The long term savings market has had another period of bad press recently as the fees charged by fund managers have come under intense scrutiny. This once again threatens to topple any confidence amongst the British population that saving for one’s future is a good idea for anyone but those employed in the Square Mile. Add to this news that the only savings product that truly guaranteed an above inflation return has been withdrawn by NS&I, while the banks have once again managed to announce multi-billion pound profits. For a financial service industry that has suffered years of bad press, it is little wonder that consumer confidence in it remains thin.
It is interesting to compare the financial services industry with another that makes multi-billion pound profits but does not suffer the same levels of consumer cynicism. How do the major supermarkets manage to make so much money yet still keep consumers on their side – and what will happen if they really do get serious about selling more complex financial services? They get away with it because they are believed to put the interests of their customers at the heart of the way they do business. Consumer champions yet still highly profitable – the ideal win-win scenario.
But this was not always the case. In the late 1990’s millions of customers were walking through Tesco’s doors every day, yet the company had little idea about who they were or how to better satisfy their needs. Yes, they knew what they had sold each day but which customers were buying what and how was this changing, and what proportion of a customer’s total shop was the store fulfilling and how often were they coming back?
Tesco and many other retailers realised long ago that the only way to grow a profitable long-term business was to ensure that what they offered was what their customers wanted. The company’s mission statement was very clear on this: “To create value for customers to earn their lifetime loyalty”.
The real step change in delivering against this objective came when the ability to gather and analyse individual customer level data arrived on the scene. The launch of loyalty cards allowed retailers to analyse sales by customer, over time, to understand both the needs of that customer and, more importantly, where they could be served better. Customers could be segmented easily according to behaviour, and price, range and promotions could also be tailored to individual customer needs.
Back to the financial services industry. Although the parallels are maybe not immediately obvious, there are many lessons that can be learnt from the supermarket’s focus on customers.
Firstly, customer loyalty has to be earned. There is inertia in customer behaviour in financial services that is often mistaken for loyalty. This will change. Greater transparency and access to comparison data, easier switching and growing financial reality amongst customers (as many realise that they have been living beyond their means for years and face a difficult retirement) will all contribute to a new era of customer interest and activism. In this new environment, transparency and pro-activity will prevail over obfuscation and lethargy.
Working with customers to help them find the best deal, the right funds and the correct level of risk will entail more work and cost but the rewards will ultimately follow. Customers will begin to trust their financial services suppliers, they will begin to show active loyalty to those that have their best interests at heart and will ultimately invest more for longer.
There are however some major issues here for the short to medium term savings industry that will not be easy to solve and these will have to be confronted. If every customer is actively encouraged towards the best rates, then the headline rate available will ultimately fall. This is the elephant in the room for a true transition to customer focused savings institutions.
The second lesson is that customer insight has to be liberated within the industry. Currently the level of customer analysis and insight available to companies within the industry is very limited. There is a huge amount of internally focused data about sales volumes, profitability and yields, but a dearth of data about customer preferences, share of wallet, loyalty, satisfaction or performance. It is not that the core data does not exist, it is just that the need and the will to release it has not been there.
Just as happened in the grocery industry in the 1990’s, the providers and advisers that put the consumer at the heart of their business and embrace customer data will be those that win in the future.