Annual Report 2017

Sales of the future “Customer requirements are changing fundamentally“

Professor Christian Rieck

According to digitization researcher Christian Rieck, the sales organizations of companies in nearly every sector are entering a new era. This is particularly true for banks, whose advisors will in future meet increasingly rarely with their customers, yet will be able to work all the more efficiently thanks to support from artificial intelligence.

Professor Rieck, digitization is on the agenda at virtually every company here in Germany. Nonetheless, you have warned that digitization could overwhelm established companies — even those that see the trend — for lack of adequate response. Why is that?

I’m not sure whether companies have yet grasped the extent of the digital revolution. Many executives are concentrating on technologies that support their existing business models. They’re not paying sufficient attention to the disruptive nature of digitization, i.e. its ability to create something completely new. This is an especially important issue for sales organizations, because customer needs are changing as a result of this rapid shift. For example, more and more people are looking for services that solve complex problems; they don’t want to simply buy a product.

Which industries do you think are particularly affected by these changes?

The book and music sectors – and the media industry in general – were the first to experience the full force of the digital revolution and, since then, have been suffering an unprecedented decline. On the one hand, producers and publishers realized too late what was coming their way and how users’ behavior would change. But on the other, their options for reacting were limited anyway. That is why digitization made such rapid progress in these sectors. Margins collapsed overnight and business models were destroyed. Bad for companies, good for customers.

To what extent have companies in other industries learned from this?

It’s often not easy for established companies to readjust, even if they know that they need to do so. Microsoft, for example, began developing technically refined and easy-to-use tablets at an early stage, but its rival Apple won the race. Why? Microsoft’s customers found the devices far too simple. At that time, most of them were professional users who were unable to use the tablets for their work. And Microsoft didn’t manage to reach a completely new segment of customers who would be interested in this kind of device. But it doesn’t have to be this way. My impression is that German engineering companies, for example, are making good progress on using digitization to their advantage and offering genuine added value to their customers. Many of them are small and medium-sized enterprises, not major corporations. In my opinion, SMEs find it easier than big companies to adjust to substantial changes.

Professor Christian Rieck, trend researcher
Christian Rieck is Professor for Finance and Economic Theory at Frankfurt University of Applied Sciences. He was a student of Reinhard Selten, the only German Nobel laureate in economic sciences to date. Rieck investigates the interaction between humans and artificial intelligence. He has published works on behavioral finance, digitization, and bank 3.0.

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The financial sector has also embarked on the digitization journey. What do the changes mean for banks’ sales organizations and advisory business?

Company size plays a role here, too. The cooperative banks are well placed to deal with the changes. In my view, relatively small, locally managed entities are more flexible than large organizations when it comes to digitization. Moreover, the financial sector as a whole has a crucial advantage over other industries, although this has not been recognized as such by many companies. By this, I mean regulation. Banking is one of the most heavily regulated sectors of all, and financial institutions have built up expertise that took a lot of time and money to acquire. That’s why fintechs – start-ups focusing on the financial sector – frequently decide not to engage in cut-throat competition and not to cover the entire value creation process. Instead, the newcomers are increasingly collaborating with banks. They position themselves as experts in individual areas, particularly sales, where speed and willingness to experiment are key.

Established banks probably do not consider partnering with fintechs to be sufficient. Should the banks themselves become digital pioneers?

Financial institutions have always pioneered the use of new technology. So it’s only logical that banks want to be at the forefront of digitization as well. They already are in many parts of their business, but these efforts are not visible to customers. Banks have long been focusing on digitizing those processes that run in the background without customers seeing them. That’s now changing because banks are introducing digital technologies at the customer interface on a huge scale in order to open up new sales and communications channels. At the same time, they have to continue to project their familiar, professional image. After all, people will only let companies look after their money if they truly trust them.

How can banks strike the right balance?

The best way is for banks to take more than one approach and to adapt to the needs of different types of customer. Some people will still want to be able go into a branch to obtain advice in the traditional manner in a familiar environment. And there will be those who are willing to pay for this service. The comeback of local neighborhood stores shows that people still appreciate a sense of security and familiarity. At the same time, banks have to appear innovative in order to appeal to the growing number of people who are very comfortable with digital technology. And between these two extremes, banks will have to offer their customers a broad range of channels.

What might successful new digital concepts look like?

A digital sales concept often works well when, rather than offering a single product, companies create packages that tie in with aspects of customers’ lives. For example, a home finance provider’s app that also lets you virtually furnish your new house is very useful and complements the actual finance product. Another driving factor is simplification, a successful example being Union Investment’s automated investment advice tool, MeinInvest. The trend for mass customization is really taking off in the financial sector at the moment.

Will financial products only be sold via digital channels in the future?

No. Alongside the digital business, there will be plenty of areas, such as home finance, where the customer will want to talk to someone in person, at least before they sign the contract. There will also be other occasions where customers will still seek out their personal advisor. Purely digital sales, conducted solely by robo-advisors, won’t work. The future of sales is the symbiosis between humans and machines. Especially as such teams, in addition to offering empathy, can also be more effective than artificial intelligence on its own.

How does the traditional branch fit into this new world of banking?

Customers will no longer visit their bank daily or weekly because they’ll have no reason to do so. The declining importance of cash is driving this trend as customers don’t need to use ATMs so often. But for banks, it’s important that people continue to see going into a branch as a routine event, so that they don’t feel intimidated. Perhaps banks will soon be opening cafés or setting up mini-branches inside other stores – as post offices have done.

Given the many opportunities offered by digitization, how can banks find out which concepts really work?

Banks need to have the confidence to test out ideas. This is the only way to find out what works. The digital revolution is so complex that you can’t spend ages at the drawing board and then implement all the plans with military precision. At the same time, technological progress means that it’s never been so easy to test new concepts as it is at present. This is why many companies are trying to copy the working methods of start-ups: testing what works on a small scale and setting up short feedback loops so that adjustments can be made. Successful ideas are continued, others are dropped.

Do banks need to think more disruptively than before?

Yes, otherwise other companies will come along and grab the business, regardless of any high entry barriers. It’s difficult for a bank to launch such innovations on the market if parts of its own business are the ones that suffer. However, banks have to accept the fact that new products and services might cannibalize their core business. This is almost impossible to avoid if you want to be successful.