In order to create distribution strategies that can help financial services companies compete in an evolving marketplace, it behooves them to know where the industry is headed, Lucian Lombardi said at a workshop here at LIMRAs annual meeting.
Lombardi, corporate vice president, product and distribution research, LIMRA International, presented results of research done recently with McKinsey & Company, a management consulting firm. The research is useful not only in identifying trends, but also growth opportunities in the distribution of products meant to accumulate and protect income, he said.
Lombardi identified seven distribution strategies currently in use: advice-driven and event-driven, which are customer-centric strategies; direct sales force and independent sales force, which are producer-centric strategies; institutional and worksite, which are sponsored-market strategies; and multi-channel strategy, which is a diversified strategy. Some companies use more than one of these strategies, but most are known for using one or two, Lombardi said.
Four components of distribution, which Lombardi defined as “delivery of a product and service in a manner consistent with the companys strategy and the preferences of its target market,” are market, point-of-sale, intermediation and manufacturing.
The market component has to do with the size, growth, needs and preferences of a companys target market. The point-of-sale component has to do with where the customer will transact business and who will assist them. Intermediation involves who provides sales support and business development assistance to channel participants. And, manufacturing has to do with how the organization, operation and economics of product delivery will evolve.
The point-of-sale component is emerging into a tele-underwriting sales implementation process, says Lombardi. The phone isnt a way to generate leads now, but its a way to close sales and will likely take a bigger role in distribution in the foreseeable future, he said. The worksite and the Internet are also emerging points of sale.
Currently, the most common online activities are checking account balances, such as at a bank, stockbrokerage or mutual fund, according to the research. However, regarding financial transactions, the overwhelming majority of Internet users continue to want face-to-face interactions, Lombardi said.
“This becomes apparent with insurance,” he said. “They want a local office and to deal with someone they know by name.”
Lombardi said these findings suggest that although use of the Internet is an emerging trend in distribution, financial services companies still need to offer multiple channels to satisfy the needs of a range of customers.
Account penetration is the ultimate goal of the customer-centric distribution models, Lombardi said. The first step in cross-selling, or financial diversification, is at the producer level, he said. The ideal position for a producer to be in is to be able to expand his product offerings and have the skills with which to do it, Lombardi said.