The life trajectories of different demographics across the UK are changing. The challenge of securing a foothold on the property ladder has transformed Britain into a country of renters, spending their money on cars and holidays rather than investing in their houses.
Over the past decade over one million people who would previously have bought houses, have been forced to rent instead, according to a five-year study of UK consumer financial habits by Experian.
The research shows a significant polarisation of wealth, creating a marked gap between old and young, homeowners and renters, high-net worth individuals and the rest of the population. As a result, the consumer groups marketers target today may not exist in the same capacity in the future – if at all.
Sitting in between the poorest pensioners and retired wealthy are the ‘home equity elders’, a group whose financial security is boosted by outright home ownership, according to Experian’s Financial Strategy Segments consumer profiling tool.
Over decades this demographic has worked its way into bigger and better houses. A group of keen savers who are relatively risk averse, the ‘home equity elders’ like familiar brands, although they could be tempted to switch to find the best deal, explains Experian analyst Richard Jenkings.
“They’re not the most spectacularly wealthy retirees and it is very much about trying to get a decent return on their savings. They are in search of the best deal and tend to take out lots of insurance products, using the time they have as retirees to look for the best deal.”
In the short term the ‘home equity elders’ will spend money on their homes and gardens, but long term Experian expects this group of pensioners to shrink as the renting economy becomes more prevalent and subsequent generations struggle to get on the property ladder.
So while DIY businesses, electricians and kitchen design specialists are benefitting today from the current level of homeownership, the balance is shifting. Jenkings believes this change will encourage such businesses to move in one of two directions – either developing basic packages targeted at the booming rental market or premium products to cater for wealthy older homeowners.
“At the moment if you’re a company selling people retirement flats then you’re going to have less people with equity to buy into that model, so at some point down the line you might want to concentrate on luxury flats to play into the way the world is going to be,” he notes.
A lot of advertising goes towards portraying younger people, who are not necessarily the people who are paying for all the purchase.
Richard Jenkings, Experian
As this middle group of older homeowners shrinks Jenkings anticipates it will have a knock-on effect on younger generations. When they become pensioners, for example, they will not be able to release the equity in their homes, removing a damn of money that would previously have rippled down the generations.
“Currently we see this older age group contributing significant amounts of money to mortgage deposits, paying for cars and holidays,” says Jenkings.
“Children and grandchildren of this age group inherit money from this older age group and now there will be less money to pass onto the next generation or the generation beyond.”
Focus on loyalty
Because the ‘home equity elders’ are so deal savvy, when car brand Peugeot talks to the demographic it focuses more on rewarding loyalty, using direct mail and email to communicate.
“This group is looking for something specific, so we tend to address them through discreet CRM channels and only talk to them about the value proposition at a time when we think they’re looking to buy,” explains Peugeot marketing director Mark Pickles.
The brand steps up its communication between 20-30 months after they have purchased a car. “We say we value their loyalty, but we don’t take it for granted. We offer a loyalty payment against their next car, which will be relatively significant because they’re deal savvy. The worst thing we can do is offer them £500 off a car when they’ve just bought one because it shatters their confidence in us.”
Although online investment company Nutmeg tends to skew towards a younger customer base, when speaking to this older age group the team focuses on the product’s ease of use and transparency.
“We want to articulate how a brand like ours is really easy to use and interact with, and we’re very clear about what you get with us,” explains Nutmeg’s CMO Katie Prentke English.
“We really try to empower our customers to be on top of their finances, providing them with the right tools, like a pension calculator so they can get a sense of whether they’re on track for retirement.”
First step on the ladder
Although this group of older homeowners is shrinking, a demographic is emerging at the bottom of the ladder with a whole new set of aspirations. Described by Experian as the ‘earning potential’ demographic, this group of aspiring young adults would have been first-time buyers in previous years. However in 2017 they are renters who hope to buy later, if at all.
Described by Jenkings as the “jilted generation”, these younger people are less well off than their elders, who benefitted from final salary pensions and high house price inflation.
This younger generation face high house prices, low wage growth, repayment of student loans and the continuing cost of renting. As they get older, the Experian research warns they will not represent the same market for goods and services.
This group does, however, care strongly about their career prospects, and are typically characterised as highly mobile and social media literate. They often find themselves caught in the balance between what they need to do for the future versus enjoying their life now. And fun in the present tends to win out.
When talking to this younger group there are several things to consider, Jenkings says. “They respond to emails better than average, but they’re not really interested unless they’re on their phone or tablet. However, they’re nearly twice as likely to respond to social media than any other group.
“The type of adverts they respond to are ones they see at the cinema or on billboards when they’re out and about. The printed media doesn’t exist for them.”
To cater for this younger age group, which makes up 50% of Nutmeg’s customer base, the investment company launched a new app in January giving users greater accessibility to their finances.
“We try to position our brand differently compared to some of the traditional wealth management companies and make sure early starters feel like this is a brand that understands them,” explains Prentke English.
“The language we use to speak to our customers is less around ‘you must do this’ and more about providing them with the right information to make sure they are empowered. We don’t like to speak down to our consumers, but instead communicate in a way they relate to.”
Jenkings agrees that to strike the right tone with younger consumers brands must speak in an authentic manner. He suggests that for sectors like insurance or banking to appear relevant, brands must engage through social media and create app-based products.
This was the strategy adopted by B, the digital banking platform launched by the Clydesdale and Yorkshire Bank Group (CYBG) in May 2016. Aimed at an affluent millennial audience, many of whom are first-time bankers, the app’s design was intended to position B as a stylish tech-focused brand that did not look, feel or sound like a bank. Two months after the launch 50% of the people who signed up to the app were aged 35 or younger.
Making the middle work
Another demographic worth noting is a group of confident homeowners in the middle-age bracket. With average incomes reflective of their level of responsibility and experience, this group is likely to have large outstanding mortgages, some share holdings and typically buy travel insurance.
“They’re pretty tech savvy, but it’s a means to an end,” says Jenkings. “They’re more likely to respond to emails than the younger demographic, but they’re slightly below average in terms of their dealings with social media. They get it, but it’s not big for them.”
This is a demographic that still reads print media and listens to radio, which is quite influential to them. They also like adverts at train stations as these consumers often travel for business or commute into work.
These people are likely to be the most time-poor of the three demographics, often balancing full-time jobs with raising children, and so are looking for products that offer them a tangible time saving benefit.
The worst thing we can do is offer £500 off a car when they’ve just bought one because it shatters their confidence in us.
Mark Pickles, Peugeot
Launched in January, Peugeot’s ecommerce product is aimed squarely at these middle-aged time poor, but digitally confident individuals. The fact this group typically book their holidays or manage their pensions and mortgages online encouraged Peugeot they would also want to buy their car online.
“They want to have all of the information before the test drive, with 60% of the research being done on tablet and mobile. With the new ecommerce product you physically don’t have to leave your armchair to buy a Peugeot. For this demographic it’s more about control than convenience.”
To engage these time-poor consumers, Nutmeg emphasises the product’s transparency, ease of use and lack of jargon, explains Prentke English.
“They can look at their account 24/7 and it’s easy to check what they’re invested in. We talk to this group about how they can have a smart, diversified portfolio, as well as how they can interact with us in an easy way.”
Having a diversified portfolio helps Thomas Cook tailor its offering to these different groups. Sunwing family resorts, for example, are targeted at this middle-aged group, while the high-end adult-only Sunprime hotels are aimed at an older demographic and the Manos brand of smaller, authentic hotels across the Greek islands could appeal to the Airbnb generation.
The travel operator used segmentation based on past customer behaviour and household insight to increase the relevancy of its recent “You Want, We Do” campaign, explains head of online acquisition Candice Lott.
“Then where relevant we use lookalike profiling to target a broader audience, aligning our products and messaging to the customer segments. So with the latest campaign, our own-brand hotels and holidays were targeted by customer segment, as well as by demographics.
“Our marketing has not only been tailored to young, middle-aged and retiree consumers, but also targeted based on other factors including life stage and socio-economics.”
Talking to the real influencers
The Experian data also shows the importance of thinking about all the people involved in a purchase decision and the different factors that impact on decision making.
So while the ‘home equity elders’ tend to stick to brands they know, they are tempted to branch out if a new brand comes at a good price. By contrast younger consumers tend to be motivated by the status of the badge and are tempted to buy into the lowest model in a range if they love the brand. For the middle-aged homeowners it is a toss up between status and affordability.
These group behaviours are tempered by what Experian calls “multi-generational spending”, as older generations become part of the purchase decision due to their contributions to mortgage deposits, cars and major household items.
“A lot of advertising and brand image goes towards portraying younger people, who are not necessarily the people who are paying for all the purchase of a car or holiday,” Jenkings explains.
“There’s a trick for some brands to pitch to the influencers, aiming at the people who are footing the bill or at least part of the bill. You might think it’s all about pitching to someone in their late 20s, but in reality the purchase decision could be based on their parents and their level of influence.”
The Peugeot team has developed a dual approach to appeal to both the first-time driver and their parents, after recognising that while you can talk to the first-time driver about the independence and freedom of having a car, that is the wrong message to give to parents.
“We realised we needed a dual strategy, so we tried to understand at what point the two parties engage and process the first-time driver goes through to rationalise the purchase,” says Pickles. “It’s a two way process, so we need to focus on the needs of both parties.”
When communicating with the parent Peugeot focuses on press and some digital, whereas for the young driver the car brand talks to them almost exclusively digitally via social and video on demand.
“As we know younger people have a high use of apps we make sure we’re advertising in app,” says Pickles. “We’ve changed our media strategy a lot. We’re 50% digital now and I can only see that increasing.”
Going forward Jenkings advises brands to recognise how the balance of life is changing and focus on the relevance of their offering to each specific demographic.“Don’t assume the future is going to be the same as the past.
“There’s lots of evidence that while the immediate future might not be so different, a little bit further out some major things will happen.”