Riding the Whirlwind

Strategic Interactive Marketing for the Insurance Industry

Key Points:

Mass Customisation seeks to provide cost effective 1 to 1 Marketing in mass markets.

Many ideas for Mass Customisation come from Joseph Pine II.

Mass Customisation embodies Rapid New Product Development.

It is a holistic approach that also includes the selling and servicing activities.

4.4 Mass Customisation

4.4.1 Mass Customisation (MC) addresses the concerns expressed by many companies as to the expense of 1 to 1 Marketing and the difficulties in cost justifying such an approach.

4.4.2 The term was first coined by Stan Davis in his 1987 book Future Perfect. The further developments by B. Joseph Pine II are described in his 1993 book Mass Customization.

4.4.3 The post war years of high consumption and shortages of manufacturing capacity led to significant developments in automation of the production process. With Mass Production reaching a high level of sophistication, emphasis then switched to logistics, with concepts such as JIT. Only in recent years has attention been given to the product design and development process, particularly where time-to-market gives a competitive edge. This is typical in industries with fast technological developments, as well as those exhibiting the traits of fast changing consumer fashion and tastes, such as the music business.

4.4.4 Rapid New Product Development (NPD) has been the holy grail of the insurance industry for many years. The author's experience suggests that earlier attempts to address this issue was due to the need to overcome long IT development times and high costs, rather than a marketing requirement. This is definitely changing as consumers become more financially astute, more fragmented in their needs, and more influenced by the fast changing world exhibited within other markets. Pine says today is an era of High Market Turbulence.

4.4.5 MC embraces in a holistic way the total business process from:

• identifying individual consumer needs.
• designing and developing products and services (P&S) to meet those needs.
• manufacturing and delivering the P&S.
• supporting the customer throughout the P&S life cycle, possibly including disposal.

Like all businesses it must achieve all this profitably and speedily.

Design, development and production are undertaken simultaneously.

Mass Customisation is based on a component approach with a product database as its foundation.

Feedback loops ensure components continue to reflect customers' changing needs.

Staff and organisations need to become market focused.

New "intelligent" technology, owned by the customer, will link to insurers' systems.

• the design, development and production activities become a single iterative process.
• the design of components that can inter-operate (a Lego™ approach)
• a product database describing the components and the business rules for their use, etc..
• the selection and combining of these components to meet unique needs. The embedding of the customised product definition within the customer's own unique P&S offering (e.g. their policy record).
• a framework of high level process definitions with flexibility at the detail level. The rules within each unique offering ensures adherence to compliance requirements.
• highly skilled staff operating the processes. Motivation and rewards stem from meeting customer needs to a high level of satisfaction.
• information feedback loops within the processes. These ensure that new and existing components reflect changing consumer needs.
• integrated organisational structures and re-engineered business processes -- no longer can marketing, NPD, sales, servicing, claims, actuarial, purchasing, HR, and IT work in isolated silos.
• tightly integrated distribution and supply chains.
• elimination of distributors and suppliers who add no value.
• technology plays an important role throughout the whole business process. Increasingly the process technology will include technology owned by the customer.
  • e.g. 1) an investment offering is carried in a Personal Digital Assistant (PDA) which is in regular communication with the stock market prices and, when required communicates with the insurer.
  • e.g. 2) cars will automatically communicate with insurers and loss adjusters after being involved in an accident.

Mass Customisation meets the challenges of an increasingly demanding and fragmenting customer base.

Insurers felt core products with limited options met their customers' needs.

Mass Customisation will become more relevant when customers focus on added value. Service elements are likely to be the first options.

• greater customer satisfaction and repeat business due to a better fit between customer needs and the P&S offering.
• greater conversion of inquiries to sales because there is less time for assessing competitive offerings.
• a capability to address a wide and fragmenting market (the core mass market as well as many niches).
• ability to "stake-out" a market position due to being first to market to meet new needs.
• higher profits due to the greater value added but at a cost that is comparable to a mass production.

4.4.8 Compared to 1-to-1 Marketing, fewer of the interviewees had heard of the term MC but they understood the concept. They stated:

• a range of core products with limited options provides sufficient capability to make customers feel they are getting a product(s) tailored to their needs. Brokers can better serve those high net worth customers with a need for personalised P&S.
• in time the market may embrace MC as consumers became more experienced and knowledgeable in financial matters, or embrace other criteria than costs (e.g. ethical investments based on personal attitudes and beliefs).
• MC makes it difficult for customers to do comparative shopping, especially if they are deploying automated Internet robots.
• MC may help to meet the competitive threat posed by the new entrants who tend to "cherry pick".
• by internally applying some of the principles of MC, it helps to achieve fast NPD.
• customising the service element may be the first application of MC. For example, letting customers communicate with the company when and how they want to, as in telephone banking.

Barriers to embracing Mass Customisation include a mass marketing culture, a population which is mostly financially unsure, legacy systems, risks of new technology, and possible compliance difficulties.

One company was using technology to personalise its promotions based on customer data.

4.4.9 Interviewees see the following barriers to Mass Customisation:

• Note: many of the barriers mentioned under 1-to-1 Marketing are also seen as relevant to MC and are not repeated.
• a mass marketing culture based on a belief that standard products and services meet the needs of a substantial number of customers.
• most of the population is Financially Aware but Financially Unsure, though it is generally agreed that this is changing. The larger insurers / bancassurers currently feel their strong brand is sufficient to attract market share.
• whilst there are few component based packages in use, many are probably being used for internal purposes (e.g. NPD and servicing) rather than supporting the sales and marketing process.
• legacy systems will not support MC.
• the costs and risk of using the new technology to support MC. Without technology, selling and servicing will be too expensive.
• the MC concept could in practice be over-complex both for sales professionals and for the customers, causing compliance difficulties.

4.4.10 Only one interviewee suggested that they are undertaking a form of MC. This is a bancassurer who is about to distribute 250,000 letters to their customers, each one personalised according the customer's situation as recorded in the customer database.

Outside the insurance industry, companies are using the new interactive technologies to provide customisation.

In an increasingly fast paced society, "time" is becoming an important element of the marketing mix:

• time to market
• response time
• delivery time
• service time
• timeliness
• any time
• my time!

• Gateway 2000, suppliers of PCs, allows customers to use the Internet to specify a unique personal configuration. An opening page lists a number of useful starter configurations (www.gw2k.com).
• Various motor manufacturers provide showroom systems to customise a car from the hundreds of permutations available. A specified delivery date is usually within a few days. The necessary finance can also be arranged online at the same time.
• Other web sites re-route e-mail, telephone and fax communications to customers wherever they are in the world.
• Motorola Pagers produce custom pagers in lots of 1, from a possible 29 million permutations. From entering the custom order on a portable PC at the customer's office, the order hits the production line within 20 mins and rolls off in a box at the other end within the hour (www.motorola.com).
• Personics Corp., a music store, allowed customers in the stores to put together their own personal compilations that were then created in 5 minutes complete with custom labels. (Recording companies objected to the scheme).
• Federal Express customers track the whereabouts of their parcels in real-time (www.fedex.com).
• The Yearlings TV Guide Internet web site creates a personalised TV listing guide based on a personal list of interests (www.yearling.com).
• Sabena Airlines will page a friend an hour before your flight lands.
• Zacks Stockwatch allows investors to keep track of their personal investment portfolio (www.zacks.com/docs/investorama/). Each day they receive an up-to-date statement.

Daily personal investment portfolio statement from Zacks Stockwatch