KQ Article

Twenty-five years ago, I loved leafing through Encyclopedia Britannica, The Big Book of Amazing Facts and everyone’s door-stopping friend, the Yellow Pages. As normal children played around me, I would sit there for hours with these massive volumes in my lap, feeding my appetite for knowledge while cutting off the blood flow to my legs.

Fast-forward to the present. Wikipedia is the world’s encyclopedia. The Big Book is now exponentially bigger, and it’s called the Internet. The Yellow Pages are Google. People don’t reflexively go to the old info sources anymore, because far more efficient resources have supplanted them.

Yet, many service businesses — financial institutions included — still use newspaper ads, the Yellow Pages and even online search banners as a primary acquisition strategy. Many justify the practice with this defense: “They still work in some markets.”

Do they really work? Do the fruits justify the expenses? Let’s take a closer look now.

Hierarchy of Buying
I recently surveyed more than 1,000 people to answer a simple but elusive question: Why do people buy? From the responses, I developed my Hierarchy of Buying for service-based business (see graphic), which I believe niftily sums up how trust, relationships and competitors factor into a purchase decision. This pyramid also reveals why the old modes of marketing may fall short for targeting the ideal prospects.

It all boils down to this age-old truism: customers buy from people they know and trust. The higher on my Hierarchy you are with your marketing, the less competition and the more built-in trust you have. Let me explain it from the top down:

Current satisfied customer. Obviously, people are going to continue buying from you if they already do and are satisfied. Shall we move on? 

Referral by a trusted source. When I need something, the first thing I do is ask my friends, colleagues and relatives if they know somebody who offers it. Social media sites like Facebook, Twitter and LinkedIn make it possible to get a pile of qualified recommendations in minutes. Are you on the tip of the tongue when someone jumps online and asks for a good bank or credit union? You should be.

Current relationship, but have yet to purchase. These are the potential customers who know you and trust you, but are in a stage of pre-relationship dormancy. That’s okay. The key is that you are top of mind when they need something you offer. What’s the easiest way to make this happen? Two steps: 1.) See Hierarchy; 2.) Go one step above this one. (Can you tell I’m a social media advocate yet?)

Recognized expert in the field. You’ve built a platform and are consistently in front of potential customers or members with helpful advice. People say, “These people know banking! I need to learn more about them.” This status leads to “current relationship” status, which is a short skip to the good stuff immediately above that.

Newspaper ads, random searches, etc. We’re scraping the bottom of the barrel here — and we’re entering the realm of the Yellow Pages and their online counterparts, Google search results. These communications target prospects randomly searching for a product or service. They know nothing about you, and they think of you in the most generic of terms. Lots of financial institutions still spend a vast amount of their marketing budgets in this area of the pyramid. According to an ABA Bank Marketing 2010 survey, advertising accounted for 52 percent of total bank marketing expenditures during 2009, with one-fourth of this money spent on none other than newspaper ads.

The cold call. Cold calling happened for eons because there was no better alternative. The Rolodex had its time in the sun, too, and so did the carrier pigeon. Then something far better came along.

The lower on the Hierarchy of Buying you reside, the more you’re up against low-price seekers, and the more you are paying good money to be listed right alongside your competitors. Since you have no clout with these folks, the primary buying motivation is cost. You have become a commodity.

An easy way to stay higher in the pyramid is by taking full advantage of social media. For example, do you have a Facebook group or other networking site for small business customers? Or a Twitter feed for new members? And maybe most important, are you giving people reasons to talk you up? Such social media activities prequalify you with the endorsements of people your prospects already know and trust, which bestows the same positive attributes onto you. Your relationship begins much further along.

Where on the Hierarchy are you with your acquisition strategy? Near the bottom facing high competition, low margins and zero opening trust? Or near the top, where trustworthiness is pre-approved? If you want to get beyond competing on price and toward something far more profitable, I urge you to aim higher.

_{© 2010 Scott Stratten}

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