Shaking the Blues

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Blue Cross and Blue Shield of South Carolina tailors its fulfillment program to target better prospects and pad the bottom line.

The Memo

As one of the "Blues," Blue Cross and Blue Shield of South Carolina (BSC) has leveraged the power of strong name recognition to market its health insurance plans. But after several years of promoting its individual major medical program - called Personal BluePlan - BSC realized that it would have to do more to achieve the potential the company had envisioned.

BSC turned to Harte-Hanks DiMark, based in Langhorne, Pennsylvania, for help. The challenge was to better define their target market and to produce a direct response campaign to meet the new, higher standards set by BSC for 1998. Those goals included improving return on investment by 15 percent by increasing lead volume by 20 percent (with a goal of 32,000 qualified prospects), decreasing the cost-per-lead, and developing and using a sales model to rank people most likely to sign up for coverage. BSC challenged DiMark to come up with innovative ways to bring in more prospective customers, all without a budget increase, says Frank Boatwright, marketing manager for BSC's Group and Individual Division.

The Discovery

First, DiMark dug into BSC's database of current client information and found, not surprisingly, that affordability - average cost of a monthly premium, $150 - was the main factor in the buying decision, says Garry Powell, DiMark vice president and account director. Possession of a credit card or a bank savings account were key factors in predicting if a consumer would actually purchase a BSC policy.

DiMark began gathering demographic and behavioral data on a core group of recent customers (those who had purchased a policy within the past 15 months), as well as on prospects currently being courted by BSC. Each piece of data - such as age, income, presence of children, and type of housing - was weighted in order to evaluate its role in the customer's decision to buy a policy. In addition to keeping track of the response and purchase behavior of both recent as well as potential customers, DiMark developed four survey questions to ask the prospects - who had either called BSC for more information after receiving a quote package, or who were called by the company as a standard follow-up to sending out the quote. The questions asked what type of coverage the individual currently had, whether it was temporary or permanent, how much the current monthly premiums were, and a proprietary question that determined the prospect's ability to pay.

Based on this initial research, DiMark divided the total group into nine narrowly defined segments. (A tenth segment was later added to incorporate those who refused to answer certain survey questions.) The best-performing segment included people who had demonstrated the ability to pay, according to the research, and who also carried temporary insurance costing more than $150 per month. Since conversion rates between the best-performing and worst-performing segments were found to differ by as much as 400 percent, says Powell, the obvious next step was to fine-tune the direct marketing approach.

The Tactics

DiMark developed several new television spots that combined BSC's proven brand advertising with tried-and-true direct response techniques. The new spots, produced by Lighthouse Productions in Langhorne, Pennsylvania, were tested against each other as well as against two ads already on the air. In one spot, called "Four Voices," BSC customers describe their personal situations and how BSC's coverage meets their needs. "The ads rely heavily on the name recognition of Blue Cross and Blue Shield of South Carolina, but they also target people who might be [particularly] interested in this type of coverage," says Powell, including those who are self-employed or who work for small companies with limited healthcare coverage. Other targets include young people in their first jobs, families in which parents can't get group coverage at work, and people between jobs.

The spots have aired on stations in South Carolina's four major markets since January 1998, says Powell. In addition, a full-page newspaper ad, which ran in the Charleston Post & Courier, the Greenville News, and Columbia's The State, was developed to generate additional telephone and mailed inquiries. Although BSC would not reveal its budget for the campaign, last year the company spent $178,000 on advertising in combined efforts with Companion Medical Insurance, according to Competitive Media Reporting, $81,000 of which was for TV spots primarily running in the fourth quarter.

Previously, people who called the company's toll-free number were sent an initial quote and basic information package, followed by another full packet of materials in the mail in 45 days. Now, however, callers are first asked the four survey questions. Their answers, combined with their demographic profile, determine which segment they fit into. Based on the characteristics of that segment, the caller is issued a tailored quote, brochure, and package of forms. (Those who mail in the newspaper coupon, however, don't go through the screening process, and receive a standard package, says Powell.) Most callers still get follow-up materials in the mail after 45 days if they haven't already responded, but not everyone receives the same goodies: Depending on which segment they're in, they might get just a postcard, or they may get a full-blown package, as well as a call from a sales rep.

The Payoff

As a result of the combination of research, modeling, segmentation, and new creative, qualified sales leads rose 32 percent, says Powell. By reducing the amount and cost of follow-up efforts in the mail and through telemarketing, marketing costs dropped significantly. ROI increased by 21 percent, well over the 15 percent target, Powell reports. Conversion figures are now being measured.

What the Critics Say

"Targeting by prospect characteristics and needs can make the difference between a marginally successful program and a winning program," says Melinda Nykamp, president of Nykamp Consulting Group, a professional services firm in Downers Grove, Illinois, specializing in customer relationship management and database marketing. "The prospect probably doesn't understand that they are in a certain segment and are getting a different offer than the next guy, but they do appreciate that BSC has the product that they need."

But BSC might be able to go further, some experts say. If the provider can quickly place callers into appropriate segments by asking just four questions, it may be able to segment even deeper by asking one or two more. For many companies, it's just as important to analyze leads that aren't as qualified in order to validate the hypotheses behind the segments they've developed, says Chuck Johnston, program director of Stamford, Connecticut-based META Group, a research and advisory services firm. "They want to know: Are these the right ten segments? Are we driving business?"

Although this type of customer segmentation is fairly common, Johnston says, it's seen less in the health insurance industry, since agents tend to customize efforts only for higher-end products such as life, property, and casualty insurance. "It's very important in the life/health arena now to present customers with some differentiating value," Johnston says. "As the market becomes more commoditized, having categories allows the Blues to generate a perception of uniqueness and value for the customer as an individual."

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