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Customer Insight
& Conduct Risk
How Customer Insight can
help YOU manage
Conduct Risk, not the FCA
Why should you listen?
❖ Created and lead customer insight teams for all the major
insurance brands, products & channels used by Lloyds
Banking Group over 13 years
❖ Added over £11m incremental profit to bottom line annually
❖ Pioneered LBG work with FCA on Behavioural Economics
testing insurance communications
❖ Developed capability into a team of 44 & mentored next
generation of leaders
Paul now leads Laughlin Consultancy, a specialist business:
“Helping businesses make money from customer insight”
Laughlin Consultancy helps companies maximise sustainable
value from their customer insight, for example by growing their
bottom line, improving customer retention and demonstrating
to their regulator that they treat customers fairly.
© Laughlin Consultancy Ltd
Customer Insight & Conduct Risk
❖ Why should you care? 
❖ FCA’s Consumer Spotlight segmentation	
❖ Behavioural Economics impacts your comms
❖ The diverse challenge of Vulnerable Customers
❖ 	 How analytics & research can keep the FCA doctor away
3
Breadth not Depth
4
WHY SHOULD
YOU CARE?
Why Conduct Risk should matter
to every marketing & sales leader
5
© Laughlin Consultancy Ltd
Did you care about eating horse-meat?
6
© Laughlin Consultancy Ltd
FCA model of Conduct Risk
7
© Laughlin Consultancy Ltd
5 Pillars of Conduct Risk
8
Business
Model &
Strategy
The
risk of unfair outcomes for
your customers
Culture,
Govern &
Control
Product
design &
approval
process
Sales
Post
Sales
handling
Strategy
Process
Conduct
MI
Formal
meetings
Cultural
transform
Product development &
review processes
Formal
sign-offs
Decision Science
(esp. BE & comms)
Post-Sale
processe
© Laughlin Consultancy Ltd
FCA Fines are growing
9
© Laughlin Consultancy Ltd
FCA Fines
@ May 2015
10
Company & Fine Reason for Fine ‘Pillars’ Impacted
Chase De Vere (IFA)
Ltd - £560K
Sold Keydata products to customers but didn’t understand or research the products
themselves to understand the potential risks to customers. This led to them failing
to disclose features and it was found that their communications to customers
didn’t meet the clear, fair and not misleading criteria.
Product Design
Sales
Swinton – Group fined
£7.4M and 3 former
directors £928K
A culture of aggressive sales and focus on profit was considered evident which led
to the miselling of monthly add on insurance policies. It was found that the
company or senior directors did not put the customer at the heart of the business.
Culture & Governance
Sales
Yorkshire Building
Society - £4.135M
It was found that Yorkshire BS did not act quickly enough to identify and act upon
customers who were encountering payment difficulties. Even though the Yorkshire
BS correctly used repossession as a last resort the delays in understanding problem
cases and identifying future financial prospects of customers led to increases in
fees etc. Included a lack of training for staff and issues with complaint handling.
Sales
Post Sales (vulnerable customers)
Stonebridge (Aegon) -
£8.4M
Stonebridge targeted low and middle income customers with low levels of
qualifications but sold them expensive polices and also actively discouraged
cancellations. Issues where found with outsourcing controls, governance and
complaint handling.
Business Model & Strategy
Culture, Governance & Controls
Product Design (target market)
Sales
Post sales
Credit Suisse
International -
£1.429M
Emphasised the maximum return for its Cluquet Product in its literature even
through the chances of obtaining this maximum return was close to zero. This was
given undue prominence in literature etc. This was despite complaints and
warnings from groups such as WHICH.
Culture & Governace
Product Design (comms)
Sales
© Laughlin Consultancy Ltd
Would you want your Nan to have it?
11
FCA ‘CONSUMER
SPOTLIGHT’
What their segmentation means
for FS firms & their target markets
12
Understanding Spotlight
13
© Laughlin Consultancy Ltd
Understanding Financial Consumers
14
Sex
Age Ethnicity Religion
Marital status/
lifestage
Rule breaking Risk appetite
Optimism
Well-being
Present vs future
orientation
Life priorities
Confidence
Affluence
State vs individual
responsibility
Working
status
Social grade
Family networks
and support
Trust
Money management
Last purchase
experience
Debt and use of
credit
Windfall/ inheritance
Level of responsibility
for personal finance
Employment and job
security
Advice seeking
Life Events
Financial products
held
Access to services
Literacy /
numeracy
Complaints and
disputes
Mis-selling
Planning ahead/
resilience
Tenure
Health and
disability
Media usage
Proactivity vs
inertia
Income
Towards financial services
Switching
Experience
Attitudes
Personal
characteristics and
lifestyle
Behaviour /
decision
making
Channels
How FCA is using Spotlight
15
‘Proofs of Concept’ initiatives
Customer Contact Centre
Profiling FCA consumers to build a more effective picture of the
types of ‘customer’ the FCA has, and customer management
Authorisations
Supervision
Thematic projects
Taking firm customer lists; profiling the customers; examining
potential for risk and mis-match with marketing intentions
Enforcement
Consumer Credit – Consumer journey
Using segmentation model to explore differences in use of credit
and personal risk, to inform emerging organisation strategy
PRR Insight Papers and Reports
Using the segmentation model to identify the consumer segments
most likely to be affected by a particular emerging risk
Victims of Financial Crime
Profiling victims to segments; interviewing a sample from key
segments to build an understanding of how they got caught, and
use the insight to help inform enforcement and communications
strategies
Policy, Risk &
Research
Communications
© Laughlin Consultancy Ltd
Defining your Target Market
16
Total Market
Potential Market
Inappropriate
(never sell)
Target Market
Vulnerable
Target Market
BEHAVIOURAL
ECONOMICS
Why you need to test your comms
don’t exploit unconscious biases
17
Academic & Political credibility
Behavioural Economics
Why is this relevant to you?
Even when you treat them as individuals & target them
accurately, your customers could be vulnerable to making
poor decisions due to these biases.
Do your customers…
1. …find your propositions complex & boring?
2. …need to make decisions based on assessing risk or uncertainty?
3. …need to make trade-offs between the present and the future?
4. …find these decisions emotional or fearful?
5. …lack opportunities to learn by making these decisions?
10 irrational biases (FCA)
Reference Dependence
Assessing gains or losses in comparison to a subjective reference
point, one example ifs other propositions on the market or purchase
at same time.
(Also termed ‘anchoring’)
10 irrational biases (FCA)
Projection Bias
The expectation that your current feelings, attitudes & preferences will
continue into the future. So, you underestimate the potential for
change.
10 irrational biases (FCA)
Mental Accounting & Narrow Framing
The behaviour whereby people treat money or assets differently
according to the purpose assigned to them.
Considering decisions in isolation not overall impact.
Spotting the ‘Dark Side’
FCA clearly signalled BE will form a key part of its policy,
enforcement & supervision toolkit.
FCA have stated they will use these as early warnings:
• Rip-offs: Uncompetitively high margins
• Suckers: Concentrated profits in small customer group
• Bargains: Innovative propositions that appear very cheap
• Traps: Contract features that often target BE biases
• Regret: Reported or potential regret
• Folly: Choices out of line with common sense
• Confusion: Observed or likely confusion
VULNERABLE
CUSTOMERS
How diverse they can be & how to
respond to the FCA’s challenge
28
© Laughlin Consultancy Ltd
Vulnerable Customers
“A vulnerable consumer is someone who, due to
their personal circumstances, is especially
susceptible to detriment, particularly when a firm is
not acting with appropriate levels of care.” (FCA)
29
© Laughlin Consultancy Ltd
Dimensions of Vulnerability
30
❖ Worth reading FCA Occasional Paper 8
❖ Dimensions they expect to be
considered are profiled in their
Infographic
❖ Not identified explicitly through
Consumer Spotlight segments
❖ Research can help marketers
understand differing needs of groups
❖ FCA may want to see how mitigate risks
for vulnerable groups through product/
comms design, processes or training
© Laughlin Consultancy Ltd
Scenario Test your products
31
© Laughlin Consultancy Ltd 32
CUSTOMER
INSIGHT
How use of analytics & research
can keep FCA Doctor away
33
Holistic Customer Insight
Customer
Data
Customer
Research
Customer
Analysis
Database
Marketing
Feel
Experiences
Test
Hypotheses
Converge
Evidence
© Laughlin Consultancy Ltd, not to be used without permission.
Insight-led Good-Conduct Marketing
Business
Strategy &
Segment
Participation
Strategy
Customer
Strategy
(inc. Brand
Promise)
Channels &
Categories
(Strategies)
Customer
Propositions
(Concepts)
Product,
Price,
Promotion,
People,
Place…
(Build)
Marketing
Campaigns
(Design,
Target,
Execute)
Marketing
Measurement
(inc. ROMI)
Communication
Approval
Annual
Product
Reviews
New Product
Approval
Insight evidence:
Consumer
Segmentation
Target Segment
Understanding
Insight
Generation
Insight guided design:
Marketing
Measurement
Targeting
Promotion
Consumer Segmentation
1. Cross functional teams review data,
research and analysis to answer a set of
core questions about their target
customer and “map the evidence”
2. Those “Evidence Maps”
are reviewed to identify key
customer themes
3. Structured questioning
techniques are used to dig
deeper to develop insights
A “Customer Insight” is:
A non-obvious understanding
about your customers, which if
acted upon, has the potential
to change their behaviour for
mutual benefit
4. Insights are prioritised &
converged with opportunity
areas. to generate ideas
Insight Generation Workshops
Marketing Targeting
Propensity
to Buy
Product
Propensity
to Product
Loyalty
Propensity
to Repeat
Purchase
Propensity
to Brand
Response
Propensity
to Channel
Response
Timing
Event
TriggersLife
Stages
Suppressions &
Permissions
Optimal Aggregation
Optimal Brand
Optimal Channel/Media
Target
Segments
Regional
Focus
Personalised
Comms
Attitudinal
Offers
© Laughlin Consultancy Ltd
Eye tracking Comms Testing
39
Model for designing BE tests
Identified
Customer Need
Bias 3? Bias 2?
Bias 1?
Rational
Behaviour
Analyse
Actual
Behaviour
Use Eye
Tracking to
spot issues
Test
Mitigations
(field trials)
Refine
Behavioural
Experiments
(panels)
Hypothesise
Biases at work &
Design mitigations
Review BE biases
that could explain
irrational behaviour
Comms
Project Innovate
linkedin.com/in/paullaughlin
paul@laughlinconsultancy.com
+44 (0)7446 958061
Contacting me:
customerinsightleader.com	
laughlinconsultancy.com
@LaughlinPaul
© Laughlin Consultancy Ltd, not to be used without permission.

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Customer Insight & Conduct Risk

  • 1. Customer Insight & Conduct Risk How Customer Insight can help YOU manage Conduct Risk, not the FCA
  • 2. Why should you listen? ❖ Created and lead customer insight teams for all the major insurance brands, products & channels used by Lloyds Banking Group over 13 years ❖ Added over £11m incremental profit to bottom line annually ❖ Pioneered LBG work with FCA on Behavioural Economics testing insurance communications ❖ Developed capability into a team of 44 & mentored next generation of leaders Paul now leads Laughlin Consultancy, a specialist business: “Helping businesses make money from customer insight” Laughlin Consultancy helps companies maximise sustainable value from their customer insight, for example by growing their bottom line, improving customer retention and demonstrating to their regulator that they treat customers fairly.
  • 3. © Laughlin Consultancy Ltd Customer Insight & Conduct Risk ❖ Why should you care?  ❖ FCA’s Consumer Spotlight segmentation ❖ Behavioural Economics impacts your comms ❖ The diverse challenge of Vulnerable Customers ❖ How analytics & research can keep the FCA doctor away 3
  • 5. WHY SHOULD YOU CARE? Why Conduct Risk should matter to every marketing & sales leader 5
  • 6. © Laughlin Consultancy Ltd Did you care about eating horse-meat? 6
  • 7. © Laughlin Consultancy Ltd FCA model of Conduct Risk 7
  • 8. © Laughlin Consultancy Ltd 5 Pillars of Conduct Risk 8 Business Model & Strategy The risk of unfair outcomes for your customers Culture, Govern & Control Product design & approval process Sales Post Sales handling Strategy Process Conduct MI Formal meetings Cultural transform Product development & review processes Formal sign-offs Decision Science (esp. BE & comms) Post-Sale processe
  • 9. © Laughlin Consultancy Ltd FCA Fines are growing 9
  • 10. © Laughlin Consultancy Ltd FCA Fines @ May 2015 10 Company & Fine Reason for Fine ‘Pillars’ Impacted Chase De Vere (IFA) Ltd - £560K Sold Keydata products to customers but didn’t understand or research the products themselves to understand the potential risks to customers. This led to them failing to disclose features and it was found that their communications to customers didn’t meet the clear, fair and not misleading criteria. Product Design Sales Swinton – Group fined £7.4M and 3 former directors £928K A culture of aggressive sales and focus on profit was considered evident which led to the miselling of monthly add on insurance policies. It was found that the company or senior directors did not put the customer at the heart of the business. Culture & Governance Sales Yorkshire Building Society - £4.135M It was found that Yorkshire BS did not act quickly enough to identify and act upon customers who were encountering payment difficulties. Even though the Yorkshire BS correctly used repossession as a last resort the delays in understanding problem cases and identifying future financial prospects of customers led to increases in fees etc. Included a lack of training for staff and issues with complaint handling. Sales Post Sales (vulnerable customers) Stonebridge (Aegon) - £8.4M Stonebridge targeted low and middle income customers with low levels of qualifications but sold them expensive polices and also actively discouraged cancellations. Issues where found with outsourcing controls, governance and complaint handling. Business Model & Strategy Culture, Governance & Controls Product Design (target market) Sales Post sales Credit Suisse International - £1.429M Emphasised the maximum return for its Cluquet Product in its literature even through the chances of obtaining this maximum return was close to zero. This was given undue prominence in literature etc. This was despite complaints and warnings from groups such as WHICH. Culture & Governace Product Design (comms) Sales
  • 11. © Laughlin Consultancy Ltd Would you want your Nan to have it? 11
  • 12. FCA ‘CONSUMER SPOTLIGHT’ What their segmentation means for FS firms & their target markets 12
  • 14. © Laughlin Consultancy Ltd Understanding Financial Consumers 14 Sex Age Ethnicity Religion Marital status/ lifestage Rule breaking Risk appetite Optimism Well-being Present vs future orientation Life priorities Confidence Affluence State vs individual responsibility Working status Social grade Family networks and support Trust Money management Last purchase experience Debt and use of credit Windfall/ inheritance Level of responsibility for personal finance Employment and job security Advice seeking Life Events Financial products held Access to services Literacy / numeracy Complaints and disputes Mis-selling Planning ahead/ resilience Tenure Health and disability Media usage Proactivity vs inertia Income Towards financial services Switching Experience Attitudes Personal characteristics and lifestyle Behaviour / decision making Channels
  • 15. How FCA is using Spotlight 15 ‘Proofs of Concept’ initiatives Customer Contact Centre Profiling FCA consumers to build a more effective picture of the types of ‘customer’ the FCA has, and customer management Authorisations Supervision Thematic projects Taking firm customer lists; profiling the customers; examining potential for risk and mis-match with marketing intentions Enforcement Consumer Credit – Consumer journey Using segmentation model to explore differences in use of credit and personal risk, to inform emerging organisation strategy PRR Insight Papers and Reports Using the segmentation model to identify the consumer segments most likely to be affected by a particular emerging risk Victims of Financial Crime Profiling victims to segments; interviewing a sample from key segments to build an understanding of how they got caught, and use the insight to help inform enforcement and communications strategies Policy, Risk & Research Communications
  • 16. © Laughlin Consultancy Ltd Defining your Target Market 16 Total Market Potential Market Inappropriate (never sell) Target Market Vulnerable Target Market
  • 17. BEHAVIOURAL ECONOMICS Why you need to test your comms don’t exploit unconscious biases 17
  • 18. Academic & Political credibility
  • 20. Why is this relevant to you? Even when you treat them as individuals & target them accurately, your customers could be vulnerable to making poor decisions due to these biases. Do your customers… 1. …find your propositions complex & boring? 2. …need to make decisions based on assessing risk or uncertainty? 3. …need to make trade-offs between the present and the future? 4. …find these decisions emotional or fearful? 5. …lack opportunities to learn by making these decisions?
  • 22. Reference Dependence Assessing gains or losses in comparison to a subjective reference point, one example ifs other propositions on the market or purchase at same time. (Also termed ‘anchoring’)
  • 24. Projection Bias The expectation that your current feelings, attitudes & preferences will continue into the future. So, you underestimate the potential for change.
  • 26. Mental Accounting & Narrow Framing The behaviour whereby people treat money or assets differently according to the purpose assigned to them. Considering decisions in isolation not overall impact.
  • 27. Spotting the ‘Dark Side’ FCA clearly signalled BE will form a key part of its policy, enforcement & supervision toolkit. FCA have stated they will use these as early warnings: • Rip-offs: Uncompetitively high margins • Suckers: Concentrated profits in small customer group • Bargains: Innovative propositions that appear very cheap • Traps: Contract features that often target BE biases • Regret: Reported or potential regret • Folly: Choices out of line with common sense • Confusion: Observed or likely confusion
  • 28. VULNERABLE CUSTOMERS How diverse they can be & how to respond to the FCA’s challenge 28
  • 29. © Laughlin Consultancy Ltd Vulnerable Customers “A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” (FCA) 29
  • 30. © Laughlin Consultancy Ltd Dimensions of Vulnerability 30 ❖ Worth reading FCA Occasional Paper 8 ❖ Dimensions they expect to be considered are profiled in their Infographic ❖ Not identified explicitly through Consumer Spotlight segments ❖ Research can help marketers understand differing needs of groups ❖ FCA may want to see how mitigate risks for vulnerable groups through product/ comms design, processes or training
  • 31. © Laughlin Consultancy Ltd Scenario Test your products 31
  • 33. CUSTOMER INSIGHT How use of analytics & research can keep FCA Doctor away 33
  • 35. Insight-led Good-Conduct Marketing Business Strategy & Segment Participation Strategy Customer Strategy (inc. Brand Promise) Channels & Categories (Strategies) Customer Propositions (Concepts) Product, Price, Promotion, People, Place… (Build) Marketing Campaigns (Design, Target, Execute) Marketing Measurement (inc. ROMI) Communication Approval Annual Product Reviews New Product Approval Insight evidence: Consumer Segmentation Target Segment Understanding Insight Generation Insight guided design: Marketing Measurement Targeting Promotion
  • 37. 1. Cross functional teams review data, research and analysis to answer a set of core questions about their target customer and “map the evidence” 2. Those “Evidence Maps” are reviewed to identify key customer themes 3. Structured questioning techniques are used to dig deeper to develop insights A “Customer Insight” is: A non-obvious understanding about your customers, which if acted upon, has the potential to change their behaviour for mutual benefit 4. Insights are prioritised & converged with opportunity areas. to generate ideas Insight Generation Workshops
  • 38. Marketing Targeting Propensity to Buy Product Propensity to Product Loyalty Propensity to Repeat Purchase Propensity to Brand Response Propensity to Channel Response Timing Event TriggersLife Stages Suppressions & Permissions Optimal Aggregation Optimal Brand Optimal Channel/Media Target Segments Regional Focus Personalised Comms Attitudinal Offers
  • 39. © Laughlin Consultancy Ltd Eye tracking Comms Testing 39
  • 40. Model for designing BE tests Identified Customer Need Bias 3? Bias 2? Bias 1? Rational Behaviour Analyse Actual Behaviour Use Eye Tracking to spot issues Test Mitigations (field trials) Refine Behavioural Experiments (panels) Hypothesise Biases at work & Design mitigations Review BE biases that could explain irrational behaviour Comms
  • 42.
  • 43. linkedin.com/in/paullaughlin paul@laughlinconsultancy.com +44 (0)7446 958061 Contacting me: customerinsightleader.com laughlinconsultancy.com @LaughlinPaul © Laughlin Consultancy Ltd, not to be used without permission.