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Consumer evaluation and Consumer

evaluation
competitive advantage in retail
financial services
639
A research agenda
Received June 1999
James F. Devlin Revised February 2000
Department of Marketing, City University Business School, London, UK
Keywords Financial services, Competitive advantage, Customer profiling
Abstract The primary objective of this paper is to formulate a research agenda in the area of
consumer evaluation and competitive advantage in retail financial services markets. In order to
achieve this objective, a brief exposition of the market-led view of competitive advantage is
provided, which emphasises the importance of the provision of ``customer value'' in the relevant
market. The process of consumer evaluation of financial services offerings is then reviewed and
potential problems in consumer understanding of some types of financial services offerings are
highlighted. The implications of such problems for the formulation of value adding strategies are
explored with reference to the conceptualisation of the financial service offering and in particular
which elements of the offering may be particularly important in adding value in the eyes of
consumers. Finally, propositions for research are developed and explored, with the aim of
informing both academics and practitioners.

Introduction
The market-led view of competitive advantage is gaining increasing
acceptance and prominence in the literature (Mathur, 1988, 1992; Czepiel, 1992;
Bowman, 1992; Bowman and Faulkner 1997; Woodruff, 1997; Parasuraman,
1997; Slater, 1997). According to that approach, the key to gaining competitive
advantage is to add value to offerings more successfully than the competition,
in other words to create and maintain superior ``customer value''. Therefore, the
question of which elements of a particular offering are important in adding
value, according to consumers, becomes a key consideration as companies
attempt to formulate competitive marketing strategies. In a services
environment, and in particular in retail financial services, the characteristics of
such offerings and the resultant implications for consumer understanding and
the evaluation process may have profound implications for competitive
marketing strategy. That is to say, it is of little use an organisation attempting
to position an offering by emphasising a particular attribute which is little
understood, if at all, by its target market, or put more technically is not used as
a ``cue'' (Zeithaml, 1988) by constituents of that market. Equally, a firm trying to
position an offering as a low price alternative is not necessarily going to be
successful if consumers judge offerings primarily on other attributes.
Theoretical implications of the characteristics of services for the consumer
evaluation process have been advanced in the literature (Zeithaml, 1981; European Journal of Marketing,
Vol. 35 No. 5/6, 2001, pp. 639-660.
Gabbott and Hogg, 1994). In addition, Murray (1991) has offered an empirical # MCB University Press, 0309-0566
European analysis of consumer information acquisition in services. In the financial
Journal of services context, McKechnie (1992) has offered an overview of consumer buying
Marketing behaviour. Finally Cronin, et al. (1997) have carried out an initial investigation
into the construct of ``service value'' (i.e. customer value in a services context).
35,5/6 However, no large scale, systematic, empirical investigation of consumer
evaluation of service offerings, aimed at establishing which factors they judge to
640 be particularly important in adding value, has been carried out. Such an
investigation should aim to isolate factors which consumers use to judge
between offerings and should take account of the potential effects of variations
in service complexity and consumer knowledge. The investigation is important
as it will provide practitioners with an insight into consumer motivations for
choosing particular offerings over others. In turn, a more accurate insight may
enable managers to formulate more effective competitive marketing strategies
which attempt to provide superior customer value in those areas which are
important to the customer segment being targeted.
The investigation outlined here will focus upon retail financial services
markets. Financial services are arguably highly typical of service offerings in
general. Financial services are highly intangible and dominant and there are a
large number of financial services which the average consumer would
potentially find highly complex, meaning there may well be resultant problems
in terms of consumer cognition. Also many financial services are seen as high
risk purchases by many consumers, a view which may be exacerbated by the
fact that understanding is limited. Examples of the types of services which may
cause cognition problems are those such as schemes for pension provision, unit
trusts, investment trusts and share management services. In addition, the
financial services sector, which accounts for 6 per cent of UK GDP (Financial
Times, 1998), comprises a highly competitive set of markets where there has
been much environmental change in the last two decades. The resultant
competitive situation provides an excellent opportunity to investigate
consumer evaluation of typical services offerings and the implications for value
adding strategies and the gaining of competitive advantage. Although the
focus of this paper is retail financial services, it is envisaged that the findings
and managerial implications which result from the proposed investigation will
have a broader relevance, providing an insight into consumer evaluation and
resultant implications for adding value and gaining competitive advantage in
services markets more generally.
Thus, in this paper, factors affecting the degree of consumer understanding
of service offerings will be explored and the implications for competitive
marketing strategy analysed. Research propositions will be developed which
once investigated, it is hoped, will clarify pertinent issues for practitioners and
facilitate more effective formulation of competitive strategies. The paper is
structured as follows: the next section offers a brief analysis of the market-led
approach to competitive strategy. The following section considers consumer
evaluation of services. (In the interests of consistency and accuracy the term
consumers will be used in preference to customers, except where the latter has
been used previously to describe a particular construct or phenomenon.) The Consumer
next section covers the characteristics of the typical service offering. The evaluation
penultimate section develops research propositions in the light of the preceding
discussion, while the final section presents brief preliminary conclusions.

Competitive strategy: the market-led view

According to the market-led view, the study and analysis of competitive 641
strategy and the quest for competitive advantage necessarily have to focus on
output rather than input concerns (Mathur, 1988; Czepiel, 1992; Bowman and
Faulkner, 1997). The competitiveness of offerings delivered to the marketplace
will be the primary determinant of success. A competitive advantage can only
exist in relation to the market and the other offerings in that market. The role of
competitive strategy is to deliver superior performance relative to competitors
(Porter, 1980, 1985) by delivering superior value to the consumer in the relevant
competitive market. Indeed, the importance of ``customer value'' is emerging as
a major theme in the marketing and strategy literature (Bowman and Faulkner,
1997; Woodruff, 1997; Parasuraman, 1997; Slater, 1997; Devlin, 1998). Customer
value is, in effect, a function of the amount of effective differentiation delivered
to the market and the monetary and non-monetary sacrifice that consumers
have made (Zeithaml, 1988). A detailed debate as to the exact nature of the
function is beyond the scope of this paper, however, Cronin et al. (1997), in a
study of service value (their terminology for customer value in a services
context), concluded that the relationship was additive rather than
multiplicative.
Regardless of the exact nature of the function, problems in consumer
understanding and evaluation of offerings may have implications for which
elements of the services offering are particularly important in adding value.
Thus, it is necessary, in the following section, to consider consumer evaluation
of financial services, as varying degrees of consumer understanding may have
implications for which elements of the offering consumers focus on when
judging between offerings, which may in turn effect management of the ``value
adding mix'' of elements of the service offering.

Consumer evaluation of financial services

The implications for consumer evaluation of services, given the particular
characteristics of services, have been explored by, amongst others, Zeithaml
(1981), Murray (1991), McKechnie (1992) and Gabbott and Hogg (1994).
McKechnie (1992) provides a comprehensive review of consumer buying
behaviour studies in financial services markets, while the remaining articles
investigate consumer behaviour and services more generally. These reviews
help provide an insight into how consumers evaluate service offerings. How
consumers evaluate service offerings will have important implications for
strategies as to how to add value to offerings.
The received wisdom suggests that the buyer behaviour process consists of
problem recognition, information search, evaluation of alternatives, choice and
European post purchase consideration. It is well documented that for many services
Journal of consumers, including financial services consumers, problems may be
Marketing encountered at one or more of these stages (Zeithaml, 1981; Gabbott and Hogg,
1994). Problem recognition may not occur if consumers find financial matters
35,5/6 intrinsically uninteresting and consumers may be daunted by the complexity of
financial concerns. Thus the old adage, albeit glib, that financial services need
642 to be sold rather than waiting for them to be bought.
Moving on to the information search stage, financial services may induce
consumer passivity due to lack of interest and problems in cognition
(McKechnie, 1992). In addition, the characteristics of services means that many
financial services are low in search qualities but high in experience and
credence qualities (Zeithaml, 1981, 1988), which may further hinder consumers
should they attempt to look for information (Murray, 1991) and engage in pre-
purchase evaluation. Some consumers may even lack the understanding to
evaluate more complex services subsequent to experiencing them (Devlin and
Ennew, 1997), due to the fact that such services are high in credence qualities
(Darby and Karni, 1973). In addition, many financial services are of a long-term
nature and a fully informed evaluation may only be possible over an extended
period of time.
Thus far, much of the consideration of the implications of difficulties in
consumer evaluation of services has been largely theoretical and not focused
specifically on the implications for competitive marketing strategy. In terms of
evidence, three studies have concentrated on retail banking, drawing partially
conflicting conclusions. Elliot et al. (1996) found that price, speed and access
were particularly important in value driven strategy. Reeves and Bednar
(1996), in a response to the aforementioned paper, argued that customer service
appeared more important than price and that customers use additional criteria
beyond price, speed and access to evaluate banks. An earlier paper by Khazeh
and Decker (1992-1993) also found service charge policy to be the most
important factor in explaining how customers choose banks. A recent study
investigating consumer decision making in the purchase of estate agency
services (Crosier and McLean, 1997) showed that price was not a particularly
important variable in most peoples' decision-making process, a reasonable
price being more of a prerequisite than a determining factor. Physical cues also
appeared to be relatively unimportant in the decision-making process.
Consumer trust in estate agents was found to be important.
These studies provide valuable pointers, but deal with only a small number
of, arguably, relatively simple and accessible services. There is also a lack of
consistency in the findings. In addition, and in common with the vast majority
of the literature on the subject of consumer choice of services, some important
issues are overlooked. As only relatively simple services are included, the
potential for variability in complexity and characteristics of service offerings is
overlooked, along with variability in the ability and inclination of consumers to
actively involve themselves fully in the purchasing process. These two factors
are likely, in turn, to have profound implications on the degree to which
consumers understand the features and benefits associated with certain service Consumer
offerings. Such variations are likely to have significant implications for evaluation
determining which elements of the service offering prove to be the most
important in the process of adding value and achieving competitive advantage,
as they may profoundly affect how consumers evaluate services.
Indeed, other researchers have noted the need for further research. Walley
and Thwaites (1996) argue that further investigation is required into 643
competitive advantage in a non-manufacturing context, mentioning financial
services in particular. Hooley et al. (1998), in a commendable paper which aims
to reconcile competitive positioning with the resource-based view of the firm,
suggest that further ``conceptual and developmental'' work is required to
identify positioning dimensions, in essence options for adding value, and
variations between them. Thus, the main contribution of this paper is to
construct propositions relating to a wide-scale investigation of consumer
evaluation and choice of financial service offerings, with reference to variations
in service complexity and consumer participation which will in turn inform a
detailed investigation of consumer choice in financial services. In order to
arrive at a set of propositions, a brief discussion of service complexity and
variations in consumer participation is necessary, as both of these
considerations may have a direct effect on consumer understanding and
evaluation.

Service complexity
The question of service complexity was acknowledged as potentially important
in a recent study by Andreassen and Lindestad (1998) concerning the
importance of corporate image in engendering loyalty. Retail financial services
is a very broad term which covers a range of service offerings, from quite
simple offerings, which may be short term in nature, to those which are
potentially very complex and mentally intangible and difficult to evaluate.
Weinberg (1997) incorporated a distinction between simple and complex
services into his discussion regarding telemarketing of financial services. He
argued that simple services are those where consumers are more likely to
establish they have a requirement independent of any advice. He speculated
that consumers are also more willing to become involved in a search process for
such services, as such services tend to be straightforward and accessible. In the
case of more complex services there may be a lack of a voluntary need
recognition by consumers, which may mean that such services ``need to be sold
rather than bought'', as outlined above. Such services tend to be less
straightforward and accessible for consumers and advice may well be required
before features and benefits are understood, if indeed they are understood at all.
It may well be that a form of continuum exists between the two types of service
but it is suggested that services such as banking/transmission facilities,
personal credit and mortgages may fall into the more simple category, whilst
life insurance contracts, pensions and stock and share management may fall
into the realm of more complex services. A recent study (Devlin, 1996) provides
European preliminary support for such a line of thinking. He questioned industry
Journal of participants as to their perceptions of the complexity associated with various
Marketing types of retail financial services, and the results of a cluster analysis carried out
to group offerings showed that personal banking services, personal credit
35,5/6 services, mortgages and general insurance were perceived as relatively simple,
while life assurance, pensions, unit trusts, investment trust and shares were
644 perceived as complex. It is evident that such a schema represents a
simplification and it is suggested that further, more detailed research,
investigating the perceptions of consumers, is required to provide a more
detailed insight into how consumers approach the matter of service complexity.

Consumer knowledge, financial maturity and participation

However, it is also open to question as to whether it is valid to refer to financial
services consumers as a homogenous group, when in practice it is likely that they
will vary in important respects which may have implications for choice
behaviour. Speed and Smith (1992) state that there is a need for research into how
to position products for particular segments, which may vary in a number of
respects including level of expertise, and they call upon Kotler (1988) for
clarification, suggesting that positioning concerns the design of the company's
image and value offer so that segments of customers understand what the
company stands for. Harrison (1994) suggests that previous segmentation
studies in financial services are of limited value and offers her own mapping of
customer segments. Her schema can be employed to provide an insight into the
potential for variation in customer understanding and participation in the choice
process. First, consumers can be categorised according to their financial
maturity. Harrison adapted the work of Kamakura et al. (1991), and postulated
that financial services are often purchased by individuals in hierarchical order,
beginning with foundation services such as cheque accounts, credit cards,
mortgages and loans and moving onto risk management and cash reserves,
including life assurance, endowments, pension plans etc., then to vehicles aimed
at securing growth, such as unit and investment trusts and stocks and shares,
and finally, services involving significant risk taking and tax protection, such as
derivatives and perhaps offshore funds etc. Such an approach receives support in
a detailed study by an industry practitioner (Oliver, 1997) who states that
consumers, in the main, first set aside money for short-term needs, then consider
protection, moving onto provision, before considering long-term savings and
finally investment. Harrison (1994) introduces a second main discriminatory
factor which she terms perceived knowledge, consisting of consumers' perceived
knowledge and understanding of financial affairs, perceived confidence in
dealing with financial matters and expressed level of interest. A dichotomy is
then introduced where individuals are grouped into high and low perceived
knowledge categories. These categories are then combined with low and high
measures of financial maturity, the former group using foundation and risk
management services, the latter using also growth and high risk services, to
produce a two-by-two classification scheme.
 Thus, four sub-segments are produced as follows: financially confused Consumer
individuals have a low financial maturity and a low perceived knowledge, evaluation
apathetic minimalists have a high financial maturity but low perceived
knowledge, cautious investors have a high perceived knowledge but low
financial maturity, and finally, capital accumulators have both a high perceived
knowledge and a high financial maturity. Although the schema represents a
simplification, it is useful and informative in that it attempts to classify 645
consumers according to the criteria thought to be pertinent in determining
aspects of consumer choice behaviour. However, one particular weakness is
apparent. The perceived knowledge factor attempts to classify consumers
according to their perceived knowledge and expressed level of interest. There is
an inherent assumption that more knowledgeable people will be more interested
and, by implication, active rather than passive. However, as Oliver (1997)
suggests, it may well be pertinent to treat the question of whether consumers are
interested/active or uninterested/passive as a separate distinct construct to that
of consumer perceived knowledge and confidence. Although there may well be a
link, there is at least anecdotal evidence to suggest that some extremely
knowledgeable and confident people remain uninterested and generally passive
consumers, while equally, some who lack a fundamental understanding of many
financial services are extremely interested and active consumers. It is suggested,
therefore, that when investigating consumer choice behaviour in financial
services, account should be taken of consumer financial maturity, consumer
perceived knowledge, and consumer activity, interest and participation in the
purchase process, referred to as ``customer participation''.
Drawing together the two main themes introduced in this section, it is
apparent that total consumer understanding of the competing packages of
attributes being offered through the marketplace will be dependent upon
service complexity, perceived customer knowledge and customer participation.
In turn, the degree of consumer understanding apparent may have profound
implications for how consumers attempt to judge between competing offerings
and to what degree consumers depend on relationships rather than making
judgements on a transaction by transaction basis.
In order to investigate such matters further a detailed understanding is
required of the total package of attributes being made available to consumers
through the marketplace. In effect, options for differentiation need to be
considered in some detail, which involves, as a first step, attempting to
conceptualise the various attributes of financial service offerings. The
following section presents argument and analysis with the aim of arriving at a
more complete understanding of the nature of financial service offerings and in
particular the total package of attributes being made available through the
market to consumers. In turn, the conceptualisation of the service offering can
then be related to consumer understanding and research propositions
proposed.
European Options for adding value to retail financial service offerings
Journal of In order to establish options for adding value to financial service offerings, it is
Marketing necessary to arrive at a full understanding of the total ``package of attributes''
which is being made available through the market to potential consumers. Only
35,5/6 then can all potential options for adding value be considered and analysed. The
question posed, in essence, is ``what does the total offering to the market
646 comprise?'' and it is concerned with how to conceptualise the service offering.
An informed answer will help clarify options available when formulating
competitive marketing strategies aimed at adding value from the consumer
perspective. The answer is not straightforward, as the total offering to the
marketplace may offer value in the form of service specific features, part of the
core service, as well as such factors as image and reputation of the service
provider. Within the literature, the question has been approached from two
main angles. The first has been to unpick the service offering and model the
service package (GroÈnroos, 1987; Storey and Easingwood, 1998). The second
has been to focus on generic options for differentiation, which attempt to
deconstruct offerings into their component parts, to provide an insight into
options for differentiation, or adding value in the eyes of consumers (Mathur,
1988, 1992). It should be noted, however, that to date there have only been
preliminary attempts to relate the work of Mathur specifically to services
(Devlin and Ennew, 1997). This section attempts to reconcile the two
approaches outlined and to arrive at a conceptualisation of the financial
services offering to be employed in future research. It is accepted that there is
no ``typical financial services offering'', however, it is hoped and envisaged that
the model will be of a sufficiently generic nature to enable it to be applied to a
variety of service offerings.
The first approach evaluated is that employed by GroÈnroos (1987) and
employed, among others, by Storey and Easingwood (1998), covering the basic
service package and introducing the augmented service offering. GroÈnroos
(1987) begins to build up the picture by defining the basic service package as
consisting of the core service, facilitating services and supporting services. The
result is not dissimilar to the core, expected and augmented product schema
employed by Levitt (1980). GroÈnroos (1987) then extends the model, arriving at
the augmented service offering which, as well as incorporating the basic
service offering, is perceived and evaluated using three dimensions: the
accessibility of the service, interactive communication between employees and
consumers, and consumer participation. The point is made that consumers'
perceptions of the basic service package can be influenced by how accessible
the service is made, how interactions are judged and how favourably the
customer participation aspect works. As GroÈnroos (1987) acknowledges in the
conclusion to the study, such an approach is directly linked to the more
straightforward dichotomy between technical and functional service quality
(GroÈnroos, 1984), or what is provided and how it is provided. However, the
more sophisticated approach may yield additional insights into options for
differentiating service offerings.
 The work of GroÈnroos (1984, 1987, 1988) undoubtedly provides a useful Consumer
insight into the nature of the service offering. It should be noted, however, that evaluation
the question of how to conceptualise the offering introduced to the market and
which elements of an offering may be differentiated and, thus, used to add
value, has been considered most fundamentally by Mathur (1988, 1992) and
also by Bowman and Faulkner (1997) when formulating their ``customer
matrix''. Such an approach needs to be reviewed and reconciled with that of 647
GroÈnroos before a model can be taken forward. Mathur attempts a new
classification of generic strategies, based on various elements of an offering,
which introduces a depth of analysis previously lacking, most notably from the
work of Porter (1980, 1985). Mathur (1988, p. 33) presents an array of generic
strategies for differentiation by introducing a distinction between merchandise
and support elements of an offering. He uses the term merchandise to mean:
``that which is being made available to the consumer'' be it tangible or
intangible. Support is the ``advice, training or assistance'' which is provided
along with the merchandise. Either merchandise, support or both elements of
the offering may be differentiated, thereby adding value to the offering.
Merchandise may be differentiated using either content, image, or both, while
support may be differentiated using expertise, personalisation or both.
Careful consideration must be given as to how to apply such a schema as to
the exact constituents of retail financial services. The following analysis is
designed to fulfil such an objective and provide examples. Weinberg (1997)
employed a distinction similar to that of Mathur (1988), which provides a useful
starting point. He talked of the core service, or what is made available to the
consumer in terms of the particular service features and characteristics and the
benefits these may bring to consumers. In addition, often simultaneously and
inseparably, advice and assistance may be provided as part of the purchasing
process. Such advice and assistance is arguably dependent on the skills,
knowledge and expertise of the advice provider. In turn, such elements are
central to the notion of technical, or outcome service quality, as detailed by
GroÈnroos (1988) and Lehtinen and Lehtinen (1982) and could be used as
facilitating and supporting services in the model introduced by GroÈnroos (1987)
and detailed above.
If purchasing directly on an execution only basis, i.e. merely communicating
the result of a consumer decision to a provider, it is possible for consumers to
receive just the core service element, as they are choosing a service without the
aid of any significant advice and assistance. However, most purchasers will, to
an extent, receive elements of the core service and service advice. It is
suggested that the ``service provided'', the amalgam of core service and service
advice, is equivalent to the basic service package described by GroÈnroos (1987)
and equivalent to the merchandise element in Mathur's (1988) model[1].
Mathur defined support elements of the offering in terms of expertise and
personalisation. It has been suggested here that expertise is best viewed as an
element of the service advice provided in the case of retail financial services. In
addition, Mathur's (1988) limiting of support to expertise and personalisation
European does appear, to say the least, arbitrary and it is suggested that in the case of
Journal of retail financial service offerings support should encompass other dimensions of
Marketing functional service quality, or the augmented service offering, such as those
outlined by GroÈnroos (1987, 1988) as well as Parasuraman et al. (1985, 1988).
35,5/6 Donaldson (1995) also notes the importance of customer service as a
competitive strategy. Dimensions of service quality include: attitudes and
648 behaviour, related to perceptions of contact personnel's concern for customers,
and willingness to solve problems, quickly and in a friendly manner; access
and flexibility, related to whether the service provider has convenient locations
and operating hours, as well as willingness to adjust to the demands of
customers; reliability and trustworthiness, related to how much the customer
can rely on the service provider to keep promises and act with the best interests
of customers in mind; recovery, related to how quickly corrective action is
taken when something erroneous or unexpected occurs; and tangible factors
associated with the provision of the service. Thus, the support element is
concerned with all aspects of how the service is provided and associated
options for adding value.
Finally, both Mathur (1988) and GroÈnroos (1988) have highlighted image as
an important element of the total offering and hence an option for
differentiation, although the former later refered to ``company aura'' rather than
image (Mathur and Kenyon, 1997). It should be remembered that in the case of
financial services it has been noted that image concerns are often particularly
concentrated at the organisational level (Devlin et al., 1995). Thus, although
image may be used to add value to a particular offering in the eyes of the
consumer, in the case of financial services this image will usually be associated
with the organisation as a whole rather than a particular service offering.
Thus far the term ``image'' has been used to describe the attributes which
customers associate with a particular organisation. Whilst striving to avoid a
detailed debate as to the similarities and differences associated with concepts
such as corporate image, corporate reputation and corporate brand, brief
consideration will now be given as to which term can be considered the most
appropriate to be employed here. Although the term image was employed by
Mathur (1988) and alluded to by GroÈnroos (1988), when talking about
competitive strategies and quality in general respectively, it is arguably not the
most appropriate term and can potentially lead to confusion, not least with the
concept of corporate identity. Mathur (1997) appeared to share similar concerns
when he started to talk of ``company aura'' in the second impression of his book.
Corporate reputation been characterised as ``a set of attributes inferred from the
firm's past actions and ascribed to the firm'' (Weigelt and Camerer, 1988, p.
443), while Petrick et al. (1999, p. 60) talked of reputation as the outcome a
process where ``firms signal their key characteristics to stakeholders''.
Definitions in the branding literature are very similar. Interbrand (1990)
suggests that a brand engenders in the mind of consumers a particular and
favourable set of values and attributes. De Chernatony and Dall Olmo Riley
(1997, p. 45) acknowledged that the concept of the brand is complex, but can be
used to develop ``values and personality traits [which] . . . become sets of Consumer
perceptions in consumers' minds''. LaForet and Saunders (1994) provided a evaluation
detailed analysis of corporate branding and acknowledged that such branding
can provide added value. For the remainder of the discussion offered here, the
term ``corporate branding'' will be employed when discussing image reputation
and branding concerns at the corporate level, as the emphasis on consumer
perceptions contained in the branding literature is particularly appropriate to 649
discussions of the market-led view of competitive advantage.
The objective of this section of the literature review has been to provide an
insight into the nature of the service offering introduced to the market and, in
turn, to attempt to highlight elements which may be used to differentiate the
offering and, hence, add value in the marketplace. Taking account of the
elements of the service offering introduced thus far as elements which may be
differentiated, and thus used to add value, then the following function may be
formulated:
Service differentiation = f (service features, advice, support, corporate
brand)
where:
. Service features relates to that which is made available to the consumer
in terms of the particular service features and characteristics and the
benefits these may bring to consumers.
. Advice relates to the advice and assistance offered to consumers which
will be related to the knowledge, skill and expertise of the service
provider.
. Support relates to elements of functional service quality such as
attitudes and behaviour of staff, access and flexibility, reliability and
trustworthiness, service recovery and tangible factors.
. Corporate brand relates to the image, reputation, branding and the
credibility of the organisation.
(The first two points taken together would represent the basic service offering
in GroÈnroos' model, and the merchandise element in Mathur's schema.)
Thus the main elements of the service offering and related factors which
may be used to add value have been established. However, the competitive
strategy literature has also established that value may be added by using low
price rather than differentiation (Porter, 1985), or indeed some combination of
the two which provides consumers with an attractive value proposition
(Bowman, 1992; Czepiel, 1992; Bowman and Faulkner, 1997), as outlined in the
previous section. Thus:
Value proposition of transaction = f (service differentiation, perceived total
price of service offering)
European where perceived total price relates to the sum of the monetary and non-
Journal of monetary sacrifice consumers judge themselves to be making. Zeithaml (1988)
Marketing introduced the concept of perceived price which, she argued, consists of a
monetary and non monetary element, the latter consisting of costs in terms of
35,5/6 time, search effort etc. Ceteris paribus, a greater amount of service
differentiation will increase the value proposition of the transaction, as judged
650 by consumers, as will a lower perceived total price attached to the offering.
Thus far only transactional elements of the financial service offering have
been considered. However, it may also be the case that value is derived from an
ongoing relationship with a particular organisation. Thus the total value
proposition includes such a consideration:
Total value proposition = f (service differentiation, price of service offering,
value of relationship).
That relational elements are potentially important to competitive marketing
strategy, especially where consumer cognition is limited, is widely accepted,
however, whether relationship marketing represents a significant departure is
a matter of some dispute. A detailed debate as to what does or does not
constitute relationship marketing is beyond the scope of this paper. Of more
relevance to the area under investigation here is to what degree individuals
approach the purchase of financial services as a series of discreet transactions,
evaluating each in turn, and to what degree they act out of a feeling of
commitment to a particular service provider, i.e. are motivated to buy by the
value of the relationship they hold. Commitment is widely recognised as the
key element in the conceptualisation of ``relationship'' (Beaton and Beaton,
1995). It has also been suggested that commitment will be particularly
important and a relationship highly valued when there is a high level of
uncertainty of product outcome (Blois, 1995). The nature of uncertainty and the
resultant level of consumer understanding in retail financial services markets is
a theme investigated in detail above, and subsequently implications for the
balance of the value derived by consumers from transactional and relational
factors will also be considered. It may well be the case that for some more
complex financial services especially relational elements may prove important
for some customers.
This section has sought to characterise the retail financial services offering
in terms of those elements that help to add value in the eyes of consumers, and
hence, may be utilised to achieve competitive advantage. The total service
offered was conceptualised in terms of the core service features and benefits,
along with the advice assistance provided, which in turn was shown to
encompass the technical service quality concerns of knowledge, skill and
expertise. Further options for adding value were introduced, including
functional service quality, or how the service is provided, along with
organisational image and reputation factors in the form of a corporate brand.
Although price is traditionally viewed as relatively unimportant in financial
services, the potential to use low price to add value was also acknowledged.
Finally, notwithstanding the controversy surrounding the subject of Consumer
relationship marketing, it was suggested that a valued relationship with an evaluation
organisation may help to add to the total value derived by the consumer.
The elements of the total service offering as discussed in this section, in
effect options for adding value, need to be related to how consumers evaluate
offerings in order to gain an insight into how competitive marketing strategies
should be formulated. Thus, a thorough investigation of the issues raised in 651
this article may well result in an enhanced understanding of how to formulate
competitive marketing strategies that are targeted effectively with regards to
how consumers judge between offerings. Such an enhanced understanding
would be of obvious value to academics and practitioners alike. Thus, the final
section of this paper considers value adding strategies in the light of potential
problems in consumer cognition related to service complexity and introduces
research propositions aimed at isolating issues which require clarification by
means of further research.

Research propositions
The process of consumer evaluation of offerings and the potential implications
for adding value to offerings has been explored, from a theoretical perspective,
by a number of authors. Zeithaml (1988), looking at general consumer
perceptions of price quality and value, begins her exploration by introducing a
distinction between intrinsic and extrinsic cues, as well as a higher level
abstraction concept, when analysing consumer perceptions of quality and
value attached to offerings. Intrinsic cues are usually product specific
attributes, often tangible in nature. Extrinsic cues are external to the product,
with the examples of brand name and advertising being used by the author. An
important extrinsic cue is quality as defined by abstract dimensions which can
be generalised across offerings, which Zeithaml (1988) calls higher level
abstraction. When consumers are purchasing offerings where search qualities
are important in the perception of value and, hence, intrinsic attributes have a
high predictive value, then consumers will tend to rely on those intrinsic
attributes. However, Zeithaml (1988) argues that when intrinsic cues are scarce
(as is the case for many services), when it is costly in terms of time and effort to
evaluate intrinsic cues, and when the offering is high in experience and
credence qualities, then extrinsic attributes will be far more important in the
consumers' assessments of value. Extrinsic cues include quality of service,
reputation and advertising and promotion. Zeithaml (1988) continues by
stating that extrinsic attributes can serve as value signals and can substitute
for active weighing of benefits and cost, and this is likely to be the case,
particularly when the incidence of experience and credence qualities is high.
Relating such propositions to financial services offerings which are potentially
complex, it can be surmised that such a thinking may have important
implications for practitioners formulating competitive marketing strategies to
add value to offerings in the eyes of consumers.
European Zeithaml's (1988) arguments are similar to those made by Bharadwaj et al.
Journal of (1993), who state that when buyers cannot easily evaluate the qualities and
Marketing value of the service or capabilities of the service provider then brand reputation
may serve as an important proxy for more detailed evaluations. In the case of
35,5/6 financial services, branding is often at the organisational level (Devlin et al.,
1995). Bharadwaj et al. continue by stating that services which are highly
652 intangible and are, therefore, high in experience and credence qualities, will
find brand reputation important as a potential competitive advantage. They
also touch upon the role of relationships, stating that the formation of strong
relationships will be more important in attempts to gain competitive advantage
when services are highly intangible and, as a result, experience and credence
qualities are high.
Nayyar (1990) continues the theme by suggesting that buyers face a
potentially costly task in ascertaining the attributes of services prior to
purchase due to information asymmetries. He suggests that this information
asymmetry can be exploited by service firms who can take advantage of the
fact that buyers tend to attempt to lower such acquisition costs. Nayyar (1990)
stresses the importance of exploiting existing relationships when such
information symmetries are present and makes the point that reputation is a
potentially strong remedy to the information asymmetry which may exist in
the buyer seller relationship. According to Nayyar (1990), reputation is
transferable, i.e. an organisation-wide rather than service-specific concern. He
concludes by stating that if reputation can be legitimately transferred, then
service firms can gain competitive advantage in this way for services high on
experience and credence qualities, but as acquisition costs are less for services
high on search qualities, reputation is likely to prove less important in such
instances.
The work of Zeithaml (1988), Bharadwaj et al. (1993) and Nayyar (1990)
provide important theoretical foundations on which to build propositions for
empirical investigation. The first three propositions are presented with the aim
of clarifying specific points which have emerged from the literature review.
Subsequently, those issues which form the focus of the first three propositions
will be related to options for adding value, when further propositions are
presented. The first main issue which needs to be addressed is that concerned
with the nature of the service package and the resulting options for
differentiation. The theories of Mathur (1988) and GroÈnroos (1988) were
introduced and reconciled in section three and an array of elements which may
be differentiated and used to add value was established. It is both important
and timely to consider empirical testing of the nature of the service offering, as
information from consumers as to exactly what they believe themselves to be
receiving when purchasing or considering service offerings will help clarify the
boundaries of the bundle of attributes which is ``the financial services offering''.
Although there has been some theorising as to the nature of the service offering
and options for differentiation, empirical investigations have been lacking.
Thus, the first set of research propositions will attempt to highlight the
pertinent questions for investigation. Proposition P1a is concerned with the Consumer
degree to which consumers recognise that the service offering is comprised of a evaluation
number of attributes:
P1a: Consumers will exhibit sufficient cognitive aptitude to recognise that
financial service offerings comprise a number of elements.
Proposition P1b is concerned with attempting to model the service offering, 653
with the aim of arriving at a conceptualisation of the financial services offering
which can then be applied to subsequent research questions. The proposition
attempts to reconcile the theorising of Mathur (1988) and GroÈnroos (1988):
P1b: The model of the service offering which best describes consumer
cognition of the service offering comprises the following elements (the
first two taken together would represent the basic service offering in
GroÈnroos' model, and the merchandise element in Mathur's schema):
. Service features, which relates to that which is made available to the
consumer in terms of the particular service features and characteristics
and the benefits these may bring to consumers.
. Advice, which relates to the advice and assistance offered to consumers
which will be related to the knowledge, skill and expertise of the
service provider.
. Support, which relates to elements of functional service quality such as
attitudes and behaviour of staff, access and flexibility, reliability and
trustworthiness, service recovery and tangible factors.
. Corporate brand, which relates to the image, reputation and the
credibility of the organisation.
A further important area addressed thus far is that concerned with service
complexity. It is posited that the term ``retail financial services'' is a potentially
broad one, covering a range of service offerings from those which consumers
will find, in general, simple, to those which are potentially very complex and
mentally intangible. Empirical testing of consumer perceptions of service
complexity is necessary, to aid clarification of the potential implications for
competitive marketing strategy of differences in service complexity.
P2: Consumers will perceive a variation in service complexity between
different types of financial service offerings, judging some services to be
more mentally tangible than others.
In addition, it has been acknowledged that consumers of financial services may
differ in certain respects which may have important implications for the way in
which they evaluate financial services. This, in turn, may well have
implications for formulation of effective competitive marketing strategies.
Harrison (1994), basing her work partly on that of Kamakura et al. (1991),
showed that consumers of financial services varied in terms of perceived
knowledge and financial maturity. Such differences may well have implications
European for how consumers judge between offerings. In addition, it is suggested that
Journal of consumers may vary in terms of their degree of participation in the buying
Marketing process (Oliver, 1997) and there is a need to investigate whether such a
difference receives support from the data to be collected, Thus:
35,5/6
P3: Consumers of financial services will vary significantly with regard to
the degree of perceived knowledge, financial maturity and involvement/
654
participation in the purchase decision.
It is now necessary to develop a set of propositions designed to investigate the
potential impact of the variations in service complexity and consumer
perceived knowledge, consumer financial maturity and consumer interest and
participation. Dealing first with the issue of service complexity. Ceteris paribus,
greater service complexity increases dependence on experience and credence
factors and may mean that, using the terminology of Zeithaml (1988), extrinsic
cues such as image and reputation, as well as service quality may be
particularly important in consumer assessments of value. Bharadwaj et al.
(1993) concur with such thinking and in addition state that relationships may
be more important in such situations. Nayyar (1990) also cites the potential
importance of reputation when information asymmetries exist, most likely in
the case of more complex services. Thus, P4 attempts to relate such thinking to
the model of the service offering and options for adding value introduced
earlier:
P4a: The greater the degree of perceived service complexity, the greater the
importance of support elements, corporate brand and the relationship
element in adding value.
However, the less the degree of service complexity, the greater the potential role
of search qualities in adding value. That is to say that service features may be
important to consumers as they are able to appreciate features and benefits. In
addition, advice, dependent on the knowledge and skills of the service renderer,
may be more easily evaluated and appreciated for less complex services.
Finally, the role of price, taken to represent the total monetary and non-
monetary sacrifice, may also prove more important in less complex situations
as consumers may well find price more transparent and understandable in such
situations and are more able to weigh price against potential benefits.
P4b: The less the degree of perceived service complexity, the greater the
importance of service features, advice and price elements in adding
value.
Moving onto customer perceived knowledge, as introduced above when
discussing the Harrison (1994) schema, the same logic can be applied as was
the case for service complexity. A lack of perceived knowledge potentially
means less understanding, leading to increased reliance on experience and
credence qualities, whereas increased customer perceived knowledge may
increase the role of search qualities in customer assessments of value:
 P5a: The less the degree of perceived customer understanding, the greater Consumer
the importance of support elements, corporate brand and the evaluation
relationship element in adding value.
P5b: The greater the degree of perceived customer knowledge, the greater
the importance of service features, advice and price elements in adding
value.
655
According to the Harrison (1994) classification, customers can also be
differentiated according to their degree of financial maturity, a measure which
encapsulates which financial service offerings customers have, or continue to
use. It is suggested that a greater degree of financial maturity may well
enhance understanding of financial services and lessen dependence on
experience and especially credence qualities:
P6a: The less the degree of financial maturity, the greater the importance of
support elements, corporate brand and the relationship element in
adding value.
P6b: The greater the degree of financial maturity, the greater the
importance of service features, advice and price elements in adding
value.
Finally, the potential for differences in the degree of customer participation
have been cited in the literature (Weinberg, 1997; Oliver, 1997). It is postulated
here that a greater degree of customer participation may well result in an
enhanced importance for search qualities, as customers who are particularly
active in the purchase process may make more of an attempt to utilise and
compare information they find prior to purchase. Indeed, at the extreme,
customers may be completely uninvolved in that they delegate the decision to a
third party entirely. Such a situation could be termed a ``credence'' action and is
likely to be motivated by factors contained in the support element, such as
trust, as well as the reputation of the provider.
P7a: The less the degree of customer participation, the greater the
importance of support elements, corporate brand and the relationship
element in adding value.
P7b: The greater the degree of customer participation, the greater the
importance of service features, advice and price elements in adding
value.

Measurement issues
A further issue which merits consideration is that of the measurement required
to investigate the propositions developed. It is conceded that the process of
measurement is potentially a challenging one, as appropriate existing scales
are not readily apparent for many of the constructs. In addition to the
incorporation of existing scales where appropriate, further scales must be
derived or adapted with the aid of qualitative developmental work, as espoused
by Deshpande (1983). This section will highlight existing scales where
European appropriate, as well as suggesting a process for establishing further
Journal of measurement instruments where necessary.
Marketing Testing of the propositions developed above requires first that the model of
the service offering incorporating service features, advice, support and
35,5/6 corporate brand are measured. In addition, the perceived total price of service
offerings needs to be established, along with the value of the associated
656 relationship, to provide a measure of the total value proposition of the offering.
The scale employed by Devlin (1998), developed partially with reference to
earlier work by GroÈnroos (1987, 1988) and Mathur (1988, 1992), was designed to
investigate how financial services managers formulated strategies to add value
to offerings, and as a result provides a useful starting point. It covered service
features, support and corporate branding issues in a satisfactory manner, but
requires further development in the areas of advice, total perceived price and
relationship elements. It is envisaged that such development would be
informed by qualitative research aimed at clarifying the domain of the relevant
constructs and providing a degree of triangulation, an approach recommended
by Deshpande (1983).
The issue of service complexity is central to the propositions developed
earlier. Although a small number of studies have incorporated measurements
of service complexity, either generally (Andreassen and Lindestad, 1998) or in a
financial services context (Devlin, 1997, 1998), further qualitative work is
required to refine the measurement of service complexity, particularly from a
consumer perspective. Semi-structured interviews with a range of financial
services consumers and potential consumers will assist in elucidating the
pertinent dimensions of complexity to be incorporated into a wider quantitative
investigation.
Finally, the testing of the propositions requires measurement of consumer
characteristics in terms of perceived customer knowledge, financial maturity
and customer participation. Harrison (1994), partially adapting the work of
Kamakura et al. (1991), incorporated scales measuring perceived customer
knowledge and financial maturity into a detailed study of segmentation issues
in financial services. Customer participation was investigated in a financial
services context by Foxall and Pallister (1998), who found that scales derived
by Zaichkowsky (1985) and Mittel (1989) both exhibited high and acceptable
levels of reliability and validity in a financial services context. Thus, it would
appear that existing scales would provide acceptable measurement of
consumer characteristics.

Conclusion
The purpose of this paper has been to set a research agenda in the area of
adding value to retail financial services offerings. To facilitate achievement of
this objective, first an exposition of the market-led view of competitive
advantage, which emphasises the importance of customer value, was
necessary. The questions of variations of service complexity, customer
knowledge, customer financial maturity and customer participation were then
introduced and the resultant implications for customer understanding and Consumer
evaluation of financial services offerings were presented. Then, the literature evaluation
concerned with conceptualisation of the service offer and options for
differentiation was analysed and the approaches of Mathur (1988) and
GroÈnroos (1988) were reconciled to arrive at a model of the service offering for
investigation. Finally, a number of propositions relating options for adding
value to offerings in the eyes of consumers and the implications of differing 657
levels of consumer understanding were developed. It is argued that research
aimed at investigating such matters is potentially very important to
practitioners in financial services markets, as an enhanced insight into
consumer motivations for choosing particular offerings over others may well
result. In turn, a more accurate insight may enable managers to formulate more
effective competitive marketing strategies which attempt to provide superior
customer value in those areas which are important to the market segment being
targeted.
Note
1. It is acknowledged that the situation may be more complex than that described here, as
there is the potential for a consumer to receive independent advice, which is not directly
connected to the service offering or the service renderer. However, independent advice is, in
essence, a separate service offering with its own fee or commission as renumeration. Thus,
it should be noted that in the following analysis advice refers only to that assistance
offered by a particular service provider. It should also be noted that a certain level of
understanding and mental involvement would be required on behalf of consumers in order
to evaluate and derive value from the advice, rather than just relying on trusting the
organisation and its representatives.

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