Understanding the impact of Covid-19 on Retailer Financial Services and why being Customer First is more important than ever

The storm of Covid-19 is still raging in many countries but as vaccines are rolled out there is a glimmer of hope that the world is heading for calmer waters in the next 6-12 months. However, the aftershock of Covid-19 will be felt for a long time, no more so than with personal finances.

Since the beginning of March 2020 dunnhumby has been tracking changing consumer mindsets during the pandemic. Over five waves throughout 2020, we polled thousands of people from more than 20 countries on subjects including supermarkets’ responses to the outbreak, the economic outlook, and how their shopping behaviour had changed due to Covid-19.

Whilst people have become more optimistic that the end is in sight for the restrictions, consumer confidence remains low with half believing their personal finances are weak and over two thirds (70%) believing their country’s economy is weak. In many countries, governments have been providing financial support to people whose jobs have been put on hold. Banks have also been providing support to their Customers by offering debt repayment breaks. However, this support will come to an end and the fallout will be felt as redundancies increase and consumer confidence remains low.

The pandemic has also accelerated several trends that will impact revenue for Retailer Financial services in the coming years:

1. Supermarkets typically have large ATM estates and these have been significant income drivers for the group. However, Covid-19 has caused a sharp decline in cash withdrawals with fewer people visiting stores and more purchasing online. For those customers who do shop in-store, they often now prefer contactless payments driven by the fear that physical cash could transmit the virus.

2. The shift to online has been experienced in all sectors and in Retail Banking we have seen branch closures increase with more people using remote channels to buy and service their account. With Customers shopping in-store less frequently, Retailers that rely on this channel to sell and service their financial products have been severely impacted. Of course, those who have mainly digital and telephone-based operations have not been as exposed to this trend. In fact their target markets could increase as more Customers become comfortable using remote channels.

3. Defaulting on debt is forecast to grow in the next two years as support from government and banks ends and redundancies increase. Credit cards are typically the main product in a Retailer’s portfolio, so this could leave them exposed to any serious changes in Customers’ circumstances.

Being a ‘Customer First’ organisation can help Retailer Financial Services providers face into these trends and ensure they are well-positioned to navigate the crisis and set themselves up for success in the future.

Customer First’ is a strategic and tactical approach to business growth that utilises Customer insights to make better decisions. Customer First organisations better hear the voice of the Customer using behavioural data and market research, and therefore better understand Customer needs. This understanding enables an organisation to put the Customer at the heart of the way their people, processes, and systems work. Ultimately it is a sustainable growth ethos proven to generate incremental Customer satisfaction and profits.

So, consider the following Customer First strategies and tactics to ensure your organisation is fit for the future and well positioned to serve Customer’s needs:

1. Communications should be empathetic, supportive and authentic

   Feeling in control of your health, home life and finances is a fundamental human need. However, since the start of the pandemic many customers feel out of control and more anxious because of the inherent danger of Covid-19, its impact on the economy and personal finances and the restrictions imposed to our normal way of life.

   Direct communication to Customers is an opportunity to reassure them you are ‘on their side’, ‘here to help’ and that they are ‘not on their own’. It is important that Customers know there are solutions available if they enter financial difficulty or are worried about missing payments.

   Social media and online communities can allow for direct  dialogue with Customers to provide support and reassure any concerns that are individually or collectively shared.

   Ultimately you should demonstrate that you value your customers and are grateful for their support of your business. Done well, building an emotional, human connection with Customers during and after Covid-19 will form a lasting positive impression.

2. Send personalised offers to help customers save on their shop

   Customers increasingly expect that companies should use the data collected about them to speak directly to them about the things they need or prefer.

   Personalised offers delivered through direct mail, email, or apps provide Retailers with an opportunity to have direct dialogue with individual Customers. They provide superior uplift over mass communications and ultimately help improve Customer sentiment

3. Listen to Customers more and revaluate the drivers of acquisition and loyalty

   It is important to understand how attitudes, perceptions and behaviours have changed in the last 12 months and what impact these have on your product, channel and communication strategies.

   Segmentations that were built pre-pandemic may now be obsolete, so it is key that these are revisited, either using recent and new data or by undertaking market research. How and why someone buys and what’s important to them as an existing Customer may have changed so revaluating these drivers is also key.

   In the best of times it’s not easy to make accurate forecasts and this task has become even harder in the current environment. It’s vital to maintain a constant dialogue with customers via social media, online forums and focus groups and interviews, whilst also constantly evaluating behavioural data.

   Being close to the customer will enable you to better react to their needs, helping build lasting relationships that will benefit both the Customer and the business.

4. Assess models built using shopping data pre-pandemic

   Shopping behavioural data can be used to build and augment targeting, personalisation, pricing and credit risk models. However, models that were built in a stable environment, pre-pandemic, may not be fit for purpose during a pandemic, or the resulting ‘new normal’.

   How Customers shop for groceries has fundamentally changed since the pandemic: trips decreased, as did the number of stores being visited; whilst basket sizes and ecommerce use increased significantly.

   It is important, therefore, to revisit these models by using different time peroods to compare the distribution of scores and movement at customer household level.

5. Changes in shopping behaviour might indicate a change in financial circumstance

   Many Customers have faced financial hardship because of the pandemic and more are predicted to be impacted in the coming months and years. This will result in some Customers being unable to keep up with their regular credit card or loan repayments, leading to more write offs and credit ratings being adversely affected.

   To pre-empt this, early warning indicators should be developed to proactively contact customers before they default on payment. One such indicator could be changes in a Customers’ shopping behaviour. For example, if a Customer used to buy premium brands regularly instore but they now buy economy or discounted products more often, this could suggest their financial circumstance has changed.

   Contacting Customers selectively and carefully (so not being accusatory) with details of general support offered and flexible payment solutions might prompt them to seek assistance if they are facing financial difficulties. In turn this potentially can reduce bad debt and help customers gain more control of their finances.

6. Ensure your omnichannel experience is helpful, seamless and personalised

   With the pandemic accelerating the trend towards buying and servicing financial products remotely, Banks will invest heavily in their digital presence to ensure they are positioned well to leverage this trend. Of course, they have been doing this for years, but expectations continually evolve, defined by pure play ecommerce providers. New segments have also emerged as older Customers who previously preferred branch-based banking are now increasingly using digital channels.

   However, many Banks build their user experience (UX) around ‘millennial’ needs. The target market of a Retailer Financial Service provider tends to reflect that of the supermarket’s Customer base, which is broadly spread across a range of demographics.

   It is key to have a digital UX that is simple to use, provides step-by-step guides and advice to help the less savvy Customers. At the same time, it needs to offer a personalised experience via AI and predictive analytics, which is increasingly the expectation of digitally native customers.

   As Banks continue to close branches, Supermarkets could become a natural place to offer face to face contact for those customers who still require this functionality. Space could be leased out to Banks to run small instore kiosks or Supermarkets could act as a conduit between the Bank and the Customer, offering everyday banking such as paying in cash and cheques and withdrawing money.

As vaccines are rolled out over the coming months, now is the best time to prepare your organisation for the future and to serve your Customer’s needs. dunnhumby has a wealth of experience of helping Retailers with many of the above strategies, so get in touch with us to find out more.