| Despite millions of dollars spent in insurance company | | | | published articles in their industry trade journals, and |
| advertising, many business owners still base their | | | | 'pushing' brand through a direct mail campaign with |
| insurance buying decisions price. | | | | appointed agents. The key is to eliminate activities |
| Why do business insurance buyers focus so much on | | | | with high cost per exposure and high cost per lead, |
| the price? Because... | | | | and replace them with activities that generate strong |
| | | | return-on-investment. Expenses are controlled, but a |
| - It's a business purchase decision, which means | | | | perception of quality is established making it easier to |
| there's very little emotional involvement and someone | | | | command a higher price. |
| else (i.e. the boss) will verify that a good choice was | | | | 4. Groom your internal culture to deliver your |
| made. Even if the purchaser would like to make an | | | | marketing promise. |
| emotional decision, he can't. | | | | |
| - It's a complicated, confusing purchase and most | | | | The mantra at Disney is, "Marketing creates the |
| buyers don't want to appear ignorant, so they focus | | | | brand but training brings it to life and keeps it |
| on the one thing they know. Price is comfortable | | | | refreshed from customers and employees alike." If |
| because it's the currency for all other transactions. | | | | you've experienced Disneyland, you've seen the |
| - Value-added insurance is hard to envision if it hasn't | | | | mantra in action. Disney delivers its marketing |
| been experienced in the past. Your buyer thinks of | | | | promise! If you're not already aligning your hiring, |
| insurance as his last claims experience - period. The | | | | training, policies and procedures with your marketing |
| value gained by investing in a better insurance | | | | promises, you need to start now - your retention |
| program is difficult for buyers to measure. | | | | rates depend upon it. Consider these statistics from |
| - Business purchasers are time starved. They won't | | | | Frederick Reichheld in The Loyalty Effect: |
| take the time to educate themselves to understand | | | | - It costs five times as much to acquire a new |
| insurance options if they don't expect the gain in | | | | customer as to retain one |
| benefit to exceed the burden and time lost to | | | | - Most companies lose 20-25 percent of customers |
| learning. | | | | each year |
| Ready to overcome these barriers? Here's how: | | | | - If attrition is cut five percentage points, a company |
| | | | can add 25-75 percent in profits to it bottom line. |
| 1. Evaluate your policyholders' needs so you can build | | | | Imagine...Fred Smith's insurance company promises |
| an offer that hits their hot buttons. | | | | excellent service, but when he phones with a |
| In the words of James H. Gilmore, author of The | | | | coverage question, he's placed on hold for five |
| Experience Economy, "A company's goal should be to | | | | minutes. Frustrated, he tries the use the Web site. |
| learn more about what each customer needs so that | | | | When he submits the question form, it errors out. He |
| it can close the customer sacrifice gap, which is the | | | | can't tell if it went through. Could this be your |
| difference between what individual customers settle | | | | company? |
| for and what each wants exactly". | | | | Too often, the gap between the marketing promise |
| If you take the time to learn your customer's pain | | | | and the actual customer experience is huge! While a |
| points and hot buttons, then you will know how to | | | | small glitch on the website and an extended hold time |
| structure your offering so that it is worth more to | | | | may seem like small infractions, they're monumental if |
| your purchaser. You may find that some items with | | | | you are a policyholder with an alternate |
| high perceived customer value, have low delivery | | | | expectation.If you sell cut-rate product, then cut-rate |
| costs. You won't know without research. Customer | | | | service is expected. Think Costco - no one minds the |
| research isn't cheap, but it's a necessary element of | | | | lines there. But, if you sell quality, every moment of |
| long-term profitability. You'll want a survey to identify | | | | the customer experience must be quality, or you'll |
| general perceptions and focus groups to dig in to key | | | | lose the customer at renewal. |
| issues. Segment your policyholders as narrowly as | | | | 5. Strategically focus your retention efforts to |
| possible for developing your research and your | | | | optimize pricing. |
| offering. It's easier to tailor value-added offerings for | | | | |
| smaller segments with homogeneous needs. | | | | Enlist your actuary or financial analyst to identify and |
| Use your research to determine how to | | | | profile the revenue and cost to service for each of |
| communicate your offering so that it's easy for the | | | | your customer segments. You can look at a number |
| purchaser to measure the monetary worth of the | | | | of segment types: by size, by industry, by agency, |
| value gained by working with you. Industry specific | | | | by policy type, etc. |
| examples, case studies and testimonials are essential | | | | Plot your customer segments onto the following grid, |
| for helping insurance purchasers envision something | | | | to determine how much time and money should be |
| they've never experienced. | | | | spent to retain each segment: |
| 2. Create a unique value proposition (UVP) that is | | | | High Revenue/Low Cost to Service |
| client-focused and differentiating. | | | | - Allocate biggest $ for retention |
| | | | - Develop agency incentives |
| A while back, Progressive Auto Insurance did | | | | - Refine service to better meet needs |
| something unheard of in the insurance industry. It | | | | - Build relationship |
| provided its customers with price quotes from the | | | | High Revenue/High Cost to Service |
| competition. Then, it counseled customers to go with | | | | - Execute low cost retention activities |
| the company that could save them the most money | | | | - Find ways to reduce cost to service |
| - even if it meant not choosing Progressive. Why did | | | | Low Revenue/Low Cost to Service |
| they do it? Because it was unique, it generated | | | | - Find ways to increase revenues - i.e. up-sell or |
| attention, and it cultivated an amazing amount of | | | | cross-sell |
| customer loyalty. This is an example of differentiation | | | | - Execute low costs retention activities |
| in action. What can you do to surprise and delight | | | | Low Revenue/High Cost to Service |
| your customers? | | | | - Increase pricing or decrease cost to service |
| 3. Pave the way for sales with brand awareness. | | | | - Consider ending the relationship |
| In Brand Leadership, authors David Aaker and Erich | | | | According to the Direct Marketing Association, |
| Joachlmsthaler discuss a causal relationship between | | | | retention rates tend to stabilize after the second |
| brand and stock return. They cite Equitrends brand | | | | purchase. The first purchase is a test. A two-time |
| power research, which found that firms experiencing | | | | buyer is buying with full knowledge. This means that |
| largest gains in brand equity saw their stock return | | | | a two-time buyer (or someone who has renewed a |
| average 30 percent. The authors suggest that the | | | | policy once) is the best target for retention, cross-sell |
| brand equity / stock return relationship might stem | | | | and up-sell efforts. |
| from brand equity's tendency to support a price | | | | In their McKinsey Quarterly article, Race to the |
| premium, which contributes to profitability. They | | | | Bottom, Andreas Florissen, Thomas Vahlenkamp, |
| state, "When a high level of perceived quality has | | | | Boris Maurer and Bernhard Schmidt caution companies |
| been created, raising the prices not only provides | | | | to carefully consider the 'willingness to fly into a |
| margin dollars but also aids perceptions." | | | | competitor's arms' factor when looking a customer |
| Create a high level of perceived quality through | | | | value, retention spending and price optimization. They |
| consistent marketing and communication programs. | | | | say, "If a customer is the kind that switches easily, |
| One specialty carrier was able to decrease its | | | | retention efforts are better directed at others, since |
| marketing budget by 35 percent while at the same | | | | the likelihood of success is small. Managers must |
| time tripling its revenues and boosting brand | | | | understand that it is better to lose fickle customers |
| awareness within its target market. This company | | | | than to keep them at unrealistically low prices - an |
| started by calculating the cost per exposure and cost | | | | approach that cuts margins earned from all |
| per lead for each of its marketing activities. Here's | | | | customers, even those that are less price sensitive. |
| what the company learned: | | | | In closing, there are several ways to change a price: |
| - Tradeshows and golf sponsorships had extremely | | | | |
| high cost per exposure and cost per lead. | | | | 1. Change the price tag (the obvious) |
| - Advertising had low cost per exposure, but high | | | | 2. Change the quantity (deductibles, limits) |
| cost per lead (it was hard to identify that any leads | | | | 3. Change the quality (coverage, service level) |
| were generated) | | | | 4. Change the terms (service levels, payment terms, |
| - Direct mail had moderate cost per exposure and | | | | policy length) |
| the lowest cost per lead - plus prospects and | | | | The key is to be creative and strategic. Frame your |
| marketing activities could easily be tracked | | | | price and provide your agents the tools they need to |
| throughout the sales cycle. | | | | sell it. Make sure every value-added service is |
| - Published articles had lower cost per exposure than | | | | itemized with a monetary value. For example, if three |
| advertising and high cost per lead (again it was hard | | | | accident prevention consultations come with the |
| to track leads) | | | | policy, assign a value for those. Make it easy for the |
| The company drastically revised it marketing | | | | buyer to rationalize a higher premium. Discuss short |
| approach attending four tradeshows per year instead | | | | term vs. long term, and the importance of investing |
| of 28, sponsoring five golf tournaments each year, | | | | in an insurance partner that will improve experience |
| instead of 22, eliminating the bulk of its advertising, | | | | ratios over time. Point out coverage that is different |
| and allocating the majority of its marketing budget to | | | | than the competitors so it's clear that an |
| direct mail and published articles. | | | | apple-to-apple comparison cannot be made. Finally, |
| This company used a 'pull' marketing approach, | | | | remember to include testimonials, case studies and |
| marketing directly to the policyholder prospect. | | | | success stories in the sales presentation, so your |
| Because the company operates with a limited number | | | | prospect can visualize the benefits of you as his |
| of agencies, it was able to co-brand many of the | | | | partner. |
| marketing efforts with its appointed agencies, so | | | | The buyers who are throwing up price objections are |
| everyone benefited. | | | | also spending $3 on their lattes and $300 on their |
| Sending direct mail to policyholders may not work | | | | sunglasses. You see - price isn't really an objection - |
| with your business model. Nevertheless, you can take | | | | it's a convenient excuse when desire and |
| a combined approach - 'pulling' policyholders through | | | | understanding are lacking. |