Interpreting The JD Power US Retail Bank Study

I’m intrigued by the findings of JD Power’s 2011 U.S. Retail Bank New Account Study released recently. According to the press release:

“The study is based on multiple evaluations from 4,791 customers who shopped for a new banking account or new primary financial institution during the past 12 months. The study was fielded in November and December 2010, and includes Bank of America; Bank of the West; BBVA Compass; BB&T; Capital One; Chase; Citibank; Comerica Bank; Fifth Third Bank; Harris National Bank; HSBC; Huntington National Bank; KeyBank; M&I Bank; M&T Bank; PNC Bank; RBS Citizens; Regions Bank; Sovereign Bank; SunTrust Bank; TD Bank; U.S. Bank; Union Bank; and Wells Fargo.”

Highlights of the study include:

  • 9% of respondents switched their primary banking institution during the past year to a new provider. That percentage is up a point from the prior year. The study found that “customers in 2011 considered 1.9 banks while shopping—up from an average of 1.6 banks in 2010.”
  • 43% of customers who purchased an additional banking product made that purchase at their primary bank. According to JD Power, “for customers who turn to another institution for an additional product, promotional offers such as gift cards carry the most weight in influencing the purchase decision.”
  • The most common reason for switching banks is a change in life circumstances. The VP of JD Power’s financial services practices is quoted as saying that the most important factor driving consumers’ decisions is advertising, and that “pricing—fees and interest rates—carries relatively little weight in influencing customer purchase decisions.”

Here’s why I’m so intrigued:

How many people actually switched? According to the press release, “the study is based on multiple evaluations from customers who shopped for a new banking account or new primary FI during the past 12 months.” If I read that correctly, people who didn’t shop for a new banking account or new primary FI weren’t included in the study. So if 9% of those who actually shopped around switched, what percentage of the overall population shopped around? The percentage that actually switched might be far lower than 9%.

How many FIs were actually considered? In the age of the Internet, doesn’t it strike you as odd that consumers that shopped around only considered, on average, barely 2 banks? In other words, they considered the bank they chose and one other. Really? Or is it the case that the study found that the average was 1.9 because it only asked about the banks listed in the survey? In other words, if respondents were unable to include community banks and credit unions in the list of banks (oops, FIs) they considered, then those FIs were excluded from the count, and the number of FIs shopped at might actually be higher than 1.9.

Is 43% good or bad? That’s the percentage of respondents who said they purchased an additional product at their primary FI. The press release positions this statistic as “less than half” which implies to me that JDP sees that number as surprisingly low. It’s been a while since my own research has tracked this, but as of a couple of years ago, the percentage of consumers who said that they would consider their primary FI for additional products was in the 20% range. Of course, intention is one thing, and actual behavior another.  So on one hand, 43% might be a great number for banks. On the other hand, if “only” 43% of the customers who purchased another product did so at their primary FI, that could be bad. All this begs the question: What does “primary bank” really mean? If it doesn’t mean “the place I turn to for all my retail banking needs,” then what good is being designated a customer’s primary bank to a bank?

How does JDP really know that advertising was the major influence? Because consumers said so? I’ve never seen a study where consumers admitted that advertising was a major influence AND that so-called rational factors — i.e., rates and fees — weren’t major factors influencing their decision. The odd thing is that for years I’ve believed that consumers overplayed the role rates and fees had on their decision and underplayed the role of advertising, and now that there’s a study out that reinforces my view, I find myself not believing that either.

What do you think?

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5 thoughts on “Interpreting The JD Power US Retail Bank Study

  1. “pricing — fees and interest rates — carries relatively little weight in influencing customer purchase decisions.”

    Ron, this sounds like a case of a firm telling its clients exactly what they want to hear.

  2. I have primary research showing that rates and fees are not the reason consumners select us for a purchase. They mention convenience and people skills, lke friendliness and knowledgeable staff as the top two reasons. We do not ask about advertising because it seems like a stupid question. Consumers don’t like to admit that they make their decisions based on advertising, they like us to believe they are smarter than that.

    It should also be pointed out that we have other ways of determining if advertising works that do not include asking consumers. I would bet our methods are a darn lot more reliable than asking the consumer.

    You make some great observations on this study. I think you may believe, as I do, that directionally the study may be right. A: Not a lot of people switch B: It is hard to believe so little shopping takes place.

    To adress the shopping number I wonder if that shopping mostly takes place by viewing advertising. Since consumers don’t want to admit that advertising is an influence, they also don’t want to admit they did a lot of shopping. It is like the consumer is saying, “I am intelligent enough to spot the best deal without looking at all those ads.” Fortunately we know when they are not telling the truth.

  3. Howard: You have a good point there. I don’t think that was JDP’s thought process though. I think they analyzed the data they had, and came to the conclusions they did.

    Paul: You write: “..we have other ways of determining if advertising works that do not include asking consumers. I would bet our methods are a darn lot more reliable than asking the consumer.”

    And I wouldn’t take that bet. You’re pointing out something important here — determining the factors that influence a consumer’s decision (especially with something like a financial services product) is not best done with a survey. Which was another point I was trying to make — although I might not have done a good job of it.

  4. Ron, Interesting POV. We are also in heated agreement about the study’s stated influence percentages across the consumer’s path to purchase. I’m especially intrigued by the study’s indication that when consumers are ready to pull the trigger in the selection phase, “Brand Image” accounts for 30% and “Advertising” accounts for 24%”of the influence. That’s a little like suggesting that cars are slightly more important than wheels. You can’t have one without the other.
    That said, I’d be very interested in hearing more about your approach to determining purchase decision factors.

  5. Jim: Thanks for commenting. I can’t really say that I have an “approach” to determining decision factors. I think — and this applies to financial services products, which I research — that there a number of quantitative and qualitative factors that go into a consumer’s decision, and that: 1) those factors are not only different for every consumer, but often differ for the same consumer when making the same decision in subsequent situations, and 2) you cannot measure the relative importance or influence of those factors.

    Also: Please note that I said “quantitative and qualitative” and not “rational and emotional.” Emotional is not the opposite of rational. If you show me a sad picture and I cry, that’s a rational emotional response. If you show me a sad picture and I laugh, that’s an irrational emotional response. This is another area that marketers have to stop deluding themselves about.

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