4 Fintech Marketing Strategies to Overcome the Innovator’s Dilemma

How Can Marketing Leaders Negotiate the ‘Dilemma Zone’ to Embrace Vertical Scaling & Build a Sustainable Brand?

A recent study by Gartner found that marketers believe the biggest barriers to innovation in their organisation are risk resistance (46%), an inability to measure impact (41%), and talent shortages (41%).

This article explores how marketing leaders in the fintech space can overcome such barriers to maintain market relevance and differentiate from established financial institutions. We’ll also discuss the 4 marketing strategies today’s FinTechs can leverage to better position their brand in an increasingly competitive and dynamic marketplace to champion progressive industry-wide change.

We’ll draw upon Clayton Christensen’s ‘Innovator’s Dilemma’ to investigate how marketing leaders can strike a balance between sustaining and disruptive innovations, before offering practical recommendations as to how organisations can master Christensen’s so-called ‘Dilemma Zone’.

Introduction: The Role of Innovation in fintech Marketing

The rise of challenger FinTechs in the financial services over the last decade prompts an exciting era of change for the modern marketer as they not only compete with their challenger peers, but also the teams at established financial institutions.

Fintech innovation continues to enrich financial services and push organisations to adopt a customer-led approach by investing in enhanced user experiences and value-adding services. Crucially, the modern marketer faces the challenge of packaging financial services and products into an attractive brand that strikes a chord with a highly-dynamic audience. What was once a relatively slow and consistent marketplace is now a cut-throat environment where customers are willing to jump from brand to brand to find the right fit for their needs. An era of unprecedented choice demands high-impact marketing strategies to cement brand affiliation and address a growing number of customer pain points.

Fierce competition between emerging FinTechs and established institutions undergoing digital transformations means that being able to differentiate from rivals with a unique value proposition and a contagious brand is more important than ever. That said, intense innovation can have a damaging effect on brand affiliation as the marketer must steer the brand towards a moving target.

While many emerging FinTechs found their feet by offering bespoke solutions to specific market niches, the trickle effect of technological innovation into larger institutions means FinTechs must continue to innovate and explore new verticals to maintain relevance. If an organisation is constantly evolving, so will its customers. Failure to strike a balance between progressive innovation and attending to the immediate needs of existing customers can leave businesses in a constant state of flux — unable to cement loyalty or achieve sustainable long-term growth.

It’s extremely difficult to create an identifiable brand when an organisation is constantly adopting new products and targeting a dynamic audience.

We call this ‘The Innovator’s Dilemma’.

______________________________________________

What is The Innovator’s Dilemma?

In 1997, Harvard professor and businessman, Clayton Christensen, published his award-winning book, The Innovator’s Dilemma. Following his earlier works on disruptive technologies, The Economist named Christensen’s masterpiece on the challenges of innovation as one of the “six most important books about business ever written".

The Innovator’s Dilemma explores the idea that a company could appear to do everything right when it comes to innovation and still find themselves losing their market share to the rise of unexpected competitors. Christensen explains how building a sustainable and scalable brand is all about push and pull. Should an organisation push for new innovations and seek new avenues for growth or should they pull on the reins to focus on adding value to their existing customers and addressing their immediate needs?

This so-called ‘dilemma zone’ is a critical decision space for the modern marketer to steer the direction of a FinTech brand. Branding strategies must negotiate the dilemma zone by striking a healthy balance between what a business looks like today and what it hopes to look like tomorrow. Verging on the side of innovation runs the risk of alienating valued customers and tarnishing brand affiliation while a lack of innovation could erode market relevance and force customers to turn towards competitors that have invested in new verticals and offer value-adding features.

The Marketer's Challenge: Navigating the Dilemma Zone

The biggest fear for many organisations is plateauing. Whether it's a saturated marketplace capping growth or increased competition displacing customers, the traditional life-cycle of a product or service tends to follow an ‘s-curve’.

If we look at Figure 1, the blue s-shaped line shows an initial period of slow growth is followed by rapid scaling and finally, a gradual fade or plateau. If a business were to continue with their business as usual activities, the plateau phase can be extremely damaging. Today, customers demand continual improvements and value-adding features that they won’t receive from a company that rests on its laurels. Aggressive competitors will view a growth plateau as a golden opportunity to deliver an enriched value proposition to a highly-attainable customer base (the red line).

Figure: 1 The Dilemma Zone

It is at this point, therefore, that businesses must negotiate the dilemma zone:

A) Should they attempt to overcome a plateau through optimising their existing business model and reinforcing the benefits of their tried and tested product/service?

B) Should they launch new innovations to embark on a new period of s-shaped growth, at the risk of alienating existing customers and experiencing a temporary performance dip?

While both options present growth opportunities, making the right choice is critical from a marketing perspective. The modern marketer must work with product teams and senior leaders to establish how they would like customers to perceive their brand and whether their long-term growth strategy is one of incremental optimisation or rapid scaling. Overcoming the dilemma zone is all about weighing up the risks of standing still versus the risks of stepping into the unknown.

Too Much to Lose: The Dilemma Zone in Finance

The dominance of established financial institutions and intense competition among a handful of big banking players means standing out from the crowd is incredibly challenging. The dilemma zone is particularly prominent in financial services as organisations must pitch themselves as both reliable service providers with a proven track record and forward-thinking innovators with the capacity to offer customers value-adding features.

The high-stake nature of financial services fuels an overwhelming tendency to urge on the side of caution and maintain a consistent service to existing customers. If an organisation has a loyal customer base through their business as usual activities, why would they jump ship and risk tarnishing what they’ve built?

They’ve got too much to lose.

However, for smaller financial service providers, the dilemma zone presents exciting opportunities to undercut established competitors and embrace innovation to deliver game-changing functionality. Whether it’s creating a budgeting app to improve personal finance management or providing streamlined B2B solutions to automate payment flows at scale, fintech innovation equips marketers with a goldmine of value-adding features to steer their business towards a future of rapid scaling and high-risk, high-reward growth.

Figure 2: Approaching the Dilemma Zone 

Figure 2 demonstrates the significance of the dilemma zone for modern marketers. If we imagine the road to success as a highway, overcoming the dilemma zone is like approaching a set of traffic lights with flashing ambers and following one of two scenarios:

Scenario 1

Those who urge on the side of caution by hitting the breaks are likely to stop — meaning they will take longer to arrive at their final destination. While they will arrive safely, they risk losing relevance by the time they get there.

Scenario 2

Those who hit the accelerator and make it through the lights will arrive at their destination ahead of everyone else. That said, if they time it wrong, they risk a devastating crash at the intersection.

Overcoming the dilemma zone is all about building a brand that reflects an organisation’s growth strategy and tailors its approach to resonate with specific customer pain points. While many customers look for tried and tested finance solutions, others will seek progressive institutions with an appetite for progressive change.

The modern marketer must overcome four key steps to negotiate the dilemma zone in the financial services sector:

1. Managing Vertical Scaling in Growing FinTechs

While many emerging FinTechs found their feet by providing highly-specific solutions to specific problems, exploring new verticals involves negotiating the dilemma zone to maintain sustainable growth and avoid tarnishing brand affiliation. 

Brands that have made their mark in the world of finance by delivering hyper-personalised solutions in a niche market run the risk of losing their fundamental DNA by trying to run before they can walk. While new verticals present exciting growth opportunities and can help FinTechs assimilate the functionality of more established organisations, understanding how these verticals could impact the perception of a brand is vital to help marketers negotiate the dilemma zone.

An article from Andreessen Horowitz argues that: “Vertical markets are particularly good candidates for a SaaS+fintech business model because customers prefer one piece of purpose-built software for their specific industry and use cases”. 

In this way, many FinTechs opt for vertical scaling of their in-house product stack over continuous acquisition of smaller organisations with complementary products/services. While many ‘traditional’ financial institutions attempt to bypass the dilemma zone through strategic acquisitions, FinTechs who can attend to the needs of both existing customers and prospective customers in a given vertical by enriching their product stack can achieve similar results, without the need for continuous acquisition. The ability to deliver financial services via SaaS - or embedded fintech - improves the margins of vertical customers, by offering a sticky, vertical-specific and end-to-end solution.

2. Overcoming the Paradox of Choice

VP of Strategy and Transformation at Walkwest, Kurt Merriweather, explains how “Giving customers too much choice is just as problematic as not providing enough.”

Marketing teams who attempt to paint themselves as a jack of all trades run the risk of confusing customers with an incoherent brand that fails to offer value where customers need it most. Dismissing the dilemma zone and blindly investing in innovation for innovation's sake could harm an organisation’s ability to establish an identifiable and recognisable brand that customers associate with a given pain point.

To give an example outside of finance — when Jeff Bezos set out on creating “the everything store” with the launch of Amazon in 1994, he didn’t expect it to happen overnight. The secret to success was his steadfast focus on collecting data insights to forecast market demand and delivering unrivalled customer experiences to cement brand loyalty.

The evolution of Amazon from a humble bookstore to the world’s third-largest technology company is a credit to Bezos’ ability to overcome the dilemma zone by:

A) Protecting loyalty and retaining existing customers

B) Pushing the brand forward and attracting new revenue-generating opportunities

While “the everything store” revolves around providing customers choice, FinTech marketers must strike a careful balance between choice and brand clarity. Today’s consumers look for brands with a clear identity and tangible benefits over competitors. Attempting to bundle too many benefits into a single brand can result in a negative compounding effect that can damage brand recognition.

3. Adjusting Performance Metrics for Innovation

One of the biggest challenges for marketing professionals in the FinTech space is measuring performance against existing competitors and proven business models. While key performance indicators (KPIs) remain a critical component of any successful innovation venture, precisely which indicators a business should use is entirely dependent on what you’re trying to achieve.

Many marketers run into trouble when they try to use the same performance metrics to measure business as usual activities as innovation ventures. While the ultimate organisational objectives may be the same, drawing direct comparisons will almost always result in the performance of existing initiatives dwarfing that of early-stage ventures.

For example, if a business measured success using revenue, the number of customers or return on investment (ROI) to compare the success of their existing business model versus a new vertical, the data is unlikely to provide any valuable insights.

The secret to building a sustainable FinTech brand is to establish a clear picture of what success looks like. Innovation KPIs should reflect exactly what an organisation is hoping to achieve and serve as milestones to provide valuable direction as they negotiate the dilemma zone.

4. Fighting The Banking Battlefield

Strategic alignment is key to building a sustainable brand and spreading your bets to maintain market relevance. One commentator describes modern finance as a “banking battlefield” in which established institutions and high-growth FinTechs scramble for the attention of a volatile and highly-changeable customer base.

Overcoming the dilemma zone is a constant battle between maintaining market share by enhancing service offerings to existing customers and exploring new verticals and innovative approaches to establish a competitive advantage over rivals.

That said, the banking battlefield presents powerful opportunities for marketing leaders to form strategic alliances and peaceful truces to enable industry-wide change. While many institutions view FinTech innovation as a race to the top, embracing co-marketing initiatives to pool resources and avoid unnecessary conflict can drive evolutionary progress over revolutionary disruption.

Strategies to Master the Dilemma Zone

While fear of the dilemma zone results in many brands taking their foot off the gas, the best marketing leaders will capitalise on this space as an opportunity to differentiate from rivals. Much like a highly-skilled racing driver will view traffic as a golden opportunity to weave between the slow cars and reach the front of the pack, identifying strategic opportunities to enrich customer experiences is critical in today’s financial services market.

So, let’s take a look at what practical steps marketing leaders can take to master the dilemma zone:

• Listening-Based Innovation. Listening to customers is vital to inform decision-making and deliver sustaining innovations with scope for growth beyond niche markets.

Professeur in listening and leadership at Rollins College, Rick Bommelje, explains how “innovation requires deep listening at all levels”. He adds that value-creating innovation is stimulated by disciplined listening whereby organisations “build listening systems that capture, summarize, and spread the unmet dreams and unfulfilled wants of multiple customer groups.” Without an empathetic and comfortable understanding of customers’ pain points, organisations will be crossing the dilemma zone blindfolded.

• Embrace Experimentation. One of the key benefits of launching a new innovation and targeting it towards a niche market is the agility and flexibility of a small audience. While it would be reckless to experiment with a core business function and risk losing existing customers, early-stage innovations lend themselves perfectly to experimentation.

Embracing a "lean and mean" approach to product development through a continuous cycle of experimentation and iterative improvements can help organisations systematically reduce risk and bring much-needed clarity as executive decision-makers negotiate the dilemma zone. Experimentation provides valuable insights that serve as a guiding light.

• Create Something People Didn’t Know They Needed. The most powerful examples of innovation are those that open doors to entirely new ways of doing things and create value where customers didn’t know it was possible. Introducing something people didn’t know they needed can capture an entirely new customer segment in an uncharted marketplace with limitless scaling opportunities.

For example, Amazon’s launch of its cloud computing subsidiary, AWS, in 2006 was met with confusion as to why anyone would use a cloud solution over tried and tested physical servers. Fast forward ten years and the public perception of cloud-based technology has flipped on its head. With a third of all daily internet users accessing websites powered by AWS, Bezos’ vision to re-imagine the way businesses store, share and manage data has changed the face of modern computing.

Evolution Not Revolution

New horizons or ‘new normals’ often result from lateral thinkers who aren’t afraid to step across the dilemma zone.

Striking the right balance between servicing existing customers and exploring new growth opportunities requires clear market positioning and a mature understanding of where an organisation sits within their industry as a whole.

FinTechs must view the dilemma zone through a number of lenses and at different resolutions to establish how they can tailor their innovations to enrich the wider marketplace. Whether it’s identifying strategic partnerships to create a united force for change or pooling technical resources to navigate industry-wide issues, the dilemma zone is a constant reminder that today’s financial institutions can’t afford to sit still.

Innovation isn’t necessarily about reinventing the wheel or fighting against existing forces — the best marketing strategies will take cues from the wider industry and market demand to create a slingshot effect that empowers customers and increases brand relevance in the big picture.

Embrace the Future of Payments with Modulr

The Modulr Marketing team is constantly restless and busy. If you enjoyed reading this, you’ll enjoy my handpicked favourite content we’ve produced over the last month:

[Video] The evolution of digital payments

[Blog] How fintech is protecting customers from push payment fraud

[Research] The true cost of payments for UK business

[Product] Everything you need to know about Confirmation of Payee

[Customer story] How Modulr’s infrastructure enabled Revolut to scale and take on established banks

[Modulr newsletter issue #49] Building a safer ecosystem (psst, sign up here)