Endya has taught corporate training courses and led seminars in various business topics. She has a master’s degree in business administration.
Consumer Financial Decisions
Martin works within the marketing department of an international financial institution. He created a broad marketing campaign with the goal of impacting consumer financial decisions. The campaign was not successful. Martin sought guidance from his co-worker, Jill. Jill agreed to work with Martin on this initiative. She told him that it's important to understand the financial decisions consumers make. In addition, businesses must also understand the elements that impact those decisions. This is what will help them to develop effective marketing plans that will yield results. The three major decisions that Martin and Jill are focusing on are savings rate, use of credit, and spending patterns.
Let's define these three terms before moving on:
- Disposable income is the amount of money remaining after taxes are paid. It's the amount of money that a consumer would have to either spend or save. The consumer's savings rate is the portion of their disposable income they set aside to save.
- The manner in which a consumer borrows money to purchase items is referred to as credit usage. Buyers may use credit cards or may obtain a loan in order to purchase items. Borrowing money, through credit cards or loans, often requires additional money to be paid through interest and fees.
- The most common way in which consumers spend their money, including types of purchases and frequency, is called consumer spending patterns.
Jill and Martin began a journey together to learn about and determine the factors that impact these three important financial decisions. They first examined cultural dimensions, using Geert Hofstede's theory of cultural dimensions that outlines six facets of culture that may impact decisions: power distance, uncertainty avoidance, individualism versus collectivism, masculinity versus femininity, long-term versus short-term orientation, and indulgence versus restraint. Jill and Martin decide to focus on long-term versus short-term orientation, uncertainty avoidance, and masculinity versus femininity. Let's take a closer look at each of these dimensions:
Long-term vs. Short-term Orientation
The long-term orientation versus short-term orientation cultural dimension describes the predisposition a society has towards past, present, or future benefits. Long-term oriented societies are focused on future benefits and qualities, whereas those that are short-term oriented are motivated by the benefits of the past and present.
Since short-term oriented cultures prefer instant gratification, the savings rate within these societies will be lower. Those that are long-term oriented would save more to reap the benefits in the future. They would also spend less and use less credit.
It is important when developing marketing strategies to differentiate the tactics and messaging based on the consumer's long-term or short-term orientation. Jill and Martin begin to develop separate strategies for short and long-term oriented consumers.
The uncertainty avoidance dimension explores people's comfort level with uncertainty and ambiguity. Those with a high level of uncertainty avoidance will sometimes avoid risk. They will also make decisions with the goal of making the future as predictable as possible.
As such, those with a high level of uncertainty avoidance have a higher savings rate, as they save to allow for more control over future circumstances. They will also use less credit and have a lower spending pattern. Jill and Martin leveraged this knowledge to develop specific tactics for those with a high level of uncertainty avoidance and developed separate tactics for those with low levels of uncertainty avoidance.
Masculinity vs. Femininity
The masculinity versus femininity dimension measures a culture's inclination towards certain characteristics. Some cultures are viewed as having a high masculinity index. These cultures value assertiveness, status, and material rewards over modesty.
In cultures with a high masculinity index, the spending pattern is higher, as is necessary to keep up with status and material rewards. Credit usage is also high, while the savings rate is low.
Since their company is a global company with customers worldwide, Jill and Martin examined the countries within their customer base to determine whether they have high masculinity indexes or high femininity (low masculinity) indexes.
To simplify the trends based on these cultural dimensions, Jill and Martin compiled the chart below, which they will leverage to craft their revised marketing plan.
However, after drafting the chart, Jill and Martin realized that there was yet another element they needed to understand and assess.
Marketing Communication Types
In addition to cultural dimensions, Jill and Martin also recognized that marketing communication types impact the financial decisions consumers make as well. Through their research, they found there were those with whom optimistic and reward focused messaging would resonate with. These people would be referred to as promotion focused. In contrast, there are those that are prevention-focused. These consumers are more motivated by the ability to remain protected and safe. Therefore, they will take action if it will prevent a negative outcome. However, if the action is risky, they are more likely to avoid it.
Armed with this differentiation for the communication type perspectives, Jill and Martin now understand the purpose of including both types in their marketing plan. Jill and Marin created a survey for their customer base that would allow them to accurately assess each customer's cultural dimension and preferred marketing communication type. This provided a great foundation on which Jill and Martin could build their revised marketing plan.
Savings rate, the portion of disposable income consumers set aside to save; credit usage, the manner in which a consumer borrows money to purchase items; and spending patterns, the most common way in which consumers spend their money, including types of purchases and frequency, are three key financial decisions consumers make. In order to successfully guide members through those decisions, it's important to understand the consumer's cultural dimensions and their preferred marketing communication type. This enables companies to create successful strategies that will resonate with their customers.
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