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An executive summary for managers and executive readers can be found at the end of this article

Marketing effectiveness and business performance in the financial services industry


Kwaku Appiah-Adu Alan Fyall
Senior Lecturer in Marketing, Department of Business and Management, University of Portsmouth, Southsea, UK Lecturer in Marketing, Napier University, South Craig, Edinburgh, Scotland

Satyendra Singh

Lecturer in Marketing, Southampton Business School, Southampton, UK Keywords Financial services, Marketing management, Company performance Abstract The purpose of this exploratory empirical study was to examine the link between effective marketing practices and business performance in the financial services industry. Based on a multi-item construct of marketing effectiveness, data were generated from 52 banks and building societies. The effects of different marketing effectiveness dimensions upon profitability and growth as well as customer-based performance indicators were investigated. Our results suggest that organisational variables such as customer philosophy, operational efficiency, marketing information and integrated marketing organisation are generally, significantly and positively associated with business performance. To conclude, managerial implications of the findings, study limitations and future research directions are discussed.

Introduction The competitive environment of modern day business appears to necessitate the successful implementation of marketing, if a firm is to advance in its chosen market segments. Marketing is regarded as the pivotal force behind strategic planning and business operations, and, hence, as an intrinsic component of organisational efforts. Accordingly, over the last few years, the concept of marketing effectiveness has attracted increased attention among academic researchers and business practitioners (Norburn et al., 1990; Lai et al., 1992; Ghosh et al., 1993; Dunn et al., 1994). Marketing effectiveness The issue of marketing effectiveness is of particular significance to those associated with the management of financial services in the UK. In recent years, the increasing liberalisation of the financial services market in the UK and its gradual transition from a sellers' market to a buyers' market have had a profound impact on organisations competing in the industry. Coupled with political, legal and economic pressures and higher levels of service expectation on the part of customers, banks and building societies are no longer able to assume source loyalty (Turnbull and Demades, 1995). Consequently, many banks and building societies have focused on a variety of customer-oriented strategies in their quest for sustainable sources of differential advantage (Bharadwaj et al., 1993; Lewis, 1994). For the purpose of this research, building societies are defined as financial service providers who accept investments at interest and who predominantly supply mortgagerelated products for the purchase of houses.
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Appropriate strategies

Over the years, a number of possible solutions have been suggested to managers of financial services to provide them with appropriate strategies to overcome the managerial problems that result from the unique characteristics of service marketing (Bateson, 1977; Dearden, 1978; George, 1979; Berry, 1980). The moderate move towards service standardisation, tele-banking and the emergence of the call centre as a vehicle to develop personalised customer relationships, are but three recent instances where banks and building societies have endeavoured to limit the variability of service outcomes (Porter, 1997). However, the execution of such strategies has frequently delivered de-personalised and calculable standards of service, thereby diluting the means of differentiation between competing organisations and generating low levels of customer satisfaction and employee morale (Witt and Clark, 1990; Porter, 1997). Zeithaml et al. (1985) argued that, in practice, only a limited number of firms completely understood and practised refined marketing. This is substantiated by more recent work by King (1991), who questioned the actual degree of formal marketing taking place in services generally. Given the importance of effective marketing practices in dynamic conditions, the primary purpose of this paper is to conduct an empirical investigation of the association between marketing effectiveness and business performance among UK banks and building societies. By investigating the nature and character of the marketing effectiveness-performance relationship in the financial services industry, this exploratory study contributes to the sparse empirical evidence within the industry regarding an association between the two constructs, and provides further insight from a UK financial services perspective. The paper commences with an introduction to the concept of marketing effectiveness and explores the issue in the context of the financial services industry. A set of hypotheses is then advanced and an outline of the research methodology provided. Next, the research findings are discussed. To conclude, we highlight the implications of our findings for business practitioners and academic researchers. Conceptual foundations The concept of marketing effectiveness Although respective researchers have conducted empirical investigations involving the concept of marketing effectiveness, few conceptual measures of the construct exist. However, Kotler's (1977; 1997) operationalisation has been cited as one of the best known measures of marketing effectiveness (Webster, 1995). According to Kotler, the marketing effectiveness of a firm entails an amalgam of five components, notably: customer philosophy; integrated marketing organisation; adequate marketing information; strategic orientation; and operational efficiency. First, it is imperative to identify the importance of studying the market, recognising the numerous opportunities, selecting the most appropriate segments of the market to operate in and endeavouring to offer superior value to meet the selected customers' needs and wants. Furthermore, the firm must be suitably staffed to enable it to perform marketing analysis, planning and implementation. Subsequently, marketing effectiveness calls for managers to have sufficient information for the purposes of planning and effective resource allocation to varying markets, products and territories. Marketing effectiveness is also contingent upon the adeptness of managers to deliver profitable strategies from its philosophy, organisation and information resources. Ultimately, marketing effectiveness depends upon the ability to implement marketing plans successfully at various levels of the organisation.
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Respective researchers

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High level of marketing effectiveness

From Norburn et al.'s (1990) perspective, a business is considered to possess a high level of marketing effectiveness if it has a close association with customers, is driven by a common set of values within the organisation and demonstrates an external orientation to its markets. First, customer relationships are distinguished by a service orientation, a thrust towards innovation and a broad view of the organisation from the customer's standpoint. Second, the set of values must be apparent and identifiable, with an accent on quality and on the value of people. Third, the external focus on markets acknowledges the importance of the marketplace as a key influence on corporate action. In related studies, Canning (1988) proposes an implicit association between marketing effectiveness and size of a business, though Webster's (1995) empirical findings of US service firms and Appiah-Adu and Singh's (1997) study of UK manufacturing and service firms suggest otherwise. Moreover, Block (1989) suggests a possible relationship between effectiveness and geographical scope. However, regardless of the wide acceptance of the marketing philosophy in principle and the appreciation of its significance to modern day business, it appears that, in practice, only a limited number of firms implement the marketing concept effectively. Despite observations made by Hooley and Newcomb (1983), Doyle et al. (1985) and Payne (1988) over a decade ago, regarding the predominance of production oriented cultures and a general lack of market oriented behaviour in UK firms, there is still evidence to indicate that marketing effectiveness remains an area of significant weakness for many firms within the financial services industry (Baker, 1993; Stewart and Colgate, 1998). It is therefore not surprising that there have been increasing calls for firms to enhance their overall degree of marketing effectiveness (Reisberg, 1990; Hooley et al., 1990; Kotler et al., 1999). Hypothesis Marketing effectiveness and performance A formative study by Hooley and Lynch (1985) which examined factors that differentiated superior organisations from their competitors concluded that a common characteristic of the best performing UK firms was marketing effectiveness. Similar observations were made at the time by Kiel et al. (1986) in a study of Australian firms, while, on a national scale, it has been reported that Japan's post-war economic performance was ascribed mainly to the focus on marketing for global sales (NEDO, 1982). Further findings by Webster (1988) indicated that marketing was gaining increasing attention among executives as a consequence of its significance as a competitive weapon in the business environment. More recently, it has been suggested that marketing effectiveness not only will discriminate the amateur from the professional players in the global market, but also has the capability to initiate a new era of economic prosperity and high living standards (Ghosh et al., 1994a; Kotler, 1997). Thus, it is not surprising that Narver and Slater (1990) and Jaworski and Kohli (1993) affirm that a market orientation is applicable to all business environments and contributes significantly to organisational performance. The principal hypothesis which is tested in this paper is based, primarily, on the assumption that marketing effectiveness is associated with higher levels of business performance. Marketing effectiveness is largely determined by individuals in the organisation and calls for employees to be bonded by a common set of corporate beliefs and values. Through these norms, a suitable environment is developed for management to: display a commitment to personal empathy; foster a customer response of perceived quality; and

Formative study

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eventually develop a dynamic organisation (Norburn et al., 1988). Second, previous research findings demonstrate that marketing effectiveness is positively associated with business performance. For example, Dunn et al. (1994) found that marketing inactive organisations in the USA placed less importance on performance measures such as market share, profit-to-sales ratio, new product development and market development than their marketing active counterparts. Ghosh et al. (1994b) found that, regarding attitudes towards marketing, better performing businesses in Australia, New Zealand and Singapore provided more support than their relatively poor performing counterparts to statements which communicate a sound understanding of marketing. The better performers also tended to be characterised by superior results with regard to both market-based and financial measures. Similar findings were reported by Hooley et al. (1984) and Kiel et al. (1986) over a decade ago in the UK and Australia respectively. Building on the evidence of these research findings concerning a marketing effectiveness-performance relationship, the following nest of hypotheses was tested in the financial services industry in the UK: H1: The marketing effectiveness of a financial services firm is positively related to the following performance measures: (a) customer retention; (b) sales growth; (c) profit margins. Two different concepts It is important to note that marketing effectiveness and performance are two different concepts. The premiss is that these performance measures depend on marketing effectiveness, which, in turn, depends on marketing culture (Webster, 1995). As highlighted in the hypothesis the performance of a financial services firm was assessed on the basis of three dimensions. First, customer retention was selected because it is a customer-based measure, an indicator which is important in evaluating a service firm's performance (Heskett et al., 1994; Reichheld, 1996). Second, sales growth and profit margins were utilised because of their significance in assessing a firm's effectiveness and efficiency respectively (Walker and Ruekert, 1987). Methodology Data For the purpose of investigating the association between marketing effectiveness and business performance in the UK financial services industry, a cross-section of 121 banks and building societies was utilised in generating the data. Our sample was compiled from UK-based financial services organisations listed in the Dun & Bradstreet database. A two-stage selection process was used to generate the sample for this exploratory research. First, firms within the SIC code 6021 were selected. From this list, companies which were either banks or building societies were selected for the survey. Care was taken to avoid organisations which were trustees or syndicates in nature. This approach was adopted to generate a sample which was representative of banks and building societies. Characteristics of the respondent sample are exhibited in Table I. Based on personal interviews a limited pilot study was conducted by pre-testing the research instrument with ten marketing executives, after which minor revisions were made to the wording of the questionnaire items. A three-wave mailing method, plus a postcard, was used to collect the data. The first mailing included a cover letter addressed to the marketing director or the person responsible for the marketing function explaining the purpose and importance of the study, the questionnaire and reply-paid envelope. Marketing directors were chosen as key informants because of their appreciation of the marketing practices of their respective firms. A summary of the research findings was offered as an
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A cross-section of banks and building societies

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% Turnover in million pounds > 100 50-100 < 50 Number of employees > 500 100-500 < 100 Respondents' profiles Managing directors Marketing managers Others 23 60 17 27 58 15 66 25 9

N 12 31 9 14 30 8 34 13 5

Table I. Sample characteristics

incentive to respondents. After two and four weeks, follow-up questionnaires were mailed to those who did not respond to the previous surveys. Finally, a postcard reminder was mailed to all respondents thanking those who had responded and appealing to non-respondents to respond. Responses to the first, second and third mailings were 38, 11 and five respectively. Owing to missing data on some of the key constructs two questionnaires were deemed unusable, yielding 52 usable questionnaires a response rate of 42.98 per cent. Six firms declined to participate in the study because it was against company policy, while one questionnaire was returned as a result of incorrect address. A test for non-response bias was conducted by comparing the results of early and late respondents (Armstrong and Overton, 1977). A series of chi-tests indicated no significant differences between any of the measures analysed (e.g. number of employees, 12 = 2.35, p = 0.43; turnover, 12 = 2.83, p = 0.37; geographical coverage, 12 = 1.89, p = 0.50) between group 1, on the one hand, and groups 2 and 3, on the other hand. The five dimensions Operationalisation of variables The marketing effectiveness construct presented in the Appendix consisted of five dimensions and 31 individual scale items which were derived from Kotler (1977; 1997) and Webster (1995). The five dimensions were: customer philosophy which consisted of eight items; operational efficiency nine items; strategic orientation eight items; adequate marketing information three items; and integrated marketing organisation three items. The 31 statements were measured with a seven-point Likert-type scoring system applied to a scale anchored by ``strongly disagree'' (1) to ``strongly agree'' (7). Key informants were asked to respond to the extent to which they believed that marketing effectiveness, as reflected in the statements, was characteristic of their firm. Performance was assessed on the basis of subjective evaluations for a number of reasons. First, it is argued that the accuracy of objective measures in explaining differences in performance between businesses is limited (Dess and Robinson, 1984). In addition, research findings suggest that informant measures manifest less method variance than archival figures, subjective assessments are strongly correlated to objective evaluations of performance (Venkatraman and Ramanujam, 1987) and, furthermore, the subjective approach is considered as a reliable method of measuring performance (Pearce et al., 1987). Performance was evaluated on the basis of one customer-based measure (retention), as well as financial growth and profitability indicators, namely sales growth and profit margin respectively. The assessment was based upon respondents' perceptions of business performance relative to those of their major direct
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competitors in the past five years on a Likert scale, ranging from 1 = much worse to 7 = much better. Further, one item required subjects to provide an overall impression of the degree of marketing effectiveness in their firms on a 7-point scale, ranging from 1 = I strongly disagree that this firm is characterised by marketing effectiveness to 7 = I strongly agree that this firm is characterised by marketing effectiveness. Finally, information on the characteristics of the sample firms such as number of employees, turnover (1997), geographical coverage and age was requested. Analysis and results Reliability analysis A seven-point Likert scale was used for all items in the questionnaire to improve reliability of the measures (Churchill and Peter, 1984). Table II indicates the coefficient alpha and standardised Cronbach alpha scores for each component of marketing effectiveness (Cronbach, 1970). The results for most dimensions are within the acceptable range and greater than the suggested cut-off level of 0.7 (Nunnally, 1978). Table II shows little difference between alpha and the standardised alpha (which compensates for effects of the number of scale items), hence lending support to reliability of the constructs. Although Cronbach alpha scores for integrated marketing organisation just falls short of 0.7, this may be attributed to the small number of items constituting this variable. The Cronbach alpha score for each marketing effectiveness dimension is either close to or greater than 0.7. This reinforces the reliability of the instrument and internal consistency of its items. Content validity The validity of a scale represents the degree to which it captures the construct it is designed to measure and its evaluation is undertaken on a qualitative basis. Content validity is based on the extent to which the scale items represent a construct's domain (Parasuraman et al., 1988) and the rigour with which this domain is specified by the generated items that exhaust it (Churchill, 1979). In this study, face and content validity checks were performed on the constructs to ensure that items would be meaningful to the sample and capture issues which were intended to be measured. These checks were performed with financial services marketing executives and scholars with a knowledge of financial services operations and marketing management. Convergent validity Convergent validity Assessment of convergent validity for the marketing effectiveness scale was based on responses of subjects regarding their overall impression of the level of marketing effectiveness in their firms. Respondents had to circle a sevenpoint Likert type scale which ranged from 1 (very low) to 7 (very high).
Dimension of marketing effectiveness 1. Customer philosophy 2. Operational efficiency 3. Strategic orientation 4. Marketing information 5. Integrated marketing organisation Total number of items Number of items 8 9 8 3 3 31 Cronbach alpha 0.792 0.864 0.813 0.712 0.695 Standardised Cronbach alpha 0.710 0.795 0.789 0.701 0.685

A seven-point Likert scale

Table II. Scale reliability (marketing effectiveness)


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Using overall impression of marketing effectiveness as a dependent variable and the remaining marketing effectiveness components as independent variables, a multiple regression analysis was conducted. Table III shows an R2 of 0.23 which is significant at p = 0.021. The significant coefficients associated with each component of marketing effectiveness lends support to convergent validity of the construct. Independent variables Regression analyses Independent variables in the regression analyses are simple averages of the multiple items used to measure the constructs. Three sets of analyses were conducted with the marketing effectiveness components as independent variables in each case. The three dependent variables were performance measures based on customer retention rates, sales growth and profit margin. Marketing effectiveness and customer retention Table IV exhibits the regression results of the marketing effectiveness dimensions on perceived customer retention. The findings indicate a significant and positive association between all the effectiveness components and customer retention. Customer philosophy is the strongest predictor of variations in customer retention. Next in sequence are operational efficiency, strategic orientation, marketing information and marketing organisation[1]. Phrased differently, it seems that executives who place a greater emphasis upon the factors which lead to marketing effectiveness perceive their organisations as exhibiting higher levels of customer retention than their relatively less marketing effective counterparts. Overall, 61 per cent of the total variation in customer retention is explained by marketing effectiveness. These results provide strong support for H1a. Regression results Marketing effectiveness and sales growth Moreover, Table IV presents the regression results of the marketing effectiveness dimensions on sales growth. It can be seen that there is a significant and positive relationship between four of the five effectiveness dimensions and sales growth. In order of predicting power, adequate
Independent variables marketing effectiveness 1. 2. 3. 4. 5. Customer philosophy Operational efficiency Strategic orientation Marketing information Integrated marketing organisation Coefficients 0.213 0.286 0.331 0.314 0.239 p value 0.035 0.041 0.021 0.033 0.049

Table III. Dependent variable: overall impression of marketing effectiveness


Beta (p-value) DV: Sales growth 0.23 0.20 0.22 0.20 0.14 0.53 (0.01) (0.04) (0.02) (0.04) (0.32)

DV: Customer retention 1. Customer philosophy 2. Operational efficiency 3. Strategic orientation 4. Adequate marketing information 5. Integrated marketing organisation R2 0.24 0.23 0.25 0.20 0.22 0.61 (0.03) (0.03) (0.02) (0.04) (0.03)

DV: Profit margin 0.24 0.21 0.21 0.21 0.13 0.57 (0.01) (0.03) (0.04) (0.03) (0.43)

Table IV. Dimensions of marketing effectiveness


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marketing information is the strongest, followed by customer philosophy, strategic orientation and operational efficiency[1]. Despite the non-significant association between integrated marketing organisation and sales growth, the correlation is still positive. Specifically, with and without the non-significant component (integrated marketing organisation) marketing effectiveness accounts for 53 per cent and 51 per cent respectively (not shown) of the variation in sales growth. Thus, executives who give more attention to marketing effectiveness perceive their firms to be superior performers in terms of sales growth compared to their relatively less marketing effective competitors. Again, these results lend credence to H1b. Profit margins Marketing effectiveness and profit margin Furthermore, the regression analysis of the marketing effectiveness components on profit margins is provided in Table IV. It is clear from these results that four of the five effectiveness components have a significant and positive association with profitability. Customer philosophy makes the highest significant contribution to the explanation of variance in profit margins, followed in sequence by adequate marketing information, operational efficiency and strategic orientation[1]. Notwithstanding the non-significant correlation between integrated marketing organisation and profit margins, the relationship is positive. On the whole, with or without the non-significant dimension (integrated marketing organisation) 57 per cent and 56 per cent respectively (not shown) of the total variation in profitability is explained by marketing effectiveness. Hence, compared with their competitors, executives who maintain a relatively stronger focus on marketing effectiveness perceive their organisations to be more profitable. Overall, H1c is supported by these findings. Discussion Table IV demonstrates clearly that, where marketing activity is deemed to be effectively taking place in this exploratory study, there is evidence to suggest that it is contributing significantly to overall performance. Moreover, the underpinning hypotheses, as stated earlier, are clearly substantiated by the results of this exploratory study. In general, there is a strong relationship between the marketing effectiveness of a financial services firm and its performance. Each marketing effectiveness component contributes to, at least, one of the three performance measures examined, although their relative influences vary according to the specific performance dimension. As can be seen from Table IV, the most significant predictor of the customer based performance measure (customer retention) and profitability (profit margin) is customer philosophy. All the other four marketing effectiveness dimensions operational efficiency, strategic orientation, adequate marketing information, and integrated marketing organisation also exert a significant impact on customer retention. However, the regression analysis also indicates that, with regard to the growth based performance measure (sales growth), adequate marketing information replaces customer philosophy as the strongest determinant of performance. Thus, the emphasis placed upon each dimension of marketing effectiveness appears to be determined by the performance objective set by the financial services firm. However, one can deduce from the research findings that customer philosophy is of primary importance in a financial services context. This is of particular significance in that, although often perceived as operating in a price sensitive marketplace, banks and building societies appear to be still
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Marketing activity

trading in an environment where the endorsement of a clear customer philosophy offers rewards in terms of customer retention and increased profit margin. The emphasis placed on customer philosophy partly accounts for the lower than expected number of consumers switching between suppliers of financial services despite the temptations of several, and often quite generous, price-oriented credit promotions (Porter, 1997). The outcome of a sound customer philosophy is perceived to be a positive influence on customers' attitudes and behaviour, which is likely to lead to increased customer retention. Furthermore, from the findings, there are implications regarding possible linkages amongst the three performance measures utilised. Tentative results These tentative results lend credence to the propositions advanced by both scholars and practitioners that there is a relationship between customer retention, sales growth and profit margin (Innis and LaLonde, 1994; Storbacka et al., 1994; Reichheld and Sasser, 1990; Yi, 1990; Hallowell, 1996). Customer philosophy is conceived as the key component underlying the relationship between two of the three performance measures in this exploratory study and this is obvious in the marketing effectiveness dimensions for all the results. Indeed, several studies have identified a significant relationship between customer philosophy and performance (Narver and Slater, 1990; Deshpande et al., 1993). In essence, this reinforces the need for banks and building societies to emphasise the nurturing of a sound customer philosophy if they are to benefit fully from increased customer retention rates. Although not of foremost importance to the customer based (customer retention) and profitability based (profit margin) measures of business performance, the adequacy of marketing information is the key determinant of the growth based (sales growth) performance measure, as is evident in Table IV. The current limited, yet significant, role that adequate marketing information plays in enhancing customer retention rates may change in the near future with the increase of loyalty promotions, as witnessed in the burgeoning grocery retail sector in the UK. In this instance, it is more than likely that the management of marketing information will assume greater significance as a determinant of business performance. Van Egeren and O'Connor (1998) contend that, since a strong market orientation involves higher degrees of market intelligence gathering, dissemination and implementation, it should not be surprising to see the emergence of a greater degree of market orientation in the highly dynamic environment of the financial services industry. Hence, it is more than likely that financial services executives will place greater emphasis on the role of marketing information as a component of their firms' marketing effectiveness. This is especially the case when management seeks to understand the sales potential and profitability of different market segments and customer groupings, or when regular marketing research needs to be conducted to determine customer buying influences. Operational efficiency Operational efficiency is identified as an important predictor of all the three performance measures adopted in this exploratory study. This signifies that firms not only seem to be making efforts to achieve good sales, but also subscribe to good community relations and are committed to marketing excellence. Furthermore, demonstration of sound operational efficiency is a testament to the ability of executives to effectively manage marketing resources, to regularly and systematically seek improvement, and to that of marketing management to demonstrate a sound working relationship with
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other functional management. However, in view of the highly dynamic nature of the financial services industry in the UK and the intensity of competitive activity, the adeptness with which marketing management can react quickly and effectively to on-the-spot developments appears to be a key determinant of overall performance. Moreover, the manifestation of sound operational efficiency is significant in that it is the organisational support functions that often facilitate effective service delivery to customers. Customer satisfaction then results in repeat customers who purchase on a regular basis and this, in turn, engenders profitability and growth (Hallowell, 1996). Strategic orientation Strategic orientation is a dimension of marketing effectiveness which tends to contribute roughly to the same degree to overall performance regardless of the performance indicator used. In this instance the firm is perceived to be well positioned relative to its competitors, provides a good quality service and focuses on long-range growth. The competitive nature of the financial services marketplace does reinforce the need for banks and building societies to adopt a greater strategic orientation and to ensure that their marketing strategy is of a consistently high standard. Finally, the dimension of marketing effectiveness which appears to contribute least to business performance in relation to financial services is integrated marketing organisation. Our finding not only is contrary to the conclusions of Norburn et al. (1990) and Dunn et al. (1994) but is rather surprising as this dimension articulates the need to deliver a sound new product development process as well as encourage a high level of marketing integration and control across all the major marketing functions. This point is highlighted by Edgett (1996), who found that a strong market-driven new product process with thorough execution of the required stages positively impacts on new product outcomes. The limited attention seemingly being paid to the development of new products by financial services firms is a reflection, perhaps, on the short-term tactical nature of decision making exhibited by some of the traditional players in their ever more difficult battle for custom in a highly competitive market. A possible reason for the apparent ineffectiveness of marketing organisation is the likelihood that some firms might accept the importance of this marketing effectiveness dimension in principle without practising its basic tenets effectively, thereby reducing the significance of the effect of an integrated marketing organisation on performance. Non-traditional players Conclusions and implications The emergence of non-traditional players on the liberated UK financial services market reinforces the significance of this exploratory study to existing and future providers of financial services. In view of the hostile nature of the marketplace it is not surprising to find that firms which demonstrate superior marketing effectiveness are those that tend to be characterised by superior customer retention rates, profitability and sales growth. In the UK, the proliferation of new market entrants, the recent uncertainty of trading in the Far East, declining interest rates and the nervous launch of the Euro together serve as a threat to the current buoyancy of the financial services industry and serve as a reminder that firms based in a particular country are actually operating in a global marketplace (Lovelock, 1996; Lovelock and Yip, 1998). Hence, the time has come when firms in the highly dynamic, yet competitive financial services industry cannot afford to ignore the benefits that marketing effectiveness can offer.
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This research has contributed to the existing literature in a number of ways. From an empirical standpoint, it has investigated the components of marketing effectiveness through an exploratory study of financial services firms in the UK. From a theoretical perspective, the association between financial services firms' perceptions of their marketing effectiveness and business performance has been investigated. Finally, in view of the methodology adopted, this exploratory study not only examined the traditional focus on firms' financial performance, but also included a customer based measure (customer retention), an indicator which is critical for services firms' performance assessment. Financial services firms It was contested at the beginning of the paper that financial services firms which are characterised by superior marketing effectiveness would demonstrate higher levels of performance than their relatively less marketing effective counterparts. To a large extent, this is substantiated by our findings. Consistent with our hypotheses, it appears that banks and building societies which give greater attention to the development of organisational variables such as customer philosophy, marketing information, operational efficiency, strategic orientation and marketing organisation are generally characterised by high performance levels in terms of customer retention, sales growth and profit margins. Some important lessons can be derived from this exploratory work. For example, it is reasonable to suggest that financial services firms in the UK, and most probably in the USA as well, which seek to attain relatively superior levels of performance, would do well to improve their degree of marketing effectiveness. In this context, it is essential that executives appreciate the significance of the components of market effectiveness, allocate sufficient resources to ensure that these dimensions are operating at their full potential within the firm and ensure that their message is delivered, received and understood across the firm. The complacency, conservatism and reactive stance of old no longer have a place in the highly competitive environment of financial services in the UK where, in essence, competition can surface from practically anyone, anywhere. Decades of customer goodwill will count for nothing if banks and building societies lose sight of their customers' needs and wants in the new marketplace where supersegmentation, flexibility and diagonal integration accentuate the need for a more deliberate adoption of strategic services marketing planning (Lovelock, 1996). Notwithstanding the fact that variations in the performance measures utilised are not wholly explained by marketing effectiveness, important organisational variables such as customer philosophy, acquisition and interpretation of marketing information, operational efficiency, strategic orientation and integrated marketing organisation are given greater emphasis when a firm adopts and implements practices aimed at enhancing their effectiveness in the marketplace. An academic perspective Limitations and research implications From an academic perspective, this exploratory study has its limitations. Since the sample for this research was drawn from UK-based financial services companies, the applicability of these findings to other countries or settings should be considered with caution. Because our study was based on the subjective assessments of one key informant, the evaluation of the firm's marketing effectiveness and other key measures are prone to various cognitive biases, for instance position bias. Consequent marketing effectiveness research should employ objective indicators where possible for measuring some of the variables under investigation. The modest respondent
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size limited confidence in the findings, considering the variety of items examined. While the reliability and validity analyses indicated satisfactory results overall, future efforts based on larger samples would increase confidence in our findings. Challenging areas of future research Several other challenging areas of future research emanate from this exploratory study. Replications of this work could be conducted in continental Europe, North America and the Pacific Rim to determine the degree to which these findings could be generalised. Comparative studies in Europe would be particularly interesting because they would provide specific insight into the impact of EU harmonisation on the marketing effectivenessperformance relationship in different countries. Such investigations should shed further light on the extent to which marketing practice is valued by customers in different cultures across the continent. Subsequent studies may also examine the factors that influence marketing effectiveness in financial services firms. For instance, building on Webster's (1995) identification of a strong relationship between marketing culture and marketing effectiveness, it would be interesting to examine what links there are between various components of marketing culture and business performance. Moreover, a more comprehensive framework, in which marketing effectiveness is related to various dimensions of performance such as adaptability, potential to generate slack, ability to raise capital, return on capital employed and market standing, could be examined with the purpose of providing further evidence on the universal importance of marketing effectiveness in achieving wider organisational objectives. Finally, an investigation into possible influences of factors such as geographical coverage on the nature and intensity of the relationships between marketing effectiveness and various dimensions of performance would be a welcome addition to existing knowledge.
Note 1. To determine the relationship between marketing effectiveness and the business performance indicators (customer retention, sales growth and profit margin), a series of stepwise regressions were performed. Specifically, the goal was to identify the dimensions of marketing effectiveness that, in order of predicting power, make a significant contribution to the explanation of the business performance indicators. In order to restrict the number of tables, the detailed analyses are not shown in the paper. However, these analyses are available from the authors on request. References Appiah-Adu, K. and Singh, S. (1997), ``Marketing culture and marketing effectiveness in UK organisations'', Journal of International Marketing and Marketing Research, Vol. 22 No. 2, pp. 87-107. Armstrong, S. and Overton, T. (1977), ``Estimating non-response in mail surveys'', Journal of Marketing, Vol. 14, August, pp. 396-402. Baker, M. (1993), ``Bank marketing myth or reality?'', International Journal of Bank Marketing, Vol. 11 No. 6, pp. 5-11. Bateson, J. (1977), ``Do we need service marketing?'', Marketing Consumer Services: New Insights, Report No. 77-115, Marketing Science Institute. Berry, L. (1980), ``Service marketing is different'', Business, May-June, pp. 24-9. Bharadwaj, S., Varadarajan, P. and Fahy, J. (1993), ``Sustainable competitive advantage in service industries: a conceptual model and research propositions'', Journal of Marketing, Vol. 57, October, pp. 83-99. Block, B. (1989), ``Creating a culture all employees can accept'', Management Review, Vol. 78, pp. 41-5. Canning, G. (1988), ``Is your company marketing oriented?'', Journal of Business Strategy, Vol. 9, pp. 34-6.
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Yi, Y. (1990), ``A critical review of consumer satisfaction'', in Zeithaml, V. (Ed.), Review of Marketing, American Marketing Association, Chicago, IL, pp. 68-123. Zeithaml, V., Parasuraman, A. and Berry, L. (1985), ``Problems and strategies in service marketing'', Journal of Marketing, Vol. 49, Spring, pp. 33-46. Appendix. Marketing effectiveness dimension and individual items Customer philosophy Management encourages word-of-mouth communication. . The firm monitors customer satisfaction. . The firm effectively reaches its target market. . The firm is customer oriented. . The firm places importance on business image. . The firm recognises the importance of organising itself to serve the needs and wants of chosen markets. . The firm has different offerings and marketing plans for different segments of the market. . The firm adapts the whole marketing system in planning its business.
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Operational efficiency The firm achieves good sales. . The firm is a good community neighbour. . Management clearly defines and communicates the nature of the business. . Management is committed to marketing excellence. . The firm regularly and systematically seeks improvement. . Marketing thinking at the top is communicated and implemented down the line. . Marketing shows good capacity to react quickly and effectively to on-the-spot developments. . Management effectively manages marketing resources. . Marketing management works well with the management in other functional areas.
.

Strategic orientation The firm focuses on long-range growth. . The firm provides good quality service. . The firm places more importance on marketing than on any other functional area. . The firm formulates an annual marketing plan. . The firm is well positioned relative to its competitors. . The firm engages in formal market planning. . Current marketing strategy is of high quality. . The firm utilises contingency thinking and planning.
.

Adequate marketing information Efforts are expended to measure the cost-effectiveness of different marketing expenditures. . Regular marketing research studies of customers, buying influences, etc. are conducted. . Management understands the sales potential and profitability of different market segments/customers.
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Integrated marketing organisation Marketing management works well with functional management in research, purchasing, distribution and finance. . There are high level marketing integration and control of the major marketing functions. . The new product development process is well organised.
.

&

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