Lessons from the loyalty losers

Loyal consumers could be losing hundreds of pounds a year in savings by not switching their car insurance and household energy providers, so why do they stay? And what’s the message for marketers?

People who are loyal to some brands could be losing up to £4bn by not switching suppliers, according to new research.

While more than a third of people believe they need to switch car insurance and energy provider regularly to get the best deals, those who do not may be losing a combined value of up to £3bn a year on car insurance and £4bn a year on household energy, according to the study by Beehive Research. 

However, 40 per cent of UK adults prefer not to be loyal to brands in those sectors, realising they could get a better deal elsewhere. This is especially pertinent at the moment given energy provider SSE’s price rise announcement at the end of last week. 

The car insurance and energy markets have been chosen to exemplify the differences in attitudes towards sectors - people think about insurance once a year when they renew it whereas energy is more of an ongoing service that people do not review as much.  

The research highlights four consumer segments. ‘Conditioned switchers’ are the largest group at 40 per cent. They have little faith in brands and are very aware of new offers – for them, it’s a price game. The second biggest segment is ‘sceptical loyalists’ (31 per cent), those who are time-poor and do not seek out new deals. They are most likely to have had a bad experience with a car insurer or energy provider and are sceptical of brands in general.

The third group is ‘passive loyalists’, accounting for one-fifth of consumers. They are also time-poor, do not seek to switch and do not have much awareness of other offers in the market. Instead they want loyalty from a trusted provider.

‘Loyal opportunity switchers’ are the smallest segment at 8 per cent. They are confused by the switching merry-go-round, but can be persuaded to stay loyal. They are least likely to have had a bad experience with a car insurer. A brand that can delight these customers may be able to retain them, according to the study.

The market needs to differentiate itself through service and cover, otherwise it’s a race to the bottom

The research also uncovers a group of consumers who want to stay with a trusted provider, but switch because they know this is the only way to get a better deal. 

“They want to be treated well and have relationships with companies they trust,” says Paul Kavanagh, managing director at Beehive Research. “Price isn’t the most important factor for a lot of people – and loyalty isn’t just about loyalty points. Some of the people we interviewed were really passionate about the fact that they didn’t want to leave, but they felt they’d been given no choice.”

Brands have the power to make consumers stay or switch, and understanding the key triggers could be part of the answer. Service, true reward for loyalty and price are core factors highlighted within the study. “If brands want to avoid creating ‘price junkies’, they need to work hard to build trust, reduce the risk of bad experiences and reward existing customers,” explains Kavanagh. The research shows that more people have had a bad experience with an energy brand (23 per cent) than a car insurance brand (18 per cent), based on the survey sample of people who paid for or made decisions for these services.

Understanding the psychology of consumers better is also a critical success factor for brands, as is measuring the right things and monitoring how they are doing, according to the study. A key message from the research is that consumers want a fair deal and some acknowledgement of their loyalty. “Few consumers spoke of being ‘surprised or delighted’ by a brand,” notes Kavanagh.

Consumers have a higher frequency of switching for car insurance than for gas or electricity – 45 per cent change provider five or more times at an average switching frequency of every three years. For energy, the majority of people (59 per cent) have either never switched supplier or only once, with an average switch rate of every five years.

Kavanagh says: “Car insurance is an annual contract with a renewal notice – a triggered reminder for customers to check their policy and potentially switch, which partly explains the higher switching rates compared to gas and electricity. However, our research shows that handled well, this annual contact presents an opportunity for insurers to engender loyalty with customers.”

As part of the qualitative study, consumers’ attitudes to advertising campaigns have also been measured. One advert that sparked discussion is from Npower that says its energy price fix offer is open to new and existing customers. It is particularly topical given the current media storm around energy firms and pricing, after Labour leader Ed Miliband’s pledge to freeze prices from June 2015 to the start of 2017. This ad states that Npower understands its target consumers and has responded with an offer for all.

direct-line-npower-2013-460

The research uncovered different switching behaviours for energy providers such as Npower (right) and insurance providers such as Direct Line (left)

Most people know that brands have strategies to deal with switchers, so why is it only when customers have one foot out of the door that brands seem to pull out the stops to entice them to stay? “These ‘conditioned switchers’ have learnt that by threatening to leave, they will get a better deal. Not enough people do it though,” says Kavanagh.

“The other major issue companies are struggling with is silos. There are the commercial, marketing and customer service departments and so on. Perhaps the problem is the breakdown between customer understanding and satisfaction and what you can do as a business to break down those silos,” he adds.

Another challenge with the growing obsession of price as the primary decision-making factor, fuelled by price comparison websites, is that consumers are losing sight of the true value of insurance. Kavanagh says: “If we’re driving people down the price line, that’s what they’re choosing on. They’re not choosing on service or anything else. They’re looking at it from a price perspective and not comparing like-for-like.”

It seems there is a lack of understanding in the market about what insurance provides and what’s behind the price. This presents an opportunity for brands to communicate better with consumers about the benefits and levels of protection to ensure they are adequately covered. This would also help to build trust between companies and consumers, and could create the intrinsic value for brands to rise above the price wars.

Mark Evans, group marketing director at Direct Line Group says: “The market needs to differentiate itself through service and cover, otherwise it’s a race to the bottom. We feel a responsibility to try and turn that tide around, because insurance is a good thing, providing protection, certainty and peace of mind.”

Overall, the key message for marketers across all sectors is to be clear on their strategy and what their brand stands for. Kavanagh concludes: “Stick to a proposition, focus on it and understand it. If you’re going to swim in the price pond, you need to be cost efficient. If you’re going down the loyalty route and want higher pricing, you need to treat customers that little bit better.”

Marketers’ response 

mark-evans-direct-line-group-2013-150

Mark Evans
Group marketing director
Direct Line Group

Clearly, there is a potential economic benefit of switching insurance provider every year. Many consumers do switch, but there is also a false economy to switching. The commoditisation of the sector has been exacerbated by a fixation on price with consumers losing sight of the benefit of insurance and what they’re actually buying. Our mission is to turn that around, de-commoditise the sector and re-engage customers. We focus on building relationships. This year we launched ‘Together’ where we link everything together and give people a proportionate discount depending on how many different products they have with us. It seems simple, but it’s unique for an insurer to say ‘We value you and want to give you something back.’

debbie-britton-npower-2013-150

Debbie Britton
Retail marketing director
Npower

We recognise that if you keep your existing customers happy, they’ll stay with you. Ofgem wants to encourage a vibrant market, as do we, by simplifying tariffs so that customers find it easier to compare like-for-like. With the Retail Market Review [Ofgem regulation that comes into force in March 2014], the cheapest and best tariff for customers will be published on their bill. We’re planning a whole set of communications that encourage people to check whether they are on the best deal. We want to rebuild trust and prove that we offer the best customer experience. Our research says it’s good, basic customer service that people want. The brand also plays a big part in loyalty. We’re focusing on making sure that Npower means something to people.

Methodology

Beehive Research ran a nationally representative survey of 1,977 people using an online sample of car insurance and household energy customers from Panelbase.com. It investigated customers’ switching behaviour, general service, brand attitudes, evaluation of loyalty and supplier switching.

For the qualitative research, 30 consumers from the online survey have been selected, representing various levels on the loyalty/switching scale, to participate in an online community with six days of activities and discussions. This study further explored their attitudes to brands, switching, current service brand advertising and motivations for their decision-making.  

Readers' comments (2)

  • So true re car insurance - just rebewing, my odl fime have upped cost - equvalent of £39 a month. Tried a quote from them as a new user came in at a half that, then tried other quotes and got a number around the £13 mark. Have always been a bit of a 'passive loyalist', but looks like I will become a ‘Conditioned switcher'! Has to be said though it was all much easier when i just phoned my insurance broker and he did it all for me. Been suing the internet since before the days of the web and it isn't always better online...

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  • Mark makes an interesting point - yes, choosing the right insurance should involve more factors than just the price.
    I do think, however, that the insurance industry must bear some responsibility for the consumer 'fixation' on price. When your insurer can suddenly renew your insurance at the same price as last year (although having previously requested £££'s more for renewal) solely due to the fact that you're threatening to leave, it's difficult for consumers not to feel that their loyalty is being abused.

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