Think Market Disruption

To Supercharge Distribution

BY

Smart business professionals always have been keenly interested in ways to better differentiate themselves from their competitors. Traditionally, there have been 2 ways to do this: Introduce a better product into the marketplace or offer the same product but at a lower price.

However, there is a third way, and for those willing to take the initiative, it can offer exceptional opportunities. “Market disruption” is a principle of Harvard business professor Clayton Christensen. According to Christensen, companies can lose their luster if they stick to what made them successful in the first place, rather than acting on tell-tale shifts in the market and “disrupting” the marketplace.

Surprisingly, companies of all kinds often fail to recognize the power of disruptive strategies. Many companies will continue to do only what made them successful and ignore potential opportunities because it seems too risky to make the effort. Firms that continue to focus on segmenting the market and extending the products that made them successful while paying scant attention to changes that may be taking place on the fringe, could lose out entirely.

Classic retail examples of doing things the traditional way are Sears, Roebuck and Co. and Montgomery Ward. Neither responded adequately to the shift in market demand from one-store-sells-all retailing to discount selling or niche-focus selling. The result: Sears is adjusting in an attempt to make a comeback and Wards is history.

By contrast, companies such as Southwest Airlines and Charles Schwab recognized that the marketplace was changing and developed ways to take advantage of that shift and disrupt the market. Southwest emphasizes low-cost fares, first-come seating and flight attendants who brighten the trip with stand-up comedy. Now, people who had been priced out of air travel are flying Southwestand enjoying it! And Schwabs online account services approach has become so successful that its older, traditional-model business has been folded into its younger, e-business sibling. As a result, the firm now provides securities brokerage and related financial services for more than 7 million accounts.

But even companies that employ disruptive strategies can be victimized by competitors when the tables are turned on them. For evidence, look at how Lowes, in the home-center niche, captured market share from Home Depot by targeting women instead of contractors and semi-skilled craftsmen.

So, what are the lessons for insurance carriers and their distributors? The most critical one is the importance of establishing mutually beneficial business relationships. Beyond that, companies must recognize that the traditional way of doing business may not be the best way, despite past successes.

With competition tougher than ever, it is not enough to be better or cheaper. Companies must also be smarter and more courageous. To gain greater success, insurers must seize opportunities to serve clients in previously untried or undiscovered ways. They must develop products that will bring new customers into the marketplace, targeting prospects other companies may ignore. By focusing on the needs that exist in the market, and meeting or exceeding those needs, insurers can be successful at disrupting the marketplace.

Often in the past, the insurance industry designed and marketed products that met the needs of a broad range of customers. Todays smart providers are doing things differently by encouraging their distributors to identify real-life circumstances that apply to smaller, niche groups of prospects within the broader market. These observations are then relayed to product design teams to evaluate the feasibility of potential new products.

For example, consumer debt has grown steadily and reached the point that many families that should have life insurance protection dont, simply because they cannot afford it. A creative solution might be a home equity loan arranged in conjunction with a life insurance policy. A product such as this could relieve the consumers financial burden and provide the peace of mind that comes with owning reliable life insurance.

As the traditional barriers separating financial services providers have been legislated away, no one is in a better position to offer these kinds of solutions than one of the new insurance-bank hybrids. The combination of expertise in manufacturing insurance products, combined with access to a broad range of financial solutions, can put these newly formed companies a step or more ahead. These capabilities and resources become even more powerful when linked with distributors who understand the potential for disrupting the marketplace by participating in the creation, marketing and sales of innovative products built from the outside in.

The key to success lies in leveraging new opportunities in the marketplace and matching providers and distributors who have a similar outlook about the importance of observing changing consumer circumstances and acting upon that opportunity. Both carriers and distributors must be willing to consider strategies that may seem counterintuitive but in the long run may be exactly what the market ordered.

Likewise, it is essential to use newly gained market insights to create powerful messages that reach consumers and cause them to respond. Broadly directed messages that may have been successful in the past may not be sufficiently compelling for success with new categories of prospects. Successful carrier-distributor partners cooperate, creating messages that will clearly differentiate both products and agencies in the marketplace and build stronger businesses. Partnering together, carriers and distributors can zero in on targets of opportunity such as those in the high-net-worth marketplace where customers seek products that fulfill their expectations and are not simply looking for “a good deal.”

It is the responsibility of the carrier to work hard to build relationships with distributors who share a passion for innovation, integrity and ease of doing businessdistributors who believe strongly in the potential for developing disruptive strategies to seize new opportunities. Ultimately, the success of business relationships will be measured by the extent to which all parties work together to create positive customer experiences.

As a distributor ask yourself this: Is my carrier content to rest on past achievements or is the company eager to develop new solutions that could disrupt the marketplace and lead to mutual growth? Those disrupting the marketplace are the leaders, not the followers, and will be the profit houses of the future.

is executive vice president, external distribution for One Life Insurance, Elgin, Ill. He can be reached at ken_olson@bankone.com.


Reproduced from National Underwriter Edition, April 2, 2004. Copyright 2004 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.