of finding new markets for their existing range of products.  This may be appropriate for some businesses.  This business had two options – new markets could mean opening an additional office in another city – they decided against this option because it didn’t fit their vision.  They did decide however to begin to offer their services to a younger age group – the 30 - 50 demographic.  Many of their existing clients have children in this category so the business thought it would be a relatively simple process to begin offering advice to the children of their clients.  This also fits well with their vision of helping clients generate inter-generational wealth for their families.

Product Development

This was perhaps the most challenging area we discussed.  Whilst the business understood that there was still a lot of potential to sell more of it’s existing product range, it also acknowledged that there could be opportunities to introduce additional products.  The firm is now in the process of surveying its clients to find out what they want. 

A couple of options we’ve already discussed include introducing a new fee-based review service that provides a range of additional benefits to the client.  We’ve also discussed providing lending services to help clients with home loans etc.

Diversification

Considered the most risky of the four strategies, diversification involves selling new products to new markets.  The firms acknowledges that if it introduces new services in the product development quadrant, it has an opportunity to market and promote those services to people who would not normally have considered their firm.

For example, someone wanting a home loan could approach them for advice, and in the process they’d also be able to offer some of their traditional financial planning products to that person (market development).

How does it help you?

The Ansoff Matrix has enormous potential to help you grow your business.  You may not run a financial planning business – it doesn’t matter.  The point of this article is not to give you ideas to grow a financial planning business but to make you stop and think about the product or service you sell.

• Are their ways to sell more to your existing clients?
• What new markets can you aim at?
• Are there new products you can invent that you can offer to your clients and prospects?

Take time today to think about these questions.  Let me know some of the ideas you come up with.

He introduced a concept called CVS2BVS which I’ll explain here.

CVS refers to the Current View of the Situation.  In a sense, it’s your reality, how you perceive something.  It could be your values or standards…how you feel about something.  In business it could be your perception of a problem – ‘This business can’t do well when the economy is down’ or ‘It’ll never change…it’s always been like that’.

He explained we should never get complacent about things and should always question the way things are.  Which brings us on to the next part of the theory – BVS.

BVS stands for a ‘Better View of the Situation’.  Notice it doesn’t say ‘Best’.  Hewitt-Gleeson’s point is that you can never say something is the ‘best’ i.e. a best way to do something – because this implies that there is no room for improvement.

In all situations, there is room for improvement.  Even if your business is hugely successful, there are always ways you could improve in it.  But if you have the mindset that something is the best, you stop thinking about how to get better.

I found it to be a challenging concept.  There are countless things I do that I need to re-look at and see whether there could be a better way to do them.  Are there better ways to get new clients?  To look after existing clients?  To explain concepts to people?

Hewitt-Gleeson has a book on the subject called Software for your Brain.  It’s free to download and worth a read.

It’s a very challenging concept, but it’s also very rewarding to have the mindset that whatever you do, there could be a better way to do it.

What do you think?  Have a read of the book and let me know your thoughts.

The first one starts off with this text:

Ever notice that most car specs focus on acceleration, not braking? It’s more fun to focus on getting fast than it is on getting slow.

How would you manage or market differently if you knew that you had to hit the brakes, and hard? Slowing one thing and speeding up something else.

 It’s an interesting thought.  Why do car manufacturers focus more on acceleration rather than the safety aspect.  It’s made me think about my industry and how we sometimes focus on the wrong aspects of the services we sell.

The second article called Whether or Which talks about how marketing is about either trying to convince a consumer about their need for a category of product (mp3 player), or for a particular product (an ipod).  Seth asks the question:

Are you trying to make the market bigger, or just grow your share?

Depending on the product you sell, it is worthwhile thinking about this question.  Since I’ve read this article I’ve been analysing more advertising to see which category it fits in.  In the financial planning industry, most of the marketing effort is spent on people who have already decided to purchase financial planning services – their decision is about which company to deal with.  However, there are some products we use, such as life insurance, that are frequently ‘sold’ and not ‘bought’. 

What’s it like in your industry?   How do you position the product or service that you sell?

Seth had a few comments in a post titled “What To Do About Detroit”.  In it, he talks about the concept of having hundreds of car manufacturers, leading to increased competition and innovation.  Bob had a post where he talked about the similarities between Detroit and the music industry.

Alan Weiss had a podcast where he talked about the problems with GM.  In it he makes the point that GM needs to get rid of all its senior management and get some new people in.  But he says GM needs “great leadership, not auto smarts.”  He makes a great point.  Companies like GM have their management full of car people – people who have years of experience in the auto industry.  The problem is that this may not be the right thing.

People who grow up in the one industry will be closed to the innovation happening in other industries.  Alan believes that GM needs to find the best, most innovative people from other industries so they can apply that knowledge to the car industry. 

It makes sense, doesn’t it.  Sometimes the best ideas come from outside your area of expertise and from people who you may think would know nothing about your business.

It’s got me thinking.

Through the financial planning business, I belong to a peer group.  We’re a group of planners who meet three times a year to discuss issues we’re facing and to share ideas.  There’s tremendous power in the sharing and collaboration, and I come away with some good ideas (and hope that I’ve also contributed some good ideas).  But we’re still all just financial planners with a financial planning focus.

I’m looking to create an advisory board to my business.  On it I’d find people who have business skills or knowledge, but not from the financial planning industry.  I’m interested in the ideas they can come up with for my business.  Maybe because they’ll know so little about the specifics of my industry, they’ll come up with ideas and thoughts that we’d never have thought of ourselves, or would have discounted straight away.

So how is it in your business.  Where do your ideas come from?  Do you have a method or process to get ideas from other people who are not as close to your business as you are.

One of the visions I have for the Better Service Blog is to open an online forum where we can experience the same degree of collaboration I’ve seen in my peer group, but on a global basis across a range of service business.  Imagine an accountant from Africa giving marketing suggestions to a lawyer in the US!

What do you think?  What are the best ways you know of to get feedback and creative ideas?  How do you stop your business becoming so insular that you become like GM?

Selling a service is a bit different to selling a tangible product like a TV.  If I want to buy a TV, I can read reviews, compare brochures, see one at my local shop and then shop around for the best deal.  A service is a bit different…..it’s more difficult to touch and feel.  There’s a higher risk involved – in most cases you can’t see the actual thing you’re buying.

I can’t physically show you good financial advice.  I can give you a written document that outlines the advice, but the actual product you’re buying is the advice I provide.  A hairdresser can’t show you the haircut you’re about to have.  They can show you pictures of how it looks on other people, but you won’t know how good the hairdresser is until after they finish the haircut.

Before I continue, you may be wondering….”who is Allan Ward and why is he writing this blog?”

A few years ago I was studying for an MBA and working in the financial planning industry.  I’d held various roles in the industry starting as a financial planner and at that time I worked as a manager for an Australian financial planning company.

I’ve always been interested in the marketing aspects of this industry and read as many articles as I could to understand how people made decisions about their money.

In the second year of the MBA I enrolled in a subject called ‘Services Marketing’.  It totally changed the way I viewed the world.  I’d already completed a couple of marketing subjects so I had a good understanding of the broad principles of marketing, but this subject was specifically about selling services – things that are intangible.

Our lecturer decided there was no standout book on the subject so instead he used articles from various journals.  He took the ‘classic’ services marketing articles and made them our reading material – a bit like a greatest hits album.

Every lecture I’d get fresh ideas about how to market services to consumers and then I’d go away and think about how I could apply this knowledge to the financial planning world.

I now run a financial planning business and I’m slowly implementing the things I’ve learnt into the business.  It’s taking a while, but I’ve got a much better understanding of how our clients make decisions and why they do the things they do.

I love teaching other people how to sell their service.  You may be a hairdresser, lawyer, accountant, medical professional or financial planner or in one of the thousands of different services that exist today.  If you have an interest in learning how to sell your service more effectively, then I want to help.

As this blog grows and develops I’ll share the knowledge that I’ve learnt over the past 14 years in the financial planning industry as well as what I’ve learnt through my MBA and other studies and reading.

Please look around and interact – let me know what you think. 

I’m still learning – we all are.  I’ve you’ve got things to share that work for you, let us know.  The ideas and knowledge we all have isn’t always industry specific and can work for other businesses.

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