Market Segmentation, Relationship Management, and the Relevance of Web 2.0 Applications

March 14, 2006 Dennis D. McDonald

A former client of mine is now the CIO at an insurance company that I shall refer to as “Company X.” Before that he was employed by “Company Y.” I contacted him when I initiated the Web 2.0 Management Survey. He expressed doubts of its relevance to him given his company’s market demographics, but we’ve kept in touch. In this entry I provide some comments on the very useful feedback he has provided.

Last week as an “FYI” I sent him a link that described insurance applications of blogging. He was kind enough to provide a very informative response. Here are some extracts from his email:

Companies with a direct response customer acquisition model who also are driving to attract young adults (twentysomethings) would benefit most from this approach. Examples would be Progressive Insurance and GEICO.

Note that your link was for an independent distributor of insurance. That is another avenue. In the US, those companies would be insure.com, quotesmith.com and insweb.com. Life insurance focused sites such as matrixdirect.com and selectquote.com are other good candidates. At present, the insweb model has become a click model following the Google model. Leads are being paid for based on click throughs ($8 per is what I’ve heard is a typical clearing price) and not on the older pay for a lead model (ironically, no one would pay much less when that was the model).

Blogs could drive traffic, particularly at younger ages where they do not feel comfortable with required insurance such as auto, renters or even home.

Company X’s average customer is about age 65 at acquisition. The purchase is optional. The web is not effective for us. It is generally a face-to-face or telephone sale. When I was at Company Y, we were the largest bank-based distributor of [financial product] in the country. Company Y was a very robust web-site for managing [financial transactions] etc., and our customers were typically funding their [financial product] from other bank deposits. Despite all of Company Y’s marketing of its web capability, only 2% of its fixed annuity customers, average age 70, had a password.

Bottom line — it’s insurance companies with a very specific demographic intent who can profit from a blog or even a ‘traditional’ web presence. They will have to adopt a lifetime value approach to the web as the premiums and persistency of younger ages insurance purchases are low.

Here is how I responded:

Clearly, demographics and product type play major roles in the value of “web 2.0” technologies in communicating with customers.

The other thing I’ve picked up in my survey — especially from publicly regulated utilities — is the view that public communications about heavily regulated transactions such as energy pricing require so much internal review that the immediacy of collaborative and interactive communications is difficult to sustain.

I remember when large commercial call centers regularly debated how much freedom to give to individual reps in giving refunds and credits. This was all tied together with how to deal with product liability and the occasional product recall. Eventually rules and scripts were worked out and responsibility for key dollar related decisions was shifted closer to front line reps. My hypothesis is that this approach could also percolate into industries where there is currently some trepidation about being too open or free-wheeling with customers.

That’s not to say that “web 2.0” makes sense in all situations; in fact, I’ve already stated the opposite: http://www.ddmcd.com/perils.html

Note that the term “Web 2.0” has come to have a couple of different meanings. The one I’m most concerned with here is the interactive “social networking” aspect of Web 2.0. That is most clearly seen in the current proliferation of personal and corporate blogs that support ongoing communication via comment threads.

We are also seeing the rapid evolution of “tagging” and content- and behavior-related analytical tools that enable Internet users — and marketers — to track communications having similar meanings or the communications made by individuals having certain types of social or network affiliations. (For an example of a recently introduced tool that takes advantage of the ability to track other’s search behavior to suggest additional topics or products of interest, check out Aggregate Knowledge.)

One way we can think of “Web 2.0” developments is that they provide relationship management tools that can be relevant to the different relationship stages a commercial enterprise is concerned with before, during, and after a sale. Their relevance will differ by key variables such as:

Product Type (e.g., is the product a one-time purchase or a product or service that requires a longterm commitment on both sides of the purchasing relationship?)
Industry Structure (e.g., are sales and service channels concentrated with and controlled by the seller, or are intermediaries operating independently?
Target Population (e.g., are we talking about “twentysomethings” who may initially have little concern with privacy, or retirees who are accustomed to personal service rather than automated support?
Competition (e.g., is there real competition in the channel or is the industry in effect a monopoly?)
Internet Usage (e.g., how important is the Internet before, during, or after the sale?)
Relationship Duration (e.g., are we looking at a “lifetime relationship” where the seller has an opportunity to influence great customer loyalty over a long period of time, or are we looking at a short-sales-cycle price-driven purchase where what a network of peers think about a product can be quickly brought to bear?)
Sales method (e.g., direct response versus sale by independent distributors.)

These are some of the key “Marketing 101” issues that will drive whether “web 2.0” methods can be used effectively to help manage — and even influence — customer perceptions and relationships.

Clearly, internet usage has to be considered a “gateway variable.” Even there, I would want to probe a bit deeper to see how internet usage varies among different target populations and how this interacts with social role and opinion leadership.

For example, consider my CIO colleague’s comments about the low incidence of internet usage among over-60 populations. Are there social groups of folks in their 60’s where there are only a few Internet users? Are these same Internet users providing a “gateway” or “influencer” type of service where comfort with web usage enables them to provide an influential service to friends and neighbors who are not Internet-savvy?

I don’t mean to pick on retirees who prefer personal service when managing their money since (a) my own street has an amazing mix of Internet savvy folks of widely differing ages and (b) I often think about the other end of the age scale when my daughter calls me late at night from her college dorm room with a computer question that I consider pretty basic.

I haven’t really decided how “revolutionary” web 2.0 applications are, especially when you consider them in the light of the marketing variables listed above. One school of thought is that web applications like blogs, podcasts, and wikis are “just another set of channels” to be considered in the overall mix of ways available to manage communications with one’s target markets and customers.

There’s another school of thought, though, that suggests that the interactivity and social networking aspects of Web 2.0 are really changing the balance of power and influence in the marketplace in a profound way. These are the people that preach that doom and gloom will befall even old-line companies that avoid blogging and podcasts. They point to IBM, Wal-Mart, and H-P as companies that have adopted blogs in a big way.

I come down somewhere in the middle. I see them as another channel to be managed along with other relevant technologies and business processes, but I also think that failure to understand the underlying significance — and power — of social networking and collaborative communications will over time result in marketplace failure — and not just with “twentysomethings.”

Would you like to comment on this article? I’d love to hear from you! Please use the comment function below or send an email to Dennis D. McDonald at ddmcd@yahoo.com.