How to Slay the (Geico) Caveman

Why do real estate agents still exist?

Online Multiple Listing Service (MLS) searches, price/neighborhood comparisons, virtual tours, and a cacophony of similarly powerful web-enabled tools have made finding your next home faster and easier than ever before. In fact, ten years ago, more than a few very smart analysts predicted the end of the real estate agent as a career. There would be nowhere left to add meaningful value.

But that’s not the way it turned out, is it?

Yes, online tools could provide more and better information to the average homebuyer, but they could never substitute for human agents—and their expertise—to help navigate a complex financial transaction.

That anecdote should be of some comfort to the old-line, retail insurance industry, but it isn’t.

This time again, it is powerful online tools that are transforming the way many people buy auto insurance. The numbers make a strong case for concern: From 2004 to 2006, industry data showed buyers requested over 70 million online auto insurance quotes. To the average agent, that’s worrisome. What’s more, starting is 2007, consumers started actually buying those policies. Apparently, many of us got over our fear of buying what was traditionally a person-to-person sell over the internet. That’s the part that keeps agents up at night.

Like the real estate industry, this transition has been cost-driven, pushing the prices people are willing to pay for comparable insurance products (or “common knowledge” expertise) significantly lower.

It was Progressive who really started the trend. Its ground-breaking website was among the first—and best—at providing “apples to apples” comparisons from different underwriters. It exposed price disparity the same way Orbitz does for airline travel. Price is a similar key value proposition for Geico (and its ubiquitous “Fifteen minutes could save you 15 percent or more on auto insurance” ads). Add to that the new Esurance model, targeting twenty-somethings, bringing anime style to the insurance buying process.

It’s tough for your average insurance agent to be as cool as the caveman, as smooth as an accented gecko, or as hot as a black-leather-clad animated special agent gal.

But when I caught up with my agent—American Family’s Dan Flynn out of Eau Claire, Wisconsin—he was a bit more sanguine about the whole thing.

Yes, he said, the slick ads drain some business, but it’s the business he would prefer not to have anyway. They are the type who don’t really value insurance past the lowest price they can pay, and will jump ship after six months for a few dollars in savings.

Also, Dan reminded me that the newer underwriters are not offering broad coverage in several insurance product categories; these new companies focus only on the most profitable slices of the insurance pie (namely, auto). They can’t (or won’t) touch more complex policies, and if they do, they are not competitive.

That insight brought the market issue into focus: These upstart companies are content to gain market share quickly by focusing on the easiest (and most profitable) business—leaving old-line firms to clean up the rest. This is much akin to what discount airlines (Southwest and JetBlue) and discount healthcare (Target/Wal-Mart in-store clinics and Minute Clinic) are doing to their industries.

I can see why: Industry estimates show 80 percent of all auto policies are spread between 25 different underwriters. Allstate and State Farm lead the list with about 30 percent between them, but they are by no means dominant. Because new auto registrations are holding steady, and therefore the market is not growing significantly, new growth must be cannibalistic. Therein lies the opportunity for heavy advertising.

But there’s a problem.

The money Geico, Progressive, and Esurance are spending on advertising (compared to their size) is not sustainable. Overall category growth in ad spending exceeded 33 percent for the last three years, making insurance ad spending a $1.7 billion expense. That just won’t fly long term. Insurer balance sheets are closely watched by their underwriters. It won’t be long before the pool of “easy market share” has been attained, and the big budgets begin to fail to bring the same results.

By the point of diminishing returns, these companies are hoping to be large enough to (a) compete, or (b) be bought. Or else. We’ll see what happens.

To prepare for that day (and smartly realizing that price alone will never sustain as a competitive wedge), insurers are driving creative policy writing. Allstate runs a cash-back program for safe drivers (my business partner loves this one). Progressive has started to offer pet injury coverage as part of its auto package. Esurance and Progressive feature carbon footprint reduction programs.

All well and good, but product innovation is a tangential differentiator.

Here’s the real buyer behavior insight, and what should give agents the key to their own survival: Buyers picking cheap insurance are far more likely to be those who view insurance is something the government makes you have (auto) or your employer just pays for and you never see (health). At that (usually) younger age, they haven’t had the life experience (statistically) to see the consequences of being underinsured. In other words, they don’t know better. They don’t understand insurance. So they don’t care. Yes, there is a risk in ignoring this cohort: That they will remain brand loyal as it ages, and that the new line companies will adapt to their needs. But I wouldn’t be too concerned.

It is the same reason real estate agents still exist. When it comes down to it, home buying (like insurance) is a complex financial transaction. The decision you make can mean the difference between financial security and financial ruin.

And when the worst happens (and it will), no secret agent will come to the rescue. No caveman will tow your car. And no gecko will pump out a flooded basement.

I think Dan Flynn is right. You’ll always need a real human being who understands how to help. If I were an agent, that’s what I would worry about.

Reverse Mortgage: Hero or Villain?

Perhaps it is just poor timing.

Just as the word 'sub-prime' became part of the everyday vernacular, just as mortgage industry giants fell, and just as the Federal Reserve wrested new authority over the market, we have a new mortgage product on the scene.

It is called a 'reverse mortgage,' and it is not really that new.

In the days of heady profits and rapidly escalating home values, no one saw much value in selling them. No wonder, really. Reverse mortgages are reasonably complicated financial instruments. By statute, they apply only to a narrow segment of the population. They were simply too much trouble. But that has changed.

For a primer, I tapped Tony Weick, the resident expert on reverse mortgage products at Bell Mortgage.

Tony reminded me reverse mortgages are not, in and of themselves, 'good' or 'bad' products. Just like FHA, Jumbo, VA, and sub-prime, reverse products fit certain buyers under certain circumstances.

In short, a reverse mortgage is exactly what it sounds like. Instead of you making payments to the bank to earn back the equity it owns, the bank pays you each month to earn the equity you own.

A few caveats (aren't there always?): Reverse mortgages are only available to homeowners aged 62 and over who own - or mostly own - their own property. Also, homeowners cannot 'buy into' a reverse mortgage; it must be a refinance (although just-signed legislation may ease some of that burden). Finally, buyers must complete HUD-authorized coaching session before they are allowed to begin the process. On the surface, smart precautions.

On the plus side, reverse mortgages allows homeowners to stay in their home and access its equity without selling the home outright. Another major bonus, reverse mortgages are non-recourse annuities. Essentially, you and the bank enter into a sort of grim game of chicken. Based on your age, the bank determines your life expectancy, and uses that number to set a maximum dollar payout and monthly payment. If you live past your life expectancy, you win. The bank must continue paying you each month, even if the amount they pay goes beyond the value of the home itself. In the end, they are left holding the bag. But if you expire early, you also "win" (or more specifically, your estate "wins"). The bank has only the lien on your property for the amount it paid out to that point. In other words, the game is loaded in your favor.

Not bad.

So what does the bank get?

For one, the up-front fees are a bit heftier than 'forward mortgages' (Tony's word, not mine). Yes, you never make a payment, but that means the interest and fees capitalize, essentially limiting the total amount you could access. In other words, you (or your estate) could feasibly get more money out of your home if you waited it out (read: you died) or sold it early (read: move into another home/assisted living arrangement/etc.). Of course, all this depends on your tax situation.

Tracking so far?

If not, I don't blame you.

Tony and I spent 45 minutes on the phone working through the details. Any errors or omissions in the above description are mine, not his. And believe me, there are a lot more details.

And therein lies the issue.

To get good at reverse mortgages - from a professional's perspective - takes time, patience, and training. Bell takes it pretty seriously. As do many other organizations. But can you envision a scenario in which loan officers looking to survive in today's market will cut corners to open up this potentially lucrative market? I can.

The image of a few bad apples in the market, however, is nothing compared to risk when you begin to market to seniors.

That game is fraught with peril.

First, you need to spend considerable energy building trust. That takes time and money. And while there may be many more seniors in the coming years given demographic changes, they also are savvier about money than at any point in history. Add to the mix involved and financially adept adult children, along with the emotionally charged inheritance/family issues they bring, and you have an unrivaled marketing challenge.

More vexing, however, is the risk the industry takes the more it promotes this product. Coming off the heals of the sub-prime mess, mortgage players always could claim, "we should not have lent to unqualified buyers, but hey, they lied on their applications too."

Not so when marketing a financial product to seniors.

You have what I call the "swampland in the Sunshine state" image problem. Whether the industry likes it or not, consumers have a long memory of real estate scams targeting seniors throughout the 1970s and '80s. Fair or not, as a financial product for seniors, reverse mortgages have been greeted with more than a healthy dose of skepticism.

Senior Lending Network (as seen on TV), among many others as of late, is running up against this problem. Heavily promoting reverse mortgage products, it places its entire industry at risk if word gets around that seniors are getting the short end of the stick.

This time, there would be no shared blame. The public would consider itself fooled twice, and would likely not take kindly to the charge of "bilking grandma out of her home."

Talk about an emotional pressure cooker.

Mortgage types had best tread very carefully here.

From Strangely Unique (Gluek’s) to Positively Ordinary (Cold Spring)

Being in the brewery business today is not easy.

The competition for the U.S. alcoholic beverage market remains intense. Beer is a core product, followed closely by wine and other spirits.  It all depends on who you are, where you live, how much you make, and in which circles you socialize.  Suffice to say, big beverage has you pretty well pegged.

Older consumers are bombarded with advertising from massive beverage conglomerates.  Tastes and habits tend to be pretty well entrenched by the mid-thirties, and getting people to switch after that age is difficult.  (It is not just the difference between "wine drinkers" and "beer drinkers." Think much narrower:  A Bud Light drinker is not a Miller Lite drinker, etc.)  Given that reality, large beverage marketers (Diageo, Anheuser-Busch, etc.) can and do pour billions into developing new product extensions, infiltrating the bar/restaurant business channel, and providing direct incentives - all to move a few percentage clicks into someone else's market share.

Brutal.

The younger consumer market is no easier.  While their tastes may not be as well defined, they trend much more fickle.  If Guinness is "in" for the youth set, its sales are up.  If Guinness is "out," its sales are down.  Simple, and unpredictable.  To make matters more complex, the traditional "beer, wine, and spirits" options - while popular - are no longer an exhaustive set of choices.  Hard ciders and lemonades got their start here.  Coffee mixers are on their way.  And alcoholic energy drinks are a huge niche market (e.g. Red Bull and Vodka, etc.).

So what is a small competitor to do?

Little Gluek's Brewing Company, a Minnesota-based brewery (one of the only ones left), is making a good show of it.

As a small competitor (not small by "ultra-microbrew" standards, but a speck on the eye of Anheuser-Busch), Gluek's ran with the only viable strategy available: Niche marketing.

Banking on the micro/local-brew strategy as a wedge issue in its regional market, Gluek's has the product lines people in this area want: Pale Ales, an Ebony Wheat, Honey Almond, Pilsners, Lights, Ices, and Lagers.

Add to that a line of Pub Pints and Hard Lemonades, and Gluek's has an answer to these sustaining trends in the industry.  Better yet, from a product management perspective, the company has staked out a solid position in the energy drink market.  In fact, if you play with the math a bit, Gluek's maintains almost a dominant position in this sub-market.  Clearly, Gluek's is no Red Bull, but they have a good answer to a popular trend.

Any way you look at it, Gluek's offers a very complete line.  It gives its distribution partners ample ammunition to sell within both major and niche retailers, bars and restaurants, and specialty resellers.  In the Minnesota regional market, both older and younger consumers can find something they like.  And they know it.  Gluek's, astutely, plays its local card to maximum advantage.  The company is well positioned to capitalize on the "buy local" trend made popular, in part, by organic foods and farmer's markets.

You could make an argument Gluek's makes all the right decisions.

Save one.

Changing its brand name.

In 2008, after over 150 years, Gluek's Brewing Company changed its name to Cold Spring Brewery.

The company's stated reasons were pretty clear, and on their surface, sensible.

A proud and grateful corporate resident of pretty Cold Spring, Minnesota, the company wished to forge a deeper tie with the town.  What better way than to name itself after its host?  Seems reasonable.  Additionally, the name "Cold Spring" highlights the purity of the water source, and by association, the quality of the beer itself.  Again, a reasonable assumption.

A phonetics expert could even make a solid case against the name "Gluek's."  It is hard to say correctly unless you have heard it before.  And besides, most naming experts would advise against building a brand name containing embedded negative words ("lick," "ick," "eck," or "ook," depending on your pronunciation).  Finally, Gluek's sounds too "Northwoods," effectively limiting its overall market potential.

Besides, new management had just saved the family of brands from a slow, painful death at the hands of their disinterested corporate owner (G. Heileman Brewing Company of LaCrosse, Wisconsin).  The new owners wanted to make some changes.  Infuse some fresh energy.

It all sounds very sensible.

And all faulty.

First, dispensing with over 150 years of history should not be done lightly.  The name and the tradition are a source of pride and uniqueness is a sea of bland corporate shells.  Gluek's has character built in.  Cold Spring does not.

Second, phonetics rules are made to be broken.  It is the Northwoods character that made Gluek's unique.  Yes, it may limit its overall market potential, but the Gluek's name is not responsible for that.  The answer in niche marketing is not to try to copy the number one and number two in the industry, but rather to make yourself stand out.  Gluek's stands out.  Cold Spring does not.

Third, in order to reach into the youth market, especially with an aggressive push into the energy drink sub-market, you need something special.  Something that will make people feel unique when they are drinking it.  Without a multi-million dollar advertising budget, word-of-mouth is your best friend.  And word-of-mouth requires a memorable catch phrase.  Gluek's, you remember.  Cold Spring, you forget.

The underlying theme is simple: The cardinal sin in branding is not pronunciation trouble, or campy regional flare, or a patchy corporate history.  It is being forgotten.

Naming is actually pretty simple.  There is only one rule: Never be confused with anything else. Cold Spring? Bottled water or beer?  Without knowing better, my money would be on the water bottler.

Cold Spring, as a name, was the safe choice.  It sounded nice.  It made people feel good.  But it was not good branding.

And that's too bad.  If we don't want our every beverage option to come from our friends at Anheuser-Busch, I wish Cold Spring good luck.

Madonna redefines herself and—more importantly—what it means to turn 50.

It seems a bit beyond belief, doesn't it?

On the eve of her 50th birthday this summer, the Material Girl, the author of Sex, and the perpetrator of countless minor social scandals, Madonna, released her eleventh studio album—"Hard Candy"—which hits store and online shelves April 29.

Hardly needed, but a bit of perspective seems in order. Madonna launched her professional pop career in 1983 with a self-titled album, over-the-top sensuality, and a dynamic stage presence. An interesting case study to say the least, but hers was hardly a unique story at the time.

While many of her contemporaries have faded from the scene, Madonna remains. The reason is pretty simple, really. The Madonna of 1983 is not the Madonna of 1987. Or the Madonna of 1994. Or the Madonna of 2000. Or the Madonna of 2008. Whereas other artists have stayed relevant by not dramatically changing (thus guaranteeing a stable audience), the pop world is a different beast entirely.  Madonna understands that world—and like her (or her new album) or not—she remains as successful and as relevant as ever.

But all of this would be nothing but an interesting bit of MTV trivia would it not be for what Madonna has come to represent. On August 16, Madonna will turn 50 years old. And at 50, she retains an enviable balance of hip, emotional maturity, and rooted confidence most of her modern contemporaries sorely lack.

Again, interesting, but not in and of itself unique.

What truly makes Madonna important, from a marketer's perspective, is not her onstage kisses, her wild outfits, or her young child. It is that she has come to symbolize a fundamentally changing demographic truth. Madonna is a powerful image of the new 50.

It was only a generation ago that turning 50 meant the beginning of the end. The end of a career. The end of physical attractiveness. And the end of personal relevance. We jokingly celebrated turning 50 with black balloons and the tacit acknowledgment that the birthday recipient was heading toward the twilight of life.

And it was hard to blame partygoers. Average life expectancy in the United States at the turn of the 20th century was just under 50 years old. By 1950, the number had climbed to just over 67. Today, we are fast approaching 80. In fact, one of the fastest growing populations of Americans is centagenarians - people living up to and past the age of 100.

Our public perception is only beginning to catch up.

Instead of asking at age 50, "How do I wind down my life?" people are beginning to ask, "What do I want for the second half of my life!" Today, 50 means "midlife" in the true sense of the word. Fifty is a new beginning.

And again, like her or not, Madonna is a symbol for what 50 can be. And that symbol is forcing a whole new set of questions. Better questions. What does it mean to be vibrant and active? What does it mean to be sexual? What does it mean to be a parent?

And it scares most marketers to death.

Oh sure, if you ask them, most marketers claim to have seen it coming. They even spout the same statistics regarding activity levels and life expectancy. Then in the same breath they write commercials such as the intolerable piece of garbage for Colonial Penn Life Insurance. (You have likely seen it: A man in his 50s wakes up in the middle of the night worrying about his life insurance. He and his wife calmly review the rational benefits of such a policy, and decide in the end to get the "peace of mind" only Colonial Penn's policy can bring. This commercial would have been modestly appropriate in 1980. It is exceeding out of touch today.)

But wait, you say. We have seen an explosion in marketing to "older" Americans. Massive marketing campaigns for all manner of pharmaceuticals. Record-breaking numbers of 50-somethings traveling.  The democratization of cosmetic surgery.

True. And with few exceptions, searingly boring ad work. Campaigns for Baby Boomers rarely strike with the same creative energy that "youth" campaigns exude.

What I don't think our collective marketing department has figured out just yet is how to handle the "new 50." How to handle people who have reached a stage of maturity and financial wealth that finally allows them to live the life they could not fully understand, nor afford, in their 20s and 30s. This is a group that will likely become more active, more physical, and more daring as they age. Not less.

That means sightseeing bus tours are out. Adventure hikes are in. Water aerobics is out. Taekwondo is in. Woodcarving is out. Wii is in.

It is the paradox of mature and wild living in the same body.

It is the Madonna paradox. And we had better get used to it.