Target marketing is a great technique for writing new business. But to implement it effectively, an agency must choose its targets wisely. How to do so is the subject of this article, together with a discussion on how an agency can market to a selected group by using direct mail, telemarketing, and sales centers.
Some of the information I'll share with you is derived from Ready, Aim, Fire, a guide to establishing target-marketing programs that I co-authored in 1986. It largely was based on procedures I used at Associated Insurance Agents, Inc., an independent agency that I subsequently sold to Riedman Corp. Part of it also comes from Focused Selling, a book I recently co-authored that analyzes how agencies use sales centers to drive their marketing efforts. In conducting research for the latter book, William C. Toll, CIC, and I surveyed more than 200 agencies to get information about their marketing techniques. I'll refer to the survey a number of times in this article.
First, what is target marketing? Based on the survey results, there seems to be two widely used definitions in the American Agency System. Some agents view target marketing as a matter of selecting a competitively priced product from one of their carriers and marketing it to the appropriate industry. Others view target marketing as a matter of identifying an industry for which they have the desire, expertise, and necessary products to penetrate.
The first view of target marketing is company driven. Agents using it tend to rely on carriers for the information they need to select a target group. The second approach is agency driven. The principals consider the agency's needs, goals, and expectations in deciding which groups to target and how to market to them. That is the approach to target marketing that I will discuss in this article.
Incidentally, in this approach to target marketing, an exclusive product is not essential for success. In our survey, only 37% of agents said they use exclusive products in their target-marketing programs; and among this minority, exclusive products accounted for less than half of all revenue. So target marketing can work quite well with 'shelf' products.
Creating a Profile
In our survey, we asked agents how they determined whether a given group would respond to target marketing. In analyzing their responses, we came up with a list of factors agents should consider in creating a 'profile' of a good target-marketing group. Each agency must decide what values to set for these factors:
(1) Minimum commission level. What's the smallest acceptable commission payable on the product that would be sold to the targeted group? Can you get by with 10%, 12%, 15%? In our survey, some agents indicated they use this criterion as an 'acid test.' They said they eliminated groups that didn't meet the minimum commission level because there was just too much good business to work on that paid higher commissions.
(2) Minimum account size. What size is best? There's no right or wrong answer. Some agents wish to work with the largest prospects, while others prefer medium-sized accounts. Agency expertise often is a critical factor in this determination.
(3) Unique risks/competition. What unusual types of businesses are you qualified to pursue, and what's the level of competition for them? It's difficult to target market to an industry that already is served well by many agents and carriers.
(4) Minimum premium volume. How much premium should a group have to justify a target marketing program? $250,000? $500,000? $1 million? In setting a value, consider your overhead and selling costs.
(5) Growth potential.
(6) Minimum number of prospects. This is an optional criterion, and it seems to be used in urban areas, where agents have a large number of groups to select from. Agents in less densely populated areas, with perhaps not so many prospective groups, might not wish to include this factor in their profiles.
Groups that meet the first five (or six) criteria of your profile can be winnowed further by using three more: Minimum annual sales, minimum annual payroll, and minimum number of employees. Again, each agency should choose its own values for each criterion.