Packed shops in the January sales prove that people still love a bargain, despite the supposed age of austerity we are living through at the moment.
I always find it amazing that after weeks of spending in the run up to Christmas, many people allow themselves just one day off before heading back out onto the streets to find even more bargains.
The relentless marketing machine of the retail industry fuels this spending spree with its promise of double discounts and ‘everything must go by Friday’, when of course we all know that the next sale will start on the Saturday morning.
The desire for a bargain promotes behaviour that could appear irrational from some viewpoints. The double discount trick tells the consumer that the cost price of a sofa, for example, is £1,000.
The first discount reduces the price to £600 and the second – the double discount – reduces it to £400. They will buy the sofa and boast to their friends and family that they saved £600. But of course they haven’t saved £600 at all, but spent £400. And that is the big trick of the January sales.
Pricing lessons
What can we in the protection industry learn from the spending habits and the trends in the retail sector?
I have lost track of the number of times I have been quoted by journalists or written articles over the past five years stating the price of life assurance is at its lowest ever.
Every time I say it I expect that, sooner or later, the price will stabilise but it has not yet. People well into their 40s can get more than £100,000 of life assurance for only £10 a month. That is a truly remarkable bargain. But unfortunately the consumer does not see this.
Despite the plummeting price of life cover, demand has never increased. The rock bottom price, our own equivalent of double discounting or other similar financial seduction marketing, has not altered the fact that the product needs to be ‘sold’. It has not transformed it from a grudge purchase to an aspirational one.
So if we have to continue to sell we need to tap into this obsession the public has with price. However, we should be careful that the price message does not become so powerful that we send our protection customers off to the internet to log into price comparison websites.
While people can find some very good deals, advisers can align the price message with the true added value of the features in the products that they recommend.
Some life polices, for example, have extra services such as counselling or access to medical specialists which are often not available on the internet. These features alone can justify a few extra pence a month. The adviser’s message could be that, although prices are lower than ever before, he or she has the expertise to deliver even more.
Of course, thanks to the Gender Directive and new rules for life company taxation, we might see some prices rise in 2013 so this year may really be the last year of falling protection rates.
Online purchasing
Another feature of the retail culture is an increasingly convenient way to shop. You can buy most goods online and have them delivered straight to your home. Although setting the delivery time can sometimes mean the inconvenience of waiting for a specified two- or three-hour window, most deliveries can be set up quite easily online or in store with a few mouse clicks.
Online applications for protection products are also making things easier for advisers and their clients. They can ensure all the correct information is in place before submission. When linked to online underwriting services, advisers can even schedule telephone underwriting calls or arrange for a convenient time for a medical examination.
Of course, as a result of almost a decade of intense price competition, there are now many questions on an application form so that a precise underwriting decision can be made. Usually, however, the online experience feels better than wading through 30-odd pages of paper.
Simple products
Finally, in the retail sector, more than ever before there are ‘unbranded’ versions of products available as an entry level product. Indeed in the recession, the advice of the money experts was to ‘down-brand’ to save some money.
Protection products, especially critical illness and income protection, have become increasingly complex as companies have sought advantages over their competitors. Advisers like the complexity too because it reinforces the need for advice. But we may have gone a little too far. Perhaps there is a place for a simplified range of products to sit alongside their more complex relations.
The government has kicked off a consultation about the need for some simpler products. These discussions always seem to imply that these products are needed outside the advice space. The assumption seems to be that simpler products would sit better in the direct to consumer, non-advised or bancassurance markets.
There is a need for some simpler protection products which are not only very competitively priced but also allow ease of purchase online with the minimum of fuss.
But I see no reason at all why these should not be part of the adviser’s repertoire, allowing them to choose a more complex and feature-rich product for those that want it, and a cheaper vanilla product for those after simplicity and convenience.
