By David Lielacher, Director and Jens Baumgarten, Senior Partner, Global Banking Practice, Simon-Kucher & Partners
Somewhat fast-tracked by the COVID-19 crisis, most banks have been forced to rethink their distribution strategies. Plans to reduce physical presence and close branches reflect a growing recognition that online and omnichannel sales have gained importance over traditional offline sales. As customer behavior becomes more digital, banks must explore new touchpoints to offset the loss of personal contact. This requires analyzing and evaluating customer behavior to develop targeted sales processes and initiatives—precisely where many banks lag behind right now. Simon-Kucher’s Global Sales Study1 for the banking industry shows that most digital initiatives fail to meet their commercial goals, and truly effective digital sales tools remain elusive. To excel in digital sales, banks need to optimize and simplify their marketing and sales processes. This is where behavioral economics and advanced analytics go hand in hand, playing a key role in a bank’s sales success.
Optimize the customer journey and offer design
Banking has always been a people business, and there are many activities that still today lead to better results when carried out face to face. However, the crisis has shown that an increasing number of activities are more efficient and convenient when carried out from the comfort of the customer’s home. To manage the crisis and beyond, banks should focus their priorities on creating a flawless omnichannel experience along each touchpoint of the customer journey. Today’s customers have countless interesting options at their fingertips from providers, and they expect no less of their bank.
But let’s be honest; banking isn’t an exciting topic for most customers. The majority primarily use their banks to fulfill basic needs, like receiving their salaries and making payments. Meanwhile, banking products are usually intangible and difficult to understand. Banks have a tendency to overload customers with information, making it difficult to communicate how they create added value.
Factoring in human psychology is a must-have for any bank’s omnichannel strategy. Even if a product or service isn’t simple or exciting by nature, banks should still do their best to present their offerings in the most intuitive and engaging ways possible. The aim is to minimize the mental effort required, create an understanding of why the bank’s products are needed, and make it enjoyable, even fun, to use them. To succeed, banks must master three disciplines: Behavioral intelligence, advanced analytics and—most importantly—a combination of both. Here we provide a few concrete examples of how to win:
Behavioral intelligence to enhance customer and sales experience
- Use of gamification to engage customers: Customers prefer businesses that make tasks fun. Think about popular smartphone apps: whether a retailer has integrated a rewards points system or a fitness app has users walking an extra 10 minutes to reach their goals, attractive gamification elements appeal to consumers. That is why more banks are applying insights from behavioral psychologyto their sales approaches. One bank with which we worked dramatically increased the number of users and products per user by adding multiple behavioral nudges to its platform. Among other elements, it presented its services across product lines in an integrated way that resembled a children’s puzzle. For every product or service the customer held with the bank, he or she came a piece closer to completing the puzzle. Known as the “completion effect”, this constantly engages customers and keeps them motivated to explore new services.
- Optimized pricing, packaging and presentation: What you offer is important, but how you offer it is even more important. “Choice architecture” plays a fundamental role, and banks should provide carefully thought-out selections of options to help customers choose the right products. For example, similar to Netflix’s Basic, Standard and Premium plans, banks can offer different service packages at different price points. When offering three product choices, customers tend toward the middle option, especially when deciding under uncertainty. Understanding this effect and optimizing their product presentations accordingly simplifies choices for customers and allows banks to capture more volume or margin.
- Care for your customers’ financial wellbeing: Customers often feel less emotional involvement when purchasing a banking product than a smartphone or fitness product. However, banks can draw on experiences in other industries to inspire customers to engage more with the banks’ products. By positioning their services against a customer goal of increasing “financial wellbeing”, banks can motivate customers to improve their financial health in the same way they care about their physical health. Banks should position themselves as their customers’ partners in all areas of life, advising them how to organize their daily finances, save money and build savings. When banks promote “good” financial behavior and a sustainable financial future for their customers, they switch from a product-centric to a customer-centric focus. This can be implemented in discussions by encouraging customers to fill in the blanks for their own financial wellbeing or using apps to run a financial health check at the click of a button.
- Relationship pricing: It is, of course, better for the bank if a customer improves his or her financial wellbeing using the bank’s own products rather than turning to third-party suppliers. Banks need to create incentives for customers to use them as their main bank and bundle financial products in one place. Rather than pricing on a product-by-product basis, relationship pricing means the prices customers pay are based on their overall engagements and relationships with the bank. In this way, banks apply customer-centric parameters to determine pricing, such as the level of overall business the customer does with a bank or the types of services used. The better the coverage with the bank’s own products, the better the price for current accounts and cards or the better the interest rates on savings accounts. To nudge customers toward a deeper relationship, advisors can describe what is required to achieve the next relationship level, visually tracking progress and rewarding engagement appropriately.
Leveraging the power of advanced analytics in digital sales tools
Not only is a seamless customer experience important, but banks also need to make it as easy (and fun) as possible for advisors to engage with customers. Most banks today still provide sales teams with rather general marketing brochures, exhaustive fact sheets and complex price lists—documents that are rarely helpful, let alone engaging and fun for the advisors in their communications with customers. Their content and presentation styles make these materials difficult to use, as they present matters from a bank’s rather than a customer’s perspective (and seldom take any of the abovementioned behavioral effects into account).
How much easier would it be to advise customers on products if advisors knew in advance which products they are genuinely interested in? How much more engagement (for both customers and advisors) would come with the ability to explain complex topics through behaviorally optimized video clips and interactive questionnaires? Best-in-class omnichannel sales tools give customers room to explore solutions independently or together with their advisors in the branch as well as remotely. They support advisors with individualized approaches, including specific sales prompts based on customers’ needs, preferences, personalities, stages of life or even the specific decision situations at hand.
Advanced analytics applied in the banking industry to boost sales
- Needs-based segmentation: Typically, banks’ segmentation models do not consider customers’ needs, meaning advisors don’t know which customers to address with which topics. However, if customers are segmented based on their needs profiles, advisors can be prompted to sales opportunities faster and more precisely and receive customized guidelines for addressing these opportunities. Advanced analytical models leveraging artificial intelligence (AI) help anticipate changes in customer needs by evaluating previous patterns and estimating the most likely development paths. If a customer has a high probability of needing a new mortgage in the near future, the advisor can approach the customer specifically with a personalized mortgage. Customers “at risk”—for example, with decreasing engagement or product usage—can be proactively addressed and, therefore, more successfully retained.
Needs-based segmentation also means that customers identified to be of high value and/or with high potential are the focus of top advisors for retention and development, while customers with low development potential can be supported via an app and more reactive customer support, leading to a much more efficient sales organization. Thanks to behavioral monitoring, advisors can quickly detect when personal contact is required.
- Advanced analytics to increase marketing efficiency: Customers are more likely to see a need for a product if it appears alongside products they already own—for example, as a “natural next move”. One bank was able to sell significantly more investment accounts by generating customer interest in expanding their savings activities. In addition to increasing customer demand, they facilitated supply by actively presenting customers with products specific to their latent needs. When used together, both approaches significantly improve banks’ cross-selling rates and increase customer loyalty and satisfaction.
Automated product recommendations are still relatively new in banking but have long been used in other industries. Amazon generates an impressive 35 percent of its sales2 from such product recommendations, showing how much banks are leaving on the table. Banks have enormous data resources—a fantastic position for making tailored recommendations. Products can be recommended directly to customers over the online banking platform or via smartphone notifications. The key is that customers don’t feel pressured to pick a product, and the attention to detail needs to go one step further than in e-commerce.
Conclusion: Success in digital sales will depend on combining behavioral insights into customer decision-making with advanced analytics.
Behavioral intelligence and advanced analytics both play a crucial role in a bank’s omnichannel sales success. Neither pillar should exist without the other. A sophisticated, customer-centric digital platform will help boost sales only if the bank knows what a specific customer is interested in in the first place. Likewise, the bank can use data to identify exactly what products and services their customers need but will only achieve the desired results if they can make the customer (and sales!) experience as engaging and fun as possible by integrating behavioral insights into every aspect of customer interaction.
That said, while behavioral effects and advanced data analytics can have powerful impacts, banks should be aware that they can also backfire. Developing digital platforms requires an agile approach, with several test-runs needed early on to understand the fragile balance between what a customer sees as helpful versus overwhelming. Rather than diving into these topics blindly, in-depth knowledge and experience in combining data analytics with behavioral economics are crucial for making sales initiatives a success.
1 Simon-Kucher & Partners: “Global Sales Study: Lasting Effects of the COVID-19 Crisis on Bank Sales”, December 7, 2020, Jens Baumgarten
2 Forbes: “A Beginner’s Guide To Upselling And Cross-Selling”, May 15, 2015, Chuck Cohn