As I see the shops having back to back displays of Christmas festive fare, I wonder whether the financial services world can learn anything from the competitive world of retail.
Legend 1 - Advice can only be afforded by high net worth clients
Walmart was founded by Sam Walton over 50 years ago. Growth was initially slow. Sam Walton knew that people who lived in rural areas had exactly the same needs as those in the suburbs but because it was costly to serve them, no one did. He saw this as an opportunity; an unserved market means no competition but could it make money? The rural market was unserved because it was costly to do so; distribution to stores was expensive because the stores were in the outback. So it was identified that he needed better logistics and inventory capabilities. He also needed repeat business. So he decided that his brand would be built on a low-price strategy that built trust and loyalty with the customers. Customers realised and appreciated this and he covered his costs by increasing his customer volumes and cutting costs with the very basic supermarket stores. Hence, the distribution was designed to be profitable regardless of the average basket size of the customer.
Legend 2 - High net worth clients want face to face advice
John Lewis is an old and established retail presence in the high street with traditional products and a very strong brand promise that its “never knowingly undersold” dating back to 1925. The dilemma was did John Lewis need to have an online presence for its customers and would an online presence translate to the strong John Lewis brand. John Lewis develop a strategy, known as dotbam, which gives the reassurance of a physical presence alongside the convenience of online. A key part of John Lewis’ online strategy is to ensure that its website provides an extension of the customer service experience in-store. It has even extended its “never knowingly undersold” promise to its online shoppers. This has continued to be developed by using Waitrose outlets as pick up points for online shoppers.
Legend 3 - Financial products focus on the needs and goals of the customer
Loyalty schemes have been around the retail world for some time, starting with Green Shield stamps and then evolving with the store loyalty card. Loyalty schemes typically offer points, cash back or voucher based. The process was typically standalone loyalty cards and reward vouchers, which required long term loyalty to build significant rewards. The schemes worked because many of the rewards were never claimed. However, we have now seen an increasing number of loyalty schemes being more customer friendly. Barclays Freedom card is an example that used technology to allow real time communication, immediate experience with rewards being offered at the point of sale and offers being targeted on spending habits. The business case for this is interesting as the more customer friendly the use of loyalty, the higher the redemption costs.
What lessons can we learn from retail?
Here are some of the changes that we have made to our operating model.
- Building distribution channels that are profitable. Historically, TPAS delivered its guidance over the telephone, reverting the “Basildon Bond” letters where needed. Today, we offer telephone, web chat, online enquiries and, yes, we do still write letters. We have started to pilot Webex for our outreach work, Skype for appointments and shared screen technology. This has enabled us to deliver our guidance service at a cost of £36 per customer.
- Offering an online presence. We launched our web chat quietly in August 2013. We did not think that our type of customers would use it. How wrong we were! It is now joint second in channel usage alongside online enquiries. The management of it is such that we are able to offer it more easily and can therefore give longer opening hours. On the day after the Budget 2016, we opened our helpline in the evening; both telephone and webchat. The telephone lines had some calls but the web chat was very busy suggesting that the habits of all age is to multi task in the evening; watch TV, search on the tablet, sort paperwork
- Link the service to life events. Most of our customers contact us because they have had a significant life event. Unfortunately, too many are at a point of crisis or need to take immediate action. Is there more that we can do to proactively alert customers to think about their finances? We know that they have had a significant financial event e.g. rethinking their retirement plans following a divorce with a pension split. When the dust has settled, can we help these people with the rebuilding of their retirement plans? We have started to pilot appointments for customers who have contacted us regarding setting up a pension to accept a pension sharing order and suggesting a further conversation with them so that they have a better understanding of their retirement position.
- Easy to understand proposition. We speak to a number of customers who have no direct or indirect experience of receiving financial advice. The benefits of a full holistic plan are obvious to those who have experienced it but may be difficult for other people to quantify. We help customers understand what they have got and the questions that they should be asking of themselves and others. We know that, as a result of a guidance session, a significant proportion of our customers say that they plan to see a financial adviser. Having an entry level service may be a good way to introduce customers to the benefits of financial advice.
As we approach Christmas followed by the busiest months in our business year, it is a good time to think what lessons can financial services learn from outside. In the words of Imelda Marcos “Win or lose, we still go shopping after an election.” After all Brexit resulted in Marmitegate and US Election was top Trumped by the change in Toblerone.