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Wednesday, June 22, 2011

Insurance trade marketing - price objections to overcome five strategic steps

Despite millions of dollars spent in insurance company advertising, many business owners still base their insurance buying decisions price. 
 
Why do business insurance buyers focus so much on the price?  Because...
 
It's a business purchase decision, which means there's very little emotional involvement and someone else (i.e. the boss) will verify that a good choice was made. Even if the purchaser would like to make an emotional decision, he can't.  It's a complicated, confusing purchase and most buyers don't want to appear ignorant, so they focus on the one thing they know. Price is comfortable because it's the currency for all other transactions. Value-added insurance is hard to envision if it hasn't been experienced in the past. Your buyer thinks of insurance as his last claims experience - period. The value gained by investing in a better insurance program is difficult for buyers to measure. Business purchasers are time starved. They won't take the time to educate themselves to understand insurance options if they don't expect the gain in benefit to exceed the burden and time lost to learning.
Ready to overcome these barriers? Here's how:
 
1. Evaluate your policyholders' needs so you can build an offer that hits their hot buttons.  


In the words of James H. Gilmore, author of The Experience Economy, "A company's goal should be to learn more about what each customer needs so that it can close the customer sacrifice gap, which is the difference between what individual customers settle for and what each wants exactly".
 
If you take the time to learn your customer's pain points and hot buttons, then you will know how to structure your offering so that it is worth more to your purchaser. You may find that some items with high perceived customer value, have low delivery costs. You won't know without research. Customer research isn't cheap, but it's a necessary element of long-term profitability. You'll want a survey to identify general perceptions and focus groups to dig in to key issues. Segment your policyholders as narrowly as possible for developing your research and your offering. It's easier to tailor value-added offerings for smaller segments with homogeneous needs.
 
Use your research to determine how to communicate your offering so that it's easy for the purchaser to measure the monetary worth of the value gained by working with you. Industry specific examples, case studies and testimonials are essential for helping insurance purchasers envision something they've never experienced.
 
2. Create a unique value proposition (UVP) that is client-focused and differentiating. 



A while back, Progressive Auto Insurance did something unheard of in the insurance industry. It provided its customers with price quotes from the competition. Then, it counseled customers to go with the company that could save them the most money - even if it meant not choosing Progressive. Why did they do it? Because it was unique, it generated attention, and it cultivated an amazing amount of customer loyalty. This is an example of differentiation in action.  What can you do to surprise and delight your customers?
 
3. Pave the way for sales with brand awareness.
In Brand Leadership, authors David Aaker and Erich Joachlmsthaler discuss a causal relationship between brand and stock return. They cite Equitrends brand power research, which found that firms experiencing largest gains in brand equity saw their stock return average 30 percent. The authors suggest that the brand equity / stock return relationship might stem from brand equity's tendency to support a price premium, which contributes to profitability. They state, "When a high level of perceived quality has been created, raising the prices not only provides margin dollars but also aids perceptions."
 
Create a high level of perceived quality through consistent marketing and communication programs. One specialty carrier was able to decrease its marketing budget by 35 percent while at the same time tripling its revenues and boosting brand awareness within its target market. This company started by calculating the cost per exposure and cost per lead for each of its marketing activities. Here's what the company learned:
Tradeshows and golf sponsorships had extremely high cost per exposure and cost per lead. Advertising had low cost per exposure, but high cost per lead (it was hard to identify that any leads were generated) Direct mail had moderate cost per exposure and the lowest cost per lead - plus prospects and marketing activities could easily be tracked throughout the sales cycle. Published articles had lower cost per exposure than advertising and high cost per lead (again it was hard to track leads)
The company drastically revised it marketing approach attending four tradeshows per year instead of 28, sponsoring five golf tournaments each year, instead of 22, eliminating the bulk of its advertising, and allocating the majority of its marketing budget to direct mail and published articles. 
 
This company used a 'pull' marketing approach, marketing directly to the policyholder prospect. Because the company operates with a limited number of agencies, it was able to co-brand many of the marketing efforts with its appointed agencies, so everyone benefited.
 
Sending direct mail to policyholders may not work with your business model. Nevertheless, you can take a combined approach - 'pulling' policyholders through published articles in their industry trade journals, and 'pushing' brand through a direct mail campaign with appointed agents. The key is to eliminate activities with high cost per exposure and high cost per lead, and replace them with activities that generate strong return-on-investment. Expenses are controlled, but a perception of quality is established making it easier to command a higher price.
 
4. Groom your internal culture to deliver your marketing promise.
 
The mantra at Disney is, "Marketing creates the brand but training brings it to life and keeps it refreshed from customers and employees alike." If you've experienced Disneyland, you've seen the mantra in action. Disney delivers its marketing promise! If you're not already aligning your hiring, training, policies and procedures with your marketing promises, you need to start now - your retention rates depend upon it. Consider these statistics from Frederick Reichheld in The Loyalty Effect:
It costs five times as much to acquire a new customer as to retain one Most companies lose 20-25 percent of customers each year If attrition is cut five percentage points, a company can add 25-75 percent in profits to it bottom line.
Imagine...Fred Smith's insurance company promises excellent service, but when he phones with a coverage question, he's placed on hold for five minutes. Frustrated, he tries the use the Web site. When he submits the question form, it errors out. He can't tell if it went through.   Could this be your company?
 
Too often, the gap between the marketing promise and the actual customer experience is huge! While a small glitch on the website and an extended hold time may seem like small infractions, they're monumental if you are a policyholder with an alternate expectation.If you sell cut-rate product, then cut-rate service is expected. Think Costco - no one minds the lines there.   But, if you sell quality, every moment of the customer experience must be quality, or you'll lose the customer at renewal. 
 
5. Strategically focus your retention efforts to optimize pricing.
 
Enlist your actuary or financial analyst to identify and profile the revenue and cost to service for each of your customer segments. You can look at a number of segment types: by size, by industry, by agency, by policy type, etc. 
Plot your customer segments onto the following grid, to determine how much time and money should be spent to retain each segment:
 
High Revenue/Low Cost to Service
Allocate biggest $ for retention Develop agency incentives Refine service to better meet needs Build relationship
High Revenue/High Cost to Service
Execute low cost retention activities Find ways to reduce cost to service
Low Revenue/Low Cost to Service
Find ways to increase revenues -  i.e. up-sell or cross-sell Execute low costs retention activities
Low Revenue/High Cost to Service
Increase pricing or decrease cost to service Consider ending the relationship
According to the Direct Marketing Association, retention rates tend to stabilize after the second purchase. The first purchase is a test. A two-time buyer is buying with full knowledge. This means that a two-time buyer (or someone who has renewed a policy once) is the best target for retention, cross-sell and up-sell efforts.
 
In their McKinsey Quarterly article, Race to the Bottom, Andreas Florissen, Thomas Vahlenkamp, Boris Maurer and Bernhard Schmidt caution companies to carefully consider the 'willingness to fly into a competitor's arms' factor when looking a customer value, retention spending and price optimization. They say, "If a customer is the kind that switches easily, retention efforts are better directed at others, since the likelihood of success is small. Managers must understand that it is better to lose fickle customers than to keep them at unrealistically low prices - an approach that cuts margins earned from all customers, even those that are less price sensitive.
 
In closing, there are several ways to change a price:
 
1. Change the price tag (the obvious)
2. Change the quantity (deductibles, limits)
3. Change the quality (coverage, service level)
4. Change the terms (service levels, payment terms, policy length)
 
The key is to be creative and strategic. Frame your price and provide your agents the tools they need to sell it. Make sure every value-added service is itemized with a monetary value. For example, if three accident prevention consultations come with the policy, assign a value for those. Make it easy for the buyer to rationalize a higher premium. Discuss short term vs. long term, and the importance of investing in an insurance partner that will improve experience ratios over time. Point out coverage that is different than the competitors so it's clear that an apple-to-apple comparison cannot be made. Finally, remember to include testimonials, case studies and success stories in the sales presentation, so your prospect can visualize the benefits of you as his partner.
 
The buyers who are throwing up price objections are also spending $3 on their lattes and $300 on their sunglasses. You see - price isn't really an objection - it's a convenient excuse when desire and understanding are lacking.


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