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Innovative strategies for building more profitable customer relationships. Published quarterly online and in print.
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The Magic Behind Customer Innovation

What’s Keeping Banks From Reaching Their Innovation Potential in Social Media?

On paper, financial institutions seem primed to excel with social customer interactions. They have large amounts of customer data at their disposal to engage and advise them via social channels. At the same time, money and finance are extremely important issues to most consumers. They use social media to share insights and learn about new products, services, and make financial decisions.

Every day, consumers sign up for tools such as electronic transfers, mobile check deposits, online branch and ATM locators, and other digital applications they find convenient and valuable. Younger, digital-native consumers are approaching banking age, searching for banks that will meet their interaction preferences.

In addition, the banking industry has been working to break away from its less-than-stellar reputation with consumers. Social media offers ways to make genuine connections with consumers in an effective and cost-efficient way, all while strengthening individual relationships.

Advanced social media strategy therefore seems like a natural extension of a bank's customer experience strategy.

But the fact is that banks aren't doing much beyond just being present on social media sites. Sure, many banks have Facebook or Twitter pages to broadcast PR or marketing messages and monitor customer complaints. But you'd be hard pressed to find much more than that.

What's holding banks back from advanced social media activities? The simple answer is that it's challenging, and without a proven go-to strategy for social media in banking, the ROI is not always obvious. Many banks choose to maintain the status quo rather than try to innovate with an unproven strategy. We think that's a lost opportunity to build revenue, trust, and long-term relationship strength with banking consumers. It's time for banks to dip more than a toe in the water if they want to reap the potential rewards of social media strategy.

Social media obstacles
Many in the financial world offer excuses for why they don't innovate through the social media channel. All can be overcome. A few common challenges:

  1. Compliance and regulations
    The banking industry is a regulatory minefield. Banks must deal with laws pertaining to the use of customer data, privacy requirements, records retention, and even interactions that may be construed as investment advice. As such, they are very cautious about doing much more than the basics regarding social media.

    We think that challenge can be overcome with a strategic approach to social media participation. It starts by establishing policies designed to manage internal and external social media "rules of engagement." Set expectations right from the start about the types of conversations you will have in your different social media accounts. Move to more appropriate channels if escalation is needed. Create employee guidelines for participation and train the staff on social media compliance, so they will feel comfortable knowing their boundaries. And recognize and share great social media interactions to encourage others to participate.

  2. Lack of proven ROI
    As with all new and disruptive technologies, banks struggle to determine the value of their social media activities and ultimately, their ROI. They are unsure how much likes, fans, and followers actually contribute to the business fundamentals.

    ROI is possible in social media, if measurable goals and objectives are defined. We recommend the following framework:

    • Define SMART (specific, measurable, attainable, relevant, timely) social media objectives and KPIs that are aligned to corporate goals and target segments. For example, one bank's corporate goal may be to generate leads in its youth segment. The specific social media objective would be to generate 10 percent of overall leads in the youth segment from social media over a six-month period by driving traffic to bank-owned channels such as its website, call center, or branch. When new customers sign up, the bank can ask customers if they used social media in their search and consideration process. Then it can measure leads generated through social media as a core KPI.
    • Collect accurate data using social analytics tools, such as Google Analytics, to get a complete picture of social media activity. It is important to collect data before and after the social media initiative to measure the incremental impact. For those interested in brand awareness, measurements may include number of visits, time on the site, number of followers or likes, and conversion rates for users taking specific action. If engagement is more important, banks can focus on metrics such as number of community registrations, comments, reviews, etc., or how influential customers are in terms of their own number of followers and interactions.
    • Calculate the benefits associated with the social media initiative using collected data. The value of a Facebook like can be determined by tracking the revenue generated via leads and traffic originating from Facebook to a dedicated landing page on the company's website (accessible only via Facebook). So the benefit of a 'Facebook engagement' campaign is the total revenue generated from Facebook fans who were encouraged to visit the website and enticed to purchase the promoted product or service. By subsequently quantifying the cost of the social media initiative in terms of people, process, and technology expenditures, the ROI calculation now becomes a trivial task.

    Social media doesn't have to be expensive. Tools and technology are readily available. The real investment comes from thinking and acting strategically about the best ways to engage with your customers via social media.

  3. Product-focused legacy
    Banks are traditionally product-centric. They focus most of their energy on pushing products and services to masses or specific segments. In the social media space, banks need to take on a different dimension that encourages customers to create an emotional bond with the brand.

    With so much happening in the social space, banks are unlikely to capture customers' attention by just pushing out messages about their products or services at random times across randomly selected channels. Instead, explore where the bank's customers and prospects gather and offer something that the audience wants, whether it be relevant content or quick responses to complaints. The discussions naturally lead to sales opportunities, which banks can seize by creating compelling offers and delivering on the value as promised.

    Social media isn't about products and services. It should reflect the experience and emotions of customers as they use products and services.

Social media opportunities
Banks that look at social media as a strategic channel will see many ways to engage with customers across the lifecycle. In past issues of Customer Strategist we have wrriten that banks can mix offline and online customer data to get, keep, and grow customers. We also see innovation potential through activities where banks build customer trust, generate revenue, and achieve operational excellence.

  1. Build customer trust
    Banks are a necessity, but many consumers feel like they have an adversarial relationship with them. The industry's reputation leaves a lot to be desired. Yet there is great opportunity to advance social media to build relationships with individuals to counteract that reputation.

    In their book, Extreme Trust: Honesty as a Competitive Advantage, Don Peppers and Martha Rogers, Ph.D. write that trustable companies do the right things and do things right, proactively. They act in customers' best interests with proactive competence and intent. What better channel to demonstrate proactive competence and intention than social media? Banks can preemptively contact someone before a fee is incurred, or connect with target segments about financial issues that are important to them.

    More than just Facebook and Twitter accounts, we see great potential in bank-sponsored social communities, provided consumers are willing to participate. Banks that position themselves as helpful advisors with useful content can overcome poor reputations to be considered trustable. Community success requires honest, genuine discussion about issues, led by consumers and merely facilitated by the bank. And research shows that consumers who see a firm as a trustable source are more likely to spend more and make recommendations to friends.