New study of UK financial services affinity marketing

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By: Wise Marketer Staff |

Posted on October 30, 2003

A new detailed report on the state of affinity marketing in the UK's financial services sector has been published by independent research firm, Datamonitor. The report covers investments, life assurance & pensions, retail banking, and general insurance.

Datamonitor's Affinity Marketing in UK Financial Services 2003 report presents the findings of three separate surveys carried out in the UK financial services market:

  • Investments, life assurance & pensions: Affinity marketing of long term savings and protection products.
  • Retail banking: Affinity marketing of credit card, personal loan and mortgage products.
  • General insurance: Affinity marketing of household, motor and travel insurance products.

Individual focus
According to the report, financial services institutions are dedicating more attention to the needs of the individual consumer and are steering away from the concept of the product occupying the heart of all marketing strategies. This shift allows for better customer segmentation and improved tailoring of product offerings.

In affinity partnerships, affinity groups are primarily involved with maintaining the contact database, whereas FSIs (financial service institutions) focus on technical operations and administrative functions.

Credit findings
Credit cards transpired to be the most popular affinity product, with 67.9% of survey respondents offering them to customers. Long-term and commitment-based products, such as personal loans and mortgages, are less widely distributed and have considerably lower penetration rates.

However, in most cases, less than 10% of an affinity group's members sign up for the financial products the organisation offers. Pensions and mortgages have particularly low take-up rates.

Motor and sports associations were found to offer affinity products most frequently, followed closely by professional organisations, educational institutions, trade unions, and charities.

Reasons for entry
Datamonitor asserts that most FSIs consider access to a captive customer base to be the most important reason for setting up an affinity deal. This is supported by the strong loyalty of affinity groups' members, who tend to carry their affinity products over from one year to the next. More than half of the affinity groups surveyed said their main reason for entry into affinity schemes is to boost revenues.

Charities are currently the FSIs' most sought-after affinity group, with more than one third of FSIs expressing the belief that the most important quality in an affinity partner is good 'brand fit' with the organisation. Affinity groups are also most swayed by reputation when entering into a partnership with an FSI, and also consider competitive rates to be a considerable advantage.

Reasons for non-entry
Those FSIs who are not currently involved in affinity partnerships said they had largely been deterred by previous experiences, or that they consider the implementation and maintenance of such relationships not to be worth the trouble. For their part, affinity groups mainly opt out of partnerships if their member base is too small, or if such an arrangement is not appropriate to their organisation.

More than half of the affinity groups surveyed said they would consider changing their FSI at the next renewal. The most common reasons cited were breakdowns in communication and the availability of a better deal with a different partner.

Sub-sectors in focus
When it comes to affinity marketing in the investments, life assurance & pensions (I,L&P) sub-sector:

  • I,L&P products are not commonly distributed through affinity groups and 80% of them have no relationship with financial services providers;
  • The main reasons why I,L&P providers form affinity relationships is to gain access to a captive client base and boost revenues;
  • Co-branding is the most commonly formed affinity relationship because it allows a high level of involvement from both the I,L&P provider and the affinity group;
  • Reputation and competitive rates are the most attractive qualities that affinity groups look for when seeking an I,L&P partner;
  • The I,L&P company is most involved in administration and product issue, even though both parties are involved in marketing, customer enquiries, and updating the contact database.

And in terms of affinity marketing in the retail banking sub-sector:

  • Of the 90 affinity groups included in the survey, some 63.3% offered retail banking products to their members - which is much higher than any other type of financial services product;
  • More than half of the affinity groups survey said that boosting revenue was the primary reason for choosing to offer retail banking products;
  • A significant number of retail banks said that there were a number of reasons for offering products through affinity groups, other than the obvious advantages in terms of customer acquisition and product growth. Other factors such as improving the company's brand image through their association with affinity groups, and acting in a socially responsible manner, were also key reasons;
  • Some 26.7% of banks said that they do not offer affinity products because of the difficulties involved in setting up and administering partnerships;
  • Charities and sports associations are the most prevalent in the market, accounting for almost half of the affinity groups that market retail banking products;
  • Due to the intangible nature of personal loans and mortgages and the fact that consumers generally prefer to seek financial advice prior to taking either product on, personal loans and mortgages are relatively unpopular products for affinity marketing.
  • Some 12.2% of the affinity groups said they would consider offering an additional financial services product in the future. Of these, 36.4% said they would consider offering a mortgage and 27.3% would consider offering a personal loan.

Key findings on affinity marketing in the general insurance sub-sector included:

  • Approximate one-quarter of affinity groups offer general insurance products to their members. Motor insurance is the most popular line offered because it is one of the most commoditised general insurance products, followed closely by household and travel insurance;
  • For insurers, trade unions have become the most popular type of affinity group, due to their large and predictable membership profile;
  • More than 60% of affinity groups said that less than 10% of their members had taken out insurance products. Motor insurance enjoys a slightly better take-up than the other insurance products;
  • Household insurance is the product with the greatest degree of customer loyalty, with 71% of respondents saying that customers tend to keep this product at renewal time;
  • Insurers' most important criteria when setting up an affinity partnership are a good 'brand fit', and the number of members that the prospective organisation has;
  • The most common method of remuneration for affinity partners offering general insurance products is a percentage of the overall transaction, with more than half of the affinity partners surveyed saying they receive payment in this way;
  • More than one-third of affinity groups are planning to introduce general insurance products over the next 12 months.

The report draws on Datamonitor's FS DealBASE database to present information on the opportunities and challenges of partnership marketing and distribution in the UK. DealBASE was compiled from interviews with a range of affinity partners including charities, educational institutions, interest and lifestyle groups, motor associations, trade unions, sports clubs, and government organisations.

The full report can be purchased directly from Datamonitor.

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