In the increasingly dynamic environment of insurance technology, the role of a Core IT system provider (ex. Policy Admin, Billing, Claims Admin, Agency Management, etc.) is pivotal in enabling insurance companies to navigate challenges and seize opportunities in an increasingly competitive market.
Most companies are built with a founding “hero” product, and when expanding to a multi-product portfolio, face a hurdle in driving customer adoption of additional products, features, or services. When a new product is introduced, the difficulty of communicating the value proposition of the new offering to customers often discourages sellers from actively promoting it. Additionally, sellers often lack enough financial incentive to push the new product over their popular “hero” product. This slows product adoption, resulting in lower revenue and higher service costs. A strong offering structure, or packaging approach, can help a new product gain traction, while refining package prices can help to optimize revenue by capturing different customers willingness to pay for different aspects of the product set.
As Core IT System companies strive to innovate and deliver more value to their customers through new products as well as features, the challenge is finding the right balance between customer value creation and monetization of your set of products & features.
From our experience with innovative Core IT System providers serving insurance carriers, we understand that deciding between a packaging strategy depends on your unique product portfolio and diverse client base with different needs. In this article, we delve into these different approaches and highlight the pitfalls that Core IT system providers should consider when launching new products.
Packaging power: bundling for revenue growth and maximum value
Packaging involves bundling multiple products, features, or services together into a single offering structure. This strategy is beneficial if your company boasts a diverse product portfolio with differentiated offerings and customer segments that display differentiated needs with respect to your products. It also allows you to capitalize on each customer segment's maximum willingness to pay by creating differentiated pricing for different packages that resonate with each unique group's value needs. This approach helps to maximize revenue across your base while continuing to provide value to existing customers. It also streamlines the sales process, enhances customer satisfaction, and increases loyalty by providing customer-oriented solutions.
Packaging comes in many forms, from flexible, build your own options that enable customers to pick and choose, to rigid structures that offer little to no choice. Each packaging structure has different pros and cons, such as flexibility versus predictability. Presenting customers with too much choice can lead to inefficient product or feature adoption, but not giving them enough choice can lead to customer dissatisfaction and reduced engagement. Choosing the right packaging structure depends on your specific offerings and your customer needs.
For example, use-case packaging offers a variety of packages targeted at specific customer scenarios, such as software designed for different personas (for instance, one-use case target for Commercial Insurers, with another software package use case designed for Personal Lines Insurers). Alternatively, the Good/Better/Best packaging method offers a range of packages with more products, features, and functionality as you move up each package. This type of packaging works very well when customers all follow a similar “use case” with your platform but require various levels of sophistication or features. With a Good/Better/Best model, you provide customers with a clear path for how they can grow and evolve with your offerings.
Choosing the right packaging requires a deep understanding of your customer segmentation and what each customer segment values in your products. This is a process that is often misconstrued by companies who focus on what they think their customers want, rather than spending the time to comprehend what is most important from the customer perspective.
Four key steps for implementing a successful packaging strategy
- Understanding Customer Needs: Place a deep focus on understanding what your customers value most within your products. Identify different segments in your customer base and understand how each distinct group of customers differ across needs, willingness to pay, and perceived value. Prioritize segments that align with your strategic goals and tailor your offerings to encourage their adoption. If you can understand deeply what customers value, you’ll be on your path to determining the appropriate offering structure for your business.
- Strategy Development: Establish a packaging strategy that resonates with your customer segmentation and what each group values. Using your understanding of customer needs, you can now structure offerings to be easily understood with clear messaging around each package option that resonates with customer segments based on their respective values. The package development process involves three key steps: deconstruct, analyze, and reconstruct. To assess your customer needs, first deconstruct your product or service to identify the building blocks and understand dependencies between each feature. Analyze these building blocks by categorizing them into leader, filler, and killer products. Leaders are high-value products that are most appealing to customers and fillers are considered as nice-to-have, while killers are low-value which detracts from the bundle’s appeal. In developing your packaging strategy, you want to avoid killers, and selectively place “leaders” and “fillers” appropriately to drive upsell opportunities. Once you understand how your different customer bases value your products, reconstruct product offerings into the optimal packaging structure, ensuring it aligns with customer needs and market demands.
- Market Validation: Market validation is essential to ensure that your bundling strategy resonates with your target audience. Assess the perceived value in comparison to competitive alternatives for your customers. Additional key factors to consider include internal feasibility, the ability to test and learn from purchase behavior, and competitive differentiation. Evaluating these factors helps fine-tune the bundle composition to maximize market appeal and profitability.
- Implementation: Effective implementation is critical to the success of your packaging strategy. Value communication is key, as it involves clearly articulating the unique value propositions of your bundles to customers. This includes highlighting superior features, customer service, and long-term benefits to establish a compelling market presence. Developing an effective implementation roadmap, which includes sales training, internal interviews, and benchmarks, is also crucial for successful implementation with clear direction and focus.
Conclusion: drive growth through strategic packaging and differentiation
For Core IT system providers, it is now essential to design software offerings that simultaneously optimize acquisition and monetization. This often gets messy as companies grow, and develop additional offerings, making it more difficult for customers to get everything they need from the provider, and making it more difficult for the provider to monetize their products. However, the ability to deliver value-driven solutions in the form of packaging can significantly foster long-term client partnerships and enhance competitive advantage.
If you are ready to start refining your sustainable growth strategy through packaging, get in touch with our specialists today.