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Multi-Channel Distribution Strategies in the Financial Services Industry

D I S S E R T A T I O N

der Universität St. Gallen,

Hochschule für Wirtschafts-,

Rechts- und Sozialwissenschaften (HSG)

zur Erlangung der Würde eines

Doktors der Wirtschaftswissenschaften

vorgelegt von

Patrick Dahmen

aus

Deutschland

Genehmigt auf Antrag der Herren

Prof. Dr. Walter Ackermann

und

Prof. Dr. Christian Beiz

Dissertation Nr. 2926

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Contents XI

Contents

Foreword VII Preface IX Contents XI Overview of Figures XIII List of abbreviations XVII

I. Academic and Empirical Relevance of the Research Subject 1

1. Research Objectives, Approach, Methods and Structure 1 1.1 The Relevance of Multi-Channel Distribution and Definition of

the Research Questions 1 1.2 Definition of Research Approach, Methods andProcess 5 1.3 Structure of the Dissertation 12 1.4 Conclusion 13 2. Changes in the Distribution of Retail Financial Services 15 2.1 Challenges in the Distribution of Retail Financial Services 15 2.2 Changes in the Supply Side 18 2.3 Changes in Consumer Behaviour 30 2.4 Technological Changes: Impact of the Internet on Distribution 35 2.5 Conclusion 39

II. Framework for the Design of Multi-Channel Distribution Systems 41

3. Major Analytical Dimensions of Distribution Systems 41 3.1 Nature, Objectives and Tasks of Distribution 42 3.1.1 Nature and Objectives of Distribution 42 3.1.2 Distribution Tasks 44 3.2 Theoretical Basis for the Analysis of Exchange Processes 46 3.2.1 Economic Theories: Transaction Cost Analysis 46 3.2.2 Behaviour-oriented Theories 48 3.3 Political Economy Paradigm 51 3.3.1 The Internal Economy and Polity of the Distribution System 51 3.3.2 The Task Environments of the Distribution System 54 3.4 Conclusion 57 4. Particularities in the Distribution of Retail Financial Services 59 4.1 The Constituent Elements of Services 59 4.2 The Specific Properties of Retail Financial Services 65 4.3 Service Management: Distribution of Retail Financial Services 69 4.4 Conclusion 75

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XII Contents 5. Impact of the Corporate Positioning on the Distribution Strategy 78 5.1 The Nature and Positioning of Distribution Management 78 5.2 Objectives of Distribution Management 80 5.2.1 Overall Corporate Orientation and Financial Objectives 80 5.2.2 Strategie Objectives 83 5.2.3 Marketing Objectives: Relationship vs. Transaction Marketing 88 5.3 Conclusion 94 6. Classification of Multi-Channel Distribution Systems 96 6.1 Nature, Characteristics and Objectives of

Multi-Channel Distribution Systems 96 6.2 Focussed Multi-Channel Distribution Systems 100 6.3 Co-ordinated Multi-Channel Distribution Systems 105 6.4 Conclusion 112

III. Operational Implementation of Multi-Channel Distribution Strategies 115

7. External Fit of the Distribution System 115 7.1 Branding and Communication 115 7.2 Customer Segmentation and Customer Management 126 7.3 Product Offering and Product Positioning 136 7.4 Cross-Cannel Pricing of Products 142 7.5 Change Management - Transformation of Customer Behaviour 149 7.6 Conclusion 153 8. Intemal Fit of the Distribution System 155 8.1 Internal Structure and Processes of Distribution Systems 155 8.2 Customer Ownership and Remuneration of Distribution Channels 160 8.3 Change Management: Transformation of the Behaviour

of Intemal Customers 166 8.4 Conclusion 170 9. Financial Steering of the Distribution System 172 9.1 Management of Distribution Systems as Profit Centres 172 9.2 Efficiency and Effectiveness of the Distribution System 177 9.3 Conclusion 182

IV. Conclusion 183

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Overview of Figures XIII

Overview of Figures

Figurel: The Research Process 7 Figure 2: The Different Phases of the Benchmarking Study 10 Figure 3: Process in the Benchmarking Study

on Multi-Channel Marketing 11

Figure 4: Structure of the Dissertation and Interplay

of the different Chapters 13

Figure 5: Distribution Landscape for Retail Financial Services 19 Figure 6: Consolidation Efforts of the Deutsche Bank 22 Figure 7: Evolution of Channel Mix in the German Insurance Market 28 Figure 8: Comparison of Commission Costs for Life Insurance

across Distribution Channels 29

Figure 9: Break-down of Retail Mutual Fund Assets

by Distribution Channels 30

Figure 10: Shirts in the Use of Distribution Channels in Retail Banking 34

Figure 11: Use of the Internet in Germany for Insurance-Related Issues

(in millions, Forecast 2001) 37

Figure 12: Reasons against the online Purchase of Insurance Products 38 Figure 13: Dichotomy between Discrete Transactions

and Relational Exchanges 48

Figure 14: Discrete vs. Relational Exchanges and Clan- vs. Bureaucracy-like

Decision-Making Processes 53

Figure 15: The Analytical Dimensions of Distribution Systems 58

Figure 16: Reconciliation of the Different Views on Services with the three

Phases of Services Delivery 61

Figure 17: Framework for the Analysis of the Different Dimensions

of Services 64

Figure 18: The Augmented Service Offering 67

Figure 19: Different Dimensions of Service Management 70

Figure 20: Description of rwo Generic Service Strategies 72 Figure 21: Sales Approach for Different Customer Segments at Deutsche Bank 74 Figure 22: Comprehensive Framework for the Analysis

of Distribution Systems 76 Figure 23: Management Context for Distribution Management 80

Figure 24: Implications of Different Financial Targets

for the Distribution Strategy 82

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XIV Overview of Figures

Figure 26: Task-oriented Management Approach

by Tomczak and Reinecke 86

Figure 27: Phases for Defining the Strategie Positioning

of a Company 87

Figure 28: Management and Monitoring of the Sales Cycle

at the Deutsche Bank 90

Figure 29: Comparison of Relationship and Transaction Marketing 93 Figure 30: Impact of the Financial, Strategie and Marketing Targets

on the Distribution System 94

Figure 31: Analytical Grid for the Analysis of Multi-Channel Distribution Systems 99 Figure 32: Distribution System of Allstate Inc. (USA) 103 Figure 33: Split of Profit and Service Time in German Retail Banking 107 Figure 34: Major Value Drivers for

Focussed and Co-ordinated Multi-Channel Systems 113

Figure 35: Customer Segmentation Approach of Nordea 128 Figure 36: Value-based Marketing and

*• Customer Segmentation at Credit Suisse 129

Figure 37: Customer Segmentation Approach of MLP 131 Figure 38: Customer Segmentation Approach of Deutsche Bank 133 Figure 39: Two-Dimensional Customer Segmentation Approach

for Financial Services (McKinsey) 135

Figure 40: Product Positioning

in a Co-ordinated Multi-Channel Environment 138

Figure 41: House Of Quality - Basis for the Definition of the Channel Mix

to Enhance Product Positioning 140

Figure 42: Relative Distribution Costs (Survey among 33 Life Insurers in Europe) 145 Figure 43: Concept for a Consistent Cross-Channel

Management ofPricing 146

Figure 44: Explicit Pricing System for Brokerage Services

at Citibank Germany 148

Figure 45: Nordea - Gradual Introduction of New Distribution Devices

and Channels 150

Figure 46: Citibank - Evolution of Money Transfers

via Different Distribution Channels 152

Figure 47: Organisational Structures for Multi-Channel Distribution Systems 157 Figure 48: AXA Germany: Interfaces between the Product Manufacturer

and the Distributor 158

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Overview of Figures XV

Figure 50: Citibank Germany: Channel Strategy - Simultaneous

Reduction of Costs and Increase in Income 169

Figure 51: Customer Touch Points Matrix 175 Figure 52: Use of Target Costing for Defining the Relevant Dimensions for

a Distribution Concept based on the Customer's Requirements 177

Figure 53: Deutsche Bank - Elements of Monitoring Sales Performance 180 Figure 54: Comprehensive Framework

for the Analysis of Distribution Systems 186

Figure 55: Specification of the Major Dimensions of

Focussed vs. Co-ordinated Distribution Systems 189

Figure 56: Description of the Major Dimensions of the Extemal Fit

of Distribution Systems 191

Figure 57: Description of the Major Dimensions of the Intemal Fit

References

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