What a fine dine restaurant can teach an insurance company about customer loyalty?
A fine dine restaurant’s recipe for success is centered around great food and excellent ambience. Right?
Well, not entirely.
Only the restaurants that are exceptionally attentive to customers actually stand out, even if their food and ambience aren’t as great.
Why?
What we love the most about our favorite restaurant is being recognized every time we visit it. Not at the time of billing when we produce our Gold tiered membership card, but the moment we step-in.
The darban greets us with usual warmth. As we are ushered in, we are met by the manager or host flashing a smile reserved for special guests as she guides us to our preferred table. The manager knows our other preferences as well — kind of food we like, should the water be room temperature or cold, and our usual starter. The service and attention accorded by other staff members is flattering, to say the least. In a nutshell, it all feels familiar, almost like being a dear friend’s home for dinner
It’s a proven fact that the restaurants that do well at retaining their staff end up winning their customers’ loyalty as well.
It’s a proven fact that the restaurants that do well at retaining their staff end up winning their customers’ loyalty as well. Because, it’s magic when you meet same staff members every time you visit.
Staff retention is the key. Be it in the kitchen or those directly attending to customers.
If a restaurant owner were to seek my advise on creating a customer loyalty program, I’d suggest him to run one for his staff instead. Because loyal staff members keep bringing your regular customers back, often accompanied by many other prospects — friends, bosses, colleagues, wife, girlfriend , parents and acquaintances.
What a fantastic way to foster loyalty: repeat business as well as advocacy, and referral business without spending a rupee!
An insurance company that sells endowment polices — 10, 20, 30 year duration — receive premiums over the lifetime of the policy. Customers pay the premium at regular intervals, generally once a year, and get the entire premium amount back along with bonuses upon maturity of policy. To draw such a policy is a serious commitment for the customer as the policy period runs into decades, sometimes a third or half of customers’ lifetime. Naturally, the sales cycles are long and relationship plays a critical role. Rightfully, insurance companies rely on their trained agents to do the selling. Agents earn a commission for every customer they sign-on, not once but as share of every premium customer pays, for as long as the policy is active. For 10, 20, 30 years, through the policy term. Typically the commission is highest in the first year — between 30 and 40%, dropping to 10% in second, and subsequently to around 5%.
A commission structure that rewards six to eight times more for new sales compared to retention, naturally incentivise the agents to ignore the existing customers.
It’s a win-win situation: the agent earns commission income for new sales as well as retention. While the insurance company acquires a customer who is likely to stay with them for a significant duration of his lifetime, opening opportunities to maximise customers’ lifetime value by upselling, cross selling and generating referral sales.
In reality though, the model doesn’t work as well as intended, at least in India. A commission structure that rewards six to eight times more for new sales compared to retention, naturally incentivise the agents to ignore the existing customers. Result: On averge, a third of the policies lapse afte rfirts premium. This number drops to 2/3rd by the end of 5th year. Data is not published beyond 5th year. But it seems only a very small number of polices actually reach maturity.
In above situation, everyone loses.
Insurance company loses the customer as well as much of the revenue it earns by way of premium. The customer loses most of the premium he pays till policy lapses. The agent, though earns lion share of revenue from first year premium, loses customer’s trust and subsequent revenue that could be two or three times the first year premium over customer’s lifetime. I’m sure none are happy about it.
The situation can be corrected. Insurance companies have to simply learn from fine dine restaurants. By focusing in building ‘premium-payable loyalty’.
Here’s how:
One: Treat each premium from customer like a repeat visit by a regular customer. Add up the premiums and you have the value of ‘minimum potential premium’ or business over customer’s lifetime. Add to this potential business from three other buckets: upsell, cross-sell and referrals (family, friends, colleagues). These happen to be the lowest hanging fruits as insurance company already has a whale of information about each customer, which in other businesses is an enormous challenge. All it has to do is reward the agent for meeting a certain percentage of potential premium, over and above the commission he earns. Rewards could be used as means of recognition, leading to privileges. Example: family vacation, movies and shopping benefits
Two: I believe insurance agents mean to stay in contact with their customers. But don’t really know how to. A moderately successful insurance agent would have between 200 to 350 customers. Keeping in touch with each one while he needs to put all his energies hunting for new customers is not the easiest of tasks. But if insurance companies help their agents, he would be able to. Here are two ways.
1. Provide the agent tools — content and platform — to help him communicate/engage with his customers. Examples: festival and birthday greetings, update the customer about his policy’s financial status, helpful content on improving savings, relevant new product.
2. Train the agents on the lines of Toastmasters. Monthly events where agents can interact with experts as well as other agents with single-minded focus: how to build and maintain relationships with their customers on an on- going basis?
Woven via loyalty program, the initiative can transform the insurance industry. A 50% improvement in customer retention can shoot the insurance companies’ profits by several times. And you know what — it will keep the agent whistling-happy, both loyal and motivated:-)
