Progressive Insurance’s Marketing Strategies
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a. The Progressive Story
Progressive is a large company that started the business in 1937. Progressive employs more than 26,000 and its revenue as of 2004 was 1.04B. Progressive distributes its services through telephone, Internet and independent agents. Progressive conducts business in 48 states and the District of Columbia and has organized these 49 jurisdictions into six geographical regions. The Agency and the Direct Businesses are managed at the local level and have three General Managers, each responsible for two regions. The Claims business area has six General Managers responsible for one region each, with managers at the state level. Sales and Service (which includes Agency and Direct customer service, direct sales and claims loss reporting, among other services) is performed at six regional sites in Austin, Taxes; Cleveland, Ohio; Colorado Springs, Colorado; Phoenix, Arizona; Sacramento, California; and Tampa, Florida. The company relies heavily on technology and extensive data gathering and analysis to segment markets and price according to risk potential. The company has remained competitive by closely managing expenses and achieving operating efficiencies, and by refining its risk measurement and price segmentation skills. Superior customer service, claims adjusting and strong brand recognition are also important factors in the company’s competitive strategy.
b. Overview of Products
Personal Automobile is Progressive’s primary insurance product. It provides coverage to individuals from basic liability to full coverage. This includes bodily injury, property damage, and physical damage caused by a collision. In addition, many states require policies to provide for first party personal injury protection, frequently referred to as no-fault coverage. Progressive offers personal automobiles insurance to nonstandard, standard and preferred customers. Nonstandard insurance is intended for drivers who because of their driving record, age or vehicle, represent a higher risk thru liability. Standard insurance is intended for drivers with one or two violations on their driving records but still do not show any reason to classify as a “high risk”. Preferred insurance is designed for customers with a “clean” driving record. According to Progressive’s financial report published in May, 2005, personal automobile insurance was 93% of written premiums for the twelve-month period ended December 31, 2004. Progressive’s marketing strategy is focused around nonstandard auto insurance.
Progressive offers nonstandard commercial automobile insurance to businesses that employ one or more nonstandard dangerous drivers. This target business segments include fleets of 12 or less vehicles. Progressive does not write insurance to businesses that are involved in hazardous operations or interstate commerce. Progressive also provides coverage for home insurance, personal watercraft, personal articles, such as jewelry, and umbrella liability protection.
Progressive’s goal is to maximize shareholder’s equity by focusing on underwriting profitability long-term return on equity through:
Product focus: Progressive offers innovative automobile services to meet the diverse needs of their customers. The company focuses on three different personal auto insurance. First, low cost-limited coverage policy or basic liability, is intended for individuals who have bad driving record or for those who just want to meet their state’s minimum insurance requirements. Valued-Added broader coverage policy is designed for customers who want to protect their assets, but may have a violation or two on their driving record. The Premier policy or full coverage is intended for individuals who prefer to operate their vehicles worry-free from high costs from damages, obviously with better coverage comes higher premium costs.
Progressive holds licenses to write auto insurance in 48 states, but focuses their growth in 17 states, where the company can increase their opportunity for profitable growth. Progressive has been in California, Connecticut, Georgia, and Pennsylvania for the longest compared to the other states. The non focus states are either accepting renewal writing only or ceasing operations.
Besides the product and geographical focus, Progressive also emphasizes on strengthening the relationship with the over 14,000 agents to distribute its products and services. By discipline pricing, Progressive demands adequate rates to achieve underwriting profitability and is willing to forego volume if necessary to achieve profit objectives. It is committed to set individual rates more accurately than the competitors. In addition, they will promptly respond to claims reported by local claim adjusters, which deliver effective control of the claim resolution process.
Progressive’s distribution and marketing efforts is executed with a focus on maintaining a low cost structure. By controlling expenses, the company will be price competitive and achieve better underwriting returns. Progressive’s statutory ratio of underwriting expenses to written premiums has averaged 24.5%, which is 3.4% points better than the personal lines industry average of 21.1% for the same period (SEC filing, 2004). The statutory combined ratio is the sum of the loss ratio, which is the ratio of losses and loss adjustment expenses to net earned premiums and the expense ratio is calculated on a statutory accounting basis, the ratio of underwriting expenses to net written premiums.
d. Buyer Segment
Progressive uses geographical segmentation. Over the past decade, Hispanics have been the fastest growing segment of the United States population according to the U.S. Census Bureau data. In the Franchise States, 20% of the driving people are Latino (Progressive’s annual report, 2004). Progressive has actively developed close relationship with Hispanics agents by supporting their businesses and customers in their local communities. Progressive has also created services to translate important documents into Spanish and provide bilingual customer service and claims personnel. Progressive is also promoting their services with direct mail, newspapers and on television in the Latino community. In the greater Los Angeles area, Progressive maintains a close relationship with the public by contributing in local events, sponsoring and working with The Hispanic Scholarship Foundation.
Progressive’s main competitor is Infinity Property and Casualty Corporation. Infinity Property and Casualty Corporation (IPCC) is a holding company that provides personal automobile insurance on a national level with an emphasis on nonstandard auto insurance. Infinity’s headquarter is located in Birmingham, Alabama. The company employs approximately 2,100 people and it networks with 14,000 independent agents. Infinity was incorporated as an Ohio corporation in September 2002 as an indirect wholly-owned subsidiary of American Financial Group, Inc. On December 31, 2002, AFG transferred to Infinity all of the issued and outstanding capital stock of the following personal auto insurance subsidiaries: Atlanta Casualty Company, Infinity Insurance Company, Leader Insurance Company and Windsor Insurance Company (collectively the “NSA Group”). As noted on the company’s annual filing report of 2003, in February of 2003, AFG sold 12.5 million shares (61%) of infinity in an initial public offering. Thus, infinity became a publicly owned company trading in NASDAQ with a symbol of IPCC.
II. The Marketing Mix
“We revere honesty. We adhere to the highest ethical standards, provide timely, accurate and complete financial reporting, encourage disclosing bad news and welcome disagreement.”–Progressive Management
Progressive Group of Insurance Companies, herein known as “Progressive”, is an insurance provider specializing in nonstandard personal auto insurance. Policyholders who prefer Progressive prefer it because of the core benefit Progressive provides: automobile coverage at an affordable rate customized specifically for the policyholder.
1. Product Variety
Low-Cost Policy- The low-cost policy is designed for consumers with a nonstandard driving history. Potential policyholders who require minimal coverage mandated according to state law that is well with in an affordable nonstandard rate. This policy is very popular in 11 of the 17 states that Progressive services, and soon will be offered in the other states. Value-Added Policy- Available in 14 out of the 17 states Progressive retails to, this policy allows for more coverage in order to protect a policyholder’s assets at an affordable rate. A candidate for such a policy possesses a cleaner driving history than that permitted for the previously stated policy.
Premier Policy- Providing the broadest coverage, the Premier Policy is designed for policyholders who prefer greater coverage.
“We respect all people, value the differences among them and deal with them in the way we want to be dealt with. This requires us to know ourselves and to try to understand others.”–Progressive Management
Nonstandard personal automobile insurance, according to the Company’s profile, is insurance that provides coverage for drivers who traditionally pay higher rates due to poor driving records. Progressive specializes in providing insurance to high-risk drivers at affordable rates dependent on the amount of coverage. Progressive is quoted by Yahoo Financials as being a leading insurance provider in its industry.
The dynamic pricing of Progressive is depended upon the driving record of a given policy- holder along with various discounts and allowances. Some policyholders may have more than one vehicle insured under the same policy or one may receive a good student discount, and so on. In any case, the segmented low income, high-risk policyholder will be quoted at a rate that will provide appropriate coverage at an affordable rate to the policyholder.
1. Payment Period
The payment period can fluctuate from annually to a monthly payment depending on the amount of coverage a customer wants to be insured.
“The opportunity to earn a profit is how the competitive free-enterprise system motivates investment to enhance human health and happiness. Expanding profits reflect our customers’ and claimants’ increasingly positive view of Progressive.”–Progressive Management
With the headquarters in Mayfield Village, Ohio Progressive also has locations through out the states providing affordable insurance available. Its distribution channels are the brokers, agents, and actual Progressive office locations. Typically, an indirect marketing channel is employed to access the target consumer; however, Progressive uses a vertical distribution channel through a broker or an agent to approach target consumer. Progressive’s distribution channel includes 14,000 independent agents and brokers.
In an effort to expand its brand name, Progressive focused its marketing to an ever so growing population in the United State–Hispanics. Through various communication channels, Progressive is able to inform the Hispanic communities the nonstandard personal auto insurance polices. Progressive advertises using “dichos”, or proverbs, in order to target the low income Hispanic families. A statistic done by the United States Census Bureau from year 2000, Hispanic policyholders made up 20% of Progressive’s auto insurance. In order to serve Hispanics better, Progressive employs Spanish speaking individuals and a web-site that is available in Spanish. Through this strategy Progressive is trying to increase the availability to a diverse consumer population. In 2004, Progressive launched a new marketing campaign to target Hispanics by giving discounted insurance to them with low-cost policy. Progressive plans on targeting Hispanics in Arizona, Texas, and Florida where the states have an exponentially growing Hispanic population.
With such a large number of Hispanic inhabitants, it will be lucrative for Progressive to target the Hispanic market. Another target population is uninsured motorist, one out of six drivers do not have insurance. The low-cost policy targets the uninsured by offering basic coverage with low premiums to abide by the compulsory laws. In order to meet Progressive’s advertising objectives; it uses message executions with such major media types as television, radio, and internet advertisements.
Progressive provides services to the communities in which it can promote insurance and create a need for it. Progressive provides financial support to the Insurance Institute for Highway Safety (IIHS) to further its work in reducing the human trauma and economic costs of auto accidents also matching funds to eligible 501(c) (3) charitable organizations to which Progressive employees contribute
Progressive offers service intangibility in auto insurance. Service intangibility means that services cannot be seen, tasted, felt, heard, or smelled before they are bought, because of the services’ nature, Progressive does not have to deal with the inconvenience of storage, or inventory. Auto insurance is nothing more than a contractual document expressing the type of coverage of owner’s automobile. The second positive assessment is that auto insurance has an inelastic demand. This means that buyers are less sensitive to a price increase of a product or service. For example, if auto insurance prices were to rise, demand would stay steady. This is true, because most states have compulsory insurance laws, which require drivers to have auto insurance. The last positive assessment, particularly with Progressive auto insurance, is nonstandard auto insurance. Nonstandard auto insurance provides coverage to drivers who, due to their driving record, age, or vehicle type, represent higher than normal risks and pay higher rates for comparable coverage. This allows Infinity to penetrate a bigger segment in good drivers and imperfect drivers as well.
The auto insurance business is a market with prefect (pure) competition. There are many buyers and sellers in the market, each of which are “small” relative to the market. Each firm in the market offer identical products. Companies who participate in this market overload buyers with information regarding insurance products, both competitors and theirs. Technically the market has no “barriers,” it is easy to enter and exit the market; but entering into the insurance business requires large amounts of capital creating a barrier. There’s much risk related to nonstandard auto insurance, in the case of Progressive a great amount of financial risk is taken on due to high volume of driver negligence.
In the auto insurance business prices are constantly changing, making a dynamic pricing market. With dynamic pricing, insurance firms charge different prices depending on individual cases. Dynamic pricing accommodates a wider range of individuals and their needs; from drivers with a good driving record to individuals with multiple accidents and D.U.I.’s. Obviously, drivers with satisfactory or poor records pay higher premiums because they are considered a larger liability. On the other hand drivers that are considered to have good driving record are rewarded with lower premiums. Progressive even offers a good student discount for individuals who perform above average in school.
Another aspect of auto insurance pricing is the competitiveness in the market. Competition- based pricing is considered “going-rate” pricing, in which a firm bases its price largely on competitors’ prices or the price in the market, with less emphasis on its own costs. Although auto insurance deals with dynamic pricing, price fluctuates according to the overall market. Another negative aspect associated with auto insurance, particularly with Progressive’s auto insurance, is the high liability that comes with drivers with bad records because the probability of an incident occurring with bad drivers is higher. Consequently, nonstandard auto insurers have a higher frequency to use the money received from premiums to pay for accidents and damages caused by other drivers. In other words, high return requires high risk.
Place is a very important factor, in many cases place could either make or break a business, place can also help identify the attitude of the product. Progressive uses conventional channel distribution. Channel distribution is utilized by carefully selecting different brokers such as Freeway Insurance, The General, Eastwood, and independently owned companies (e.g. mom and pop facilities) to sell their product this type of channeling makes it easier and convenient for the consumer. Infinity’s web-site and e-quotes also help the convenience of the consumer to access and obtain insurance via the web. Being that Progressive is currently expanding to the Hispanic market, Progressive selects brokers that can help support Progressive’s vision toward the Hispanic market. More and more offices are being opened so that the process of closing the claim can be done in a timely manner.
If Progressive attempts to seek independently owned vendors, Progressive could possibly risk hindering its name, because of the simple reason that Progressive’s effort to brand its name might not be represented the way it was intended. One on one contact from the company itself is missing; information can often be distorted when told by a second or third party. Having the broker or independently owned agent sell insurance for Progressive could result in a vertical conflict. Progressive’s web-site offers insurance accessibility, but what it doesn’t offer is a list of their independent agents the consumer could visit.
Progressive has launched a marketing campaigning in the Hispanic market segment to in increase its market share. This campaign is using new and previous advertisements that have been tailored for the Hispanic communities. This Hispanic marketing campaign has promoted Progressive among the Hispanic Market by relating advertisement to the demographic of the market, helping Progressive familiarize its brand among the market. Common proverbs are being used for the campaign and are now being seen in on advertisements today; Progressive’s vision for expansion also includes training of current and future brokers. Progressive has established a training program which offers courses that help fathom the idea that insurance could be understood.
Even though Progressive participates in a number of marketing campaigns its fails to familiarize its brand. Though, following the disaster of Hurricane Katrina, Progressive was ready to contribute financial assistance to the victims of Hurricane Katrina by matching every dollar donated by all Progressive employees. Also, Progressives web-site offers and provides policy information, but it doesn’t offer the competitors prices, by not doing so it doesn’t ensure the policy holder that they are getting the best price.
To better in differentiating the company’s products and services from its competitors, Progressive should use the following strategy to promote its products and services: creating a high-level model by adding more features to its existing services. First and foremost, the company needs to identify which are the most value features to add in its product line of services. To accomplish this objective, the company should periodically survey its customers; customers whom are purchasing the services and ask these questions: “Are you satisfied with the products or services?” “Which features could be added to improve the service?” The benefit from surveying current clients will provide much needed information on how Progressive can serve and better its services. Next, the company evaluates each feature’s value to customers versus its costs to the company. If the cost exceeds the marginal benefit to the client the cost is too high and therefore the feature should not be added. Those features that the customers value highly in associate to costs should be added.
Increasing customer loyalty, the company should develop a program that differentiates its sales tactics from competitors. Provider-customer interaction is a special feature of service marketing. To initiate this task, the company needs to establish a help line center where the customers as well as non-customers can call when they are involved in accidents. Also, the company can provide customers with all the essential information in case of an accident and tips to avoid accidents, through the mail as well. By doing this, Progressive can reduce uncertainty from service buyers and increase its service quality.
One of the strategies that Progressive can adopt for its pricing strategy is in a form of competition-based pricing. This process can be useful in attracting more customers who are sensitive about prices. This tactic works in offering customers with the sense of purchasing the lines of services at lower prices than other companies. This going-rate pricing can deter harmful price war by holding on to the going price in the same market. In the process of applying the competition-based pricing, the company needs to work closely with its independent agents or distribution channels to ensure and to monitor that they have the most current information of the changes in market price, and competitive environment changes to exchange prices.
Why is this good for Progressive? This company is relatively new to some geographical markets, but it has full potential to expand its services to those markets. Gaining more market shares should be a primary objective that Progressive’s management team must aim to ensure future growth. To do better in setting price for Progressive is the company needs to give its distribution channels the flexibility of charging customers based on their personal preferences of services besides the company’s standard guideline. For instance, the company’s agent can charge lower prices to the customers who have low income, based on a certain governmental guideline. Doing this is not only good for Progressive in the area of pricing but can enhance the company’s public relationships as well.
From the economic system’s point of view, Progressive should focus more on the roles of its marketing intermediaries such as developing more tactics in personal selling among its service distribution channels. Why so? This company has a short history in the insurance market with a full potential to expand its capacity, so in order to compete effectively with other insurance competitors in the market, it must design and provide its distribution agents with more keen skills so that they become more effective in delivering the company’s service to the public. In other words, instead of allowing its agents and local distributors to find and to communicate with prospective consumers, Progressive should periodically give their agents chances to improve their skills with classes and seminars. Once this objective is reached, these agents will return the profits back to the company by spreading and making the company’s name a memorable experience in the customers mind and encourage the customer to refer more customers to the company.
There are some other areas Progressive should look into to improve its marketing place such as spending more money on television advertising to get mass attention , or sending out more mail and catalogs advertising in order to get public awareness of its existence. By carefully tailoring the company’s services and offers, and a brief statistical analysis of other competitors in the same market with a guarantee of lowest prices, this strategy can promise to get more customers. Also create the opportunities to those who are interested in becoming the company’s independent agents through newspaper classifieds. It would be a good idea to recruit more agents without going through some employment services, thus allow company to cut costs of hiring agents.
Progressive can establish a membership program for each of its customers. This program will charge customers a low fee, for road side emergency customer service. This membership gives customers benefits such as roadside assistance, road maps and local travel instructions when customers come in to any of company’s agent office. This program is a good promotional technique because it gives customers the sense of better service value and customer-service relations.
For policy renewal, the company should offer them some discounts if they maintain good driving records as well as discounts for customers who have multiple accounts with the company, rewarding customers in a form of instant cash if they bring in new customers. Doing this, Progressive can make customers think that they receive more benefits in return for what they pay to obtain the services from the company. It also creates a sense of involvement for the customers