part two: A FINE PENSION MESS and how to avoid it

Adam Bernstein continues his look at how businesses can stay on the right side of the auto-enrolment pension rules

By Adam Bernstein | Published:  14 June, 2018

Pensions auto-enrolment, the government’s drive to have everyone saving towards their retirement is just over five years old and recently, this last February, completed its rollout. However, while it might be the end of the rollout as far as the government is concerned, for businesses, the process is never-ending as the obligations continue… forever.
    
Ignoring the rules and failing to meet the obligations can lead to very painful penalties being imposed by The Pensions Regulator.

Don’t fall foul of any changes to the rules
The government has done a pretty good job of improving the rules as they go along, even though they may seem rather onerous at first. Nathan Long, a Senior Pension analyst at Hargreaves Lansdown, explains more about how firms can be caught out by the law.
    
Nathan says that there “is a ruthless determination to ensure auto-enrolment remains successful and the government recently made recommendations as to future changes to the legislation.”
    
The two key changes for employers are that staff will need to be automatically enrolled from age 18 as opposed to 22; and contributions will accrue from the first pound of earnings, whereas currently the first £5,876 can be excluded.
    
Nathan says the changes are great for pension savers, but will impact on some sectors more heavily, especially those that employ large numbers of younger people: “These recommendations will not only mean people retiring with more income, it means they will have greater control over leaving work. In fact, someone with average earnings could increase their pension pot at retirement by over £60,000.
    
“Increasing the reach of auto-enrolment is great for the long-term retirement prospects of the nation but adds yet further costs for businesses. The government is clearly mindful of this alongside the ongoing Brexit uncertainty and so opted for a long implementation period, with the changes not due to be rolled out until the mid-2020s.
    
“Even so,” reckons Nathan, “it is widely recognised that 8% contributions are not enough for a comfortable retirement, with a growing consensus that contributions of 12% are more appropriate – the government has also recommended reviewing the minimum contribution levels from April 2019. Small businesses in particular should be alive to the very real risk of increased costs coming down the tracks.”
    Empirical evidence is showing larger employers driving higher levels of understanding and engagement amongst their staff by embracing workplace financial education programmes. Nathan thinks that smaller businesses may struggle to offer these services: “A possible solution to improved engagement could lie in allowing staff to be able to select where their auto-enrolment pension contributions are paid if they already have their own pension plan.” There would still be a company appointed provider for anyone that doesn’t choose, however anyone who has truly got to grips with their pension planning could continue to contribute to their preferred plan. The responsibility would then be on pension providers to engage their customers in order to retain their business.

Nathan thinks this solution need not add more administration for employers: “In the same way that you require an employee’s bank account details, so you can pay their salary, simple details of pension provider and policy number could allow correct payment of pension contributions. The technology to enable this already exists, it simply must be adopted for this revised purpose.”

To finish
The key message for employers of any size is that auto-enrolment is an on-going exercise and crucially requires on-going compliance with any rule changes. First up will be the contribution hikes in 2018 and 2019, but employers need to keep their wits about them. Whilst it may seem The Pension Regulator is out to get small businesses, actually the opposite is true and its website is a great source of information for businesses of all shapes and sizes: www.thepensionsregulator.gov.uk

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  • THE WINNER TAKES IT ALL... 

    Workshop owners need to think hard about investment decisions. With that in mind, I’ve used my last two articles to look at a business management tool called value proposition design, which can help us to work out where to spend our cash.
        
    We saw that it involves understanding our customers’ needs, which we do by identifying the jobs they want to achieve, and the positive and negative factors associated with them, respectively known as gains and pains. We then looked at how a business can identify products and services that might help customers complete their jobs, which, in turn, will either create the customers’ desired gains or relieve their undesired pains. These gain creators and pain relievers provide benefit to customers. Thus, investments in the right products and services increase our value proposition.
        
    Our investment decisions are usually complicated by the fact that they can represent a chicken-and-egg situation: Money is needed to support the creation and delivery of products and services, yet profitable products and services are needed to create money (at the very least you will need to show that you will have good profitability if you are borrowing to fund your investment). As such, there are two measures of success of our value proposition: Whether it provides real value to our customers and whether it can be deliverable within a sustainable business model.
        
    This article introduces a concept known as fit, which is the extent to which a company’s offerings match the needs of its target customers and are delivered within a sustainable business. Fit, therefore, represents the yardstick by which the success of a value proposition is assessed.
        
    There are three levels of fit of a value proposition to a customer (segment) profile:

    Problem-solution (‘on paper’)
    If we take the value proposition discussed in my last article and check it against the customer segment profile created in the preceding article, we can check their fit. We do this by going through the pain relievers and gain creators one by one and checking to see whether they match a customer job, pain or gain. We can physically visualise this degree of fit by putting a check mark on each one that does (see Figure 1).
        
    In this example, we have used our experience to the identify some jobs, pains and gains that customers might care about, and then created a value proposition to try to address them. However, at this point, we do not have any material evidence of the potential success of these products and services, gain creators or pain relievers. I.e. the fit is only evident on paper. The next step is to find evidence that customers care about the value proposition, or to start over designing a new one, if it is found that the customers don’t care.

    Product-market (‘in the market’)
    Once your products and services have been made available to customers, you will soon see whether they provide value to your customers and gain traction in the market place: customers are the ultimate, most ruthless, judge and jury of your products and services.
        
    When assessing product-market fit, it is important to check and double-check the assumptions underlying your value proposition, i.e. have you correctly identified and prioritised the relative importance of the customer’s jobs, pains and gains? Have you provided things that customers don’t care about, and will you have to amend your value propositions, or start again?
        
    Business model (‘in the bank’)
    Your business model is the way your business is geared up to generate revenue and burn cash whilst you are creating and delivering a value proposition to your customers.
        
    The search for business model fit involves reaching a state where you have a value proposition that creates value for customers (products and services they want) and a business model that creates value (profit) for your organisation. You don’t have business model fit until you can sustainably generate more revenues with your value proposition than you incur costs to create and deliver it.

    Context
    The potential value of our products and services, and the associated gain creators and pain relievers, doesn’t just depend on their match to the customer’s jobs, pains and gains. It also depends on the circumstances in which they are offered; i.e. their value is dependent on context.
        
    For vehicle owners, an example might be the value of breakdown services. Have you ever signed-up for these from the hard-shoulder of a motorway? You’ll notice that you don’t get much of a discount. Those offers that you might have seen on the internet beforehand will suddenly seem pretty good value. These differences are because the breakdown service companies know full well that the perceived value of their services depends on context!
        
    As such, businesses must identify the contexts in which their products and services will be offered. For example, a customer’s priorities will differ depending on whether they are broken down, have an expired MOT, need a replacement bulb in night time driving conditions, or are just booked-in for scheduled servicing etc. It is possible that each context might require its own value proposition.

    Focus
    For a customer having a given set of jobs and associated pains and gains, there are many ways a business might design a value proposition to achieve a fit. This is certainly true in our industry, in which there are many competing types of service and repair provider. Each has tweaked its value proposition to suit a given type of vehicle owner or context:

    Independent workshops, often offering a large range of products and services as a kind of one-stop-shop to the ‘general’ motorist, usually aim to generate sufficiently high revenues by inspiring maximum loyalty from customers and trying to meet all their needs under one roof. These businesses require constant investment to provide the services necessary to keep-up-to-date with changes in motor vehicle technology and face a continuous challenge to monetise the value of every additional service.  Many diagnostic (or recalibration) services are still not well understood by customers, and workshops have to work hard to educate them, so that they can ‘appreciate’ their value. Convenience must also play a relatively significant part in their value proposition.
      
    Fast-fit operations are all about convenience: Their customers can get in and out fast, without any notice, and, hopefully, with the minimum of disruption to their lives. The businesses require large stock inventories to ensure that there are no supply-related delays. By concentrating on only the fast-moving (the most commonly needed) products, these businesses can remain highly scalable and profitable: although they limit the scope of their products and services, to reduce costs, their sales volumes allow them to retain considerable buying power. Their customers love the convenience and prices they can offer given the buying power (and increasing integration with the parts supply chain) that the larger fast-fit chains have. Main dealers, I think, rely more on social or emotional pains and gains to draw in their customers (e.g. think about the image they work hard on purveying or the potential manipulation of customer perceptions of safety, both driven by presenting themselves as the most qualified to work on a given make of vehicle). They need to work hard to offer convenience (e.g. courtesy cars, rapid turn-around, customer/vehicle pick-up or drop-off etc.) as their dealerships, geographically-speaking, are relatively sparsely distributed amongst the population. Some vehicle owners (ironically, those most likely to buy their next vehicle from a dealership) will also be concerned with the resale value of their car and may seek to maintain a full dealer service history to try to maximise its value.
        
    Following the above, broadly-defined, categories of businesses, there comes specialists, offering a smaller range of products and services to increasingly niche customer segments or contexts: e.g. independent specialists (single-make specialists combining aspects of both the independent workshop and main-dealer value propositions), diagnostic specialists (as with breakdown and recovery specialists, when you need them, you need them – and they should charge accordingly), component-repair specialists (e.g. transmission specialists).
        
    Then there is the remaining plethora of value propositions available to vehicle owners: breakdown and recovery services (apart from their normal role helping those in distress, I’m sure they would agree that they also play a role in repairing vehicles for those that place no value whatsoever on preventative maintenance…); mobile technicians (perhaps offering the ultimate in convenience in certain contexts?); and, my favourite, the chancers (that bloke in the pub who once changed a side-light and now thinks he can charge an equally stupid idiot to fit a new timing chain for them…).

    Future
    We’ve seen from the above that a stack of value propositions is competing for our vehicle-owning customers. As such, our value proposition design work and derived knowledge, can inform a strengths, weaknesses, opportunities and threats (SWOT) analysis of our business. So far, all these competing businesses have managed to co-exist and thrive within an industry that is set-up to offer value to private vehicle owners. However, take a look at Figure 1 again – what might be arriving in the future that could represent a threat to not only an independent workshop but the entire sector? How about Vehicle-as-a-Service (VaaS), a.k.a. car-on-demand? This single value proposition removes an awful lot of the hassle of vehicle ownership (equivalent to automotive morphine…) and provides many gains. In fact, it is so disruptive that it removes/changes the very nature of the customer segment; vehicle ownership becomes almost redundant. Should it be a surprise that one of the few barriers to widespread adoption of VaaS (the convenience of making short, necessary, journeys, e.g. to pick up milk when nearby shops are closed) is being addressed by a company that is seeking to provide VaaS: i.e. Amazon whom are also developing drone delivery systems?
        
    When it comes to the ultimate value proposition, may be there can be only one.
        
    I’ll leave that thought with you.


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