What is a vulnerable customer? And how can Marketing help?
Author: Dr Julie Robson
Consumer protection is always a hot topic in financial services and marketing regulation, but how exactly should you define a ‘vulnerable consumer’? In this article, leading academic Julie considers this topic in more depth and some important considerations for those creating and marketing financial services.
The problem of increasing levels of UK personal debt featured in the news again this month. This time the focus was on young adults. This is not a new story, as young people and debt have previously been linked together; as the young often have a limited income and can be inexperienced in money management. It’s not however all young people, but some young people that are vulnerable to debt: a point that can easily be missed.
The news story does however highlight our pre-occupation with the broad brush tagging of certain groups of people with labels. In this case the link is made between age, vulnerability and debt. Arguably, such labels do have their benefits. They provide a quick, simple and intuitive means to categorise people. The groups can then be used as a basis upon which guidelines can be introduced that stipulate when an additional duty of care is required. However, labels can also be problematic.
The problem with labels
Labels can be dangerous as it is very easy to mis-label some consumers as vulnerable when they are not; or fail to identify others who should be categorised as vulnerable but don’t fit the stated description. Not all young people are in debt. This broad brush approach also can be dangerous as organisations will direct resources to those they have labelled as vulnerable and could neglect those who are in real need of support. In addition, many consumers dislike being labelled as vulnerable as this can result in stigma, anxiety or resentment among those who are not vulnerable or do not consider themselves to be vulnerable. There is therefore a need to consider how we classify people as vulnerable.
Consumer vulnerability
The term ‘vulnerable consumer’ can be traced back to the early 1900s when the courts began to recognise that people who suffered unusual reactions to some products should not be excluded from protection in law. At this time, vulnerable consumers were generally in the minority, confined to those experiencing idiosyncratic and unusual reactions.
Fast forward to today and our definition of vulnerable consumers has broadened to include anyone who can suffer detriment from consuming a product or service. Detriment is of course much wider than the previous bodily harm rule and therefore takes in many more people in many different contexts. Vulnerable consumers have moved from a minority to become a potentially sizeable proportion of society. Indeed, within the financial services sector there has been calls to identify more than half of the population as vulnerable based on the low levels of financial literacy in the UK. However, even this figure could be an under-estimation.
Identifying vulnerable consumers
Vulnerable consumers have traditionally been identified according to socio-demographics e.g., age, education, income, location etc. Other factors are also commonly cited such as serious illness, stress (for example from bereavement, redundancy or divorce) or even tiredness. In these situations it is not always easy to make sound decisions. However, people respond differently to these factors. Some continue to function as rational consumers despite being tired or stressed, whereas others are unable to cope. The reason is that we are each different; becoming vulnerable depends on the individual themselves, their resilience, their coping strategies and the resources they are able to draw on. Resources can be the support of friends and family in terms of help and advice or physical resources such as savings. This explains the differences that occur within our so called ‘vulnerable groups’; and why for example, some young people are in debt and others are not all.
It is therefore questionable whether we can group and label consumers as vulnerable according to simple measures. Vulnerable consumers are not one homogenous market segment. We need to think of vulnerable consumers not as a group, but as individuals. We also need to take into account that people, and their degree of vulnerability, can change over time throughout their life.
Vulnerability spectrum
Researchers have suggested that rather than viewing vulnerability as binary, i.e., someone is either vulnerable or not vulnerable, that we use a spectrum. A spectrum recognises that each of us has a mix of vulnerability and that all consumers might experience vulnerability at some time over their lifetime. On this basis, vulnerability is much more complex than we currently assume. If we adopt this definition within financial services then consumer vulnerability is going to be a major challenge for the future. It requires a constant dialogue with our customers to ensure that we know where they are on that spectrum and can provide appropriate support accordingly.
The role of marketing
There is one final factor that contributes to a consumer’s vulnerability that has not yet been mentioned, and it is one that we can easily identify and control. It is the interaction between the firm and the customer. This concerns the level of help, support and guidance we provide to our customers. If this is not right then we will be adding to the mix of factors that can contribute to a consumer becoming vulnerable. If we get it right then vulnerability can be reduced or even removed in a given context. As marketers are at the centre of the firm where customer is concerned they clearly have a strong role going forward in helping to reduce the vulnerability in vulnerable consumers. Identifying which consumers are vulnerable at any given point in time is however only the starting point.
Our Blog from Dr Julie Robson hits the nail on the head – as the ABI issues its own guidance about vulnerable customers.