The financial services environment

Learning outcomes

At the end of the chapter the student will:

• Comprehend the key external influences in the

marketing of financial services,
• Appreciate the importance of environmental scanning
in the marketing of financial services,
• Integrate a stakeholder perspective into environmental
scanning

Lecture structure

• Environment of financial services

• Macro-environment: model and variables
• Stakeholder environment: importance of stakeholder
approach
• Contribution of scanning to marketing planning

Background to UK financial services environment

• United Kingdom background

o one of the most competitive, efficient and secure
banking systems in the world and
o one of the cheapest countries in the world to bank
– with ‘free if in credit’ banking (www.bba.org.uk).
• In 2008 witnessed a global financial crisis
o largely attributed to high risk lending e.g. ‘toxic
mortgage-backed assets’
o Crisis originated in the United States but spread
rapidly to the United Kingdom and other European
countries. Iceland, Lithuania brought to brink of
collapse. UK still in recession in later 2009.
• Banks considered too ‘big’ to fail and propped up by
governments. Little evidence of changes in behaviour in
late 2009.

Environmental scanning
• Sound marketing
strategies result from understanding company
environment
• Achieved through environmental scanning.
o to scan in a systematic way the environment in
which they operate, such as PEST (Kotler et al.
2008) or STEP (Brassington and Pettitt 2006)
o which are acronyms covering similar elements:
political/regulatory, economic, social/cultural and
technological (see Figure 2.1).
• Financial services operate in a global marketplace
with transactions take place across continents all the
time, banks provide funds to each other to lend on and
large companies operate across the world and need the
financial infrastructure to support their activities.
• A systematic framework is needed that serves to
remind financial service companies of the world in
which they operate, encouraging them to look outside
their immediate environment, which might prompt a
more objective evaluation of their business situation.

Macro-environment

• Macro-environment: various models but the four-

step model of STEP or PEST is used here, as follows:
o Political & regulatory: governments, regulatory bodies,
international agreements
o Economic: Eurozone, exchange rates, levels of debt
o Socio-cultural: attitudes towards debt, social diversity,
sustainability
o Technology: new product development, growth of new
channels
• The aim is to provide a means for systematically scanning the
environment

Political & regulatory environment

• Reasons for providing

a regulated environment for financial services:
 o To protect the investor: quality of many financial
instruments not easily assessed; investor must be made
aware of the risks, although investor expected to assume
some degree of responsibility.
o To encourage competition in the marketplace by opening
encouraging new entrants. Avoids over concentration of
dominant (FIs). Credit crisis of 2008 has reduced number
of FIs. Mergers and takeovers overseen in UK by
Competition Commission, the Department of Business,
Enterprise and Regulatory Reform (BERR).
o To reduce the amount of illegal activity on the part of
criminals who might use the system to ‘launder’ money
(see www.hm-treasury.gov.uk/2643.htm).
o To attempt to address externalities – actions that could
undermine the stability of the financial services system,
activities of casino banking

financial institution

Macro-environment: political, economic, socio-

cultural, technology

Stakeholder environment

Figure 2.1 The macro and stakeholder environment for FIs

Stakeholder model

• Refers to the micro-environment of financial services

• Borrows from stakeholder theory, argues that management
decisions need to take account of all stakeholders within and
close to the FI.
• Value to FI is to widen awareness of actors in their immediate
environment

Financial institution

Macro-environment: political, economic, socio-

cultural, technology
 Stakeholder environment

employees

management

competitors

suppliers

intermediaries

customers

strategic partners

shareholders

Figure 3.2 FI Stakeholders

Stakeholders

• Competitors
• Brokers and intermediaries
• Suppliers
• Employees
• Management
• Strategic partners
• Customers
• Shareholders/members

Type of environment

Environmental variables

Examples

Macro-environment

political/regulatory
Financial service regulators, international agreements

economic

Currency zones, international trading, sustainability

socio-cultural

Cultural and religious banking

technology

Cashless cards, IT-based systems

Stakeholder environment

competitors

Interbank lending, undifferentiated marketplace

brokers

Independent advisors

suppliers

IT suppliers, consultants

employees

Branch, call-centre staff

managers

Non- marketing managers, senior executives

strategic partners

Supermarkets, mobile phone operators

customers
new/existing

Table 2.1 Examples of environment and variables

Summary

• Systematic method of analysing macro-

environment essential for
FIs to include political, economic, socio-cultural
and technology variables.
• Regulation by governments, central banks, financial
authorities and other agencies failed to bring about
responsible and sustainable behaviour in banks and
other financial institutions.
• The micro-environment analysed stakeholder model
to include managers, customers, suppliers etc
• FIs closely linked, lending and borrowing from each
other. Need to adopt sustainable behaviours for an
improved chance of a longer term horizon being taken.
• Marketing is generally concerned with developing
strategies that have a medium to long term horizon so
environmental scanning is central.