Stickers, Switchers and Shoppers: Lessons from the Auto Insurance Industry


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Some people display a propensity to be “stickers,” that is to “stick” with companies they use, while others are prone to be “shoppers” and others yet tend to be “switchers.” To the extent marketers understand this predisposition, they can use such insights in targeting prospects, managing the customer experience and trying to influence consumer behavior to minimize churn.

A Thorn is a Thorn is a Thorn

Churn. Defection. Lost Customers. Non-renewals. Lapsers. Turn-over. Call it what you will. The terms may vary (life insurance companies refer to “persistency rates”), but all companies face the problem, and the outcome is the same: breaks in the customer relationship resulting in reduced Customer Lifetime Value (CLV). MBA-speak aside, if we think of CLV as the current (“net present”) value of future revenue streams from a customer, churn shuts the spigot, severing the income stream, reducing customer value.

Conversely, retaining customers (and cross-selling and up-selling) extends the life of the revenue stream, bolstering CLV. Once the customer is in the door, a company wants to maximize CLV. This suggests that marketing should focus on retaining and nurturing the loyalty of current customers. The more subtle implications, however, include trying to

  • Target customers less likely to churn (conversely stated, un-target likely defectors)
  • Design tactics to mitigate the propensity to shop and switch (after all, marketing is about influencing behavior)
  • Focus win-back efforts (attempts at “winning back” lost customers) on those most likely to generate a positive CLV and less likely to bolt again.

The challenge is to work at identifying the thorns in the rose bush, weeding out the thorns and accomplishing marketing alchemy by turning a thorn (a would-be shopper or switcher) into a rose (a sticker).

Churn is Inherent

Every industry experiences churn. In some sectors, such as auto insurance, the risk or challenge of churn is inherently greater than in others because of structural and market-related reasons.

The more commoditized the product (an indication of which is the extent to which firms compete largely on price) and the easier it is to shop and switch, the greater the likelihood of higher rates of churn. Some efforts to focus on service (Progressive), product differentiation (Allstate) and emotional branding (Geico and Liberty Mutual) notwithstanding, the auto industry is locked in a competitive whirlpool of poaching customers on price.

  • Price-based competition is endemic, with some companies offering to compare their quotes with competitors (Progressive, again).
  • Insurers have adopted direct response carpet-bombing techniques borrowed from credit card issuers, flooding the mail with invitations to “switch” – and, again, focusing on price.
  • The Internet is a double-edged sword, offering a conduit for sales, information and service, while simplifying and inviting shopping and price comparisons and reducing barriers or “friction” to switching.

The risk of churn is heightened whenever there is a renewal event. While the insurance company may see this as an annual occurrence, most mortals pay their premiums quarterly, effectively creating a quarterly renewal event for the customer.

Auto insurance, finally, is saddled with the burden of being a derived-demand product: people want cars; they are required to have insurance. Insurance is a “necessary evil” product with little “conspicuous consumption” value (you can show off your car . . . but your insurance?). Mortgages carry the same dubious distinction, but with substantially more friction and higher barriers and costs that deter switching.

Who is At-Risk?

Historically, the data indicate that almost one-third of auto insurance customers are “at-risk.” Overall, some 10% – 15% or so switch carriers annually, with twice that share “shopping” or “considering” other insurers.

Demographically, at-risks are disproportionately 30-somethings, with at least some college education, whose most recent insurance purchase was handled online or by telephone. Switchers index higher among singles and renters, while self-employeds tend to skew towards shoppers. Older, retired, less-well educated consumers who handle insurance transactions by mail show the strongest propensity to be stickers.

Behaviorally, switchers like to shop before buying, while shoppers tend to be procrastinators in their buying decisions. Both shoppers and switchers are far more likely than stickers to prefer comparing prices online.

Psychographically and attitudinally, stickers are the most likely to get a feeling of protection from auto insurance and think all insurance companies are the same. Switchers express the most confidence in their knowledge regarding auto insurance and are the least likely to think that all insurance companies are the same.

Why Do Customers Shop and Switch?

Auto insurance customers shop both opportunistically and because of costs. The largest share shop simply because they saw an ad, and many are prompted by direct mail offers. On the cost side, some shoppers report they are motivated by their rates rising “too often,” frequently citing a jump in premiums. Increases in premiums after a claim is a common prompt for policyholders to shop and switch. Not surprisingly, shoppers are more likely than switchers to say they reacted to advertising, while switchers display a greater tendency to react to costs.

And never underestimate the role of advocacy and poor customer experiences, as well as dissatisfaction with an insurance agent. Poor experience issues are cited almost twice as frequently by switchers as shoppers, with claims the most common flashpoint for poor experiences.

Taking Action

If maximizing CLV is the golden ring, reducing churn is the key. Companies need to understand the similarities and differences between stickers, switchers and shoppers and the characteristics, behaviors and attitudes that are the most predictive of the category to which customers belong.

Firms should try to classify customers by their propensity to shop and switch and craft pre-emptive strategies to mitigate risks. This might entail, for example, tailoring communications, billing and renewal materials and processes based on the level of risk; customizing messages based on the likely reasons for churn; and targeting at-risk but profitable customers for special interventions to retain them.

When it comes to prospecting, the same tools can be employed to target stickers. Faced with a likely switcher, consideration should be given to employing pricing strategies that recognize the likely short-term tenure of such customers, as it is better to attract only a small percentage of expected switchers at high prices with positive CLVs than to attract a much larger share of likely switchers with lower prices and negative CLVs.

Winback and poaching strategies need to be similarly tempered: there is no victory in recapturing or co-opting customers with a propensity to be fickle through price, for example, as the tenure and CLV of such customers are likely to be minimal. Alternatively, while perhaps the hardest to recover or steal from a competitor, customers with a propensity to be stickers are the most likely to be profitable and worth the investment.

Thinking it Over

Customers don’t wear labels saying stickers, switchers or shoppers. But these classifications can be employed as a form of segmentation for understanding, targeting and managing customers.

Similarly, companies need to understand the factors that drive customer loyalty, which can be defined as the propensity to continue to be a customer and not to churn. Loyalty, in turn, is rooted in the customer experience and the mindset that predisposes customers to be loyal. The key is to harness an understanding both of the propensity of sticking/switching/shopping behaviors and the drivers of customer loyalty to instruct marketing tactics and strategies to influence customer behavior.


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