The Tailor-Made digital model or archetype is for insurers who want to increase profitability, retain customers and build deep customer relationships.
Last week, I began looking at the four business models or digital archetypes that insurers should use to determine their own digital-transformation strategies. These models can be visualized as occupying distinct positions on a matrix with two axes: how focused is it on growth and to which type of customer relationship does it aspire? The following diagram illustrates this matrix.
The Tailor-Made archetype, as you can see, occupies the bottom right-hand quadrant. Companies using this model are seeking to build competitive differentiation by exploiting the potential for personalization offered by digital technologies (as you may remember from previous blogs, personalization is one of the things clients most want from their insurance companies—read What lies behind insurance’s switching economy?).
In essence, I suppose digital technologies offer the opportunity to recreate the one-on-one customer focus of haute couture or bespoke tailoring in an affordable way (remember all those magazine articles a few years back about the “mass market of one”)—the paradoxical marriage of economies of scale with extreme personalization.
However you characterize it, this model is for digital insurers who want to harvest their existing markets more thoroughly, improving the profitability of each customer by gaining more of his or her business, and thus keeping him or her more loyal. The foundation of such an approach is a deep and growing relationship with customers. These digital insurers are truly focused on becoming part of their customers’ lives, and so will find themselves tending to offer a much wider range of services than a classic insurer—what the customer wants becomes the central tenet of their strategy, not “what we do”.
It’s an approach that has the potential to take a company very far from its roots. I’m thinking of a North American financial services company that started out providing insurance services to a tightly defined market segment and has, over time, morphed into many other lines of business, prompted by its intimate knowledge of its customers’ needs.
This model works for companies with a very clear target audience in mind, and that have the mindset to dive ever more deeply into the same waters. Other companies, of course, will concentrate more on increasing the number of customers, in which case they will sacrifice the focus on the profitability of individual customers. Next week, let’s look at an example of one of the latter when we consider the online digital archetype.
For more information, download our recent paper, Double the profits: How insurers can create business value from digital transformation. For more on the case for digital transformation, read the Accenture 2013 Consumer-Driven Innovation Survey. You might also find Four capabilities insurers need on the journey to digital mastery and high performance useful background reading.