Marcus Cunha Jr, PhD Associate Professor of Marketing (Terry College of Business UGA)

Transcription

1 GEORGIA BANKERS ASSOCIATION Georgia Banking School Marcus Cunha Jr, PhD Associate Professor of Marketing (Terry College of Business UGA) 2016 Georgia Banking School May 1-6, 2016 UGA Hotel & Conference Center Athens, Georgia

2 Today s Agenda I. Consumer Decision Process (B2C) II. Buyer Behavior (B2B) III. Heuristics and Biases in Decision Making IV. Consumer Banking Behavior 4/15/2016 2

3 I - Consumer Decision Process (B2C) 4/15/2016 3

4 The Consumer Decision Process I need to make sure my kids can afford going to college Talk to family and friends about their plans Read financial planning blogs Talk to the bank branch manager Pay attention to advertisements Compare 529 plans across different states at ge.com Custodial accounts Consider a Roth IRA Choose GA path2college because of the tax benefits Check account growth relative to a benchmark Tell others how you feel about securing your kids future Recommend the plan to others Webchat with a financial advisor

5 Stage 1 - Problem Recognition Occurs whenever a consumer recognizes a difference between the current state and the ideal or desired state Internal cues - consumers recognize state of discomfort External cues - marketers may stimulate consumers to recognize problem

6 Stage 2 - Information Search Consumer checks memory and surveys environment to identify what options are available Sources might include personal experience and knowledge, friends, advertising, advisors, web sites, and magazines

7 All searches are NOT done equally

8 High Extended Problem Solving (e.g., financial services) Risk Consumer Involvement/ Limited Problem Solving (e.g., small Appliances) Routine Problem Solving (e.g., soft drink) Low Low Consumer Knowledge High 4/15/2016 8

9 Stage 3 - Evaluation of Alternatives Identify consideration set Narrow list and compare pros and cons Use evaluative criteria to decide among remaining choices

10 4 Purchase Decision People may ultimately make the choice based on the rationality (decision makers are known to violate it!) assumption and/or heuristics Heuristics represent rules of thumb brand loyalty, country of origin, liking/mere exposure, sunk costs, etc.

11 4 Purchase Decision Decisions are often influenced by: Think: How much knowledge/awareness one has about the alternatives and that type of product Feel: How do I feel about a given brand, a sales agent, etc. (liking, preference) Do: What did I buy last time? What triggers my behavior?

12 5 Post-purchase Evaluation How good a choice was (cognitive dissonance) Customer satisfaction/dissatisfaction Ultimately affects future decisions, word of mouth communication, and social media sharing

13 The marketing Funnel

14 Consumer Behavior Insights in Action Citi Card Case 4/15/

15 II - Buyer Behavior - Business Markets 4/15/

16 Characteristics of Business Markets Fewer, larger buyers Close supplier-customer relationship Professional purchasing Multiple buying influences Inelastic demand Geographically concentrated buyers

17 Institutional and Organizational Markets Institutional Market Consists of institutions that provide goods and services to people in their care. Government Market Typically requires suppliers to submit bids, normally awarding contracts to the lowest bidder. Copyright 2009, Prentice-Hall, 6-17 Inc.

18 Buying Situations Straight re-buy Modified re-buy New task

19 The Buying Center Initiators Users Influencers Deciders Approvers Buyers Gatekeepers

20 Building Business Relationships Corporate credibility Expertise Trustworthiness Likeability

21 III - Heuristics and Biases in Decision Making 4/15/

22 ANCHORING AND ADJUSTMENT WHAT IS IT? Judgments tend to be anchored on numbers to which people are exposed (and people generally fail to adjust their judgments as a result of the anchoring effect) Usually people are unaware of the influence of an anchor

23 Implications for Marketing and Sales Buy Snickers Bars for your Freezer, (1) vs. Buy 18 Snickers Bars for Your Freezer (3) Marked down prices (increase the per-customer limit) Multiple uses ( 101 uses)

24 CONTEXT EFFECTS Does information seemingly irrelevant to the choice/judgment matter?

25 Contextual Decoys (and Phantom Decoys) $1.31 $1.29 $0.71 $ % 30% 50% 50% 90% 10%

26 The Psychology of Decoys : A perceptual contrast phenomenon Bush s (A) Perceived Quality (A-) (B-) Great Value (B) Price Desirability

27 Decoy case study The large majority of new subscribers chose the $56 option although the publisher preferred the $125 option The Economist then introduced a decoy option which they knew nobody would choose: $125 for print only Nobody chose the middle option but shares for the online & print grew significantly

28 The Power of Free 1 Lindt truffle = $ Hershey s Kisses = $ Lindt truffle = $ Hershey s Kisses = Free

29 Implications for Marketing and Sales Use dominated options (decoys) with features similar (but inferior) to the most profitable offering Skew the distribution of prices/quality/features to make your most profitable offering more attractive When possible, bundle products in a way that one of the products is offered for free

30 MENTAL ACCOUNTING Thaler (1985)

31 Opening and Closing Accounts A transaction is opened when we pay for a good/service, and remains open until the good/service is received/consumed Unlike the GAAP, our minds are not good at "writing off" bad debts As a result, we are prone sunk cost biases

32 Mental Accounting by Categories Mental accounts are usually compartmentalized (money for hedonic versus utilitarian spending) Funds are assigned into different sub-categories (Fun: vacation, entertainment, etc.) Funds are not fungible across categories ( this is my vacation money, I ll save it and make a minimum payment in my high APR credit card )

33 Mental Accounts Lead to Sunk Cost Biases Suppose you bought two tickets for $100 for a concert a month in advance On the day of the concert, a winter storm made driving almost impossible You can either forfeit the tickets and not go to the concert, or you may pay an extra $60 for a taxi roundtrip? Which would you choose? What if somebody gave you the tickets for free? What would a rational economist predict?

34 Implications for Marketing and Sales Create upfront sunk cost (e.g., down payment) to increase escalation of commitment (think gym membership) Keep the mental account in the red. Consumers do not like to close mental accounts in the red and that will prevent switching behaviors (gamblers escalate betting the more they lose to avoid closing the account as a loss) Set payments in a way that is consistent with the enjoyment of the account The Ikea Effect (Co-Creation)

35 PROSPECT THEORY Understanding Choice under Risk Kahneman & Tversky (1979)

36 Probability Function You have two lottery tickets: Ticket #1 has 55% chance of winning $2,000 Ticket #2 has 95% chance of winning $1,000 You are given the opportunity to boost one of the tickets winning chance by 5% for a small fee, which ticket would you want to boost?

37 Probability Function Jerry has two vehicles, a car and a motorcycle. In the event of an accident, The chance of fatal injury is 2% in a car; The chance of fatal injury is 52% on a motorcycle. He received a voucher for a free vehicle inspection from Assurant that could decrease the chance of fatal injury by 2% for either vehicle. Which vehicle would you recommend him inspecting?

38 Probability Function

39 Value Function $50 loss $50 gain Properties: Events are judged relative to an (adaptive) reference point Losses loom larger than gains People are extremely averse to losses People savor multiple gains

40 Loss Aversion Examples For example, some workers may prefer not to work overtime because they do not want to pay more taxes even if they would benefit financially from additional after-tax income (the additional tax loss looms larger than the income gain ) Disposition effect: Even though the most rational behavior would be to hold on to winning stocks and sell loosing stocks, the opposite is often observed

41 Hedonic Editing Segregate Multiple Gains Aggregate Multiple Losses Aggregate Large Gains with Small Losses Segregate small gains from large losses (the silver lining )

42 Framing effects: Gains and Losses: Negative Frame Positive Frame 4/15/

43 Implications for Marketing and Sales Frame offers as gains versus losses depending on the intended behavior (risk seeking vs. risk averseness) Hedonically edit offers (e.g., two separate gains and one combined loss) Insurance is based on (small) probabilities, what lessons can we learn from the probability function? (people overweight small probabilities) When offering a bundle, discount the least desirable product

44 Source IV - Consumer Behavior: Trends in Banking Retail Banks and Credit Unions - US - February 2014 (Mintel Oxygen) *Interest in and Use of Additional Banking Products and Services

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46 Switching Behavior

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48 Key insights More than one third of respondents are interested in working with an adviser at their bank While only 10% of respondents already use PFM (Personal Financial Management) tools, 34% are interested in using them. Almost 80% of respondents have no interest either in following their financial institution on Facebook or in using Facebook or Twitter for customer service issues. Young people, Hispanics, and African Americans are very interested in working with an adviser at their bank or credit union.

49 Key Conclusion: Since a larger proportion of respondents are interested in PFM tools offered by their bank or credit union, part of a financial adviser s role should be to educate clients on the institution s PFM offerings and then follow up with them periodically to make sure they are getting what they need from the tools.

50 Significant Trends in Banking Behavior Trend # 1 (Mintel Inspire): Click and Connect 12% of respondents already use the live webchat service offered by their bank or credit union and another 23% are interested in using it. These numbers jump when talking about young people: age bracket:32% are interested in using Webchat.

51 Significant Trends in Consumer Banking Behavior Trend # 2 (Mintel Inspire): Locavore Consumers are increasingly interested in buying local, whether it is food, consumer products, or financial services Banks and credit unions can take advantage of the Locavore trend by ensuring that they are seen as a part of the local community. While smaller and more regional banks have historically participated in the community by activities such as making loans to local businesses or offering mortgages to local residents, big banks have less typically been considered so warmly.

52 Significant Trends in Consumer Banking Behavior Trend # 3 (Mintel Futures): Generation Next Teenagers and young adults are growing up in a time of unprecedented access to information. They expect companies to be transparent in their dealings and they want to be kept in the loop. The Generation Next trend may help financial companies benefit rather than suffer from the desire of young people for a lot of information. Mintel research found that 17% of people aged and 21% of those aged follow their bank or credit union on Facebook, significantly more than older age segments. While this offers some opportunity to build brand awareness among this group, it is unlikely that it is the best use of social media for banks and credit unions. Some institutions have used Facebook successfully for unique purposes, such as Chase with its Community Giving initiative, but blogs are more likely to engage young customers and prospective customers and motivate them to act.

53 Thank You! Marcus Cunha Jr Contact info: Ph#: