The current financial market volatility has changed consumer attitudes and behaviors towards long term savings, pensions, protection policies and life-based investments. Effective customer targeting must be employed for life and pensions providers to fully capitalize on these changes and relearn the importance of the consumer. Furthermore, differing consumer attitudes and behaviors require specific marketing strategies if providers are to successfully target the whole spectrum of consumers.
Customer retention
The UK life and pensions industry has been suffering due to economic conditions, underperforming stock markets and declining consumer confidence. An efficient way in which companies may survive and grow is via retaining their existing customer base and increasing its value.
Consumers are concerned about the economic crisis that has caught financial institutions unaware, and have lost trust in the institutions in which they have placed their assets for safekeeping. As such, consumers have become more independent in managing their finances and, aided by increasingly accessible technology, are more inclined to switch providers. Indeed, research conducted in Datamonitor's Consumer Survey rated online price comparison sites as the most trusted financial services companies. Consumers have embraced online channels for advice and are increasingly dependent on technology to compare products in their search for transparent and competitive policies. Providers should consider the implications of these changes that will increase the likelihood that existing clients will seek and find viable alternatives.
As changes in personal circumstances becomes the key driver of retention during the financial crisis, providers' success in retaining existing customers will come from matching strategies to motivators of the defection of 'budget', 'lost', 'stolen' and 'bought' customer segments. Providers need to put the most retention effort towards existing customers who have the highest lifetime value against the cost of servicing them.
Long term savings
It is important that life and pensions companies understand the changing consumer attitudes towards long term savings. All too often these providers see themselves as distant from consumers and leave the role of aiding long term financial decisions and boosting financial capabilities to independent financial advisors. This must change.
Consumers have high personal debt levels as a result of a credit-dominated society. Having a short term view of the world has also led them to overspend rather than save for their financial future. While consumers intend to take a responsible attitude to their finances, they lack guidance on how best to achieve this. Education and effective communication strategies are vital for providers to highlight the necessity for consumers to look and plan for the future. Providers should particularly target young people (18-34 years old), who are most in debt, and educate this consumer segment on striking the right balance between short term and long term savings to increase their awareness of the different products available.
Life-based investments
Consumers have become more risk-averse and prefer products which offer safer or guaranteed returns over those which offer the highest or most competitive market returns. Providers of life-based investments will also find a set of customers who wish to invest their capital but also want reassurances that they have safe options that may give them a good return. While economic turmoil is the most challenging issue faced by life-based investments such as investment bonds, the market is also traditionally attracting older, more affluent consumers with a stable income who are feeling less of the effects of a recession.
Pensions
Consumers have also slowly started to realize the need to save for retirement. However, in today's economic climate, consumers have been influenced by the perception of affordability and are not prepared to take on higher pension savings. While the UK government aims to address the issue with the automatic enrolment of employees onto a personal accounts scheme, providers still need to ensure that consumers engage in sound private pension saving by setting up schemes where people can save small amounts and demonstrating the difference that can make. Providers should particularly target those approaching retirement that are a key source of pension business and have a strong inclination to ensure a retirement income.
Protection
Since the recession has taken hold, some consumers have begun to perceive protection as a luxury that they can ill afford. This makes it abundantly clear that the industry needs to look beyond trust-building initiatives to raise consumer awareness of protection insurance, especially at a time when the need for financial security is paramount. In a market downturn, providers can capitalize from customers who need reassurance and guidance by being seen as partners in their customers' life plans, and offer financial planning services at key milestones such as a marriage or the birth of a child.
While life and pensions providers need to educate consumers about the need for long term savings, retirement planning and the need for protection, they also need to successfully target lucrative consumer segments. They must ensure that changing consumers' attitudes and needs towards these products are incorporated into products that offer a greater degree of flexibility to meet individual preferences.
