Geico's Big Spending Pays Off, Study Says

No. 4 Insurer's $501 Million Is Nearly Twice That of Rivals, Fueling Double-Digit Growth and New-Customer Acquisition

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COLUMBUS, Ohio ( -- If you're looking for that perfect case study to make the argument that spending big on advertising can pay off sometimes, tell your CFO about Geico.
Geico ranks No. 1 in new-customer acquisition and is the only top brand to achieve double-digit growth during the past four years.
Geico ranks No. 1 in new-customer acquisition and is the only top brand to achieve double-digit growth during the past four years.

The auto insurer with the multiple spokescharacters has increased its ad spending a whopping 75% since 2004, and its measured media outlay, $501 million, is nearly twice that of any other player in its category in 2006.

'Above the rest'
All that spending was not for naught: When it comes to new-customer acquisition in this booming category, "one stands above the rest in conquesting new business" -- Geico, according to a J.D. Power and Associates 2007 Insurance Shopping Study released today.

Indeed, the auto-insurance category, in the midst of a price war, has seen overall ad spending jump more than 32% in just two years, topping nearly $1.4 billion alone in 2006 among the top four players -- State Farm, Allstate, Progressive and Geico.

Geico, with its cavemen and gecko, has been the main driver of this skyrocketing spending. The category's next-biggest spender is Progressive, which spent $265 million in 2006, up from $201 million in 2004, according to TNS Media Intelligence.

Despite being the No. 4 player based on market share in the category, Geico ranks No. 1 in new-customer acquisition at 5.8%, followed by Progressive at 4.4%, State Farm at 4.2% and Allstate at 4.2%, according to the study, which surveyed 6,050 recent shoppers to track behaviors and motives for switching auto insurance over the past 12 months. (The percentages are yield per 100 prospective new customers.)

Overall, brands averaged just 2.1% in new-customer acquisition.

Buying brand awareness
The study also noted Geico's fast climb up the brand-awareness ladder since 2001, when it topped at 82%. After spending an estimated $2 billion in advertising since then, 91% of shoppers today say they have seen or heard at least one Geico message in the past 12 months, compared with ads from State Farm (80%) and Allstate (78%).

But Geico is winning more than just top-of-mind awareness; it is winning market share. It was the only brand in the top four to achieve double-digit growth during the past four years -- 13.1%, according to A.M. Best's Aggregates & Averages. Progressive ranked second at 9.2% growth, followed by Allstate at 5%. Meanwhile, No. 1 player State Farm was essentially flat in the same period.

With $28.5 billion in direct premiums written, State Farm still holds the No. 1 spot in the category -- a position it has held since 1942. It still has a substantial lead over its closest rival, Allstate, which holds $18.2 billion in policies. Progressive follows with $7.5 billion, and Geico has $6.9 billion.

As for brand image, the study says, "Geico occupies unique terrain in the auto-insurance space as a relatively inexpensive carrier that is fun. State Farm and Allstate, on the other hand, occupy more traditional territory (expensive and serious)."

State Farm gets aggressive
For its part, State Farm is clearly not taking the growth -- and ballooning advertising spending and market-share gains -- from upstarts Progressive and Geico lightly.

Mark Gibson, assistant VP-advertising at State Farm, said he plans to increase spending, which topped $270 million in measured media in 2006, by double digits.

"There's been a trend for companies talking solely about price," Mr. Gibson said. "But believe me, we see ton of research that says it's not just about the price and how you purchase; it's also about the kind of service you get. We know that price continues to play a larger role in the mind-set of consumers, but we also know there is a value equation, too. ... A good price is not the only thing that can get a customer; you've got to keep them, and we are at historic levels of retention."

The brand's most recent campaign, "Why Wouldn't You?" tries to emphasize price without neglecting its personal-service positioning.

Indeed, State Farm is winning when it comes to retention, according to the J.D. Power study, in which it ranked No. 1 in customer retention, at 94.6%. Geico ranked No. 2, at 90.1%.

As competitive pressures continue to drive down rates and the category enters a softer pricing environment, "advertising is a place to press your advantage," said Alan Dobbins, an analyst with Conning Research & Consulting, Hartford, Conn. "It raises the question: Where is the stopping point to all this spending? And I don't have an answer on that for you yet."

But, clearly, the motivation to spend more is there. "Ad spending is a way for those who are leading to distance themselves from everyone else," Mr. Dobbins said.
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