Historical Evolution of Financial Marketing Research
In this article I’ll cover marketing research in banking, its historical evolution, how it has developed alongside customers’ evolving needs over the years, and what direction it is expected to take in the future. Some of my readers ask why I am so interested in the history of whatever I write about. Honestly, understanding history helps us extrapolate the future. Also, when I lay out historical phases, I am usually drawing on developed economies — and what counts as history for them may still be the present for us as developing countries. That’s why I see the need to address the origins and evolution of anything I write about.
Although the use of marketing research began to spread in the 1850s, banks didn’t begin running research until the end of that century, coinciding with growing interest in opening branches and expanding their geographic footprint. At that time, banks began conducting market-exploration research, as well as research related to developing or evaluating advertising campaigns — both before launch and to measure effectiveness afterward. Several applications of qualitative research were also used, particularly focus groups, whose results stunned decision-makers and gave them a picture of the mental image their customers held of them that they couldn’t have reached otherwise. A great deal of research was also conducted on branches, expansion, and the best locations to open new branches. According to ESOMAR’s reference book, the first study was conducted in 1956 and was related to branches. That was followed by research on understanding customer behaviors, the drivers behind their use of specific products, and their decision-making mechanisms.
In the 1980s, economic growth driven by globalization and international trade gave banks worldwide a boost — increasing competitive intensity and, logically, the need for marketing research to make precise and sound decisions. At that time, studies related to product development and concept testing grew, alongside research that helped segment the market and understand the needs of its different groups, so marketing research came to play a key role in reducing potential risks.
In 1990, a new type of research began to emerge — research related to mergers, acquisitions, and valuation. In the United States, the number of banks fell from 14,000 in 1970 to 5,381 by 2015, and continues to decline due to mergers and acquisitions. Demand also grew for brand-image research, brand-positioning research, and reputation measurement — all of which strengthen a bank’s standing in this brutally competitive environment.
Later came usage-and-attitude research aimed at understanding why a customer uses one service channel and not another, what drives or prevents the use of each channel, which channels are preferred, and so on.
All of this research aimed to inform decisions about migrating customers from operationally expensive channels to far cheaper ones, while preserving a positive brand image. Many studies recommended reducing the use of branches due to their high operating cost relative to ROI. In the UK, for example, the number of branches dropped 15% between 1991 and 1996.
In the early 2000s there was a strong push toward customer segmentation research. Every bank, depending on its strategy, wants to segment the market and fully understand its target audience — either to reach them in direct marketing campaigns or to design products that fit their needs. Some banks target the corporate segment, others target individuals, others target specific groups of individuals, and others care deeply about students. Customer segmentation can be based on several criteria: demographic, psychographic, socioeconomic class, or customer value. Taking customer value as an example: the 80/20 rule is very close to the reality of banks — 80% of a bank’s profit is generated by 20% of customers, and this ratio can become even more extreme, sometimes reaching 95% of profit from just 5% of customers. That calls for stage-by-stage segmentation research centered on understanding that small, high-value group.
Then banks shifted their strategies from acquiring new customers to satisfying existing ones — which led to a sharp rise in demand for marketing research to build sustainable, integrated models for monitoring satisfaction and loyalty levels, and likewise employee satisfaction and engagement levels, based on the principle: “If you can’t sell and market your products to your own employees and convince them to buy, how will you convince external customers to do so?” This is a curious phenomenon — though I can’t really call it a phenomenon unless a rigorous marketing study has been done to prove it. For now it’s just a hypothesis. When I asked a number of employees working at several banks in Saudi Arabia, it turned out that many of them do not keep most of their money or investments in the bank they work for, but in other banks! The reason may relate to a lack of trust in their bank’s products, or being drawn to a competitor’s product offering better features or lower interest rates. These banks have a great treasure in their hands — they can gain many insights from their own employees. If they can win them over, they can plausibly assume they can acquire more customers and expand their market share in the region.
After satisfaction research came growing interest in loyalty research. After loyalty research, focus shifted to internal data analysis — and technological advances during that period helped provide better understanding of customers and their behaviors, and improved cross-sell revenue through analyzing internal bank data and information held in CRM systems.
Marketing research later helped equip decision-makers with recommendations on improving customer experiences — customers demanding to be treated by staff in a friendly, courteous manner. Interest grew in the science of customer experience, journey mapping, and analyzing the effort customers spend in any interaction with the bank. Many independent consulting firms emerged that themselves run specialized marketing research on the banking industry in specific markets around the world, in addition to growing interest from the regulators overseeing these industries in conducting such research at their own expense. For example, in 2015 the Saudi Arabian Monetary Authority launched a major long-term study titled:
Customer Experience Benchmarking Survey
This is a two-part study: the first part involves collecting internal data from the participating 12 banks, and the second relates to capturing the voice of the customer using the American Customer Satisfaction Index (ACSI) I covered in a previous article.
Like other industries, banks have benefited enormously from the methodologies and techniques of marketing research. Today, banking is the fourth-largest spender on research compared to other industries. If we think about the big questions on the minds of bank shareholders when crafting strategy, they revolve around a handful of areas. For example: Does the bank want to attract more customers, or a specific segment of customers? Does the bank want its branches packed with customers, or does it want them less crowded? Does the bank want more depositors or more borrowers? Does the bank want to present itself as the most technologically advanced, or as traditional? Questions like these are difficult to answer cleanly without understanding the market the bank operates in.
The current direction of banks revolves around understanding customers more deeply — increasing the profitability generated per customer rather than just increasing the number of customers. Looking ahead, there will be a major push toward building outstanding digital customer experiences, and full automation of financial operations. Many banks worldwide now operate without any branches at all. During my research I came across more than ten functioning, profitable banks with not a single branch — and here in Saudi Arabia there’s a bank that relies primarily on technology, with some outlets but nothing on the scale of branches at other banks. Its website is also very different from those of all other banks in Saudi Arabia, and its “moment of truth zero” experience is distinguished compared to other sites. I’ll leave the judgment to you: check out Meem Bank.
Technology has barged its way in despite the protests of the big whales in many industries. There’s now a major push toward mobile-based payment technology, with telecom companies entering the space so your phone can serve as a mobile wallet. Even the poorest countries with no banks at all are being targeted by telecom companies building integrated financial systems built entirely on mobile.
Conclusion
What’s discussed in this article applies to developed markets and not necessarily to ours. While customer experiences at banks in developed countries have become distinguished — and they’re now searching for excellence in service delivery — in Arab countries we still walk into some banks and feel, when dealing with the staff, as if the person sitting in front of us is a minister. Instead of him caring for our feelings, we have to care for his so he won’t get upset and tell us “go to another branch” or “the system is down.” I hope this article is a small initiative toward elevating service quality through marketing research.
Related framework notes: Voice of Customer (VoC), Customer Journey Mapping, Customer-Centric Operating Model
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