increased competition as a result of globalization and the de-regulation of markets worldwide, several new entrants have entered the playing field making customer acquisition and retention all the more challenging. These new entrants include financial institutions such as banks and security firms.
* Advent of new technologies is challenging the effectiveness of previously established product distribution channels and has given the customer access to shop for life insurance products from multiple web based platforms such as www.policybazaar.com in India and www.compuquotes.com in the United States, with each offering different quotes for the same product offered by various organizations (life insurance companies)[3].
* Rising costs as a result of high number of fraudulent activities is declining the life insurance industry's profitability.
The strategies deployed by organizations to tackle these challenges will have a profound effect on both short and long term profitability. One such strategy that can make a positive impact on the profitability of an organization is Customer Value Management.
Customer Value Management (CVM) from a life insurer's perspective revolves around the identification of each profitable customer. Upon identifying this customer, CVM techniques can be used to measure the return on investment made by the organization in acquisition, growth and retention of the profitable customer. If the return on investment from the profitable customer is positive then the insurer should further implement strategies to maximize the lifetime value of its relationship. At the same time CVM solutions also facilitate an organization in:
* Segmenting customers by similar risk profiles
* Improving cross selling and up-selling programs
* Improving the effectiveness of the marketing campaign
* Maximizing profitability
The successful implementation of a CVM strategy also involves the identification of the following:
Right Customer
Objective
Identifying profitable customers and reducing customer acquisition costs.
Traditional Practice
Acquire competitor's customers irrespective of profitability from each customer.
Current Practice
Acquisition of only profitable customers likely to generate repeat business.
Example
Consider two life insurance companies, one that focuses on providing life insurance products to “safe customers” and the other serves customers that fall in the high risk category; individuals engaged in adventure sports and activities such as mountaineering, cliff diving, cave exploration etc. The “safe customer” company would be acquiring the wrong customers by
advertising in adventure sports magazines.
Advantages
* Lower customer acquisition costs
* Higher profitability per customer
Right Product
Objective
Providing the right customer with the right product thereby increasing customer retention and reducing costs.
Traditional Practice
Providing an array of life products irrespective of the customer's preference and need resulting in customer dissatisfaction and attrition.
Current Practice
Providing only those products as desired by the right customer by segrega
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