May 06, 2019

Direct and Digital Marketing – Birds of a Feather

Marc Pina

Marc Pina
Owner/Meteor Consulting, LLC

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I have been fortunate thus far in my career to have a front row seat to watch (and be part of) the evolution of direct marketing (DM) in the insurance industry. Along the way, there have been a few important leaps forward mainly driven by technology and/or data. The advent of the digital era is probably the most consequential leap forward that I have witnessed – and continue to witness.

The insurance industry is being buffeted by rapid change as it grapples to figure out what to do with the onslaught of new technology and access to vast quantities of data. At the same time, it has to deal with an increasingly tech-savvy consumer market with high expectations in terms of interaction, customer service and experience. The industry also quickly learned that the new customer touch points have plenty of upsides but also some significant downsides.

For instance, customers have the ability to amplify a poor customer experience in a way the industry has never seen before. Just recently I’ve seen two posts come across my social media: the one alleging auto premium rates in the US are discriminating based on race and the other alleging that one of the top Auto insurers in South Africa is basically scamming its customers with its deductible requirements. Such customer reactions on social media are not unusual nowadays and a major headache for insurers to try and head off the spread of the allegations (in the old days a letter to the newspaper just never had the same effect!).

The industry’s reaction to the digital and data revolution has been a mixed bag so far. Predictably the US has led the way and there are well-documented stories of promising successes as there are in some of the other advanced or rapidly developing markets.

One of the mistakes many companies made was to establish a separate digital marketing unit often with ill-defined goals but on a mission to drag the stodgy insurer with its legacy systems into the digital age. The demise of established, traditional channels has been the popular prediction for a few years now. Not only were insurance agents an endangered species but in direct marketing world various executives voiced the opinion that “direct marketing is dead”, “consumers don’t want to be solicited by phone or mail anymore”, “results aren’t what they used to be” and so on. As Mark Twain famously said about direct marketing “rumors of its death have been greatly exaggerated.” And yes agents aren’t going anywhere either.

Certainly, direct marketing results are generally not what they used to be but that had less to with the digital surge and a changing consumer market and more to do with an increasingly competitive landscape as more and more insurers and partner enterprises entered the direct market. What had once been quite an easy way to show quick results and rapid growth (especially in new and emerging markets) had suddenly become a much tougher task. Inadequate analysis often by people who knew little about direct marketing and the dynamics of what was happening in the markets led to some poor decision-making about the way forward.

Most direct marketers recognized that digital marketing and the accompanying technological advances and big data would be a game changer for the insurance industry. Many of them embraced the new techniques and latest developments and built business cases and implemented test programs to build a growing, profitable revenue stream.

Initial results were mixed to poor with few successful campaigns offering opportunities to create scale and volume. For some direct marketers the results confirmed their skepticism and they quickly reverted back to focusing on their high volume, high-cost traditional DM campaigns mainly through telemarketing. Direct marketers citing the poor results to focus less on digital marketing initiatives, were slow to realize that it was not the counter argument they expected it to be. Many of them quickly became viewed as lacking in vision, intransigent and stuck in a paradigm especially, as mentioned earlier, since the results from direct marketing campaigns had generally shown a downward trend as markets matured and competition increased.

Generally speaking, established insurance direct marketers failed to properly understand the implications of the digital era - their thinking tended to be too tactical instead of strategic. Instead of becoming the spokespeople for digital transformation they ceded the “digital high ground” to a new breed of innovators who better understood the technology - its applications and implications - and the real game changer, big data and the analytics that drives the digital marketing strategies and execution.

As direct marketing investment was pulled back DM teams shrank or disappeared. Some direct marketers managed to convert themselves into digital marketers although more often than not new faces appeared armed with in-depth knowledge of the technology, the tools and techniques and also the jargon.

At the same time, business leaders with shareholder value on their minds started to scour the balance sheet to find the cost efficiencies that would improve operating costs and boost profitability. Traditional DM campaigns stood out because of the often substantial upfront marketing investment needed to launch acquisition campaigns which then took 3-5 years to achieve the profitability benchmarks if annual lapse rates and loss ratios played along. In an industry where business leaders like to talk long term strategy but recognize the reality of quarterly results and its impact on shareholder value, few of them continued to see the value of the traditional direct marketing business model. Especially as they saw the digital model as the future and realized it would require major investments across a number of fronts.

Some companies decided to throw the direct marketing baby out with the bathwater destroying businesses and markets built up over many years. Results got a short term boost from a cut in costs but the effect of lower growth and declining profitability (as run-off books rapidly shrank) took a little longer to show itself.

What few companies realized was that digital marketers and direct marketers are really birds of a feather yet each imperfect on its own in today’s market. Digital marketers bring exciting technology and tools, a discipline of testing (design of experiments in the new marketing lingo), a commitment to use and analyze data to constantly improve results, a better understanding of (and techniques to provide a superior) customer experience, and a lot more.

Digital marketing has also served as the catalyst for an omni-channel marketing approach (long talked about by direct marketers but seldom successfully implemented in an offline environment) with the technology allowing marketers to bring together customer interactions and the data it generates into a single repository allowing for a seamless customer experience no matter where the customer touches the business. It’s a clear trend now that many customers use multiple channels to interact with a company and being able to track those interactions and intervene smartly is the key to optimizing the sales process and maximizing the revenue opportunities.

On the downside, there are too many digital marketers who are too caught up in the thrill of the technology and what it allows you to do but have no clue how to use it to sell insurance.

Direct marketing has always been about measurement and accountability to deliver results. There is an old adage that says “if you can’t measure it then it isn’t direct marketing” which really differentiates it to a large degree from general advertising where it’s often difficult to directly measure the sales and revenue that resulted from an advertising campaign.

Any direct marketer worth his or her salt understood very early on that you either test or you “die” (the direct marketing battlefield is littered with the bodies of direct marketers who didn’t test). Data was and is just as important to any successful direct marketing campaign as it is too digital marketers but there just wasn’t as much data available in the past – especially the vast quantities of unstructured data available today because of all the online activity. Compared to today segmentation and data analytics of 10-15 years ago was like driving a Model T Ford. Nevertheless, direct marketers have always known that 60% of their success depended on data and data analytics.

Direct marketers also knew that understanding the products and creating compelling offers that focused on benefits and not features was the way to sell insurance. Meaningful testing of different offers, messages, benefits, positioning, etc. was a constant mantra to improve results. Good direct marketers knew 30% of the success of the campaign depended on a compelling offer – they needed to know how to sell.

The creative element of the campaign whether it was the layout, look and feel, copywriting, etc. was important but really only made a 10% contribution to success. However, while each component (database, product offer and creative execution) contributed differently to the campaign’s achievement, they were dependent on each other and success depended on the sum of the whole.

This dynamic of extensive data analytics, compelling product offers and creative execution underpinned by a continuous testing mantra to improve results is not dissimilar from what is expected from digital marketing. In fact, let’s look at some key success factors for direct marketing and judge if they are relevant for digital marketing:

If you think about it there aren’t really important differences in the key success factors for the two disciplines. Instead of focusing on the commonalities of the two, companies have convinced themselves they are very different and made some short-sighted decisions and wasted a lot of time.

Both direct and digital marketers have made mistakes but we know eventually the balance will shift to digital marketing and it will make an even larger contribution to revenues and profit. The DM programs which showed declining results were generally not in free fall. The decline has been slow and generally speaking the ROI of these programs are still attractive enough to warrant continued investment and focus. In fact, investing simultaneously in developing a strong digital capability and transformation and continuing with the existing DM programs is the way forward. Eventually, a tipping point will be achieved as an increasing number of customers will prefer dealing online with a company although in an omni-channel world the majority of customers would use multiple touch points to interact with the company.

The direct marketing talent and experience that has so often been recklessly cast aside should be repurposed and trained to address the new frontier. Not alone but together with the newly recruited digital marketers. Both have valuable experience and knowledge that can help the other immensely and ensure that the integration of digital and direct marketing will be mutually beneficial and complement each other to build a transformational business that can adapt and change to meet the demands of the future.

Comments? You can contact me directly via my AdvisoryCloud profile.

Note by author: These observations are based on my experience in working in almost 40 markets across the globe. Characteristics and circumstances vary from market to market so keep that in mind when judging the applicability of these observations to your particular market.

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