In this second post in our series I am going to highlight three of the main areas where digital technology has been disruptive in other industry sectors. Some of you may feel that I am telling you things that you already know; but please bear with me. I want to provide examples of true disruption outside our industry that we now take for granted before moving on, in the next post, to look at some features of the our industry that make it difficult to achieve this same level of disruption.
The customer experience
In asset management we often talk these days about the need to enhance the customer experience. In industry sectors like retail and leisure, digital technology hasn’t just enhanced the customer experience, it has created a new customer experience.
When the Kindle was launched it recreated the experience of reading. The Kindle is an example of true disruption because it didn’t just make it easier or cheaper to read books, it created a whole new way of reading that didn’t actually involve physical books. In the context of how we read books, the Kindle changed our behaviours, re-invented our needs and re-calibrated our expectations.
Approaches to marketing
Now let’s look at how digital technology has disrupted retail marketing.
Broadly speaking, marketing activities can be divided into passive and active.
Passive marketing is where information about companies, their products and their services is made available but it is left to the recipient to decide whether or not they want to access it. Some examples of passive marketing are mailshots, billboards, and advertisements in magazines and on TV. In asset management, publishing a factsheet on a fund supermarket would be an example of passive marketing.
Active marketing is where information is delivered directly to the recipient via an interactive process. Some examples of active marketing are phone calls and meetings. In asset management, a financial adviser meeting with their client and talking about individual funds would be an example of active marketing.
Passive marketing allows organisations to raise awareness of their brand, products and services among a large number of people at a relatively low cost. Thousands of people will see a poster at a busy railway station; millions will see a TV advert. But passive marketing suffers from a lack of targeting. Millions may see a TV advert but how many of them are potential customers? There is also the problem that organisations don’t know how effective their marketing approach has been.
In the case of active marketing there is a direct interaction between provider and prospect and so it is immediately clear whether or not the marketing approach is being effective; and if it isn’t being effective it can be adapted, in real-time, to improve it. The problem is scale and cost. While millions may see a TV advert, it is neither practical nor cost-effective to call or visit millions of people to see if they would be interested in your product.
Traditionally, passive marketing methods have been used to raise awareness of brands and products within a mass audience, and active marketing methods have been use to selectively target products and services on a sub-set of the potential market.
In the retail sector, digital technology has re-created the way that organisations market their products because it has made it possible to selectively target a mass audience in a cost-effective way.
Think about the way that retail websites and marketplaces like Amazon work. When I log on to my Amazon account, I get recommendations for products that I may be interested in buying. These recommendations are unique to me because they are based on my personal history of viewing and purchasing products in the marketplace. I can even provide feedback on how good each recommendation is. This is an example of low-cost active marketing to a mass audience, which for many retailers is the ideal business model. And it wasn’t possible before digital technology went mainstream in the retail sector.
Digital technology has the power to disintermediate, to reduce the number of third parties acting as distribution channels between manufacturers and consumers. For example, I can buy a huge range of products on-line from Amazon, I don’t need to go to multiple retail outlets on the High Street or in a shopping mall.
But the real power of digital technology to disintermediate is that it can facilitate direct purchasing relationships between manufacturers and consumers, and more importantly between small-scale manufacturers and mass markets. Digital technology has made it possible for all manufacturers to sell their products directly to consumers via their own websites, removing the need for any intermediate delivery channels.
Digital technology has not just facilitated a reduction in the layers of intermediaries that operate between manufacturers and consumers; in some areas it has resulted in total disintermediation, while at the same time creating global reach for cottage industries.
Digital asset management – disruption or disappointment?
Is there anything like the Kindle or the online retail experience disrupting asset management?
It is possible to point to a few places where ripples of change have been introduced, but digital technology has not changed the fundamentals of the asset management industry in the way that it has changed the fundamentals of other industry sectors. Advocates of the digital transformation of asset management will say that this is just because more time is needed.
I am not convinced by that argument, I think that the asset management industry has specific characteristics that create challenges for digital transformation that are different to those faced in other industry sectors; and different to those in other areas of financial services. Digital technology will not achieve the level of disruption seen in other industry sectors, and which should be seen in asset management, unless we recognise the specific challenges we face and deal with them.
Integrated Publishing Solution's iPlus solution is the cornerstone for organisations serious about building a digital strategy that will work today, tomorrow and long into the future. Read this success story to learn how a global asset manager enhanced sales productivity, transitioned distribution to digital channels and reduced operating costs.
Graham Duncan, CEO and Founder of integrate, has significant practical experience in providing successful integrated digital solutions to the Asset Management industry, from the world's first online portfolio valuation portal for Killik & Co, in the 1990's, through to the current global deployments of iPlus 3.
Dr Peter Ellis brings a deep understanding of the Asset Management industry. Managing Director at Deutsche Asset Management and, subsequently, Investit. Chief Operating Officer and Strategic Advisor to BISAM. Peter brings a remarkable depth of knowledge to the integrate team.
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