945
Marketing
insurance
products
and services
2020 Study text
Marketing
insurance
products and
services
945 Study text: 2020
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© The Chartered Insurance Institute 2019
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Print edition ISBN: 978 1 78642 793 9
Electronic edition ISBN: 978 1 78642 794 6
This edition printed in 2019
Author
Barry Wicks ACII, MBA, Chartered Insurance Broker, Chartered Marketer. Barry has 44 years’ experience in
the insurance industry in a wide range of roles including insurance company sales and marketing
management, insurance underwriting, insurance broker sales and marketing management.
He has worked on multinational, SME and personal insurance programmes and schemes within a broad
cross-section of organisations: Towergate AIUA, Rural Insurance Group Ltd, BW Practical Marketing Ltd,
Richmond House Group PLC, Layton Blackham Group Limited, A&H Risk Services Limited, AIG Europe (UK)
Limited, General Accident Fire and Life Corporation Limited.
Updater for this edition
Dr Richard Brophy ACII
Reviewers
The CII would like to thank the following for their assistance with the first edition of this study text:
Professor Jillian Farquhar
Dr Julie Robson
Acknowledgement
While every effort has been made to trace the owners of copyright material, we regret that this may not
have been possible in every instance and welcome any information that would enable us to do so.
Unless otherwise stated, the author has drawn material attributed to other sources from lectures,
conferences or private communications.
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3
Using this study text
Welcome to the 945: Marketing insurance products and services study text which is
designed to cover the 945 syllabus, a copy of which is included in the next section.
Please note that in order to create a logical and effective study path, the contents of this
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assessment. To assist you in your learning we have followed the syllabus with a table that
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listed on the first page of each chapter.
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4
945/November 2019 Marketing insurance products and services
Study skills
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5
Examination syllabus
Marketing insurance
products and services
Purpose
To enable candidates to understand the role of the marketing function and its application to
insurance.
Assumed knowledge
Assumed knowledge may not appear in detail within the learning outcomes but forms part
of the syllabus and may be examined. It is assumed that the candidate already has the
knowledge gained from a study of the relevant sections of IF1 Insurance, legal and
regulatory or equivalent examinations.
Summary of learning outcomes
1.
Analyse the role and operation of marketing in the insurance industry.
2.
Analyse insurance product and service development and positioning.
3.
Evaluate the distribution of insurance products and services.
4.
Analyse the role of communication in the marketing of insurance products and services.
Important notes
• Method of assessment: Coursework – 3 online assignments (80 marks). Each assignment must be
individually passed.
• The syllabus is examined on the basis of English law and practice unless otherwise stated.
• Candidates should refer to the CII website for the latest information on changes to law and practice
and when they will be examined:
1.
Visit www.cii.co.uk/qualifications
2.
Select the appropriate qualification
3.
Select your unit on the right hand side of the page
2020
Copyright © 2020 The Chartered Insurance Institute. All rights reserved
945
6
945/November 2019 Marketing insurance products and services
Examination syllabus
1.
Analyse the role and operation of
marketing in the insurance industry
1.1
Explain the role of marketing within the
insurance industry.
1.2
Analyse the impact of internal factors on
business in the insurance industry.
1.3
Analyse the impact of external factors on
business in the insurance industry.
1.4
Explain the planning sequence for the
marketing of insurance products and
services.
Reading list
The following list provides details of various
publications which may assist you with your
studies.
Note: The assessment will test the syllabus
alone. However, it is important to read
additional sources as 10% of the exam mark is
allocated for evidence of further reading and
the use of relevant examples.
The reading list is provided for guidance only
and is not in itself the subject of the assessment.
2.
Analyse insurance product and
service development and
positioning
2.1
Evaluate insurance products and services
by conducting research within the
insurance industry, including
benchmarking with competitors.
2.2
Explain the design process of insurance
products and services.
2.3
Analyse the pricing and positioning of
insurance products and services.
3.
Evaluate the distribution of
insurance products and services
3.1
Evaluate the distribution channels available
for insurance products and services.
3.2
Evaluate insurance products and services
for customers, including relationship
management.
3.3
Evaluate customer experiences.
Insurance, legal and regulatory. London: CII.
Study text IF1.
3.4
Analyse the buying behaviours of
customers.
Books / eBooks*
4.
Analyse the role of communication
in the marketing of insurance
products and services
4.1
Explain the importance of branding.
Marketing concepts and strategies. Sally Dibb, et
al. 6th ed. Boston: Cengage Learning, 2012.
4.2
Explain the impact of culture and ethics on
branding.
Marketing management. Philip Kotler, et al.
Harlow: Financial Times/Prentice Hall, 2009.
4.3
Explain brand management.
4.4
Evaluate the methods of communicating
insurance products, services and brands.
Marketing planning for financial services. Roy
Stephenson. Aldershot: Gower, 2005.
The publications listed here provide a wider
coverage of syllabus topics.
CII/PFS members can access most of the
additional study materials below via the
Knowledge Services webpage at https://
www.cii.co.uk/knowledge-services.
New resources are added frequently to the
Knowledge Services collection - for information
about obtaining a copy of an article or book
chapter, book loans, or for help finding
resources, please go to https://www.cii.co.uk/
knowledge-services or email
knowledge@cii.co.uk.
CII study texts
Marketing insurance products and services.
London: CII.
Study text 945.
Financial services marketing: an international
guide to principles and practice. 3rd ed. Christine
Ennew. Oxford: Routledge, 2018.*
Marketing plans: how to prepare them, how to use
them. Malcolm Mcdonald, Hugh Wilson. 7th ed.
Chichester: Wiley, 2011.*
Marketing strategy. 3rd ed. Paul Fifield. Oxford:
Butterworth-Heinmann, 2012.*
Marketing theory: a student text. 2nd ed. Michael
Baker and Michael Saren. New York: Sage
Publishing, 2010.*
Principles of direct, database and digital
marketing. 5th ed. Alan Tapp et al. Harlow:
Pearson Education, 2013.
Principles and practice of marketing. David
Jobber. 7th ed. London: McGraw-Hill Education,
2012.
2020
Copyright © 2020 The Chartered Insurance Institute. All rights reserved
2 of 3
7
Examination syllabus
Winning client trust : the retail distribution review
and the UK financial services industry's battle for
their clients' hearts and minds. Chris Davies.
London: Ecademy Press, 2011.*
Access to further periodical publications is
available from the Knowledge website at
www.cii.co.uk/journalsmagazines
(CII/PFS members only).
eBooks
Reference materials
The following eBooks are available through
Discovery via www.cii.co.uk/discovery (CII/PFS
members only):
Concise encyclopedia of insurance terms.
Laurence S. Silver, et al. New York: Routledge,
2010.*
Brand management: research, theory and practice.
2nd ed. Tilde Heding, et al. London: Routledge,
2016.
Digital marketing in financial services. ©Timetric
Insight Report. December, 2013. Available for
members at www.cii.co.uk/insightreports
Cases on consumer-centric marketing
management. Sandeep Puri, Vimi Jham. Hershey,
PA: IGI Global, 2014.
Dictionary of insurance. C Bennett. 2nd ed.
London: Pearson Education, 2004.
Corporate branding: areas, arenas and
approaches. S. F. Syed Alwi. London: Routledge,
2015.
Disruptive marketing: what growth hackers, data
punks, and other hybrid thinkers can teach us
about navigating the new normal. Geoffrey Colon.
New York: AMACOM, 2016.
Handbook of Social Media management: value
chain and business models in changing media
markets. Wolfgang Muhl-Benninghaus, Mike
Friedrichsen. Berlin: Springer, 2013.
Marketing database analytics. Andrew D.
Banasiewicz. New York: Routledge, 2013.
The complete marketer: 60 essential concepts for
marketing excellence. Malcom MacDonald, Mike
Meldrum. Philadelphia: Kogan Page, 2013.
The financial services marketing handbook: tactics
and techniques that produce results. Evelyn
Ehrlich, Duke Fanelli. Hoboken: Bloomberg Press,
2012.
The new rules of marketing and PR: how to use
social media, online video, mobile applications,
blogs, news releases and viral marketing to reach
buyers directly. 4th ed. David Meerman Scott.
Hoboken: Wiley, 2013.
The Routledge companion to contemporary brand
management. Francesca Dall'Olmo Riley, et al.
New York: Routledge, 2016.
Online resources
Digital marketing in financial services. ©Timetric
Insight Report. December, 2013. Available for
members at www.cii.co.uk/insightreports
Insurance markets after the global financial crisis.
©Timetric Insight Report. April, 2015. Available for
members at www.cii.co.uk/insightreports.
Insurers' engagement with Social Media. ©Timetric
Insight Report. March, 2015. Available for members
at www.cii.co.uk/insightreports (CII/PFS members
only).
Insurance: Conduct of Business sourcebook
(ICOBS). Available via www.handbook.fca.org.uk/
handbook/ICOBS.
Lamont’s financial glossary: the definitive plain
English money and investment dictionary. Barclay
W Lamont. 10th ed. London: Taxbriefs, 2009.
* Also available as an eBook through Discovery via
www.cii.co.uk/discovery (CII/PFS members only).
Specimen guides
Specimen guides are available for all coursework
units.
These are available on the CII website under the
unit description / purchasing page. You will be
able to access this page from the Qualifications
section of the CII website: www.cii.co.uk/
qualifications.
These specimen guides are also available on the
RevisionMate website www.revisionmate.com
after you have purchased the unit.
Exam technique/study skills
There are many modestly priced guides available
in bookshops. You should choose one which suits
your requirements.
Insurance markets after the global financial crisis.
©Timetric Insight Report. April, 2015. Available for
members at www.cii.co.uk/insightreports.
Insurers' engagement with Social Media. ©Timetric
Insight Report. March, 2015. Available for members
at www.cii.co.uk/insightreports (CII/PFS members
only).
Journals and magazines
The Journal. London: CII. Six issues a year. Archive
available online at https://www.cii.co.uk/searchresults?q=journal (CII/PFS members only).
Journal of financial services marketing. London:
Palgrave Macmillan. Quarterly.
2020
Copyright © 2020 The Chartered Insurance Institute. All rights reserved
3 of 3
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9
945 syllabus
quick-reference guide
Syllabus learning outcomes
Study text chapter
and section
1.
Analyse the role and operation of marketing in the insurance industry
1.1
Explain the role of marketing within the insurance industry.
1A, 1B, 1C
1.2
Analyse the impact of internal factors on business in the
insurance industry.
2D, 2E
1.3
Analyse the impact of external factors on business in the
insurance industry.
2D, 2E, 5E
1.4
Explain the planning sequence for the marketing of insurance
products and services.
2A, 2B, 2C, 2F, 2G, 2H, 2I,
2J, 2K
2.
Analyse insurance product and service development and positioning
2.1
Evaluate insurance products and services by conducting
research within the insurance industry, including benchmarking
with competitors.
3A, 3B
2.2
Explain the design process of insurance products and services.
3C, 5B, 5C
2.3
Analyse the pricing and positioning of insurance products and
services.
5A, 5D, 5F
3.
Evaluate the distribution of insurance products and services
3.1
Evaluate the distribution channels available for insurance
products and services.
6A, 6B
3.2
Evaluate insurance customers, including relationship
management.
4B, 4C
3.3
Evaluate customer experiences.
6C
3.4
Analyse the buying behaviours of customers.
4A
4.
Analyse the role of communication in the marketing of insurance products and services
4.1
Explain the importance of branding.
8A, 8B
4.2
Explain the impact of culture and ethics on branding.
8F, 8G
4.3
Explain brand management.
8C, 8D, 8E
4.4
Evaluate the methods of communicating insurance products,
services and brands.
7A, 7B, 7C, 7D, 7E, 7F, 7G,
7H, 7I
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11
Introduction
As a 945: Marketing insurance products and services Advanced Diploma in Insurance
student you are likely to be well on your way to a career in which knowledge of technical,
legal, regulatory and capital issues are all clearly vital.
The objective of this unit is to demonstrate how good marketing practice contributes to
success in insurance businesses and the wider insurance industry. You will learn about
marketing’s central role to business and how to develop and implement an effective
marketing strategy.
Following the examination syllabus as closely as its structure allows, the text examines the
following:
• Marketing definitions and importance of the customer.
• Planning sequence including marketing audit, SWOT, marketing objectives and strategies.
• Competition and how research can help competitiveness.
• Customer buying patterns and customer segments identification.
• Product development and pricing.
• Distribution, inherent risks and delivering service.
• Marketing promotion and communication.
• Branding and building trust.
An important aim of this unit is to create an awareness that, whatever your future role in
insurance, you will have a part to play in marketing and should recognise that there are many
influences on performance other than financial.
To achieve success in the 945 assessment, you are encouraged to undertake the further
reading and private research recommended within this core text. Marketing lessons can
also be learned from everyday observations and general publications. Taking time to
enhance your understanding in this way will not only increase your chance of success in
the assessment but also your ability to contribute to creativity and innovation in insurance
marketing.
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13
Contents
1:
Role of marketing
A How important is the customer to marketing?
1/2
B How is marketing defined?
1/5
C What is marketing’s role in the insurance industry?
1/7
2:
Creating a marketing strategy
A How is a marketing strategy created for insurance products?
2/2
B The planning sequence
2/3
C Corporate mission and objectives
2/4
D The marketing audit
2/4
E SWOT analysis
2/10
F Marketing objectives
2/12
G Marketing strategies
2/13
H Expected results
2/16
I
2/16
Identifying alternatives
J Implementation
2/17
K Control and evaluation
2/17
3:
Information gathering and use
A Market research
3/2
B Identifying competitors
3/11
C Privacy and data protection regulation
3/13
4: Understanding customers
A Insurance customers and buying patterns
4/2
B Identifying insurance customers
4/8
C Segmentation of existing and prospective customers
4/11
5:
Product development and price
A Competitive positioning
5/2
B Portfolio management
5/9
C The life cycle of insurance products
5/10
D Taking a position in the market
5/13
E Supply and demand in the insurance industry
5/15
F Pricing
5/18
6:
Place, people and process
A Distributing insurance products
6/2
B Risk assessment
6/7
C Service delivery
6/9
14
945/November 2019 Marketing insurance products and services
7:
Promotion
A The marketing communications portfolio
7/2
B The marketing message
7/5
C Direct marketing
7/9
D Advertising
7/13
E Sales and account management
7/14
F Sales promotion
7/15
G Sponsorship
7/16
H Public relations
7/17
I
7/18
8:
Emergency communications plan
Branding and physical evidence
A Establishing a brand
8/2
B Importance of branding
8/6
C Brand awareness
8/8
D Brand extension
8/9
E White labelling
8/10
F The Insurance Plc brand
8/10
G Culture, ethics and brands
8/11
Legislation
i
Index
iii
Chapter 1
1
Role of marketing
Contents
Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A How important is the customer to marketing?
1.1
B How is marketing defined?
1.1
C What is marketing’s role in the insurance industry?
1.1
Bibliography
Questions, scenario and answers
Learning objectives
This chapter relates to syllabus section 1.
On completion of this chapter and private research, you should be able to:
• identify the central role of the customer;
• explain how the marketing role is shaped by the business requirement, marketplace and
customer;
• compare the various definitions of ‘marketing’;
• outline how the marketing function operates differently according to context; and
• explain the interdependent relationship and interaction between marketing and other
functions in the business.
Chapter 1
1/2
945/November 2019 Marketing insurance products and services
Introduction
Marketing has evolved as markets have evolved. In this opening chapter, we look at the
variety of views on how marketing should be defined, the importance of the customer, and
customer influence on marketing’s role. We also consider how a marketing function looks in
an insurance business and the interdependence of business functions themselves.
Key terms
This chapter features explanations of the following terms and concepts:
B2B
B2C
B2E
C2B
C2C
Customer-first market
Customer-centric
Divisional business
structure
Functional business
structure
Marketing
Matrix structure
Product-based market
Production-based
market
Reluctant market
Society-first market
Territorial business
structure
A
How important is the customer to
marketing?
A1
Evolving markets
Much of the development of marketing has followed the development of trade. The periodic
differences in the conditions of a market, such as the amount of each product for sale on a
given day, the price of the product in relation to other products, the ability of the customers
to pay for the product and the amount of competition, all determine the influence of
marketing.
Refer to chapter 1
of 530
Writing in 1776, Adam Smith predicted in his work An Inquiry into the Nature and Causes of
the Wealth of Nations that modern industry would depend for its development on an
extensive market for its products. He saw that the mechanism of the market ensured that the
demand for, and supply of, products could be regulated ‘naturally’ through competitive
pricing, and with a minimum of external control. Smith took the ideas that underpin the
operation of the central marketplace and extrapolated them to develop a startling but
simple theory of global, market-driven economics.
Markets became increasingly sophisticated as the boundaries and influences of industrial
production grew ever wider. The seller of the products was no longer necessarily the
producer of the products, and the benefits of direct contact between buyer and seller in the
traditional marketplace were sometimes lost because it was no longer necessary to meet
face to face at a single place to conduct a sale. Agents and other intermediaries began being
used to represent both sides of the transaction. This, together with improved
communications, meant that contracts of sale could be negotiated at a distance without the
parties ever meeting.
Since the mid-twentieth century, producers and sellers in market economies have given
greater attention to customers than ever before. There is evidence to show that successful
businesses throughout history have always concentrated on their customers’ needs, and
designed and supplied products to satisfy them. This period saw a shift away from just
selling to customers towards ‘serving’ them – through the use of help desks, call centres and
customer service programmes.
Today, marketing views the relationship between companies and customers as one of
co-production. Customers are involved in producing and delivering the product or service.
Consider, for example, an online purchase in which the customer is responsible for much of
the activity that was previously delivered by company employees. In this context, the
customer’s ability to identify the right product and navigate the system affects their level of
satisfaction with that company. Co-production has blurred the line that previously separated
company and customer and, as a result, customer desire for trust and transparency has also
been increasing.
1/3
Customer trust has been an issue within financial services since the early part of the
twenty-first century. Increasing regulatory influence has been necessary to promote
efficient financial services, vital for economic growth and to protect customer interests.
While customers expect businesses to behave legally, they increasingly also expect them to
behave morally and ethically too. There is a drive for financial services to be more
customer-oriented than profit-oriented and for suppliers to be seen as trustworthy. This has
been reinforced by recent legislative and regulatory changes. The customer is at the heart of
marketing and, therefore, marketing has a large part to play in building customer trust. The
challenge for marketers is not only to do the right thing but to do things right; to develop,
price, promote, distribute and service products that are both legally and ethically sound.
A2
The matching process
Marketing is about matching the abilities of the business to the needs and wants of its
customers so that both get what they want. Customers gain benefits and value through the
products they purchase and the business benefits from the profit it makes. Marketing is
about identifying what customers want, which of those wants the business is good at
delivering, which customers want what the business is good at and, ultimately, bringing
them together. The matching process takes place in the marketing environment in which the
business operates, as demonstrated in Figure 1.1. This environment is dynamic and not
necessarily controlled by the business. Businesses must identify any changes within the
marketing environment (for example, political and regulatory changes or the entry of new
competitors) and evaluate their impact on the current and future matching process. Any
change in this environment could dramatically affect a business’s ability to meet customer
needs and could impact its ability to survive.
Figure 1.1: Marketing environment
‘Industry norms’
Competition
Technology
Business abilities
Benefit
Profit
Customer wants
Political and regulatory
Customer needs
Critical reflection
Consider which factors in the marketing environment have affected the matching process
in your business. Chapter 2 will look at this more closely.
Customers expect
companies to
behave morally
and ethically as
well as legally
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A3
Market types
It is helpful to think in terms of marketing’s application to the main types of markets as set
out below:
Production-based market
The seller’s emphasis in this market is on efficient production and distribution. This approach
works best when demand is greater than supply, and products are relatively easy to sell. For
example, global demand for manufactured products at the beginning of the Industrial
Revolution meant that there was a high demand for those products, and no need to
concentrate on marketing them.
Product-based market
This type of market is for products which ‘sell themselves’, usually because of inherent
quality and performance characteristics. Sales promotion is therefore regarded as
unnecessary, on the assumption that all customers are generally well informed and
knowledgeable about the product. For example, specialist computer software tends to sell
on its reputation as a high-quality, targeted product.
Reluctant market
This type of market is one in which customers will not buy sufficient products unless they are
obliged to by law or pressing need, such as the need to avoid an undesirable outcome.
Unlike in the product-based market above, the inherent quality and performance of these
products is insufficient in itself to generate sales. Generally, insurance products fit into this
market. Marketing is essential in a reluctant market to generate awareness and explain
product benefits.
Customer-first market
This type of market shifts attention away from the seller and the producer and towards the
customer. This approach involves the determination of customer needs and values, and the
design and supply of products to satisfy them. The assumption here is that the customer is
the most powerful party in the transaction. The role of marketing in these conditions is to
ensure that products match customer specifications, with a heavy reliance on customer
relationships.
Critical reflection
Does your business think about the likely length of relationships when selecting which
clients to target? Are premium/fee rates set to affect the longevity of relationships or the
short-term gains of the business?
This reflection applies whether you are deciding on premium/fee levels as an insurance
company/managing general agent, or negotiating premium/fee levels as an insurance
broker or independent financial adviser. Positioning and pricing will be looked at in later
chapters.
Society-first market
This takes the customer-first approach a stage further. While there is still great emphasis on
meeting the customer’s needs, the assumption here is that those needs are satisfied in such a
way as to enhance the well-being of the customer and society as a whole. The requirements
are that products should be socially acceptable, organic, non-harmful and non-polluting. The
implication for marketing in this environment is that it needs to convey two messages. The
first is that the customer will be satisfied with the products, and the second is that their
choice of a particular brand will make the world a better place for everyone.
Critical reflection
The five markets described above are sufficiently broad for our purposes. Other
descriptions are relevant to different industries – consider different descriptions for
capital goods, retailing, currencies, commodities and others.
B
How is marketing defined?
The ability to satisfy the changing demands of customers has become increasingly
important. If the key to business success is the ability to satisfy current customer needs, then
the key to continuing business success is the ability to satisfy future customer needs. If
business success comes from meeting market needs, then marketing must be a vital
business function.
Marketing goes beyond interaction with customers and beyond understanding them. It uses
the knowledge gained from interaction and understanding to provide solutions to
customers’ requirements and, thus, generate business. Politicians, government departments,
not-for-profit organisations, monarchs and celebrities use marketing; for these people and
organisations, generating business may not be the ultimate objective.
Despite its very common use the term ‘marketing’ remains unclear. For some it means
award-winning advertising, having a drink with clients every so often, sending out corporate
Christmas cards every year, or something to do if sales miss targets. A small sector believes
that marketing is unnecessary and that a good product will succeed regardless, despite the
Concorde experience.
Research exercise
Investigate and make your own decision on the reasons behind Concorde’s retirement.
Considered a technological marvel in the 1970s, Concorde held many aviation records and
was the winner of the Great British Design Quest beating many other iconic designs.
While loved by many, Concorde endured prolonged protests on environmental and noise
pollution and was criticised for its reliance on government subsidies (though not all
considered these sincere). A crash and an air travel slump after 11 September 2001
brought low passenger numbers and a general safety fear. With no competitive pressure
to update its technology, it was eventually considered dated and maintenance support for
its ageing frame was stopped, though some suspected the airlines could simply make
more profit using sub-sonic aircraft.
Critical reflection
So what is marketing? Before answering the question, consider and jot down what
marketing means in your business.
Consider the following range of examples offered by authors of marketing textbooks:
…a social and managerial process whereby individuals and groups obtain what they need
and want through creating and exchanging value with others.
Kotler, P. and Armstrong, G. (2018) Principles of Marketing. 17th edn. Harlow: Pearson Education
Marketing consists of individual and organisational activities that facilitate and expedite
satisfying exchange relationships in a dynamic environment through the creation,
distribution, promotion and pricing of goods, services and ideas.
Dibb, S., Simkin, L., Pride, W. and Ferrell, O.C. (2016) Marketing Concepts and Strategies. 7th edn.
Boston: Cengage Learning
…the achievement of corporate goals through meeting and exceeding customer needs
better than the competition.
Fahy, J. and Jobber, D. (2015) Foundations of Marketing. 5th edn. Maidenhead: McGraw-Hill
Education
Marketing ultimately comes down to a company’s attitude towards its customers and how
well it serves them.
Sheth, J.N. and Sisodia, R.S. (2015) Does Marketing Need Reform? Fresh Perspectives on the Future.
1st edn. Abingdon: Routledge
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Marketing is a process for:
• defining markets;
• quantifying the needs of customer groups (segments) within these markets;
• putting together the value proposition to meet these needs, communicating their value
proposition to all those people in the organisation responsible for delivering them and
getting their buy-in to their role;
• playing an appropriate part in delivering the value proposition (usually only
communication); and
• monitoring the value actually delivered.
For this process to be effective organisations need to be consumer/customer-driven.
McDonald, M. (2006) ‘How To Get Marketing Back Into The Boardroom: Some Thoughts On How To
Put Right The Well-known Malaise of Marketing’, Marketing Intelligence & Planning. Vol. 24, Issue 5.
Bingley: Emerald Group Publishing Limited
For the purposes of this course, we shall use the traditional definition of marketing provided
by the Chartered Institute of Marketing for the period from 1976 to 2006:
Marketing is the management process responsible for identifying, anticipating and
satisfying customer requirements profitably.
This definition of marketing highlights the customer as being at the heart of marketing. It
implies that marketing has a central role to play in business success since it is concerned
with the creation and retention of customers. The purpose of marketing is not to chase any
customer at any price; it must be done profitably. Marketing-orientated companies
recognise the importance of building relationships and monitoring competitor behaviour in
order to serve the customer efficiently.
This definition shows that marketing is a structured process. Planning for marketing success
requires a series of decisions to be made. Fortunately for students of marketing, this process
can be broken down into a staged process. This is covered in chapter 2, section B.
Modern practitioners and academics have tailored the definition of marketing to reflect all
kinds of environments and marketing mediums – you will probably have come across terms
such as direct marketing, internet marketing, public sector marketing, international
marketing, database marketing, viral marketing and services marketing, to name just a few
examples.
This unit concentrates on insurance and financial services companies, and the provision to
customers of what they need and want ‘at a profit’, however, a positive contribution to costs
will also be relevant in the case of ‘not-for-profit’ businesses.
Be aware
Marketing principles can equally be applied to the work of not-for-profit organisations.
In profit-making businesses, managers commonly require the cost of specific marketing
activities to be lower than the amount of income generated by those same activities. There
are some exceptions to this, particularly for start-up businesses whose spend on marketing
may need to be high in the early months or years to increase consumer awareness of their
products and services.
Marketing management decision: assessing marketing spend
What types of advertising would you need for a start-up comparison website? What
would be the minimum period required for that advertising to attract sufficient traffic to
the website? What would be the cost outlay needed for such advertising?
At this stage, it is helpful to see marketing as a business philosophy because of the fact that
its disciplines, conventions and methods make it an essential part of running any business.
C
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What is marketing’s role in the insurance
industry?
Within any business, it is marketing that should have the customer’s best interests at heart. A
business relies on its customers for its survival and, therefore, customers are an important
asset to be protected. Marketing seeks to build a trusted relationship with the customer,
balancing their needs with those of the business. In building this relationship, marketing’s
role in insurance is wide-ranging due to the unique characteristics of the industry; its role
covers the following areas:
• Customers – earlier, we classified insurance as a reluctant market in which customers may
not want to buy sufficient products unless they feel there is a pressing need to do so. In
addition to this potential reluctance, customers can also face a complex process when
they do decide to buy insurance because it is an intangible service. This means that a
potential customer cannot fully evaluate insurance before they purchase it. It is
particularly problematic in insurance as full use of the product may be delayed by months
or even years until a claim is made on the policy. It is only at that time that the customer
will truly know if they have purchased the right product. In addition, insurance can be
complex – customers may have limited knowledge and be unable or unwilling to spend
time researching which product is right for their particular needs. Marketing plays an
important role in insurance – informing, educating and helping customers to make the
right decisions. This begins with well-developed products that meet customer needs and
deliver value; it also includes product training for sales staff, product promotion, using
clear and accurate information about product features and benefits that will enable
customers to make informed choices.
• Businesses – marketing not only helps to identify and define the needs of an insurance
business’s target market, but it also helps it to develop their proposition – who they are
and the values they stand for. In a crowded and competitive market, branding plays a
strong role in creating meaningful identities and differentiating one company from
another. The added advantage of this is that consumers tend to view recognisable brands
as trustworthy.
• The insurance industry – in the past, the industry has been tarnished by events such as
the financial crisis and this has eroded the trust that customers have in the industry as a
whole. As marketing’s focus is on the customer, marketing can lead the way forward in
developing and promoting an ethical industry that meets customer needs as well as those
of the wider society in which we live.
C1
Marketing activities
Marketing exists to facilitate the actual exchange of products by delivering customer value.
In essence, it anticipates and measures the importance of needs and wants in a given group
of customers and responds with a flow of need-satisfying products. When marketing is
properly focused on customers and their needs, it enables the business to sustain its
commercial success by exploiting changes in the marketplace. Accomplishing this requires a
business to:
• develop products that meet the needs of the target market better than those of its
competitors;
• set a price that is fair and transparent, and that reflects the cover provided;
• make products readily available and accessible for consumption;
• develop customer awareness of the value-delivering or problem-solving capabilities of its
products;
• hire and train the right people to deliver a professional service to customers;
• ensure the right systems and processes are in place to support customers from purchase
to sale and after-sale service; and
• develop a reputable brand to help customers ‘see’ what they are buying.
These activities form the 7Ps of the marketing mix: product, price, place, promotion, people,
process and physical evidence. We will explore each of these in more detail in the following
chapters.
The focus of
marketing is to
think from the
customer’s point
of view
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While technical changes have altered how these marketing activities are implemented (for
example, moving from TV and print to websites and mobile apps), the focus of marketing –
that is, thinking from the point of view of the customer – still remains the same.
C2
Changing views of marketing
In 2007, the Chartered Institute of Marketing’s Research and Information team offered a new
definition of marketing, having explained that the existing definition was 30 years old and
came from the pre-internet, pre-globalisation age. It was therefore created at a time when
there was less of a focus on relationships or on service marketing, and fewer channels
through which to market; in short, when marketing was a much simpler discipline. The
proposed definition in order to address these developments, reads as follows:
The strategic business function that creates value by stimulating, facilitating and fulfilling
customer demand.
It does this by building brands, nurturing innovation, developing relationships, creating
good customer service and communicating benefits.
With a customer-centric view, marketing brings positive return on investment, satisfies
shareholders and stakeholders from business and the community, and contributes to
positive behavioural change and a sustainable business future.
Refer to
chapter 6,
section C2A for
more on
customer-centric
marketing
This new, yet to be universally adopted, definition attempts to address what lies beneath the
concept of being ‘customer-centric’. The Chartered Institute of Marketing’s Research and
Information team argued that without process and philosophy the ‘real’ definition of
marketing becomes clear; it’s about influencing behavioural change. That change can be for
the customer, the business, the shareholder/stakeholder and/or the wider community.
C3
Who does marketing?
Research exercise
Identify who is responsible for marketing in your business. Evaluate how decisions are
made on products, service levels, distribution, advertising, sales and research.
Ultimately there will always be one individual in a business who will be wholly accountable
for, and coordinate everything related to, marketing. However, everyone in any business, in
one way or other, is responsible for marketing that business. They can all have an influence
on customer satisfaction through their work to a greater or lesser extent, and this is
particularly the case in small businesses where roles are less clearly delineated and
individuals ‘multi-task’. For example, repeated errors with policy documents can sometimes
be enough to make a policyholder change insurance company, even if they are satisfied with
the product they have purchased.
Research exercise
List every person/department in your business and alongside each of them write down
how you think they have/can have an impact on customer satisfaction, even if it is
indirect. Ask each of them to do the same, and then compare the answers. If their answers
are very different from yours then some discussion is needed – they may have identified
something that you haven’t and vice versa.
C4
Is a marketing department necessary?
A marketing department is not essential for undiversified businesses where the Chief
Executive understands customer needs. A marketing department may not be necessary for
larger businesses since product management could be done by underwriters, statistical
pricing predictions by actuaries, distribution by broker/distribution managers, and selling by
the sales manager. The danger with this, however, is that underwriters produce a technical
masterpiece of a policy unwanted by customers; accountants concern themselves with cost
instead of market value; distribution optimises delivery processes without customer service,
and sales follow a path of least resistance that diverges away from overall business
objectives.
It is important to start with defining and agreeing what the business requirement is for
marketing; establishing the real – rather than supposed – expectations the business has of its
marketing function, and identifying which activities are effective, and under what
circumstances. Sustained improvement in marketing relies on having the right processes (i.e.
linked to business objectives), culture and organisational structure. Achieving alignment
between the business requirement and marketing capability calls for board-level agreement
on the business requirements for marketing skills and defined skills, and the behaviours
needed to deliver on these business requirements.
Research exercise
Find a business without a formal marketing department (perhaps your own, a broker,
supplier or customer) and determine if its marketing is sufficient for its business
requirement.
Marketing may be outsourced, handled as and when in-house, or non-existent. Evaluate
how the business you have chosen finds new customers. For example:
• If recommendations are the main source of new clients, do they simply wait for a call or
actively seek recommendations through ‘reward’ promotion or asking for contacts?
• If online or offline enquiries are the main source, how are customers attracted and how
is their data captured?
C5
How does the marketing function operate?
Marketing as an activity is carried out in a variety of contexts:
B2C, business to consumer, applies to businesses that sell or provide to the end-user – the
consumer. Consumers are private individuals or families, for example, buyers of personal
lines insurance such as a private car or home insurance policies.
B2B, business to business, applies to businesses that sell or provide to other businesses,
such as manufacturers, distributors and wholesalers. Insurance brokers continue to
dominate the distribution of the majority of commercial general insurance for small to
medium enterprises. Specialist insurance is often marketed through wholesale insurance
brokers or managing general agents, where the marketing focus is on advice and product
knowledge.
Critical reflection
Consider the differences required in relationships between insurance suppliers and
customers in B2C and B2B contexts, as well as the consequent impact on marketing.
C2B, consumer to business, applies where a consumer posts their project to invite bids for
review and selection. It is not popular in insurance although some organisations such as local
authorities do advertise for prospective bidders through procurement journals and websites
(for example – www.contractsfinder.service.gov.uk).
C2C, consumer to consumer, applies to auction and exchange forums.
B2E, business to employee, is considered relevant in some quarters, such as the employee
benefits sector.
Be aware
Be aware of regulations on introducing insurance and how care must be taken to comply.
Useful websites
www.cii.co.uk – The Chartered Insurance Institute.
www.dma.org.uk – Direct Marketing Association.
There are limitations imposed on an organisation by its resources, and the unique make-up
of management skills often makes it impossible to take advantage of all market
opportunities with equal facility. Marketing helps businesses to allocate their financial,
human and operational resources efficiently. How the marketing function looks and operates
depends on the context in which it is working. The marketing function may look very
different if the context demands a particular specialism.
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Establish real
expectations
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The most important general function of marketing is that it provides an interactive link
between the seller and the outside world. These activities are all geared towards
understanding and interacting with existing and potential customers to generate new
business, whether that means increasing income or profitability or developing interaction
with customers and potential customers in some other measurable way. In a service
industry, such as insurance, the quality of customer service is vital in attracting and retaining
customers.
C6
How does marketing relate to other business
functions?
Change in any business is often instigated by marketing and has a knock-on effect which, to
be successful, relies on many other functions in the business. In more recent times, change
has also been instigated by regulatory matters which often involve the marketing function of
insurance to communicate the changes. Whatever the objective of that change, top-level
support is essential to its success. The board of directors or business owners/managers will
want to see any change initiated by marketing as relevant to the wider objectives of the
business. There must be a demonstrable link between change required by marketing and the
business’s ability to achieve its commercial objectives.
The human resources function uses tools such as performance reviews and benchmarking
studies in measuring staff performance. Marketing may secure the assistance of human
resources in using these tools, and thereby its endorsement, to support the change initiative
sought. This may apply in the case of service level improvement that requires enhanced staff
performance.
The finance function is the best ally in developing quantifiable returns on investment.
Increased sales performance or increased market share can often be the form of return on
investment required to be demonstrated for the change to be considered successful. A
balance between finance objectives and marketing objectives may require a longer-term
perspective, for example, customer lifetime value.
The repercussions of marketing-instigated change can be far-reaching for all functions of
the business. The effect of change might have obvious influences on structure, roles,
workload and budgets. Some effects of change may not be so obvious, and so a team-based
approach involving all the key business functions is often vital. Implementing any form of
significant change is complex; it takes time and ties up resources that might otherwise be
deployed elsewhere. So often projects stall because detailed project plans are not prepared
and agreed in advance.
The function of marketing is often subject to external influences according to the type of
market where it is applied. In the same way, the place that marketing occupies within any
management structure will vary depending on how that organisation is structured and on
the type of business it is in. Whatever the structure, the marketing function must relate to
senior management decisions and to other functions such as underwriting, operations,
distribution, finance and human resources.
Below, we consider where marketing fits into each of the four common management
structures.
C6A Marketing within a functional business structure
The thrust in the structure of this type of organisation is functional specialisation. As we can
see from Figure 1.2, managers create work units with employees performing aspects of the
same function. Most firms adopt functional specialisation as they grow, and it is especially
suited to single product or service firms.
Figure 1.2: The functional business structure
Chief Executive
Operations
Services
Purchasing
Marketing
Personnel
Finance
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In this structure, marketing holds equal importance with the other primary business
functions, namely production, personnel, purchasing and finance – all of which are
coordinated and supervised by the Chief Executive.
A high degree of communication between functional sections is needed for the marketing
function to be successful, and there is an especially important requirement for the marketing
department to be consulted and have a major influence on issues of product design,
production, distribution, finance and credit control.
C6B Marketing within a divisional business structure
The development of the divisional organisation is generally found in businesses that offer a
wide range of products. Each division handles all activities associated with producing and
marketing its product. As Figure 1.3 shows, each division is self-contained, although some
central functions are managed at head office.
Figure 1.3: The divisional business structure
Group head office
Group functions,
e.g. Finance, Personnel
Division A
Division B
Division C
Division D
As far as the marketing function is concerned, the marketing manager for each divisional
product takes responsibility for marketing that product, sometimes without reference to
other divisions. Overall approval and control of divisional marketing budgets and strategy
may rest with group marketing management at the business’s head office. Again, it is
essential that the marketing department maintains close contact with other function
managers.
C6C Marketing within a territorial business structure
This design creates work-groups based on territories. The idea is that all activities in a
particular geographical area should be controlled by a single manager, as illustrated by the
Figure 1.4.
Figure 1.4: The territorial business structure
Group Head Office
International Marketing Director
UK
France
Germany
USA
This design is most effective for businesses whose customers are spread around different
parts of the world or country. Within this structure, marketing can be precisely targeted,
since the advantage of this design is that work units can be tailored to the particular
functions and characteristics of a particular region. Each regional manager takes on
responsibility for marketing and sales in their own region, with support from a marketing
specialist in head office.
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C6D Marketing within a matrix management structure
Skills can be
shared vertically
and horizontally
The matrix design is an attempt to combine the best of all worlds; the production
specialisation of the functional business structure, and the regional or product focus of the
divisional business structure and the territorial business structure.
The matrix structure allows the benefits of a rigid vertical management structure (useful for
the management of large-scale tasks) to co-exist with a loose horizontal project
management structure (useful for stimulating innovation and change).
As Figure 1.5 shows, project managers and managers with functional specialisation can share
their skills both vertically and horizontally:
Figure 1.5: The matrix business structure
Managing Director
Production
Manager
Marketing
Manager
Engineering
Manager
Project
‘A’
Manager
Production
employees
Marketing
employees
Engineering
employees
Project
‘B’
Manager
Production
employees
Marketing
employees
Engineering
employees
The matrix design provides a structure that effectively manages at least two different
elements from a range including size, products, markets and customers. Marketing plays an
integrated but irregular role in this structure.
C7
Marketing in the context of corporate strategy
If we see a business’s corporate strategy as directing its resources to provide the best fit
between the business, its environment, and the customers it is targeting, as well as
maintaining a lasting competitive advantage, then it follows that the marketing function
must play an important role in the formulation of that overall corporate strategy.
The marketing
function must play
an important role
in the corporate
strategy
Marketing managers’ familiarity with customers, competitors and environmental trends –
formally and rigorously acquired – means that they can play a crucial role in influencing
strategies formulated at higher levels in the business. Marketing is used by many businesses
to achieve the main aims in their corporate business plans. It is common practice for
business plans to include a section on marketing strategy. Human resources, finance,
administration, sales and operations need marketing activities to help the generation of
income, as much as marketing needs their functional activities.
A marketing strategy will typically set out how a business will use the resources available for
marketing to achieve the main aims defined in its corporate strategy. The marketing
department’s freedom of action is ultimately constrained by the corporate business plan.
The objectives, strategies and action plans for a specific market are just part of a hierarchy of
strategies within the organisation. Each level of strategy must be consistent with the overall
corporate strategy, and the marketing strategy is no exception.
Summary
The main ideas covered in this chapter can be summarised as follows:
• The customer is at the heart of marketing and, therefore, marketing has a large part to
play in building customer trust. The challenge for marketers is not only to do the right
thing but to do things right; to develop, price, promote, distribute and service products
that are both legally and ethically sound.
• The ability to satisfy the changing demands of customers has become increasingly
important. If the key to business success is the ability to satisfy current customer needs,
then the key to continuing business success is the ability to satisfy future customer needs.
• Marketing has a central role to play in business success as it is concerned with the creation
and retention of customers.
• Marketing exists to facilitate the actual exchange of products by delivering customer
value. In essence, it anticipates and measures the importance of needs and wants in a
given group of customers, and responds with a flow of need-satisfying products.
• The most important general function of marketing is that it provides an interactive link
between the seller and existing and potential customers.
• The function of marketing is often subject to external influences according to the type of
market where it is applied. Whatever the structure, it must relate to senior management
decisions and to other functions such as Underwriting, Operations, Distribution, Finance
and Human Resources.
Bibliography
Dibb, S., Simkin, L., Pride, W. and Ferrell, O.C. (2016) Marketing Concepts and Strategies.
7th edn. Boston: Cengage Learning
Ennew, C. and Waite, N. (2017) Financial Services Marketing. 3rd edn.
Abingdon: Routledge
Fahy, J. and Jobber, D. (2015) Foundations of Marketing. 5th edn. Maidenhead: McGrawHill Education
Kotler, P. and Armstrong, G. (2018) Principles of Marketing. 17th edn. Harlow: Pearson
Education
McDonald, M. (2006) ‘How to get Marketing Back into the Boardroom: Some Thoughts On
How To Put Right The Well-known Malaise Of Marketing’, Marketing Intelligence &
Planning. Vol. 24, Issue 5. Bingley: Emerald Group Publishing Limited
Sheth, J.N. and Sisodia, R.S. (2015) Does Marketing Need Reform? Fresh Perspectives on
the Future. 1st edn. Abingdon: Routledge
The Chartered Institute of Marketing. (2009) Marketing Capability: Practical Solutions for
the Modern Marketing Agenda. 1st edn. London: The Chartered Institute of Marketing
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Revision questions
1.
In 2007, the Chartered Institute of Marketing offered a new definition of marketing.
What was their reason for doing so?
2.
What is meant by the term ‘the matching process’?
3.
What is meant by the term ‘reluctant market’?
4.
What is the difference between ‘business to business’ and ‘business to consumer’
marketing?
5.
What must a business agree on before establishing a marketing department?
6.
What is the most important general function of marketing?
Scenario 1.1: Question
Your website sales are low and you are charged with identifying how to improve them.
Where do you begin, who do you seek information from, and what is the general nature of
the information you seek?
See overleaf for suggested answers
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Revision answers
1.
The CIM explained that the existing definition was 30 years old and came from the
pre-internet, pre-globalisation age. It was therefore created at a time when there
was less of a focus on relationships or on service marketing, and fewer channels
through which to market; in short, when marketing was a much simpler discipline.
2.
Matching the abilities of the business to the needs of its customers so both get
what they want.
3.
A reluctant market is one in which consumers will not buy sufficient goods and
services unless they are obliged to by law or pressing need.
4.
Business to business applies to businesses that sell or provide to other businesses.
Business to consumer applies to businesses that sell or provide to the end-user.
5.
A business must define and agree on what its requirements are for marketing. It
must also establish the real – rather than supposed – expectations that it has of its
marketing function and identify which activities are effective and under what
circumstances.
6.
Marketing provides an interactive link between the seller and the outside world.
Scenario 1.1: How to approach your answer
Aim
This case study tests your understanding of the importance of the customer in marketing
and the relationship between marketing and other business functions.
Keys points of content
You should aim to include the following keys points of content.
Begin with customer research:
• Are the online products appropriate?
• Are the premium/fee rates competitive?
• Is the website easy to use?
• How did they find the website, and was it easy?
(There will be many other questions; the important point is that the customer is the
starting point.)
Finance will guide you on the provision of funding for research and possible changes, and
thereby the extent to which you can go to instigate change.
Dependent on the existence of other business functions:
• Marketing/IT will help guide you on the website’s user friendliness, search engine
optimisation and other features that may affect attracting customers and their
experience once attracted.
• Marketing/advertising will help with attracting customers to the website with online or
offline advertising in the right style and right places.
• Human resources will help determine if website design skill sets exist in-house, or if
outsourcing is necessary.
• Underwriters/actuaries will help with the appropriateness of price and cover for
chosen markets.
(Again, there will be others; the important points are the relationships between marketing
and other business functions.)
Creating a
marketing strategy
Contents
Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A How is a marketing strategy created for insurance
products?
1.4
B The planning sequence
1.4
C Corporate mission and objectives
1.4
D The marketing audit
1.2, 1.3
E SWOT analysis
1.2, 1.3
F Marketing objectives
1.4
G Marketing strategies
1.4
H Expected results
1.4
I Identifying alternatives
1.4
J Implementation
1.4
K Control and evaluation
1.4
Bibliography
Questions, scenario and answers
Learning objectives
This chapter relates to syllabus section 1.
On completion of this chapter and private research, you should be able to:
• explain how a marketing strategy is created;
• outline the components of a marketing audit;
• explain the impact of the external environment on marketing strategy;
• explain the impact of internal factors on marketing strategy;
• describe core competencies and internal auditing of marketing practices;
• define SWOT analysis;
• describe how the marketing mix supports marketing strategies; and
• explain how the components are used in marketing plans.
Chapter 2
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Introduction
Chapter 2
We concluded at the end of chapter 1 that effective marketing requires a careful examination
of all strategic issues if it is to support the achievement of the overall business plan. In this
chapter we shall look at how an organisation might typically go about formulating an
effective marketing strategy. This includes examining the:
• components of the marketing audit;
• SWOT analysis; and
• options available to establish marketing objectives and strategies,
within a dynamic environment, and considering how components of the marketing mix are
available to help develop value propositions.
Key terms
This chapter features explanations of the following terms and concepts:
Ansoff Matrix
Competitive rivalry
Core competencies
External audit
Internal audit
Market trends
Marketing audit
Marketing mix
Marketing plan
Mission statement
STEP, PEST, SLEPT or
PESTLE analysis
A
How is a marketing strategy created for
insurance products?
In a typical business plan, the objectives of a business are set out and supported with
background information, rational argument, practical explanations, key assumptions and
monitoring. Its corporate objectives embody a business’s specific aims and aspirations; they
define not only what business it is in, but also what it strives to do within that business
environment.
Refer to 990,
chapter 5,
sections B and C
for further
discussion of
strategy and
planning
processes
Marketing, like other business functions, formulates a strategy to demonstrate its role in the
business plan. It deals with the specific ways in which the benefits of the business’s offering
will be researched, priced, distributed, developed and communicated to the target market.
The marketing plan – ranging from long-term strategic plans through to short-term action
plans – will detail how this is to be achieved within the appropriate time limits.
Be aware
Strategic marketing planning requires the careful examination of all strategic issues,
including the business environment, the markets, competitors and business capabilities,
and also determines the direction of the business over, say, five years. Consequently, the
process is time-consuming and also has cost implications.
A one-year tactical plan should follow from the marketing strategy; it is a mistake to
extend a one-year plan without careful examination of future trends.
An action plan should be worked out for each separate project, campaign or area.
Marketing strategies and plans must have the support of senior management and also be
aligned with the business’s corporate objectives, its mission and its values. As marketing’s
focus is on the customer, the marketing strategy should also evidence how the company will
deliver on its ethical values or ‘corporate social responsibility’ programme.
An insurance business’s marketing strategy usually defines customer segments, rather than
just listing products. This means that resources are directed to customers that can be won
with segment-specific propositions which are differentiated so as to avoid being seen as
commodities. The business will make the most of its competences with unique propositions
that anticipate the future, so avoiding direct competition for the same customers at the
same price.
Formulating and implementing a marketing strategy is a process that shares some attributes
with developing a business plan. A formalised marketing strategy develops a common
understanding and commitment.
Chapter 2 Creating a marketing strategy
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Research exercise
B
The planning sequence
The planning sequence (see Figure 2.1) varies among authors and businesses, and there are
differences in the degree to which information is gathered. In this sequence, feedback is also
included to recognise the iterative nature of the planning process.
Each organisation will approach the planning process in a different way. An insurance
business that sells only a few products to a narrow market range will generally use less
formal procedures. At the other end of the scale, a diversified insurance business that sells a
broad product range to a variety of markets will tend to have a formalised process so that
people can share information and decision-making; it is likely to have several marketing
strategies, one for each division.
Figure 2.1: Planning sequence
Step 1: Corporate mission and objectives
Step 2: Marketing audit
Step 3: SWOT analysis
Step 4: Marketing objectives
Step 5: Marketing strategies
Step 6: Expected results
Feedback
Step 7: Identify alternatives
Step 8: Implement programmes
Step 9: Control and evaluation
In the following sections, we will examine each step within the planning sequence in more
detail.
Chapter 2
How does your business formulate a marketing strategy? Is the process and result
formalised? What buy-in is achieved from staff?
Chapter 2
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C
Corporate mission and objectives
C1
Mission statement
Many businesses have a mission statement that is unique to the business and that affects it
at all levels. The statement should define the market in which it operates, specify distinctive
competences, and describe where the business is heading. Ideally, it should be
customer-based and supported throughout the business, so as to give the business a sense
of corporate identity. It should also be made available to everyone who comes into contact
with the business, including customers, employees, investors and the general public.
Research exercise
Visit some of the websites listed below to see for yourself how different businesses
articulate their mission statement. Be aware that not all will necessarily be good examples.
• http://bit.ly/2h0rm8G
• http://bit.ly/2dmZhsi
• http://bit.ly/16ISnGm
Those businesses that do not use a mission statement will communicate their business’s
philosophy and values in another way, possibly through meetings or through business
behaviour.
C2
Refer to
chapter 8 for
more on vision
and values
Corporate objectives
The corporate plan describes where the business is, where it intends to go, and how it will
organise its resources in order to get there. To ensure that a business’s marketing strategy
remains focused on the achievement of overall corporate objectives and strategies, it should
state and refer to its mission and values, and link to the corporate objectives from the
beginning.
Corporate objectives need to be consistent with the sense of corporate identity and
direction provided by the mission statement. They may be expressed as either financial
targets or productivity targets. Like all objectives they need to be SMART: specific,
measurable, achievable, relevant and time-defined. Without well-defined SMART
objectives, it is impossible to properly evaluate outcomes.
Be aware
Corporate objectives have a direct influence over marketing strategy development,
particularly since financial targets for sales or profitability may depend on the success and
effectiveness of marketing activities, but also because marketing objectives may be linked
directly to corporate objectives.
D
The marketing audit
The marketing strategy itself begins with a marketing audit. This should be a systematic,
critical and unbiased review and appraisal of the business’s marketing environment, internal
marketing system and marketing activities. It provides the answer to the question: where are
we now?
Marketing audits can be carried out by external consultants, internal management staff, or
by both groups working together. The advantages of including internal staff in the auditing
process are that the organisation’s own expertise can be tapped, the managers can become
more involved and more committed to the plan, and consultants’ fees can be kept to a
minimum.
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Groupthink
‘Groupthink’, a term coined by social psychologist Irving Janis (1972), occurs when a
group makes faulty decisions because group pressures lead to a deterioration of ‘mental
efficiency, reality testing, and moral judgment’. Groups affected by groupthink ignore
alternatives and tend to take irrational actions that dehumanise other groups. A group is
especially vulnerable to groupthink when its members are similar in background, when the
group is insulated from outside opinions, and when there are no clear rules for
decision-making.
The purpose of the marketing audit is to give a complete and accurate picture that will
indicate how marketing effectiveness can be improved. It is divided into two parts: an
external audit and an internal audit, as detailed below.
External audit
Internal audit
The market
The business
The competition
The business’s offering
The business environment
The business’s core competencies
D1
External audit
D1A
The business environment
A STEP, PEST, SLEPT or PESTLE analysis involves examining important features of the
external business environment, with a view to interpreting their effect on marketing the
organisation’s offering. The features to be examined depend on threats to profitability and
where to find future opportunities, and include:
• social;
• technological;
• economic;
• political;
• legal; and
• ecological.
Local and national features will usually be most important for small businesses but larger
companies will need to consider the environment in any countries in which they do business,
as well as the global scene. Again, it works best to clearly define markets in terms of
customer needs, not product lists.
Features that might impact on the defined market need to be identified; this is often best
done in a team, so as to pool collective knowledge.
A large initial list of features is often vague without any real insights. The implications of each
feature for the defined market need to be drawn out. Sometimes a bewildering array of
features and their implications for the market may seem confusing. Looking at how the
various implications combine and interact brings clarity to the analysis.
This type of analysis is best used in conjunction with, and as a base for, a SWOT analysis.
Again, many businesses and their staff could benefit from including this exercise in an annual
planning process and thereby discontinuing the use of over-tired assumptions.
Chapter 2
The marketing audit should be considered a continuous process that identifies good
activities and outcomes as well as those that are less good. A marketing audit is often
commissioned when sales slump or profits decline. This is the time when external
consultants can help overcome internal myopia or groupthink. Staff skills and internal
resources can become under-utilised and miss the drivers of change affecting the business.
Many businesses and their staff could benefit from including the marketing audit in an annual
planning process.
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Chapter 2
Be aware
Features may need to be drawn together to provide a clearer picture, and should not be
viewed as independent. The criteria to which business must respond are many, varied and
constantly changing.
Some suggestions for consideration and possible inclusion in your STEP analysis follow. The
list is not definitive and is intended as a start point to encourage your thinking.
Social factors
Demography
Population trends; average family size; birth rate; divorce rates; gender ratios;
immigration and emigration patterns; own staff recruitment.
Lifestyle
Occupations; leisure interests; travel; urban migration; internet use;
education; religion.
Behaviours
Cognitive responses; attitudes; buying methods; staff attitude to training.
Technological factors
Computers
Methods of buying online; methods of receiving information easily; PCs,
iPads; faster access to information; own business capacity to compete; cost
implications of updating systems and processes; cost implications on claims.
Communications
Comparison website use; customer communication methods in advertising;
document exchange and claims handling.
Economic factors
Relative wealth
Disposable income; discretionary income effect on pricing and discounts;
effect on fee income; own capital provision effect on acquisitions.
Economy
Recession or boom; customer liquidations; inflation; energy costs;
unemployment; wage trends; tax change effects on personal investments.
Political factors
Public policy
Disability; youth; age; discrimination; nationalisation; trade unionism;
enquiries into financial dealings; right to privacy; macro environment.
Finance industry
FSA break up and new regulators introduced; FSCS.
Legal factors
Regulation
Changes in the law which affect operations; micro environment; tax
concessions; solvency requirements; consumer protection; competition
regulations.
FCA
Compliance and ICOBS (Insurance: Code of Conduct Source Book); FCA
change; FCA fees.
Ecological factors
Customer
Ethical investment; social responsibility; vehicle fuel; energy sources.
Business
Own carbon footprint; corporate social responsibility.
After analysing STEP factors, the business’s competitive environment is considered in terms
of bargaining power, industry structure, costs, market size and growth.
D1B
The market
One of the aims of the external marketing audit will be to identify and quantify the insurance
business’s market. Since the whole purpose of marketing planning is to steer the business
toward market opportunities, the market audit is mainly concerned with analysing market
trends. By understanding in depth what is happening to its potential customers, the business
can select those that offer the best prospects for long-term success.
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Questions that should be asked can cover a range of considerations, including:
• total market size, growth and trends, in terms of value and volume;
Chapter 2
• total market developments in products, prices, distribution and communication;
• own and rivals’ market share changes;
• customer behaviour patterns;
• own and rivals’ relationships with intermediaries, brokers/advisers, partners and affiliates;
• changes in industry practices; and
• investors and their effect on insurance market capacity.
Customer segmentation is one of the key tools for identifying markets. The identification of
markets is crucial to knowing where to address your questions.
D1C
Competition
All insurance businesses compete to provide products to the market.
Figure 2.2 illustrates a model devised by Michael Porter showing the forces that contribute
to a competitive environment.
Figure 2.2: Porter’s five forces of competition
Threat of new entrants
Power of suppliers
Competitive rivalry
Power of audiences
Threat of substitution
or
new technology
These forces are as follows:
Competitive rivalry
Seven factors which increase competitive rivalry:
• equality of size and power of competitors;
• slow industry growth;
• lack of product differentiation or switching costs;
• high fixed costs;
• capacity added in large increments, causing bottle-necks followed by gluts;
• high exit barriers, creating over-capacity; and
• diverse competitor strategies.
The threat of potential entrants
Six possible barriers to entry:
• economies of scale;
• product differentiation;
• capital requirements;
• cost disadvantages;
• access to distribution channels; and
• government policy.
The threat of substitution
This is why you should endeavour not to constrain your approach in any way.
What matters is the possibility of alternative routes to provide customer benefits, not simply
direct competition; new technology or creative financing may result in the development of a
substitute to insurance. Questioning what business you are in can be a very useful exercise.
Refer to
chapter 4,
section C for
more on
segmentation
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Chapter 2
Be aware
Competition exists in hidden places. In many instances the policyholder has the legitimate
option of self-insurance or ‘no insurance’, and as such the option represents competition.
The bargaining power of customers
A concentration of customers will favour customers. Undifferentiated, or commoditised,
products will also favour customers (for example, motor insurance is generally advertised at
cheap premiums). True multi-national and local authority programmes tend to carry lower
margins, since high premiums or fees will cause customers to bring insurance in-house.
Mutual and captive insurance companies or in-house insurance brokers become most
attractive when premiums are high.
The bargaining power of suppliers
A concentration of suppliers will favour suppliers; early suppliers of new products can often
secure higher premiums, as was the case with directors’ and officers’ insurance in the 1980s.
Highly specialised suppliers can often carry higher premiums or fees. Unsatisfactory margins
for suppliers will cause suppliers to ‘bring in-house’; insurance companies’ investment in
insurance brokers becomes attractive when premiums are low.
Marketing management decision
You are required by your Managing Director to give your view of the competitive state of
your market.
Take care to judge your market and not the insurance market in its entirety.
D2
Internal audit
D2A The business
Generally, insurance businesses are not equally strong in all areas. For example, staff skills
may be let down by poor processes, or customer access may be constrained by a lack of
working capital.
When carrying out this part of the internal marketing audit, the main areas of enquiry should
be directed towards the following:
People
• Are numbers adequate?
• What skills does the organisation need, and do staff have those skills?
• How do these skills compare with those of its competitors?
• Are staff enthusiastic and loyal?
• Are customers at the centre of their focus?
• Do reporting structures match roles and relationships?
Facilities
• Is equipment adequate and flexible enough to allow staff to do their work effectively?
• What is the quality of locations?
Systems
• Are operating systems and procedures adequate?
• Is management and marketing information of good quality?
• Are control systems working?
• Is the planning system functioning?
• Are communication channels open?
• Do customers benefit from systems or do systems benefit from customers?
Money
• Are capital provisions adequate?
• Are budgets flexible tools or rigid constraints?
Market assets
• Is the customer base large enough and/or wide enough?
• Is access to capital supply sufficient for the business plans?
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D2B The business’s offering
Chapter 2
Knowledge, experience and a wide range of products are important to many within the
business. What customer needs the products fulfil are the most important things for the
business to understand.
In this part of the audit, the organisation should be asking some questions about its
products, for example:
• How different is each product from other insurance businesses’ products?
• What is the business’s distinctive features and benefits?
• Where is the business’s position in the overall market?
• Where are the business’s products in their respective life cycles?
• What innovations can be included in the current product range?
A study of features and benefits relies on one central idea. If the core product cannot be
differentiated then a comparison of features and benefits with those of competitors will
highlight other possible differentiations.
The unique things which distinguish the business and its products from everyone else in the
market are both the tangible and intangible elements of what the business is offering.
Buying behaviours sometimes follow less rational paths, and so product features and
benefits are subsidiary to other cognitive stimulators. The customer experience itself may be
the differentiator.
D2C Core competencies
The marketing function probably represents the most important interface between the
business and the competitive environment.
Marketing relates to other business functions. There are three interactions with the most
strategic impact:
• Research and development, which may be physically part of marketing or outsourced, is
important to identify new products.
• Operations and underwriting is important in delivering and modifying products.
• Finance is important in estimating capital, revenue and cash requirements.
Each and every function and process needs careful examination to identify internal
strengths and weaknesses.
D2D Internal auditing of marketing practices
A thorough review of marketing activity will require considerable time and effort. When
done as part of the planning process it becomes a regular activity in which information
collection, analysis and decision-making is natural.
Own business sales (by location, industry, customer, product etc.), market share and profit
margins should be available as a base for an appraisal of the marketing mix.
• Product range, quality and development.
• Promotion covers all communications with existing and potential customers, including
impersonal communications (advertising, direct marketing, special sales promotions and
public relations) and personal communications (personal selling, servicing and
monitoring).
• Place refers to the distribution channels and describes the locations and the ways in
which the customer experiences contact (including own premises, website or
intermediaries). The importance of ‘place’ from a marketing perspective is that the
insurance organisation must present a consistent message about its offering at each
location or channel. The ‘place’ element of the marketing mix must also give the customer
accurate clues about the offering.
• Price has a direct impact on revenue and margin, and gives an expectation of quality. For
an insurer, price is the premium and for an independent financial adviser or insurance
broker, price is commission or fee level.
• People – whether your own staff or outsourced – need to be recruited, trained and
motivated to interact positively with customers.
Refer to
chapter 6,
section C1 for
more on using
customer
experience as a
differentiator
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• Process for buying, standardising to reduce costs and improve productivity, and/or
customising for niche positioning and higher premium. It should reflect the research done
on the target segment.
• Physical evidence of policy documents and product literature helps establish and
reinforce a corporate identity.
For more detail on
the marketing mix,
see section G1
This should all be readily available, although if a review is not done regularly it may take time
to collect every detail, particularly if the business has departments working independently of
one another.
D2E
Internal audit of the marketing system
The review of the marketing system should provide answers to questions such as the
following:
Marketing objectives
• Are marketing objectives consistent with business objectives?
Marketing strategies
• Are strategies for achieving objectives clear?
• Are sufficient resources available to achieve objectives?
Structure
• Are marketing responsibilities and authorities clearly structured?
• Is the marketing department interacting with other functions effectively?
• Should marketing be centralised or de-centralised?
Information system
• Is the marketing intelligence system delivering accurate and timely data?
• Is that data being gathered effectively?
Planning system
• Is the marketing planning system effective?
• Does management control ensure that objectives are achieved?
• Are sales and profitability monitored to assess where revenue and costs are located?
• Are marketing activities effective enough, or could they be outsourced?
The outputs of internal processes and an external audit now come together to form the base
material for a SWOT analysis.
E
SWOT analysis
SWOT is an acronym for strengths, weaknesses, opportunities and threats. It is a simple and
popular technique which can be used in preparing or amending plans, problem solving and
decision making, or for general awareness of the need for change. SWOT is one of the least
understood and most abused techniques, meaning it often results in the production of long,
meaningless lists.
Preparing for a
SWOT analysis
is vital
Without market understanding, success is a matter of luck: preparation is vital! Before
starting a SWOT analysis (see Figure 2.3) you should be clear about what you are doing and
why, as this will help to enlist a mixture of views from consultation and discussion. The
gathering of information on strengths and weaknesses should focus on the internal factors,
while gathering information on opportunities and threats should focus on the external
factors — both have been covered earlier. If possible, organise sessions to encourage the
free flow of information (through brainstorming or similar techniques, perhaps).
When used correctly, SWOT should be a progression from your external and internal
marketing audit.
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Figure 2.3: SWOT analysis
Opportunities
and threats from
the business
environment
Business
weaknesses
Implications
of the market?
(Segmentation)
Opportunities
and threats from
the market
Factor
alignment
Implications of
the competition?
(Porter’s 5 forces)
Opportunities
and threats from
the competition
Chapter 2
E1
Implications of
the business
environment?
(PEST analysis)
Key issues
to be
addressed
Business
strengths
SWOT factors
SWOT takes any strengths or weaknesses highlighted by an internal analysis and matches
them to the opportunities or threats gathered from the external analysis. It is usually set out
as in the table below (the factors shown are randomly listed, for example). Under each
heading is a list of the items that fall into that category.
Strengths (Internal)
Weaknesses (Internal)
• Business size and strong balance sheet
• Skills shortage
• Experience and track record
• Inconsistent quality across departments
• National cover
• Inexperienced staff
• Service quality friendly, cooperative and
supportive staff
• Unfocused segmentation
• Staff knowledge and expertise
• Declining market for main product
• Innovation
• Regular staff absence
• Customer relations and loyalty
• Inadequate leadership
• Effective cost control systems
• Dependence on few products
• Staff development and training
• Low marketing investment
Opportunities (External)
Threats (External)
• Support activity as profit centre, e.g.
compliance service to brokers
• Recession
• Open new offices
• Recruitment pool low calibre
• New software to improve systems
• New EU accounting rules
• Interest rate changes
• Growth outpacing resources
• An ageing population
• Low premium levels continue
• Competitor weaknesses
• Competition buy distribution control
• Rationalise broker base
• Obsolete product range
• Lack of new products or services
• Key staff defection
SWOT factors are often ‘dumped’ in more than one box, which can sometimes lead to
confusion. However, when factors are used in the right place there will be only a small
number of factors that are very important to understanding the market.
Internal factors qualify as real strengths only if they are really valuable to the customer, and
cannot be replicated or delivered by competitors. Similarly, a weakness qualifies as such
only when the customer finds it significant, it cannot be fixed, and competitors don’t have it.
The investigation should include where complaints arise, and where real weak links in the
value chain arise.
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Chapter 2
External factors qualify as real opportunities only if the win is worth the effort of exploiting
them, and allows you to manage your portfolio effectively. Similarly, threats qualify as such if
the loss is likely to have a significant impact you cannot mitigate. It is a matter of considering
how possible damage may be limited or eliminated.
E2
SWOT alignment is
a critical stage
in making
SWOT work
Factor alignment
SWOT alignment is a critical stage in making SWOT work. It involves finding relationships
between the strengths and opportunities and the weaknesses and threats, then drawing out
the implications for the strategy. Clarity is key at this stage, and a clear picture should begin
to emerge straightaway in response to the objectives, although some aspects may require
further research.
A strong strategy would use a strength to attack an opportunity, and would guard a
weakness against a threat. If a SWOT does not seem to balance in this way, then it would
suggest that there is a weakness in the steps being taken. The output of a good SWOT is a
list of key issues that suggests a strong strategy to exploit the business’s strengths against
market opportunities, and guard weaknesses against threats. Your SWOT analysis should be
used in all subsequent planning, and you should regularly revisit your findings to check that
they are still valid. A good SWOT strongly influences business and marketing plans.
E3
Assumptions
The assumptions that underpin a SWOT analysis need to be very specific as they establish
the basis for the strategy. A way of deciding if an assumption is influential is to consider
whether the marketing strategy will work regardless of the assumption being correct. If an
assumption, whether true or false, does not make any difference to the prospects of success,
then it cannot be regarded as an assumption, as such.
Example 2.1
Key assumptions for an insurance organisation’s marketing strategy might include:
• continued collaboration with partnership organisations;
• interest rates remaining stable;
• consistent price levels of reinsurance; and/or
• no major natural catastrophe exceeding previously experienced costs.
Example 2.2
For example, the strategy will look very different if based on an assumption that premium
rates will harden by 5% or soften by 5%.
Outcomes from the control and evaluation step (Figure 2.1, step 9) feed back into the SWOT
analysis as the findings may require the assumptions upon which the SWOT is conducted to
be changed.
F
Marketing objectives
Once the marketing audit and SWOT analysis have been completed, it is possible to identify
specific marketing objectives that will enable the business to meet its corporate objectives.
It is therefore important that marketing objectives stem from – and contribute to – the
corporate objectives of the business. For example, if corporate objectives specify expansion,
then the marketing objectives should be stated in terms of what the growth is, e.g. increased
market share.
Marketing objectives are key, precise statements (usually measurable or assessable in some
measure) which outline what is to be accomplished. They are usually all about the match
between products and markets and what you want to sell to which markets. Other aspects
of the marketing mix are also considered in marketing strategies.
Deciding on objectives will rely heavily on market research information and the business’s
systematic examination of the opportunities available for its offerings in the market. These
will have emerged from the marketing audit process.
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G
Marketing strategies
Marketing strategies are the means by which marketing objectives are achieved. A
marketing strategy should focus on the choice of market and how the business will compete
in this market.
Marketing strategies generally have three components: segmentation; targeting and
positioning:
• Segmentation is used to identify the different types of consumer groups (the segments)
within a market in order to understand the needs and wants of each.
• Targeting involves identifying which segments are most attractive to the business by
taking into account its products.
• Positioning concerns identifying what competitive advantage the business has that will
appeal to the chosen the segment, and how this should be communicated to the
customer.
Tools are available to help businesses to develop their marketing strategy. While they do not
provide answers, they do help businesses to consider the issues identified by the marketing
audit, and to help them understand how they can respond. For example, the Ansoff Matrix
(see Figure 2.4) suggests four possibilities: continue to sell existing offerings to existing
markets (market penetration); sell existing offerings to new markets (market development);
develop new offerings for existing markets (product development); and develop new
offerings for new markets (diversification).
New markets
Current markets
Figure 2.4: Ansoff Matrix
Current products
New products
Market penetration
Product development
Market development
Diversification
Chapter 2
Like all objectives, marketing objectives should also be SMART. Care needs to be taken to
ensure that marketing objectives are not confused with processes. A SMART objective
would be ‘to achieve a 10% increase in volume sales of motor insurance in the budget year’. If
we were to simply state that we wanted ‘to promote motor insurance via our direct channel’
or ‘increase the sales of motor insurance’, then neither would be SMART objectives – the
former is process based and the latter is a poor objective.
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Chapter 2
G1
Marketing Mix
All aspects of the marketing mix may be used in marketing strategies to pursue the
business’s objectives in a given target market. The term ‘marketing mix’ has been widely
used since 1953 to encompass what was originally called ‘the 4Ps’. Since then, it has
subsequently been extended to 7Ps (see Figure 2.5). As marketing has evolved with
changing markets, there have been suggested ways of reclassifying the ‘marketing mix’,
though few have been adopted.
Figure 2.5: The marketing mix
Company
brochure and
website
User-friendly online
customer experiences,
procedures and
operations
Features match
customer need
Physical
Evidence
Process
Rewards,
training
Marketing 7Ps
People
Advertising,
personal selling
Product
Promotion
Profitable,
competitive
Price
Place
Direct or
intermediated
Product
For marketing purposes, product is a generic term that includes services. The product range,
product features and product documentation need to match customer needs. It is advisable
to have a system to collect and analyse customer feedback so that ideas are fed into the
product development process. For more information, see chapter 5.
Price
Price generates profit. Too low a price may lead customers to consider it valueless, too high
and it may be considered too expensive. Competitor pricing is a start point on which to base
prices, discounts and credit terms, closely tied to where a product is positioned in relation to
those of any competitors. For more information, see chapter 5.
Promotion
Promotion is the collective word covering all communications with existing and potential
customers. It includes advertising, personal selling, public relations, direct marketing and
sales promotion. The tools a business should use will depend on its segmentation, marketing
objective, resultant budget and message. For more information, see chapter 7.
Place
Place refers to the distribution channels for the product and describes the locations and
ways in which the customer experiences the product. Choice of distribution affects price and
promotion; choice of locations (including websites) affects where customers find the
product. Direct selling through an in-house sales force is expensive, and intermediated
selling needs price to cover both their margin and the promotion. For more information,
see chapter 6.
People
People determine quality delivery and customer perception. Quality has an effect on price,
customer service standard setting and staff training has a cost. The motivation, training,
remuneration and morale of staff are therefore extremely important. For more information,
see chapter 6.
Chapter 2 Creating a marketing strategy
Physical evidence
Physical evidence refers to the image a business portrays through its premises, staff
appearance, product literature, website, brand and every other detail the customer sees. For
more information, see chapter 8.
G2
Marketing mix and strategy
Marketing managers make dozens of specific tactical decisions in designing marketing plans
and coping with changes in the market. The seven variables of the marketing mix represent
factors that marketing managers have some ability to control. Altering any or all of these
components has the potential to stimulate a different reaction from the market. Of course, it
does not follow that objectives will be achieved by simply adjusting one or more of seven
variables; the market is far more sophisticated than that!
Below are some examples of marketing options using each element of the marketing mix, all
of which need to match customer needs:
Product
• Broaden the product portfolio.
• Reduce product variables.
• Increase/reduce cover.
Price
• Add-on services.
• Lower/raise the price.
• Introduce free instalments.
• Price bundling.
Promotion
• Change advertising.
• Promote the solutions delivered.
• Change personal selling strategies.
Place
• Change distribution channels.
• Introduce service charter.
People
• Conduct a skills analysis and recruit new people.
• Change service levels by segment.
• Train staff.
• Review and improve communications with customers.
Process
• Alter the process for signing up new customers.
• Change the way service is delivered.
Physical evidence
• Provide staff with company uniforms.
• Upgrade premises.
Chapter 2
Process
The process used in product delivery has an impact on customer perception of the business.
The how and when of the marketing process, including customer feedback, needs to be
communicated to customers and staff at every relevant touch point. For more information,
see chapter 6.
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Research exercise
Chapter 2
Consider your own organisation and decide where and on what basis improvements can
be made. You may like to use the table below as a starting point and base your
recommendations on your research data.
What you do
Who is
responsible?
Competitors?
Improvements?
Product
Price
Place
Promotion
People
Process
Physical evidence
H
Expected results
Once the marketing objectives and strategies have been decided, the financial implications
need to be considered. Marketing expenditure is not cheap. According to Business Insider
UK, a single advertisement on primetime breakfast television in the UK costed between
£3,000 and £4,000 in 2017. This figure excludes the cost of producing the advertisement
which would require consideration and involve many parties. Additionally, for a campaign to
be effective, a number of such adverts would be needed.
Marketing expenditure should include the financial costs of all the resources required to
implement the marketing strategy. Calculation of the planned marketing expenditure is
important to ensure that the expenditure is justified when compared to the expected results.
It also enables spend to be monitored.
Expected results are calculated by comparing the estimated cost of the marketing activities
against the expected results (for example, the projected sales revenue that is anticipated
from the planned marketing activities). It may be helpful to forecast these in terms of
pessimistic, realistic and optimistic.
Feasibility should be checked and tested in ways that look at conclusions from another
angle; field tests may be appropriate. Sensitivity testing should be used to assess the impact
of possible inaccuracies in forecasts of customer demand and market fluctuations.
Any unexpected deviation should lead to a review of marketing strategies.
I
Identifying alternatives
One of the difficulties in formulating a strategy is the need to think the unthinkable and
imagine that events will not turn out as planned. Contingency and alternative strategies are
required should any of the key assumptions and/or variables change.
Refer to
chapter 3,
section A3 for
more on scenario
testing
Contingency
planning is a series
of plans that are
continually refined
Thinking the unthinkable involves isolating discrete environmental scenarios which the firm
could possibly have to face in the future, and proposing appropriate responses for each.
Scenario planning deals with how to negotiate a future course in the context of significant
uncertainty. Scenario analysis demands understanding of the forces driving the business.
Contingency planning attempts to minimise the probability of loss due to unforeseen risk,
identify alternative courses of action in the event of unwanted outcomes, and plan a
response to major unpredictable events.
Contingency planning is easier if planning is thought of not in terms of a rigid plan, but more
as a series of plans which are continually refined as more information about the environment
becomes available.
Outcomes from contingent and alternative strategies should be compared with expected
results.
Chapter 2 Creating a marketing strategy
J
Implementation
An action plan should be worked out for each separate project, campaign or area, and
should detail the:
• specific activities that will be undertaken;
• allocation of responsibility;
• dates for starting and finishing each activity;
• estimated resource requirement and how resources are to be allocated;
• expected cost of the activities; and
• expected results (sometimes called milestones) on completion of each activity.
Once an action plan has been drawn up, it can be implemented according to the timetable
and responsibilities it contains.
Control and evaluation
A way of monitoring the plan is to check whether the original objectives and the expected
results have actually been achieved, or look likely to be achieved. This is why objectives
should be measurable in quantities and timescale. Monitoring is simpler when the original
objectives are expressed in easily measured terms with set milestones.
If there is deviation from the plan, it should be easy to identify what is causing it, and to
determine what should be done about it. It is important to think of performance measures as
a way of confirming that your plan is on course, while also giving you the opportunity to
make adjustments and changes. Learning from experience in a constructive way enables you
to view planning as a beneficial and flexible tool that will maintain your career experience at
its highest level.
Research exercise
Ask your colleagues for an example of a failed project, and for any ideas on what they
would have done differently to make it work. What would you do now to make it work?
Chapter 2
Operational planning is about deploying the business’s resources to realise its short- and
medium-term marketing objectives and strategies. Action plans are drawn up to show the
specific actions that need to be taken.
K
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Chapter 2
Summary
Marketing deals with the specific ways in which the benefits of the business’s offering will be
researched, priced, distributed, developed and communicated to the target market. The
marketing plan will detail how this is to be achieved within the appropriate time limits and
budget.
An insurance business’s marketing strategy usually defines customer segments so that
resources can then be directed to customers that can be won with segment-specific
propositions.
To ensure that a business’s marketing strategy remains focused on the achievement of
overall corporate objectives and strategies, it should state and refer to its mission and
values, and link to the corporate objectives from the beginning.
As marketing’s focus is on the customer, the marketing strategy should also evidence how
the company will deliver on its ethical values.
It is crucial to establish marketing objectives that outline what is to be accomplished.
Marketing strategies are the means by which marketing objectives are achieved. A
marketing strategy should state how resources are to be used, including a breakdown of the
budget, and details of the manpower employed.
A STEP, PEST, SLEPT or PESTLE analysis involves examining important features of the
external business environment, with a view to interpreting their effect on marketing the
organisation’s offering.
SWOT is an acronym for strengths, weaknesses, opportunities and threats. SWOT analysis
can be used in preparing or amending plans, problem solving and decision making, or
general awareness of the need for change.
Measuring the effectiveness of marketing in influencing demand can be somewhat elusive. A
significant investment in advertising may result in increased name awareness and improved
perception, but not necessarily in an increase in sales or profit.
The components of the marketing mix are the tools with which to improve the match
between customer needs and the business’s abilities to deliver customer satisfaction.
Altering any or all of these components has the potential to stimulate a different reaction
from the market.
When a business knows which customers are profitable, it can establish the characteristics
of those customers and set out to find and attract more like them. The business can then
tailor products and communications to these groups, and individual customers if
appropriate.
There are many variables that make characterising customers difficult. It helps to ask who
buys, why they buy, how they buy, and why they buy from the business.
Chapter 2 Creating a marketing strategy
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Bibliography
Ansoff, H.I. (1968) Corporate Strategy. London: Penguin
Janis, I.L. (1971) ‘Groupthink’, Psychology Today (US) pp.43-45; 74-77.
Kotler, P. and Keller, K.L. (2015) Marketing Management. 15th edn. New Jersey:
Prentice Hall
McDonald, M. (2006) ‘How to get Marketing Back into the Boardroom: Some Thoughts on
how to put Right the Well-known Malaise of Marketing’, Marketing Intelligence & Planning.
Vol. 24, Issue 5. Bingley: Emerald Group Publishing Limited
McDonald, M. (2011) Marketing Plans: How to Prepare Them, How to Use Them. 7th edn.
Oxford: Butterworth-Heinemann Limited
Porter, M.E. (2004) Competitive Strategy – Techniques for Analyzing Industries and
Competitors. New York: The Free Press
Smith, B.D. and Awopetu, B. (2009) ‘Remote Control: Understanding What Drives Your
Market in the Long Term’, The Chartered Marketer, pp.17-18
Smith, Dr. B.D. (2008) ‘Hidden Strengths: The Proper Use and Great Strengths of the
SWOT Analysis’, The Chartered Marketer, pp.21-23
Westwood, J. (2013) The Marketing Plan. 4th edn. London: Kogan Page
Chapter 2
Farquhar, J. and Meidan, A. (2010) Marketing Financial Services. 2nd edn. Basingstoke:
Palgrave MacMillan
Chapter 2
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Chapter 2 Creating a marketing strategy
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Revision questions
What are the steps in the marketing planning sequence?
2.
How does a marketing objective differ from a marketing strategy?
3.
What are the four main marketing strategies in Ansoff’s Matrix?
4.
What are the main components of the marketing mix?
Scenario 2.1: Question
Your response to how sales could be improved on the website has interested your MD
who is now questioning if the website itself – and the products and prices – are really fit
for the current market.
Your MD requires you to carry out an initial marketing audit, focusing on external aspects
so that they can determine if outside consultants should be commissioned.
See overleaf for suggested answers
Chapter 2
1.
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Chapter 2
Revision answers
1.
Step 1: Corporate mission and objectives
Step 2: Marketing audit
Step 3: SWOT analysis
Step 4: Marketing objectives
Step 5: Marketing strategies
Step 6: Expected results
Feedback
Step 7: Identify alternatives
Step 8: Implement programmes
Step 9: Control and evaluation
2.
Marketing objectives are key and precise statements that outline what is to be
accomplished. Marketing strategies are the means by which marketing objectives
are achieved.
3.
Continue to sell existing offerings to existing markets; sell existing offerings into
new markets; develop new offerings for existing markets; and develop new services
for new markets.
4.
Place, price, promotion, product, physical evidence, people, process.
Scenario 2.1: How to approach your answer
Aim
This case study tests your understanding of the external marketing audit.
Key points of content
You should aim to include the following key points of content:
• Begin by looking at the corporate plan to identify a link with marketing planning.
• Establish if a marketing audit and SWOT analysis is a continuous process within your
business; are assumptions, objectives, strategies and expected results recorded and
measured?
• Include a basic PEST, market view including competition, and the Opportunities and
Threats aspects of SWOT. You are not expected to conduct a fully detailed analysis but
enough to help your MD to decide on the next step.
• Identify a component or more that could be improved.
Information
gathering and use
Contents
Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A Market research
2.1
B Identifying competitors
2.1
C Privacy and data protection regulation
2.2
Bibliography
Questions, scenario and answers
Learning objectives
This chapter relates to syllabus section 2.
On completion of this chapter and private research, you should be able to:
• explain the specialist nature of market research;
• describe a process for using market research in developing products;
• explain the importance of competitor intelligence;
• explain a process for gathering competitor intelligence; and
• explain the need to comply with relevant regulation and ethics.
Chapter 3
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Introduction
The chapter covers competitor intelligence systems; and the use of market research,
including agency selection. We also look at the use of research in new product development,
and the impact of regulation and ethics on information gathering and use of the information
collected.
Chapter 3
Key terms
This chapter features explanations of the following terms and concepts:
Big Data
Blockchain technology
Competitor intelligence
Data protection
legislation
FinTech
InsurTech
Market research
New product
development
Personal information
Primary research
Privacy and marketing
Qualitative research
Quantitative research
Scenario testing
Secondary research
A
Market research
Market research helps reduce uncertainty and minimises risk by providing information that
feeds into marketing plans. Its value is in producing the right information at the right time. A
constantly changing business environment means existing customers develop new needs
while new customers also bring new and different needs. The abilities of the business must,
therefore, also change to meet these new needs.
Market research is a vital component in the development and management of new products,
and also the enhancement of existing ones. It produces fundamental information for the
organisation about the utility and acceptability of a new or existing product’s design, its
target market and the acceptability of its price.
Market research will also involve the forecasting of sales for the proposed product or
service, thereby allowing managers to decide if it is worth investing in its development. The
basis for investigating the future is a full understanding of the present. Before beginning to
carry out market research, a business should have the best possible picture of its business
environment.
Market research can be conducted in-house by research experts within the business, or the
business can appoint a specialist external research agency to undertake this work.
Specialists bring objectivity which reduces bias and participants are often more honest with
them. In-house research, however, is cheaper, and it protects the confidentiality of
participants and sensitive strategic information. It is not necessary to contract a whole
project to specialists.
Choosing the right specialist involves:
• deciding upon a budget;
• selecting likely agencies;
• giving each a detailed written and personal brief;
• receiving a detailed proposal (including costs) from each; and
• making a selection.
The final selection is likely to be made based on which specialist’s tender best meets the
following suggested factors:
Technical:
• Target group sample design and justification, recruitment method (there are several).
• Data collection techniques to be used, description and justification.
• Outline a questionnaire or interview guide.
• Methods of analysis.
• Quality control checks.
Chapter 3 Information gathering and use
3/3
Administrative:
• Communication methods and by whom.
• Report and interim timings.
• Specific costs and method of payment.
• Contractual consideration, including cancellation.
Agency:
• Size, structure and resources.
Chapter 3
• Experience, sector, client types, reputation and testimonials.
• Trade and industry links.
• Code of conduct adherence.
Market research can also be conducted on a syndicated basis. This involves several
businesses working together on one research project. The General Insurance Market
Research Association (GIMRA) manages syndicate research projects within the general
insurance market. It highlights the benefits as cost savings; benchmarking against
competitors; and avoiding over-researching of key markets.
Useful website
For further information on GIMRA, see: www.aura.org.uk/gimra.
A1
Market research techniques
Market research is typically divided into two broad groups: secondary research and primary
research.
Secondary research, also known as desk research, should be the starting point for most
research. There is a wealth of information to be obtained from data already collected by
previous researchers. Research can be a costly business, although not doing research can be
even more costly in the long term. A business’s sales records and business management
information will reveal much more than just the total contribution customers have made to
profits. Some of this information will expose the impact of customer behaviour on
profitability that allows a match to be made to the needs of the customer.
Primary research involves the collection of new information by directly contacting
customers (or others of interest), and is customised according to research requirements.
Primary research can be qualitative or quantitative.
Qualitative research attempts to understand consumer attitudes, motivations, feelings and
opinions. It explains why consumers behave the way they do. This can help a business to
understand its market and how best to adapt its offering; it can provide background
information and assess reactions to offering new ideas. Methods include in-depth interviews,
group discussions, focus groups and experiments. Qualitative research usually involves small
numbers of research participants. Questions are open-ended and without pre-determined
answers, so that the participant can discuss their thoughts and feelings. The results provide
good detailed insight but cannot be generalised.
The most common methods include:
• Interviews – these may be semi-structured or in-depth, and are conducted face-to-face,
by telephone or online (e.g. by Skype). Interviews are excellent for providing a detailed
understanding of an issue as they allow for information to be clarified and probed, and for
accuracy to be checked.
• Group interviews, also known as focus groups or discussion groups – these typically
involve six to eight participants who work in groups to build on each other’s ideas and
comments. This allows them to provide more comprehensive input than if they were
interviewed on their own.
• Mystery shopping – this method is mainly qualitative and involves a researcher visiting or
using a service incognito then providing feedback on the quality of that service.
• Consumer panels – this involves a group who provide feedback on the products or
services they have used (for example, through diary recording their experiences). If the
panel is large and data is collected by means of a survey, then the panel would be
classified as quantitative research.
Market research is
divided into two
groups: secondary
and primary
research.
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Quantitative research is based on numerical measurements (for example, market size,
market share, sales figures, the proportion of satisfied customers and market trends).
Quantitative research involves large numbers of research participants and is most useful for
statistically valid results with known error margins.
Methods include:
Chapter 3
• Surveys – these are distributed to the consumer and completed either face-to-face, by
telephone, by post or online. Customer data is usually collected by a structured
questionnaire containing closed questions with tick box answers. The results are
comparable to the same questions are asked in the same format to each participant.
Questionnaires should provide reliable results quickly and cheaply.
• Experiments – the purpose of an experiment is to measure how a change to one variable
(for example, price, product feature, advertising design) affects another variable (say,
sales). All other variables must be held constant (i.e. kept the same) to ensure that the
change is accurately measured. This can be time-consuming and costly.
• Controlled observations – the aim is to measure what happens and how participants
behave rather than to ask them why they behave the way they do. For example,
eye-tracking studies can be used to track the participants’ eye movements. This helps to
identify where best to place items on a screen. In quantitative, controlled experiments, the
participants would not be asked to explain their behaviour.
The methods cited above are core, traditional market research techniques. Changes in
technology, however, have also had a large impact on how market research is conducted
today and some techniques have been developed specifically for this context.
Techniques include:
• text messaging, interactive voice response, gamification, eye tracking and QR codes
which are newer digital tools best used to identify willing participants;
• browsing track and monitoring which are becoming more advanced with tools available
to capture search behaviour and interests; and
• netnography which analyses the behaviour of individuals on the internet (for example, the
analysis of website blogs and forums).
Refer back to
chapter 2,
section G and the
Ansoff Matrix
Online methods are generally considered to be less representative but cheaper while offline
methods are considered to be more robust and representative. The key to success is to
interpret and translate findings to constructive actions.
A2
For a detailed
explanation of the
product life cycle,
see chapter 5,
section C
New product development
Investing in new products is crucial to business growth and profitability. All products
progress through a life cycle which includes introduction, growth, maturity and decline. It is
important to ensure that new products are developed to replace those in decline as they will
ultimately be removed from the product portfolio. The marketing audit together with
effective segmentation and portfolio management should be a good starting point from
which to reveal opportunities. Market research should help finalise a decision upon whether
to develop new products or not.
New product development is best done as a series of steps. This will screen out the majority
of ideas and leave the business with the minority that are most likely to be viable.
Step 1: Objectives and strategies for new products
New product development may aim to maintain market position, defend market share, or
grow future volume and profit. New product development can be categorised into active
and passive strategies.
• Active strategies are designed to initiate change. For example, research and
development into new products, or an acquisition-led strategy to buy good product ideas
already generated by the acquisition target and in need of business strengths to
accelerate growth.
• Passive strategies respond to moves made by competitors, for example, product
adjustment or copying to compete better.
Chapter 3 Information gathering and use
3/5
Step 2: Idea generation and screening
New ideas can come from anywhere, including market research, customers, staff,
competitors, the Government, academics and the media. New products are often easier to
sell if they complement an existing product range. Conversely, substitute products may
reduce sales, for example, through excessive segmentation.
Finance functions will have methods of measuring a required return on investment which will
necessitate the marketing department’s assessment of market potential, resources required,
likely costs and likely rewards.
Step 3: New product design
New product design involves product positioning and product specification to match
customer needs, turning an idea into a recognisable product concept with market potential.
Market research, using techniques such as surveys and focus groups, will help.
A business needs to identify competitors for the segment that it is targeting to allow it to
match customer needs in a way that is better than the competition. The new product needs
an advantage that will make it stand out in the marketplace. A product that is difficult to
imitate provides a distinct advantage.
Consider this…
A competitive advantage occurs when a business can offer something that its
competitors cannot. It is what prevents a competitor from being able to do exactly what
the business is doing. It could be a strong brand, technical skills, a patent, sheer size or
something else that is unique to the company.
Competitive advantage is not easy to achieve in an insurance context. Consider what
competitive advantage the leading businesses in your market have.
Step 4: Testing
Many tests are available to verify the features of new products, including panels of experts
and customer tests during phases of development. It involves testing the concept against
possible target markets and customer needs to see if the idea in development could be
improved. Analysis should indicate possible sales and costs, thereby giving a better idea of
the risks involved, as well as the product’s potential.
Test marketing of the product with customers can provide information about the potential
success of the product and marketing programme, thereby limiting the risk involved. Test
marketing can identify improvements to be made in all the elements of the marketing mix
(product, promotion, distribution and pricing), or it may result in a decision to halt the
project altogether.
There are three basic test market strategies:
• Replication – a scaled-down test in a representative market.
• Experimentation – the product is tried out in specific distribution channels.
• Behavioural model-based analysis – a detailed model of customer behaviour.
It is important to select the most appropriate model for each specific test market analysis
and budget.
In an insurance context, concept testing can be problematic because the product is
intangible. Consumers may struggle to visualise or relate to the new product – particularly
those they find difficult to understand. These issues need to be accommodated when
planning the testing phase.
Market testing is the phase least conducted by European financial services businesses. In
particular, products that involve little risk are not always test marketed. While this reduces
the overall development time, it means that testing and commercialisation are done
simultaneously. Products that are brand new to the market should be tested as new product
failure can result in customer dissatisfaction and reputation damage to the business, as well
as brand failure.
Ideas need to be
screened
Chapter 3
All new ideas need to be screened before a decision can be taken on whether or not to
invest in them. Screening involves matching new ideas against objectives to ensure they fit
into a business’s plans. Criteria to use in screening might include underwriting feasibility,
potential profitability, corporate fit, production cost, product life and competitive
advantage.
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Step 5: Commercialisation
This is the point at which financial investment is made in the new product, to resource
adequate elements of the marketing mix, and launch the product onto the market.
The test marketing phase will have helped to refine the marketing mix. The marketing plan
should specify the long-term objectives as well as a broad outline of how these are to be
achieved.
Chapter 3
Demanding customers and increasing competition can cause a product to be replicated,
meaning a business’s innovation eventually turns into a low-priced commodity product, and
a new product design cycle seeking growth and profitability begins again. Time to market
(the length of time it takes from a product being conceived until its being available for sale)
is important where products are outmoded quickly. Innovators of ‘first-of-a kind’ products
often have the luxury of time, while the pressure is on followers who must decide when
to enter.
Critical reflection
The average time to market for a new financial service is six months, often much less.
Consider why this is so and also why a business’s customers might help its competitors to
gather the information they need to replicate an offering. For example, a client copying a
conceptual report for another insurance broker, or an insurance broker giving copy
documents to another insurance company.
Research has found the main deficiencies to avoid in new product development are
failures to:
• integrate new product development into overall strategy;
• focus on important segments;
• manage an integrated portfolio;
• spread investment over different product groups; and
• involve customers.
A3
Scenario testing
Information systems will deliver a lot of information that will need to be made the most of.
However, it may be that stakeholders are not able to fully grasp the implications of
assessments and plans. In which case, scenario testing may help plans to be presented in a
graphic format that aids understanding.
Scenario testing is an activity using scenarios which help think through a complex problem
for a testing environment. Software is available to help ease the method of delivery and the
manual processes behind the software are described below.
Scenarios allow for
natural bias and
uncertainty
All forecasting techniques are based on essentially judgmental inputs. Facts are unique;
interpretations are multiple. Scenarios allow for natural bias and uncertainty by examining
alternative predictions. Scenario analysis demands a full understanding of the forces driving
the business and can extend planning horizons. Scenario analysis is aimed at identifying
long-term factors and consequent events; it is based on a belief that you learn about the
product by doing tasks that require you to investigate.
Further reading
Van der Heijden, K. (2011) Scenarios: The Art of Strategic Conversation. 2nd edn.
New York: John Wiley and Sons
Ideas and information
Writing a scenario involves writing a story from ideas and information that you will have
gathered and developed. Information will have been gathered as part of the marketing audit,
including STEP and SWOT. From those outputs, the most important factors that are driving
change in the business environment can be determined. Attention must be focused on a
limited number of the most important issues that will be genuinely variable, for the point is
an examination of significant alternative outcomes. Predictable factors that have an
important impact should be spelt out in the introduction to each scenario.
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Framework
Simplistic stories that involve only one factor can be created for scenarios. The strength of
the scenario is that it can help to discover problems in the relationships among the factors.
The selected change-drivers need to be linked together into a meaningful framework.
Conceptually it is difficult to make sense of complex patterns, so a group effort attempting
to arrange the issues into groups that make sense may help. No important factor should be
dropped even if it appears difficult to determine where it fits into the attempt to link factors.
It is usually easy to identify up to ten mini-scenarios.
Chapter 3
Working scenarios
Reducing lots of mini-scenarios to two or three larger scenarios may create some debate in
order to agree the most important change-drivers. To avoid single-track thinking it is useful
to have complementary ideas that are not in opposition to each other but are possible
alternate predictions from the same inputs so that if both are liked they will not have to be
chosen between.
Consider this…
Consider the consequences of failure in, say, a product launch that causes your business
to receive a large number of emails. If this, in turn, causes your IT system to fail, it could be
considered seriously disruptive to your business. To exaggerate a variable factor’s value
slightly may increase its significance, and make the sequences of events more
complicated.
A scenario that brings out significant effects would be influential. A scenario is credible if
senior management believe it will probably happen. In order to test scenarios they should be
evaluated by asking if they make sense, although care is needed because the more complex
the test, the more likely a plausible-looking result will be accepted as being correct. If they
do not make sense then the process should begin again.
Issues arising
Scenarios will need to be written in a format that managers can use to formulate their
strategy; a business report format is most likely. The report will then be examined to
determine those outcomes with the greatest impacts, which should result in debate and
even the possibility of having to begin the whole process again in some circumstances.
Additional interest may focus not simply on predicting future outcomes but on how key
people may respond.
The strategic next step is for key people to begin matching the business’s limited resources
to the unlimited resources of the external business environment. Scenarios should help
develop a set of strategies to protect against all major threats, and exploit major
opportunities.
A4
Information age
In the past, insurance pricing was portfolio-based and used a quantitative process supported
by qualitative information. However, new methods are increasingly being used as a result of
developments in digital technology.
The most recent developments to affect the insurance industry include ‘FinTech’,
blockchain technologies and ‘Big Data’ and data analytics:
• FinTech: Financial technology (or FinTech) refers to the activities of businesses that have
been created to offer new software solutions for financial services. This is an extremely
fast-growing sector, with global investment increasing from less than £1bn in 2008 to well
over £31bn in 2017. The general areas in which FinTech can be applied currently include
money transfer, loans, mobile payments, risk assessment and asset management, among
many others. The development of FinTech in the insurance sector is called ‘InsurTech’ and
refers to the use of technological innovations designed to realise savings, efficiency, and
delivery innovations from the current insurance industry model.
The development
of FinTech in the
insurance industry
is called InsurTech
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It includes the following:
– The use of ‘black boxes’ and mobile apps inside cars to feed data on driving ability to
insurers to help determine premiums and responses to claims.
– The use of Fitbits and internet-connected home appliances to help determine
premiums in health and home insurance.
Chapter 3
– The establishment of peer-to-peer networks to bring groups of people together to
purchase, for example, motor, home or mobile phone insurance on a group basis, and
therefore at lower premiums.
The FCA opened a ‘Sandbox’ to firms in May 2016; this is a ‘safe space’ in which businesses
can test innovative products, services, business models and delivery mechanisms, while
ensuring that consumers are appropriately protected.
Blockchain
provides 24/7
accessibility and
availability
• Blockchain technologies: This technology uses distributed ledgers or decentralised
database records which can be continually updated and synchronised via the internet. By
reducing the need for a central database, the process can be more efficient and is
regarded as safer than a single database of information. Other advantages include the
following:
– Fast and simple transactions – participants can transfer information or data without
third-party intervention.
– Fully transparent and secure – users control the transactions. When a user wants to add
or change information, the request is broadcast to all participants holding copies of the
existing blockchain. Each participant’s system automatically checks if the information
matches the blockchain’s history. If the majority of participants agree that the
transaction is valid, the new transaction will be approved, and a new block is added to
the chain.
– 24/7 accessibility and availability – data can be expediently transferred via the system
24 hours a day, seven days a week, without delay.
– Reduced costs – having one ledger which is controlled by secure and transparent
technology reduces mediators and costs to a minimum.
– Single point of truth – because blockchain is reliable and durable (an ‘unhackable’
network), it can be used as a single point of truth.
• Big Data and data analytics: The rate at which insurance companies have been
accumulating data has expanded rapidly in recent years, such that most companies now
have a considerable store of information about their customers and potential customers.
With further applications of FinTech, this massive quantity of data (known as ‘Big Data’) is
set to continue expanding dramatically and will require detailed and efficient analysis for a
company to gain a competitive advantage over its rivals. Big Data and effective data
analytics (i.e. statistical techniques designed to analyse massive datasets) are expected to
help insurers to improve their business activities in many areas, including customer
acquisition, pricing, underwriting, risk selection and customer services, particularly in lines
such as home insurance and health insurance.
Be aware
FinTech: FinTech is the use of computer technology to improve the efficiency of financial
systems. As such, FinTech companies are involved in a wide range of financial activities,
including payment systems, financial data collection, credit scoring, ‘crowd-funding’,
peer-to-peer lending and cyber-security, among many others.
Applications of FinTech activities in insurance are sometimes referred to as InsurTech.
Blockchain technologies: This refers to the use of distributed ledgers or decentralised
database records which can be continually updated and synchronised via the internet.
Benefits include fast and simple transactions that are fully transparent and secure as well
as 24/7 accessibility and availability.
Big Data: The term ‘Big Data’ refers to massive datasets for which traditional data
processing methods are inadequate.
The term ‘data analytics’ refers to modern statistical techniques that are used to analyse
‘Big Data’ to reveal trends, patterns, associations and causal relationships to aid
decision-making.
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Useful websites
FinTech
• To read an informative discussion of FinTech in the insurance industry, visit:
http://tinyurl.com/jmnayrl.
• Read the Chartered Insurance Institute’s policy briefing on FinTech at:
bit.ly/2z1bNX9.
Chapter 3
Blockchain technologies
• To read AXA’s article on being the first major insurance group to offer insurance using
blockchain technology, visit: bit.ly/2qAyIUP.
• To learn how Maersk and IBM developed a blockchain shipping solution, visit:
bit.ly/2PebNcN.
• The Blockchain Insurance Industry Initiative (B3i) is a startup that was formed to
explore the potential of using blockchain technologies within the re/insurance industry.
To find out more, visit: bit.ly/2yVLIsu.
Big Data
• For a useful summary of Big Data, see the following publication from the ABI, see:
bit.ly/2ehrrSv.
• Also visit the Chartered Insurance Institute’s resource guide subject gateway at:
bit.ly/2PKmw1T.
• To read about AIG – an example of one of the many insurance companies which use Big
Data* – visit: http://tinyurl.com/jfo2qy4.
*Please note that CII members can access this article via Knowledge Services.
Big Data, analytics and process management are changing the insurance industry. Real-time
analytical tools can be used throughout an organisation, as follows:
• Fighting fraud – graph analytics provide insight into customer interactions and
behaviours across multiple channels, for example, when used to assess claims for any
unusual patterns that may prove fraudulent. This helps to reduce loss numbers and claims
processing costs.
• Improving customer health – wearable technology and fitness apps turn fitness
achievements into loyalty points, thereby improving customers’ lifestyles and
reducing risk.
• Enhancing customer experience – insurers can analyse social media activity to identify
customer dissatisfaction and use trending events to initiate marketing campaigns.
• Personalising evidence-based policies – telematics analytics provide accurate insights
into customers’ driving behaviour, helping insurers to assign them to the most
appropriate claims adjuster. For example, Metromile and Uber have developed
pay-per-mile car insurance for Uber drivers.
While effective data analytics can improve a business’s output, it does present some
difficulties. Running a data centre is a huge demand on resources and causes large costs. For
example, AIG uses 300 trained specialists to digest, process, model and manage risk data.
The lack of standardised data makes it difficult to synchronise information on to a single
platform to simplify analysis. This can be problematic given the enormous amounts of data
being created.
Price optimisation
Data segmentation and analysis allow for a better understanding of customers, and this can
be used by insurance companies to gain a competitive advantage. Customers often research
and buy insurance policies on the internet, increasingly through the use of mobile platforms,
making it easier for companies to analyse their personal data and buying behaviour. The
more that is known about a risk, the easier it is to assign it the right premium, cover and
service. Advances in data and statistical modelling and the application of predictive
algorithms to smaller clusters mean that insurers can price products differently at an
individual customer level. This enables them to find the greatest price that each customer
would accept before switching elsewhere.
Running a data
centre is a huge
demand on
resources and
causes large costs
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Price optimisation
can cause
conflict between
personalised risk
pricing and risk
pooling
945/November 2019 Marketing insurance products and services
Using information about customers to price products is referred to as ‘price optimisation’,
and can create conflicts between personalised risk pricing and risk pooling. Critics argue
that it is unfairly discriminatory as it enables companies to assign higher premiums to
particular groups of customers. Using data to penalise customers can lead to a loss of trust.
Indeed, price optimisation has been made illegal in some US states as they consider the rates
assigned to be unfairly discriminatory.
Chapter 3
On the other hand, supporters say that price optimisation leads to fairer premiums. For
example, Flood Re can be viewed as a form of insurance price modelling at the personal
level; this is a Government-backed insurance facility that reimburses insurers for claims paid
out to home-owners assessed as being particularly vulnerable to flooding. Table 3.1
demonstrates other arguments in favour of and against price optimisation.
Table 3.1: Arguments for and against price optimisation
For:
Against:
• Replaces subjective underwriter opinions.
• Focuses the buying and selling of insurance on
price rather than other factors such as
customer service, thereby commoditising
insurance.
• Provides risk-based pricing.
• Keeps the insurance sector competitive.
• Helps to create innovative products and
services.
• Other markets use it so why shouldn’t the
insurance sector do so too?
• May lead to discounted prices for new
customers and inflated renewal prices for old
customers, i.e. ‘dual pricing’.
• Exploits customers and impacts on those who
are more vulnerable.
• Increases grudge purchase mentality.
Consumers are
concerned about
how data is
gathered and used
Ethical challenges
Businesses and marketers now have access to more data than ever before. Consumers are
becoming increasingly concerned about how that data is gathered and how it is being used.
The CII report ‘Ethical Culture’ identifies four areas on which the insurance market should
focus its attention:
1.
How businesses learn more about their customers – this questions the quality of
external sources used to supply additional information about customers. For example,
does the data supplier adhere to the same high standards as the business buying
that data?
2.
How businesses draw insight from customer data – this concerns how data is
processed and analysed. For example, should anonymised data be converted into data
in which an individual is re-identified, especially considering the sensitive information
that businesses in the insurance market can hold?
3.
How businesses use customer information in their decision making – this is thought to
hold the greatest ethical risk as businesses could use data to exploit customers who are
vulnerable. For example, through social sorting where some groups in society may find
access to insurance difficult due to their profile.
4.
How businesses own and manage their customer data – here, we ask who within a
business takes overall responsibility for customer data. This question is important to
ensure that the collection and use of customer data is not only legal but also ethically
and morally sound.
Useful websites
For more details on customer information and ethics, see the CII report ‘Ethical Culture:
The Challenge for Insurance Marketers’ which is available at: http://bit.ly/2zJITtK.
For an insight into customer perspective on the use of their data, see the CII report ‘Big
Data and Insurance: A Conversation’ in the CII’s The Journal, Issue 8 September 2015. It is
available at: bit.ly/2RDUlik.
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B
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Identifying competitors
There is no obvious form of competition for the insurance industry external to the insurance
market other than self-insurance or no insurance.
Be aware
Self-insurance is a formal decision to put funds aside to pay for possible claims,
sometimes by setting up a captive insurance business.
Chapter 3
Insurance businesses tend to believe that there is a direct relationship between the prices
they charge and the demand for their products. Demand for insurance varies at different
pricing levels, but it does not necessarily follow that demand falls as premiums increase.
When the total cost of insurance (including premium cost, commission and fees) is high
customers are more likely to self-insure or look for ways to reduce costs.
Working through the components of the marketing audit should increase awareness of the
dynamic forces at work competing with attempts to grow the business.
How markets are defined will determine who a business’s competitors are within the
insurance world. It is often the case that competitors define their markets differently,
resulting in many overlapping definitions. If segmentation has been effective there should be
a unique definition with an identified advantage within that definition. The real competition
may be coming from outside that market definition.
A tactic sometimes used to nullify effective segmentation is collusion between competitors
in a certain market, for example, two established insurance brokers in one town may agree
not to attack each others’ customers; the segments exist but they agree not to exploit those
segments. Such agreements are fraught with dangers, such as leaving big enough gaps for
new market entrants, as well as blunting the effectiveness of a business.
The amount of knowledge a business has about various competitors directly affects its
ability to manage its overall competitiveness.
B1
Competitor intelligence
Marketing activities play a vital role in informing the market about the competitive position
of each insurance organisation.
Competitor intelligence is a process of systematic collection, collation, evaluation,
presentation and use of competitor information. The process of gathering detailed
intelligence may spark new ideas and cause things to be done differently at almost any level.
It may even be found that someone else can just do certain things better and that certain
targets are elusive. For example, competition in personal lines markets has come from
Tesco, whose customer insight data gives them individual communication, better pricing,
unique product offerings and a selection advantage.
A systematic approach to the production of competitor intelligence follows a cycle
(Figure 3.1). The basic principles are doggedness, care, attention to detail and the ability to
identify patterns. Competitor intelligence sits next to market research in intelligence
activities. Competitors may lurk in surprising places, and so the intelligence gathered needs
to cover a wide area.
Gathering detailed
intelligence may
spark new ideas
and cause things
to be done
differently
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Figure 3.1: Production of competitor intelligence cycle
1. Decide
issue for
intelligence
need
6. Monitor
and review
to improve
Chapter 3
2. Plan
collection
3. Use sources
to collect data
5. Communicate
assessment
4. Record,
evaluate,
interpret
What intelligence is wanted will depend on a business’s objectives – cost; products; people;
finance; marketing; or underwriting at long-term strategic, short-term operational, or pricing
and product design tactical levels.
Planning collection involves recording what is already known of a market from the
components of the marketing audit so that information deficiencies can be highlighted, and
the accuracy of information double-checked. Comparative business ratios should be
supplemented with any assumed competitors’ strengths and weaknesses.
Use sources to collect as much data about competitors as can be gleaned from publicly
available sources. The financial performance of publicly quoted companies is readily
accessible from Companies House. Using various websites can be a very efficient way to
gather information about the activities of a competitor. The most useful sources of data
include:
• the Chambers of Commerce;
• enterprise agencies;
• business links;
• government reports;
• trade associations;
• independent financial reporters;
• credit rating agencies;
• annual reports;
• commercial surveys;
• directories;
• industry experts and consultants; and
• the general media.
In addition, information can also be obtained directly from competitors (from their websites,
printed brochures and policy booklets as well as other documentation). For example, it may
be possible to estimate the loss record for a specific insurance product by examining the
insurance cover and reverse engineering. Market research can also be used to collect
information about how the competition is perceived by the public. This information can be
gained first-hand from competitors’ staff simply by talking with them at trade shows, or from
their customers.
Record, evaluate and interpret according to objectives and resources. Overload needs to
be avoided by setting clear objectives and carrying out a ruthless dismissal of unimportant,
unreliable and inaccurate findings.
Chapter 3 Information gathering and use
Information can be
obtained directly
from competitors
Chapter 3
Communicate the assessment of the business’s competitive position to those who will
benefit and use it to improve performance. The assessment will include as much of
competitors’ portfolios as the set objectives determine, and their positions in the defined
market. To who and how the assessment is communicated will need some consideration;
should there be a formal system or reliance upon on ad hoc distribution? Chapter 1
considered the important contribution everyone in the business makes to marketing and
how marketing relates to other business functions. A continuous stream of information may
lead to overload, and inadequate circulation may lead to intelligence not reaching the
appropriate people – either of which could result in the overlooking of significant
intelligence.
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Monitor and review the approach with a view to improving the nature of the data collected,
the sources of that data, and how it is evaluated and communicated. A regular review of the
issues that determine the data required should also be performed.
C
Privacy and data protection regulation
Be aware
The gathering and storage of information is the subject of laws and regulation.
C1
Privacy and marketing
The Privacy and Electronic Communications Regulations (PECR) 2003 are the rules that
govern how marketing by electronic means is conducted.
The regulations cover various methods of electronic marketing including:
• email;
• telephone marketing;
• automated calls; and
• fax.
To comply with the regulations you must:
• have the customer’s consent to be able to send them electronic marketing;
• identify yourself when you carry out marketing; and
• provide appropriate contact details.
One of the key requirements is that companies provide ‘opt-in’ boxes for unsolicited
electronic mail, rather than the ‘opt-out’ boxes which remain prevalent.
There are public concerns in ensuring external databases, such as social media sourced, are
properly gathered and monitored for privacy protection.
C2
Data protection and marketing
Businesses that use personal information for marketing purposes must adhere to the
requirements of the data protection legislation. The Data Protection Act 1998 (DPA) was
introduced to govern the way that organisations used and held personal information and to
give legal rights to people who had their information stored. Misusing or losing personal data
could have significant consequences for an organisation and could result in damage to its
reputation as well as fines. The DPA was replaced by the Data Protection Act 2018 (DPA
2018) and the General Data Protection Regulation (GDPR) in May 2018.
C2A Data Protection Act 2018 (DPA 2018)
The Data Protection Act 2018 (DPA 2018) came into effect in May 2018, to coincide with the
implementation of the General Data Protection Regulation (GDPR) and the Law
Enforcement Directive (LED). It aims to modernise data protection laws to ensure they are
effective in the years to come.
The DPA 2018 and
GDPR came into
effect in May 2018
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Although the GDPR has direct effect across all EU Member States and organisations have to
comply with it, it does allow Member States limited opportunities to make provisions for how
it applies in their country. In the UK these have been included as part of the DPA 2018. It is
therefore important the GDPR and the DPA 2018 are read side by side.
The main elements of the DPA 2018 include the following:
Chapter 3
General data processing
• Implement GDPR standards across all general data processing.
• Provide clarity on the definitions used in the GDPR in the UK context.
• Ensure that sensitive health, social care and education data can continue to be processed
to ensure continued confidentiality in health and safeguarding situations can be
maintained.
• Provide appropriate restrictions to rights to access and delete data to allow certain
processing currently undertaken to continue where there is a strong public policy
justification, including for national security purposes.
• Set the age from which parental consent is not needed to process data online at age 13,
supported by a new age-appropriate design code enforced by the Information
Commissioner.
Regulation and enforcement
• Enact additional powers for the Information Commissioner who will continue to regulate
and enforce data protection laws.
• Allow the Commissioner to levy higher administrative fines on data controllers and
processors for the most serious data breaches; being up to £17m (€20m) or 4% of global
turnover.
• Empower the Commissioner to bring criminal proceedings for offences where a data
controller or processor alters records with intent to prevent disclosure following a subject
access request.
C2B
General Data Protection Regulation (GDPR)
Who does the GDPR apply to? The GDPR applies to ‘controllers’ and ‘processors’. The
definitions are broadly the same as under the now superseded Data Protection Act 1998
(DPA 1998) – i.e. the controller says how and why personal data is processed and the
processor acts on the controller’s behalf.
The GDPR places specific legal obligations on processors; for example, firms are required to
maintain records of personal data and processing activities. A firm will have significantly
more legal liability if it is responsible for a breach. These obligations for processors are a new
requirement under the GDPR.
Controllers are not relieved of their obligations where a processor is involved – the GDPR
places further obligations on controllers to ensure their contracts with processors comply
with the GDPR.
What information does the GDPR apply to? The GDPR applies to personal data. However,
the GDPR’s definition is more detailed, reflecting changes in technology and in the way in
which information is collected. It makes it clear that information such as an online identifier –
e.g. an IP address – can be personal data.
The GDPR applies to both automated personal data and to manual filing systems where
personal data is accessible according to specific criteria. This is wider than the DPA 1998’s
definition and could include chronologically ordered sets of manual records containing
personal data. Personal data that has been anonymised – e.g. key-coded – can fall within the
scope of the GDPR depending on how difficult it is to attribute the pseudonym to a
particular individual.
Sensitive personal data: The GDPR refers to sensitive personal data as ‘special categories of
personal data’. These categories include:
• race;
• ethnic origin;
• politics;
• religion;
• trade union membership;
Chapter 3 Information gathering and use
3/15
• genetics;
• biometrics (where used for ID purposes);
• health;
• sex life; or
• sexual orientation.
Data Protection Principles
All personal data should be:
1.
processed lawfully, fairly and in a transparent manner in relation to individuals;
2.
collected for specified, explicit and legitimate purposes and not further processed in
a manner that is incompatible with those purposes;
3.
adequate, relevant and limited to what is necessary in relation to the purposes for
which they are processed;
4.
accurate and, where necessary, kept up-to-date;
5.
kept in a form which permits identification of data subjects for no longer than is
necessary for the purposes for which the personal data is processed; and
6.
processed in a manner that ensures appropriate security of the personal data,
including protection against unauthorised or unlawful processing and against
accidental loss, destruction or damage, using appropriate technical or organisational
measures.
Lawful processing: For processing to be lawful under the GDPR, firms need to identify a
lawful basis before they can process personal data and document it. This is significant
because this lawful basis has an effect on an individual’s rights: where a firm relies on
someone’s consent, the individual generally has stronger rights, for example to have their
data deleted.
Consent: Consent under the GDPR must be a freely given, specific, informed and
unambiguous indication of the individual’s wishes. There must be some form of positive
opt-in – consent cannot be inferred from silence, pre-ticked boxes or inactivity, and firms
need to make it simple for people to withdraw consent. Consent must also be separate from
other terms and conditions and be verifiable.
Firms can rely on other lawful bases apart from consent – for example, where processing is
necessary for the purposes of an organisation’s or a third party’s legitimate interests. They
are not required to automatically refresh all existing DPA consents in preparation for the
GDPR, but if a firm relies on individuals’ consent to process their data, it must make sure it
will meet the GDPR standard. If not, firms must either alter the consent mechanisms and
seek fresh GDPR-compliant consent or find an alternative to consent.
Rights: The GDPR creates some new rights for individuals and strengthens some of those
that existed under the DPA. These are:
• The right to be informed.
• The right of access.
• The right to rectification.
• The right to erasure.
• The right to restrict processing.
• The right to data portability.
• The right to object.
• Rights in relation to automated decision making and profiling.
Chapter 3
Principles: Under the GDPR, the data protection principles set out the main responsibilities
for organisations. They are similar to those in the DPA 1998 with added detail. The most
significant addition is an emphasis on accountability. The GDPR requires firms to show how
they comply with the principles – for example by documenting the decisions they take about
a processing activity.
Chapter 3
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Subject access request: Under GDPR, individuals have the right to find out if an organisation
is using or storing their personal data. They can exercise this right by submitting a subject
access request (SAR) to the organisation concerned. The SAR can be made verbally or in
writing. The organisation generally has one month to respond to an SAR, although they can
take an additional two months in certain circumstances. If the organisation fails to respond,
the individual must complain to the organisation in the first instance. If they remain
dissatisfied after that, they can make a complaint to the Information Commissioner’s Office.
The first copy of an individual’s personal data should be provided free, although charges are
permitted for additional copies if the organisation feels such a request is unfounded or
excessive. Where this is the case, they can ask for a reasonable fee to cover
administrative costs.
Accountability and governance: Accountability and transparency are more significant
under the GDPR. Firms are expected to put into place comprehensive but proportionate
governance measures. Good practice tools such as privacy impact assessments and privacy
by design are now legally required in certain circumstances. Practically, this is likely to mean
more policies and procedures for organisations, although many will already have good
governance measures in place.
Breach notification: The GDPR introduces a duty on all organisations to report certain types
of data breach to the relevant supervisory authority, and in some cases to the individuals
affected.
Transfers of personal data to third countries or international organisations: The GDPR
imposes restrictions on the transfer of personal data outside the European Union, to third
countries or international organisations, in order to ensure that the level of protection of
individuals afforded by the GDPR is not undermined.
Chapter 3 Information gathering and use
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Summary
Market research is essential to identify insurance customers’ needs in order to convert them
into specific wants, toward which, specific insurance policies can be tailored.
Market research helps reduce uncertainty and minimises risk by providing information that
feeds into marketing plans. Market research provides a business with information about the
way customers are reacting to its own products and those of competitors.
How markets are defined will determine who a business’s competitors are within the
insurance world. The amount of knowledge a business has about various competitors
directly affects its ability to manage overall competitiveness.
The most recent developments in digital technology to affect the insurance industry include
‘FinTech’ (known as ‘InsurTech’ when relating to the insurance industry), blockchain
technologies and ‘Big Data’ and data analytics. FinTech is the use of computer technology to
improve the efficiency of financial systems, blockchain technologies use distributed ledgers
or decentralised databases which can be continually updated and synchronised using the
internet, while the term ‘Big Data’ refers to massive datasets for which traditional data
processing methods are inadequate.
The gathering and storage of information is the subject of the Data Protection Act 2018
(DPA 2018), the General Data Protection Regulation (GDPR), and the Privacy and Electronic
Communications Regulations (PECR) 2003.
Bibliography
Ennew, C. and Waite, N. (2017) Financial Services Marketing. 3rd edn.
Abingdon: Routledge
Gidhagen, M. (1998) Insurance marketing – services and relationships.
Available at: bit.ly/2PgIs55 [Accessed: 13 November 2019]
Kotler, P. and Keller, K.L. (2015) Marketing Management. 15th edn.
New Jersey: Prentice Hall
Porter, M.E. (2004) Competitive Strategy – Techniques for Analyzing Industries and
Competitors. New York: Free Press
Van der Heijden, K. (2011) Scenarios: The Art of Strategic Conversation. 2nd edn.
New York: John Wiley and Sons
Whiting, G. (2013) External Data in Insurance Data Driven Business.
Available at: bit.ly/2zxwIAL [Accessed: 13 November 2019]
Chapter 3
Scenario testing is an activity using scenarios which help think through a complex problem
for a testing environment. The report will then be examined to determine those outcomes
with the greatest impacts, which should result in debate and possibly development.
Chapter 3
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Chapter 3 Information gathering and use
3/19
Revision questions
1.
What is syndicated research?
2.
What are the five steps in competitor intelligence gathering?
3.
What is secondary research, primary research, qualitative research and quantitative
research?
Your MD is encouraged by your recommendations on how changes may improve your
website offering but feels they are short on detail about what customers will buy sufficient
to justify substantial investment. The MD now requires you to formulate a plan to develop
a new, or completely overhauled existing, offering for delivery to your most important
existing customer segment with an objective to increase income from that segment by
20% within six months.
Outline that plan, or how you will go about formulating the plan, with an explanation of
the type of resources you need and how you would go about securing those resources. At
this stage you are not concerned with budget limitations. You are not necessarily being
asked to have knowledge of websites or technology; similar principles apply to
other media.
See overleaf for suggested answers
Chapter 3
Scenario 3.1: Question
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Chapter 3
Revision answers
1.
Syndicated research is a way for several businesses to share the cost of the similar
quantitative research required by them all.
2.
Decide what you want, plan collection, collect data, record and interpret,
communicate assessment.
3.
Secondary research is research without leaving your desk (not too literally).
Primary research is customised according to your research requirements and
involves the collection of new information by directly contacting the customers.
Qualitative research attempts to understand attitudes, motivations, feelings or
opinions. Quantitative research attempts to measure anything that involves
proportions.
Scenario 3.1: How to approach your answer
Aim
This scenario tests your understanding of how information needs to be collected, stored
and analysed for productive outcomes.
Key points of content
You should aim to include the following key points of content:
• Whether or not your website currently captures visitor data.
• How useful your current storage of existing customer information is to analysis of
needs and solutions, particularly if you have legacy systems from past mergers and
acquisitions and consequent fragmented storage.
• Your additional research requirements, including selection of a research agency if
appropriate.
• Specific recommendations on identifying the elements of your offering that appeal
most to customers and distinguish your offering from competitors.
• Consider all your actions within the context of applicable regulation and ethics.
4
Understanding customers
Contents
Syllabus learning
outcomes
Chapter 4
Learning objectives
Introduction
Key terms
A Insurance customers and buying patterns
3.4
B Identifying insurance customers
3.2
C Segmentation of existing and prospective customers
3.2
Bibliography
Questions, scenario and answers
Learning objectives
This chapter relates to syllabus section 3.
On completion of this chapter and private research, you should be able to:
• explain goods and services;
• explain customer needs and wants;
• explain ways customers make choices, and how their choices are influenced;
• define the segmentation process;
• explain why segmentation is valuable; and
• explain how data is used to identify customer segments.
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Introduction
So far, we have looked at how to create marketing strategies and how to gather information
to inform marketing activities. In this chapter, we focus on why understanding customers
and their buying patterns is essential to successful marketing. We look at the reasons behind
customers’ buying choices, and how customers can be placed into homogenous groups
(known as customer segments) based on these choices. By identifying the most important
segments to the business, marketing can ensure that these customers are satisfied, which, in
turn, allows the business to achieve its goals efficiently and effectively.
Key terms
Chapter 4
This chapter features explanations of the following terms and concepts:
Behavioural economics
Business customers
Customer relationship
marketing (CRM)
Cross-selling
Customer behaviour
Customer profile
Data mining
Data warehousing
Demographic
Goods and services
Irrational choice
Lifestyle
Lifetime value
Needs and wants
One-to-one marketing
Personal customers
Psychographic
Rational choice
Segmentation
A
Insurance customers and buying patterns
A1
Products
A product is anything that can be offered to a market that might satisfy a want or a need. It
can be either a tangible good or an intangible service. In general, ‘product’ may refer to a
single item or unit, a group of equivalent products, a grouping of goods or services, or an
industrial classification for the goods or services. In retailing, products are known as
merchandise; manufacturing businesses make products by converting raw materials into
finished goods.
Be aware
An insurance policy is a service as it is intangible; however, it is common practice in the
insurance sector to refer to an insurance policy as a product. Policy add-ons and risk
management are differentiated by being called a service.
A1A
What are goods?
Goods are classified in many ways for many purposes.
Useful websites
The UK Government website gives advice to importers and exporters on classifying
products for tax and duty purposes under International Trade, Classifying Your Goods:
www.gov.uk/guidance/classification-of-goods.
The Intellectual Property Office shows classifications for trade mark purposes under
Trade Marks, Online TM Services, Classifications:
www.gov.uk/government/organisations/intellectual-property-office.
The HSE website gives classifications for the carriage of dangerous goods:
www.hse.gov.uk/cdg/manual/classification.htm.
Goods can be classified according to the expected length of their lives, and whether they are
intended for the consumer market (such as consumer durables and fast-moving consumer
goods (FMCG)) or the industrial market (industrial goods).
Chapter 4
A1B
Understanding customers
4/3
What are services?
A pure service is any activity or benefit that one party offers to another that has no physical
dimension and is intangible. In addition to everyday pure services, such as those provided by
insurance brokers, the public sector offers such diverse services as the military, police,
hospitals, fire departments, postal services and schools. The public effectively buys the latter
services by way of taxation or other charges.
The characteristics that distinguish services from goods are:
• Intangibility – a service cannot be felt, tasted, seen, heard or smelt before it is purchased.
• Inseparability – a service cannot be separated from its provider (for example, a
hairdresser and their client need to be present at the same time for the haircut to take
place).
• Heterogeneity – services are difficult to standardise as they are delivered by a diverse
range of people to meet a variety of needs.
• Ownership – a service does not provide you with physical ownership as you have only
purchased the ability to use it.
Useful website
For further information on the differences between goods and services, see:
www.marketing91.com/difference-between-goods-and-services.
Consider this…
Marketers can reduce the impact of the characteristics of a service. For example, a
product can be made to appear more tangible by providing physical evidence of the
service. In insurance, customers are often provided with a printed policy booklet that
describes what is covered.
Look at the other characteristics of a service. What actions can be taken by insurers to
address inseparability, heterogeneity, perishability and ownership?
A1C
Why is insurance different to other services?
Financial services, such as insurance, are classified as a service and, as such, share the
characteristics that all services have. However, financial services and – in particular –
insurance have several key and important differences. These differences present additional
challenges to consumers when buying financial products and also to marketers when
offering those products. These differences include:
• Intangibility – insurance is one of the most intangible products of those offered by
financial services; it is peace of mind that the customer is buying.
• Complexity – financial services can be difficult for consumers to understand. This
knowledge is also slow to acquire for products that are typically purchased only once a
year.
• Financial literacy – many consumers struggle to understand finance and are therefore
unable to evaluate different price and cover combinations.
• Consumer apathy – unfortunately, not everybody finds insurance an exciting topic. Many
consumers do not want to spend time researching the best solutions for their insurance
needs.
• Grudge purchase – some insurance is compulsory by law. For example, many financial
institutions require insurance cover on properties that were purchased through
mortgages. Although consumers have a need for it, they do not have a desire to purchase
it and can resent the expenditure.
• Importance – purchasing the wrong cover can be financially catastrophic for customers
but, because of the intangibility of the service, they may not be aware of this until a much
later date.
Bearing this in mind, it is easy to see that customers who purchase insurance could well be
vulnerable in some circumstances. The insurance industry and the wider financial services
sector have a special duty of care to act in the best interests of its customers.
Chapter 4
• Perishability – a service cannot be stored (for example, if you miss your train, that service
has gone and you will have to wait for the next one).
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Be aware
To improve transparency and encourage customer engagement at renewal, new rules
were introduced by the FCA in April 2017. At renewal, general insurers must: disclose last
year’s premium so it can be easily compared to the renewal premium; encourage
customers to check their cover and shop around for a deal that is the best for them; and
identify customers who have renewed four or more consecutive times, and provide these
customers with an additional message encouraging them to shop around.
Useful website
For further information on the needs of the insurance sector, see:
https://bit.ly/371YfKs.
Chapter 4
A2
Refer back to the
matching process
in chapter 1,
section A2
‘Needs’ and ‘wants’
Customers have unsatisfied needs and wants. Marketing responds by identifying,
anticipating and satisfying those needs and wants through the delivery of goods and
services.
A2A Basic forces
Needs are the basic forces that drive people and businesses to buy things from each other.
Human needs stem from our basic biological and psychological make-up. They include the
need for food, drink, shelter and self-fulfilment.
Maslow’s hierarchy of needs (Figure 4.1) is often portrayed in the shape of a pyramid, with
the largest and most basic of needs at the bottom. The lower four layers of the pyramid
contain what Maslow called deficiency needs; if these deficiency needs are not met, the
individual experiences stress.
Figure 4.1: Maslow’s hierarchy of needs
Self-actualization
Esteem
Love/belonging
Safety
Physiological
mortality,
creativity,
spontaneity,
problem solving,
lack of prejudice,
acceptance of facts
self-esteem, confidence,
achievement, respect of others,
respect by others
friendship, family, sexual intimacy
security of: body, employment, resources, morality,
the family, health, property
breathing, food, water, sex, sleep, homeostasis, excretion
Physiological needs
The requirements for human survival – what the human body needs to continue to function –
include breathing, food and sex. These are the very basic primitive needs of the body and its
subsistence.
Safety needs
Once physiological needs are satisfied, safety needs to dominate behaviour. These include
job security, personal and financial security, and health. The individual considers
sustainability of well-being in terms of what is needed to make safe future requirements.
Chapter 4
Understanding customers
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Love/belonging needs
After safety needs come social needs and feelings of belonging, including friends and family,
clubs, office culture, religious groups, professional organisations, sports teams and gangs.
To a degree determined by the individual, everyone needs to feel loved and a sense of social
belonging, some to a virtual society.
Esteem
Esteem is the normal human desire to be accepted and valued by others, to gain recognition
and a sense of contribution. People with low self-esteem may seek fame or glory; Maslow
stresses the dangers associated with self-esteem based on fame and outer recognition
instead of inner competence.
Self-actualisation
This level of need pertains to what a person’s full potential is and realising that potential,
whether it be as an ideal parent, painter or inventor. This is a challenging need that remains
unfulfilled in many, yet is readily achieved by others; it is a need recognised by the individual.
Chapter 4
Maslow’s hierarchy of needs states that we must satisfy each need in turn; only when the
lower order needs are satisfied do we consider the higher order needs. However, this is not
always true – for example, there are customers who are willing to reduce food consumption
in order to purchase luxury items that satisfy their higher order esteem needs.
Consider this…
Which of Maslow’s needs does insurance help to satisfy?
Useful website
For further reading on Maslow’s hierarchy of needs, see:
www.h2g2.com/approved_entry/A2860346.
A2B Marketing needs
When customers buy products to satisfy their needs, they are buying the benefits they
believe the products provide – or, more precisely, customers buy solutions that they believe
the benefits of a product provide.
Customers buy one product in preference to another because they perceive it as the best
way to meet a particular need or provide a solution. Different customers seek different
benefits and use different choice criteria with different levels of importance attached to
product features.
This diversity of needs and ways of satisfying them make the marketing function necessary
in business.
Within the marketing process there are more parties involved than just the product provider
and its customer. There exists a complex extended chain with different providers and
customers at each link. For example, a relatively simple commercial insurance product will
involve a supplier of capital, an insurance company, an insurance broker, a decision-maker in
the business and, say, a third party claimant. Each will have their own needs and ways of
satisfying them.
Critical reflection
What is the customer chain in your business?
For example, if your business is an insurance company there could be providers of capital,
reinsurers, insurer, managing general agents or wholesale brokers, insurance brokers,
policyholders, third-party claimants etc.
A3
Customer behaviour
Understanding how customers make choices is one very important element of marketing.
Though customers seek solutions, their decisions are not always based on price, nor are they
entirely rational. Many external influences affect customer behaviour and decisions.
Models and theories abound on how customers make choices when selecting one product
over another.
Customer
decisions are
not always based
on price
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A3A Rational choice
A typical rational model (see Figure 4.2) will show customers moving through a series of
stages that represent the decision-making process.
Figure 4.2: Rational decision-making process
Problem definition
Evaluate
decision and
decide on
repeat buying
Chapter 4
Information search
Buying decision
Information process
and evaluation
• Problem definition – the consumer recognises they have a need they want to satisfy (for
example, they need to insure their car to enable them to legally drive on the road).
• Information search – the consumer searches for information that will help them to identify
a solution to their need. They may already be aware of possible insurer brand names that
they have previously seen and remembered (internal information search); or need to find
details of new insurers on the web or by asking friends (external search).
• Information process and evaluation – the consumer evaluates all the information they
have about car insurance and the various providers. They may search for additional
information if needed.
• Buying decision – the consumer becomes a customer and purchases their car insurance.
• Evaluate decision and decide on repeat buying– the customer reflects on their purchase.
If they are satisfied with it, they may renew their policy the following year.
Be aware
The decision-making process for business customers is similar to that outlined in
Figure 4.2 but it has notable differences. The first is that different people are likely to be
responsible for each stage – for example, the employee identifying the need is likely to be
different to the employee signing off the expenditure and making the purchase. The
second is that each stage may include the views and opinions of different employees from
different departments – particularly where the product being purchased is of a high
financial value.
A3B Influences on the decision-making process
Refer to 530,
chapter 3
Economic influences (in terms of money available) are important in most stages of the
decision-making process. Affordability and perception of value for money will influence how
different options are evaluated, how decisions are made and the reflections on the product
post purchase. Other factors that influence the decision-making process include:
Social status
Social status is heavily influential in consumer durable products, as higher income groups
can afford high introductory prices for the latest gadgets. Insurance products are
formulated to recognise such status, for example, flexible high net worth home insurance
versus low-premium house packages.
Chapter 4
Understanding customers
4/7
Organisational structure
Organisational structure affects industrial purchasing – for example, it may be the board of
directors choosing a particular insurance broker to arrange their corporate insurance
programme. Identifying buying influencers and decision-makers can be difficult, and costly
if wrong.
Critical reflection
What is the influence of the Association of Insurance and Risk Managers on the buying
patterns of its members?
Culture
Culture is a complex subject and difficult to define. It is a pervasive influence on customer
choice and whether or not products are purchased at all.
• Culture can also be important at a domestic level within multi-cultural societies such as
the UK.
• Different cultures will interpret marketing communications in different ways – for
example, the use of colours, symbols and promotional strategies.
• Culture also impacts each of the stages in the decision-making process – from the sources
of information considered important to how a purchase decision is reached.
• Culture can also be viewed in an organisational context. Industry sectors differ in terms of
their norms, expectations and behaviour. Differences can also be present within an
industry with the organisational culture being informed by the owner or CEO.
Peer pressure
Peer pressure influences consumer behaviour as individuals try to emulate members of the
group to which they belong or aspire. Similarly a company executive might be influenced by
others in an association or buying group.
Consider this…
Think about the influences on a young person who is buying their first car. For example,
insurance costs and parental influence versus peer pressure.
Attitude
Attitude is a far from easy concept to define and will involve perceptions, emotional
responses and response consistency towards a product. Distrust of insurance policy small
print as a means to avoid paying claims affects the way many customers buy insurance and
make a claim.
The twenty-first century has seen advances in our understanding of human behaviour and
decision making. Today’s customer is time-poor so convenience tends to influence the
choice. The many stimuli for our attention often mean we use shortcuts to make decisions.
Shortcuts mean filtering large data amounts to a manageable size that may bring an intrinsic
bias toward what is familiar. Customers may choose to buy from sources serving them well
in the past, from suppliers that appear to have similar values and from seemingly
trustworthy advisers. Many customers may follow the decisions of other people they trust.
The digital mobile-enabled world of sophisticated financial services needs seeking real-time
recommendations; wanting the human touch means a changed customer demanding to be
engaged in ways they choose.
Millennials
Members of today’s millennial generation, who range from 18 to 35 years old, start their
insurance buying research online. They value multi-channel interaction, as they use websites
to compare prices, consult social media and mobile apps, and also like the option to speak to
advisers.
However, millennials are acutely aware that social media is used to track and trend
customers’ behaviour, and some are cautious of the privacy and security issues which may
dissuade some from making certain disclosures online. The use of technology by insurance
companies, such as through the embedding of sensors in cars and homes, may in itself
influence choice, particularly when linked to poor customer experience.
Chapter 4
• Cultural differences occur at an individual consumer level, across different countries
where global companies need to understand prevailing cultures and their impact on
consumer behaviour.
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A3C Irrational choice
Consumer buyer behaviour models assume that customers will make proper use of the
information available to them and make rational decisions – they often do not. As a result,
marketers are increasingly drawing on other fields to help them to better understand
consumer behaviour. One such field is behavioural economics which is increasing in
popularity and seeks to explain why people sometimes make seemingly irrational choices.
Two frequently used concepts in behavioural economics are as follows:
Chapter 4
• Heuristics – these are simple mental shortcuts or rules of thumb. Ninety-five percent of us
make decisions on this basis which can lead to irrational decisions. For example, if we can
bring an infrequent event easily and clearly to mind (possibly through advertising or a TV
series), we are more likely to over-estimate the likelihood of that incident happening.
• Framing – this concerns how information is presented. In studies where individuals have
been presented with the same result (in terms of a loss or gain), but one is presented in
terms of the positive outcome and the other in terms of the negative outcome, the
majority of individuals chose the positive outcome. For example, a meal might be
described as ‘5% lean’ or ‘95% fat’, and the majority of individuals would choose the ‘5%
lean’ meal.
Consider this…
Insurance professionals also make rational and irrational decisions. How can the concepts
of behavioural economics be applied to insurance underwriters?
B
Identifying insurance customers
Insurance customers can be found in just about every part of society, and they include most
individuals and organisations. A broad classification – around which most insurance
companies are structured – is the split between business customers and personal
customers. In this section, we will consider each group in more detail and start to identify
sub-groups – or segments – within each.
B1
Business customers
It might be thought that business buyers are more rational, but they too are subject to many
unpredictable influences. For example, failure to accommodate a managing director’s son or
daughter as a driver under personal insurance could potentially result in the non-renewal of
business insurance.
Business customer segments of the insurance market can be divided according to their
buying behaviour. A business’s buying behaviour can be influenced by its attitude toward
buying insurance; from:
• reluctant buyers through to those who include insurance as part of their business;
• those who comfortably self-insure some risk through to those who insure everything;
• those who value risk management advice through to those who don’t feel the need;
• those who buy from insurance brokers through to those who buy direct;
• those who buy from nationally represented insurance brokers through to those who
prefer local insurance brokers;
• those who value long-term relationships through to those who want the cheapest price;
• those who value claims service through to those who want the cheapest price;
• those who buy packaged cover through to those who prefer to pick individual covers; and
• those who take a board decision through to those who leave decision-making to a single
contact.
Chapter 4
Understanding customers
4/9
There are many attributes available, and a business may need to enlist some of its most
creative people to discover fresh ways of thinking about its market. Business customer
segments should not be confused with demographics or underwriting features unless they
are very relevant to their market definition and consequent segmentation. If a geographic
location is relevant to a business’s abilities then it could be the base for a segment, e.g.
inner-city businesses versus rural businesses. A segment based on a population with distinct
religious beliefs can be a viable one if still relevant to a business. What is important is on
what does the customer base the buying decision, whether consciously or subconsciously?
Organisational buyer behaviour theories emanate from several disciplines, such as political
science, and tend to focus on economic aspects; academic marketing studies have mostly
concentrated on consumer buying behaviour. A universally accepted organisational theory
is awaited. Some manufacturing tends towards managing supply chain relationships, others
to key supplier relationships, others to partnering suppliers.
Public authorities can present a very strong challenge to customer identification and
information gathering. The European Community imposes very strict and specific rules for
the procurement of goods and services, including insurance and risk management, upon
providers of public services and utilities. The Public Procurement Regime is intended to
create a level playing field for all competitors. In selecting insurance providers and claims
handlers, authorities must use specific criteria and follow specific procedures as laid down in
the Directive.
Such strict rules have not avoided controversy, however. In February 2011, the Supreme
Court ruled that a local authority does not need to tender for insurance services placed with
a local authority-owned company (Brent London Borough Council and Others v. Risk
Management Partners Ltd 2011).
B2
Personal customers
Some of the above buying criteria for business customers are also applicable to individual
insurance customers.
To help independent financial advisers target their products, financial services businesses
have developed a number of different classifications that organise all households in the UK
into distinct types and groups which comprehensively describe their typical financial
product holdings, behaviour and future intentions.
Below are just two examples of types of classification.
• The wealthiest sections of society with the highest incomes and most expensive homes,
either large detached houses or upmarket metropolitan residences. They are directors of
large companies, senior management or business entrepreneurs, and tend to be couples
in their 40s and 50s with growing or older children.
• Couples with young or school-age children earning good incomes but with high
commitments. They own quality family homes but also have high mortgages, so although
they are earning well their disposable income is not so high.
Classifying online behaviour into similarly neat descriptions is difficult given the fluidity of
online interaction: below are just two examples.
• Deal seekers are more likely than the average customer to have made a purchase through
email; they are likely to have made a purchase as the result of visiting a discount site.
• Socialisers are most likely to have made a purchase as the result of a marketing message
received through Facebook.
These classifications can be far more detailed than is necessary for a business’s needs, and
serve to show that segmentation is about more than just socio/economic demographics.
Insurance businesses often invest in syndicated research to help them identify these
characteristics.
Business culture
is covered in
chapter 8,
section A2
Chapter 4
Understanding cultural differences is important in identifying your potential customers, for
example, your customer may engage in opportunistic behaviour even though they may be
comfortable with your existing service. Generally business procurement is changing from an
administrative and transactional function to a strategic and relationship function. What is
most important is that you are aware of diverse influences and can direct your research
accordingly.
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Be aware
We have adopted a simplified approach by dividing consumers into business or personal
customers. Other classifications also exist that categorise different behaviour. For
example, small businesses with a handful of employees can display similar behaviours to
personal customers. Likewise, consumer groups can display similar behavioural traits to
those of a business with multiple decision-makers.
B3
Use of databases
Chapter 4
Databases of potential customers (prospects) and their buying habits can be bought from
outside organisations, but a more reliable source of information could well be a business’s
existing customers.
See chapter 3,
section A4 for an
explanation of
Big Data and data
analytics
Success depends
upon quality
of data
To analyse a database, a business needs access to customer data (whether captured by
computer or manual systems) to compile a database. The storage of information about
existing and potential customers is known as data warehousing, and the production of lists
of potential customers from databases is called data mining. Increasingly, Big Data and
predictive analytics are being used to provide detailed information on customers and their
behaviour. The use of databases, especially where information is to be shared with third
parties, should be made with due regard to all relevant data protection legislation.
Successful data warehousing and data mining will allow retrieval of information about
customers including key things about their buying behaviour. Success will depend on the
quality of data stored in terms of completeness, accuracy and it being up to date.
B4
Customer relationship marketing (CRM)
Customer relationship marketing (CRM) uses information about individual customers to
build stronger relationships between a business and its clients. This information is used to
pre-empt a customer’s future buying needs based on their individual customer profiles and
on the evidence of their past purchases.
With this information, a business should be better able to sell more to each customer and so
secure a longer period of interaction between the parties. Ultimately, the longer a customer
stays and the more they buy, the more opportunity a business has of recouping the cost of
acquiring that customer in the first place.
Relationship marketing is based on the fundamental concepts of lifetime value and
one-to-one marketing. Importantly, it is less expensive than winning new customers.
Lifetime value is the estimated value of a customer today, based on expected income in the
future. Calculating the stream of future profits from a particular customer value enables the
organisation to work out how much it can afford to spend on recruiting or servicing new and
existing customers.
The basis of one-to-one marketing is that it concentrates on the relationship between the
business and the individual customer. So rather than selling as many insurance policies as
possible over the next sales period to anyone who will buy them, the one-to-one marketer
will try to sell as many products as possible to one customer at a time, over the lifetime of
that customer’s patronage. This is effectively a way of treating every customer differently so
that each buys more than they might normally.
Consider this…
Effective insurance broker account executives will develop relationships as positively as
possible to optimise the relationship between sales and lifetime value. Consider how your
business manages relationships with existing customers.
Be aware
Relationship marketing stresses the importance of trust between buyer and seller.
Chapter 4
B5
Understanding customers
4/11
Identifying insurance customers’ needs
In insurance terms, the uninsured customer’s core unsatisfied need is the need for protection
against the uncertainty of risk (or peace of mind). An existing or potential customer may
also need other supporting qualities, for example, a quick response, industry expertise, a
national network of loss adjusters or a no claims discount system. The task is to identify the
customer’s need and convert it into a desire for a specific insurance policy that will satisfy
that need.
An effective way of converting insurance needs into specific wants is to identify the
elements of the offering that appeal to customers. Market research is essential for obtaining
this information, and was covered in greater detail in chapter 3. If clear customer segments
have successfully been identified, a detailed understanding of why existing customers in a
particular target segment buy will save a business a lot of time and cost in its market
research process.
Cross-selling
Cross-selling involves offering and selling additional products to an existing customer base.
For example, banks offering protection products related to their own lending products –
otherwise known as bancassurance; broker networks have the opportunity to add products
to a signed-up member database.
Products can be added through line extensions offering greater choice within existing
products. For example, providers of environmental liability insurance may also provide
environmental risk management services. Product improvements attempt to enhance an
already existing product in some way. Product up-selling involves selling existing customers
an upgraded and more expensive product, for example, selling high net worth home
insurance to existing standard home insurance customers. Successful cross-selling can help
customer retention by tying the customer to the business.
B7
Identifying non-customers
The rise of online and mobile information will attract those customers who do not
immediately see the value of your proposition. Non-customers may scour the internet,
engage you in providing information with no intention of buying from you. Such customers
can be a source of future growth but may be a significant drain if service levels are too high.
Identifying those that will purchase and deliver sufficient revenue levels is key.
C
Segmentation of existing and
prospective customers
Grouping customers is a way to continue to provide high value for customers while making a
profit for the business. When a business knows which customers are profitable, it can
establish the characteristics of those customers and set out to retain, find and attract more
like them. The business can then tailor products and communications to these groups, and
individual customers if appropriate.
The purpose of segmentation is to identify the most promising opportunities that match
with the business’s abilities and valuable strengths. Each segment needs to be of sufficient
size and easy (cost-effective) to contact.
Consider this…
What are your current market segments? If you are uncertain, ask your marketing
colleagues.
You may have thought of a list of products, distribution channels or descriptions by income
or industry. These are not real segments.
Like many other markets, the market for insurance products can be segmented in a number
of ways in order to group together customers who share relatively similar demands
and needs.
Chapter 4
B6
See section C and
the suggestion
that existing
customers are a
good starting
point for
segmentation
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Insurance products are often tailored to match the requirements of businesses and their
personal customers. Insurance businesses may specialise in, or on specific sectors within,
one of these categories (for example, NFU Mutual for farming and agricultural risks).
A recent piece of research by the CII’s Insurance Broking Faculty and Ernst & Young,
‘Delivering world class service: for competitive advantage in a changing mid-corporate
commercial insurance market’, found the following:
Understanding customer needs and customer segmentation
Chapter 4
A better understanding of customers is a key theme throughout the report and according
to interviewees is an area in which both brokers and insurers struggle to demonstrate any
degree of excellence. This lack of understanding led to confusion between the brokers
and insurers around roles resulting in the prevention of service excellence.
Brokers – The mid-corporate segment is highly concentrated and a sound understanding
of customer dynamics is integral to a successful strategy. Brokers need to decide who and
where to target, together with understanding the key requirements of this segment and
establishing a competitive proposition together with insurers.
Insurers – The insurers have the added challenge of needing to understand the intensity of
the distribution channels and customer dynamics. A comprehensive understanding of
both these elements will allow the insurer to set a clear distribution strategy and to
communicate its preferred trade segment and risk appetite. This will allow the appropriate
brokers to align their businesses and together create a dedicated mid-corporate
proposition, which must be service-led.
An integral part to understanding customer needs is the requirement to accurately
segment the mid-corporate market. Thinking needs to extend beyond just size, trade and
industry segment towards a more sophisticated approach that will significantly improve
customer acquisition and retention in the commercial lines market.
Customer value modelling techniques can help to better understand which customers are
generating or destroying value and through which broker and channel they are sourced.
This can be used as an effective tool for strategic distribution decisions, segment
prioritisation and optimising operations. Such an approach has already proven its worth in
personal lines insurance.
The report found most mid-corporate business customers are segmented by size, trade
and industry.
Marketing management decision
Does segmenting by size meet the criteria for judging whether or not a segment is viable?
If so, how? If not, what does?
Be aware
Businesses need to consider the future profitability of customers when identifying
segments to target. Customers who are profitable today may not be profitable tomorrow;
those who are unprofitable today may be profitable tomorrow.
C1
Definition of a segment
Segments are organised using extensive data sets and predictive modelling – definitions
differ:
P. Kotler defines a market segment as:
consumers who respond in a similar way to a given set of marketing stimuli.
DCLW Consulting said that segmentation:
subdivides the market into groups of actual and potential customers, who have similar
needs, and seeks to satisfy them with a similar service or product.
Chapter 4
Understanding customers
4/13
Dr. Art Weinstein wrote that:
segmentation involves partitioning markets into groups with similar needs and/or
characteristics, likely to exhibit similar purchasing behaviour.
For our purposes, segmentation is a strategy that attempts to group customers who share
characteristics, such as similar buying behaviours or demographic characteristics. By doing
so, the total market is broken down to create distinctive homogeneous customer groups or
market segments.
C2
Market segmentation process
Simplistically, the components of a typical process are as follows:
Define the market
Step 2
Profile customers
Step 3
Define customer segments
Step 4
Select and prioritise target customer segments
Step 5
Implement marketing mix to target segments
Step 6
Monitor and revise segments
Chapter 4
Step 1
Step 1: Define the market
The first step in segmenting markets is to select a market. It may be an existing market, a
new but related market, or a new and previously unexplored one. The definition should be in
terms of ‘those customers who want or need…’, and should describe the solutions that the
business strengths can provide.
A starting point can be the business’s most profitable existing customers, and may well
require qualitative research to understand how the chosen market works.
Step 2: Profile customers
The goal of segmentation is to gather together a group of customers that are in some way
similar to one another, but which collectively form a segment that has a different response to
marketing activities when compared to the other segments. Qualitative then quantitative
research is necessary to gather sufficient data on which to base the profiles.
When examining research outputs the marketer is trying to identify good predictors of
buyer behaviour. Since needs and wants are not themselves explicitly identifiable, the
marketer must rely instead on indicators – variables that are deemed to closely correlate
with buying behaviour.
There are many variables that make characterising customers difficult. It helps to ask who
buys, how they buy and why they buy from the business. Variables are not mutually
exclusive; they may overlap, and so several variables may be needed to profile customers.
Geodemographic systems provide classifications used to help many businesses understand
customer characteristics; including information on customer demographics, financials,
lifestyle and behaviour, revealing car, home and share ownership, internet use, brand
preferences etc.
Individuals do not need to be known personally, just enough to understand their buying
behaviour.
Reliance on geodemographic systems in isolation requires total confidence in data quality
and subsequent analysis; a multilevel approach may help. You, or your sales force, may know
how and why your customers buy, otherwise you may need to ask them. If you need to do
this then it might be illuminating to list what you see as benefits, and ask customers to rank
those and list any they think might be missing. Why they buy from you may seem obvious,
however, it may help to ask some customers even if only for added confidence in your
existing knowledge.
For a description
of qualitative
research, see:
chapter 3,
section A1
Needs and wants
are not explicitly
identifiable
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Variables often used as a basis for mostly consumer segmentation include the following:
Geographical
• Location, region or population density. A business may need to be
established close to the market, as in the case of an insurance broker
serving the local community. Some may consider that a digital
environmental reduces the relevance of this variable, although some market
trend analysts suggest a general reversion to community markets.
Demographical
• Age, generation, family size, gender, income, occupation, education and
social/economic status. Such considerations are useful in the case of an
independent financial adviser specialising in inheritance advice.
Behavioural
• Political persuasion, ambition, loyalty, social behaviour.
Chapter 4
Purchasing behaviour • An example might be a subdivision involving purchasing structure and
purchase policies, as in the case of true centralised global insurance
programmes being approached differently to localised business.
Psychographic
• Independence, personality, values, attitudes or interests.
• May be another subdivision including gap-year students,
dual-income-no-kids-yet and genial-old-fellows-enjoying-retirement.
Situational factors
• Urgency, specific application and size of order. For example, travel
insurance schemes being likely to need technology systems
complementary to their own.
Attitudinal
• Needs, product knowledge, perception, loyalty and attitudes toward risk, as
in the case of an independent financial adviser specialising in risk-taking or
risk-avoiding investment customers.
Your business may prefer other variables important to profiling customers.
Be aware
Demographics are easy to identify, but alone do not translate into the same behaviour
within that demographic.
Consider this…
Think back to Maslow in section A2A for the basic needs that may give insight into what
drives buying behaviour, as they can be hard to identify.
Useful websites
www.experian.co.uk/business-services/business-services.html
www.geodemographics.org.uk
Step 3: Define customer groups
The aim of segmenting the market is to arrive at a defined customer group – a particular
segment – for which a value proposition is developed by a business which exploits strengths
and minimises weaknesses. The business can then develop relevant parts of the marketing
mix to better target that segment, making its marketing activities more cost-effective.
By developing elements of the marketing mix demanded by specific groups of customers,
segmentation provides the basis for building long-term commercial relationships.
Customer segments can be identified using the variables above.
Example 4.1
An insurance broker may identify a customer segment as drivers over 35 with no claims in
three years, annual mileage below 15,000, and for whom breakdown cover and courtesy
car is essential.
An example for a property insurer may be inner-city alarmed factories built in the last ten
years for businesses with turnover under £10m, less than 25 employees, stock and
machinery sum insured under £1m, with low frequency claims, seeking a value for money
package and been with the same broker for five years or more.
This information can then be used to rank potential market segments so that the
resources of the business can be prioritised.
Chapter 4
Understanding customers
4/15
Step 4: Select and prioritise target segments
Having defined the market segments, the next task is to assess them in relation to potential
sales profit, unit returns, competition, opportunity, risk, and consistency with business
objectives.
There are four main criteria which will help to judge whether a segment will be viable:
• Is the segment readily distinct from other segments? The variable used as
a base for the segment should be measurable, a hunch is not.
Relevant
• Is the variable used relevant to buying or using the product? Customers
may well share characteristics, but only form a segment if they are relevant
to buying.
Substantial
• Is the segment big enough to secure an adequate return on any
investment? Is the segment growing or declining? Too small a segment
loses economies of scale.
Accessible
• Can the segment be reached economically? It is easier to communicate
more cost-effectively once a particular way to define your segment has
been found.
It is useful to identify several segments. You may choose to focus on one or two segments
or, if resources allow and competition is fierce, prefer to explore several new segments. Your
assessment of risk will influence your selection. Entry into a particular segment with a risk of
crippling losses but with rich premium income rewards from may attract or deter you. With
priority segments in mind, you then decide which marketing approach to use for each
selected segment.
Step 5: Implement marketing mix to target segments
An innovative approach to defining and selecting segments makes it easier to decide the
marketing mix, as well as the tools to use for success. Each new generation erodes the
traditional rules, bringing new types of competitors and customers. Making brave new
decisions should be based on an anticipation of the future rather than experiences of
the past.
Your marketing mix strategy will depend on what you determine gives you your competitive
advantage and the competitive scope of your target segment. There are four generic
strategies put forward by Porter (see Figure 4.3).
Figure 4.3: Porter’s generic strategies
Competitive advantage
Scope of target
Broad (industry-wide)
Low cost
Differentiation
Broad cost
Broad differentiation
Undifferentiated
Differentiated by valued
add-ons
Good basic product
Narrow (segmented)
Focused cost
Focus differentiation
No-name brand product Luxury brand
Low cost undifferentiated strategy
Delivering an undifferentiated product assumes that all customers will respond in the same
way. This generally means that it is a good basic product with broad appeal. Good examples
would include early basic personal motor and household insurance. This strategy changes as
industry structure or competitor positions change.
Unfocused differentiated strategy
Delivering products with unique added value to a broad market assumes customers will
respond to a product’s uniqueness in preference to competitors. The added value needs to
cost as little as possible and result in greater customer satisfaction. This strategy
necessitates a moving target to invent new sources of added value – for example, an
insurance broker in a competitive local market offering customers advantageous
payment terms.
Chapter 4
Identifiable
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Low-cost focused strategy
Delivering an undifferentiated product to a concentrated segment of a market with unusual
needs assumes a cost advantage has been found. This strategy demands a low-cost culture
to sustain a cost advantage that emanates from focusing and not deviating from a specific
segment – for example, specialist farm schemes.
Focused differentiated strategy
Delivering a product where the added value commands a premium price assumes you have
identified a segment with extensive needs that you can satisfy. This strategy needs a
customer-focused culture that can continually improve performance and constantly
innovate – for example, ultra-high net worth home insurance.
Chapter 4
Step 6: Monitor and revise segments
You will need to monitor results from your strategy in order to ensure that they are in line
with your expectations, and revise your plans if they are not.
The steps described above are the typical steps for businesses to segment their markets.
Every business has its own market environment and marketing strategy, and should adjust
its steps to segment the market in accordance with its own market.
Chapter 4
Understanding customers
4/17
Summary
A product is anything that can be offered to a market that might satisfy a want or a need. It
can be either a tangible good or an intangible service.
Marketing responds by identifying, anticipating and satisfying customer needs and wants
through the delivery of goods and services.
Understanding how customers make choices is one very important element of marketing.
Though customers seek solutions, many external influences affect their choices.
A broad classification – around which most insurance companies are structured – is the split
between business and personal customers.
The purpose of segmentation is to identify the most promising opportunities that match
with the business’s abilities and valuable strengths. Each segment needs to be of sufficient
size and easy (cost-effective) to contact.
Bibliography
Cialdini, R.B. (2006) Influence: The Psychology of Persuasion. New York: Harper Business
Dolan, P. and Martin, S. (2014) ‘How Behavioural Science Can Help Your Conversations
About Charging’, The Journal. Available at: bit.ly/2QuQbJH
[Accessed: 13 November 2019]
Ernst and Young. (2014) Welcome to the Consumer Revolution.
Available at: go.ey.com/2REvtHq [Accessed: 13 November 2019]
Ernst and Young, and the Insurance Broking Faculty. (2009) Delivering World Class
Service: For Competitive Advantage in a Changing Mid-corporate Commercial Insurance
Market. Available to CII members at: bit.ly/2z7eMh1 [Accessed: 13 November 2019]
Maslow, A. (1987) Motivation and Personality. 3rd edn. New York: Addison-Wesley
Sun, S. (2009) ‘An Analysis on the Conditions and Methods of Market Segmentation’,
International Journal of Business and Management, Vol. 4, Issue 2.
Available at: bit.ly/2FafzCZ [Accessed: 13 November 2019]
The Chartered Institute of Marketing. (2009) ‘How to Achieve an Effective Marketing Mix’,
10 Minute Guide
The Chartered Institute of Marketing. (2009) ‘How to Grow Through New and Existing
Customers’, 10 Minute Guide
Weinstein, A. (1999) ‘The Benefits of Benefit Segmentation’, Journal of Segmentation in
Marketing, Vol. 3, Issue 1.
Chapter 4
Customer relationship marketing (CRM) uses information about individual customers to
build stronger relationships between a business and its clients. This information is used to
pre-empt a customer’s future buying needs based on their individual profiles and on the
evidence of their past purchases.
Chapter 4
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Chapter 4
Understanding customers
4/19
Revision questions
1.
What are the basic forces that drive people and businesses to buy things, and
where might insurance fit within these frameworks?
2.
How are customers influenced in their buying behaviour?
3.
What are the four main criteria which can help you judge whether a segment will be
viable?
Scenario 4.1: Question
Your MD believes the website part of your business has lost touch with customers. Your
MD sees how the recession and other changes have influenced your customers as website
hits have significantly dropped. Your MD requires you to recommend a basic redefinition
and prioritisation of your target market segments.
Chapter 4
See overleaf for suggested answers
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Revision answers
1.
Physiological, safety, belonging, esteem and self-actualisation. Insurance would
best fit within ‘safety’.
2.
Social, organisational structure, culture, peer pressure, attitude.
3.
Identifiable, relevant, substantial, accessible.
Scenario 4.1: How to approach your answer
Chapter 4
Aim
This scenario tests your understanding of customer behaviour as a basis for
segmentation, and how the marketing mix might be used to match business strengths
with customer wants and needs.
Key points of content
You should aim to include the following key points of content:
• An explanation of customer needs and what influences their choice of buying from your
business.
• An explanation of how to select and prioritise market segments.
• Definition and description of your customer segment(s).
5
Product development
and price
Contents
Syllabus learning
outcomes
Learning objectives
Introduction
A Competitive positioning
2.3
B Portfolio management
2.2
C The life cycle of insurance products
2.2
D Taking a position in the market
2.3
E Supply and demand in the insurance industry
1.3
F Pricing
2.3
Bibliography
Questions, scenario and answers
Learning objectives
This chapter relates to syllabus sections 1 and 2.
On completion of this chapter and private research, you should be able to:
• explain how the competitive environment can be influenced;
• explain how and why products are differentiated;
• explain the purpose of, value and supply chain analysis, together with the considerations
and processes involved;
• define the principles of portfolio management;
• discuss the life cycle of insurance products;
• explain how new products are developed;
• describe the characteristics and options in positioning;
• explain supply and demand and its impact on price; and
• identify the influencing factors on pricing.
Chapter 5
Key terms
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Introduction
In this chapter we continue our theme that marketing plans require the careful examination
of all strategic issues. We will focus on two of the 7Ps that make up the marketing mix –
product and price. Products provide a link with customers and are important to the longterm survival of a company. Here, we examine how new products are developed and how
competitive positioning (including product differentiation and value chain analysis),
portfolio management and the life cycle of insurance products impact the products a
company can offer. We will then move on to consider pricing in more detail, and the external
and internal factors that impact it.
Key terms
Chapter 5
This chapter features explanations of the following terms and concepts:
Analysers
Bargaining power
Boston Consulting
Group (BCG) matrix
Defenders
Diffusion of innovation
Insurance cycle
Monopolistic
competition
Monopoly
Oligopoly
Perfect competition
Portfolio management
Positioning map
Price factors
Product differentiation
Product life cycle
Prospectors
Reactors
Supply chain analysis
Value chain analysis
A
Competitive positioning
A business operating in a competitive market will seek to influence demand by developing
products in a way that differentiates them from those offered by its rivals. The more
competitive the market, the greater need there is for marketing activities to be undertaken.
A1
What is competition?
Competition is a state of business rivalry. The competitive environment greatly affects the
products a business can sell and the price a market will tolerate. It is important to
understand any business environment in terms of forecasting revenues, costs and profits,
and the factors that businesses can influence. The factors influencing the competitive
environment are detailed below.
Industry structure:
• Number, size and share of competition; it is not the number of competitors that is
important, but the concentration – i.e. how much of the market is dominated by a small
number of companies.
• The extent of vertical integration – i.e. the link from raw supplier of insurance capital to
insurance broker.
Consider this…
Consider the extent of vertical integration in your market (do insurance companies own or
have a stake in insurance brokers?).
• Future changes to structure and competitor tactics; the probability of future changes
depends on the likelihood of competitive retaliation and the barriers to new entrants.
Market demand:
• Market type, the importance of substitutes and the extent of product differentiation.
• Forecasts of future total demand and the importance of demand from a specific customer
segment are affected by market maturity and product life cycle position – both concepts
are explained later in this chapter.
Consider this…
Are you able to identify a customer segment where demand is strong and you can
differentiate your product?
Chapter 5
Product development and price
Bargaining power of suppliers and buyers:
• The balance of power depends on competition, staff skills and product differentiation.
• The bargaining power between customers and a business will be affected by the
insurance cycle.
5/3
For more details
on the insurance
cycle, see
section E3
• Suppliers of capital influence costs, which are also affected by the insurance cycle.
Costs:
• The pattern and scale of costs depends on cost structures (such as fixed and variable),
economies of scale, and whether or not there is excess capacity.
• Future changes in cost structures should also be taken into consideration.
A1A
How do competitors behave in a competitive environment?
From a marketing perspective, a classification of businesses according to their intended rate
of market penetration identifies four strategic types:
• Pursue growth through the early development of new products in new
markets. This strategy works best during the early stages of the product life
cycle when the business tries to increase its market share quickly (for
example, the first broker networks).
Defenders
• Locate and maintain a secure position in relatively stable markets by offering
higher quality, lower prices and/or better service over a limited range. This
strategy is best in a mature market for profitable businesses (for example,
Canada Life when recognised for giving ‘Service Beyond the Call of Duty’ at
the 2015 Investment Life and Pensions Moneyfacts Awards).
Analysers
• Maintain a strong position in their core markets but seek to expand into new
product markets. This strategy is appropriate for mature markets
experiencing some growth and change, such as The Automobile Association
(AA) which leveraged the customer trust it had earned in the breakdown and
recovery segment to diversify into personal car insurance.
Reactors
• Businesses with no clearly defined business strategy. They tend not to have
customer orientation, and are not willing to assume the risks of new product
development, examples can be found among insurance businesses.
Chapter 5
Prospectors
Be aware
Competitive strategy influences and constrains marketing plans as it affects all elements
of the marketing mix.
A1B
How do types of competition affect marketing?
The relevance of marketing declines as competition swings away from perfect competition
towards monopoly.
Theoretically, perfect competition (also known as ‘pure competition’) exists where:
• there is a large number of both buyers and sellers in the market;
• no single buyer or seller is large enough to influence market prices;
• all product and service offerings are identical;
• there are no barriers to entering or leaving the market; and
• all buyers and sellers have full knowledge of market conditions.
Monopolistic competition is a type of imperfect competition. There is a large number of
buyers and sellers in the market and differentiated products and services.
Oligopoly sits nearer to the monopoly end of the spectrum. It occurs where a small number
of businesses have control over the vast majority of a market’s output. Each then considers
the actions of all others before determining the price, quality and quantity of their offerings.
For a monopoly to exist, there must be only one seller in the market which can fix price and
quantity all by itself.
Insurance businesses strive to make their products slightly different so each organisation will
have greater scope to compete.
Each business
considers the
actions of all
others in oligopoly
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Figure 5.1 illustrates the different types of competition that exist in the marketplace.
Figure 5.1: Market structures in different competitive economies
Market structure
•
•
•
•
Perfect
competition
Many sellers
Identical products
No market
barriers
No control of
market
•
•
•
•
Monopolistic
competition
Many sellers
Differentiated
products
Few market
barriers
Small control of
market
Oligopoly
•
•
•
•
Few sellers
Similar products
Some market
barriers
Substantial
control of market
Monopoly
•
•
•
•
Single seller
No close
substitute products
Effective market
barriers
Significant control
of market
Critical reflection
Chapter 5
Consider the potential benefits and difficulties of the various competition types.
You may care to compare the provision of health care insurance in developing countries
with, say, that in the USA; some might say there is little difference as the number of
insurance suppliers in each country is very limited, yet the marketing approach is very
different.
Does monopoly stifle investment and innovation? Does competition create unnecessary
duplication and wasted investment?
A2
How can products be differentiated?
Market segmentation and product differentiation are closely linked. True segmentation
occurs when genuinely different product offerings are developed for different market
segments.
Be aware
In insurance marketing, the term ‘product’ denotes not only the product itself but the
service factors that may be just as important in differentiating one insurance product from
another. For example, loss prevention advice, provision of information and news, and/or
24-hour emergency claims service.
Competitive differentiation is about making yourself unique and more attractive to the
customer by delivering value in response to identified customer needs. Differentiation is not
limited to the product but can be based on any component of the marketing mix. For
example:
• The distribution plan (known as place in the marketing mix) affects the access and
availability of insurance products to potential target markets, the nature of what is on
offer, and also where and how the customer experiences it.
• People play an important role in the delivery and quality of many insurance products
because insurance often relies on considerable interaction between individuals. This is
clearly of little importance to online businesses but the appearance of staff in, say, high
street premises often gives clues about the service being offered.
We will look at place and people within the marketing mix in more detail in chapter 6.
A business’s focus, however, should be on customer needs and how it can best satisfy them,
rather than simply on how to be distinct from its competitors.
Design-driven innovation and cultures
Design-driven innovation is a new type of product design process that focuses on the
customer experience. It enables businesses to differentiate their products from others in the
market and so is a source of competitive advantage. People buy meanings, a factor often
overlooked in insurance product research and design. Design-driven innovation involves
using a detailed knowledge of customers to create new meanings for products; it does not
simply follow existing trends but modifies the context in which those trends occur.
Chapter 5
Product development and price
5/5
Businesses with design-driven cultures tend to spend more time testing, prototyping and
experimenting, bringing together cross-functional teams to experience and empathise with
customers. They engage with customers to build design concepts and train employees on
how to make creative design decisions that encourage customer empathy.
Marketing management decision
You have been successful in selecting a distinct customer segment and now have to
consider how best to develop your offering to make it more attractive to your target
customers. How would you achieve that differentiation, for example, on holiday insurance
for the disabled?
Building a recognisable corporate image is of increasing importance to insurers and is yet
another way for a business to differentiate itself. All of a business’s staff members who come
into contact with existing policyholders and other customers should be trained to inform,
assist and advise customers as best they can, since they play a huge part in the corporate
image.
Consider this…
Consider now what the concept of a ‘brand’ means to you – we will look at branding in
detail in chapter 8.
A3
Chapter 5
Large scale success is difficult so, usually, many small scale wins must be secured. Small
scale wins tend to be below the radar of competitors and are therefore less likely to provoke
competitive reaction. Service can be difficult for competitors to replicate as it takes longer
to achieve and is already linked to another business culture.
What is financial value chain analysis?
Value chains consist of all the activities a business undertakes; from the initial moment raw
materials are bought, through to the receipt of customer payments. Value chain analysis
looks at each of the processes that make up the chain of activity, asking how important each
one is and how they compare to competitors’ processes. Value activities are the distinct
activities representing the foundations for creating value for customers. Value is in the
perception of the buyer and seller, and needs a transaction in order to be realised.
Value chain analysis – as a tool for seeking strategic advantage – is concerned with a
business’s activities which provide a sustainable competitive advantage. There may be a
single powerful factor or a number of factors that together build a strong position. The value
chain analysis seeks to identify links between factors, with an emphasis on strategic
significance.
Figure 5.2 is a diagram of the considerations and processes involved in a value chain
analysis. The way the diagram is drawn is far less important than the break-down of the
processes to identify which give the business its competitive advantage. The value chain
gives priority to identifying the activities of a business. Business activities are divided into
primary (involved directly with sale and transfer to the customer) and support (that support
primary activities and each other) activities. Margin is the difference between the collective
cost of all value activities and the total value obtained from revenue through sales to
customers.
Value chain
analysis is a tool
for seeking
strategic
advantage
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Figure 5.2: Breakdown of a value chain analysis
Support activities
Infrastructure (management, finance, administration, IT)
Human resources (staff, training, payroll, recruitment)
Product development (research)
Margin
Primary activities
Chapter 5
Underwriting
Assessment
Rating
Policy wording
Renewal
Reinsurance
Claims handling
Investigation
Negotiation
Settlement
Legal
Customer
service
Complaints
Advice
Marketing
Website
Advertising
Sales
PR
Typically, support activities are shown horizontally in relation to primary activities. This
illustrates that each primary activity draws on the support activities to a greater or lesser
extent. Primary and support activities are both subdivided to show a clear hierarchical
breakdown of all the activities in the value chain.
Cost advantage may come from any number of routes, including automating processes or
lower purchase costs. For example, insurance businesses rated high by credit rating
agencies could raise capital at a lower cost than the lower rated businesses, in which case
cost advantage is secured by the support activity through management and finance.
Smaller insurance businesses can often manage costs more effectively. While price is
important, customers may be prepared to pay more when they perceive value added from
specialisation.
Useful websites
For more about credit ratings, visit:
• www.moodys.com.
• www.spratings.com/en_US/products/-/product-detail/credit-ratings.
• www.standardandpoors.com.
Many, if not most, insurers see themselves as product specialists, and attribute their
competitive advantage to their underwriting, claims and risk management expertise.
Whether they are right or wrong, a value chain analysis should always be undertaken
nonetheless. The key questions for each part of the value chain are:
• How important a part of overall activity is it?
• What is it in this activity that drives a competitive advantage not readily available to
competitors?
• How are competitive forces likely to affect that advantage?
If the source of true competitive advantage can successfully be identified, so can the
strengths on which to base future plans. It might be the case that marketing can deliver
differentiation from well-defined segmentation, thereby allowing cover enhancements in
response to identified customer needs. At this point, market research may be drawn upon to
help determine customer perception of each activity.
Value chain analysis allows the identification of which activities are perceived by customers
as creating value, and which cost-intensive activities offer the greatest potential for
rationalisation. Linkages between activities, as well as specific functional excellence,
produce a sustainable competitive advantage. Examining each activity in isolation creates
the danger of compiling an activity list that has absolutely no significance to strategy. A
business may have many departments, each with their own individual stresses, which, if left
to themselves, might never develop an all encompassing coordinated strategy.
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A4
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Supply chain analysis
Supply chain analysis is where the linkages to and within the activity chains of a business’s
suppliers, distribution channels and customers are analysed. A business is part of a value
adding network along with its suppliers and customers. The formulation of a successful
marketing strategy may sometimes entail more than an examination of a business’s activities
alone, since it may not be enough just to exploit a single source of competitive advantage as
competitors may have counter-strategies available.
Be aware
Exploitable opportunities within internal and external linkages may require careful and
innovative analysis to reveal them.
Value chain research may reveal customer preferences that lead to a redesign of product in
order to either, for example:
• lower/increase quality;
• improve staff training;
• invest in new technology;
• redefine market segments;
• combine sales forces;
Chapter 5
• coordinate department plans;
• invest in an awareness campaign;
• diversify in line with existing strengths;
• sell off business units with no important linkages; or
• change to direct distribution.
Cost savings and price increases are often short-term (quick) fixes that are favoured by
some. There is a real temptation to focus solely on any potential cost savings that have been
identified in the value analysis. However, it is sometimes easier to focus on the activities that
are considered less important and reduce their cost – for example, through outsourcing.
Cost savings
and price increases
are often shortterm fixes
A4A Outsourcing
Outsourcing involves moving some of a business’s activities to an outside supply, rather than
completing those services itself. The main reason to outsource is often to reduce costs but it
can also provide the flexibility to deliver a bespoke service or allow businesses to test new
services quickly and efficiently, so that they can be moved in-house when ready. For an
outsourcing partnership to be successful, both the business and outsourcer need to benefit
financially from the partnership and find a cultural fit.
Support activities are most likely to be outsourced but some primary activities can be
outsourced when suppliers have vital specialist knowledge that can deliver cost savings.
Underwriting administrative tasks, such as data keying and information chasing, can be
outsourced and intermediaries can join networks to which they outsource support activities
such as compliance. Additionally, some independent financial advisers find outsource
solutions for paraplanning, will writing and discretionary investment management, leaving
themselves more time to manage clients’ financial affairs (primary activities such as
retirement and tax planning).
Advantages
The growth of an insurance business may be restrained by recruitment and IT capacity.
Rapid business growth can outpace in-house recruitment and training, and there is no
certainty that such success will cover the costs involved in hiring more people. Furthermore,
current employee time can be absorbed by related administrative tasks, causing them to
allocate less time to their intended roles.
Outsourcing may provide companies with a solution to these problems. It could enable them
to avoid training costs, and give them more flexibility by freeing up capital and increasing
capabilities. Large businesses benefit by saving costs and filling service gaps, for example,
through setting up call centre facilities. A small business may gain greater control over its
workflow and headcount. In addition, outsourcing can improve staff morale by enabling
employees to spend more time on their intended roles.
Growth may be
restrained by
recruitment and IT
capacity
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Be aware
When Plum Underwriting developed Plum Open Market, an online centre for brokers, it
decided to outsource its less business-critical elements, such as the majority of its
administrative tasks. However, it still has one in-house, full time employee who handles
urgent and important administration.
Disadvantages
Risk attaches to any over-dependence on suppliers and so the perceived benefits of
outsourcing can be misleading. It could have the following disadvantages:
• The bottom line benefits resulting from job cuts may be offset by negative effects on staff
morale, loyalty and productivity.
• Customer satisfaction and loyalty could be impacted by poor post-purchase customer
service.
• Violation of confidentiality and intellectual property are concerns.
• Overseas outsourcing may result in fewer domestic employment opportunities and
reduce the pool of home-grown talent.
• Travel and the connected expenses incurred can be substantial where frequent visits to
the outsourcer are necessary.
Chapter 5
• Damage may be caused to the business’s reputation.
Lost trust is hard
to regain
Lost trust is hard to regain and often intensified by social media. To get it right, the
outsourcing company needs to be appropriately specialised with qualified staff.
Experienced outsourcers must differentiate between each brand they work with and reflect
each business’s brand values. Distance can create relationship issues, leading to serious
misunderstandings. It is therefore important to monitor service delivery and possibly
benchmark it against those provided in-house or by other outsourcers.
Successful outsourcing needs to be more than a supply and demand relationship. It is
essential that outsourcers are trained to understand brand values, in addition to the service
required. A dynamic partnership can bring innovation.
Consider this…
Insurers who once outsourced some of their business activities overseas are now
transferring this business back to the country in which it was originally located. This is
known as reshoring or onshoring. Why do think this has happened?
Useful website
Visit: https://bit.ly/34Zx2WZ to view an article about how a data breach by a partner of
AXA Insurance in Ireland led to problems for the AXA brand.
Responsibilities
In June 2015, the Financial Conduct Authority (FCA) published its thematic review,
‘Delegated authority: Outsourcing in the general insurance market’. This found that
outsourcing in the insurance industry takes many forms relating to all stages of the insurance
product life-cycle, such as underwriting and claims. For example, Lloyds sourced 30% of its
premium income through delegated underwriting in 2013. The report stated that the division
of responsibilities and knowledge can bring increased complexity, with many insurance
businesses not adequately considering or recognising their regulatory obligations. Concerns
were expressed over an absence of customer focus.
The FCA requires to see that customers are placed at the heart of insurance business
models. Companies must have robust systems in place, with appropriate oversight and a full
understanding and fulfilment of responsibilities to customers, whether duties are outsourced
or in-house. The FCA expects effective risk-based controls, appropriate monitoring to
identify when customers are not treated fairly, allocated responsibilities for product design
and performance for customers, and appropriate assessment of distribution channels and
sales activities.
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Product development and price
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In July 2016, the FCA published another thematic review, ‘Principals and their appointed
representatives in the general insurance sector’, which outlined significant shortcomings in
the control of appointed representatives in the general insurance industry. Most of the 15
businesses surveyed did not appear to understand the full extent of their obligations for
complying with regulation; over half did not demonstrate effective risk management and
control.
Useful website
To view these and other FCA thematic reviews, visit: bit.ly/2JOcdnP.
B
Portfolio management
Having differentiated a product and identified where its competitive advantage lies, success
is always finite. A portfolio of products therefore needs to be managed; a balanced portfolio
is one where products are managed economically towards financial growth. For example,
high costs associated with a new product may cause pressure on resources, which could be
dangerous if a major cash generating product is under pressure.
B1
Boston Consulting Group (BCG) matrix
Products are represented by circles on the matrix. The size of the circle is proportionate to
the turnover of the business. The centre of the circle is plotted against the relative market
share (x-axis) and the growth rate of the overall market (not the growth rate of the product)
(y-axis). The ‘movement’ of these circles can be plotted over time.
Figure 5.3: The Boston Consulting Group’s growth-share matrix
High
Question
marks
Market growth rate
Stars
Cash cows
Dogs
Low
High
Low
Market share
The BCG matrix is divided into four (not necessarily equal) quadrants. Each quadrant is
associated with a different type of competitive strategy, and is labelled according to the
type of product and/or service located within it.
Chapter 5
The Boston Consulting Group (BCG) matrix (as shown in Figure 5.3) allows the analyst to
plot the position of products over time with reference to the growth of the market and the
company’s share of that market. Market growth rate is sometimes taken as the percentage
increase in total sales over two years and is a rough indicator of potential cash demand.
Market share is relative to the largest competitor.
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B1A
Types of products and services
Question marks
Question marks represent products or services that have a low market share in a market of
high growth. The market offers clear potential but needs significant resources to take on the
competition. Resources may involve product modification, capacity, promotion or staff.
Investing in question marks carries a higher risk; gains may be significant but costs are high.
Stars
Stars are products that have achieved a high share of a growing market. The cost of
maintaining a strong competitive position may be high as continued investment is needed to
keep such products ahead of competitors.
Cash cows
Cash cows are products with high market share where market growth has stabilised. Return
on investment is good since maintaining market position is relatively inexpensive. Harvesting
funds generated by the cash cows can therefore be used to fund the development of
question marks and the maintenance of stars.
Dogs
Dogs are products that tend to be a drain on resources and can be candidates for dropping
altogether.
Chapter 5
Consider this…
Which quadrant do your business products fall into?
The BCG matrix implies that management should seek to establish a balanced portfolio that
carries with it a sense of progression (by assuming that question marks should become stars
that will eventually turn into cash cows to fund the next generation of products or services).
C
The life cycle of insurance products
The product life cycle concept in marketing assumes that all products have limited lives,
from their first introduction to their ultimate withdrawal. This is important because
determining the right marketing strategy for a product depends heavily on an appreciation
of where it falls within its product life cycle.
For the
development of
new products,
see chapter 3,
section A2
Once a product has been developed and launched, its success can be tracked according to
its sales and profitability during its life cycle. Products experience predictably different sales
growth patterns and variations in profitability as time goes by.
C1
Product life cycle phases
The sales of a new product or service is usually constrained by a lack of customer awareness
of the product. As the product becomes better known, sales continue to grow until the cycle
is dominated by repeat sales to existing customers rather than trial sales to new customers.
Once a product’s new customers compensate exactly for those customers no longer buying
the product, it has reached the mature stage. When the number of customers who are no
longer buying the product exceeds those who are buying it, the product then goes into
decline.
Consider this…
Think of a product that has already reached decline (if necessary ask a colleague) and
consider the reasons behind the product’s decline.
Figure 5.4 shows the phases in the life cycle after the development phase and once sales of
the product have commenced.
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Product development and price
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Sales
Figure 5.4: The product life cycle
Launch
Growth
Maturity
Decline
Time
During the launch phase, sales revenues are low while customers and intermediaries become
aware of the product. The growth phase involves acceptance of the product and an increase
in revenue sustained by improved distribution, product improvements and price
adjustments. Investment in advertising and training delivers its return as revenue grows, and
further investment can be stopped or reduced so that product returns move into profit.
The market reaches maturity as rivals are attracted and competition increases, putting
pressure on profits. In the decline phase, sales fall off as attractively priced competition or
substitutes are introduced.
Be aware
Due to the uncontrollable dynamics of the market environment, not all products follow
this idealised pattern.
C1A
Sustained growth
To sustain growth and profitability over time an insurance business needs to generate new
products, enter new markets, or enhance existing products to extend their life cycles.
Product marketing plans change throughout the product life cycle phases, and careful
marketing plans can do much to extend the time axis of the cycle.
Figure 5.5 demonstrates these ideas graphically.
Chapter 5
Research, development and testing – the development phase – takes place prior to launch.
Development costs plus establishment costs (including advertising, staff training etc.)
means expenditure exceeds the revenue generated in the early stages.
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Figure 5.5: Extending the product life cycle
Sales
New innovations
Chapter 5
Time
A growth plan
based on price
alone is rarely
sustainable in the
long term
A growth plan based on price alone is rarely sustainable in the long term. Matching the
specific needs of a segment through differentiation is a way of generating new products for
new markets, as well as prolonging a product’s life cycle through variation. Micro-segmented
products can be produced relatively easily and cheaply in niche areas too specialist for
larger insurance businesses.
C1B
How do insurance businesses extend the product life cycle?
Insurance has been in existence in some form for several hundred years. The pattern of the
product life cycle might have expected insurance products to be in decline by now. It may
be that the time axis of the product life cycle for insurance overall is much longer than any of
us can imagine in the absence of substitutes, for example, financial derivative markets have
not experienced the success predicted by some in replacing insurance as a financial tool.
The inevitability of risk means that there is a constant demand for insurance of some kind.
The enhancement of insurance products, for example, by becoming more comprehensive,
more commoditised and increasingly utilised by private individuals, has extended the
product life cycle for many of them. No satisfactory substitutes for traditional insurance
have emerged in the marketplace and insurers have kept pace with the ever-changing
demand for new insurance products. Some may consider captive insurance companies a
substitute for traditional insurance, although some of these eventually evolve into traditional
insurance companies while others are seen as tax efficient vehicles for legal self-insurance.
Insurance enhancements and new forms of insurance are developed in response to demand
for a risk transfer mechanism for new risk exposures. Insurance products have kept pace
with technological development, environmental development, international credit risk
development etc. (for example, environmental liability and cyber liability insurance
products).
Insurance businesses have been criticised by some for being slow to adopt new technology
in their business processes. Even so, technological enhancements have extended the life of
insurance products by allowing customers greater access to their own records, including
claims history, loss prevention advice and claims reporting.
Research exercise
Consider the products offered by your company. Identify those in the mature stage of the
product life cycle. What steps has your company (or its competitors) taken to revitalise
these products to extend the product life cycle?
Careful marketing in the insurance industry has long involved strategic alliances with other
financial service providers and product retailers. This reflects the adaptation and integration
of insurance within a much broader distribution portfolio, thereby extending the product life
cycle of insurance.
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C2
Product development and price
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Diffusion of innovation
Roger’s diffusion of innovation theory examines the way consumers who adopt a new idea
or product communicate the innovation over time among members of their social system.
Figure 5.6 shows the adoption process.
Figure 5.6: The diffusion of innovation curve
35
No. of new adopters
30
25
20
15
10
5
13.5%
34%
34%
Innovators
Early
adopters
Early
majority
Late
majority
16%
Chapter 5
2.5%
0
Laggards
Time
Fashion leaders and innovators are the first to be attracted to a new product or service offer.
Early adopters and opinion-leaders are those who carefully consider the things they do. The
early majority usually adopt only products that have been approved as evidenced by the
buying behaviour of others. The late majority need to be convinced and price becomes more
important at this stage. Laggards typically have a lower income and are the last to adopt the
product.
Fashion leaders
and innovators are
the first to be
attracted to a new
product or
service offer
Research exercise
Find out how an innovative insurance product is communicated.
For example, sales of Directors’ and Officers’ insurance products introduced into the UK
did not expand until the 1990s when the early majority became convinced and the price
became more widely acceptable. Why is it then that sales remain relatively low in relation
to the total market?
Be aware
Identifying and targeting innovators and opinion-leaders increases the chances of
creating early interest.
D
Taking a position in the market
Market positioning is based on customer perception of a product (or brand) in relation to
others in the market. The process of positioning naturally follows on from all other activities
carried out so far in the marketing plan. The marketing audit (including STEP), customer
needs and segmentation analysis, competitor research, portfolio analysis, SWOT and
marketing objectives precede your decision on market strategy. Scenario analysis can help
to predict results and suggest alternative strategies.
Positioning is an important element of segmentation. This is the result of developing and
communicating a differential advantage that makes the product stand out to target
customers. If the product has a positive image among customers, it would make sense to
continue to promote that.
Positioning is an
important element
of segmentation
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Every insurance product has the potential to be perceived as different by the customer,
since customers have different needs and seek different solutions. It is possible for
communications to create a differential advantage that makes a product superior and
distinctive in the perception of target customers.
Positioning, itself, involves selecting the correct market segment for an offering to help
distinguish it from competitors.
Consider this…
How does your choice of distribution channel support your intended positioning?
D1
Identifying key characteristics
Market research will identify the key characteristics of a product by discovering why people
buy it. Key characteristics are not necessarily the cover features that underwriters or brokers
like to include; customers may see the product in a different way.
The potential for gaps between customer perception and expectation lies between:
Chapter 5
• management’s view of what the customer expects and what the customer really expects,
for example, if management has not kept pace with change in the target market;
• management’s view of what the customer expects and their own specification of quality
to the business, for example, if management ignores service quality in favour of cost
savings;
• specification of quality and actual delivery, for example, ignoring staff training on service
quality matters; and
• actual delivery and customer communications, for example, promising a lot and delivering
a little.
D2
Positioning maps
Positioning maps help to visualise products in the market relative to those of competitors.
The goal with positioning maps should be to identify positions in the market that represent
unmet needs and fill those needs better than the competition.
A positioning map usually shows two key customer attributes in graphic form. In the
example in Figure 5.7, we have chosen price and quality as those two attributes. Your
positioning may lead you to consider other attributes and even add another dimension to
produce a positioning cube.
Figure 5.7: Positioning map
High
•B
•D
•C
High
Price Low
•A
Low
Quality
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Product development and price
5/15
It is possible to plot the various competing products on a positioning map using
appropriately graduated scales so that those products can be compared. In Figure 5.7,
products A and B are at a similar price, but the latter provides a much higher level of quality.
Similarly, products C and D provide almost identical quality, but C is far more expensive.
Positioning maps can be based on either objective or subjective attributes, or on some
combination of the two; usually two dimensions are used on the axes of positioning maps.
While the example in Figure 5.7 uses the attributes of price and quality, any attributes that
are important to a business can be used.
D3
Evaluating positioning options
To be sustainable the positioning of a product must be meaningful and believable to target
customers. Broadly speaking, the options are to either identify an unoccupied position on
the map, or strengthen the current position against competitors through gradual
enhancement, so as to avoid confrontation. Examples of positions to adopt are as follows,
although your creative thinkers may find others.
biggest
Quality leader
most reliable services
Service leader
most responsive at handling/minimising complaints
Innovation leader
most creative
Value leader
best value for the price
Bargain leader
lowest price
Chapter 5
Market share leader
Understanding and influencing customer perception of position in the market gives a
business a little more control over its marketing strategy.
Positioning maps can be used to define an overall product strategy before creating a
product, or to craft a unique value proposition and messaging for existing products.
E
Supply and demand in the insurance
industry
The basic assumption in marketing, and particularly insurance marketing, is that supply
exceeds demand – i.e. markets are saturated. The problem with saturated markets is that
they are highly competitive; growth and profitability are limited.
Useful website
Members of the Chartered Insurance Institute can find useful market data on the
Knowledge section of the Institute’s website: www.cii.co.uk/knowledge.
E1
Insurance supply
Insurance companies need capital; the money available to run the business. Capital provides
the capacity for an insurance business, that is, how much business it can write. Because there
is a lag between the receipt of a premium and the payment of claims, there is a period which
is open for investing premium received. For this reason, insurance might be regarded as a
double business: underwriting and investment.
Plentiful capital supply can lead to an over-capitalised insurance industry, and one that
keeps a downward pressure on premiums. Insurance company capacity can be increased or
decreased at times. It is also perishable, in the sense that unused capital for an underwriting
year cannot be transferred to the next.
Refer to 990,
chapter 1,
sections A and C,
and chapter 10,
section F1
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Insurance companies vary their capacity as market conditions change. Product pricing
practices are not independent of market conditions and expected demand. Intelligence and
research is a key part of pricing strategy to maximise expected profits by adapting capacity
to market conditions. Insurance companies with multi-line products adopt specific capacity
changes for each business segment. Integrating anticipations of future market conditions
helps maximise the return on a limited insurance capacity by ensuring that it is sold at the
best rates.
The marketing process identifies anticipated change in demand and market conditions.
E2
Insurance demand
Does demand for insurance shrink during a recession?
Consider this…
Qualitative research conducted by the CII in partnership with Illuminas in October 2011
found that in recession, 12% of respondents considered insurance more important,
whereas 11% had cancelled/not renewed policies to save money.
Chapter 5
Credit constraints and financial circumstances cause customers to look for ways to reduce
costs. Firms doing less business translate to a reduction in exposure and a reduction in the
level of insurance. Businesses under financial pressure negotiate policy renewal with a view
to forcing insurers to meet their budgets. Risk managers explore alternatives to traditional
insurance to keep their costs down.
Most insurers face fluctuations in demand over time, progressive or abrupt shifts in market
supply and demand conditions, resulting from fluctuations in the flow of business and the
insurance cycle. Demand also depends on competitive forces in the marketplace – for
example, a new insurance company entering the market. General customer satisfaction
regarding insurance products and sometimes seasonal or economic fluctuations can also be
important factors – for example, overseas holiday travel insurance in times of recession, or a
domestic heat wave.
Consider this…
After the 2011 UK riots the CII research, referred to above, found that only 9% of the
respondents considered the importance of insurance to have increased.
The flow of demand for quotes is influenced by changes in the marketing mix. For example, a
change in distribution strategy as office closures affect local and, thereby, overall demand.
E3
Refer to 990,
chapter 10,
section F6
Insurance cycle
Risk business becomes unattractive to investors when the uncertain costs suddenly become
too high, and investment income returns on premiums received before paying claims are too
low. All theories on the cause of the insurance cycle involve availability and use of capital.
For decades, the insurance world has operated in a cycle of high and low pricing. Premiums
change according to where in the cycle the market is positioned; increasing in a hard market
and reducing in soft market conditions. Some prominent insurance industry figures have
announced the end of the insurance cycle, while others have described a change in the
structure of the cycle, with cycles getting shorter and more product- or segment-specific.
Increased availability of underwriting and marketing management information means
insurance companies with multi-line products have greater abilities to adopt specific
capacity changes for each business segment. This has led some to believe the insurance
cycle (see Figure 5.8) is now broken down into different cycles for each segment.
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Product development and price
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Figure 5.8: The insurance cycle
Profits
increase
Capital
readily
available
Competition
increases
Premiums
increase
Premiums and
profits reduce
Competition
reduces
Restricted
capital availability
Underwriting
Losses
E4
Does marketing affect demand?
Measuring the effectiveness of marketing in influencing demand can be somewhat elusive;
the consensus is that marketing does affect demand, but variably so across different lines of
business.
Recording responses to a marketing initiative, analysing which channel works best and how
best to respond to different customers can result in streamlining budgets, and an
improvement in bottom line profit with no increase in overall sales.
A significant investment in advertising may result in increased name awareness and
improved perception, but not necessarily in an increase in sales or profit – because of
competitor reaction, perhaps?
Benchmarking is an approach used by some companies measuring outputs and processes,
but unless close comparisons for measurement can be found, the results can be of
limited value.
Market share, profit, brand value, customer satisfaction and retention are further examples
of a wide variety of measures used.
Consider this…
How might you measure the effectiveness of your marketing?
More information
than ever before is
available through
aggregator and
comparison
websites
Chapter 5
More information than ever before is now available to customers through aggregator and
comparison websites and a greater variety of distribution channels, such as supermarkets,
affinity partnerships etc. Such access to information may contribute to a change in the shape
of the insurance cycle. As customers find much lower costs, they will switch insurance
supplier and this may help to maintain a soft market and lower premiums, for longer than
historically so.
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F
Pricing
The pricing of insurance products is important for its impact on revenue and margin, and is
one of the main features that customers consider when deciding which insurance product to
buy, and which insurer to buy from.
Pricing gives clues about the quality of service to be expected, as well as having an
interactive effect on other elements of the marketing mix. If all other elements remain
unaltered a price increase may increase profitability, while a price reduction may increase
market share. However, it is unlikely that all other elements will remain unaltered, and so a
price reduction may, in fact, put pressure on other elements (for example, people and
processes) that then damages performance and possibly produces a contrary result to that
which was intended.
When considering pricing, the technical underwriting price is one of many factors (price
adequacy for actuarial purposes is the subject of an altogether separate course). Price
factors can be broadly grouped into four areas, as illustrated in Figure 5.9.
Figure 5.9: Pricing factors
Chapter 5
Own business
Marketing objectives
Product life cycle
Position
Portfolio & costs
Market
Competitor pricing
Segmentation
Maturity
Supply
Price
Business environment
Politics
Regulation
Interest rates
Customers
Demand
Value
Solutions sought
Source: Adapted from © The Open University
The easy option is to hand pricing decisions to actuaries or accountants.
Consider this…
In your business, which factors have most influence on your pricing? Your price may be in
premium, commission or fees.
The importance of
pricing changes
over the product
life cycle
Within your own business’s control is your marketing objective (for example, to increase
market share which will influence your eventual price). The importance of pricing changes
over the product life cycle, for example, product innovators have time to pursue increased
market penetration through low pricing (or to skim profit from high pricing). Businesses with
product portfolios can use some products to effectively subsidise others. Price can be used
within a business’s marketing mix to position products in a way that makes direct
comparison impossible or at least difficult. A business’s price may be the insurance premium
for an insurance company; it may be all elements of total commission for an insurance broker
or managing general agent; it may be fee levels for an independent financial adviser or
insurance broker; it may be a combination of fees and commissions for a network or hybrid
insurance company/managing general agent.
Markets impact a business’s pricing as competitors exercise pricing strategies. For example,
price leaders may squeeze prices higher expecting others to follow, typically seen during the
‘underwriting loss’ phase in the insurance cycle.
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Product development and price
5/19
Customers’ needs and the price they are prepared to pay also influences pricing. For
example, if a business has created a customer perception of value, it may be in a position to
carry a higher price. High price elasticity in other markets can also impact pricing. For
example, if demand for foreign holidays suddenly dropped during a recession a business
may employ a low price strategy to maintain sales volumes.
Comparison sites have encouraged customers to focus more on price than cover; and
encouraged insurers to strive to appear at the ‘top of the screen’. This presents an ethical
challenge for insurance marketers: how can they communicate the balance between price
and cover to the customer? This is an important question when the customer may not have a
good understanding of insurance cover and how the products from different insurers
compare.
Pricing should support a strong value proposition; in its ‘Retail Conduct Risk Outlook for
2012’ report the Financial Services Authority highlighted the risks of customer detriment in
focusing on price and the bundling of insurance products with other services when it is not
easy for customers to understand the value to them of the product. A 2013 Chartered
Insurance Institute survey, ‘Measuring Customer Outcomes: Demonstrating the impact of
professionalism in general insurance’, found that while most small- and medium-businesses
(SMEs) disagree with the statement that ‘insurance is a waste of money’, only 27% feels that
it provides good value for money.
Eventual pricing will depend on a business’s marketing strategy; a broad description of
alternative strategies follows.
• Survival strategy when there is a high degree of competition in the market and an insurer
opts to price products at a low level to ensure survival in the market. Such a strategy is
‘popular’ in a soft market, when premiums are low, in order to maintain a leadership
position in anticipation of premiums increasing; this strategy relies on a business’s
financial strength to hold a low price.
• Profit maximisation where the pricing of the product will be aimed at producing the
biggest possible profits is likely to work only in an uncompetitive market. Such a strategy
is difficult to find in insurance markets and is most likely found where competition is low
due to risks with claims of low frequency but high severity.
• Sales maximisation strategy is aimed at increasing volumes of sales for new insurance
products, when sales volume is more important than revenue. Such a strategy occurs
when an insurance business has identified a clear segment in which it wishes to secure a
leadership position.
• Prestige pricing is used where an insurer wishes to generate an elitist image, for example,
when offering kidnap insurance cover.
Pricing is just one variable the customer considers when buying a product. Looking at price
as perceived customer value may help overcome the simplistic view of price as being the
only variable.
Refer to
chapter 3,
section A3 for
more on scenario
planning
Chapter 5
Factors in the business environment often feed into costs and create challenges when
applied suddenly, for example, an increase in insurance premium tax. The challenges will be
greater for businesses that are unprepared; scenario planning will help identify alternatives.
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Summary
A business operating in a competitive market will seek to influence demand by developing
products in a way that differentiates them from those offered by its rivals.
The factors influencing the competitive environment include, industry structure, market
demand, bargaining power of suppliers and buyers, and costs.
Perfect competition exists where there is a large number of buyers and sellers in the market;
no single buyer or seller is large enough to influence market prices; all product and service
offerings are identical; there are no barriers to entering or leaving the market; and all buyers
and sellers have full knowledge of market conditions.
Competitive differentiation is about making yourself unique and more attractive to the
customer by delivering value in response to identified customer needs.
Value chains consist of all the activities a business undertakes; from the initial moment raw
materials are bought, through to the receipt of customer payments. Business activities are
divided into primary and support activities.
Chapter 5
Supply chain analysis is where the linkages to and within the activity chains of a business’s
suppliers, distribution channels and customers are analysed.
Having differentiated a product and identified where its competitive advantage lies, success
is always finite. A balanced portfolio of products therefore needs to be managed where
products are managed economically towards financial growth.
The product life cycle concept in marketing assumes that all products have limited lives,
from their first introduction to their ultimate withdrawal. This is important because
determining the right marketing strategy for a product depends heavily on an appreciation
of where it falls within its product life cycle.
The pattern of the product life cycle might have expected insurance products to be in
decline by now. It may be that the time axis of the product life cycle for insurance overall is
much longer than any of us can imagine in the absence of substitutes.
Market positioning is based on customer perception of a product (or brand) in relation to
others in the market. Positioning is an important element of segmentation in communicating
a product’s key characteristics that make it stand out to target customers.
The basic assumption in marketing, and particularly insurance marketing, is that supply
exceeds demand – i.e. markets are saturated.
The pricing of insurance products is important for its impact on revenue and margin, and is
one of the main features that customers consider when deciding which insurance product to
buy, and which insurer to buy from.
Bibliography
Ennew, C. and Waite, N. (2017) Financial Services Marketing. 3rd edn.
Abingdon: Routledge
Miles, R. and Snow, C. (2003) Organizational Strategy, Structure, and Process.
California: Stanford University Press
Porter, M.E. (2004) Competitive Strategy – Techniques for Analyzing Industries and
Competitors. New York: Free Press
Rogers, E.M. (2003) Diffusion of Innovations. 5th edn. New York: Free Press
Williams, D. Customer Analytics and Insights. AXA
Chapter 5
Product development and price
5/21
Revision questions
1.
What are the four factors influencing the competitive environment?
2.
What is ‘value chain analysis’ for insurance businesses?
3.
What are the four quadrant labels of the BCG matrix and how does your portfolio
configure within?
Scenario 5.1: Question
Your MD accepts your research findings and wants you to investigate how your offering
might be adjusted. Competition has changed and your website offering lacks clarity. You
are asked to recommend how your offering should be changed in response.
See overleaf for suggested answers
Chapter 5
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Revision answers
1.
Industry structure, market demand, bargaining power and costs.
2.
Value chain analysis looks at each of the processes that make up the chain of
activity and asks how important each one is in product activity and how they
compare to those of a business’s competitors.
3.
Stars, dogs, question marks, cash cows.
Scenario 5.1: How to approach your answer
Aim
This scenario tests your understanding of how products and positioning might be altered.
There is no single correct answer only an answer that makes sense to the business.
Key points of content
You should aim to include the following key points of content:
• You should include a value chain analysis indicating where your business adds value,
e.g. if advice is your added value be precise about what advice and who values it.
Chapter 5
• You should look at your existing product portfolio and recommend any that could
benefit from investment and the nature of what that investment will achieve.
• You should decide on the position and pricing of your website offering, e.g. is your
pricing model aimed at loss-making insurance products with a view to profit-making
added value add-ons?
6
Place, people and process
Contents
Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A Distributing insurance products
3.1
B Risk assessment
3.1
C Service delivery
3.3
Bibliography
Questions, scenario and answers
This chapter relates to syllabus section 3.
On completion of this chapter and private research, you should be able to:
• define the various types of distribution channels;
• describe the difference between direct and indirect distribution;
• explain how to undertake a risk assessment for a new distribution channel;
• discuss the main requirements for effective customer service; and
• explain why customer service is essential as a marketing tool.
Chapter 6
Learning objectives
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Introduction
In this chapter we examine three more elements of the marketing mix: place, people and
process. Place describes the distribution of insurance products and services. It is concerned
with how customers want to access products, and involves making products available to
customers via distribution channels. We will consider the different types of distribution
channels in insurance and identify the risks involved in introducing new distribution
channels.
We will also look at people and process in the context of service delivery. In particular, we
will examine how service is delivered and what determines the quality of that service. Both
people and process are important – people contribute the skills and expertise while process
describes the individual stages a customer goes through when interacting with a company.
Together, they make up the service delivery.
Key terms
This chapter features explanations of the following terms and concepts:
Aggregator
Broker network
Call centre
Customer experience
Customer satisfaction
Customer touch point
Distribution channel
Financial adviser
Insurance broker
Intermediary
Managing general agent
Chapter 6
A
Distributing insurance products
It is important that a distribution channel makes the products accessible to all those a
business wants to purchase them. The importance of accessibility varies with the nature of
the product on offer and the needs and wants of customers. For example, it remains logical
for a high volume personal lines insurance broker to be located near to a high-density
population centre with passers-by. However, as more and more customers become
comfortable with e-commerce, will that always be the case?
Distribution is used to make the product available in the right place at the right time and in
the amount that the target market wants. Each of these objectives is measurable and can be
used to evaluate the performance of a particular channel.
A business’s choice of distribution channel is an indicator of its market position, the outcome
from its value chain analysis and segmentation, as well as being representative of the brand
and the chosen communication medium. Distribution channels can also provide savings
when acting for more than one supplier.
A distribution channel is not only used to deliver products, a business can use it for other
purposes too. A distribution channel can be used to promote the product – for example,
through advertising or promotion at the point of sale. It can be used to deliver additional
services – for example, to cross-sell other products. Distribution channels can also be used
to collect market research – for example, a salesperson can collect customer feedback that
can feed into the company’s market intelligence system.
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Place, people and process
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make products
available
formally and
systematically gather
feedback data
Through
distribution
channels
businesses
try to:
direct
promotions
deliver product
related
activities before,
during and after
purchase, that
meet customer
expectations
A1
Different distribution channels
A business can distribute products directly or indirectly to customers. If selling directly to
the customer was always the most efficient way of doing business, then there would be no
need for the wide variety of distribution channels that exist.
A business can
distribute
products directly
or indirectly
A key distribution channel in insurance is the intermediary – for example, brokers and
aggregators.
• improved efficiency;
• a broader product range;
• transaction standardisation;
• easier product searching; and
• easier customer access.
Intermediaries play a number of different marketing roles, and have market knowledge and
customer contact. Taking advantage of economies of scale, intermediaries distribute
competing products and add value to the process by offering customers advice on a choice
of similar products.
Some insurance intermediaries may offer further added benefits, for example, processing
facilities such as delegated underwriting, renewal processing and claims handling. Specialist
intermediaries, for example, provide access to a niche target market at a lower cost when
spread across several insurance suppliers, than if each insurer tried to attract its own target
market.
Research exercise
Disintermediation, commonly known as ‘cutting out the middle man’, removes the
intermediary that exists between the customer and the supplier. The advantage of this is
frequently promoted as a reduction in the premium paid, but what are the potential
disadvantages for the customer?
Chapter 6
Why use an intermediary?
Intermediaries provide several benefits, such as:
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A2
Distribution channel options in insurance
Figure 6.1 shows some of the options for distribution channels within insurance.
Figure 6.1: Distribution channels for insurers
Insurance brokers
Other
organisations
• retail promotions
• affinity distribution
groups
• franchise insurance
businesses
• broker networks
• call centres
Financial advisors
Insurance
company/
Lloyd’s or London
Market syndicate/
Mutual insurer
Chapter 6
Aggregators
Financial institutions or
‘bancassurance’
Managing general agents
Direct selling
• sales force
• telesales team
• e-marketing
Source: Adapted from Brophy (2015)
From 1 April 2013, independent financial advisers and insurance brokers are authorised and
regulated both for prudential and conduct of business issues by the Financial Conduct
Authority (FCA).
General insurance and life insurance companies are prudentially regulated by the Prudential
Regulation Authority (PRA) and for conduct of business and market issues by the FCA.
Useful website
www.the-fca.org.uk/firms/financial-services-register
A2A Financial advisers
Financial advisers are usually associated with long-term financial advice (such as
investments, mortgages, pensions, private healthcare, inheritance tax planning, life
assurance, partnership protection etc.). All independent financial advisers must be
authorised and regulated by the FCA.
Independent financial advisers are obliged to offer suitable advice. This means that they
have to gain a full understanding of customer circumstances and requirements before
helping them choose any financial products. They have the closest relationships with
investors as they are considered to be one of the most trusted financial professions. An
independent financial adviser can look at the overall market picture; fund management
platforms allow them to overview and manage an investment portfolio. They usually receive
fees paid by the client and single payment bonuses paid at contract inception from the
supplier.
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Financial advisers add value through the combination of suitable advice and market
overview.
Useful website
www.unbiased.co.uk
A2B Intermediaries/brokers
Insurance brokers are usually associated with annually renewable ‘general’ insurance
products (such as household, motor, travel, fire, employers’ liability etc.). All insurance
brokers and intermediaries must be authorised and regulated by the FCA.
An insurance broker is obliged to offer the best advice possible to customers choosing an
insurance policy that matches their particular needs. Insurance intermediaries are required
to carry professional indemnity insurance, for they are legally liable for errors or omissions.
Most continue to receive annual commissions at inception and at each renewal from
insurance companies, with some substituting fees for selected clients (likely to be larger
business clients).
Useful website
www.biba.org.uk
A2C Direct selling
Direct distribution allows direct selling to – and premium collection from – the customer.
There is no delay in payment, other than any credit terms that may have been agreed. Direct
selling can be face-to-face via a sales force or via technology – for example, a telesales team
or through e-marketing.
Chapter 6
A direct sales force is particularly popular when:
• the individual customer base is large and well defined;
• the product is complex;
• the product is of high unit value; and/or
• selling requires technical expertise and extended negotiation.
The challenge for insurance companies is to identify, contact and communicate effectively
with appropriate customers.
Direct selling by e-marketing has seemingly opened up a cost-effective direct channel
though substantial investment in systems, processes and advertising to attract customers to
websites. The challenge is that e-marketing involves much more than selling and so needs to
be integrated with functional activities and sales.
Although no one can argue about direct selling adding value through product knowledge
and customer experience control, questions still remain over increased costs impacting on
price, and the possibility of inappropriate selling.
A2D Financial institutions
A distribution partnership between financial institutions and insurance businesses uses the
financial institutions’ customer base to sell insurance products. The term used to describe
the relationship between a bank and an insurance company is known as ‘bancassurance’. A
partnership may also be established between two different insurance companies, for
example, legal expenses cover from one insurance company may be incorporated into the
other’s business combined insurance package.
This distribution channel can be extremely effective, and so the potential for the merger
between, or acquisition of, partners is high. However, questions do arise over perceived
influence on customer choice.
A2E
Aggregators
Aggregators act as intermediaries who bring customers to a single website that provides
access to all sectors of the insurance market. On entering their personal information, the
customer receives comparable quotations from contributing insurance businesses.
E-marketing needs
to be integrated
with functional
activities and sales
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Challenges occur for businesses when trying to analyse their performance on aggregator
sites, for example, customers do not automatically select the on-screen top choice and may
look down the list for a brand they trust which has implications for brand strategies.
Challenges also occur in the process of converting a customer – for example, when a
customer selects a business’s website from the aggregator’s website which then tries to sell
them additional services that they do not want, the business not only risks losing that sale
but also damaging the brand.
Aggregators add value to time-pressed customers looking for broad market access by
requiring them to input their details only once. However, questions still arise over cover
variation, price reliability and the overall customer experience between linked websites.
Useful website
For a good summary on the market practices of aggregators, see the CII briefing:
FCA Thematic Review on Price Comparison Websites. This is available at:
http://bit.ly/2AGexaX.
A2F
Other organisations
Mutual societies are organisations which provide insurance cover for their policyholders.
Unlike insurance companies, where profits are paid out to external shareholders, mutual
society profits are reinvested to help improve services. Many insurers were mutual societies
before they demutualised in the 1990s but a number still remain in operation – for example,
Liverpool Victoria and NFU Mutual.
Chapter 6
Retail promotions use a distribution partnership to bring customer attention to insurance
products – for example, post offices, supermarkets and auction websites.
Affinity distribution partnerships use schemes to distribute specialist insurance products –
for example, a Diabetes UK travel policy is aimed specifically at diabetics. Success requires a
strong alignment of brand values with high quality customer service.
Managing general agents identify gaps they can occupy to distribute, usually highly
segmented, insurance products (e.g. farm insurance products); they can incur less costs
when introducing new products and can simplify claims reserves and balance sheet issues.
Franchise insurance businesses typically provide advice on business planning, business
finance, marketing, accounting, training, office set-up, and FCA authorisation and
compliance, in return for a specified fee.
Useful websites
www.thebfa.org
www.franchisesales.co.uk
Broker networks vary in the way they add value. Some operate an appointed representative
network (i.e. an FCA designation that is applied to a regulated network that sub-regulates its
members, while other networks’ members receive support including enhanced
commissions) key partner status with insurance companies, Lloyd’s and London Market
access, FCA compliance consultancy, marketing, training and succession planning.
Call centres are groups of telecommunication and digital response operators, sometimes
based offshore, handling large volumes of requests. Outgoing calls may also be handled for
telemarketing, credit control or other product-related services.
Be aware
The purpose of a call centre will depend on the business’s strategic objectives – for
example, whether it wants to sell products or to help advise customers.
Call centres may play the part of a fulfilment house taking responsibility for fulfilling an
enquiry on behalf of the provider – for example, by sending information or a brochure to a
caller. Fulfilment houses routinely handle sales, often collecting payments and dispatching
orders. Some call centres integrate fulfilment services into their operations, while others
subcontract the fulfilment to third party organisations.
Those centres handling email, postal or personal selling responses are usually referred to as
contact centres.
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B
Place, people and process
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Risk assessment
The SWOT analysis, value chain analysis and scenario testing form the base for assessing the
risks faced in each of the possible distribution options. A business can realistically assess
what investments, if any, it should make in cost-effective distribution channels.
Think back to
chapter 2,
sections E and I;
and chapter 5,
section A2
Sustainable strategies often involve an integrated multi-channel approach, for example, an
insurance company may sell direct through insurance brokers and affinity partnerships.
Multi-channel distribution allows a business to target many different customer segments,
reach new segments and share knowledge across channels. Selling through many channels
should raise total sales, but there is a possibility that existing customers will merely redirect
to a different channel with no new income, known as channel cannibalisation.
It may be costly to establish new distribution channels, as there is always a risk that
customers will not accept a new distribution channel. Conflicts can also arise – for example,
an insurance company’s decision to sell direct may create competition with existing
insurance brokers.
There is always a
risk that customers
will not accept new
channels
Risk assessment will vary between businesses; the following steps are a standard approach
that can be adapted subject to circumstances.
Step 1: Identify the hazards
Specific hazards need to be identified which might prevent a business’s success through its
chosen distribution channels. Examples of where to find possible hazards follow.
Financial risk
• Overall capital and financial standing.
• Credit standing.
• Outstanding litigation and prior settlements.
Operational risk
• Numbers of adequately trained and qualified people.
• Service delivery track record historic results including references.
• Service culture relevant to a business’s needs.
• Management monitoring and reporting against agreed service levels.
• Quality of leadership and succession planning.
• IT physical and logical security.
• Ease of IT systems interfaces.
• IT systems reliability, availability and disaster recovery procedures.
• Business continuity plans.
• Ability to adapt to future needs.
• Credit control.
International risk
• Impact of the UK leaving the EU (see section B1).
• Political stability.
• Currency fluctuations.
• Inflation track record.
• Knowledge of local compliance requirements.
• Data protection.
• Reliability and cost of connectivity.
• Cultural compatibility.
• Time zone.
• Difference in practices and regulations.
Contractual risk
• Who is accountable for what.
• Exit terms.
• Change of control or ownership.
• Things do go wrong.
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• Potential for change of control.
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Step 2: Decide what might be damaged
Examples of possible damage follow.
• Damage from financial risk can include non-payment of customer premiums to a business,
having been received by the intermediary.
• Damage from operational risks can include costly investigations of complaints from errors
and omissions in business dealings, or increased cost of day-to-day handling due to
incompetence or absence of e-trading capability.
• Damage from international risks can include an inability to transfer money received out of
the country in which premiums are paid, because of changed political regulation, say.
• Damage from contractual risk can include the ending of existing arrangements following
ownership change or possible absence of agreement on how to exit that arrangement,
causing costly dispute resolution.
Step 3: Evaluate the risks and decide on necessary precautions
Not all risks carry equal rating. Evaluation should involve a determination of probability and
impact including aggregation where relevant, be compared with the business’s risk appetite,
and prioritised accordingly.
How to manage identified risks is termed ‘risk control’, and can be either a regular or one-off
action to avoid, modify, transfer, retain or seek an upside risk. Decisions need to take into
consideration the relative cost/benefit, legal and regulatory requirements, and stakeholder
concerns. Examples of possible decisions follow.
• To reduce exposure to financial risks, management could focus on credit control
procedures.
Chapter 6
• To minimise operational risk, audits designed to identify training or process improvement
needs could be carried out.
• To lessen the effects of international risks, the risk could be transferred through political
risk insurance or alternative international financial instruments.
• To actively manage contractual risk, clear escalation procedures for when things do go
wrong, or exit/change of ownership provisions could be agreed before signing the
contract.
Step 4: Record the findings and implement them to control risks
Controls should be within a business’s risk appetite and authorised by the business.
Responsibility for implementing and managing those controls should be allocated to the
appropriate managers.
Step 5: Review the assessment, prioritise and update
Outcomes should be regularly reviewed to ensure the risk assessment remains valid and
reflects any changes.
Reputational risk is often underestimated as social media has moved a great deal more
control of business conversations to the customer.
Be aware
In chapter 5, section A4A, we looked at the FCA thematic review, ‘Delegated authority:
Outsourcing in the general insurance market’, published in June 2015. This criticised
several insurance companies and brokers over delegated authority arrangements which
failed to treat customers fairly. Some insurers did not carry out conduct-focused due
diligence and some brokers did not recognise the extent of their responsibilities. This
shows the importance of risk assessment and the need to include regulation compliance.
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EU referendum
EU referendum
On 23 June 2016, the UK voted to leave the European Union (EU).
The UK Government invoked ‘Article 50’ of the Lisbon Treaty on 29 March 2017. In doing
so, the two-year negotiation period began and the UK was due to leave the EU on
29 March 2019. Following the meeting of the EU Council in March 2018, a withdrawal
agreement was reached on the terms of an implementation period that will apply
following the UK leaving the EU. The implementation period was intended to operate from
29 March 2019 until 31 December 2020, during which time EU law would remain applicable
in the UK, in accordance with the withdrawal agreement.
However, at the time of publication the withdrawal agreement has not been approved by
the UK Parliament and the UK has not left the EU. The new date of departure is 31 January
2020, following an extension granted by the EU. Until this happens, the UK will continue
to be a full member of the EU, compliant with all current rules and regulations, and firms
must continue to abide by their obligations under UK law, including those derived from
the EU, and continue with the implementation of all legislation that is still to come into
effect.
The longer-term impact of the decision to leave the EU on the UK’s overall regulatory
framework will depend, in part, on the relationship agreed between the UK Government
and the EU to replace the UK’s current membership.
Please note: This is the position at the time of publication. Any changes that may affect CII
syllabuses or exams will be announced as they arise.
Service delivery
Service delivery involves two elements of the marketing mix: people – i.e. the skills of those
who are delivering the service; and process – i.e. the way in which the service is delivered.
Together, people and process determine the quality of the service.
Be aware
The objective of customer service is customer satisfaction.
For us, customer service includes all activities to contract, process, deliver, fulfil and
follow-up customer contacts.
Figure 6.2 illustrates many of the activities involved in customer service before, during and
after the transaction that form the basis for customer relationships.
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Figure 6.2: Scope of customer service
Pre-transaction elements
• Written service mission
• Customer service mission
• Customer awareness of the policy
• Customer service and staff training
• Processes for handling complaints
• Preparation of warranties
Transaction elements
• Managing customer service demand patterns
• Timing
• Levels of customer service
• Finance
• Demonstration of products/services
Post-transaction elements
• Handling complaints
Chapter 6
• Cross-selling
• Loyalty schemes
• Post-purchase comfort and support (especially in claims handling)
Customer service is anything that can be done for the customer to enhance their experience.
Customers evaluate this experience through the interactions or touch points that they have
with the service provider.
Customer service quality
Service quality is perceived individually on the basis of rational and irrational assumptions
made by the customer. This perception can vary over time and may be affected by context
and by the product being purchased. Servqual is a tool designed to measure service quality.
In its simple form, it compares customer expectations of the service they will receive with
their perceptions of the service they have received. The tool is useful as it allows businesses
to compare differences in service quality year on year, across different parts of the business,
and (if data is available) with competitors.
Servqual is made up of five elements commonly known as RATER:
R
Reliability – doing what you say you will do, and in the time you said you would do it.
A
Assurance – provided when employees are knowledgeable about their job.
T
Tangibles – the physical appearance of the business – from office to dress code to website.
E
Empathy – keeping the customer’s best interests at heart.
R
Responsiveness – providing customers with a quick and prompt service.
For our purpose, we do not need to examine the detail of the individual elements, but these
are included here to provide an insight into the breadth and complexity of customer service.
Consider this…
Which RATER element is usually the most important to customers and why?
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Customer service ethics
Most insurance, savings and investment products are highly complex and consumers often
find it difficult to understand the differences between types of products, let alone between
the relative merits of similar products from competing providers. This complexity helps
produce an imbalance in knowledge between the provider and the consumer. This
complexity and imbalance combine to leave the consumer uncertain about the choices open
to them and uncertain about the quality of advice being offered.
These factors mean that those engaged in marketing in the insurance and financial services
sectors face some very particular challenges in how they take account of ethics in how they
conduct their work:
• Are the claims being made for the product accurate and complete?
• Are the limitations of the product being identified with sufficient clarity?
• Are the elements of risk and uncertainty associated with the product being made clear?
• Is the product being marketed through channels that are appropriate?
• Is the product being promoted so as to minimise its exposure to those for whom it is
unsuitable?
• Is the sale taking place under clear and understood terms of agency and commission?
• Are those terms of agency and commission suitable for the product in question?
• Have sales staff been adequately trained in the products they are being asked to sell?
Useful website
CII members can access an online learning course on ethics which explores the issues
faced by insurance marketing professionals through a set of practical case studies.
Visit: www.ciihost.co.uk/CII_Ethics_Oct2014/story.html
Customer experience
A business often has little or no control over the key customer touch points that do most to
deliver or damage customer experience. For example, an insurer distributing its products
direct and via an intermediary can control the touch points within its direct channel, but
relies on the broker where the business is via an intermediary. Touch points include
telephone contact, meetings, and correspondence or interaction with a website. Touch
points are where customer and business come together and interact.
Research exercise
Consider your own organisation and map all touch points that a customer has across your
business.
• Are you aware of the principle pain points, areas of satisfaction or sources of
complaint?
• Do you know which pain points are most important to customers?
• Do you know why customers leave your business?
• What would be required to get the answers to these questions?
Be aware
A great customer experience (achieved every day) is hard won and must change over
time to anticipate evolving customer needs and respond to competition.
In the following sections, we will examine some of the key factors that influence customer
experience.
Customer service location
A business’s distribution location depends on the interaction required with the customer; a
company may transact business with customers at its premises or website, by telephone or
email, or through an intermediary.
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Each method has different marketing implications, so there are key questions that should be
asked before selecting a location, including:
• Should delivery be at a single site or through multiple outlets?
• Should delivery be through a single distribution channel or multiple ones?
• What type of transaction will best suit customers?
• How are various channels going to be managed so that the customer has a consistent
experience?
• Can suitable intermediaries be used to achieve multiple outlets?
Customers may want access to local decision-making with sufficient empowerment to
satisfy customers.
Decisions about locations will, of course, affect costs and service levels.
When a customer visits a business’s offices they should gain an impression of competence
and professionalism from the atmosphere of the waiting area and the friendliness and
efficiency of the receptionist. The premises, or chosen distribution channels, are the
tangibles that are visible to the customer and, therefore, immediate evidence of quality.
Websites construction is of equal importance. However, studies have found that many UK
insurance websites fail to provide the most basic level of customer experience.
Research exercise
Chapter 6
Examine your company’s website or the website of a competitor. Identify the features
that add to the customer’s experience and those that detract.
Improving
customer service
often hinges on the
attitudes and
behaviour of
contact staff
Customer service staff
Special attention should be paid to all staff and intermediaries contacting and serving the
customer as these clearly contribute to service quality. Improving customer service often
hinges on the attitudes and behaviour of contact staff. It is essential that these key people
are selected with great care and then given training, motivation and rewards that reflect the
importance of their work coupled with the brand values.
Professional competence is ranked as the most important service requirement that
commercial customers want from their insurance broker. Cost cutting and reorganisation
among insurance businesses has often led to a loss of experienced staff and, therefore, a
negative effect on customer service.
For insurance businesses the quality of customer experience, including the management of
claims, best represents the quality of the product. In some insurance businesses there may
be large numbers of low paid staff engaged in contact with customers, and if staff turnover
is high then there will be training implications which will present a considerable challenge to
delivering good service.
The Institute of Customer Service produces a half-yearly UK Customer Satisfaction Index
which reveals that UK insurance customers have higher average customer satisfaction than
those in seven other European countries, and 26% of customers have a preference for the
highest levels of customer service, even if it means paying more (July 2016).
Be aware
A business with a low level of customer satisfaction should return to its strategic plan, its
branding, its positioning etc., to identify how to address this.
Customer needs
Once a firm understands the needs of its customers, it can identify how best to design its
products and service to meet those needs. A poorly defined need can result in a dissatisfied
customer. As customers differ, it is important to identify the needs of each customer group
and for each product. Once the customer need has been identified, the firm can then
consider how it will satisfy that need, taking into account each stage in the delivery process
and the norms for that firm or industry sector. The design of the final service should satisfy
the original customer need that was identified.
Chapter 6
Place, people and process
6/13
• Segmentation helps to identify a business’s most valuable customers.
• Market research identifies what these customers want from a particular service.
• Value chain analysis identifies the process involved in getting a product to these
customers.
• Culture sets the standards.
• Service delivery attempts to bring all these concepts together.
A better understanding of customer need is an area in which insurance businesses struggle
to demonstrate any degree of excellence. An increase in the understanding of customer
needs can open up new opportunities for cross-selling. As customers become more
sophisticated and demand higher standards, so businesses must improve customer service
in order to remain ahead of the competition.
Marketing management decision
Should more marketing effort be directed into raising customer understanding of
insurance to make the complex product clearer for them? If so, to what extent?
Price flexibility, flexibility in meeting customer needs, delivery reliability and claims
responsiveness are the top three requirements commercial customers (B2B) look for from
their insurance suppliers.
As we have established, good segmentation is integral to understanding customer needs
(beyond size and trade). Poor segmentation inevitably leads to an inability to sell.
Critical reflection
Are insurance businesses able to look beyond their own value chain and segment
effectively if their focus is on cost cutting?
Be aware
Customer complaints are not necessarily a good indicator of poor customer service
performance. Many customers do not complain, but quietly move to a competitor.
Inaccurate documents and length of time taken to issue them are the two most common
sources of complaints. While contract certainty has started to have a positive impact,
inaccuracy continues to cause concern.
Claims handling speed often generates complaints. Complaints are, more often than not,
directed towards the claims team that works closest with the customer, showing that the
quality of claims personnel can be a key factor in customer selection of an insurance
company. Claims handling is a core element of any service regardless of the segment, and
the financial compensation received by the customer impacts the customer experience,
regardless of service delivery. Several industry surveys have identified that up to half of all
customers agree that insurance providers never pay out fairly.
When handling complaints, staff should be trained to:
• listen;
• acknowledge the customer’s view;
• apologise if appropriate;
• find a solution;
• conclude with the customer; and
• follow-up to ensure a resolution.
Be aware
A complaining customer is likely to remain as loyal as a satisfied customer when handled
fairly.
Chapter 6
Customer complaints
One common way of measuring the achievement of a customer service objective is to
monitor customer complaints over time. Complaints can be used as a quick way of gauging
how focused the customer service objective is on the real points of influence.
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The digital age brings better informed customers, intolerant of poor or slow service, who will
post complaints on social networks.
Research exercise
Request some time with your senior marketing colleagues and ask if they know the cost to
your business of losing customers as a result of avoidable dissatisfaction each year. Do
they know:
• the cost of replacing these lost customers each year?
• what percentage of business comes from customer referral?
• how many of your customers are likely to recommend your business?
Has a link between failure to deliver promised experience and customer defection
been drawn?
Are there any statistics which indicate how strongly your brand reputation and customer
experience influence the buying behaviour of your customers?
C1A
Creating a customer service plan
It is important when recognising customer service as a device for developing new business
and preserving existing business, that it is clear how it will be created and used. There are six
main steps in creating a customer service plan:
Analyse your market, including competition.
Chapter 6
Identify customer needs for each of your market segments,
and define how you are able to fulfil them.
Deliver the package having allocated responsibilities and established
your most important segments.
Set standards, priorities and performance targets.
Measure customer satisfaction.
Feedback customer information and modify where necessary.
C2
Managing the customer relationship
Historically, the customer was the responsibility of the marketing department. Today, it is
acknowledged that all departments and all employees have a responsibility for the
customer. The challenge is to identify the touch points across different parts of the business
(including others within the value chain) and to deliver a consistent and quality service to
the customer. The overall aim is to satisfy those customers who are important to the
business and ensure that they become loyal customers.
Useful website
www.cim.co.uk/home
Relationships as competitive differentiators
Building a strong customer relationship can provide the basis for a differentiated service
proposition. This will help retain business by improving customer loyalty which, in turn, will
improve profitability.
Chapter 6
Place, people and process
The highest priority in customer loyalty is to make sure that your business finds and keeps
the right customers. The right customers are those to whom you can deliver sustainable
value. Customers stay loyal because of the value they receive.
6/15
Improving
customer loyalty
improves
profitability
Customer loyalty may be considered a key to profitability, but it does not develop overnight.
Some thinkers say profit is the consequence of adding value and building loyalty – the
cornerstones of long-term business relationships.
Strong tripartite relationships between the customer, insurance provider and intermediary
may present an opportunity to create greater customer intimacy, so price is not always king.
Building customer loyalty through a partnership that understands and provides solutions to
a customer’s business problems strengthens the relationship.
Digital technology enables businesses to collect vast amounts of data which can be used to
deliver personalised messages. Personalisation means more than just using a customer
name, it means using customer data, age, gender, interests etc, to develop communications
that increase brand engagement and consequently sales. Customers who engage digitally
are far more likely to have positive feelings than those with only offline experiences; this
leads to greater retention of digitally engaged customers.
Encouraging customers to share news over social networks is one way to engage them. The
practice of using customer referrals to attract new customers also increases the loyalty of
existing customers, and is particularly true of new relationships. But with many insurance
customer interactions relating to negative experiences, for example at times of loss, it can be
difficult to encourage positive feelings.
Good communication is key to good service, and conveying reliability and quality advice is
important in building a loyal customer base that is less affected by price. Online and mobile
channels provide opportunities to communicate personally and create a level of trust.
The frequency of contact between insurance businesses and the customer is generally low.
Personal interaction is limited, and in some relationships there may not even have been a
single opportunity to meet personally. However, because insurance products are complex
and difficult for the customer to fully understand, the importance of the customer
relationship to the industry is enhanced.
The manager of the customer relationship in an insurance business must be able to clearly
communicate the nature of the insurance services provided. The customer service strategy
should aim to increase trust and reputation in the relationship.
Useful website
The CII’s Ask CIINDY campaign seeks to help customers understand insurance:
askciindy.com.
Alignment with objectives and rewards
To improve customer experience staff objectives and rewards should be aligned closely to
customer experience measurements throughout the entire business. Only then will the
organisation be significantly focused on delivering a consistently superior customer
experience.
Research exercise
At your place of work, establish:
• how customer experience measurements are included in staff reward plans;
• how customer service is communicated as a core competency; and
• how customer experience management is embedded in performance management
processes.
If they are not in evidence, what would need to change culturally to enable these aspects
to be incorporated?
Chapter 6
Managing complexity and intangibility
As insurance customers seldom buy just one product, but rather a range of products,
relationships with customers may become complex. Business need to prioritise investment
in the customer relationship, taking into consideration both the type of service and the type
of customer concerned. The more complex the service provided, the higher the long-term
commitment, the larger the resources, and the higher the risk.
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C2A Relationship with the customer
During the last few decades, competition has intensified in the financial markets. Together
with the increased competition, businesses have encountered difficulties in selling their
products and keeping their market share. As a result, businesses are changing the way they
think about the relationship with the customer. In this section, we will review three key
changes: the move from a transaction orientation to a relationship orientation; the
consumer-centric approach; and, finally, the customer as a co-producer.
Transaction orientation v. relationship orientation
When marketing first entered the world of insurance, marketers adopted a transactional
approach. It focused on products, and its success was measured in the volume of sales for
each product. Over time, the weakness of this approach was identified (i.e. repeat sales were
more valuable than individual sales), and the focus shifted to building a relationship with
customers.
Chapter 6
The table below shows the shift from a transactional orientation to a relationship orientation.
Transactional orientation
Relationship orientation
• Orientation to single sales
• Orientation to customer retention
• Discontinuous customer contact
• Continuous customer contact
• Focus on product features
• Focus on customer value
• Short time scale
• Long time scale
• Little emphasis on customer service
• High customer service emphasis
• Limited commitment to meeting customer
expectations
• High commitment to meeting customer
expectations
• Quality is the concern of production staff
• Quality is the concern of all staff
The key to a business’s ability to retain customers is the development of long-term
relationships with them. A customer should be viewed and managed in just the same way as
any other business asset. Understand and solve a customer’s business problem, and the
relationship is deepened. A small insurance business may have an advantage over a larger
business in this instance because of its smaller customer base and its personal knowledge of
its customers.
Loyal customers are valuable as they spread the word about their satisfaction with your
business (known as ‘word of mouth’ or WOM), without you incurring additional marketing
costs. They can also become less price sensitive as a well-functioning relationship makes
them value trust, commitment and convenience above a lower price elsewhere. However,
satisfied and loyal customers are not necessarily inherently profitable; you need to segment
your market and actively recruit the right (loyal) customers.
Customer-centric marketing
As the name suggests, a customer-centric approach puts the customer at the centre of the
business, not just at the centre of the marketing department. Businesses with customercentric cultures identify, win, retain and focus on their most profitable customers, rather
than investing in those who are of low value. High value customers can be identified using
the lifetime value (LTV) concept. LTV is calculated based on the expected financial value of
a customer during the future relationship that customer has with the business.
Be aware
LTV can be complex and difficult to accurate calculate. For a step-by-step method,
see: www.customerlifetimevalue.co.
Chapter 6
Place, people and process
6/17
To be successful, a customer-centric approach must extend across all areas of the business,
as the following examples demonstrate:
• Using market research to identify customer needs and to deliver the right products to
provide solutions for these needs. They might be existing needs that require better
solutions or completely new needs. Remember, customers’ needs change over time.
• Developing internal policies that clearly reward people who are focused on the customer.
The customer is the responsibility of everyone within a business.
• Adopting a holistic approach to consider the whole customer experience as a journey. The
journey should be seamless and memorable for positive reasons.
• Using analytics to proactively identify problems within the customer journey and
addressing them before they become an issue.
Customer as co-producer
Today, we recognise that customers are not separate from businesses but are an essential
part of them. Customers co-produce the products that are delivered to them and are,
therefore, co-creators in the experience that they have. With online insurance, customers are
doing increasingly more of the work involved in the insurance process. They search for the
best cover and price for their needs, purchase the insurance and pay for it. Should the need
arise, they may also report their claim online. Customers are almost becoming employees in
terms of the transactions they are undertaking. As a direct result of this change, insurers
need to think of the customer in a new light.
Chapter 6
Both company and customer are now contributing to the delivery of service. When this
process is well designed, the experience will enhance customer satisfaction and loyalty.
However, there does exist a greater need to take into account the abilities of the customers
to deliver these services to themselves. Competitive advantage will depend on the
company’s ability to design a process that enhances the customers’ performance as well as
the company’s.
Customers are not
separate from
businesses but are
an essential part
of them
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Summary
A business’s choice of distribution channel is an indicator of its market position, the outcome
from its value chain analysis and segmentation, as well as being representative of the brand
and the chosen communication medium.
Financial advisers, intermediaries/brokers, direct selling, financial institutions and
aggregators are just some of the options for distribution channels within insurance.
The SWOT analysis, value chain analysis and scenario testing form the base for assessing the
risks faced in each of the possible distribution options.
Specific hazards need to be identified which might prevent a business’s success through its
chosen distribution channels. How to manage identified risks is termed ‘risk control’, and can
be either a regular or one-off action to avoid, modify, transfer, retain or seek an upside risk.
Customer service is anything that can be done for the customer to enhance their experience.
Customers evaluate this experience through the interactions, or touch points, that they have
with the service provider.
An ability to measure the experience is crucial to be able to drive further improvements and
maintain consistent delivery. Building a strong customer relationship can provide the basis
for a differentiated service which will help retain business.
The highest priority in customer loyalty is to make sure that your business finds and keeps
the right customers – those to which you can deliver sustainable value.
Chapter 6
Customers are not separate from businesses but are an essential part of them. Customers
co-produce the products that are delivered to them and are, therefore, co-creators in the
experience that they have.
Bibliography
Brophy, R. (2015) ‘A collection of insurance brands: The story of RSA in Ireland’, Cogent
Business & Management, Vol. 2, Issue 1. Available at: bit.ly/2PKUQtB
[Accessed: 13 November 2019]
Cowell, D.W. (1984) The Marketing of Services. Oxford: Butterworth-Heinemann
Ernst and Young, and the Insurance Broking Faculty (2009) Delivering World Class
Service: For Competitive Advantage in a Changing Mid-corporate Commercial Insurance
Market. Available to CII members at: www.cii.co.uk/learning/knowledge-services/
[Accessed: 13 November 2019]
Friedlein, A. (2018) ‘Ashley Friedlein’s Marketing and Digital Trends for 2018’,
Econsultancy. Available at: bit.ly/2PjpoDe [Accessed: 13 November 2019]
Gidhagen, M. (1998) Insurance marketing: services and relationships.
Uppsala: Uppsala University
Harrison, M.P., Beatty, S.E., Reynolds, K.E. and Noble, S.M. (2012) ‘Why Customers Feel
Locked into Relationships: Using Qualitative Research to Uncover the Lock-in Factors’,
Journal of Marketing Theory and Practice. Available at: bit.ly/2ARGVK1
[Accessed:13 November 2019]
Kumar, V. and Reinartz, W. (2018) Customer Relationship Management: Concept, Strategy,
and Tools. 3rd edn. Berlin: Springer.
Newman, D. (2018) ‘Top 10 Digital Transformation Trends for 2019’, Forbes.
Available at: bit.ly/2RGaYKa [Accessed: 13 November 2019]
Zeithaml, V.A., Parasuraman, A. and Berry, L.L (1990) Delivering Quality Service: Balancing
Customer Perceptions and Expectations. New York: Free Press
Chapter 6
Place, people and process
6/19
Revision questions
1.
What are the four main objectives behind the design of distribution channels?
2.
When would it be most appropriate to use direct selling?
3.
What are the six main steps in creating a customer service plan?
4.
What are the differences between transactional orientation and relationship
orientation?
Scenario 6.1: Question
Your MD has realised that your business focuses hard on short-term objectives of winning
new business without fully considering retention and the longer-term objectives of
customer lifetime value and the risks associated with the market environment affecting
distribution.
You are asked to produce a report, drawing conclusions and making recommendations on
any changes you identify as necessary to improve the lifetime value of customers without
impairing or distracting from the importance of winning new business.
See overleaf for suggested answers
Chapter 6
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Revision answers
1.
To make products available; direct promotions; deliver customer service; and
gather feedback.
2.
When the individual customer base is large and well defined, the product is
complex, the product is of high unit value, selling requires technical expertise and
extended negotiation.
3.
Analyse your market, including competition; identify customer needs for each of
your market segments, and define how you are able to fulfil them; deliver the
package having allocated responsibilities and established your most important
segments; set standards, priorities and performance targets; measure customer
satisfaction; and feedback customer information and modify where necessary.
4.
Transactional orientation
Relationship orientation
Orientation to single sales
Orientation to customer retention
Discontinuous customer contact
Continuous customer contact
Focus on product features
Focus on customer value
Short time scale
Long time scale
Little emphasis on customer service
High customer service emphasis
Limited commitment to meeting
customer expectations
High commitment to meeting customer
expectations
Quality is concern of production staff
Quality is the concern of all staff
Chapter 6
Scenario 6.1: How to approach your answer
Aim
This scenario tests your understanding of how distribution changes over time and how
effective service delivery can help the business in many ways.
Key points of content
You should aim to include the following key points of content:
Need to conduct a risk assessment on the businesses’ current distribution channels,
including a description of current distribution and following the process described for risk
assessment.
Identification and examination of customer touch points in sales and service through each
distribution channel and how service delivery is measured, if at all.
An estimation of the cost of losing customers through service delivery being below
expectations.
An assessment of staff members understanding of why the tasks they do are necessary
and what is important to the customer.
Observations on staff buy-in to service delivery and the possibility of liaising with HR,
Operations and Finance on restructuring reward and training to underpin the value of
staff contribution to service delivery.
A report format should be produced.
7
Promotion
Contents
Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A The marketing communications portfolio
4.4
B The marketing message
4.4
C Direct marketing
4.4
D Advertising
4.4
E Sales and account management
4.4
F Sales promotion
4.4
G Sponsorship
4.4
H Public relations
4.4
I Emergency communications plan
4.4
Bibliography
Learning objectives
This chapter relates to syllabus section 4.
On completion of this chapter and private research, you should be able to:
• explain the considerations involved in selecting the best medium through which to
communicate a marketing message;
• outline the criteria used by businesses to match the right medium to their message;
• define and structure the marketing message;
• explain how and why businesses communicate their marketing messages;
• discuss the versatility of e-marketing, and ways to make the most of online marketing;
• explain the implications and considerations of customer behaviour online;
• define the ways in which advertising can be used to communicate the marketing message;
• suggest how and when sales teams fit a particular communications portfolio;
• describe the activities and benefits of sales promotion and sponsorship;
• explain the ways in which public relations can be used; and
• define the components of an emergency communications plan.
Chapter 7
Questions, scenario and answers
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Introduction
The promotion element of the marketing mix was first discussed in chapter 2, section G1
and G2, where it was said that promotion includes both impersonal communication methods
(such as e-marketing, advertising, sales promotions, sponsorship and public relations) and
personal communications (such as personal selling).
Marketing managers need to know when and how to use these various communication
channels to deliver their messages. In this chapter we will explore the factors affecting the
choice of communication medium, consider how to construct a marketing message, and also
take a closer look at some of the media.
Key terms
This chapter features explanations of the following terms and concepts:
Advertising
Affinity partnership
AIDA
Communication process
Crisis management
e-marketing
Marketing message
Noise
Online marketing
Online non-disclosure
Pay-per-click
Personal selling
Public relations
Sales promotion
Search engine
optimisation
Social media
Sponsorship
Telemarketing
A
The marketing communications portfolio
Chapter 7
Even with the right product in the right place for the right price, it may not be enough to
consider the marketing job done: the target market needs to know about it. Information
about the business’s products, price structures and distribution systems needs to be
communicated to customers, distributors and all stakeholders. Good communications can
create a competitive advantage for any business.
A1
From communication to customer acquisition
Communication strategy is a controlled, integrated programme of communication methods
designed to present a brand and its products in a consistent and clear way to chosen
audiences. The basis of any successful communications programme is a clear understanding
of the customer buying process.
Figure 7.1 provides an outline of the stages consumers pass through before they can become
a customer.
Figure 7.1: From communication to customer acquisition
Unawareness
Awareness
Comprehension
Conviction
Action
Chapter 7
Promotion
7/3
The first task of communications is to alert unaware customers to the product. Having
brought customers to that stage, communications must then convey what it is that the
product will do for them. Next, customers need to be convinced that what is said is true, and
that the product will meet their needs. Finally, the customer needs to be sufficiently
motivated to buy the product.
A2
Noise
Noise can prevent customers hearing, seeing, understanding or accepting the message that
you are communicating. The message must be heard above the surrounding noise, that is, all
the distractions experienced by customers. This includes competitor advertisements or even
literal noise in the form of friends and family talking when television advertisements air.
Customers also try to screen out unwanted messages (i.e. unsolicited communications with
no relevance) in three main psychological ways:
• elective exposure only to messages that fit their existing attitudes;
• selective perception to dismiss the intended meaning of a message; and
• elective retention to quickly forget messages that do not fit.
Be aware
For products such as insurance – where customers generally have a low level of
knowledge and interest – noise can easily distract customers and cause the message to be
distorted and confused.
A3
Choosing the medium
Some insurance businesses are stuck in one medium, thinking of marketing as only direct
mail or only website hits, for example. However, a message is much more effective if it is
delivered via multiple channels to reinforce the message. The challenge, then, is to ensure
that the message is delivered consistently across all channels that target the same market
segment. Your market research should reveal how the customer wants to be targeted at
various points throughout the customer experience. Qualitative research can provide
insights into how and why your customers like to be communicated with.
• Face-to-face via personal selling, seminars, exhibitions, conferences and meetings.
• Audio-visual via the telephone, radio and cinema.
• Print via newspapers, magazines, brochures, posters, hoardings, direct mail and letters.
• Digital via e-marketing, websites, viral marketing, social media, podcasts, pay-per-click.
Table 7.1 identifies the advantages and disadvantages of each of the principal
communication methods.
Table 7.1: Principal communication methods, their advantages and
disadvantages
Scope
Cost per contact
Advantages
Disadvantages
Advertising
Mass
Inexpensive
Control over the
message
Hard to measure
results
Personal selling
Personal
Expensive
Flexible
presentation
Immediate results
Very expensive
Sales promotion
Mass
Can be expensive
Gains attention
Immediate results
Easily copied
Public relations
Mass
Inexpensive
Very believable
Lack of control
Direct marketing
Mass/personal
Moderately
expensive
Consistent
Lack of control
Chapter 7
Messages can be transmitted in a wide range of ways, most of which fall into one of four
categories:
A message is much
more effective if it
is delivered via
multiple channels
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The following factors determine how appropriate each method of communication is.
A3A Objectives and resources
The choices of communication method will be determined by the promotion objectives and,
of course, the budget available. For example, an insurance company with ambitious
long-term sales revenue targets is likely to spend more on promotion in general than an
insurance company looking for a short-term increase in sales for one particular product. At
the same time, an independent financial adviser specialising in investment advice for
high-value discretionary investors would be likely to rely mainly on personal selling.
A business’s available resources will determine how much communication space it can buy.
A small start-up insurance broker is unlikely to justify spending on mass media advertising
and is likely to rely on personal selling. Personal selling ties much of the cost of the sales
function to the actual income derived from commission or fees.
A3B Type of product
A typical multi-line insurance company spends its promotional budget on advertising and
publicity, and some aggregators spend hundreds of millions of pounds on advertising to
attract website hits. However, an insurance broker specialising in FTSE100 businesses, for
example, is likely to devote most of its funds to personal selling. Advertising is most
important for branded, standardised, mass market products, whereas personal selling
dominates when dealing with complex products that involve negotiation and after-sales
service.
A3C Life cycle stage
Chapter 7
Refer to
chapter 5,
section C for
more on the
insurance
product life cycle
Communication strategies change as a product or service goes through its life cycle.
In the introductory stage, advertising is important to spread information quickly about the
new product or service, and to create brand awareness. Where products are distributed via
intermediaries, then the sales force will be important at this stage to ensure brokers are both
aware and knowledgeable about the new product.
During the growth stage, promotional activity reduces slightly as the product name is
beginning to become established. Competitors may enter the market at this stage with
similar products and, therefore, advertising is used to emphasise the unique differences in
products.
In the maturity stage, advertising seeks to remind customers about the positive attributes of
the product, however expenditure does decline. Sales promotions are generally used to
encourage customers to switch either direct or through distributors.
During the later growth stage, advertising is predominantly used to encourage brand loyalty.
In the decline stage, little is spent on promotional activities as costs are reduced.
A3D Market characteristics
Advertising is economical when the scope of the target segment is broad, as is the case for
many personal lines insurance products. Personal selling is economical for differentiated
products aimed at narrow target segments, provided the average sale is sufficiently large.
Targeted advertising can be effective in niche markets that can be clearly defined and easily
reached.
A3E
Other marketing mix elements
The choice of communication method needs to complement how other elements of the
marketing mix are being used. For example, pricing can affect the promotional mix in a
number of ways. Pricing strategy is key in creating margins to generate promotion funds. A
product’s price and characteristics help to form perceptions of quality.
The promotional strategy also needs to be aligned to company and product positioning for
consistency. Sales promotion aimed at distribution channels affects the allocation of
promotional resources.
Chapter 7
A3F
Promotion
7/5
Measuring campaign effectiveness
The adage: ‘I know that half my advertising is working. I just don’t know which half’ is well
accepted by marketers as a potential problem with advertising if it is not undertaken
correctly. It is therefore important to set clear objectives for your promotional campaign,
measure the results and assess its success.
It is important to
set clear objectives
for a promotional
campaign
Measuring effectiveness does not need to be purely financial. Alternative ways of measuring
effectiveness include:
Cost
Return on investment; how well did you define your market?
Control
Personalisation versus broad market; can you control the message?
Credibility
People believe what they read in the press; have you used the right medium for the
message?
Celebrity
Brand awareness; has this been achieved with or without an increase in sales?
Be aware
In section A2, we referred to noise and the impact it can have on the effectiveness of your
promotional activity. Noise changes over time – for example, an advert may be successful
when competitors are not advertising, but that same advert can be overshadowed if a
competitor embarks on a major campaign.
B
The marketing message
The market doesn’t want to hear empty platitudes – for example, ‘putting you first’.
Customers want to know how a product can provide them with solutions, what makes it
different from other products, and whether it is the right choice for them.
Before sending any message you must consider and decide:
• what to say;
• who to say it to;
• where to send it; and
• when to send it.
Be aware
Promotional activities target a customer segment but can also be seen by a wide range of
stakeholders including other customers, company employees, competitors, regulators
etc. It is important to consider how these unintended audiences may respond to your
message.
B1
What are the components of a marketing message?
Whichever medium is being used to deliver a marketing message, the five essential
components of every individual communication are the same.
• Source is the originator of the message (the sender).
• Message is the information communicated to shape opinion.
• Medium is the channel used, e.g. digital, radio, television and print.
• Receiver is the target market (the audience).
• Response is a set of desired reactions that will benefit the source.
The communication process is illustrated in Figure 7.2.
Chapter 7
• how to send it;
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Figure 7.2: The communication process
Source/
sender
Medium/channel
Encoding
MESSAGE
Decoding
Receiver/
audience
Noise
Response feedback loop
After receiving the message, the audience must decode it in order to derive meaning. For
example, television advertising communicates information in a subtle or subliminal way that
must be decoded in a manner which leads to the customer considering to buy.
See chapter 3,
section A1 for
more on
marketing
research
techniques
The communication process concludes with an evaluation of the reaction; feedback
indicates if the message was received by the right audience, whether they understood it, and
whether it had any impact. The objective of the message might have delayed effectiveness;
not all messages received are acted upon immediately.
Be aware
Not all promotional activity seeks to encourage consumers to buy something.
Promotional campaigns are also used to change behaviour and attitudes – for example, to
reduce the number of people who think it is socially acceptable to use their mobile phone
when driving.
B2
How can marketing messages be categorised?
Marketing messages may be categorised according to their objectives and their style.
Chapter 7
Connotative messages deal with feelings and relationships, often appealing to receivers to
make decisions based on their lifestyles and values.
Denotative messages are more literal and factual. Most descriptive advertising for
differentiated products is denotative.
Rational appeals aim to show that the product will deliver the wanted benefits. The message
seeks to demonstrate quality, reliability and performance, often arousing needs and then
providing a solution.
Emotional appeals emphasise good feelings that will come from using a product, such as
portraying customers as lifestyle role models.
Fear-based appeals are used to persuade customers to buy products to avoid unpleasant
outcomes.
Moral appeals are mostly concerned with social issues of morality so as to persuade
appropriate action.
Humour often attracts attention and creates a positive attitude, very effective for
low-involvement products.
Research exercise
Examine your own company’s current advertising campaigns and determine into which
category they fall.
B3
What should be in a marketing message?
To put it simply, the message is what the sender wants the receiver to know. The message
usually encourages action, such as an application for additional information or to make a
purchase.
Chapter 7
Promotion
The choice of message style should depend on the market. Business to business is treated
differently to business to consumer, and motorcycle insurance will have a different approach
to the writing of a message for haulage fleets. AIDA is a commonly used acronym that helps
many construct a message:
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The choice of
message style
should depend on
the market
• secure attention;
• get their interest;
• generate desire; and
• encourage action.
A good way of starting to construct a message is by throwing away old clichés and worn-out
phrases, as they may be generating awareness in a negative way and switching customers
off the brand. The following are useful points to consider when developing your message:
• Consider customers as individuals: people consider themselves as individuals seeking
individual solutions; market segments should be targeted with a message that treats them
as individuals. By doing this, it will then be easier to create a message that resonates with
a target market in which common needs have been identified. It can be useful to imagine a
target market as one individual, and to picture them and their need as and when the
message is constructed; perhaps meeting an existing customer who fits the profile of the
target market will help too.
• Focus on solutions: marketing used to be about communicating the benefits of a product.
This can be helpful but it is far better to focus on what customers seek most – i.e. the
solutions to their problems. Working backwards can help to identify these solutions. First,
identify the market and its need, and then select the products that meet those needs.
Think about the possible solutions that each product can provide, and all the pain that can
be avoided by the initial solutions.
Useful website
www.simplybusiness.co.uk
Simply Business is a UK online insurance broker that was eager to grow even more than its
success to date. Content marketing had played an important part, producing new content
daily addressing ways to help SMEs grow. Simply Business had built a mine of unused
customer data. It felt that, with effective analysis, interesting insights could be identified
to help with customer trends and topics to drive online traffic. A test was carried out on a
small segment using data cross-referenced with previous years to highlight trends and to
identify strong stories supported by case studies, press releases and infographics. Chosen
content was first released during 2012 to current customers, online communities and
social media using blogs, features and video.
Performance measures such as web traffic, search engine optimisation (SEO), quote
numbers, conversions and revenue showed the campaign exceeded expectations. The
campaign generated 265 items of media cover, including a full page article in a national
broadsheet newspaper, achieving total readership over 300 million. Traffic to the Simply
Business website ‘Knowledge and Community’ section grew by 86% in the year, SEO
ranking increased, website links increased by over 150%, and new business worth £56,000
was produced. Additional benefits included repeatable content and heightened brand
recognition.
Chapter 7
Content marketing
The word ‘content’ can be applied to all promotional activity as each campaign has content –
i.e. the message, the story, the visuals used etc. Content marketing is used to describe a
relatively new form of online marketing that ‘tells not sells’. It aims to attract consumers to
the company’s website by providing free information. The idea behind content marketing is
that a company needs to give something valuable (i.e. free and useful information) to get
something valuable in return (e.g. customer loyalty). Content can be in the form of how-to
guides, survey data, hints and tips. It is made available via online newsletters, blogs,
photographs, videos, infographics etc. Content marketing involves a large amount of
information that is continuously available and added to by its users. As a result, the content
needs to be properly managed and this can be done by using a content management
system (CMS).
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B4
Do looks play a part in the success of a marketing
message?
The way that a message looks can have a big impact on the target market – for example,
words can have a much greater impact when displayed in an eye-catching format. An
effective design is not in itself expensive, but continual time-consuming changes to content
and design will increase cost, so it will help if there is a clear idea from the beginning. Digital
printing and e-marketing provide low-cost mediums that set a base for a considerable return
on an initial investment.
Small investment in specific websites displaying unique messages for each target market
may generate more revenue and greater customer lifetime value than employing a single
website to try to attract a range of customers.
B5
Think back to IF1,
chapter 10,
section D2 on the
fair treatment of
customers
Legislation and regulation
Regulation of the insurance industry is overseen by two regulatory bodies:
• The Prudential Regulation Authority (PRA) is part of the Bank of England. It carries out
the prudential regulation of financial firms, including banks, investment banks, building
societies and insurance companies.
• The Financial Conduct Authority (FCA) is responsible for consumer protection and
conduct regulation. It regulates the conduct of all firms, both retail and wholesale
(including those regulated prudentially by the PRA) and takes a proactive role as a strong
consumer champion.
The extent of the FCA’s influence extends to the nature and role of advertising as practised
by the members of the insurance community.
The FCA is responsible for setting the rules on ‘financial promotions’. This means that all the
adverts firms put out should be clear, fair and not misleading. It monitors published adverts
to check that firms are sticking to its rules. ‘Financial adverts’ means all the various types of
promotional material covered by its financial promotions rules, such as:
• adverts in newspapers and magazines (including leaflet inserts);
• product brochures, leaflets and other sales literature;
Chapter 7
• direct mail shots;
• posters;
• TV and radio adverts;
• promotional emails and text messages; and
• adverts on websites, including product providers’ own sites.
All advertisements
should be clear,
fair and not
misleading
If it finds an advert it believes is against the rules, it can:
• tell the firm to amend the advert, or withdraw it;
• if people are likely to have been seriously misled, it can ask the firm to contact customers
who have bought the product after responding to the advert and offer them the chance to
pull out at no cost; and/or
• for particularly serious or persistent breaches of the rules, the FCA may fine or publicly
name the guilty firm.
In practice, it deals with most cases by requiring the firm to amend or withdraw the advert in
question. This is usually the quickest and most effective way of reducing the risk of people
being exposed to misleading adverts.
For a full understanding of the FCA and its powers, there is no substitute for reading the
FCA Handbook, Insurance: Conduct of Business Sourcebook (ICOBS).
Research exercise
Investigate your own organisation’s FCA compliance procedures for advertisements/
promotions. Is it clear to the staff who need to use them why they are important?
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Promotion
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Be aware
Marketing itself is also regulated and there are a growing number of laws, regulations and
codes affecting the marketing profession.
The Advertising Standards Authority (ASA) is the UK’s independent advertising regulator.
It makes sure that advertisements in the media in the UK are in line with advertising rules
(the Advertising Codes). To find out more, visit their website at: www.asa.org.uk.
C
Direct marketing
Direct marketing encompasses direct mail, direct response advertising, telemarketing,
e-marketing and all online and mobile activity. The advantage of direct marketing generally
is in reaching a target market quickly and at low cost; the disadvantage is that the response
rate is generally low.
It is essential that data protection legislations are observed when engaging in direct
marketing. All activities are governed by the Data Protection Act 2018 (DPA 2018) in the
UK, and by the General Data Protection Regulation (GDPR) at EU level. (To refresh your
knowledge, refer back to chapter 3, section C.)
Telemarketing (using the telephone to contact customers) is popular with insurance brokers
and independent financial advisers as it is very easy to track costs and generated revenue.
Typical lead conversion rate is lower than one appointment for every ten calls. The broker
will know the rate at which they then convert those appointments into clients. Using this
information, the broker can work out the likely revenue generation from the investment.
E-marketing is a much cheaper method of direct marketing as there are no postage or
broadcasting costs. Customers can be prompted to visit a website to find further
information and to buy. Feedback can be secured in real-time based on who reads what and
when, allowing a far greater insight into their interests.
If a campaign is to have customer impact, it must be highly targeted toward a specific
audience. Targeting is important in e-marketing because campaigns have to be relevant to
the individual and focus on where value can be added. Spam is the e-marketing equivalent of
junk-mail, and firewalls and spam filters can be a big obstacle to getting a message read.
Customers often see emails as a convenient way to be informed about new products and as
a reminder, but it is not something that necessarily makes them buy. As e-marketing became
more sophisticated, it may have been assumed that direct mail would decline but it can
complement e-marketing delivering relevant content that encourages a digital response.
C1
Online marketing
Online marketing needs to be approached entirely differently because attracting visitors to
a badly designed website can damage a brand. A website is an interactive marketing tool
that most insurance businesses have yet to master.
Search engine optimisation is cost-effective as it means a website appears in natural search
results, therefore targeting people who are actively searching. Search engines rank websites
based on their relevance to the customer search, and each have different criteria for ranking
websites. Search engine optimisation works through automated web crawler software that
follows links from website to website gathering data. The content of a web page is analysed
to determine how it should be indexed, and the search engine examines its index to provide
a list of best-matching web pages.
Getting to the top of natural search results takes time and expert knowledge. Searches use
keyword identification so content should be written around these keywords. Building links
with other relevant sites helps search engines to rank a website. Metadata, headings and alt
tags help search engines know what a website is about.
Refer to
chapter 4,
section C for
more on specific
targeting and
segmentation
Chapter 7
Another benefit of e-marketing is its versatility. Targeted new business emails can be sent,
regular customer surveys performed for market research, and cross-selling or
brand-building achieved through regular newsletters. Immediate reports mean you can see
who opens and reads your emails, and make a note of which of your messages secures a
good response, so that you can follow up very quickly and precisely.
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Pay-per-click terms (for example, ‘commercial insurance’) cost from pence to pounds for
every click that puts a message on the results page. The purchase of search terms is
competitive, and companies have to bid for the use of a search term and their position on
the results page. Careful management means specific customers can be targeted, thereby
generating a higher conversion rate. This method does offer immediate advertising but users
tend to prefer natural search results.
Affinity partnerships with popular websites can be highly effective for insurance businesses
that have refined their segmentation. A working relationship with website users that match a
business’s target customer profile and segment can be lucrative.
Influencers are
covered in
chapter 4,
section A3C
Social media can be a powerful marketing tool when used correctly. Touch-screen tablets,
smartphones (allowing access to the internet, multimedia functionality as well as core phone
functions) and mobile apps (programmes designed to run on smartphones) have all
contributed to the enormous numbers of social network users. Links between social media
platforms (websites and apps) present good opportunities to support other events in the
marketing programme. ‘Influencers’ within a large network can be effectively targeted as
customers are far more likely to respond to marketing messages if a friend uses the brand.
This medium is a way for a business to seek customers that share its values rather than wait
for them to find out themselves. Setting up blogs and online forums around the solutions
that products provide can work well.
Be aware
Chapter 7
Influencers may be people who regularly ‘post’ comments or write influential blogs.
Businesses have yet to master social media, often disclosing too much information to
competitors instead of focusing on authentic stories about the business. Social media
sites use algorithms to determine what content should appear on a user’s newsfeed; the
more engaging your company page the more likely it is to appear in newsfeeds. Polls,
surveys, videos, status updates, promotions and announcements may increase
engagement and effectiveness of your targeting will determine fanbase quality.
Aggregators rely on brand awareness, which requires a marketing investment of tens of
millions to maximise customer response and brand recall, which can sometimes take several
years to return a profit. Time-pressed customers embrace price comparison as the most
convenient and transparent method of shopping for insurance. However, some customers
manipulate their quote details to achieve a smaller premium without realising the
implications in the event of a claim, and without being challenged.
Consider this…
Think back to the management decision in chapter 1, section B. Now how much do you
think it would cost to advertise that website?
Viral marketing
Generating indirect communication with prospective customers by encouraging existing
customers to tell their contacts can be a very effective means of building a new customer
base. This might involve a reward system for existing customers – financial, or a form of
kudos. Email newsletters, blogs, text messaging and social networking are just some of the
methods that rely on potential customers being more receptive to the recommendations of
friends.
Be aware
Viral marketing is subject to regulations and has caused complaints to the Advertising
Standards Authority. To find out more about regulations and advertising rules, visit the
websites of the:
• Advertising Standards Authorities (ASA) and Committee of Advertising Practice
(CAP): www.asa.org.uk.
• Information Commissioner’s Office: www.ico.org.uk.
Regardless of which of the above promotional methods an insurance business chooses, it is
important to regularly undertake an inventory. The inventory should identify the channels
used and the content – for example, the number of followers, frequency of use, message
communicated and alignment with business goals. This activity will enable it to provide the
right content and correctly resource this promotional channel.
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Promotion
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Useful websites
Bike Social is a way Bennetts is providing thought leadership to motorcyclists with
content they create and own on www.bennetts.co.uk/bikesocial, saving hundreds of
thousands of pounds they were paying for pay-per-click advertising.
Arborisk is a way for Bartlett and Company to provide thought leadership to tree
surgeons on www.arborisk.co.uk.
C2
Online customer behaviour
Online customer buying behaviour is broadly similar to offline behaviour in terms of the
stages consumers go through from identifying a need to making a purchase. Customers can
also switch between online and offline – for example, customers may use the internet as a
source of information and then purchase offline. It is therefore important to ensure that the
quality of the customer experience is the same online and offline.
The AIDA model from section B3 also holds good as a basis for defining the marketing
message online and offline. The internet can be used to secure attention, get interest,
generate desire and encourage action. Use of the internet (such as comparison sites, blogs,
forums, etc.) has however resulted in some changes in customer behaviour. For example,
customers have become better informed and have higher expectations that insurers need to
understand and meet.
Refer to
chapter 4,
section A3A to
see the rational
model for the
information
seeking,
processing and
evaluating stages
Changes in behaviour are also occurring with each new generation. For example, consumers
are increasingly multi-tasking – using social media while watching television, while the
‘smartphone generation’ engage in personal tasks while at work. Consumers are also
becoming increasingly sceptical of advertising and often ‘switch off’ if they feel they are
being ‘sold to’. There is currently a growth in niche social networks as users seek out
communications more relevant to their interests – a trend that can help marketing deliver a
message to a self-selected segment. It is essential that website and smartphone content is
tailored to suit these current behaviours.
Personalisation of information brings benefits such as increased conversion, loyalty and
revenue. True personalisation is holistic, enabling marketing to be relevant and likely to
engage the customer by using:
• basic data, e.g. location, gender, age;
• explicit data given by the customer, e.g. interests;
• past behaviour, e.g. past purchases; and
• real-time behaviour, e.g. current interaction.
There are disadvantages that can potentially arise from an online setting. For example, in an
offline setting, every risk detail provided by the customer can be checked (as far as possible)
for accuracy – a process that adds value. Online, the customer is often more remote and
there is a greater reliance on the customers’ understanding and honesty. Customers seeking
advice when buying increases the costs of the sales process, but customers buying only
online may increase your after-sale costs.
If customer answers are incomplete or incorrect through lack of understanding or
concealment, there will be online non-disclosure issues to handle. Improved techniques (for
example, voice risk analysis) may help with fraud investigation, credit history and conviction
records, but few non-disclosures are categorised as deliberate.
Useful website
www.financial-ombudsman.org.uk
Chapter 7
Brand recognition, the ease of interaction between online and offline, and the customer
experience will all affect the effectiveness of a campaign. Some websites use reactive chat
facilities – for example, ‘click here to get help’, or proactive online tracking to identify the
point at which it might be appropriate to make customer contact. Therefore, customer
behaviour triggers the contact.
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Refer to chapter 1,
section C for the
more cynical
views of
marketing
945/November 2019 Marketing insurance products and services
Underwriter reaction to the possibility of online non-disclosure is sometimes to restrict
cover through warranties or exclusions under policies sold online but, again, costs are
involved when claims are avoided. Such costs include claims handling (often extended as
parties struggle to understand non-disclosure and cover restrictions) plus possible legal
costs or other dispute resolution – for example, the Financial Ombudsman Service (FOS).
These costs have wider implications for insurance and marketing generally.
C3
Digital influences
We have already seen that digital technology is having a significant influence on marketing
and customer behaviour. The following are examples of specific areas of change that are
influencing how insurance businesses are communicating with their customers.
Digital technology
is changing how
services are
supplied
Supply and demand
Digital technology is changing how services, such as insurance, are supplied. Insurance
transactions are increasingly automated – for example, in the areas relating to operations
and administrative support. A larger number of value-chain activities are becoming
redundant as a result, particularly those that are of a repetitive nature. This sets the scene for
the removal of layers of intermediaries. Digital technology also opens up income sources
that were previously considered uneconomic. As a consequence, more jobs are being
created in marketing, sales support and analytics teams, of which the latter are increasingly
being used for detecting fraud and smart claims avoidance.
The digital age is affecting customers’ demand for services as well. Customers now research
before they buy, compare prices online and consult friends before making decisions. They
use digital technology, such as apps, to find exactly what they want and compare products
with insurance providers that are not just the traditional direct rivals. Branding power has
been eroded by new entrants in the insurance market. For example, no insurance businesses
are included in the top 100 millennial brands, published by Moosylvania in 2016. Millennials
have purchasing power, are brand aware, tech-savvy and quick to complain.
Chapter 7
Customers are no longer willing to cross subsidise other customers or buy insurance
packages to get the specific cover they want. They are unwilling to accept intermediary fees
and long lead-in times. Car insurance buyers will not accept prices that have been based on
crude demographics, but value the transparent fairness of telematics instead.
Useful website
Supercover Insurance partnered with Voyager Insurance Services, a wholesale travel
intermediary, in July 2016 to offer stand-alone technology gadget cover all year round.
This is aimed at travel customers who may not be covered under a standard travel policy.
To find out more, see: https://bit.ly/2QhBXhF.
Be aware
The Consumer Rights Act 2015 states that any digital content supplied in or in addition to
an insurance product must be of satisfactory quality and fit for purpose.
Social media
In section C2, we saw that customer online behaviour is changing as a result of multi-channel
interaction and social media. Despite these trends, individuals’ interaction with insurance
businesses is dominated by issues relating to customer service and transparency. A survey
conducted by FC Business Intelligence in 2015 shows that while millennials mostly use the
internet and mobile technology to engage with insurance businesses, 56% say that they still
like having the option to talk to a person. Furthermore, only 55% consider the financial
services industry to be trustworthy. Individuals will therefore stay clear of businesses that
ask for permission to track and trend their behaviour via social media if they are not sure that
their personal data will be safe.
Useful website
Bought by Many monitors social media to find substantial groups of consumers who need
insurance for niche risks, and then targets adverts at these specific groups. It links the
consumers up with insurers who offer them discounted cover for their risks. To find out
more, go to www.boughtbymany.com.
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Promotion
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In response, insurance businesses need to make cover transparent, transactions simpler and
buying more convenient.
Consider this…
How successful is comparethemarket.com’s use of meerkats in appealing to customer
emotions? Visit www.comparethemarket.com to help you decide.
B2B customers have websites, use social media and also participate in multi-channel
communications. However, if their website content contains inaccurate risk information,
they may face challenges when negotiating insurance contracts. For example, some
companies exaggerate their size, leading underwriters to form inaccurate views which are
difficult to adjust. Similarly, a commercial customer that does not manage its reputation or
brand successfully is likely to have a higher number of claims made against it, and present an
unattractive risk preposition to insurance businesses.
D
Refer to chapter 1,
section C5 for a
definition of B2B
Advertising
Advertising is a form of mass communication and is very good at creating awareness. To be
effective, advertisements need to be seen many times as regular and consistent exposure
reinforces the message being communicated; a one-off campaign will rarely produce a good
return.
To be effective,
advertisements
need to be seen
many times
To put it simply, the purpose of advertising is to increase awareness either about a company
or a product (see table below). A customer will not use a company or buy its products if they
do not know that it exists. It might sound like an obvious statement to make but the
company or product needs to be clearly identified in an advert. How many adverts have you
seen and at the end asked yourself, ‘What was that about?’
Advertising the product
Advertising the organisation
Primary demand advertising stimulates demand
when new products are introduced, whereas
advertising for existing products stimulates
demand and encourages switching from
competing brands.
Corporate advertising of the brand aims to
generate awareness, build positive attitudes and
trust among investors, support a particular issue
or to change image perception.
At the detailed level, advertising is the province of specialists. Mobile advertising agencies
specialise in online mobile advertising where advertisers often buy advertising space by
auction. TV advertising can be used to create awareness to draw hits to a website or call
centre. Google sells word text blocks not really seen as advertising because they are a useful
response related to the task it has been asked to complete. Print advertising continues to
have value for some insurance businesses. QR codes, as shown in Figure 7.3, are easy to
create allowing mobile phone users to access digital content, usually driving recipients to a
website, by scanning a code.
Figure 7.3: Example of a QR code
Advertising is being transformed by interactive multimedia formats made possible by touch
screen mobile technology and 3G/4G connections. There are now animated posters,
dynamic adverts that change in response to external factors and interactive campaigns that
engage customers, particularly when offering something of value in exchange for their time.
Chapter 7
Although advertising is described as a mass communication, it can be used successfully by
businesses without the need for big expenditure. The key is to segment your market and to
carefully select the relevant media to target that segment only.
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Native advertising, also known as organic advertising or sponsored content, is the buying of
sponsored adverts on social networks and websites. It continues to be experimented with by
media owners, advertisers, agencies and businesses, such as Standard Life which reported a
100% increase in click-through rate compared with standard adverts.
Native advertising is an advert trying to sell a product or organisation, whereas content
marketing offers a neutral viewpoint informing customers. Native advertising may offer
valuable content and is often used to support and expand content marketing. With the use
of cookies and other mechanisms, customers can be targeted and re-targeted to very
narrowly defined specific segments and personalised even for a yet-to-be customer who
revisits your social network page.
Useful websites
www.lancasterinsurance.co.uk
Lancaster Insurance has enjoyed great success using social media network sites to spread
the word to classic car target customers and to promote within the classic car community.
www.jacksonwealth.com and www.meaningfulmoney.tv
Peter Jackson of Jackson Wealth Management has successfully promoted life and health
insurance through weekly podcasts securing 80 views per day and 1,000 downloads
per week.
Cooperative advertising is becoming ever more popular among insurance businesses. This
usually involves a dual-branding partnership – for example, an insurance company may
contribute to an insurance broker’s local advertising, or an insurance company may feature
on aggregator adverts. Caution should be taken to avoid brand confusion where the
insurance broker might be viewed as the insurance company.
Advertising needs to be approached carefully and has to be part of a considered and
coordinated strategy. You should consider whether or not the advertising is needed, as well
as particular budgets, segments, media, frequencies and content. SMART objectives should
be set to check the results against.
Be aware
Chapter 7
Remember that the FCA’s influence extends to the nature and role of advertising as
practised by the members of the insurance community (refer back to section B5).
Useful website
www.asa.org.uk/codes-and-rulings/rulings.html
Many complaints to the Advertising Standards Authority against insurance adverts are
not upheld and this site may prove a useful source of guidance.
E
Sales and account management
Personal selling, either in the initial sale or subsequent account management, is face-to-face
contact; delivering the message according to customer needs with interactivity between the
customer and salesperson. Personal selling is one way to communicate the marketing
message.
Personal contact has long been viewed as necessary to establish integrity. Information can
be presented powerfully and flexibly, and queries can be dealt with instantly. Personal selling
can be very effective when negotiation and immediate sale conclusion is involved.
A relationship can be built that facilitates the assessment of competition and the awareness
of changing needs. If the relationship is well maintained, an extensive knowledge of the
customer can develop and be used to influence a marketing mix to extend the customer
lifetime value.
Personal selling
is relatively
expensive
The disadvantage of personal selling is that it is relatively expensive, so the value of the
products sold to customers must justify the expense of a sales force. The complexity of
many insurance and assurance products, and the financial commitment needed from the
client, makes them very suitable for such one-to-one communication.
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Promotion
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Commercial general insurance, high value personal general insurance and complex
investment products are broadly considered appropriate for personal selling. While online
and call centre sales are increasingly effective, there remains a substantial customer base
that values personal contact. Insurance brokers focusing on local community marketing
often find the value of each customer’s full insurance portfolio justifies the personal sales
approach. Insurance companies with distribution – where the intermediary is the customer –
utilise a sales force to maintain and develop relationships.
Seminars, often free of charge to customers, continue to be a popular variation of personal
selling, and with careful planning they can be highly effective. Segmentation is once again
important to identify the targeted market and invited audience. Date and timing, invitations
and reminders, venue selection and registration are all important elements in addition to
choosing a relevant topic. Seminars are sometimes used as the medium for public relations;
the business’s objective decides whether a seminar is for personal selling or public relations.
Sales team plans need to be carefully linked to the overall marketing plan. The chances of a
business working in a ‘joined-up’ relevant way with all plans tying together increase with
greater sales team involvement. Sales teams need to be managed and motivated with clear
targets, workable plans, guidance and training, and effective systems.
Marketing management decision
How can the management of your sales force be improved?
The age of digital and social media marketing has led some businesses to thrive without a
sales team. Some have fewer sales people as thought leadership, etc. has identified potential
customers to a level where conversion is readily realised. For many insurance products,
face-to-face communication remains more effective than telephone or email alone.
Sales people find social media a useful tool to maintain contact with customers and potential
customers they may not see very often; they can keep up to date with personal and
professional events and reconnect with relative ease. Sales people who are most active
online are likely to have the greatest online presence and so are more readily found. Care is
needed with social media use as what is posted is longstanding and visible, so negative
content may attract unwanted attention.
Sales promotion
The term ‘sales promotion’ has several meanings, including in-store merchandising,
non-media costs, impersonal selling or even all communications.
For our purposes, sales promotion involves offering something different to the usual
transaction. The special offer usually includes benefits that do not form part of the standard
customer package.
Promotion may be direct or indirect and targeted toward customers, intermediaries or sales
force. The objective is to persuade the sales force to sell more, intermediaries to sell one
product ahead of others, and customers to buy or buy more.
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F
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Examples of insurance sales’ direct and indirect promotions are shown below.
Customers
Indirect
Direct
Coupons
Price discount
Vouchers
Free gifts
Competitions
Extended period
Qualifying reduction
Intermediaries
Extended credit
Incentives
Delayed invoice
Free gifts
Coupons
Commission
Vouchers
Training
Competitions
Cooperative advertising
Events admission
Sales force
Coupons
Bonuses
Vouchers
Commission
Money equivalent
Free gifts
Competitions
The typical reason for a sales promotion will be to provide a solution to an immediate
problem (often in reaction to competitor behaviour) and stimulate a decision to buy at the
point of sale. This is why promotions will operate over a limited period.
The objective for each promotion again needs to be clear, and spending should be analysed
by type of promotion. Failure to do either will most likely result in loss of control and
reduction in profit. For each promotion there is a cost that needs to be budgeted for, and
measured in depth alongside a justification for the type used.
Be aware
Chapter 7
Failure to correctly identify the response to a promotion can significantly damage a brand
and company profits.
One of the most famous examples dates back to the 1990s when Hoover offered free
flights to Europe and the USA in return for a £100 appliance purchase. Demand was
beyond all expectations and Hoover had to end the promotion early. Customer legal cases
continued for six years and the promotion cost Hoover around £50m.
Ethical guidelines and the need to disclose gifts received should also be considered when
selecting a promotion.
G
Sponsorship can
raise brand
awareness
Sponsorship
The financial services sector is one of the biggest users of sponsorship – particularly sports
sponsorship which receives extensive media coverage.
There are many opportunities for insurance businesses to communicate their personality and
values by matching them with relevant sponsorship opportunities. Sponsorship is essentially
concerned with raising brand awareness and image building. Additional promotional
methods need to be used in conjunction with sponsorship if specific messages need to be
communicated. Nonetheless, whether the market is a global, local community or specialist
one, sponsorship can help a brand to stand out from the crowd.
Sponsorship of local sports teams and community projects can be as appropriate and
effective for a local business as it can for global brands. By inviting customers to its
sponsored events, a business can position itself. Customers may be unlikely to switch just
because they have attended an event, but they will remember the business brand name
when choosing between different products.
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Promotion
7/17
The range of sponsorship opportunities are almost endless. Businesses can choose from
sport, broadcasting (e.g. TV or radio programmes), the arts (e.g. music, festivals, theatre,
opera) or cause-related opportunities (e.g. charities).
When considering sponsorship, it should always deliver a return, allow customers to be
entertained, provide advertising and press opportunities, and be relevant to the necessary
target market.
The effectiveness of sponsorship can be evaluated by:
• media exposure – for example, the number of mentions of the sponsor brand on TV, radio
and in the press;
• sponsor name awareness – measured before and after the sponsored event;
• sales results – whether the volume of sales has increased during or after the sponsored
event; and
• audience feedback – this should be focused on the target market.
Consider this…
Allianz has been a major sponsor of Formula One racing for many years. In 2017, however,
it announced its move to sponsor the all-electric racing series Formula E. Why – from a
marketing perspective – do you think Allianz has made this change?
Reinforce
Now that we have considered each type of promotion in more detail, take a moment to
look back at section A3C to make sure that you understand what type of promotion is
best suited to each stage of the product life cycle.
H
Public relations
Public relations approaches include all publications, events, media stories, exhibitions,
sponsorship and viral marketing.
To a point, investment in public relations can be more productive than other forms of
promotion. This can be particularly true of small businesses with low budgets. At its best,
public relations offers communications that give a business credibility – for example, via the
independent recommendation in an editorial. The media, whether it be press, radio or
television, can be valuable for planting ideas, spreading awareness, selling a product or
reputation, gaining competitive advantage, as well as a means of handling a crisis. Public
relations can also be conducted online – for example, through the use of blogs or by
producing a white paper download for a product.
Conversely, handling the media ineffectively can result in a collapse in confidence and an
end to the business.
Promoting a business expert to provide commentary or articles to trade publications will
generate positive views and increase the awareness of a brand. Although it does take time to
generate good working relationships with the press, effective public relations can influence
and enhance the public perception of a brand, help develop long-term business
relationships, and improve staff recruitment and retention.
Chapter 7
Public relations is complementary to other communication activities. It is the planned and
sustained effort to establish and maintain a mutual understanding between an organisation
and its publics which include customers. PR is therefore about understanding how the
company is perceived, comparing that view to how it wants to be perceived, and then
working to ensure that perceptions are changed accordingly. By using public relations, a
reputation can be managed rather than left to chance.
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Public relations objectives should support the marketing plan and link to the overall business
plan. Successful media contact requires clarity and control which necessitates careful
planning along the following lines:
Define the target market, including customers, media, internal groups, community groups and
investors.
Conduct research to establish their current awareness and perception of the business and
products, and so establish the focus area.
Set objectives, which may be financial or non-financial.
Decide the messages that need to get to the market.
Clarify available resources including budget, staff time, equipment, IT, design and print
facilities.
Chapter 7
Programme the marketing activity with timings and priorities, including any or all media press
releases, articles, interviews, internal newsletters (internal communications and marketing are
important to ensure consistency), seminars, lobbying to Government, exhibitions and trade
shows, community projects, and/or investor reports.
Evaluate the campaign in financial terms (such as sales) or non-financial terms (such as
increased awareness).
Systems should be put in place to measure success in terms of the number of leads and sales
generated, or research performed to establish awareness changes.
Brands are hard to build but easy to destroy. Using public relations to build a reputation
bank before it is needed means starting from a stronger point than otherwise. For example,
search engine optimisation can get you on the first page of an internet search ahead of
someone trying to hurt your reputation.
Useful websites
www.ipr-online.co.uk
www.prca.org.uk
I
Emergency communications plan
Occasionally, unforeseen emergencies require a swift and well-considered public relations
response because the handling of a situation is carefully watched. Good communications at
a time of crisis can provide a means to apologise, explain what has happened, and restore
positive perceptions of the company brand.
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Promotion
7/19
Be aware
Poor public relations can lead to lasting damage to the brand.
Once it is accepted that the business is on the point of a crisis, then comes the task of crisis
management. Fast, relevant, effective and corrective action can avoid negative perceptions
of a business. Suitable methods of preparation are listed below.
Identify your objective relevant to the crisis, for example, to demonstrate concern for your
customers.
Designate your team to handle the crisis by allocating responsibilities and reporting lines.
Outside expertise may be needed for legal, financial or technological advice.
Write procedures for the efficient handling of any likely crisis. Procedures may involve internal
awareness to spot a crisis, an audit of your vulnerabilities, mitigation strategies, planned
responses and policies.
Media dealings should be handled by a person capable of delivering simple factual statements
without appearing evasive. Training and the effort you put into generating good working relationships with the press will pay dividends now. Do include communication with your staff, customers
and investors.
Have access to emergency equipment such mobile phones, internet connections and even
premises if appropriate, and make sure relevant interests know how to make contact.
Critical reflection
Do you consider the insurance industry’s PR response to the 2011 UK riots to have been
good for the industry?
Some criticised insurers for failing to respond quickly and adequately to riot struck
businesses.
Some accused insurers of ignoring smaller firms while attending to larger firms.
Some say insurers communicated poorly, often through third parties.
In the next chapter, we will look at the importance of branding and what a business should
do when its brand is damaged. Communication with the customer and other stakeholders
plays a key part in rebuilding the brand – for example, good communications at a time of
crisis can provide a means to apologise, explain what has happened, and restore positive
perceptions of the company brand.
Chapter 7
When a crisis breaks, the facts should be established to clarify and substantiate the situation.
Fault should be admitted with a commitment to action; and the response should be short
and quick to reduce any risk of confusion. If a business is ill-prepared, it will suffer if a crisis
arises: customers will look elsewhere (for their loyalty is very fragile), and staff may leave.
The effective management of emergency communication protects the brand and thereby
the business.
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Summary
Information about the business’s products, price structures and distribution systems needs
to be communicated to customers, distributors and all stakeholders in order to create a
competitive advantage.
The message must be heard above the surrounding noise, that is, all the distractions
experienced by customers, such as competitor advertisements.
Messages can be transmitted in a wide range of ways, including face-to-face, audio-visual,
print and digital.
The market doesn’t want to hear empty platitudes – for example, ‘putting you first’.
Customers want to know how a product can provide them with solutions, what makes it
different from other products and whether it is the right choice for them.
The choice of message style should depend on the market, but should nevertheless follow
the AIDA acronym: secure attention, get their interest, generate desire and encourage
action.
The advantage of direct marketing generally is in reaching a target market quickly and at
low cost; the disadvantage is that the response rate is generally low.
The purpose of advertising is to increase awareness either about a company or a product. A
customer will not use a company or buy its products, if they do not know that it exists.
Personal contact has long been viewed as necessary to establish integrity. Information can
be presented powerfully and flexibly, and queries can be dealt with instantly. Personal selling
can be very effective when negotiation and immediate sale conclusion is involved.
Sales promotion may be direct or indirect and targeted toward customers, intermediaries or
sales force. The objective is to persuade the sales force to sell more, intermediaries to sell
one product ahead of others, and customers to buy or buy more.
Chapter 7
By inviting customers to its sponsored events, a business can position itself. Customers may
be unlikely to switch just because they have attended an event, but they will remember the
business brand name when choosing between different products.
Public relations is the planned and sustained effort to establish and maintain a mutual
understanding between an organisation and its publics which include customers. Public
relations approaches include all publications, events, media stories, exhibitions, sponsorship
and viral marketing.
The effective management of emergency communication protects the brand and thereby
the business.
Chapter 7
Promotion
7/21
Bibliography
Friedlein, A. (2018) ‘Ashley Friedlein’s Marketing and Digital Trends for 2018’,
Econsultancy. Available at: bit.ly/2PjpoDe [Accessed: 13 November 2019]
Insurance Age UK Broker Awards. Available at: www.ukbrokerawards.com
[Accessed: 13 November 2019]
Linklater, M. (2017) ‘Fine-tuning Your Content Marketing Machine’, Exchange – The
Chartered Institute of Marketing. Available at: bit.ly/2DugM6q
[Accessed: 13 November 2019]
Olenski, S. (2017) ‘Why Content Will Always Be King’, Forbes.
Available at: bit.ly/2z0j1L5 [Accessed: 13 November 2019]
Oracle Cloud. (2012) Managing the social media mix.
Available at: bit.ly/2SUy2GA [Accessed: 13 November 2019]
Professional Adviser. Available at: www.professionaladviser.com/
[Accessed: 13 November 2019]
The Chartered Institute of Marketing. (2009) ‘How to Achieve an Effective Marketing Mix’,
10 Minute Guide
The Chartered Institute of Marketing. (2009) ‘How to Plan Marketing Communications’,
10 Minute Guide
Vocus Marketing Cloud. The Comprehensive Guide to Native Advertising.
Available at: img.vocus.com/white-papers/Native_Advertising_Guide-Final.pdf
[Accessed: 13 November 2019]
Smart Focus. Why True Personalization is Critical to Your Business. Available at:
www.smartfocus.com/en/system/files/smartfocus_ebook_-_true_personalization.pdf
[Accessed: 13 November 2019]
Chapter 7
Chapter 7
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Chapter 7
Promotion
7/23
Revision questions
1.
What are the four categories into which most communications can be put?
2.
What are the seven more specific categories into which marketing messages can
be put according to their objectives and styles?
3.
Name five means of attracting customers to your website.
4.
What is cooperative advertising?
5.
Outline the preparation needed for emergency communication.
Scenario 7.1: Question
Your MD has won the account of what will be your business’s largest commercial
customer. Part of the deal is an agreement to offer the client’s large workforce
competitive personal insurances for all their needs. You have access to the client’s internal
communications subject to approval by their HR department; your focus is on the
customer (here there is a commercial customer, individual employees, your various
internal departments, as well as your MD), you have available all the work carried out in
previous case studies. Your outputs are required to enhance your brand.
Outline your communications strategy; you will need to be sensitive to personal privacy
and lawful aspects such as data protection in relation to clients’ personnel records.
See overleaf for suggested answers
Chapter 7
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Revision answers
1.
Face-to-face, audio-visual, print and digital.
2.
Connotative, denotative, rational, emotional, fear-based, moral and humour.
3.
Search engine optimisation, pay-per-click, affinity partnership, social media and
aggregators.
4.
Cooperative advertising involves dual-branding, sharing costs, or featuring on
another company’s website.
5.
Set objective, identify team, write procedures, handle media and establish
emergency equipment needs.
Scenario 7.1: How to approach your answer
Aim
This scenario tests your understanding of communicating the message through an
integrated portfolio of media and styles
Key points of content
You should aim to include the following key points of content:
The answer should include an outline marketing message that will introduce your business
and your objective. The objective should cover both the sales message for relevant
insurance contracts and the public relations message relevant to the employer
relationship.
A further description of how best to use each medium should be included. Likely media
will include:
• a client intranet site;
• your own website;
• links to insurer websites;
• email communication;
• advertising in an employee newsletter and possible workplace posters;
Chapter 7
• managing a sales force to visit employees including a probable seminar;
• possibly announcing your deal to the local press;
• offering promotions specially for the workforce; and
• possibly sponsoring the client’s sports teams or piggy-backing some of the client’s
sponsorship.
No necessarily wrong answers and full consideration to all media with an explanation of
any dismissed; your explanation of why you choose not to use certain media is valuable in
preparation for constructive criticism that may come from the client.
8
Branding and
physical evidence
Contents
Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A Establishing a brand
4.1
B Importance of branding
4.1
C Brand awareness
4.3
D Brand extension
4.3
E White labelling
4.3
F The Insurance Plc brand
4.2
G Culture, ethics and brands
4.2
Bibliography
Questions, scenario and answers
Learning objectives
This chapter relates to syllabus section 4.
On completion of this chapter and private research, you should be able to:
• define the importance of branding in the marketing of services;
• describe the options for creating brand awareness;
• explain how brand extension is achieved and the benefits of doing so;
• describe the role and use of white labelling to support brand values;
• explain the Insurance Plc brand; and
• describe the impact of culture and ethics on brands.
Chapter 8
• explain the purpose and process of branding;
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Introduction
In this chapter we look at branding: what is involved, why it is important, how brand
awareness can be measured, and how a business can best use a brand to extend its products
and markets. We also look at the final element of the marketing mix: physical evidence.
Physical evidence helps to reduce the intangible nature of a service by providing tangible
cues. Consumers extract information from cues and use this information to help them
understand who the company is – i.e. its brand.
Key terms
This chapter features explanations of the following terms and concepts:
Brand architecture
Brand awareness
Brand extension
Brand recall
Brand recognition
Brand value
Brand values
Brand vision
Culture
Insurance Plc
Prompted recall
White labelling
A
Establishing a brand
The word ‘brand’ originates from the Old Norse word, brandr, meaning ‘to burn’. This is
because producers used to burn their mark (or brand) into their products. When marketers
first used the term ‘brand’, they were referring to a physical quality in terms of a name,
symbol or logo which served to identify and differentiate one brand from other competing
brands. Today, it has a much wider definition which includes the vision, values and
personality of that brand. A brand should be the core DNA of a company – who it is and what
makes it unique.
What do you consider to be a good brand?
Does a small single office broker have a brand?
Critical reflection
AIG’s global property-casualty business changed its name to Chartis in 2009 after AIG
was hit by the sub-prime mortgage crisis in 2008; in 2012 Chartis UK announced it will
revert to the AIG brand name.
Companies adopt different approaches to the way in which they structure their brands,
known as brand architecture.
Chapter 8
There are two broad approaches to brand architecture:
• branded house; and
• house of brands.
In a branded house, one company brand is the dominant brand. Virgin is a good example of
this as the Virgin name is used consistently in all areas of its business. In a house of brands, a
company has many brands at a product or sub-company level. Proctor and Gamble use this
branding approach. Some companies use a hybrid approach – Allianz, for example, has
branded most of its companies using the Allianz brand, but retains the Petplan brand for its
pet insurance.
Research exercise
Can you name an insurance brand that uses a branded house structure, and one that uses
a house of brands structure for its brand architecture?
A1
Brand vision
Establishing a brand involves developing a brand vision; an iterative process that continually
refines the brand. Brand vision incorporates a long-term view of how the brand wants to be
perceived, the way employees should behave, and how the brand contributes to the
business environment in a way that is attractive and meaningful to customers and
employees.
Chapter 8
Branding and physical evidence
8/3
Financial services’ brands (including insurance brands) generally tend to use generic values
on which to base their vision – for example, reliability, trustworthiness etc. The problem,
however, is that generic values lack differentiation, making it a challenge to find unique
brand values. Core brand values reflect a business’s objectives and mission, its target
market, its (product) strengths, and most of the outputs from its marketing audit and
subsequent marketing objectives. Again, as with scenarios, the most creative employees
may need to be enlisted to generate interpretations of core values.
Brand vision needs to be translated into objectives. Ideally, long-term objectives should be
followed to take the brand in the direction of a business’s vision by following a set of
continuously changing shortತterm objectives. Brand values will not be successfully
established with the focus being only on short-term objectives; revisiting long-term
objectives regularly is essential. Brand values can be built according to both functional and
emotional elements.
Brand vision needs
to be translated
into objectives
Research exercise
Ecclesiastical’s 2006 brand exercise retained an unchanged name because it
encapsulated its history, traditions and what it does in the market, focusing instead on
understanding the brand vision and how to improve customer experience. Do you
consider the exercise a success?
A value chain analysis reveals how functional aspects of the brand are delivered. Delivery
may be balanced by outsourcing less important activities to allow more focus on core
strengths and competences, or by recruiting employees with personal values that
complement the brand, thereby influencing culture.
Marketing management decision
You have identified your core strengths from previous analysis, chosen to focus on those
strengths, and made your interpretation of core values for input into your brand vision.
Have you now done enough research to produce your report on brand values?
As many insurance businesses have similar functions, the key to unique brand values could
be found in differences in business culture.
A2
Business culture
The culture of a business consists of the assumptions, beliefs, values and norms that drive
the way in which a business does things; it is about how things really get done.
Imagine the cost to a brand of a telephone receptionist refusing to give out direct business
contact numbers or addresses, an appraisal system that everyone works around, or
inappropriate behaviour at a trade event, for example. The cost is indeterminate, and very
well-known brand names have been damaged because they failed to identify a covert
culture. Flawed assumptions interact with the brand vision to subtract value. Awareness of a
covert culture promotes cynicism, particularly within the business, that erodes a brand.
A value chain analysis applied to each unit, even each person, within a function will help
determine which daily activities add value. For such analysis to be properly conducted it will
take real commitment from senior executives.
An audit of culture evaluated against brand vision may reveal whether or not the current
culture supports the brand vision.
Be aware
Expertise from outside the business will almost certainly be necessary to conduct such
an audit.
Chapter 8
Culture can sometimes be a challenge because a business’s management may have basic
assumptions affecting the business in a way that resists change – for example, ‘We’ve always
done it this way’. The positive aspect of such assumptions is that they help make sense of
complex and diverse influences on the business; the negative is that reaction to change can
be inadequate and inappropriate.
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Effective managers challenging the basic assumptions in a tactful way can often be enough
for change to happen. An influx of new managers to the business with the requisite skill set
will be required as will an acknowledgement that not every basic assumption necessarily
subtracts value.
Useful websites
The following articles demonstrate instances in which business culture has possibly led to
poor decision making:
• RSA’s Irish accounting scandal of late 2013 – https://on.ft.com/2QfJ0Yv.
• Tesco’s overstatement of profits in 2014 – https://reut.rs/32HBkkm.
• The Volkswagen emissions scandal of 2015 – https://bbc.in/34WD1vv.
• Liberty Mutual’s complaints-handling scandal in 2018 – https://on.ft.com/2QgoI10.
• EIOPA’s report on insurer failures: https://bit.ly/2NMpMbn.
• UK insurers failing to capitalise on digital developments: https://bit.ly/2CHTDeo.
• Bankruptcy of Danish-regulated insurer: www.fscs.org.uk/failed-firms/qudos/.
• Bankruptcy of Gibralter-regulated insurer: https://bit.ly/2NHziwg.
• FSCS’s list of insolvent insurers: https://bit.ly/373YQuX.
• The rise and fall of Arcadia (pensions scandal): https://bit.ly/2NLmSU5.
Please note that CII members can obtain copies of the Financial Times via
Knowledge Services.
A3
Brand communication
By defining its objectives, a business is better able to plan detailed marketing
communications, and identify the different media used to convey its brand message to
target customers.
The benefits of communicating a brand vision are that it allows a business to express to all
stakeholders what it stands for, as well as what it does and how. Consistent communications
with internal and external audiences allow for a better understanding of the business’s
culture and objectives; an increase in employee motivation and morale; and clearer
communications within and between departments, creating a more effective team.
Customers and distributors recognise quality which could encourage premium pricing with
better ability to fight off competition.
Chapter 8
Brand can be
communicated
explicitly or
implicitly
The brand can be communicated explicitly or implicitly:
• Explicit communication is clear and direct – for example, company advertising, brochures
and websites.
• Implicit communication is indirect. Consumers interpret information from cues such as
physical evidence. Physical evidence provides the tangibles for an intangible service.
Consumers will consciously or sub-consciously interpret the look and feel of the
evidence – for example, business cards, staff clothing, window signs etc.
Brand values must be relevant to the target market which means that the target market
needs to be clearly defined. The power of a brand relies on the ability to focus. Every aspect
of a brand, including the items listed above, should be based on, driven by, and measured
against its values. That way, a cohesive and consistent image will be presented to customers
and employees, delivering a strong message that will help to generate business.
Chapter 8
Branding and physical evidence
8/5
Marketing management decision
As Marketing Manager, you are required to recommend a sponsorship idea to the board.
You are given the following examples as ideas on what the board has in mind, and you can
recommend different ideas with justification.
Direct car insurance brand Zurich Connect is to sponsor ITV1’s award-winning
soap opera, Emmerdale.
WRU and Admiral in major new shirt sponsor deal.
Brit Insurance has become the principal Team Sponsor of the England Men’s,
Women’s, Lions, Disabled and Under-19 cricket teams.
Oxford United is pleased to announce Bridle Insurance as the club’s new main shirt
sponsor.
Not every business can stretch to multi-million sponsorship deals to promote its brand, but
publishing informative client testimonials, success stories and insights on industry issues will
help clients and prospects feel they know a business and its values enough to buy
from them.
Consider this…
Consider how your company communicates its brand to its customers and employees
using the following:
Letterheads
Continuation paper
Compliment slips
Credit notes
Invoices
Remittance advice
Statement forms
Envelopes
Rubber stamps
Postage paid
Internal forms
Press releases
Report covers
Purchase orders
Certificates
Proposals
Service contracts
Terms of business
Procedures forms
Employee contracts
Email signatures
Time sheets
Project managements
Vehicles signage
Mobile exhibition units
Logo
Identity cards
Visitor passes
Posters
Procedures manuals
Reward certificates
Awards
Uniforms
Casual wear
Recruiting literature
Recruitment adverts
Induction packs
Presentations
H&S manual
Corporate colours
Signage
Window signage
Direction signs
Office displays
Exhibitions
Gift promotions
Newspaper adverts
TV adverts
Direct mail
Videos
Christmas cards
Annual report
Quarterly statement
Product brochure
Manuals
Newsletters
Websites
Intranets
Virals
Chapter 8
Business cards
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A4
Mergers and acquisitions
In the financial services industry, there are frequent mergers and acquisitions. When this
happens, companies have three branding options to choose from, each with its advantages
and disadvantages:
• A combined name – this can provide continuity as a part of each brand is retained, but it
can be clumsy and meaningless. The new combined name will require significant
marketing investment to ensure consumers identify with the new name.
• Adopt one of the existing company names – this removes the heritage of the dropped
name and can sit uneasily with employees who previously worked with the retired brand.
Again, promotion will be required to communicate the name change.
• Create a new name – while a completely new name can unite both companies, choosing a
new name is not easy, and it is a risky and expensive strategy.
In financial services, mergers usually result in a combined name. Some companies go on to
rebrand to one name and thereby incur the costs of two rebranding exercises.
Developing a global brand that resonates in the same way in each country is challenging.
Research exercise
Why did Norwich Union change to Aviva?
Norwich Union rebranded to Aviva to unify a global business with different names in
different countries, focussing on explaining its reasoning to employees and customers.
Was the rebranding a success?
B
Importance of branding
Be aware
Brands are a major competitive asset for businesses: those with strong brands can have
market values that exceed their asset values. Differentiating through branding is a key
method of creating a valuable and sustainable competitive advantage. Branding is
therefore a strategic activity.
Chapter 8
Trusted brands are important in insurance because the customer is buying a promise that, at
a future date, the product will perform as expected. Brands can provide customers with a
shortcut when making a purchase decision because a known and trusted brand is perceived
as less risky. Customers that repeat-buy are saved the time and expense of reviewing
competing offers by identifying and then purchasing a brand that has met expectations in
the past. A successful brand can be a great attribute to an organisation.
Brands are also helpful to foster a continuing relationship with the customer and so protect
the business from competition. The hope is that, over time, the customer will develop value
judgments about certain brands and use these as a basis for discriminating between
competing offers. In this way the brand becomes representative of a whole range of
attributes, such as quality, value, trust and performance.
Example 8.1
Insurance businesses inspire little brand loyalty, and branding can be undermined by even
the most relatively minor of unsatisfactory experiences. For example, a claim may be seen
as a small financial loss to the business, but to the customer it can be a roller-coaster of
emotions if the settlement experience is uncomfortable.
Branding is essential for maintaining a successful business strategy. Trends show that
customers associate with brands which appeal to their emotions through the values they
share. Brands should reflect people’s lifestyles and aspirations as part of a means of
achieving this.
Refer to
chapter 4 for
more on
customer buying
patterns, needs,
wants and choice
Emotion is the element in a brand that builds loyalty, when added to trust and positive
experience. This is why, as a marketer, you would want the customer to accept your brand
within their lifestyle.
Chapter 8
Branding and physical evidence
8/7
Competitive advantage comes from the people who work for the business. For competitive
advantage to be sustainable, a constant search for creative differentiation through product
innovation and culture is needed. Branding supports that competitive advantage through an
emotional connection that tries to make substitution unthinkable.
Banks began to enter insurance markets as building societies encroached on traditional
banking. If someone trusts a bank enough to look after their money, why wouldn’t they trust
them enough to buy insurance from them? If you trust car breakdown businesses, why
wouldn’t you buy insurance from them? If you find supermarkets convenient for your food
shopping at reasonable prices, would you find them equally convenient for your insurance
provision?
Critical reflection
Why do customers choose to buy insurance through these diverse businesses? Is it purely
price? Is it convenience? Is it because of advertising? Is it because insurance businesses
seek new distribution channels? Is it because insurance brokers do too little to promote
their strengths? Is it habit? Is it the convenience of comparison websites?
Consider this…
Fortis rebranded to Ageas after disposal of its banking assets in 2009. Does this reflect a
change in customer trust in any way?
The reason many successful brands have managed to stretch themselves across categories
is because brands are defined by what they stand for in the minds of people and by the
associations they attach to them. Brands support differentiation through the emotional
connection that helps customers choose what one brand is offering over what its
competitors are offering, provided that expectations are met. Delivering a relevant and
fundamental service that really matches customer needs can give a brand an advantage
over its competitors.
Consider this…
The Chartered Insurance Institute Questionnaire: Topline Results 2011 conducted by
Illuminas found that half of those surveyed were unable to name an insurance brand
offering best value for money, highest level of customer service or most appealing
policies, and 42% were not able to offer a view as to the UK’s market leading insurance
provider.
Long-term brand value is all too often sacrificed for short-term sales success. Once
customers are accustom to a low price, it is very hard to bring them back – for example, it
often takes a huge catastrophe to restrict capital availability that triggers an industry-wide
price increase.
Chapter 8
How important is price?
Price sensitivity is high in insurance, particularly personal insurance. No matter what the
brand, if the insurance meets customers’ basic needs, then they will buy the cheapest.
However, offering similar products at a perpetually lower price is not a sustainable strategy.
It is therefore strong brands that have a long-term sustainable advantage, because once a
strong brand has been built, it is almost impossible to copy. Building a brand shifts focus
away from price towards quality of service and other added value. A strong brand can
possibly command a higher price if customers trust them.
Refer to
chapter 5,
section E3 for
more on the
insurance cycle
Focus on lifestyle
Some brands are promoted as offering a certain lifestyle. For example, Direct Line tries to
shift brand perception from just being cheap over to a positive experience through tangible
improvements in the buying experience, eliminating or simplifying forms, and replacing
possessions rather than just paying cash.
So just how do brands reflect people’s lifestyles and make them feel special? One way is to
provide exclusivity by segmenting customers and offering different product levels to key
customers. Insurance companies have found exclusivity a challenge in the past, although
some have risen to meet it with ‘broker clubs’ and similar arrangements. Insurance brokers
and independent financial advisers engage emotionally with customers in face-to-face
meetings.
Refer to
chapter 6,
section C for
more on the
customer
experience
8/8
945/November 2019 Marketing insurance products and services
Another way is to shift focus to the customer experience. Customers like to feel empowered,
and so being impartial and transparent will cultivate trust and leave them with decisions that
make them feel that they are the ones in control.
Consider this…
Consider how well websites engage emotionally with customers. Here are a few examples
for you to compare:
www.bupa.co.uk
www.aviva.co.uk/health-insurance
www.soundfp.co.uk
www.saga.co.uk/insurance
www.rias.co.uk
www.fishinsurance.co.uk
www.petplan.co.uk
www.animalfriends.co.uk
B1
Brand value
There are many different ways to measure a brand.
At the business level, the brand is a financial asset:
Market capitalisation
Tangible assets
Brand value
The difference between market value and book value in so many quoted businesses shows
that investors measure intangible assets. High value brands are assets that can be sold or,
when a business is sold, command a value in the same way as any other asset.
At the customer level, a measurement of brand awareness and brand image through market
research techniques gauges public attitude towards a brand. Brands with high levels of
awareness, and brand values with which customers associate strongly are high value brands.
High value brands can command premium pricing, and with insurance that can mean not
being the cheapest while still remaining competitive.
Many firms protect their brand names by registering them as trademarks. The registration of
a trademark protects the owner from competitors using a similar brand for the same
product, and protects the customer from being deceived and confused about the source of
the product.
Be aware
Chapter 8
Marketers are torn between customers who want the most value for the least cost, and
shareholders who want the biggest return on the lowest investment.
C
Brand awareness
Brand awareness measures customer knowledge of a brand’s existence – the proportion of
customers who know about the brand.
Many insurance businesses do not realise the importance of branding and its direct impact
on business performance and profit margins. Owner-managed insurance businesses do not
always appreciate that the owner is, for all intents, the brand itself. As a result, the brand is
often under-managed.
By enhancing brand awareness, some companies have improved the uptake in ‘push sales’,
but have not won the hearts of customers. In this way, they have not created a ‘customer
pull’ and the financial performance that comes with it.
The power of a brand lies in the minds of customers, and in what they have learnt or
understood about the brand over time. It is therefore essential that the brand and its values
are communicated effectively to the market, and that the business can live up to
expectations, since unsatisfactory experiences will damage the brand.
Brand awareness management involves providing detailed product information that shows
customers why a product is used, by whom, and where and when. In other words, it is about
enabling customers to associate a brand with a person, place or thing, in order to enhance or
refine its image. This can be done easily and cost-effectively by using standard software to
design exclusive literature, create an email list, and/or send out e-newsletters.
Chapter 8
Branding and physical evidence
8/9
Global branding within the digital environment demands borderless marketing with a single
global strategy replacing strategies aligned within different countries.
While it is true that new and growing brands attract younger customers (probably because
they are yet to become established customers), it does not necessarily follow that targeting
younger customer helps the brand to grow.
Ways of measuring brand awareness involve market research techniques:
• Brand recall is the extent to which a brand name is recalled as a member of a product
group. Usually, market research requires customer recall to be unaided. To do this, they
could ask, ‘What insurance companies have you heard of?’ This is also known as
unprompted recall.
Companies might also ask for aided recall, also known as prompted recall. In aided recall,
researchers would, for example, ask consumers, ‘Have you heard of NFU Mutual
Insurance?’ This is used to measure the extent to which a brand name is remembered
when the actual brand name is prompted. Your brand has an advantageous exposure
when it is the first brand name recalled, or has the most recalls overall.
Brand recall has probably become less relevant in recent times as advertising techniques
have successfully increased recall without, necessarily, a correlated purchase increase.
• Brand recognition is the extent to which a brand is recognised for specific attributes or
communications.
Properly communicating an offering is important for a brand in order to ensure that it is not
left having high recall without customer knowledge of its products. Having a brand
ambassador (perhaps a celebrity, cartoon character or cuddly toy) may result in a
memorable advertising campaign, but does it result in a good return on investment? There
are awards for the ‘most irritating advert’, in which insurance often features highly in
recognition of high brand awareness and a reported uplift in website visits. However, the
sustainability of such results in the long term while relying on cheap pricing is questionable.
Be aware
A high brand recall may have limited value unless consumers know who you are and the
products and services you provide. This can be a problem with sponsorship, where the
insurance brand is known as a sponsor but consumers are unaware that the firm is an
insurer.
D
Brand extension
See chapter 4,
section C for
market definition
Research exercise
We have already considered the examples of banks, car breakdown businesses and
supermarkets extending their brands to insurance. How successful have insurance
businesses been in extending their brands? Do not constrain your research to large
companies; there may be examples in your local area.
Brand extension reduces the risk associated with brand portfolio management and new
product launch. The positive characteristics of a brand are imputed to the new product for
customers and distributors already familiar with the brand – for example, independent
financial advisers are more likely to recommend new investments if previous investments of
the fund manager have performed in the past.
New product launch costs can be lower when using brand extension because existing brand
awareness means promotional needs are reduced, and there will be some economies
of scale.
Customers do not accept the extended brand irrespective of its performance; new brand
extension should be tested for compatibility with core brand values. There needs to be a
credible link in customers’ minds between the original brand and the brand extension.
Problems occur if the brand fails to satisfy customers’ needs, or if quite disparate products
are given the same branding treatment without a framework to hold all similarly branded
products together.
See chapter 3,
section A2 for
integrated
portfolio and new
product
development
Chapter 8
Brand extension is a term used to describe a marketing strategy in which a business uses its
brand to promote a new product within a different market.
8/10
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E
White labelling
A white label product is one that is produced by one business for other businesses to sell
under their own brands as if it were their own. They are used particularly by strong brands
looking to capitalise on their brand equity. Another term for this is ‘brandassurance’.
The white labelled product may have all aspects outsourced or subcontracted. The brand
owner can promote income-generating products and increase brand awareness without
employing additional people, technology or product development costs. The product can be
customised to meet the brand’s requirements without the need for market research, and so
provide better value.
White labelling of insurance products must follow regulations. The Insurance: Conduct of
Business Sourcebook (ICOBS) does not specifically refer to white labelling, but Principle 7
(and ICOBS 2.2.2R) requires businesses to take reasonable steps to communicate
information to customers in a way that is clear, fair and not misleading. To satisfy this
requirement, businesses must tell the customer who the insurance provider is in its
promotions, which means clearly indicating when customers are being directed to a new
website.
White labelling of investment packaged products must also follow regulations. There is
specific guidance in relation to investment packaged products in the Conduct of Business
Sourcebook (COBS). Under COBS 4.2.4G(5), a business that offers packaged products or
stakeholder products not produced by the business, must give a fair, clear and not
misleading impression of the producer of the product or the manager of the underlying
investments. Regulations will be breached if the identity of the provider is hidden.
F
Company brands
are not immune
from events within
the wider
environment
The Insurance Plc brand
In the preceding sections, we examined branding at a company level. However, insurance
brands do not exist in isolation – they operate within an insurance industry which, in turn, is
located within the financial services sector. Company brands are not immune from events
within this wider environment. The activities of their competitors and those of the banks and
other financial service firms will have an impact on the Insurance Plc brand.
Be aware
Chapter 8
In chapter 4, we considered how many consumers have a low level of knowledge and a
high level of apathy towards insurance. Consumers can perceive the financial services
sector as one homogeneous group, failing to differentiate between the banks and insurers
when a misdeed occurs.
Mis-selling scandals or other misdeeds will have an impact on the Insurance Plc brand – i.e.
the brand of the insurance sector. Damage to the insurance brand impacts consumer trust of
the industry and, in turn, individual insurance brands.
Individual insurers have some control over their own brand portfolio, but can only work
together to influence the brand of the industry. The CII – working with the insurance
industry – has introduced a number of initiatives to raise standards within the insurance
industry. These initiatives include the Aldermanbury declaration, chartered status and Ask
Ciindy – the latter seeking to demystify insurance for consumers.
Consider this…
Protecting the Insurance Plc brand is not only the responsibility of those in marketing, but
of all those who work in the insurance sector. As an insurance professional, what steps can
you take to ensure good practice?
Chapter 8
G
Branding and physical evidence
8/11
Culture, ethics and brands
At the very beginning of this study text, we highlighted the need to establish trust between
customers and the financial services sector. Because the customer is at the heart of
marketing, marketing has a large part to play in building this trust. The challenge for
marketers, however, is not only to do the right thing but to do things right; to build, price,
promote, distribute and service products that are both legally and ethically sound.
It is important that we return to this topic at the end of this study text as we discuss brand. It
is brand that communicates to customers that the company is doing the right things, right. In
order to do so, the culture and ethical stance of the company needs to be right.
Brand culture encapsulates the idea of a company doing the right things, right. For a brand
to be relevant and sustainable over time, it has to represent – and be – the company’s
culture. The company has to develop a vision that it wholeheartedly believes in; one that it
will support with its resources. This culture must become the ethos of the company in terms
of everything it does. The brand culture will then exemplify the company culture. While
companies can communicate their brand values to their employees via internal marketing,
brand culture goes beyond this. It is the way the company does business, it is part of the
company DNA, and it enables employees to ‘live’ the brand values.
When companies are successful in creating a strong and positive brand culture, this will be
transparent to the customer. Customers look to align their own personal identity with that of
the company culture – they literally buy into the values of that brand. When they become
customers of that company, they will communicate to everyone who the company is and
what it stands for. Brand culture is a powerful marketing tool in attracting and retaining
customers.
Customers look to
align their own
personal identity
with that of the
company culture
An important element of the brand culture is the company’s ethical stance. Most customers
want to purchase from companies who are ethical. Ethics, however, goes beyond meeting
the requirements of the industry regulator around compliance, to meeting the public’s
expectations of what is ethical. While those in the insurance industry believe it to be
generally ethical, we still have some way to go before all customers share this viewpoint.
Ethical beliefs and behaviour, therefore, need to be at the heart of brand culture.
Useful websites
For more information, see the CII report ‘Ethical Culture: The Challenge for Insurance
Marketers’ at: http://bit.ly/2zJITtK.
Also, see the CII’s Code of Ethics available at:
www.cii.co.uk/about/professional-standards/code-of-ethics/.
Chapter 8
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945/November 2019 Marketing insurance products and services
Summary
A brand is more than a name, symbol or logo; it includes the vision, values and personality of
that brand. It should be the core DNA of a company – who it is and what makes it unique.
Brand vision incorporates a long-term view of how the brand wants to be perceived, the way
employees should behave, and how the brand contributes to the business environment in a
way that is attractive and meaningful to customers and employees.
Trusted brands are important in insurance because the customer is buying a promise that, at
a future date, the product will perform as expected. Customers that repeat-buy are saved
the time and expense of reviewing competing offers by identifying and then purchasing a
brand that has met expectations in the past.
Brand awareness measures customer knowledge of a brand’s existence – the proportion of
customers who know about the brand.
Brand extension describes a marketing strategy in which a business uses its brand to
promote a new product within a different market. It reduces the risk associated with brand
portfolio management and new product launch. The positive characteristics of a brand are
imputed to the new product for customers and distributors already familiar with the brand.
A white label product is one that is produced by one business for other businesses to sell
under their own brands as if it were their own. This means the brand owner can promote
income-generating products and increase brand awareness without employing additional
people, technology or product development costs.
Insurance brands do not exist in isolation – they operate within an insurance industry which,
in turn, is located within the financial services sector. The activities of their competitors and
those of the banks and other financial service firms will have an impact on the Insurance
Plc brand.
An important element of the brand culture is the company’s ethical stance. Most customers
want to purchase from companies who are ethical.
Bibliography
Bennis, W. (1998) ‘Becoming a Leader of Leaders’, Rethinking the Future.
London: Nicholas Brealey Publishing
Egan, G. (1994) Working the Shadow Side: A Guide to Positive Behind-The-Scenes
Management. San Francisco: Jossey-Bass Publishers
Chapter 8
Jensen, R. (1999) The Dream Society: How The Coming Shift From Imagination To
Imagination Will Transform Your Business. New York: McGraw-Hill Education
Johnson, G. (1987) Strategic Change and the Management Process.
Oxford: Basil Blackwell
Chapter 8
Branding and physical evidence
8/13
Revision questions
1.
What is a brand?
2.
What is business culture?
3.
Why is branding important?
4.
How can you measure the value of your brand?
Scenario 8.1: Question
Another business has distributed your product through their website under their name.
Your business provided the technology that drives the product through a link to your
server. The product has not met their expectations and now they are receiving customer
complaints. You are charged with leading the meeting to listen to and resolve their issues.
What will you expect to be raised? Your MD has given you an ulterior objective, to
recommend whether or not your business would benefit from discontinuing this indirect
distribution or insisting on your branding on the product.
See overleaf for suggested answers
Chapter 8
8/14
945/November 2019 Marketing insurance products and services
Revision answers
1.
Brand is about the personality of the business, what the business is like and how
you want it to be perceived. It is about your customers and employees, what it is
you sell and how you sell. It is about what makes your product desirable to the
customer and why they choose to come to you instead of your competitors.
2.
Business culture concerns the assumptions, beliefs, values and norms that drive the
way a business does things; it is about politics and how things really get done.
3.
Brands are a major competitive asset for businesses: those with strong brands can
have market values that exceed their asset values. Differentiating through branding
is a key method of creating a valuable and sustainable competitive advantage.
4.
Market capitalisation less tangible assets is the brand value. At the customer level a
measure of brand awareness and brand image through market research techniques
gauges attitudes.
Scenario 8.1: How to approach your answer
Aim
This scenario tests your understanding of the importance of branding including brand
vision, brand communication and brand awareness.
Key points of content
You should aim to include the following key points of content:
• Technical product issues should be relatively straightforward but you should expect to
investigate branding.
• Have expectations not been met simply through a misunderstanding or have culture
conflicts arisen, for example, are claims being refused because of a harsh
interpretation?
• What damage is likely to your own brand if the issues are not resolved satisfactorily and
quickly? The damage could occur with your distributor and with its customers.
• Was your strategy flawed? Were you short of expectations due to insufficient research
or a difference in vision and values? Were core brand values tested for compatibility?
Chapter 8
• Was this white labelling compliant with regulations, making it clear you are the product
provider?
Supporting
your
research
From reports and articles that can
be referenced in coursework assignments
and dissertations, to ebooks, statistics,
and specialist librarians just an email
away, knowledge services’ resources
provide a wealth of information.
Join today at www.cii.co.uk/join
and access all of the following:
• Online knowledge bank – articles, videos, podcast
lectures, and technical resources covering general
insurance, life & pensions, regulations, mortgages,
and personal finance
• eLibrary – thousands of eBooks, journals,
and reports available to download or read online
via EBSCO Discovery
• Specialist databases – direct access to the latest
information on law, regulations, risk, and compliance
including AXCO Insight, the Risk Management
Reference Center, and i-law
• Research assistance – knowledge services staff help
you locate resources, search specialist databases, and
access print articles and book chapters
• Reports and statistics – on market trends and analysis
with supporting statistics
Find out more
www.cii.co.uk/knowledge
Chapter 8
8/16
945/November 2019 Marketing insurance products and services
i
Legislation
C
Consumer Rights Act 2015, 7C3
D
Data Protection Act 1998, 3C2
Data Protection Act 2018, 3C2, 3C2A, 7C
G
General Data Protection Regulation, 3C2,
3C2A, 3C2B, 7C
L
Law Enforcement Directive 2016/680/EC,
3C2A
P
Privacy and Electronic Communications
Regulations (PECR) 2003, 3C1
ii
945/November 2019 Marketing insurance products and services
iii
Index
A
account management, 7E
action plan, 2J
active strategies, 3A2
Adam Smith, 1A1
advertising, 7D
Advertising Standards Authority (ASA),
7B5
affinity distribution partnerships, 6A2F, 7C1
aggregators, 6A2E, 7C1
AIDA, 7B3
analysers, 5A1A
Ansoff Matrix, 2G
attitude, 4A3B
audit, 2D
external, 2D1
internal, 2D2, 2D2D, 2D2E
B
B2B, 1C5
B2C, 1C5
B2E, 1C5
bancassurance, 6A2D
behavioural model-based analysis, 3A2
Big Data, 3A4
blockchain technologies, 3A4
Boston Consulting Group (BCG) matrix, 5B1
brand, 8A, 8G
awareness, 8C
communication, 8A3
culture, 8G
establishing, 8A
extension, 8D
importance of, 8B
Insurance Plc, 8F
recall, 8C
recognition, 8C
value, 8B1
vision, 8A1
brandassurance, see white labelling
Brent London Borough Council and Others
v. Risk Management Partners Ltd (2011),
4B1
brokers, 6A2B
networks, 6A2F
business
audit, 2D2A
customers, 4B1
structure, 1C6
business culture, 8A2
buying patterns, 4A
C
C2B, 1C5
call centres, 6A2F
cash cows, 5B1A
choice
irrational, 4A3C
rational, 4A3A
communications
emergency plan, 7I
portfolio, 7A
process, 7B1
competition, 5A
audit, 2D1C
behaviour of competitors, 5A1A
effect on marketing, 5A1B
identifying, 3B
competitor intelligence, 3B1
Conduct of Business Sourcebook (COBS),
8E
content marketing, 7B3, 7D
contingency planning, 2I
contractual risk, 6B
core competencies, 2D2C
corporate
image, 5A2
objectives, 2C2
strategy, 1C7
cross-selling, 4B6
culture, 4A3B, 6C1, 8A2, 8G
brand, 8G
business, 8A2
ethical behaviour, 8G
ethical beliefs, 8G
customer
behaviour, 4A3
business, 4B1
buying patterns, 4A
-centric marketing, 6C2A
experience, 6C1
-first market, 1A3
identification of, 4B
identifying non-, 4B7
needs, 4A2, 4B5
online behaviour, 7C2
personal, 4B2
relationship marketing (CRM), 4B4
segmentation, 4C
service, 6C
iv
945/November 2019 Marketing insurance products and services
D
I
data
analytics, 3A4
mining, 4B3
protection, 3C2, 3C2A
warehousing, 4B3
databases, 4B3
decision-making process
influences on, 4A3B
defenders, 5A1A
demand, 5E2, 5E4
digital influences, 7C3
diffusion of innovation, 5C2
digital influences, 7C3
direct
marketing, 7C
selling, 6A2C
disintermediation, 6A1
distribution, 6A
channels, 6A1, 6A2
plan, 5A2
dogs, 5B1A
influencers, 7C1
information age, 3A4
insurance
cycle, 5E3
demand, 5E2, 5E4
supply, 5E1
Insurance Plc brand, 8F
Insurance: Conduct of Business Sourcebook
(ICOBS), 7B5, 8E
InsurTech, 3A4
intermediaries, 6A1, 6A2B
international risk, 6B
irrational choice, 4A3C
E
emergency communications plan, 7I
ethical challenges, 3A4
ethics, 8G
challenges, 3A4
EU referendum, 6B1
experimentation, 3A2
F
financial
advisers, 6A2A
institutions, 6A2D
risk, 6B
Financial Conduct Authority (FCA), 5A4A,
6A2, 7B5
Financial Ombudsman Service (FOS), 7C2
FinTech, 3A4
franchise insurance businesses, 6A2F
G
General Insurance Market Research
Association (GIMRA), 3A
geodemographic systems, 4C2
goods, 4A1A
groupthink, 2D
growth phase, 5C1
L
launch phase, 5C1
legislation, 7B5
life cycle, 5C, 7A3C
lifetime value, 4B4, 6C2A
M
managing general agents, 6A2F
market
audit, 2D1B
characteristics, 7A3D
customer-first, 1A3
evolving, 1A1
positioning, 5D
product-based, 1A3
production-based, 1A3
reluctant, 1A3
research, 3A, 6C1
society-first, 1A3
types, 1A3
marketing
activities, 1C1
audit, 2D, 2D2D, 2D2E
changing views of, 1C2
content, 7B3, 7C1
customer-centric, 6C2A
definition of, 1B
department, 1C4
direct, 7C
expenditure, 2H
in relation to other business functions, 1C6
message, 7B
mix, 2D2D, 2G1, 2G2, 4C2
needs, 4A2B
objectives, 2F
one-to-one, 4B4
online, 7C1
plan, 2A, 2B
Index
v
needs
customer’s, 4A2
identifying customer, 4B5
marketing, 4A2B
non-customers, 4B7
research, 3A1
privacy, 3C1
process, 2G1
product, 2G1, 4A1
-based market, 1A3
development, 3A2
differentiation, 5A2
distribution, 6A
life cycles, 5C
white label, 8E
production-based market, 1A3
profit maximisation, 5F
promotion, 2G1, 7F
prospectors, 5A1A
Prudential Regulation Authority (PRA),
6A2, 7B5
public
authorities, 4B1
relations, 7H
O
Q
strategy, 2A, 2G, 2G2
viral, 7C1
Maslow’s hierarchy of needs, 4A2A
matching process, 1A2
mergers and acquisitions, 8A4
message, 7B
millennials, 4A3B
mission statement, 2C1
monopolistic competition, 5A1B
monopoly, 5A1B
mutual societies, 6A2F
N
oligopoly, 5A1B
one-to-one marketing, 4B4
online
customer behaviour, 7C2
marketing, 7C1
operational risk, 6B
organisational structure, 4A3B
outsourcing, 5A4A
P
passive strategies, 3A2
pay-per-click, 7C1
peer pressure, 4A3B
people, 5A2
perfect competition, 5A1B
personal
customers, 4B2
selling, 7E
PESTLE analysis, 2D1A
physical evidence, 2G1, 8 intro, 8A3
place, 2G1, 5A2
Porter’s
five forces of competition, 2D1C
generic strategies, 4C2
portfolio management, 3A2, 5B
positioning, 5D
competitive, 5A
map, 5D2
prestige pricing, 5F
price, 2G1, 5F
optimisation, 3A4
primary
activities, 5A3
qualitative research, 3A1
quantitative research, 3A1
question marks, 5B1A
R
rational choice, 4A3A
reactors, 5A1A
regulation, 7B5
data protection, 3C2, 3C2A
privacy, 3C1
reluctant market, 1A3
replication, 3A2
retail promotions, 6A2F
risk assessment, 6B
S
sales, 7E
direct, 6A2C
maximisation, 5F
personal, 7E
promotion, 7F
scenario testing, 3A3
search engine optimisation, 7C1
secondary research, 3A1
segmentation, 4C, 5D, 6C1
definition of a segment, 4C1
process, 4C2
variables, 4C2
service, 4A1B
delivery, 6C
social
media, 7C1, 7C3
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945/November 2019 Marketing insurance products and services
status, 4A3B
society-first market, 1A3
sponsorship, 7G
stars, 5B1A
STEP analysis, 2D1A
strategy
action plan, 2J
active, 3A2
corporate, 1C7
marketing, 2G
marketing mix, 2G1
marketing planning, 2A
passive, 3A2
planning sequence, 2B
Porter’s generic, 4C2
supply, 5E1
chain analysis, 5A4
digital influences, 7C3
support activities, 5A3
survival strategy, 5F
sustained growth, 5C1A
SWOT analysis, 2D1A, 2E
alignment, 2E2
assumptions, 2E3
factors, 2E1
T
testing, 3A2
V
value chain analysis, 5A3, 6C1
viral marketing, 7C1
W
Wealth of Nations, 1A1
white labelling, 8E
Chartered Insurance Institute
42–48 High Road, South Woodford,
London E18 2JP
tel: +44 (0)20 8989 8464
customer.serv@cii.co.uk
www.cii.co.uk
Chartered Insurance Institute
@CIIGroup
© Chartered Insurance Institute 2019
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