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Managing Channel Conflict

Philip G Scott

Chief Executive
Norwich Union Life

ABN AMRO Pan European Banking


and Insurance Conference - 27th June 2001
NU has a Multi Distribution Model

IFA IFA
Multiple Brands V Single Brand

Consumer Awareness
Cost
Market Consolidation
Channel Choices of the Industry Leaders
2000
2000 New
New Business
Business
Company
Company m
m APE
APE IFA
IFA Non-IFA
Non-IFA Growth
Growth
Norwich
Norwich Union
Union 928.8
928.8 Y
Y Y
Y 19.1%
19.1%
Prudential
Prudential 541.3
541.3 Y
Y Y
Y
Standard
Standard Life
Life 534.5
534.5 Y
Y Y
Y
Skandia
Skandia Life
Life 413.6
413.6 Y
Y N
N
Scottish
Scottish Equitable
Equitable 409.0
409.0 Y
Y N
N
AXA
AXA Sun
Sun Life
Life 404.7
404.7 Y
Y Y
Y
Scottish
Scottish Widows
Widows 366.8
366.8 Y
Y Y
Y
Legal
Legal && General
General 365.7
365.7 Y
Y Y
Y ________
________
Market
Market == 0.5%
0.5%

Sources: ABI - Long Term Insurance 2000


2000 Money Management New Business Survey
Norwich Union Business by Channel

IF A

D irect

C ore P artn ership s

Introdu cer P artn ers

A ffin ity
NU Distribution Capabilities
IFA
z
z 35 regions
z
z 300+ consultants
z
z IFA Direct
z
z Strategic Partners
z
z National Accounts
NU Distribution Capabilities
Direct
z
z Direct Financial Services - 325
consultants
z
z Direct Corporate Sales - 40 consultants
z
z Telesales
z
z Estate Agency - 340 branches
NU Distribution Capabilities
Partnerships
z
z 520 consultants
z
z 6 Appointed Representative Building
Societies
z
z 15 Introducer Building Societies
z
z 2 Estate Agencies
NU Distribution Capabilities

Affinities
z
z Tesco Personal Finance
z
z Age Concern
z
z Goldfish
Joint Venture
z Royal Bank of Scotland / NatWest Life
z
Causes of Conflict

Distribution
Charges Costs

Ownership Potential Brand


of Customer Conflict

Resource
Customer Relationship Management
Different distribution channels

Who owns the


customer?

s s s
IFA? NU? Tesco?
The essence of managing channel conflict
is understanding the
Value Chain

Management

Fund Product Customer


Distribution
Management Admin Management

Support Services
Proposition Development
Building a Product
Distribution & Admin Costs
Marketing
Costs
Development
Costs
Profit Unit Costs

Flexibility is Key to Channel


Differentiation
Case Study: Term Assurance
Tesco & IFA
IFA Tesco
z
z Advice Driven z
z Execution Only
z
z Comprehensive Options z
z Basic Term Product
z
z Commission Sacrifice z
z Option to share
marketing costs
Case Study: The Proposition
IFA Tesco
Flexible
IFA price distribution
range allowance Tesco price

Fixed costs
Fixed cost are equal Fixed cost
Case Study: Result

z
z If IFAs wish to match execution only
prices, they are able to do so by
reducing their level of commission
z
z Both parties benefit from NU market
leadership achieving economies of
scale and reduced unit costs
Case Study: Strategies Employed to
Manage Potential Conflict
z
z Extensive communication to IFAs through their
consultants and in trade and national press
z
z Tesco referral of clients to IFAs if advice is
required
z
z Ensuring that all distributors of our products
receive the same basic product
z
z Differential pricing allows THEIR decision in
setting the final cost
Channel Conflict is Essential

z
z It results in the best advice and
service for the customer

z
z It allows for flexible propositions
Keys to Success

z
z The key is giving all distributors
the same scope for creating added
value within the transaction to the
customer

z
z Through flexible propositions
allowing differential pricing
Forces Driving Change for Providers
and Distributors
REGULATION
CAT standards, Treasury review
Myners report
Comparative tables
FSA With Profit review
Polarisation Phase 2
CONSUMERS TECHNOLOGY

Growing demand Growth in internet usage

Choice, simplicity, convenience Providers B2C at research stage

Financially aware, discriminating & Future - wealth management


Distributors B2B key to 1% world
Flight to quality
A Progressive Approach to Managing
the Distribution Challenge
z
z Polarisation
z
z Multi-tie
z
z Integrated distribution
z
z High productivity
z
z Breaking down the Value Chain
z
z Segmenting the market
Potential Market Share by Channel if
Multi-Tie Introduced

100% Tied DSF


90% Tied DSF Direct Remote

80%
Direct Remote Banks
70%
Banks
Banks
60% Multi-tie
50%
Multi-tied -
40% IFA Former IFA &
30% tied advisers
IFA
20%
10% Independent

0%
1999 Post Polarisation
Progressive Product Strategies
z
z Stakeholder market positioning
z
z Flexible Products to meet consumer focus
z
z Investment Choice and SRIs
z
z Impact of Mutual Funds
z
z Non-traditional products
z
z Corporate market and EBC strategy
z
z Transparency and open architecture
z
z Phase 1 SALTR accreditation
z
z E-products
Progressive Marketing Strategies
z
z Leading brand
z
z Reduced unit costs
z
z Economies of size and scale
z
z Increased distribution capability
z
z Increased segmentation
z
z Tailored propositions
StrategiesM for Channel Diversification
anaging C hannelC onflicts

Q
Q Partnerships

z Different approach to strategic alliances


z Price differentiation - value chain
z Economies of scale
z White labelling
z Product diversification
z E-commerce
Norwich Union Vision
Norwich Union Life is to be a market leading provider
of Life, Pensions and Long Term financial services
products in the UK and to generate superior return
on capital and substantial contribution to group
profitability.

Our aspirational vision is to be the worlds most


customer driven, innovative and trusted provider of
wealth creation and protection products.