The EKB Model of Consumer Decision-Making - Report Example

Critical assessment of the importance of an individual’s financial traits on consumer decision-making with regards to financial services BY YOU YOUR SCHOOL INFO HERE DATE HERE Introduction The EKB model of consumer decision-making is categorized by a five step process ranging from problem recognition to final post-purchase evaluation. The steps are imperative to financial services marketing for several reasons: first, it is a highly competitive market environment with many options to select from. Second, not all consumers are homogenous, meaning they have different psychographic and demographic traits that drive their decision-making. This paper describes consumer-decision making specifically in marketing of financial services based on known financial traits of the target consumers. Situation analysis and financial traits Financial services companies are finding it difficult to establish customer loyalty as consumers are very elusive. They are no long homogenous groups with similar traits and characteristics, thus they have no loyalty to any specific brand or company and will defect when the next best offering comes along (O’Dell & Pajunen 2000). What this creates is a situation in which the information search and information evaluation processes under the EKB model of buying behaviour are extended to include multiple research mediums. Financial services companies do not seem to recognise this defection mentality and therefore are not targeting their current or potential customers with proper marketing promotion or information. This is due to the misunderstandings that exist regarding the financial traits of each customer, related to their demographic or psychographic backgrounds. Financial traits are defined as “underlying attitudes that shape the way a person thinks about financial matters at a given time” (fsa.gov.uk, 2005, p.9). Financial traits with most financial services customers include financial planning, financial risk, financial engagement and financial decision-making (fsa.gov.uk). Most important to the consumer decision-making process is financial risk, or the willingness to accept certain levels of uncertainty when selecting different service companies. Generally, those with larger resources will adopt risk when outcomes to the financial portfolio are perceived unimportant against current assets. However, this cannot be guaranteed, therefore financial services marketers must determine what factors drive information evaluation and final purchase decisions in multiple target demographic groups. Growth in comparison websites is one factor that drives less perceived consumer risk when searching for alternatives. For example, a person in need of mortgage assistance recognises the problem and begins a web-based search in pursuit of price options or their own best match determinations. Comparison websites offer contacts, price comparisons, and even provide a single contact point for buyers (Laffey & Gandy 2009). In this case, the financial risk involved in terms of engagement and planning are minimized and consumers might make decisions based solely on the convenience provided by intermediary comparison websites. This poses a danger to financial service companies that do not have an active presence on these sites. The demographic differences in buyer markets Financial services were once typically targeted toward male buyers in the 45-54 age group. However, today’s female baby boomers are more educated and are identified as the primary decision-maker in most dual households (Coughlin & D’ambrosio 2009). Women, by inherent design, are more conservative in their investment strategies and planning goals (Coughlin & D’ambrosio), meaning they will be more risk averse and explore multiple options related to price, involvement or expertise provided. According to Wood (2009) banks are the worst at targeting this 45-54 age group. This could be due to the fact that businesses do not understand the influence of the female buyer in the baby boomer category (45+) and assume that most target consumers have homogenous value systems. Females have been scientifically proven, using various research studies, to have lower preference for risk activities (Powell & Ansic, 1997). However, they encompass 80 percent of all consumer purchase decision-making today (Schulaka 2009). Financial services marketing should be aimed, according to the data, primarily on female buyer tendencies where risk is perceived to be less and considerable service information is provided to avoid ongoing searches. The level of engagement as a financial trait was previously identified. Study evidence has provided a consumer segment referred to as rational-active where there is demand for high levels of control in purchase decisions and tend to make careful choices when searching or evaluating (Beckett, Hewer & Howcroft 2000). This type of consumer with high engagement need is characterized by rational decision-making processes. Under Maslow’s Hierarchy of Needs, one of the most fundamental needs for consumers is the establishment of security and protection. A rational-active buyer with a need for high engagement would view financial services as a very risky situation that could jeopardize security if the tools or outcome of the service was unsatisfactory. This buyer would likely explore alternatives until they found an option that satisfied their risk averse needs. Schwartz (1986) provides that by the time most consumers have reached a decision and are ready to make a purchase, they already posses flawless information regarding prices and products and have a certainty about their own preferences and needs. Because financial services represent potential threats to security and protection, the evaluatory process is extended much more in financial services marketing than other industries. However, there is one advantage to consumers with low financial engagement needs and high risk aversion as financial traits: they are not likely to switch providers because of the time investment and payments associated with doing so. Switching costs involve time, monetary and psychological toll (Colgate & Lang 2001). Therefore, it would seem that in order to be an effective financial services marketer, establishing a base for creating customer loyalty is most productive and profitable if current customers have high risk profiles with low engagement needs. Barclays, a major multinational bank and financial services company, realises that customers are not homogenous blocks of people, but treat them from a psychographic marketing perspective. Barclays relies on the value proposition that describes the business’ customer-centricity in areas of service and quality (Moorhead & McGrory 2009). This is a loyalty scheme and also to reinforce what differentiates Barclays from other businesses. In a few sentences, Barclays manages to tell customers their philosophy, mission and values related to expected consumer outcomes. In a world where multiple demographics with various financial traits are defecting, value propositions avoid elongated search and evaluation processes if the company can make a psychological connection with a few sentences in a promotional environment. There is no evidence that searches for financial service providers is related to belonging needs as provided by Maslow’s Hierarchy. This is likely because financial planning is unique in each household or socio-cultural environment and there is no one-size-fits-all strategy. Financial services companies that are using advertising and promotion as a means to use peer group influence will likely meet with failure, especially when most customers seeking these services are willing to defect based on price or perceived quality/convenience. Conclusion The literature provided evidence that financial services companies should be providing consumer information and advertising that is aimed at women and where perceptions of risk are reduced. Since they provide 80 percent of all consumer revenues in all industries, women are a key target group for financial services marketers. Companies have little control in the evaluation stage as many demographic restrictions are considered in terms of deciding what can be afforded or what should be dismissed as a potential service option. Therefore, the key is to reduce searching by using a quality value proposition or steering the customer to make rapid decisions in favour of the advertised brand or company. It is recommended that financial services companies having difficulty gaining new customers should develop a risk survey for existing or potential customers to help them associate with financial traits in the broader consumer market. References Beckett, A., Hewer, P. & Howcroft, B. (2000). An exposition of consumer behaviour in the financial services industry, International Journal of Bank Marketing. 18, 1, pp.15-26. Colgate, M. & Lang, B. (2001). Switching barriers in consumer markets: an investigation of the financial services industry, Journal of Consumer Marketing. 18, 4, p.333. Coughlin, J.F. & D’ambrosio, L.A. (2009). Seven myths of financial planning and baby boomer retirement, Journal of Financial Services. 14, 1, pp.83-92. Fsa.gov.uk. (2005). [internet] Consumer needs research: informing our future work, Financial Services Authority. [accessed 27.11.10] [available at http://www.fsa.gov.uk/pubs/other/consumer_needs.pdf] Laffey, D. & Gandy, A. (2009). Comparison websites in UK retail financial services, Journal of Financial Services Marketing. 14, 2, pp.173-187. Moorehead, S. & McGrory, S. (2009). How Barclays’ employees keep the customer promise, Strategic Communication Management. 13, 3, pp.28-32. O’Dell, S. & Pajunen, J. (2000). The butterfly customer: capturing the loyalty of today’s elusive customer. Toronto: John Wiley & Sons. Powell, M. & Ansic, D. (1997). Gender differences in risk behaviour in financial decision-making: an experimental analysis, Journal of Economic Psychology. Vol. 18. Schulaka, C. (2009). Marketing to consumers: effectively reaching high net worth women, Journal of Financial Planning. 22, 9, p.S6. Schwartz, B. (1986). The Battle for Human Nature. New York: W.W. Norton. Wood, A. (2009). Speaking my language?, Journal of Financial Services Marketing. 14, 1, pp.92-98. Read More