MMK101: Marketing Strategy - Market Environment Analysis - Business Report Assessment Answers

• Background summary of part 1

We have seen from the market analysis in that travel insurance is a relatively new insurance product – compared to other insurance products. On the other hand, reports indicate that travel and tourism are growing considerably. The growth in tourism related travel is a relevant factor for Medibank since it provides justification for providing travel insurance products. From the analysis, it is evident that there are various reasons that would make a customer purchase travel insurance. Medical emergencies, trip cancellations and loss of personal belongings are just some of the reasons that would make a client consider getting their travel covered. Unfortunately for Medibank, they are not the only company willing to insure people's travels; a dozen other companies are already in the market offering stiff competition. Medibank has the advantage of an existing client base who have been receiving other insurance services from the company. The macro environment in which Medibank operates is quite diverse. Economic, demographic and technological factors in the industry-wide environment significantly shapes the choices that consumers of insurance products are likely to make (Huber, Gatzert & Schmeiser 2015).

• Products and services

Medibank currently has a number of insurance products in its services portfolio. Travel insurance is among the products that the company offers. Before the introduction of travel insurance, the company had already been offering health cover and other products. They have an already established customer base of clients who purchase other insurance products from them. There are several other companies in Australia who are currently offering travel insurance or similar covers. Unfortunately, Medibank has a lower market share compared to these competitors. The company is seeking to reorganise its travel insurance package to compete efficiently with the rest of the company in the market.

The company currently has three main travel insurance packages: medical-only cover for single trips, comprehensive single trip cover and a comprehensive annual cover for multiple journeys. The medical-only single trip plan covers medical needs that may arise to a traveller during a trip. It is purchased afresh for every individual trip that the customer will make. It is an affordable and convenient plan to travellers who would like to have their medical expenses catered for while travelling. This plan is available for both domestic and international travel. However, you will only be covered for a period not exceeding twelve months from the onset of the illness.

The other plan is the comprehensive single trip cover which ensures the client and their valuables the entire duration of a single trip. It is offered in business, recreation and sports related travel and is on both international and domestic travel. Electronics such as cameras are covered for up to $8,000. Precisely, the plan insures the traveller against cancellations, medical emergencies and loss of valuable personal items. The comprehensive annual cover for multiple journeys insures the client against medical emergencies, loss of valuables and cancellations for all trips made within the year. The plan is available on only international travel.

• Services included in the travel insurance plans

• Unlimited flight cancellation cover

Flight cancellation can be a nightmare – first, the thought of not reaching your destination as planned is stressful. Then, consider the financial loss incurred by having to lose a good percentage, or all, of your airfare. If you are a regular traveller, this situation makes a lot of sense. There are an uncountable number of events that can occur and prevent you from flying as scheduled. In some instances, the emergency could occur early enough such that you can successfully reschedule your flight upon consultation with your provider. In other instances, the emergency may occur so late that it will not be possible to reschedule the flight without incurring a loss on the fare. Whatever the case, flight cancellations are some of the worst frustrations experienced by travellers (Mao et al. 2015). Therefore, we can see that the need to get air travels covered exists. The current air travel cover offered by Medibank is unlimited except that reduced limits may apply to customers older than seventy years.

• Unlimited overseas medical cover

Medical cover in any of the three packages described above includes medical treatment and medical evacuation. As previously mentioned, this cover may apply certain limitations to patients who are aged over seventy. Also, the cover lasts a maximum of twelve months from the onset of the illness. Many companies have not been offering medical evacuation insurance (McCollum et al. 2013) since responding to this type of emergency is very costly. With this fact in mind, medical evacuation could be the difference factor in marketing its medical insurance plans.

• Cover for pre-existing medical conditions

All the medical insurance plans by Medibank include a cover against known medical conditions such as diabetes and asthma. Most insurers would avoid covering well known risks such as these ones (Embrechts, Kluppelberg & Mikosch 2013). However, Medibank took the bold step to include a cover for pre-existing medical conditions. With this service in place, clients who are ineligible for normal travel insurance plans can purchase this cover. This broadens the client base for the product. However, there are a few conditions that cannot be covered. Some of the medical conditions are automatically covered while some may need prior assessment to determine their eligibility and amount of premiums they should attract. Also, travelers under sixty years of age who have a history of a heart or lung condition require assessment before purchasing an appropriate cover.

• Cover for winter sports

All the three travel insurance plans offered by Medibank include coverage for accidents occurring specifically from winter sporting activities. A study conducted by Weber et al. (2015) showed that at least 42% of people involved in skiing and snowboarding accidents required a high rate of emergency surgery procedures. We can remember that Medibank offers medical evacuation insurance which can be of great significance to patients involved in such accidents resulting from winter sports. This cover and the medical evacuation plan just complement each other and is likely to give Medibank an edge since it presents a more comprehensive medical cover solution to such situations.

• Cover for cruise travel

Medibank provides a medical cover with all the features described above to passengers travelling on cruise ships. Customers subscribed to the package are entitled to medical attention as well as air ambulance evacuation.

• Cover for children and grandchildren

If you are travelling with your children or grandchildren who are aged below twenty one, you can obtain a travel insurance plan from Medibank. This comes automatically with a subscription to any one of the three main plans.

• Pricing

Although pricing might not be the single most important factor influencing customers' decisions on buying insurance plans, it should be designed to fit the target customers. The pricing should be done right – which does not necessarily mean that it should be made affordable. Furthermore, the pricing of the insurance products should sound reasonable to potential customers. An appropriate pricing model will be value-based. Studies have shown that value-based insurance plans attract stricter adherence to paying premiums by customers than those plans based on the cost of the cover. Customers are more likely to purchase a plan whose price they can obviously see as being equivalent to its value on them.

Based on these considerations, I would recommend that more emphasis be placed on the single trip insurance plans which include the medical-only and the single trip comprehensive insurance. These two plans, especially the comprehensive single trip plan, cover a broader client base. From a layman's view, this package looks like it gives the best value for its price tag. There are obviously more infrequent travellers than regular ones. Therefore, a focus on this category of customers is more likely to produce better marketing results. If we then focus on this class of travellers in isolation, pricing becomes one of the most important factors that would influence a potential customer to buy a plan.

The potential customers for this plan are mostly casual travellers who probably do not give much attention to getting covered. A price that they can consider “cheap” would therefore be appropriate for them. Such customers are likely to be bothered by a price that seems to compete with the travel costs. For them, insurance cover might not be a priority that much. As such, it would be important to review the pricing for this particular product to ensure it is agreeable with the potential customers' priorities. This agreeable price can be achieved without compromising profitability by limiting the extent of events covered by this plan. For example, we could strip air ambulance services from the plan to make it more affordable.

Pricing for the “medical-only” plan could be simpler than the rest because it exhibits a direct relationship between its price and the value. This plan covers only a limited part of any customer's emergencies – which is medical emergencies. Hence, even customers with little knowledge of insurance products are likely to relate the premium they will pay with the value they will get. Value-based insurance design has been shown to be very effective in marketing insurance products (Mahoney et al. 2013). I would therefore recommend that pricing for this particular product correspond with the extent of events it covers. Unlike pricing for the medical-only plan, we do not need to limit the events covered to fit the agreed final price since, whatever the case, there will always remain a reasonable correspondence between the price of the plan and the value it offers: if we add value, we increase the price; and the reverse applies too.

Finally, the pricing strategy for the comprehensive annual multi-trip plan would have to be based on numerous factors. These factors are particularly those that relate to the socio-economic background of the potential customers. The potential customers for this plan are likely to be business class travellers and regular luxury travellers. This type of customers would determine which plan to buy by evaluating the value of the plan regardless of the price. In other words, value is more important to them than price is. Furthermore, these frequent travellers have the feeling that they are exposed to more travel related risks than average. Therefore, for most of them, getting an appropriately-valued insurance plan would be of high priority. Then, if they determine their choices by presumably evaluating the value of the plan only, pricing the plan should not be confusing. The pricing of this plan should be determined mainly by the cost of servicing a potential claim. We can therefore assess how to attain maximum profitability by pricing the plan as a premium product.

• Place and distribution

Appropriate distribution of Medibank's insurance products should form a central part of the marketing strategy. We can see that the products are great; but to generate revenue from them, they must be distributed through appropriate channels and located in the right places. This will ensure that customers looking for a suitable travel insurance plan can find one of their plans. Appropriate distribution will also make these products available for assessment by potential customers who have not yet determined if they need a travel cover in the first place (Alon, Jaffe & Vianelli 2003). Therefore, placement and distribution of Medibank's insurance plans is an important element in ensuring that the company's ventures remain profitable.

Based on this background information, it follows that the three main travel insurance plans offered by Medibank will have to be distributed through different channels to different destinations to get the right audience. It is worth recollecting that the purpose of distribution and placement is to avail the products to those who are already looking for them; and presenting the products for assessment by those undecided on purchasing them. The following distribution channels are therefore appropriate in availing Medibank's insurance products to its potential customers.

• Trade-specific agents

Trade-specific agents, in this context, are enterprises engaging in any business other than insurance; that can be used to sell Medibank's insurance products on their behalf. Specifically, the agents who can be used in this case are medical service providers and travel agents. When a traveller goes to reserve a holiday package through a travel agent, Medibank's travel insurance can be suggested for inclusion into the package. This channel will work best for the medical only and comprehensive single trip plans since they are more suitable for casual travellers. However, the channel is not suitable for the premium comprehensive annual plan since its potential clients would need more convincing than just casual suggestions. We must remember that even if the agents get their cut from each plan they sell, their main business is not insurance; therefore, they cannot place Medibank's priorities over theirs (Schwarcz & Siegelman 2015).

• Online distribution

We can distribute all of the products offered through online platforms. These online channels include the company's portal and other portals which could be paid advertisers. In either case, availing the products online is likely to facilitate their reach by millions of potential customers. Online platforms have shown great success in many other industries. Online distribution has been noted as an emerging trend in the travel and tourism industry (Thakran & Verma 2013). I believe that it can be applied in this context a well since there are numerous similarities in the socio-economic and demographic backgrounds of the customers in both situations.

• Direct marketing

This channel will be particularly useful in distributing the premium annual package. Potential customers for this plan are people who would be more concerned with the value they will be getting from the cover. Hence, constant assurance through directed communication from Medibank will be necessary for this particular target group. Direct marketing could be used to distribute the other two plans but it is more relevant in the annual package than any other. Concerned customers are likely to respond positively to direct marketing channels (Kacen, Hess & Chiang 2013).

• Promotional mix

After determining the pricing and distribution strategies, we must come up with the appropriate promotional mix to promote the products that the company offers. An appropriate mix to promote the three main products offered would include building corporate image campaigns, advertising and product placement. Other elements of the promotional mix could work as well but for this case, I find this mix to be the most suitable. Corporate image campaigns would be very useful in promoting the premium package as the potential customers for this plan are likely corporate customers. Placing the products in appropriate travel and tourism shows can be used to promote them on those platforms.

• Conclusions and implication for company

The marketing strategy identified above has the potential to get Medibank's travel insurance selling more and levelling competition. The pricing strategies identified for each product are likely to attract the potential customers who would be greatly bothered by prices. At the same time, the pricing strategies would ensure maximum profitability from the premium annual insurance plan. The distribution channels identified would ensure that the products are available to both high potential and undecided customers as well which will broaden the client base. The promotional strategies described are sufficient to raise awareness of the products and create the right perceptions in the potential customer's minds. If these recommendations are adopted by Medibank, the company is very likely to increase the sale of its travel insurance products and level the industry competition.