Digital Leadershift - get ready for a BIG BANG

Transforming your organisation from an analogue dinosaur to a Digital First one is hard, very hard. You not only need the right team of people, the right technology and the will to change internal processes, you need this change understood & supported at the senior level too.

But this isn't about getting the CEO to blog or the Managing Director to Tweet (they should know how to do that already), it is about having the right drive from on-high to correctly sponsor and if necessary push through the required changes that a digital transformation needs.

In short, it needs a shift in the mindset of the leaders to a digital way of working... or a digital leadershift.

However different market sectors and industries are affected by the disruptive effects of digital in different ways. And to illustrate this best, a recent report from Deloitte Digital depicted a 'Disruption Map' that shows the extent to which 17 industries are affected across two dimensions: Degree of Impact (The 'Bang') and the timing (The 'Fuse').

As we know... some industries are already in the middle of their shift. Sectors such as retail (High Street eCommerce has been a beacon of online innovation for the last few years) and Leisure (The consumer travel sector has both blossomed and suffered as online acquisition, customer self-service and aggregation has affected airline travel, etc. - and just look what the likes of AirBnB and to a certain extend Google are doing to the hotel market).

So it is probably no surprise that the leaders in those industries that have already been affected are nearly all digitally savvy. But what about other sectors where the fuse is much longer?

Well in a lot of cases key individuals from shorter fuse industries have moved across to help other verticals understand and manage their way through this disruption. For example, senior staff from tech start-ups are now finding roles in Financial Services and Professional Services.

But other senior managers in those where the disruption hasn't really hit yet are less aware and prepared for the changes that are bound to come. Some may know the Big Bang is coming, but for others it could be a big shock.

How do you segment financial services customers?

In an earlier post I made it clear that I thought a certain way of segmenting customers has had its day. The method of classifying customers just by their life stage is no longer relevant, with both lifestyles and finances having moved on.

So rather than dwelling on this, I thought it better to look at ways that banks in the future could segment their customers. But to be honest, I couldn’t come up with a single simple way of segmenting financial services customers that made sense in the modern world. Nothing really fitted nicely and any possible model had loads of exceptions to the rules.

And then it struck me... that perhaps there's no longer a few simple segments that fitted all financial services customers. Perhaps this subject is just too complex to put into simple terms... or in other words, perhaps now with the advert of clever data analysis and personalisation, there's no need to segment them into a handful of categories, everyone is in their own segment!

It's therefore my prediction that banks will eventually integrate big data analytics into their CRM systems. This will develop their understanding of who each individual customer is, alongside a record of what products and services they have already got do describe how best to meet their needs.

Some financial services companies may already be on their way to delivering this vision and this should be an interesting space to watch as the use of dig data analysis takes off.

The rise of Personal Finance Management services

Last year I was lucky enough have a senior role as the Head of Digital for a financial organisation. This got me back into the Financial Services arena, where I could leverage the experience I’d gained from several years of agency-side delivery in this sector.

Diving into this industry again after several years out of it, I was struck by the changes that had taken place. For example: The reputation of banks was lower than it had been nearly 10 years ago (primarily due to the financial crash, but also because of the rise of customer complains brought on by better communication methods such as the Internet and Social Media) and people were eventually breaking away from the traditional and clumsy segmentation models of life stage and age.

However one thing in particular grabbed my attention more than most, the potential for banks not to own the financial interface with the customer anymore and that a service layer could be placed between the user and financial services provider. In other words, the market was far more likely to use personal finance management tools now than ever before.

But why are online personal finance management services now being considered? Especially when banks have spent so much money and time creating their own direct banking channels?

1. Users want independence
Having a product agnostic platform puts the user back in control. Look at the gradual dominance of the aggregator in financial comparison; from credit cards through to car insurance, online now provides a way of comparing and contrasting multiple products in a single place. This independence from a specific financial services provider gives the user a place they can trust and not have cross-sell and up-sell offers from the same company tirelessly pushed to them at every opportunity.

2. Users need better interfaces
All online banking and services sites are playing catch-up with each other, but all so very slowly. Thanks to lengthy development timescales, the need to comply with in-house governance and the very nature of financial brands to be less agile and more risk averse... you then get products that work, but are rarely shining examples of fantastic functionality, user experience and design.

3. Users have more choice
The financial services landscape has changed. These days users not only have the ability to switch providers for their insurance and banking needs, this switching is becoming a legal requirement that all FS providers must support. Add to this the fact that so many financial companies have now all diversified into as many different markets as possible (usually by white-labelling everyone else’s services) and the choice amongst products is bewildering and still growing...

When you then compare these facts with the ability of smaller, digital-first and more innovative personal finance manager sites, you can start to see why some banks and building societies are getting worried. The rest, well they’ll have a nasty shock when they eventually wake up.

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...

Are UK Financial Services cracking Social Media?

To a large extent the Financial Services market in the UK is still finding its feet with Social Media. This is strange, considering they have typically been at the cutting edge of digital adoption. Sure, most companies in this sector have raced to use Twitter and Facebook, but in my opinion a lot (and especially the bigger players) are still at the early stages of the Social Media Maturity Matrix.


However the  comparison sites are proving to be better at engaging customers with this channel than high street banks. Compare The Market’s position at the top of Stickyeye's recent Online Consumer Finance
Intelligence Report for social media reflects the online and offline branded campaign to “Compare the Meerkat”. The report gives the aggregator one of the highest engagement scores, despite claiming:

"Among the retail banks, social media remains a relatively under developed channel, with many operators not integrating their main site with key social media assets such as Facebook and Twitter.."

The UK however should look to the USA, where some FS companies have really found their way in this space:. For example American Express has been at the forefront of Social Media since launching its first online community in 2006 and then launching OPEN Forum a year later (a community project which focuses on small business owners).

The impact of Google aggregating insurance

I thought I'd follow up my earlier post, where I mentioned how the entrance of Google into the online UK insurance space was more of an issue for the aggregators than the individual insurers or brokers.
Note: those brands you think are insuring your car are actually fairly likely to be brokers, trying to earn a profit by selling you insurance from a smaller set of insurers.

In 2010 over 50% of all private car insurance was purchased with the use of the Internet, so it is only sensible to assume that has only increased over the last 18 months. It's therefore surprising that many insurance brands in the UK have made the decision not to have a large online marketing presence and take advantage of this traffic and growth. Sure, some companies are targeting organic or paid search online, but the major search terms are now pretty much dominated by the primary aggregators (MoneySupermarket, GoCompare, Compare The Market & Confused)*.

Either through a conscious decision, a lack of securing funds or some other factor, many insurance companies now accept the dominant role of the aggregators and pay them handsomely. In fact some even accept that up to 80% (or possibly more) of their business comes from the big players.

This current situation may not be permanent, but climbing above the big aggregation and comparison sites in either SEO or PPC is something that would take a lot of time, effort, skill and therefore money.

And this is why aggregators have more to lose now than the companies they provide customers to. They have more at stake when the biggest search engine places its own sponsored box just beneath the top two PPC adverts on a search results page. In effect giving itself a free third place listing and thus siting this service above the organic results.

For any other company this third place Pay-per-click position and top SEO place would cost a fortune to establish and maintain. Save nothing of the improved experience of a comparison service being built into the search journey.

*Sure some are spending significantly on TV (e.g. Direct Line, which is trying all it can to build brand loyalty in the run up to its proposed extraction from the now mainly Government-owned RBS group), but these cases are the exception.

Aggregator Maturity

Recently I've been posting my thoughts on the online aggregation services, including the more mathematical Herfindahl Index.Last month I was attempting to explain to someone how aggregation got more technically complex as the product or service became more complex and I quickly drew out a table that explained it. So now I have put it up online to shame and to get feedback.Aggregator Maturity

View more PowerPoint from Hayden Sutherland

As always, I see this as 'work in progress' and never a definitive completed concept.

Aggregation and the Herfindahl index

The Herfindahl Index (AKA the Hirschman-Herfindahl Index or HHI) is a measurement of the competitiveness of a particular industry. The index gives a figure between 0 and 1, with those markets closest to zero being more competitive and those closest to 1 being an (almost) monopoly.


An increase in the index typically means that there’s been a decrease in competition and therefore greater market power to those still operating. Whereas a decrease towards zero indicates more companies fighting over the same customer base and therefore the existence of a more ‘perfect’ and competitive market.
So why is the Herfindahl Index important in the online aggregators markets? Well, over the last decade, the appearance of aggregators in different online markets has created a more level playing field for customers; by collating the rates and fees for different suppliers and presenting them to the online user in an easy-to-compare format. Therefore in those markets where price is so-often the defining decision factor, such as utilities, financial services and travel, the use of aggregators increases competition and pushes the Herfindahl Index figure closer to zero.

Take the UK motor insurance market right now. As you will see from the diagram below (sourced from Towers Watson’s report ‘why aren’t we making money’
www.towerswatson.com/assets/.../Why-arent-we-making-money.pdf

In the last 10 years (really since the appearance of confused.com which was the first UK motor insurance aggregator) the HHI has moved closer to zero.

So what are the implications of this? Well, if anything is predictable, it is that the UK motor insurance market is going to get more (not less) price sensitive over the next few years, becoming more like the oil and airline industry in its competitiveness, unless something happens to interrupt this trend……

Social Media - a platform for complaints

When everyone first got excited about the Social Media Goldrush back in 2008 - 2009 the same stories circled round and round. We all know them.... the Dell Hell blog, etc.
Things haven't got much better several years on. Recently, peeved about a new $5 monthly bank fee imposed by Bank of America, Molly Katchpole logged on to the Change.org website to start an online petition urging the bank to reconsider imposing monthly fees on debit card users. Quickly more than 300,000 people joined her  campaign demanding the bank drop what they saw as an monthly usage charge and the bank backed down. Many not credit Molly with eliminating debit card fees for the Bank of America and others.

Today's consumers are relentlessss with their expectations and complaints about brands - and with easy access to site like TripAdvisor (for travel users) and tools like Twitter, their words can go far. 

It seems that Social Media has now provided a platform for complains and potentially helps foster a Culture of Dissatisfaction online.

Aggregators - why they exist in specific markets

Meta search and aggregation (for the purpose of this article I'm saying these two are the same thing, although some may claim there are subtle differences) have grown over the last few years to be a dominant acquisiton force in a number of important online vertical markets.

Financial services, from credit cards through to insurance, are now subject to aggressive aggregation from a handful of major players such as: compare the market, go compare and moneysupermarket.

Utilities including: gas, electricity, mobile phone tariffs and broadband access are now compared online. In fact a lot of fuss and claims are made by the market leaders in this sector that they are championing your consumer cause (without obviously stating that your business with them helps their financial cause).

And travel has its obvious aggregation in the form of meta searches for: car hire, hotels, flights, etc.

Each aggregated vertical has its specific nuances and intricacies, plus each its own referral & commission structures, but in essence the the business model is the same:
a. Collate as many similar products or services as you can
b. Provide a single interface that qualifies the visitor's choice (usually by a series of form fields common to all parties)
c. Deliver the results in a consistent and comparable manner (usually cheapest first, but also allowing the user to filter some options)

Aggregators exist because two simple facts:
1. customers do not believe that they always get the cheapest rate for all products from one supplier
2. customers do not want to spend the time completing the same form on numerous sites

But why don't aggregators exist in other markets... such as fashion or FMCG products (e.g. washing powder and chocolate bars)?

Well, for fashion products, the usual reason is that products are exclusive to the manufacturer. Therefore because the channels to market are all protected (e.g. the manufacturer has some level of control over price and/or distribution) there is no real flexibility in the price. Then (assuming the brand site has eCommerce functionality), it is then typically just as cheap for users to shop from the brand site as it from a re-seller.

For FMCG the lack of aggregation is a different one, that of convenience. Most shoppers, when looking to source FMCG products go to a grocery store or supermarket. They also assume that the shop has done some sort of price comparison with the competition, so they don't have to (although prices may only be matched for the core 'basket' of goods and other less common items are still priced to maximize profits). Although sites such as http://www.mysupermarket.co.uk have sprung up to allow web users to compare grocery and health & beauty products from the leading retailers, people still either only visit one store or use one online supermarket at a time.

The question I have is... are there any remaining markets where aggregation is possible but has yet to take off?

A year ago

A little off-topic, but here's some sobering statistics (Thanks to Mr M Buck for the information).

Around this time last year RBS paid $100bn for ABN Amro. For this amount today you can buy:

• Citibank $22.5bn
• Morgan Stanley $10.5bn
• Goldman Sachs $21bn
• Merrill Lynch $12.3bn
• Deutsche Bank $13bn
• Barclays $12.7bn

And still have $8bn change...... with which, one would be able to pick up GM, Ford, Chrysler and the Honda F1 Team!

Feeback on our white paper

I've been getting some good feedback from my company's white paper/executive presentation on Benefitting the Financial Services Customer with Web2.0

However, some people have not been able to access it, so I've been asked to post it into my Blog.

| View | Upload your own

'Benefitting the Financial Services Customer with Web2.0'

My company 'Ideal Interface' has been working on providing insight into on how Financial Services can benefit their customers with Web2.0. This work has resulted in us producing a white paper in the form of an Executive-level presentation.

This is uploaded here:
http://www.slideshare.net/haydens30/fs-web2-v2/
[comments welcome please]

When putting together the research for this piece of work, its been interesting to see the different ways in which those in the FS space are embracing Web2.0 (and which specific parts). What has become most obvious is that no two companies are approaching this in the same way and that certain companies are leading the way in their extended conversation with the customer.
Wells Fargo seems significantly further than most, for example it has 4 blogs that post regularly:
http://blog.wellsfargo.com/
I've also been listening to First Direct's podcasts as a result:
http://www.interactive.firstdirect.com/podcast.html