Winter 2010, No. 82
A Rose by Any Other Name
Sustainable competitive advantage is what every carrier is after (or should be after) when developing their voluntary business strategy. One area in which many carriers often differentiate is on product. These carriers often look at competitors’ products and then decide to improve on their existing products. The typical approach is to use one or more of the following levers:
- Add some bells and whistles to the product
- Change the underwriting
- Increase the commissions
- Reduce the pricing
But the results are often unsuccessful at achieving any true competitive advantage. Why is this?
First, the tendency is to add bells or whistles that really don’t have that much to do with the product. In other words, the product benefits or features added aren’t ones that people really care that much about. We saw this a lot in the early days of critical illness where carriers were adding more and more covered conditions that did not enhance the product. After all, how many people actually get Mad Cow disease?
Second, changing the underwriting may give you some short-term competitive advantage if you are liberalizing the “common” practices. But these advantages are typically very short-lived as brokers make sure that every carrier knows about the more liberal guidelines and pushes for everyone to ante up.
The third enhancement, increasing the commissions, is also short-term. We’ve seen the tendency of commissions to trend up when carriers are trying to compete based on this.
Lastly, pricing is the most dangerous approach unless there is a true reason for the pricing advantage. Too often the price reduction ends up being unsustainable or, again, something everyone copies.
The real problem with using any of these is that they are not really product differentiators. After all, a cancer plan with a new feature or an accident plan with benefits packaged as riders instead of in the base plan are still just an accident plan or just a cancer plan or just a whatever. (A rose by any other name.....)
True product differentiation usually comes about through either meeting a need not met generally or by meeting an established need in an entirely new way. In our consulting work, we see very few carriers taking a risk and truly differentiating. It’s understandable because a new product or approach often has a long period before sales are significant. And the newer the product/approach, the longer the lead time required. Brokers have to change their behaviors, and we know that’s difficult to do.
But there are opportunities out there to differentiate with product. Just be sure you’re building in the education and promotions needed to be successful. If you can’t commit to that and are only going to tweak an existing product, then don’t fool yourself into thinking that another disability plan with slightly different features or pricing is going to give you sustainable competitive advantage.
For information on how Eastbridge can help you develop true competitive advantage, give us a call.
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