Cover Story - Target Marketing by Thorin McGee
Tasked with raising renewal rates on home warranties, Doug Stein , president of Sunrise, Fla.-based HMS National, was faced with those questions. He turned to a process of in-depth customer interviews, called "voice-of-the-customer" research, for answers. The strategies and tactics HMS drew from that research measurably increased customer satisfaction, lifted renewal rates 20 percent across the board—75 percent in some segments—and helped the company chart a new course with the customer as its "North Star."
Knowing the Unknowns
"HMS had been around at that point  just about three years, and had been very successful," says Stein, "but the principals of the business knew the company could get to the next level."
They were not looking to make small refinements to the business that would yield incremental lift, according to Stein. They wanted big results.
HMS provides home warranties that offer financial coverage for major systems and appliances in a house, which most homeowners' insurance policies do not cover. The warranties are typically annual contracts purchased by the real estate agent or seller when the home is listed, or by the homeowner during settlement.
After the first year, HMS needs homeowners to renew the policy to keep their business. The challenge was getting more of the homeowners to recognize the value of the warranties and a relationship with HMS so they could see the benefit of renewing.
"It was really clear to us that the way to get the big gains was to understand what was on the consumer's mind," says Stein. "Really, it was a makeover for our business. We were now saying, rather than us develop the next new way forward in the boardroom … let's go figure out if we're doing all the right things in the right ways."
The information Stein hoped to collect went beyond simply, "Does the customer want to renew?" HMS sought to learn what its products meant to its customers, how they determined the value of HMS, what the positives and negatives were of their experiences with the company, and how satisfied they were. HMS also wanted to know what homeowners thought about its communications, contact methods and whether they would be open to more engagement.
These weren't objectives that could be reached with a simple Web survey, so HMS enlisted customer relationship marketing consultancy firm Ernan Roman Direct Marketing (ERDM) to assess the needs of its customers—both the corporate clients who sold its products and the end consumers (homeowners)—through an in-depth interview process that Ernan Roman, ERDM founder and principal, specializes in called voice-of-the-customer (VOC) research. Roman recently published a book about applying VOC research titled, "Voice-of-the-Customer Marketing: A Revolutionary Five-Step Process to Create Customers Who Care, Spend, and Stay," which includes a case study on HMS and other companies ERDM has worked with. (See the sidebar for more details on the 5-step VOC process.)
VOC research is essentially a customer needs assessment drawn from hour-long phone interviews with customers, prospects, lapsed customers, etc., who represent targeted segments, or "research cells," of the company's database. HMS drew its cells along two main categories—customers who renewed and customers who didn't—and divided each into four subcategories:
• Homebuyers who had purchased a home warranty
• Home sellers who had purchased a home warranty
• Homeowners who had filed
• Homeowners who had not filed a claim
"Given that this is meant to be actionable, strategy-driving research," Roman says, "a key point [in defining the research cells] is, what will you be able to act on? What will you be able to scale?" In other words, can you segment the rest of your database the same way as your research cells and still have large enough slices to be able to apply any insights to full market-
According to Roman, "if it turns out you can't, or it turns out those [segments] are going to be too small for you to build a business on or drive significant revenue from, then … why spend the dollars or the airtime interviewing those kinds of segments? Let's instead look at larger slices that will move the needle, revenue-wise."
"A lot of [the VOC process] was the upfront planning," Stein says. "Ernan giving us the framework, and my team and I engaging with him to decide how to customize it, creating the research cells to figure out who we were going to talk to in the interviews, making sure the results from that were going to be actionable, and then creating an interview guide that tied very directly to
The research was a constantly evolving conversation in which interview scripts and goals were tweaked to explore ideas discovered in earlier interviews, and HMS' team was involved in every step. "We didn't wait until the end of the project," Stein continues. "Ernan didn't package up something and give it to us and say, 'Here's the executive presentation, God speed!' It was an ongoing process … [of] saying, 'We learned this; let's test that. Let's ask this [next time]. Let's probe that.'"
That interaction, guiding the HMS team toward where they would find the most actionable insights, gave the team a much better understanding of their customer base than they would have gotten from simply commissioning the research, according to Stein. "Going through the hours of research we did … [We] got far more out of it than we would have if we had gone through it in a strictly linear fashion and waited for the results to be cleanly packaged up at the end."
Bottom of Mind
"When you're within a company, sometimes you look at your offerings as being far more top of mind than they really are," Stein says about one of the core insights HMS gained. "I don't think we had a true sense of the limited share of mind [HMS] had from our consumers. … Within that whole real estate transaction, the home warranty very frequently just got lost." In the VOC process, HMS "learned how small the [HMS] share of mind was, but also how low the level of engagement was that we were starting from."
Low engagement was a reason home
owner renewals remained an area HMS could improve. It wasn't just that warranties were an afterthought on one of the biggest transactions of the homeowners' lives. The way HMS communicated with consumers was very efficient, but not engaging.
"We were fulfilling our commitment from a compliance and licensing standpoint," says Stein, "but the part we weren't taking advantage of was trying to understand how to build that relationship with the customers."
"What the [overall] VOC research [has] indicated is that so many companies have learned to do the operational, transactional things … efficiently from the company's transactional point of view," says Roman. But, "that doesn't mean that's in alignment with the customers' expectations or the customers' experiences." ERDM had found that, when these necessary communications were still done efficiently, but designed to better drive engagement, it improved the customer experience and resulted in higher retention and renewal rates.
"This is one of the big 'Ahas!' that came out of the VOC," says Roman. "Do the operational stuff, but make it engaging. Make it more relevant. Bring customers into the conversation. That will help ensure that customers stay with you longer."
Through the research, Stein learned that to get customers to renew at the end of 12 months, their interaction with HMS from months one to 11 had to reinforce the value of the relationship. So early HMS touchpoints went from focusing on the fine print to encouraging customers to engage in a deeper relationship.
For example, Stein explains, "We have one package, which for years was strictly a fulfillment kit. But post-VOC, we have built it out to be a highly effective, customized first touchpoint. And we now refer to it as a welcome booklet, as it does the role of fulfillment, but also assists in kicking off the relationship in a warm, friendly and engaging manner."
The research revealed deep differences in how certain segments of HMS customers wanted to be engaged. Those differences can provide opportunities to upsell or cross-sell with high conversion rates and reveal ways to dramatically, improve the customer experience.
"What we truly heard from our customers," says Stein, "was, 'We would be interested in engaging with you, we will build this with you, if you do X, Y and Z.' … It was the very specific details about what customers desired or demanded from that relationship that would make it true engagement."
Roman explains, "As the conversation evolved from [consumers] saying 'Hey, it's not about tweaking the renewal series; it's about engaging with me throughout the year, starting with how you treat me and how you greet me at the very point I enroll,'" ERDM began asking in the interviews, "What does engagement mean, and how would you define value?" It found that HMS' customers really wanted communications tailored to their individual preferences.
"For some folks, an outbound phone call was a statement of huge caring and attention and value. But somebody in the next conversation could say 'I hate outbound telemarketing,'" says Roman. Some customers were interested in receiving regular emails from HMS if they contained tips about subjects that applied to them (such as maintenance tips for the type of heater they had), but not if they provided useless information (people in Minnesota, for example, did not want to hear about swimming pools). "You can't generalize that," he says. "That's an individual opt-in, profile-driven guide that has to be elicited and then captured in a contact management system and used to drive the touch or suppress the touch, per that individual."
Those results also showed HMS that its customers were willing to share information to improve their engagement with the company. "They were willing to share with us preference information—which we hadn't collected from a contact standpoint in the past—to allow us to communicate with them on a frequency and on a contact strategy basis the way they wanted to," says Stein. That level of preference went down to specifics such as, "I want to receive monthly communication from you, and I'm someone who wants to get maintenance tips." Or, the request could be for "Energy efficiency updates: Those are the things I might want to receive, and I want to receive them on a quarterly basis. And, oh, by the way, I like all my correspondence from you via email."
Incorporating these insights has improved the customer relationship dramatically, according to Stein. So much so that a company that once had very low engagement is now finding evangelists. He emphasizes, "Because the customer experience is so good, it's not just that people renew. You get the evangelists that come out; people start talking about your business. When all these things happen, the benefits far outweigh, 'Does the extra person renew?'"
"Per the VOC," Roman says, "we realized that there was no single medium that should be the mainstay of this year-round communication. And per the opt-in preferences, we needed to understand how different people wanted to be communicated with. What evolved from that is a preference- driven, multichannel strategy that encompassed direct mail, email, e-newsletters, e-tips and customer service-oriented telephone touches integrated per the preferences that people were identifying."
"I think what's been most important to us," Stein explains, "is integrated direct marketing." Depending on the customer's preferences, HMS is bringing the different elements of electronic marketing and other channels to every point it has contact with a customer, from the welcome book to claims resolution.
For example, capturing customer contact preferences allowed HMS to market to certain segments through outbound telesales integrated with direct mail campaigns, "each customized to align with the tone and messaging that customers said would be most effective when asked during the VOC," according to Stein. These produced big wins, raising renewal rates by as much as 75 percent.
HMS' revamped contact strategy makes recording opt-in a priority from its earliest customer communications. Stein is testing a direct mail response piece that goes along with the warranty welcome booklet (which has replaced the fulfillment kit in HMS' post-VOC contact strategy).
HMS is also looking at outbound phone calls as a way to retrieve opt-in data, and made that a priority of all in-bound communications. "We're trying to be proactive so we can utilize that information rather than just waiting for customers to come to us—like in a claims situation—which is the industry standard."
According to Stein, "That's a synopsis of the way our thinking changed and the way our actions changed." The research process was, "not just academic or strategic. It had those facets. But it was also action-oriented. We knew when the folks wanted us to call, and when we did that call, what the tone of that call needed to be, and that informed our scripts."
HMS' New Course
"There's some low-hanging fruit, and then there are some really tough challenges that come out of VOC research," explains Stein. "One of the tough things that comes out of it is you get really excited and you get great ideas. Then you have to think about the complexity of implementation."
There are some quick wins."
There are some tactics that companies can implement easily, according to Stein, such as reworking the voice in their communications. But in the bigger picture, he says, "We can't do something far different and in a far better way, and still use the same platform."
HMS is now in the middle of a strategic overhaul of its systems to implement the larger strategies that came out of its customer research. "We made an initial investment to create the bridge" systems that allowed HMS to implement some of the strategic suggestions quickly, says Stein, "but we're in the midst now of fully overhauling our systems, and that's across the customer's experience."
This overhaul goes beyond sales and marketing "to the whole claims experience," continues Stein, "which interlocks with the other touchpoints. … Anytime you contact us, whether it's to make a claim or to interact with us, we know who you are. … We're doing all that on a customized, individualized basis based on preferences. And that's a significant investment we're making throughout our entire business, largely informed by the [VOC]."
Part of the reason HMS has
invested so readily in this upgrade is that it has already seen results. "Voice-of-the-Customer Marketing" quotes Stein saying, "consumers immediately responded to our efforts, and this was reflected in renewal rates that increased 20 percent nationwide." However, in our interview, he says 20 percent was the average lift across the board. "We saw lift of nearly 75 percent in certain segments," especially in segments where consumers receive integrated multichannel direct marketing.
HMS is still trying to figure out how to get that lift across all segments. But those results provided incentive to invest in the strategies that emerged from the research. Stein says, "In a tough economy where everyone has limited capital to invest, it provided a very confident strategic direction for
In addition, the research gives HMS a confidence in its knowledge of what its clients want, and that has changed its position in the market. "We can now sit in a room and talk in a very sophisticated, thought
leadership fashion about exactly what our purpose is, [and] what we're trying to accomplish," says Stein. "We have received such good feedback from that, we gained clients. Not just consumers (homeowners), but corporate clients. These are huge companies who say, 'Wow, you really get it.'"
"Getting it" has allowed HMS to go into situations where Stein feels other companies might be hypothesizing about the market or what consumers want. But VOC research allows Stein and HMS to "talk with certainty, because we know."