Switching In The Financial Services Industry – Part 1 of 3

By Paul Hague, Director, B2B International Ltd

What makes people switch?

What does make people switch? What is it that makes someone change their mind or their behaviour? These are crucial questions to any marketer and particularly baffling to marketers in the financial services industry. This is because in financial services we operate in a world complicated by decision that is influenced by a blend of emotion and rationality and by fact and ignorance. This white paper offers thoughts on switching behaviour in financial services markets and the forces that shape these decisions.

The starting point for our understanding of “what would make them switch” is to recognize that there are different groups of people with different needs in our target audience. It would be an unusual situation for everyone to be motivated by the same things. Of course, this presupposes that we have an understanding of our market and know how customer groups differ in terms of meaningfully different needs.

Our understanding of the different needs of customers helps us begin to work out what would change a €œbuyer’s€ mindset. In other words, we can expect someone who says that they are driven by safe and secure products will have their head turned by a well known brand that they feel they can trust while those who are paranoid about getting the best price will be attracted by a half percent financial advantage. However, these are broad brush views and things are not as simple as that.

Buyer behaviour segments

In our search for what drives behaviour in financial services, lets look at four classically different segments. Most people reading this white paper will work with a company that supplies financial services that are bought because they are needed for a purpose (as opposed to for unadulterated pleasure). These functional products can be located in one of the quadrants in the following diagram (see figure 1).

In the south-west corner is the “holiday insurance” quadrant representing products that are of low value and that are not strategic to the customer’€™s future. In the north-west corner is the “car insurance” quadrant, representing products where the annual spend may be quite high but the supplier could be any one of a number of reputable companies who are not embraced as by the customer as one with which they necessarily want a strategic relationship.

Figure 1 The Strategic Supplier Matrix

The “banking” box in the south-east of the matrix, represents an interesting group as here we have companies who may not dominate the customer’s shopping basket but who certainly have a strong strategic input into their future in many ways.

Finally, we have the pensions? group in the north-east quadrant. This box typically includes suppliers of services such that are strategically vital products to the customer and with whom they spend a substantial amount of money.

The behaviour of “buyers” in each of these segments can be expected to be very different. The buyers of holiday insurance operate at a different level. Of course, the customer does not want insurance that will let them down and they want a supplier they can trust. But frankly, they may not know too much about the product they are buying and they may not care too much who they buy it from. They may be more influenced by the promotion and the ease of doing business.

Contrast this with the buyer of “car insurance”. This is the box where the products on the shopping list account for a substantial expenditure but where there may not be a great deal of loyalty to the supplier because it is not key to the future. In fact, many people have switched their insurance suppliers and they know it is easy to do so. Shopping around is normal in this box and so the products are always subject to price pressure. Price is the most obvious lever that prompts switching. It is also a box of opportunity because the clever marketer can explore customers€™ needs and add services that create a lock-in?. Of course, in this quadrant there will be some people that buy entirely on price but a surprisingly large proportion will be happy to consider paying a little bit more for the benefits of a trusted deal.

Moving on, the companies that occupy the banking box are generally regarded as specialists. Over time, the amount that is spent on banking services may be quite large but the monthly payments are small. However, the lock-ins are great and there is likely to be considerable loyalty to a supplier. In this box, the relationship with the supplier is likely to be important.

Finally, companies buying products and services that account for a significant spend and that are also strategically important are reluctant to switch to another supplier. A switch may take place but only after careful consideration of the consequences of the move. In fact, the relationship may be more with the pensions advisor than with the pensions company.

What themes emerge from this examination of switching behaviour for different types of financial services? The first thing we note is that both rational and emotional factors weave their way into all the decisions. The problem we face is that buyers of these financial services find it hard to admit to or even work out the influence of the emotional effect.

Part 2 of this White Paper will be published on Friday 20th October, with part 3 being published on Tuesday 31st

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