How brand-building pays off in higher premiums

by Nigel Hollis | December 19, 2018

A couple of weeks ago, I posted the example of how Direct Line Insurance improved its differentiation and grew sales, but there is an even more interesting example of brand-building detailed in the IPA case study. It demonstrates that even when price is compared directly people will still pay more for a well-known brand.

At the end of 2009 The Direct Line Group took Privilege Insurance, a previously heavily-advertised brand, and stopped supporting it; repurposing the brand as a low-priced option on price comparison websites. As the IPA paper notes, what happens next gives a good indication of the consequences of reducing marketing investment. Looking at the BrandZ database there is a steady fall in predisposition to choose Privilege from 2009 onwards. By 2012 the proportion of people claiming to have chosen Privilege last was a third of what it had been in 2009. This alone might be taken as proof that brand-building matters, but there is more to this example than just the decline in volume sales.

When people shop for insurance using price comparison websites options are ranked by price, the more competitive the price the better the ranking and the higher the click-through rate for quotes. It is the ultimate level playing field; all brands get a chance of being considered provided they offer a good price. However, as the IPA paper documents the interesting thing is that people do not always go with the cheapest quote. For any price rank position Privilege underperforms its sibling brand Churchill by about a third.

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As the paper notes, this differential cannot be explained by brand experience because Churchill and Privilege are supported by the same contact centres and have similar satisfaction and complaint rates, rather, it is the payoff from above the line advertising. The IPA paper concludes that the investment in above the line support was well worth it,

“Of Churchill's PCW sales, 37% can be attributed to our brand advantage and a further 5% can be attributed to short-term impact of above-the-line marketing. A small nudge from brand preference can have a disproportionately large effect. Our analysis suggests that if a consumer is willing to pay a premium for a brand, the most they will tolerate is typically in the £10-£20 range.”

The fundamental difference between Privilege and Churchill is that the latter is simply a stronger brand. When we last compared the two in BrandZ in 2012, Churchill was better differentiated and much more likely to be trusted than Privilege. As a result, our data predicted that, based on attitudes alone, Churchill ought to be able to support a higher price premium than Privilege, something which the IPA paper later confirmed.

I see this example to be proof that building positive brand attitudes through advertising still has an important role to play in today’s more price competitive world, but what do you think? Please share your thoughts.

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