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Study of behavior guides financial marketing

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Why do we buy?

As a blend of psychology and economics, behavioral economics explores the dynamic dance between emotion, culture, behavior and necessity and how those elements weave into decisions on buying and investing.

The decades-old discipline can be used to tap a demographic, create institutional loyalty or shape a brand image in a competitive arena like banking and finance.

“All companies are using it,” said Adam Smartschan, vice president of innovation and strategy for Altitude Marketing in Emmaus.

According to Smartschan, banks might use behavioral economics to position themselves in the marketplace, establish or maintain a niche.

From attracting high-net-worth customers to bringing first-time home buyers to the settlement table, each specific marketing approach would be driven by the desired customer base and the institution’s mission or focus.

For example, banks seeking “the high net worth client wouldn’t be promoting $500 closing costs and no PMI (private mortgage insurance) to their prospects or clients,” Smartschan said.

At Lancaster-based Fulton Financial Corp., “triggers or prompts” are used to guide how to present information and offers to customers and prospects.

A trigger might be a mortgage customer looking for a home equity line of credit, or new parents looking for a loan to outfit the baby’s room or set up a college fund.

“We know if people are motivated by the Google searching they do,” said Amy Hartenstine, director of customer insights and strategy at Fulton.

Online searches for home equity loans or financial planning could prompt one type of service, whereas a couple with young children might be searching for other things, she said. The data collected enables Fulton marketing teams to connect with appropriate financial services to customers.

“We look at motivation and ability. Fulton has always been about relationships and we take a personal interest in our [customer] outcomes,” said Avi Patel, chief marketing officer at Fulton.

Patel said partnerships with third-party companies and the use of data trackers like Google Analytics have helped Fulton target specific consumers with promotions or pitches that best meet their online search needs.

Amanda Agati, managing director and co-chief investment strategist for PNC in Philadelphia, said behavioral economics is an integral part of the firm’s investment-client philosophy.

“As investors we are bombarded by ads and headlines. Over the course of this year, it’s been busy and complicated,” Agati said. She said sifting through the hype and maintaining relationships through personal touch have helped to reframe investors’ concerns about fluctuating – and sometimes volatile – markets.

For example, she said, it’s important to consider history as “people tend to forget things based upon their recent memory,” Agati said.

“It helps clients not to focus on the short-term noise, but to look at the big picture and feel confident about their investment strategy,” Agati said.

What is behavioral economics?

Rational choice theory, which has long guided economists, implies that when faced with several choices, a buyer will always act in his own best interests.

But behavioral economics factors human emotional wild cards into the equation, one where the resulting choice may not always align with what’s best for the individual.

Put simply, behavioral economics blends psychology and economics to explore and explain how and why individuals purchase goods and services and behave the way they do when making those decisions.

In fact, it’s the use of behavioral economics and branding about 20 years ago that put Grey Goose vodka on the top shelf, according to Adam Smartschan.

Smartschan is vice president of innovation and strategy for Altitude Marketing in Emmaus. He said the example works because it simply illustrates behavioral economics and how people ultimately will buy with their emotions.

Grey Goose entered the hard spirits market during the 1990s as an unknown product, charging $50 a bottle when other brands couldn’t sell vodka for $20,

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