Post on 18-Jan-2017
Why should you listen?❖ Created and lead customer insight teams for all the major
insurance brands, products & channels used by Lloyds Banking Group over 13 years
❖ Added over £11m incremental profit to bottom line annually
❖ Pioneered LBG work with FCA on Behavioural Economics testing insurance communications
❖ Developed capability into a team of 44 & mentored next generation of leaders
Paul now leads Laughlin Consultancy, a specialist business:
“Helping businesses make money from customer insight”
Laughlin Consultancy helps companies maximise sustainable value from their customer insight, for example by growing their bottom line, improving customer retention and demonstrating
to their regulator that they treat customers fairly.
© Laughlin Consultancy Ltd
Customer Insight & Conduct Risk
❖ Why should you care?
❖ FCA’s Consumer Spotlight segmentation
❖ Behavioural Economics impacts your comms
❖ The diverse challenge of Vulnerable Customers
❖ How analytics & research can keep the FCA doctor away
3
© Laughlin Consultancy Ltd
5 Pillars of Conduct Risk
8
Business Model & Strategy
The risk of unfair outcomes for
your customers
Culture, Govern & Control
Product design & approval process
SalesPost Sales
handling
Strategy Process
Conduct MI
Formal meetings
Cultural transform
Product development & review processes
Formal sign-offs
Decision Science (esp. BE & comms)
Post-Sale processe
© Laughlin Consultancy Ltd
FCA Fines
@ May 201510
Company & Fine Reason for Fine ‘Pillars’ Impacted
Chase De Vere (IFA) Ltd - £560K
Sold Keydata products to customers but didn’t understand or research the products themselves to understand the potential risks to customers. This led to them failing to disclose features and it was found that their communications to customers didn’t meet the clear, fair and not misleading criteria.
Product Design Sales
Swinton – Group fined £7.4M and 3 former directors £928K
A culture of aggressive sales and focus on profit was considered evident which led to the miselling of monthly add on insurance policies. It was found that the company or senior directors did not put the customer at the heart of the business.
Culture & Governance Sales
Yorkshire Building Society - £4.135M
It was found that Yorkshire BS did not act quickly enough to identify and act upon customers who were encountering payment difficulties. Even though the Yorkshire BS correctly used repossession as a last resort the delays in understanding problem cases and identifying future financial prospects of customers led to increases in fees etc. Included a lack of training for staff and issues with complaint handling.
Sales Post Sales (vulnerable customers)
Stonebridge (Aegon) - £8.4M
Stonebridge targeted low and middle income customers with low levels of qualifications but sold them expensive polices and also actively discouraged cancellations. Issues where found with outsourcing controls, governance and complaint handling.
Business Model & Strategy Culture, Governance & Controls Product Design (target market) Sales Post sales
Credit Suisse International - £1.429M
Emphasised the maximum return for its Cluquet Product in its literature even through the chances of obtaining this maximum return was close to zero. This was given undue prominence in literature etc. This was despite complaints and warnings from groups such as WHICH.
Culture & Governace Product Design (comms) Sales
© Laughlin Consultancy Ltd
Understanding Financial Consumers
14
Sex
Age Ethnicity Religion
Marital status/ lifestage
Rule breaking Risk appetite
Optimism
Well-being
Present vs future orientation
Life priorities
Confidence
AffluenceState vs individual
responsibilityWorking status
Social grade
Family networks and support
Trust
Money management
Last purchase experience
Debt and use of credit
Windfall/ inheritance
Level of responsibility for personal finance
Employment and job security
Advice seeking
Life Events
Financial products held
Access to services
Literacy / numeracy
Complaints and disputes
Mis-selling
Planning ahead/ resilience
Tenure
Health and disability
Media usage
Proactivity vs inertia
IncomeTowards financial services
Switching
Experience
AttitudesPersonal characteristics and
lifestyle
Behaviour / decision making
Channels
How FCA is using Spotlight
15
‘Proofs of Concept’ initiatives
Customer Contact Centre Profiling FCA consumers to build a more effective picture of the types of ‘customer’ the FCA has, and customer management
Authorisations
SupervisionThematic projects Taking firm customer lists; profiling the customers; examining potential for risk and mis-match with marketing intentions
Enforcement
Consumer Credit – Consumer journey Using segmentation model to explore differences in use of credit and personal risk, to inform emerging organisation strategy PRR Insight Papers and Reports Using the segmentation model to identify the consumer segments most likely to be affected by a particular emerging risk
Victims of Financial Crime Profiling victims to segments; interviewing a sample from key segments to build an understanding of how they got caught, and use the insight to help inform enforcement and communications strategies
Policy, Risk & Research
Communications
© Laughlin Consultancy Ltd
Defining your Target Market
16
Total Market
Potential Market Inappropriate (never sell)
Target Market
Vulnerable Target Market
Why is this relevant to you?Even when you treat them as individuals & target them accurately, your customers could be vulnerable to making poor decisions due to these biases.
Do your customers…
1. …find your propositions complex & boring?
2. …need to make decisions based on assessing risk or uncertainty?
3. …need to make trade-offs between the present and the future?
4. …find these decisions emotional or fearful?
5. …lack opportunities to learn by making these decisions?
Reference DependenceAssessing gains or losses in comparison to a subjective reference point, one example ifs other propositions on the market or purchase at same time. (Also termed ‘anchoring’)
Projection BiasThe expectation that your current feelings, attitudes & preferences will continue into the future. So, you underestimate the potential for change.
Mental Accounting & Narrow FramingThe behaviour whereby people treat money or assets differently according to the purpose assigned to them. Considering decisions in isolation not overall impact.
Spotting the ‘Dark Side’FCA clearly signalled BE will form a key part of its policy, enforcement & supervision toolkit. FCA have stated they will use these as early warnings: • Rip-offs: Uncompetitively high margins • Suckers: Concentrated profits in small customer group • Bargains: Innovative propositions that appear very cheap • Traps: Contract features that often target BE biases • Regret: Reported or potential regret • Folly: Choices out of line with common sense • Confusion: Observed or likely confusion
© Laughlin Consultancy Ltd
Vulnerable Customers
“A vulnerable consumer is someone who, due to their personal circumstances, is especially
susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” (FCA)
29
© Laughlin Consultancy Ltd
Dimensions of Vulnerability
30
❖ Worth reading FCA Occasional Paper 8
❖ Dimensions they expect to be considered are profiled in their Infographic
❖ Not identified explicitly through Consumer Spotlight segments
❖ Research can help marketers understand differing needs of groups
❖ FCA may want to see how mitigate risks for vulnerable groups through product/comms design, processes or training
Holistic Customer Insight
CustomerData
Customer Research
Customer Analysis
Database Marketing
Feel Experiences
Test Hypotheses
ConvergeEvidence
© Laughlin Consultancy Ltd, not to be used without permission.
Insight-led Good-Conduct Marketing
Business Strategy & Segment
Participation Strategy
Customer Strategy
(inc. Brand Promise)
Channels & Categories
(Strategies)
Customer Propositions
(Concepts)
Product, Price,
Promotion, People, Place… (Build)
Marketing Campaigns
(Design, Target,
Execute)
Marketing Measurement
(inc. ROMI)
Communication Approval
Annual Product Reviews
New Product ApprovalInsight evidence:
Consumer Segmentation
Target Segment Understanding
Insight Generation
Insight guided design:
Marketing Measurement
Targeting Promotion
1. Cross functional teams review data, research and analysis to answer a set of
core questions about their target customer and “map the evidence”
2. Those “Evidence Maps” are reviewed to identify key
customer themes
3. Structured questioning techniques are used to dig deeper to develop insights
A “Customer Insight” is:
A non-obvious understanding about your customers, which if
acted upon, has the potential to change their behaviour for
mutual benefit
4. Insights are prioritised & converged with opportunity
areas. to generate ideas
Insight Generation Workshops
Marketing TargetingPropensity
to Buy Product
Propensity to Product
Loyalty
Propensity to Repeat Purchase
Propensity to Brand
Response
Propensity to Channel Response
TimingEvent
TriggersLife Stages
Suppressions & Permissions
Optimal Aggregation
Optimal Brand
Optimal Channel/Media
Target Segments
Regional Focus
Personalised Comms
Attitudinal Offers
Model for designing BE tests
Identified Customer Need
Bias 3? Bias 2?
Bias 1?Rational Behaviour
Analyse Actual
Behaviour
Use Eye Tracking to spot issues
Test Mitigations (field trials)
Refine Behavioural Experiments
(panels)
Hypothesise Biases at work &
Design mitigations
Review BE biases that could explain
irrational behaviour
Comms