Why retention improvement impacts profitability
Case 3.2 Building new value propositions at Zurich Financial Services
Case 3.2 Building new value propositions at
1. Core proposition development function
The initial process is concerned with the detailed specification of the propo- sition to be developed. It normally involves cross-functional collaboration and some or all of the constituent sub-processes. For example, a major new product development may require several iterations of all three sub- processes, whereas a simple re-pricing is unlikely to require any testing.
(a) Define proposition – turning the outlined business opportunity into an articu- lated specification, covering (as appropriate): product, service, distribution, communication and pricing. The amount of work entailed depends on the nature of the customer requirement. Clearly, creating a new proposition is more involved than modifying an existing one.
(b) Business case evaluation – determining the business rationale for the defined proposition, incorporating a financial evaluation. This activity is carried out alongside other processes and several iterations may be necessary before a viable proposition is reached.
(c) Research-led testing – using various test methods, such as focus groups and customer surveys, to examine one or more aspects of a prospective value proposition. For example, testing the demand for specific benefits or investigat- ing the degree of price sensitivity. This process is invoked as and when neces- sary and is usually conducted in partnership with third party specialists.
2. Develop proposition
The next process encompasses the cross-functional activities involved in actually creating the deliverables of the planned value proposition. It will vary in scope and content, depending on the proposition, but may include developing or amending business processes, IT systems, training material, marketing material and product literature. The process may be carried out
1. Core proposition development function Ideas and innovation
2. Develop proposition
3. Market testing (a) Define
proposition
(b) Research- led testing
4. Launch solution
5. Review proposition Detailed
statement of needs for target segments
Generic financial and functional targets
Detailed proposition Detailed
proposition Research results
Research results
Evaluation results
Evaluation results
Proposition deliverables Test results
For launch deliverables
Not for launch deliverables
Review input from all areas
Conclusions and learning points Previous
experience and feedback
Proposition specification
(c) Business case
evaluation
Zurich Financial Services Value Proposition Framework
in stages over a significant period of time. For example, a new product may have deliverables that are not required for launch but are needed in time for the first anniversary of the policy.
3. Market testing
This process involves offering the developed value proposition to a repre- sentative selection of target customers in a controlled way, in order to test specific aspects of it. The process is applied where necessary and is gener- ally more relevant in the context of a service-based proposition than of a product-based proposition. As with step 1(c), third party specialists are usually involved.
4. Launch solution
This is the process of making the value proposition available to customers on a full-scale basis. Again, it covers a range of activities, not all of which will be relevant in every instance. These include: training and licensing distributors;
producing and distributing literature; implementing IT systems; and equip- ping and managing administrators.
5. Review proposition
This review process is carried out once for each proposition at an agreed period of time after launch. All aspects of proposition development are exam- ined and performance is compared to forecasts. Resultant learning acquired from the insights and analyses generated is then fed back into management and decision-making processes to inform future activity in the areas of Client Acquisition, Customer Segmentation and Proposition Development.
The early stages
ZFS is in the process of testing a couple of value propositions developed on this basis. Arvind Malhotra, Director, Customer Strategy & Segmentation, explains: ‘For each target segment we seek to define a single value proposi- tion which encompasses our offering to them over the lifetime of our rela- tionship with them. We then deliver this proposition through the solutions we build to meet their needs’.
As an example within the ‘small business’ segment, the company has identified the customer need to manage personal finances and business pressures concurrently as a key area of development. By centralizing expertise, ZFS is able to offer an integrated solution that jointly addresses both concerns in a simple, straightforward manner. Similarly for the ‘fam- ily’ segment, recognizing that moving home is a key event in the cus- tomer’s life stage and a very stressful one, Zurich is developing a readily available solution which offers customized flexibility. The proposition to the customer is one of ‘convenience and choice’.
The winning feature of the new methodology is seen as its emphasis on customer focus. ZFS proactively asks its customers what they want.
Customer feedback is intended to be used to inform all decision making.
Prior to the introduction of the framework, value propositions were organ- ized on product lines and the company delivered several individual prod- ucts. The catalyst for ZFS’s refocus was learning that customers do not just want a whole range of products, but require solutions that are pertinent to their lives and needs. Furthermore, this customer intelligence is not self- contained within Proposition Development, but is actively channelled to sales advisers, customer communications managers and other functions.
‘Traditionally, we operated product silos. Now we work across these silos to create solutions’, comments Malhotra.