Monday, June 10, 2013

Still segmenting financial products by life stage?

Back about a decade ago I used to work for a digital agency and we had one of the UK’s largest Financial Services as our client. Life was fun and the projects were interesting, for example we developed sites for acquiring new student accounts, we created digital marketing campaigns for first-time mortgage products and we built content-rich portals for customers of added-value current accounts.

Throughout all of this, we focused on targeting prospects according to their life stage. This followed the typical life stage breakdown of:
  • Going to university (student account)
  • First job (graduate or regular current account)
  • Wedding / First house (mortgage, home insurance)
Other products, such as savings, loans and insurances were usually either seen as more opportunistic (e.g. Going on holiday? = holiday insurance or travel money) or obvious up-sells and cross-sells (e.g. Got a mortgage with us? = we think you’ll need contents insurance)

However this segmentation, aided by the banding potential customers by age (e.g. Ignore if under 17, try and grab customers aged 18 – 21, market the heck out of those who are under 50 with money) always seemed fairly rudimentary to me.

Now several years on and with more life experience under my belt, I see that these basic categories and product segments are less and less relevant. Why is this then? Well...

1. The customer is more demanding
They now require financial products based around them and not just any old thing that their existing FS company wants to tout. However most typical products offered still don’t provide the flexibility that the modern informed buyer wants (e.g. Could I find an offset mortgage when I recently went looking for one? Nope!)

2. Life has changed
Society is more diverse and multi-cultural, consumer choice has fragmented and so have the niches that went with this. Therefore the life stage someone is at is no longer as predictable an indicator of the propensity to buy a financial product as it once was. Nowadays a person of 55 and 25 could have the same requirements in cars or property (and therefore the insurances needed to cover both), just as they could also have in music, clothes and food.

3. Trust in finance by younger people has crumbled
Just in the same way as you once would have advised a smart young city-dweller to work in a bank but now wouldn’t so much (for fear of getting a slap), trust in products such as savings and pensions has been eroded... leading a lot of the millennial generation to ignore traditional financial institutions and use alternatives (from the ‘bank of mum & dad and beyond)

In short, people and their finance needs have evolved and fragmented over the last decade, with the impact that the old models used are not the new models now needed.

How they should now segment is perhaps the subject of a different post...

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