Habits, Hits, Tails & Tweets:Plus more!
Understanding customer behaviour
Presented By Colin BrigstockFinity Pricing Seminar23 March 2010
Product – level Projections
View of Quantum and
Timing of Price Change
GLM Modelling
View of ‘true’shape by
rating factor
Claims Experience By Segment
Current Premium Structure
Competitor Quote
Analysis
View of competitor shape by
rating factor
View of Competitive Position by Segment
View of Profitability by
Segment
Quote Conversion
RetentionIn Force Growth
Penetration
View of Sales Results by Segment
Possible Changes to
Pricing
Impact Testing
New Premium Structure
Experience By Product
Cost Build Up
ExpensesCat LoadingsReinsurance
Sales Analysis
Sales Data
Demand Curves
WebbotQuote Data
Influences on Customer Behaviour
“Rational” view of customer behaviour
Customers are aware of what they are doing
They know why they do what they do
They make conscious decisions
BuyerBehaviour
ConsumerChoice
CustomerSatisfaction
Customer satisfaction as a predictorof re-purchase behaviour
Satisfaction Levels of Defectors Prior to Re-Purchase
Satisfied80%
Neutral or dissatisfied
20%
Source: Bain Study
Executive Mind
(Conscious)
Latest Brain ResearchYou are of two minds (at least)
Habitual Mind
(Unconscious)
Executive Mind
(Conscious)
You are of two minds (at least)
Habitual Mind
(Unconscious)
Habitual mind controls 95% of human behaviour
“Predicting” future purchase behaviour?
Satisfaction not a particularly good predictor of customer behaviour…
Correlation with customer activity in 6 months after original survey…
Satisfaction Levels of Defectors Prior to Re-Purchase
Satisfied80%
Neutral or dissatisfied
20%
Source: Bain Study
Ranked #1 or #2
0 2 4 6 8 10 12
Likelihood torecommend
Deserves myloyalty
Continue topurchase
Set the standard
Easy to dealwith
Would chooseagain
Innovative
Satisfaction
No of CompaniesSource: Bain / Satmetrix
“How likely are you to recommend XYZ to a friend?”
Probes both dimensions of loyalty…
HeadBest featuresBest serviceBest price
HeartThey know meThey value meThey listen to meThey share my values
By recommending (or intending to do so), an individual is putting at risk some of their personal reputation and trust
Therefore, it represents a much stronger personal commitment than “Am I satisfied?”
Net Promoter Scores
0 1 2 3 4 5 6 7 8 9 10
How likely are you to recommend XYZ to a friend or colleague?
NPS (%) = % Promoters - % Detractors
Extremely Likely
Not at all Likely Neutral
Detractors Passives Promoters
NPS Study 2006
-60-50-40-30-20-10
010203040506070
AAMIAllia
nz QBE
RAC
ING
NRMA
SGIO
CGU
SGIC GIO
Insurer AverageSource: M elbourne Business School Study
NPS Study 2009
-60-50-40-30-20-10
010203040506070
APIA
AAMI
RACV
NRMA
Suncorp
CGU
GIO
Insurer AverageSource: Engaged M arket ing P/L Study
Behaviours: Promoters Vs Detractors
Promoters tend to:Be stickier (higher retention)Buy more products (cross-sell)Be easier to service (lower servicing cost)Give positive WOM (generate referred sales)Provide constructive feedback (enable improvements)
Detractors tend to:Shop around (lower retention)Be single product buyersBe harder to deal with (higher servicing cost)Give negative WOM (discourage potential sales)Provide insight into defects (enable improvements)
Lifetime value exceeds (significantly) direct value of
profit stream from product itself
Lifetime value (significantly) less than direct value of profit
stream from product itself (which in itself is lower)
Is NPS a predictor of desired behaviour?
Progressive Direct (USA)Movement in NPS & Retention
0%
2%
4%
6%
8%
10%
12%
07 to 08 08 to 09
NPS Retention
Allianz Operating EntitiesRevenue Growth % p.a.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Below MarketAverage
Above MarketAverage (excl Best in
Class)
Best In Class
Net Promoter Score
Interpreting Sales Behaviour
An individual customer’s behaviour is difficult to predict but will be shaped by:
past experiences of you (& of competitors)level of engagement and commitment to youHow you present yourself at the touchpoint in question
Sales Performancecomprise aggregation of multiple processesBehaviours in each likely to be quite different
Overall Sales
New Business
Renewal
Mid term
First time insurance
purchasers
Someoneinsured
elsewhere
Existing customer adding further
policies
Strength of Relationship
Endorsement Cancellation
RecentExperiences
Renewal Offer
Instalments
Motor Insurance New Business“Typical” Age Distribution
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 >66
Insured Age
Quotes
New Policies
About 40% below Age 30
Finity Staff Under 30New Policy – How Purchased
Quote Online 11 (100%)No. of quotes obtained before purchasing
• 2/3/4/5 Purchase
Online 9via Call Centre 1Related Bank Transaction 1
% Of Quotes Via Internet
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 >66
Insured Age
Clearly higher(& probably understated)
Finity Staff Under 30Renewals
100% renewed on lineRe-quote experience
“If price not changed much, just pay”“Always get one quote. If within $15 just pay. Over $20 probably switch”“Check every few years”
1st Year Renewal RetentionDeviation from Portfolio Average
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 >66
Insured Age
Propensity to shop?
Online the natural choice of younger generations
How pervasive will this channel become?
What does this mean for your sales metrics?
“As our world is transformed by the Internet and the near-infinite choice it
offers consumers, so traditional business models are being overturned
and new truths revealed about what consumers want and how they
want to get it”
Back Cover The Long Tail
The Long Tail
The tail of available variety is far longer than we realise
It’s now within reach economically
All those niches, when aggregated, can make up a significant market
Mainstream Niche
Car Insurance - Many Online Choices Today
Brand UnderwriterGIO SUNCORPNRMA IAGAAMI SUNCORPBudget Direct Auto & General InsuranceAllianz AllianzYoui Youi Pty LtdING QBEPay As You Drive Car Insurance Hollard Insurance CompanyReal Insurance Hollard Insurance CompanyCommInsure Commonwealth Insurance LimitedFASTR Fortron Insurance Group1300 Insurance Auto & General Insurancee Car Insurance Calliden Group LimitedBingle SUNCORPJust Car Insurance SUNCORPVirgin Car Insurance Auto & General InsuranceApia SUNCORP1st for Women Auto & General InsuranceAustralian Seniors Insurance Agency Hollard Insurance CompanyBeaurepaires Insurance Auto & General InsuranceAustralia Post Insurance Auto & General Insurance1Cover Direct Insurance AllianzQBE QBEANZ Insurance QBEAussie Car Insurance Auto & General InsuranceCGU Insurance IAGOzicare Insurance Agency Auto & General InsuranceHBA Mutual Community General InsuranceThe Buzz Car Insurance IAGShannons SUNCORP
Selection of Car Insurers Quoting in NSW
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
NRMAAAMI
GIOAllia
nzQBECGURea
lBud
getSha
nnonsYOUIAPIA
Just
CarBingle
Comminsu
rePAYDVirg
inAus
Post1C
over
Which brands are registering interest?
Source: Google Insights for SearchNSW Car Insurance related searches in 2005 & October 2009
Oct 2009
2005
Nil Result for 2005
Share of Google Search Activity
Young people –Still a bias towards established brands?
Finity Staff Under 30Which insurers?
Note biased sample – all work in insurance and know brands“Ones we’ve heard of”
AdvertisingWord of mouth
“Less known – must be much cheaper”
Is personal lines becoming a long tail (!) business?
How much will the “real” consideration set expand?
Younger people –Still a bias towards established brands?
Finity Staff Under 30Which insurers?
Note biased sample – all work in insurance and know brands“Ones we’ve heard of”
AdvertisingWord of mouth
“Less known – must be much cheaper”
Managing Your Brand ImageTraditional World
“Promoting”Brand advertising
TVRadioPress
Outward PR
Word of mouth‘good’ service experiences
“Defending”Current affairs
TVTalkback radio
PR responses
Word of Mouth‘poor’ service experiences
Largely, an environment where you could control the messages about your brand and deflect most criticism
Important but not really
visible
Managing Your Brand ImageTraditional World
“Promoting”Brand advertising
TVRadioPress
PR
Word of mouth‘good’ service experiences
“Defending”Current affairs
TVTalkback radio
PR responses
Word of Mouth‘poor’ service experiences
A whole new world is
emerging
Still very relevant.
As effective?
Social media is changing the brand & image management landscape
Word of mouth becoming a “one-to-many”communication
The Web
Forget it as a marketplace of products. Instead think of it as a marketplace of opinionMost products will continue to be sold offline. But in the years to come, more and more products will be marketed onlineNot all industries lend themselves to an infinite variety of products, but all industries have an infinite variety of customersFinally we can treat them like the individuals they are
From Chris Anderson The Longer Long Tail
Final Comments
Internet has already begun to affect the way personal lines is transacted
New behaviours are being formed. Will they become habits?
Change will continue. How fast? How far?
CustomerBehaviour
Brand(Reputation)
ExpandingChoice
Internet
Future Business Model
Are your people, planning and processesready for the challenges?
This presentation has been prepared for the Finity Personal Lines Pricing Seminar held on 23 March 2010.
Finity Consulting Pty Limited (ABN 89 111 470 270) wishes it to be understood that opinions put forward
herein are not necessarily those of Finity and Finity is not responsible for those opinions. The information
presented at the seminar was of a general nature and a reader of this presentation must seek their own
independent advice before using it for any purpose.