Worldwide Business Information and Market Reports

www.the-list.co.uk and www.worldmarketresearch.com

Telephone +44 1404 891528 Fax +44 1404 891717 Email reportfinder @ tiscali.co.uk

Just want contact details for one of the companies in this report? Please don't ring us - try www.companieshouse.gov.uk, www.thomweb.co.uk or www.askalix.com

Join the ReportFinder mailing list and be told of new reports

Email:

MP65187

MAPS FINANCIAL SERVICES MARKETING TO C2DEs OCTOBER 1997

Overview

GO TO LATEST EDITION

Table of Contents

Executive Summary

Back to Financial Index and Shopping Cart

Back To REPORTFINDER home page and Search Engine

TABLE OF CONTENTS

Not yet available from the publisher - please ask

Back to Top

EXECUTIVE SUMMARY

This report sets out to examine ways of persuading customers in lower income groups to increase their participation in financial services. The validity of the social grades C2DE is considered. The rapid expansion in the numbers of financial service providers, and the types of financial products of greatest relevance to lower-income groups, are reviewed.

The ABC1C2DE classification, used for market research and agreed by the National Readership Survey and Research Services Ltd, has substantial correlation with the socio-economic classification derived form the government’s Standard Occupational Classification. Both classify people according to occupation, with professionals at the top and labourers at the bottom. The classification also includes people in low-income households where no one works regularly; these are Es.

Financial services are savings, loans, investments, insurances, and mechanisms for payments and accessing cash. Institutions offering financial services now include High Street retailers, finance companies, and other diversified companies with strong brands.

Lower-income households save very little. Households dependent on state benefits have insufficient disposable income to cover more than essential day-to-day needs. The poorest 10 percent of households allocate about 5 percent of their expenditure to financial services, and the next poorest 10 percent allocate just under 6 percent.

Assets are concentrated in few hands. The wealthiest 1 percent own 17 percent of all marketable wealth. Building society windfalls have benefited DEs little, and so have increased the gap between the well-off and those with least.

The poorest 20 percent of households receive less than 7 percent of all income. However, only about one third of households in the lowest quintile are stuck there. Others move up, to be replaced by those suffering income reductions. Events such as children leaving home, bereavement and divorce are important causes of household income changes. Women consistently earn much less than men.

Financial service providers continue to reduce brand and staff numbers, and to focus on direct sales. The cash machine network has more than doubled between 1985 and 1996. Organisations which used to focus on one type of service, such as current and deposit accounts, now offer a wide range of products. Specialist companies are disappearing.

Through mergers, takeovers and joint ventures, financial service companies are acquiring ever-larger databases, and the database is now the prime tool of marketing.

Geodemographic profiling allows the characteristics of individual postcodes to be analysed. Very Direct Marketing targets individuals. Products such as Experian Marketing’s MOSAIC (formerly CCN) incorporate behavioural features in their groupings.

Es tend to live in tower blocks, or in council housing on disadvantaged estates. Some pensioner Es live in nicely kept council or housing association bungalows, but have low incomes. Ds are also concentrated in public housing, but with better access to jobs than the estates where Es of working age tend to be clustered. However, the available jobs are often low-waged. C2s include large numbers in the armed forces – which do give their recruits a trade. C2s also live on better council estates and in their own houses in industrial and manufacturing areas. Many have substantial disposable incomes.

TV is used to enhance corporate image. Internet advertising is growing rapidly, but reaches few DEs, although some C2s who are keen on technology have PCs. C2s are keen on telephone banking.

National newspapers and magazines with high C2DE readerships are not those in which financial products are heavily advertised.

National Savings are ideal for many lower-income customers but are promoted to high earners. This strategy is under review. Giro Bank caters for customers who are not affluent, but its marketing is low-key, and rather hit-or-miss. Credit unions can help members put their financial affairs on a sounder footing, but are not promoted to the public because they are self-help organisations.

Many C2s and Ds, particularly, need flexible loans because their incomes can fluctuate. Companies like Bank of Scotland and Allied Dunbar are coming forward with imaginative products to meet this need.

The advance of direct sales seems unstoppable, but one result is that low-income and higher-risk customers can be left out. Mail order companies cater for a less affluent clientele than specialist financial direct sellers like Direct Line. Despite the growth of direct sales, branches are still important to the majority of customers.

Three quarters of C2s have a bank account, compared with just over two thirds of DEs. Almost one C2 in three has a loan from a bank or building society, but fewer than one in six DEs has one. Almost twice as many C2s have a mortgage, 42 percent compared with 23 percent. One third of C2s have a self-funded pension, but only one in five DEs.

Men buy more financial services than women. Families with children have fewer financial products than those without.

C2s want easy-to-understand information above all else. They also want well- informed, polite staff able to advise, and quick response to their queries. DEs have the same requirements, but do not express them quite as strongly. C2s want recompense for mistakes, and are attracted to discounts and special offers.

People in all income groups face a pressing need to save more for their pensions. Only 28 percent of men and 34 percent of women working full time and earning £100-£200 a week had an occupational pension in 1995-96.

The need for the elderly to fund their own long term care is a growing issue, and could wipe out assets carefully built, by C2s especially.

By 2002 there could be 1.24 million more households than in 1996. Each household is a potential purchaser of financial services. However, too many women ignore financial planning, and face cash difficulties in old age.

The trend towards combined savings and investment products will largely bypass the lowest-earning C2s, and Ds and Es as a whole. Low-income households are unsuitable targets for investment products which have the potential to lose value.

Medical insurance is unlikely to increase penetration among DEs, because of the public presumption that the Labour government will reinvest in the National Health Service as well as for reasons of low income, but many C2s see benefits in private medical insurance.

Motor premium income will exceed the growth in insurance income overall because of a rise in the numbers of cars per 100 people, from 35 towards the German and Italian levels of 48-50. High-earning C2s are a good market for car sales, and thus for motor insurance.

The impact of withdrawing state support for students will be felt by parents, who will find their incomes squeezed when they should be investing in pensions. There is a big opportunity for financial organisations to develop suitable schemes to supplement official student loans.

There is much political uncertainty, for example over the proposed new ‘stakeholder’ pensions and over tax-exempt savings. The future level of support for the NHS is also unknown.

By 2002 there could be 5-8 percent fewer C2s as changes in the nature of work mean they become C1s. The numbers in the DE group are likely to remain broadly the same although the proportions in each will alter, depending on government policies and general economic factors.

Education about financial matters is a priority. Companies also need to improve the information they give to customers about the performance and current balance of long term financial products.

Organisations to watch include National Savings, Giro Bank, Tesco, Bank of Scotland, Prudential, Legal & General, and Great Universal.

C2s are a strong market for mortgages, loans, insurances and straightforward savings accounts. Many financial organisations focus too much on high-earning groups and do not target C2s as effectively as they could.

Companies target high-earners assiduously, but a large proportion of wealthier individuals search out financial products to suit them. C2s are much less likely to research their financial needs and the products most likely to meet them. If anything, companies need to work harder at influencing C2s than they do at targeting ABs. Targeting overall is not yet accurate enough, particularly at middle and lower income levels.

DEs are less attractive as customers because individual transactions tend to be for small sums, and thus the cost per transaction is high. Mail order companies such as Great Universal are enabling many C2s, Ds, and even Es, to buy financial services because repayments can be made weekly or monthly.

Lastly, by supporting educational and training initiatives to transform Ds and Es into Cs, financial organisations would be looking after their own long term interests.

Text © 1997 MAPS

Back to Top

Back To REPORTFINDER HOME PAGE

Ariadne - working together with our customers to enhance productivity and increase knowledge

© 1999 www.the-list.co.uk Ariadne

Last updated by Duncan Nottage 9th February 1999