Are commission based channels low on trust

In US car salesmen are amongst the least trusted professionals. On digging deeper one finds that they share these low rankings with advertising professionals, stockbrokers, insurance salesmen and surprisingly politicans too (Members of Congress, Senators and Governors). Have a look at the Gallup report summary below:

Gallup Sruvey Trusted Professionals

While there must be multiple reasons for people to trust certain professions and mis-trust few others, I am sure that the commission structure in a specific industry does lead to a low levels of trust.

My guess is that if consumers know that the middleman involved in the transaction could be motivated by goals that clash with theirs, they try and look at each conversation from the point of no trust.

Take for example, an online advertising agency which typically charges you 15% of what you spend on ad-networks. I remember, doing a detailed review with my agency and discovering that they were far away from optimization basis the Click-thrus and bid-rates. My first reaction was that this team is knowingly trying to jack-up the media spends and hence their cuts. It was some 3 hours later that I realized that they were not competent enough to make sense of the numbers and reports that the ad networks shared. Their intentions were ok !

Cars, stocks and insurance policies are all complex products with multiple features and specifications. This means that there is no single correct recommendation for any given customer. 

When the customer seeks the agent to play an advisory role (whether implicitly or explicitly) and the agent himself is paid the sales commissions, the mind starts playing scenarios. And in most of these scenarios, agent has either shortchanged or duped the customer.

 Look at the top spectrum of Gallup’s survey results. Doctors, Nurses, Engineers are all selling a service rather than a product. A doctor might give us any medicine but we feel its our symptoms/ailment that got cured. Doctor is not in the business of selling medicines but of curing.

And here’s an opportunity for the Financial Services industry – can we find a way to be percieved as selling services rather than pushing products and eating commissions.

HDFC Life’s Campaign to protect you from the rains

A colleague recounted an amazing experience she had at the Delhi Airport a few days back. She had just flown in and was waiting for her car.

There is this small stretch at the Delhi airport that you need to cross from the covered porch of the terminal, to the waiting-car-lanes.  While the stretch is small, its easy to get soaked if its raining.

There were young boys holding huge family-umbrellas trying to help people save themselves from the rains. The umbrellas were branded with HDFC Life logos and these enthusiastic boys were helping passengers reach their cabs/cars without getting drenched. And while they walked with you to your waiting car, they would very politely hand over a small HDFC Life card (images attached) which promotes their Click2Protect – Online Term Plans.


I was so impressed by the way HDFC Life managed this.Could see so many reasons for them to be proud about this campaign:

  1. Its a very relevant offline activity. Most of us do not carry umbrellas and do get drenched a little bit if its raining.
  2. Insurance industry has been using the umbrella to highlight protection for years now. I can remember seeing way too many things under that umbrella – from house to family. But finally someone has made a meaningful and relevant use of the most recognized prop of the Insurance Sector.
  3. There is no hard-sell and the card is actually very humble in its tone and starts the conversation very meaningfully

    Thank You for letting us protect you

  4. Its probably one of the best Offline-to-Online campaigns that I have seen so far. They have chosen a simple product category to share – Term Plans. A product category that has been witnessing the biggest rush for customer-initiated-online-purchases.

Free Pricing takes toll on non-life insurers

Today’s ET had a front page article with the same headline “Free Pricing takes toll on non-life insurers” where it reported that the once lucrative Fire Insurance segment now makes private General Insurers bleed.

Its an interesting and important development because it could well become the case study in What not to do in a free pricing regime. Coz most of the current losses are being blamed on the price undercutting taken by these players to get more sales.

Non Life InsuranceSo one might be tempted to ask-Is price undercutting a good strategy?

I would say it is a good approach to capture the market share, but only if the following conditions exist:

– The final margins after the price cuts, still allow you to make “normal profits”

– If the above is not there, you have access to a source of funds that can sustain you for a long period in the market place.

– Also the nature of industry/product allows you to lock in the customers from shifting to competition or ensures a high wallet share.

If you ask me, Fire insurance which requires periodic renewals does not guarantee that the customer will be back with the same insurer next time also.Moreover given that most of these are corporate customers, it can be safely assumed that they would shop around for the lowest priced deal.

The worst impacted are the Private sector players, coz they had not built a large enough book, whose corpus could have given them returns to cover the operational losses in the interim. All these are relatively new entrants in the market.

It is not a surprise then, that some of these private sector players are looking for additional influx of funds or a party to even buy them out.The regulatory changes in General Insurance sector have just started and how the Insurance business pans out, will make for interesting case studies for Strategic Management 101.