28 Sep 2021
Financial services organisations have increased and evolved marketing activities as part of brand recognition, customer acquisition and ongoing customer outreach initiatives.
The role of marketing in product design and distribution has taken even more prominence in an increasingly competitive market which is seeing innovation and disruption from both traditional competitors and fintechs. This has been further impacted by shifts to digital marketing, platforms, deep analytics and tailored/targeted campaigns.
“It is important business leaders… ensure alignment between the business' focus on mitigating conduct risk and the use of marketing in a responsible manner.”
Not only is marketing critical to a business’ ability to reach, access and retain customers, proper marketing is a key principle of good conduct. Marketing provides an essential conduit for information to a wide range of consumer groups, enabling and promoting access to financial services for all ranges of demographics and socio-economic backgrounds.
In short, marketing is a powerful tool for good when deployed responsibly and with purpose.
However, Ashurst has explored instances in which marketing design and distribution can sometimes go wrong. It is important business leaders do all they can to avoid these pitfalls and ultimately ensure alignment between the business' focus on mitigating conduct risk and the use of marketing in a responsible manner.
Overstating or misstating benefits
While the responsible use of marketing tools and media has the power to persuade consumers of a product or service benefit, there is a risk marketing messages could either overstate or misstate benefits. This is a delicate balance for business to achieve, especially considering the creative process involved in good marketing.
For example, some credit cards are often marketed as providing a range of benefits including rewards such as cash back or air miles points. The marketing messages may make the benefit appear simpler or more accessible than is true and requires the consumer reads the fine print to understand either the conditions behind cash back rewards or the spend required to achieve them.
An important step in the process of determining whether product benefits are overstated in this instance would be to examine how many consumers have historically been able to actually access these benefits. If data points show the benefits in question have not historically been used or reached by consumers as promised or expected, this would be one (of many indicators) for business to consider the likelihood of benefits misstatements.
In order to mitigate the risk of overstating product or service benefits, businesses should consider:
Addressing an inappropriate target market
The emphasis on alignment of product and services to target markets has received renewed focus with the implementation of the Design and Distribution Obligations (DDO).
DDO imposes key requirements on marketing, such as the need for materials to reference information about the intended target market or refer to target market determinations (TMDs) and explaining where the document can be found. The key question remains: how can businesses ensure products are marketed to appropriate consumers?
Credit offerings should be marketed to consumers with a deep enough understanding of the product to make informed decisions and ensure they only take on credit for their risk profiles and needs. It is essential marketing doesn’t contain messages to consumers with a lack of financial literacy, poor capacity to service/repay debt and/or limited product knowledge.
Effective integration of marketing design and distribution processes with the end-to-end product lifecycle is a key principle in safeguarding good conduct practices. This requires close and early collaborations between marketing, product and risk functions, as well as adequate governance over the product lifecycle.
Not true to label
To ensure appropriate marketing design and distribution, early collaboration across functions is key. This is particularly important to ensuring there is no disconnect between messaging in product and services marketing and their related sales practices. This is the difference between the promise that is made to consumers and their actual experience, which can impact product/service trust and brand perception.
This kind of experience risks significant customer dissatisfaction and disenfranchisement, which is preventable. It is critical promises made through marketing are tested and communicated with reasonable accuracy.
Leaders should ensure systems perform as expected or adjust marketing messages in line with the actual performance of products and services.
Aligning post sales service with marketing
Even in instances in which businesses get product sales and distribution marketing right, the residual customer experience will be dependent on the quality of the post-sales service they receive and whether this is aligned with the promises made when products and services are marketed to them.
Dissonance between product sales processes and post-sales service is usually experienced when the end-to-end customer lifecycle is not properly aligned with the marketing approach. Again, it is critical there be ongoing and early collaboration at all stages of the product and customer lifecycles to ensure this is prevented.
Most organisations have access to useful data such as complaints, market research and customer churn that can be used to help understand if there are issues with post-sales service that tie back to marketing efforts. It is important these data points be monitored proactively so positive feedback loops can be provided to marketing, product, customer and sales teams.
Taking it forward
There are a number of key takeaways that are observed in good conduct practices across marketing design and distribution:
Philip Hardy is Risk Advisory Partner and Gwladys Tedga is Director at Ashurst
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
28 Sep 2021
24 Aug 2020