What Business Are You In?

Theodore Levitt, was a marketing professor at the Harvard Business School. This point is from 1956. (Note to self: The more things change, the more they remain the same.)

“The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.”

Point 1 – If, in your thinking, you are product oriented or process oriented, you are running an unnecessary risk.

Peter Drucker, another of the seminal minds in management consulting, has said that one of the crucial decisions a business manager must make is, “What is our business?” In simple terms, “What is the essential thing we do that provides us with a competitive advantage, profit and growth?”

What is your answer to those questions? Hint: It is not earning commissions.

Probably, if you are a financial adviser, you think something like: “I arrange life insurance for people”, or “I connect people to investment managers.”, or “I help people develop financial plans.” These, or ones like them, will not serve you well.

Point 2 – Drucker says that a business has but a single purpose – To create a customer.

Both Drucker and Levitt argue that all businesses must be customer centric. Satisfy their needs. Illuminate needs they don’t know they have. Arrange solutions to their problems and methods to capture their opportunities. In the financial adviser world, create customers by creating the security, predictability or opportunities they seek. Sales follow. They don’t lead.

Think about this. Do people want to own life insurance? Answer. No.

The “How do they reach that place?” is an interesting question.

They reach that place this way. Life insurance is a complicated, subtle and intangible product. So are its ultimate benefits. It is like betting against the home team. They cannot see life insurance, hear it, taste it, smell it or touch it. They cannot appreciate it or even test it.

How do you overcome that problem and help them to own it in a way that benefits them and overcomes their reluctance?

If people do not want to own life insurance for what it is, then maybe they will buy it for what it does? Provide money at death in a tax efficient way.

Good try, but that won’t work very well either. You will need to find a way to offer benefits that they can relate to.

How about this?

Life insurance is not about what it is or what it does. Life insurance is about what it allows you to do because you have it.

Suppose you have a $1,000,000 tax liability due at death. You could hold the money, or force your executors to make tough choices, or pay $X per year with the last payment on death or in 20 years. If you have the $1,000,000 already invested in liquid and readily accessible assets to meet the inevitable tax bill, then by using life insurance instead, you could free up a significant share of that $1,000,000 capital to do with as you please.

Maybe help children, maybe take a trip, maybe buy a Porsche, maybe buy gold, maybe grow the family business, maybe, maybe.

Point – 3 Those maybes connect with the client better than conventional sales ideas like responsible decision, estate liquidity, estate planning and all the rest.

If you want to be customer centric, and you should want to be, you need to think like a customer thinks. Their first question, the one they seldom voice, is “What’s in it for me?”

You better have an answer they can connect to.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

One Comment on “What Business Are You In?

  1. Pingback: What Business Are You In? II | moneyFYI

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