Word-of-Mouth Banking

What is the impact of word-of-mouth on banking purchases? That’s the question tackled in “The Word on Banking,” a report published by a pair of marketing consultancies. The report suggests that banking product and service purchases are made largely based on past experience and face-to-face communications.

“Does this mean social media initiatives of banking institutions such as Chase, American Express, and Wells Fargo among others are futile marketing efforts?” Idil Cakim, the reports author says. “Hardly. Looking at the past five years’ banking-related purchases, Social media is a budding influence on these purchasing decisions.”

“Its impact has risen sharply in the past couple of years,” she adds. “In particular, young adult and minority segments weigh social media nearly as much as offline word of mouth when making choices about banking products and services.

The report says that as the US population technologically gentrifies, banks will be investing more in online programs surrounding customer review sites and social media conversations.

Drivers behind people’s financial decisions

According to the study, past experience and word-of-mouth have been strong drivers of banking product purchases in the past five years. Overall, face-to-face conversations have had more impact than online buzz on banking decisions. Yet in the past two years, there has been a significant increase (from 7% to 14%) in consumers’ reliance on online word of mouth for banking product and service purchases.

“Banks need to keep a close eye on their online reputation,” the report recommends. “Those institutions who identify their outspoken customers and win them over will protect and grow their brand.”

How people choose financial products

The study found that past experience and word-of-mouth drive more than a third of consumers’ checking, savings and mortgage account choices. Similarly, about one-quarter of credit card brand choices are made based on past experience and word-of-mouth.

Among word-of-mouth sources, consumers are more likely to rely on offline word-of-mouth than online sources when making banking product- and brand choices.

Men vs. women

While men primarily rely on past experience when making banking-related decisions, women are driven by word-of-mouth. When making banking decisions, women are more likely to rely on face-to-face conversations than online buzz. These conversations are as influential as their past experience with banks and related products.

Young customers turn online more often

The older the banking customers are, the more they are likely to rely on their past experience to make purchasing decisions and brand choices. Meanwhile, young adults (18-29) are more likely to rely on online and/or offline word of mouth than any other information source when choosing their banking products.

The findings in the report are from the Large Purchase Study conducted by S. Radoff Associates in summer 2010. The online study delved into information sources that influenced brand choices for recent large-ticket item purchases. The study is based on a nationally representative sample of 1,000 U.S. adults ages 18 and up.

Idil Cakim, the report’s author, is a digital strategist and word of mouth marketing expert at GolinHarris. She is also the author of Implementing Word of Mouth Marketing: Online Strategies to Identify Influencers, Craft Stories, and Draw Customers.

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  1. I’m not surprised at all that online word of mouth has a lot less influence that past experiences or face-to-face. The fact is that the majority of word of mouth happens offline.

  2. Yeah Nathan, I can’t say there was anything terribly shocking about the study. It seems to make sense and jive with intuition. Mostly, it’s a reality check for those who think online/social media has “tremendous power” to influence large chunks of consumers. While the online/SM channel is growing in importance, it isn’t as critical as making sure you get your customer experience right. If you deliver consistently exceptional experiences, word-of-mouth referrals will happen organically, whether that’s online or off.

  3. As community FIs reach for scale, there will be a time when shoe leather and hand shakes will be deemed not scalable in terms of FI customer acquisition and buying decisions. So FIs have to figure out a way to bridge the trust gap that exists when a potential customer is not familiar with you, your brand, or your company, to one where the potential customer trusts you, your brand, and your company.

    I don’t know what the right answer is to “how to expand the concentric circles of influence” from your branch locations, but social media certainly deserves a place in that conversation. I just don’t know its place yet.

    ~ Jeff

  4. What’s remarkable is that reliance on online WOM about banks has grown so quickly when there is comparatively little online WOM about banks. Most other product/service categories are widely reviewed on the web thanks to retailers asking consumers to rate products and services, but banks have left this to fate, and have yet to proactively tap into their customer base to invite and amplify customer comments online. Many might be afraid of what consumers have to say, but in reality, most bank reviews from their customers are actually positive (more than 80%). Bank marketers would be wise to not only tap their customer fan base, but to do it quickly and assertively – it’s one of the only sources of consumer-driven information they can actively help cultivate and spread. Waiting for organic WOM growth and hoping for the best just won’t cut it. Offline WOM moves too slowly and reaches too few people. Online WOM travels fast, and reaches an exponentially vast number of consumers. And imagine what banks could do with all that sentiment, suggestions, and insight from their customers – product/service improvements could come fast and furious, all aligned to market sentiment, reducing the risk of a flop. Bankers (and credit unions, too): Time to put the voice of your customers to work!

  5. I am not surprosed that the 18-29 segment use WoM at a higher rate than any other age group. This group spend more time with and are influenced by their peers more. They also tend to share feedack on products and services that they use.

  6. The NAB campaign we were a part of in Australia proved this too when it won Global PR Campaign of the year at the Cannes Awards! See the wrap up video on our You Tube – http://tiny.cc/zncbw

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