Marketing financial services to young consumers

Young consumers often baffle financial services companies. Marketing financial products is difficult at the best of times because people don’t want the products themselves — they want finance for their lifestyles, protection from risk, and peace of mind from sound investments. But many young consumers don’t consider these issues as an immediate concern, making them a particularly difficult marketing target. Financial marketers need to use a mix of traditional and emerging marketing techniques to reach today’s young consumers — and then track whether those young recruits stay loyal – something that many financial-services companies have yet to do.

Understanding young consumers

Although the behaviour of young consumers is different to their parents’, the financial lives of young consumers have changed little over the past few decades. Most young Europeans open their first bank account before they are 18, with those in the UK opening it by the age of 14. Furthermore, they tend to choose their bank simply because it’s the financial institution their parents use. Even in the UK, where only half of young consumers pick their parents’ bank, no other reason, such as marketing campaigns and channel availability comes close.

They also buy few financial products before their mid-20s. However, by their early 20s, growing numbers start needing home insurance, loans, and, less obviously, life insurance, but they rarely interact with banks or other financial firms. Apart from cash machines, less than half of young European consumers use banking channels like branches and online banking each month.

However, young consumers’ love of technology means they behave quite differently. Most people born after about 1980 grew up with technology. Many take technology for granted and have integrated it into their lives far more deeply than previous generations. In particular, young consumers make much more use of new technologies. Among young UK consumers aged between 16 and 24, 88 per cent use the Net regularly and 63 per cent have broadband at home.

Young consumers also spend their time in different ways to their parents and aren’t developing some of their media habits, like buying a daily newspaper. Compared with adults, young consumers spend more time online, watching films and playing PC games — and less time listening to the radio, reading magazines, and reading newspapers. They also seek and share information from friends and family. Young UK Net users often rely on the opinion of their friends and family: 43 per cent say they rely on the recommendations of friends and family when making purchases, for instance. Most also make recommendations to others, with 63 per cent saying they often tell friends about products that interest them.

Not surprisingly, young consumers are adopting Social Computing much faster than other generations, with 22 per cent of young UK Net users using social networking sites like MySpace and Windows Live Spaces, for instance. They show similar behaviour when it comes to their financial decisions, meaning companies should also consider these in their marketing.

How to approach young consumers

The rapid evolution of consumers’ attitudes to both technology and financial firms means that today’s young consumers will turn out to be a much more demanding set of customers than previous generations. Young consumers will use the Web as their primary channel for managing their finances — and many other areas of their lives.

They will also be more sensitive to high prices and fees because they generally have less money to spend than adults, they are also used to getting things for free. And because they take technology for granted, they won’t tolerate financial firms’ technology limitations. They’ll expect to be able to contact their financial firms through Instant Messaging and email, and expect online banking transfers to take place instantly.

Finally young consumers won’t be as responsive to traditional marketing. Although today’s young Europeans have similar financial needs to previous generations, marketing to them in the same old ways with one-directional communications based on in-branch posters, leaflets, press ads, and free gifts will be much less effective — because young consumers spend less time on traditional media.

Financial marketers need a mix of traditional and emerging techniques

Financial marketers who want to win more young customers need to combine traditional marketing with emerging techniques like social networking sites, advergames and blogs, for two reasons. First, innovative marketing tactics are likely to be seen by, appeal to, and resonate with today’s tech-savvy young consumers. Second, youth marketing campaigns are the best place to test emerging tactics that few financial marketers use today.

Financial marketers should work with product managers to develop products tailored to young consumers’ needs and lifestyles. For example, UK insurer Norwich Union is pioneering pay-as-you-drive insurance which offers young customers lower-cost insurance because their premium depends on how much risk they take while driving.

Marketers should also take advantage of young consumers’ reliance on their families and mix education with marketing – using the web to teach them the basics of how simple products like loans and credit cards work. ING Direct’s Planet Orange site teaches children (and parents) about money management while the bank’s Move Out, Move Up Web site educates visitors about the benefits of home ownership.

Financial marketers should integrate multiple media into their marketing plans to meet young consumers’ propensity to use many different media. Marketers should also explore the branding potential of new opportunities like social networking, blogging, and mobile marketing. Finally, leading financial marketers are taking advantage of young consumers’ enthusiasm for viral marketing by creating campaigns that tap into young consumers’ willingness to share information.