The way in which financial services providers segment their customers is largely outdated, and until the life-stage model reflects modern living, the marketing of financial services will be a struggle
Towards the end of last year, the “pensions crisis” dominated the headlines as the Turner Report called for sweeping changes amid rumours that Chancellor Gordon Brown thought them unworkable. Much has been written about the need to save for retirement and to raise the retirement age, and this is a critical time for both the financial services industry and the Government.
Financial services providers are constantly looking for ways in which to segment their customers – largely so they can target products and services more profitably. Life-stage marketing plays a key role in this segmentation and this model is based on the premise that couples marry relatively young, have children, retire and grow old together. Yet this model is not only hopelessly inadequate for today’s market, it is an oversimplification and does not take into account distinctive groups, such as delayed empty-nesters, those who retire early and the number of professional childless couples on high incomes.
BDRC recently conducted research looking at the “financial dilemma” facing many consumers and found that while the commercial financial services sector is becoming more necessary to consumers’ lives, there is little recognition within the sector of the changes to peoples’ lives. However, consumers also display apathy. Despite the Government’s attempts to hammer home the need for us to save more for our retirement, spending on financial services is not considered a priority by the majority of UK consumers. Thirty-five per cent of consumer spending is on restaurants, alcohol, tobacco, leisure and recreation; less than seven per cent is spent on financial services.
One recurrent theme across the life stages, but particularly within the older life-stage groups, is the degree of uncertainty expressed by consumers about what they should be doing with any excess funds. A quarter of UK households do not save any money at all, including a higher proportion of the younger and family life-stages. More needs to be done to communicate with these groups and encourage them to plan for future financial security.
The life-stage model that underpins the marketing ethos of financial institutions is one area to focus attention. There are lessons for all marketers. While there is nothing wrong with the concept, the models adopted are not necessarily realistic. The findings of a recent study by the Institute for Public Policy Research, for instance, showed that more than ten per cent of 25- to 44-year-olds now live alone, and this number is expected to grow.
BDRC’s research shows that there are other significant consumer segments that are either not catered for, or have needs that are not met by the financial services industry. These include divorcees and second family formers (two in five marriages end in divorce), singles and childless couples (one in five adults between 30 and 65 is single, and a further one in ten is in a childless relationships), working women (with or without children) and ethnic minorities. These consumers slip through the net of traditional life-stage marketing in large numbers.
There is a huge opportunity to cater for these sizeable so-called niche groups, but marketers must first accept that they exist, then understand their needs and develop appropriate solutions. Marketers must assess whether the life stages that their marketing activities are based on are still relevant. They must look at whether certain products are wholly or mainly targeted towards particular life stages and ask whether they are still appropriate.
Demographically we are rapidly becoming a nation of older and retired people. This has implications in the medium to long term and financial services marketers must consider this. They should target the growing numbers of single people and childless couples – especially the latter who represent an attractive segment in terms of disposable income.
All these forces make a revision of the traditional life-stage model essential. It is imperative that the marketing models used clearly reflect the market, rather than marketers relying on the old, tried-and-tested methodologies that may no longer have any bearing on modern reality.
Alistair Whitmore, director, Ipsos MORI Financial Services
The financial services industry has historically been less sophisticated in its marketing than retailers and the packaged goods industry. However, this is by no means universally the case, and there are many examples of advanced use of geodemographic applications for customer acquisition, retention and cross-selling purposes. The structure of British society is increasingly complex and it is a challenge to all marketers to understand the changes. The ageing population is very predictable and other known factors such as the number of people in higher education amassing debts also have great implications for the financial services industry. But changes in attitudes and lifestyles are also very important and are less easy to predict. A life-stage model can only go so far. Segmenting the population by life events such as births, marriages and divorces as well as with behavioural, attitudinal and geodemographic classifications can greatly enhance understanding of consumers’ needs. There will, however, always be segments that the industry will find relatively unprofitable to target, but that is an issue for society as a whole to address.