TRC

By Rajan Sambandam

An important consideration for banks is how customers choose them for opening checking accounts. Given that checking accounts can often be the keystone of an entire relationship with a banking customer, the importance of this decision becomes even higher. How then do we understand choice in banking?

Traditionally the focus has been on directly asking customers what factors they consider when opening a new checking account at a bank. This can be done qualitatively or quantitatively, and often both are done sequentially. In quantitative questioning, respondents are usually provided a series of reasons (or features of the bank) and asked about the importance of each one using an importance scale. There are several drawbacks to using such a scale [Please refer to the article Identifying Feature Importance: A Comparison of Methods for a more detailed explanation]. The primary problem is that since no trade-off is involved, the respondent has no incentive to clearly discriminate between features. Hence, many features show up as being important without clear separation among them. A solution to this problem is provided by conjoint analysis.

Conjoint analysis uses a trade-off approach to get at respondent preferences. Instead of asking about features one at a time, respondents are shown entire products (described as bundles of features) and asked for their evaluation. In the particular form of conjoint analysis that we will be looking at (discrete choice), respondents are shown sets of product descriptions (bank checking accounts) and asked to choose the one they like the best in each set. This approach more closely mirrors what happens in the real world and hence provides better answers. As we shall see shortly, conjoint results are also provided in a form that is particularly useful.

To conduct a conjoint analysis one needs to pay careful attention to the features to be included in the study. In this case, specific attention needs to be paid to the features that consumers may consider when choosing a checking provider. Each feature needs to be defined with two or more levels, such that respondents can clearly see the difference between the levels.

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