LIC Single-Premium ad gaffe

Advertising space in newspapers come at a very high premium. Second only to the television. The premium increases with the placement of the ad in the newspaper. Top-right hand or a jacket ad or a double-spread ad. A gaffe is quite a rarity in newspapers since it is proof-read. However a gaffe such as the above is quite serious ( Single premium ad followed by a post to be careful about the product). Surely it was not intentional from the newspaper. Yet LIC marketing managers must be irate on seeing this piece. The damage may not be too much considering the clutter of ads and information on financial products. LIC managers and more importantly their advertising agency and media agency, should be doubly careful the next time around.

Source: Economic Times 28^th March 2012 Page 13

Targeting of Unit-linked Insurance plans (ULIPs):

The biggest innovation for the insurance industry over the past couple of years has been the Unit-linked Insurance plans (ULIPs). It was fuelled by a booming stock market. It is seen as a direct competitor to the Mutual fund industry with value addition of insurance as well. However the downward spiral of the markets after the recent crisis has directly affected the ULIPs where the majority is invested in the Equity markets.

To be different from competition and get people to buy ULIP products, two things can be done:

1. Understand consumer behaviour and appropriate targeting-

There are 3 types of customers for ULIPs- General public accounting for almost 90% of the buyers who are unaware of the intricacies of this financial product and are conned by salespeople. These people are influenced by peers and hearsay. These are the type of people who have stayed away from ULIPS recently resulting in the dip in sales.

Second type is the informed public who account fro about 5-7%. These people have become conservative in investing in ULIP and are very circumspect and waiting for equity markets to resurrect.

Third type is the High-net worth individuals (HNIs) who account for just 1-2%. The next point will elaborate on the same.

2. Sectoral choice availability-

Presently a customer doesn’t know which sector his investment is done. He just gets daily updates in the Net Asset Value (NAV). For making ULIPs attractive for HNIs, three things can be done- give option of sector such as infrastructure, banking, PSU, FMCG or telecom or commodity markets. They can be divided according to growth fund where there are high returns but commensurately high risk too. Then their can be safe and fixed returns funds with minimum risk. And finally exotic funds with exponential growth options where the money would be exposed to high risk and complex financial products such as Credit Default Swaps (CDS), commodities, bonds, currencies among others.

Both these methods are possible. Only appropriate data needs to be collated.

Lastly Perceptual Mapping also can be done but it is from marketing point of view only and has to be done every 3-5 years or if you have changed your value proposition. Just like what Bajaj Allianz did with its digression to emotional appeal from a practical one.

Innovation for Insurance industry players:

Each of the companies in the industry has their own core competency. Each of them fights on their basis of one of 4Ps of marketing, Product, Price, Promotion or Place. And if it happens to be the service industry, you can add 3 more Ps of People, Process and Physical evidence. The insurance industry is no different. LIC banks on its trust factor, Bajaj Allianz on its product customization, ICICI Prudential on Price, HDFC and SBI on emotional appeal. So what should a company do more to get extra from its products?

A comparative analysis of the 4Ps but taken two at a time can be done. On one graph plot price vs. product and on the other, place vs. promotional spend. The gap in each graph can then be explored to make a niche for you and increase chances of growth.

Following are the factors that can be taken for each P:

Product:

1. Riders i.e. how many, less is better for customer understanding, but more riders done simplistically for a better product offering.

2. Liquidity: more the better for the customer but it increases chances for redemption resulting in loss for the company. A trade-off between liquidity and redemption pressures has to be arrived at.

3. Flexibility: switching cost and types

Price:

How much is the cost for the product. An oblivious point to mention but listed for a comprehensive structure.

Frequency of premium- people do not like to be reminded of premium payment frequently. So ideally it should be once or twice a year.

Place: i.e. the distribution reach

1. Sales force strength in numbers

2. Indirect channels

3. Direct channels

4. Bancassurance

Promotion: advertisement spend (easiest to compare)

Thus weightage to each factor helps in plotting the graph and arriving at the gap mentioned initially.