‘Which is better? Customer acquisition or customer retention?’

Q: In our recent sales planning, we ended in a deadlock. For growing our life insurance business, our Sales Group of insurance brokers proposed to just continue with the strategy they’ve gotten used to over the past so many years but with more and better incentives.

That strategy is to go after new customers or new life insurance policy owners.

Sales argue that the uninsured market is twice or even three times as big as the already insured. They presented data from the Insurance Commission in support.

Our marketing consultant who was our CEO’s MBA professor had a completely different idea. He said that for immediately growing the business like in the next year or two, sourcing that growth from our existing policy owners and lapsed policy owners will attain our business growing objective more cost-effectively. Our problem was that the consultant did not show how this would happen except to cite the finding of TQM [Total Quality Management] showing that “it costs five times more to get a new customer than to keep an existing one.”

May we have your Marketing Rx please? Which is better for us? To acquire new life insurance policy holders or to source our growth from retaining our existing policy owners?

A: Let’s start by diagnosing each side of the impasse. On the side of your sales and insurance brokers, the issue is primarily related to incentives. Sales get their commission and bonuses from bringing in new customers or new insurance policy holders than from being able to keep existing policy holders.

In fact, we won’t be surprised at all if you hear Sales saying: “Our job has been done. They’ve been sold. Whether they want to stay with us or leave us, that’s entirely up to them.” So your Sales has most likely never been trained to look at existing policy holders as a source of further revenue, as a source of growing your business.

On the side of your marketing consultant, he has to recognize that there’s at least two different but significant considerations to the issue. There’s first the consideration of incentives to Sales in keeping sold policy holders to stay. Sales is correct because the reality is that there’s none. But most likely, your consultant is thinking of something else. And that’s the other considerations. He’s thinking of selling something more to those now insured customers. For example, why not convince the just insured customer to own another insurance policy and therefore become a multiple policy instead of just being a single policy holder? Or get one who’s a multiple policy holder to change his/her insurance policy to a much larger insured value? Or why not go after those lapsed customers who are still uninsured and get them re-insured?

It is in these alternative tactics of business growing where your consultant can calibrate in specific terms cost-effectiveness versus the strategy of new customer acquisition. For new customers, Sales is thinking of sourcing these from the larger population of the uninsured as evidenced by the data from the Insurance Commission.

Most or almost all of these uninsured prospects are probably from Class D or Class E homes. The debate is not about whether they are sizeable or not because in population size they are two huge market segments.

The cost-effectiveness question to raise here is how expensive is the Sales and promo campaign to successfully penetrate these market segments.  Given their known mass market sizes, no less than an expensive tri-media campaign will be called for. Compare this to selling the single policy holders, the multiple policy holders and even the still uninsured lapsed customers. The sales and promo campaign for these market segments are all going to be based on your database of existing and lapsed policy holders. Accessing and reaching these customers will cost you practically nothing as compared to accessing and reaching the mass market segments of the uninsured via the tri-media communication.

So to break the deadlock, why don’t you first cost out the two opposing selling strategies as defined above or as similarly defined in very specific and concrete terms.

When you do this, you’ll be able to show and evidence which of the two selling strategies is the truly more cost-effective option.

Secondly, you need to take up the consideration of incentives and training. Get your HR to work with Sales on the comparable and suitable incentive scheme for “selling” (and not just keeping) your existing population of customers including the still uninsured lapsed customers. Then present the worked-out incentive scheme to top management for approval.

Next comes the need for training. Some may argue that selling to existing customers is still selling and should therefore be not that different from selling to new customers. When you get to the details of the selling process, the difference that makes a real difference will surface.

It is out of these selling process details that the need for a new sales training will be recognized and appreciated. It is also out of those details where the coverage and content of the required sales training will come.

Keep your questions coming. Send them to us at [email protected] or [email protected]. God bless!