Topic 9 - Market Segmentation And Product Development Flashcards
- shared characteristics of market segment
What is market segmentation, and why is it used in marketing?
divides consumers into groups with shared characteristics to tailor marketing strategies. It helps understand consumer needs, purchasing power, preferences, and delivery methods, optimizing the marketing mix (product, price, promotion, place).
Why can’t marketers target every individual separately?
Targeting individuals is impractical. Segmentation identifies shared traits to efficiently address group needs.
What are the three main types of market segmentation?
- Geographic: Groups by location (e.g., isolated areas prefer online/mobile banking).
- Demographic: Groups by age, gender, income, occupation (e.g., younger people need mortgages; middle-aged save for retirement).
- Behavioural: Groups by usage, loyalty, buying habits (e.g., loyal customers rarely switch accounts).
Give an example of how financial providers use demographic segmentation.
They design products for life stages: children’s savings, student loans, pensions for workers, annuities for retirees.
How do financial providers use segmentation?
They analyze customer life cycles, design targeted products (e.g., loans for students), and use databases to assign customers to segments.
How does segmentation influence product design in banking?
Products are tailored to segments (e.g., pension schemes for workers), priced appropriately, promoted via segment-specific media, and distributed through suitable channels.
What are two key benefits of market segmentation?
- Targeted Marketing: Focuses resources on high-potential groups.
- Product Development: Creates offerings that meet specific segment needs (e.g., savings accounts for children).
How does segmentation improve marketing efficiency?
By aligning product features, pricing, promotion, and distribution with the preferences and abilities of each segment.
What role do customer databases play in segmentation?
They help classify individuals into segments (e.g., banks use data to assign customers to life-stage groups).
MEETING THE NEEDS, WANTS AND ASPIRATIONS OF A MARKET SEGMENT
Why must providers meet the needs, wants, and aspirations of market segments?
To differentiate their brands by developing products that appeal to specific segments, making them distinct from competitors.
How do financial services providers differentiate basic products like personal loans?
By adding new benefits (e.g., flexible repayment options, cashback) to create tailored products for different customer types.
What is the goal of product differentiation in financial services?
To ensure added benefits align with the target segment’s preferences (e.g., students vs. high-income professionals).
What is a packaged current account?
A personal current account with differentiated features (add-ons) tailored to specific market segments, such as insurance, cashback, or travel benefits.
How do banks differentiate packaged current accounts?
By targeting shared characteristics like income/wealth, life stage (e.g., students, retirees), and customer loyalty (e.g., preferential rates for long-term customers).
What are the three main ways banks segment customers for packaged accounts?
- Income/wealth (e.g., premium accounts for high-income customers).
- Life stage (e.g., accounts for children, students, or graduates).
- Loyalty (e.g., benefits for long-term customers)
Give an example of an account feature targeting income/wealth segmentation.
HSBC’s ‘Premier Bank Account’ offers travel insurance, fee-free global withdrawals, and preferential loan rates for high-income customers.
- packaged current accounts
List 5 common add-ons in packaged current accounts.
- Travel insurance
- Mobile phone insurance
- Cashback
- Identity theft protection
- Preferential interest rates
How do fees for packaged accounts vary?
Simple accounts are often free; others charge monthly fees based on the range of benefits (e.g., RBS’s ‘Silver Account’ charges for European travel insurance and dining discounts).
What benefits does HSBC’s ‘Premier Bank Account’ include?
- Worldwide travel insurance
- No fees on non-sterling cash withdrawals
- Preferential mortgage/savings rates
- Dedicated relationship management
What does RBS’s ‘Silver Account’ offer?
- European travel insurance
- Mobile phone insurance
- Discounts on restaurants/cinema tickets
- Preferential travel money rates
How do banks cater to customers struggling to manage income?
Accounts with budgeting tools, overdraft options, or alerts to help income last until month-end.
What are ‘add-ons’ in current accounts?
Optional benefits like insurance policies or discounts attached to an account (e.g., breakdown cover or cashback).
- Criticism of Packaged Current Accounts
What were the main criticisms of packaged current accounts since their introduction?
- Customers complained of mis-selling, being charged for products they didn’t know about or want.
- Concerns over poor value for money (e.g., £24/month fees for inadequate benefits).
- Overinsurance due to duplicate coverage (e.g., roadside assistance already covered by car insurance).
What problems arise when customers claim on packaged account insurance?
- Policies may have limited cover or exclude specific circumstances (e.g., iPhones excluded from mobile insurance).
- Age-based exclusions (e.g., Santander travel insurance denying claims for pensioners).
Why might customers end up overinsured with packaged accounts?
- They unknowingly duplicate existing coverage (e.g., roadside assistance already in car insurance).
- They pay twice for the same product but can only claim once.
How do banks fail in market segmentation with packaged accounts?
- Selling to the wrong segment (e.g., elderly customers ineligible for travel insurance).
- “Upgrading” customers to fee-paying accounts without consent.
What is the core issue with bundling insurance into current accounts?
- Banks lose focus on the core product (managing receipts/payments).
- Generic add-ons lack tailored terms, unlike researched standalone insurance.
Give two examples of packaged account insurance exclusions.
- Mobile insurance excluding high-cost handsets (e.g., iPhone).
- Travel insurance excluding customers above a certain age (Santander case, 2013).
What broader trend do these criticisms reveal about banks?
- Banks prioritize upselling over customer needs.
- Lack of detailed consideration for individual circumstances or suitability.
Why are packaged account add-ons often unsuitable?
- Designed for broad market appeal, not individual needs.
- Customers may not qualify for benefits or already have coverage.
What is the main takeaway about packaged accounts?
They risk mis-selling, overinsurance, and poor value by bundling generic products without customer-specific tailoring.
- countering criticisms
How might providers counter criticisms of packaged current accounts?
They argue it’s cheaper to bundle insurance covers (e.g., travel, roadside) than buying separately, and the monthly fee may be lower than individual policies.
What must customers do before signing up for a packaged account?
- Compare costs vs. standalone policies.
- Check the small print to ensure terms suit their circumstances.
What risk does the FCA associate with financial capability gaps?
A mismatch between consumers’ skills and the complexity of financial products can lead to poor decisions, even with clear information. (FCA, 2014)
What must providers do to address financial capability issues?
- Ensure benefits are suitable per customer.
- Explain account details and add-ons clearly.
What is the first step banks must take to counter criticisms?
Verify customer eligibility for each policy in the package and share this info with them.
What must the annual statement include?
- How to claim each benefit.
- A check on changed circumstances/policy suitability.
What must advisers do when recommending packaged accounts?
- Confirm each policy’s appropriateness.
- Notify the customer if unsuitable.
- interest-free credit card balance transfers
What is an interest-free credit card balance transfer?
A: It is a promotional offer where balances are transferred from a competitor’s credit card to a new provider’s credit card without accruing interest for a set period. The customer typically only needs to make minimum monthly payments.
Why are interest-free balance transfers attractive to consumers?
A: They appeal to overindebted individuals who owe substantial amounts on their credit cards and want to avoid paying high monthly interest
Do interest-free balance transfers cover new purchases?
A: Not always. Some credit cards do include an interest-free period for new purchases, but usually, interest is charged on new purchases even during the promotional period
What hidden cost is often associated with balance transfers?
A: A balance transfer fee, typically around 3% of the amount transferred, is usually charged when the initial transfer is made
What are two standard conditions customers must meet to remain eligible for promotional interest-free rates?
A:
1. Stay within their credit limit and make payments on time each month.
2. Pay off the transferred balance within the agreed number of months.
Q: What happens if a customer fails to meet the promotional conditions?
A: The 0% interest rate can be terminated immediately, and the customer will be charged the standard interest rate.
What is the typical duration of interest-free balance transfer offers?
A: They range from a few months to 30 months, with the average being about 15 months
Why might a longer interest-free period not always be better?
A: Longer periods often come with higher fees. Customers who can repay their balance quickly might benefit more from a shorter, cheaper interest-free offer
How is this product an example of PESTEL analysis in action?
A: It reflects economic responses by credit providers to high levels of personal debt. By offering easier and cheaper ways to manage debt, they attract new customers during financially tough times
What is a limitation that prevents many people from accessing the best balance transfer deals?
A: Customers need a high credit score to qualify, which excludes many individuals from benefiting
- cashback
What is cashback in the context of credit cards?
A: Cashback is when a credit card company gives a cash amount back to the customer equal to an agreed percentage of the amount spent using the card
What cashback did ASDA offer before July 2020?
A:
• 1% cashback on all spending in ASDA
• 0.2% cashback on all other purchases
• Preferential rates on insurance products
• Cashback was in the form of vouchers to spend at ASDA or on George.com
• The interest rate was 19.9% APR (variable)
What is the purpose of cashback offers?
A: Cashback is aimed at market segments that spend money on personal consumption. It encourages increased spending by offering discounts on purchases
- reward programmes
What are rewards programmes in credit/charge cards?
A: They are loyalty products where customers earn points for using their card, which can be exchanged for goods and services
What are the features of the Barclays ‘Barclaycard Rewards card’?
A:
• 0.25% cashback on certain new purchases
• Discounts on entertainment tickets
• Access to ticket presales and perks at certain entertainment venues
What does the Sainsbury’s ‘Nectar Credit Card’ offer?
A:
• Allows customers to collect Nectar points on each purchase it funds
• Points can be earned at Sainsbury’s and other brands (e.g., Argos, Habitat)
• Points can be exchanged for goods and services
What is the goal of reward schemes?
A:
• Improve customer retention
• Encourage continued card use by building up points
• Discourage switching to competitors
What market segments do rewards schemes typically target?
A:
• Young, single shoppers
• Middle-aged, middle-income earners
• Not typically those already in debt
What is a common customer complaint about reward schemes?
A: It’s easy to build up points, but the range of places to redeem them is often limited.
Why is Sainsbury’s an effective provider of a rewards scheme?
A:
• It operates both as a bank and a supermarket
• Offers customers many opportunities to build up and use Nectar points
- assessing add-ons
What is the purpose of offering additional benefits (add-ons) by financial product providers?
A1: Providers offer add-ons to attract new customers and retain existing ones. These benefits are designed to enhance the product’s appeal but can sometimes be mere gimmicks or offer poor value.
How might rewards on credit cards come with hidden conditions?
A2: Rewards may be conditional, such as requiring a customer to purchase another product. For instance, a reward might be a car hire discount, but the hire could include costly compulsory insurance, making it more expensive than using a cheaper provider without the reward
Are cashback and reward schemes truly free for customers?
A3: No, these benefits are not free. While the cost may initially be absorbed by providers to generate future profit through additional sales, the cost is eventually covered by customers through:
• Built-in charges
• Slightly less competitive interest rates on products like savings accounts
Why has there been a call for more transparent financial products?
A4: Due to past instances of mis-selling, there’s increased demand for transparency so customers can clearly understand what they’re signing up for. This helps them choose products that suit their income, debt levels, lifestyle, and goals.
How do add-ons complicate the product selection process for customers?
A5: Add-ons can make financial products more complex, making it harder for customers to:
• Weigh up the pros and cons of different brands
• Determine the best value
• Understand which product truly suits them
• Compare products if they are not financially savvy
What is the main issue with customers choosing products based on add-ons?
A6: The core issue is that add-ons should not be the primary reason for selecting a financial product. Instead, customers should base their decision on the product’s essential features and view add-ons only as secondary bonuses
How should customers approach selecting a current account with add-ons?
A7: Customers should choose an account that best fulfills the primary function of a current account. For example, if holiday insurance is included, it should not be the main reason to choose that account unless the core account features also meet their needs
What trend has emerged among providers in response to the issues with add-ons?
A8: Many providers now offer simple, standard versions of products like current accounts and credit cards without add-ons, to make choices easier and more transparent for customers
MARKET RESEARCH IN FINANCIAL SERVICES
Why do financial services providers conduct market research?
To understand customers’ needs, wants, and aspirations; analyze the competitive marketplace; estimate product demand; and identify their Unique Selling Proposition (USP) to highlight in marketing.
What must financial providers know about their target market?
They must identify their target market, the segments they serve, and the characteristics of each segment. They also study competitors’ customers to offer better services.
What is primary research?
First-hand data collection methods like questionnaires, interviews, mystery shopping, and focus groups.
What is secondary research?
Using existing data sources, split into:
- Internal: Company records, sales reports.
- External: Industry reports, competitor analyses.
How do research methods differ by firm size?
Small firms may use one type (primary or secondary), while large providers use both for comprehensive insights.
Name 4 primary research methods.
- Questionnaires
- Interviews
- Mystery shopping
- Focus groups
What are the two types of secondary data?
- Internal: Existing company data.
- External: Third-party sources (e.g., market reports).
What questions drive market research in financial services?
- Why do customers buy a product?
- How do they perceive quality/price of competitors?
- What brand differentiators matter?
- What price are they willing to pay?
The Information Gained from Market Research
9.2.1.1 Demand from Potential Customers
Why must financial services providers research potential demand before developing a product?
To measure whether there is sufficient demand for the product and to understand the needs of both existing and potential customers.
What is an example of a product that suffered from bad press but could still meet a genuine need?
Payment Protection Insurance (PPI), which helps cover debt repayments in case of illness or unemployment.
Why do financial providers seek feedback from existing customers?
To understand customer satisfaction, identify strengths to enhance, and weaknesses to fix in their products.
How can providers use positive customer feedback?
To improve marketing and advertising campaigns by highlighting product strengths.
Why is it important to know why customers switch to competitors?
To address issues and prevent further customer loss by improving product design.
What specific operational aspects might be rated in customer research?
Speed of payment clearance and ease of online access.
- public opinion about the financial services sector
Why do financial service providers need to monitor public opinion?
- To stay updated on general public sentiment and sector-specific opinions (especially about banks).
- To identify negative publicity and strong public concerns.
- To take proactive steps to counter negative perceptions.
How can banks use customer feedback to defend their products?
- Example: A bank selling packaged current accounts should use customer data (e.g., whether add-ons are seen as good value or cost-saving) to justify its products if criticized.
What action might a bank take if market research reveals poor customer service perceptions?
- A high-ranking executive could give a media interview (e.g., TV) to explain planned improvements.
Why might providers take pre-emptive action on unfair practices?
- To address public concerns before regulators force changes.
- Example: Ensuring only eligible customers benefit from packaged account add-ons.
What are the key strategies for managing public opinion in financial services?
A:
1. Monitor sentiment – Track public and sector-specific views.
2. Use customer data – Defend products with evidence (e.g., packaged account value).
3. Public relations – Address criticism via media (e.g., executive interviews).
4. Pre-emptive changes – Stop unfair practices before regulatory intervention.
- an overview of wider trends
What is PESTEL analysis, and why is it important for financial services providers?
PESTEL analysis examines the Political, Economic, Social, Technological, Environmental, and Legal environments. It helps providers stay updated on external changes affecting their operations, such as new laws, economic shifts, or technological advancements.
How does the Financial Services (Banking Reform) Act 2013 impact banks?
It mandates the ring-fencing of retail services, affecting how banks design and market current and savings accounts.
What was the significance of transferring consumer credit regulation from OFT to FCA in 2014?
It changed how banks design and market loan products due to stricter regulatory oversight by the FCA.
Why should providers monitor unemployment levels?**
Rising living standards (linked to lower unemployment) may make it easier to market loan products.
How has the increase in young adults living with parents since 1996 affected insurers?**
Insurers now offer multi-car insurance policies for families with multiple cars at one address.
Why must providers track developments in cyber-crime?
To ensure up-to-date security systems against hacking/identity theft and reassure customers via marketing about secure connections.
- primary research
What is primary research, and why is it also called “field research”?**
Primary research is original, tailored research where providers gather new data directly from customers (e.g., surveys). It’s called “field research” because it involves going out to collect firsthand opinions.
How does primary research differ from secondary research?**
Primary research is more expensive but provides more accurate, relevant, and up-to-date data. Secondary research uses existing data (e.g., reports).
What are the two types of primary research?
- Quantitative: Numbers-based (e.g., surveys with statistics).
- Qualitative: Focuses on feelings/opinions (e.g., interviews)
Why is ongoing primary research crucial for financial services providers
Financial products rely on efficient systems and personal contact. Research reveals customer satisfaction/complaints, guiding product development (e.g., improving features).
How does high-quality market research relate to product development?**
It serves as a critical prelude by identifying customer needs/issues, ensuring new/improved products meet market demands.
The following are the main methods of carrying out primary makes research (name them)
Interviews
Questionnaires
Focus groups
Observation
Mystery shopping
- interviews
What is the most direct way to find out people’s views?
A: Carrying out interviews in person
Where can interviews be conducted, and why is this effective?
A: In public places (e.g. shopping streets, banks). This allows researchers to collect detailed insights and lets potential and existing customers talk about a product or provider
What is an open question in interviews?
A: A question that cannot be answered with a simple ‘Yes’ or ‘No’, encouraging more revealing and detailed answers
What are the disadvantages of interviewing in public?
A: It’s costly and time-consuming
What is a cheaper alternative to public interviews?
A: Telephone interviews
What issue can arise with telephone interviews?
A: Many people dislike cold calling (unsolicited calls), so only a proportion will agree to be interviewed
What are two key factors when designing an interview script?
A:
1. The questions that will be asked (open vs closed, clear language, no leading questions).
2. The identity of people being interviewed (sampling, target population)
What is meant by the ‘population’ in interview sampling?
A: The total number of people who fit the customer profile for the product or service
Why is sampling important in interviews?
A: Interviewing everyone is impractical, so a representative sample is chosen to reflect the views of the wider population
What is the trade-off when choosing sample size for interviews?
A: Bigger samples are more representative but more expensive. Firms must balance cost with accuracy.
-questionnaires
How are questionnaire questions similar to interview questions?
A: They can be open-ended or closed, but are answered by the respondent on paper or online
What is the main advantage of questionnaires over interviews?
A: They are cheaper to administer
What is a potential downside of questionnaires?
A: Response rates can be very low, especially if people are not physically present
How can firms increase response rates for paper-based questionnaires?
A: By including pre-paid return envelopes
What is a common method of delivering online questionnaires?
A: Sending links to customers via email after purchases or account openings
Why might a bank send multiple feedback forms over time?
A: To get feedback both during and after a customer’s experience with a product or service
- focus groups
What is a focus group?
A: A small group (usually around 10 people) of customers or potential customers who discuss their views on a product, market, or service
Who organises focus groups and where do they take place?
A: They are organised by the provider or market research firm and usually take place in a research venue
What kind of data do focus groups provide?
A: Qualitative data
What are the benefits of using focus groups for businesses?
A: They allow firms to:
• Understand customer opinions,
• Gather detailed preferences,
• Identify gaps in the market,
• Get feedback on existing and new products
What is done with the data collected from focus groups?
A: Researchers compile a report and present findings to the provider, offering insights into product improvements or innovations
- observation
What is observation used for in market research?
A: Observation is used for quantitative surveys. Researchers observe people making purchases and record information based on set criteria, such as the number of people entering a shop
Why is observation difficult for financial products?
A: Because financial products are not physical, and many purchases are made online or by phone, making them hard to observe
What kind of financial behavior can be observed?
A: Use of bank branches (e.g., how many people enter selected branches) or people queuing at cash machines.
-mystery shopping
What is mystery shopping?
A: A technique used by market research firms, consumer protection organisations, or providers to monitor and measure customer experience, and identify problems for improvement
What is the purpose of mystery shopping?
A: To measure the customer experience and identify issues to improve service delivery.
What is the first step in the mystery shopping process?
A: The mystery shopper (MS) receives instructions from the commissioning firm on how to act
What does the mystery shopper do during the visit?
A: They pose as a customer interested in buying a product
What does the MS observe upon arrival at the branch?
A: How long it takes before someone helps them
What kind of scenario might the MS create?
A: Ask questions about the product, complain, act in a difficult way, or describe an unusual need
Does the MS have to buy the product?
A: No, the MS may or may not buy the product
What does the MS do during or after the visit?
A: Takes notes on customer service, quality of information, suitability of product, and may take photos or record conversations
What is the final step in the mystery shopping process?
A: The MS prepares a detailed feedback report for the commissioning firm
How does the Market Research Society (MRS) define mystery shopping?
A: “The use of individuals trained to experience and measure any customer service process, by acting as potential customers and in some way reporting back on their experiences in a detailed and objective way.” (MRS, 2014)
What kind of reports can mystery shopping data produce?
A: Quantitative and qualitative reports
What comparisons can be made using mystery shopping?
A: Between different providers or the same provider over time
Why does the FCA support mystery shopping?
A: Because it helps bridge the gap between supervisory reports and real customer experiences
What did the FCA call mystery shopping?
A: A “useful way of bridging the gap between supervisory reports and information we receive from customers.” (FCA, 2013)
- secondary research
What is secondary research?
Research based on existing data (“secondary data”) collected by someone else for a different purpose. It is also called “desk research.”
Where can secondary data be sourced from?
Physical/online libraries, trade publications, websites, advertising, market reports, surveys, financial statements, economic reports, and news items.
Why is secondary research important?
Providers need to understand competitors, market trends, and the overall business environment.
What is the key characteristic of secondary research?
It involves studying data originally collected for another purpose.
- internal secondary data
What is internal secondary data?
Data produced by the provider itself (originally primary data, e.g., survey results, financial statements).
What are the advantages of using internal secondary data?
Quick, cheap, convenient, confidential (not accessible to competitors).
What are the disadvantages of internal secondary data?
Outdated, incomplete, only reflects the provider’s own experiences (not competitors or the full market).
How can marketing departments use internal secondary data?
Correlate past ad/promotion costs with sales figures to measure campaign effectiveness.
How can financial statements be used as internal secondary data?
Compare sales, costs, and profits over time to identify trends and forecast future results.
How can banks use electronic financial data?
Study spending patterns (e.g., current account transactions) or debt arrears (loan repayments) to understand customer behavior and target promotions.
How can insurance companies use internal secondary data?
Analyze claims to assess future risks (e.g., rising flood damage claims → higher premiums).
- external secondary data
What is external secondary data?
Data published by other organisations, which may be publicly available or private. It helps firms avoid costly primary research by using existing information.
Why might external secondary data not always be applicable?
It may be specific to the original researcher’s circumstances, out of date, or incomplete
What is a key advantage of using external secondary data?
It saves money and time by leveraging existing information instead of conducting primary surveys.
How has the internet impacted access to external secondary data?
Most organisations publish data online, giving researchers a vast pool of sources to access.
What are two potential drawbacks of external secondary data?
- May be outdated or incomplete.
- Could be too specific to the original researcher’s needs.
Example of sources of external secondary data for the financial services sector, name them
- Public sector organisations and gov departments
- Financial services regulators and complaints bodies
- Professional organisations (representing or providing services to the financial services sector)
- Commercial market research organisations
- Competitors
- The media
- Examples of Public sector organisations and gov departments
- office for national stats (ONS)
- HM treasury
- department for business,energy and industrial strategy
- Examples of Financial services regulators and complaints bodies
- BOE
- FCA
- FOS
- FSCS
- Examples of Professional organisations (representing or providing services to the financial services sector)
Particularly the trade association, eg
- UK finance
- building societies association
- association of British credit union ltd
- association of British insurers
- Examples of Commercial market research organisations
Mingle international group ltd and savanta
- Examples of Competitors
Other banks, building societies, credit unions, and insurance companies (most publish financial statements online)
- Examples of The media
Newspapers, journals and magazines (some allow free online access, other charge a fee; all have archives that a researcher can consult for past info)
THE PRODUCT DEVELOPMENT PROCESS
What is product development?
A: Product development is the process by which firms create new products that differ from their existing ones and those of competitors. These products may have new or different characteristics from earlier products
What are the four types of products that might be under development?
A:
1. An entirely new product satisfying a new customer want or need.
2. A redesigned product meeting an existing need, based on new technology, ideas, or inventions.
3. A slightly modified existing product aimed at a new/different market segment.
4. An existing product with added benefits.
Why is product development easier to visualize in some industries than others?
A: It’s easier in industries with tangible products (like phones or computers) but harder in service-based sectors (like financial services), where offerings are less visible or physical
Why is product development important in the financial services sector?
A:
• It helps providers remain competitive.
• Firms must track customer behavior and competitor offerings.
• It enables continuous product improvement
What are the broad categories of financial service products?
A:
1. Payments
2. Savings
3. Loans
4. Insurance
What is the current challenge in financial product development?
A: Due to high levels of past development, it’s increasingly difficult to come up with new products or significantly improve existing ones
- product complexity
What does ‘product complexity and opacity’ mean in financial services?
A:
• Complexity: New products become harder to understand as they try to meet varied needs.
• Opacity: Products become less transparent, making it difficult for customers to fully understand them.
Why are complexity and opacity problematic in financial services?
A:
• They increase the difficulty for customers to understand products.
• They go against the transparency encouraged by regulators.
• They raise the risk of mis-selling and customer confusion
- New vs Existing Customers
Why might a provider offer special terms to new customers?
A: To increase its customer base and market share
What risk is associated with offering special terms only to new customers?
A: Existing customers may become angry or feel unfairly treated, especially if they pay higher interest on loans or receive lower interest on savings compared to new customers
- New Products
Why are new products often developed by financial service providers?
A: In response to changes in the overall environment (political, legal, economic, social, technological, etc.). PESTEL analysis helps in identifying these changes
- Political and Legal Changes
What was the key ECJ ruling in 2011 related to insurance?
A: It became illegal under gender discrimination law for insurers to charge different prices to men and women (BBC News, 2011)
What was the impact of this ruling?
A: UK insurers now offer the same premiums to both genders, although some argue that women should pay less due to safer driving, while others believe the data is inconclusive
What did the UK Supreme Court decide in 2009 regarding overdraft charges?
A: Overturned earlier rulings and allowed banks to continue charging penalty fees and higher interest rates on unauthorised overdrafts (BBC News, 2009)
How did some banks respond to the backlash from customers?
A: By redesigning products, e.g. Santander’s ‘Everyday Current Account’ offered free arranged overdrafts for the first 4 months for switchers (Santander, 2022)
What change did the FCA introduce in April 2020?
A: Banned daily/monthly overdraft fees and capped unauthorised overdraft interest rates to the same level as authorised ones
- Economic Changes
How did providers respond to low interest rates?
A: By offering bonus interest rates for a limited period to attract customers transferring savings from other providers
Why are different providers offering different bonuses?
A: To remain competitive and cater to different customer preferences
- Social Changes
What social trend affects the housing and car ownership market?
A: Many young adults live with parents due to unaffordable housing and car ownership costs
How have insurance companies adapted to this trend?
A: By offering ‘multi-car insurance’ for families insuring multiple cars under one policy
What are the benefits of Admiral MultiCar insurance?
A:
• Insures multiple cars at one address under one policy.
• Each car gets its own no claims discount.
• One renewal date simplifies finances.
• Includes features like the ‘uninsured driver promise’ and ‘no claims bonus accelerator’
What is the no claims bonus accelerator?
A: Every car on cover for more than three months earns a full year’s No Claims Bonus—ideal for new drivers
- Technological Changes
How have technological changes affected financial services?
A: Enabled providers to deliver products in hi-tech ways and develop new ones
What is the most common way consumers use technology to access services?
A: Through smartphone apps that provide access to bank accounts
Give an example of innovative technology in insurance.
A: Direct Line’s ‘DrivePlus’ uses telematics to monitor driving and offer personalised services
Mystery shopping is an example of secondary market research
True
False
False
Cards that offer cash backs and rewards:
- do not involve any additional charges for the customer
- have the cost of additional benefits built into charging structure
- charge customers an extra 2% per month
have the cost of additional benefits built into charging structure
Multi-car insurance is an example of the insurance companies responding to changing:
Political trends
Environmental trends
Social trends
Technological trends
Social trends
Complexity and opacity in a product:
-Increase the risk of mis-selling
- Reduce the risk of mis-selling
-Have no impact on the risk of mis-selling
Increase the risk of mis-selling
An example of external secondary data is:
- a financial statement from a competitor
- a insurance company’s claims figures
- a banking customer’s spending patterns
- a survey of existing customers
a financial statement from a competitor
In relation to interest-free credit card adverts, most headline product descriptions make no mention of:
- the name of the credit card
- the length of the interest-free period
- what the eventual interest rate will be
- a fee for transferring a balance from another card
a fee for transferring a balance from another card
Financial products specifically aimed at retaining customers are:
- interest-free credit cards
- reward credit cards
- charity credit cards
- ones that offer an introductory date
reward credit cards
Inadequate financial capability is an example of:
Shortfall risk
Inherent risk
Counterparty risk
Catastrophic risk
Inherent risk
Many savings account providers offer introductory bonus rates to try to attract new customers. This is a response to:
Political change
Economic change
Social change
Technological change
Economic change
The institution that interprets EU law is known as the:
European Parliament
European Commission
European court of justice
European union
European court of justice
Cash-back credit cards particularly encourage consumers to:
- pay only the minimum payment each month
- spend more to obtain a better discount
- pay off their outstanding balance each month
- pay off the balance in full
spend more to obtain a better discount
