Leveraging Market Segmentation to Turn Lemons into Lemonade

A bit of history

The first insurance company founded in the US was called The Friendly Society, in Charleston, SC, back in 1735. Today, there are 32 insurance companies in the Fortune 500 alone, none of which has a higher market share than 22% [1] for Berkshire Hathaway, which is four times the size of the next company in revenue that only has a 7% share. In fact, for all 32 companies, the median market share is only 2%.

The insurance market

And, if you remove Berkshire Hathaway (they own Geico and a number of lesser consumer-known insurance companies plus a wide range of other companies) the company with the highest market share (State Farm) only has a 9% share of total revenues. Even then, the median market share of these 31 companies is still only 2%.

What this means is that the market is highly fractionated and the battle of the airwaves is based solely on who can break through the clutter to gain awareness, familiarity and ultimately consideration. But how do you do that given that half of the Fortune 500 insurance companies have no higher than a 2% share of market?

The insurance ads

This scenario has created some memorable ads, but at this point it’s hard to differentiate between the litany of sports celebrities (Peyton Manning, Aaron Rogers, Patrick Mahomes, Baker Mayfield, Shaq O’Neil, Dikembe Mutombo) anthropomorphic characters (Geckos, Emus, Ducks, Wet Teddy Bears) and ads that play on words (Aunt Problems, Pipes Making Noises, Clogging Problems, Fencing Issues.) It has become really hard to link the ad with the brand and even if you can, it’s difficult to figure out what the strategy is and more importantly, why you should buy insurance from them.

Why market segmentation

The process is simple in terms of marketing strategy. Do your homework! Typically, a company would conduct Market Segmentation research in order to determine:

1. Who to Target?
2. What is critical to Communicate to them?
3. How to construct the message in terms of execution and tonality?
4. When and Where to target them – on-air, digitally, print, radio, out-of-home?

Once you get your intended target group to enter your Brand Funnel, the hard part then becomes how to move them down the funnel to become Loyal Customers.  Easier said than done. However, it appears that the current market is all fighting over how to widen the top of the funnel with intrusive, if not, annoying ads.

Enter Lemonade

You probably have not heard of them as they are recent provider to the industry, but their strategy has clearly been developed by addressing the four questions above, whether by research or just a lot of lucky guesswork (probably a combination of both). Their intention is clearly to be a disruptive force in the market.

So who do they target? The Millennial generation:

“As many millennials have graduated from college with financial responsibilities, including debt, they have a growing obligation to act more responsible with their money and spending habits. Millennials were expected to accrue more wealth by the year 2020, where they were trended to spend $1.4 trillion. As millennials pay off loans and get better jobs with higher salaries the spending habits are expected to change.

As the most connected generation, millennials are leading the pack in online purchases. With convenience and price in mind, online outlets offer more value to the average millennial shopper. In recent years, millennials have become more concerned about security when completing transactions online. Forty percent of millennials refer to reviews and testimonials before purchasing any products, and the number is even higher when they are purchasing products online.” [2]

They are highly educated, employed with good salaries, responsible with their money, place high priority on convenience and are digitally savvy.

Lemonade, is an app-based homeowner, renter, pet and life insurance company that is transforming the application and claims process into something sweet, by simplifying it. Working with Lemonade is meant to be fast, easy and affordable. Some may even find it a bit fun.

Peer to Peer business model

Lemonade is a P2P (Peer to Peer) business. The premiums paid are pooled with your peers. Lemonade takes a flat fee of about 20% out of that pool, which pays for operating costs and reinsurance. If anyone in your group makes a claim, money is paid out from the pool. At the end of the year, leftover premiums are donated to a charity of your pool’s choosing. This is what Lemonade calls its “Giveback” policy.

Part of the reason Lemonade’s model works, particularly among the Millennial market, is that it’s completely digitized. There are no brick and mortar locations or agents. Instead, customers apply, buy, and file claims online or through the mobile app. This keeps overhead costs low and lets Lemonade put the majority of proceeds toward claims and Giveback. It also helps keep premiums low, with home insurance starting at just $25 per month and renter’s insurance at $5 per month (locations may vary).

And if you have to file a claim, the AI their app uses pays you either immediately, or within minutes, if human involvement is required.

Many people will find Lemonade’s digital-first attitude refreshing. It tends to be faster, easier, and more straightforward than the traditional insurance-buying process. While this may not work for everyone, it does fit the Millennial lifestyle fairly well. Hence the value of doing the right segmentation work.

And their tagline sums it up perfectly:

So, the next time you are shopping for insurance, do you want to become more like your parents and get Ice Cream, or more like your kids and get Lemonade?  And the next time you want to find a way to disrupt a market, segment it first to determine who to talk to, what to say, how, when and where to say it.

References:

[1]Fortune.com – based on 2020 Reported Revenue

[2] https://www.lexingtonlaw.com/blog/credit-cards/millennial-spending-habits