Online Communities WHY THE CURRENT MODEL OF FINANCIAL MARKETING IS BROKEN AND HOW ONLINE COMMUNITIES CAN HELP FIX IT. DIGITAL COMMUNICATIONS

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1 DIGITAL COMMUNICATIONS Online Communities WHY THE CURRENT MODEL OF FINANCIAL MARKETING IS BROKEN AND HOW ONLINE COMMUNITIES CAN HELP FIX IT. Hazel McHugh

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3 Executive Summary This white paper is designed for financial advisors who realise that the wealth management industry faces unprecedented challenges from regulatory change, shrinking margins and spiralling costs. It explores digital solutions to restore lost trust, combat increased competition and self-service advice and meet the demands of web-savvy clients. It describes the shift in control that has placed the customer firmly in charge and explains why online communities offer a cost effective alternative to the diminishing impact of old media. It offers some suggestions on how to engage with new and existing clients and underlines the powerful impact of online word of mouth. Kurtosys believe that the winners who emerge from these turbulent times will share three attributes: They will use technology to enhance performance, cut costs and drive efficiency. They will put clients in control, engaging them via digital conversations. They will use social customers to combat the decline in advertising effectiveness. We believe that an online community can deliver all three. Our experience tells us that customer forums not only attract or retain clients but build loyalty and advocacy that money can t buy. The current model of financial marketing is broken. We believe it takes a community to fix it, after all we are stronger than me. CUSTOMERS WHO JOIN IN WITH ONLINE COMMUNITIES: 76% Feel more positive about the company 82% Are more likely to recommend the business to others 54% Spend more than non-community members 89% Believe that the company is concerned about what they have to say 91% Think the community helps them give candid feedback 50% Remain customers for 50% longer than non-community users (Sources: 1-5, Communispace/Harvard Business Review; 6: AT&T,2002) Online Communities 3

4 Introduction: Online communities & the demands of the social customer Virtual communities have been around for as long as people could write and send letters to one another. The internet has made it quicker and easier to share information but really, the desire to connect with people is as old as time itself. As everyday life becomes more pressured and the time for nurturing relationships declines, people are relying on social networks to engage with each other. These social customers expect brands and businesses to do the same. Customers no longer want to merely listen, they want to talk, to create, to collaborate and they want to feel valued as individuals. Online communities can meet these demands. Collaboration is a powerful new lever to cut costs, innovate faster, cocreate with customers and usher organisations into the 21st century business environment. Don Tapscott/Anthony Williams, Wikinomics New or potential customers Brand or business Customer An online community can create a powerful triangle of interaction in which a business, its customers and potential new clients can engage with each other, stimulate debate and share valuable content. 4 Online Communities

5 Financial marketing: A broken model AS the financial sector faces unprecedented change, power has shifted to the consumer Turbulent times are ahead If ever an industry needed to re-build its image, it s the financial sector. RDR, a loss of consumer trust and confidence and increased choice and competition have combined to create the perfect storm. Old media has lost its touch On average, people recall 4% of advertising from the last TV show they watched [i] and 55% of us prefer to watch catch up TV without ads. [ii] Just 22% of organisations think direct mail is a powerful way to communicate. [iii] In other words, old media that targets many customers with one, broad message is losing its effectiveness. Social media is about sharing highly personalised messages interactively and it is here to stay. Power has shifted to the consumer. But there s a mismatch between what customers want and what IFAs provide 27% of IFAs don t have a website Less than 10% of IFAs send an newsletter Less than 10% of IFAs write a blog Less than 1% have a YouTube channel Yet 77% of people see the internet as the best way to research financial products. [iv] Yet B2C marketers report an average 256% ROI from this tactic. [v] Yet companies that blog generate 67% more leads per month than those who don t. [vi] Yet over 3 billion videos are watched each day. [vii] Online Communities 5

6 The new rules of customer engagement Most customers now start their search for financial advice online Considering three quarters of us (73%) rely on online health advice [viii], it s no surprise that clients expect the internet to solve their financial queries too. Consumers trust online forums and older, wealthy prospects represent the largest growth area for online social networking. What s more, the 50+ segment use the web to forge deeper connections where financial advice becomes a powerful agent in decision making. 77% 43% 39% of consumers now see the internet as the best way of researching financial advice. think financial discussion boards are a valuable source of info. think the web is a good place to get a second opinion after seeking financial advice It s not B2B, B2C but B2Human that matters Word of mouth: Powerful and free 93% 70% 76% 94% of customers think word of mouth is the best, most reliable source for information about products and services. (source: NOP World) of word of mouth conversations have an impact on brand purchase (Source: Keller Fay) of consumers believe that companies don t tell the truth in advertising (Source: Yankelovioch) of customers regularly give and seek information about products (Source: emarketer) People are suspicious when brands or businesses talk about themselves. People like people and they want recommendations from trusted sources to help them choose products and services. Customer want, and need, to feel the human touch. Word of mouth is one of the most powerful marketing methods in existence and the great news is that digital technology amplifies it, all at virtually no cost. 6 Online Communities

7 Reaching new and existing customers takes the 7 C s of communication All of this means that customers are waiting for you to reach out to them online. They crave interaction and the ability to ask questions of you and each other, to review the service you offer and to help shape the way you communicate with them. The social customer demands: conversation Customers want to engage in an ongoing, 2-way dialogue that is not transaction based. community Customers want to feel part of something that matters and to connect with one another and you. collaboration Clients want to contribute to the debate, add opinion or advice, rate and review products and services and help answer each other s questions. commitment credibility character Consumers want to feel valued for the long term, not treated like a oneoff cash cow Peer to peer advice has become the most trusted way of recommending a product or service. New and potential clients want to get to know you, see what you look like and make a connection... all before they pick up the phone. controversy Customers want to complain in public and it s how you deal with it that will set you apart from the crowd. Turning unhappy clients into brand ambassadors is immensely valuable. Online Communities 7

8 The virtuous circle of online communities Customer access valuable content Participation grows and more valuable content is created An online community can sustain itself cost effectively, generating earned rather than paid for advertising. Positive W.O.M attracts new clients Feedback is acted on/ customers feel valued Customers create new content & leave feedback Meeting the demands of the social customer may sound difficult, but in truth, an online community can become its own self-sustaining virtuous circle where participation breeds participation and both you and your clients feel valued, rewarded and engaged. Engagement drives loyalty, advocacy and retention whilst reducing churn, servicing costs and complaints meaning that an online community is not just a marketing strategy, it s a strategy for improving and growing your entire business. 8 Online Communities

9 What is an online community and what can it do? An online community or forum is a space customers can visit to ask questions (Q&A), rate and review products or services, leave feedback and comments, participate in research and development or simply connect with other users and/or experts. What can an online community do for my clients? Answer questions Offer real-time advice Show reviews of products & services Provide a way to take part Build trust Connect customers with you and each other Distribute valuable content Drive an ongoing conversation that is not about transactions of promotional gimmicks. What can an online community do for my business? Generate positive word of mouth Reduce marketing costs Deal promptly with complaints Retain / upsell / cross sell Differentiate you Provide a compliant way to take part in social networking Reduce customer support costs Attract an ongoing pool of new leads and potential new clients Why build your own community? Given the size and influence of social networking giants such as Facebook or Twitter, you might ask why should an IFA build their own online community? There are a whole host of reasons why creating your own forum is more effective, but here three of the most important: 49% of people never read and research on social networks like Facebook or Twitter when planning purchases. [ix] Although people love connecting with friends and family via Facebook, when it comes to products and services, they prefer to go direct to the provider s website. Building your own online community puts you in control of design, costs and compliance. Social networks are constantly vying for supremacy. Creating your own community means you can focus only on that, rather than constantly having to get to grips with the next big thing. Online Communities 9

10 Conclusions and taking the next step The financial sector is facing unprecedented challenges on every front. Failure to respond is not an option; social customers demand change or vote with their feet. Online influencers are controlling the purchase decisions of 74% of the population [x], a customer community can make you part of those conversations. Word of mouth is the most trusted form of marketing and it is virtually free. Building an online community is more than a marketing strategy; it s a strategy for improving and growing your entire business. About Kurtosys Kurtosys is a global provider of digital technology to the financial sector. Since 2002, our team of industry experts have been using digital media to transform the way that financial information is shared and consumed. Headquartered in London, Kurtosys has offices in New York, San Francisco, Cape Town, Gurgaon (India) and Manila. Our presence spans five continents and our clients include some of the world s largest asset managers. About the author Hazel McHugh spent 10 years in financial services marketing for Santander before becoming a freelance writer. She can also be found contributing regularly to the Kurtosys blog. 10 Online Communities

11 Sources: [i] Newspaper Bureau Association [ii[ YouGov research, June 2011 [iii] Marketing Sherpa, Mar 1, 2011 [iv] [v] [vi] Hubspot, State of Inbound Marketing Lead Generation Report, 2010 [vii] YouTube press statistics: [viii] LSE report for Bupa health pulse 2010: [ix] E-tailing 2011 online shopping survey [x] Gartner report that one fifth of consumers now influence the purchasing behaviour of 74% of people. com/social-media-news/majority-of-consumers-use-social-networks-to-inform-buying-decisions-says-study-2/

12 POWERING SOCIAL COMMUNITIES THAT ANSWER THE WORLD S QUESTIONS. Claim your free community at DIGITAL COMMUNICATIONS Tuition House, St Georges Road London SW19 4EU, United Kingdom Switchboard: +44 (0)