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Manage Products by Understanding Consumer Demand

May 22, 2019
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Marketers and product managers at financial institutions know that a product’s features and benefits can make or break that product. As a result, institutions spend significant time and energy measuring their products’ fit in the competitive landscape.

A typical product analysis considers supply: What are my competitors offering, and how does my product match up? Many of these analyses – comparing pricing, features, requirements and the like – leave out the most important part of the economic equation. They can certainly provide valuable insight, but Economics 101 tells us that examining supply is only half the equation. Understanding product utility can help financial institutions measure consumer demand as well. What do consumers actually want and expect from their financial products and services?

The latest Raddon Research Insights study, Building a Better Product, seeks to answer that question by exploring consumers’ priorities. Traditionally, surveys ask questions like, “How important is (feature A, B or C)?” which generally yield answers like, “Extremely, extremely, extremely.” Given multiple options, consumers would choose all of them. Reality, however, necessitates tradeoffs. Financial institutions cannot typically offer both the best rate and the best features, for instance, so they must prioritize those that matter most to the customers they seek to attract or retain.

The study, available for purchase at Raddon.com, analyzes attributes of five key banking products: savings accounts (including money market accounts), checking accounts, certificates, credit cards and equity products. We also analyze the differences in demand by generation, age, income and even type of primary institution.

Although the findings are too numerous to share here, we offer one fascinating nugget below.

Equity borrowers are mostly ambivalent about the type of product they get. Although consumers slightly prefer equity lines to equity loans, they care far more about the interest rate and, to a lesser degree, the loan-to-value (LTV) ratio being offered. But that overall preference varies by consumer segment.

Credit-driven borrowers, defined as those who are under age 35 and whose annual household income is more than $50,000, care about getting 100 percent LTV; the type of product is not that important to them. However, upscale borrowers, defined as those who are over 35 and have annual household incomes above $125,000, demand the flexibility of an equity line and do not care about LTV.

Many of the findings outlined here may seem intuitive, but certain segments have clear preferences (for example, young equity borrowers for LTV) that differ from those in other segments. Matching these preferences to an institution’s current customer base or market can help that institution create the right product to capture increased market share.

Having the perfect product for a market does not necessarily guarantee success, of course; factors like brand strength, sales force quality and distribution network also play a role. Consumers’ preferences will change over time as well. Equity borrowers’ focus on rate and certificate holders’ insistence on short terms are artifacts of the rising-rate environment. Perhaps those utilities will decline as rates stabilize.

Those caveats aside, measuring consumer demand provides a critical piece of information for decision making. The best practice is to aim where your market wants you to be, not necessarily where your competitors are.