Household Insurance Market - Case Study Example

PGI Case Study Pure General Insurance (PGI) is considering expanding their business to include home owners insurance in response to increased competition in the motor insurance industry brought on by rapid evolution in technology. PGI enjoys 25% commission while acting as a broker for every policy placed with an insurance writer. To attract larger groups, PGI began sharing commission with affinity groups which were given 10% of the 25% commission as an incentive to utilize their services. However, the 1980’s introduced the direct line concept which allowed the customer to bypass the broker, which would be the middleman PGI, and go directly to the insurer. The direct connection allowed consumers to shop around for lowest prices and by the year 2000, with the emergence of the internet, customers were allowed to price shop several insurance companies in just minutes. PGI has been hit drastically by the direct line service and wants to stabilize and grow their motor vehicle market share while entering into a new lucrative insurance market segment of household content insurance. PGI has conducted a number of interviews to assess a possible entry strategy into the household insurance market. After the interviews, the collected data should be assessed to conclude a possible reduction rate. One conclusion that can be drawn from the interview analysis is that potential clients are not opposed of and are for getting household insurance from a group in which they are a member. The weight of the customer’s decision lies in insurance company being competitively priced. The interview also exposed what features clients deemed important coverage when considering purchasing a household content policy. Clients referred to certain coverage as “the usual” which unveiled what a customer perceives as a given when purchasing insurance. Fire, theft and accidental were mentioned from everyone sampled, which may indicate that any coverage that extends these features may be broken down into packages or sold separately or additionally. Although, none of those samples were willing to admit that any coverage offerings were not important, the poll suggests that offering legal advice and other services may be sold separately or additionally as clients may be willing to sacrifice these amenities for lower premiums. However, it is essential to price compare competitors’ policies for things that may be offset by intangible benefits such as a high level of customer service as some clients expressed dissatisfaction with phone automation. Lastly, the advertising medium for insurance exposure was addressed. No one media outlet had overwhelming effects, however television advertisement, internet and word of mouth were all equally expressed as effective. Not cost contributory Cost contributory Purchasing insurance from group they are a member of 1= Opposed 5 =Not opposed Expectations of household insurance coverage Anything after fire, theft and accidental could be traded off Fire, theft and accidental were deem mandatory Which coverage features are unimportant Legal advice and automated phone tellers were suggested Nothing was overwhelming considered unimportant. Appears to be based on individual choice The poll data suggests that no media outlet was overwhelming more important than the other, therefore PGI may want to start by understanding their consumer. It is essential for a business to attempt to understand what is considered perceived value by their customer. Admit tingly in the midst of a recession, the post-recession consumer may spend differently than the pre-recession consumer. Authors Paul Flatters and Michael Willmott (2009; 110) suggests in the article “Understanding the Post-Recession Consumer” that the shift in disposable income has created a demand for simplicity and a growing demand for trusted bands and value. The recession is propelling some trends forward, advancing dominant trends and slowing arrested trends. One such advancing trend is an increase in discretionary spending. Some customers are thrifty due to financial reasoning however more affluent consumers are economizing as well. This information suggests that customers are going to price shop. This notion was expressed during the poll and the 18 months marketing research conclusion which both revealed that consumers put great emphasis on PGI being competitively priced. Another increasing trend is the mercurial consumer. This method suggests that customers are no longer loyal and are using social media to learn and relate possible cost savings. This model reinforces the results of the survey and research when recommended that PGI be competitively priced. The survey was an excellent way for PGI to begin to understand its customer. Once PGI move pass this stage they may want to begin focusing on being market oriented. As a company becomes market oriented the corporation becomes entrenched on their customer spending habits on every functional level of the business. As cross functions become aware of their consumers spending habits, then the different business segments can inter-relate customer wants and begin to meet customer needs. Author Benson P. Shapiro (1988;120) suggests in the article “What the Hell is Market Oriented?” that “customer information must move beyond the market research, sales and marketing functions and permeate every corporate function.” PGI began this proactive step when they hired the marketing research firm to analyze the desires of the consumer. Therefore copies of the survey samples should not only be reviewed by marketing department but should be distributed to all staff members for feedback and suggestions. After PGI has begun to profoundly understand their targeted consumer, then PGI should begin to implement strategies to penetrate the market by sparring with low-priced rivals. It was reiterated by the customer, particularly the new client, that price mattered and loyalty was not as important. Author Nirmalya Kumar (2006; 106-7) states in the article “Strategies to Fight Low Cost Rivals” that “it’s easier to fight an enemy you know than one you don’t.” PGI entry into the home insurance market has to be strategized and assess for low-cost rival threats in order to develop a viable market position. Low cost companies typically have the competitive edge as customers will remain with this company until a competitor introduces an even lower price to lure the customer away. Again, PGI should pay extremely close attention and believe the surveyed client when it revealed that competitive pricing was essential as price comparison as become readily available with the help of the internet. PGI will be battling with incumbents in the home insurance industry. This market is not a blue water segment, where there is virtually no competition exists, however it is a red water market where firms are established therefore eliminating the first mover advantage. PGI should begin to thoroughly assess competitive industry positioning and begin to establish a foot-hold in the market. Authors Fernando Suarez and Gianvito Lanzollo (2005; 122) believe in their article “The Half-Truth of First Mover Advantage” that the first mover advantage is definitely not a sure thing. By allowing another to test the industry market first the new entrant can learn from the originators mistakes. The late entrant has the advantage of learning consumers demand and expectations without having to pay first hand for the information. PGI should capitalize on this theory by profoundly studying the needs of the home owner insurance purchaser. If features are dispensable, then PGI may want to capitalize on allowing the customer to pick packages that best fit their needs and pockets. Also, by positioning themselves as a late entrant, PGI may anticipate and prepare against an incumbents’ counter-strategies. It is safe to say that an incumbent will attempt to ward off a new entrants positioning and fight diligently for their market share. PGI can strategically analyze potential counter-attacks and lure away customers while growing in market share. John H. Roberts (2005; 152) author of “Defensive Marketing How a Strong Incumbent Can Protect its Position” can give great insight into an incumbents’ mindset and assist PGI in establishing itself and gaining market share. By anticipating that an incumbent will try to reinforce its perceived image in the consumer’s mind, PGI can begin attacking the incumbent’s image and sway customers as loyalty has been diminishing. The polled individuals should provide a model to PGI about anticipated consumer behavior. If marketing to the surveyed few, then PGI should consider offering a discounted combination pick-a-package approach. The surveyed had no gripes about having both their motor insurance paired with their home insurance. This may be advantageous to PGI as having a client utilize dual services will allow them to discount premiums and possibly increase overall market share. The sampled customer was not so concerned with extra features and may want to discard some features for cost savings. Emphasis should also be put on the lapse rate which is moderately less than some competitors and substantially less than others. Also, these clients can be reached via internet or through brokers. Advertising via internet may be the most cost effective way of reaching potential clients. Since no great emphasis was put on utilizing television media channel, this method of marketing should be heavily analyzed and weighed for cost contribution. Question #2 Situational Analysis A situational analysis should be performed by PGI which would give them approximated insight as to the company’s strengths and weaknesses compared to incumbents in the house content insurance industry. First, PGI should analyze current and potential customer market. Currently, PGI leads the motor insurance industry in market share. An 18 month marketing research concluded that the new client weighed heavy on pricing seeking the cheapest available. This fared second among returning customers as they were more concern with excellent customer service. Also, the new client was swayed by reputation. This result favored the affinity group as the affinity group has been good for the traditional word of mouth form of advertisement. Product fared midway with both new and existing clients suggesting that folks want high levels of customer service at a cheap price. PGI has begun an internal audit by first hiring a marketing firm to help them best serve their customers. The marketing firm eighteen months analysis put statistics behind assumptions to allow PGI to trouble shoot and make strategic decisions based upon customer retention. Also, PGI has taken proactive steps by listing issues of importance directly impacted the company today as well as in the future. The notes allow for a candid assessment that can help PGI restructure and thoroughly critique the use of the affinity groups. Along with customer and internal audits, PGI must evaluate the market to strategize sustaining share and potentially tapping into the home insurance market. PGI has had continuous growth in motor insurance segment and partial growth may be attributed to brand name. However, competitors are beginning to slice into market share as their growth rate is escalating in rates exceeding 10 times that of PGI. The incumbents’ capture of market share may be due to excessive use of affinity groups by PGI. PGI has to address the percentage of commission that affinity groups receive and either roll back commission rates or devise another strategy to sell motor insurance. PGI has an attractive appeal with the lapse rate, however it is not enough. The lapse rate only applies to a small percentage of customers which is not a strong enough incentive for utilizing PGI services. The P.E.S.T. (political, environmental, social and technological) analysis, which is the external macro-environmental analysis, should be utilized to better prepare PGI to enter into the home content insurance industry. Political Increase in tax rates from government High commission rate of affinity groups Homebuyers utilizing insurance of lenders preference Environmental Decrease in discretionary spending Rising unemployment rate Slowed growth rate of first-time home buyers Social Drop in income rates Stagnant entrepreneurial endeavors=consistent unemployment Technological Analysis Internet makes price shopping extremely easy and convenient No longer need brokers, customers have direct connection Question #3 Suitable Outline PGI should outline a strategy in order to sustain market share in the motor insurance industry and penetrate the home content insurance industry. First, PGI should reassess the commission given to the affinity group. This has been a huge incentive for the affinity group to utilize PGI services in mass quantities, however the considerate payout is taking its effect on PGI ability to successfully compete. If PGI can get the affinity groups to rollback commission percentage then PGI may pass cost reductions to consumer. The price reduction would be advantageous if it allows PGI to compete with the direct line rival who has been rapidly gaining market share. It also would allow PGI to attract new clients as the 18 month research performed by the marketing firm suggests that price is the number one deciding factor for the new client. Next, PGI must strategize an entry into the home content insurance market. This market has entry barriers as new home buyers utilize the insurance companies of the lending mortgage firm. PGI will have to inform the home-buying and home-owner client that they have choices. PGI may want to do this through mass marketing and brokers’ incentives. The mass marketing should be assessed for the most cost effective forms of marketing communication. The internet appears to be effective, therefore the internet should be the primary resource for spreading the message. Once the step is implemented, then PGI can begin to execute a marketing position. Finally, PGI should penetrate the home insurance market by offering a pick-your-package combination that allows for discounted rates and allow the client to discard features that may not be deemed desirable. Also, workers should be trained in providing excellent customer service and focus should be put on customer satisfaction. The low rates paired with an exceptionally high level of customer service will position PGI to penetrate and capture a significant portion of the home content insurance market. Strength, Weaknesses, Opportunities and Threats (S.W.O.T.) Analysis PGI can implement the S.W.O.T. Analysis to assist with their strategic marketing plan to enter into the home content insurance market. First, PGI should assess the company for its: Strengths Brand recognition-Been in business a long time and has made a household name of themselves Low Lapse Rate-moderately lower than some and greatly lower than others Affinity Groups-has been effective in recruiting clients by word-of-mouth Weaknesses High commission percentage given to the affinity groups-effecting PGI ability to successfully compete Not a direct line company (middleman)-Has to pay high commission rates to affinity groups Stagnation of the affinity group membership-group membership has drastically slowed Opportunities Home content insurance-growing industry Offer dual insurance-offer a combination package of motor insurance and home content insurance Offer a pick-a-package-allows customers to select which features they desire Discount rates-allows discount premium rates for customers with dual coverage Offer excellent customer service-deemed highly important therefore must excel in order to reach new clients Threats Rapid growth rate of competitors in motor insurance industry-due to the lack of the middleman, competitors are growing rapidly in motor insurance coverage industry Fighting incumbents for market share-have to prove themselves in order to gain market share Possible increase in insurance tax-government increase could hurt overall sales and profits Decline in first-time home buyer-high prices of homes are deterrents for first-time home buyers who don’t have the money Compete with mortgage companies for homebuyers choice in homeowner insurance-clients are unaware they have choices. Clients just utilize company the lender selects Works Cited Christensen, C. Cook, S. & Hall, T. 2005. Marketing Malpractice the Cause and the Cure. Harvard Business Review. 74-83. December Flatters, P. & Willmott, M. 2009. Understanding the Post-Recession Consumer. Harvard Business Review. 106-112. July-August Kim, C. & Mauborgne R. 2004. Blue Ocean Strategy. Harvard Business Review. 76-82. October Kumar, N. 2003. Kill a Brand. Harvard Business Review. 86-95. December Kumar, N. 2006. Strategies to Fight Low-Cost Rivals. Harvard Business Review. 104-112. December Lanzolla, G. & Surez F. 2005. The Half-Truth of First-Mover Advantage. Harvard Business Review. 121-127. April Roberts, J. H. 2005. Defensive Marketing How a Strong Incumbent Can Protect its Position. Harvard Business Review. 150-157. November Shapiro, B. 1988. What the Hell is Market Oriented? Harvard Business Review. 119-125. November-December Strength, Weaknesses, Opportunities and Threats (S.W.O.T.) Analysis PGI can implement the S.W.O.T. Analysis to assist with their strategic marketing plan to enter into the home content insurance market. First, PGI should assess the company for its: Strengths Brand recognition-Been in business a long time and has made a household name of themselves Low Lapse Rate-moderately lower than some and greatly lower than others Affinity Groups-has been effective in recruiting clients by word-of-mouth Weaknesses High commission percentage given to the affinity groups-effecting PGI ability to successfully compete Not a direct line company (middleman)-Has to pay high commission rates to affinity groups Stagnation of the affinity group membership-group membership has drastically slowed Opportunities Home content insurance-growing industry Offer dual insurance-offer a combination package of motor insurance and home content insurance Offer a pick-a-package-allows customers to select which features they desire Discount rates-allows discount premium rates for customers with dual coverage Offer excellent customer service-deemed highly important therefore must excel in order to reach new clients Threats Rapid growth rate of competitors in motor insurance industry-due to the lack of the middleman, competitors are growing rapidly in motor insurance coverage industry Fighting incumbents for market share-have to prove themselves in order to gain market share Possible increase in insurance tax-government increase could hurt overall sales and profits Decline in first-time home buyer-high prices of homes are deterrents for first-time home buyers who don’t have the money Compete with mortgage companies for homebuyers choice in homeowner insurance-clients are unaware they have choices. Clients just utilize company the lender selects Read More