Why do brands matter in insurance? The successful entry of powerful non-financial brands into the insurance market, capitalising on their strong brand identities and deep customer relationships, is forcing traditional insurers to examine the worth of their own brands and the coherence of their brand strategies.
To add to this pressure, rationalisation within the ind-ustry is creating a number of insurance groups with a variety of different brands each with different strengths in different product sectors, different territories and different customer groups.
Some have gone for a single brand approach, perhaps putting at risk some quite valuable franchises in the interests of consistency. Others will seek out and capitalise on their most promising brands, recognising that some degree of brand management complexity and additional marketing cost is a price worth paying to be able to target specific sectors and client groups more effectively.
Either way, a detailed, comparative evaluation of the brand portfolio is a prerequisite and, needless to say, the greater the number of brands, the more complex the task.
A disciplined framework is essential, drawing on every piece of available information from sales performance and competitor trends to changing customer behaviour and attitudes.
Before beginning this task, however, perhaps insurance companies should ask the quite fundamental question of why there are only four financial brands in the world's top 100 by brand value. Of course, we can all aspire to create a global brand of the likes of Coca Cola, Nike or Disney but is it actually possible in the world of insurance or other financial services?
Is there, in fact, something so fundamentally boring about insurance or banking products that they do not provide the platform for building an attractive brand to which customers really relate? If so, should their growth strategy be based on acquiring or joint venturing with someone with a more exciting product or service?
On the other hand, do we perhaps believe that the reason for the absence of powerful brands in financial service has more to do with a lack of brand management and the loss of the ability to relate to customer needs.
Our own view is that brand building for insurance companies is not only possible but essential for their future survival, as the internet opens up more and more choice branding comes into its own.
Of course, it is delivery that is often the issue and, far from being a bolt-on extra residing in a marketing dep-artment, brand management is now taking centre stage in corporate strategy, so that the brand message is reflected not only in the product offerings but in how they are delivered, the style and consistency of delivery and the markets they seek to serve. It IS not just what we do but who we are.
There has been an explosion of M&A activity over the past few years. Since January 2000, in the insurance industry alone, the total value of M&A deals has been $134.5bn. This has led to acq-uisitions of big local and/ or national brand portfolios which may not have a strategic rationale and so the question is what to do with them?
A number of different brand strategies can be pursued. Axa, for example, has been building a single global brand and has set itself the goal of becoming the next Coca-Cola of its sector. It is estimated that Axa spent about £160m on the transition over a 12-month period.
Generali of Italy operates a multiple brand portfolio, focusing on a small number of strategic brands across Eur-ope, including Alleanza and INA. The value of this app-roach is that a unique proposition is presented to a different set of national customer segments.
The advantage of monolithic brands is that they tend to be less expensive to maintain (for example, marketing and advertising costs) and avoid the risk of creating confusion in the market.
The risk of this approach, however, is that the delivery on the brand proposition is inconsistent and the message is diluted. The opposite is true of multiple portfolios.
The key question for companies is how to identify the valuable brand(s) to be developed and the weaker brands that should be culled. A rob-ust process is vital to ensure that the brand strategy is congruent with and supports the business strategy of the organisation.
The next key issue is managing the transition process in a way to ensure that no brand equity is lost. With this in mind, some insurers have adopted a stealth approach to the transition.
Axa, for example, has maintained Axa Royal Belge and Axa Asia Pacific for a transition period but in the UK it has already succeeded in dropping the local brand Provincial altogether for its non-life insurance unit.
The other option is a quick transition. This approach needs to be supported by a heavy ad spend to communicate to internal staff and consumers the new brand proposition. When CGNU chose the Norwich Union brand for the UK, the Together We're Stronger TV and poster campaign is understood to have cost £12m.
The second issue for the industry is the increasing threat of strong and popular brands, such as Virgin, Sains-bury's and Tesco, which are using the power of customer loyalty to move into this space. The most worrying finding for the insurers is that, in significant segments of the market, some of these brands are more trusted than the big insurance companies.
Trust, after all, must by definition be the core brand value of an insurer but customer perceptions have been damaged through loss of personal service and too many reports of poor claims experience.
The key challenge for ins-urance companies will be to differentiate by engaging the customer and bringing the brand to life.
Those building strong brands can take a step further in understanding customer needs by undertaking sophisticated market research that focuses on customers needs, behaviour, values and perceptions (as opposed to demographics) and use this as a basis for segmenting the market and offering a differentiated, tailored proposition.
Those organisations that do not have a strong brand, or the resources to develop one, may have to concentrate on their key competencies and become virtual operators by building partnerships fronted by strong consumer brands.
Once a compelling and differentiated proposition has been developed, it will have to be communicated as a clear message across the organisation and to the customer base. This should not be done bef-ore the company can deliver on that promise across all channels of the organisation.
In the UK, Abbey is taking the lead in experimenting with various concepts in an attempt to bring the brand closer to the consumer and humanise it.
The bank is teaming up with two retail partners, Carphone Warehouse and Costa Coffee, to develop a whole new store experience. It remains to be seen how successful Abbey's effort will be and whether some insurance companies will adopt a similar approach.
Insurance companies rec-ognise that the customer relationship will be revolutionised by the internet. A recent EIU/PwC survey demonstrates that, by 2005, brand will be a key purchase criteria for customers. Companies that have a strong branded proposition which is heard above the noise of the internet will survive the intense price competition.
The insurance industry is mature and increasingly competitive and players are having to differentiate themselves to survive.
Brand is a vehicle to create a unique relationship with the customer by projecting what you can do for them rather than just what you do.
Creating positive associations with the insurance brand based on focused customer segmentation is going to be a challenge. At the centre of this challenge is a strategy for rebuilding consumer trust to a higher level than supermarkets and other potential new entrants. Those that rise to it and understand the real value of their brands will be the winners.