The Benefits Balance – what really matters to employees?

The Benefits Balance – what really matters to employees?

Since the financial crisis of 2008, the business of employing staff has seen a seismic shift in the power balance – the candidates are now in the driving seat. The right employee benefits are now a priority for businesses looking to attract (and keep) high caliber candidates.

Employers are offering a host of benefits from coffee bars to craft beers, free fruit to a fun-filled playground. With employee perks revolutionizing the workplace, what are the benefits that matter to employees? Which of the benefits, whether financial or lifestyle, help employees to choose or stay with a company?

The Buzz About Benefits

Employee benefits are nothing new. In the mid-19th century Cadbury Brothers provided housing and sports facilities, arranged works outings and summer camps, and negotiated discounted train travel for employees. Similarly Lever Brothers developed Port Sunlight as a model village to accommodate workers in its soap factory. However, in recent years, employee benefits seem to have enjoyed a new lease of life.

One study found that 80% of employees want benefits or perks more than they want a pay rise – this is a cultural shift that places greater emphasis on work-life balance than money. Furthermore, 50% of people say they will turn down a job if the benefits are not good enough.

For employers competing in a candidate-driven marketplace, it is clear that just chucking money at staff is no longer a way to attract and retain staff (although financial benefits still play a significant part). Of course, for many businesses, it is not financially feasible to keep offering pay rises and bonuses. For employers to really get the staff they want or improve retention rates, they must better understand what motivates them – and it won’t be one size fits all

What Benefits Matter Most To Employees?

Recruitment company Monster conducted research in the UK into what employer provided benefits (“EPBs”) matter most to job seekers. The study found that a health care plan topped the list of EPBs followed by more holiday time and then a pay raise. The study is supported by a survey from employment website Glassdoor, which found that 40% of employees value health insurance more than a pay rise. Other studies have shown that historically a pension was also a significant employee benefit, however, the advent of the auto-enrolment has meant that pension provision is no longer a point of differentiation – however more attractive packages beyond what is legally required, will be seen as an attractive benefit by workers. Beyond healthcare and holiday time …  there is no surprise to see work-life aspects such at family-friendly schedules, workplace flexibility, remote working and wellness programs also dominating the top ten in many benefit surveys

What is the right mix of EPBs? The only way to really find out is to ask. And this is important as businesses offering benefits that employees don’t want, are unlikely to get positive feedback or results.

The Best Employee Benefits From Companies?

  1. JibJab Media helps people to achieve an improved work-life balance with less stress by relieving chores thanks to a weekly laundry service.
  2. Basecamp pays for the hobbies for their employees and well as vacation travel expenses.
  3. Airbnb offers their employees $2,000 travel credit.
  4. Twitter offers three catered meals per day as well as holistic benefits such as on-site acupuncture treatments.
  5. TransferWise offers an all-expense paid holiday (although some may argue a holiday with your colleagues is the opposite of a perk!).
  6. Opus Professional Services owns a villa in Italy which staff can use for free.
  7. Allen & Overy have an onsite GP and dentist to ensure employees stay in tip-top health.
  8. Jagex offers free bicycle repairs to encourage employees to stay fit and active.
  9. CA Technologies offers an on-site childcare facility
  10. Visualsoft provides unlimited holiday time, and they do not monitor flexitime either.

The Benefits Disconnect

So 84% of respondents say benefits are essential in keeping their current job which rises to 93% for respondents aged 25-44. While benefits are now taking greater prominence in most workplaces, there is still a feeling that more could be done. The continued provision of EPBs is by no means guaranteed. There is an apparent disconnect  – while workers are still hoping for more benefits from their employment, many firms have indicated that they will reduce benefits in the future or not make an attempt to increase the ‘perks’ they offer.

58% of people believe they will work for more than one employer in the future driven by the lure of flexibility. With the pull of the ‘gig economy’, organisations need to focus on offering those benefits that will engage staff, while staff may be looking for benefits with added ‘portability’.

Of course, benefits become another staff cost alongside salaries and pension contributions BUT organisations should aim to prove that effective EPBs are cost-neutral or even cost-positive. For example, businesses allowing flexible working may benefit from higher productivity. Furthermore, remote working increases worker satisfaction and provides the company with access to a global talent pool which allows employers to take advantage of more competitive salaries and more skilled workers which can help to grow the business. Often, employees will accept benefits instead of a higher salary. A recent study shows that 50% of millennials will take a 15% pay cut for a job where they could have a social or environmental impact.

In terms of health and wellness benefits, Wellness Councils of America reported a $24 return for every $1 spent on company wellness program. 81% of employees also say that health and wellness programs favorably impact productivity. Again, this shows a cost-positive return for businesses. Health benefits also have been proven to reduce absenteeism which can reduce costs for businesses – especially in the case of sick pay – and businesses may also receive tax advantages.

EPBs are not just for the big boys

Is there an EPB sweet spot? A group of companies big enough to have the financial wherewithal to actually provide meaningful benefits, but small enough to know exactly what their staff value and to have a more homogeneous workforce? While larger companies do provide more benefits, they tend to be more prescriptive or paternalistic when it comes to deciding what these should be.

For small businesses it may not only be the cost of implementing a scheme, but also the administrative burden which is putting some employers off. However, SMEs do have an advantage – many employees would rather work for smaller businesses (they typically offer a more relaxed, flexible and entrepreneurial environment) and the lines of communication are shorter (and more effective).

Furthermore, some of the favored benefits such as childcare vouchers, life assurance and income protection insurance all offer tax advantages and can be achieved at a relatively low cost. If this cost is still too high, then SMEs can consider salary sacrifice schemes. 65% of people believe more benefits should be made available through salary sacrifice, with popular choices being bicycles, pensions and mobile phones.

And while many big firms are able to offer more benefits because they have a dedicated HR team in place to run and manage the benefits … SMEs can embrace technology to help make the scheme more cost-effective. For example an insurance platform that makes it easy to add and remove the cover for different policies and staff members. Some platforms can even automatically enrol a new beneficiary with the introduction of a new starter onto the system.

For more personalized benefits that really matter to employees, companies such as ‘Bob’ can help. ‘Bob’ is a business management platform that allows you to get in-depth information about your staff to create a healthy workplace culture.

For a more diverse benefits offering, brands such as Perkbox allow you to select from a range of rewards so you can personalize rewards accordingly or staff can choose themselves. From luxuries to practicalities, employees can make the most of the benefits that matter to them. The administration and facilitating of benefits is minimal to the employer making it a cost-effective time-friendly way to increase perks and therefore improve staff morale and retention.

By embracing technology to lower HR costs, SMEs have the chance to become more competitive and offer a considerable advantage to employees over the big corporations.

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.

An interesting segmentation that goes beyond elephants and donkeys – lessons from the US electorate

An interesting new report looking at the US political landscape was published this week (see the end of this article).
Why interesting? It’s a good example of a nice-looking segmentation – examining American public opinion through the lens of seven population segments. The report’s authors describe these segments as “America’s hidden tribes” – hidden because they have shared beliefs, values, and identities that shape the way they see the world, rather than visible external traits such as age, race or gender. By avoiding the use of demographic information or other observables – the authors contend – segments go beyond conventional categories and identify people’s most basic psychological differences.

The tribes identified are:

  • Progressive Activists: highly engaged, secular, cosmopolitan, angry.
  • Traditional Liberals: open to compromise, rational, cautious.
  • Passive Liberals: unhappy, insecure, distrustful, disillusioned.
  • Politically Disengaged: distrustful, detached, patriotic, conspiratorial.
  • Moderates: engaged, civic-minded, middle-of-the-road, pessimistic.
  • Traditional Conservatives: religious, patriotic, moralistic.
  • Devoted Conservatives: highly engaged, uncompromising, patriotic.

“Essex man” was an example of a type of median voter that explained the electoral success of Margaret Thatcher in the 1980’s. The closely related “Mondeo man” was identified as the sort of voter the Labour Party needed to attract to win the election in 1997

Now there’s nothing new about political segmentation – whenever an election looms, someone produces a segmentation of the political landscape, and the media get over excited. In the UK this has famously resulted in Essex man, Mondeo man, Worcester Woman etc. All of these shed interesting insight on a phenomenon BUT, as with commercial segmentation, there is usually practical limitation on their application.

This latest US report cites its ultimate aim as “identifying the most effective interventions that can be applied on the ground to counter division and help build a renewed and more expansive sense of American national identity”. But how are these interventions supposed to happen? How do you intervene with the ‘Passive Liberal Tribe’? Put simply, how do you find them?

We’ve discussed before how the dissatisfaction with the outcomes of segmentation has risen, as the mix of effective marketing levers that an organisation has at its disposal has proliferated. The rise of direct-to-consumer, and the increasing importance of targeted communication and the use of databases has mean that the ability easily identify a segment (rather than relying on the customer to self-select) has become a crucial success factor.

The inability to effectively ‘target’ segments is at the crux of much of the dissatisfaction with segmentation. I have no doubt that this work on ‘tribes’ includes a complex algorithm to determine segment membership but these are difficult to action as the criteria for segment membership are complex and often difficult to replicate. How do you find the segments in the real world? While it is possible to profile these clusters after they have been created, as they have done with the ‘tribes’, often the results are less than clear cut.

This is less of an issue when you are using ‘above the line’ communications to communicate a political (or commercial) position, but increasingly organisations want to target their communication activity, undertake ‘direct-to-consumer’ advertising (for example) and locate these segments in their CRM database. An actionable segmentation allows us to better address strategic ‘where to play’ questions i.e. which voters (or customers) to focus effort on, their relative priority, and the opportunity they represent … as well as tactical ‘how to win’ questions i.e. what activities or messages are most likely to achieve our objectives in priority segments.

For those of us who don’t get to vote in US elections, all of this can be something of a spectator sport – but if you have a professional interest in segmentation and marketing frameworks – it raises interesting questions. While the ‘tribes’ segmentation is intrinsically interesting and insightful – too often in the commercial world we find that this type of analytical methodology limits the ability to identify “the most effective interventions that can be applied”.

https://static1.squarespace.com/static/5a70a7c3010027736a22740f/t/5bbcea6b7817f7bf7342b718/1539107467397/hidden_tribes_report-2.pdf

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

‘Segments of One’ – myth or reality?

‘Segments of One’ – myth or reality?

How many segments is too many? At some point we always have this conversation. Clients usually find 4 too few and 12 too many (leave aside that it’s not about how many but rather how you prioritise). So the spectre of ‘segments of one’ leaves us scratching our heads – an existential crisis for those of us who get paid to package the market up into somewhere between 4 and 12 homogenous groups; and paralysing for clients who now have (pick a big number) a million segments of one. But is it? And what does ‘segments of one’ actually mean?

In trying to get our collective heads around ‘segments of one’ we keep coming back to the difference between segmentation and profiling – traditionally profiling leverages a mass of data to add flesh to the bones of a segmentation – the segmentation has distilled the complexity inherent in all markets down to something manageable. But, so the argument goes, the processing power of IT, and the ability for brands to now get much closer to their customers etc. etc. makes the segmentation step ‘redundant’ as we no longer need to distil complexity, but rather embrace it. This is the hyperpersonalization argument.

In a piece for ‘Think with Google’ Unilever’s Chief Marketing and Communications Officer, Keith Weed, cited the mobile phone as the driving force behind an empowered consumer – who could disagree –  and that its now “driving a hyper segmentation revolution”, and Unilever to “a future where we will build brands in segments of one”.

So let’s think about this in terms of a company that makes things. If my business is making ‘things’ at scale – physical mass customisation or hyperpersonalization is very difficult to do. Scale is important – if I make high spec bicycles, I could customise these to individual taste, but I might make 10, 100, 1000, 5000 a year. What if I make 20million units of something? Whether we are trying to develop strategy or drive something like NPD – we still need to distil complexity into something manageable and useful. Of course Keith Weed isn’t suggesting (I think) that using hyper segmentation Unilever is going down a mass customisation route.

The reality is that we will still have between 4 and 12 segments to allow us to pragmatically manage the complexity and develop our product portfolio and core brand foundations BUT within those segments – data and the ability to now have a one-to-one dialogue with consumers will develop a unique brand experience. Not necessarily one that the brand owner controls but still we can see this one to one relationship as ‘segments of one’. So for a standardised mass market product we may develop individualised brand conversations but we are limited by the nature of the product and the way we go to market. Organisations like Unilever are (it would seem – I have no direct knowledge) looking to developed one-to-one relationships with their consumers – off the back of a mass market product offer. Is this based on profiling within an existing segmentation frame – sort of tactical hyper segmentation within a segmentation? So what is the ‘segment of one’? It is a question of both capability and practicality.

But what about those organisations whose products are intangible …. say Netflix or many financial services companies … companies that can be characterised as having a lot of data on each individual customer and the ability to reconfigure their product offer in an (effectively) infinite number of ways. So they can ‘just’ profile their customer and offer suitable, customised packages (enabled by technology) – they don’t need the intervening step of a consolidating segmentation. Right? Probably not. We are getting much better at trawling data for attitudinal and behavioural cues, and using this knowledge to inform marcoms and other interactions but, to inform strategy, I will bet these organisations are still using some kind of consolidating framework (anyone from NetFlix, please feel free to set me right). Managing complexity is expensive. To embrace complexity to the extent that segments of one would dictate, means redefining what we mean by ‘strategy’. If traditionally strategy has equated to ‘making choices’ – in this new world, the choices are no longer made by the organisation, but rather by the customer. This also assumes that the organisation is less resource constrained – presumably this is a function of technology.

Even as we get better at mining the increasing amounts of data available to us, there is still a long way to go in terms of maximising the value and utility to the customer of this kind of profiling. NetFlix’s ‘Top Picks For …’ seems to me to be little better than random choice – based on watching an episode of 70’s British sitcom Porridge, the recommendation that I might like to watch Top Gear would seem a tenuous link (to me … and that’s the whole point).

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

While ‘one of the many pleasures of old age includes giving things up’ … this won’t include work’

While ‘one of the many pleasures of old age includes giving things up’ … this won’t include work’

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 todayIn the run up to this presentation we will be exploring some of the themes touched on in the paper with a weekly blog post. We will also provide a link to the paper and presentation at the end of the Congress.

This fourth blog entitled … While ‘one of the many pleasures of old age includes giving things up’ … this won’t include work’ continues to explore the changing nature of retirement.

Read the fourth of our weekly blogs by clicking on this link: While one of the many pleasures of old age includes giving things up this wont include work