Behavioral Economics Credit Unions

Consumer Engagement – You Don’t Need a Diamond Ring

Many of the executives we talk to are searching for ways to build stronger relationships with their customers. Their research tells them customers have become primarily value or price shoppers and at any point, a new, low price entrant could disrupt their market. These executives often focus on the solutions they’ve traditionally used, finding ways to lower pricing and/or improve the customer experience with the hope this will produce closer ties with their consumers.

Being efficient and improving the customer experience (CX) is important, but behavioral economics gives us clues to other tools we can use to strengthen the bonds between companies and their customers. Lowering friction, framing messages, and setting appropriate defaults all influence customers during the decision-making process and can nudge them to a smarter, more efficient behavior.

Increasingly, innovative companies are finding ways to use the concept of social norms to strengthen their bonds with the consumers. Reciprocity, the often unspoken agreement that ‘if you do something for me I’ll reciprocate in kind’ is a powerful motivator. Consider the retail clerk who takes your return item even though you have missed the deadline. Good CX? Yes, but why do it? The unspoken hope is you will tell others of your good experience and continue your relationship as a customer. That’s the power of reciprocity.

Some member-focused institutions, such as credit unions or golf clubs are taking the construct a little farther and have implemented reciprocal contracts. These contracts outline the benefits of membership as well as the responsibilities of both the institution and the member. The best of these approaches use messaging capabilities to follow up, confirming the progress on the commitments in the contract. Keeping those commitments front and center, identifying the progress on both sides and outlining the next steps to remain in compliance, is a powerful action catalyst.  

BE tells us that once people make commitments, especially ones that involved another party, we are motivated to keep those commitments. Smart institutions can use that wiring to create a strong social bond with their consumers (and also with their employees) that will improve business results.

 

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