Brokers: Establish Yourself As A Brand That Stands Out From The Crowd
Whether you are selling soft drinks, software or employee benefit products, the same general rules of marketing apply. You are fighting for market share and profit against a crowded field of tough competitors. You need to establish a brand that enables you to stand out from the crowd.
There are two general strategic paths you can follow in establishing your brand: low-cost or differentiation. Deciding which is the proper strategy for you and your business is one of the most important decisions you will make, so it should not be made haphazardly. It is well worth your time to apply a structured, systematic discipline to the process.
The first step is to understand the fundamental difference between operational effectiveness and real strategy. Operational effectiveness is about attention to detail–providing prompt, effective and courteous customer service, for example, and investing time and effort into maintaining solid relationships with customers and suppliers.
Thats vitally important, but it is not a strategy. All of your competitors can, should and probably are doing the same thing. You cant set yourself apart from the crowd that way.
While operational effectiveness is about “doing things right,” real strategy is about “doing the right things.” It requires making choices and accepting tradeoffs, and most importantly, it requires discipline. Once you decide on a strategy, you must apply it consistently across all of your business functions at all times.
Now, how do you decide on the right strategy for you? There is no need to reinvent the wheel. There are systems that have stood the test of time, and one of the best is Michael Porters Five Forces Model, first introduced in his book “Competitive Strategy.”
In the classic Porter approach, you start with an analysis of the industry and your place within it. The analysis always should be done at the local level and at the national level when appropriate. The following questions indicate how the Porter method can be applied specifically to the situation of employee benefit brokers:
What is the existing degree of rivalry/competitiveness among the brokers currently involved in the market?
What is the potential for new brokers to enter the existing market, considering prevailing ease of entry and profit potential factors?
What is the relative bargaining power of your buyers, considering the importance of the purchase decision to their business and the level of information they have available?
What is the potential threat posed by suppliers of substitute services to change the dynamic of the market? Can customers use less of your service or do without it?
What is the relative bargaining power of your insurance carriers?
The next step is an honest internal analysis: What are the strengths and weaknesses of your organization? Look at your organizational structure and alignment. Do you have the right structure, capabilities and incentives in place to execute either the low-cost or the differentiation strategies?
Finally, conduct an analysis of your existing competitors who offer similar products and services, as well as possible new entrants who have the ability to change the playing field. Some questions to think about are:
What are your competitors future goals?
What are the resources and capabilities your competitors can draw on?
What are your competitors current strategies and assumptions about the industry?
Answering those questions will give you the information you will need as you go through the process of making a choice between the low-cost and differentiation models. The next step is to understand the demands each model will make on your organization.
Obviously, the low-cost model requires you to deliver your service at the lowest possible price. In order to do so profitably, you must gain a competitive advantage through superior management of the key cost drivers. You cannot cut costs by sacrificing your ability to satisfy basic customer needs. Once you fail to satisfy those needs, you are no longer delivering value, and without value, no price is low enough.
Once you gain the competitive advantage, you have to remain vigilant. You cannot afford to underestimate competitors ability to improve their management of key cost drivers and match or beat your prices.
Under the differentiation model, you uniquely have to satisfy one or more of your customers valued needs. To do so, you will incur additional costs, and therefore, you must charge a premium. This model also requires discipline and vigilance. You still need to manage superbly key cost drivers and only permit additional costs that directly support the differentiation. This is more difficult than it may seem, as employees may look to gain support for pet projects and initiatives under the differentiation umbrella.
What about doing a little bit of both? My advice is, dont try. Sure, it may sound tempting, but its a tightrope walk with a long drop and no net. Trying to split the middle means you have to bear the added cost of differentiation, while still battling all of your competitors on price.
Some brokers say they can create a competitive advantage through the strength of their relationships with their customers. In reality, many brokers have strong relationships. This is key for retention of customers, but what about acquiring new customers?
Some brokers say they differentiate based on service. However, differentiation depends on being unique in your satisfaction of a customer need. While it is not only possible but vital to be superb at customer service, being unique with regard to service alone is not a realistically attainable goal.
Creating a unique niche for yourself requires differentiated products that will have special appeal to certain customers. Differentiation requires careful targeting of customers–ones whose needs align with your strategy or value proposition.
This may require you to take a deeper look into the buying behavior of your customers. What do they value? Why target customers who value low price if you have a differentiated strategy? This is one of those situations where choices and tradeoffs come into play. If you commit to a strategy based on your analysis of your strengths and weaknesses and your competitive environment, then you may have to commit to rebuilding your customer base. This means de-emphasizing customers who do not value what you offer and aggressively pursuing new customers who are a better fit for your refined business model.
No one said this would be easy. You have to dedicate yourself to consistent application of your strategy. There may be some short-term pain as you construct a tight network of activities that align with your strategy.
The long-term payoff is the construction of a valued and sustainable brand in your marketplace. A competitor may be able to duplicate one or two of your activities, but its much harder to duplicate a tight system of activities that support your strategy. This is what gives you a sustainable competitive advantage.
This is tough stuff, yes. But your business is worth it, right?
is senior vice president-marketing and customer relations for Fortis Benefits Insurance Co., Kansas City, Mo. He can be reached at firstname.lastname@example.org.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 25, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.