Wizard Home Loans Company's Insurance - Case Study Example

Name Tutor Course Date of submission Wizard Home Lоаns Соmраny's Insurаnсе Wizard Home Loans was established by Mark Bouris in 1986 as a non-bank mortgage lender. Bouris sold it in 2004 to GE Money Australia (Plunkett 119). By 2006, Wizard had become the leading non-bank mortgage lender in Australia, with around 250 branches across the country. However, GE Money sold it in February 2009 to Aussie Home Loans. Since then, Wizard has been operating under the ownership of Aussie Home Loans (Aussie Insurance). Since its establishment, Wizard Home Loans has been operating in the Mortgages lending industry and has been offering various home loan products including home loans, insurance, credit cards and personal loans. This essay focuses on insurance as one of the main products offered by Wizard Home Loans Company. As Plunkett (119) explains, Wizard offers various insurance services, including, accident insurance, life insurance, home insurance, loan cover, motor vehicle insurance and funeral insurance. Wizard Home Loans’ Insurance faces stiff competition from the general insurers operating within Australia such as Suncorp, Insurance Australian Group, QBE Insurance, Allianz Australia, Budget Direct, Hollard Insurance, Australian Post, Calliden Insurance, Yui Insurance, Zurich Insurance, Westfarmers and Progressive insurance providers (KPMG 41). This company also faces competition from insurers that emphasize on specific insurance services. They include life insurers (such as Real Insurance, OnePath, MiPlan, Asteron Life, AIA Australia, AMP ltd and AXA) and Health insurers (provided by selected private health insurers and Australian government) (KPMG 41). In spite of the stiff competition, there are various opportunities for Wizards to expand its insurance sales. To start with, the recent development in technology and increase in the use of internet globally, provides an opportunity for Wizard to promote its products and services online and to increase sales through online channels (Brown 28). Secondly, the Australian general insurance market is well established and provides opportunities for expansion. 2011 statistics indicated that the Australian insurance earned $42.1 billion in revenue and a profit of $5.6 billion. According to Tarr, Julie-Anne and Clarke (9), this expected to improve in the future However, Wizard also faces threats in the provision of insurance services. The Insurance services in Australia are regulated by various bodies such as the Australian Competition and Consumer Commission (ACCC), Australian Prudential Regulatory Authority (APRA) and Australian Securities and Investments Commission (ASIC). Among other bodies present in certain states in Australia, these bodies have powers to regulate or to limit certain kinds of statutory insurance. As well, they have powers regarding re-insurance and premium rating (Tarr, Julie-Anne and Clarke 14). Another threat to Wizard is the high level of competition in the Australian insurance industry. Market Segmentation Market Segmentation is a marketing strategy that involves dividing the target market population into subsets based on difference needs and wants of consumers as well as their differences in the application of products and services (Taylor-West et al 362). The purpose of this strategy is to enable a marketer to develop a marketing mix that matches and meets the needs of consumers more in the target market. This explains why it is important for Wizard home loans to undertake market segmentation when selling insurance products. Wizard adopts differentiated marketing strategy when selling its insurance products. As mentioned earlier, this company offers various insurance products, including, life insurance, loan cover, accident insurance, home insurance, motor vehicle insurance and funeral insurance. The aim of adopting this strategy is to broaden the company’s sales. As Taylor-West, Fulford, Reed, Story and Saker (362) explain, an organization is likely to make more sales when focusing on more than one group of customers than when concentrating on only one group. There are four main market segmentation methods that a firm can choose from. They are demographic segmentation, geographic segmentation, psychographic segmentation and behavioural segmentation. Geographic segmentation involves dividing the target market into various subsets using geographical criteria (Taylor-West et al 362). Wizard offers insurance products in all regions within Australia (Aussie Insurance). Demographic segmentation involves dividing the selected market into subsets of consumers based on variables such as age, income, gender, religion, education, family size, occupation and nationality. Life insurance offered by wizard targets Australian citizens aged between 18 and 69 years, loan cover targets individuals aged between 18 and 54 years while landlord insurance targets landlords (Aussie Insurance). Psychographic method involves the use of psychology and geography to understand consumers better. In this method, consumers are grouped based on their personality, lifestyle, social class and values. Consumers in the same demographic may not exhibit similar psychographic profiles (Taylor-West, Fulford, Reed, Story and Saker 362). Insurance products offered by Wizard such as life insurance and funeral insurance usually consumers engaging in risky activities as well as those with a higher status in the society. In behavioural segmentation, the selected market is divided into subsets according to consumer’s knowledge of, use of, attitude towards or response to a product. This segmentation method is based on behaviours of consumers (Lee & Johnson 2012, p. 92). Wizard offers higher rates of discounts to royal customers as well as those who purchase insurance products through the internet (Aussie insurance). Branding Strategy A product refers to anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. The word ‘product’ implies physical objects, events, services, places, persons, ideas, organizations or some combination thereof (Yadrick 928). A Service is a form of product consisting of activities that satisfy consumer needs, but are intangible and do not result in ownership of anything. Examples of services are Insurance, banking, airline, hotel, home repairs and tax preparation. It is extremely important for Wizards to understand its insurance product offer. As Yadrick (928) explains, the journey to success starts with achievement of a good reputation for the quality of a firm’s products or/and services. The reputation for the quality leads to increased sales, lower average costs and higher profits returns. A firm can only build quality of its products or services if it understands them well. Further, understanding of products or/and services enables a firm to modify them to suit and satisfy the needs of consumers (Shafaeddin 78). Product life cycle refers to the phases that a product goes through from planning to disposal. The cycle involves five major phases, namely, product planning, design and development, verification and validation, production, field development and disposal (Kerin and Karakaya 270). The product planning phase involves identification of needs of consumers, analysis of market competition and business trends and development of product proposals. Design and development phase involve the preparation of products specifications on features, reliability, economics, functionalities, legality and ergonomics. Development of both conceptual and detailed designs is also carried out in this phase. The verification and validation phase simply involve the design verification and process validation. After the design verification and process validation are complete, full capacity production begins in the production phase. In the field development phase, the product is marketed and sold to consumers in order to realize the values built in the earlier phases. Disposal is the terminal phase of a product whereby it is scraped, discarded or recycled when it is not cost-effective or is unable to continue service (Kerin and Karakaya 271). Wizard’s insurance is currently at the field development phase. The insurance product has successfully gone through the earlier phases, and Wizard is involved in marketing advertisement, continuous improvement, field performance monitoring, technical support and sales service (Aussie Insurance). The purpose of engaging in these activities is to realize financial benefits from the product. Yadrick (928) defines branding as “the process of making a service, a product or a company (association) stand for a set of ideas in the minds of customers.” Brand strategy and its implementation play vital roles in influencing the perception of consumers towards a firm and its products and services as well as their willingness to make purchases. In turn, this influences the sales and long-term performance of a firm. Thus, it is important for a firm to understand the value of branding to consumers and its overall performance. Wizard adopts an individual branding strategy by giving each insurance product its own brand name (Aussie Insurance). In doing so, Wizard aims at creating a unique image and identity for each product in order to allow effective positioning of each product differently. This branding strategy allows Wizard to offer insurance services that are, innovative, affordable and easily understood by a large section of consumers (Aussie Insurance). \ Pricing Strategy Price refers to the value that a seller attaches to a specific quantity or other measure of a product or service (Ingenbleek and Lans 28). Avlonitis and Indounas (48) defines price as the amount of money or equivalent that is requested by a seller in exchange for a product or service. Understanding of pricing is vital for Wizard to be able to formulate effective pricing policies and strategies to fix price for its insurance products. As Avlonitis and Indounas (48) explain, pricing affects a firm’s overall sales as well as profit. It affects or determines the acceptance of a product or service in the market and hence, determines the future of the product or service. Generally, understanding of pricing will help Wizard to come up with an effective base price for its insurance products (Avlonitis and Indounas 49). One of the pricing objectives of Wizard is to sell its insurance products at lower prices than competitors hence, increase or maximize the quantity of sales units. To achieve this, this company offers various types of discounts including trade discounts, cash discount and seasonal discounts. The rates of some of these discounts are very attractive, with some going up to 20 percent. At the same time, Wizard aims at selling its products at a premium price in some of the established markets and focus on quality improvement. The main reason for adopting these objectives is to enable Wizard’s products to effectively penetrate the price sensitive Australian market, to gain a competitive edge and to achieve a high level of returns in the long term (Aussie Insurance). To achieve its objectives, Wizard Home Loans has adopted a combination of penetration and skimming marketing strategies. The penetration pricing strategy involves selling products at a lower price than competitors in order to penetrate a highly competitive market and attain a significant market share. This pricing strategy is adopted when; The market size is large and is expected to grow When the bargaining power of buyers is high When there is intensive competition in the market When an organization needs to enter a new market Where the association between price and quality is not very strong (Saxena 334). This strategy has enabled Wizard’s insurance products to penetrate into the highly competitive Australian Insurance industry and to gain a sizeable market share since its establishment (Aussie Insurance). On the other hand, the skimming strategy involves selling products at a premium price and focusing on improving quality. This strategy is adopted where; There is a strong relationship between quality and price Where the consumer is willing to purchase a product at a higher price just to be an opinion leader Where the product is associated with a consumer’s status Where competition and threat of new entrants is low When the product is perceived as having a higher technological value than those of competitors (Saxena 334). In adopting this strategy, Wizard Home Loans has been able to maximize profits in already established markets (Aussie Insurance). Distribution Strategy Place in marketing refers to the point in which a firm’s products or services are availed to consumers. As Zhao (974) explains, place encompasses all channels that a product goes through before it gets to the consumer. In other words, a place refers to the means by which a product or a service moves from the producer to the consumer. For Wizard to achieve success, it has to understand the importance of place. Precisely, it has to provide its insurance products to consumers at the right place and at the right time. According to As Zhao (974), understanding place helps an organization to attract maximum number of consumers and hence secure future success of products. The structure of a firm’s distribution channel is critical in determining the performance of a product in the market. Structure of a distribution channel refers to the number of firms or levels that are involved in the flow of a product from the producer to the buyer. A distribution channel can either be direct or indirect. A direct distribution channel is one in which products are sold directly from the producer to the consumer (Mohr, Sengupta and Slater 321). A producer may use its own sales force, through firm-owned stores or sell the products through the Web. Such channels are referred to as “vertically integrated” since they are owned, controlled and managed by the producer. An indirect channel is the one in which intermediaries are used to market, sell and deliver goods from the producer to the consumer. The intermediaries are companies or individuals that are independent from the producer (Mohr, Sengupta and Slater 321). Wizard adopts a direct distribution channel in the sale of insurance products. This firm uses its own sales force to market and sell insurance products and has established numerous outlets all over Australia. As well, it has established an online retailing channel in which its insurance products are displayed. Consumers are provided with contacts and are able to negotiate and purchase insurance products directly from Wizard through this online channel (Aussie Insurance). An organization may choose to use a vertical or/and a horizontal marketing network. A vertical marketing network is one in which the main members involved in the product distribution process (retailer, wholesaler and producer) work together and support one another in order to meet and satisfy the needs of consumers (Moore and Pareek, p. 58). On the other hand, a horizontal marketing network is one in which two or more firms on the same level of production form partnership in order to pursue a new marketing opportunity. The members combine their resources in order to pursue a marketing opportunity that they could not have successfully pursed individually and products of all members are distributed together (Moore and Pareek, p. 58). Wizard relies on a horizontal marketing network in order to remain successful. In 2004, this company formed a partnership with GE Money and later with Aussie Home Loans in 2009. The main aim of doing this was to pursue new marketing opportunities and to improve performance. Promotional Mix The term promotion refers to any activity that is intended to make consumers aware of a firm’s product or service (Davis 5). Doyle and Saunders (956) define promotion as any activity that is intended to inform consumers regarding features, qualities and benefits of a product or a service. Thus, promotion is a key strategy used by firms to communicate to consumers regarding their products and services. Communication is essential in all kinds of relationships. As Davis (5) explains, “developing and managing relationships with customers has a direct bearing on marketing communications.” The choice and effectiveness of marketing communications determines the relationship that exists between an organization and consumers. There are three key components of marketing communications that influence this relationship, namely, the choice of media, the kinds of messages exchanged and suitability of occasions to consumers’ preferences. To be precise, the effectiveness of a promotion strategy influences the extent to which the public is aware of an organization’s products and the extent to which these products attract new customers (Davis 5). This explains the importance of well-integrated marketing communication strategy within organizations. Wizard has adopted various objectives to promote its insurance products. The main objective is to increase market awareness of the various insurance products. This company has been engaging in aggressive promotion campaign in order to reach new untapped markets in Australia. As well, Wizard carries out promotional activities in order to make consumers aware of any improvements or enhancements in insurance products (Aussie Insurance). Secondly, Wizard engages in the promotion in order to stimulate consumers to try its insurance products. In trying these products, consumers are able to weigh their benefits in comparison with those offered by competitors. Third, Wizard engages in the promotion in order to enhance and maintain competitiveness of its insurance products and to maintain or achieve a greater market share. Lastly, Wizard engages in a promotional campaign in order to stimulate sales for the insurance products (Aussie Insurance). Continuous promotion helps to ensure that the forecasted sale within a specific period of time is met. To achieve its promotional objectives, Wizard uses four main promotional tools, namely, advertising, direct marketing, public relations and sales promotions. Advertising is a form of paid promotion for a product or a service. It involves sending messages regarding a product or a service to consumers through the media. Wizard Home Loans advertises its insurance products via various types of media, including, newspapers, radios, televisions and internet. Notably, Wizard has taken advantage of the recent development in technology and increase in the use of internet use as it has been aggressively advertising its products online. Apart from its well established website, this company utilizes social sites such as Facebook and Twitter to advertise its products (Aussie Insurance). This mode of promotion tool has been quite effective in communicating with consumers regarding Wizard’s insurance products. The use of the internet is inexpensive, promotes these products throughout and reaches a great number of consumers. Sales promotion refers to the provision of incentives to consumers in order to stimulate them to make purchases. As mentioned earlier, Wizard uses various types of discounts as incentives to encourage consumers to purchase its insurance products. This promotional tool has only been effective in driving up short-term sales. Public relation involves constant interaction with consumers (Lamb, Hair and Carl 22). It involves activities geared towards developing and maintaining a positive image in the external environment. Wizard Home Loans has established ways through which customers learn about its insurance products and through which they express their concerns. In addition, this company upholds principles of economic, social and environmental sustainability. Though this promotional tool is necessary, it has not been very effective in stimulating insurance sales mainly due to intense competition in the Australian insurance Industry. Lastly, direct marketing involves selling products directly to consumers without using intermediaries. As mentioned earlier, Wizard has been using direct marketing channel through the use of sales agents and the internet. This promotion tool has highly supported Wizard’s sales of insurance products. Conclusion In conclusion, Wizard home loans has grown to become a leading non-bank lender despite the fact that it was acquired by GE Money in 2004 and later by Aussie home loans. In spite of the stiff competition, this company has been able to penetrate the Australian insurance industry and has achieved a sizeable share in the market. As noted in the essay, Wizard applies the four main segmentation strategies in order to succeed, namely: geographic segmentation, psychographic segmentation, demographic segmentation, and behavioural segmentation. The essay stresses the importance of a product life cycle and firm’s branding strategy. To achieve its pricing objectives, Wizard adopts penetration and skimming marketing strategies. Further, this company adopts direct distribution channel and horizontal marketing network. Finally, Wizard adopts a promotional mix comprising of four main promotional tools, namely, advertising, direct marketing, public relations and sales promotions. 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