AGENCY MARKETING TECHNOLOGY

CREATE A CLIENT LOYALTY PROGRAM

Use the 80/20 Rule to determine which clients
actually earn your best service

By Steve Anderson

Client loyalty programs have been around for some time. The idea is to encourage repeat business by rewarding customers for their loyalty. Among the first such programs were Raleigh cigarette coupons and S&H Green Stamps. (In case you don't remember, supermarket customers earned Green Stamps according to the amount of their purchases. The Green Stamps were pasted into books, and the books could be redeemed for various types of merchandise. In other words, the more you purchased, the greater your reward.)

In May 1981, American Airlines introduced AAdvantage, the first frequent flyer program. The goal, like the S&H Green Stamps program, was to retain AA's most frequent customers by rewarding them for their loyalty. The tactic called for tracking members' flown miles (as a measure of their revenue contribution to the company), and awarding members free tickets and upgrades (the rewards). American compiled a database (through its Sabre computer reservations system) of 150,000 of its best customers. These frequent flyers were identified by computer-searching Sabre bookings for recurring phone numbers, which were correlated with the customers' names. They became the first members of the AAdvantage program.

Within days of the introduction of AAdvantage, United (UA) introduced the Mileage Plus program. In many respects, Mileage Plus was a mirror image of AAdvantage. The "Plus" referred to the few (but significant) elements in UA's program that distinguished it from AAdvantage--a 5,000-mile enrollment bonus and no mileage expiration. Later that same year (1981), both Delta and TWA introduced their programs, creating the critical mass necessary to make these programs a necessary element in any and all airlines' marketing arsenals.

What do these techniques have to do with an insurance agency? Plenty, because agencies need to create their own version of a frequent flyer program that will reward clients who place more of their business with the agency. Most agents believe that they need to treat each client exactly the same. Thus, agency service standards are designed to provide the same level and type of service without any regard for the long-term value of an individual client.

Last year we visited a Midwest agency that created a type of loyalty program by ranking its clients on a five-star system. The ranking was based solely on the amount of revenue generated by the client to the agency from all departments. This ranking was tracked on the agency management system client record. Thus, anyone working on the client's account would immediately know how important that client was to the agency and could respond accordingly. A one-star client is provided with only basic services while a five-star client is provided the quickest and best service the agency provides. Revenue is an important consideration but there are other factors that should be taken into consideration including: long-term potential (many small clients have grown into large ones), their relationship with other clients in the agency, their ability to refer business, key political connections in the community, etc.

This type of program will allow the agency to benefit by concentrating its efforts on the few who will provide the biggest return. This is known as the 80/20 Rule.

Pareto's Principle--The 80/20 Rule

In 1906, Italian economist Vilfredo Pareto developed a mathematical formula to describe the unequal distribution of wealth in his country, observing that 20% of the people controlled 80% of the wealth. After Pareto made his observation and developed his formula, many others observed similar phenomena in their own areas of expertise. In the late 1940s, while working in the United States, quality management pioneer Dr. Joseph Juran recognized a universal principle he called the "vital few and trivial many." In an early work, a lack of precision on Juran's part made it appear that he was applying Pareto's observations about economics to a broader body of work. The name Pareto's Principle stuck, probably because it sounded better than Juran's Principle. While it may be misnamed, Pareto's Principle, or Pareto's Law as it is sometimes called, can be an effective tool in managing an agency.

The 80/20 Rule means that in anything a few (20%) are vital, and many (80%) are trivial. In Pareto's case it meant 20% of the people controlled 80% of the wealth. In Juran's initial work, he discovered that 20% of the defects caused 80% of the problems. Project managers know that 20% of the work (the first 10% and the last 10%) consume 80% of the time and resources. You can apply the 80/20 Rule to
almost anything, from the science of management to the physical world.

You instinctively know that 80% of your sales will come from 20% of your producers. Twenty percent of your clients will cause 80% of your problems, but another 20% of your clients will provide 80% of your revenue. It works both ways.

The value of the Pareto Principle for an agency manager is that it reminds you to focus on the 20% that matters. Of the things you do during your day, only 20% really matters. That 20% produces 80% of your results. When you identify and focus on those things, the results can be dramatic.

Designing a client loyalty program that will allow you to focus 80% of your time on the 20% of the clients who generate 80% of your revenue will dramatically improve the lifetime value of these clients and thus improve your profits. Here are some ideas for creating a client loyalty program that will reward your best clients.

1. When you add online customer service options, offer them to your best clients first and/or create special functions that only they can access.

2. Create special informational seminars for only your "Platinum" and "Gold" clients.

3. Provide discounts for local restaurants or other attractions. However, make sure you check
your particular state regarding regulations on what constitutes rebating and the types of gifts that you can provide to clients.

4. Allow these special clients to advertise on your Web site. One agency highlights a different client each week on its Web site with a banner ad that clicks through to the client Web site.

These are just a few ideas. You can let your imagination wander to come up with unique services that will provide your best clients with additional benefits. Research what other companies are doing and mimic what you can in your agency. Pareto's Principle, the 80/20 Rule, should serve as a daily reminder that when you focus 80% of your time and energy on the top 20% of your clients, your success will be assured. Don't just work smart; work smart on the right things. *

The author

Steve Anderson has been a licensed insurance agent for more than 20 years. He is president of steveanderson.com, Inc., which provides products and services that help agents maximize profits using commonsense technology. He can be reached at (615) 599-0085. For more information visit his Web site (www.steveanderson.com).