Many financial companies these days are focused on securing their business for the very short run, and that is completely understandable. But how will your customers act after COVID-19? History tells us that customers change their behaviour in the wake of crises. That changing customer behaviour is something you should already be focused on. You should be considering whether you need to change strategy, target your marketing differently or refine your business model.
We have experienced health crises before: Ebola in 2014 and the H1N1 influenza in 2009, which shook the world. We have experienced financial crises with the financial crisis of 2009 and the IT bubble of the late 90s. What we are experiencing now is something else. Unfortunately, it is a health crisis that is likely to cause an economic crisis. Crises leave a mark on people, and this will affect us far into the future, and will certainly be seen in customers' behavioural patterns. That’s also true of its impact on the financial world.
Prior to the COVID-19 crisis, we saw a number of trends, such as an increased focus on climate, which fortunately had gained momentum in recent years. We also saw that customers increasingly wanted to influence others through word-of-mouth, via reviews or input from friends. These are trends that we must assume will be less pronounced in the future. Individual customers will become more ego-centric and think about the big picture to a lesser extent. A crisis that affects a person’s wallet can displace concern about the environment, services and the product and mean the individual customer ranks price above everything else. This means that financial businesses will need to consider how they price or market themselves.
In times when bigger issues are at stake, people also change where they get their information from. As mentioned earlier, customers previously received information mainly from friends or through word of mouth, and in the current circumstances customers will often turn to authorities for advice on what they buy. Customers will, to a greater extent, look to experts, as it is experts who have dominated the media telling us how to act. We are becoming more expert-oriented than before, and as a financial advisor, you need to think about how to advise your clients. This may mean, for some time to come, a greater focus on expert reviews of your products rather than customer reviews.
Other trends will take unexpected momentum due to the crisis
A crisis like the one we are undergoing can also have an impact on other trends and help them accelerate with lightning speed. Only a few people had anticipated that video calls would become the starting point for day-to-day meetings, as we have seen over the past seven weeks. This could have an impact on other areas where online customer meetings could become a regular part of daily life. Now that people have discovered that they can easily have an advisory meeting with their bank or insurance company online, this should clearly be an option in the future - even after the COVID-19 crisis is over.
Other trends that are likely to catch on include an increased collectivism. Times of crisis make people stand together, and this crisis is no exception, where we have been asked to show community spirit. However, it may cause an increasing degree of anti-globalisation. We are closed down as a country, and that may make us put our own country above others. Our borders are closed for now, but when they open, we will probably focus on getting our own country back on track first.
Quarantine can cause psychological stress that creates inappropriate behaviour
Being quarantined for an extended period of time can create psychological stress. This, coupled with an ongoing precarious situation, including financial uncertainty, can have a very negative impact on human behaviour, creating a number of inappropriate behaviour patterns.
First, it can help create so-called avoidance behaviour. People under stress have an unfortunate tendency to try to avoid what they feel may make them uncomfortable. For example, if you have a challenged economy, and you know that you have not received a full salary this month due to a decrease in pay, you may want to avoid thinking about it altogether. So, if you believe that there is no money in your account, then you simply do not check the account, but spend the money anyway. Because if you are not confronted with it, it probably does not exist.
As a result, people can also experience what is called the scarcity mindset. If you have a feeling that you have too little of something, then you can act inappropriately to avoid it. It can simply be the feeling that you cannot get what you want, which leads to impulsive and irrational decisions. Like buying piles of toilet paper. It can help put people who are in an already unfortunate position into an even worse situation. So people who are stressed make irrational and short-term decisions, such as taking on high interest rate mortgages or stopping putting money aside. All banks should bear this in mind and offer a proactive review of customers' finances.
The predictions here are based on previous research on customer behaviour in the wake of crises or psychological stress. The outcome is, of course, not a given, however, financial companies must get ready for a new kind of business day and a changed customer behaviour on the other side of the shutdown.
As soon as we get time and financial stability, it will make sense to look further into the future and to bear in mind that we will probably be able to handle it if we help each other. Customers will start buying again – although the way they behave will change.
Søren Ameland Bligaard is a financial services expert at PA Consulting