What’s the pricing rule in the premium price segment?

Q: We’re A non-life insurance agency.  During the training of our insurance agents, one of the most often asked questions is not about raising or lowering “price.”  We have the full range of high and low “priced” non-life insurance policies.  So the question most asked is about our customers.  It’s about how our agents can shift a customer from a low “priced” policy to a higher “priced.”

This question is the primary focus of our insurance agents in selling our auto accident insurance.  Most car owners choose the most basic and therefore the lowest “priced” insurance policy.  This is particularly true, when the car is bought from a car dealer.  It happens all the time.  We have always known that the car dealer wouldn’t care less which insurance policy the car buyer will choose.  After all, they’re selling cars and not insurance.

So please tell us what can we do and what do we tell our insurance agents during their sales training about how they can shift a customer from a low “priced” non-life insurance policy to a higher “priced” policy?

A: Yours is an interesting case.  Thank you for writing and asking for this column’s Marketing Rx.

There are at least two ways for you to reach your goal.  One is a matter of segment targeting.  The other relates to your positioning of the insurance policy.  We start with the segment targeting Rx.

One of my MBA students once wrote a business case on a car dealership.  In interviewing some of the car dealer’s customers who just bought a car, one of them mentioned something about the car’s accident insurance.  Here’s what customer comment we can mine for its insight into our sought-for Marketing Rx.

“Kaya ko binili itong X-Trail ng Nissan, ang galing ng car review niya.  Mahal nga pero  kasi ako sigurista.  So nung binentahan ako ng accident insurance, pinili ko yung  pinakamahal.  Bumili ka na ng mahal na kotse, e bakit ka naman bibili ng murang car  insurance?”  (I bought this Nissan X-Trail because of its good car review.  It’s expensive but I like being sure.  When I was also sold an accident insurance, I picked the most  expensive.  I already bought an expensive car, why should I buy a cheap car insurance?)

Just a little bit of thinking will make it clear what the customer purchasing practice represented in the preceding comment implies about how to get the customer “shift” you are after.  By targeting the premium and super-premium price segments of car buyers, you will, not directly but in effect, attain your targeted customer shift.  You’ll sell more accident insurance from these two segments of your market.

We now consider the second source of the Marketing Rx you’re seeking.  This is about your positioning of the insurance policy.   Among the many definitions in marketing of positioning, the one most useful for our purpose now says that positioning is about “consumer value proposition.”  That relates to your customer’s “priority product value.”

In relation to pricing, the concept states that the higher the value of your insurance policy is to the customer, the more price insensitive the customer becomes.  This means that the price insensitive customer will prefer the higher “priced” (higher value) insurance policy among your “full range of high and low ‘priced’ non-life insurance policies.”

How do you find out, how do you establish your customer’s preference for a higher “priced,” a higher value insurance policy?  This calls for undertaking a customer accident insurance needs assessment.

Many factors play an active role in a car owner’s accident insurance need.  You should give special attention to these two:

(1) the customer’s “lifestyle,” and (2) car buying under a “company car plan.”  So, the more “expensive” is the customer’s lifestyle, the less price sensitive he/she is or will be.  And the more the car purchase is under a liberal company car plan, the more price insensitive is the customer.  Establishing if your prospective customer has an expensive lifestyle and is buying the car under a more liberal company car plan also establishes that customer’s preference for a higher “priced,” a higher value insurance policy.

Which of these two approaches is better, more effective?  If the customer in each approach belongs to two different market segments, then it’s not an either-or choice.  So if the market segment of buyers of the high-end cars are different in their priority product values from those with expensive lifestyle and who buy under a company car plan, it’s a both-and kind of choice.

Both segments should be pursued.  That means participating in two market segments.  If the segment market size of each segment is about the same, being in the two market segments brings a doubling of your topline revenue.

However, if the two segments overlap completely or almost completely, then go for the first option that’s just a matter of segment targeting.  Its  “indirect” customer shift is immediately revenue productive.  The second option can take and usually takes a much longer time to boost revenues.

Keep your questions coming.  Send them to me at [email protected].