New service development: insights from an explorative study into the Turkish retail banking sector.

SUMMARY

Technology has become of one the most significant strategic weapons for banks to survive in increasingly competitive bank markets. Today, banks in Turkey are competing aggressively to introduce new types of products and services that are driven mostly by technology. Internet banking is the latest and most innovative technology based service offered by the banks in Turkey. Yet, as users of Internet banking actively participate in the service provision, a customer oriented design according to needs and skills of the various classes of consumers becomes a major necessity to accelerate the diffusion of the service. Against this background, this research examines the role(s) market research and technology play in the development of Internet banking services and how consumers are involved in this process. The key finding of this study is that the banks involved in this research were developing and introducing Internet banking services with very limited scientific market research. Technology had the dominant role in this process. Market research was utilised only after the commercialisation of the service had taken place. The conceptual framework developed for this research identified the three key roles consumers play in the development of Internet banking services. This study contributes to the existing literature by developing an innovative conceptual framework within the context of new service development. The key findings of this study provide implications for the banking industry and future research.

KEYWORDS

Internet banking; new service development; customer involvement; retail banks; Turkey

1. INTRODUCTION

The banking industry across Europe has undergone a major transformation and faced a rapidly changing environment over the last four decades. These changes were mostly shaped by the financial deregulations eliminating the restrictions and promoting the competition within the marketplace. As a result of the changes, technology has emerged as a powerful strategic apparatus for banks to ensure profitability and market position (Consoli 2005).

The Turkish banking sector has also experienced a major change after the deregulation of the industry in the early 1980s. Similar to liberalized trends in the developed countries; the financial services environment in Turkey has become more competitive with an increasing number of new entrants into the marketplace. Following the structural changes in the Turkish bank market, the significance of innovation has increased for banks to succeed in the marketplace. After that period, technological developments have been utilised as the main catalyst of innovation activities in the sector. The most influential factor in the employment and diffusion of technology in the banking sector has been the decreasing profitability of banking transactions as a result of the changing landscape of banking environment. Credit cards, ATMs, telephone and television banking are among some of the technology-based service innovations that have been offered by banks to overcome the drawbacks of the changing market conditions. Internet and mobile Internet banking services, on the other hand, are the most innovative and profitable banking services introduced by retail banks. However, in spite of their increasing importance in the innovation activities of banks, research examining the development process of e-banking services has been limited (Ozdemir 2007).

Co-production is one of the key characteristics of new service development (NSD) that differentiates it from the development of manufacturing products. Although there is a significant amount of criticism of customer involvement, and employment of consumer and market research in the development of innovative products (e.g. Trott 2001; Christensen 1997; Christensen and Raynor 2003; Ulwick 2002; Lukas and Ferrel 2000), with the advent of Internet banking, the importance of customers in the development of service product has become more crucial than ever. As users of these services actively participate in the Internet banking process, a customer oriented design according to the needs and skills of the various classes of consumers becomes a major necessity in order to accelerate the diffusion of these service innovations. For this reason, the main focus of this paper is to examine the role(s) consumers play in the development of Internet banking services in the Turkish retail banking context. Technology provides innovative opportunities for service firms to involve their customers in NSD process. Despite the increasing significance of technology in the service sectors, the role that technology plays in NSD and in particular how the Internet could potentially impact the design and development of new services, is still one critical area that requires further exploration (Menor et al. 2002; Bullinger et al. 2003). Therefore, the role and effect of technology in the development of Internet banking services are also addressed.

The paper is structured as follows. The next section consists of a review of the new service development literature and development of the conceptual framework. Section 3 explains the selection of the research procedure. Section 4 presents the research findings. Finally, Section 5 concludes with the discussion of the research findings and implications.

2. NEW SERVICE DEVELOPMENT: A REVIEW OF THE LITERATURE AND DEVELOPMENT OF CONCEPTUAL FRAMEWORK

New service development and customer involvement

NSD refers to the overall process of developing new service offerings from idea generation to market launch (Goldstein et al. 2002). Until recently, due to the distinctive nature and characteristics of services such as intangibility, heterogeneity and simultaneity, the development of new services has been regarded as an ad hoc process (Menor et al. 2002). Indeed, a quantity of research revealed that formalised product development processes were not employed in the development of new services (c.f. Boone 2000). However, in recent years, as a result of the growing importance of services sector, studies that attempt to reveal more formalised new service development processes has increased. Particularly in the context of financial services, research has shown the existence of the structured processes in new service development (Edvardsson et al. 1995).

In their review of the NSD literature, Johne and Storey (1998) emphasised the shift from the traditional way of developing innovative services which requires a far wider set of commercial variables during service development process. They mentioned that rather than improving only the core performance attributes, there is a trend towards developing the whole service offer. It is the financial services industry that, at the time, provided the bulk of data for their review. Since this time, however, the Internet has provided the mechanism through which many more industries can now develop new service offerings. Indeed, the development of a service 'offer' requires far more attributes to be brought into consideration than for a tangible product. Nowhere is this more clearly visible than in the cell-phone market, where extensive varieties of offers are put together that involve more than performance criteria.

Today, conceptualisations concerning the process of service innovations are mainly dominated by new product development (NPD) models. The well-known NPD process suggested by Booz et al. (1982) has been the most widely applied model in the context of service innovation (Menor et al. 2002). The model explains a sequence of stages to be undertaken during new product development. Recently, concurrent product development models that concern the parallelisation of activities during product development process have also been adopted to explain the development of innovative services. However, both the linear and more interactive models of NPD insufficiently emphasise the significance of customers and cannot capture the dynamic process of consumer involvement in the creation of innovative products/services (Ozdemir, 2007). In this context, the literature lacks process models explaining how consumers are involved in the process of NSD. Although NSD research has grown in significance over the last decade, the literature has primarily focused on the success factors of the process (e.g. De Brentani 1991). Nonetheless, it is widely accepted that gaining an understanding of the factors that are likely to influence customer evaluations of a new product or service and how customers are likely to relate to it is necessary for ensuring a successful market outcome. Indeed, Johne and Storey (1998) and Alam and Perry (2002) both emphasise the need for new conceptual thinking in our approach to new service development. In addition, there is still inconsistency concerning the usefulness of utilising consumers during product development. The critics of market oriented approach to product development argue that the traditional marketing activities of branding, advertising, positioning, market research and consumer research act as an expensive obstacle course to product development rather than facilitating the development of new product ideas (Cooper 2003; Christensen 1997; Ovans 1998; Thrift 1997). These scholars support the view that technology should lead product development. Indeed, a balance of interests is needed.

Against this background, we address the following Research Questions:

1. What are the roles of market research and of technology in the development of Internet banking services in the Turkish retail-banking sector?

2. How do banks involve their consumers in the development of their Internet banking services?

Open innovation and consumer toolkits