Insurance Companies...turn down the TV!

Why? Why do insurance companies insist on spending so much of their advertising on TV (over 60% of their total ad spend as I mentioned in the Video post below)? I’ll know more in early 2009 based on our current research effort on the Commercial Insurance industry so check back with me to see how well I do. Until then here’s a possible explanation.

My guess is the industry is at a similar point in its advertising thinking as Hi-Tech was 10 years ago. Because the Insurance business operates in a “sell thru” model using captive and/or independent agents they focus their advertising spend in mass market vehicles like Network TV. This is similar to how companies, like IBM and HP spent their money ten to twelve years ago to support business partners. Spread the “Brand” as far and wide as possible so partners can sell under it. The reason they did this…feedback from partners consistently beat up manufacturers on their lack of Brand support. Partners also told them to stay out of demand gen and selling, mostly because it threatened the partner.

That was until hi-tech companies starting paying attention to partner performance. In the past, revenue from the partner channel was collected and not driven. Manufacturers did brand advertising and tossed some marketing development funds (MDF) at the channel and hoped for the best. Today, it’s a whole different world…at least for some. The channel is now a valuable and increasingly important source of revenue, especially for new customers and solutions. As a result of this new focus, manufacturers now want greater control over those investments and better returns…not to mention tracking required by Sarbox.

Companies, like HP have now become much more involved in driving channel sales through their channels. To a point of creating collaborative demand generation campaigns on behalf of partners...telling them what campaigns to run against which customers with what budget. As a result, the internet has become a much more important vehicle. My point, HP’s B2B internet advertising spend in 07’ was 22% of the total spend (TV total was only 25%, with a little over a half going to Network). Insurance companies average spend on the internet...2%.

Insurance companies have the opportunity and need to start thinking the same way. We’ve heard from Carriers that they have a difficult time getting captive agents to grow their book of business and sell new service lines. We also heard that when it comes to non-captive agents that they would like them to better target “profitable” customers. Both needs can be addressed by getting more involved in generating and/or directing business development at the agent/customer level.

To get started companies should:

• Begin directing the TV audience they’re targeting to internet sites with real offers just like the big boys of Fin Serv do…like CapOne.
• Start using Web 2.0 tools to drive demand to agents, even better start helping them undersand how to use the tools.
• If you have to spend on TV, reallocate the budget to Cable so it can be better targeted.
• Finally, approach agents with a value proposition built on helping them build their business don’t just push products to them and hope for the best.

Again, this is just my opinion, but I’ve seen the movie before...or in this case, the TV commercial. Check back next year and see if I’m right.

Results of the 2007 B2B Advertising Spend in Financial Services Assessment

By Scott Gillum
We just finished our annual assessment of B2B Advertising spend in the Financial Services industry (for high resolution video click here and select watch in high quality). Results for 2007 showed that as an industry, Financial Services firms reduced their B2B advertising spend by close to 15% over the prior year.

• The mix of the total advertising spend was similar to the prior year with a slight increase in internet spend (9%, similar to what we saw in our Digital Marketing in FS research) and radio.
• The mix of print advertising as a percent of total spend (typical 30% of total spend) shifted to magazine (up to 14% from 7%) at the expense of newspapers (12% down from 21% in '06).

In sub-segments, the Retail Banks sector, already feeling the effects of the downturn, dramatically cut back advertising spend last year by over 20%.

• Local newspapers were the hardest hit, with only half of the advertising dollars from the previous year. Consumer magazines picking up much that spend, one of the few bright spots from last year.
• The internet continues its streak of growing as a percent of total spend up to 14% from 13%. A milestone was reached by CapOne, which invested more advertising dollars on the Internet than in Network TV which is the first time ever we've seen that. Could this be a trend…yea, I think so.

In the Insurance industry no real change…unfortunately. Overall spend was only down slightly from $48M to $46M with no real change in the mix.

• Local newspapers lost ground (14% of total spend compared to 19% the previous year) with magazines picking up that shift similar to what we saw in Retail Banking, but for the most part all other categories remained the same.
• Advertising spend on the internet was a pathetic 2%...the same as 2006. While the rest of the Financial Services industry is shifting dollars out of TV and into the Internet, the Insurance industry continues to buck the trend, in fact, TV as a percent of total spend increased last year from 60 to 62% of the budget.

I’ll try to provide a reason for this (if i can) in my next blog.

Lines of Businesses, Verticals and Services…Oh, Boy

by Scott Gillum

Why can’t we all get along? On my flight home the other night I sat beside a woman who headed a line of business at an Environmental Waste compnay. She mentioned how they recently realigned the organization to a Verticals, LOB’s and Services model and that they are struggling with the transition…it sounded like I was talking to myself.

We made the same decision this year. After advising and helping companies tranisition their organization to this structure for years, it is only now that we are beginning to feel their pain. And boy, are we feeling it.

Here are some of the common challenges:

• Everybody will be in Everybody’s business – early on in the transition you’ll experience the “blob.” Everyone involved in the reorg will pretty much be stuck in the same place. Vertical guys will want to define products, LOB’s will want to do their own sales and marketing, etc. It will take time for the “blob” to spread out. Give it time.
• Lane Violations – as the “blob” starts to spread out people will begin to find their lane. The challenge will be those who refuse to stay in their lanes. Lane owners will need to be protective of their space and tell others to "get out"…easier said than done.
• I think there for I am – just because you’re the new head of a Vertical or LOB doesn’t mean you know how to do the job. You’ll find that it will take time for folks to truly understand what they are supposed to do…try 6 to 12 months. And for some…never.
• Marketing, Selling, Scoping Work, Pricing, etc. – yep, all these functions will be debated over and over...where they best fit, who should do what, at what point in the process, etc.
• Compensation – OMG, the elephant in the room. Yes, it will look easy on paper…Verticals = revenue…LOB’s = profit and/or contribution...Services = customer loyalty/satisfaction, but boy does it get messy. It should create a healthy tension in the organization as long as its managed with an iron fist that is covered with kid gloves. This one will take time to sort out and all those lane violators will want to make up their own rules and/or change the ones that exist. At the end of the day, err on the side of the customer and/or what makes best sense for the organization.

Tips on how to survive...and maybe thrive in this new world:

• Clear Definitions on the Role…and how to do the job – almost everyone will get the logic and/or rationale for the change and intuitively understand what they are suppose to do. The challenge is they may not, or most likely will not, know how to do it. I've seen this story a dozen times....create the org chart, make the announcement to the company; lay out some targets…now go. The missing piece? No one has given anyone instructions on how to do their job. Invest the time to be crystal clear on what and how you want the job to be done. It will go a long way in keeping the “lane violation” from causing problems.
• Hiring from the outside – it’s taken me a while to come to this but I think you may be better off hiring new blood to run the Verticals, especially if they are new. If your business is product focused and has been aimed at one or two specific industries consider hiring in talent from the industry you want to penetrate.
• Verticals go forward – the role of the vertical should be to understand the needs of the industry/customers (market sensing), the positioning of competitors, manage pipeline, and position the organization/product/services value proposition to be successful. They may also own account management activities. If they do, a line should be established on how big an account should be to warrant that type of coverage (more on that later). Notice I didn’t say develop products and/or services because they shouldn’t! Vertical folks will be invaluable resources for informing new products/services and adapting existing, but they should not drift into the LOB lane…they own products. If done right they should have an idea of what customers will be 2-3 years out and should challenge the organization to catch up with offers (click below).
  
  
• LOB’s go deep – the role of the LOB should be to develop a standard set of products and services that fit common needs of customers across industry and meet a defined profit target. They may or may not own the P&L, it depends on the industry but they should control PRICING. Enabling the sales organization (the Vertical) with good content to support their business development efforts and informing the services/solution organization on their needs is core to their role. LOB’s should also understand which channels support what products/services and provide them with the right funding/incentive model.
• Services and/or solutions go long - this group may often feel like the orphan in this new model but don’t neglect their needs, voice or insight. Most likely, they know the needs of the clients as well or better than the verticals, and how well products/services/solutions actually work. This group should focus on serving the needs of existing customers and finding ways to improve, strengthen and expand that relationship.
• Create a “Practice” – a “practice” is a cross organizational group that is focused on supporting a Vertical. It should include representatives from the Vertical, LOB and Service/Solutions groups. The purpose of this group is to decide on how to go to market. What segments/sub-segments to target, what to sell to whom by when, and to align and/or optimize resources against revenues. This gets the three groups talking, listening and focused on running the business effectively and efficiently and it can go a long way in helping define roles and responsibilities (see graphic above).
• Not every ‘customer’ needs to be in a Vertical – small and some medium customers don’t need and/or fit into a Vertical. Their needs may not be that unique and/or warrant the type of coverage of other larger customers. Additionally, if you’re deploying a geographic vertical coverage model it just doesn’t make sense in some areas. A dense concentration of customers like the Northeast can support a vertically aligned sales force but in the upper Mid-West…forgettaboutit. Run the territory models on what makes sense.

Good luck and godspeed.

From Webcast to VODcast

In July 2001 our cost per attendee for a public or private event skyrocketed to $589 per attendee from previous year average of $70. Attendance at our events dropped like a bag of wet cement… from an average of 125 to 25. The change happened almost overnight and we knew that the recession was ”ON”… as you probably and painfully know travel budgets and event spending are one the first things to be cut.

As a professional services firm that sells services through the dissemination of intellectual property we couldn’t just turn off speaking at events. Seminars and events drove close to 40% of our leads so we made the decision to shift almost everything online. Typically, we would do at least 30 plus events a year. In the second half of 2001, we ran 14 web events and 2 live events. It turned out to perfect timing because 9/11 put a nail in the coffin of live events. By the end of the year we were able to double our average attendance and our cost came back down to $100 per attendee plus…we add 700 names to our “opt-in” list.

Fast forward to 2008, we haven’t done a webcast in the last three years. Why? Because the format became overused and the effectiveness of reaching our key audience has been severely limited. Also, business has been good…we didn’t need to.

Yesterday we did our first VODcast and more are planned. Why? Because what is old is new again but this time you can see the presenter. A bad economy means the business slows, pipelines begin to get thin and business development using events is uneconomical…see above. But here’s something else we have noticed, people are going back online looking for free advice that they used to get from “experts” when they had budgets to pay for it.

We also learned during the last down turn that when you use a new technology there is the “novelty” factor. People will tune in just because they’re curious which boost your registration/attendance rate but it doesn’t last long…you have maybe 6-8 months before the novelty wears off.

So I happened to be the lucky guy (if you want to call it that) that got to go first. I found the experience to be very challenging… much harder than doing a live event and/or traditional webcast. Here are a few things I learned from the experience…starting with the basics.

• What is a VODcast – it stands for “video on demand” and it’s a pre-record video that may or may not have other assets integrated into it.


• Shorter is better – the VODcast came in at a little over18 minutes, for a 45 minute presentation I did live at a conference…and it’s still too long. If I had to do it over again, I’d chop it up into 2 minute segments and make it a series…still might.


• Personality/Sizzle – you need it, and I obviously had none. I get energy from the audience…the camera gave me nothing and it shows. Got to work on that, rehearsing into a mirror sounds hokey but I think it will help. Open to suggestions here…


• Color and lighting matter – we used a conference room with bright lights and burnt sienna colored walls…not good. Learned that lesson the hard way.


• Bandwidth matters - depending on the length of the video and the number of viewers you may need to check with the IT folks on the impact on your IT infrastructure. We had to move the video to a host server to handle to the load.


• Communicate the format – because this is a new format you have to explain how it works…a lot. We had calls from folks asking for the dial-in number. Communicate instructions often and on everything (email, registration page, under the event listing on your website, etc.).

All in all, this is the future, so you might as well try it. I’m convinced that it will soon replace traditional web and podcast. Additionally, it provides the viewer with a much better experience…there is no call-in number, no applet to download, it eliminates many of the technical issues of the past. In fact, I’m doing a webcast today for client. I’ve already received three emails asking for the call-in number….it was sent to them days ago. Bring on the Video!

Best Practices from the Last Downturn

Every “expert” and every business publication seems to be giving advice on how to manage the downturn nowadays and it’s great to have those thoughts and ideas. It struck me the other day that we’ve gone through this before (remember the “Dot.com” bubble) but no one seems to be talking about what we’ve learned from that past experience.

So I became interested in learning if there were any “best practices” that we could use to help make better decision this time around. I’ve talked to a few clients, folks here and looked at some work we did with clients during the post bubble burst years (2002-2003). From that research I’ve pulled together nine “best practices” and have listed them below.

1. Cut Fast and Deep – the last go around folks were very optimistic that the economy was going rebound quickly so they delayed decision or cut less than they should have given the reality of the situation. We did exactly that and went through three rounds of RIF’s needless to say it was painful and demoralizing…ever heard the expression “There are two ways to die: get shot or bleed to death?” Well, we choose the latter. This time around we went back and looked that the low point of the recession, the point at which our revenues bottomed out (let’s say it was 30%) and we took that percent and cut expenses to that level last month, even though our revenues are off forecast only by… let’s say its 15%. It gives us a cushion in case things get worse and allows us to preserve cash which we didn’t do the last time…which is the next topic.
   
2. Cash is King – got to have it, keep it and watch it like a hawk. Customers will take liberties with payment terms and there may be nothing you can do about it. If DSO starts to tick up, pull down on a line of credit (if you have it…and do it now) to give yourself some cushion to absorb cash flow issues. This killed thousands of small business during the last go around.
   
3. Little Things Mean a Lot – as you tighten the belt be careful what you cut. Yes, you should control travel cost and really asked yourself whether or not to you really need to be there but there are little things that you may be tempted to cut things that may mean more to your employee and/or customers than you realize. If you experience a RIF, be careful not to cut other little things that may demoralize the remaining staff. For example, if you have bagels or donuts brought in one day a week continue to do that. The cost savings is minimal and the unattended message that you may end up sending is that the company has cash flow issues…spooking the folks that remain. Keep in mind their senses will be heightened and if you have inexperienced staff (recent graduates, for example) it will kick in the fight or flight reflex. The last thing you want is the remaining employees to be unproductive because they’re job hunting.
   
4. Strengthen the Core – this is a great time to refocus your core business, customers, partners, markets and employees. In the good times companies have a tendency to drift away from their core…what built the business. If you’re a software company focus on building, supporting and refreshing your offerings…put the transition to a “services” company on hold until the recovery. Take a long hard look at your customers, partners and markets…are these the folks you want or will need in the future? If the business is hard to get or maintain it is expensive…think about what you can really afford. I heard through the grapevine that a profession services firm recently pulled out of 15 markets, including Asia. Their comment on doing it…”those markets will be there in the future we can reenter when its right.” This can help guide your decision with bullet #1 - Cut Fast and Deep.
   
5. Take a “Pit Stop” – many companies have been operating with inefficiencies in their go to market engine for years. The demand for meeting quarterly performance has kept many CEO’s from taking the car off the track for a “Pit Stop.” Now is the time. It’s a good chance your stock is down and not going anywhere soon regardless of your performance so take advantage of this situations to do some work on the engine, flush the systems, and get the car ready for the next 500 miles. Actively look for opportunities to gain greater efficiencies even if it means setting aside funds as a write off. Take the hit now, MasterCard recently announced their 3rd quarter earnings and they took a $500M after tax charge to settle a lawsuit with Discover card. That lawsuit had been out there for years and was settled a while ago but they took the hit this quarter…there’s a reason. We’ve spoken to a number of CEO’s recently who said that they regret not doing this in the past.
   
6. Adjust Your Message…Carefully – yes, you need to realign your value proposition to today’s economic reality but be careful. The temptation is to jump to a “cost” message but not all of your customers maybe feeling the pain…yet. If you abruptly switch a message from “growth”, “revenue performance,” etc. to one of “cost savings, “ be forewarned that it can damage your brand and/or confuse your customers. Know how your customers perceive your value and how it varies by segment or type of customer (and don’t guess, do your homework) and finds ways to enhance it with key messages that play today around value for the money.
   
7. Focus on Strengthening and Deepening Relationships - the good thing about a downturn (if there is one) is that it’s a great time to strengthen and expand your relationship with your best customers…and it’s worth the investment. A “spending freeze” takes the pressure off your interactions with customers. It can go from you trying to sell something to them, to you talking to them about their situation and needs. Customers may no longer be in the “buy” mode but they very well may still be in the “learn” and “shop” phase of the buying cycle so take advantage of that to introduce them to new information, services, and employees (senior executives in particular). This “value added” period can go a long way in growing your business when they start buying again.
   
8. You May Have to Give Some to Get Some – your customers may need to do business with you differently during this down turn. You don’t have to go to the extent of a Microsoft or IBM in creating special demand generation and financing programs to help partners and/or customers but think about their situation and how you might be able to help. Chances are the gesture will speak volumes and relating to the bullet above goes a long way in deepening the relationship and increasing customer loyalty.
9. Lastly, Prepare for the Upturn NOW – bad times, just like good times don’t last so start preparing your recovering plan now. Many companies use times like these to create an aggressive plan to gain/buy/steal share from competitors as soon as they sense the start of a recovery. Don’t become financial myopic and only focus on cost reduction. Something that we have learned from the past is that companies have a tendency to turn over the keys to the CFO in times like these and for good reason…they drive out cost, watch cash flow, etc. Unfortunately, they can hang onto the keys a little too long. As Beth Comstock, the CMO of GE told me (in her first stint on the job) during the recovery after the “burst”; ”...finance did its job of controlling cost but it impacted growth… the CEO is looking at my role as being the Chief Growth Officer…” .

Draft a plan and have your organizaiton commit to coming out of the downtown stronger, leaner and more aggressive than you went in to it. It will help focus the organization during this challenging time. To do that you'll need to learn from the past (see above) and be ready to invest. Now get started!