How to read customers: essential keys to navigate customers in financial services
In this blog post, Pascal Bourgeat and Gillian O’Sullivan draw on Ipsos’ research in the changing financial services sector and the growing interest area of behavioural economics, in order to better understand customers and leverage behavioural insights.
A changing environment
The financial services sector in Australia is experiencing changes from every direction: new entrants like major retailers in insurance and personal finance, technology companies in e-payments, changes and uncertainty re: government policy like super rules and FOFA, engagement of boomers transitioning an unprecedented pool of wealth into retirement, the increasing role of community/locality and perceptions of local and global banking and finance post-GFC.
Two views of customers
Within this changing environment, financial services companies may struggle to anticipate and get a read on how customers really operate. On one side, it is hard to escape the economic rationalist view of customers in financial services given the focus on tangibles such as rates, performance, fees (or no fees), investment period, etc. On the other side, customers are influenced by entrenched habits, their own feelings of familiarity and trust, cues from the ‘servicescape’, impressions from personal interactions with staff or any other contact point of a multi-channel journey, etc. Whether these combine and how they combine, give rise to much of the complex behaviour that we can observe.
In this review, we show through various examples how a small number of basic processes explain much of the complexity of customer behaviour in financial services. Understanding the characteristics and basic mechanisms of our behaviour are the keys to:
- Understanding how to best fit around customers in a fast evolving financial services environment,
- anticipating how customers would ‘think’ about new situations and what they are likely to do, and
- responding most effectively in terms of communication, product or service development, pricing, customer experience (CX) or corporate perception.
Insights from psychology (often referred to as behavioural economics) show that the way we form impressions, perceptions and make decisions relies on mental processes that are fast, intuitive, heavily dependent on past experiences and often laced with emotion. The result is that people will often make reasonably rational decisions without fully engaging their mind which requires switching to a slower and logical thinking mode. Emotion, including in financial services, is often an efficient way to rational decision making.
One set of keys to reading customers in financial services is about (deep) motivation. Many financial services companies know about need states and these are often woven in customer segments. Deep motivations do influence customers but another set of keys opens the mechanism of behaviour influencing our behaviour: these keys help us recognise the essential, underlying shape of our mental processes, above and beyond customers’ deep motivations.
The financial services customer
Our customers constantly engage one or more basic processes which form much of our mental activity: attention, motivation, consideration and decision. Two mental short-cuts are pervasive in how they engage attention, motivation, consideration and decision: trust and (a rough form of) benefit cost analysis. Both of these fly under the radar when we engage them, but have a big influence on what we do, or do not do:
- Trust is either from direct experience (I know you) or indirect (all these people use/know you) or formed through other impressions (you look OK to me), and
- benefit cost analysis seeks to maximise some sort of outcome and minimise ‘costs’ (which are sometimes monetary but often internal costs that we don’t verbalise like ‘I can’t be bothered to look/think/do’).
Both trust and benefit cost analysis ultimately link back to energy conservation which underpins much of the mechanism of our behaviour while (deep) motivation drives our purposeful actions.
Attention, motivation, consideration, decision are what we do when we’re getting ideas about what is right for us in banking, finance or insurance, simplifying, making sense of options or details or reducing risks in making choices. Decisions can include going online to search or compare, clicking for a web chat or replying to an email from the bank, asking a friend for a recommendation, selecting a mortgage broker or signing up for a term deposit.
The chart below comes from an analysis of more than 5,000 concepts Ipsos tested for banking, insurance and financial products and services around the world. It clearly shows that unless concepts are perceived to be highly unique, their likelihood to succeed when launched is limited.
We identified that the immediate benefit of uniqueness is its ability to generate attention as we observe a close correlation between uniqueness and attention. Without attention there is no start of engagement, no possible motivation and no chance of decision. Uniqueness is one way to engage the crucial attention process but there can be other ways to disrupt our inherent leaning to automatically ignore much of what comes our way.
Attention is also greatly impacted by trust. The chart below shows the link between the perception of 19 global financial services companies and the percentage of people who say they have seen their advertising.
The ads of those companies that are clearly trusted are visible. The ads of those that are well below average or even average are barely visible. This suggests that there may be no such thing as being ‘on par’ with the market or average on trust.
Analysis we conducted among a range of financial services customers in Australia shows that their stated recommendation of a company’s products and services is either high or low when compared to their perception of trust.
Again, there are no shades of trust. This can make trust an immediate switch-off in the process of getting customer attention. In a disruptive financial services environment, attention quickly becomes more challenging and more important for existing companies: the attention issue is compounded by issues of gaining engagement and active consideration.
Our own review of various facets of consumer trust in financial services in Australia shows that consumers are positive with regards to how solid the sector is in Australia but clearly negative with regards to the fairness of the relationship (fees and charges, perceived respect, etc). The behavioural insight here is that ‘fairness bias’ is as powerful a driver of behaviour in the right circumstances (e.g. disruption of the market by new competitors) as inertia has been until recently.
Both emotion and motivation are directly related to the root verb for move (movere). Evidence of motivation is when behaviour changes (ie. we literally move). Initiatives that fail in markets often do so because they fail to ‘move’ people, first inside and then outside.
We find again and again that negative experiences are much more likely to lead to action about long term financial goals. Negativity bias shows that negative experience resonate longer and much more strongly than positive experiences. The insight is that negative emotions can be an effective route to motivation. Singer and musician Steve Clisby sang ‘three little letters’ for CBA’s CAN campaign (‘three little letters, it’s a long way from never’) and talked about the emotions that held him back. This is quite contrary to the approach sometimes adopted in financial services, where consumers are seen to bathe in a positive frame throughout.
Emotion also surfaces to negatively impact motivation, especially when something is new. We decided to test how consumers would respond to Google Wallet when it first came onto the market. What surprised us was that two of the three key drivers of motivation to adopt Google Wallet were negative (security and cost); the second driver was the underlying positive expectation (fast and simple) generated by Google Wallet, how it would transform something in people’s life.
In fact, what we often observe in response to innovation in financial services is that barriers (fears or uncertainty) trump motivators two to one. The trust mechanism we engage in new situations is very fast and uncertainties need to be addressed upfront to avoid switch-off or low engagement level, not as a secondary point after what appeals and creates desire. The insight for innovators is that emotion (as in latent uncertainty or fear) always remains a potential inhibitor of behaviour.
At the same time, leveraging customer emotion is compatible with rational behaviour (ie. purposeful and self-interested albeit conscious or not conscious). In a recent TV ad, Australian Super uses strong emotional cues to portray banks as, literally, money-grabbing individuals with an eye on the fees they can make from getting their hands on your superannuation. The implicit invitation to leave your super with Australian Super is the expected rational behaviour.
We examined 19 global financial services companies and found that consideration is even more clearly related to trust than attention.
A powerful pathway to achieve consideration starts with emotion. An analysis of more than 100 TV advertisements showed that strong emotional resonance (for example, AAMI’s Rhonda and Ketut for a strong sense of personal connection) achieves 25% higher long term brand strength than advertising with weak emotional resonance (but no clear advantage for short term brand effect).
In one sector of financial services in Australia, one additional point in brand strength translates into up to three additional points in brand consideration. The underlying reason to the gain is that emotional intensity is a prerequisite to long term memory encoding (LTME). Put simply, without emotional intensity there is nothing much for memory to recall, and consideration is probably lost. Trust is the key hidden mediator in the emotional pathway to memory, recall and consideration.
The benefits keep compounding – in the new multi-channel customer journey, brands drop in and out of consideration in a longer journey than the traditional ‘brand funnel’. Customers add on average one brand in banking. Brands of banks or other service sectors that are available in the mind early in the journey are up to three times more likely to be chosen than brands added late. Yet cross-channel journeys offer multiple points of contacts to increase the likelihood of eventual consideration, often cost effectively. Moreover, a strategy combining both the front and back of the journey multiplies the efficiency of all contact points because of underlying emotional resonance.
Behavioural economics and psychology point to many biases, effects and illusions affecting decision making. As we reviewed multiple sources from our Australian and global experience in various areas of banking, asset management and insurance, we identified at least 12 such effects including framing and affect short-cuts, loss aversion, status quo, negativity, fairness and egocentric bias to name a few. This is not surprising as many of these effects have been identified in research situations of risk and uncertainty. Yet, as relevant and insightful as they may be, what consumers do in financial services, with or without self-reflection, remains very much influenced by either maximisation (of outcome) or minimisation (of risk or risk and ‘decision costs’) or some combination. This is not just for ‘final’ decisions but almost all decisions along the way, many of which fly below the radar at all times.
The chart below shows how consumers respond to changes in the rate advantage that a bank holds over selected competitors for a lending product.
As the rate difference vs the competition decreases, demand for the lending product falls. The demand curve is evidence of rational behaviour (both in customer surveys testing market scenarios and actual market data), as is the rule that consumers seem to be using, except that certainly in online surveys (and even in markets) consumers do not use calculators and spreadsheets. And yet, somehow, consumers navigating between complete auto-pilot and full switch-on mode have their own mental ways to solve the ‘brand-plus-rate rule-plus-something-else-that-matters’ equation. We found similar results in other banking areas such as at call savings or TDs. But still, the drop between 50 and 20 rate points shows that consumers maximise but are also impacted by how much they value brands; each brand is worth whatever basis points on average.
In other situations consumers exhibit ‘minimising’ rather than ‘maximising’ behaviour. The below example is for the first home buyer segment. The first home loan buyer is quite overwhelmed by the whole experience and the excitement of getting her own home. She asked a friend for a recommendation as she’s thinking of using a mortgage broker. The broker said many things and showed her something on a computer screen but anyway she liked the look of him and the loan he recommended looked good versus what the competition seems to offer.
This is classic minimising behaviour. The most important thing for her is to avoid making a bad decision (wrong broker and wrong product). Maximising (the best possible deal) is not her first priority (best is just bonus). As it is all new to her, she is also trying to limit personal costs (searching for information, understanding what is important and what’s not, comparing alternatives), and she already has so much to think of, dreaming about indoor and outdoor furniture for her new place … and it’s all too hard anyway. Taking everything into account, she is happy with the broker.
Recent advertising from mortgage broker Aussie shows how well the brand appeals to minimisers. Aussie John is the visible and reassuring embodiment of trust (avoiding a bad choice) and the conduit to a range of lenders, range being the base for a good choice.
Both maximising and minimising behaviours involve making financial decisions without conscious full-on engagement. In both cases maximisation (even an imperfect one for the first home loan buyer) plays a role in their decision making, though with a different emphasis. In both cases trust also plays a role: essential in shaping the minimiser’s pathway, moderating the maximiser’s choice around rate thresholds).
Sub-contracting to devices
Moreover, the environment in which consumers live is one of increased reliance on mobile devices. Devices mean that more and more effortful tasks, for example, locating, searching, evaluating, seeking recommendation or feedback, comparing, transacting, sharing experiences can be sub-contracted or done at very little ‘internal cost’. This does not mean consumers will abandon their shortcuts and auto-pilot behaviour. There is no real substitution here, just some easy addition because the internal cost to using devices is so low.
The diffusion of new mobile devices, wearable and others provides the impetus to constantly review our understanding of the mechanism of our behaviour, especially in a financial services sector that is open to disruption: how to best fit around customers, anticipate the ways they will naturally go, respond effectively in terms of communication, product or service development, pricing, CX or corporate reputation.
Three steps to leveraging behavioural insights
- Look at customers with a systematic approach, taking on board their deep motivations but also understanding closely how they engage attention, increase motivation, opt in or out of consideration and process for decision,
- be perceptive: recognise the short-cuts and auto-pilot processes that customers use in their response to new products and services, changes at touch-points or cross-channel communication. For example, anticipate the extent to which brand trust will act as an inhibitor or an easy route to action or consider what fears or uncertainties need to be addressed. Recognise the way customers are likely to engage or not with a new process and how emotion can be tapped into as the hook to motivate consumers to want to know more about your offer, and
- be creative and do the brain gym to translate systematic analysis and perceptive nuggets into the redesign of CX, the features and communication of a new service or product or a social media strategy. Creativity leverages systematic review and truly perceptive insights.
Three questions for financial services today
- Trust can act as a switch-off or multiplier mechanism at all points in any customer journey affecting attention, motivation, consideration and decision. Does trust work as a multiplier or a stumbling block for your brand? How do you perform on the various aspects of trust? Which aspects of trust should you prioritise given this is a key activator (or inhibitor) of consumer behaviour?
- there are many ways innovation or changes at touch points can affect customer response. How well do you understand the uncertainties and fears of customers (think acquisition as well as cross-selling)? How does that impact on their behaviour? What can you do to address any fears or uncertainties up-front and centre in your communications? and
- strong brand resonance from advertising and the range of touch points in cross-channel customer journey both create opportunities for brand consideration. Are you making the best of both? Do they work hand-in-hand as best as they ought to?
Pascal Bourgeat PhD (consumer behaviour) is director of behavioural science at Ipsos Australia. He designs research and works with a range of clients on any behaviour-related issue: customers of private and public service providers, grocery buyers, patients and healthcare professionals, etc.
Gillian O’Sullivan is executive director of Ipsos Marketing and Health. Gillian is an experienced consumer research expert with 20 years’ experience in research and marketing, working with clients across an array of industries (CPG, healthcare, financial services, tourism, telecommunications and utilities).