Recent research from professors at Nanyang Technological University and the University of British Columbia about word-of-mouth recommendations should be of interest to bank marketers. According to the study:
Consumers are more likely to provide WOM for products that are relevant to self-concept than for more utilitarian products. There was some indication that…consumers exaggerated the benefits of self-relevant products compared to utilitarian products.”
Why is this important to banks? Because financial service products don’t fit neatly into either the “self-concept” or “utilitarian” categories.
Some consumers are highly involved in managing their financial lives and making financial decisions, and are more likely to consider financial services products (like checking accounts, brokerage accounts, mutual funds owned) as relevant to their self-concept. For other consumers, these products may be utilitarian (“my checking account is nothing more than a place to stick my money before paying it out to everybody I have to pay”).
Smart banks know that customer referrals are an important source of new business. This research should lead them to address a few questions:
- Can we convert customers from “utilitarian” to “self-concept”? A bank that successfully does this may not only drive up referrals, but increase the level of engagement that the customer has with the bank, leading to increased purchases from that customer.
- What does our customer base look like? Do the majority of our customers take a utilitarian view versus a self-concept one? Why? Are we better at attracting one type of customer than another?
- What should we measure? As banks (as well as many other firms) adopt the Net Promoter Score methodology, this WOM research begs the question: Is the NPS more a reflection of the underlying demographics of the customer base than the performance of the bank?
My bet is that some other metric — like customer engagement or customer lifetime value — does a better job of capturing the self-concept/utilitarian dichotomy and is a better metric to guide decision making.
Update: Good discussion of WOM measurement on Marketing Measurement Today.