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Published by: Mintel International Group Ltd.
Published: Nov. 1, 2002 - 159 Pages
Table of Contents
Introduction
Aims of the report
Executive Summary
Structural changes have eroded customer inertia
Customer retention issues are therefore increasingly to the fore
Most customers are fully satisfied with their financial providers
Customer defection rates vary across the product areas
High customer satisfaction does not guarantee high retention
Price is the principal reason why consumers switch providers
Product and service issues are also relatively important prompts
Some variation in the reasons for switching by product area
Consumer inertia still pervades the financial services market
Mortgage customer defection rates are set to increase...
...but insurance and credit card switching may ease
Men, 25-34s and ABC1s are more likely to defect in next two years
Price is set to remain the chief prompt for financial switchers
Service-related issues will also be important to customer retention
Market Factors
Regulatory changes have blurred traditional demarcation lines...
...which has encouraged the established players to diversify
Emergence of new entrants has also increased competitive forces
While new channel developments are increasing consumer choice
This rise in competition is encouraging consumers to defect
Consumers' expectations and demands are increasing
Declining state provision has heightened consumer awareness
These trends have shifted the balance of power to the consumer
Financial scandals have eroded confidence in traditional players
Consumer inertia within financial services is therefore declining
Cross-selling strategies can help to instil customer loyalty...
...and strong branding can also aid retention
Understanding Defection and CRM
The importance of customer retention
Yet retention issues rarely receive the attention they deserve
Defection provides the key to customer retention
What factors influence a customer's decision to defect?
Figure 1: Reasons for customer defection
More competitive pricing is a key reason to defect
Service-related issues will also play a vital role in defection...
...which means providers need to manage customer relationships
Other reasons can also prompt a customer to switch supplier
The defection process can be summarised in a five-stage model
Figure 2: Customer transfer process
Defection is usually a trade-off between ease of transfer and price
The complexity associated with moving accounts differs by product
Potential savings from switching will also differ by product area
Motor insurance offers customers easy switching and high gains
Figure 3: Trade-off between potential savings and complexity of switching
The Consumer - Overview
Structure of the consumer research sections
Product penetration across the six analysed sectors
Figure 4: Financial product ownership in the UK, September 2002
Most customers are fully satisfied with their financial providers
Figure 5: I am fully satisfied with my financial provider, September 2002
Insurance customers are the most likely to be satisfied...
...but one in eight current account holders are not fully satisfied
Is there a hard core of customers who are never satisfied?
Figure 6: Number of products respondents not fully satisfied with, September 2002
Almost a fifth of financial services customers are not fully satisfied
Men and ABC1s are more likely to be dissatisfied with a provider
Figure 7: Profile of satisfied and dissatisfied respondents, September 2002
Customers are now more inclined to change supplier...
...but two thirds of financial services customers show some loyalty
Figure 8: Have changed supplier in last two years, September 2002
Customer defection rates vary enormously between product areas
Motor insurance customers are the most promiscuous
Figure 9: Estimated annualised defection rates for the period September 2000 to September 2002
Current and savings account customers are less inclined to switch
Over 10 million financial customers are 'transferring' each year
Figure 10: Estimate of number of customer defections per year, 2002
Men and ABC1s are more likely to have switched provider
Figure 11: Profile of loyalists versus switchers, September 2002
One in ten consumers have changed more than one provider
Figure 12: Number of products switched in last two years, September 2002
High satisfaction levels do not guarantee low customer churn
Figure 13: Customer satisfaction versus customer defection, September 2002
Price is the key reason for changing providers
Figure 14: Reasons for changing supplier, September 2002
Product and service issues are also relatively important
Reasons for switching vary by product area
Figure 15: Reasons for changing supplier, by product, September 2002
Switching prompts also vary according to consumer segments
Figure 16: Profile of respondents citing top three reasons for changing supplier, September 2002
Customer Retention and Current Accounts/Savings Products
Current account is the most widely owned financial product...
...while the savings account also boasts high ownership levels
Both sectors have traditionally enjoyed strong customer inertia
But intense competition has seen consumer choice rise dramatically
While regulatory pressure has made the switching process easier
Meaning that customer retention is becoming more vital
Savings account holders are largely satisfied with their providers
Figure 17: Socio-demographic profile of satisfied and dissatisfied customers, September 2002
While current account holders are not quite so complimentary
But most current account customers remain loyal to their banks
Figure 18: Retention and defection in the current and savings account markets in last two years, September 2002
Only a small minority of savers have switched providers
Current account loyalty increases with age
Figure 19: Socio-demographic profile of current account switchers and loyalists, September 2002
Women and ABs also display a greater degree of loyalty
Service issues hold the key to current account defections
Figure 20: Reasons for changing current account provider, September 2002
Successful resolution of problems is vital for customer retention
Product considerations have also enticed current account holders
Current account customers have not been so rate-conscious
Issues of convenience also impact on customer defections
Delivery channels and lack of communication are less of a concern
Savings account switchers focus primarily on price
Figure 21: Reasons for changing savings account provider, September 2002
Product features can also be key factors in the switching decision
Service issues and delivery options had a more limited impact
The incidence of switching is set to stay around current levels
Figure 22: Retention and defection in the current and savings account markets in next two years, September 2002
Profile of likely defectors is similar to those who have just switched
Figure 23: Socio-demographic profile of potential current account switchers and loyalists,
Sep-02
Dissatisfied customers are far more likely to switch supplier
Figure 24: Satisfaction levels and switching intentions among current account holders, September 2002
Current account rates may become increasingly vital for retention
Figure 25: Reasons to change current account provider, September 2002
But service issues are set to remain paramount
Product innovation will also play a role in retention strategies
Loyalty schemes and delivery channels are not so important
Personal recommendations are more important than advertising
Higher interest rates will be the key to savings account defections
Figure 26: Reasons for changing savings account provider, September 2002
Service issues are also important in retaining savers
Other factors will also play their part in customer retention
Customer Retention and Insurance
Over half of the consumer base own a general insurance product
Arrival of the direct insurers has revolutionised the motor sector
Competition has also intensified in the home insurance sector
Insurance policies are particularly prone to defections
Risk assessment is paramount to customer retention
Vast majority of insurance customers are happy with their supplier
Figure 27: Socio-demographic profile of satisfied and dissatisfied insurance customers,
Sep-02
The over-55s, C2DEs and women are the most content...
...while ABs, men and younger customers tend to be less impressed
But insurance customers are now accustomed to switching supplier
Figure 28: Insurance retention and defection in last two years, September 2002
Over a third of motor policyholders have defected in last two years
A sixth of home insurance customers have also changed supplier
Switching motor insurer now pervades all consumer segments
Figure 29: Socio-demographic profile of insurance switchers and loyalists, September 2002
The 16-34-year-olds are the most likely motor insurance switchers
Women and C2s show a strong propensity to change motor insurer
The 25-34s and C1s are avid household insurance switchers
Why do policyholders switch to another insurer?
Figure 30: Reasons for changing motor insurance provider, September 2002
Price is the key reason for switching motor insurer...
...meaning insurers need to be competitive to boost retention rates
The right product offering can also help to retain customers
Service and delivery options are not as important
Price is once again the key reason to switch household insurer
Figure 31: Reasons for changing household insurance provider, September 2002
A better product can also entice home policyholders to switch
Moving home can trigger a change in home insurance provider
Other issues play less of a role in the switching process
Fewer insurance customers intend to switch over the next two years
Figure 32: Retention and defection in motor and home insurance in next two years, September 2002
Just over a quarter of motor policyholders are looking to switch
Around a tenth of home insurance customers intend to switch
A third of motor insurance switchers intend to move again
Figure 33: Proportion of motor and home insurance switchers who intend to switch again,
Sep-02
The 16-24s are the most likely to consider changing motor insurer
Figure 34: Socio-demographic profile of potential motor and home insurance switchers and
loyalists, September 2002
A fifth of ABC1 families are considering switching home insurer
Dissatisfied customers are more likely to switch supplier
Figure 35: Satisfaction levels and switching intentions of motor and home insurance customers, September 2002
What will prompt insurance customers to switch?
Figure 36: Reasons to change motor insurance provider, September 2002
Price is set to remain the key to retention of motor policyholders
But service issues and product features will also be important
Other factors will have a more limited impact on retention rates
Lower premiums is also the key to enticing household policyholders
Figure 37: Reasons for changing home insurance provider, September 2002
Service and product-related issues will also play a part in retention
Other factors will have a more limited impact upon retention
Customer Retention and Credit Products
Over half of the customer base owns a credit card...
...while mortgage ownership is driven by lifestage factors
Mortgage market has historically enjoyed high customer inertia...
...but a strong remortgage market has changed those dynamics
Competition in the credit card market has also intensified
Customer retention issues have therefore become vital
The majority of borrowers are happy with their chosen providers
Figure 38: Socio-demographic profile of satisfied and dissatisfied mortgage and credit card
customers, September 2002
Women and the over-65s are more likely to praise their lenders
ABs tend to be less impressed by their mortgage lender...
...while C1s are less content with their credit card companies
Most mortgage customers have remained loyal in last two years...
Figure 39: Retention and defection of mortgage owners and credit card holders in last two years, September 2002
...but more than a million borrowers did switch in each year
Over 1.5 million credit card customers change provider annually
The 25-44s have been particularly keen to change mortgage lender
Figure 40: Socio-demographic profile of mortgage and credit card switchers and loyalists,
Sep-02
A quarter of ABC1 families have changed mortgage lender
The 25-44s are also avid credit card switchers
What factors have prompted borrowers to move their business?
Figure 41: Reasons for changing mortgage lender, September 2002
Lower rates is the chief reason for switching mortgage lender...
...lenders are responding to this threat with a range of initiatives
Moving home is a key prompt to switch mortgage lender
Product considerations have also lured some borrowers
Service and other issues are not such significant prompts
Price is once again the key prompt to change credit card company
Figure 42: Reasons for changing credit card provider, September 2002
The overall product offering is also an important switching prompt
Bad service and improved accessibility also impact on defections
More mortgage customers intend to switch in the next two years...
Figure 43: Retention and defection in the mortgage and credit card markets in the next two years, September 2002
...in total, one in six mortgage holders intend to switch lender
Just under one in ten credit card customers intend to defect
Have borrowers become accustomed to switching?
Figure 44: Proportion of switchers who intend to switch mortgage and credit card again,
Sep-02
ABs and 25-34s are most likely to consider shifting their mortgage
Figure 45: Socio-demographic profile of potential mortgage and credit card switchers and loyalists, September 2002
A fifth of ABC1 pre-/no family intend to change credit card supplier
Dissatisfied customers are more likely to switch providers
Figure 46: Satisfaction levels and switching intentions of mortgage and credit card customers, September 2002
What will prompt mortgage and credit card customers to defect?
Figure 47: Reasons to change mortgage lender, September 2002
Price is set to remain the key factor behind mortgage switching
But service issues and product features will also play their part
Other factors are not such a strong lure for mortgage customers
Lower rates will also be key to credit card customer defections
Figure 48: Reasons for changing credit card provider, September 2002
Product considerations and service issues will also be important
Loyalty schemes will also lure potential credit card switchers
Personal recommendations are also a prompt to switch providers
Consumer Conclusions and The Future
Consumer inertia still pervades the financial services market...
Figure 49: Financial services switchers and loyalists, September 2002
...over half of financial services customers expect to remain loyal
One in six financial customers feel all companies are the same...
...while just over one in ten feel switching is just too much hassle
Women, over-65s and DEs tend to stand by their finance companies
Figure 50: Profile of respondents not intending to switch in next two years, September 2002
But future defection rates are likely to be significant in most areas
Figure 51: Anticipated annualised defection rates over the next two years, September 2002
Mortgage defection rates are set to increase...
Figure 52: Comparison of anticipated and actual defection rates, September 2002
...insurance and credit card switching may be set to ease
Over 8 million financial customers intend to switch in each year
Figure 53: Estimate of anticipated future customer defections per year, September 2002
Men, the 25-34s and ABC1s are more likely to defect
Figure 54: Comparison of future switchers and previous switchers, September 2002
Almost one in eight motor policyholders are perpetual switchers
Figure 55: Customer churn in financial services markets, September 2002
Eight out of every ten current account holders are loyal
What will prompt financial services customers to change suppliers?
Figure 56: Reasons for changing supplier among potential switchers, September 2002
Price is the key motivation for financial services switchers
Service issues are also clearly vital to customer retention
Product innovation and loyalty schemes can also boost retention
Significance of switching prompts varies across the product areas
Figure 57: Reasons why respondents would switch supplier, by product, September 2002
Reasons behind future defection also vary by consumer segment
Figure 58: Profile of respondents citing each reason for switching supplier, September 2002
Forecast
Scenario 1
Figure 59: Forecast of financial services company defectors by financial product, 2006,
Scenario 1
Scenario 2
Figure 60: Forecast of financial services company defectors by financial product, 2006,
Scenario 2
Scenario 3
Figure 61: Forecast of financial service company defectors by financial product, 2006,
Scenario 3
Appendix: Research methodology
Index of reports
AbstractHistorically, financial services providers have enjoyed a truly enviable reputation in terms of their customer retention levels. Indeed, in the past, once an organisation had recruited a customer they could reasonably expect that it would be the start of a long and fruitful relationship, with the vast majority of consumers content to remain devoutly loyal to their chosen supplier. This was largely a consequence of the high level of customer inertia that has traditionally characterised the financial services industry, allied with strict regulatory controls which severely restricted competition in each sector of the financial services market.
The last few years, however, have witnessed a period of dramatic and far reaching change within the financial services industry. Deregulation, the advent of new technology, a sharp intensification in competitive pressures and a shift in the balance of bargaining power away from the supplier and towards the consumer, have all combined to produce a significant increase in the incidence of customer disloyalty. This has resulted in the established financial services players having to focus increasingly upon the issue of customer retention in an effort to stem the flow of customers leaving their organisations.
Indeed, in an effort to combat the growing number of customer defections financial services providers have tried to develop a deeper understanding of their customers and attempted to identify the key reasons why so many have been tempted to switch to alternative suppliers. The ability to maintain existing customer relationships has therefore become increasingly important as financial services organisations have battled to maintain profitability levels in the face of an increasingly competitive marketplace. Accordingly, the development and implementation of effective customer retention strategies has become a vital task for all financial services companies.
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