multi dimensions research-segmentation

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Multi Dimensions Research (India) Pvt Ltd.

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PLAYING TO THE END GAME

Making strategic choices with complex market dynamics

Marketing in India, with its economic and social contrasts, is often likened todealing with several markets at the same time. The population of more than 1billion differs enormously with 15 different languages, social customs and liveunder varying states of economic development from the vastly affluent to thedestitute.

The personal and general insurance market, hitherto dominated by governmentalmonopolistic monoliths - Life Insurance Corporation, General Insurance - had tomake way for a slew of private players who paired with local financial institutionsto revolutionize the insurance market in India.

This paper describes the initiatives adopted by ING Vysya life insurance toprovide a distinctive and compelling brand experience to consumers. All this hadbecame possible by understanding behavior dynamics, need states, creatingrapid segmentation models and developing value-based offerings and services tore design their own product life cycles.

BACKGROUND:THE INSURANCE MARKET - THE LIFE OF THE PARTY

2000 AD: Entry of private players:

In 2000 the government passed a resolution that enabled private participation inthe financial services sector in India.

At the time ING VYSYA and other multinational insurance companies entered thecountry, the Life Insurance Corporation (LIC) and The General insurance

Corporation (GIC) were forces to reckon with. With a large force of nearly 2,000branches and 500,000 sales agents LIC seemed formidable with almost 190million policies outstanding.

These Indian companies offered plain vanilla policies with no returns. The premiawas paid for 'protection', and insurance was usually purchased as a tax savingtool. It was considered essentially a rite of passage for a male who had enteredthe workforce - a veritable reassurance of self worth!
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Despite the impressive statistics, insurance premia paid accounted for 2.3% of the total GDP.

The Socio /Psychographic Trends at the Time of Entry

Several demographic and psychographic megatrends augured well for thegrowth of financial services in general and insurance in particular.

One was the fact that there was a substantial segment of the middle classpopulation that remained 'unbanked' (40%) and penetration of insurance wasonly 13% of the total insurable population!

Besides this, economic growth at 6.5% and the 'demographic dividend' - 55% of the population in the productive age group of 15 - 60 years were clear indicationsfor exponential growth.

The Prevalent Inner Mindscape

A key enabler of the psychographic mega trends was the ratcheting up of incomes' and the emergence of the 'new affluent class'.

Table 1NCAER REPORT

Consumer classes(Annual income in

$)

1996millions 2001 2007

% change(approx)

The Rich($ 5k and above) 1.2 2.0 6.2 416%

The ConsumingClass

($ 1.5k - 5k )32.5 54.6 90.9 179%

The Climbers($ 0.75k - 1.5k) 54.1 71.6 74.1 37%

The Aspirants($ 0.375k - 0.750k) 44 28.1 15.3 -65%

The Destitute

(Less than 0.375k)33 23.4 12.8 -61%

The expectations of the people have become more distilled as a result of thegrowing incomes. The growth in incomes was to the tune of:

Deprived class: 11.0% growth Lower and Middle: 6.0% Upper Middle: 10.0%


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Upper Class: 21.5%

The other forces that fuelled a paradigm shift in the expectations and the worldview of consumers towards all products and services including insurance were:

a. Growth in sheer sizes of the spending classes and increased purchasingpower clamoring for the good things in life (spending classes comprisedover 300 million) and were getting 'aspirational';

b. Increasing exposure of the average Indian to better lifestyles of the westthrough media and product usage as well as through foreign travel;

c. Emergence of new categories like mobile phones, digital camera phonesand convergence technology creating new frames of reference for theaspiring classes (these impacted expectations of consumers even in

financial products).

These and similar factors went a long way in shaping expectations of consumers

by engendering cross category comparisons.INSURANCE INDUSTRY MANTRA:NEED TO RE-INVENT THE RULES OF THE GAME

"The art of strategy is to foresee the inevitable and expedite its occurrence" Charles Maurice Talleyrand

Within a year or two the interplay of market forces and the marketing efforts of the players has resulted in a convergence of financial products which broketraditional boundaries that existed between safety, liquidity and high return

products.Life investment companies, reinsurers, asset managers, investment bankers, andprivate bankers all find themselves competing in the same arena for business notalways traditionally regarded as insurance.

Therefore, the life insurance industry, in order to grow the market needed toinnovate insurance offerings, channels, take aggressive stances through tying upwith credible regional banks, re-craft the delivery channels and create interestingbouquets of offerings to be injected at various inflection points in the productlifecycle.

ING Vysya instituted a "Brand Experience Process" dubbed "Live the brand" tounderstand and innovate their offerings.

This is a holistic approach that defines the environment in the competitive sphereand understands the messages and experience the consumer is exposed to bothfrom within the product/service category as well as across categories. MarketResearch has been at the core of all these processes. Innovations have also


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been made in the product delivery pathways and the 're-invention of the role of the advisor'. These lessons are being replicated in other emerging markets toowhere ING has a presence.

LIVE THE BRAND - THE BRAND EXPERIENCE STORY

The key highlight of these strategies has been to use customer equity as aframework for generating value and equity (and not vice versa!)

These strategies include unique ways of:

Understanding the behavioral economics/dynamics of consumers and thetriggers for behavior through use of proprietary techniques like Discovery

Developing rapid stage segmentation strategies Creating a bouquet of offerings to meet and surpass expectations and add

value in the business system

Amoebic mutations - Recrafting the offerings at various inflection points inthe product life cycle to provide a total brand value experience.

Stage 1: Assimilation

Success factors: Understanding consumer expectations and marketbehavior dynamics

An initial comprehensive study of the usage and attitudes towards insurancerevealed interesting perceptions and attitude segments!

To succeed, private players needed to ride piggyback on a strong localbank (Bank assurance). The bank then provided the source of credibility.In this case Vysya Bank, with high credibility among consumers, providedthe cover.

In terms of risk attitudes, distinct trends emerged. The defensive investors were the largest kind (60%). They preferred safe

long-term returns guaranteed by the government as well as gold,especially the elders. These were also among the higher SEC segmentslikeA1.

There was a small segment of Sophisticated investors (34%) who actuallytook professional advise from portfolio managers and were even

predisposed to taking calculated risks - i.e., mutual funds, equity markets.These were typically those who had accumulated a fair share of wealthand were not insecure about making it work for them!

There was also a Young Cosmopolitan (Yo Co) segment (6%). The YoCoswere highly 'self opinionated and demanded a higher life cover. They werekeen to be educated on the financial aspects of investing in local andforeign markets. They were largely neophytes in the arena of investments.


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Across board consumers expected a reasonable return for their investments and the time span for returns seemed to telescopedramatically. Consumers wanted some returns to accrue within four to fiveyears of entering an insurance policy.

For the private players the expectations were more stringent! They were

expected to start paying up from a reasonably short time frame of four years for consumers to feel reassured about their long term probity andsafety of the capital!

Figure 1

CHARACTERISTICS OF THE CLUSTERS

Defensive Investors Sophisticates Young Cosmopolitans High self

esteem Believes in

planning for today as wellas tomorrow

Cautious ininvestments

Carefulspender

Believing inliving andageinggracefully

Is led byrecommendations of professionals/advisors

Self reliant Affluent(has a

well paying job/business)

High taste for life

Does notcompromiseon lifestyleand status

Leavesnothing tochance

Believes inmakingmoney workhard for him

Not worriedabout future

Stylish Wants to try all

latest fads Brand/label

conscious Will not

compromiseon brandname

enjoys life tothe brim

Believes inglobalizationanddevelopment

Has a highego

Service delivery pathways

Many consumers, especially the Sophisticates and the YoCos, had begun usingremote channels like the Internet and media/ toll free lines for data gathering andcomparison of insurance schemes.

As a re-invention and not elimination of the traditional pathways, the roleof the advisor was also critical! They almost revealed a 'god like devotionin his advise. The sophisticates had become professional enough toreveal a reliance on professional advisors - who could be the bankmanager, portfolio manager, celebrity stock brokers - essentially people


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who could look at financial planning holistically and giverecommendations.

Shopping around was not the norm! Most evaluated only one or twopolicies only before making a decision.

Interestingly, price sensitivity was not high. The recommendation of the

advisor seemed to make the difference between policies.At the end of this stage, it was evident that the market was capable of absorbingseveral types of policies which would need to be carefully crafted and evolvedkeeping the needs of each segment in mind.

Stage 2: Synthesis

Success factors: Focusing on customer equity as a driver to brand equity through rapidneed state analysis, concept generation ...

In order to understand consumer equity, a large segmentation and cluster studybased on life stages and market dynamics/behavior mapping was conducted.This study innovatively meshed the socio-demo and psychographics variableswith the lifestage need states of consumers! This was done through using aproprietary model called "Discovery".

Based on their financial investment portfolios and attitudes /expectations frominsurance, five distinct clusters emerged. The key clusters identified for whichdistinct value offerings were to be offered were:

High Net Worth Buyers (16%) - more predisposed to traditional offeringsand mutual funds;

The Defensive Buyers (48%) - who keep their income in governmentassured stocks, liquid forms of investments;

The Sophisticates (18%) - predisposed towards mutual funds, stocksthrough portfolio managers;

The Pension Savers (12%) - older, more disposed towards safe bonds,traditional offerings, providing income in later years;

The Neophytes (6%) - those just starting out, willing to look atnontraditional offerings with safety, unit linked plans.

Figure 2

MARKET STRUCTURE: CLUSTERS


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A few of the reigning attitudes to investments and insurance are captured here intable 2 below.

Table 2

ATTITUDE TO INSURANCE

5 point scale(mean scores)

Highnet

worthbuyers

16%

Defensivebuyers

48%

Sophisticates

18%

PensionSavers

12%

Neophytes

6%

Prefer to invest in policiesrecommended by the advisors

3.8 8 4.3 3.6 4.0 4.0

Prefer governmentbacked funds

2.8 8 4.5 3.5 4.0 3.5

Prefer other assets 3.2 8 4.2 3.0 2.5 1.8


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like gold Want company with variety of flexible plans

3.9 8 3.4 4.3 3.0 4.5

Want returns onthe investment with life cover

4.0 8 3.5 4.0 3.8 4.0

Want the company to be proactive and offer regular updates and suggestions

4.7 8 3.8 4.8 4.0 3.4

Stage 3: Value Creation and Dedication

Success factors: Customer needs formed the basis of the product plans and various valuepropositions were created and longitudinally re framed and evolved.

These value propositions were arrived at after extensive qualitative as well asquantitative concept and need states research and understanding thepreferences of the clusters.

Value Proposition 1: Insurance to cover future cash needs

These policies were called Reassuring Life and were aimed at covering thepredictable /planned future needs as well as provide for unpredictable needs of money.


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These essentially comprised endowment as well as unit linked policies aimed atthe Neophyte and the Pension Savers segment.

These schemes offered higher protection and regular money flows.

These were focused savings plans which provided extra earning opportunitiesthrough the reversionary bonuses which was a critical differentiator.

After the profile of consumers buying into these plans were seen, the plans weremade flexible after a period and linked to particular life stages - need states. Topups were allowed.

Value Proposition 2: Insurance as an Investment Instrument

These were whole life and unit linked money back policies.

The Maximizing Life Policy was expected to increase the value of money in thefuture. It was positioned as a policy that would generate a surplus for investment.This was aimed across board, but was liked especially by the sophisticates aswell as the defensive buyers segment. In this policy a proportion of the moneywould be paid back at regular intervals of 4, 8, 12 and 16 years.


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Segmented Plans: Mutations of this Policy

For the Young Cosmopolitans, NeoPhytes and the Sophisticates, unit linkedpolicies were launched. Usually unit plans were launched internationally onlywhen the market was at a mature phase - however, in India the signals were verypositive for their launch.

The Freedom Plan enabled consumers to create wealth through regular andrelatively higher returns.

Every five years, a proportion (25%) of the amount accrued was paid up.

The Future Perfect Plan provided for maintenance of lifestyle after retirement inthe form of annuities after regular payouts in the interim.

There were opportunities of higher returns like mutual funds and with the riskcover.

The premium was flexible and so were the top up options.

The critical differentiator of this plan is the complete flexibility and the attractiveamounts that it pays back at regular intervals.

Value Proposition 3: Insurance as an Angel of mercy

These policies were called 'Fulfilling Life' and envisaged periodic returns to meetmonetary contingencies to create a good fund at retirement.


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The differentiator of this policy was that it could be customized in combinationwith three terms to meet a persons responsibilities at different life stages.Besides, the risk cover was available up to 85 years.

Some of these policies were innovatively aimed at the High Net Worth Segment(Powering Life Plan) where the premium was high and the plan tenure only for ashort duration.

However, a quarter of the premium paid was available at regular intervals!Value Proposition 4: Insurance as a hedge against Old Age

These policies are aimed at the Defensive Customers and the Pension Savers.'Best years Retirement Plans offer a capital guarantee and complete flexibility onpayment options.

The critical differentiator that was developed was the minimum guaranteedreturn. The returns announced on this plan this year is 8% (double the interest onbank deposits).


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Stage 4. Innovation and Customer Retention

Success Factors: Customer cross selling and bundling, and amoebicmutations of policies.

The company has revolutionized transparency by organizing all the terms andconditions behind the policy document so that consumers do not worry about

"fine print". This has created a feeling of trust among consumers.A few of the innovations made were based on specific needs at certain lifestages. Consumers are often migrated to these newer policies.

The Conquering Life Critical Illness Plan was introduced as a response to astated need of consumers.

The differentiator here is clearly different in the number of illnesses it includesand is the only policy that pays 50% of the sum assured on diagnosis and theother 50% in the recuperative stage.

Creating Life - Child Plan

This was a pioneering plan introduced as a method of planning for time basedexpenditure to be incurred on children. The maturity benefit could be received asa single lump sum payment or in three to five annual installments at specificstages of the child.


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The critical differentiator of this plan was that it provided money for the childsfuture with risk coverage of the parent as opposed to the parent receiving themoney in case of any eventuality!

"Market of One"

In order to ensure loyalty to the company, plans are afoot to 'catch them young'and create customized plans at various stages and catering to their need states.The Universal Life Plan is on the cards.

Also bouquets of individual plans are on the anvil.

Unlike other categories, customer retention in the insurance business is largelyinfluenced by 'management of orphan policies', i.e. policies that have beencommenced by inactive advisors. The company has begun a huge databasemonitoring exercise with annual statements / mailers to the customers and

updating their databases. This is also being used for cross selling.Service Delivery Pathways: Innovations

a. Value builder: Keeping in mind the desire of the Young Savvy customers,the company website has a analyzer which follows a decision tree logic tocalculate the amount of investment required in various types of insurance

for specific returns at various life stages. This enables choice of thepolicies as well as premium, etc. This has gained popularity among the

Neophytes and Hi Net Worth Buyers! b. Tie-ups for reach and organic growth: To enable better reach especially in

the small towns, tie ups with banks have been established. In order topenetrate the rural hinterland, ING Vysya has tied up with MadrasFertilizers - a fertilizer company to offer insurance to farmers and rural

folk! This company has a high level of reach in this segment.c. Value 'makeover' of the advisors: A different class of advisors - celebrity

stockbrokers, chartered analysts/accountants; financial consultants andthe like have been enlisted as "evangelists". They bring to the table a

meshing of consumer apprehensions /FAQ's and financial savvy. They areable to make meaningful contributions in the customization of offerings.

CONCLUSIONS

The scenario today: 2005

Within a short span of four years the private players have not only grown thecategory but also ratcheted up a modest market share of 13%! The privateplayers are estimated to achieve one-third of the market share by 2008.


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Future Possibilities

As consumers become more savvy and demanding, the major players would nowhave to start consolidating and assessing their core 'ticket to play' areas.

In order to maintain their edge, newer offerings based on consumer needs aswell as changing socio psychographics would need to be introduced.

ING VYSYA has launched another study to understand future directions andwhich of these core areas that it would need to concentrate on and develop infuture, namely:

Wealth Management, Risk Coverage, or Financial Services.

The plans would largely be driven by the consumer preferences in the newscenario.

REFERENCES

DATA SOURCES


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NCAER Study. The Great Indian Middle Class.Confederation of Indian Industry. Papers and reports 2003 /2004Cases on Sociology. Oxford University Press. 2002

ARTICLES

Burroughs, James and Aric Rindfleisch. (2002). Materialism and well being - Aconflicting values perspective. Journal of Consumer Research.Flur, Dorilska; Mendonca, Lenny and Patricia Nakache. (1997). PersonalFinancial Services - A question of channels. McKinsey Quarterly, No 3.McNamara, Paul; Weir, Janette and Alok Kshirsagar. (2001). A broadband futurefor financial advise. McKinsey Quarterly.Purushottaman, Roopa. (2003). Dreaming with BRICS. Goldman Sachs report.Sen, Amartya. (1998). How India has fared.

THE AUTHORS

YVDV Prasad, ING Vysys Life Insurance, India.

Vivek Bengani, ING Vysys Life Insurance, India,

Nayantara Chakravarthi , Multi Dimensions Research , India.
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