Segmentation and Target Marketing of the LTCi Worksite Market

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Segmentation andSegmentation andTarget Marketing ofTarget Marketing ofthe the LTCiLTCi Worksite WorksiteMarketMarket

By: Jeremy Pincus, Principal,By: Jeremy Pincus, Principal,Forbes Consulting GroupForbes Consulting GroupMay 2005May 2005

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Questions

What is segmentation?

Are there different LTCi segments?

How many segments are there?

How big are the segments?

What makes the segments unique?

How can segmentation be used to improve Multi-Life LTCi sales?

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What is Segmentation?

Segmentation identifies groups ofindividuals that are maximally similar toone another within each group andmaximally different between groups alongdimensions that are relevant to marketing

Price-elasticSpecialtyproducts

Price-inelasticCommodity

products

Segmentation = grouping⎥ Represents midpoint betweenmass marketing of the past andone-to-one marketing of thefuture

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A Very Brief History of LTCi Target Marketing

1980 – 1990s: LTC insurance marketingconcentrated on affluent retirees

⎥ Matching sales pitch, product, pricing left to LTCagents

» Agents recognized existence of segments

1990s: Expanding choice in group andassociation marketing to meet different needs

⎥ Group LTC plans emphasized high-medium-lowbundles to match affordability levels

⎥ AARP plan offers bundled or customizedapproach

2000 – 2005: LTCi product developmentresponds to broad segment needs

⎥ Promote riders to overcome objections⎥ Promote “Simplicity” to overcome complexity⎥ Limited pay products to meet needs of affluent

and IRA rollover markets

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Are there different LTCi buyer segments?

Are buyers all the same? NoAre there consumer groups that share common profiles? Yes

Demographics

Lifestyles

Attitudes & Values

Media usage

Messaging “hot buttons”

Product Needs/Preferences

Price sensitivity

Sales channel preferences

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The StudyThe Study

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Study Sponsors

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Consumer Survey Sample

2,732 respondents recruited from theTNS/NFO Worldwide Interactive Panel of3.6 million individuals completed theLTC questionnaire

This large sample supported the need toconduct detailed analysis of sub-samples (i.e., 12 segments)

Target MarketTarget Market

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Salary

Assets

Attitudes & motivations

LTC experience & concerns

Household composition

Decision dynamics

Media usage

Sales channel usage & preferences

Marital /Gender/

Age

Employment

Values & planningEducation

Ethnicity

Plan designpreferences

Price sensitivity

Lifestage

Lifestyle

Support network

Life events

Product ownership

Attitudes toward insurancecompanies & agents

Information preferences &web-usage

Industry, size

Job type Region

Psych

og

raph

icsFir

mo

gra

ph

ics

Demographics

Marketing data

Questionnaire: 360o View of Consumer

Segmentation Questionnaire

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What defines theWhat defines thesegments?segments?

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Two factors account for differences in LTC planning

LTC PlanningLTC Planning

PlanfulnessPlanfulness

Family/SelfFamily/SelfOrientationOrientation

Two factors drive motivation to plan:

• “Intrinsic Factors” that are trait driven⎝ Personality type that tends toward planning

• “Extrinsic Factors” that are need driven⎝ Specific experiences, fears, or circumstances

Two key traits influence planninggoals:

• “Family-Orientation” -- motivation to“protect and serve” immediate andextended family

• “Self-Orientation” – motivation tomaximize personal quality of life andcomfort

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Two factors drive motivation to plan:

• “Intrinsic Factors” that are trait driven⎝ Personality type that tends toward planning

• “Extrinsic Factors” that are need driven⎝ Specific experiences or fears

Two factors account for differences in LTC planning

LTC PlanningLTC Planning

PlanfulnessPlanfulness

Family/SelfFamily/SelfOrientationOrientation

Two key traits influence planninggoals:

• “Family-Orientation” -- motivation to“protect and serve” immediate andextended family

• “Self-Orientation” – motivation tomaximize personal quality of life andcomfort

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Self-oriented

Self-oriented

Four Basic Segment Types

Family-oriented

Family-oriented

Planners Non-Planners

Motivated to protect familyfrom burden of LTC

Independence,Control, Comfort

Family should takecare of their own

Unconcerned w/ burdening familyor personal well-being

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Same distribution for Multi-Life/Group (40-59)

26%25%

23% 25%

Family-OrientedPlanners

Attitude Driven,Mastery Seeking

• 14.3 million Americans


Attitude Driven,Mastery Seeking


Half of the “target” population represents good prospects

Self-Oriented PlannersNeed Driven, Mastery Seeking


Self-Oriented PlannersSelf-Oriented PlannersNeed Driven, Mastery SeekingNeed Driven, Mastery Seeking

• 13.9 million AmericansHighInvolvement

LowInvolvement

Assumptions: As of July 1, 2003 there were 110m Americans age 40-74; 55m earn above medianincome

Self-OrientedNon-Planners

Unmotivated, Free Spirits


Self-OrientedNon-Planners

Unmotivated, Free Spirits


Family-OrientedNon-Planners

Fear Driven, PlanningChallenged



Fear Driven, PlanningChallenged


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…and develops new ways of thinking about LTC as they age

Each type “ripens” at a different age…

4 Types x 3 Age Groups = 12 Segments

FamilyFamily

SelfSelf

FamilyFamily

Self Self

40-49 50-59 60-74Orientation

Pla

nner

sN

on-P

lann

ers

Fear for FamilyPassive BurdenedHead in the Sand

Family-Centric Confident Couples Comfortable Realists

Value-SeekingFading DenialLive for Now

Independence Driven Self-Directed Singles Diligent Preservers

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Segment profilesSegment profiles

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Family-Oriented PlannersAttitude-Driven, Mastery Seeking

The “Family-Oriented Planner” Story

Jim is a married business executive inhis mid-50s who plans to retire early.

Jim’s very confident that he has done agood job of preparing for retirement.

He wants to protect his family from theburden of having to care for him; he’smore concerned about protecting hisfamily than protecting himself.

He’s interested in buying LTC insurance,but doesn’t know exactly what he needsor if this is the right time to buy.

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Self-Oriented PlannersNeed Driven, Mastery Seeking

The “Self-Oriented Planner” StoryKaren is a divorced professional in herlate 50s who lives in a large city. Sheplans to retire in her early 60s.

She feels personally responsible for LTCplanning and believes that she cannot relyon her family or friends to provide it.

Even though she hasn’t yet purchasedLTC insurance, she fully intends to buy itsoon.

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Family-Oriented Non-PlannersFear-Driven, Planning Challenged

The “Family-Oriented Non-Planner” StoryLaura is in her early-50s, married with twoteenagers at home. She works for a largemanufacturer and gets all her insurance atwork.

She does not believe in long-term planningbecause she believes that things will eitherwork out or they won’t.

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Self-Oriented Non-PlannersUnmotivated Free Spirits

The “Self-Oriented Non-Planner” StoryPaul is married with teenagers, in his mid-50s, and is a well-paid technician. He’s a bitof a “Peter Pan” – refusing to accept hisown aging, going to bars, and playingsports.Paul is not a planner, he’s more of agambler. He’s not worried about becoming aburden to his family – he figures that’s whypeople have families.

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Selling to working-ageSelling to working-agesegmentssegments

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With over 500 Marketing Mix combinations (4 x 8 x 4 x 4),what combination should you lead with?Message themes

Immediate Risk(accident, MS)

Immediate Risk(accident, MS)

Protect Family &Inheritance

Protect Family &Inheritance

Control overQuality of Care

Control overQuality of Care

Avoid NursingHome

Avoid NursingHome

Product design

Short/LongElimination Period

Short/LongElimination Period

CompoundInflation

CompoundInflation

Shared FamilyBenefits

Shared FamilyBenefits

Short/LongBenefit Period

Short/LongBenefit Period

Informal CareInformal Care Limited PayLimited Pay Daily BenefitAmount

Daily BenefitAmount

Facilities-Only orHome Care

Facilities-Only orHome Care

Target Premium

LowLow ModerateModerate HighHighMinimal Minimal

Communication & sales channels

Mailing to homeor office

Mailing to homeor office

Seminar / employeemeeting / telephone

Seminar / employeemeeting / telephone

One-on-oneinterview

One-on-oneinterviewWeb / emailWeb / email

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Self-oriented

Self-oriented Control

Selling to Motivations and Emotions

Family-oriented

Family-oriented

Planners Non-Planners

Guilt Fear

Pleasure/Denial

Id

Superego Anxiety

Ego

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A Simplified Guide to Segment Marketing at the Worksite

Goal: Protect familyGoal: Protect family

Goal: Personal control and comfortGoal: Personal control and comfort

Goal: Avoid being a burdenGoal: Avoid being a burden

Goal: Preserve lifestyle: “Lets you choose the prettiestnurse with the nicest hands”

Goal: Preserve lifestyle: “Lets you choose the prettiestnurse with the nicest hands”


Self-OrientedPlanners

Self-Oriented Non-Planners


Id

Superego

Anxiety

Ego

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The role of price inThe role of price inselling to eachselling to eachsegmentsegment

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Price Elasticity: The Effect of UpwardPricing of New Policies and SalesHigher priced new policies largely account for the decline in individual sales

A 20-25% increase in premiums is associated with a 26-33% decline in sales

$ 0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2% 5% 10% 15% 20% 30% 40% 50% 60%

Source: LIMRA, HIAA

Avg. Premium per Insured (2004) = $1,900



Demand (% finding price acceptable)

Pri

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But, Price Sensitivity Depends on Segment…

0

1 0

2 0

3 0

4 0

5 0

$50 $200 $350 $500

Family Planners

Self Planners

Self Non-Planners

Family Non-Plannerrs

Dem

and

(%

of

resp

on

den

ts w

ho

se

ran

ge

incl

ud

es p

rice

po

int)

Monthly Price Points (in $)

Self/Non-Planners are most price sensitive

Family/Planners areleast price sensitive at

lower prices

Note: These results are for a specific age band

Self/Planners are leastprice sensitive at

higher prices

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What if we couldWhat if we couldaccurately accurately predictpredictsegment membershipsegment membershipbefore the enrollment?before the enrollment?

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If we knew the segment compositionof a group ahead of time…

We would know if we should write this group at all (prospect qualification)

We could select bundled A, B, & C plan designs that align with the primary buyingsegments’ plan design hot buttons and key pricing thresholds

We could tailor our group presentation to the needs, hopes, and fears of the dominantsegment

We would dial-up or dial-down our reliance on different communication channels(self-service vs. advisory)

We would dial-up or dial-down our emphasis of the employer, the carrier brand, or thelocal relationship with the producer

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Segment Classification

Sales process is made more effective when prospects are classified into segments beforeproduct is presented:

~ 5 “intake questions” re: family support network, financial condition, specific goals(for agents, call centers) Available data, such as employee census data and U.S. Census information linked tohome addresses (for group, multi-life, association)

+Geodemographiccodes

Geodemographiccodes

Employee censusfiles

Employee censusfiles

Classify individualsinto segments

Classify individualsinto segments

Intake questionsIntake questions

OR

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Key Takeaways

There is no optimal “one size fits all” approach to marketing LTCi

Motivational differences are key to understanding segment behavior:⎥ Plan design preferences are linked to specific concerns⎥ Price sensitivity reflects immediacy of need⎥ Channel behavior is driven by salience of purchase decision (high vs. low involvement)

Being able to pre-identify segments before enrolling employer groups or associationsallows you to optimize and target the marketing mix

Being able to identify segments during one-on-one interviews increases your abilityto hit hot buttons and make sales

Drop off a business card if you would like to be contacted regarding the LTCiSegmentation Study

Documents

Segmentation and Target Marketing of the LTCi Worksite Market