It is only the later part of the 20th century financial services institutions (FSIs) started morphing into a different shape altogether. Previously, a bank provided only banking services (i.e. mostly a place where you can deposit and withdraw money or similar assets). However, banks changed their role in a short span of time from consumer banking to multiple financial service providers (i.e. banking, mortgages, insurance, credit cards, capital and bond market services, internet banking, phone banking, investment finance, etc.). This new management of consumer credit and consumer debt had interesting implications for their marketing financial services.
First, in trying to cover every corner of the envisaged legal problems, banks already had lengthy contract papers. However, with multiple services consumers were now subjected to a combination of plentiful and conflicting information, an excessive number of brands, and product replications.
Second, this one-stop service philosophy was brought about to create ease in transactions. However, as the number of services increased, the complexity did too. However, on the other hand, it created false confidence within the consumers regarding their financial judgment. Each of the above mentioned financial services require different set of skills to manage them however, a single provide and one-stop-shopping made consumers think that capital and bond markets investments were as easy as banking.
Researchers suggest that product variety can have a significantly positive effect on consumer decision making however, results from empirical studies found that over-choice and overload of information deters customers from engaging with a service provider due to confusion over a product’s value.
The multiplicity of financial services, which created the false confidence, may have similar results relating to consumer confusion and service value judgments as observed in other industries where product proliferations occurred. However, prior studies have not looked at consumer confusion in financial service industries.
In a recent paper, published in the association for consumer research conference, my co-authors and I, attempted to conceptualize and empirically test a model of consumer confusion in financial services industry. I am going to address the first research question in this post focusing on ‘what are the causes of consumer confusion in financial services industry?’
Looking at prior studies we believe that confusion is fuelled by consumers’ general expectations, attribute similarity between products or services (i.e. attribute confusion), and overload, conflict or ambiguity of information (i.e. information confusion).
Most researchers share a similar opinion that consumer expectations, prior to a service encounter, impact on customers’ evaluation of service performance. In the service literature the expectations construct has been divided into two parts namely, predictive expectations and evaluative expectations. The predictive expectations construct is associated with the level of performance and evaluative expectations construct is associated with an estimation of performance. For example, a consumer holding all his financial transactions including banking, mortgage, credit cards, and personal loans among others with a single FSI (approximately 40.5% of all FSI customers in the UK belong to this category) calls the customer services department for an emergency situation such as stolen cards or identity fraud. At this juncture, the consumer expects the call to be answered in reasonable time (predictive expectations) and also expects that whoever answers the call is in the right frame of mind and possesses knowledge related to the problem (evaluative expectations). In most of the FSIs, all the service departments operate separately and therefore the consumers will be asked to call each of them separately leaving the consumer angry, anxious and confused as to is he or she dealing with a single FSI or multiple FSIs? Therefore, we believed that expectations have a direct relation with overall consumer confusion.
Several researchers suggest that tangible and intangible attributes of products or services such as the similarity of the offer, lead to consumer confusion. For example brand image influences the manner in which consumers perceive a product. Similarity in available tangible and intangible features of products, services and brands in the FSI sector creates the likelihood of consumer confusion. For example, when a consumer looks at a brochure from any FSI with regard to a specific service, the terms of the services or the look and feel may hardly be different. Being a multi-ethnic and multi-cultural team we could observe this phenomenon in more than 1 country and therefore thought about the impact of attribute confusion on overall confusion.
Information relating to a product or service aims not only at informing but also persuading consumers to make a specific choice. We already know that consumers have limitations in their capacity to assimilate and process large amounts of information, which may lead to information confusion. Furthermore, researchers have suggested that information confusion influences the effectiveness of consumer decision making. This impact can be attributed to two phenomena namely; (a) consumers’ inability to locate the relevant information due to the sheer volume of information (overload); (b) oversight in identifying critical insights out of the information presented (ambiguity) and (c) variety of information provided through various information sources (conflict).
In this marketing research study we measured the impact of the above three antecedents on consumer confusion. Without going into the details of measurement, scaling and structural models, I shall now focus on the results.
The findings suggest that the hypothesized antecedents namely; expectations, attribute confusion and information confusion significantly affect overall confusion.
Increasing understanding of consumers and decreasing confusion is one of the major aims of any organization. Moreover, in markets like financial services, where many similarities of expectations, attributes and information exist within consumer minds, reduction in consumer confusion can become a source of competitive advantage. The framework we used for this study provides managers with a first hand idea of where and how consumer confusion is caused. This will assist managers in optimizing their organizational resources to manage the multi-faceted phenomenon of consumer confusion. Managers treating consumer confusion as a single tier construct may receive undesirable results. For example, just improving the product or service feature may reduce attribute confusion. However, poor communication and highly raised expectations may still elevate the overall confusion. Similarly, a good communication campaign with a less differentiated product or service may also elevate confusion in consumers’ minds.
In the next blog post, I shall focus on the second part of this study which relates to the consequences of consumer confusion.