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Increasing Focus on Customer Retention (The) - UKProduct Type: Market Research ReportPublished by: Mintel International Group Ltd. Published: February 2004 Product Code: R560-1028 Description Mintel's Financial Intelligence series is currently divided into two sectors:
Product Series The Product Series consists of four highly specialised sectors: (Money Transmission / Insurance / Life & Pensions / Investments & Savings) These complementary sectors combine to give you ultimate flexibility, whether you want an industry-focused base of information, or a complete picture covering a wide range of consumer-based markets. Within each sector, every report provides a thorough analysis of the market, looking at: Market characteristics: profile of the consumer / penetration / trends / major suppliers / product profile/s / potential markets / European data Environmental analysis: social / legal / economic / political / technological Original consumer research (UK): a mix of demographic data and attitudinal statements Marketing Concept Series The Marketing Concept series focuses on 4 key areas of the financial services industry each year. Designed to provide an in-depth analysis upon which to base future strategic decisions, these reports are published quarterly and cover: Concept characteristics: review of major principles of concept / trends / overseas data/case study / review of major suppliers activities/ strategies/tactics Environmental analysis: social / legal / economic / political / technological Original consumer research: segmentation study No other financial research company can provide you with this much coverage. With constant industry monitoring, you can be assured that each Financial Intelligence report is not only topical and up-to-date, but also allows Mintel to present you with analyses of any new and emerging sectors. Table of Contents Introduction and Abbreviations Understanding why consumers switch is essential Global information and research Consumer research ACORN Abbreviations Executive Summary Customer retention strategy is now at the top of the agenda Financial providers are keeping customers satisfied Satisfied customers are happy to defect for lower costs Lower rates are the key switching trigger Inertia is a characteristic of the financial services industry Men, 25-34s and ABC1s are the most likely to switch Lower prices will continue to get consumers moving Background Consumers win in an intensely competitive marketplace Figure 1: Declining loyalty in today's competitive financial services marketplace A loyal customer base is the key to long-term profitability... ...however, many customers are not interested in pledging allegiance Providers look to leverage the lifetime value of customers Figure 2: Customer profitability life cycle Providers must not encourage loyalty among the unprofitable Customer centricity is the key to fostering loyalty Figure 3: Customer centricity, loyalty and retention Market Factors Deregulation injects significant new competition Established providers face a barrage of competition from new entrants Traditional providers have had to rise to the competitive challenge Selling a 'cradle to grave' range of products is getting harder Sub-brands are created to appeal to the Internet generations... ...and help raise the service bar Non-traditional providers position themselves as consumer champions Bargaining power switches from suppliers to buyers Figure 4: Shifting bargaining power in the financial services industry Even switching bank accounts has got easier Price reflects quality in the eyes of many customers The Impact of the Internet on Loyalty Rising Internet usage will inevitably lead to increased switching activity Figure 5: British Internet penetration, March 1999-October 2003 The population is split by a digital divide... Figure 6: British Internet penetration among those who use the Internet at home/work/place of study or elsewhere, 2001-03 ...though it is closing across some socio-demographic groups The current Internet population is attractive to financial providers Consumers are increasingly likely to purchase financial products online Figure 7: The evolution of the e-consumer Financial products are the most complicated online purchases Aggregator sites make shopping around for the best deals easy Internet channels are differentiation destroyers The Consumer - Switching Behaviour Research aims and objectives Structure of the consumer research sections Product penetration across the seven areas examined Figure 8: Financial products owned (either in own name or with a partner), December 2003 Customers are largely satisfied with their financial providers Figure 9: Satisfaction with current financial services provider, September 2002 and December 2003 Consumers pile on the praise for insurance companies Current account providers don't enjoy such warm praise Complacency among borrowers is only too clear Customer satisfaction does not guarantee customer loyalty Figure 10: Respondents who would consider switching to another financial services provider, December 2003 Satisfied consumers will see no reason to switch Which consumers are most likely to switch? Figure 11: Financial arrangements that consumers would consider switching to another company in the next two years, by socio-demographic characteristics, December 2003 Home insurance and mortgage switching are clearly linked University and first jobs get consumers thinking about switching Millions of consumers consider switching provider Figure 12: Respondents who would consider switching to another financial services provider, by product ownership, December 2003 Inertia will remain a feature of the industry for some time to come Figure 13: Attitudes towards switching financial arrangements to another company in the next two years, by socio-demographic characteristics, December 2003 Apathy exists across the whole socio-economic spectrum Millions have already switched financial provider Figure 14: Financial product/arrangements changed to a different company in the last two years, December 2003 Loyalty or inertia clearly exists Premium disparity leads the young to shop around for motor insurance Figure 15: Financial product/arrangements changed to a different company in the last two years, by socio-demographic characteristics, December 2003 Almost one in five ABs have switched their home insurance Credit card switching is concentrated amongst the young Some 18% of ABC1 families have remortgaged Young and affluent are most likely to have reviewed their providers Figure 16: Financial product/arrangements changed to a different company in the last two years, by socio-demographic characteristics, December 2003 Few look to switch savings accounts and personal loans Customer inertia or customer's satisfaction? Putting switching into context Figure 17: Switching activity over the last two years, by product ownership, December 2003 Millions are living beyond their means by overstretching on plastic 'Churn' is a fact of life for insurers The Consumer - General Insurance Motor insurance premium income rises steeply over the past few years Figure 18: Domestic motor and home insurance (annual business), by gross written premiums, 1998-2002 In 2002 the average motor insurance premium was £410 Figure 19: Average motor insurance premium rates, at current and constant prices, 1996-2002 Advertising aims to present intangibles more tangibly Car insurance advertising increases significantly in 2003 Figure 20: Motor insurance advertising expenditure (£000), by top 10 spenders, 2002 and 2003 Advertising expenditure is primarily split between TV and direct mail Figure 21: Motor insurance advertising expenditure (£000), by medium, 2003 Low quotes will have the greatest impact on satisfaction levels Figure 22: Satisfaction with motor insurance provider, December 2003 Implied dissatisfaction peaks among younger men Figure 23: Satisfaction with motor insurance provider, December 2003 Home insurers benefit from a buoyant property market Insurers differentiate in order to both win and retain customers New channel preferences make switching easier Figure 24: Distribution breakdown of total household insurance premiums, by channel, 1999-2002 Home insurers invest millions in order to deal with churn Figure 25: Home insurance advertising expenditure (£000), by top 10 spenders, 2002-03 The lion's share of advertising budgets are spent on direct mail Figure 26: Home insurance advertising expenditure (£000), by medium, 2003 Millions feel that they are getting a good deal on their home insurance Figure 27: Satisfaction with home insurance provider, December 2003 Implied dissatisfaction is highest amongst the young Figure 28: Satisfaction with home insurance provider, December 2003 The Consumer - Current and Savings Accounts The current account market is dominated by five banking groups Figure 29: Estimated market shares of current account providers, 2000-04 New providers failed to live up to their expectations Traditional providers had to act quickly to close the innovation gap Banks satisfy the vast majority of their current account customers Figure 30: Satisfaction with bank or building society which holds your current account, December 2003 ABs are least likely to admit to being fully satisfied with their bank Figure 31: Satisfaction with bank or building society which holds your current account, by socio-demographic group, December 2003 Banks must keep their most profitable customers satisfied Banks benefit from being alike Banks invest £35 million on advertising Figure 32: Current account advertising expenditure (£000), by top 10 advertisers, 2002 and 2003 TV accounts for half of total adspend Figure 33: Current account advertising expenditure (£000), by medium, 2003 Consumers are complacent as far as savings accounts are concerned High street banks offer measly interest rates on instant access accounts Figure 34: Sample rates available on high street instant access accounts, January 2004 Direct savers get the best deals Figure 35: Best rates available on instant access accounts, January 2004 Opening a notice account will often net savers a better deal Figure 36: Best rates available on notice accounts, January 2004 RBS has some £220 billion in personal deposits Figure 37: Deposits held by MBBGs (demand and other accounts), 2002 Most consumers are happy to be satisfied with less Figure 38: Satisfaction with company/companies that hold cash ISA or savings/deposit account, December 2003 Implied dissatisfaction is highest amongst those with most to lose Figure 39: Satisfaction with company/companies that hold cash ISA or savings/deposit account, by socio-demographic characteristics, December 2003 Savings accounts are often marketed alongside current accounts Figure 40: Savings account advertising expenditure (£000), by top 10 spenders, 2002 and 2003 Banks invest over £8 million on press advertising for savings accounts Figure 41: Savings account advertising expenditure (£000), by medium, 2003 The Consumer - Mortgages Figure 42: Total mortgage debt, 1986-2002 Mortgage lending hits a record high in 2002 Figure 43: Net and gross lending secured on dwellings, 1995-2002 Remortgage activity has rocketed in the past few years Figure 44: Gross advances, by type of loan, 1997-2002 Consumers can make substantial savings by switching mortgage Mortgage providers invest millions to attract the attention of consumers Figure 45: Mortgage advertising expenditure (£000), by top 10 spenders, 2002 and 2003 Press advertising accounts for over half of all adspend Figure 46: Mortgage advertising expenditure (£000), by medium, 2003 One in ten mortgage holders are not satisfied with their current provider Figure 47: Satisfaction with mortgage provider, December 2003 C1s are most likely to infer dissatisfaction with their mortgage provider Figure 48: Satisfaction with mortgage provider, by socio-demographic characteristics, December 2003 The Consumer - Credit Cards and Loans Credit and loan competition has been fuelled by new market entrants Credit cards in issue double as consumers embrace the credit culture Figure 49: Credit cards in issue, 1995-2002 Consumers can choose from some 1,400 credit card providers Millions could be better-off by switching credit card Figure 50: Satisfaction with credit card company/companies, December 2003 Switching is likely to occur across the socio-demographic spectrum Figure 51: Satisfaction with credit card company/companies, by socio-demographic characteristics, December 2003 Credit card companies spent almost £330 million on advertising in 2003 Figure 52: Credit card advertising expenditure (£000), by top 10 advertisers, 2002 and 2003 The vast majority of adspend is invested in direct mail campaigns Figure 53: Credit card advertising expenditure (£000), by medium, 2003 Millions turn to their bank to arrange a personal loan Figure 54: Unsecured loans as a proportion of total consumer credit, gross lending, 1998-2003 Few consumers are likely to switch personal loan provider Figure 55: Satisfaction with personal loan(s) provider, December 2003 Younger consumers are least satisfied with their loan provider Figure 56: Satisfaction with personal loan(s) provider, by socio-demographic characteristics, December 2003 Credit frenzy leads loan providers to invest millions in advertising Figure 57: Personal loan advertising expenditure (£000), by top 10 spenders, 2002 and 2003 Mail is the promotional channel of choice Figure 58: Personal loan advertising expenditure (£000), by medium, 2003 The Consumer - Switching Triggers Price is the main factor that encouraged consumers to switch provider Figure 59: Factors encouraging consumers to switch financial provider, December 2003 Bad service is simply not tolerated Seven in ten 35-44s have switched provider for lower costs Figure 60: Factors encouraging consumers to switch financial provider, by socio-demographic group, December 2003 Low prices are an unstable platform for building loyalty Better all-round service is a draw for millions of consumers CRM systems called in to help identify potential switching triggers Moving home will trigger switching ABC1 families are least tolerant of bad service Low prices and high investment returns will get people moving Figure 61: Factors that would prompt consumers to switch financial provider, December 2003 Men are far more likely to switch to a provider with better products Figure 62: Factors that would prompt consumers to switch financial provider (top 4 reasons), by socio-demographic characteristics, December 2003105 Further analysis The Future Loyalty can be fostered by continuously improving product quality New distribution channels create a more level playing field Traditional providers will be able to exploit their old advantages Consumers will continue to weald the power Forecast Scenario 1 Figure 63: Forecast of the number of switchers in 2007, by product type, Scenario 1 Scenario 2 Figure 64: Forecast of the number of switchers in 2007, by product type, Scenario 2 Scenario 3 Figure 65: Forecast of the number of switchers in 2007, by product type, Scenario 3 |
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