Over the past few years we’ve heard the term Behaviour Economics (BE) being bandied about in advertising, marketing, FMCG and now in financial services. Discovery Bank claims to be the world’s first Behavioural Bank, working off its Vitality Rewards model. The Bank says it will reward people for ‘good financial behaviour’. With the launch set for 01 March 2019, BEI decided to take a deeper look into this behavioural approach, analysing how (if at all) the various financial services companies in South Africa, make use of BE. Before we share those thoughts, we need to answer your question: why does Behaviour Economics even matter? Simply put, we want people to buy our products and services. Merely promoting them isn’t good enough anymore, surrounded as we are by a sea of competition, distraction and noise. If we understand why our target markets behave the way they do, we could possibly reach them more easily and in a more lasting way.

So let’s unpack the term ‘Behaviour Economics’. Basically, we’re talking about the marriage of psychology and economics. BE aims to help us understand the decisions people make around resources such as money, including the mistakes. For starters, BE challenges the belief that people are rational when they make decisions, especially big ones. Looking at South Africans, studies[1] show that we face a number of serious financial challenges, often brought about by irrational choices and decisions: 41% have no retirement plans; 36% of women don’t save or invest at all and 51% of employed Millennials don’t invest in provident or pension funds. The economic impact of this on all taxpayers cannot be overstated.

Many incentives have been created around us – to help us be more responsible – but many assume that people behave in their own best interests. BE shows us that people are quite irrational. For instance, many people would rather avoid a loss than reap a reward. BE calls this Loss Aversion. For example, imagine buying a bottle of shampoo. Your favourite brand is on promotion. One bottle offers a 20 percent discount and the other is the normal price, with free conditioner. Loss aversion theory tells us you’re more likely to choose the bottle with the gift, even if its value is less than the discount. People don’t want to miss out on the chance of a free gift, no matter the value. It feels more tangible than a discount, like they’ve scored a deal.

In another example, many people would rather have a small reward now, than hold out for a much larger one in the future. BE calls this Hyperbolic Time Discounting. An example would be someone offering you a R50 discount now, versus a R100 discount in six months’ time. Chances are you’d probably not want to wait six months, because there are risks involved. Discovery has understood this very well in their Vitality rewards programme. Weekly goals that you set yourself and meet, are rewarded immediately.

Traditionally, companies have designed products and services for consumers, based on what they believe will sell. The new thinking is that it’s far more effective to try and nudge people’s behaviour towards wanting to buy. Putting Behavioural Economics to use, especially at product design-stage, can increase market success. Using it to understand why your consumers behave in one way rather than another, can bring you closer to them, for a more fruitful relationship for both parties.

 Sources: 10X Retirement Reality Report 2018; Old Mutual Millennial Survey 2017/18

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The sleeping giants of finance have awoken to find the landscape not as it once was. The days where their size meant market security and customer loyalty are long gone. Customers want faster responses and personalised care and in the financial services sector, where speed and security are crucial, collaboration differentiates companies. Unburdened by legacy systems and old-school culture, FinTechs have leveraged new technologies to rapidly respond to customer demands and well-established financial services players are waking up to a reality with two options: partner up and collaborate or fall behind.

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Let’s face it 90% of retail investors have low financial acumen and don’t really understand the first thing about the complex world of investments. In fact, investments in general and financial jargon, scares the living day lights out of them. Marketing professionals aren’t always sensitive to this issue and make advertising and communication more complicated then it needs to be.

These marketing professionals that we speak of don’t have it easy either. They are often sandwiched between several investment trust managers, all wanting their fair share of the marketing budget, and the need to make an impact with strong single-minded advertising and communication that has the media weight to cut through the noise in the market.

Despite the challenges, there are a handful of marketing truths that can be applied to help develop advertising and communication that speaks directly to consumers in straightforward language they can understand.

Tip 1 – putting client needs first

It is so tempting to design advertising around the product benefits and characteristics, but the sad truth is that this only serves your internal clients (investment trust managers). Let’s face it, most of retail investors don’t understand what the terms ‘open-ended funds’ or ‘net asset value’ even mean.

Income seekers have three basic needs:

1. Dependable income that won’t run out before I do
2. Income that keeps pace with inflation, so I can maintain my lifestyle
3. No nasty surprises

Now of course the temptation is to activate around all these needs, but I would recommend resisting this urge and building your campaign around just one.

Baillie Gifford has done this rather well when advertising the Scottish American Investment Company (SAINTS), its flagship investment trust for income seekers. Its print ads focus on things that you can rely on over the long haul, like an aircraft engine that delivers you safely to your destination without crashing. This sentiment is captured by the phrase “The power to generate an income for the long haul”.

Tip 2 – select a flagship product

In a perfect world, marketeers would have enough money to support all the investment trust products in the company equally, with sufficient media weight to get them noticed by the end client and drive product uptake.

The reality is that marketing budgets are finite and to achieve ‘bang for buck’, hard decisions need to be made. I would suggest selecting a single flagship investment trust to put your focus behind. This product needs to be the clear frontrunner for delivering on the client need you want to focus on. For example, if you choose to focus on dependable income, then the investment trust with the longest track record of delivering dependable income is the obvious frontrunner.

Selecting a flagship product is difficult because all investment trust managers in your company will naturally want their ‘time in the sun’, but you must stay true to pursuing the most compelling strategy to achieve your company’s growth objectives.

In today’s competitive marketplace, you just don’t have the luxury of a ‘pray and spray’ approach to marketing. Brutal decisions need to be made about which funds will be supported, and then the full force of your limited marketing budget needs to be applied to get these flagship products noticed.

Tip 3 – educating clients

We understand that most investors don’t have the first clue about the world of investments and many perceive financial advice to be too expensive. I believe that every company has the responsibility to provide education on investment trusts. The tricky part is to deliver this education in a way that is unbiased and can be trusted by investors.  Let’s face it, how can clients trust a company to act in their best interests when their primary objective is to sell a product at the end of the day.

Fidelity International has tackled this challenge rather well with its learning module series titled An Introduction to Investment Trusts. The host of the series interviews independent financial experts, (not employed at Fidelity), to educate investors on investment trusts. What’s particularly clever about this series is that all the experts interviewed have nothing to gain from sharing their insights on investment trusts. This is what makes the series a credible and trustworthy source of information. The series never talks about Fidelity investment trusts specifically, referring to this type of investment in general terms so there is no hard sell at play to turn customers off.

In summary, there is a simple formula for getting investment trust products noticed by clients, but the battles fought by marketeers are often on the internal company front. My philosophy is ‘less is more’-  build your advertising and communication ruthlessly around a specific client need, address this need with your strongest flagship product, and put your full media weight behind driving a single-minded message to cut through the noise.