Setting the wrong expectations with potential customers can backfire
Problem
After realizing that Allstate was being perceived as expensive the company decided to switch its communication strategy from communicating its great coverage and innovative features to communicating that Allstate is affordable. A trick used by insurance companies is to advertise the average savings of the people who switched to the company from other insurance companies. This sets expectations among shoppers that call Allstate expecting big savings. Convinced that this was not a good strategy we needed to demonstrate that such approach would not solve the price perception problem and rather could exacerbate it.
Systems Thinking and Simulation
We developed a dynamic hypothesis and a model explaining the counter intuitive consequence of setting expectations for savings when only a fraction of those quoting Allstate would actually get a lower price than their current insurance company:
Advertising average savings increases the amount of people quoting Allstate expecting big savings. Many of those who do get a lower price end up buying an insurance policy (new item in force –IIF). This was expected and it was the basis for the decision to switch to an affordability communication strategy. The problem comes from the majority that does not get the big savings they were expecting. These potential customers are motivated to contact Allstate on the basis of a promise for a lower price but the promise is broken creating distrust towards the company. Since Trust and Reputation are the biggest drivers of Consideration in the insurance industry, the company ends up depleting the pool of potential customers that may consider Allstate in the future.
Results
The model allowed us to get a better understanding of the potential problems of advertising the average savings of people who switched to Allstate to change the price perception and helped us discuss alternative strategies.