Consumer Segmentation

An extract from Bank Marketing International, February 1999

Targeting the dazed and confused

The majority of UK consumers are still confused about personal finance products and providers, according to a new report. But new methods of segmenting customers and communicating brands could help, as Anna Ronay reports

THE VAST majority of UK consumers lack confidence in personal finance and are confused and anxious about it. But this could prove profitable for marketers.

"Coupled with rising affluence and growing concern about financial provision for the future, we believe this represents a significant opportunity for organisations that are able to identify and meet the distinct needs of different consumer segments. The role of brand [in such an environment] will vary depending on which consumer segment is being targeted."

Successful brands of the future should reflect a move of focus from product to service and, increasingly, financial services providers must see their brands as service brands which need to communicate accessibility, empathy and trust. "These brand values must permeate every level of the organisation, whether directly consumer-facing or not."

Financial services companies still have some way to go in terms of brand trust in comparison with other sectors. Fewer than one-third of adults have confidence in insurance companies, while organisations like NatWest (31 percent) and First Direct (17 percent) score below Ford, Nestle, Co-op and Virgin in terms of the proportion of adults who trust them to be honest and fair.

Financial services brands continue to fall significantly behind trusted brand leaders such as The Post Office (81 percent), Marks & Spencer (75 percent) and Heinz (74 percent), the report finds. Meanwhile, the consumer has been changing so rapidly that financial services companies no longer have the ability to understand them.

"Today's consumers are better off, more confused and less predictable than ever before"

The report identifies new segmentation which clusters consumers according to their attitudes to personal finance, rather than by their demographic and socioeconomic profile alone. These segments are defined as confident investors, pressured providers, free-thinking independents and apprehensive traditionalists.

Across the segments, many consumers do not have the time or inclination to shop around for financial products. The report suggests that providers should identify the consumer's needs and then design products accordingly. At present "consumers are left to identify both what products they need and where best to obtain them," the report says. The segmentation consists of two axes of consumer attitudes and behaviour: engaged versus indifferent and sophisticated versus conservative.

Just more than half of all adults in Britain are 'engaged' in their attitudes to personal finance, according to the report. This group recognises the importance of looking after their finances and taking time to ensure they are on top of financial matters.

The 'indifferent' group finds personal finance tiresome and boring. They tend to be spenders rather than savers.

'Sophisticated' consumers can be either engaged or indifferent, according to the report. The shared characteristic of this group is its comparative confidence when selecting and buying financial products. Sophisticated consumers want to be in control of financial decisions and are more open to non-traditional providers/channels, the report finds.

The majority of consumers remain conservative. This group sticks to traditional providers, risk-averse savings products and are anxious about their finances.

From these categories, the four distinct customer segments emerge, said consultant Kien Tan.

Confident investors account for one in five adults, are financial hobbyists and are sophisticated in their attitude to financial services. More than half are shareholders and more than 70 percent have private pensions. In terms of buying behaviour, "we suspect that confident investors dominate the financial services market, particularly for more complex products," the report says. This group is not particularly affected by brand because it is confident to seek out the best deals for itself, the report finds.

The largest single segment consists of pressured providers who account for one-third of all adults and are distinguished by demographic profile. The group is mainly 30-50-year-old working couples with children who are "much more concerned than average about having adequate financial provision for themselves and their families". This means pressured providers engaged in financial services are motivated by a sense of duty rather than interest or choice.

Concern for the future means this group tends to stick to conservative investment options. "Three-quarters agree that it's best to stick with traditional well-known companies for banking and insurance. Fewer than one in four would trust a big retailer to run their bank account", the report says.

Free-thinking independents make up 22 percent of the UK adult population. This group likes to spend rather than save (85 percent compared with 35 percent of confident investors and 36 percent of pressured providers). Although three out of five free thinkers admit they don't understand complex products, this does not mean they are not astute investors, the report finds. Almost one-half of this group would trust a big retailer to run their bank account.

This segment is also the most suspicious of traditional financial services providers and products. These consumers are, however, particularly attracted by the simplified and highly branded offerings of 'new' providers, such as Virgin, the supermarkets and offshoots of existing providers - for example Barclays' b2 and Prudential's Egg.

The final segment (24 percent) consists of adults who are neither engaged nor sophisticated in terms of financial services. Defined as 'apprehensive traditionalists' this segment has been left behind by the changes in financial services, the report says.

This group does not understand complex financial products: two-thirds are confused by the amount of financial direct mail they receive and over three-quarters claim not to understand pensions, PEPs and TESSAs. This segment is least likely to trust supermarket banks, is most suspicious of the stock market and most keen to stick with traditional well-known suppliers. This group also includes an estimated 5-10 percent of the population who have been excluded from the financial services market all together.

Grouping consumers in terms of their attitudes means the role of brand must vary from segment to segment, Tan stressed. Financial services providers should use their brands to communicate as a sign of trust and security for pressured providers and apprehensive traditionalists, as an editor of choice for free-thinking independents and as a signpost and differentiator for confident investors.

While it is uncertain which will be the successful brands in tomorrow's financial services arena, understanding the needs and attitudes of different consumers, and targeting them appropriately, will ensure players a head start, the report concludes.

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This update December 2002