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The recent economic crisis has had a profound effect on the consumer decision making process in certain industries. Increasingly price sensitive consumers are common in the car insurance market in particular, boosting use of comparison websites (aggregators) such as confused.com or GoCompare. Approximately 95% of 1st Central's customers are acquired through an aggregator, so this increase in use is almost certain to result in an increased demand for 1st Central policies, as customers leave their previous insurer in search of a better value offer.
Certain large aggregators have also recently launched high-profile publicity campaigns, so it is possible for a relatively new brand with low recognition such as 1st Central to piggy-back on the success of these now household names increasing traffic to their websites.
Short Term Marketing Plan
The following SWOT analysis brings together the main points gathered in the Marketing Audit (see Appendix B) and the findings are discussed below.
Fast, modern pricing/rating software and techniques
Company structure includes underwriter, intermediary and administrator all within the one brand
Fixed customer acquisition costs
Good web presence
Good first year progress
Low brand awareness
Limited number of products
New products in development
Increasing use of aggregators
New legislation expected to allow less paperwork
Increasing cost/frequency of claims
'Copycats' entering the market on the 1stCentral business model
The above SWOT analysis is drawn from the various elements of the marketing audit and summarises the key points.
It would appear that despite its weak brand and limited product lines, 1st Central's strengths and opportunities should allow for continued growth.
The software systems in place in 1st Central's underwriting allow adjustments to be made at any time, on short notice and 'real-time', not relying on old legacy systems as many insurers do. This gives the company a good competitive advantage in the market, even against the bigger brands, in that it can react instantly to changes in the market, targeting the desirable risks and pricing out the undesirable as required.
The structure of the company is also favourable. With the Insurer and Intermediary based in Gibraltar, and the Holding Company in Guernsey, whilst the Administrator operates from the UK, the company is able to take advantage of tax efficient schemes offshore but retain its UK call centres and management, important factors for potential customers. The company also benefits from having all its main channel members within the same group under the same ownership and brand, reducing the threat often felt by companies with more external suppliers, and creating a feeling of cohesion, shared goals and stability amongst all members (see Appendix A for an explanation of the group structure).
Other strengths include fixed acquisition costs - a benefit of using the aggregators. The fixed cost per customer allows for more accurate budgeting and forecasting. It is measurable and predictable therefore highly attractive to a new provider. It also means that at renewal, the fee is not payable and so the company makes a saving for each customer it retains, which can then be reallocated to the marketing budget. As the company continues to grow and become a more powerful player on the aggregator panels it can negotiate better deals and so reduce its acquisition costs for the future. 1st Central has a presence on the 'Big 4' aggregators (Money Supermarket, Go Compare, confused.com and Compare The Market) so can reach a large number of potential customers despite its low brand awareness.
The experienced leadership of the group puts the company in a good position despite its youth, as the directors and management team bring with them their previous expertise, and having worked together previously on other projects prior to 1st Central can avoid the discord that can often occur in a newly established team.
All the strengths of the group have lead to a good first year of progress, which has seen over 100,000 policies sold, and the company rising in the ranks of providers to top 10 in more than 1 of the 'Big 4' aggregators. The company has gained momentum quickly in its first year, which should propel it to further success in the future.
The weaknesses of the company are its low brand awareness and fairly limited line of products that are currently available. Although 1st Central can to a certain extent piggyback the trust and recognition of the aggregator brands, where differences in premiums are small potential customers can still be lost to better known names. The limited range of products available mean that all the company's eggs are in one basket, and all hopes rest on this one line (car insurance and its ancillaries). There are no other products that can be relied upon if the car insurance line needs support.
The main opportunities available to 1st Central come from its new product development. The company plans to enter the motorbike insurance market in 2010, followed by commercial van insurance. The car insurance 'cash cow' will be able to support the launch of the motorbike and van lines through their introductory phases.
Growing use of aggregators by the public, fuelled by a desire for the best price and the high marketing spends of the 'Big 4', will increase the exposure of the brand and grow its customer base. The legislation that is expected to allow insurance companies to send electronic certificates will provide a boost to 1st Central - the company already sends all other documentation by email, and when the requirement for a hard copy of the certificate is removed 1st Central should see a saving in posts and printing costs, which can then be reallocated to growing the company.
The threats to the company come from the rising cost of claims and the possibility of 'copycat' companies entering the market following the same business model as 1st Central and positioning themselves as direct competitors. The rising cost of claims has been well documented in both the industry and national news, and is causing premiums to rise. This could affect any player in the insurance market, but as a relative newcomer the danger is more severe to 1st Central as the company may be less able to absorb the costs than it's more established rivals, and be forced to increase its premiums. As a new name in a price sensitive industry this poses the main threat to the company.
The Ansoff Matrix (see below) is a useful tool for selecting a suitable growth strategy.
The best growth strategy for 1st Central to adopt in respect of an increase in demand would be product development. As a new company introducing its products to the well established car insurance markets, this strategy will allow the company to concentrate on developing its portfolio of products to serve more segments of the market and expand its customer base. Whilst product development can be an expensive strategy the rewards will be reaped in the long term, and the cash generated by the car insurance product line can support the newer lines, such as bike and van through their introduction phases.
Market penetration can also be a good strategy for 1st Central, encouraging higher spending (through purchase of ancillary products) from existing customers, as well as increasing the customer base for the established car insurance products. Market penetration is a good strategy for an increase in demand as it can help the company to maximise profits from its existing products, and the company can take advantage of the increasing numbers of potential customers flocking to the price comparison websites.
The next strategy to consider is the competitive strategy, for which Porter's Generic Strategies can provide helpful guidelines.
When considering competitive strategy Porter's Three Generic Strategies are Cost Leadership, Differentiation and Focus. Cost leadership is a good strategy to adopt in respect of a market penetration growth strategy, as it focuses on maximising sales from existing products through pricing lower than competitors where possible. It allows the company to focus on achieving economies of scale. Differentiation is a strategy that best complements a product or market development growth strategy, as it aims to highlight the particular advantages offered to the customer, rather than tempting potential customers with a low cost product. A careful; balance of both cost leadership and differentiation should be most effective for 1st Central. The final competitive strategy is focus, which is more suited to niche markets, where products are more customised and premium quality. This strategy would be more suited to a specialist insurer and should not be considered by 1st Central.
Segmentation, Targeting and Positioning
Segmentation is the process by which buyers are grouped into categories according to a set of criteria, which could by geographic, demographic or psychographic. The aim is that these groups, once decided, will have similar wants and needs and can therefore be targeted similarly.
Due the large amounts of data that 1st Central collects from its customers during the quotation process, policyholders could be segmented a number of different ways for example, by postcode, age, vehicle type, occupation and more. By establishing which groups are more likely to purchase which ancillary products, these customers and potential customers can be targeted according to their buying behaviours, creating a profile of customers that choose, or do not choose certain products.
Targeting is the stage at which a business will decide which of the identified segments it wishes to prioritize in terms of sales, or 'target'. There are various options open at this point. Undifferentiated or mass marketing finds a common denominator in the whole market and concentrates on providing a single product for a single market. Whilst this method may seem cheaper it may not be cost effective as sales may be lost if customers do not feel the product can be made to suit them. The second strategy is differentiated marketing, where the company adopts a different tactics for each identified segment. Costs can be high but it allows the business to effectively serve all its customers. However it could be more beneficial to target only the most profitable groups, in which case concentrated marketing would be the method of choice. Micro marketing is more tailored and involves a more personalised product offering designed to suit exactly a specific customer. For 1st Central preferable targeting strategies would be either differentiated or concentrated marketing. With the large amounts of data it should be easy for the company to identify the needs and wants of groups according to their purchasing behaviour, and design product combinations and marketing messages for each. This would maximise sales from all customers but could be costly so the company may also want to consider concentrated marketing, focusing only on the segments that are most likely to spend the most money on ancillary products (in the insurance industry providers typically make more profit from ancillary sales than policy sales).
Positioning is the way a company's offering sits in the minds of its customers and potential customers. It is the way a customer will compare competitors, so it is important for the company to design its offering to be distinct from that of its rivals. There are various positioning methods open to companies, including by attribute/benefit, by use, by user, by product or service class, by competitor or by price or quality. The most suitable method for 1st Central to adopt would be to position by price. Car insurance is a price sensitive industry and newcomers will find it difficult to compete, therefore it is advisable for 1st Central to position itself as a low cost, mid quality cover, modern brand. This position puts it ahead of the 'no-frills' brands such as Hastings Essentials, but behind the higher quality positioned brands such as Aviva. 1st Central therefore competes alongside the likes of Budget and elephant.co.uk. It is important to avoid positioning your brand in too many categories, as customers will be unclear and may begin to doubt the claims made by the brand.
Product - The core product offered by 1st Central is the car insurance policy, and is very similar to that of most of its competitors. The augmented product is easier to differentiate, and includes the ancillary products that are most profitable for the company, and give the policyholder a sense of having upgraded their cover.
Price - Price penetration is the best strategy for 1st Central to adopt as it can help to quickly grow market share whilst the brand is establishing itself, and is most suitable to a company targeting price sensitive consumers in a mature industry. Cost-plus pricing is probably the simplest tactical pricing strategy, and can be adjusted to suit any changes required by the growing business.
Place - 1st Central should continue to distribute its products via the aggregators and enhance its online presence with SEO. Improving the appearance and usability of the company's own customer facing site should help to position the brand as a 'next-generation' online insurer.
Promotion - 1st Central does not have a budget for expensive advertising campaigns, but promotes its products via the aggregator and at point of sale. As aggregators are fast becoming the first point of call for many people renewing their car insurance these tactics should remain suitable until the budget allows for more above the line campaigns to boost brand awareness. Piggy-backing the large marketing spend of the aggregators will suffice to expose the new brand to consumers in the short-term.
Physical Evidence - 1st Central would benefit from improving the appearance of their communications with existing customers (by letter and email) as these are the main evidence the customer received of the service. A more professional look to documentation would give the brand a more credible position in the minds of its existing customers.
People - 1st Central has a call centre for sales, customer service and claims handling. Recruiting more staff for these departments would benefit the company as it would reduce call queues, which would reduce complaints made against the company on review sites. As a young brand it is important for 1st Central to earn a good reputation, as it can be difficult to recover from a bad one.
Processes - As an online brand it is important for 1st Central to provide efficient service to its customers. It should develop more online processes - rather than just getting a quote and purchasing online customers should be able to make changes to their policy online.
Below are suggestions for actions to be taken to help 1st Central achieve the correct positioning and adapt to an increase in demand.
Use data gathered at quotation to develop profiles of customers with a propensity to buy certain products. Use these profiles to segment and target customers and potential customers more effectively to maximise ancillary sales.
Continue to develop the bike and van products to launch whilst the car products are generating cash.
On renewal on contracts with aggregators negotiate for improved cost per acquisition deals following a good first year of progress.
Recruit more staff for the Call Centre to improve customer experience and in anticipation of increase in demand.
Undertake SEO to improve brand visibility on the web.
Improve online processes to enable customers to service their policies themselves via the company website.
As with all aspects of the marketing plan, there are a number of options and strategies the company could employ.
Appendix A - Introduction to, and Background of the chosen organisation - 1st Central.
1st Central is a direct personal lines insurer, selling its own products to UK consumers. 1st Central's current products are private car insurance and a range of complementary ancillary products which are distributed online via comparison websites (aggregators) and its own website. The business plans to launch further product lines, including motorbike and van insurance, during the next 3 years.
Car insurance policies are underwritten by 1st Central itself - the company is neither a broker, nor uses brokers to distribute its products. It also underwrites Legal Expenses Cover - a highly profitable complementary product sold alongside policies. 1st Central also offers its policyholders Personal Accident cover, Hire Car and Breakdown cover, all of which are underwritten by other insurers.
1st Central launched in October 2008, and has sold over 100,000 policies during its first year. It currently employs approximately 140 staff.
First Central Insurance Company (FCIC), which underwrites the insurance and Legal Expenses cover, is based in Gibraltar, in order to take advantage of tax efficiencies which are not available in the UK. The company's intermediary - First Central Insurance Services (FCIS) is also based in Gibraltar and distributes the brand's products via the internet.
The company's UK Administrator is First Central Insurance Management (FCIM), which provides support to policyholders through a call centre based in Sussex, including sales support, customer service and claims handling services.
First Central Group (FCG), the holding company which owns FCIC, FCIS and FCIM, and Skyfire - the brand's reinsurer, are both based in Guernsey.
1st Central targets 'peripheral risks' in its underwriting that larger brands do not exploit, placing it in competition with other market followers, as the brand's current low recognition does not enable it to compete with the market leaders. 1st Central benefits from a modern real time pricing strategy which enables it to re-rate several times a day and remain competitive in the business it chooses to write and adjust its targeting as and when required. This pricing technology is not yet in common use throughout the industry, providing a good competitive advantage to boost the young brand. 1st Central currently aims to provide the most competitive quote for approximately 2% of customers using aggregators, and converts approximately 40% of these into sales.
Appendix B - Marketing Audit
The recent introduction of the government car scrappage allowance has resulted in both a boost in new car sales and has also been linked to an increase in the prices of used cars.
The recession has lead to large numbers of consumers becoming increasingly price sensitive, contributing to increasing use of price comparison websites (The main distribution channel employed by 1st Central)
An increasing number of cars on the road can be attributed to smaller households (increasing number of separated families and singles)
Consumers are becoming increasingly 'web-savvy' and are accustomed to using the internet to compare and purchase goods.
Better technology becoming available to businesses - as a new company 1st Central have been able to take advantage of real-time pricing and rating technology.
As broadband becomes more available and affordable more consumers have access to internet based business.
Consumers are becoming more 'green', with many choosing to buy from companies whose environmental policies match their own aspirations. For example hybrid cars are becoming more popular.
Consumers are now less likely to expect large amounts of paperwork from companies they do business with and are more likely to expect the option of online billing, for example.
Legislation regarding certificates of insurance is currently under review, with the expectation that insurers will soon no longer be required to send a hard copy of certificates to policyholders, electronic copies will be equally acceptable.
Porter's 5 Forces Analysis
Threat of New Entrants
In the insurance industry set-up costs can be high - a large amount of capital is required. Lenders may be wary in the current economic climate.
However, aggregators represent an easily accessible distribution channel, their fixed costs of customer acquisition are attractive, and the ease of customer switching can all be an encouragement to new entrants.
Threat of Substitutes
Car insurance is a legal requirement and therefore unlikely to be substituted.
Bargaining Power of Suppliers
1st Central is not a broker - it underwrites and distributes its own products (with the exception of the less profitable ancillaries) making it less vulnerable.
Aggregator partners are paid a fixed cost for each customer acquired through them. As 1st Central continues its growth and becomes a more powerful player, contracts with aggregators can be renegotiated at renewal.
Rivalry between Existing Firms
In the car insurance industry there are a large number of players. A handful of market leaders - the household names who can profitably target the lowest risk groups, a large number of market followers targeting and competing for the various peripheral risks, as well as specialist insurers targeting niche markets.
Industry costs are increasing. With a culture of 'where there's blame there's a claim' ever more prevalent in the UK, the cost of claims to insurers are increasing, personal injury in particular, causing the price of policies to increase. Whilst price wars in the traditional sense do not occur in the insurance industry due to the personalised nature of the product, companies have to remain competitive so may try to absorb the cost of claims rather than increase their premiums.
The degree of differentiation in car insurance occurs in the augmented product and the brand as the core product is almost identical across the board. Larger players can use the reputation of their brand whilst others must rely on level of service or benefits that can be offered. However car insurance is a price sensitive industry and consumers will often base their decision on pricing.
McKinsey's Seven Elements
Strategy - the long term intentions of 1st Central are to add to its portfolio of products with other insurance lines, for example home and travel insurance and to develop the brand into a well know name and become a major player within the competition.
Skills - Due to the experience of its management and entrepreneurial team 1st Central has a wide circle of contacts within the insurance industry. Its rating systems are a definite asset, being more technologically advanced and responsive than more established competitors using older systems.
Structure - The structure of the group is beneficial as the insurer, the intermediary and the administrator are all owned by the 1st Central Group, therefore have shared goals and values.
Systems - to complete
Styles - to complete
Staff - All staff have the opportunity to study the Foundation Insurance Test with the Chartered Institute of Insurers in order to develop their understanding of the industry and better serve the business and its policyholders. 1st Central also funds other training courses in specific departments such as IT, Marketing and finance.
Incentive schemes are used to motivate sales staff, and 1st Central's staff turnover rates are relatively low in comparison to industry averages.
The products offered by 1st Central are currently car insurance policies with a range of complementary optional extras.
New products yet to be launched are bike and van insurance policies with a range of complementary optional extras.
After sales service and support includes claims handling and policy support through the call centre.
Pricing in the insurance industry is complex due to the personalised nature of the product (a policy) based on specific and varying risks and discounts (e.g. no claims discount)
Motor insurance providers use their ratings and pricing to target groups they want to form the majority of their book, whilst pricing out the risks they do not.
1st Central regularly undertake pricing reviews of ancillary products, which are currently sold at a fixed price - to compare against competitors.
1st Central charges a relatively low APR in comparison to other providers.
As an online motor insurance provider 1st Central has a presence on the 4 major aggregators (confused.com, GoCompare, Money Supermarket and Compare The Market), which drives traffic to 1st Central's own site.
1st Central covers the whole of the UK, although certain areas are priced out due to high claims frequencies.
Channel members are all members of the First Central Group - the underwriter, the intermediary and the administrator, and therefore share common goals.
1st Central's products are promoted through the aggregators - piggybacking on their brand awareness and high marketing spend. Very little other advertising is used currently.
1st Central pays a fixed price for every customer that is referred from an aggregator on a cost per acquisition basis.
Around 40% of 1st Central's policy sales are made via the call centre, this is driven by promoting the phone line on both aggregators and the direct website.
1st Central's executive team has long experience in the insurance industry, and have also worked together on previous projects, before the launch of the 1st Central brand.
Ongoing recruitment and training ensures the most suitable candidates are selected to staff the call centres and other departments.
As an online insurer 1st Central communicates with its customers by phone or email, with the majority of documents being electronic.
Many of 1st Central's processes are automated for maximum efficiency to service the large number of customers, for example sending out renewal packs and other customer communications.
In the future 1st Central aims to move a number of processes that must currently be carried out by a call centre agent to be partly transferred to the website, where a customer can for example process their own change of address.