Insureco is a long established insurance company selling both life and general insurance products. It has a direct marketing unit with a large database of policyholders. However, the company recognised a few years ago that its direct marketing was not as effective as it could be. There was a requirement to increase average product holdings per customer. At the same time, there was also a need to improve customer retention as levels of customers cancelling policies were above industry averages. The challenge for Insureco was that it had traditionally been a sales and operations based culture, driven by income rather than long-term profit. The efforts of the direct marketing unit had primarily been focused on direct mailings to recruit new customers.

The appointment of a customer relationship manager was an important step in changing this approach. In particular, the customer relationship manager recognised that improving cross-selling and customer retention required a far greater degree of integration between marketing and the operational units dealing directly with customers. For example, customer retention needs to start at the point of service: ‘We don’t make customers aware of the pitfalls of surrendering policies and the options open to them. We need to contact lapsers within three days of defaulting, but currently we don’t, and all the customers receive the same letters. We need to change the internal culture in the service centre’ (Customer Relationship Manager).

This is a common problem in organisations where customer service is based around operational centres that are driven by efficiency of processing rather than by a relationship perspective. Following a review by the customer relationship manager, a number of steps have been taken at Insureco to implement a more proactive approach to dealing with customers.

A segmented marketing plan has been developed based on an understanding of the profitability of different customer segments, rather than a plan based simply on existing products that are available. Telemarketing has been integrated with direct mail activities (for instance following up direct mail with a telephone call for the best prospects). Research has been conducted into why customers cancel policies. As a result of this, new customer retention initiatives in the form of proactive new customer communications (policy pack, welcome pack, newsletters) and ongoing communications (anniversary communication) have been put in place. New products have been developed specifically for achieving better retention of customers holding maturing products. A new recovery unit has been formed to contact customers surrendering policies or lapsing on payments. Finally, operational units have been encouraged to focus on quality of service as well as turnaround times.

The results so far have been impressive, with a significant uplift in sales to existing customers and a major improvement in customer retention. The customer relationship manager concludes that ‘CRM is not rocket science, it’s common sense’. However, he stresses that if marketing is separate from operations there is a danger that the operational emphasis will purely be about efficiency rather than long-term effectiveness in dealing with customers. Achieving an integrated approach is not easy.

Question

1. Compare and contrast the challenges and issues facing a customer relationship manager with those facing a direct marketing manager.