Your customers have four distinct stages in their life cycle development with your agency. Lynn Thomas explains how your interaction with your customers at each stage has a dramatic effect on whether they'll stay with your agency.
Because there are different types of actions and communication in each of the four stages, you need to know as much as possible about them. An insurance agency that understands and plans for these customer life cycles will maximize the likelihood of retaining its most profitable customers. If your agency doesn't do this, you'll probably lose customers to more astute competitors.
THE FOUR STAGES OF THE CUSTOMER LIFE CYCLE
1. Acquisition: Attract customers
2. Assimilation: Turn first-time buyers into repeat customers
3. Cultivation: Cement life-long customer bonds
4. Reactivation: Bring lost customers back
ACQUISITION: ATTRACT NEW CUSTOMERS
Customer acquisition and retention are complementary processes. You can't retain customers if you don't acquire the right ones to begin with, and insurance agencies can't survive without renewals.
Typically, the initial sale might require months or even years. In the insurance industry, the lag time between the initial contact and sale might average three to five years. Insurance has the highest customer acquisition costs of any industry. This unique position gives it the opportunity for the greatest gain or pain from customer retention. An agency has the greatest positive impact on its bottom line by retaining more customers. The converse also holds true: When an agency loses a customer, it has the greatest negative impact on the bottom line.
Also, consider the cost factor. The usual insurance sales call today averages $400 or more. A telephone call runs $5-$10. You're investing a significant amount of resources to acquire your customers ? You should be equally willing to invest in retaining them.
Here's how:
Step 1: Focus on the relationship process.
Step 2: Reduce the gap between expectation and performance.
ASSIMILATION: TURN FIRST-TIME BUYERS INTO REPEAT CUSTOMERS
Assimilation is perhaps the most critical stage in the relationship-building process. It's also the least known or understood. Studies show that a customer who buys a second time is far more likely to become a repeat customer than is a first-time buyer.
To expedite the retention process, insurance agencies need to accelerate the assimilation process. A customer usually takes two to three years to proceed from this phase to the next. A proven technique is to create a “Welcome Aboard” or “Customer Orientation Package” for your new customer that will impress them and begin to assimilate them into your business.
Another sure-fire way to assimilate your new customers is to differentiate them. Make sure that your computer database captures information that will help you identify, differentiate, and record all customer transactions. The database also needs to record customer feedback, preferences, and needs. Together, these will allow you to differentiate your customers.
This differentiation will create highly satisfying relationships that your customers will come to value. Because it will be difficult and time-consuming for your customers to recreate these relationships at another agency, make this your strongest competitive advantage.
CULTIVATION: CEMENT LIFE-LONG CUSTOMER BONDS
There was a time when “product was hero” and genuine one-of-a-kind items existed. Today, if you ask for something as basic as General Liability coverage, there's too much information to digest and too many choices.
This means that customers don't want just insurance coverage, but relationships that give them solutions. A customer who buys insurance is purchasing protection for the future. When an agency commits to offering solutions (i.e., a policy, expertise, etc.), it needs to look beyond the customer's immediate needs to understand their future needs. This foresight can play a significant role in fostering long-term trust and credibility.
In this environment, the selling process becomes interactive. To solve problems, engage your customers in the problem resolution process. Show them what you can do to solve their problems. This is usually the most productive time to ask for referrals.
When agencies incorporate customer data into the marketing and planning process, it fundamentally changes how they view their business. The relationship — not the products, services, or price — is of paramount importance. The more you focus on, listen to, and ask for feedback from customers — then record the data and use it in the future — the more you'll be offering the customization that your customers want and deserve. Using this information will increase your customers' loyalty and agency profits.
REACTIVATION: BRINGING BACK LOST CUSTOMERS
Despite the best cultivation efforts, a certain percentage of customers will leave any agency. Also, the fact that a customer purchases a policy and remains a customer doesn't indicate that they're loyal. Customers leave when they psychologically sever their relationship with your agency — when they no longer feel an attachment or allegiance. They'll switch if they have an acceptable alternative. Highly satisfying relationships will operate as a barrier, making it more difficult for them to leave. It would probably cost them more in time (and possibly money) to recreate the relationship with someone else than to stay.
You probably already define “A,” “B,” and “C” customers. How do you identify “A” defectors in advance? Track their loyalty through regular periodic interviews and surveys that identify their:
- Willingness to give referrals to your agency,
- Level of satisfaction based on the number of products you're able to cross-sell them, and
- Level of loyalty.
Not all customers leave because of a serious problem or complaint. The competition woos some of them away, while others just wither due to a lack of care or nurturing. Whatever the reason, you need to identify and reactivate former “A” customers with the right processes and tools.
In one agency, reducing defections by only 5% generated a 35% increase in profits. Cutting defections in half will more than double the average agency's growth rate. This is a key reason why agencies with loyal, long-time customers can financially outperform competitors with low customer retention rates, lower unit costs, and a higher market share.
Research from the Technical Assistance Research Program of the Department of Consumer Affairs (TARP) suggests that existing “A” and “B” customers offer a golden opportunity for an agency to demonstrate its commitment to its customers — and to bring back those who've left. TARP also discovered that it's not what you give to a customer in return that's most important; it's the promptness of the response, and the clarity and explanation of the action, product, or service provided. In fact, customers who experience a problem and receive a response equal to or greater than their expectations become even more loyal than customers satisfied by ordinary service. Create highly satisfying and differentiated relationships and reap the profits.
DIFFERENTIATION
Agencies need to differentiate themselves by creating highly individualized relationships. Make this your goal.
To do so, you need to integrate three critical computer capabilities:
- Information in customer databases: Identify your customers, see how they differ from one another, and track all your transactions with them.
- Communication or interactivity: Get customers to talk to you, give you feedback, and tell you what they want or need.
- Production (mass customization): Tailor products for individual customers on a cost-effective basis. Remember, customers don't want to be treated equally, but individually.
Follow the customer life cycle and watch your profits grow!