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Financial Services Marketing to C1C2DEs - Market Assessment

Product Type: Market Research Report
Published by: Key Note Publications Ltd
Published: November 2006
Product Code: R310-1376
Description
Middle and low earners — the C1s, C2s, Ds and Es — have lost out to high earners since the Thatcher years. For the `ordinary' household, secured and unsecured credit have been the only ways to try and increase consumption towards the levels of the affluent. Income and expenditure data highlight the knife edge on which many households are attempting to balance. Consumers are trying to save more and cut their debts; however, people on low incomes find both of these goals difficult to attain, and Bank of England data show that debt levels are still rising. Homeowners are relying increasingly on property for financial planning.

Most official economic projections are based on the continuation of current trends, yet climate change, environmental degradation and fossil-fuel depletion may lead to economic contraction. Few organisations are prepared to take the possibility of economic contraction seriously. If an economy is contracting, debt becomes impossible to repay. Therefore, debt repayment should become a priority for individuals and businesses. Short-term products, such as current accounts and general insurance — particularly compulsory products such as motor insurance — are more attractive for providers to customers on average and below-average incomes than are long-term investments and loans. This is because of the rising risk that 1, 2 or 3 decades on, customers will have difficulty making payments or repayments.

Tax-paying adults with low incomes are clustered in the inner zones of old, formerly industrial towns and cities, and many are in areas where immigrants have settled in large numbers since the Second World War. There are high concentrations of adults on low income in north west England. Pension incomes remain extremely low all over the UK. Several rural areas are among the parliamentary constituencies with the lowest pension incomes, one important reason being the higher levels of self-employment in the countryside, and the consequent lack of employers' occupational pensions. Rural areas are also prominent among the districts where income from self-employment is lowest.

The paper increase in UK households' wealth is almost entirely due to the rising values of non-financial assets, mainly people's homes. In spite of being overvalued in relation to personal incomes, the UK property market is buoyed by a growing gap between the number of new homes and the number of new households, by immigration and by foreign money seeking a safe haven. Property ownership is now unaffordable for would-be first-time buyers on below-average incomes. The rising unaffordability of housing, impacting on prices and rents, has led to huge demand from tenants for housing benefit, which, in 2005, cost £13.7bn. This significant cost could lead to political pressures for the reintroduction of rent controls, which would make buy-to-let properties less attractive to landlords.

Few low-income households have more than £8,000 in savings and, in 2004/2005, almost two-thirds of single parents said that they had no savings at all. Single adults, both male and female, below pension age and without children came next, with almost half of them lacking any savings. People on low incomes have little opportunity to build up savings and investments, unless they tightly rein in their discretionary spending. However, if they did so, the growth in gross domestic product (GDP) would suffer. The Government seeks two irreconcilable objectives — a rise in personal saving, particularly pension saving, and strong retail spending for the sake of GDP figures.

Individuals with more than £6,000 in savings start losing entitlement to welfare benefits, and, if they have more than £16,000, most benefits are completely barred. Therefore, for most people on middle and low incomes, saving more than £6,000 does not make economic sense, unless they fear that the state will run out of money to pay welfare benefits in the future. Customers on moderate and low incomes need maximum security for their usually small savings. National Savings and Investments is backed by the Treasury, meaning that depositors' money is even more secure than it would be in a commercial bank or even in a mutual, and some products are ideal for non-taxpayers.

Households in the lowest three income deciles tend to spend more on debt consolidation loans than they put into savings and investments. These loans are generally arranged over a longer period than the original credit, so limit borrowers' capacity to save and invest for years into the future. More consumers are turning to the Consumer Credit Counselling Service and other organisations to help them plan debt repayments.

At least 1.3 million workers in the UK receive only the minimum wage. Tax credits, in theory, make life more comfortable for people on, or little above, the minimum wage, but have been so riddled with errors that many recipients have lost faith in them. Even with tax credits, workers on or near the minimum wage lack the resources to participate extensively in financial services.

Consumers with limited disposable incomes need low-cost financial services, which can often be provided online. However, Internet access remains restricted among lower-income groups, and older, poorer people lag behind the rest of the population in the confidence they show in Internet banking.

People are attempting to save more and cut their debt levels, although people on low incomes find both of these aims difficult to achieve. Key Note's survey (conducted by NEMS Market Research in June 2006), showed that under a quarter (24.2%) of respondents are saving less now than they had a year earlier, and nearly one in three (27.6%) said that their debts have fallen over the previous year. In comparison, just 13.8% said that their debts have risen. However, these replies do not match the Bank of England's data on personal debt, which show that it continues to escalate.

According to Key Note's survey, 16.4% of respondents have no savings at all, increasing to 28.6% among social grade E. Those on the lowest incomes have difficulty controlling their debt — among those in the E social grade, 20.4% said that their debts have risen over the preceding 12 months, a higher proportion than in any other social grade.

The Consumer Credit Act 2006 requires relationships between lenders and customers to be `fair'. For many sub-prime lenders especially, the Act will strengthen the consumer's hand. Lenders' costs may increase, while their capacity to recoup expenditure by raising charges will be limited.

Current social policies favour families and pensioners on very low incomes through the tax-credit and pension-credit systems. Economic policies favour entrepreneurs and the directors and managers of large companies, who face a top tax rate of only 40%, no matter how much income they earn. The losers are the people in the middle, who have little chance to amass capital, but who are not poor enough to qualify for many, or any, means-tested state benefits.

Motor insurance will remain a key product category. Products that can be sold direct at low cost and do not require independent financial advice — such as home, contents, pet and travel insurance; mortgages and loans; revolving credit; and cash savings accounts — are set to remain the staples for customers whose incomes are in the low to middle range, although sharp premium rises in a fundamental category, such as motor insurance, will reduce the number of financial products that middle- and lower-income customers can afford to buy. Products that require long-term commitment, including mortgages, will need to be flexible. Debt consolidation services should continue to grow.

The private sector cannot profitably meet all the financial needs of low- to middle-income customers, as a result of their constrained disposable incomes. Friendly societies, credit unions and other mutuals, and mutual-private and public-private partnerships, should expand in importance.
Table of Contents
Executive Summary



1. Introduction

  • BACKGROUND

  • Overview

  • Methodology

  • Exclusive Consumer Research

  • Problems in the Research Process

  • DEFINITION

2. Strategic Overview


  • MARKET DYNAMICS

  • Market Issues

  • Table 1: The UK Government's Former and Current Occupational Classifications

  • Table 2: Occupational Classification of Individuals in Great Britain by Current or Last Job (000 and %), 2004/2005

  • MARKET STATUS

  • MARKET VALUES

  • DISTRIBUTION

  • COMPETITIVE STRUCTURE

  • Leading Companies

  • Foreign Presence

  • MARKETING ACTIVITY

  • Advertising Trends

  • CONSUMER TRENDS

  • MARKET OUTLOOK

  • Problems With a Linear Scenario

  • Public-Private Partnerships

  • Equity Release?

  • Table 3: The UK Equity Release Market (number, £m and %), 2004-Q2 2006

  • Short-Term Products

  • KEY POINTS

3. Income Patterns


  • INCOMES PEAK BEFORE AGE 50

  • Table 4: Weekly Household Income and Source of Income in the UK by Age of Household Reference Person (% and £), 2004/2005

  • Table 5: Change in Weekly Household Income by Age of Household Reference Person (%), 2001/2002-2004/2005

  • INCOMES LAG IN OLD INDUSTRIAL CITIES

  • Table 6: UK Parliamentary Constituencies With the Lowest Median Total Incomes (£), 2003/2004

  • LOW PENSIONS IN RURAL AREAS

  • Table 7: UK Parliamentary Constituencies With the Lowest Median Pension Incomes (£), 2003/2004

  • SELF-EMPLOYMENT INCOMES DIP IN THE COUNTRYSIDE

  • Table 8: UK Parliamentary Constituencies With the Lowest Median Incomes From Self-Employment (£), 2003/2004

  • WOMEN'S LOW INCOMES

  • Table 9: Estimated Income Bands by Sex (000 and %), 2005/2006

  • Figure 1: Estimated Income Bands by Sex (000), 2005/2006

  • OCCUPATIONS WITH MODEST PAY PACKETS

  • Table 10: Lowest Median Weekly Earnings for Full-Time Male Employees in the UK by Occupation (000, % and £), 2005

  • Table 11: Lowest Median Weekly Earnings for Full-Time Female Employees in the UK by Occupation (000, % and £), 2005

  • KEY POINTS

4. Where the Wealth Isn't


  • FEW ASSETS APART FROM HOMES

  • Table 12: Net Wealth of the Household Sector in the UK at Constant 2004 Prices (£bn), 1991, 1996 and 2001-2004

  • Figure 2: Net Wealth of the Household Sector in the UK at Constant 2004 Prices (£bn), 1991, 1996 and 2001-2004

  • SAVINGS STAGNANT

  • Table 13: Households' Savings Profile by Amount of Savings (% of households), 2001/2002 and 2004/2005

  • Table 14: UK Households by Amount of Savings and Total Weekly Household Income (% of households), 2004/2005

  • Figure 3: UK Households by Total Weekly Household Income (% of households), 2004/2005

  • SINGLE PARENTS MOST LIKELY TO LACK SAVINGS

  • Table 15: Benefit Units in the UK by Amount of Savings and Total Weekly Household Income (% of benefit units), 2004/2005

  • LOW PARTICIPATION IN FINANCIAL SERVICES

  • Table 16a: UK Households by Type of Saving and Total Weekly Household Income — Up to £599 a Week (% of households), 2004/2005

  • Table 16b: UK Households by Type of Saving and Total Weekly Household Income — £600 to £1,000 or More a Week (% of households), 2004/2005

  • KEY POINTS

5. Basic Banking


  • BASIC ACCOUNTS — STILL NOT FOR ALL

  • ALTERNATIVES TO BANK BRANCHES

  • CHEQUE CASHING AND MORE

  • LINKED SAVINGS

  • KEY POINTS

6. Supermarket Banking


  • DISTRIBUTION CHANNELS

  • SAINSBURY'S BANK

  • TESCO PERSONAL FINANCE

  • ASDA

  • MORRISONS

  • MARKS & SPENCER

  • THE CO-OPERATIVE GROUP

  • KEY POINTS

7. Safer Savings


  • LITTLE POINT SAVING OVER £6,000

  • MINIMAL SAVING RATIO

  • Table 17: UK Households' Saving Ratio — Including and Excluding Changes in the Net Equity of Pension Funds (£bn and %), Q1 2002-Q1 2006

  • Table 18: Average UK Households' Expenditure on Selected Financial Products (£), 1997/1998, 2001/2002 and 2004/2005

  • NATIONAL SAVINGS AND INVESTMENTS

  • Table 19: Sample Interest Rates for National Savings (%), 1999-2006

  • FRIENDLY SOCIETIES

  • KEY POINTS

8. Loans for Lower Incomes


  • GROWTH IN DEBT

  • Table 20: Growth in Debt in the UK (£m and index 2001=100), 30th June 2001-30th June 2006

  • Table 21: Total Amounts Outstanding to Individuals by Type of Lender (%), 30th June 2006

  • LOW PARTICIPATION

  • Table 22: UK Households' Weekly Expenditure on Selected Financial Products by Income Decile Group (£), 2004/2005

  • BORROWERS BECOMING WISER

  • CHALLENGE FOR FIRST-TIME BUYERS

  • EQUITY RELEASE

  • HOME CREDIT — THE COMPETITION COMMISSION'S PROVISIONAL REPORT

  • CATALOGUE FINANCE AND STORE CREDIT

  • CREDIT UNIONS

  • KEY POINTS

9. Promotion


  • THE ROYAL BANK OF SCOTLAND IS biggest SPENDER

  • Table 23: Main Media Advertising Expenditure by the Top 15 Financial Services Brands (£000 and %), Year Ending March 2006

  • CREDIT TO THE FORE

  • Table 24: Main Media Advertising Expenditure on Selected Financial Services Relevant to Those on Average and Below-Average Incomes (£000 and %), Year Ending March 2006

  • Buildings, Contents and Motor Insurance

  • Table 25: Main Media Advertising Expenditure on Selected Buildings, Contents and General Insurance Brands (£000), Year Ending March 2006

  • Table 26: Main Media Advertising Expenditure on Selected Motor Insurance Brands (£000), Year Ending March 2006

  • Loans and Credit Cards

  • Table 27: Main Media Advertising Expenditure on Selected Credit-Card Brands (£000), Year Ending March 2006

  • Savings Accounts

  • Table 28: Main Media Advertising Expenditure on Selected Savings Accounts (£000), Year Ending March 2006

  • Personal Injury Lawyers

  • Current Accounts

  • Table 29: Main Media Advertising Expenditure on Selected Current Accounts (£000), Year Ending March 2006

  • Debt Management

  • TIGHT TARGETING

  • INTEGRATED MARKETING THE FUTURE

  • Table 30: Key Creative Agencies for Advertising Financial Services to Managers and Professionals, Year Ending March 2006

  • Table 31: Key Media Buying Agencies for Advertising Financial Services to Managers and Professionals, Year Ending March 2006

  • TELEVISION AND PRINT MEDIA SPENDING DOWN, INTERNET UP

  • Table 32: Advertising in the UK by Media Channel (%), 1994-2004

  • Figure 4: Advertising in the UK by Media Channel (%), 2004

  • Table 33: Advertising Expenditure in the UK by Media Channel (£m), 2000-2004

  • CAMEO, MOSAIC? AND ACORN

  • KEY POINTS

10. An International Perspective


  • FINDING AND MONITORING CUSTOMERS

  • QUESTIONS OF INTEREST

  • UNDEVELOPED MARKETS EXERT LITTLE COMMERCIAL ATTRACTION

  • US PROSPECTS DIMMING

  • OPPORTUNITIES IN REVOLVING CREDIT

  • KEY POINTS

11. PEST Analysis


  • POLITICAL FACTORS

  • The Consumer Credit Act

  • Moving the Goalposts Too Much (And Not Enough)

  • The Minimum Wage

  • ECONOMIC FACTORS

  • UK Not Getting Any Richer

  • Transfer of Income to Older Pensioners

  • Table 34: Average Weekly Household Disposable Income and Expenditure by Age of Head of Household (£), 2000/2001 and 2004/2005

  • SOCIAL FACTORS

  • Not Enough Homes

  • The Multi-Generation Mortgage

  • TECHNOLOGICAL FACTORS

  • Less Affluent Consumers Have Limited Confidence in the Internet

  • Personal Service Expensive

  • KEY POINTS

12. Consumer Dynamics


  • SUMMARY OF RESULTS

  • Table 35: Summary of Results (% of respondents), 2006

  • SAVINGS

  • My Savings Have Increased Over the Past Year

  • Table 36: My Savings Have Increased Over the Past Year (% of respondents), 2006

  • My Savings Have Decreased Over the Past Year

  • Table 37: My Savings Have Decreased Over the Past Year (% of respondents), 2006

  • I Have No Savings

  • Table 38: I Have No Savings (% of respondents), 2006

  • DEBT

  • My Debts Have Increased Over the Past Year

  • Table 39: My Debts Have Increased Over the Past Year (% of respondents), 2006

  • My Debts Have Decreased Over the Past Year

  • Table 40: My Debts Have Decreased Over the Past Year (% of respondents), 2006

  • I Have No Debts, Not Even a Mortgage on the Home I Live In

  • Table 41: I Have No Debts, Not Even a Mortgage on the Home I Live In (% of respondents), 2006

  • FINANCIAL ADVICE

  • Independent Financial Advice Is Too Expensive for Me to Afford

  • Table 42: Independent Financial Advice Is Too Expensive for Me to Afford (% of respondents), 2006

  • SERVICE STANDARDS

  • In My Experience, Banks Have Improved Their Standards of Customer Service Over the Past 2 Years

  • Table 43: In My Experience, Banks Have Improved Their Standards of Customer Service Over the Past 2 Years (% of respondents), 2006

  • In My Experience, Building Societies Have Improved Their Standards of Customer Service Over the Past 2 Years

  • Table 44: In My Experience, Building Societies Have Improved Their Standards of Customer Service Over the Past 2 Years (% of respondents), 2006

  • In My Experience, Insurance Companies Have Improved Their Standards of Customer Service Over the Past 2 Years

  • Table 45: In My Experience, Insurance Companies Have Improved Their Standards of Customer Service Over the Past 2 Years (% of respondents), 2006

  • INTERNET BANKING

  • I Have Full Confidence in Internet Banking

  • Table 46: I Have Full Confidence in Internet Banking (% of respondents), 2006

  • FINANCIAL ADVERTISING

  • Advertisements Help Me to Decide Which Financial Products to Buy

  • Table 47: Advertisements Help Me to Decide Which Financial Products to Buy (% of respondents), 2006

  • INVESTMENT IN PROPERTY

  • Property is the Best Investment for a Pension

  • Table 48: Property is the Best Investment for a Pension (% of respondents), 2006

  • INHERITANCE

  • I Would Like to Leave My Assets to My Children or Other Relatives

  • Table 49: I Would Like to Leave My Assets to My Children or Other Relatives (% of respondents), 2006

  • KEY POINTS

13. Company Profiles


  • INTRODUCTION

  • Table 50: Financial Services Organisations in the UK's Largest 100 Companies List by Market Value (£m), 2006

  • HSBC

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 51: Financial Results for HSBC Holdings PLC ($000, % and $), Years Ending 31st December 2002-2005

  • Future Company Developments

  • THE ROYAL BANK OF SCOTLAND

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 52: Financial Results for The Royal Bank of Scotland Group PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • BARCLAYS

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 53: Financial Results for Barclays PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • HBOS (HALIFAX AND THE BANK OF SCOTLAND)

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Future Company Developments

  • LLOYDS TSB

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 54: Financial Results for Lloyds TSB Group PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • AVIVA (NORWICH UNION)

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 55: Financial Results for Aviva PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • PRUDENTIAL

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 56: Financial Results for Prudential PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • LEGAL & GENERAL

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 57: Financial Results for Legal & General Group PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • ALLIANCE & LEICESTER

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 58: Financial Results for Alliance & Leicester PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • NORTHERN ROCK

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 59: Financial Results for Northern Rock PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • ROYAL & SUNALLIANCE

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 60: Financial Results for Royal & SunAlliance Insurance Group PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • BRADFORD & BINGLEY

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 61: Financial Results for Bradford & Bingley PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • ABBEY

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Table 62: Financial Results for Abbey National PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Future Company Developments

  • ZURICH FINANCIAL SERVICES GROUP

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Future Company Developments

  • STANDARD LIFE

  • Corporate Strategy

  • Advertising and Distribution

  • Profitability

  • Future Developments

  • FINANCIAL SERVICES FOR ALL INCOMES — NATIONAL SAVINGS AND INVESTMENTS AND THE POST OFFICE

  • National Savings and Investments

  • The Post Office

  • NICHE ORGANISATIONS FOR THE LESS AFFLUENT

  • Cardpoint

  • Table 63: Financial Results for Cardpoint PLC (£000, % and £), Years Ending 30th September 2002-2005

  • Cash Generator

  • Table 64: Financial Results for Cash Generator Ltd (£000, % and £), Years Ending 31st January 2002-2005

  • Cattles

  • Table 65: Financial Results for Cattles PLC (£000, % and £), Years Ending 31st December 2002-2005

  • Kensington Group

  • Table 66: Financial Results for Kensington Group PLC (£000, % and £), Years Ending 30th November 2002-2005

  • Park Group

  • Table 67: Financial Results for Park Group PLC (£000, % and £), Years Ending 31st March 2003-2006

  • PayPoint

  • Table 68: Financial Results for PayPoint PLC (£000, % and £), Years Ending 31st March 2002-2005

  • Provident Financial

  • Table 69: Financial Results for Provident Financial PLC (£000, % and £), Years Ending 31st December 2002-2005

  • KEY POINTS

14. The Future


  • LONG PENSIONS GAP

  • PROPERTY DOMINANT

  • COPING IN THE MIDDLE

  • FORECASTS

  • Table 70: Forecast Net Wealth of the Household Sector in the UK at Current Prices (£bn), 2005-2010

  • Brands For Tomorrow's Less Affluent

  • KEY POINTS

16. Consumer Confidence


  • METHODOLOGY

  • KEY FINDINGS THIS QUARTER

  • THE WILLINGNESS TO BORROW

  • Confidence Rebounds

  • Table A: The Average Amount Consumers Are Willing to Borrow in Order to Purchase Expensive Items at Current and Constant November 2004 Prices (£ and £bn), August 2005-2006

  • Fewer Adults Wish to Borrow

  • Table B: The Number of Adults Willing to Borrow in Order to Purchase Expensive Items (000 and %), August 2005-2006

  • SPENDING FROM SAVINGS

  • Strong Recovery in Spending from Savings

  • Table C: The Average Amount Consumers Are Willing to Spend from Savings in Order to Purchase Expensive Items at Current and Constant November 2004 Prices (£ and £bn), August 2005-2006

  • Savings Grow in Relative Importance

  • Table D: The Average Amounts Adults Are Confident Spending to Purchase Expensive Items (£ and %), August 2005-2006

17. Further Sources


  • Associations

  • Publications

  • General Sources

  • Government Sources

  • Other Sources

  • Bisnode Sources

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