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A Step-by-Step Guide to Segmenting Customers

Once you’ve obtained executive buy-in for your ancillary cross-selling strategy and made progress on getting a new compensation plan in place for your sales team, it’s time to target customers.

Cross-selling means you’re going to be approaching your current customers, or accounts, to get them to add ancillary products like dental, life and pet insurance as options for their employees to purchase. I know this sounds easy, since you’ve likely already built good relationships with your customers; however, you don’t want to rush it.

As you kick off your cross-selling strategy, here are two things to keep in mind:

  • You’re new at this, and your customers know you’re new at this. They don’t necessarily want to be your guinea pig.
  • Your customers may already have preferred ancillary carriers–just as you’re their preferred carrier for your current business line–and they may have strong relationships with them, too.

Don’t let these thoughts discourage you, though–you just need to be careful about your approach in order to be successful in the long term. Let’s break it down.

Should we start big?

You may be tempted to approach your biggest customers first, since they have the biggest name recognition and will generate the most revenue for you. Unfortunately, they’re probably not your best bet. There are quite a few reasons why, such as:

  • Again, they don’t want to be your guinea pigs. Since they’re bigger, they have more to lose by taking a risk on an untested product(s).
  • Your biggest customers are your brokers’ and consultants’ biggest customers, too. They probably only have one or two of these accounts, so they won’t want to risk their relationships.
  • With close ratios for ancillary products traditionally around 10%, you may get discouraged if you have only one account that’s interested, since you don’t have many large customers to begin with.
  • Their decision-making process takes longer–it can be up to 10-12 months for what would typically take two or three, and you need to get to market more quickly.
  • They have more complicated plans and require more expertise than you may be able to provide right off the bat.
  • It’s a highly competitive space–just like you want to start with the big guys, your ancillary competitors want to go after them, too.
  • Price is really important to them, so they’ll want to drive the cost down. You might not be able to make cuts and remain profitable.
  • A lot of them are in the self-insured space, and if you’re not already in that space for certain products like short-term disability, you’re not going to meet their requirements.

Or, should we start small?

Does that mean you should start with your smallest customers? Well, not exactly.

While there might be some advantages to starting small–such as, selling them more quickly–there are some drawbacks:

  • They’re more heavily regulated, so there are limitations when it comes to bundling and offering discounted pricing.
  • It’s going to take more smaller customers to generate the top-line revenue that ancillary products typically generate. It may not be worth it, especially if you have to make any internal operations adjustments that are going to require people or financial resources.
  • You probably don’t have as close a relationship with them, which is what cross-selling usually takes. They’re generally all automated–their renewals are generated, mailed and premiums collected automatically–so they may never see one of your salespeople. 

So where should we start then?

Your cross-selling strategy needs to cut across all of your segments to be successful–your largest and smallest are still important, just not at the start. Instead you need to find your sweet spot.
Here’s what to do:

  1. Run an analysis of small to mid-market accounts–this means your accounts with 50 to 500 lives. You’re looking for:
  • Volume, in other words a large number of accounts
  • Who their brokers are – How strong are your relationships with them?
  • Account types – Are they blue, white or gray collar? You’ll probably want to focus on your blue and gray collar to start. 
  • Current offerings – Are they buying multiple products from you already? If so, that means they trust you, and that’s a good place to start.
  • Their financial arrangement–What are their preferences for funding these products? For example, are they self funded or fully insured?
  • Your sales teams – Are they early adopters or do they tend to wait and see how things work before they adopt new products and services?
  1. Separate out accounts that may require special considerations like unions, cities, towns, associations–even though they might be in the right segment. It’s not that you shouldn’t approach them, they just would require a little more thought and a potentially different strategy.
  2. Give some thought to brokers. After narrowing down your customer segment, you want to focus on their broker relationships–you may want to start with your smaller or newer brokers. They generally aren’t courted as heavily as larger, established brokers by other ancillary carriers, and they’re looking to add value to their customers to grow their business.

Now, after following this guide, you should have a customer segment that will provide the perfect starting point for cross-selling your ancillary health insurance products. Whether you need guidance on strategy or support for full implementation, contact me to get the conversation started.