It's Hard to Make a Buck in Insurance

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As insurance companies continue to face the pressures of rising sales costs, increased competition and shrinking margins, they maintain their search for ways to heighten their market stances while keeping their costs at bay.


These increasing pressures have heightened the industry's interest in direct marketing. Yet, despite their intrigue, much of the industry continues to proceed cautiously. A stringent regulatory environment, coupled with strong ties to the independent agency channel, make the incorporation of direct marketing challenging, especially in the business-to-business environment.


The tendency of many marketers is to apply consumer marketing techniques in a BTB environment. Insurance is no different. More often than not, these programs fail with many faulting direct marketing (thinking it can't work in their business). In actuality, the failure does not reside in the use of the discipline, but rather in the inability to align it to the BTB setting while modifying it according to the environmental conditions.


Defining the customer. Who would think that asking the seemingly simple question "Who is our customer?" would evoke strong emotions.


How a carrier defines its customer will likely be linked to its business strategy. Regardless of how the customer is defined, it is likely that the carrier will directly or indirectly target the buyers and subsequently will be exposed to traditional issues that face BTB direct marketers.


One of these issues centers on the question of who the buyer is. When asked who their customers are, most BTB marketers often respond with a list of company names like Ford or General Electric. Yet, as in consumer marketing, BTB buyers are individuals and should be marketed to accordingly. The fundamental difference is that in BTB marketing, individuals buy on behalf of the organization. As stewards of the organization's resources, they usually are more concerned with satisfying the needs of others in the business than with their personal needs.


In larger organizations, the decision-making process is more complicated. Typically, the purchasing decision does not reside with a single individual but with multiple individuals. These multiple individuals constitute a buyer group. The roles of the individuals within a buyer group can be that of influencers, specifiers or decision makers, and do not necessarily reside within a corporate functional area.


Identifying, reaching and qualifying. The complexity of the buying process in the BTB environment makes identifying, reaching and qualifying target groups difficult. This process can become more difficult when a corporation has multiple sites and the buyer group extends across these sites. In some instances, such as the marketing of voluntary products, the process can become even more complicated as these buyer groups become gatekeepers to the ultimate decision makers -- the insureds.


The information needed to effectively target individuals within an organization is detailed and usually obtained through the marketer's proprietary efforts. These efforts can be expensive if they are not integrated into existing business activities. Some marketers believe that compiled lists will fill this void; however, list data is limited and often inaccurate. Because of restructures, transfers and promotions, compiled lists, at best, serve as a starting point upon which to begin the collection of intricate information needed to understand target groups, the buying process, individuals' roles and specific organization needs.


In addition to having the right information, effective marketing to middle and large accounts requires the ability to manage numerous relationships with numerous individuals without creating customer confusion. This can't be done without a database designed to house this type of information and support this level of complexity.


Economics and measurements. The nature of BTB also impacts program economics. All too often the tendency is to focus on the short-term results and predominantly on quantitative results such as revenue and response rates. While results measures are important, preoccupation with these in the early stages of a program can lead to poor decisions regarding the program.


Because the BTB sales process can be complex and span a long time frame, process measurements to evaluate progress are as important as result measurements. Process measurements might include the number and completeness of individual buyer group profiles in the database, the advancement in the sales process and the depth of pre-sale relationships. To be able to know if an integrated program is on track, it's often helpful to monitor process measurements like response rates but not to attribute too much importance to them and not to look at them in isolation or as results.


No single set of measurements is right for every situation. The key is to make sure that the direct marketing application is appropriate for the situation and objectives, that the measurements are appropriate for the application and that they are well understood and agreed to by all stakeholders.


Integrated DM with the channel. Direct marketing can be used in a standalone channel or integrated into an existing independent or captive channel. When integrated into an existing channel, a critical success factor is the buy-in from the channel. When integrated with a captive system, direct marketing can present a host of welcomed benefits such as reduced selling costs, increase efficiencies, leveraged resources and value-added contacts.


Integration becomes increasingly difficult under the independent system where channel conflict can pose a considerable threat to the business. Even the best intentions can fail if there is a perceived conflict. Carriers venturing into this avenue should not underestimate this aspect of integration and will need to invest in a change management process to help ensure success.


As long as the trend of increased competition and shrinking margins continues, insurers and other BTB marketers will adopt database and direct marketing tools to help them compete more effectively and improve the return on their sales and marketing investments. While direct marketing won't be the panacea, applying the tools or applications that are best suited for your business may make it easier to make a buck in the industry.


Lorrie LiBrizzi is director of customer insight at Hunter Business Direct Inc., Milwaukee. Her e-mail address is llibrizzi@hbd.com.
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