Can we leverage behavioral nudge in designing loyalty campaigns in banks? As a known fact, retaining existing customers cost almost a fifth of acquiring new ones. Quite evidently, banks are always very hungry to get the best out of their loyalty campaigns.
The concept of “nudge” popularized by behavioral economists Richard Thaler and Cass Sunstein in 2008, dives into leveraging inherent human behavioral patterns towards a more predictable and desired action. “Nudge” marketing can provide few simple but cost-effective
tactics to get more out of the same effort.
Here we will focus on couple of nudges: the “Assessment nudge” and the “Get ahead nudge” in the purview of banking loyalty marketing campaign designs.
The “Assessment” Nudge
Human choice architecture acts in a way that larger the gap between attitude or intent to act and the point of decisive action is, the possibility of action reduces. However, on presenting self-assessments to people, their choice for action increases. Marketing
activities targeting this subtle but effective behavioral trait can result in successful campaigns at nominal incremental cost and effort.
Use in retention / re-engagement campaigns
A popular and tested marketing practice is to offer complementary products or services based on prediction of a future need or higher probability of a customer accepting the offer.
Examples can be offering credit card with gas savings to existing cardholders expected to drive more miles or buy another car, or home loan offered to savings bank holders based on algorithms indicating need for a new house. However, marketing stops at the
decision of who to target with what and how. The actual response is dependent on the customer’s choice to act (the choice architecture).
Assessment nudge suggests if the marketing communication includes a stepwise assessment of the desired action; it can help end customers visualize the real benefits more clearly. This reduces effort (in travelling the intent to decision gap) towards taking
a desirable decision.
In the earlier credit card example, a simple monthly and yearly savings calculator along with the marketing offer will help customers assess the benefits relevant to their spend patterns. For home loan, a stepwise calculation of extra savings due to early
bird discount on interest rates and the reduced EMIs henceforth can help provide that assessment nudge. These small modifications can ease customers towards the desirable action encouraging higher conversions.
The “Get Ahead” Nudge
People want to save more by investing in long-term schemes, but have a hard time sticking to a plan. Hence, responses are typically low towards such products or services. This makes people choose short-term investments over long-term even if they are aware
of the lesser returns.
Use in awareness campaigns for long-term investment products
Banks run periodic awareness campaigns on products and services like term deposits, SIPs etc. that focuses on long-term benefits or on high rate of returns, but essentially requires sticking to an investment plan. Let us consider the case where a bank is
marketing retirement SIPs to vintage savings holders. Typical marketing would stop at communicating guaranteed returns from a planned investment aided by some collaterals to refer.
However, guided by “get ahead nudge” banks and other financial service providers should run such awareness campaigns focused on small, easy to repeat and sustainable investments. An effective idea can be tiered interest rates based on stickiness to the plan
and gradual voluntary increase in saved amount as one fulfils one term to another successfully. For example, let us assume interest rate as x% compounding quarterly. Normally that is all one gets at the end of z years. Nudge advises a nominal y% boost every
5 years if one voluntarily increases the investment amount without break. This will encourage long-term stickiness and the urge to invest in such schemes.
In the relentless pursuit of higher marketing and business effectiveness, banks are always willing to test new strategies. Application of these simple and easy to implement marketing nudges can prove useful in driving few percentages of higher response rates
and revenues at almost no extra cost. Surely, worth a try esp. when it is not so tough anymore to create and leverage deep customer understanding.