Category Archives: Market Research

Don't Listen To Your Customers

At a financial technology conference this week, in response to a question about the state of mobile banking in his firm, the CIO of a community bank said:

“Maybe we’ll be doing something later this year. We surveyed our customers and only 20% wanted mobile banking.”

This comment has so much wrong with it, it’s hard to know where to begin, but I’ll try:

1. It was bad market research. I’m assuming here that the survey simply asked customers if they wanted mobile banking (or how interested they were in it).  If that assumption is true, then the bank violated the number one rule of consumer research: Don’t ask people a question that they can’t answer.

Think back, for a moment, to when blepfards were introduced. Remember what they felt like in your hands? Remember what they felt like next to your skin? Of course you don’t. Blepfards don’t exist. And because they don’t exist, trying to imagine what it’s like to hold it and feel it is a fruitless effort.

This is what I call the blepfard effect:

Asking people to imagine a situation, a state of mind, or something that they can’t possibly imagine because they have no basis of experience to do so.

For people who interact with their bank online, or prefer to avoid the online channel, and continue to use branches and the call center, visualizing or identifying the potential benefits or added convenience of mobile banking is an impossible task. For people who aren’t interacting with other firms using their mobile device — and despite what you might have heard, that’s still the majority — anticipating the benefits of mobile banking is difficult.

2. The CIO should be reprimanded for dereliction of duty. Guess what, Mr. IT Dude: Sometimes YOU have to take the reins and tell customers what THEY need based on your vision of what technology can do for them. My favorite response to an executive who tells me “well, my customers aren’t asking for XYZ” is “yeah, well Apple’s customers didn’t ask Steve Jobs for the iPod.”

Here’s another thing I’ve done at conferences when this subject comes up: I ask audience members to raise their hand if they drive car. Pretty much everybody raises their hand. Then I ask “how many of you pump your own gas?” Pretty much everybody raises their hand. I follow that with “and how many of you wrote letters to Exxon, Mobil, etc. and told them you’d prefer to pump your own gas? And, of course, nobody raises their hand. You CAN get consumers to change their channel behavior. You can use the carrot or the stick, different tactics will work in different situations.

If it’s better for you — as mobile banking promises to be for banks (not to mention consumers) — then sometimes you have to WORK AT DRIVING ADOPTION. Novel concept, eh?

3. 20% — in and of itself — is not an adequate decision point. I have no idea if the 80/20 rule holds true for bank customer profitability. If it does — and if the 20% that wants mobile banking is the 20% driving 80% of your profits, then are you really sure you want to dismiss an initiative because “only 20%” of the customers you surveyed want it?

And what about the customers you want to acquire but don’t already have? Did you think to ask THEM what they wanted? If 80% of Gen Yers consider mobile banking a major criteria for selecting a bank — and if Gen Yers are a segment of consumers you want because they represent a disproportionate percentage of demand (compared to the percentage of the overall population they represent) — don’t you think you should offer mobile banking?

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I’ll tell you a little story: Back in 2002 (maybe it was 2003), I wrote something for the analyst firm I was working for at the time that argued that banks should not be investing in mobile banking at that time. My argument was that there were higher priorities to focus on.

A colleague of mine wrote something with the exact opposite opinion.

The CIO of a large bank flew us both down to his office, and in front of his management team, had us each present our case. I won (I guess), since the bank discontinued their mobile banking investment, and a year later, I got an email from him thanking me for convincing them to stop investing in mobile banking because it saved them millions of dollars, with absolutely no negative impact on customer satisfaction or retention.

Fast forward to 2011 and the situation is very different. The rapid adoption of smartphones will drive demand for mobile interactions and transactions (not just in banking but across a range of industries), and — perhaps more importantly — will create opportunities for banks to develop apps to add value in ways they can’t do in other channels (I like to call these “purely mobile” apps).

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Taking a pass on mobile banking because “only 20% of your customers” want mobile banking is short-sighted, and, I might add, a bad management decision. For g*d’s sake, don’t listen to these customers.

Oh — and please don’t try and tell me how your customers don’t want PFM.

The Lies Consumers Tell

Paymnts.com recently ran the headline: 90% of Consumers Would Pay for Mobile Payment Options.

Nothing gets my BS-alert-o-meter buzzing like a vuvuzela at the World Cup like a “90% of consumers” statement.

Reading a little further, here’s what I found: 57% of consumers are interested in having mobile payments on their phone; 90% would pay for the service; 64% would switch carriers in order to have access to mobile payments services; 58% would switch banks in order to have access to mobile payments services.

I’m guessing here that it’s really 90% OF THE 57% that said that they’d pay for the service. Which, if I’m correct in my guess, would make it “51% of consumers would pay for mobile payment options.”

That’s a little more reasonable.  But still not realistic.

The 57% of consumers who are interested in mobile payments is a far cry from what Forrester Research found in April 2010. According to Forrester, “18% of US online adults express interest in mobile payments.”

I don’t know who’s right. Personally, I tend to agree with whoever has the more conservative numbers. Why?

Because consumers lie.

There are probably more reasons than the ones I came up with, but here are four of the most common lies that consumers tell (in no particular order):

1. I’m going to tell everybody I know how great you are. Net Promoter Syndrome Sufferers should stop reading this post, because they’re not going to like this. On the other hand, it’s been said so many times in the past four or so years, that they’ve probably developed a keen ability to ignore this: The gap between the percentage of people who say that they’re likely to recommend your product or service and the percentage that actually do is huge. Survey someone right after a positive experience with a firm, and you’re just asking for an even bigger gap.

2. I make well-informed, carefully considered decisions. I’ve yet to do a consumer study, or seen one from anybody else for that matter, in which any significant percentage of consumers said “I had no rational or logical basis for why I chose the provider I did” or “I flipped a coin, threw a dart, or rolled the dice” or “The woman I talked had a nice blouse on”. Consumers will always tell you that their decisions are the result of intelligent thinking.

3. I’d switch providers for that one thing you just asked me about. If 57% of consumers are interested in mobile payments, why would a higher percentage be willing to switch carriers for the service? What about the fees they’ll get hit with for breaking their contract? When push comes to shove, consumers lie down and don’t do anything. In the world of financial services, the percentage of people who actually pick up and leave their bank because someone else has a service their current bank doesn’t have is small. Really small.

4. I’m willing to pay a lot of money for that if you build it/develop it. Sure, go ahead and ask me if I’d be willing to pay for some new product or service you’re thinking about. No skin off my back to tell you “yes.” But did you ask my wife if she’s going to let me pay for that product or service when you release it? :) More seriously, though, in hypothetical situations, consumers are always more likely to say they’d pay for a service. But what happens when they’re presented with a real-life choice of five add-on services? They might have said in research they’d be willing to pay for one, but they didn’t say they’d be willing to pay for all five, at the same time.

But hey, don’t let me dissuade you from thinking that 90% of consumers would pay for mobile payment options.

What The Drop In Satisfaction Means To Credit Unions

In the ACSI’s most recent customer satisfaction survey, satisfaction among credit union members dropped four percentage points — about 5% — from 84 to 80. ACSI chalks this up to:

“Difficulties in managing rapid growth are partly to blame, as regulators have allowed credit unions to expand offerings to include more mortgage and investment banking activity. Financial losses by several individual credit unions have taken a toll. Since credit unions can’t raise capital by selling stock, the only recourse to recover losses is through cost-cutting, which usually leads to less customer service, or raising fees, which leads to higher customer cost.”

Personally, I’m not buying these reasons. Losses by “several individual credit unions” should have no material effect on CUs’ overall score, unless there is something terribly flawed in ACSI’s methodology. And I don’t think that there is. In addition, there’s no evidence to show that credit unions are providing “less customer service” (what does that mean, anyway?) or raising fees.

As a matter of fact, let’s look at some statistics from the Q3 2010 Quarterly Report published by Callahan & Associates:

  • Assets increased 3.8% year over year in Q3 2010
  • Loan originations increased 16% to $70b in Q32010 from Q2010, the highest third quarter volume in five years
  • Delinquency increased two basis points from June to 1.76%, but is down from where credit unions ended 2009.
  • Share balances increased 5.6% over the last 12months
  • Total membership rose by 440K over the last 12months to 92.0M
  • Through the third quarter, net income is up 79.2% annually to $3.0B, the highest since 2007.

With these kinds of results, I’ll take a drop in customer satisfaction. ANY DAY.

There may be folks out there who might want to paint the drop in CU satisfaction as some indicator of impending CU trouble (Keith Leggett?), but whatever troubles may be out there for CUs, they’re not being caused by declining member satisfaction.

I’m more inclined to believe that the drop in satisfaction is due to the impact of new members to the credit union movement (oh geez, I didn’t really use that term, did I?) who either:

  1. Believe that their credit union isn’t living up to the expectations they had and therefore gave lower scores to their CU than existing members, or
  2. Haven’t been with their CU long enough to reach the higher levels of satisfaction the long-standing members have.

The other thing to keep in mind here is that CU scores are head and shoulders above the top 4 banks. Wells Fargo scored 73, Citi was at 69, BofA 68, and JP Morgan Chase came in at 67.

To put things in further perspective, let’s compare the CU score of 80 to other industries reported in the June 2010 survey. As a whole, full service restaurants scored an 81, which represented a 4% drop from the previous year.  Hotels were flat at 75, and no individual hotel scored higher than 80. Airlines’ score came in at 66, and the highest rated airline, Southwest, was rated at 79.

And by the way, credit unions also beat out YouTube and Facebook, which were rated in the July 2010 survey at 73 and 64, respectively.

So….

What does the drop in credit unions’s member satisfaction mean to CUs? Nothing. Ab-so-lute-ly nothing. Back to business as usual, ladies and gentlemen.

Getting Consumers To Switch Banks

Bank Systems & Technology reported on a study conducted by Harris Interactive on behalf of Xerox which found that:

“Americans said that although they’re not unhappy with their financial institution, many would switch banks given the right incentive. Of those who currently use a bank/FI…22% say they are satisfied but would switch banks with the right offer/incentive and 5% say they are dissatisfied and looking/willing to look for a new bank.”

That begs the question: What is the right offer/incentive to get that 22% to switch?

According to Compete, that might not be the lowest fees or best rates. According to their data, more than half of…whatever population they’re tracking…said “convenient location or ATM” was the reason they chose their primary bank. Less than one in five said “lowest account fees” or “best interest rate.”

But wait, that might not be right. Because JD Power and Associates says that:

“Consumers shopping for a new bank put more importance on a bank’s brand image than on the location of branches, the products and services offered, or the recommendations of others.”

On the other hand, a study from Acton Market Intelligence revealed that:

“Consumers rate People — the financial institution’s frontline staff, client service representatives, and senior level executives — as the most influential factor in their decisions to choose a certain bank or credit union for their primary banking services.”

But a closer look at that study shows that while 71% of people rated People as being “critical/very important”, 68% rated Products/Services as being critical/very important, and 66% rated Image/Community as being critical/very important. So yes, People is most important — but not by much.

Interestingly (to me at least), was that none of the aforementioned sources cited “service” as a particularly important factor. Oh sure, you could say that People in the Acton study referred to service, but I’d argue that service is a lot more than just people. For those of you at FIs competing on the basis of your (often self-perceived) superior service, you might want to take a look at Bankrate.com, who concluded that “service, security [are] key issues when picking banks.”

So, if you would be so kind, please explain me something: Who’s right?

Read My Blog, Get Rich, Become A Genius

A study of subscribers to this blog has found that, compared to the national average, the typical Marketing Tea Party subscriber:

  • Earns 10 times more
  • Has a net worth 15 times greater
  • Has an IQ 35 points higher

Conclusion: Reading this blog makes you rich and smart. (Of course, the fact that you are already reading this means that you already knew that).

“But wait a second Shevlin,” you say, “you’re making a causal connection where they might not be any.”

YA THINK?

Sorry to burst your bubble, but it doesn’t take a genius to figure that out. (Translation: People who don’t read this blog should be able to figure that out).

If that’s true, then how do you account for articles and blog posts like the one on NielsenWire that reported:

“The mobile banking consumer carries a higher balance than the average banking consumer and has a greater net worth. While still only representing a small percentage of banking households, that number is increasing. Understanding the unique needs of this lucrative segment could mean winning and retaining valuable customers.”

Guess what happens to the average balance and average net worth of the average mobile banking customer as mobile banking adoption increases. They decline. As more customers adopt the service, the averages of adopters trends toward the overall average.

(You get this, but only because your IQ is 35 points higher than the average).

There’s another problem with the logic in the Nielsen post: Just because an artificially defined segment of consumers has a higher than average level of income and/or net worth does not mean it has “unique” needs. And even if it did, as more and more people adopt mobile banking, those “unique” will become less and less unique.

Well, I told you that if you read my blog, you’d get rich and become a genius. You might not be any better off financially, but c’mon, admit it: You do feel a little bit smarter, don’t you?

The New Frugality Is A Crock

Ever since the economy started heading downhill, pundits have been announcing the advent of an era characterized by the “new frugality.” I’ve seen a couple of books heralding this alleged new mindset, as well as white papers from some very reputable consulting firms.

I haven’t bought into this from the start. I have strongly believed that as soon as the economy turns back, so will spending. Will it be the “conspicuous consumption” of the past? Maybe not, but today’s frugality isn’t going to last. Or so I maintain.

Problem is, I haven’t had any data to back up my opinions.

Technically speaking, I still don’t have any solid data to rely on, but there are some anecdotal pieces of evidence to support my contention. The Next Great Generation Blog (how humble) asked participants, “ If you unexpectedly received $100 today, what would you spend it on?

Here are some of the responses (compiled by Carol Phillips on her Millenial Marketing site):

“Rent? Food? My heating bill, so I don’t freeze in cold, snowy Buffalo? Sorry, I’m boring. I’d go spend it on a concert ticket (two, if I’m lucky and buy from the box office to avoid Ticketmaster’s stupid fees!).”

“I haven’t bought shoes in at least a year, so a pair of black Johnston & Murphy Ainsworths.”

“I think I’d buy a sparkly dress and take a handful of over-worked, over-tired, over-caffeinated friends out for an epic adventure in the City of Dreams.”

“Probably booze and cigarettes…”

Maybe it’s me, but concert tickets, Johnston & Murphy shoes, sparkly dresses, and booze and cigarettes don’t sound like the spending habits of a “frugal” consumer.

There a couple of things going against the frugality argument:

First off, there are a lot of market researchers — me being one of them — who will tell you that asking consumers what their future behavior is going to be like is highly unreliable. Most recently, I saw this in research I conducted regarding consumers’ bill pay behavior where the percentage of respondents who said they were likely to change the way they pay their bills in the next two to three years was about 10 times greater than the percentage who said they actually changed their behavior in the past two to three years. We, as consumers, are just not very good at predicting the future — even when it comes to our own behavior.

Second, younger consumers’ perspectives are even more reliable (sorry if I offended you). For many Gen Yers, the recent downturn in the economy is the first one they’ve experienced as working, bill-paying, consuming adults. So they think their newfound frugality is something that will persist because it’s become fashionable to be frugal. But when their car turns 10 years old, and their kids become fashion-conscious teenagers, and…so on…if the economy is healthy and they’re earning money, then they will be spending that money.

I’m putting my stake in the ground now: The so-called new frugality is a crock of

Introducing The Smartphonatics

I recently published a report on How Americans Pay Their Bills, which — based on a survey of nearly 5,000 consumers — sized and forecasted the channels and methods by which consumers pay 28 of their most prevalent monthly bills.

Forecasting is a tricky art. There are lots of ways you can go about building a forecast, including straight-line trending, developing a regression model, and other methods.

What I chose to do for this report was to define different consumer segments based on their bill paying behaviors and attitudes, and estimate: 1) how the size of the segments would change over the next few years, and 2) how the behaviors of each segment would change.

In exploring different ways of segmenting consumers for the purposes of my report, I discovered something (which will elicit a resounding “duh” out of many of you): Smartphone ownership and attitudes towards smartphones is a useful segmentation dimension.

What I discovered in my analysis was a segment of consumers I’m calling the Smartphonatics. (I haven’t decided if it’s pronounced smart-PHONE-atics or SMART-fanatics, let me know which one you like better).

Although smartphone ownership is projected to reach 50% in the near future, not everyone who has — or will have — a smartphone is a Smartphonatic. What distinguishes this segment from other consumers are their attitudes towards the smartphone and their behavior (in the case of my report, it was their bill pay behavior that was relevant, but I think the behavioral differences go beyond bill payment).

Probably not surprisingly, the attitudinal difference demonstrated by Smartphonatics is their desire to use their smartphone to pay their bills. But the interesting thing is that, behaviorally, they’re the segment that is more likely to have already changed the way they pay their bills.

Maybe it’s just me, but I think the latter is pretty important. After conducting consumer research for so long, I’ve become pretty jaded about questions that ask consumers how willing or likely they are to do something or to change their behavior. I think our stated likelihood to change is way higher than our actual rate of change.

But the important element in the forecast is the identification of a group of consumers who — while not representing as large a percentage of consumers as you might think — will drive the majority of changes in bill pay behavior over the next few years.

What makes this blogworthy is that this segment is going to be a catalyst of behavioral change in a range of areas, not just bill payment. This is the group that will lead the way to mobile retail payments, as well. They don’t just have a smartphone, and they don’t just intend to change their behavior as a result of using a smartphone — they’ve already changed how they conduct their lives as a result of technology.

Look for the Smartphonatics to lead the way to mobile services over the next few years.

The Overbanked

JJ Hornblass at bankknnovation.net recently blogged about a survey of consumers conducted by the American Bankers Association, which found that 53% of consumers (believe that they) pay no monthly fees for “checking account maintenance and ATM access.” Three groups, each totaling 14% of consumers, pay $3 or less, between $4 and $9, or more than $10.

As JJ points out, these percentages only add up to 95%, which means 5% have no idea how much they pay each month. According to JJ, “that’s the news here.”

My take: I agree with JJ that identifying a segment of consumers that don’t know how much they pay is important, but I don’t think it’s the only newsworthy item, let alone the most important part of the news.

What’s hard to tell from the description of the survey question is whether or not respondents were factoring in overdraft fees into their estimates of their monthly checking account costs. If they did, then the category “more than $10″ could be very misleading.

Here’s a back-of-the-envelope calculation: The Financial Times reported that banks made $38.5 billion in overdraft fees in 2009.  The FDIC found in a 2008 study that 9% of banked households account for 84% of all NSF income. By my calculations, that means those 9% of households are paying not just “more than $10″ per month, but more like $300 per month.

Even if my assumption about the inclusion of overdraft fees in the survey respondents’ estimates are wrong, one can’t help but conclude that there are a lot of consumers out there who would be better off without a checking account than with one.

This is exactly what a colleague of mine found in a report he published last year called Prepaid Debit Cards: A Credible Alternative to Checking Accounts. He concluded that “at least 14% of U.S. checking account customers would be better off using a prepaid debit card, based on an evaluation of each product’s cost as a percentage of deposit inflows.”

It’s no coincidence that the ABA study found 14% who pay more than $10 per month. To me, that’s the news coming out of the ABA study.

What the results of the ABA study suggests — reinforcing my colleague’s findings — is that there is a sizable percentage of consumers that are overbanked — i.e., they have a checking account but, perhaps, shouldn’t have one.

The shortsighted will see this as yet another potential loss of a revenue stream for banks. The farsighted will see this an opportunity to utilize prepaid cards as a viable banking product.

The nearsighted probably can’t even read what I’m writing.

You Can't Always Trust Trust Research

Brandweek reported on a study done by Zogby Interactive about the trust consumers have in a number of brands, and the article made a big deal about how non-social media brands had higher “trust” levels than social media brands:

“49% of respondents said they trust Apple “completely” or “a lot,” matching the number who said the same about Microsoft and Google. Apple’s “trust a little” or “not at all” total (36%) was lower than that of Microsoft and Google (both 46%), with a higher “not sure” tally for Apple making up the difference.

13% of respondents said they trust Facebook completely or a lot, vs. 75% trusting it a little or not at all. The numbers were similarly negative for Twitter (8% completely/a lot vs. 64% a little/not at all, with another 28% not sure).”

On the face of it, these numbers surprised me. Probably because I spend too much time on Twitter (AKA AppleFanBoyVille), I never would have guessed Microsoft’s trust number would be as high as Apple’s.

But in evaluating these results, we can’t stop at “the face of it.” At the core of this (get it?) is a more important issue: What the hell does the researcher mean when it asks “how much do you trust” this or that brand? How much do we trust those brands to do what? To protect our data? To deliver good products? To do the right thing by its customers?

The other thing that is potentially troubling about the research is the methodology. Best as I can tell from Zogby’s press release, respondents were not asked if they do business with those brands before being asked to rate how much they trust them.

If I were designing the survey, not only would I have asked that, but I would have inquired to what extent the respondent sees him/herself as a loyal customer to the brand. Because I’d want to know if customers of the brand have a higher trust perception than non-customers, and if “loyal” customers have a higher trust perception than less loyal customers.

Bottom line: With all due apologies to Zogby, this research is pretty useless. It says nothing about the levels of trust consumers truly have with these brands — that is, what they actually trust or distrust — and does more to get Zogby’s name in the press than it does anything else.

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Interpreting FIs' Online Customer Satisfaction Scores

In ForeSee Results’ 2010 online banking customer satisfaction survey, credit unions  scored higher than the top 10 banks. Not surprisingly, credit union publications picked up on this, including a front page blurb in the CU Journal that read  “CUs’ online experience called more satisfying.”

My first reaction: “let’s get real here — there’s no way that CU sites, on the whole, are better than the top 10 banks’ sites.” At least, when considering the public side of the sites, that is.

The ForeSee study did have this to say about the results:

Credit unions don’t have better websites, better products, or better services, yet their customers are more satisfied.”

I’m not sure I’d make the blanket statement that CU don’t have better products or services, but I do think that — again, on the whole — that CU websites aren’t as good as the top 10 banks’ sites. That’s not to say that that there aren’t many credit unions with excellent websites. In presentations that call for a mention of online best practices, I often cite CUs like Qualstar, Altura, and Verity.

But it does raise a question: If CUs don’t have better websites, then why do they score higher in customer satisfaction with the online channel?

ForeSee itself attributes some of the discrepancy to exogenous factors like the low trust that the large banks suffer from.

It goes further than that. The discrepancy also reflects differences in customer demographics. Many CUs are currently trying to lower the average age of their member base. This implies that that average age is older than the average age of banks’ customers (if the CUs don’t have the Gen Yers’ — and to some extent, the Gen Xers’ – business, somebody has to have it).

If the underlying demographics of the CUs’ member base is different, then it’s likely that members’ expectations of the CUs’ websites are different than big bank customers’ expectations. And if expectations differ, then comparing satisfaction with CUs’ sites to the banks is not a valid comparison.

So, with exogenous factors like big bank mistrust and demographic differences impacting website satisfaction, ForeSee’s conclusion that CUs “with higher levels of satisfaction, are positioned to gain market share” doesn’t hold water.

ForeSee has the causal relationship backwards. Satisfaction with CU websites isn’t driving consumers’ likelihood to do business with CUs. It’s the other way around: Consumers’ increasing likelihood to do business with CUs leads them to give CU high scores on satisfaction surveys. It’s a halo effect.

CUs are positioned to gain share – but not because of member satisfaction with their websites. CUs are positioned to gain share because they’re more likely to be perceived as doing what’s right for their customers, and not just their own bottom lines.

And I would further argue that CUs do a better job of fostering that perception offline than they do online.

All of this should make credit unions reevaluate how they use these satisfaction scores. The ForeSee study uses the scores to proscribe improvement priorities. I don’t think any individual CU could possibly use the scores of the study to determine its own priorities.

Some CUs may be inclined to tout the higher satisfaction scores in their advertising and marketing materials. This could backfire. If a CU that employs that tactic has a  site that isn’t very good, then it risks setting  expectations among new members that it can’t live up to. Not a good idea.

If I were at a top 10 bank, I’d be tempted to use the ForeSee scores, as well. My marketing message would be: “Of course CUs’ website satisfaction scores are higher than ours. They cater to your parents’ generation, and really, what do your parents know about a good website?” (I said “tempted” — I didn’t say I’d recommend that any bank actually do this). But this won’t happen, because the big banks don’t obsess over the credit unions (although, maybe they should).

The point of all this is that any firm — let alone a credit union — should be wary about how it uses these satisfaction scores (sorry ForeSee). Statistics have become weapons of mass dissuasion in today’s marketing world. Gotta be careful how you use those weapons.