By Sridhar N. Ramaswami, Department of Marketing, Iowa State University,
Troy J. Strader, Department of Management, Iowa State University, and
Karen Brett, Second Vice President, Market Development, The Principal Financial Group
Web site: Iowa State University, College
of Business
E-mail: Troy Strader
Sridhar Ramaswami is Associate Professor of Marketing at Iowa State University. He received his Ph.D. from the University of Texas - Austin in 1987. His research interests include marketing of financial services, sales management and brand equity management.
Troy Strader is Assistant Professor of Management Information Systems at Iowa State University. He received his Ph.D. from the University of Illinois at Urbana-Champaign in 1997. His research interests include electronic commerce, strategic impacts of information systems, and information economics.
Karen Brett is Second Vice President of Market Development for The Principal Financial
Group.
Many banks are studying the feasibility of selling financial products and providing
banking services using on-line channels (such as the World Wide Web and Internet). The
technology necessary to do this is now widely available, but little is known about how to
identify potential customers for on-line banking. The primary focus of most previous research,
which has originated among industry practitioners, has been to explain use of on-line
channels on the basis of demographic factors (Darian 1987; Hill and Baker, 1996; Meridien
Research, 1997; Miller, 1995). Our study takes a consumer behavior perspective explaining
Internet usage for shopping using the ability-motivation-opportunity (AMO) framework
(MacInnis, 1989). The idea is that consumer's ability to purchase on-line, their motivation
to do so, and having a reasonable opportunity to access on-line markets, are determinants
of actual on-line buying. Our study focuses on consumers in the financial services industry.
For many consumers, purchasing financial products is a complicated process. Not only do
a majority of consumers not have a clear understanding of the financial choices available
to them for satisfying their financial needs, they also do not fully trust financial
intermediaries such as agents, brokers, and financial planners. Further, the quicker-paced
life that consumers lead constrains them from allocating time to establish trusting
relationships with the financial intermediary. Consumers therefore are looking for
alternative ways of buying financial products and controlling their financial future.
One of the alternatives they can turn to is the electronic channel; however, their adoption
of this channel is predicated on overcoming risk perceptions associated with using the
electronic channel.
Financial institutions are keenly aware that electronic commerce is here to stay and will
experience tremendous growth in the immediate future. For example, "explosive" growth in the
number of retail users of electronic financial services is forecast by a study from Meridien
Research. This study estimates that the number of retail customers for electronic finance
will reach five million in the U.S. by the year 2000. In another study, DeLoitte and Touche
estimates that half of all U.S. bank branches will be substituted by electronic banking
within the next 10 years.
Financial institutions that are at the forefront of using electronic commerce have been
developing expensive security protocols (such as data encryption, server authentication,
and message integrity) for providing a secure on-line banking or trading solution to their
customers. They have also been investing in marketing databases to support cross selling
and upsell campaigns to existing customers and decisions support systems to analyze back-end
marketing program expenditures. For example, American Express has invested close to $100
million during the last five years for this purpose. The Principal Financial Group is
currently engaged in a multi-million dollar project to evaluate electronic commerce
potential for their products.
While financial institutions have been making huge investments in building the
infrastructure and technology needed for facilitating electronic commerce, they have not
spent an equal amount of effort for identifying the customers who may be motivated, willing
and able to use electronic channels. Markets in the physical world generally know how many
(and which) customers they have. The electronic commerce market for financial products and
services, however, may be the first major market in history not to have a clue about the
identities of their customers. The primary purpose of this research is to help
practitioners with identifying consumer attitudes and experiences that influence their
current use of on-line channels for buying financial products.
Our hypothesis is that usage of electronic channels is likely to be influenced by the
presence of a need, motivation to attend to that need, and the ability and opportunity to
use electronic channels to satisfy the need.
Needs relate to functional reasons why a person may be interested in electronic channels.
Consumers may be motivated to use the electronic channel because they may have gone through
negative experiences with the traditional sales agent channel. Consistent with previous
research, the relevance of electronic channels to meeting the unmet needs of the consumer
is the mechanism that stimulates its trial (Petty and Cacioppo, 1986). On the other hand,
consumers may feel most comfortable with having face-to-face contact with a sales agent or
a broker. In such a situation, they may be less prone to using electronic channels for
buying financial products.
Ability is defined as skill or proficiency in understanding financial products. Lack
of ability implies that knowledge structures necessary to perform purchase transactions on
the electronic channel either do not exist or cannot be accessed. It is our belief that
people need to feel comfortable with their own knowledge of financial products before they
would attempt to conduct financial transactions (using the computer) without the help of a
financial advisor. Part of the problem may be that personal or situational factors impede
the time spent on understanding electronic channels. People who lead a very busy lifestyle
may have less time to manage the decision making process by themselves.
Opportunity is defined as the presence of circumstances that promote the use of
electronic channels. People who do not have the tools such as a computer may not have the
opportunity to use electronic channels. Similarly, people who do not have the economic
capacity to purchase financial products may have lower opportunity to use such channels
than those who have disposable income and wealth for investment purposes.
The data for our study were collected through a primary study of consumers in the
Nashville, Tennessee area. An independent research supplier, Market Facts, Inc., was used
for data collection. Surveys were mailed to 700 randomly selected customers living in
Nashville. Complete surveys were obtained from 413 households, providing a response rate
of 59%. The sample households were predominantly from the middle-market - 92% earned less
than $75,000; 61% were under 49 years of age; 92% had a household size of four; 73% were
married; and 70% had at least a high school education.
When identifying potential customers for on-line sales channels, the results
of the current study suggest that managers should concentrate less on demographics
and more on consumers who have the opportunity, ability and motivation to buy on-line.
Increasing Opportunity. We found that the presence of a PC at home significantly
affects consumer opportunity to participate in on-line sales channels. Although it may
be difficult for an individual company to increase their current customer's opportunity to
purchase on-line, knowing that PC ownership is important enables companies to identify
potential customers for on-line financial services.
Increasing Ability. Consumer confidence in their own ability to make financial
decisions significantly affects their ability to purchase financial services on-line.
Increasing customer ability may also prove difficult for companies, but it does provide
insight into identifying customers who are more likely to purchase on-line.
Increasing Motivation. Finally, the need for face-to-face contact with financial
agents significantly decreases the likelihood that customers will purchase on-line.
This means that customers that do not have this need can be identified as potential
customers for on-line financial services. There are also marketing strategies that
companies can use to motivate their current customers to purchase on-line. They can
pull customers toward the new channel by informing them that it can be more convenient
than other options. Monetary savings also help increase motivation to use. For example,
if transaction fees are normally charged, transaction fees may be lowered when the
on-line channel is first available. Also, product and service prices may be decreased
during the introductory period for the on-line channels. Obviously, once the consumers
have seen that the on-line channel is useful, they are more likely to purchase than
if they never have seen it.
An important result of this study is that consumers who use the on-line channel for
gathering financial information are more likely to be on-line buyers of financial products.
In other words, consumers who get their information the traditional way are less prone to
use the on-line channel. It is also interesting to note that consumer willingness to use
the channel has no influence on their current information gathering or on-line purchase
behavior. From a managerial perspective, these findings suggest that targeting efforts
should focus on current information seeking practices of potential customers.
Overall, consumer opportunity to use on-line channels, and their ability to do so, increase as electronic commerce (with its associated electronic markets and sales channels) becomes more common place. The key for organizations competing in an environment where on-line markets are available is attracting (motivating) consumers to access their on-line presence (Internet and/or Web) to increase the likelihood that they will buy. It is apparent that identifying potential on-line customers strictly based on demographics will be a far less successful marketing strategy.