Financial Services Marketing to C1C2DEs (Market Assessment)
Executive Summary
Middle and low earners, the CDEs, are losing out to the affluent ABs, who are increasing their shares of national income and wealth. Although there was a rise in average household income between 1991 and 2001, this was mainly a result of more people working and from steep rises in the
mega-incomes received by a few thousand people. Furthermore, households' financial assets fell by 11.5% in 2002, which was more than the 8.3% fall in 2001. However, the roaring property market more than compensated for the fall in financial assets and overall net wealth edged up by 1.2%. The consequent confidence felt by the home-buying and home-owning majority led to the remortgaging boom that released billions of pounds into the economy in 2003.
Debt levels are growing fast. Much of the borrowing has been for property mortgages and remortgages, and to consolidate existing debts.
Mortgage-equity withdrawal in 2003 was equivalent to almost 7% of post-tax household income.
The other side of the UK's credit boom is a savings slump. Saving and investing was minimal in 2002/2003 for the majority of households. The latest consumer survey conducted for Key Note suggests a society that is living for today, yet expects financial security in the future - without wanting to pay for it. Independent financial advisers (IFAs) claim, with justification, that much of the current consumer spending is unnecessary and that individuals should instead save for their own futures.
The consumer survey revealed that a significant proportion of respondents had built up debt (other than mortgages) that exceeded their savings.
This situation was most prevalent among 25 to 34 year-olds. Indebtedness among the young has long implications for financial services, because
debt repayments need to take precedence over the purchase of new
financial products.
The survey also suggested a marked decline in the number of people
wanting to leave assets to children or other relatives, as well as a fall in the numbers prepared to go without luxuries in order to save. Most CDEs have little potential to amass assets, including investments, apart from an
owner-occupied home - and almost one person in four believes that property is a better pension investment than a commercial pension plan. Even if rising interest rates cause a property market downturn, property will retain some devotees because it is a tangible asset, and unlike a pension it does not have to be exchanged for an annuity. A cooling property market would lead to displacement investment in pensions and long-term insurance products by the affluent ABs, but to a much smaller extent by the CDEs.
The largest banking group based in the UK is HSBC, which has massive interests in Asia and the US. The Royal Bank of Scotland Group, with substantial US interests, is the second largest. Since 2000, Barclays and HBOS have overtaken Lloyds TSB, which was the UK's third-biggest bank. The largest insurers are Aviva and Prudential. Among the next rank of
financial-services groups, Alliance & Leicester has a deliberate focus on
lower-income customers as well as on the mass market. Abbey is also targeting customers on moderate incomes.
More than 15 banks and building societies offer basic bank accounts, which are popular with low-income customers. The Post Office is a major distribution channel for basic accounts. PayPoint offers an alternative to current accounts through bill payment terminals in over 10,000 outlets.
The number of people using cheque-cashing services, for example Cash for Cheques Ltd, is surprisingly large, at around 6 million in the UK. Small savers can achieve higher interest rates if they pool their savings with other people. Standard Life Bank and Direct Line, for example, allow groups of relatives and friends to take out one savings plan to hold their separate accounts.
Home credit remains important for those unlikely to be granted credit on standard terms. Provident Financial is the leader in home credit in the UK. Store cards are easy to sign up to and three in ten adults have at least one. The leading issuer is GE Consumer Finance, an arm of General Electric Company of the US.
Among the supermarket banks, Sainsbury's Bank is planning to more than triple its number of in-store banks, and to employ 100 new staff to sell financial products and handle queries from customers. Tesco Personal Finance is a joint venture with The Royal Bank of Scotland, and has partnerships with Scottish Widows, Norwich Union, John Charcol and others. ASDA, part of the US Wal-Mart empire, is steadily expanding its range of financial services. Rather than developing its own financial services, Morrisons has an alliance with HSBC for HSBC branches in its stores. Morrisons' successful takeover of Safeway, finalised early in 2004, creates some uncertainty for Abbey, which has 38 branches in Safeway stores. Marks & Spencer launched the '&more'
Visa-and-MasterCard credit and loyalty card in autumn 2003, the launch spearheading the rebranding of Marks & Spencer Financial Services as
Marks & Spencer Money.
Meanwhile, National Savings & Investments' decision to make tax-free,
index-linked savings certificates available to all savers, instead of just to the over-60s, shows an attempt to encourage the nation to save.
Banks and building societies still have a lot to learn about how to treat customers. Fewer than three in ten survey respondents felt that their bank or building society treated them as a valued customer. However, skilled manual workers felt more valued by banks and building societies compared with
non-manual, semi-skilled and unskilled workers, or benefit dependants. Moreover, despite their shortcomings, banks appear to be better than insurers at pleasing their customers.
The trend to divert telephone calls away from bank branches and into call centres is far from popular; neither is online banking gaining customers' trust. Skilled non-manual workers (C1s) had more confidence in online banking than manual workers (C2s) did - but, overall, confidence in online banking had declined since a similar survey in the previous year.
The heaviest consumer advertising is for basic financial products such as
loans and credit cards, generally sold without advice from intermediaries.
The chances of litigation are now too great for companies to try to promote complex products through mass-media channels. The Royal Bank of Scotland Group is the highest-spending main media advertiser in UK financial services. Three of The Royal Bank of Scotland Group's brands, in particular, are very heavily promoted: the insurer Direct Line, the high-street bank National Westminster (NatWest) and the personal-loans company Lombard. The big spenders on overall brand promotion in 2003 were HSBC, Barclays, NatWest, ING Direct and Lloyds TSB's Cheltenham & Gloucester.
Across all socio-demographic groups, rising energy prices will squeeze disposable incomes. By 2007, the total financial assets of the CDEs overall could fall. The skilled tradespersons, C2s, are likely to increase their shares because they are in demand. The non-manual C1s, on the other hand, are vulnerable to losing their jobs to cheaper locations overseas. Ds and Es generally have incomes too low to bother trying to accumulate financial assets; in any case, if they did amass modest sums, they would lose entitlement to means-tested benefits. Almost four adults in every ten will need to cut back on spending significantly if interest rates rise to 4.75% or more. This would reduce demand for most discretionary financial services. However, prospects remain promising for equity-release products, debt-management companies, loan companies and trusted high-street brands.
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