Category

Finance & Money

Three Cardinal Sins against Customer-Centricity in Finance

By | All, Finance & Money, SUE Amsterdam & Behavioural Design Academy originals

Last week, I was attending a keynote presentation by the CEO of one of the biggest Belgian banks. He was presenting the story of the digital transformation of his bank and he brought it as if it was a visionary story. And although the man certainly had excellent presentation skills, I somehow got annoyed with his storyline. Probably in the first place because it felt like 2007 was back with cliché-slides as “Shift Happens”, “The Consumer is in Control” and “Remember Altavista? Look at what Google Did!”. But the second reason for my annoyance had to do with something more profound. He was preaching the “customer-first”-mantra, while in reality, his story had absolutely nothing to do with customer-first. It was very obviously “Bank-First”, under the disguise of “we want to make it more simple for the customer to buy more stuff”.

In my view, his keynote sinned against three cardinal sins of customer-centric innovation. And I want to argue that you can find these three cardinal sins in every digital transformation pitch by gurus, consultants and managers. So what I want to do is to put the spotlight on each of these three sins and I want to use the next blog post to suggest how you can transform these cardinal sins into decisive action.

Cardinal Sin 1: The customer as consumer at the heart of the strategy

At the heart of all these digital transformation keynotes sits the demanding, narcissistic customer. This customer is said to be spoiled by the speed and simplicity of Google, the absurd logistics of Amazon and the mobile interface-perfection of Apple and Facebook. What follows is that all these corporations assume that it’s exactly this demanding and spoiled attitude what makes this customer so different from the good old days. The CEO shared an example in his keynote of how his bank redesigned a front-office and back-office process to allow a customer to open an account in a couple of minutes on his smartphone. The bank would reward this customer with € 5, allowing him to walk into a Starbucks and buy a coffee just minutes after opening his account.

The problem with this example is that the banker looks at his customer with a “consumer”-frame in his mind. But when you look at the customer as a moody, demanding, click-trigger happy cowboy, and you build your processes and services around this persona, you’re doomed to lose the battle. Because the real challenges where every digital transformation project should focus on, are the challenges and problems that the human behind the customer is facing. And those problems are on an entirely different level: An incapability to build wealth, or to become financially independent. 95% of the people are financially illiterate and could really use some help to construct financial buffers, make smarter investments, generate passive income, etc. Thát’s the real design-briefing for which financial institutions need to develop intelligent answers. A better interface just a simple hygiene-factor for which they do need to catch up. To design your entire digital infrastructure around a spoiled persona is, to put it mildly, incomplete. And to put it more bluntly: out of touch with the real world.

Cardinal Sin 2: Evil KPI’s

Every time you hear Mark Zuckerberg doing an interview, he keeps insisting that the interest of the Facebook-community is central to everything the company does. In a recent interview on Reid Hofmann’s Masters of Scale-podcast, he says: “Our mission at Facebook is to discover where our community wants us to go.” With this mission in mind, Facebook employees conduct hundreds of experiments each day. Mark Zuckerberg is convinced that the world will be a better place if Facebook discovers what people want.

The only problem with this mantra is that Facebook has become a public company in 2012. And once a company goes public, its primal reason for existence is to create shareholder value. And the number one metric to create shareholder value is “engagement”: when as many people as possible, return to Facebook as many times as possible to serve them as many ads as possible.

Facebook-scientists, Facebook-algorithms and the Facebook-AI work really hard to generate a maximum amount of “engagement”, which, frankly, is newspeak for addiction: 1) The company has perfected the way notifications trigger little dopamine-shots in the brain in order to get people to return to the platform over and over again. Nir Eyal describes this addictive design in the book Hooked. 2) The algorithms and the Facebook-AI also know that the best way to get people more engaged is by fueling outrage. Nothing fuels better engagement than extreme content. The reason why a relatively small Russian troll-farm could have such a significant impact on the US-elections is that they correctly understood that outrage is the fuel that drives the Facebook-algoritms.

The point I’m making is this: Although Facebook’s rhetoric may be full of storytelling on “connecting” and “creating a better, more open world”, it’s business metric drives the behaviour of the company in a different direction. To maximize “time-on-device” and “engagement” to generate as many opportunities as possible to serve ads to people, has, in reality, led Facebook, its employees, its algorithms and its Artificial Intelligence to steer on more evil KPI’s like Facebook-addiction, craving for constant social recognition and political polarization.

This brings me back to the banker. His “digital transformation with the customer at the center” eventually also steers on traditional banking-KPI’s of selling as many products and triggering as many transactions as possible. Of course, there’s nothing wrong with this. The bank needs to make a living. However, if they would also steer on real customer-centric KPI’s, I guess they would be much more successful. If they were to focus on maximizing spending power, maximizing investment capacity or capacity to loan, maximizing interest,… they would easily be able to come up with tons of new services for which their customers would never want to switch to another bank again.

Cardinal Sin 3: An inadequate understanding of the good life.

Behind all these digital transformation stories I never hear the philosophical question whether all these changes are actually meaningful. If the goal of all these digital transformation projects is to help a spoiled consumer to buy everything faster and more frictionless, then the vision they have on humanity is incredibly limited. You can read in it the fulfilment of the ultimate corporate wet dream of reducing every human to a consumer.

Today, this reductionist consumerist vision leads to two crises of epic proportion. Of course, there’s first and foremost the ecological crisis. The speed with which our consumption behaviour is exhausting the earth and its vital resources is not sustainable. Read Kate Raworth’s “Doughnut Economics” or watch her Ted-talk.

But next to this ecological crisis we are also in the middle of a more profound psychological crisis. The more gratification we can buy, the less we seem to enjoy. The more we pursue impulses and individual greed, the emptier our existence appears to become. This crisis of meaning could well become the biggest crisis of the 21st century. It is funny in that context to observe that all those “Silicon Valley”-bobos are utterly obsessed with Stoic philosophy. Because they no longer know how to enjoy, they go back to the answers formulated two millennia ago.

In his keynote, the banker does not say a word about how the derailed banking world wants to play a meaningful role again in the lives its customers. We know what happened in 2008 with the money people entrusted to the banks. That turned out to be nothing more than casino money for speculation to increase the profits of the banks and the bonuses of the bankers. The fantastic challenges for the banks are nevertheless obvious: Helping freelancers to make ends meet. Protecting the middle class from loss of wealth and poverty in their old age (which is something the Dutch Rabobank is actively working on for example). Investing in projects that promote public prosperity. Boosting general well-being. Helping people to make their capital work for them. Looking for new ways to let the abundance of capital in the market find their way to entrepreneurs. Managing an aging population. Speeding up urbanization. Financing sustainability,…

There are so many opportunities to use digital transformation to become truly indispensable in the economy. So many possibilities to become incredibly relevant, once you put the human behind the customer at the center of your digital transformation. Simply start with replacing this spoiled persona at the heart of your transformation story with the citizen who has more and more difficulties to live a carefree life in increasingly difficult times.

 

Tom De Bruyne
Co-Founder SUE Amsterdam and the Behavioural Design Academy.

 

Cover image by April under Creative Commons License.

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What’s Neymar worth? A lesson in price psychology.

By | All, Finance & Money, SUE Amsterdam & Behavioural Design Academy originals

Behavioural economics has always been fascinated by pricing. Classic economic thinking has taught us that a price is a fair representation of supply and demand. A rational or even objective evaluation of worth. But in practice, nothing holds further from the truth than this assumption. Almost nothing is more subjective or manipulative than the price of things. Our unconsciousness uses price as an irrational shortcut to evaluate the value of things. Driving up prices or value perception without any logical or objective explanation: Something is expensive so it must be good.

Some examples to illustrate this. For most wine buyers the price of a bottle of wine is the only cue on which they base their quality judgment of wine. A bottle of wine that is priced from 9,99 to 5,99 gives you the feeling that within your wanted price range of a table wine you suddenly get access to a high-quality wine. If the same bottle of wine were just priced 5,99, it just would feel like a table wine. Something happens in your value perception by the price indication. Another classic example of irrational value perception is the introduction of the black pearls in the twenties. When the first black pearls were discovered, nobody wanted to have them. People were used to white pearls and had no idea if black pearls were as valuable as white pearls. The distributor of the black pearls than made a genius move. He retracted all black pearls from the market and paid the world famous Tiffany’s New York to expose them in their window next to ridiculously expensive jewelry items. Suddenly everybody had to have the black pearls, and they were willing to pay a price that was a multitude of the original market price of the black pearls. The rest is history. Black pearls are still more expensive than their white sisters and brothers.

One of the key concepts of psychology is called price cluelessness. We don’t have any concept of what the price of something should be. Our brain solves this problem, by unconsciously looking for clues to help us answer a simple question: Is this product a bargain or is it overpriced? And that’s where things go wrong because most mental shortcuts we use aren’t only incorrect, they are also professionally abused by product suppliers.

A perfect example of this is the recent price escalation in soccer. This summer Neymar was sold by FC Barcelona to Paris Saint-Germain for a staggering 220 million Euros. The story behind this outrageous price is that Barcelona had put a leaver clause in Neymar’s contract of 200 million Euros to protect themselves from people buying this crucial player from them. They never expected that somebody would be that crazy to pay for such an excessive amount. But that was just peanuts for some wealthy oil sheiks that simply wanted Neymar to play for their Paris club.

The price that paid for Neymar just became the price that someone was prepared to pay for something he wants to own. But the effect was greater than this: What happened next is that the whole soccer transfer world went berserk. The price paid for Neymar became the new price anchor against which the value of all players is measured. In a few days time, the prices that used to be paid for players have been wiped off the table. Lionel Messi got a leaver clause of 300 million Euros in his contract, Ronaldo has to do with a clause of mere one milliard Euros. On the last day of the transfer period, Barcelona paid a 100 million Euros for 20-year-old Dembele, who ‘just’ had an estimated worth of 40 million Euros a few days before. Early summer, Manchester United bought the Belgian player Romelu Lukaku for 85 million from Everton. Jose Mourinho, the coach of Manchester United, actually called this a bargain. One month later, when the whole Neymar price spectacle took place, the transfer of Lukaku could easily have cost the club 115 million Euros.

Markets are irrational. The price paid for Neymar was nothing more than an excess of ultra-rich oil billionaires. But the price paid for Newmar ignited a chain reaction of reactions, tactics, and strategies that caused every player transfer to conform to this new price benchmark. In the end, the soccer market is not that much different from the housing market: It is an artificial bubble that will implode. Behind the game with a ball, there is a game with aggressive investors that will earn crazy amounts of money by blowing up this bubble. When the bubble pops, as it always does eventually, it will be only a few already filthy rich people that will profit while others will have to pay the painful and sometimes lifelong price of having bought something overpriced that has suddenly has lost its value. No billionaire will help you there; they are buying something outrageously new already.

 

SUE Amsterdam is helping clients to conquer the challenges of fast-changing markets by making their marketing and communication smarter using insights from behavioural psychology. We’ll help you get a grip on the needs, wants, and decisions of your customers by becoming radically human-centered. Exposing new opportunities and developing creative ideas that will influence the choices of your users and nudge them to the desired behaviour. We apply our Behavioural Design Method in which we train and coach our clients on the project. This way we can not only come up with winning ideas together, but client teams also master the method themselves. Do you want master behavioural psychology? Take part in the Behavioural Design Academy. You’ll learn the science of influence in just two days.

 

Cover image by Leonid Domnitser under Creative Commons license.

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