Realizing the maximum return on investment for your product portfolio
Making the best possible resource allocation decisions in order to meet business objectives is the fundamental job of every manager. And, in today's environment, optimizing returns from limited resources is more important than ever. But how recently have you assessed those critical resource allocations? How certain are you that you are getting the maximum return on the investments made in your key products? Do some products over-deliver on customers' wants and under-deliver in terms of ROI? Could other products command price premiums by communicating existing features/benefits that are highly motivating to target consumers more clearly? Do each of your products have clear strategic roles and value?
Despite dramatic changes in the economic environment, some companies maintain the same allocation of resources year after year. Each business unit or product line gets roughly the same percentage of total investment each year. Other companies take a disciplined approach to resource allocation for new product launches but rarely reassess these decisions throughout the rest of a product's lifecycle. Our clients however have found value in regularly revisiting this issue to ensure all investments they make in products are delivering targeted returns.
One client, for example, took the identification of a new consumer target that valued features over price as an opportunity to refine their existing product portfolio strategy to ensure maximum return on their investment. They chose to leverage The Cambridge Group's unique Customer Demand AnalysisTM approach to seamlessly align demand and supply insights in the development of their strategy. Through this demand-led process the team was able to maximize profitability by understanding precisely what consumer demand to serve with exactly which offers at the price points that optimized returns.
At the time, the company was facing increasing competitive pressure from 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. Given the significant inroads made by these competitors, the management team believed that car insurance had become a commodity market, and that price was all that mattered to customers. However, when they discovered with The Cambridge Group that nearly 40% of consumers actually valued features over price, the team rightly decided they needed to better understand precisely which features were motivating to these attractive consumers and focus on those.
To determine exactly what product features to invest in for maximum returns, the team needed to better understand the specific trade-offs and decisions consumers were making when shopping for car insurance. To do this the team conducted a Customer Demand AnalysisTM, in which consumers participate in a simulated shopping experience and are asked to select from a series of products based on the various benefits and features they offered. Consumers saw a range of scenarios during the online exercise and were asked each time to select the car insurance product they would prefer to purchase.
Based on the choices and trade-offs consumers made, the team was able to identify a handful of features that these consumers were highly motivated by. These benefits – no premium increase if not at fault, good driver deductible rewards and 50% savings via certified repair network – were ultimately most motivating as consumers found them to be both highly relevant and highly differentiated from competitive offerings.
Ultimately, these core features formed the foundation of an entirely new product offer that eventually transformed the car insurance industry. What the team discovered was that these features addressed a core demand among target consumers – their demand for more choice, enhanced personalization and greater perceived control from auto insurance. Fundamentally, consumers believed that insurance companies were unfair to good drivers. The company had all the power in the relationship, and good drivers were penalized for the poor choices of bad drivers. Bundling these three features together, and offering a choice of a range of other features were also financially attractive for the company, gave consumers the choice and personalization they had craved – the offering readjusted the balance of power between the company and their customers and ultimately elevated and distinguished the company in the eyes of the target consumer.
The Cambridge Group's unique approach to aligning demand and supply insights enabled the team's decisive action, and ultimately resulted in the launch of the company's most successful new product ever; a new product that would transform the industry.
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, the would very likely have cut the benefits that the most profitable customers valued without being able to beat the low prices of competitors with direct-to-consumer business models.
Without the benefit of an in-depth understanding of your target consumers' demand and the potential opportunities this presents, it is almost impossible to optimize returns across your product portfolio. To learn more about optimizing the ROI for your product portfolio, please visit our web site.
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