Original Article

What is being exchanged? Framing the logic of value creation in financial services Received (in revised form): 9th January 2014

Pekka Puustinen is a senior lecturer of Insurance Science at the University of Tampere, Finland. His research focus is on strategy and management of insurance and financial companies. Currently, he is researching issues of consumer behavior and service logics, as well as Innovation and value creation in financial and insurance service businesses. He has authored a book about financial service logic and published, for example, in the Journal of Economic Psychology and Financial Services Marketing.

Hannu Saarijärvi is a professor of Marketing at the University of Tampere, Finland. His research interests lie in value co-creation, service marketing, reverse use of customer data and customer relationship management. His recent studies have been published, for example, in Industrial Marketing Management, Journal of Strategic Marketing, Marketing Intelligence & Planning and Journal of Retailing & Consumer Studies.

Peter Maas is a professor of Management at the University of St. Gallen, Switzerland and a Member of the Executive Board of the Institute of Insurance Economics. In addition to teaching, his main research activities focus on Customer Value Management, Trends in Consumer Behavior, Intermediation in Financial Services Markets and International Marketing. He is the author of numerous publications, among them books on stock market psychology, Megatrends 2050, and the transformation of financial services markets. In his most recent publications, he focuses on Segmentation in Emerging Markets, Dominant Logics in Marketing Research and Employer Branding. He also acts as the Academic Director of the Global Executive MBA in Financial Services and Insurance and appears as regular speaker in top management programs of large FS companies.

ABSTRACT Financial service providers are facing a major paradigm shift. The understanding of what eventually constitutes customer value is being extended; economic value as the sole core of exchange is a far too limited perspective in contemporary competition. To address this emerging shift, the purpose of this study is to reframe the logic of value creation in financial services. As a result, a tentative framework for value creation logic in financial services is developed and discussed. On the basis of the framework, financial service providers should not limit their attention and resources to the exchange process, but identify innovative value-creating mechanisms through which they could contribute to the customer value actualization process. Our tentative framework (i) offers financial service providers guidance on which innovative value-creating mechanisms would enable them to participate in their customers’ value actualization process; (ii) shows how a product becomes a channel for a service, specifically a solution possessing value in the customer’s routine processes; (iii) illustrates that researchers and service providers should develop

Correspondence: Pekka Puustinen, School of Management, University of Tampere, Kanslerinrinne 1, Room 2002, Tampere, 30014, Finland

© 2014 Macmillan Publishers Ltd. 1363-0539 Journal of Financial Services Marketing Vol. 19, 1, 43–51 www.palgrave-journals.com/fsm/

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their understanding of customers beyond the traditional loan, insurance and/or investment product orientation. Journal of Financial Services Marketing (2014) 19, 43–51. doi:10.1057/fsm.2014.1 Keywords:

value; customer service management; insurance; banking

INTRODUCTION

In financial services, the exchange as a central business construct is facing a major paradigm shift; the role of money as the sole vehicle of exchange and economic benefit as the only output of customer value is increasingly being challenged. To succeed in the increasingly harsh competition, firms often need to move from product and firm centricity toward service and customer centricity. Across industries, pressure is exerted on identifying ways and venues for enabling the shift from selling products to supporting customers’ value-creating processes (see, for example, Saarijärvi et al, 2014). In today’s financial marketplace, the act of exchange, that is, giving or taking one thing in return for another, is being gradually superseded by new and innovative forms of interaction. In the context of financial services, the discussion of value has been heavily asymmetric and focusing exclusively on exchange value. As Puustinen et al (2012, see also Puustinen et al, 2013) illustrate, customer value of financial services emerges in customers’ own processes beyond the reach of the firm’s internal processes and resources. Even in the financial services context, economic value is not the only value driver for customers. On the contrary, the value creation perspective should be extended from selling products to supporting customers’ valuecreating processes; the conventional perspective on exchange where financial products and services are exchanged for payments should be challenged. However, contemporary financial services research has largely ignored this perspective. This gap exists not only in the ways in which research addresses financial services today, but is evident also in the business context. A huge chasm separates industry practices driven by a

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narrow focus on exchange value and customers’ actual investment processes where customer value is ultimately actualized. As discussed by Lähteenmäki and Nätti (2013, p. 334), it is difficult for financial service providers to understand the deepest meaning of customer value while harnessing the organizational potential to deliver that value: ‘The main barriers lie in the strong producer-oriented way of doing business …’. In that respect, within the financial services industry, the value creation logic of banks, insurers and wealth management companies is still largely based on the notion that it is the company that defines the value for customers, a view that is connected to a rather narrow perspective on both what customer value is and how it accrues. Accordingly, most service providers would view their primary strategic responsibility as deciding what kinds of products to offer and at what price (Puustinen et al, 2012). This puts further pressure on reframing the logic of value creation within financial services. Several approaches have addressed the general shift from goods to service, some of which are complementary and others partly contradictory. The most prominent of these are Service-Dominant Logic (see, for example, Vargo and Lusch, 2004, 2008; Lusch and Vargo, 2006; Lusch, 2007; Vargo, 2007a, b), service logic ( for example, Grönroos, 2005, 2008a, b, 2011a, b), Service Science ( for example, Maglio and Spohrer, 2008; Maglio et al, 2009), customer-dominant logic ( for example, Heinonen et al, 2009; Heinonen et al, 2010; Heinonen et al, 2013) and many-to-many marketing ( for example, Gummesson, 2008). However, despite the wealth of perspectives now available, the implications of the paradigmatic change for financial services has

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remained largely unexplored. Toward that end, the purpose of this study is to reframe the logic of value creation in financial services. This is achieved by applying the recent theoretical discussion around service to financial services and investigating the reconfigured roles of customers and firms. As a result, a tentative framework for value creation logic in financial services is developed and discussed. The article is structured as follows: next, a brief theoretical discussion of the central tenets of contemporary service discussion is provided to serve the study purpose, after which the framework reframing the logic of value creation in financial services is presented. Discussion and conclusions sections are then offered to round off the study.

THEORETICAL BACKGROUND

Both marketing and finance as separate disciplines have inherited a goods-dominant way of thinking from economics, which has led to the limited perspective to the nature of value. Recent service perspectives have criticized marketing theory for being built on false assumptions and have outlined a synthesized insight into the way marketing theory and value creation in general should be viewed (Schlager and Maas, 2012). In the goods-centered approach, or more precisely ‘the GoodsDominant Logic’ (G-D logic) (Vargo and Lusch, 2004), the focus is on tangible output and value perceived as produced during the manufacturing process. Firms imbued goods with value and consumers destroyed the value. Consequently, marketing absorbed a markedly goods-centered view on value creation, and in

Figure 1:

the process developed a tangibility fixation (Lusch et al, 2006). Contemporary service perspectives, on the contrary, commonly take a broader and more comprehensive view of exchange and value creation by emphasizing concepts such as service, interaction and value-in-use rather than the traditional, goods-centered lexicon including product, form, place, distribution, target or the marketing mix (Vargo and Lusch, 2006). There are two basic tenets of the contemporary service-theoretical discussion that particularly characterize the theoretical framework of this study. First of all, it includes the notion of customer value being created in customer-led processes during which both the resources provided by the firm and customers’ own resources are integrated (see Grönroos, 2008a). This is because of the fact that customers must still complete a number of activities in order to actualize the value potential of the offering, be that a good or a service or a combination of the two (see Humphreys and Grayson, 2008). The actualization of customer value can involve goods provided by firms as well as additional resources, such as information, knowledge, skills and other resources that make it possible for the customer to ultimately create value (see Payne et al, 2008). Second, the fact that value actualizes in a process shifts managerial focus from customer value as an output toward customer value as a process (Grönroos and Helle, 2010; see also Grönroos, 2008a, b, 2011a, b). Firms should go beyond traditional exchange where goods are exchanged for money and gain understanding of the processes during which customer value is created.

The logic of value creation in the financial services: Tentative framework.

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Consequently, the value creation process opens up various opportunities for firms to engage in customers’ processes and shift focus from exchange toward the customer context. As a result, firms are able to adopt a new role in the customer’s process by moving from selling goods to supporting customers’ value-creating processes.

FRAMING THE VALUE CREATION LOGIC IN FINANCIAL SERVICES The shift from goods to service – both in managerial and theoretical terms – has major implications in the context of financial services. These implications are addressed in the tentative framework illustrated in Figure 1. Accordingly, in our framework, (i) the roles of the customer and the financial service firm are reconfigured highlighting the fact that the customer buys not only financial products (for example, funds, loans, insurance policies) but resources or processes that support the customers’ value creation in their everyday activities; and (ii) the traditional exchange of products and payments is extended toward value-creating mechanisms that enable the access to the customer’s or company’s sphere. These two basic building blocks are next discussed in more detail.

Reconfiguring customer/firm roles

In a financial services context, service providers have largely absorbed the goods- and transaction-oriented view of value creation that implies that firms define the value for customers. For most financial service providers, decisions on the products to offer, how to offer them and at what price still have the most strategic resonance. However, as customer resources in the financial context are heterogeneous and individual, value is always dependent not only on customer preferences but also on the resources that customers contribute to the exchange and consumption process. Consequently, because value is always defined by the beneficiary, the locus of value

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creation moves from traditional exchange toward customer processes, resources and practices (Payne et al, 2008) that are used in customer value creation. Similarly, as depicted in Figure 1, our tentative framework shifts the focus from traditional exchange to the customer’s context and further to the process where the value potential of various resources and processes eventually actualize into valuein-use. As Gummesson (1995, pp. 250–251) argued: Customers do not buy goods or services: they buy offerings which render services which create value. The traditional division between goods and services is long outdated. It is not a matter of redefining services and seeing them from a customer perspective; activities render services, things render services. The shift in focus to services is a shift from the means and the producer perspective to the utilization and the customer perspective. Consequently, value emerging in customers’ own value-creating processes develops during the customers’ consumption or usage of goods or services. The value is therefore a subjective and multidimensional experience where the customer’s personal history, images, ideologies, social relations and the company are connected (see, for example, Holbrook, 1999). This has recently been studied in the financial services context. For example, in a qualitative study, Maas and Graf (2008) investigated the main value drivers from a customer perspective in a financial services context. They showed marked gaps in the value perceptions between customers and financial services advisers which could have a significant impact on their perceived customer value, their interactions and thus the whole company–customer relationship. Furthermore, Puustinen et al (2012, 2013), in turn, concluded that the outcomes delivered by investment may be evaluated as emotionally rewarding by people who enjoy activities such as browsing investment alternatives, reading investment-related magazines, joining virtual

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discussion groups in order to exchange opinions about investment issues, taking part in investment-related events and being apprised of how the economy is performing along with how that will affect a company and its industry. This further increases the importance of widening the perspective from products and payments toward an in-depth understanding of the customers’ everyday activities and the resources and processes related to them. Accordingly, for some, investment processes provide emotional value when consumers appreciate the excitement of the investment alternative or information search. For them, the mere act of investing creates positive emotions, such as enjoyment, thrills, stimulation and excitement, so the act of investing is appreciated in its own right. The insurance business offers related examples of customers increasingly asking for risk management services instead of insurance products. Especially in the field of prevention, customers are valuing the help of an insurer in different areas to enable them to avoid damage, accidents, illnesses and so on. Here, the knowledge of the company is the crucial resource that contributes mainly to the customer’s value creation (Maas et al, 2008). On the other hand, if we consider banking services, customers’ everyday activities include processes such as getting married or having children or a home purchase. Accordingly, purchasing a home, renovations, buggies, diapers and buying tools could all feature in customer-to-customer interaction conducted for example in Internet forums, or in any other social environment. Thus, banks ought to carefully identify and innovate how to engage in customers’ value-creating processes that take place, for example, online. In that respect, firms should provide their customers with virtual communities where customers discuss issues related to mortgages, sustainable investing or their life dreams. Most importantly, this is not about building an online advertising campaign, but establishing concrete ways through which service providers can provide customers with additional

resources that are relevant in customers’ valuecreating processes, and thus shift focus beyond traditional exchange. As a result, both customers and financial service providers are faced with fundamental changes in their respective roles. The financial service provider’s role shifts from selling products (for example, loans, funds and insurance products) to supporting the customer’s value creation; the firm takes a broader perspective on that value creation than is possible only through the provision of products. In our framework, both customers and firms are seen as active participants or dual subjects (see Grönroos and Ravald, 2011), and possible sources of additional resources for the other’s value creation; customer/firm roles are readjusted in the process of resource integration and the focus is extended beyond traditional exchange. Consequently, from the competitive advantage point of view, in addition to the product portfolio that is offered to customers, the processes that are offered to support customers’ value-creating processes should also become a relevant strategic question for financial service providers. Firms ought to decide whether to offer customers valuesupporting resources (for example, the goods logic) or to apply ‘provider service logic’ ( for example Grönroos, 2008a), and focus on supporting customers’ value creation by, for example, providing them with additional resources, such as information and service platforms, to support their value-creating processes. Supporting customers’ value creation is about going beyond traditional exchange, moving from goods-centric thinking toward building a service-based business model, and seeing the customer’s value creation in broader terms, thus shifting attention from selling products to supporting the customer’s value creation. Thus, in a normative sense, instead of basing their strategy on the narrow conceptualization of exchange, financial service firms should identify mechanisms that go beyond the traditional exchange in supporting customers’ value-creating processes.

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Introducing value-creating mechanisms The tentative framework envisages different types of value-creating mechanisms that enable access beyond traditional exchange and toward customers’ everyday activities. They trigger a change in the traditional resource integration process and reconfigure traditional firm/ customer roles (see Saarijärvi, 2012). In the context of financial services, these mechanisms shift the focus of attention from the exchange of products and payments toward the creation of value for customers and firms. As is illustrated in Figure 1, there are two different types of mechanisms available. First, as the firm’s value creation refers to the processes through which a firm creates value for itself, value-creating mechanisms for a firm are about incorporating additional customer resources into the firm’s value-creating processes (the lower section of Figure 1). These include, for example, coproduction, co-design, crowdsourcing or codevelopment. Through these mechanisms, traditional customer/firm roles are reconfigured and additional customer resources freed for value creation by the firm. Second, in addition to management fees or interest rates being exchanged in return for insurance products, loans or investment products, initiating value-creating mechanisms for customers means they can be provided with additional resources to support their valuecreating processes (the upper section of Figure 1). Establishing these mechanisms allows additional firm resources to be engaged in customer’s value-creating processes. This also includes the channels that are used to reach out to the customer, traditionally sales people who are more or less independent of the provider but sell its products and services. In the insurance industry, these are typically tied agents, independent agents or brokers acting as intermediaries themselves. These access points are central to the quality of interaction and the value creation of and for the customer. The more the traditional channels turn into interaction points with the customer, the more the value creation differs along the customer

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journey from search through purchase to post purchase (Maas, 2010; Bieck et al, 2012). The British bank, Barclays, provides an example of a value-creating mechanism as it offers a mobile app for football matches, including results, videos, podcasts, broadcasts, virtual stadium tours and interactive social media features to tie in with its sponsorship of the English Premier League. The same bank also sponsors the provision of bicycles for public use in London and has produced an application that allows customers to locate bicycles available to borrow and plan their cycling routes in the city. The German insurance giant Allianz offers a mobile application that helps customers keep their cars well maintained. The application stores the car’s oil type and optimal tire pressures and also a winter driving checklist and a list of materials to be kept in the car. The same application also provides information on the closest parking areas, gas stations and tire shops through its GPS mapping technology. The Scandinavian insurance company If offers a mobile application connecting the customer and a vehicle recovery service that includes a facility to inform the customer when If has paid the recovery service bill. This interaction between insurance product, a mobile service provider, the customer’s mobile phone, a recovery service and the If claims service is a good example of how an insurance company can be a part of its customers’ value-creating processes that are oriented around using a car. It is an example of how the exchange relationship has developed from its original form of money being exchanged for insurance products to one where customers are provided with additional resources supporting their value creation processes through mechanisms that engage company resources. The firm’s changed role is to offer value-creating mechanisms, which consist of customers’ own value creation resources (car, mobile phone) and processes (driving), as well as the firm’s own resources (a recovery service, an insurance product) and processes (the claim service, electrical service and so on).

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Overall, these examples of value-creating mechanisms open up a whole raft of opportunities to reconfigure financial service providers’ value-creating logics, thus reinventing their roles as resource providers. The mechanisms act as a service platform, which integrates the company’s resources and processes with those of the customer. Today, technology is increasingly enabling new types of value-creating mechanisms as they allow the transfer of additional resources efficiently and effectively for the use of other actors. Both customer and firm contexts offer diverse opportunities for the design and development of mobile applications that serve as valuecreating mechanisms. They not only make a transaction possible, but are designed to facilitate value creation more broadly. In that respect, mobile services are a reflection of what has been highlighted in the service literature for over a decade: value is not something that occurs in organizational processes, but is a subjective and contextdependent continuous process that occurs in everyday life when a customer brings the resources and processes to the service (Vargo and Lusch, 2004; Grönroos, 2006), and that applies to the financial services’ context as much as to any other.

DISCUSSION AND CONCLUSIONS

Today, competition in the financial service market is intense. New actors in the financial market (that is, retailers), paradigmatic changes in how consumers buy and consume financial products (online market places) combined with the increasing pressure of digitalization (new financial services) contribute to the multitude of challenges facing financial service firms today. In global terms, the rapid development of information technology has led to explosive growth in the financial sector, meaning it now relies on more intermediaries than ever. As a result of these changes in the marketplace and customers becoming acquainted with various products, new opportunities have arisen, but so

have the issues a firm’s business strategy must address. To exist and compete in the increasingly harsh competitive environment, financial service providers must now move away from their traditional firm- and productcentric approaches to become more serviceand customer-centric. This fundamental shift in thinking is not only relevant in terms of the internal competition within the financial sector, but more importantly because there are new external actors increasingly entering the field. For example, over the past 10 years, PayPal, owned by the online retailer eBay, has made great strides in the payment intermediation market. To address these challenges, the purpose of this study was to reframe the logic of value creation in the financial services sector. This was achieved by applying the recent service theoretical approaches in the financial services’ context and investigating the role of products, services, customers and firms in customer’s value-creating processes. As a result, a tentative framework was developed that introduced and discussed a broadened view of value creation in financial services and the reconfigured role of customers and firms. Two central characteristics determined the framework: (i) the roles of the customer and the financial service firm are reconfigured, highlighting the fact that the customer buys not only financial products but resources or processes that support the customers’ value creation in their everyday activities; and (ii) traditional exchange taking place between products and payments is extended toward value-creating mechanisms that enable access to the customer’s or company’s sphere. Despite the fact that the financial services industry is based on economic output, it cannot escape the fact that value is ultimately created in the routine customer and firm processes as a result of resource integration. Innovative and often technology-based mechanisms make it possible for value to be created for both customers and firms in an unorthodox manner; identifying opportunities for role reconfiguration lies at

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the heart of strategic differentiation (Saarijärvi, 2012). Consequently, these value-creating mechanisms challenge existing ways of exchanging products and payments and fostering another’s value creation (see Saarijärvi et al, 2013). On the basis of our tentative framework, at least three separate managerial implications can be drawn. First, the financial service providers should not limit their attention and resources to the exchange process, but identify innovative value-creating mechanisms through which they could participate in their customers’ value actualization process. Second, the product becomes a channel for the service, where that service refers to the solution that has value in the customer’s routine processes. And third, researchers and service providers should develop their understanding of customers to encompass situations extending beyond the traditional loan, insurance and/or investment product orientation. Doing so requires gaining an in-depth understanding of the customers’ own processes that create value for those customers. Thus, given the tentative nature of our framework, the challenge for future research is to explore opportunities for valuecreating mechanisms and develop more comprehensive measurements to understand the customers’ value-creating processes in financial services context. From a research perspective, being involved in the customers’ various and diverse value-creating processes opens up a whole new approach to research on financial services marketing; while from a managerial perspective such involvement with customers can build competitive advantage for financial service providers in markets where firms often base their strategies on products, online tools or low fees. As Lusch et al (2006, p. 264) note: Companies with a superior understanding of the customer usage experience create offerings that promise greater value-in-use than similar competing offerings, which enables the most innovative companies in the world to outperform rivals.

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