How can companies generate growth in under-penetrated market segments without taking undue risk, and how can they improve their position among the affluent? We believe the answer lies in creating a systematic approach to innovation. Too often, financial services firms have innovated within product silos and have been intolerant of experimentation. The siloed approach reflects how these firms are typically structured, and it is understandable that firms are reluctant to experiment with valuable brands and with products that may remain on their books for decades. However this is not how sustainably successful innovators act in other industries, and some firms show how a different approach can work in financial services.
In credit cards, for example, many successful issuers embrace a totally different model. Marketing will develop new propositions for tightly targeted consumers, and Risk will model how these people have behaved on other card products. Operations will coordinate a series of small solicitation campaigns – each one slightly distinct – and Marketing will carefully monitor success through each stage of the customer acquisition funnel. Risk will then track these customers month by month, assessing what their behavior versus benchmarks implies for their lifetime profitability. Based on this calibrated data, card issuers can judge within months which propositions are most likely to succeed or fail, and they can then gear up behind national launches of new products. The overall approach is cross-functional, scientific, and highly transparent to monitoring by senior management.
As much as they can benefit from new ideas to grow their markets, many financial services firms can also utilize a disciplined process that makes innovation reliable without extinguishing creative sparks. New Markets helps our clients bring proven, rigorous innovation processes into the financial services realm, while still being mindful of the unique regulatory and risk-related constraints of the industry.
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