No One Buys Based on Price

In virtually every independent insurance agent survey that I’ve ever seen, respondents overwhelmingly list “service” as one of the most important reasons clients do business with them. In fact, when you visit with agents to discuss service, you always hear superlatives like “excellent” or “best.” And yet, as a friend points out occasionally, “not everyone can be above average.”

While agents love to talk about their superior level of service, most agents, especially those new to the industry or agency ownership, seem to sell on price. While more prevalent in personal lines, price has become the predominant feature of the sales argument in commercial lines, as well. Unfortunately, this focus has led to a number of negative consequences including low retention, poor customer loyalty and ultimately higher costs and lower profits for the agent. It doesn’t serve customers well. Frequently, a focus on price leads to improper coverage only discovered during a claim — when the customer really starts to understand the inadequacies of their policy.

So, if agents shouldn’t focus on “price,” and they may not really be delivering distinctive “service,” what should they focus on to sell more accounts and provide greater customer satisfaction? A clear understanding of “value.”

Value vs. Price

All transactions, including insurance, should always be based on value rather than price. Too often, agents focus their sales arguments on offering the “best service” at “the lowest price.” With this proposition, they are diminishing their credibility in terms of value and forcing the consumer to make a decision based on price. Why? Because the consumer actually sees little or no value distinction from agent to agent or carrier to carrier.

This disconnect between how most agents seem to sell in today’s marketplace, and what consumers actually perceive, presents a huge opportunity.

But it demands a clear understanding of “value.”

Value is nothing more than the tipping point where the price of something is less than what it is worth in the mind of the buyer. What something is worth is based on the consumer’s evaluation of how that product or service “performs” as compared to how other similar products or services perform.

Imagine a graph where “Price” is on the vertical and “Performance” is on the horizontal. If you draw a line where price and performance intersect and shade in anything below that line, the shaded portion will represent acceptable value. Anything outside of the shaded area is unacceptable. Rational consumers won’t make a purchase here regardless of what is being sold.

The problem for insurance agents (and to a large extent the insurance companies they represent) is that in the mind of most buyers of insurance, one insurance policy is as good as another. This means that they all fall to the same level on the “performance” scale. The other problem is that in the mind of many insurance buyers, the “service” they receive from both insurance companies and agents is pretty much the same. This leaves the consumer focused on price.

An important point to note here is that the person who determines performance is the consumer. In fact, value, which again is determined by the intersection of price and performance, is also determined by the buyer. Agents and carriers have nothing to say about value. They may be trying to create it, but if the consumer doesn’t see it, they’ve failed. I think this is why agents so often resort to “price” as their main selling proposition. But there is a better, proven, way to go about this. It’s a method some agents still use. I think it’s the method that successful agents of the future will use to drive price sellers out of business.

A Tried and True Solution

These successful agents focus on creating, nurturing and sustaining a personal relationship with the consumer — a relationship that is more than simply transactional. Let’s define a “transactional” relationship as one with only brief personal interactions. In a “transactional” relationship, the interpersonal exchanges are largely, or completely, related to the transaction. By contrast, a “personal relationship” can be described as two parties having a deep understanding of each other’s unique circumstances, needs, desires, goals, dreams and fears.

A relationship like this requires two things: time and trust. Trust is a product first of understanding the things I listed above. Second, it is a product of taking the time to uncover those things in the first place.

This relationship changes the price/performance calculation on the part of consumers and therefore it increases “value” in the mind of the consumer. It does this in at least two ways. First, it allows both the policy/policies and the service that the agent is selling to be customized for that unique individual or business. Second, it creates “loyalty,” which I define as an action based upon the belief that both parties in the relationship are always acting in each other’s best interest.

If you’ve ever had anything like a car, house, suit or even a meal in a restaurant tweaked or completely created to your order, you recognize that product or service as being more valuable to you than one purchased “off the rack.”The careful construction of an insurance program based upon the unique needs and desires of a customer — known only through relationship and not merely answers on a questionnaire — builds real value in the mind of an insurance buyer.

So, what do we do with this? Build relationships to create value. Or, find a way to cut costs to maximize revenue in an increasingly challenging commodity market driven by technology. The latter option is going to be increasingly difficult for small businesses to achieve as scale in any commodity business, including insurance distribution, is critical. But a recommitment by local agents to bespoke, tailored, relationship insurance can blow the price/performance/value calculus out of the water. Then, the only limiting factor is time and that can increasingly be expanded with technology.

If you’re a local insurance agency owner, with no aspirations to be a technology company or a national insurance distributor, you have the carrier and service tools for future success in place already. The critical choice is to turn from selling on price and recommit to the custom-tailored, relationship-based roots of the independent agency system.