Product Definitions

Defining products and services in financial services is often a difficult exercise.

One unfortunate feature of the financial sector is that, as a service industry, many of the products and services offered are difficult to define. A service may be defined as any activity that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Definitions of products and services will depend on the assistance provided to various types of client and may depend on the quality of service provided.

The definitions of products and/or services may differ depending on how the information is used. If, say, the resulting reports are to be used for strategic purposes, the products defined will generally be at a higher level than those defined for product and customer profitability analysis.

Basically, a product offered to a customer is often a combination of a number of services and the usage of these services may affect the price paid by the customer. One good example is a checking or current account.  Services included in this product will always include the opening of a deposit account on which interest may be paid to the customer. Other services offered could include;

  • an overdraft facility
  • a debit card
  • a credit card
  • a cheque book
  • a cheque guarantee card
  • bill payment facilities
  • direct debit facilities
  • standing order facilities
  • other payment facilities
  • regular statements
  • access to the account via telephone, internet, WAP and/or ATM/Kiosks as well as via the branches.

Any of these facilities or services could be subject to separate fees or may be provided free of charge. The fees may vary depending on the channel used.  For costing purposes each facility should be costed separately (including the separation of the cost of facility set up and then usage by channel). It may also be necessary to differentiate the cost according to the quality of service provided.  These may be treated as separate products for marketing and sales purposes.

For profitability purposes, it becomes necessary to estimate usage of each facility and this may vary by the type of customer.  To calculate an average product cost will require an estimation of average usage. To calculate individual customer profitability will require accurate usage figures by customer.

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