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True Competitive Advantage through Unparalleled Consumer Insights
Knowing precisely who you are building your business and product offers for is the foundation for a successful growth strategy. Everything flows from this critical foundation; from what your offers do and don't include, to how they are positioned, where they are sold, how they are promoted and how they are priced. Yet, in our experience, too many managers rely on incomplete or even misleading segmentation approaches and outdated "conventional wisdom" to develop insights into their most profitable customers. And, given today's economic pressures, your target customers are probably in the process of re-evaluating their spending patterns right now.
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Ask yourself/your team the following questions:
- What do we know about the demand of our most profitable customers that our competitors don't know?
- How well do we anticipate shifts in customer demand rather than reacting to shifts after the fact?
- What proprietary metrics do we have to anticipate demand shifts?
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As you can see, identifying and truly understanding your most profitable target consumers in a differentiated manner is not as simple or straight-forward as it may initially appear. Such was the lesson learned by a recent Cambridge Group client.
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For a major insurance company, a more precise understanding of demand led to its most successful new product launch and significant double-digit growth at a time when the company was about to accept commodity product pricing as the best it could realize.
At the time the management team engaged The Cambridge Group, the company had been experiencing several years of flat to declining car insurance sales. The company had been losing significant market share to fast growing direct-to-consumer insurers (e.g. GEICO) that were able to offer insurance at much lower costs than was possible with an agent network. These new low cost competitors created significant customer churn and 'leaky bucket economics' for our client with high acquisition costs and low retention rates. The management team was beginning to believe that car insurance had become a commodity and that price was ultimately all that mattered to customers. They asked The Cambridge Group to either confirm or refute that conclusion.
We began by developing a comprehensive quantitative factbase on consumer demand in the category. The new insights completely disproved the conventional wisdom upheld by the industry and our client team that customers only cared about price.
As the team quickly realized, while nearly 40% of customers were primarily motivated by price, nearly as many, another 38% of customers, were highly motivated by insurance benefits rather than just the lowest price.
Specifically, these customers were motivated by (and willing to pay incrementally for) enhanced benefits such as deductible savings within 'repair networks', full roadside assistance, loan/lease gap coverage, repair/replace guarantee and even 'accident forgiveness' ... all features that could potentially have been eliminated had the team followed the conventional wisdom centered on lowest price. The team further learned that although the client already enjoyed 'their fair share' of these attractive customers (i.e. these customers represent a percentage of the client's total customers on par with the segment's percentage of the total insurance population) a product offering with these benefit enhancements could greatly improve their share of these attractive customers.
The team quickly agreed that with their improved understanding of the truly most profitable demand in the market, their next step was to develop a product offering designed around the motivations and needs of this target consumer.
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Since the execution of the revised strategy, the company has realized an incremental $2+ billion in premiums and $125+ million in incremental gross underwriting profit annually. Even in the current recession, the revised strategy continues to pay dividends. Acquisition and retention rates continue to be much higher than previously, costs are much lower and optimized product offers continue to command a price premium in the market. In retrospect, the management team realized that if they had taken the cost cutting approach to the car insurance business, they would very likely have cut the benefits that the most profitable customers valued without being able to beat the low prices of their competitors with direct-to-consumer business models.
To learn more, please visit:
www.thecambridgegroup.com
227 W. Monroe Street, Suite 3200 - Chicago, IL 60606
312.425.3600
© 2009 The Cambridge Group. All rights reserved. All other names may be trademarks of the companies with which they are associated.
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