Alex Oliver writes: At the Marketforce conference I spoke at last week, I may have unwittingly cast a further cloud over my audience on a gloomy Wimbledon June day.  The conference was on Operational Efficiency in Financial Services, and my topic was Customers of the Future. I chose to focus on the behaviours and attitudes of two distinct generation cohorts – the 45-54 younger boomers and their 16-24 year old children. Both groups are facing significant challenges in terms of personal finance and long term financial security. But their responses are very different.

The older cohort is savvy and technologically competent, easily able to navigate their way through a range of online tools to find the best products and deals. But they face an uncertain future with huge financial pressures resulting from changing family structures as well as the economic context. The prospect of higher tuition fees and levels of youth unemployment at 20% mean that their children will struggle to repay debts and start to buy housing, often enforcing a longer term dependency which neither they nor their children want.  And with the spending cuts only just starting to bite, they are well aware that they cannot rely on the state to support their own future pension, health and social care needs – nor those of their aging parents.

So, what of the kids? Interestingly, our research shows that the 16-24 cohort is one of the last still to be financially optimistic, even insouciant, which may be more driven by ignorance and naivety than realism. Despite some anxiety about finding a job (half of them say they are worried), a staggering 62% of them believe things are going well or fairly well with their financial situation. And unlike other groups across the population who are actively seeking out ways to save money, this group still wants to spend, with almost half of them saying they like to ‘splash out’. But when it comes to financial management, their interest is very low indeed. They prefer to delegate decision making and reveal a worrying confidence in their friends and family to provide answers.

The conversations I later had with the conference delegates revealed the extent to which these findings rang true from personal experience. Could it be that we are raising a generation of young people which assumes that we can ‘bail them out’? If so, with their parents under financial pressure, we could be staring at an inter-generational flashpoint.

Eleanor Cooksey writes:

“I’ve found the cost of living has gone up substantially and it has had a huge impact on my life. I am not buying luxuries as often and I will change the way I deal with my finances.”

This sobering quote comes from a Scottish man we spoke to as part of our fifth in-depth review of how UK consumers are responding to the current economic situation. In our breakfast briefing held in London last week to launch this review, we highlighted four themes which describe the current environment:

1. The New Normal is firmly embedded: Reflecting the broader economic uncertainty, individuals feel the outlook is gloomy: 25% feel the UK economy is going very badly these days, an increase of 10% compared to when the survey was last carried out six months ago. People are even less optimistic about their personal financial situation with almost half thinking they will be worse off over the next 12 months. The message is clear: no one expects things to go back to how they were and we are learning how to cope.
2. Rising prices are hurting:Though inflation has recently dropped a fraction, our data showed levels of anxiety about rising prices similar to those seen in 2008. Many of the people we spoke to were highly sensitive to these changes, whether this was about an increase in the cost of petrol or bell peppers.
3. Savvy shopping matters to consumers: 43% of consumers have had to dip into savings to make ends meet and they are trying hard to make their money going further. Deals and special offers are still very much part of this, but consumers are doing more than that: they are giving serious thought to what they really need and what they really don’t. One lady in Staines realised she didn’t have to spend £70 every six weeks at the hairdresser and could use a £3.50 home dye kit instead. However, she wasn’t going to cut back on her expensive make-up and perfume.
4. It’s a constant struggle to stay on top of things: In our last survey, we identified three groups who represent the various responses to the current financial downturn, and this time round, ‘All Hands on Deck’ were the only group which had increased in size. Though people in this group feel the struggle to make ends meet most acutely, making the most of your budget is relevant to everyone, even for the relatively unaffected ‘Plain Sailing’ group. All want to feel they can loosen their belt without losing it.

I’ll finish with a quote from a young woman in Sheffield which sums up the dilemma the New Normal presents for some:
“I could lose my job tomorrow, so I should plan to protect myself against that – but then again, I could lose my job tomorrow…so why not live for the moment?”.

There are limited places available for a repeat of this breakfast briefing on 12^th May. To find out more please contact Karen Kidson.

Sarah King and Alex Oliver write:

The Futures Company spoke at two financial advisors’ conferences this month during the snowy weather.

At the IEA/Marketforce conference on the Future of Distribution in Financial Services, suited (and wellington booted) financial advice businesses met to discuss the effects of the Retail Distribution Review. The intention of the review is to bring about real change so that (in the words of the FSA) ‘more consumers buy what they need and have confidence in the products they hold and in the advice they take’. From our consumer work we continue to hear resoundingly that trust in the industry is low and so there is a real opportunity to build bridges and reconnect. But some speakers were frustrated by the lack of regulatory guidance around the concept of simplified advice and it didn’t look as if much of that was going to be on offer. As usual, the conversation focussed on that part of the market that can afford to pay for advice. There was some consensus too on the likely shape of the market with consolidation, and little apparent dismay from those present that a proportion, estimated at around 10%, will fall by the wayside.

Similarly, at Owen James’ Meeting of Minds CEO Forum, some discussion was focused on the challenge of meeting clients’ needs in an environment heavily constrained by regulatory compliance obligations.  Financial advice businesses felt that too many limits were being placed on their autonomy in communicating with their clients in ways which truly added value.  But some voices argued that there could be more opportunities to lead rather than follow the regulator – applying lessons from regulation in other industries.  And indeed opportunities to further innovate in communications formats and channels could hold some of the answers to building stronger relationships of trust and confidence in an era where consumers are increasingly wary.

The picture  is from Wikimedia Commons and is published under a GNU Free Documentation licence.

Giles Powdrill writes:

“A powerful global conversation has begun. Through the Internet, people are discovering and inventing new ways to share relevant knowledge with blinding speed. As a direct result, markets are getting smarter-and getting smarter faster than most companies.” So said the Cluetrain Manifesto almost exactly a decade ago. The prescience of the work lay in the authors’ clear understanding of the connective potential of the web and the shift in power from companies to individuals which would accompany its growth.

However, despite witnessing this shift in power, the majority of organisations still haven’t adapted their business practices to embrace the internet. They are not making use of the networks, the empowerment or the easy conversation and collaboration made possible through the social media technologies broadly described as ‘Web 2.0′ to help create new types of relationships with their customers. For many, the internet is still just another channel.

But maybe this is beginning to change: perhaps the current recession, the first of the truly digital age, will be looked back upon as being the spur to growth of new types of online commerce. We are already witnessing the growing success of online shopping, price comparison websites and digital advertising in the downturn, but these are only first steps – doing old things in a new way. The real challenge is about greater engagement; working with and for consumers in an open way. It is about companies demonstrating that they know enough about customers and their behaviours to deliver a benefit. Combining transparency with networked data and new technological infrastructure can create situations where all gain, customers and companies alike, but if companies don’t work out how to use these new networks, they may find themselves bypassed as people decide to do it for themselves instead.

A good example of a company getting it right is Zopa, the social lending site set up by banking professionals on which people lend directly to borrowers online. Borrowers bid for funds, and lenders choose whether to respond. Lenders get good returns, and borrowers get lower cost loans. Zopa makes its margin by charging both parties a fee. Default rates are low and lenders can see their borrowers and follow the progress of the their loan. Zopa has disintermediated the banking business by adding social networking and a human touch. In terms of Recession 2.0 it’s a sign of the times. As the Cluetrain Manifesto said: markets are conversations.

The picture, ‘the garden of Zopa’, is from a digital campaign by the social lending site to demonstrate the benefits of personal involvement and mutual help.

Giles Powdrill writes:

Since 2004 The Futures Company has worked with Aviva, one of the world’s largest insurance companies, on an annual survey focussed on understanding consumer attitudes to saving and investing. In total, more than 100,000 people have taken part in the survey since its inception. Geographically, the scope has grown year on year from 11 countries in 2004 to the 25 covered in 2008.

2008′s global survey was also topped up by an additional omnibus survey of key tracking questions in six markets, to understand how attitudes were changing as the credit crisis intensified, in late October 2008.

The results formed the basis of a recent speech given by Amanda Mackenzie. Aviva’s Group Marketing Director, at Chatham House (opens in pdf). To summarise some of the main findings:

Short termism – In 2008, the majority of people surveyed, in every market, said that the short term (within the next 5 years) was the most important timescale for them when thinking about savings and investments and the importance of this short term context overall has been a growing trend since the survey began.

Financial vulnerability – People feel financially exposed. The 2008 survey revealed that across the markets surveyed only one in four people felt that they had enough savings or investments to cope with the unexpected. Although this sentiment was felt most strongly in many of the Central and Eastern European countries, the omnibus research in October showed that feelings of vulnerability in more economically mature countries like the US and Germany have increased noticeably over the preceding nine months.

Aversion to risk - Less than a third of those interviewed in 2008 agreed that they were prepared to accept a higher level of risk for their savings in return for a higher possible return and although this figure had remained consistent across the five years of core research, the omnibus survey showed evidence of this risk aversion strengthening in the more mature economies since the credit crunch took hold. The research has highlighted consistently that when people think about financial returns from their savings they tend to prefer products which offer safer or guaranteed options over those which offer the highest or most competitive returns.

Barriers to saving - The greatest reported barriers to saving more have consistently been lack of affordability and existing debts, however lack of trust in financial institutions as a determining factor has risen dramatically over the course of this year. For instance only 8% of respondents in the US cited it as a barrier in Q1 2008 but this had then risen to 25% by Q4. Over the same period it rose from 15% to 27% in Ireland and from 13% to 22% in the UK.

Retirement concern – In almost every country surveyed the majority of pre-retired people said that they were worried that they wouldn’t have enough money when they retire to provide an adequate standard of living, and this has been the case since the survey began. However, significantly fewer people in most countries said that they were actually regularly setting aside money for use in retirement (despite also acknowledging that saving or investing regularly was the most practical way to secure a comfortable retirement). A mismatch between anxiety and action which creates some potentially worrying pension provision gaps.

Working later – One response to this potential lack of retirement provision, from a consumer point of view at least, may lie in simply working until later in life. In fact, rather than seeing this an unappealing prospect, in 2008 the majority of pre-retired people agreed that they would like to work, either full time or part time, after the usual retirement age. There was considerable geographical variation in answering this question though; the more established Asian markets such as Hong Kong, Singapore and Taiwan expressed the greatest desire to carry on their employment into their later years whilst those in Continental Europe (France, Germany, The Netherlands and Belgium) were least enamoured with the idea.

Countries covered in the 2008 research: Hong Kong, Singapore, Taiwan, China, Russia, Ireland, India, Australia, Romania, USA, Italy, Lithuania, Turkey, UK, Sri Lanka, Poland, Canada, Spain, Czech Rep, Malaysia, Hungary, Belgium, Netherlands, Germany, France.

A summary report of the key findings from the research has now been published and is available for download on Aviva’s website.

Andrew Curry writes:

The latest edition of our free e-letter, HenleyMail, has gone in the last week or so to those who have signed up to it. There are two main articles: Trevor Harvey looks at the credit crunch through the lens of Henley Centre HeadlightVision’s Financial Services Segmentation, and there’s an interview with J. Walker Smith, the Chief Executive of Yankelovich, which merged with HCHLV earlier this year. Among other things, we asked Walker about the major trends he saw in the US market at the moment:

We talk with our clients about three overarching dynamics – empowerment, purpose and health. Empowerment is simply the fact that unprecedented access to information is putting consumers in charge of the marketplace. Purpose is a newfound priority on the quality of life not the quantity of stuff, and so people are actively seeking more meaning and fulfillment in their lives. And multiple pressures, some demographic, some regulatory, some economic, are putting a premium on better health, particularly better preventive health which is one of the key initiatives in our business right now.

The full HenleyMail can be downloaded here. If you want to sign up to the newsletter, which is an occasional publication, you can do that here.

The painting at the top of the post is by the American painter Debora Gilbert Ryan: ” I did this series of rather simple encaustic and oil paintings … in the mid-1970′s. People liked them a lot until I told them they were paintings of envelopes. In certain circles, any sort of representation was looked down upon.”

Trevor Harvey writes:

We have a longstanding segmentation which helps us, and our clients, to understand consumer attitudes to financial services, so we have used it to explore attitudes to the credit crunch. The segmentation tests for levels of involvement in financial provision, along with levels of risk one is willing to accept. (The current segment sizes are above, along with the original percentages when we first built it ten years ago.) ‘Pressured providers’, the largest segment, are engaged with their finances because they have to be.

The main finding from the analysis, which we wrote up for WARC, the World Advertising Research Center (subscription required, free trial available), after presenting it to clients, was that for two of the segment groups, the Pressured Providers and the Free Thinking Independents, debt was integral to their lifestyle. As I say in the WARC article,

attitudes towards debt, which have been built up through easy access and optimism, are not likely to dissipate… appetite for borrowing is unlikely to diminish in the two groups noted for driving the debt market. Pressured Providers will continue to need help because they have no other means of survival, and Free-Thinking Independents will continue to take as much as they’re given to help fund a lifestyle born of attitude rather than means.

Market conditions provide some constraints on the ability of financial services companies to provide loans. But there are also reputational risks in lending to people who are borrowing under pressure and who may struggle to repay.

Trevor Harvey writes:

Springwise has an item this week on a new initiative (opens to Dutch web page) in the Netherlands whereby ING – one of the country’s largest banks – helps buyers makes offers for other people’s homes – even through the houses aren’t actually on the market. There have been similar schemes elsewhere.

They see it as further evidence that we’re moving towards Doc Searls‘ ‘intention economy‘, which is more interested in what buyers would like to buy rather than what producers want to sell. It’s an interesting idea, and since buyers are likely to have the money it cuts out a lot of marketing effort. But before we rush to declare a new dawn, there are some wrinkles. It seems to me that it opens up some privacy concerns – or even just straight nuisance calls; how long before there is a register akin to the Mail Preference Service for people who decline to be approached in this way? Most contract law, certainly in the UK, is based on sellers making an offer to which a buyer accedes. And the notion of the market seems deeply embedded in cultures throughout the world. There may be good social reasons why – for 10,000 years or so – the dominant sales model has been of sellers gathering their wares and buyers going to find them.

Gemma Stevenson writes:

The scale of consumer debt in this country is now pretty well-known – whether it’s the £1,000 million of mortgage debt or the fact that overall consumer indebtedness now exceeds annual national income. But one of the big surprises for me when I attended a breakfast briefing we ran for public sector clients today was how people feel about it.
Research data shows that between 2002 and 2007 the number of people agreeing with the statement “I am happy to have short term debt to allow me to buy the things I want” fell from 43% to 32% – a clear and significant shift in consumer attitudes. (Click on ther thumbnail above to see the chart). Yet the question raised on Wednesday was ‘when will this lead to a change in behaviour?’ This doesn’t seem to have happened yet, despite the attitudinal data. Yet at the same time, there are ‘weak signals‘ of change out there, such as the relatively rapid rise of local freecycle groups.

One thought that emerged from the discussion was that the debt conundrum had similarities with public health issues such as obesity: that providers had to change their behaviour, perhaps nudged along by regulators, before consumer behaviour starts to change in line with underlying attitudes.