Pensions World

Martin Hayward, DCisions, explains why the pension industry needs to start seeing things from their customers' point of view.

Many key principles of marketing have been developed over the years for the fast moving consumer goods (FMCG) industries, which represent the shops that we visit and the products that we regularly buy on the high street. These industries spend vast sums on understanding their customers through research and analysis and even vaster sums on advertising, promotions and other techniques to ensure that customers know what is available and have a good understanding of what each brand stands for. It is a constant, daily battle to know your customers better and to ensure that your products match their needs better than those of the competition do.

Despite this relentless competition for the hearts and minds of customers, there is, perhaps surprisingly, an equal awareness of the need to take a longer term view. Even those involved in the fastest moving categories understand the necessity to build deep relationships of trust, and hopefully loyalty, with customers. A whole new vocabulary has emerged to help describe the importance of building long term customer interactions, including phrases such as “customer relationship management”, “lifetime customer value” and “loyalty management”. The financial commitments that are being made behind these longer term strategies are significant. Tesco, for instance, returns about £400m a year to its customers through its Clubcard loyalty scheme which it describes as a specific investment to “earn the lifetime loyalty” of its customers.

Relationship building

The pace of business in the pensions industry is slightly less frenetic, not requiring daily, weekly or even monthly warfare to hold on to customers and it may not be immediately apparent how lessons from the FMCG industries can be relevant to the pensions world, but valuable lessons there most certainly are.

Firstly, it is worth highlighting the enduring nature of the bond that pension providers have with their customers. Years, if not decades, of constant, regular purchasing provide an opportunity for relationship building that the FMCG industries would die for. Unfortunately, this long term commitment is often not seen to be as valuable as it should be, but instead is seen as a reason to do as little as possible because “they’re not going to go anywhere”.

Secondly, there is so much to be learnt from adopting a relentless focus on the customer. The chief executive officer of Procter and Gamble, which makes such items as washing powder and Pringles, persistently describes his company’s mission in four words: “The customer is boss”. If the customer is boss for a business that makes crisps and nappies, we would assume that the customer is most certainly boss in an industry that has a major role in determining future prosperity and quality of life.

Unfortunately, for many customers of the pensions industry, they do not feel that they are the boss; and that is because they are not. For a variety of reasons, savers feel more like insignificant employees. Most of the time they feel ignored. If they are spoken to at all, it is in a strange language that means little to them. Furthermore, many have very little faith that they are getting good value products as they watch the financial services industry dine out on their contributions. Justifiably, they often feel that their provider of snacks and detergents values their custom more than the company they may be giving thousands of pounds to every year.

This distance from customers has evolved owing to some real challenges that are unique to the pensions industry. Endless struggles to overcome regulation, a heritage of product rather than customer focus and historical consumer ambivalence on the subject of saving for the long term have all contributed to this gap. Looking forwards, it really cannot be either healthy or sustainable for such a situation to persist. In any relationship, a lack of trust and poor communication inevitably lead to some sort of crisis.

It is not as if the pensions industry has not had enough crises already. Equitable was a wake up call for many and we are on the cusp of a new national emergency as millions face retirement without the means to support their lifestyles.

Consumer agenda

The good news is that many other industries have re-invigorated their performance through adopting a customer-centric approach, building their offer around the articulated and unarticulated needs of their clientele. By matching products to real customer needs, listening to and watching those individuals, we can do this in pensions, too.

Traditionally, the argument has been that customers do not want to talk about pensions because they do not really care or understand.

However, pensions have never been higher on the consumer’s agenda and today the industry has a golden opportunity to engage customers about their futures, starting to do things for and with them rather than to them. (A recent study by DCisions helped to dispel the myth that consumers are not engaged. Conducted for Nest Corporation, an analysis of DCisions data on a market representative sample of end consumers clearly showed that even low to middle income savers reacted to the recent financial crisis, changing both saving and investment decisions.)

Pensions are now firmly on the consumer’s radar, providing the permission to engage with them in ways that the industry has traditionally been reluctant to try. Companies that do engage their customers will build trust and ultimately enjoy longer relationships, more opportunities to cross-sell and greater advocacy than those that do not.

To achieve this renewed customer focus will require a shift in mindset within many pension providers. It must be acknowledged that there is no such thing as an average customer. Every pension contributor has a unique set of circumstances and needs that are forever changing as they progress through their career and life stages.

A much greater emphasis must be placed on understanding these changing needs and developing product offerings in line with them (just as Procter and Gamble has changed the focus of its detergent marketing to washing at low temperatures as a result of the dialogue with consumers who are concerned about high energy costs and global warming).

More relevant communications

A new generation of analytical tools is starting to give the pensions industry the opportunity to understand customers better than ever before. New datasets, such as DCisions’ CuBIT, allow measurement of the investment performance experienced by millions of pension consumers, tracking their behaviours over time, including product selection and saving decisions. (There are again interesting parallels here with the FMCG industry that traditionally found it hard to know which consumers were buying which products until loyalty card data started to flow, detailing the specific behaviours of millions of households in real time).

Once customer needs are understood, products can be better targeted and more relevant communications produced.

Commenting on the research done by DCisions for Nest, its chief investment officer Mark Fawcett, said: “Nest has increased its understanding of the potential saving and investment behaviour of its target market, providing important inputs for decision making on investment and communication strategies for the benefit of future members.”

If the opportunity is not seized to understand and talk with customers, the industry will continue to be vilified and misunderstood and customers will remain distant, suspicious and reluctant to invest.