Chapter - II

SERVICES MARKETING AND MARKETING OF

INSURANCE SERVICES - CONCEPTUAL
DIMENSIONS

Services have been viewed as deeds, efforts or performance

by Leonard J Berry (1980). Shostack G.I (1977) considered

services as those separately identifiable, essentially intangible

activities which provide want satisfaction and are not essentially

tied to the sale of a product or another service. Gronroos (1990)

has referred to services as objects of transactions that generally

offer services, organizations. W.J. Regan (1963) considered

services as either intangibles yielding satisfaction directly

(transportation, housing) or intangibles yielding satisfaction

jointly when purchased with commodities or other services

(credit delivery). Kotler (1999) perceived services as any activity

or benefit that one party can offer to another that essentially

intangible and does not result in the ownership of any thing.

Stanton (1974) perceives services as separately identifiable

intangible which provide want satisfaction when marketed to

consumers and / or industrial users and which are not

necessarily tied to the sale of a product or another services.

Gummeson E. (1987) highlights the nature of services, describes

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services as something which can be bought and sold but which

you cannot drop on your foot. He perceives that services can be

exchanged even though they are not tangible.

Categories of Services

The General Agreement on Trade and Services (GATS) has

identified as many as 155 activities as services and classified

them into eleven major categories viz.,

1. Business Services
2. Communication
3. Construction and Engineering
4. Distribution
5. Education
6. Environment
7. Finance
8. Health
9. Tourism
10. Recreation
11. Transport

Growth of Services Sector in India

Services sector in India has registered a growth rate of 9

percent during the 1990s contributing nearly 60 percent of the

overall growth rate of the economy. Exports of services from

India displayed one of the fastest rates of growth in the world -

over 17 percent per annum in the 1990s and grew two and half

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times faster than the domestically focused part of the services

sector.

There has been a considerable advance in reducing the role

of state in the provision of key infrastructure services and

opening service industries to domestic and foreign competition

in telecommunication, banking, insurance business and health

services.

Services Marketing

Services have some special characteristics.

(i) Intangibility (iv) Heterogeneity

(ii) Individuality (v) Ownership
(iii) Perishability

These special characteristics of services imply a wider

dimension of marketing than the normal 4 Ps of marketing.

Hence it is suggested that marketing of services should be looked

into 7 Ps viz., Product, Price, Place, Promotion, People, Physical

evidence and Process of Service delivery system.

Services Product

Services product is a bundle of features and benefits

relevant to a particular target market. Hence the benefit package

must have customer’s perspective while developing a service

product.

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Pricing

Customer’s acceptance of a product or service is largely

determined by its price. Customers often link the price of the

product with its quality and service.

Place

Production of services cannot be separated from selling.

Services are intangibles and they cannot be stored, transported

and inventoried. Distribution channels used for product

marketing are not used for services. They are inseparable from

service provider. Agents and brokers are the key as they try to

bring the producer of the services and the consumer together.

Location is another aspect of services which plays an

important role in the channel selection decision. It is observed

that locational considerations and personal information sources

are the two critical factors in the final purchase decision of many

services.

Promotion

Promotion of services marketing involves proper

communication. Consumers of services would be suitable

objectives of promotion of services.

^ To develop personal relationship with the prospective

customer.
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 To make an honest, sincere impression of competent
service on the prospective customers.
^ To create derived demand.
To provide positive packaging and customization of
the services offer.

Lovelock and Quench have mentioned six elements on

consumer promotion in services market.

(I) Product Scope (II) Market Scope (III) Value

(IV) Identification of beneficiary and (V) Protection

People

‘People’ is described as the fifth element in the services

marketing. It is observed that since services are to be provided

by employees, the firm has to be effective. It relates to internal

marketing aspects. Internal marketing has two objectives i.e.,

strategic objective and tactical objective. Strategic level objective

aims at creating an internal environment that supports customer

consciousness and sales mindedness among the personnel.

Physical Evidence

This element in the marketing of services includes physical

environment and facilities atmosphere. Evidence for service can

be both peripheral and essential. Peripheral evidence like

buildings, furniture, layout, colour, interior etc., is part of the

services but have little value with respect to core services.

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Essential evidence refers to those that cannot be possessed.

Physical evidence provides adequate service to a customer and

influences his perception.

Process Management

Issues involved in process management relate to

availability of services and their consistent quality. The issues

involve process planning and control operations planning,

facilities design scheduling, inventory planning and control,

quality control, operation control and forecasting and long term

planning.

Marketing of Insurance Services

Insurance marketing comprehends marketing of insurance

services with the motto of customer-orientation and profit

generation. The focus of the insurance marketing is on the

formulation of an ideal mix for the insurance business so that

the insurance organization survives and thrives in a right

perspective. Improvement of core and peripheral services would

be necessary to improve the quality of insurance services. This

involves formulating of a fair mix of the two. There is need for

adopting creative and promotional measures in this direction.

Further premium and bonus decisions can be made motivational.

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 The selection of risks (product planning), policy writing

(customer service), rating or actuarial (pricing) and agency

management (distribution) - all, marketing activities make up an

integrated marketing strategy.

The focus of marketing concept in insurance business is on

the formulation of marketing mix or control over the whole

group of marketing activities that make up an integrated

marketing strategy.

Marketing Mix for Insurance Organization

Insurance organizations need to give top priority for the

formulation of marketing mix for their insurance business. The

insurance organizations should bring in innovations in their

marketing decisions in the wake of competitive market

conditions. This aspect becomes more significant when the

customers are found dissatisfied with the service profile. Failure

on the part of insurers in this direction may result in short fall in

their market share in the wake of the emerging marketing trends.

The following sub mixes of insurance marketing provide a good

insight into the insurance marketing.

> Product mix

> Promotion mix
> Price mix
> Place mix
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 > The people mix
> The process mix
> The physical attraction

Product Mix

Insurance organizations should promote innovation and in

the product portfolio they should include even those services

and schemes which are likely to get a positive response in the

future. Insurance organizations are required to be careful

especially while launching a new policy. Policies should generate

enough premiums and also they should cover even the persons

working in the informal sector serving as porters, working as

manual labourers or engaged in the farm sector. These

organizations need to formulate a sound package that proves to

be more motivational.

Promotion Mix

Insurance organizations have to include some components

of promotion mix such as the advertisements, public relations,

sales promotion, and word of mouth promotion, personal selling,

and telemarketing. Insurance professionals have to assign

weightage to creativity while making promotional decisions. It

would help them in sharpening instrumentality of promotional

tools. The following promotional components of promotion are

discussed here.
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(i) Advertising

Advertising of insurance should make optimum use of the

three media, viz., telecast, broadcast and print media. Telecast

media is more effective in relation to the vulnerable sections of

the society. With the help of audio/visual exposures the rate of

acceptability of the message can be increased sizably. Budgetary

constraint is an important consideration while deciding the

media.

(ii) Publicity

Publicity is an unpaid form of persuasive communication

bearing high rate of sensitivity. Thus there is a need for

insurance companies to strengthen and innovate the public

relations activities so that the positive contributions reach the

prospects in time. It is necessary that public relation officers of

the insurance organizations or the branch managers or even the

senior executives develop rapport with media people, organize

press conference, distribute them small gifts, offer them

lunch/dinner and persuade them to write in favour of the

insurance policies and the organizations.

(iii) Sales Promotion

Sales promotion tools in the insurance business involve

providing of incentives to policy holders/users, or to the agents,

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rural career agents, or even to the insurance personnel for

promoting the business. Insurance organizations offer

innovative tools of sales promotion in view of the competitive

environment. The offering of small gifts during specific period,

rebate discount, and bonus can be useful instruments in

increasing the business of insurance organizations. The agents

and the rural career agents play an important role in sales

promotion of insurance business.

(iv) Personal Selling

Insurance agents as well as rural career agents need to

posses some outstanding attributes like patience, communication

ability, attractive personality and commitment to the profession.

These agents must be aware of the art of informing, sensing and

persuading the rural prospects. Rural career agents in India are

found to lack patience. They try to avoid going to rural areas

and lacking the art of influencing the rural prospects. These

agents lack rural orientation. Such negative traits stand as

barrier. Hence they need special training programmes, refresher

courses and special incentives to stay and work in villages like

professionals.

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(v) The Word of Mouth Promotion

This form of insurance promotion leads to wider publicity

which substantially sensitize the process of influencing the

impulse of users/prospects of the insurance services. Here the

satisfied group of customers, the opinion of leaders, the social

reformists and the popular personalities act as word of mouth

communicators. They are also known as the hidden sales force

who promotes the insurance business sizably. Insurance

organizations therefore should try to identify these persons in

influencing the insurance prospects.

(vi) Telemarketing

Communication devices like telephone and televisions are

used for the promotion of insurance business. A person with

high communication ability acts as a telemarketer and keeps on

moving the process of informing sensing and persuading the

customers/users/prospects. The telemarketers answer suitably

the queries and questions asked by the prospects/users and

attempt to convince them. Insurance organizations should

recruit persons bearing the potentials of communicating

efficiency. Telemarketers should talk intelligently and

professionally so that, the projection of a positive image is

possible. All the branch offices of the insurance companies

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should be provided with sophisticated telephonic device to

promote telephonic devices/telemarketing.

Pricing

Insurance is a financial contract between the insurer and

the insured. It transfers of risk from policy holder (the insured)

to the insurer. However pricing is difficult exercise for many

classes of insurance products. The insurer has set a price that

covers the average cost of claims and other costs that are

expected to arise from insurance contract. The insurer may not

be in a position to know in advance what the policy holders claim

costs are going to be. Insurance companies may choose a

differential pricing strategy when they have a choice of

distribution channels wherein price charged to the final

consumer can differ from channel to channel. Price difference

may be due to differences in costs imposed by the channels on

the insurers. Alternatively insurers may bring about price

differentiation by charging higher prices to customers who are

least price sensitive.

Premium Rates and Life Insurance Plan

There are four main factors used for determining the

premium rates under life insurance plan viz.,

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 ^ Mortality
> Expenses
^ Interest and
^ Benefit promised under the policy

Any significant change in any of the above factors should

normally entail revision of the premium.

Place

Location of branch needs careful attention by the insurance

organization. In the place mix of insurance marketing the rural

segment in the Indian context is significant. Career agents for the

rural areas need an intensive care since they are supposed to go

to villages and inform sense and persuade the prospects in an

effective way.

They should have rural orientation and they should be well

aware of the life styles of the prospects/users. Local persons

should be preferred as agents by branch managers while

recruiting them. It is necessary to conduct refresher courses to

brush up their faculties. This may help in capitalizing on the

rural opportunities optimally.

Location of insurance branch should be such that it should

be accessible smoothly, infrastructural facilities should be

suitable and the management of the branch should be amiable to

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customers. Other aspects of the branch office relate to adequate

safety provisions for users and adequate office furnishings, civic

amenities and parking facilities must be adequate.

The People

People are an important component of the marketing mix.

There is therefore need for developing insurance professionals.

In view of the technological advances and the sophistication

there is need for the professionalism of the insurance personnel.

Insurance organizations should make use of sophisticated

information technologies to improve the quality of services. The

impact of use of computers, micro computers, fax machines,

sophisticated telephonic services, e-mailing, internet and internet

services have been significant on the perception of the quality of

services. Insurance organizations should provide training

facilities to the branch managers so that they can make effective

use of technologies. Another aspect of the ‘people’ of insurance

mix is that the behavioural profile of insurance personnel should

be properly looked into Employees should be aware of the

behavioural management.

Process Mix

Process mix includes availability of insurance services and

their consistent quality. It obviously involves process planning

and control operations, planning, facilities, design scheduling,

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inventory planning and control, quality control, operations

control and forecasting have long term planning. Insurance

companies have to give top priority to these components of

process mix.

Physical Attraction

This aspect of insurance promotion mix includes physical

environment and facilities. Evidence for physical service can be

both peripheral and essential. Peripheral evidence includes

buildings, furniture, layout, colour, interior, etc. Essential

evidence refers to those that can be possessed. Physical evidence

provides adequate service to a customer and influences his

perception.

Market Segmentation Strategies for Insurance Products

Market segmentation is useful to insurance organization to

discover which group of customers best match organization’s

current offering or the specific offerings. Hence market for

insurance products is segmented into different groups with

relatively uniform demands and needs. Insurance products and

policies could be tailored to meet the requirements of two major

segments within any domestic market.

I. Business Customer Segment

II. Individual Customer Segment

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 It is necessary for the insurers to choose an approach that
subdivides fashion from one another with respect to their
performances. Some major segmentation alternatives that may
be adopted by insurers are
i. Geographical segmentation
ii. Demographic segmentation
iii. Psychographic segmentation
iv. Volume segmentation and
v. Benefit segmentation

Geographic Segmentation

Different areas are suitable for different insurance

products viz., areas prone to earth quake are suited for
earthquake insurance. Similarly areas prone to terrorist
infestation could be suitable for insurance policies suited to such
areas. Hence, insurance organizations might decide to market
different products in different areas. The organizations should
design polices to suit the region in which they intend to market
them.

Demographic segmentation

Insurance market is divided on the basis of population

characteristics such as age, sex, occupation, income and position
in lifecycle. On the basis of demography the life insurance

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market is segmented into white collared/blue collared workers

professional/businessmen/employees etc.

Psychographic Segmentation

Segmentation of market under this category is based on the

life style, social class or personality profile of the people.

Purchase of particular insurance coverage may reflect the life

style of the person being covered.

Volume Segmentation

Market segmentation of this type is used to distinguish

heavy, medium and light users of a product (policy). A small

proportion of users generate a large proportion of sales. This is

known as Pareto Principle, which says that 80 percent of profits

come from 20 percent of the customers. This principle applies

to insurance too. An insurer should determine the

characteristics of those 20 percent possessing common traits

and then to direct the marketing efforts toward attracting more

people like them.

Benefit Segmentation
This form of market segmentation refers to the process of

categorizing the market in terms of the main product related

benefits sought by different groups. Those seeking insurance

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cover look for various benefits that accrue from the policy. Some
take an insurance policy that provides only some basic coverage
without any specific benefits or riders attached to it. While some
may buy policies that have additional features in terms of option
and riders for the policy holder, Riders offer the policy holders
additional benefits on payment of an additional premium. Most
common riders are accident, death, dismemberment, critical
illness and additional term benefits.

Marketing Information System and Marketing Research for

Insurance Organizations

Marketing information system (MIS) comprehends a

program that helps manage and organize information gathered
from inside and outside an organization. It indicates the
operation of storing, retrieving and classifying the information it
collects regarding the customers, price, advertising, sales,
expenditure, competition and distribution expenses. The data
collected routinely and for special research projects are
incorporated in a marketing information system.

Marketing information system consists of five components

(i) inputs (ii) storage (iii) processing (iv) output and (v)
feedback. Input comprises of the information sources - internal
and external to them that are useful for future decision making.

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The information and data obtained by an organization through

marketing research is stored in its marketing data bank. The

marketing data bank is generally a complex computer stored

retrieval system from which data can be retrieved for future use.

It is essential that like any other oganisations insurance

organizations also manage information with the help of

sophisticated information technologies. The technology driven

MIS has been promoted by the foreign insurance companies.

This has helped them in making the marketing decisions creative

like banking. The insurance business which is also done with the

support of different branches, MIS is useful at all the three levels

i.e., corporate level, regional level and branch level. With the

support of agents, rural career agents and frontline staff, the

branch managers can be efficacious in collecting information

related to his/her command area. The management information

becomes significant at the branch level since the multi­

dimensional developments in the command area can be studied

and the necessary information can be transmitted to the senior

executives and policy makers.

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