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TABLE OF CONTENT

1. INTRODUCTION TO INSURANCE MARKETING2. MARKETING MIX

3. MARKETING OF LIFE INSURANCE

4. DISTRIBUTION CHANNELS

5. BANCASSURANCE

6. DIRECT RESPONSE DISTRIBUTION SYSTEM

7. THE FUTURE OF LIFE INSURANCE MARKETING

8. PRIMARY DATA & ITS ANALYSIS

9. SECONDARY DATA & ITS ANALYSIS

10 BIBLIOGRAPHY

EXECUTIVE SUMMARY

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The primary data has been collected through questionnaire method. The

questions were asked to the employees of marketing department of SBI life insurance and

ICICI prudential. The secondary data has been collected through various books related to

insurance marketing such as Marketing in Banking and Insurance and Services

Marketing, brochures collected from SBI life insurance and ICICI prudential, weekly

journals such as Professional Banker, Insurance chronicle, etc.

The project report contains information related to introduction of insurance

marketing, marketing mix i.e. information about product, price, promotion, place etc.,

marketing of life insurance, distribution channels i.e. marketing intermediaries, financial

institution and direct response. Bancassurance and the future of life insurance marketing

are also covered under this project.

Thus the project report clarifies that the direct selling method of marketing

of life insurance product is the most profitable and inexpensive method. Bancassurance in

India is growing day by day and it can be used as better marketing tool in future also.

Direct marketing also helps the insurance company to promote their product in rural

market. Bancassurance and telemarketing helps the company to provide useful

information to their customer and to maintain proper database of the customer.

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INDUSTRY PROFILE

The industries, businesses and individuals are considerably by the services of insurance

organization.

A. The oldest form of insurance (12th century) is marine insurance. After wards in 16th

century fire insurance is started in Germany.

B. The first registered life office was Hand in Hand Society established in 1696.

C. In India the first life insurance was started in the Bengal Presidency in 1818 knows as

oriental life insurance company.

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D. Experiencing so many ups and downs the insurance business was found in changed

shapes. Particularly after attaining independence and to the more specific after

nationalizing in 1956.

E. There was major change in the insurance sector after globalization in 2001. The

private player in the insurance industry and ends the dominance of LIC.

F. The different MNC s company of foreign country enters in the insurance industry with

the joint venture with Indian companies. Today total 11 private life insurance companies

are working in insurance industry.

HISTORY

1912: the Indian Life Assurance Companies Act enacted as the first stature nto regulate

the life insurance business.

1928: the Indian Insurance Companies Act enacted to the government to collect statisticalinformation about both life and non life insurance businesses.

1938: Earlier legislation consolidated and amended to the insurance Act with the

objective of protecting the interests of the insuring public.

1956: 245 Indian and Foreign insurers and provident societies taken over by the central

government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956,

with a capital contribution of Rs. 5 core from the Government of India.

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INTRODUCTION TO INSURANCE

Today, only one business, which affects all walks of life, is insurance business. Thats

why insurance industry occupies a very important place among financial services

operative in the world. Owing to growing complexity of life, trade and commerce,

individuals as well as business firms are turning to insurance to manage various risks.

Therefore a proper knowledge of what insurance is and what purpose does it serve to

individual or an organization is therefore necessary.

The future is never certain .

So its rightly said, AN INSURANCE POLICY IN HAND KEEPS THE TENSION

AWAY.

Insurance, essentially, is an arrangement where the losses experienced by a few areextended over several who are exposed to similar risks. Insurance is a protection against

financial losses arising on the happening of an unexpected event. Insurance companies

collect premium to provide security for the purpose. In simple words it is spreading of

risks amongst many people.

i) LIFE INSURANCE: It is a fundamental part of a sound financial plan which helps to

insure your loved ones.

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ii) Benefits:

1) SAVINGS For unforeseen circumstances.

2) EDUCATION For childs education and for higher studies.

3) RETIREMENT Facilitates adequate savings for worry free retired life.

iii) Insurance ------------a Flash back:

The earliest transaction of insurance as practiced today can be traced back to the 14 th

century AD. The business of insurance started with marine business by Traders who used

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to gather in the Lloyds coffee house in London, wherein they had agreed to insure their

ships in transit.

The 1st Life Insurance Policy was issued on 18th June, 1583, on the life of William

Gibbons for a period of 12 months

Life Insurance in its current form came in India from the UK, with the establishment of

British firm,

Oriental Life insurance Company, in 1818

The 1st Indian insurance company was the Bombay Mutual Assurance Society Ltd,

formed in 1870.

By the year 1956, when the life insurance business was nationalized and the Life

Insurance Corporation Of India ltd (LIC) was formed on 1st September, 1956 and

there were 245 companies existing at that time in India. By 31.3.2002, eleven new

insurers had been registered and had begun to transact Life insurance business in India.

IV) INSURANCE CLASSIFICATION

Life

Term

Endowment

Unit-linked

Money-back

V) INSURANCE INDUSTRY POTENTIAL

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1) Asia is amongst the worlds largest insurance markets contributing nearly 39% of

global insurance business.

2)The Life Insurance Industry has grown by 27% p.a. over the last 5 years and by about

62% in the first eleven months of 2006 -07. Source IRDA Journal (April 2007)

3) Global Life Insurance Market: $1,521 billion, Global Non-Life Insurance Market:

$922 billion

4) India is 23rd in insurance business with 0.41% share

5) Out of one billion people in India, only 35 million people are covered by insurance.

6) Indias life insurance premium as a percentage of GDP is just 1.8%

7) Indian insurance market is set to touch $50 billion by 2010, on the assumption of a 7%

growth in GDP (CII Projections 2001-2002)

8) The Insurance premium as a % of GDP in 2005 increased to 3.14% and is set to touch

4.3% in 2008. (Source Lifeline 26th Dec 2006)

LIFE INSURANCE COMPANIES IN INDIA

1.Life Insurance Corporation of India

2. Tata AIG Life Insurance Company Ltd3. Kotak Mahindra Old Mutual Life Insurance Ltd

4. Birla Sun Life Insurance

5. ICICI Prudential Life Insurance

6. Aviva Life Insurance

7. Allianz Bajaj

8. Max New York Life Insurance

9. Bharti Axa Life Insurance

10. SBI Life Insurance

11. Reliance Life Insurance

12. ING Vysya Life Insurance

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13. Sahara India Life Insurance

14. HDFC Standard Life Insurance

15. Shriram Group

Market share for 5 year

Lic 98% 94% 87% 78% 71%

Private

player

2% 6% 13% 22% 29%

Market share of insurance players

Market share of public sector and private sector for 2008-09

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Market share of private insurance company 2008-09

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Source : ESCOLIFE (insurance news papper by ritu Nanda jun 2010

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INSURANCE SECTOR REFORMS:

1) Structure

Government stake in the insurance companies to be brought down to 50%.

2) Competition

Private companies with a minimum paid up capital of Rs. 1bn should be allowed to enter

the industry. No company should deal in both Life and General Insurance though a single

entity. Foreign companies may be allowed to enter the industry in collection with thedomestic companies. Postal Life Insurance Should be allowed to operate in the rural

market. Only One State Life Insurance Company should be allowed to operate in each

state.

3) Regulatory Body

- The Insurance Act should be changed

- An Insurance Regulatory body should be set up

- Controller of Insurance (Currently a part from the Finance Ministry) should be made

independent.

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4) Investments

Mandatory Investment of LIC Life Fund in government securities to be reduced from

75% to 50%.

5) Customer service

LIC should pay interest on delays in payments beyond 30 days. Insurance companies

must be encouraged to set up unit linked pension plans. Computerization of operations

and updating of technology to be carried out in the insurance industry. The committee

emphasized that in order to improve the customer services and increase the coverage of

the insurance; industry should be opened up to competition.

ENTRANCE OF PRIVATE PLAYERS IN INSURANCE SECTORS

India still has low insurance penetration of 1.95 percent, 51st in the world. Despite the

fact that India boosts a saving rate of around 25 percent, less than 5 percent is spent on

insurance. The insurance landscape in India is undergoing major changes. Close to

foreign competition since nationalization in 1956, the life insurance industry had been

protected from competitive pressures. Now, with the reopening of the sector, several newplayers have entered the scene. The acronym for the Insurance Regulatory and

Development authority of India, it overseeing the insurance business in India. It protects

the interests of the policyholders received and ensures orderly growth of the insurance

industry and for matters connected there thereto. Beside Kotak Mahindra Life Insurance

there are other 11 private players working in life insurance sector, which are as follows.

Allianz Bajaj Life Insurance Company Ltd.

Allianz Bajaj Life Insurance Company Ltd. is a joint venture between Allianz AG

(Largest insurer in Europe) and Bajaj Auto Ltd. incorporated on 12th march 2001.

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AMP Sanmar Assurance Company Ltd.

AMP Sanmar Assurance Company Ltd. is a joint venture between AMP, largest life

insurer in Australia and New Zealand, Sanmar is one of the largest industrial groups in

South India dealing in chlorochemicals and shipping and Engineering.

Aviva Life Insurance Company Ltd.

Aviva Life Insurance Company Ltd. is a joint venture between Dabur India and CGU, is

a wholly subsidiary of Aviva Plc (UK).

BI Life Insurance Company Ltd.

India s largest bank SBI and Cardiff S.A, a leading insurer in France came together to

from SBI Life.

Tata Life Insurance Company Ltd.

Tata Life Insurance Company Ltd. is capitalized at Rs. 185 crore; of which 74% has beenbrought in by TATA Sons and the American partner bring the balance 26%.

ICICI Prudential Life Insurance Company Ltd.

ICICI Prudential equity based stands at Rs. 675 Cr. With ICICI group and Prudential Plc

holding 74% and 26% stake respectively.

Birla Sun Life Insurance Company Ltd.

Birla Sun Life Insurance Company is a 74:26 joint venture between Aditya Birla Group

and sun life financial services of Canada.

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HDFC Standard Life Insurance Company Ltd.

HDFC Standard Life Insurance Company Ltd. was one of the first companies to be

granted license by the IRDA to operate in life insurance sector. It was incorporated on

14th august 2000. HDFC is the majority stakeholder in insurance JV with 81.4% stake

and Standard life (largest mutual assurance company in Europe) has a stake of 18.6%.

ING Vysya Life Insurance Company Ltd.

ING Vysya Life Insurance Company Ltd. is expected to be first bank assurance venture

in the country. Together they have roped in GMR group, which has wide-ranging

interests in field such as power generation infrastructure, manufacturing, software and

banking. As per JV agreement Vysya bank would hold 49% stake, ING (Europe, Dutch

origin) 26% and GMR group would hold 25% of the stake.

MAX New York Life Insurance Company Ltd.

It s a partnership between MAX India ltd and New York life, a Fortune 100 company.

Met Life India Insurance Company Ltd.

It was incorporated in April 2001 as a joint venture between Met Life International

Holding, Inc, Jammu & Kashmir bank, and M. Pallonji and company private Ltd.

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CHAPTER NO. 2

INTRODUCTION TO INSURANCE MARKETING

There are insurance marketing strategies that can take any insurance agency

from mediocre to success when utilized correctly. Breaking into a new business climate

and finding customers is hard work, but when equipped with innovative ideas and proven

techniques, financial markets sales personnel can become extremely successful. Getting

an education and training is very important in every industry, sales is certainly no

exception. Those selling insurance will want begin their careers with the very best tools

of the trade and those with already established businesses that are in need of a

motivational push will also gain great benefits by researching and learning new insurance

marketing tips. This article serves to give a few helpful hints and to encourage those in

this career to seek further and find the right system or push for their business.

Key insurance marketing strategies will always include an in-depth review

of a value of follow-up. All successful sales agents understand that consumers need to becontacted again and again in order to make a vital connection. Also, great follow-up

protocol lets the potential customer know that good, solid customer service will be part of

the over-all package. Follow-up says to a consumer that they are important, thought of,

and that their business would be greatly appreciated. The consumer today not only wants

a product at a great price, they also want a personal relationship, especially when it

comes to financial system sales, such as various insurances. Letters and phone calls are

gentle reminders that the salesperson intends to serve with his or her whole heart. And,

once a sale is secured, a thank you call is strongly advised.

Those in this industry will also want to keep constant contact with existing

customers, too. The competition is fierce today, and no one wants to loose a customer to

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the next guy or service to come along. Clients that have had no contact for a period of

time loose loyalty. Keep birthday and anniversary postcards going into the home on a

regular basis. Keeping a name before a consumer will keep a name in their conscience. A

small gift or token of appreciation is also a means for keeping customers loyal. Christmas

goody packages or dinner out certificates will leave lasting impressions on consistent

customers.

Consumers today value information. We live in the information age, and the

savvy, faithful customer is one that has knowledge about the products and services

offered. The next most valuable insurance marketing tips include the salesperson being

the source of financial information for the client. Newsletters, email updates, and

notifications will keep customers informed about issues surrounding insurance and other

financial programs. There are creative ways to approach these insurance marketing

strategies. Newsletters could include contests, special interest areas for kids, safety

concerns, and economic updates. There could even be an area for customer spotlights, or

encouraging testimonies of how the customers were helped through the office. Of course,

all new products and services should be showcased in any informative hard copy or e-

mail communication.Community marketing is another great way to get advertising and name

recognition. Successful net workers join local community agencies, such as the local

Chamber of Commerce, and sign up to help in activities. This is a great way to get name

and photographs listed in newspaper articles and other media avenues. Also, charity work

cannot only be greatly beneficial to the community and those served, but may also open

doors to communicating with other volunteers, who could be potential clients. People

enjoy using services extended by like-minded providers. Creating a sense of community

is extremely important to insurance marketing strategies.

There are other insurance marketing tips and resources available and

insurance agents may find investigating several options to be beneficial. Many marketing

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support companies offer email or publication updates, sharing information and techniques

that are proven to bring in success. Agents may want to browse the Internet and find a

few different insurance marketing tips programs to choose from. Not only will these

resources help keep salespersons abreast of the latest strategies, but these support

programs can also create a sense of community and an opportunity for agents to share

their own struggles and challenges with others in the field.

Perhaps the most important insurance marketing tips are tips that speak of

integrity and honest business dealings. There are so many scams in various industries

today; consumers are looking for products and services that they can trust. It is of the

utmost importance that Christian insurance agents conduct their businesses as unto the

Lord, himself. God's Word is extremely clear about how He feels when there is

misconduct in business transactions. "Lying lips are an abomination to the Lord: but they

that deal truly are his delight."

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CHAPTER NO: 2

MARKETING MIX

CH. 2 MARKETING MIX

The term marketing mix refers to the four major areas of decision making in the

marketing process that are blended to obtain the results desired by the organization. The

four elements of the marketing mix are sometimes referred to the four Ps of marketing.

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The marketing mix shapes the role of marketing within all types of organizations, both

profit and nonprofit. Each element in the marketing mixplace, price product promotion,

and,consists of numerous sub elements. Marketing managers make numerous decisions

based on the various sub elements of the marketing mix, all in an attempt to satisfy the

needs and wants of consumers.

PRODUCT

The first element in the marketing mix is the product. A product is any combination of

goods and services offered to satisfy the needs and wants of consumers. Thus, a product

is anything tangible or intangible that can be offered for purchase or use by consumers. A

tangible product is one that consumers can actually touch, such as a computer. An

intangible product is a service that cannot be touched, such as computer repair, income

tax preparation, or an office call. Other examples of products include places and ideas.

For example, the state tourism department in New Hampshire might promote New

Hampshire as a great place to visit and by doing so stimulate the economy. Cities also

promote themselves as great places to live and work. For example, the slogan touted by

the Chamber of Commerce in San Bernardino, California, is "It's a great day in San

Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives,as has the idea of recycling to help reduce the amount of garbage placed in landfills.

Typically, a product is divided into three basic levels. The first level is often called the

core product, what the consumer actually buys in terms of benefits. For example,

consumers don't just buy trucks. Rather, consumers buy the benefit that trucks offer, like

being able to get around in deep snow in the winter. Next is the second level, or actual

product, that is built around the core product. The actual product consists of the brand

name, features, packaging, parts, and styling. These components provided the benefits to

consumers that they seek at the first level. The final, or third, level of the product is the

augmented component. The augmented component includes additional services and

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benefits that surround the first two levels of the product. Examples of augmented product

components are technical assistance in operating the product and service agreements.

Products are classified by how long they can be useddurabilityand their tangibility.

Products that can be used repeatedly over a long period of time are called durable goods.

Examples of durable goods include automobiles, furniture, and houses. By contrast,

goods that are normally used or consumed quickly are called nondurable goods. Some

examples of nondurable goods are food, soap, and soft drinks. In addition, services are

activities and benefits that are also involved in the exchange process but are intangible

because they cannot be held or touched. Examples of intangible services included eye

exams and automobile repair.

Another way to categorize products is by their users. Products are classified as either

consumer or industrial goods. Consumer goods are purchased by final consumers for

their personal consumption. Final consumers are sometimes called end users. The

shopping patterns of consumers are also used to classify products. Products sold to the

final consumer are arranged as follows: convenience, shopping, specialty, and unsought

goods. Convenience goods are products and services that consumers buy frequently and

with little effort. Most convenience goods are easily obtainable and low-priced, itemssuch as bread, candy, milk, and shampoo. Convenience goods can be further divided into

staple, impulse, and emergency goods. Staple goods are products, such as bread and milk

that consumers buy on a consistent basis. Impulse goods like candy and magazines are

products that require little planning or search effort because they are normally available

in many places. Emergency goods are bought when consumers have a pressing need. An

example of an emergency good would be a shovel during the first snowstorm of the

winter.

Shopping goods are those products that consumers compare during the selection and

purchase process. Typically, factors such as price, quality, style, and suitability are used

as bases of comparison. With shopping goods, consumers usually take considerable time

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and effort in gathering information and making comparisons among products. Major

appliances such as refrigerators and televisions are typical shopping goods. Shopping

goods are further divided into uniform and no uniform categories. Uniform shopping

goods are those goods that are similar in quality but differ in price. Consumers will try to

justify price differences by focusing on product features. No uniform goods are those

goods that differ in both quality and price.

Specialty goods are products with distinctive characteristics or brand identification for

which consumers expend exceptional buying effort. Specialty goods include specific

brands and types of products. Typically, buyers do not compare specialty goods with

other similar products because the products are unique. Unsought goods are those

products or services that consumers are not readily aware of or do not normally consider

buying. Life insurance policies and burial plots are examples of unsought goods. Often,

unsought goods require considerable promotional efforts on the part of the seller in order

to attract the interest of consumers.

Industrial goods are those products used in the production of other goods. Examples of

industrial goods include accessory equipment, component parts, installations, operating

supplies, raw materials, and services. Accessory equipment refers to movable items andsmall office equipment items that never become part of a final product. Office furniture

and fax machines are examples of accessory equipment. Component parts are products

that are turned into a component of the final product that does not require further

processing. Component parts are frequently custom-made for the final product of which

they will become a part. For example, a computer chip could be produced by one

manufacturer for use in computers of other manufacturers. Installations are capital goods

that are usually very expensive but have a long useful life. Trucks, power generators, and

mainframe computers are examples of installations. Operating supplies are similar to

accessory equipment in that they do not become part of the finished product. Operating

supplies include items necessary to maintain and operate the overall firm, such as

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cleaners, file folders, paper, and pens. Raw materials are goods sold in their original form

before being processed for use in other products. Crops, crude oil, iron ore, and logs are

examples of raw materials in need of further processing before being used in products.

The last category of industrial goods is services. Organizations sometimes require the use

of services, just as individuals do. Examples of services sought by organizations include

maintenance and repair and legal counsel.

PRICE

The second element in marketing mix is price. Price is simply the amount of money that

consumers are willing to pay for a product or service. In earlier times, the price was

determined through a barter process between sellers and purchasers. In modern times,

pricing methods and strategies have taken a number of forms.

Pricing new products and pricing existing products require the use of different strategies.

For example, when pricing a new product, businesses can use either market-penetration

pricing or a price-skimming strategy. A market-penetration pricing strategy involves

establishing a low product price to attract a large number of customers. By contrast, a

price-skimming strategy is used when a high price is established in order to recover the

cost of a new product development as quickly as possible. Manufacturers of computers,videocassette recorders, and other technical items with high development costs frequently

use a price-skimming strategy.

Pricing objectives are established as a subset of an organization's overall objectives. As a

component of the overall business objectives, pricing objectives usually take one of four

forms: profitability, volume, meeting the competition, and prestige. Profitability pricing

objectives mean that the firm focuses mainly on maximizing its profit. Under profitability

objectives, a company increases its prices so that additional revenue equals the increase

in product production costs. Using volume pricing objectives, a company aims to

maximize sales volume within a given specific profit margin. The focus of volume

pricing objectives is on increasing sales rather than on an immediate increase in profits.

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Meeting the price level of competitors is another pricing strategy. With a meeting-the-

competition pricing strategy, the focus is less on price and more on nonprice competition

items such as location and service. With prestige pricing, products are priced high and

consumers purchase them as status symbols.

In addition to the four basic pricing strategies, there are five price-adjustment strategies:

discount pricing and allowances, discriminatory pricing, geographical pricing,

promotional pricing, and psychological pricing. Discount pricing and allowances include

cash discounts, functional discounts, seasonal discounts, trade-in allowances, and

promotional allowances. Discriminatory pricing occurs when companies sell products or

services at two or more prices. These price differences may be based on variables such as

age of the customer, location of sale, organization membership, time of day, or season.

Geographical pricing is based on the location of the customers. Products may be priced

differently in distinct regions of a target area because of demand differences. Promotional

pricing happens when a company temporarily prices products below the list price or

below cost. Products priced below cost are sometimes called loss leaders. The goal of

promotional pricing is to increase short-term sales. Psychological pricing considers prices

by looking at the psychological aspects of price. For example, consumers frequentlyperceive a relationship between product price and product quality.

PROMOTION

Promotion is the third element in the marketing mix. Promotion is a communication

process that takes place between a business and its various publics. Publics are those

individuals and organizations that have an interest in what the business produces and

offers for sale. Thus, in order to be effective, businesses need to plan promotional

activities with the communication process in mind. The elements of the communication

process are: sender, encoding, message, media, decoding, receiver, feedback, and noise.

The sender refers to the business that is sending a promotional message to a potential

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customer. Encoding involves putting a message or promotional activity into some form.

Symbols are formed to represent the message. The sender transmits these symbols

through some form of media. Media are methods the sender uses to transmit the message

to the receiver. Decoding is the process by which the receiver translates the meaning of

the symbols sent by the sender into a form that can be understood. The receiver is the

intended recipient of the message. Feedback occurs when the receiver communicates

back to the sender. Noise is anything that interferes with the communication process.

There are four basic promotion tools: advertising, sales promotion, public relations, and

personal selling. Each promotion tool has its own unique characteristics and function. For

instance, advertising is described as paid, nonpersonal communication by an organization

using various media to reach its various publics. The purpose of advertising is to inform

or persuade a targeted audience to purchase a product or service, visit a location, or adopt

an idea. Advertising is also classified as to its intended purpose. The purpose of product

advertising is to secure the purchase of the product by consumers. The purpose of

institutional advertising is to promote the image or philosophy of a company. Advertising

can be further divided into six subcategories: pioneering, competitive, comparative,

advocacy, reminder, and cooperative advertising. Pioneering advertising aims to developprimary demand for the product or product category. Competitive advertising seeks to

develop demand for a specific product or service. Comparative advertising seeks to

contrast one product or service with another. Advocacy advertising is an organizational

approach designed to support socially responsible activities, causes, or messages such as

helping feed the homeless. Reminder advertising seeks to keep a product or company

name in the mind of consumers by its repetitive nature. Cooperative advertising occurs

when wholesalers and retailers work with product manufacturers to produce a single

advertising campaign and share the costs. Advantages of advertising include the ability to

reach a large group or audience at a relatively low cost per individual contacted. Further,

advertising allows organizations to control the message, which means the message can be

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adapted to either a mass or a specific target audience. Disadvantages of advertising

include difficulty in measuring results and the inability to close sales because there is no

personal contact between the organization and consumers.

The second promotional tool is sales promotion. Sales promotions are short-term

incentives used to encourage consumers to purchase a product or service. There are three

basic categories of sales promotion: consumer, trade, and business. Consumer promotion

tools include such items as free samples, coupons, rebates, price packs, premiums,

patronage rewards, point-of-purchase coupons, contests, sweepstakes, and games. Trade-

promotion tools include discounts and allowances directed at wholesalers and retailers.

Business-promotion tools include conventions and trade shows. Sales promotion has

several advantages over other promotional tools in that it can produce a more immediate

consumer response, attract more attention and create product awareness, measure the

results, and increase short-term sales.

Public relations is the third promotional tool. An organization builds positive public

relations with various groups by obtaining favorable publicity, establishing a good

corporate image, and handling or heading off unfavorable rumors, stories, and events.

Organizations have at their disposal a variety of tools, such as press releases, productpublicity, official communications, lobbying, and counseling to develop image. Public

relations tools are effective in developing a positive attitude toward the organization and

can enhance the credibility of a product. Public relations activities have the drawback that

they may not provide an accurate measure of their influence on sales as they are not

directly involved with specific marketing goals.

The last promotional tool is personal selling. Personal selling involves an interpersonal

influence and information-exchange process. There are seven general steps in the

personal selling process: prospecting and qualifying, pre-approach, approach,

presentation and demonstration, handling objections, closing, and follow-up. Personal

selling does provide a measurement of effectiveness because a more immediate response

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is received by the salesperson from the customer. Another advantage of personal selling

is that salespeople can shape the information presented to fit the needs of the customer.

Disadvantages are the high cost per contact and dependence on the ability of the

salesperson.

For a promotion to be effective, organizations should blend all four promotion tools

together in order to achieve the promotional mix. The promotional mix can be influenced

by a number of factors, including the product itself, the product life-cycle stage, and

budget. Within the promotional mix there are two promotional strategies: pull and push.

Pull strategy occurs when the manufacturer tries to establish final consumer demand and

thus pull the product through the wholesalers and retailers. Advertising and sales

promotion are most frequently used in a pulling strategy. Pushing strategy, in contrast,

occurs when a seller tries to develop demand through incentives to wholesalers and

retailers, who in turn place the product in front of consumers.

PLACE

The fourth element of the marketing mix is place. Place refers to having the right product,

in the right location, at the right time to be purchased by consumers. This properplacement of products is done through middle people called the channel of distribution.

The channel of distribution is comprised of interdependent manufacturers, wholesalers,

and retailers. These groups are involved with making a product or service available for

use or consumption. Each participant in the channel of distribution is concerned with

three basic utilities: time, place, and possession. Time utility refers to having a product

available at the time that will satisfy the needs of consumers. Place utility occurs when a

firm provides satisfaction by locating products where they can be easily acquired by

consumers. The last utility is possession utility, which means that wholesalers and

retailers in the channel of distribution provide services to consumers with as few

obstacles as possible.

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Channels of distribution operate by one of two methods: conventional distribution or a

vertical marketing system. In the conventional distribution channel, there can be one or

more independent product manufacturers, wholesalers, and retailers in a channel. The

vertical marketing system requires that producers, wholesalers, and retailers to work

together to avoid channel conflicts.

How manufacturers store, handle, and move products to customers at the right time and at

the right place is referred to as physical distribution. In considering physical distribution,

manufacturers need to review issues such as distribution objectives, product

transportation, and product warehousing. Choosing the mode of transportation requires an

understanding of each possible method: rail, truck, water, pipeline, and air. Rail

transportation is typically used to ship farm products, minerals, sand, chemicals, and auto

mobiles. Truck transportation is most suitable for transporting clothing, food, books,

computers, and paper goods. Water transportation is good for oil, grain, sand, gravel,

metallic ores, coal, and other heavy items. Pipeline transportation is best when shipping

products such as oil or chemicals. Air transport works best when moving technical

instruments, perishable products, and important documents.

Another issue of concern to manufacturers is the level of product distribution. Normallymanufacturers select from one of three levels of distribution: intensive, selective, or

exclusive. Intensive distribution occurs when manufacturers distribute products through

all wholesalers or retailers that want to offer their products. Selective distribution occurs

when manufacturers distribute products through a limited, select number of wholesalers

and retailers. Under exclusive distribution, only a single wholesaler or retailer is allowed

to sell the product in a specific geographic area.

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INTRODUCTION ABOUT DIRECT MARKETING

If a person is a Citibank, Visa or Master card holder, living in a metro or class one

town, by now he would probably be accustomed to receive some unexpected mailinviting him to a launch function of a new product, a live demonstration of a gadget, an

exhibition of designer jewellery or a music concert sponsored by some business firm. He

may also get some promotional literature about an investment scheme or some share

application forms for public issues of companies, or be offered a hefty discount on

subscription of a magazine or an early bird incentive on booking a residential flat.

Even in the class two and smaller towns, people are getting surprise gifts and

greeting cards on occasions like anniversaries, birthdays and the new year. This is an

indication that direct market is catching up in the post-liberalization ere in India. Several

firms, otherwise marketing their products through conventional channels, are now also

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using the direct approach to communicate with and retain their customers. Different firms

use different methods to zero in on the prospects included in their hit lists.

Direct marketing as a concept has evolved to its present-day form through various

stages of transformation. Originally a form of marketing in which goods moved from

producer to consumers without involving middleman, firms selling directly to the end

users through their own retail outlets and / or salespersons were said to be involved in

direct marketing. With the development of other form of personal communication, such

as the telephone, direct marketing was redefined.

According to the Direct Marketing Association of the USA (as quoted in

Kotler 1991), Direct Marketing is an international system of marketing which uses

one or more advertising media to effect a measurable response and/ or transaction

at any location.

Direct Marketing thus includes any activity whereby firms reach the customer

directly as an individual, who responds to them directly. It differs from conventionalmarketing in the sense that it talks directly to the prospect on a one- to-one basis without

involving any intermediary. Direct Marketing programs are usually designed to achieve a

measurable result in a relatively short duration of time. These differ from other

promotional activities, though they may use the same media or sometimes the same

techniques, such as coupons and samples.

In the absence of conceptual clarity, direct marketing is often defined very

narrowly as a synonym of some simple specific function such as direct selling, mail-order

selling or direct distribution. In fact, it is much more than all these. A complete system of

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integrated functions aimed at satisfying customer needs more effectively, it is by no

means a short-term quick buck affair.

In conventional marketing, firms wait for the customer to walk into their stores,

whereas in direct mode firms prefer to go out ad get the customer before he steps out of

his home. It is a very focused activity that follows a firm to concentrate on a chosen

segment of customers and interacts with them more effectively through different media.

Being a more precise and goal-oriented activity it is more suitable for firms operating in

specific niche markets.

According to the number one direct-selling firm in the world, Amway corporation

of the USA (estimated sales for 1995US$6.3billion), Direct selling moves products from

the manufacturer/supplier to the seller and consumer without intermediaries. It differs

from direct marketing in the sense that direct marketing companies depend more on

mailing, catalogue sales, direct response and coupon sales, telephone and telemarketing

and the like; and now they are also selling via computer networks such as the Internet. In

contrast, direct selling is always performed through the salesperson.(As quoted at theCII-Amway Seminar1996).

In direct marketing goods move from

Manufacturer Consumer

In direct selling goods move from

Manufacturer Distributor Consumer

Some newer forms of direct selling such as multiplayer marketing (MLM) may

involve different layers of distributors and salespersons selling to the customers directly.

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Amways definition notwithstanding, direct selling as a concept is nothing more than a

mode of direct distribution.

The early practitioners of direct marketing in India include Readers Digest

magazine, Bullworker exerciser, and some regional language publications that used mail

coupons to increase circulation. Of late, catalogue-shopping firms such as Burlingtons

have also made forays into the Indian market, but achieved only limited success.

However, in the late1980s, it was the success of Eureka Forbes vacuum cleaners and

Real Value Appliances Cease Fire brand of fire extinguishers (will you call it direct

marketing or direct selling?) that signaled the dawn of direct marketing in India.

At the professional level, the credit of pioneering direct marketing in India goes to

the media person Ram Nathan Sridhar who founded O&M Direct in 1987, exclusively to

handle and promote direct-marketing activities in a professional manner. Since then, he

has been selling the idea of direct marketing to savvy marketers with missionary zeal and

spirit.

Today, all major advertising agencies in the country such as Hindustan Thompson

Associates (HTA), Lintas, Mudra, Trikaya Grey, Response, Contract and many others

have set up separate divisions to cope with the growing demand for direct marketing.

Presently, direct marketing accounts for only about 14 percent of the Rs 45,000 million

Indian ad spend, but going by the current trend of 35 percent annual increment in

expenditure on direct marketing, it is going to be a big business in the next couple of

years.

The Direct Marketing Association (DMA) defines direct marketing as follows:

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Direct marketing is an interactive marketing system that uses one or more

advertising media to affect a measurable response and /or transaction at any

location.

This definition emphasizes a measurable response; typically a customer order.

Thus direct marketing is sometimes called direct-order marketing.

Today, many direct marketers see direct marketing as playing a broader role, that of

building a long-term relationship with the customer (direct relationship marketing).

Direct marketers occasionally send birthday cards, information materials, or small

premiums to select members in their customer base. Airlines, hotels, and other businesses

build strong customer relationships through frequency award programs and club

programs.

WHAT IS DIRECT MARKETING

Direct Marketing is an interactive mode of marketing through which the marketer reaches

out to his target market at any location. . An analysis of this definition brings out three

key elements, namely:

1) It is an interactive system in the sense that there is a two-way communication between the

marketer and his/her target market; the response or non response of the customer

completes the communication loop in the direct marketing programme. For example,

when the customer fills in the response coupon in an advertisement or a catalogue and

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mails it, he/she communicates to the marketer and hence completes the communication

loop.

2) Another element is measurability of response. As mentioned above the number of

coupons received indicates the response rate to the marketers communication.

3) Direct marketing activities are not location specific; it is not necessary for the customer

to physically interact with the marketer, he/she can establish a contact through mail,

phone, fax, or the internet.

As mentioned above, direct marketing is an efficient way to promote and sell products and

services in a highly competitive market. The goal of direct marketing is always a response

from the customer. Direct marketing has also been known by other terms like direct

selling, mail order selling or catalogue selling.

Today direct marketing uses all these tools and is based on a customer database. In fact

the key to successful direct marketing is the development of this database.

WHY DIRECT MARKETING

The growth of direct marketing in India can be attributed to environmental complexities

and the concept of bargaining power. Customer life styles have changed especially in

metros and large cities. Todays customer looks for convenience in shopping and getting

the product or service delivered in the comfort of his/her house. Teleshopping, home

shopping channels, catalogue marketing and online shopping are some of the tools that

enable companies to cater to this core customer value.

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Globalization of markets and the internet direct marketing. Today a firm have

further facilitated the growth of need not have operations in all its markets but can still

cater to the world demand. Dell computers and Amazon are two leading examples of

successful direct marketing around the world.

Today the cost of a retail shelf at outlets in major cities is prohibitive. Fragmentation of

media and audiences also imply higher advertising budgets. With customer loyalty on the

wane and the costs of marketing increasing, firms margins have come under pressure.

Productivity of marketing resources is now as much of a concern as that of any other

resource. Direct marketing helps

HOW DIRECT MARKETING WORKS

Direct marketing, as practiced by professionally managed firms is a four-step process:

1. Identifying prospects

2. Establishing contact

3. Booking the order4. Maintaining contacts to develop a mutually beneficial, long-term business

relationship.

Identifying prospects and segmenting them into various categories based on certain

specific criteria is critical to the success of direct marketing. This is done in different

phases. In the first phase, a preliminary list of potential or may be customers is made

through random mailing, house calls, or mass media advertisements using coupons or

some other contact device. In marketing parlance it is termed cold listing.

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This cold list is thoroughly scrutinized and attempts are made to identify those who

are not likely to use the proposed product or service due to incompatibility of need,

income, age, sex, occupation or any other reason. All such people who dont qualify as

prospects are dropped from the list. The residual list is then known as the hot list. Firms

may sometimes seek to gather additional information about those included in the initial

list by contacting them on telephone or through other convenient media.

The next step is to draw a detailed profile of the prospect. This may include

information on consumption habits, purchase behavior, personality and lifestyle, social

class, exposure to media; and demographic particulars such as age, income, education,

profession, family size, domicile and complete postal address. Technically this step is

known as profiling the respondent or response graphic.

The list is further split into separate clusters of identical groups, using some

demographic, psycho graphic, or behavioral parameters. This exercise is termed

segmentation. Firms now adopt many innovative ways of clustering, using novel

parameters such as traveling habits, food preferences, ownership of automobiles,possession of assets and durables, and taste for music and art.

Finally, each cluster is researched using some predetermined criteria, to identify

the specific segment or segments to be targeted for marketing the product. This exercise

is known as targeting. If the product is a high-value item such as jewellery, a computer or

an expensive gadget, direct marketing goes into further details and makes an elaborate

study of each individual included in the target segment. This is known as

individualization. Now the firm may focus on the specific needs of the individual

customer. Let us now see how it works in actual practice.

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Having identified the customer and prepared a database of individual profiles, the

next step is to call at the residence of individual prospects for live demonstration or to

offer a free sample of the product. Since the individualistic approach ensures better

chances of being heard, it is far less difficult to get an order for the product. In the afore-

said example, the firm was successful not only in selling its gadget to a majority of the

host-listed respondents, but in the future too, this database may be of immense help in

identifying and targeting customers if it introduces some related product such as a blood

sugar or body weight monitor, or a self testing kit for diabetic patients.

Finally, having been able to sell the product or service to a customer., it is

essential to keep in touch with him/her through mail, telephone or any other means of

communication, to retain him / her as a customer. To create a lasting relationship, firms

must maintain regular contact and update their data according to the changing needs and

tastes of the customers.

DIRECT MARKETING MIX

The marketing mix in direct marketing mode, by and large, remains the same

except for the communication programme and customer service, which have acquired

new meaning. For example, if the marketer guarantees delivery of the product within a

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defined time frame, also promises to take it back in case it fails to live upto customer

expectations and return his/her money, then the customer service executive cannot refuse

a claim. This is opposed to general marketing where the marketing can put several

disclaimers and may refuse the customer. In direct marketing, refusal to accept customer

claim without any question may cost the marketer significant losses as he not only loses

that customer but subsequent prospects as well. In general marketing, the loss can be

contained through other elements of the marketing mix. In addition to marketing mix

decisions, the direct marketer has to pay special attention to the following factors in

decision making:

1) Communication Programme:

This involves both creative and media decisions. The creative decisions center around

the copy platform, graphic design elements, mailers, stickers and so forth.

The media used by direct marketers are mailers, telephone, television and the internet.

Direct response print and television advertising are particularly effective in generating

response to the offer, especially if it is complex to understand. Also, the direct marketer

today uses various outdoor, retail panels( Just Talk and BPL MOTS brands of prepaidSim cards in Mumbai) and even stickers to retain the brand at the top of customers mind.

These also serve the purpose of a reminder.

2) Customer Service:

Customer service is a key input in direct marketing. In a direct marketing, physical

contact with the customer is low, and it is the quality of service that facilitates customer

decision making. Service, therefore, is an investment and cannot be ignored. The

customer service mix today involves speed and accuracy of order fulfillment, immediate

customer complaint resolution, etc.

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3) Timing and Sequencing:

This factor involves determination of whether the product or service is offered once,

as a part of the campaign or continuously. This will obviously involve campaign

decisions like whether to have bursts, pulsing or a continuous campaign.

DATABASE DEVELOPMENT

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Database marketing is the most effective way to customize the marketing mix to suit

target markets. This helps not only in customizing the offering but also its delivery.

Database marketing is an interactive approach to marketing that uses all communication

tools and media vehicles to reach to the target market. It is also the basis of all

relationship marketing efforts of the company. The information stored in the database is

used to develop customer loyalty and to identify all potential buyers for any new product

or service. It also helps in identifying the most cost effective media and delivery vehicles.

Characteristics of a Good Database:

1) Each customer or prospect should be treated an individual entity and hence a separate

record for him/her should exist in the marketing database. Market segments are an

agglomeration of such individual customers.

2) Each such marketing record should contain all the relevant information and access details

like name, address, telephone numbers, frequency of product use, experience with the

product, industry and decision making units for organizational customer.

3) This information should be available to all departments and employees of the company

involved in the direct marketing programme so as to enable them to be customer friendly.

4) The aim of the organization should be to replace routine usage surveys with this database.

5) Information technology tools should be used to strengthen this database and also develop

corporate responses to the customer. These tools can also be used to identify

opportunities and threats in the customer environment and craft appropriate responses

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which will help the marketer to exploit opportunities and neutralize threats. The use id

these tools should also help in optimum resource utilization.

The Strengths of Database Marketing are:

1) Measurability:

Unlike conventional marketing, direct marketing response can be measured. This

helps firms redefine their marketing programme if required and also to customize it to

segment needs.

2) Testable:

Effectiveness of different elements of a marketing programme can be tested.

3) Customisation:

The database provides the firm with an opportunity to customize its communication

with the target market.

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THE BENEITS OF DIRECT MARKETING

Direct marketing benefits customers in many ways. Home shopping is fun,

convenient, and hassle-free. It saves time and introduces consumers to a larger selection

of merchandise. They can do comparative shopping by browsing through mail catalogs

and on-line shopping services. They can order goods for themselves or others. Business

customer also benefits by learning about available products and services without trying

up time in meeting sales people.

Sellers also benefit. Direct marketers can buy a mailing list containing the names

of almost any group: left-handed people, overweight people, and millionaires. They can

personalize and customize their messages. According to Pierre Passavant: We will store

hundredsof messages in memory. We will select ten thousand families with twelve or

twenty or fifty specific characteristics and send them very individualized laser-printed

letters. Direct marketers can build a continuous relationship with each customer. The

parents of the newborn baby will receive periodic mailings describing new clothes, toys,and other goods as the child grows. Nestls baby food division continuously builds a

database of new mothers and mails six personalized packages of gifts and advice at key

stages in the babys life.

Direct marketing can be timed to reach prospects at the right moment, and direct

marketing material receives higher readership because it is sent to more interested

prospects. Direct marketing permits the testing of alternative media and messages in

search of the most cost-effective approach. Direct marketing also makes the direct

marketers offer strategy less visible to competitors, finally, direct marketers can measure

responses to their campaigns to decide which have been the most profitable.

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FACTORS CONTRIBUTING TO THE GROWTH OF DIRECT MARKETING IN

INDIA

In the international market direct marketing has evolved through the catalogue

route. It was the catalogue marketer of the 1930s who set the pace, but it took direct

marketing several decades to reach its present-day multimedia, interactive modes status.

In India, direct marketing was launched on the mail-order platform in the 1950s.but the

growth in the earlier days was sluggish and the practice was confined to only a product

categories. Most major developments in this area took place only after the consumer

boom in the mid 1980s.

Direct marketing in India has since grown by leaps and bounds. With the advent of

competition in the 1990s, several firms such as Philips, Telco, Titan and BPL who were

earlier marketing their product through conventional channels only are now turning to

direct marketing to strengthen their marketing efforts and increase their consumer base.They are integrating direct marketing with conventional distribution to get closer to their

customer.

The following major factors have contributed to the quick growth of direct

marketing in India:

Successful replication of overseas products and marketing practices in India.

Eureka Forbes made history of sorts in India by successfully marketing vacuum

cleaners through door-to door selling. The firm had, in fact not done anything new. It had

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only been replicating here the strategy, which was earlier used in the European markets

quite successfully. Nevertheless, its success in India provided a role model for other firms

to emulate.

Change in the Indian business environment due to liberalization

Some major changes in the Indian business environment, especially after 1991,

made the domestic markets for many consumer and industrial products more competitive.

For the first time, several business firms that were well entrenched in their markets felt

the heat of competition. It was now essential for them to get closer to the customers to

protect their markets. Many of them, such as Onida, HMV, BPL and Titan who were

selling their products only through agents and middlemen, switched to a parallel channel

of direct marketing by opening several exclusive retail shops. The aim was to keep in

direct touch with the customers and provide certain services that were not being provided

by the middlemen.

Another objective of opening exclusive showrooms was to build an up-marketimage of the company by demonstrating the full range of products. The ambience and

dcor of the exclusive showrooms also helped these firms in adding value to their brands.

LML Vespa, Liberty shoes, Bausch& Lomb eye care products and several others

ventured into direct retailing probably due to this reason alone. Service firms such as ITC

Hotels and ANZ Grindlays Bank found direct marketing very effective in retailing

customers and weathering competition.

Middlemen getting stronger.

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Several firms such as those in the publishing business, are now increasingly opting

for direct marketing to reduce their costs of distribution. Over the years, middlemen in

India have become very strong and demanding. In pharmaceuticals, IMFL (Indian made

foreign liquor), packaged food and several other industries, the market is in fact

controlled by middlemen, who dictate terms to manufacturers. In the FMCG category any

new firm wanting to enter the market is virtually at the mercy of middleman. Because of

higher mark-ups the cost of distribution for products like soft drinks, confectionery, ice-

cream and frozen goods has gone up to the extent that in some cases it is even higher than

the cost of production. If the trend continues, it may prompt many more firms to check

the direct marketing alternative.

Another reason for the spurt in direct marketing activities is that dealers usually

push brands selectively, depending upon their equation with the manufacturers. Therefore

to protect their brands from discrimination and to get direct aces to the market, more and

more firms are now opening their exclusive showrooms, especially in large cities and

towns.

Advent of cable television.

Proliferation of satellite television channels and the resultant rise in cable TV

connections in urban and semi-urban India has offered an excellent opportunity for

marketing firms to exploit this new high-tech medium for direct communication.

Teleshopping firms such as Dee's Teleshopping, Teleshopping Networks (TSN) and

Asian Sky Shop (ASS) are now marketing jewellery, toys, cosmetics, watches, leisure

products, domestic gadgets, car finance and many more products and services through

their small screen.

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The USP of Teleshopping is the convenience of shopping from home and getting

the goods delivered at ones doorstep. The selection of products to be marketed through

Teleshopping, therefore, depends largely on the target audience and the timing of the

programme. As this medium of retailing is relatively new to Indian firms, companies are

mostly concentrating on unique household items and targeting up-market housewives.

Large database maintained on computers

Computers have provided the real boost to direct marketing by facilitating

maintenance of large database on consumers. With the enormous computing power at

their command, firms can now store update and use large quantities of data for profiling

and individualizing their customers. Computer based analytical techniques such as non-

parametric multidimensional scaling and perceptual mapping have helped firms in

segmenting their markets and targeting their customers.

Taking advantage of computing power, firms like Johnson & Johnson, for example

have created a database of more than 10,000 mothers in Mumbai, each with a baby less

than two years old. They have collected this data from hospitals and maternity homes.Nestle have carried out similar exercises in other metros for its Cerelac brand infant food.

ITC Welcome Group Ltd has complied a detailed database on all CEOs and senior

managers in the country. This included details about each individuals travel pattern,

destination frequently visited, and choice of food and accommodation. Telco is reported

to have put together an immense database on 145000 bus and truck owners around the

country.

In fact, database-directed marketing has become a potent weapon for acquiring a

competitive edge in products and services where differentiation between brands is

difficult. A bold, powerful and direct personal communication that adds value to the

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product and establishes a lasting relationship with the customer is now possible due to

computerization. Ability to file, amend and retrieve data has changed the procedures,

prospects and profitability of direct marketing.

FUTURE OF DIRECT MARKETING IN INDIA

The future of Direct Marketing in India is dependent on the following:

1) Reaching out to non-metro/non-urban market:

As metro and urban markets get saturated by products and services promoted in

both general and direct marketing models, the key to any direct marketing campaign lies

in expanding its reach to rural and semi rural markets. Infrastructural constraints have so

far come in the way of the direct marketer. But with rural cyber cafes, satellite television

reaching rural areas, telecom booths and mobile telephony now gaining popularity, itshould be possible for the marketers to reach out to their target market in these areas.

Indian post offices are located in the farthest corner India and services villages with a

population as low as 20 households. These offices can be used as an effective medium to

communicate, deliver and even service the rural consumer. IDBI, ICICI, SBI and other

financial institutions are today directly marketing their mutual funds and financial

products through the Indian post offices. Thus, the key to success in the Indian market

lies in the firms ability to access rural markets.

2) Enhancing credibility of the offer:

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The Indian customer generally does not buy the product or service until he/she

has seen it, touched it and experienced it. Therefore these are key ingredients in the

customer selection process and the direct marketer has to enhance his credibility as he

cannot offer these benefits. Therefore, he needs to pay special attention to ensuring that

the customers experience with the product exceeds his/her expectations. Also he needs

to focus on service to endure speedy settlement of any claims. Credibility is the key to

success in direct marketing.

3) Wider use of debit and credit card:

Direct Marketings success in India will be dependent on the wider use of

debit and credit card as mode of payment by both the customer and the marketer. This

involves a shift of transactions from cash to non cash modes and hence a change in the

customers and the sellers mindset.

4) Emergence of specialized database firms:

Another key factor in the success of direct marketing is the evolution ofspecialized Database firms. It is expensive proposition both in terms of money and time

to create a customer database. This makes direct marketing feasible only for large firms.

A very large component of Indian economy consists of the small and medium sized firms

who cannot afford to create this database. Hence emergence and evolution of firms

specialized in database management will contribute to the success of direct marketing in

India.

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CHAPTER NO: 3

MARKETING OF LIFE INSURANCE

CH. 3 MARKETING OF LIFE INSURANCE

A life insurance companys success reflects the consolidated effort of all its

activities. These activities may be arranged into three major functional classifications

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marketing, investments and administration. Of these three areas, marketing is the largest

in terms of both personnel requirements and costs and is critical to success.

Life insurers historically considered marketing to be synonymous with selling and

most insurers considered their customers to be their agents. By the middle of the

twentieth century, a customer-oriented philosophy began to emerge in business generally,

coming to some national markets later than others. As this new marketing concept was

adopted by more and more companies, it began to spread to services industries generally

and the life insurance industry specially. The concept involves:

Focusing on consumer needs

Integrating all activities of the organisation, including production, to satisfy these

needs

Achieving long-term profits through satisfaction of consumer needs

Although life insurers were late in adopting this concept, the recent intense

competition within the life insurance business and the growing competition from other

financial services organizations substantially heightened its importance. To be

successful today, a life insurance must create a satisfied customer and then turn that

customer into a client. Historically, this was done by the agent. Today insurers seek

ways to argument and enhance the service provided by the agent.

DEVELOPING AND MAINTAINING A MARKETING PROGRAM

We define marketing as the provision of products well suited to customers

needs through effective, appropriate distribution channels. A distribution channel is

the means by which products or services are provided to customers and encompassesthe entirely of a companys marketing network. Distribution channels are also called

distribution systems or marketing channels.

A marketing program is a tactical plan that deals primarily with the product,

price, distribution and promotion strategies that a company will follow to reach its target

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markets and to satisfy their needs. The development and maintenance of a realistic

marketing program is the primary responsibility of senior marketing executives. The

elements of a marketing program include an analysis of the markets available to or

desired by the insurer, identification of the nature of the perceived competition, and

determination of the distribution techniques to be used. Use of sophisticated data

warehousing, data mining, and database management techniques can materially increase

a marketing programs effectiveness. A marketing plan must also include the design of a

sales compensation system, a basic pricing strategy, and the

special administrative systems and support needed by a particular market segments or

products. The marketing plan is then utilized to develop a product portfolio and project

future production by product and amount.

Once the insurers marketing plan is initially documented, management

evaluates its growth and profits goals, ad the capabilities and core competencies of the

home office and marketing operations. The marketing plan should reflect a realistic

assessment of the companys strengths and weaknesses in relation to factors

considered critical to the plans success. This assessment leads to broad or narrow

product portfolios, different distribution channel structures, geographic concentration,and so on, that is, the search for a competitive advantage. It should be noted that, with

the competitive emphasis on rates of return for interest-sensitive products and for

separate-account business such as variable life and annuities, a close coordination

with the investment function is essential.

The results of this planning and development activity will be a quantification of what the

company wants to achieve, reflecting a balance between long-term and short-term goals. With

priorities established, specific goals set down, and a product portfolio established, the stage is

et for selecting and utilizing one or more distribution channels to deliver products to the

markets selected. Typically, however, the distribution channel comes first, and the tentative

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decisions regarding distributions significantly influence the process of developing a product

portfolio.

CH.6 DIRECT MARKETING IN INSURANCE

Of the three major categories of distribution channels in life insurance, direct

marketing is the least important as measured by premiums written. Direct-response

marketing can take many forms, but in a broad sense it means that the sales is made from

the company direct to the customer without involving a face-to-face meeting between

buyer responds directly to the company because of solicitation via mail, broadcast media,

the Internet, and so on.

There is growing interest in direct marketing of life and health insurance

because some companies that specialize in direct-response sales have been able to sell as

many new policies as the largest career agent companies with thousands of agents. Also,an upsurge in telemarketing of life insurance products in the United Kingdom has peaked

the interest in the United States and elsewhere.

Direct marketing offers the consumer some of the same coverages available

from marketing intermediaries. The principal differences to the consumer are usually cost

and service. The same level of coverage sold through an agent may sometimes cost more

than when sold through an efficient direct-response marketing program, but, of course,

the potential exists for greater personal service if an agent is involved in the transaction.

At one time, life insurance sold by direct-response marketing was primarily

supplement coverage (i.e., it helped to fill the gaps in basic coverages). The products

were simple. They were easy to understand, required relatively small premium outlays,

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and were serviced through the economies of computerized solicitation, issuance, and

administration. This approach favors the sale of a large number of small policies.

More recently, companies have begun to offer comprehensive life and health

insurance protection, annuities, estate planning, and other products through direct-

response marketing methods. Where direct-response marketing is targeted to a select

group of consumers, and the insurer has an affinity agreement with the consumer, it can

offer a broader range of relatively complex products. At least one successful insurer sells

automobile insurance, cash-value life insurance, and annuities to its customer base and

does it effectively. It utilizes professional, salaried salesperson in a telemarketing

arrangement. Regardless of how the sale has been completed by an agent or direct-

response marketing from that point on, the client frequently deals with the insurer on a

direct basis. Premium notices are sent by mail. Premiums are paid by mail or automatic

bank draft and at times claims are filed and benefit checks are delivered by mail. In this

sense, the direct-response concept whereby the insurer deals directly with the consumer

is not restricted to a few direct-response specialty companies, but is a concept that is

common to all elements of the insurance business.

Direct-response marketing can be accomplished through severalmedia.Direct mail is the oldest method of direct-response marketing. It depends on the

availability of mailing lists that may be obtained from many sources. Today lists can be

created that are specific as to the economic, demographic, and other characteristics of

individuals on the lists. A sponsored arrangement under which the insurer arranges with

an association or similar group to offer products to its membership, is mailed

solicitations, or advertisements are placed in the associations magazine or newsletter.

Newspapers, magazines, and other print media reach large numbers of

consumers but only on a broad basis. In terms of total numbers reached, broadcast

surpasses all other media. The direct response marketing use of television, utilizing

well-known personalities as sponsors, is popular for two reasons. First, the size of the

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audience is staggering in its potential. Second, direct-response specialists have learned

how to reach specialized groups of viewers efficiently. However, the use of such stars

to sell insurance products has come under attack. Opponents claims that the material

often is misleading and the products are high in price.

The prevalent direct response media in use today (direct mail, print media,

and broadcast media) have begun to be combined with telemarketing the use of the

telephone to solicit life and health insurance sales. The importance of this medium is

evidenced by the proliferation of toll-free numbers. Telemarketing is a high unit-cost

medium, but justification for this higher cost is found in relatively high response rates.

Telemarketing laso is personal once a consumer makes the initial telephone call.

Personalization and mass marketing are combined in telemarketing, thus improving

marketing effectiveness.

Much discussion centers on the concept of shopping for financial products

and services using electronic media. Commercial on-line networks and the Internet are

now utilized by all forms of marketing intermediaries as well as by financial institutions

provide on-line premium quotations and accept applications for coverage. Most have

created sites on the Internets World Wide Web that perform some or all of thesefunctions.

Making and accepting payments cause concerns from the standpoint of

security particularly on the Internet. Most knowledgeable observers believe that

network users will be content to make payments and receive delivery of products and file

claims electronically. As in other industries, the time lag between introduction and

widespread adoption of innovations in insurance tends to be long. The process of

adopting automated teller machines required more than a decade after their appearance.

Electronic banking and securities transactions already are a reality with lost

large firms, although usage is not yet widespread. Electronic sales of any but simple life

and health insurance products should not be expected to make significant competitive

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inroads against other means of distribution in the near future. Meanwhile, networks will

play a significant role as sources for communication and information. The effects will be

felt in the other distribution channels through customers being better informed.

CHAPTER-4 REVIEW OF LITERATURE

The dominant stream of authors of major marketing textbooks have treated direct

marketing as a communication/promotion tool (Booth 1992, Mercer 1992, Anderson

1993, Kotler 1998), and as both a marketing channel and a form of promotion

(Katzenstein and Sachs 1986, McCarthy and Perreault 1987, Stanton, Etzel, and Walker

1991, Evans and Berman 1992). Others have identified it as a marketing strategy (Rapp1986), and as a marketing system (Jenkins 1984, Bauer and Miglautschs 1992).

Reasons to use and implement the direct marketing approach differ widely First, the field

where direct marketing is applied is one factor that determines the role of direct

marketing. For example, direct marketing could be used as a sole distribution channel in

financial service firms. However, in retail businesses it may be best used as a promotional

tool. Second, the stage which the organisation reaches in developing direct marketing

affects the understanding of its role and use. Different marketers and firms will be at

different stages in its development and use. Some are still sales-oriented users. Others

reach a development stage where direct marketing is used as a communication tool that

ensures and maintains a long-term customer relationship.

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The third factor is the fact that certain elements of direct marketing are best used for

certain roles. As explained in the previous chapters, direct mail is commonly used as an

advertising or as a promotional tool, while mail order, on the other hand, is commonly

utilised as a distribution channel. Even though they are different in nature and use, they

are both still called direct marketing.

To consolidate these views, an intensive review of the existing literature has been

undertaken, out of which two significant functions are identified as the major purposes of

implementing and using direct marketing from the supply side. These two functions are:

enhancing promotional activities, and supporting distribution channels. These functions

are naturally interrelated and they overlap. It is difficult to isolate them from each other.

However, the purpose of such an artificial classification is to identify a base to which

direct marketing can be related. Since the researchs concern is the use of direct

marketing from the supply side, this chapter will discuss thoroughly the reasons for using

direct marketing, and some of its roles and functions. It will first discuss how direct

marketing is related to promotion and distribution by reviewing some of the available

direct marketing literature. Secondly, it will discuss how direct marketing is used as a

promotional tool. Next, direct marketing as a distribution channel will be reviewedthoroughly, as this is going to be the focus of this book.

3.1 The major functions of direct marketing

The major purpose of using direct marketing is to achieve a sustainable competitive

advantage through effective promotion and an efficient way of selling. However, the

literature is characterised by a lack of studies that address this issue, or determine the

reasons for using direct marketing in general or what functions direct marketing usually

accomplish in particular. However, a few studies have focused on the benefits or reasons

for using direct marketing or one of its elements from the supply side. The following is a

brief presentation of the findings of these studies.

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Thwaites and Shron (1994), in a study of the financial services industry, rank direct

marketings benefits based on their value to UK financial services institutions as follows:

1. Cross-selling 44%.

2. Lead generation for sales force 28%.

3. Up-selling current and new products to existing customers 24%.

4. Keeping customers sold on product/service 15%.

5. Selling to new prospects 13%.

6. Generation of retail traffic 8%.

Peltier et al (1994), in a study applied to private hospitals in the United States, identify

the four most important objectives of using direct marketing. According to Peltiers

(1994) findings, these objectives rank as follows:

1. Increasing hospital awareness 70%

2. Lead generation for current programs/services 64%

3. Promoting special events 63%

4. Image enhancement 57%

Another study t