Foundation of Marketing: A Diversification Strategy of PGI Company - Assignment Example

INTRODUCTION It takes a lot of time and effort to introduce a new product. Effective marketing is a continuous process. The marketer will nevercompletely know the customer; he/she can only get a brief preview of the consumers as consumers come to the transaction from different perspectives. Customers are dynamic human beings in business situations. A diversification strategy requires that before PGI offers a new insurance product into the marketplace, home insurance plan, the company must plan step-by-step how it will conceptualize, build and market the product to its existing and new customers. One effective way of starting the product development process is by focusing on three types of audit: the customer audit, the internal audit and the market audit. Q 1: a) Customer Audit: The prospective customers are the motor insurance clients and home owners with no home insurance. The preferences of customers are these features: competitively-priced, accidental damage cover, theft, fire damage, legal expenses cover and public liability. They prefer a "no forms to be completed" claims system or easy settlement and claims system. They also want a monthly payment system with no extra charges from the insurance company. They also want an insurance coverage with no wear and tear reduction charges. b) Internal Audit: PGI has the finances to invest in a home insurance business. Its profitable operations will be able to fund the new product of home insurance. PGI has the men to carry out the expansion. There are many individual brokers of PGI who can be tapped to offer these same services. PGI already has the marketing system in place for the motor insurance business. c) Market Audit: The UK Home Insurance industry is poised for higher growth. Michael Porter's Five Forces analysis can be applied to the home insurance industry. (Refer to Figure 1: Porter's Five Forces Model). First, there is a rise of independent households as a result of the increasing divorce rate and the rise of single-parent households. The intensity of the industry rivalry among the market players is moderate, hence, there is still a possibility for new market entrants like PGI. The bargaining power of buyers is also moderate. The bargaining power of suppliers is moderate as they enhance the product features of their insurance product. The threat of the new entrants to the household insurance business is very high. The threat of substitutes is very low as there are no substitutes. Q2: a.) The preferences of customers are home insurance policies which offer these features: competitively-priced, accidental damage cover, theft, fire damage, legal expenses cover and public liability. They also prefer a "no forms to be completed" claims system or any other easy settlement and claims system. They also want a monthly payment system with no extra charges from the insurance company. They also want an insurance coverage with no wear and tear reduction charges. They want to purchase from a group. They also prefer a no claims discount from the insurance brokers. They also want to be the one to buy the product that needs to be replaced instead of the insurance company buying the product for replacement. They prefer a customer service representative to handle their calls for inquiry, technical assistance or more information instead of a voice recorded telephone answering system by of the insurance company. The customers get information about home insurance policies from the internet company websites, television, their local banks, the daily news, their existing local insurance brokers and their motor insurance company. b) The best way to promote to these customers is to go through three marketing channels: the internet, the local insurance brokers and the banks. The company can establish a website. They can partner with existing local insurance brokers for motor insurance. The PGI can also partner with a British bank reach a wider market for this new product. Question 3 I. Situational analysis audit and assumptions: The demand for household insurance is strong and stable. For many customers, home insurance policies are instruments for meeting unpredictable cash needs: a premium paid in advance gives the insured the right to get cash when a specific event happens, be it fire, death, or theft. Moreover, PGI faces substantial opportunity to enter the home insurance business as the very boundaries of the insurance industry are blurring. Life investment companies, motor insurance providers, asset managers and investment bankers can compete for the home insurance business. (Please refer to Figure 2: SWOT Analysis Template for Home Insurance Product of PGI). A. Factors Affecting the Increase in the Demand for Household Insurance a.) UK has a high immigrant population which will need new housing with the inward migration from Eastern Europe estimated at 650,000 new arrivals in recent years. b.) UK has high divorce rates which will lead couples to transfer to new homes after the split. c.) UK recorded a rise of single parents. d.) The increase in foreign direct investment results in an increase of expatriates working in Britain who will need new homes. f.) The British government is committed to a large scale increase in housing supply over the next 10-15 years in order to try to match household growth. g.) The Bank of England said that UK mortgage lending had picked up sharply in June 2007 indicating continued housing market growth. Total mortgage lending rose by 9.6bn in June, up from 8.7bn in May. The number of mortgages approved was the same in June as in May, with 114,000 new home loans given the go ahead. B. Factors Affecting the Supply of Household Insurance a.) The household insurance business is expanding. b.) There are still many areas where home insurance service can be improved or made customer-friendly. C. Marketing objectives of PGI: 1. Capture at least two percent of the existing household insurance market. 2. Reach out to a specific market niche-the middle class market: young couples starting out and European Union immigrants. 3. Utilize the existing motor insurance brokers for motor insurance to promote the home insurance product and hire new marketing assistants. 4. Exhaust the tri-media outlets for marketing and promotion. The company website must be launched. The advertising must be done in television, print and radio. D. Marketing strategy of PGI : Related Diversification Based on the Ansoff product/market matrix, the PGI will offer a new product: household insurance to a new market, the home owners in Britain. (Please refer to Figure 3: Ansoff's Product Market Matrix). This is a related diversification since PGI is still in the insurance industry with which it is familiar with. Moreover, PGI can combine this strategy with Market Penetration by offering the household insurance with their existing motor insurance customers. These are the features of the marketing strategy: 1. Capture 2% of the 6% market share of existing market player, Cherry Ash. 2. Set the insurance product at a competitive price targeting the customers of Cherry Ash. 3. Open three marketing channels: internet, local insurance brokers and local banks. 4. Offer a consistent no claims discount since this product feature is not present in the other market players. 5. Give huge discounts for new customer referrals from existing motor insurance customers. 6. Partner with home repair service companies to offer cheaper services to the home insurance clients. 7. Implement the best practices of the major home insurance firms. The company, PGI has the finances to invest in a home insurance business. Its profitable operations will be able to fund the expansion. PGI has the men to carry out the expansion. There are many individual brokers of PGI who can be tapped to offer these same services. The third is that PGI already has the marketing system in place for the motor insurance business. The company can use the same marketing network by adding another service for the existing customers. They can offer this new service to their existing customers first. CONCLUSION The company, PGI has the capacity to offer a home insurance product and market it to two sets of consumers: the existing motor insurance customers and new markets which need home insurance. It has the resources to launch formidable marketing channels as a result of its profitable operations in the motor insurance business. The market prospects are ripe due to the immigrant population, strong lending volume to the housing sector and strong purchasing power of consumers. There is also a strong government support for new investments in housing. The industry entry barriers are low indicating the possibility of new entrants. This is a related diversification strategy which further enhances PGI's leadership in the insurance business. Figure 1. Michael Porter's Five Forces Framework Figure 2. SWOT Analysis Template for the Home Insurance Product of PGI STRENGTHS PGI has a strong financial performance from motor insurance business. PGI has an existing and capable marketing network. Demand for new homes are high due to high immigrant population, rise of single parents and high divorce rate Related Diversification is the best strategy for PGI WEAKNESSES PGI is new to the home insurance business. PGI is a newcomer to the internet marketing of home insurance. Home insurance is not a legal requirement in the UK. OPPORTUNITIES British government is supporting the housing sector through favourable policies. Bank lending to the housing sector both in terms of volume and value is increasing Immigrant population has urgent housing needs. New construction of housing villages in central London will lead to a higher demand for home insurance. THREATS Banks may enter the home insurance business as they offer housing loans. Life insurance companies can also enter the home insurance market. Other motor insurance companies can go into the home insurance business. Figure 3. Ansoff's Product Market Matrix Product Market Present New Present Market Penetration Product Development New Market Development Diversification Read More