Price Marketing Weakens Agencies & Brokerages, Disappoints The Customers And Is The Worst Strategy Possible For The Insurance Agent & Brokerage
How can we win against our well funded competitors?
Small armies beat big armies. In fact, very, very small armies beat very, very big armies.
You would expect a military that is ten times the size of its adversary to demolish their small opponent. But no, military historian Ivan Arreguin-Toft has shown us that the 10X behemoth loses 30% of the time.
That’s right. 30% of the time, an army that is 10% the size of their opponent wins.
How does the smaller army win? By fighting a “different war.” (In fact, since 1950, smaller armies have won 55% of the time.)
The same is true in business. We can only win by fighting a different war.
We cannot copy strategy.
"What's wrong with selling on price?
Isn't that what the consumer wants"
- Our channel is more expensive. So selling on price is just plain dumb.Sure, you'll find exceptions. Even the slowest lion picks off the slowest gazelle.
But in the long run, put your resources where they have the best chance of winning. The price shopping insurance customer - and yes, there are millions of them out there - will seek and find their home. And billions in advertising dollars are helping them navigate their way."
I recently analyzed four years of AM Best industry data, and not to my surprise, discovered that during those years the independent channel was an average 2.3% more expensive to operate. And, with the direct channel's massive commitment to advertising, a lot of their expense gets consumed there, and proportionately less in other expenses. Like insurance.
Moral of the story: when you're more expensive, don't compete on price.
- Selling on value wins more than selling on price. Researchers from Deloitte, led by Michael E. Raynor and Mumtaz Ahmed analyzed data on more than 25,000 companies covering forty-five years of activity.
Their five-year study began with a statistical analysis to identify which companies have truly exceptional performance, 344 in all.
They discovered that the most successful companies - based on a thorough examination of return-on-asset performance, followed three strategic rules
- Better before cheaper. They rarely compete on price.
- Revenue before cost. They drive profits through price and volume, not thrift.
- There are no other rules. Everything else is up for grabs, and they are willing to change anything to remain true to the first two rules.
Of course, selling on value can't just be another empty advertising jingle. Agents and brokers have to deliver value. They have to add value as the product passes through their hands to the consumer.
That may be a new demand for many agents and brokers today. Perhaps in generations past selling the product was sufficient. But, as today's consumer is offered a growing array of choices, this is no longer an option.
Especially as the consumer progressively sees more and more of insurance products as a replaceable commodity, value must be added at the retail level.
The inherent and unique strengths of the independent channel - the benefits of relationship - must be leveraged to the consumer's advantage. Modern communication technology makes this much, much easier. And it's costs are fractional compared to additional payroll.
- Selling on price is the ultimate race to the bottom. First of all, selling value costs more. You do something extra, ysomething more. And that usually costs money. When you're selling on price, you're killing your profits. From what bucket do you draw to create that extra value?
If, let's say, you have a 20% profit margin, and you backed everyone's premium down by a mere 10 points, that's half your profit.
Price selling may result in short term wins. You'll sell a few policies that you wouldn't have otherwise. It's much, much easier than investing in teh blood, sweat and tears work of creating new value. Training staff. Monitoring behavior. Managing new systems. And so forth.
Moral of this story: The industry has matured far beyond the "lifecycle" stage where the retail sector merely acted as "sales reps" for manufactureres. They absolutely must add value. That is what grown-up business do.
- Surprise…consumers don't care about price nearly as much as you think they do. Price never completely goes away as part of the overall value proposition. But according to astute research by Bain & Company, consumers are largely compelled to make their insurance buying because of one of these two values: price or peace of mind.
For more than 20 years, Agency Revolution has studied what makes a successful independent Insurance Agency or Brokerage. While some things change - tactics, techniques, even consumer behavior - others remain the same. Leaders must constantly assess the shifting insurance environment and adapt to remain competitive. With Agency Revolution's new ebook: "4 Reasons Insurance Agents & Brokers Should Never Sell On Price: Why Price Marketing Weakens The Agency, Disappoints The Customers And Is The Worst Strategy Possible For The Independent Insurance Agent & Broker" the dangers of an all too common strategy and what the independent insurance channel must do to succeed. This blog post is an excerpt.