Riding the Whirlwind

Strategic Interactive Marketing for the Insurance Industry

Key Points:

1 to 1 Marketing is attributed to the ideas of Don Peppers and Martha Rogers.

1 to 1 Marketing aims to understand the particular needs of individuals, and then to meet those unique needs.

The aim is a significant share of each customer's life time purchases.

4.3 One to One Marketing

4.3.1 The ultimate form of Relationship Marketing (RM) is 1-to-1 Marketing, though many might suggest that is simply an attempt to return to the earlier days prior to mass marketing.

4.3.2 The term 1-to-1 Marketing is attributed to Don Peppers and Martha Rogers. They describe it in their 1992 book The One to One Future. Their most recent book Enterprise One to One, provides practical ideas and examples of implementing 1-to-1, especially though using the new interactive mediums (www.marketing1to1.com).

4.3.3 1-to-1 is different from RM in that:

• RM works with aggregates of customers (one interviewee said that 10K customers are the smallest practicable segmentation), whereas 1-to-1 works with individuals.
• RM attempts to find and match these aggregates (or segments) with existing products, whereas 1-to-1 aims to provide products to fit the particular needs of an individual customer.
• RM separates the 3 stages of product design, sales and build. 1-to-1 though, consolidates these into a seamless task whereby design and build are the outcome of the sales process (i.e. needs analysis) - see the next section on Mass Customisation.
• RM tends to focus on market share, whereas 1-to-1 focuses on share of a customer's life time purchases.
• in reality RM tends to use marketing actions involving one-way mass media advertising and general special offers open to all customers. 1-to-1 uses interactive dialogues and custom promotions addressed to individuals.

Different customers have different life time values as well as varying degrees of different needs.

Sometimes it is the service element which varies between customers.

To summarise, RM works in the product dimension whereas 1-to-1 works in the customer dimension. Don Pepper's has created the Customer Differentiation Matrix to position an enterprise's customers:

Enterprise One to One, Ch. 3 Mapping the Strategy, Peppers & Rogers, 1997

Customer Valuations refers to the value of the customer to the enterprise and is usually calculated on a Life Time Value (LTV) basis. Customer Needs refers both to the product and to the service element. For example, customers A & B both require a bank account but A values the ability to transact business 24 hours per day, 7 days a week. Whilst today few companies are in quadrant 4, Peppers provides strategies for moving one's customer base to this quadrant.

4.3.4 The benefits of 1-to-1 are:

• reduce customer attrition rates and churn.
• increase sales per customer
• lower sales cost.
• customer lock-in in a non coercive manner.
• intimate feedback on existing and new products and services.
• clear business justification for the new interactive mediums.

Companies saw 1 to 1 Marketing as an ideal, but thought it too difficult and non profitable.

There were issues of cost justification, privacy, process complexity, lack of internal capabilities (especially with technology), and the impact on existing distribution channels.

Companies appear to be locked into the mass market paradigm.

- 1-to-1 an Ideal State -

4.3.5 Interviewees are well aware of 1-to-1 Marketing, see it as an ideal state, but are sceptical as to whether it actually works or is justified:

• adding personal soft lifestyle data is extremely expensive to collect and difficult to process.
• getting approval for advertising spend is relatively easy compared to justifying the case to collect personal data whose benefits are long term and not guaranteed. One interviewee stated that he had no problems in acquiring £20m to spend 'above the line' on the basis that having spent that money last year the company had grown its market share.
• customers and civil liberty bodies may feel that privacy is being eroded, especially where databases contain the softer data, such as aspirations, desires, likes and dislikes; as well as a full transaction log of past actions and a prediction of future behaviour.
• difficulties in recruiting staff with the right personality. For instance, staff who inspire customers to divulge their dreams, and then go on to suggest a method to realise them.
• communicating customer's ideas and requirements for new products and services requires new internal processes.
• customer service is extremely difficult if all customers have a different product specification or service arrangement.
• implementing new processes, new technologies and new ways of thinking, working and remunerating is very difficult, especially within existing distribution channels.
• organisations typically divide themselves into divisions for handling different products, and then further split themselves into functional silos. Integrating these is a challenge.
• new technologies like data mining, natural language processing, and the interactive technologies are in their infancy.
• the technological difficulties of creating a customer database. They are often under the exclusive control of marketing and are separate from the transactional systems. 1-to-1 Marketing needs a customer view at the transaction level enhanced by a customer history of all interactions.

4.3.6 So although many of the interviewees already have significant customer bases (one has 14m, another 4.5m), the barriers seem to lock them into the traditional marketing paradigm of the mass market.

However, Insurers are taking pseudo 1 to 1 initiatives.

These include personalised promotions and quotations which are more closely related to individual risk.

- Pseudo 1-to-1 Initiatives -

4.3.7 Nether-the-less, companies are taking some 1-to-1 initiatives: or at least trying to work on a more 1-to-1 basis:

• one insurer is using out-bound telesales to follow-up all recent purchases.
• Abbey National plc allows Internet customers to personalise the information content of the web pages and then be informed of new products and services for the selected topics.
• another insurer emphasises the need to switch from a proactive approach to an enabling one: helping customers to make their own decisions.
• one bancassurer is rating GI customers within groups of 15 homes. Note: 1-to-1 Marketing sees this as micro marketing, but not a substitute for assessing risk based on a known profile.
• a number of banks are segmenting customers based on their profitability.

Personal index page with Abbey National. Customers are e-mailed
when any of the specified topics change.

4.3.8 Some of the larger companies are making significant investments in specific technological areas:

• data mining is one area, but few wished to discuss the matter. Perhaps there is a feeling that data mining will be the marketing equivalent of the "cruise missile".
• Note: 1-to-1 Marketing sees data mining as a useful precursor in order to segment customers based on their likely behaviour but not as a substitute for a collaborative interaction where a customer divulges his/her actual intentions.
• a number of companies are developing pilots using interactive kiosks to provide quotations, particularly for GI products.
• similarly, some are engaging in Interactive-TV pilots.

Many bancassurers are investing in kiosk systemsincluding Barclays, Lloyds, Co-operative, Nationwide, Abbey National, and NatWest. ICL supplies a number of these.

.... Microsoft submits its push technology to the world wide web consortium .... called channel definition format (CDF) it allows web sites to personalise their content ..... AOL adopts CDF ....