By Thomas R. Schori, Ph.D., and Michael L. Garee, Principals, Millennium Marketing Research, 808 E. Ironwood, Normal, IL 61761-5239. Tel. 309-532-8466 -
NOTE: A version of this column was published in the National Underwriter (Property-Casualty edition), August 17, 1998, Vol. 102, No. 33.
Many years ago, when we first joined the insurance industry, the fact was, auto insurance was not a commodity. Far from it. Unfortunately, though, many in the industry, including top management and agents, nonetheless mistakenly viewed it as a commodity. Certainly, that was the case among executives and agents at the multiple-line company where we worked. Those "knowledgeable" insiders told us in no uncertain terms that consumers based their choice of an auto insurer on one criterion, and one criterion alone. That criterion was price! End of story.
As a result of this generally held belief, all company communications to customers and prospective customers alike focused on one thing: price. A discount for this. A discount for that. A discount for yet something else. Quite frankly, it seemed that there was a discount offered for everything under the sun! As marketers, of course, we knew that such discounts were nothing more that just another form of sales promotion, i.e., incentives to increase sales in the short-term. Thus, they offered incentives to encourage consumers to switch companies. But the reality of the matter is¾and was¾that such incentives are only effective when applied to dissimilar brands, in this case, of course, those "brands" would be represented by different insurance companies. When the brands are very similar, those who "switch" once will simply switch again when a better offer comes along. And, again. And, again. And, again.
While those insurance executives with whom we worked were dead certain that insurance was a commodity, we decided to do something most unusual. We asked customers and prospective customers what they thought. Turns out that they had a far different opinion. They thought claims service was the number one criterion by which to judge an auto insurer. Price, in their minds, was a distance fifth or sixth. What that meant was simple. Though the insurance "experts" viewed auto insurance as strictly a commodity, the people who really count, i.e., customers and prospective customers, didn’t. Certainly, as they say, "the plot thickened."
Dazzled by the logic of our evidence, we actually convinced the CEO that consumers’ insurance-buying decisions were driven not by price but by claims service. Think of that! Other executives accused us of heresy. "You guys just don’t understand the business," they said. "People buy based on price. That’s all." Ultimately, however, the commodity "sayers" prevailed and made it a commodity. That is, thinking it a commodity eventually resulted in it actually becoming a commodity. Could the end be far away?
Evidently, the beliefs of those commodity "sayers" must have echoed throughout the industry. It appears that way to us anyway. We recently surveyed a large number of insureds. We had each insured rate his or her "own" auto insurance company as well as three well-known competitor companies on 20 characteristics that "drive" the auto insurance buying decision. The result? Whether from the perspective of "own"" company or "competitor" companies, statistically significant differences (p < .05) were detected on only one characteristic, viz., the price characteristic. Conclusion? Simple. The insureds found auto insurance to be nothing more, and nothing less, than a mere commodity, whether it be their own insurers or competitor insurers.
That insurers apparently have finally turned auto insurance into a commodity bodes well for some and badly for others. Let’s first look at those for whom it bodes badly:
How, then, can an auto insurer "make things happen" and, thus, avoid becoming or remaining a commodity? By not providing an insurance product that is just like that offered by every other insurer! The answer is to provide the customer that which he or she truly seeks in an auto insurer. But how does one know what the customer truly wants? Just ask!
There are literally hundreds of ways in which one might ask¾each of which has the potential of helping the insurer avoid being just a commodity. However, we’re just a little prejudiced as to what approach is best. We’ve fully described in the scientific literature what we believe to be the very best way of identifying that which drives auto insurance customers’ buying behavior, viz., a procedure to identify a positioning which will maximize a brand’s (company’s) share.
In our first such publication several years ago [Schori, T.R. & Meadow, H.L. "Brand choice modeling," Psychological Reports, 1985, Vol. 57, 1260-162], we provided a non-technical overview of the procedure and how it had been applied to a property-casualty insurance company. Then, more recently, we described the procedure [Schori, T.R. "Getting the most out of image: An example from the fast food industry," Psychological Reports, 1996, Vol. 78, 1299-1303] in sufficient detail that would permit a statistically sophisticated insurance marketer to use the procedure himself (or herself) to identify a positioning which would maximize his (or her) company’s market share. Finally, we also described how one might get insights from consumers as to just how one might operationalize that optimal positioning [Garee, M.L. & Schori, T.R. "Focus groups illuminate quantitative research," Marketing News, June 9, 1997, Vol. 31, No. 12].
Auto insurers, then, have essentially two choices:
The choice for auto insurers is really quite clear: Be a winner, or be a loser.