Does marketing to older consumers make financial sense?What can we learn from the recent poor financial results of Dignity, Four Seasons, Just Group, McCarthy & Stone and Saga?
Five of the largest businesses overtly targeting older consumers have recently announced disastrous financial results. If these large - and till now, proven – businesses cannot make money, what hope is there for anyone else?
Over the years, my consultancy business has been approached by many start-ups looking to capitalise on older consumers, as well as larger businesses and brands. The size and growth of the UK’s ageing population, its wealth and expenditure, and the lack of a correctly-targeted offer (until now), make success inevitable, we are told. Really?
Bad news for big businesses
Dignity (funerals), Four Seasons Health Care (care homes), Just Group (retirement income and equity release), McCarthy and Stone (retirement property), and Saga (financial services and travel) have all recently announced disastrous financial results. These are summarised below.
Four Seasons Healthcare
This business - one of the UK’s largest care home groups - went into administration at the end of April, owing £625 million to a US hedge fund. This is clearly very worrying for the 17,000 residents and 20,000 staff at its 322 homes. With care fees in excess of £1,000 per week in most care homes in the south of England, such businesses should surely be massively profitable.
However, as private equity has piled into the care home business, eager to make a quick buck, the complex, debt-heavy financial vehicles that they constructed have come back to haunt them. That said, the (lack of) funding of social care and the abdication of responsibility by Government are also important factors.
More than 400 UK care home operators have collapsed in the past 5 years, according to a report by accountancy firm BBO. It seems that little has been learned since Southern Cross, with 750 care homes, went into administration in 2011, for much the same reasons. Perhaps we can conclude that a short-term profit driven business model just doesn’t work for care - maybe a little altruism and a longer-term perspective are required.
The Just Group
With revenues of £3.8 billion, the UK-based Just Group is focused on the ‘retirement income market’ – mainly equity release, it seems. Just Retirement is probably their best-known brand.
In March, the company announced a share placement at a heavy discount, the cancellation of a dividend and a £300.1 million pounds debt issue. This and a fall in share price of 50% over the past year led to the immediate resignation of the CEO and rumours of a takeover by Legal and General.
It was tighter regulation on equity release that caused the problem, it seems – forcing the business to guard against a downturn in the property values which are fundamental to the business. Something you’d think they should surely have known, irrespective of legislation. How could you trust equity release as a product if they cannot get even this right?
McCarthy & Stone
The UK’s leading developer and manager of retirement communities claims a 70% share of the owner-occupied retirement property market. However, earlier this year, the firm announced that bottom line pre-tax profit had decreased 66% to £3.6 million in the six months to February 28, as it booked £14 million in charges related to ‘organisational design changes within the sales function’ and ‘planned lower level of releases’.
As the company says, ‘There’ll be five million more retirees and double the number of over-85-year-olds year over next 20 years’. To achieve what look like pretty serious financial objectives, a segmented offering seems to have been developed which sounds superficially promising. However, legacy perceptions of rather mundane small flats on small plots of land overlooking roundabouts may have to be overcome.
Not to mention a history of leasehold exploitation and poor resale values in the retirement property sector generally. Please, don’t get me started.
Saga have pretty much defined the world of fifty-plus marketing for what seems like the past 50 years. Indeed, it is probable that the company invented the very term ‘fifty-plus’. A business with revenues of £850 million has been developed, operating mainly in financial services and travel. Surely, continued growth, market domination, acquisition and diversification are inevitable.
However, in April the business announced a £134.6m loss and a halving of its dividend. Following this shock announcement, its share price plunged 35 per cent to 68p, meaning that the business lost a third of its value.
Commentators seem to agree that Saga had lost its way in an increasingly competitive market, particularly for financial services, and has failed to add differentiation or value to its brand. There are plenty of options for people over 50 wishing to travel or buy insurance products - and most of them do not carry the ageist stigma of the Saga brand. I once observed a focus group where a lady in her sixties said she would rather die than have a Saga label on her suitcase. Brand strategy is a challenge that Saga must have been aware of for some years, but does not seem to have addressed successfully.
Worse, Saga have been accused of unethical business practices. For example, James Moore in the Independent (04.04.19) says that Saga ‘doesn’t deserve its customers’ trust’. The company has sought to attract new customers to its financial services products by offering low prices, before increasing prices in the second and third years and hoping they won't notice.
This so-called ‘loyalty penalty’ is not unusual in the financial services industry and has been widely criticised. However, perhaps Saga should have been different. A brand for older people, based on understanding and trust, could and should have been behaving better than this.
That it behaved in this way tells us that, like too many businesses in this sector, Saga is entirely financially driven and should not be mistaken for a friend or champion of the older consumer.
Dignity, the funerals business, has just reported a 42 per cent drop in underlying operating profits to £21.7 million in the first three months of the year. This was attributed to the fact that the number of deaths over the period fell by 12 per cent to 159,000 thanks to the mild winter and a marked reduction in winter flu.
The company is very much hoping that more people will die during the course of this year, in order to satisfy the demands of the business and its shareholders, saying: " Achievement of full-year expectations will rely heavily on the number of deaths in the remainder of the year compared to 2018."
In March, the competition regulator announced a full inquiry into the £2 billion funerals market, citing concerns about inflation-busting price rises, a lack of transparency and vulnerable customers.
What if anything can we conclude?
These are all large, experienced and hitherto successful businesses. How could they have got it so wrong? And why would I know any better?
One thing we do know is that older consumers are a large, complex and diverse group. In fact, we are not a consumer group at all – we are people defined by age, but for whom age and generational targeting are increasingly irrelevant and ineffective. Hence, building a business and a brand based on a claimed understanding or empathy with the older age group is inevitably problematic. In fact, saying that your business is designed for this age group just won’t work anymore – we don’t identify as a group and in any case, we just don’t believe you. You’re here to make money.
Most people over 50 are no different to people aged under 50 in their needs and requirements. Most of us buy the same sort of stuff – nothing changes. The bigger business opportunity is for mainstream brands to be more inclusive, not for specialist over-50 brands. Stop all this ridiculous pandering to millennials and the implicit exclusion of anyone aged over 40. We are all consumers now and the brands that recognise this are benefiting.
And if you are an ‘over 50s’ brand, please stop all this ‘time of your lives’ nonsense. Stop agonising over all those images of ‘young old ‘ models and actresses, intended to mirror our self-image. We don’t care. We want the benefits that your products and services can bring us, not for you to tell us who we are. Give us the facts, we’ll decide. It’s not about who we are, it’s about who you are. And what these stories are telling us is that behind your flimsy facade of branding, you’re not very likeable.
Perhaps a short-term profit-driven corporate business model is just not compatible with claiming to be the older consumer’s friend. It would be nice to think that the future will be more inclusive, less corporate and, above all, more altruistic.