By Simon Zais, a consultant with Capco specializing in Wealth Management.
Everybody on Earth has had at least one good idea. A lucky few are able to regularly repeat, and an even narrower contingent has a knack for true, consistent innovation. Clearly, firms looking to break from the pack must create a framework by which they can analyze their differentiation strategy roadmaps beyond simply handing the keys to a talented few and hoping for a smooth ride.[i]
In taking a systematic approach to analyizing where a new product, platform, or service (for brevity, these will henceforth be lumped and referred to as simply “product”) stands apart from the competition, mangers may employ a new three-part framework: Triadic Differentiation. This will order thinking around exploration of whether a product differentiates at the object, network and advisor level.
“An incidental product innovation success does not imply that an organization is able to reach a level of sustained product innovation, which seems necessary for organizations to remain viable in the long run”
The first lens through which decision makers should be analyzing their differentiation strategies is by object. Put simply, “is this object (product / platform / service) materially different from competitors on the market?”
Criteria by which object uniqueness may be judged versus competitors could include, but is certainly not limited to features, components, and external reviews.
For example, the features of certain investment wrappers generally are differentiators against competing vehicles offering similar investment strategies. Having previously bested unit investment trusts in client hearts, minds, and wallet share, mutual funds now find themselves losing to ETFs as the vehicle of choice for many investors. This is no doubt due in large part to the superior featureset sported by the latter in comparison to the former.[i]
In a fund setting, an analysis at the component level would include the underlying investment strategy, the particular positions and sizings, and the fund naming conventions. Putting aside performance, it has been shown that funds with high levels of differentiation are both able to maintain competitive fund flows and charge higher fees than their non-differentiated peers.[ii]
By garnering reviews, credentials, and accolades from industry guilds and observers, a product is able to further distinguish itself in the marketplace. Morningstar Ratings are an easily digestible metric by which investors and their advisors may compare funds via a single metric, and literature suggests that some investors and their advisors “vigilantly monitor this information and view the rating change as ‘new’ information on fund quality…” with Morningstar Ratings possessing a “unique power to affect asset flow.”[iii]
The second analysis that should be undertaken is how a particular product can be measured against its peers based on its firm launchpad and network with other products. “Will potential clients observe, interact, and behave differently based on the backing logo and the tandem positioning with other products in the suite?”
Advisor workstations and their various modules provide a vivid illustration of how the unique branding of similar competitive products (or platforms & services, in this case) and their strategic cross-application use cases create a marked advantage to certain players in the ecosystem. Applications with otherwise similar use cases and functionality arranged and packaged together by a platform can drive significantly different responses in engagement with wealth managers.[1]
Managers staking differentiation strategy should already be keenly aware of how their brand is currently perceived in the marketplace to further leverage that reputation. For instance, a brand widely perceived as a high-price, top-shelf provider may find that associated product rollouts are regarded as high-value-additive simply by proximity to the other products within that brand. By leaning into this market perception and tapping into their brand equity, managers may find themselves able to tactically differentiate away from vicious pricing bloodsport.[2]
Finally, managers should be benchmarking their differentiation strategies by advisor. “Can this product be presented to clients and prospects by a trusted advisor in a different light than how another advisor would present the same or similar product?” In this context “advisor” could refer to a number of roles: financial advisor, sales director, banker, or even a finfluencer. This would often fall in line with what is widely known as consultative selling in that the advisor is able, through the sales discovery process, to form a focused pitch to an individualized set of needs, desires, and requirements.
In essence, by empowering advisors to think creatively, managers with a well-hewn advisor differentiation strategy are able to effectively outsource differentiation execution.
In the fast moving, hyper competitive world of financial services, firms must always be considering new ways to conduct innovative campaigns. Without a disciplined and focused framework such as Triadic Differentiation however, managers may find themselves ambling listlessly from half-baked to hail-mary, hoping for that one truly innovative idea to materialize. By diligently crafting a strategy based on object, network, and advisor points of differentiation, those same managers can instead set their products, platforms, and services up for day one success. And beyond.
Footnotes:
[1] Sustained Product Innovation in Large, Mature Organizations
[2] Capco
[3] Quality and Product Differentiation: Theory and Evidence from the Mutual Fund Industry
[4] Atlanta Fed
[15 KitcesAbout the Author:
Simon Zais is a consultant with Capco specializing in Wealth Management. He has experience in both the front and back office, using his broad experience to execute meaningful change across organizations. Simon holds a degree with honors from Baruch College and is a CAIA charter holder. He lives in Connecticut with his wife, son, and two dogs.
