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Protective- Asset Protection Division (APD) is a leader in Finance and Insurance products offered to consumers by Auto, RV, and Powersports Dealers. For the purposes of this paper we will focus only on the Auto Dealer space.
Those products include:
- Vehicle Service Contracts
- GAP (Guaranteed Asset Protection)
- Credit Life & Accident and Heath
- Road Hazard Tire & Wheel
- Key Replacement
- Dent & Ding
We distribute these products with a direct sales force and through an agency distribution. Our Sales team consists of roughly 40 direct sales reps and about 100 agency distribution partners sprinkled throughout the country.
The Dealer customers can choose a financial program available which includes a Controlled Foreign Corporation, Non-Controlled Foreign Corporation, Dealer Owned Warranty Corporation. These options make up about 90% of our total products provider structure. These allow the company to obtain an administrative fee and the remainder is kept in a fund for the dealer to pay against claims. The funds left over at the end are retained by the dealer customer.
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Controlled Foreign Corporation: A CFC (re)insurance program is a controlled foreign corporation domiciled in an offshore country. A CFC (re)insurance program typically makes an election under Internal Revenue Code Section 953(d) to be taxed as a U.S. insurance company. The entity is usually owned and controlled by a single producer or producer group to insure or reinsure products sold by or insuring the risks of affiliates–for example, auto dealer groups reinsuring F&I products sold at their dealerships. The company assets are all maintained in United States financial institutions, unless an offshore deposit is required by the domicile. However, the premium produced in the program may be subject to premium/procurement taxes.
Non-Controlled Foreign Corporation: A NCFC reinsurance program is a non-controlled foreign corporation domiciled in an offshore country that is owned by at least 11 unaffiliated U.S. participating shareholders or actual foreign owners. The company is typically controlled by the administrator and/or insurance company whose products are reinsured into the NCFC. The participating shareholders own a series of participating stock but do not individually direct the operations of the company or any of the investments. However, the premium produced in the program may be subject to premium/procurement taxes and excise taxes.
Dealer Owned Warranty Corporation: A DOWC is an administrative corporation (C Corp) designed to be the obligor for non-insurance F&I products such as VSCs. The company is not regulated as an insurance company but is treated as an insurance company for federal income tax purposes. The DOWC is owned by a dealer or a dealer group and is administered by a third-party provider. The DOWC usually purchases an excess of loss insurance policy from a third-party insurance company to insure its performance under the obligations the DOWC issues.
1. As an Insurance Company who provides Finance and Insurance products within the Auto Dealer space, we have historically been extremely conservative in nature. The Protective-APD marketing efforts were concentrated in mostly industry publications and relying on our individual sales employees to utilize word of mouth. Over the years, we have designed or implemented new products and services based on our individual needs internally to make things more streamlined. Our products were designed without discussing with the consumer or user for input before launch. Our inside-outside approach hurt us in our development of new products and services as our failure rate is roughly 80% on all new products and services.
Our organization for as long as can be remembered is a follower. We have not innovated or created a product that has not been market tested. Many times, that product is delivered at a price higher than what the market can bear. As a follower in distribution it can be extremely frustrating as we wait and see how and if the potential product is successful. By the time we deliver a product the market has already been set and unseating an incumbent without either a better service (job to be done) or improved product becomes increasingly difficult. As we learned in the session 1 lecture of this course, companies should not be asking “what else can we make,” but rather, “how can we better serve our customers?” Protective is definitely taking the inside-out approach and should focus a little more on creating true value in the eyes of the customer.
Its strengths are easy to pin-point in what separates APD as an organization to others. As represented in the SWOT analysis in Appendix #2, being a customer-centric, market-driven focus organization, APD has delivered on our revenue results year in, year out despite of not being an innovator or delivering on product. The dual-distribution market strategy allows to play two hands in poker along with having brand strength within the Auto Dealer Market Segment. Best practices are we leverage our strength of brand, distribution and a keen knowledge of the specific industry and customers to provide solid council on their financial package chosen. Again, as we learned in this course, this is a classic inside-out approach. Protective runs its business well using its keen market knowledge, but there is a risk in not recognizing, as Roger Best argued in our textbook, that “a business’s first need is its customers.”
The distribution is represented of direct employee’s and agent distribution. The agent distribution can choose who they want to represent to their dealer customers. This choice does not come easy to them as they have many choices. The competition is fierce and its often almost like a red or blue option. Offering a possibility of winning an incentive trip and an annual Conference help to provide growth in the relationship between the two companies along with providing a forum to gain feedback. Unfortunately, the negative in too many of the incentive trips the relationship is only gained by Senior Management and the distribution. The Protective rank and file have a wedge put between them and their customer as when issues arise, the distribution feels the need to funnel their complaints to the top. While this could be a budgeting issue it’s important for this to be recognized and address it accordingly.
Having a full suite of financial program offerings has given Protective the ability to become a one stop shop. These offering are delivered transparently to both distribution and their dealer customers. This is not often the case with other companies in this space. It also is consistent with the Protective Core Values which are: Doing the Right Thing, Serve People, Build Trust and Simplify Everything. These values can be the driving force of everything provided by the organization and should be their guiding principles when it comes to marketing. Using these Values as we market would provide separation in a market in which can have a lack of transparency and ethically challenged. Staying true has not been easy as if its distribution is its strength making sure we have the right partners and consistently vetting them becomes paramount.
As I look at the strength of distribution being forefront, I also feel our distribution is a weakness. Without proper incentives to drive consistent growth from each and everyone of them they lack the motivation to utilize our offerings on a day to day basis. While within the industry any agent can sell anyone one company’s product without need for commitment level. I see an annual incentive or motivation on a gross scale could drive the kind of growth needed from year-to-year. The cost for this could be minimal as a small fraction of the admin fee could be allocated to compensate them on an individual basis. As a service industry having industry-leading incentives and motivation will separate Protective from the others in a commoditized product world.
Appendix#5 provides the trade-off to the Market strategies in terms of other products and distribution. As an example, Protective attempted some of these options and failed based on approach and decisions made unilaterally without involving the customer on the process or product.
Examples of this approach include:
Direct-to-Consumer– a consumer driven marketing approach (Call center) by utilizing the dealer’s database to direct market those consumers and changing a marketing fee along with a commission which was kept in-house and paid the dealer a small commission for each of their customers who was sold a contract by our call center. The large opportunity of these consumers far out weighed the questions which were not asked about” How would this be perceived by the dealer that their customers?”
Total Service Protection– A Vehicle Service Contract sold by the dealership from their service department after the sale of the vehicle and presented by the individual service adviser as the dealerships customer was presented the repair order. A process created by us which was very clunky and ultimately was taken advantage of as the initial waiting period of 30 days after purchase was exploited by consumers returning 31 days with repairs not completed prior. The product and process could have been perceived better and possibly been improved overall by involving the consumer and dealer personnel.
The decision to not involve Third Party Administrators (TPA’s) has become a challenge as APD continues to expand its footprint as a leading insurer and administrator. Some of APD’s competition is in the TPA space and they could pick up the insurance portion while staying continually close to those providers. This could potentially allow them at getting first right of refusal for acquisition down the road. This point was made in one of our early course lectures by Dr. Bettencourt: Protective must decide who has the most influence over what product or service is hired and who can best present this to the customer. Currently, they do not believe TPA’s can do this.
Decisions made on strategy for Marketing and Distribution shape the company’s future and growth initiative, like water through a shower. Each opening allows more water through, however, closing one hole allows to gain further pressure through the remainder. Understanding the cause and effect of the ramifications of choosing to enter a market or not is paramount.
2. The Automotive Dealership is the end customer no matter how the D.O.W.C. financial solution is presented we surveyed 198 dealer customers with 5 questions as graphed out in Appendix #3. These simple questions provide Protective with a simple framework for gaining market adoption and growth in the future.
Pushing the status quo and education seem to be a great start in moving the needle to gain adoption. With 50% of the populous having never heard about a D.O.W.C. was surprising.
The questions we need to answer are as follows:
- How can we educate the dealership personnel and decision makers?
- What can we learn from these questions?
- How can we frame our marketing strategy from these insights?
As we read in the John Gourville article entitled “Eager Sellers and Stony Buyers” from the Harvard Business Review, consumers hate changing behaviors. He writes that learning about a new product or service places customers in the uncomfortable position of having to give up what they already value. With the customer insights gained from these interviews and knowing the behavioral obstacles we must overcome from Gourville, Protective should steer in a strategic direction to win over new customers.
The first course of action should be education and information. Starting with our distribution with webinars and individual meeting/conferences to both educate and inform them to get the word out to the dealership personnel. Understanding a call to action should take place and even an incentive for getting the word out. The forums available for advertisement and education are industry trade publications, sponsored webinars within the industry targeted specifically at dealership personnel, social media, industry events and communications. Protective should utilize highly targeted campaigns based on a test sample done prior.
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The key takeaways from the survey are we gained a tremendous amount of information that the acquisition of the company invented the D.O.W.C. provides us with the opportunity to both educate and inform the dealership body about the product. The respondents all feel that the complexity of the product proves too complicated or it just doesn’t fit their individual needs. The program does have a high touch model with specifics to each location which make its specialized. This helps in a normally commoditized market. This may be why historically most new acquisitions have come from referral. A positive referral has always proved to be the easiest convert. The prior owners had only closed 9 new D.O.W.C.’s in a calendar year and the extended distribution will enhance the education and information provided I the field.
The strategy from these customer insights align with our strengths in Appendix #2. Specifically, the dual distribution allows to inform the potential dealer customers with an expanded network nationwide. Having a laser focus on their individual needs can align with the specificity of the product. Education and teaching about the program is a must moving forward as most of the respondents either don’t understand the program or think it far too complicated for their needs.
3. A. The current target market segment for the D.O.W.C. has been any Auto Dealer who can produce over 50 total contracts across all product lines. There are no specific walls or other parameters being met or adhered too. As the D.O.W.C. came to the organization through an acquisition, it has become like a shiny new penny and the distribution has put sole focus on its growth. This has seen success surrounding new account aquisiton but has seen some dealers choose the status quo or a program not prescribed in the presentation as most are trying to fit a square peg in a round hole. The status quo will always present a challenge as long-term relationships, renegotiation with the incumbent and the unsettling of change. The process in adding these products previously has been to meet with the potential client and show him/her the benefits of the program. This would follow by obtaining key figures from their individual dealerships and providing a proforma. This usually shows a large number which either is too good to be true or very compelling. Being an insurance offering, we really only provide services and this is a financial program which provides future funds. However, they have either omitted the day-to-day service given by the organization or purposefully left it off. This makes the status quo far more appealing.
The course material that provides the most insight into this dilemma for Protective was “The B2B Elements of Value” by Eric Almquist, Jamie Cleghorn and Lori Sherer, also from the Harvard Business Review. The authors identified the “40 Elements of Value” that we discussed in class and argued that “our research shows that with some purchases, considerations such as whether a product can enhance the buyer’s reputation or reduce anxiety play a large role.” Again, it all comes back to understanding the customer’s needs and having a solution that increases the perceived value for the customer.
Therefore, our recommendation for change the current process is to vet each opportunity and allow us to prescribe a financial program based on the dealer’s needs, wants and personality. This would allow a presentation packed with solutions surrounding the D.O.W.C program or one of the other options. Missing this mark has left confusion and ultimately a choice that potential is based on our individual gratification or perceived incentive. The program has key benefits which can be attractive to the decision maker’s ego. Those are specialized, their own (they own their own warranty company) and branding specific to their business. Using the brand strategy is a great strategy and one we recommend. Obtaining new customers is costly and keeping them happy is ever difficult. A focus on this benefit solves a problem that every dealership has.
Value Proposition Statement: Providing individual brand recognition and transparency with financial peace of mind within the Auto Dealer market segment.
Providing customer loyalty to our individual dealer customers is paramount as we attempt to solve their problems of customer retention. This provides them with added individual profitability. The market has seen a tidal wave in financial programs with increased scrutiny on what the compensation is by the individual provided along with hidden fees. The D.O.W.C. provide complete and total transparency as each customer receives a bill and signs off on the fees specific to their account. Providing a profitable solution that has continually delivered since 1975, the market will be passionate about the simplicity of the statement and deliver on its promise.
4.A. The current pricing practice has been a top down number driven by the CFO with little to no market influence. This practice has proven to be extremely hubris in its delivery. A product high water mark number has been provided without any knowledge of the product benefits or true market opportunity based on its individual price. The D.O.W.C product has a fee of $105.00 as standard on a Vehicle Service Contract, however, many customers throughout the country are priced at $65.00. This has trained the distribution that a negotiation must and will take place each time with “NO” almost never given. Understanding we are either missing opportunities or just the sheer pricing process is against the transparency of the value proposition above. The pricing grid below articulates the negotiation precipitated by this practice.
The article “How Do You Know When the Price Is Right?” by Robert J. Dolan in the Harvard Business Review spoke to the strong message that pricing sends to a market and how it affects customer sensitivities. Protective should take Dolan’s words to heart when he says “Before determining a price, managers must think about how customers will value a product.”
The recommendation is a true market analysis inclusive of pricing and product and solution benefits. Knowing exactly what the costing is to produce the product along with “Activity Based Costing” by adding additional products to the mix. This could allow additional product penetration in current customers. How can the field or management price a product without understanding the true cost? This has baffled me for many years and must be solved if we aim to capitalize on efficiency in pricing. The product differentiation of Vehicle Service Contracts is very little and has been almost commoditized. Evaluating the service provided by the customers and articulating their price in a grid will allow evaluation on market potential along with the current averages. If a negotiation must be had it should be evaluated by distribution, market, and potential customer size. The decision should be made by management closest to the sale and not require a conversation with Senior Leaders on items regarding the pricing profitability. If we are attempting to be a market leader and product differentiator without ever stepping foot in the innovation platform we must have evaluated the market and priced our product accordingly. This will allow us to understand where our resources in Marketing can and should be spent.
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