Geico at a Glance Assignment, Research Paper Example

The Government Employees Insurance Company was founded in 1936 during the great depression by Leo and Lillian Goodwin (Geico, 2010).  The counterintuitive idea of launching a new company in the midst of a financial crisis was based on a specific marketing strategy.  The couple would specifically target the one group of people who had steady jobs and income – federal employees and military personnel.  The company sold 3700 policies the first year using this focused marketing strategy.

During the 1960s, Geico had more than one million customers, had opened numerous sales offices and introduced drive-in claims centers.  Warren Buffett was among the many investors who had purchased stock in the successful and innovative company.  Buffett made his first stock purchase in 1959 and bought more shares in 1976.  Olza Nicely became the CEO in 1993 and increased the company’s advertizing budget and efforts significantly.  Impressed by the company’s new marketing strategy, Buffett purchased all the remaining shares of Geico in 1995 and the following year, Geico officially became a subsidiary of Berkshire Hathaway.

Fueled by the massive resources of their new parent company, Geico launched a massive new marketing campaign including television ads and national direct mailings.  The Geico Gecko was introduced in 2000 and has become the company’s iconic trademark.  The caveman ads began running in 2004 to emphasize how easy it was to purchase insurance on the company’s website.  Strong, targeted marketing strategies have been drivers for the success and growth of Geico since its inception.

Product

Geico sells a variety of insurance products.  While the cornerstone of their product line is car insurance, the company also offers specialized products for motorcycles, recreational vehicles, all-terrain vehicles, boats and classic cars.  Along with these various vehicle insurance products, Geico also offers life insurance,  homeowners insurance, mobile home & condo insurance,  renters insurance, flood insurance and temporary overseas policies.  Geico’s newest offering is an identity theft insurance product.

In general, insurance is a low-involvement commodity for consumers.  The only time a customer interacts with their insurance company is when they purchase or make changes to their policy and when they need to submit a claim.  Another consideration is the fact that insurance is an intangible product.  Once purchased, a customer does not get to take anything home with him except for a little paper card that proves that he has it.

The nature of Geico’s products presents unique challenges for marketing them.  Consumers typically like to develop relationships with the companies they do business with.  Many people for example like to frequent the same Starbucks location where the staff knows them and their coffee preference.  This relationship is more difficult when dealing with a low-involvement product like insurance.

Another factor for this product-type is quality.  Consumers make purchase decisions based on the relationship between cost and quality.  When a hungry consumer purchases a pair of $10 shoes from Wal-Mart, his expectations regarding comfort and durability will be different than they would if he were to purchase a pair of $150 Nike shoes.  Consumers compare quality and features when deciding between brands.  The “quality” of an insurance product is also intangible.

An insurance company like Geico must rely largely on its reputation for customer service as its mark of quality.  To this end, Geico has offered its customers a variety of “features” to help differentiate itself from competitors.  The introduction of the drive-in claim center in the 1960s is an example of such a feature.  In more recent times, Geico established about 4000 Auto Repair Xpress (ARX) centers around the nation.  These are one-stop centers where a customer can file a claim, get an estimate, and pick up a rental car while their vehicle is being repaired.

Geico’s most recent feature is the Geico Glove Box application.  This application is available as a free download for mobile iPhones and is available to Geico customers and non-customers alike.  According to Butcher (2009) Geico customers can use the application to get information about their policies, pay their bill or report an accident.  People who are not Geico customers can use the application to receive how-to information (e.g. how to change a tire), find a nearby taxi or rental car, or watch video clips.

Geico is the only insurance company that offers an application like Glove Box.  Although the application is not sold to consumers, it is still considered a product.  It was developed by Geico and has value.  In essence, Geico is giving away this product for free in an effort to build relationships with consumers.

Price

Everyone knows Geico’s main tagline: “Fifteen minutes could save you fifteen percent or more on your car insurance.”  Is Geico’s car insurance universally fifteen percent less expensive than its competitors?  Not really.  Does Geico guarantee a fifteen percent savings?  It does not.  These commercials simply state that a consumer could save fifteen percent.

Actually, Geico does offer competitive rates on insurance, but like all insurance companies, their rates are based on actuarial tables that calculate risk on a case-by-case basis.  Since car insurance is required by State laws, companies selling insurance are regulated be the State as well.  Most States have an insurance department that is responsible for overseeing the activities of insurance companies operating within their jurisdiction.

Insurance regulations do not specifically dictate final insurance prices but they do address such issues as rejecting customers based on certain factors such as race, income, marital status, occupation or credit score.  (Cummings, 2007).  Regulators also set rules regarding “tiering.”  Tiering is when an insurance company operates one or more subsidiary companies with varying rates.  A customer can be unfairly discriminated against when an agent quotes a policy from a higher priced subsidiary while claiming that it is the best price available.

Because of State mandated regulations, pricing structure for a national company like Geico will vary from state to state.  Geico is required to provide specific services and rate structures based on whatever state they do business in.  It is for example, common for insurance companies to consider a driver’s zip code as part of the formula for determining rates.  Actuarial tables might indicate that certain areas have more property crime rates, or more hazardous driving conditions, thus rates in these areas will be higher.

In 2006, California insurance regulators prohibited the use of zip codes in determining car insurance rates (Balber, 2007).  The State Insurance Commissioner contended that a person’s driving record was a better indicator of the likelihood of a claim than where that person lived.  This law is an example of how Geico’s pricing structure must accommodate the regulations of each state in which it does business.

Fortunately for Geico, all of its competitors must also follow the pricing guidelines of each state.  Within each area of the country however, Geico is competitive with its pricing.  Without doing a comprehensive comparative study that includes all actuarial variables, it is impossible to determine if Geico is truly less expensive than everyone else.  Considering that Geico is the third largest auto insurer in the country, their pricing must be fairly competitive.

Place

When Geico first started it was headquartered in Texas.  The company now claims Chevy Chase Maryland as home.  The company operates thirteen other regional offices around the country and about 4000 ARX centers.  Consumers can purchase Geico insurance from any one of thousands of independent local insurance agents, but most customers prefer shopping on the internet.  Geico has leveraged this preference by encouraging consumers to use Geico online as their point of sale.  The caveman commercials were designed to assure potential customers that buying insurance online was easy.

By encouraging customers to shop online, Geico saves millions of dollars in operating costs that would be needed to maintain brick and mortar offices throughout the country.  Because Geico’s products are intangible, this approach is not only possible, but cost effective.

Using Geico’s online policy management system, customers can add vehicles, change coverage and make payments.  Some products do require that a live person be involved.  All of the non-vehicle insurance products fall into this category.  Even for these products, almost all transactions can be facilitated telephonically.  Considering the nature of Geico’s product line, physical location might seem irrelevant.

According to Holm (2009) “More than half of U.S. drivers shopping for coverage use the Internet for at least one price quote before they buy… and forty-five percent of shoppers bought their new policies through a direct channel.”  When Geico first launched their online program, they called it the Geico Direct Advantage, suggesting that there were real benefits from shopping online.

Holm asserts however that people over the age of 55 tend to be reluctant to shop for important commodities like insurance online.  He also points out that the as the number one insurer, State Farm sells its products exclusively by agents.  Holm contends that people like to use the internet to get information (such as rates) but actually prefer to purchase from a human being.  Holm believes that Geico is missing out on market share by not having more of a physical presence in the marketplace.

Promotion

Geico’s success through the years has always been driven by the way that the company promoted its products.  Up until 1973, Geico sold insurance exclusively to government employees.  The company marketed its brand as being dedicated to understanding the specific needs of this target demographic.  This approach was effective in that, like credit union membership, people like to belong to an exclusive group.  This strategy served Geico well.

In 1973, Geico began offering insurance to the general public.  Using the resources of its parent company, Geico reached out to the millions of new consumers using direct mail. The campaign worked, and Geico started a period of strong growth.

Television advertizing has since taken the lead as Geico’s preferred marketing strategy.  The company now has a longstanding history for creating humorous and memorable commercials.  In the beginning of their television advertising campaign, Geico created numerous individual commercials with various themes.  While all of these commercials were entertaining, they lacked a common theme that would help support the Geico brand.  The company struck advertising gold in 1999 during the Screen Actors Guild strike which pulled live actors out of the commercial-making equation.  Geico introduced the Geico Gecko to the American public and has never looked back.  The initial commercial featured the little guy complaining about the fact that people got the named Geico and gecko mixed up.  Since that time, Mallory the Geico gecko has become the iconic mascot for the insurance company.

To help promote the use of their online insurance site, Geico introduced the caveman series.  The ads featured an announcer saying that using Geico online is “so easy a caveman could do it.”  In 2008, Geico introduced Kash, the banded stack of bills with eyes on top.  Kash represented the “money you could be saving by switching to Geico.”  A 2008 campaign featured the rhetorical question series featuring actor Mike McGlone.

One of the advertising strategies that Geico seems to have embraced is the concurrent use of several of their brand-supporting mascots.  Many other insurance companies have a singular voice representing their company such as “Flo” for Progressive or Alstate’s Dennis Haysbert asking “Are you in good hands.”  Both the Flo character and spokesperson Haysbert are likable people that would most likely appeal to most people.

Geico’s approach is to present a number of “spokespersons” all working simultaneously to appeal to everyone.  This approach to concurrently appealing to a wide variety of tastes using different characters might result in a failure to provide consumers with a focused, recognizable brand image.  In Geico’s case, it does not.  Consumers clearly identify Geico’s brand with any of the three main representatives.  Some prefer Mallord.  Others like the cavemen or Kash.  In any case, the Geico brand is well known across the country.

Geico’s recent rollout of their Glove Box application is another indicator that the company has its finger on the pulse of the public.  It is especially noteworthy that the application is available to non-Geico customers for free.  The use of iPhones to run sophisticated applications is the new cutting edge of technological advancement for the common person.  Geico’s decision to leverage this phenomenon shows that they are current in their efforts to promote their company and build those important relationships with consumers.

References

Balber C 2007515 15 Years of Auto Insurance regulation has reduced CA premiums, while rates increased 47% nationwide)Balber, C. (2007, May 15). 15 Years of Auto Insurance regulation has reduced CA premiums, while rates increased 47% nationwide. Retrieved from http://www.consumerwatchdog.org/insurance/articles/?storyId=18988

Butcher D 20091216 GEICO turns to iPhone app for brand-building)Butcher, D. (2009, December 16). GEICO turns to iPhone app for brand-building. Retrieved from http://www.mobilemarketer.com/cms/news/content/4878.html(Cummings D 20071010 Final Auto Insurance Regulations contain significant loopholes and lack adequate consumer protections)Cummings, D. (2007, October 10). Final Auto Insurance Regulations contain significant loopholes and lack adequate consumer protections. Retrieved from http://www.uspirg.org/newsroom/financial/financial-privacy–security-news/final-auto-insurance-regulations-contain-significant-loopholes-and-lack-adequate-consumer-protections

Geico 2010 Geico’s story from the beginning)Geico. (2010). Geico’s story from the beginning. Retrieved from http://www.geico.com/about/corporate/history-the-full-story/

Holm E 20091015 Geico finding limits of internet sales)Holm, E. (2009, October 15). Geico finding limits of internet sales. Retrieved from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a34XZhEg8QXM