In praise of the ‘Diffusion of Innovation’

Another in our occasional series of blogs in which we will revisit some of the articles that we have found most useful over the years … these are the articles that can always be found on desks in the Decision Architects office. This week we are looking at Everett Rogers’ 1962 work on Diffusion of Innovations (and yes, it’s a book not an article).

“This model provides an intuitively simple lens through which we can look at how consumers approach any sort of NPD – it is not without its critics but it is a useful short-hand which we often apply to (say) a segmentation framework to talk to the propensity of different segments to try or adopt a new product or service …. be that a new delivery format for hot drinks, a new insurance concept or some form of health tech” James Larkin, Decision Architects

The foundations of this now ubiquitous framework are interesting. Rogers’ 1962 book was based on work he had done some years earlier at Iowa State University with Joe Bohlen and George Beal. Their ‘diffusion model’ was focused solely on agricultural markets and tracked farmers purchase of seed corn. It was Iowa, and Rogers was professor of rural sociology!

The diffusion model’s signature bell curve identified

Innovators:             Owned larger farms, were more educated and prosperous and were more open to risk

Early Adopters:      Younger and although more educated were less prosperous but tended to be community leaders

Early Majority:       More conservative but still open to new ideas – active in their community and someone who could influence others

Late Majority:        Older, conservative, less educated and less socially active

Laggards:               Oldest, least educated, very conservative. Owned small farms with little capital

Between 1957 and 1962 Rogers’ expanded the model to describe how new technology or new ideas (not just seed corn) spread across society, but whilst Rogers initial work assumed that technology adoption would spread relatively organically across a population in practice there are barriers that can derail mainstream adoption before it has begun. The expansion to this frame discussed in Geoffrey More’s 1991 book ‘Crossing the Chasm’ highlighted a critical barrier to widespread adoption. This Chasm exists between the early adopter and early majority phases of the framework and to successfully navigate requires an understanding of the personality types that form the 5 fundamental building blocks of the model.

Innovators are happy to take a risk and try out products and services that may be untested or ‘buggy’. They look at the potential, do not expect things to be perfect and are happy to work with companies to improve initial offerings, a fertile testing ground for new technology. Early adopters in contrast are more tactical in their adoption. They want to be at the forefront of new technology but will have conducted their own research to evaluate the likelihood that the product will offer them tangible value. They are also more fickle, and are more likely to leave a product or service that is not living up to what was promised creating a potential void between them and the early majority.

Once we start to look at the early majority and beyond there is marked shift towards using something that ‘just works’. They are less interested in something new or shiny but, as the Ronseal advert would put it, something that ‘does exactly what it says on the tin’.

Seth Godin put it well in his 2019 blog when he said:

“Moore’s Crossing the Chasm helped marketers see that while innovation was the tool to reach the small group of early adopters and opinion leaders, it was insufficient to reach the masses. Because the masses don’t want something that’s new, they want something that works, something that others are using, something that actually solves their productivity and community problems.”

At its basic level the innovation adoption curve is a model that can be used to critically assess the appetite to adopt something new within a particular audience (be that segment, cohort or among a more general population). This provides us with a crucial framework element addressing the ‘where to play’ question … which we talk about so often with our clients and to enable the prioritisation of resources where they will have the biggest impact on growth and revenue

To go beyond the innovator and early adoption phases, products and services must deliver on their early promise, be built around customer needs improving on what went before. Getting there first can be a huge commercial advantage but failing to understand your audience and adapt accordingly can be the difference between wide-scale adoption and, at best, obscure appeal.

 

Why ‘new normal’ will look a lot like ‘old normal’

Since March my mailbox has been inundated with new surveys, trackers, consumer trend evaluations, and ‘thought pieces’ on the ‘new normal’. The world we live in from this point on will look nothing like the world we have known … so says their collected wisdom! If one was a cynic, one might argue that sowing doubt and uncertainty about the future reinforces the need to spend budget on consumer insight at a time when client businesses are looking to conserve cash and agencies are feeling the pinch – and this is my business as well, so I am not going to argue with the importance of maintaining  ‘sensors in the ground’!

But if you believe all that you read we are facing a foreign landscape with consumer behaviour turned on its head! But with some trepidation … can I be the small voice in the crowd that says actually I believe that the future is going to look much more like the past than many would have us think.

Now I will caveat that with the future when viewed from the pre-Covid world was going to look different (that’s just a truism) … the migration from the high street to the virtual street perhaps being the most notable trend – and the pandemic has moved this process on (if for no other reason than such a precipitous fall in revenue would be difficult for any business to cope with especially those with a poor online presence).

Perceived wisdom is that the pandemic moved digital migration forward 5 years … as people have been forced to shop online, socialise with friends and family members online, to bank online, see their doctor online etc. And some of these behaviours are here to stay as sub-optimal customer experiences in a pre-pandemic world can now be seen as such by a wider group of consumers – who really wants to queue for 20 minutes in a bank branch or sit next to (other) sick people in a doctor’s waiting room. OK, some people will, but broadly speaking the pandemic has shown those of us who are not innovators and early adopters a better way in some areas.

However, the ‘new normal’ is not actually ‘normal’ and will meet the headwinds of behavioural inertia or the tendency to do nothing or to remain unchanged. The majority of us will go back to an office, and probably 5 days a week. We will start shopping in stores again – because we like physical (as opposed to virtual) shopping, and so the home will become less of (not more of)  “a multi-functional hub, a place where people live, work, learn, shop, and play” (‘Re-imagining marketing in the next normal’ McKinsey, July 2020). We will want to travel again as soon as possible – the ‘staycation’ was fine, but we won’t want to make a habit of it, and our new found sense of ‘community’ will wane when the pressures and time requirements of everyday life kick back in.

I am not saying that there won’t be any change and I am not just sticking my head in the sand and hoping the current crisis would just go away. But consumer behaviour is akin to an elastic band … Covid-19 has pulled it in all sorts of different directions, but fundamentally it wants to ‘ping back’. When we have a few years post pandemic perspective, I suspect covid-19 will be seen to have caused a mild bump in the overall evolution of consumer behaviour … there won’t be a ‘new normal’ that looks very different from the ‘old normal’.

Katy Milkman – a behavioural scientist at Wharton was reported in The Atlantic as saying that new habits are more likely to stick if they are accompanied by “repeated rewards”. So if the threat of the virus is neutralised the average person will go back to a routine and at the moment the pandemic looms large because its our everything. While there will be some behavioural stickiness – its easy to overestimate the degree to which future actions will be shaped by current circumstances.

 

 

In praise of ‘Marketing Myopia’

In this occasional series of blogs we will revisit some of the articles that we have found most useful over the years … these are the articles that can always be found on desks in the Decision Architects office. The first of these is Marketing Myopia, published in the Harvard Business Review in 1960, chosen by Adam Riley.

“I love this article … it talks to the ‘where to play’ and ‘how to win’ calculations that we have at the heart of our work … and I reference it time and time again. And when we use examples of obsolescence … Kodak, Nokia, Blackberry etc etc. you can see in their downfall a failure to heed the lessons of Marketing Myopia. Levitt was one of the giants of our trade”

In 1960 Theodore Levitt … economist, Harvard Business School professor and editor of the Harvard Business Review, published ‘Marketing Myopia’ and laid the foundations for what we have come to know as the modern marketing approach. Levitt, one of the architects of our profession, popularized phrases such as globalization and corporate purpose (rather than merely making money, it is to create and keep a customer). The core tenet of his ‘Marketing Myopia’ article is still at the heart of any good marketing planning process or submission. In this article Levitt asked the simple but profound question … “what business are you in?”

He famously gave us the ‘buggy whips’ illustration…

“If a buggy whip manufacturer defined its business as the “transportation starter business”, they might have been able to make the creative leap necessary to move into the automobile business when technological change demanded it”.

Levitt argued that most organisations have a vision of their market that is too limited – constricted by a very a narrow understanding of what business they are in. He challenged businesses to re-examine their vision and objectives; and this call to redefine markets from a wider perspective resonated because it was practical and pragmatic. Organisations found that they had been missing opportunities to evolve which were plain to see once they adopted the wider view.

Markets are complex systems. The ability to successfully define, and to some extent ‘shape’, the market you compete in today – and will compete in tomorrow –  is the foundation of good marketing. It is critical first step to maximizing business opportunities and identifying those competitive threats that may imperil the long term prospects of the business – or change the rules of the game to make its products or services irrelevant.

Senior management must ask, and marketers must be able to answer, the question … as a business, ‘where should we play’? This means defining the market in which we will compete – and being able to give size, scope, growth rates, competitive landscape, key drivers and barriers to success within it, as well as an appreciation of customers needs today – which are being fulfilled -and those unmet needs which may shape the definition of the market tomorrow. Market definition is not the same as ‘segmentation’ – but it is a necessary pre-cursor

When identifying ‘where to play’, marketers must address how to redefine our market to create a larger opportunity, or one which we are better positioned than the competition to take advantage of? How could our competitors reshape the market to their advantage and what impact would this have on us? And how will external trends – be they political, technological, social, economic etc. – reshape the market and affect our success? Many marketing questions then flow from this market definition – what attractive customer segments exist, how do we develop and deploy our brands against attractive market opportunities, what capabilities do we have today that give us competitive advantage, and what capabilities will we need tomorrow to sustain this.

At the time of his death in 2006, Levitt (alongside Peter Drucker) was the most published author in the history of the Harvard Business Review, and in a interview he gave about his published work, he said  “In the last 20 years, I’ve never published anything without at least five serious rewrites. I’ve got deep rewrites up to 12. It’s not to change the substance so much; it’s to change the pace, the sound, the sense of making progress – even the physical appearance of it. Why should you make customers go through the torture chamber? I want them to say, ‘Aha!’

‘To sleep, perchance to dream’ … a potentially big impact on an SMEs bottom line

‘To sleep, perchance to dream’ … a potentially big impact on an SMEs bottom line

A few weeks ago we wrote an article on employer provided benefits (“EPBs”) – and over the past year we have explored the role of EPBs in SMEs (apologies for the initialism). So, this statistic caught our attention.

A Harvard University study[1] found that in the US, insomnia is the root cause of the loss of 11.3 days’ worth of productivity per person per year.

The number of people sleeping less than the recommended level is on the rise – as a result of a range of factors including our modern 24/7 society, electronic media use and the ‘always on’ work culture. Not only is a lack of sleep associated with a range of negative lifestyle, social and health issues that result in absenteeism but also a lack of productivity while at work – so called presenteeism (not our word)

A 2016 Rand Corporation study[2] estimated that the UK loses around 200,000 working days a year due to sleep deprivation (which equates to a £40bn hit to the UK economy). Working the Harvard numbers through would actually give us c. 375,000 lost days. The Rand report noted that “if those who sleep under 6 hours a night can increase their sleep to between 6 and 7 hours – this could add £24bn to the UK economy”.

Trying to calibrate these different studies is something of data headache – so best we just summarise it as a big expensive issue calling out to be addressed. Employers are beginning to recognise the importance of sleep as well as their own role in fostering a healthy sleep culture.

“Eight hours of sleep makes a big difference for me, and I try hard to make that a priority. For me, that’s the needed amount to feel energized and excited” Jeff Bezos, reported in Thrive Global

“To perform in a way that is required by my current job, I need seven hours of sleep, every night” Cees ‘t Hart, president and CEO of Carlsberg Group, reported in Harvard Business Review

McKinsey found 70 per cent of the leaders it surveyed thought that sleep management should be taught in organisations, alongside time management and communication skills

“A growing awareness of the dangers of sleep deprivation on health – and therefore, its impact on insurance costs and worker productivity – is prompting companies to try and improve their employees rest … Goldman Sachs has brought in sleep experts, Johnson & Johnson offers a digital health coaching program for battling insomnia and Google [its always google!!!] hosts ‘sleeposium’ events” The Washington Post

But can SMEs afford this kind of enlightened self-interest? With our SME hat on, we wondered what the impact of this stat is for a typical SME (accepting that there isn’t a ‘typical’ SME – see our recent MRS Fin Serv Conference presentation ‘Stuck in the 70s! Why our understanding of the SME sector needs a reboot’).

Let’s assume that the UK experiences a similar level of lost productivity i.e. 11.3 days per annum, and then put that into context. For an SME with 20 employees … that’s 226 days per annum across the business lost to sleep related issues. A UK employee generates £283 of ‘GDP’ per day[3]. So, sleep related issues cost our SME ~£64,000 per annum in lost ‘productivity’.

Looking a gift horse in the mouth … assessing the ‘impact’ of your auto-enrolment pension

Looking a gift horse in the mouth … assessing the ‘impact’ of your auto-enrolment pension

Many auto-enrolment pension policies are now approaching their anniversary. This offers SMEs a chance to take stock and reflect, but just how many will?

In many cases, simply fulfilling the obligation has been, and will be, satisfactory – just another box ticked to ensure that they are meeting the legal requirements. Put to the back of the mind and forgotten. But how many others will seriously consider switching providers?

There will be some who want to reduce the monthly costs paid for the policy – just like any other business cost to be managed down as far as possible – which for any business will be a key consideration, particularly for smaller ones. For businesses who view auto-enrolment as a ‘necessary evil’, cost was/will likely be the most important factor in choosing their policy, and by extension, whether they decide to switch from their current provider

Some businesses however may see auto-enrolment as an opportunity to improve their relationship with their employees. To improve their employee benefit offer. In this case, there will be a number of additional factors to consider, largely driven by their perception of what their employees want out of a workplace pension. The most obvious here is the performance of the investment itself – are your employees getting the most for their monthly contributions? There is a large variation in the performance of the UK’s workplace pension schemes, with some policies returning 5 times lower than the market’s top performers. This is a significant difference, so for organisations that want the best for their employees, might they feel compelled to trade up to a better performing policy?

There are several other factors that can be considered when you are focusing on the best possible policy for your employees. You may want to give your employees maximum flexibility with the policy, so that they have a level of freedom in how they approach their investment. It may be that your employers value simplicity, in which case you want a policy that is as easy as possible to understand.

What does this mean for pension providers?

How can pension providers ensure they are offering relevant auto-enrolment products to their clients? Research from Hargreaves Lansdown has shown that in 2017 more than 90 percent of people were invested in their workplace’s default fund. Understanding why this is the case is critical for pension providers who are looking to make an impact with their auto-enrolment policies.

Ultimately, it is the company itself that will be making the decision on which policy they go for, and so pension providers must be able to identify which organisations are sufficiently engaged in providing the best possible policy for their employees. Is there a particular profile of company that is more likely to shop around on behalf of their employees? And what are their main motivations for doing so?

Once this is understood, it then becomes a case of understanding the needs of the employees within these organisations, so that products can be tailored to meet these needs.

Are employees making a conscious choice to stick with the default? If this is the case, then perhaps it is the policies themselves that need to be examined.

It is unlikely that the best solution for every individual will be the same, so if the majority of employees are not choosing to customise their plan, it suggests that the level of customisation on offer is not sufficient to meet the needs that different employees will have.

Alternatively, is it a lack of understanding or engagement with the policy? This would require an examination of the level of communication received by the employees, either from their employers or by the pension providers. For employees to be able to customise their own plans, they need to be able to have a full understanding of the policy and the options available to them.

As with any government enforced scheme, it may well be that there is a certain apathy, from clients and providers alike, that this is just something that ‘has to be done’. With a greater understanding of client demands, however, comes an increased focus from pension providers on their auto-enrolment policies, which will lead to greater competition, more relevant policies, and, ultimately, improved retirement prospects for employees.

Do we need to rethink wealth management for Millennials?

Do we need to rethink wealth management for Millennials?

Two interesting take-aways from a recent seminar on millennials and wealth … firstly ‘millennials want to pay more tax’ – or at least they want to ‘avoid avoidance’ and, secondly, they are less interested in robo-advice and instead want the reassurance of a ‘flesh and blood’ advisor.

These are both worthy of further investigation.

Are millennials more socially conscious? In a recent Pew Research centre report, millennials were more likely than other generations to agree with statements expressing a desire to make the world a better place and confirming a purpose in life. Other studies have shown that millennials want to be engaged and feel good about the decisions they make – including the firms they work for and those they invest in. They are more likely to identify with a ‘cause’ and feel that their decisions have to have a positive social impact, and may avoid controversial sectors which they may consider ethically questionable – defence, tobacco, oil etc.. So we could argue that a greater need for social responsibility would logically translate into a desire to pay their “fair share of tax” – even if avoiding some tax due was a possibility. The perceived social stigma attaching to tech firms’ and celebrities’ tax avoidance contortions may be colouring this view.

BUT a 2016 report ‘The Millennial Economy’ from EY & EIG (in the US) found that 53% of young adults (ages 18 to 34) said the amount of income taxes they pay is “about right,” compared to 36 percent who said their amount was “too high” and 3 percent who said their amount was “too low.” The report concluded that the older and wealthier Millennials get, the more they feel their tax burden increases, and Millennials may feel relatively comfortable with their own tax burden, but they remain concerned about fairness in the tax system generally. This was apparently comparable to previous generations. So no great Millennial effect then?

Turning to the second of these ‘Millennial insights’ – younger people with money to invest eschew robo-advice for the reassurance of a ‘flesh and blood’ advisor. An element of this may be bound up with the lower tolerance for risk – if we equate an actual financial advisor with lower risk. If not lower risk then maybe there is something comforting about someone who can provide bespoke answers to questions, which feels less risky.

A study from US fund manager Global X, found that for millennials the most important role for an advisor was protecting their investments during a downturn. Millennials investment strategies tend toward the conservative – they have a lower threshold for risk than their parents BUT they are more likely to look for socially responsible investments and take a more activist approach.

However others have argued that the robo-advisors such as Betterment and Wealthfront have disrupted the financial advisory business, and that many Millennials are forgoing traditional financial advisors in favour of algorithmic, low-cost alternatives to managing their money. All very point and click. Very hands-off.

But financial advisors counter-argument is that … ”these robos are asset allocators, not advisors. They aren’t putting together financial plans and following them through a relationship with a client. That part of financial advising — the planning, the relationship — can’t be robo’d away!” (well, they would say that wouldn’t they). But the argument seems to be that the proliferation of robo-advisors is overwhelming and Millennials are turning to financial advisors for clarity coupled with the financial planning they are not getting from on robo platforms

I think the only thing we can say with any certainty- when it comes to Millennials and tax or Millennials and advice …  is that this is not as clear cut as it might at first seem – ‘beware Millennial mythology’ – there is a lot of anecdote masquerading as fact, particularly around what people are keen to position as a ‘cultural phenomenon’

Education in the fourth industrial age – do we just have our collective heads in the sand?

Education in the fourth industrial age

This week Andy Haldane, chief economist of the Bank of England, has warned that the UK will need a skills revolution to avoid large swathes of people becoming technologically unemployed as artificial intelligence makes many jobs obsolete.

Should we fear the rise of the machines? Or ‘That robot stole my job’!

In our 2017 article HERE… we discussed that while the technological wave may hold out the hope of new jobs – as yet undefined – this is going to require a route and branch rethink about how we educate people in the UK. 75% of school leavers will not have the skills to compete in this new world … who is prepared to grapple with this issue today?

Who will disrupt the insurance industry?

Who will disrupt the insurance industry?

Disruptive innovation can hurt – if you’re not the one doing the disrupting. Clay Christensen Disruptors appear as a reaction to consumer dissatisfaction with the status quo, in sectors characterised by complacent incumbents. These incumbents have lost their way or at least have failed to keep their finger on the pulse of consumer expectations …. they have failed to realise which way the wind is blowing. In a world of multiplying customer touch points and rapidly changing customer behaviours becoming, and staying, customer focused is increasingly difficult to do.

Insurance is perhaps a great example of an industry crying out for a true disrupter at scale. Many insurance brands and their messages seem stuck in the 1950s, with key themes of family, duty, financial strength and fear, and often speak in euphemisms, rarely mentioning the products or the true benefits offered … and as a result their customers do not ‘like’ them very much, and this matters because, by and large, we all – either through compulsion or choice – have an insurance policy

Association of British Insurers data shows that the UK insurance industry is the largest in Europe and the third largest in the world. It plays an essential part in the UK’s economic strength. It employs around 315,000 individuals, of which more than a third are employed directly by insurers with the remainder in auxiliary services such as broking BUT how do you think the average insurance customer would respond to the assertion that … “insurance is socially useful – [by working in insurance] you can make a contribution to society”. A recent article argued that a career in insurance is attractive to millennials because it is ‘socially useful’ – that made me stop and think). Maybe there is change in the air!

In a recent FT article – Identity crisis: the insurers moving away from insurance [1] – the discussion was of insurance companies moving away from a conventional insurance ‘offer’ to more of a “services business”… the examples given were of baby-sitting services for people in hospital and counselling for some individuals caught up in a crisis – important I am sure for the individuals involved but somewhat underwhelming as a consumer strategy in the face of  – as the article expostulated – a fundamental lack of customer loyalty and a huge amount of disruption as companies like Amazon (it’s always Amazon) redefine customer experience. In this world the customer doesn’t want to buy a product, the customer wants a problem solved, and as Stéphane Guinet, founder and managing partner of Axa’s Kamet, said in the FT article: “The industry will move from risk transfer to more and more services . . . The future will be for the ones who can design and deliver experiences. The risk transfer will be ancillary.”

Will digital services finally change the relationship between insured and insurer? Is this the disruption that allows new firms to emerge or old firms to rise (phoenix like) to the challenge of meeting customers’ expectations with innovative, customised solutions, clear and relevant information, transparent pricing, 24/7 access and crucially build a relationship of trust. Disruptors want to make a radical difference – not protect the status quo. Re-envisioning an insurance business and brand … to become a more high-performing, customer-centric, future-focused company – the key is (as ever) to deliver the right solutions to the right consumers in the right way. A solution they value.

In a 2017 article McKinsey [2] laid out the advantages of ‘digital’ to the insurance industry. It argued 3 key benefits:

  1. Higher customer satisfaction and increased customer retention will allow insurers to improve profits in their core business and at the same time remove significant cost across the value chain, further increasing customer lifetime value.
  2. Longer-term growth opportunities will reside in innovative insurance products and protection services – from cybersecurity to products fit for a sharing economy or the gig economy etc.
  3. Digital technology and the data and analysis it makes available will give insurers the chance to get closer to their customers – and hence develop and offer more tailored products delivered directly in a more timely manner.

It feels to me that 1 and 2 are only really possible if a potential disruptor can get 3 right – putting the customer at the heart of the business is ‘just’ effective marketing

We touched on some of these ideas last year in our ESOMAR paper delivered, with MetLife, at the global congress in Amsterdam (You can find that paper on our website). In this paper we argued that companies that lead are the ones that shape the future, rather than just imagining what the future could be. To challenge perceived wisdom and enable a much more consumer focused organisation to emerge, businesses must envision what new future is needed for the insurance industry to survive, and then take a series of concrete steps to build it. If the goal is to ‘put a dent in the universe’ actions speak louder than words. Being visionary is not a vague abstract aspiration.

Inter-Generational Wealth – an example of ‘Where to Play’ & ‘How to Win’?

Inter-Generational Wealth – an example of ‘Where to Play’ & ‘How to Win’?

“The brown? Or the pink?” According to a recent FT article[1] it’s one of the first questions that digital interface designer InvestCloud asks wealth managers when discussing the two extremes of the website ‘look’ it provides.

The article goes on to explain that ‘brown’ features very traditional imagery while ‘pink’ is more contemporary, or at least …less serious with cartoon rockets etc. Brown is for those wealth managers whose client base is more baby boomer, while pink is designed to appeal to millennials.

While the language of baby boomers and millennials is easy short-hand, brown vs pink reflects choices … there’s a lot more to it than just a colour palette – the answer to the ‘brown vs pink’ question should be the culmination of a ‘strategy conversation’ … covering the key questions: ‘where to play’, ‘how to win’ and ‘how to configure (to win)’. These are the three pillars of an effective growth strategy.

Companies that are serious about growth are serious about marketing – putting the customer at the centre of everything they do BUT in a world of multiplying customer touch points and rapidly changing customer behaviours … becoming, and staying, customer focused is increasingly difficult to do.

In financial services different individuals will attach different weights to varying core human emotional drives, and these drives influence how people think about their wealth, financial freedom and financial literacy – and hence can form the basis of a financial services segmentation (and contribute to the ‘where to play’, ‘how to win’ and ‘how to configure’ answers). The three constructs that drive financial decision-making, attitudes and behaviour are:

Perspective: how people view and connect with the world – whether they have a more optimistic/worry-free, as opposed to a more pessimistic/more anxious, view of the world, including their view on responding to constant change.

Intent: where an individual is in terms of the challenges and goals they set. It embraces the congruence they are trying to achieve and the creative expression they want in their lives, including the need to support, care for and contribute to others.

Command: confidence, control and competence, whether people see themselves as being driven by events or able to manage their lives and contribute to others.

We then identify segments based on perspective, intend and command which inform our understanding of how client expectations differ, what different client experiences are various segments looking for, how their investment objectives differ, how they wish to receive and process information etc. etc.

Why is this important? Well the world that wealth managers have known is changing. Research from financial services journal ‘Investment News’ (July 13, 2015) indicated that $30tn is expected to pass from baby boomers to Generation X and on to millennials – “customer segments that many investment advisors do not understand because they don’t know how to connect with their clients’ children . . . who may be technology-savvy and expect a very different service experience than their parents did”[2]

Customer segmentation helps companies use finite assets to “over-invest” in high value customers whose needs align with their capabilities … each customer segment represents a different opportunity, has a unique set of needs and requires a different value proposition that resonates

‘Where to play’ throws up questions for wealth managers to address, such as

  • What market opportunities exist or can be created that are both attractive and achievable?
  • Which segments of customers should we focus resources on – today and tomorrow?
  • What type and amount of market activity resides in each segment?
  • What is our portfolio of business and the relative weight if investment?

‘Where to play’ sets a clear and structured strategic framework – to identify, evaluate and focus on the right market opportunities.

Once we have a view of the landscape and can identify the value generating opportunities within it, we can ask the ‘how to win’ questions.

  • What should the company do for each set of customers?
  • What do individual segments do (need, want or believe) and why?
  • What is the product offer to target the attractive opportunities?
  • How should we present that product offer in terms of a client experience?
  • Through what means or channels, and with what message (brown or pink)?

And finally how do we configure our internal systems and processes to deliver the value generating offer and experience? ‘How to configure’ may suggest transformation of our channel or go-to-market strategy, product or process innovation, business model innovation or a change in our marketing communications systems.

Advisors unable to prove they are effective at establishing relationships with clients’ children and serving the next generation will find their client base inevitably erodes and as a result their business value falls. This is why – where to play, how to win and how to configure are such important strategic questions.

“InvestCloud says brown may still be the right choice for traditional wealth managers, but it argues that it is towards the pink end of the spectrum that more need to move — in order to present a different persona to a different generation of investors”

But importantly you can’t run 2 personas in parallel without causing dissonance – i.e. confusion in the mind of the client as to exactly what you stand for. Strategy is about making these choices – neatly summed up as ‘pink’ or ‘brown’

[1] http://www.investmentnews.com/article/20150713/FEATURE/150719999/the-great-wealth-transfer-is-coming-putting-advisers-at-risk

[2] https://www.ft.com/content/48eeceb4-538f-11e8-84f4-43d65af59d43

Visionary change is a very disciplined business

Visionary change is a very disciplined business

At ESOMAR’s, 70th anniversary, World Congress from 10-13 September in Amsterdam www.esomar.org/congress we will be presenting a paper on transformational change in the financial services industry, entitled …
Are you insured, Scarlett? ‘I can’t think about that right now… I’ll think about that tomorrow’. How MetLife imagined a new future for the insurance industry… and is delivering it today.
In the run up to this presentation we will be exploring some of the themes touched on in the paper with a weekly(ish) blog post. We will also provide a link to the paper and presentation at the end of the Congress.

Read the fifth of our weekly blogs by clicking on this link: Visionary Change is a Very Disciplined Business