Customer Behaviors in Banking

Posted by financer | June 30, 2010 .

Banks who understand how and why clients transact with them are in better position to combine appropriately the different elements of marketing mix. The motivation and behavior of bank clients demand careful attention, partly because the clients are so diverse and partly because bank’s products are “intangible”.

How do people choose their banks? There is a body of theory and knowledge about customer behavior. The following models summarize some of the main theories which have been used to explain customer behavior.

There is the rational economic model. This is determined by the usefulness derived from the amount of transaction compared with the financial outlay. In banking, the importance of price usually varies depending on the decision to be made like for example in the application for a loan. Individual customers are unlikely to argue over the interest rates on a small or bigger loan. A corporate treasurer however, will be likely to react immediately to fractional changes in interest rates depending on the sum of money involved.

There is the Pavlovian learning model. This may be useful in exploring facts such as that most individual bank clients choose their bank as a result of parental influence or other people close to them.

There is the Freudian Psychoanalytic model. This model is widely used by advertisers. It is said that the individual human being is a divided kingdom, where behavior rarely allows a simple explanation. The individual maintains an uncertain balance between emotion and rationality, between instinctive drives and socially acceptable behavior.

There is the social-psychological model. Man is seen as primarily a social animal, open to influence from the broad culture in which he lives and form the sub-cultures with which he has chosen to identify. The banker would draw on the importance to the individual’s attitudes or behavior of culture, sub-culture, social groups to which the individual relates in his or her behavior.

There is the organizational buyer model. This type of customer (example are the financial director) are buying not on their own behalf but on behalf of an organization, their motivation, therefore, maybe regarded as particularly complex. The organizational buyer model is not impervious to personal appeals but they are also concerned to meet the needs of the organization as satisfactorily as they can.

The above insights are accepted as being useful. Hence, it can be a good starting point to practice in the process of understanding the prospective customers’ behavior and decision making.