Why is customer loyalty important?
2 reasons
- It costs 4-5x more to acquire a new customer than to retain an existing one
- Future underwriting results are made more predictable if the underlying portfolio of risks remains fairly constant. It follows, therefore, that if an insurer is losing a substantial proportion of its policyholders each year and replacing them with others, there is an increased volatility in the whole portfolio of business.
How may a consumer wish to be rewarded for being loyal to a company?
- Discounts;
- Premiums not increasing because they are no longer a new customer; and
- Insurers taking loyalty into account following a claim.
Name 2 practices of pricing strategies that could prove harmful and explain them.
- The use of price differentiation. This is the practice of charging different prices to the same or similar consumer groups for the same product. This will lead to some customers paying significantly more than others with similar risk characteristics.
- The loyalty penalty. This is the practice of charging renewing customers more than new customers for the same product.
When it comes to pricing, the FCA has 3 target outcomes so that consumers get fair access to goods at a fair price and quality. What are they?
- Consumers can choose from products that meet their needs, at a suitable quality and price.
- Digital innovation and competition support greater value for consumers.
- Vulnerable consumers are not exploited or targeted with poor value products and services, and access to key products and services is fair.
To achieve the 3 target outcomes for consumers to get fair access to goods at a fair price and quality, the FCA has rules designed to improve the competition and ensure that firms do offer fair value products.
What are these rules?
- A pricing remedy: when a renewal price is offered to a customer, this should be no greater than the equivalent new business price for a new customer
- A requirement on firms to offer a range of accessible and easy options to consumers who want to cancel auto-renewal on their contracts
- Governance rules making sure that firms have processes in place to deliver products that offer fair value to customers.
What does the FCA require to increase transparency around product value
It requires the reporting & publishing of data on value for money through the General Insurance value measures
The data is published so that it is available to organisations, consumers organisations and the media and enables firms to assess which products offer value and whether their own products offer a fair value to their customers.
What are firms required to report and publish data on through the general insurance value measures?
- How many claims it receives;
- How many claims it accepts;
- Average claims payouts, plus the amount by which the highest two percent of claims
exceed the average; and - Claims complaints as a proportion of claims across all general insurance products.
Why is attracting new customers so important?
Existing customers will always decrease over time as some may die, move away or businesses may go into liquidation.
Satisfied customers act as free advertising as 1 in 4 customers are directly influenced from a friend or family member on their decision to use an organisation.
What % of customers discover that they prefer a competitors product or service?
What % of customers leave due to indifference, rudeness or lack of service?
10%
70%
How can a company assess the level of satisfaction achieved?
- Customer surveys
- Analysis of complaints recieved
Needs are the basic forces that drive people and businesses. They can be split into which 2 categories?
- Human needs from our biological and psychological make up such as water or food
- Organisational needs shaped by an organisations objectives
What are the 5 tiers of Maslow’s hierarchy of needs (from bottom to top)
Bottom
1) Physiological needs Requirements of survival e.g breating, food & water
2) Safety needs dominate behaviour. Job, personal and financial security
3) Love/ belonging needs Friends and family
4) Esteem the desire to be valued and accepted by others
5) Self actualisation morality, creativity and realising full potential
Outline the rational model
A typical rational model will show customers defining a problem, seeking as much information as possible, processing that information, evaluating its accuracy and relevance to the problem. It shows them reaching a buying decision, evaluating their decision and deciding on repeat-buying in the light of personal appraisal. _____________________________________________________________________________________
1) Problem definition the consumer recognises that they have a need that they want to satify (e.g need home insurance for new home)
2i) Information search consumer searches for info to help them identify a solution to their need
2ii) this can be an Internal when they are already aware of brand names of possible insurers
or an
2iii) External seach where they need to find new details
3) Information process and evaluation the customer evaluates all of the inforamtion and can search for additional information if needed
4) Buying decision the consumer becomes a customer (buys the home insurance)
5) Evaluate decision and decide on repeat buying customer reflects on their purchase, if they are satisfied, they will renew next year
How does the rational model differ for commercial customers?
- Different people are likely to be responsible for each stage
- Each stage may include the views and opinions of different employees from different departments
What factors may influence a customer when deciding to purchase insurance?
9 points
- Economic affordability and perception of value
- Social Status higher income groups can afford high introductory prices or latest releases
- Age may have different appetites of risk e.g younger customers may not feel the need for insurance like people with children do.
Also may alter how they review insurance e.g online - Organisational structure it may be board directors that are arranging for their corporate insurance, wrong decisions could be costly
- Culture different cultures may have different interpretations of marketing e.g meanings of colours. Different cultures may also prioritise different things to cover
- Peer pressure Individuals try to emulate members of a group that they wish to be a part of
- Environmental, Social & Governance (ESG) Agenda of an organisation and their positive stance
- Attitude Distrust to a company’s small print being used to avoid paying a claim
- Consumer awareness - knowledge more information is available to consumers now
What are the 2 frequently used concepts in behavioural economics which may explain why people make irrational choices?
- Heuristics
Mental short cuts / rule of thumb causing incorrect estimations - Framing
Concerns how information is presented. e.g choosing a 5% lean meal over a 95% fat meal - people tend to choose the positive light even though they are the same
What can cause fluctuations in insurance demand?
- Credit constraints / changes to financial circumstances
- Competition - new insurer coming to market
- Seasonal demands (e.g travel insurance)
What is the marketing mix?
& What is it also known as?
The 6 P’s
The combination of controllable marketing variables that a manager uses to carry out a marketing strategy in pursuit of the firm’s objectives in a given target market.
What are the 6 Ps of the marketing mix?
- Product the thing being offerred?
- Price are the costs involved appropriate?
- Promotion Is the communication programme appealing to the percieved values of the target audience?
- Place Logistics involved, is the product/ service easy to access?
- People Quality of service
- Process Procedures, routines and policies used to deliver the product/services determine how customer friendly the organisation is percieved to be.
What are the 6 influences of consumer choices that are outside of the organisations control?
- The economy high unemployment levels lead to less disposable incomes but this can also work the other way and attract income protection insurance
- Government legislation certain insurances may become compulsory e.g employers liability insurance
- Competition Entering or leaving the market or offering different services
- Consumer lobbying can impact cover restrictions such as insurers having to provide flood cover to existing policies
- Technology advances can make new products possible and impact customer expectations
- Social/ cultural influences certain religions prohibit working on some days of the week and may influence what becomes fashionable or not morally acceptable e.g increase of mobile phone usage.
What do the 6 influences of consumer choices outside of an organisations control pose risk to?
Businesses losing contact with its customers needs for both exisiting and potential customers
Where could ideas for new products come from?
- existing customers;
- the organisation’s staff;
- suppliers or agents;
- competitors;
- the Government;
- the media; and
- trade associations
What is a service level agreement?
A statement that sets out the level of service that will be delivered to all customers (or a specific customer).
These can be for information only or can be contractual which may also offer compensation if this target is not met.
What is a contact centre?
Any office based organisation whos primary focus is the delivery of customer service in respect of sales, claims or other services through the phone or online use such as chatbots.
These are either solely telephone operations or telephone and online operations.
The key operation is to meet high standards of service
