The stages of nancial services product elimination

Received (in revised form): 21st November, 2006

Tina Harness*
has a PhD from Hudderseld University, which explored the developing strategic role within human resource management. She has worked for Leeds Metropolitan University and York St John University, specialising in managerial and organisational behaviour. Her research interests include strategic human resource management and relationship marketing. She has published in the Service Industries Journal and Journal of Product and Brand Management.

David R. Harness
has a management degree from Aston University and a PhD in marketing from Hudderseld University. Since leaving retail banking, he has worked for a number of universities including Hudderseld, Leeds and Hull University. Current research interests include the impact of product elimination on different organisational stakeholders, product management, and relationship marketing. He has published in the Service Industries Journal, Journal of Product and Brand Management, International Journal of Bank Marketing and the Journal of Financial Services Marketing.

Abstract This paper examines product elimination in the UKs nancial services industry. The literature review establishes that physical goods elimination theory has only limited application to the nancial services sector. Specically, it fails to take account of constraints that prevent the removal of a product to a state of nonexistence. To overcome this, the sector uses two forms of removal full and partial elimination. A three-stage methodology is used to nd out how products are eliminated in retail banks, building societies and insurance organisations. A model is developed which explains that companies within the sector proceed through four stages during the elimination process identication, decision, implementation and post elimination evaluation. At the end of this process, a product will have been either partially or fully eliminated. The preference of the industry is to use partial elimination. It can be concluded that the customer relationship is a key determinate factor in the choice of elimination process. Journal of Financial Services Marketing (2007) 12, 197207. doi:10.1057/palgrave.fsm.4760072 Keywords Service product elimination, process, stages, customer management, partial elimination, full elimination

INTRODUCTION Eliminating a product is the end activity of a number of stages that typically includes product review, evaluation of alternatives, selection of a removal strategy and implementation. Each of these stages present choices to product managers, which
*Correspondence: York St John University, Lord Mayors Walk, York YO31 7EX, UK. Tel: + 44 (0) 1904 876392; Fax: + 44 (0) 1904 612512; e-mail: t.harness@ysj.ac.uk

determine the nature of the elimination strategy, for example, the timescale involved in taking the product to a state of nonexistence, the amount of budget consumed in the activity and whether it is dovetailed into a new product launch. While the act of removing an offering is associated with negative connotations, a number of important benets for the organisation have recently been identied. For example, product elimination can increase the effectiveness of the sales force by enabling a

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concentration of effort to occur. It can also increase the ability to satisfy customer needs and ultimately the nancial performance of the organisation.1,2 What is known about the product removal process comes from studies predominantly conducted in the physical goods industries. While these have been useful in providing a broad framework of the type of stages involved, it is uncertain how they relate to industries with very different production, consumption and ownership realities, which describes the situation faced in the UK nancial services industry.3 This gap in understanding promotes an imperative to establish the type of processes involved in managing the end stage of a nancial service product, and to identify the critical inuences on the decisions taken at each stage. This paper presents a model of nancial service product elimination. The stages involved in product removal are dened, as are the relationships between each stage to highlight the different elimination processes that exist. Finally, the paper concludes with a discussion of the management implications of the study and areas for further research. LITERATURE REVIEW Arguably the elimination process starts when an organisation identies a change which questions the viability of keeping a product at market, for example when an offering ceases to function within the organisations commercial objectives. Initially product elimination was assumed to occur when an offering reached the end of a denable product life cycle.46 Empirically driven research challenged this because it identied that products were eliminated for many different reasons, both internal and external to the organisation and at different stages of a life cycle.7,8 Ultimately 17 problem situations leading to the removal of physical goods were identied.1 These can be divided into three broad areas of inuence. First, those related to the overall performance of a product in the market place, for example

level of sales, protability. Secondly, inuences internal to the organisations that were related to the overall management of a product within its portfolio, for example poor quality/design and development of a variety reduction policy. Thirdly, factors outside the organisations control that reduced their ability to trade, for example changes in interest rates, government policy and regulations. In addition, organisations faced with xed sales capacity, such as a fast moving consumer goods (FMCG) producer, were compelled to cannibalise an existing offering to enable a new product to be sold.9,10 Further, complex products were removed to improve the performance of the sales function.11,12 Finally, it was noted that products were mistakenly eliminated due to the incorrect use of nancial performance data.13 Research that focused on the elimination activities of the UKs nancial services industry emphasised causes related to the simultaneous and contemporaneous nature of production and consumption.14,15 These service product characteristics forced a reliance on technology to support the delivery of the offering to the customer. Elimination occurred because of the incompatibility of existing and new IT management systems, capacity constraints and IT obsolescence. The physical goods and service product elimination studies suggest a wide range of factors that can challenge a products existence. Further, that each organisation will face unique circumstances in determining the impact of the elimination drivers to them and the response that they can make. Product review process and elimination decision In deciding whether to remove a product the organisation would have to consider if elimination could be avoided by doing nothing or alternatively by attempting to rejuvenate the offering. This is determined by a number of factors. For example, does

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the elimination driver leave any options other than elimination available, such as a change in government legislation that would leave no option other than to eliminate. Or is there a strong commercial reason why the product should be left in existence, such as sustaining an important customer relationship. To answer these questions, it is necessary to understand the inuence of drivers in forcing elimination and how organisations respond to such threats. Two critical inuences were identied that determined how organisations viewed the importance of elimination drivers.16,17 The rst are contextual variables dened as the relative intensity of competition in an industry and the level of technological stability. The second are idiosyncratic product and company conditions, for example volume of sales turnover, level of product diversity and type of operations technology employed. These were seen to inuence the importance that organisations placed on the elimination activity and how it was conducted. This included the type of review process undertaken. The importance placed on the elimination activity by an organisation was recognised as being inuenced by the complex and dynamic nature of the internal and external operating environment within which it operated. The more complicated and dynamic the operating environment is, the harder it became for organisations to identify actual drivers and respond to them.18 Elimination was initially considered to be a predicable activity based on product life cycle theory, which provided the rationale for organisations to manage the process by relying on a formalised procedure.5,19 The majority of elimination decisions and processes related to product deletions were found to be ad hoc in nature.16,20 Formalised procedures failed because they could not take account of the wide variation in causes of elimination, that is, how organisations operating conditions altered the potency of drivers, the inconsistency of product

Table 1 Run out

Physical goods elimination strategies Cease production of new units, sell existing units to exhaust all stocks Cease production when able (complete contracts, use raw materials, sell existing stocks) Cease production, but retain ability to produce specials for a premium price when requested by customers Cease production, production line and remaining stocks are junked The rights to produce a product or the production processes are sold Cease sale of product to enable new substitute product to be sold, junk existing product units

Phase out immediately Drop from standard range reintroduce as a special Drop immediately Sell out Launch new product simultaneously eliminating existing offeringa
Adapted from Hart22
a

Saunders and Jobber10and Saunders and Khan23

performance review data and lack of managerial competency. Product elimination strategies Initially product elimination was perceived as a simple activity reliant on either removing the product immediately (divestment) or phasing it out slowly (harvesting).5 This was considered simplistic because relying only on two elimination strategies failed to reect the complexities involved in ceasing production.7,10,21,22 This ultimately led to the development of six physical goods elimination strategies. These are outlined in Table 1. Strategy choice is concerned with the immediacy of need to cease production, and the desire not to waste resources. It is inuenced by constraints on the process, for example contractual obligations. The use of each of the strategy types is determined by such factors as the nature of production, intensity of competition, level of innovation, levels of stock and raw materials held, and managerial sophistication.22 This creates variation in usage between the different industrial sectors. For example, manufacturers of industrial plant may have long order books reecting the level of wear and tear on supplied equipment. FMCG producers may

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have advanced orders that are only measured in months. This inevitably alters the timescale in which elimination can take place. It is questionable whether physical goods elimination strategies are appropriate to describe the removal activities of the UKs nancial service sectors.23 This is because of product intangibility, simultaneous production and consumption, and a reliance on information technology and people as delivery systems.24,25 Further, in nancial services the management of the product is inuenced by contractual obligations and legislative controls that make elimination harder to accomplish than in the physical goods sectors.26 To overcome the problems created by the inability to eliminate products, the sector uses two forms of removal partial and full.27 Partial elimination removes the product from new sales, while leaving existing customers owning and using it, with ongoing contractual support liability. In full elimination the product ceases to be produced and all support liability is terminated. This occurs when there are no customers left owning the product or ownership is transferred to another organisation. Table 2 outlines how partial and full elimination are translated into operational strategies. The 1990s were considered to be the period when the industry actively sought to sustain and increase purchasing loyalty.2931 The desire to develop relationship marketing

may have encouraged the sector to withdraw a product in a way that least challenges the customers desire to remain loyal, thus reinforcing the importance of partial elimination for the industry. Product elimination success The concept of what success means within the context of removing a product has had limited research exposure. One study identied that elimination success was dened in relation to how the activity led to improvements in such things as competitive position, customer goodwill, protability and nancial performance.17 This suggests that success is a consequence of removing a product. In addition, managing the elimination process to gain specic objectives, such as removing within time and budget, has been highlighted as generating success factors.2 By attempting to prove that elimination can create benets for the organisation, it may reduce the identied reluctance of the product manager to be involved in the activity.15 The discussion has described the elimination activity as a set of individual, but related stages. This has highlighted the complexity inherent within each elimination stage, although not necessarily that of the process. What is indicated is that the process

Table 2 Financial services sector elimination strategies Partial elimination Make a product a closed issue Withdraw features Drop product from sales; use name for new offering Amalgamate similar products under new name or existing name Full elimination Core product elimination Customer elimination
Adapted form Harness and MacKay28

Cease sales to new customers, maintain unchanged for existing users As above plus remove product features e.g. credit interest on a current account Remove existing version from sales (leaving current user unaffected), launch new offering with same name but different features Identify products with similar terms and conditions that can be easily amalgamated to simplify management effort, reduce operating costs e.g. basic savings accounts Close down a whole product line e.g. motor cycle insurance either by non-renewal or by selling to competitor Cease relationship with customer by non renewal or offering at end of consumption period, or terminating production

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starts with the identication that a product no longer ts the commercial aspirations of the organisation. The end perhaps is, however, less clearly denable in nancial services. This is based on the idea that a partial elimination action will still leave a support liability, thus the end of the action is not the termination of all production. For physical goods, the termination of product production is the end stage. What is unknown is how each stage within the elimination process can be managed to gain specic types of outcome. The ability to implement successful product removal should be enhanced by understanding the inuences on the elimination process and how these shape each stage of the activity. METHODOLOGY There were three stages to the study literature review, qualitative exploratory interviews and two quantitative surveys. The literature review highlighted the point that the existing product elimination and services marketing theory failed to provide a complete picture of all the issues faced in removing a nancial service offering. The review enabled a framework to be developed of key product elimination areas, which was used as a guide for the second stage of the study. These areas centred on the causes of product elimination; the identication of elimination candidates, the selection of removal strategies, the managerial decision process, the implementation of withdrawal, the evaluation of the outcomes (success) of elimination and the impact of elimination on the customer. Six exploratory qualitative interviews were conducted with product managers from the retail banking, building society and insurance sector with experience of managing product elimination. The objectives of this stage were threefold. First, to identify the extent to which existing elimination theory tted the realties of removing nancial services products. Secondly, to gain an understanding of

the context in which the product removal activity was undertaken. Thirdly, to provide data to be subsequently tested using a quantitative approach. Interviews were tape recorded and fully transcribed. Each transcript was read through until it was felt that a high level of familiarity existed with both content and context. Because a topic guide had been used to conduct the interviews, the questions asked were used as preliminary analysis codes. During the familiarising process, other codes were identied and applied. The documents were then deconstructed around recognisable themes, which were grouped into separate documents. The themes were used to develop a quantitative questionnaire for the third stage of the study. Two questionnaires were formulated. The rst explored the product management context, the denition of elimination, the levels undertaken, inuences on the decision process, selection of strategies, types of strategies used, and how success is dened and measured. The second questionnaire considered the review process, elimination assessment criteria, management structures and the causes of elimination. Both questionnaires contained predominately closed questions with the opportunity for respondents to add examples or explanation. The questionnaires were piloted with the same product managers who had been used in the qualitative stage of the study. The sampling frame incorporated all retail banks, building societies and a selection of insurance organisations operating within the UK. The organisations were identied from the membership details held by relevant industry associations, for example Association of Building Societies, regulatory bodies, for example LAUTRO, and trade registers. All banks and building societies were contacted by telephone to identify individuals who had product management responsibility and experience of managing the end-stage of a products life. In order to increase the overall response rate, each individual was contacted

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by letter and asked if they were willing to take part in the study. A sample of insurance organisations was generated based on companies that produced their own products. Each organisation was telephoned to gain a respondent list and subsequently contacted by letter to request involvement. The rst questionnaire was mailed to 196 named individuals giving a distribution of 44 in retail banks, 83 in building societies and 69 in retail insurance organisations. To increase the overall level of response, nonrespondents were sent a second copy of the questionnaire. This resulted in 67 returned questionnaires of which 56 were usable. This represented a 28 per cent response rate (16 retail banks, 20 building societies, 20 retail insurance organisations). The second questionnaire was sent to a reduced sample to take account of changes in job functions of individuals and letters returned declining to take further part in the study. This resulted in 45 being returned, giving a 27 per cent response rate (12 retail banks, 15 building societies, and 18 from retail insurance organisations). The ndings in this paper represent the nal part of the study a summarising model of the process of nancial services product elimination. FINDINGS The study identied that the product elimination process can be divided into four key stages in the UKs nancial services. (1) Identication of product elimination need, (2) decision of how the product should be removed to overcome key constraints on the process and achieve customer oriented objectives, (3) management activities involved in implementing product elimination and (4) post elimination evaluation, which assesses the extent to which success is achieved. These four stages were used to develop a model to describe the processes used by the nancial services industry to eliminate products, outlined in Figure 1.

THE IDENTIFICATION STAGE The study conrmed that nancial services products were susceptible to many different factors that could lead to their elimination. Eight related themes were identied in the study as driving elimination events. These were ranked according to the percentage of elimination events their individual elements had caused. These are outlined in Table 3. The themes hide a wide range of factors that drive elimination. Many of the factors within the themes were internal to the organisation, for example launching a new duplicate product, introducing a new IT management system, making a product too complex to sell, seeking to reduce operating costs. It was expected that this would make the identication of them easier and within the remit of the product management function. It was in fact found that this was not the case. The respondents were asked to indicate how they had identied an elimination driver. Sixty-two per cent of organisations relied on ad hoc reviews for identifying which products to eliminate. These reviews were created when strategic change was being planned or when a major repositioning of the portfolio was undertaken. Sixty per cent indicated that they had been forced into withdrawing a product due to a crisis. This limited the review to consider only the business issues likely to be affected by the withdrawal, for example impact on customers, creating a sales gap in the portfolio. Only 15 per cent had identied elimination as part of an ongoing formalised monitoring procedure to assess product viability. This conrms that end-stage product management is given a low priority by the UKs nancial services sector. It could also be attributable to a general lack in product monitoring capability, the unpredictability of causes and/or their infrequency of occurrence. The ability of organisations to identify when something had changed in a products existence is critical to being able to conduct

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INITIATING EVENT
Product Led Strategic Led Customer Led Costs Led I.T. Led Operational Led Personnel Led Externally Led

Leave Unchanged

REVIEW PROCESS
Ad-Hoc Crisis Driven Formalised Rejuvenate

1) Identification stage

DECIDE TO ELIMINATE

Elimination Barriers

No Elimination Barriers

Post elimination customer objectives

To leave customer feeling positive To leave customer feeling neutral To leave customer feeling negative

2) Decision Stage

PARTIAL ELIMINATION
1) Make a product a closed issue for new customers 2) Make a product a closed issue for all customers 3) Merge similar products together and use existing name 4) Withdraw product attributes, leave core function intact 5) Merge products together under new name 6) Suspend product from new sales, relaunch at a later date 7) Make product a closed issue for certain customer segments, but available for other new and existing customers

FULL ELIMINATION
1) Withdraw product, force customer into alternative 2) Withdraw from sales, migrate customers, change the function and re-use name 3) Core product closed down all support liability removed 4) Sell core product to competitor 5) Cease relationship with customers

3) Implementation stage

Post Elimination Assessment

Removal of elimination driver Elimination process conducted to set objectives Improves other business activities (outcome)

4) Post Elimination Evaluation Stage

Figure 1 Stages of nancial service product elimination

an effective review. The review may very well highlight options other than product removal. Although the study did not explore these, it did identify two reasons why options may not be available. The rst relates to causes that are so compelling that they force elimination, such as a change in government legislation (eg removal of PEPs and Tessas in 1999) or a critical failure, for example

inability to transfer product and customer details onto a different IT management system. The second condition is when the cause is identied as a crisis, which leaves insufcient time to consider other options, for example rapid changes in interest rates due to the abortive attempt of the UK government to keep sterling in the exchange rate mechanism (ERM) framework.

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Table 3 Key themes of factors driving product elimination within the UKs nancial services industry Product performance led (poor sales performance, product becoming obsolete). Strategic led (implementing strategic change, merging organisations together). Customer led (poor t of product to customers need, large-scale account dormancy). Cost control led (product unprotable due to high-cost base, too many products in portfolio). Information technology led (inability to easily products to new IT system, incompatibility of new delivery systems). Operational led (entry into new markets, rationalisation of existing delivery systems). Personnel led (product too complex to sell, regulatory controls on who can sell). Externally led (change in regulatory controlled, new players enter the market). 25% 18% 14% 10% 9% 9% 8% 7%

DECISION STAGE Once it is accepted that a product must be removed, the issue becomes one of how this can be accomplished. The study conrmed that the selection of strategy is inuenced by the extent to which a product can be fully eliminated, based on the existence of barriers. These are regulatory controls, codes of practice and contractual obligations. Further, it was identied that the organisations desire not to damage the customers purchasing relationship as a result of elimination heavily inuenced their choice of both full and partial removal strategies. The implementation of a removal activity could alter how the customer felt towards the organisation: to be more positive, to be more negative or to be unchanged. For full elimination only the rst two outcomes are achievable, and for partial all three can be planned. The inherent service product characteristics of joint production/ consumption, shared ownership and contemporaneous usage make the customer central to the elimination process. For full elimination, the product removal cannot be hidden from the customer, whereas in partial elimination, because the offering still has existence to current users, the activity can be hidden resulting in no change in the customers attitude to the organisation. IMPLEMENTATION STAGE The study identied that the level of elimination activity conducted by the sector as a whole was low. Full elimination had been conducted by 57 per cent of the sample, and partial elimination by 63 per

cent. The usage gures relate to whether an organisation had conducted each form of elimination. When the level of usage of each form of removal is considered, it was found that the majority of reported cases (on a ratio of 10 to 1) were of a partial nature. It suggests that full elimination is more problematic to implement and thus, less likely to be undertaken than partial elimination. This can be seen in a number of ways. Only one full elimination strategy was used by the majority of the sample, while the remaining four have limited usage. Indeed, the two concerned with ceasing customer relationships (sell core product to competitor and cease relationship with the customers) were used in only exceptional cases. For partial elimination, the situation is very different. There is a wide range of options that enable the organisation to effectively switch off aspects of a products existence to enable a consolidation of management effort and increase efciency of resources. It should be noted that selecting a partial elimination strategy might be the start of a process meant to reduce the number of customers owning the product. This process may continue and involve using other partial elimination strategies until it is viable for full elimination. This is either when very few customers remain who own the product, or the commercial or practical reasons for keeping the product in existence have changed. In a sense, partial elimination provides the organisation with extra time to assess the desirability of keeping a group of customers, and then to plan a withdrawal action to achieve objectives that impact on those

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individuals. The key ones mentioned by the respondents were to increase activity levels, encourage the purchase of other offerings, and to maintain positive word of mouth. POST ELIMINATION EVALUATION STAGE Product elimination success can be considered in three ways. First, by removing the cause of product elimination. Success is dened in terms of identifying the actual cause of elimination in a timescale that enables different withdrawal options to be selected. Secondly, achieving the elimination objectives linked directly to the process involved in removing a product. Success is the extent to which the objectives, such as timescale and nancial budget, number of customers kept within the organisation, are achieved and relate directly to the elimination action. Thirdly, by the improvement in the performance of other business activities that results from product elimination. Success is based on the outcome of the elimination in providing positive gains for the organisation. These may be indirect consequences, for example removing a complex product that enables sales staff more time to concentrate on selling other products or direct consequences, for example the sales of another product increase because the competition from the deleted offering is removed. Thus, it is clear that an organisation needs to conduct an elimination event in order to understand how such outcomes can be achieved. DISCUSSION AND AREAS FOR FURTHER RESEARCH The research identied differences in the nature of product elimination in the UKs nancial service sector compared to physical goods elimination. These differences were the results of a number of factors. For example, the events that led to a product being considered for elimination were identied to be either sector specic or universal, in that

they related to norms of business activity, such as controlling costs, maximising prots and releasing resources. These ndings echo those of the extant literature, but highlight that service-specic factors exist and thus must be considered in the planning of product removal activity. A key difference highlighted in this study and given less importance in the physical goods elimination theory is the extent that constraints on eliminating an offering determine the nature of the process. In part this is to do with the nature of ownership, that is, in physical goods ownership is generally transferred at purchase, while in services it remains with the supplier. It is also to do with the level of regulatory control that surrounds the production and selling of the offering. This is more inuential in nancial services than physical goods. In addition, the timeline for the reported studies provides a further explanation. Physical goods elimination theory was formulated prior to the development of extensive customer relationship management theory. As relationship marketing has gained in popularity, it is likely to increase the inuence of the customer on the way that physical goods are removed. The concept of partial elimination seems to be a unique solution to the problems faced by the UKs nancial services industry. It may also be relevant when removing other service offerings that have a high level of personal customer care and duty of care inherent within them, such as medical treatments or mobile phone service providers with ongoing supply contracts. It is perhaps unsafe to identify differences without dening the notion of product elimination success. This study has conrmed that elimination can be measured in terms of generating improvements in the performance of business operations. Other concepts of success, however, were also dened based on the type of elimination activity undertaken and the unique relationship with the customer (shared ownership, joint and contemporaneous production/consumption). If physical goods

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elimination, however, becomes concerned with managing the customer as well as removing product attributes, then wider success concepts may be appropriate. A number of management implications stems from this study. Previous studies that had mapped the product elimination process saw the activity as tending to be both linear and relatively sequential. Underpinning the removal process was a belief that it should be implemented in a way that optimises the speed with which full elimination could be achieved. The process mapped out for removing different types of nancial service offering differs from this in two key respects. First, the overall emphasis of the removal activity is determined by the extent to which full or partial elimination can be conducted or desired. In turn, this helps dene the individual stages of elimination undertaken and the order in which they are followed (it is also inuenced by other factors such as the nature of the initiating event). This ultimately provides three distinct elimination processes. The rst is akin to that described in the physical goods literature, which indicated that high intent to ensure that the offering is fully eliminated existed from the outset of the removal activity. The second begins as a partial elimination activity but with an expectation that full elimination, after set criteria are achieved, would occur. The nal process is underpinned by the fact that the intent to fully eliminate the offering is beyond the scope of the management team and thus the offering will be placed in a continual state of partial elimination. While each of the three elimination processes may share a similar starting point, that is, something occurs to question the viability of the offering, the impact on resources and on the customer may be very different. This suggests that the removal of a nancial service product involves a considerable level of planning to ensure that the inherent complexities within the process are fully considered. A key element of pre-elimination planning is to identify what indicators are

required to judge when an offering reaches the point when it can either be moved from one stage to the next in the process, or can become subject to full elimination. The second key difference relates to the involvement of the customer within the process. In physical goods, customer involvement as a controlling inuence is negligible. Providing spare parts or maintaining existing equipment is identied in the physical goods literature as inuencing factors on the choice of removal strategy. These, however, tend to be provided because the organisation feels a duty of care rather than a contractual obligation. In nancial services, the inuence of the customer is based on prevailing contractual obligations and regulatory controls combined with the extent to which the organisation seeks to retain the effected customer post elimination. This places an additional level of complexity that requires both management effort and the application of resources to deal with the extra time required to remove the offering and communicate with customers. It must be concluded that there is a great deal still to be researched within both physical goods and service product elimination before the existing theory can be considered as denitive. The research conducted into physical goods and service product elimination has extensively focused on the organisational perspective. In nancial services, the customer has been identied as central to the elimination action. Yet little is known about how the removal of a product from a customers use and ownership really affects their loyalty and perception of the organisation. This research is vital to ensure that organisations can plan and implement product elimination in a way that enables them to gain their overall customer retention objectives.

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