Mis-selling has recently come to the public notice mainly through problems that have come to light in the financial services industry. In this business sector, it has been shown that many thousands of customers had been mis-sold financial products, which were often insurance packages that were wholly unsuitable for their needs.
So what is mis-selling? Mis-selling may described as encouraging customers to buy products or services by the deliberate or unintentional mis-representation of the benefits and features of a product or service, or through the obscuring of particular terms and conditions in tortuous “small print.”
For the financial services industry, the exposure of mis–selling has had disastrous and very expensive consequences, which have resulted in compensation payments running into millions of pounds. In addition, the subsequent loss of customer confidence and trust in the companies concerned has been seriously damaging their reputations.
For the commercial manager, responsible for producing profitable income for the long term future of the business, understanding how mis-selling can happen, together with its potential consequences is very important if actions are to be taken for its avoidance.
In the financial services industry, mis-selling appears to have taken place extensively in the past two decades involving some of the larger financial service institutions. However, while there appeared to be no evidence of deliberated fraud, mis selling did take place on a wide scale, which resulted in very expensive compensation payments for the companies involved. So why did this happen and what appears to have been the driving factors?
It would seem that in many mis-selling cases, the driving force was the level of commission payments that could be earned by sales staff, which encouraged volume selling. Specialist products were not accurately targeted at specific and identified customer requirements, but at a larger and more generalised market for whom the specialised product was often unsuitable, as the profile of many customers made them ineligible.
In consequence, sales executives were incentivised to sell indiscriminately to unsuitable customers through the payment of commission. This situation was compounded by the ineffective oversight of weak management. While the use of commission appears to have encouraged mis-selling, it does not make the payment of commission wrong.
However, the ultimate responsibility for commission driven mis-selling, lies in a failure of effective management at all levels.
The commercial manager’s task is to maximize profitable income while minimising the level of costs and the use of assets. However, producing profitable income must be for the long term future of the business. If the level of income is increased in the short term through dubious selling practises, it will have serious effects on the flow of income in the longer term.
What actions should the commercial manager take to avoid the inherent dangers
of mis-selling?
• Ensure that all sales executives fully understand their product’s benefits and features.
• Use training to ensure that all sales staff understand the dangers and potential consequences of mis-selling.
• Use market research to identify and profile potential customers, identifying those factors that make them eligible for the product benefits.
• Prepare a due process to ensure that all aspects of every sale are covered before the customer commits to purchase.
• Maintain oversight of all sales agreements to ensure that due process has been achieved and has been applied correctly. If a sales executive is above average in their results, it pays to understand why they are so successful, so that their successful techniques may help to improve the sales team results in general.
“Caveat Emptor – buyer beware,” means that all customers should proceed with caution for any purchase decision, and to be sure that they understand the suitability and detail of any product/price package on offer, before they commit to purchase. However, while the ultimate responsibility for a purchase remains with the customer, that responsibility can never be an excuse for deliberately or unintentionally misleading them to purchase unsuitable products, so that they become a victim of mis-selling. While in the short term, mis-selling will damage the individual customer/supplier relationship, its longer term effects on the trust and integrity of the supplier may be manifest in reducing its level of profitable income in the future.
Nicholas Watkis set up Contract Marketing Service in 1981, providing professional interim marketing management for a wide variety of businesses. Over 30 years practical experience in organizations, large and small, national and international, led to specialist consultancy in business development performance measurement, of which he is the principal consult.
