Innovation in practice

Editor’s note: Doug Cottings is managing director at GfK Financial Services, a Princeton, N.J., research firm.

The financial services industry has had its share of challenges over the past few years. Those challenges have made an impact on how marketing research is being utilized within the sector and also opened the door to new opportunities.

Historically (prior to the year 2000) innovations in marketing research have occurred more frequently within other sectors such as packaged goods. Now, financial services marketing research tends to be more responsive to market conditions compared to other sectors. Financial service companies’ investment in research is a leading economic indicator. The dot-com bust, September 11th and the recent market turbulence have forced financial service companies to reevaluate their marketing research spend. Senior executives whose education, training and career path have been primarily in finance, banking and actuarial are now treating research like any other business area. Researchers within financial services must demonstrate their worth by improving the business, since merely reporting research results is no longer sufficient.

Financial services companies tend to “bucket” their research spend into two categories: “run the bank” and “change the bank.” When times get tough, both types of research are impacted but it is the “change the bank” category that is impacted the most. It is one of the first areas where financial service companies temporarily scale back. The research studies that are focused on new market entry, market sizing, new product development and innovation are postponed or reduced dramatically.

The good news is, most of the successful financial services companies are investing more, compared to the past two to three years, in innovative “change the bank” marketing research studies. While the areas of innovation vary broadly by company, they tend to be focused on the following key strategies for growth within the industry:

International

For companies that have a more aggressive growth strategy, the entry into emerging markets, especially within Asia and Africa, presents opportunities for revenue and earnings growth.

Online/mobile banking

The increase of mobile phone usage in emerging markets makes mobile banking a safe, low-cost initiative, not only for traditional financial services companies but also for potential new entrants (e.g., telecom). It can provide an easy way to transfer money to family and friends, and payments and withdrawals can be made without ever going to a physical bank or payment center.

Self-directed

Customers are not as willing as they used to be to delegate financial decisions to their financial services company. At the same time, these companies are looking for new ways to serve customers more efficiently (e.g., self-service technologies).

Greater importance

Independent of the strategy, during an economic recession, the way a financial services company applies innovation to strategic priorities and routine activities, including marketing research, takes on greater importance. Expenses that were once acceptable when the business was delivering moderate growth now need to be rationalized. This has encouraged marketing researchers within financial services to become more innovative and is demonstrated within the following areas:

Embedding conjoint/discrete choice within segmentation studies

Customer segmentation studies are often updated every two to three years unless something significant occurs within the market. In response to recent market conditions many leading firms are in fact updating their customer segmentation. Wanting to do more with less, financial services companies are conducting conjoint/discrete choice segmentation studies. This enables the use of conjoint for segmentation to produce a needs-based grouping by running cluster analysis against the utilities. The end result is clearly identified segments that can easily be prioritized by their receptivity to current or proposed offers (e.g., changes to a business model).

Social media measurement

Financial service companies are using social media research in ways not often considered even a few years ago. If is often an important facet within leading companies’ customer feedback loop and has been relied heavily to better understand corporate reputation issues and legislative changes. The industry is quickly moving from search services to real-time media monitoring and building proprietary branded communities of their own. This enables much more flexibility in listening to customers’ voices to inform everything from new product and service development to expanding market share and improving customer loyalty.

Mobile banking

Telecoms may start capturing traditional card and banking customers who do not need all of the traditional banking services. To ward off this potential threat and to generate additional revenues, financial services companies are becoming more innovative regarding how to measure and understand mobile behavior. Whether within an emerging market or an established one, these companies are interested in understanding the user experience across mobile browsing and application usage on smart phones. A current priority is to determine innovative ways to better understand how financial services companies should deliver both routine and urgent banking transaction detail (possibly similar to how people are receiving real-time status updates from friends, colleagues and companies via Facebook, Twitter and other services).

Behavioral economics

Twenty years ago, behavioral economics did not exist as a field. Most economists were deeply skeptical - even antagonistic - toward the idea of importing insights from psychology into their field. Today, behavioral economics is becoming more mainstream. It is well-represented in prominent journals and top economics departments, and behavioral economists have garnered some of the most prestigious awards in the profession. It is basically the study of how people make decisions. It relies on economics, cognitive psychology and anthropology in order to better understand decision-making. Financial services companies have been increasingly utilizing behavior economics within their marketing research studies to understand their customers’ decision-making, including the shortcuts they use and of which they are only partially aware.

Online qualitative

Financial services companies seem to be adopting online qualitative faster than many other industries. Relative to traditional focus groups, online qualitative has no geographic limitations. It provides the ability to speak with respondents from a local area, nationally or anywhere on the planet without the need for clients to use their time and budgets to travel. And, online qualitative is fast - a study can be up and running as quickly as it takes to recruit participants and create a discussion guide. Online qualitative studies have enabled financial services companies to interview hard-to-reach segments (e.g., CEOs, CFOs, high net worth, etc.) at times and places convenient for the respondents and also avoid travel costs. While there will always be a place for traditional in-person qualitative within financial services, online qualitative is being rapidly adopted.

Panel blending

Similar to why financial service companies have been early adopters of online qualitative, out of necessity they are also very receptive to working with multiple panels for one study’s sample. Panel blending is combining two or more panels to form your sample frame. Because panels can vary in their makeup and size, and because of certain study requirements, sometimes panels are combined before the sample is released. However, care must be taken in doing so. Careful selection of panels for blending can help broaden the spectrum of panelists, enabling a better chance of drawing a sample that resembles the population under study. (Financial services companies may be more receptive to panel blending than others because it is similar to having diversification within an investment portfolio - a concept with which these companies are quite familiar.)

Emotional measurement

If it was not clear before the recession, it is now very apparent to most within the financial services industry that financial decisions involve emotions. Financial services researchers have attempted to measure emotions by measuring heart rates, blood pressure and other observational techniques but have found these techniques to be expensive, complex and hard to scale. Innovations have been occurring within financial services in the use of self-reported feelings and cognitive evaluations that better inform the subjective experience without the expense and complexity of other observational techniques.

Values research

The financial service industry attracts bright and creative people. It values research and encourages innovation. It is even investing in researching how innovation occurs within the industry, what the patterns are and how the category has evolved. While the financial services industry has benefited over the years from innovations by other industries in marketing research, it is leading the way on many innovations that will positively impact all of marketing research in the future.