KQ Article

Building consumer confidence by allowing them to make more decisions
I spent much of 2009 talking to consumers in various markets about the effects of the economic downturn. Much of what I heard surprised me. Far from seeing the downturn as a purely negative experience, many consumers saw it as a positive opportunity to reassert control over their lives.

Consumer confidence has fallen across a range of institutions. Today, only half of all U.S. adults trust the companies they do business with. New studies suggest they may be losing faith in the future as well, including any institution’s ability to accurately predict or safeguard it. Consumers see many problems they face as beyond their control, from the economy and global warming to terrorism.

To limit the influence of politicians, brands and media on their lives, and to regain a semblance of personal control, people increasingly seek to make their own decisions wherever possible. Meanwhile, many consumers are suffering a financial hangover. The recession woke them up to just how much they had borrowed or spent in recent years — in other words, how little self-control they had been exercising.

The power of empowerment
The “consumer in control” trend is growing both vertically and horizontally. Consumers are seeking influence over more and more areas of their lives, and in an increasing number of ways.

First, they are taking control of areas they might previously have left up to the experts. For instance, consumer attitudes toward health have changed dramatically in recent decades. The “selfhealth” trend sees patients increasingly determining their own wellness. Consequently, the fastest-growing grocery products are those perceived to be healthy. Sales of self-diagnostics and books on nutrition are also rising, along with pharmacy sales. Other sectors with consumers retaking control include broadcast media through DVRs, music through iTunes playlists, and education through home schooling and private schools.

Similar changes are taking place in financial services. Many consumers I spoke to mentioned taking greater control of their own finances day-to-day. They increasingly set themselves budgets and make financial to-do lists — unprecedented practices for many people under 30. Growth in demand for borrowing and “overspending” has slowed. According to MasterCard, more than two-thirds of European consumers only want to spend what they can afford. And there are signs that consumers may yet regain the savings habit. In the U.S., the savings rate leapt from 0.8% to 5.9% during the two years preceding May 2009.

Of course, consumers cannot do all of this on their own. They need some help from others, which is why the importance of formal and informal peer-to-peer (P2P) purchase drivers is growing. According to a 2009 study by Econsultancy, 90% of online consumers trust recommendations from people they know, and 70% trust the opinions of unknown users.

Meeting them where they are
Not only are consumers looking to influence new areas of their lives, they are looking to do so in new ways. Impulse and brandled purchasing is declining as more consumers mine data online before they buy. Consumers are also demanding greater influence on when, where and how they purchase. E-commerce has given many a taste for 24/7 shopping, browsing and communicating, across any channel that suits them. Increasingly confident in expressing their individuality, consumers will expect businesses to offer differentiated or customizable products to suit differing tastes. And they will want to control how much of a product they purchase, including the length of service contracts.

For the financial services sector, banks and credit unions will need to adapt many traditional products and practices to better appeal to the tastes of post-recession consumers. Those tastes include more customizable packages; access to trained staff at any time via any communications channel; and greater day-to-day control over savings and investments.

The more uncertain of the future customers and members become, the more they will demand short-term contracts and dividends, and the more control they will expect from long-term ones. The greater the influence of peer-to-peer advice, the more financial institutions will need to interact with customers online, including marketing via e-mail and social media — and perhaps even posting unfiltered user reviews on their websites. Financial institutions will also benefit greatly from offering unbiased information and advice at every point of consumer interaction.

Providing such services while retaining profitability will not be easy. But it must be done. Not only will you attract more consumers by doing so , but it will keep them loyal by increasing their confidence in your ability to help them maintain control over their financial affairs over the long term.