Understanding the motives that drive customer behaviour is
increasingly being recognized as essential to relevant customer interaction.
Knowing that customers are likely to drop a product or add a new one, or
detecting abnormal changes in account use provides only a small part of the
information you need to have a meaningful conversation with your customer.
Historically our capabilities have addressed identifying what customers are
likely to do (see article parts I and II) with little regard to why.
Leading banks are now exploring how to better understand
motive by gathering information about what is going on in their customer’s
lives, and developing offers and dialogues that are relevant to the individual
in the context of their changing circumstances. Detecting “life events” such as
birth of a child, cohabitation, going to college, buying a home, renovating,
acquiring a vacation property and the like is not easy.
Some of this
information must necessarily be solicited directly from your customers, through
interviews or online tools that provide the customer with more relevant advice
when they share details of their circumstances with the bank. These
capabilities have long been used in the investments domain to gather a fuller
understanding of customer aspirations and needs, while satisfying “know your
client” (KYC) regulatory requirements. There are now many financial planning
and customer dialogue scripting tools available to engage your customer and
extract vital insights into circumstances and aspirations that can be used to
tailor offers and interactions to be more relevant to the individual person you
are serving.
Implementation of similar life event dialogue tools is now
growing in popularity among leading retail banks. Asking your customers about
their life events must involve a meaningful exchange of value to work.
Customers must perceive a real benefit to providing information about their plans,
aspirations and circumstances, and perhaps more importantly, if they proffer
this information they need to see that your bank remembers it, protects it and
utilizes it intelligently to improve the relevance of customer dialogue, offers
and interventions. Failure to use information you ask for is worse than not
asking in the first place. A coordinated customer dialogue requires integration
across products, geographies and distribution channels with a consolidated
understanding of your customer as the common base.
In addition to revealed motives gleaned from customer
dialogue, important insights about how customers use your products and services
can be gleaned from traditional information sources. The big challenge is
getting past account or transaction based analysis to understand holistically
what your customer is doing. Traditional banking systems fragment customer
behaviour into sets of transactions that obscure what is really going on. For
example when a customer borrows against their home to invest in mutual funds,
banks see the two sides of the transaction as unrelated (and even
contradictory) events; borrowing and investing. It is only when both sides of
the event are seen together that we understand the customer’s real behaviour.
Taking a holistic view of customer use of products and
services enables you to gain insight into customer intent. 30% of account level
growth and diminishment occurs because your customer is switching money from
one product or service to another. Transaction and account analyses fail to see
these important flows of funds – everything is seen as a win or a loss of
business. This distortion leads to false targeting, false triggers and
irrelevant customer dialogue (see blog entires What is a cross-sale? and Event detection). Let’s take a look at how customers move money
around inside the bank:
Customer moves money between Possible motive
Accounts of the same product Features, location
Deposit or lending products Rate, features, location
Deposit and lending products Borrow to invest / pay down loans
In addition to moving money between existing accounts, your customer may be
moving into a new account or product at the same or a different branch. These
changes, normally observed as sales and lost business, indicate clear product
or location choices that are conscious choices your customer is making to
reallocate their money within your bank’s products and services, and you need
to understand why. For example relocating accounts may be indicative of a
change in job or residence – a major life event. Paying down loans suggests
that your customer has recently acquired new wealth. Borrowing to invest may
imply an impending major purchase.
You can refine these insights by knowing which products are
involved. For instance borrowing from a HELOC to invest in short term mutual
funds may indicate an impending renovation, whereas borrowing from a HELOC to
invest in equities or long term CDs likely indicates a change in investment
strategy. Knowing what your customer is doing holistically reveals – at least
partially – their intent, which should inform your customer dialogue.
Switches between deposit and lending products are another
interesting case. These substitutions – often called cannibalization – illuminate
customer preferences. Within deposits, for example a customer can move money
between products with different liquidity characteristics (short term, long
term, demand) and with different rates of return and risk. Changes in
preferences reflect changing customer needs which you should be aware of.
Analysis of this type reveals a lot about customer
behaviour. When you combine this data with other information acquired through
tools designed to gather life event data you can sharpen the relevance of your
dialogue significantly. Moving beyond the analysis of individuals, statistical
techniques can be applied to your entire portfolio of customers to better
understand, predict and optimize your customer interactions by first
understanding why customers do what they do.
- Dave McNab
