Product or service? That is the conundrum, the rub, the question! And the answer to that question could contain the secret of survival for the Independent Agency System.
To get the overall picture, let's look at other industries that have been, or are, faced with a similar dilemma.
The Nuts And Bolts Issue
Independently owned and operated hardware stores, like the True Value franchises, continue to dwindle into obscurity. Large discount and wholesale operators, selling on price only, have battered them to death.
If you were to seek out a local, independent hardware store, you'd find a genial, 'knows-almost-everything' owner or clerk who can explain how to handle the repair (the service) and then supply the required parts (the product). The do-it-yourself handypersons that frequent the store know that the price of the product is higher than at the local discount outlet, but they're buying service, which is not available elsewhere.
Loyalty to this type of service would lead one to believe that independent hardware stores can compete with the big discount houses. I disagree- because the independent hardware industry has failed to market service. They still think they're selling product. Just look at their ads in the paper or on the local radio station: '3-Day
Sale
! Screwdrivers, 99 cents! Paint, $9.99 per gallon!'
Service is their real product! It's as if Domino's Pizza marketed quality instead of speed. Domino's built their reputation by glossing over the quality issue in favor of speedy delivery. The hardware industry hasn't made that quantum leap in thought and is therefore doomed.
Singlemindedness
Here's another example, but this problem is an inability to manage duality in marketing.
When's the last time you visited a 'service station'? No, not the gas station where you insert your credit card into the pump to fill up the tank, but a service station, where an attendant fills your tank-or changes your oil, checks your brakes, aligns the front end, and mounts your snow tires in the fall. Not too many of those dinosaurs left, are there?
They were convenient. We knew the owner. The prices were better than at the local dealership. Unfortunately, their marketing efforts began concentrating on the product, not the service.
Think back a quarter century. Those TV commercials with the friendly faces of Texaco attendants concentrated primarily on the people and the service, brought together by the product. About 10 years later, advertising began to center on the quality of the gasoline: cleaning capabilities for more smoothly running engines, octane ratings that would give that extra boost, etc. The people and the service were forgotten.
Madison Avenue assumed that if people came to buy the gas, they would learn to appreciate the service. It didn't work! Things got even more complicated as aggressive entrepreneurs capitalized on the missing link of service and began opening 'fast service' centers, which niched into specific areas such as oil changes and tuneups. Because of an inability to manage duality in marketing both product and service, complicated by niche marketers, full-service stations are a rarity.
Lessons
There's been lots of talk about commoditizing of insurance and selling the product. Some types of coverages can be sold that way; others must be sold on service. Some agencies (and companies) have been commoditizing lines that should be sold through service. Some of them even try to add service later to lines that were sold on price. Still others sell service when the line might better be commoditized. Confusion abounds. And confused marketing leads to disaster.
Times are changing, and the top business consultants say that there are only three choices facing business: accepting the realities of the marketplace, changing them, or leaving. If we accept that the realities of our market are different today, then let's see what has to change-since I hope none of us want to leave.
Analyze the Reality
The first step is to analyze exactly what your agency has to offer the clients. If you primarily sell Commercial Lines, you are in the service business, not the product business. Is that what you're marketing?
Personal Lines, despite what we may wish, is becoming very much product- and price-driven. Even the gasoline companies are now testing the concept of selling Auto insurance by direct mail to their credit-card holders- offering a good price and convenience. Banks are also exploring this, so look for lots more to come in Personal Lines. Are you selling the product?
Agencies with a more even mix of Personal and Commercial business should determine exactly what is being sold under each category. If Commercial and Personal lines are being marketed under a single umbrella, that will have to change.
I want to add a critical disclaimer at this point. As Steve Goodman, Goodman Insurance, Irvine, CA, pointed out, a fine line exists between product/price and service in certain Commercial Lines where price is the critical point closing the sale. While acknowledging the importance of price competition, I distinguish between marketing and selling. Marketing creates the image that leads to a sale. The sale may rest on price, but the marketing should emphasize service. In Personal Lines, on the other hand, price may be your most effective marketing tool.
Looking At Commercial Lines
If you market Commercial Lines by product and price, you'll die by product and price. The first competitor to come along with better pricing immediately wreaks havoc on your entire book of business. On the other hand, if you market your service, you can still go one-on-one in pricing, with the advantage of service.
Steve Goodman's agency is a perfect example. His marketing stresses his agency's expertise and value-added benefits to highly competitive fields (contractors and hospitals). Brochures, direct mail, and advertising highlight the specialists within the agency-their knowledge and years of experience in these niche markets and associated risks. Value-added benefits offered by the Goodman team include free consulting on human resources, regulatory compliance, discrimination problems, EEOC, Workers' Comp, OSHA, Wage & Hour, and discharge and discipline problems.
In addition, clients can take advantage of such other added services as personal credit reports, Dun & Bradstreet reports, motor vehicle reports, and an injury- and illness-prevention program. Add to all this their industry-specific newsletters, compilations of insurance-bid specifications, certificate requests by fax, and periodic seminars on a variety of labor and employment issues.
Despite all this, the actual sale is often price-sensitive, requiring Goodman to remain competitive. Yet the service behind the price is key to his long-term success in new business and renewals. If his marketing were only price- and product-driven, the service factor (even at the same level) would not be as strong.
Looking At Personal Lines
Personal Lines, I believe, are different. The service end can be aptly described as mostly claims processing. To most consumers, the products are identical-leaving price, convenience, and loyalty as the deciding factors. In today's market, loyalty is piffle next to price. I was very loyal to an agent I used to have, but when his pricing on Auto insurance carried a several hundred dollar price tag, the loyalty ended.
To compete in the Homeowners and Auto arena, be prepared to market product and price. Service is secondary. That is the reality of the market.
There are some twists, however! For instance, Twentieth Century Insurance captured a significant share of the good driver market in
California
on a direct writer basis. If you call for a quotation, you're mailed an application, and a quotation is issued on the receipt on the back of that application. Even existing insureds cannot call and receive quotations on how additions, deletions, or changes will affect their premium. The telephone operators are not licensed and can take only the information. All quotations or premium changes are sent back to you by mail. This company proved that price can overcome convenience. Claims processing is efficient, so the service element exists but isn't marketed. By the way, I speak from experience; I became one of their insureds shortly after moving to
California
and experiencing the sticker-shock of car insurance that ran into the thousands.
Mercury Insurance and the independent agents representing that company compete effectively with Twentieth Century by specializing in that same good driver market at competitive rates. But rather than simply marketing rates, Mercury stresses that you can still get low rates with an agent. Moreover, it found and attacked 20th Century's weak spot-families with teenage drivers. Mercury competes in a commodity market (price/product), enhancing their marketing with the service aspect of having a 'real-life agent.' Strictly selling the service or strictly selling the price would not have been as effective.
When There's Two
The most difficult change will be for agencies or brokerages that need to market both service (Commercial) and product (Personal). There's no easy answer. You must look at each profit center separately and market accordingly. Treat them as if they were two individual entities. If you use an ad agency, you might even consider using two agencies-or at least ask for separate account reps to handle each line. If you do your marketing and advertising in-house, then you need to make a concerted effort to keep them separate.
On the positive side, if you effectively market yourself as a price-driven purveyor of Personal Lines, that price-sensitive image will carry over into the minds of your Commercial accounts and prospects. Coupled with Commercial marketing that emphasizes service, you can actually have the best of both worlds. Similarly, the service image you build with Commercial marketing will carry over into the minds of your Personal Lines customers.
Other Personal Lines alternatives might include looking into joint marketing relationships that would enable you to sell product/price under the auspices of another entity. Some agencies are already entering into such arrangements with local banks. Rather than selling against them (which is inevitable), these agencies are entering into joint ventures, in which the agency sells certain lines of insurance in conjunction with the bank. The agency often sets up an office in the bank itself. Such a maneuver enables the branch in the bank to handle the commodity lines and the Commercial Lines to continue autonomously from the agency headquarters.
Adapt + Change = Win
This article is intended not to provide all the answers but to help you take the first step in accepting the marketing reality facing independent insurance agencies today. By accepting the reality, you can move on to analyze the situation and make the necessary adaptations and changes that position your firm to continue growing.
Determine whether you are selling a product, a service, or both, and market accordingly. Awareness sprinkled with creativity and baked with perseverance is a sure-fire recipe for long-term success.