House of Lords - Science and Technology

Select Committee on Science and Technology Minutes of Evidence

Memorandum by Robert Diamond

UNLOCKING THE VALUE OF THE OVER-50 CONSUMER[1]

ROBERT DIAMOND ARGUES THAT MARKETERS NEED TO THINK BEYOND AGE AND INCOME WHEN TARGETING THIS OFTEN-IGNORED MARKET

Marketing to the UK's over-50 customers is being heralded as a key industry trend for the first decade of the 21st century. The appeal is obvious, given the concentration of 80 per cent of assets, 60 per cent of savings and 40 per cent of disposable income within the 33 per cent of the UK population aged 50+. The potential returns from tapping into this value are equally clear, and demonstrated in the US where dedicated 50+ marketing has been underway for over a decade.

The first challenge to unlocking 50+ value is in delivering effective targeting when age and income—the most common variables for market segmentation—are not clear indicators of true spending power. Meanwhile, as customers replace peer influences and aspiration with self-awareness and buying confidence, a more sophisticated approach to offer development is needed. Finally, as customers move into the unique position of time-rich media and marketing consumption (rather than time-starved), a more targeted view of communication is needed.

A SNAPSHOT OF THE UK OVER-50 MARKET

Much has been written about the demographic "time bomb" of the ageing UK population. However, many of the headlines hide the key messages that make the 50+ market so crucial for future brand sales.

A thorough investigation of the detailed dynamics within the over-50 market would take a paper in itself to explain. So, below is a summary of the situation in five key messages about the 50+ market.

1. Over-50s are the fastest-growing demographic group in the UK today:

— 20 million people today, rising from 33 per cent to 44 per cent of the UK population in 20 years.

2. Fewer teens and young adults means more "empty nests", presenting a challenge for the process of long-term brand-building:

— nearly half of European households have no one under 30.

3. UK wealth, savings and spending power is concentrated in the over-50s:

— 50+s hold 80 per cent of assets, 60 per cent of savings and 40 per cent of disposable income.

4. These trends make over-50s a key buying group in several sectors, in addition to their role as "parent-payer" for their children's spending:

— 50+s are the top buyers of new cars, holidays, IT equipment and fashion.

5. The need for actionable segmentation of the 50+ market is crucial, given that a significant number of over-50s are still less well off:

— 40 per cent of UK pensioners are totally dependent on (meagre) state benefits.

A MARKET IGNORED?

Despite this demographic and economic certainty, many marketers seem to ignore—or misrepresent—the over-50 market. Some concerns are valid—for example that overtly appealing to a 50+ audience could alienate younger buyers (in the same way that the reverse is true). However, other perceptions are less well-founded—that long-established brand loyalties cannot be changed and 50+s are unresponsive to modern marketing. Is the UK marketing community—where only 10 per cent of Marketing Directors are 50+ and 80 per cent of agency staff are under 40—doing this market a disservice?

In an attempt to resolve what the real industry view on the over-50 opportunity is, we solicited the views of senior brand owners from a range of UK marketing departments. In summary, there is a widely-held appreciation of the 50+ opportunity but there are challenges in delivering against this, given current levels of customer insight.

These comments set an important tone for our exploration of the 50+ opportunity:

— that the ageing of the UK population presents more of an opportunity than a risk;

— that, generally, over-50s are less well understood than other segments of the market;

— that sensitivity is required towards 50+ customers when considering how the overall brand should be positioned (even if discrete 50+ targeting is not an option);

— and finally, that companies will need to tailor their offers, messages and channel choices in order to appeal to 50+ customers without alienating other buyer groups.

The prevailing "hype" around 50+ is clearly justified. The question is what to do about it.

IDENTIFYING VALUE WITHIN THE OVER-50 MARKET

The concept of 50+ targeting is nothing new. Most visibly in the UK, SAGA has been building relationships, mainly with the "older" end of the 50+ market, since the 1920s. However, the key change is that we are now seeing a significant element of the buyer base for "mainstream" brands (ie not dedicated to 50+) being made up of over-50s, who bring different expectations and experiences to their purchase decisions.

While the demographic trends do not materially affect the underlying economics of SAGA, the implications for "mainstream" brands managing a customer portfolio that includes over-50s are more fundamental. Ageing and changing household structures result in shifting product consumption patterns, different purchasing characteristics and expectations of customer service. In order to sustain and grow sales from existing customer bases, a shift in marketing approach is required.

THE CHALLENGE OF 50+ SEGMENTATION

Marketers looking to target discrete segments within the overall, mainstream market usually focus on two key discriminators: age (or broader lifestages) and household income. Given the need for fast and effective targeting tools, age is a logical shorthand for a customer's likely needs, behaviours and influences at certain times in life. Income is used as a proxy for potential value, either to the category or a specific brand.

Many observers, therefore, went ahead and applied an age-based approach to defining behaviours, needs and potential financial values within the 50+ market. Typically, the "Young Old" in their 50s today, are pictured as free-spirited, affluent and unconventional. The "Growing Old", aged 60-74, have been brought up with values influenced by post-war austerity and a firm belief in family values. Then there are the "Old Old", carrying the memories of the depression and frightened into staying behind locked doors by the threats of modern society. Using this model, marketers use broad homogenous segments (for example "Baby Boomers") and develop offers and creative to reflect this.

AGE AS A STATE OF MIND

In recent years, however, there is increasing evidence that age for over-50s is much more relative, becoming as much a state of mind as a state of body. Recent surveys suggest that three in four over-50s feel no more than 75 per cent of their chronological age. Given this, a more sympathetic view of ageing is needed, where physical age (what your birth certificate says), health age (how old your body feels), mental age (how old you feel) and lifestyle age (how old you act) are brought together to create a profile that is relevant and can be targeted. More about this challenge later.

At the same time as challenging age as a tool for 50+ selection, income also appears to bear little relevance in an environment where over-50s' spending power is often determined more by returns on assets rather than earned income. This point is illustrated by Figure 1, showing how (reported) income declines precipitously with age.

However, our experience tells a very different story. One of our automotive clients recently found that buyers of their new cars had an average income of £5,000 a year. However, buyers of used vehicles shared an average income band of £15-20,000—in other words, people who buy more expensive new cars are more likely to be living off asset-based income rather than still earning a regular wage.

This illustrates why a new approach is required that reflects an individual's real spending power, rather than a set of simple assumptions based on "regular" working income.

WHY START AT 50?

Our solution to this targeting challenge began with the insight that as people near 50, they face a number of fundamental life decisions that influence their personal (and spending) priorities. Three factors rise above others around age 50.

Children leaving home

Mortgages paid off

Planning for retirement

A NEW TARGETING APPROACH

These three factors create a unique situation where—often for the first time ever—an individual's financial commitments on the mortgage, school fees and household items fall at a faster rate than the disposable income coming in from salary and interest on assets. This opens up a gap in uncommitted expenditure which we call an individual's "Financial Freedom". The degree of "freedom" will vary for each individual, reflecting the amount of money coming in and also what is required to cover the bills. Within this, the marketer's challenge is to attempt to target each individual according to their "Financial Freedom", then marry this with other considerations—such as how they spend their leisure time—in an attempt to marry spend potential with relevant interests that will drive a response to a marketing offer. Now we have an actionable approach that reflects age (as an entry criterion), but then moves beyond income to provide a precise and targetable measure of individual spending power.

To help define an individual's financial freedom, we have reached out to commercially-available databases that contain a comprehensive range of variables relating to lifestyle needs and behaviours. As a side-benefit, using commercial data also allows us to overlay the findings on to third-party rental lists to facilitate future customer prospecting.

While the specific insights and action plans resulting from our "Grey Matters" segmentation will vary by sector, overall key headlines include the following (Figure 2).

— The "classic" targeting group of wealthy, older individuals may be as small as 3.5 per cent of the UK's over-50 population (our "Healthy & Wealthy" segment).

— Of the 40 per cent of UK households that rely on state benefits for most or all of their income, nearly half also claim sickness or disability aid (our "Survivors").

— The "baby boomer" generation (which we call "Making the Best") are a formidable force, representing nearly a quarter of all UK over-50s.

To drive the development of relevant offers and messages to each segment, "pen portraits" are required that explain the needs and wants of each group. Using a combination of in-house material and commercial lifestyle databases (such as TGI and Claritas data as we have used here), we are able to demonstrate the different behaviours between segments.

As an example: "Healthy & Wealthy" are independently wealthy, likely to be retired (perhaps company directors). They may have second homes in the UK and Europe, they use charge cards rather than credit cards, enjoy a hectic social life (at home and out), fine wines and reading. They support charitable causes and drive luxury cars, and so on.

"Making the Best"—"baby boomers", many are still working, mortgages often remain (despite equity release), they carry multiple credit cards, enjoy DIY, gardening and betting, drive 4x4s and family cars, and eat at family-style restaurants.

(TGI, Claritas over-index versus UK population).

This approach may not be appropriate for all categories and brands. However, the overall approach—of moving beyond age and income as targeting variables—represents a fundamental shift for all marketers looking to unlock over-50 value. See box for a more general view of the age group, from qualitative research.

UNLOCKING VALUE—CASE STUDY

To ground us in the reality of creating relevant customer propositions and delivering these through cost-efficient channels, we will illustrate this challenge using a client case study from the luxury Automotive sector.

Client context

— Traditionally, over-50s had been the only target group, given that 65 per cent of all new luxury cars in the UK are bought by over-50s.

— Recently a range of less-expensive vehicles had been introduced, reducing the entry-level price from over £50,000 to nearer £20,000.

— Today the customer portfolio ranges from 25 to 75+.

Client objectives

— Retain the core brand essence (quality, heritage and sports performance) for all owners.

— Retain over-50s as a core buying group.

— Introduce a higher volume of younger buyers who will be managed up into more premium vehicles over time.

Our approach

— Insights into over-50 buyers.

— Media selection and targeting.

— Proposition development and delivery.

Our first step was to investigate whether purchase behaviour in the category varied with age. Without disclosing any of the client's proprietary findings, we can use an industry-standard after-sales survey (the New Car Buyers Study or NCBS) to demonstrate how car purchase behaviour evolves over time (Figure 3).

Design and price are the key reasons for under-50s choosing our particular vehicle. For over-50s, drive and size have become greater considerations. In addition, under-50s seem to score all factors more highly than their over-50 counterparts, suggesting stronger views about what they like and why. At the topline level, a different customer proposition (or slant on the product's benefits) may be needed for segments within each group.

NCBS data also demonstrate why "value" propositions need to be created relative to the buying group, given that over-50s buyers are significantly more likely to pay for their new car with cash rather than manufacturer or dealer credit.

MEDIA SELECTION AND TARGETING

When it comes to defining the most relevant "platforms" for communicating benefit messages and value offers, a key to understanding the over-50s market comes from understanding the use of leisure time. For family lifestage groups, you may be what you eat (as Tesco believes in its targeting). For teens, you may be what you wear (for Littlewoods). Alternatively you may be what you read (for WHSmith). For a significant proportion of over-50s it is often a case of "you are what you spend your free time on".

Going back to our "Grey Matters" segmentation and profiling tool, we helped this client find the different leisure interests of its target segments. For their traditional heartland buyer ("Wealthy & Healthy" in our matrix), we identified their media preferences to be:

Daily Telegraph, Daily Mail

Financial Times

For reference, Over 50s represent 33 per cent of the UK population but 49 per cent of newspaper readership. Most broadsheet (Guardian, Independent, Times, Financial Times) readership falls off with age but the Telegraph has exploited its unique position using a database of 400k subscription names to innovate new lifestyle clubs in wine, travel, fashion.

English Heritage, Birds

Amateur Gardening

Woman and Home

Yours!, People's Friend, My Weekly,

SAGA's subs-based magazine stands out, delivering a 1.2 million monthly circulation as the bedrock of the Saga holiday and 50+ services offering.

— Television—viewership skews to BBC 1 and 2, with select Sky Sports programming mixed in. Over-65s are significantly more likely to watch news and factual programmes than 16-44s. However, many 50+s see themselves as portrayed negatively on television.

— Radio—listening focused on Classic FM, Heart and BBC Radio 2. 49 per cent of 55-64 year olds tuning in versus 82 per cent of 15-24s.

— Internet-"Wealthy & Healthy" usage, at an average 10 hours a month, is significantly ahead of average. 40 per cent of over-50s are Online, visiting more sites, more often and for longer. Usage varies by demographic: ABs = 61 per cent online, C1 51 per cent, C2 29 per cent, Ds 12 per cent. Email click-through is higher for this group (8-10 per cent vs. 3-5 per cent average).

Based on this information, our recommendation was to focus on broadcast TV and print to deliver a single brand communication message around core values and product news. However, more targeted media—including "lifestyle" magazines, direct mail and customised internet sites—would then be used for delivering a discrete proposition to segments of the over-50s market.

CUSTOMER PROPOSITION

Our detailed proposition remains confidential to the client. However, one of the options we considered demonstrates how 50+ lifestyle targeting can create a relevant platform for managing customer loyalty (in this case) using discrete contact channels to generate the highest response rates.

Profiling identified gardening as a key leisure pursuit for the more affluent customers that our client was trying to retain. By blending this with media consumption insights and the overall target of getting drivers back into their vehicles, we were able to recommend an integrated plan that reinforced brand loyalty, product benefits and offered a platform for further prospecting.

In summary we proposed offering:

1. a short UK leisure break itinerary, taking in the finest gardens of Britain's stately homes;

2. our client to provide free admission using a Heritage pass;

3. providing a vehicle for response measurement and further data capture;

Daily Telegraph's

5. leveraging our client's presence at special house-and-garden event days, to offer test drives to new customer prospects (marketed through advertorial coverage in SAGA's monthly magazine);

6. ability to plan and track your journey using a microsite on the brand's website. Look out for some news in Summer 2003!

CONCLUSIONS

Successful 50+ exploitation demands an alternative to the mainstream mass-marketing that many of these customers grew up with. Here is a group where value is highly concentrated within a minority of customers, who are more likely to be time-rich rather than time-starved, and whose responsiveness to marketing offers relies on personal relevance rather than peer pressure.

Not all businesses will find themselves needing to respond to the same degree, at the same time, or with the same level of sophistication. However, those that chose to ignore or misrepresent the over-50 opportunity will eventually find out that—sooner or later—their traditional customer base will have aged from under them.

May 2005