Can simple but effective “nudge” theory based behavioral targeting drive higher acquisition for banks?

Banks regularly struggle to achieve higher marketing efficiency in a complex and volatile business environment. While granular level customer intelligence is collected from multiple sources, leveraging inherent human behavioral pointers for marketing still not fully utilized. Nudge, “a micro targeted design geared towards a specific group of people that alters their behavior in a predictable way without forbidding any options or significantly changing their economic incentives” is a relatively new and less used concept in behavioral economics. This is gaining popularity in both public and private initiatives esp. in the UK, US and Australia. Possible application of nudge in acquisition campaigns for a typical bank can be an effective marketing strategy with competitive edge.

Acquisition campaigns in banks (new customer or new product to existing base) would typically involve any of the following three activities:

a) Outreach programs through one or more channels highlighting the benefits and value props of their offerings

b) Product pushed to pre-selected target bases

c) Cross-sell during a service or communication opportunity

However, expected response rates are elusive. Even achieving ~ 10%, response lift is not easy to attain. Nudging a customer can actually turn the needle substantially. Following are couple of marketing examples along with the typical human traits they utilize.

1.  Use in credit card acquisition campaigns

Objective: Increase credit card-holder base through acquisition.

Typical marketing strategy: Email outreach with core benefits and additional values.

Traditional targeting: Customized emails designed by personas with a call to action.

Nudge based marketing: Provide a detailed comparison of benefits in important spend segments (e.g. differentiated by customer profiles) by using the card in the short and long run. For example, a customer profile expected to use the card majorly for dining, gets a comparative chart of six months savings on availing the 5% discount for every weekend family dinner. A long-term chart (say 3 years), to show how the accumulated points would elevate his tier to even more benefits at premium eateries at no extra cost. On the contrary, a customer profile with affinity towards online apparel shopping should get a very different comparative chart relevant to his expected value drivers.

Behavioral traits utilized:

a) Measuring long-term impact is not easy – In general, people struggle to calculate the cost and benefit of a present spend decision on the longer term and the potential opportunity cost of it. Hence, they look for better understanding of options that seem logical and acceptable. 

b) Irrational mental segments to simplify the larger picture – People tend to segment their expenses into heads and assign mental weightages to them. So spending $20 on groceries might feel a better spend compared to packaged food, if the former has higher mental value. 

2.  Push high value additional card to valued customers

Objective: Reward valuable customers with higher value card (with greater range of benefits).

Typical marketing strategy: Offer to provide a higher value card that customer needs to accept.

Traditional targeting: Marketing outreach conveying how much the bank values the customer and hence a higher value card offered which he can choose to accept.

Nudge based marketing: Use simple graphical visuals how only 2% of the privileged customer base owns this card and a few of their testimonials as proof of additional benefits it can provide. This not only drives the temptation to belong to a premium segment but the testimonials establishes the exclusive benefits that comes with it, making it easier for the customer to accept the card.

Behavioral traits utilized:

a) Scarcer a thing, more desirable it is – People tend to assign more value to the same thing mentally when it is less easily available. In addition, they find more happiness in acquiring a scarce thing even at higher price. 

b) Owned things seem more valuable than others of same value do – People are aversive to the idea of losing something they own than the opportunity of gaining something equally valuable.

The subtle tweaks proposed, based on human behavior can help nudge the targeted customer towards making the right decision. While it does not involve any significant investment, it pin-pointedly leverages inherent money sentiments in slightly pushing the recipient towards desired action. For the bank, this might mean a 10% additional response, which then translates into significant revenue impact.

While banks use analytical models to select acquisition targets and offer strategies, a little "nudge" marketing can surely help get those additional returns at no extra cost, and hence worth a try.