Customer Strategy

Pierre Fenech

Good morning, ladies and gentlemen. Over the past 20 years, the number of children per family in Asia has dropped from between 4 to 6, to just about 1 or 2. And at the same time, people are living longer, and the support of the extended family is slowly fading as young families spread out and become more and more mobile. So what's happening is Asian are now realising that they can no longer rely on the generosity of their children as they get older. They are going to have to provide for their own retirement, which means that they have to save more than before. Not only that. They also know that the traditional cash deposit savings are not adequate to generate their needs for both asset growth and income generation. It is these fundamental socio-economic and demographic changes that have a profound impact on the future of business in Asia. It is these insights that shape the business the business strategies as we seek to generate value from these opportunities. And in my presentation I will show you how we go about developing our customary management strategies.

Our business philosophy is to ensure that customer needs drive what we do. And to establish our customer strategy we conduct a systematic process across all our markets. As you would expect, the depth and breath of the process varies according to the sophistication of the market. This process is designed to create insights that help us to quantify the value generating opportunities. It helps to determine key value drivers. With it, we identify who are the appropriate target customers and how we gain a greater share of their wallet with a broader range of insurance savings and even investment product offerings. As Mark mentioned, this customer centric approach will give us a competitive edge and will deliver tangible business benefits, because of the improved sales and marketing efficiencies, because of the stickier customer relationships, the higher product persistency and the increased sales per household.

The chart over here, our clients did standardise the approach that we apply across the region across all markets. From this process, what we focus on, is determining who are the primary target customer segments, what are the life stage events that trigger their needs, how do we access them, and how do we manage their relationship, so that we have a long-term relationship with them. The process also helps us determine the value at stake in each of these strategic options available to us. And we use that to prioritise our effort and our investment.

Let me share with you some high level insights and observations across the region. Later on some of my colleagues will actually show specific examples of how they implemented these insights into business activities. The chart on the screen shows the distribution of the adult population, which is aged 18 and above in various markets in Asia. This is based on marital status and parental status in the life stage segments. What we observe is that specifically the populations are ageing, the growth rates are highest in the age 45+ segments. Indeed, we do focus a number of our business strategies in these segments, not only because of their size and the growth rates, but because of the intensity of emerging needs in these segments and also because of the increased capability and capacity for these segments to divert their money into the sort of products we sell. However, as you can see, there are nuances in the markets in the market. If you look towards your right, in Hong Kong, you can see in the circle, there is an unusual high percentage of older singles. This is because of a large number of single women who are in the workforce and who are less pressured to get married. Indeed, this segment has significant funds available for savings and investments. On the other hand, if you look towards the circle on the left, you'll see that in Japan, there is a large proportion of empty nesters and even retirees. An amazing statistic is that it's projected by the year 2050 that the number of Japanese who will be aged 100 or above will exceed 1 million. That is amazing.

From a demographic point of view, we are also interested in the changes that will occur over the next 5-10 years. The charts that I show up here, on your left-hand side, shows that Hong Kong actually demonstrate a slow growth rate of about 1.5% per annum. However, what's interesting is that the growth is taking place in those more mature age groups. This is a significant statistic. What it tells us, if we can understand the opportunities and the needs that are being driven by that demographic changes, then we certainly have an opportunity to participate in this market by providing for the needs of those segments. On the right-hand side, in Malaysia, you have a different demographic change taking place. Most of the growth is in the green segments and in the red segments, which are the parents segments and the singles segments. This has a completely different (squ?) to the kind of strategies that we can apply in that market place.

As part of our process, we also analyse events that trigger needs as customers migrate to cross the various life stages. We call this a dynamic lifetime view', because it acknowledges the customer's changing needs. The chart shows generic life event changes. Our task would be to create insights into the main customer concerns caused by these events, and then design strategies and product propositions to cater for these changes. We also model the demographic movements in the populations, so that we can understand the intensity of the demand that is driven by these changes. From the studies, we tend to generate hypotheses for future trends, and how best to position our cross segment management strategies.

Let me take you deeper into one particular market. This chart relates to Hong Kong. It shows that the bias towards cash deposits is actually evenly spread in all segments. What the chart doesn't show is the amount of assets in Hong Kong that are invested in residential property. So, in the segment where you have people with sufficient disposable income, we still have this distribution, these red bars showing the big bias towards savings. However, if you look to the centre of the chart, circled over there in the young parents segment, they show a disposition to actually their long-term assets into life insurance products. This is of particular interest to us and in fact, we have the highest penetration rate in that segment in the market, simply because of the propensity to switch from cash deposits into life insurance.

Same market, this slide is now different. This is a sub-segment of the market. Again adults, but it's the adults that have sufficient income to invest in life insurance products. The wide bars show the sub-segments that do not have any life products, the blue bar those that have 1 product only, and the red bars those that have 2 or more products in those segments. If you look at the left-hand side, in the young singles segment, what it shows that over 50% do not have any life insurance product, even though they can afford it. And of those who can afford it, again under half have only one product. So, this penetration rate gave us a hunch. Maybe the products in the market do not appeal to this segment. Is it worth actually pursuing this segment? Can you make any money out of this segment? If yes- how would we do it. And in fact my colleague Ken Ng, will present how the Hong Kong business has actually approach this segment.

So having gone through all of this, trying to identify the particular segments, which are of interest to us, how do we apply this knowledge? Primarily, the purpose is so that this process drives our value based market management strategies. And this why (we're) focusing on the prime customer segment. So, what we do is determine which segments or sub-segments we want to nurture. Which one we want to develop, which ones do we want to actually expand, and which ones do we want to drop. It improves significantly our effectiveness and marketing efforts.
Secondly, our customer knowledge bank is also becoming a major driver of product development. Mark told about the fact that we're building a regional product lab and that is to support our country businesses launch and review their products and propositions. The product lab acts as a repository for customer knowledge, customer research and also facilitates the migration and dissemination of product and marketing best practises across the region.
The customer segment knowledge is also used to influence distribution strategy. What is the best way to access and service specific target segments? What are the implications of these segments in respect of agency and distributor recruitment? How do we leverage our knowledge to actually distribute products through our partners, and particular the banks?

A further area where we are actually deploying this customer segmentation knowledge, is in our ability to profile and score our existing customers. This means we are building a more refined customer knowledge data base, which we can in future leverage to assist our distributors in the servicing of our customers. Using this customer knowledge, we have launched a number of pilots in 3 markets, where we use life stage servicing in a programme that we have labelled Pru-Nurture. The initial results of this programme have been very promising. We have seen the (incomprehensible phrase) rates from these pilots when tested against other control groups to be superior than those of the control groups. Not only have we improved the products per customer, but we have also improved cross house-holdings of our products in the pilots. Two of these PruNurture pilots will go into full operation next year and we'll also undertake two new pilots in two new countries.

Mark also mentioned an exciting programme that we have started and this is part of our customer management strategy. We have launched a customer experience programme to improve the experience we deliver to customers across all aspect of the service cycle. Today we are running over 80 pilots across both the Insurance and the Funds Management businesses, where the pilots are looking at all the touch points we have with our customers. We have customer ambassadors in each of our businesses, and they lead the initiatives in the business. These customer ambassadors come together regularly, so that they actually share with other ambassadors their findings, their learning, their results, and also develop best practise tools that we can then move across the region.

So why do we do all of this? It does good business sense. Having customer needs drive what we do enhances the effectiveness of our sales and marketing effort. On top of that, when customers buy products that they understand and that truly meet their needs, they tend to hold on to them, because they appreciate their value. This drives the profitability of the products. Furthermore, when customers are being serviced in a meaningful way that helps them manage through their life events, they are generally satisfied with you and increase their trust in you. Satisfied customers turn into advocates, they become loyal and are open to re-purchasing across a broader range of your branded products. They also end up recommending you to their family, their business associates and their friends. All of this drives significant business benefits. And we believe that this customer centric approach gives us a competitive edge. Thank you.

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