As we are approaching the end of 2011, I thought it would be appropriate to provide some commentary about a winning strategy that we have seen forward-thinking benefits advisers, brokers and voluntary benefits firms employing in the marketplace.
We can provide some first-hand insight regarding these firms as they all are or have been active Daymark clients in the last two years. As you will see, some of these firms have evolved over an extended period of time and have achieved enormous success, while others have more recently taken a very strategic approach to their marketing, sales and client interaction activities with impressive results.
You will also note that collectively they have taken a number of different paths to achieve their success, underscoring the fact that one size does not fit all firms and that there are a number of winning strategies depending upon your focus, capabilities and human capital.
Having said that, the common denominator is they all are using market segmentation in some manner.
While I would not call this a broad market trend, it seemed that there would be some very valuable lessons to be learned from reviewing the experience of these thought leaders. So let's take a look at a very high, strategic level at what some industry leaders have been doing to accelerate their growth and optimize their profits.
Market segmentation as a growth strategy
Segmenting the market and focusing on primarily one or two customer groups has historically been a winning strategy in a number of other industry sectors.
Witness the enormous success of Southwest Airlines, which initially catered to business travelers. Its focused approach was apparent in its plane design, boarding processes, pricing discipline, marketing positioning, value-added services and sales tactics.
I mention just a few of the well documented elements of their masterfully successful understanding of customer needs and their ability to meet and exceed customer expectations simply to illustrate the point I am making. And we can point to other industry innovators that not only have become very successful; in many instances they have created whole new industries in the process.
At various points in time IBM, Microsoft, and Apple, to name three that are loosely in the same industry, have transformed the business landscape with their innovative market segmentation strategies over the last 40 years. In other fields, consider General Foods, Volvo, Aramark and Progressive. Each identified a unique customer constituency and then provided products and services to meet those customers' needs as their growth accelerated. I trust this point is understood.
Applying the theory to insurance and benefits
So where are we going with this? Market segmentation also can be applied to insurance, benefits and voluntary benefits. While there are a number of ways to segment the characteristics of a potential client base, many firms successfully choose to focus on a particular employer industry sector.
Such a focused approach can result in a much deeper understanding of the business issues facing employers in that particular market sector. It can also lead to the creation of unique product or service offerings, or meaningful value-added services. Ultimately it can translate to lower customer acquisition expenses and higher profit margins as the addition of each new client relationship becomes accretive.
So let's look at some specific examples. One such firm that has achieved great success over a 40-year time frame has focused on state government employees. Starting from very modest beginnings and after overcoming a number of market disruptions, this firm now does business with more than 25 state agencies and 11 state universities and offers several pre-tax and a variety of post-tax products. Today, they have more than 55 licensed representatives, their own third-party administrator, proprietary software and more than 120,000 policyholders.
Clearly that's an example of what can be achieved by having a singular focus and great management. And while the management team will modestly tell you that their approach was more borne out of necessity than any conscious, over-arching strategic direction, the path they have taken and the results they have achieved speak to the success of this strategy. Their results are enviable, right?
Similarly, another client firm segmented the market by occupational group and chose to focus on the educator market based on the principal's prior insurance industry experience. Again starting out with a relatively small nucleus of clients and a singular focus, this firm pursued its marketing strategy.
Along the way, the team learned more about the needs of school districts, their buying habits, and the needs of their employee populations. That led to institutional knowledge of their customers, and innovation in their marketing approach, product offerings, and the application of proprietary technology. It also led to productive, focused marketing relationships. And with that came accelerated growth. As a point of reference, in 2009, this firm had about 140 clients. That's quite a track record, isn't it? Better yet, in 2011, this industry leading firm has more than 300 school districts as clients. Now that's significant growth.
Perhaps focusing on one industry may initially seem limiting, but look at how successful these firms have been at becoming a dominant player in an industry sector.
And we can point to other examples as well. Another industry client decided about two years ago to focus on private schools and health care organizations (medical practices, specialty clinics, radiology groups, etc.) once they realized that they already had a substantial body of knowledge about these industry sectors. Utilizing a highly consultative, needs-analysis approach which resonates with employers in these two industry sectors, this firm now engages its clients in a strategic dialogue about what they are trying to achieve with their benefits programs over the next three to five years.
In the process, they have developed institutional knowledge about the issues confronting these organizations and how to communicate effectively and efficiently with larger numbers of prospects. This knowledge led to more focused business development activities as part of their proactive market outreach, including speaking engagements, marketing relationships, centers of influence, targeted referrals, published articles, etc.
Despite a recessionary economy, these client and prospect organizations are maintaining or growing their employee populations. So our client has not only accelerated the growth of the number of clients and is enjoying referrals in these two sectors, but those clients continue to hire more employees with the corresponding cascading impact on revenues. Now this strategic approach has provided multiple ways to be successful.
Speaking from experience
I can also speak first hand to this approach. When I started RewardsPlus, an Internet-based voluntary benefits firm, in the mid-'90s, we initially were pursuing any and all large scale employers. We were "shot-gunning around" pursuing a prospect in the airline industry one day, a national trucking firm the next, and by week's end we were speaking with a food services firm, all with nominal sales results. So we curtailed all marketing and sales efforts and held an internal strategy meeting.
Without belaboring the point, we ultimately decided to pursue large technology firms since they were highly visible, very profitable, hyper-growth firms where there was intense competition for qualified talent. We reasoned, rightfully so, that these firms were "change agents," altering the way businesses conducted business and that they would be early adopters for new benefits offerings since they needed to differentiate themselves.
We went right down the Fortune 500 list of tech firms and began to gain market traction, which led to a tidal wave of favorable publicity, referrals, and even investor interest. Taking that strategic, focused approach catapulted the company to an entirely different level in terms of market awareness, acceptance and perception, despite the fact that the firm was a fledgling start-up.
So regardless of the age of your firm or its stage of development, market segmentation can be a very effective marketing strategy.
We can point to other examples, but by now you should be seeing a pattern of success that can be achieved through market segmentation. Hopefully this prompts you to think about your natural customer base and to identify any niche markets that you may already be serving or that can be more readily pursued with a more focused marketing effort. If you need assistance, contact us for more information.
Follow a logical process
There is a logical process that you can follow to identify potential market sectors that your firm can serve in your geographic markets. Review your current client base. What are their common characteristics? If you were going to pursue only one or two occupational groups, what would they be? Why? What's your rationale? We recognize that there a number of variables to consider; but you have to start somewhere. Perhaps it is difficult to be objective, so engage the assistance of a trusted adviser that may see patterns where you don't just yet.
The bottom line is that market segmentation can be a very powerful marketing strategy. It requires focus and dedication. And it will require an investment of time and energy to overcome the initial sales inertia that seems to be ever-present when launching new marketing initiatives. So it's not for everyone. However, when you look at the examples we have provided, it can be an enormously successful approach for a very select, elite group. As you think about your personal and professional goals for 2012 and beyond, perhaps market segmentation is something you should consider. Sometimes using a rifle is much more successful than using a shot gun. Good hunting!
Kwicien is managing partner at Baltimore-based Daymark Advisers. He can be reached at firstname.lastname@example.org.
Four steps for building diversity into your workplace
Just as HR/benefits professionals have evolved over the last 20 years from personnel to HR to strategic partner, diversity and inclusion also has experienced an evolution over the last two decades.
At the SHRM Diversity and Inclusion conference in Washington, Doug Harris, chief executive of the Kaleidoscope Group, tracked diversity's evolution for attendees and offered four steps for how employers could take their 21st century efforts toward greater employee inclusion to the next level.
Decades ago, as "workplace representation changed ... they came out with affirmative action, but it didn't say how you had to treat [employees]," Harris recounted. "So, then came along diversity management to help people move up and develop."
As employers worked to this end, Harris began working onsite with employees. "When I first [started] going into workplaces," he recalled, "people would say, 'Uh oh, who messed up and told a bad joke?'"
However, he said those bad jokes can be a powerful platform for creating change. "You ever been somewhere and someone tells a bad joke and we think we're innocent because we didn't say anything? But what have we done? We've condoned it," he said. "When you take a stand you can be skillful; you don't have to beat anyone upside the head."
To help employers demonstrate such skillfulness, Harris went through four steps to implementing a diversity program:
1. Get the basics: "Understand what diversity and inclusion is, and why it's important. You have to understand the impact of D&I to all audiences."
2. Develop youself: "So you're more aware and competent."
3. Coach others
4. Sustain the effort: "Normally when D&I starts people are excited, but then you have to keep that excitement going."
In a quick poll of attendees at the session, Harris found 46% had just begun diversity programming, 33% were already underway and 16% had just started exploring programs. Harris asked the audience to think about what a strategic business partner is for diversity and inclusion.
Responses included teaching managers how to treat different people in the recruiting process and thinking about how diversity affects the bottom line of a benefits package. -Lisa V. Gillespie
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