Consumer Buying Behavior in Financial Services: An Overview

By: Sally McKechnie

Presented by: Farrah Dang

Article 46

Objective…

• To examine the current status of buyer behavior literature, so that some of this work can be synthesized with the generic literature on services marketing, as well as specific literature on financial services, in order to consider the nature of buying behavior for personal and corporate financial services

Previous Work…Characteristics of Services and Their Implications for Buyer Behavior

• The academic literature on services marketing has developed from a number of sources and are based on three assumptions (Zeithaml et al 1985):• Factors existed which distinguished services from

goods• These factors posed special problems for service

marketers not faced by goods marketers• Services marketing required services marketing

solutions

Characteristics of Services and Their Implications for Buyer Behavior Cont…

• Intangibility • The main distinguishing feature, since services are processes or

experiences rather than physical objects and therefore cannot be possessed (Brown and Schneider, 1988; Lovelock, 1981; Shostack, 1977)

• Can be double-edged in the sense that services are not only impalpable but also difficult for consumers to grasp mentally

• Inseparability• The inseparability of production and consumption in services make

production and marketing interactive processes (Gronroos, 1978)• The front-line service employees play an important “boundary

spanning role” in the production of services, as do consumers themselves in their capacity as “partial employees” (Bowen & Schneider, 1988)

Characteristics of Services and Their Implications for Buyer Behavior Cont…

• Perishability• Services cannot be stored for some future time period, hence the

need for short distribution channels so that they can be produced on demand (Bateson, 1977)

• Heterogeneity• Services depend on input from both service employees and

consumers for their production, the quality of the service output very much depends on the nature of the personal interactions of these parties

• Makes the potential for variability in the service performance high

Characteristics of Financial Services…

• Fiduciary Responsibility• Refers to the implicit responsibility of financial

services organization for the management of their customers’ funds and the nature of the financial advice supplied to their customers

• Two-way Information• Rather than being concerned with one-off

purchases, they involve a series of regular two-way transactions between buyer and seller usually over an extended period of time

Understanding Consumer Buying Behavior…

• In spite of the recent attention which had been paid to the field of services marketing and the ensuing efforts to develop conceptual models and managerial paradigms, relatively less attention was being given to developing an understanding of consumer buying behavior for services (Murray, 1991)

Consumer Buying Behavior as a Decision Process…

• Engel-Kollat-Blackwell model• Problem recognition• Information search• Evaluation of alternatives• Purchase decision• Post-purchase behavior

• Strong’s (1925) AIDA• Awareness• Interest• Desire• Action

• Based on the assumption that buyers will pass through a cognitive, affective, and behavioral stage when there is a high degree of involvement with a product category which is perceived to have a high degree of differentiation of products within it

Criticisms of Consumer Buying Behavior Models…

• Criticized by Tuck (1976) on the grounds that they could not be tested and lacked specificity of variables

• Foxall (1991) noted that the models were all founded on a rational decision sequence which assumed too rational a consumer and did not offer any empirically testable hypotheses

• Turnball (1991) criticized the buying behavior models for assuming a discrete and ordered process

Alternative Framework – Baker’s Composite Model of Buyer Behavior

• Comprise four different disciplinary explanations of choice behavior, together with six key concepts:

• Selective perception• Hierarchy of needs• Hierarchy of effects• Post-purchase dissonance• Buy tasks• Buy phases• Characteristics of goods

• Endeavors to synthesize key variables in order to provide a useful framework for marketers and academics alike to structure their thoughts and actions around a particular problem

• An additional variable was required to act as a catalyst for the model to work: specialized knowledge & experience of person’s familiar to the specific product-market interface being studied

Industrial/International Marketing & Purchasing Group…

• Sets out to conceptualize industrial marketing and purchasing as an interactive process which takes place within the context of long-term relationships between buyers and sellers

• Represents a significant shift from the more traditional view of marketing to match the needs of passive customers in an atomistic market (Ford, 1990)

• Built on four factors:• Both buyer & seller being active participants• Buyer-seller relationship being frequently longer term• Both parties often becoming institutionalized into set of roles• Close relationships often being considered in the context of

continuous raw materials or component supply

Consumer Buying Behavior in Financial Services…

• In the services marketing & financial services marketing literature the conceptual and empirical work is not as well developed; reasons for this may be three-fold:• Due to problem with the conceptual models

themselves in that they do not lend themselves to empirical testing (Tuck 1976; Foxall, 1991)

• Not clear whether these models are necessarily the most appropriate conceptual frameworks

• There has been a lack of appropriate measures of salient dimensions for testing concepts

Consumer Buying Behavior in Financial Services Cont…

• Empirical work focus has been on specific issues in relation to buying behavior

• Laroche & Manning (1984) found that although banks tended to be recognized by name, there was no clear association of brand concept, and that a correlation existed between demographic differences and this process

• These empirical studies highlight the importance of factors such as confidence, trust & customer loyalty

Bank Selections…

• Common choice criteria's:• Dependability and size of the institution• Location• Convenience and ease of transactions• Professionalism of bank personnel• Availability of loans

• Personal consumer is more interested in the functional quality dimension of financial services rather than the technical quality dimension

Application of Some Organizational Buying Behavior Models..

• The application of the interaction model by the IMP group

• The application of the stages of purchase process put forward by Robinson et al (1967) and Brand (1972)

• Webster and Wind Model (1972)

Buyer-Seller Relationships…

• Looked at the perspective of the seller and not the individual or corporate buyer (Yorke, 1990)

• Commercial customers had favorable attitudes to long-term bank relationships (Teas et al, 1988)• Responsive to customers’ requests• Initiated interaction with customers• Knowledgeable about customers’ business and business

needs• Developed close informal working relationship with

customers

Buyer-Seller Relationships cont…

• The traditional marketing mix approach does not fully cover the relationships that exist between consumers and service providers (Booms & Nyquist, 1981)

• As far as consumers are concerned they are indeed actively involved in shaping up a service offering due to the inseparability of production and consumption

• Watson (1986) offered two conceptual frameworks:• Examining the steps involved in building a relationship• Describing the communication tasks required at each stage

of the process relationship building

• Relationship between buyer and sellers needs to be built on mutual trust and commitment

Buyer-Seller Relationships in Financial Services…

• Clear need for financial services suppliers to establish initial relationships with their prospects while at the same time maintaining and developing long-term relationships with existing customers

• Based on customer trust and confidence

Conclusion…

• It is apparent that there is a noticeable absence of any general conceptual framework that describes how consumers buy services

• There is a real need for marketing theories and concepts to be developed specifically for services

• The framework adopted by the interaction approach already has potential for general application in services as well as financial services

• Further research needs to be done and suggested areas would include:• Application of the IMP Model to services• Development of concrete measurement tools for the

empirical testing of this applied model