A New Virtuous Cycle for Banks

A New Virtuous Cycle for Banks

          
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A New Virtuous Cycle for Banks

Linking Social Media, Big Data, and Signal Advantage
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  • In This Article
    • Linking social media, big data, and signal advantage can deliver powerful advantages to banks.

    • No bank has yet succeeded in leveraging all three together—but many banks are making inroads.

    • Starting small, with a pilot project, is the best way for a bank to proceed.   

     

    Imagine a world where your customers have a willing and deep relationship with your bank. A relationship that allows you to gain insights that help you acquire new customers and instill in them long-term loyalty. Imagine you can achieve these things while improving operating efficiency and gaining competitive advantage. And imagine that, in addition, you are able to receive and interpret weak signals from your customers that allow you to align your products, services, and business model far ahead of your competitors.

    This new world is possible right now through the connection and leveraging of social media, large volumes of unstructured data known as “big data,” and “signal advantage”—the ability to rapidly capture, interpret, and act upon signals gleaned from rich and dynamic data. (See “Key Terms Defined,” below.) The potential benefits to banks of these capabilities are indeed sizable. Customer preferences and trends become much easier to discern. Messages can be delivered in a more targeted and responsive fashion in ways that consumers find highly compelling. And the cost to banks of reaping these advantages can be relatively low—a critical consideration in today’s macroeconomic environment, which is particularly challenging for banks.

    Successfully linking and leveraging social media, big data, and signal advantage is challenging, however. It requires viewing the landscape through a strategic lens and understanding both the opportunities and the risks. It also demands a deliberate, incremental approach to implementation.

    Key Terms Defined

    Social media: Internet-based applications that facilitate the creation and exchange of user-generated content. Interactions are community based. Popular examples are Facebook, Google+, Twitter, YouTube, and LinkedIn.

    Big data: Large volumes of unstructured data. New tools and approaches are allowing companies to quickly, and at low cost, mine such data, which cannot be analyzed effectively by traditional means. These approaches rely on such technologies as distributed, object-oriented data stores; cheap, massively parallel processing; advanced analytical tools; and cloud-based processing and storage.

    Signal advantage: The ability to rapidly capture, interpret, and act upon signals gleaned from rich and dynamic data and, in so doing, achieve competitive advantage. It entails leveraging data and data sources that organizations typically overlook; detecting and correctly interpreting changing patterns of customer needs and conditions; converting such insights into action; reshaping the information landscape to the company’s advantage; and developing the necessary human and technological capabilities.

    Social Media: Opportunities and Pitfalls

    Social media present banks with new and potentially highly rewarding opportunities. They allow banks to spend their marketing dollars much more selectively and efficiently. Particularly attractive is the potential for advocacy marketing, in which marketers target small groups of influential consumers and turn them into advocates who promote the brand.

    The Power of Advocacy. Advocates, once won, can deliver a range of benefits. By raising issues, suggesting improvements, and providing opinions, they can contribute actively to the bank’s plans to launch and improve products and services. They can augment traditional market research and focus groups. And by credibly promoting the brand, they can win new customers, aid in customer retention, and act as effective spokespersons for the bank in the event of a crisis. Managed correctly, advocates can also turn other consumers into advocates.

    But building and sustaining relationships with advocates require judgment and sustained focus. First, banks should recognize that they are aiming for a subsegment of their clients and potential clients. Rather than cultivating loose relationships with 10 million individuals, the challenge is to identify and form strong relationships with 10,000 influential consumers who can be advocates for the bank.

    Once a bank has identified possible advocates—usually a cohort of economically attractive customers—these candidates can be turned into brand proponents by means of incentives or preferential service. Keeping those relationships strong, and advocates’ commitment to the brand intact, will demand that the bank communicate with these individuals regularly and address their concerns promptly. The time and effort necessary to cultivate these relationships should not be underestimated—though the benefits stand to be substantial and can more than compensate for the investment.

    Risks and Untapped Opportunities. Social media can also create and amplify marketing challenges for banks. Consumers increasingly rely on reviews and referrals posted on social media to make purchasing decisions—and banks’ carefully crafted messaging can easily get lost or distorted in the ever-widening flood of user-generated content. In addition, consumer forums, including blogs and social networks, can act as vehicles for the dissemination of bad publicity about a bank. Such “badvocacy” can spread like wildfire and do major damage to a brand within minutes. Difficulty reaching targeted groups, loss of control of the message, and the specter of badvocacy are challenges that banks will have to wrestle with for the foreseeable future.

    Many banks also fail to leverage the full potential of social media in their marketing efforts, though clearly they recognize the phenomenon’s importance. Many others do too little, using social media merely to broadcast their advertising messages. And some banks try to do too much, creating forums and branded social networks (or “communities”) that they intend to become destinations for user interaction but that are largely ignored by consumers.

    Social media provide a powerful tool for banks to use to build and manage relationships by engaging in dialogue with existing and prospective customers. Banks’ marketers need to leverage the strong emotional connection people have with their finances—for example, by playing on consumers’ need for security and acting as trusted advisors. Banks can leverage social media on three levels:

    • As an acknowledged member of the social-media community

    • As a prominent contributor to the community

    • As an institution at the center of the community

    While banks should attempt to operate on all three levels, gaining the influence necessary to reach the third level will be difficult. For many banks, it may be possible only when certain topics are being discussed, or when the bank is supported by a highly influential advocate who has gained credibility and established a strong presence through, for example, a financial blog or a social-media interest group.

    But first banks need to adapt to a new reality in which they are no longer the primary source of financial advice but merely one peer in a broad community that exchanges comments and information on financial topics. In an environment where consumer trust is shifting from institutions to peer groups, banks in particular are encountering a significant loss of trust and will need to earn credibility and the permission of consumers to retake a central role in the community.

    Creating Synergies Among Social Media, Big Data, and Signal Advantage

    Social media, and especially advocacy relationships, can provide large volumes of data on such issues as changing consumer sentiment and emerging competition. These data can be mined and analyzed to provide signal advantage—in this case, insights that allow banks to optimize their marketing strategies and messaging, as well as their services and operations. In so doing, banks can significantly improve their customer acquisition and retention and their performance on a range of other metrics.

    Combining the data gleaned from social media and advocacy relationships with information that banks have been gathering for years—such as internal sales statistics, customer demographics and interactions, and data on operations—offers sizable opportunities to significantly extend a bank’s signal advantage and reap additional rewards, such as improved internal processes. But such large amounts of unstructured data compound the challenges that banks already face in data management and analysis. These problems typically stem from one or more of the following deficits:

    • Insufficient priority or budget assigned to purchases of external data

    • Failure to request or fill in customer data

    • An absence of data-quality checks

    • Difficulty in accessing stored data

    • Siloed information systems

    • End-user resource constraints

    • A lack of intuition about key data patterns to look for

    Fortunately, powerful new technologies provide an answer. Traditional data-warehousing, mining, and analysis tools struggle to identify relevant relationships and correlations among large amounts of complex and relatively unstructured data. But smarter engines are now available that can mine large volumes of data using sophisticated pattern-matching algorithms. As a result, data that might once have seemed superfluous to a bank are now becoming valuable. The power of these advanced tools, however, does not remove the need for strategic thinking, critical analysis, and planning by banks. When collecting and analyzing data, it is still important for a bank to start from a strong hypothesis to allow the relevant business questions to be answered. Thus, there is a compelling need for subject-matter experts who are trained in dealing with large amounts of data and are very familiar with the business objectives of the organization.

    Banks that use insights from big-data analysis to continually improve their use of social media and advocacy relationships in order to obtain ever-better data can set in motion a virtuous cycle. Ultimately, they can extend the benefits of this self-reinforcing data- and insight-driven approach from the improvement of individual services and marketing campaigns to the evolution of their entire business model. (See the exhibit below.)

    exhibit
    The Current State of Play—and How to Advance

    It should be noted that no bank has yet succeeded in leveraging the full trio of social media, big data, and signal advantage. But many are tackling individual elements:

    • Literally every bank is considering its social-media engagement and has launched initiatives, albeit often insular ones.

    • Banks have had data warehouses in place for years, but the information is limited to structured data from internal operational systems and is often inconsistent.

    • Banks’ strategists and marketers have been trying to sense weak signals—but the data sources tend to be incomplete, outdated, or, if they happen to be very rich, impossible to interpret.

    The key to turning the linkage of social media, big data, and signal advantage into a powerful competitive advantage is to connect all three areas across the bank’s organizational boundaries and disciplines. As the scope and complexity of such an exercise can be daunting, banks should start small with a pilot project. When the first tangible results are available, they can expand the pilot into a broader capability. The six stepping stones to putting your bank squarely on the path to success in this manner are as follows:

    1.Bring the right capabilities together, most likely in the form of a cross-discipline task force of marketing, sales, business development, and IT staff, and probably complemented by external expertise in areas such as big data.

    2.List and prioritize the burning issues to which the concept could be applied.

    3.Catalogue the relevant internal and external data sources to identify unmined information. Such sources might include social-media blogs, e-mail traffic, and tweets and other free-format notes that relate to customer interactions.

    4.Pick a high-impact, low-profile “blind spot” to focus on—for example, seemingly erratic patterns of customer attrition.

    5.Run a pilot project and assess the results and lessons.

    6.Fine-tune the hypothesis-analysis-conclusion cycle in a quick, iterative fashion.



    The banks that can most quickly and successfully establish this virtuous cycle and leverage the capabilities it affords will establish powerful competitive advantages over the next several years. Rather than dipping a toe, banks would be well served to think hard about how this could work for their particular business—and move decidedly.


    Acknowledgments

    The authors would like to thank Laurent Desmangles, Antoine Gourevitch, Richard Helm, Steve Knox, David Potere, Henri Salha, and Stuart Scantlebury for their contributions to this article.

    To Contact the Authors

    • Partner & Managing Director
    • Zurich

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