In March and April of this year, some of the biggest online travel agencies (OTAs) cut their flight booking fees. The booking fee changes were largely a response to competitive pressures: why would a consumer pay a fee on an OTA site when the same flight is available at the same price on the airline site without a fee? Moreover, Priceline has been operating without flight booking fees since the summer of 2007. Compete leveraged behavioral data from its panel of millions of US consumers to examine who wins and who loses in a world without flight bookings fees.

The short answer is that the impact was strong, immediate, and beneficial for the OTAs. Moreover, Orbitz, the OTA most reliant on flight booking fees, has generated impressive improvements in flight bookers and flight booking efficiency since dropping its booking fees on April 7th.

The above shows the top OTA’s monthly share of flight bookers for the period from just before the booking fee changes were announced through June 2009. The top OTA’s share of flight bookers (which peaked at 36% in early 2006) rebounded 7 points from January 2009 to June 2009.

Year-over-year growth in flight shoppers and flight bookers (below) for Q2 2009 (i.e. the change in flight shoppers and flight bookers from Q2 2008 to Q2 2009) for three top OTAs. Travelocity, and Orbitz have experienced significant declines in flight shoppers resulting from the economy-driven cutback in travel shopping as well as a loss of shopper share to the airline sites. Expedia’s quarterly traffic was only down 7.5% year-over-year after a big jump in June flight traffic.

But look at Orbitz booker growth. Compete’s data shows a 22% year-over-year increase in Q2 flight bookers for Orbitz despite the 24% decline in flight shoppers. In the period from March 2008 through March 2009 (the year prior to dropping the flight booking fee), Orbitz saw year-over-year declines in flight bookers of 17% in an average month.

Orbitz is growing its number of bookers by better leveraging the traffic it already has. Figure 3 shows booking rates (the % of site flight path visitors who book a flight in the same month) for the 3 biggest traditional OTAs. Compared to Q2 2008, Orbitz booking rate is up 61% to 7.3% while Expedia’s very respectable improvement is only a 17% gain from Q2 2008.

Orbitz has thrown down the gauntlet to its OTA competitors and demonstrated that it remains a player in flight. However, Orbitz (and the other OTAs) face a couple challenges:

1. Addressing Barriers to Booking at an OTA. OTAs need to understand and respond to consumers’ motivations for booking on airline sites. Behaviorally-targeted surveys are an opportunity to discover preferences and attitudes among a group of consumers who, for example, Compete observed shopping at an OTA for a flight but booking at an airline site.
2. Adapt to Airlines Marketing Tactics. Dropping OTA flight booking fees are likely to produce a strong response from the airlines. United’s plan to have some agencies pay the airline’s credit card fees on flights they book may be the first response by the airlines. OTAs need to closely monitor and benchmark their traffic and conversion against the other OTAs and airline sites.

Note: The Expedia numbers in Figures 2 and 3 have been updated to reflect a change in Compete’s calculation of Expedia flight traffic. Please see the comments below for more details

How bad is the economy and what does that mean for consumer-facing financial firms looking for growth? On the surface, the news isn’t good. 46% of consumers say that their financial situation has deteriorated in the past 12 months. While we would expect wealthier consumers to be faring better than others, the data suggest the relationship is not linear. Consumers with under $25K in total investable assets (“Mass Market”) are indeed the most likely to say their financial condition has worsened. However, the core group of mass affluent consumers – those with $100K-$499K in investable assets – are the least likely to report an improvement in their financial condition.

Who are the mass affluent and what does this finding mean? The anxiety of the mass affluent is driven by their life stage and lifestyle:

• 62% of the mass affluent are between 45 and 65 years old. 23% of them say they are retired.
• The mass affluent are savers and investors. 38% of them save $500 or more each month, 56% of them have a brokerage account, and 79% have an IRA or other retirement account.
• The mass affluent are getting hit harder by declining home values. 36% of them report that the value of their home has declined sharply compared to only 23% among all consumers.
• The mass affluent are retiring regardless of economic conditions. While 12% of the younger pre-affluent group (with between $25K-$99K in investable assets) say they are delaying retirement because of their financial situation, only 2% of the mass affluent plan to delay retirement.
• The mass affluent aren’t cutting back their spending. Only 20% of the mass affluent say their spending has decreased in the past 12 months, compared to 28% of all consumers.

Are these factors important for driving uptake on financial products? Absolutely! The Mass Affluent remain the most likely to be in market for a variety of products. 54% of them have shopped for a financial product in the past 12 months. 31% shopped for a credit card in the past 12 months v. 19% for all consumers.

Moreover, the needs of the mass affluent are becoming more urgent for a few financial products. They are equally or more likely to open several types of accounts than they were 12 months ago, particularly home equity and brokerage/investment accounts.

What this means for financial firms is that despite consumers’ negative feelings about their financial condition, many consumers are still planning for the future, managing their debt and spending and continuing to save and invest.

I recently had the opportunity to interview Jon Swallen, SVP of Research for TNS Media Intelligence, about his thoughts on the auto insurance market. Jon has more than 25 years of experience in the media research industry. For the past 5 years, he’s been responsible for mining the TNS-MI database of ad spend activity and extracting insights on key market segments, including auto insurance. Prior to joining TNS-MI, Jon held the title of Director of Media Knowledge at Universal McCann. His career in the industry also included various media research positions at Ogilvy & Mather and Grey Advertising.

Where is the growth in auto insurance? Are there consumer segments that will be the growth market for auto insurers in the coming year or two?

Growth of the auto insurance market is tied to the number of insured vehicles and the levels of coverage sold. Motor vehicle registrations, a key metric for the available pool of insured vehicles, have been flat for several years. The average age of vehicles on the road continues to tick upward and the corresponding depreciation in their value can eventually lead policy holders to cut back on non-mandatory collision and/or comprehensive coverage. These factors limit market growth potential in the core, private passenger vehicle segment and have led insurance companies to expand their sales efforts against faster-growing specialty segments, including motorcycles, RVs, ATVs and watercraft. But these are – and will remain – much smaller business opportunities as compared to the traditional market for auto coverage.

As overall category growth rates have slowed, the battle for market share has become more intense and marketing activity has escalated, especially among the well-funded leading brands. There are some fundamental and enduring reasons behind these developments. It’s a fragmented market with 80 percent of the premiums distributed across the Top 25 underwriters. Insurers compete for the same pool of profitable, preferred-risk drivers. A short purchase cycle (polices are typically written for 6-12 month periods) forces customers back into the market at regular intervals. Annual customer churn rates of 10+ percent across the industry – equivalent to over $15 billion of policy premiums – encourage companies to pursue twin strategies of customer retention and acquisition.

That last point is significant. Given the common practice of bundling auto with other insurance (e.g., homeowners coverage), the financial value of policy churn is multiplied. Every insurance underwriter attempts to increase its customer retention rate while concurrently increasing its new customer win rate. That’s how you build share. But to have a chance at the win, you first need to get prospects to shop your brand. A classic role for marketing.

If you’re looking for insight about the consumer segments which auto insurance companies have identified as worth targeting, look at the evolution of ad message content over the past 1-2 years from the leading marketers. You’ll see evidence of increased targeting towards ethnic groups (African-American, Latino) and women.

There has been a huge increase in ad spend over the past 5 years. Will that trend continue? If not, how do you see advertising strategy changing for insurers?

Over the past few years, ad spend on auto insurance has increased at an annual rate of 31%. Back in 2003, it was a $600 million ad category. Last year, a $1.77 billion category.

Obviously, these growth rates are not sustainable. In fact, the 2007 growth rate was just 13% (representing an increase of $200 million in ad spend) and in Q1 ’08 it slowed to 7%.

Continue reading “State of the Auto Insurance Market: An Interview with Jon Swallen of TNS Media Intelligence” »

In March, Progressive and the X PRIZE Foundation announced that Progressive is the corporate sponsor for the Automotive X PRIZE (now known as the Progressive Insurance Automotive X PRIZE). The Automotive X PRIZE offers $10M to the team that can win a cross-country race in a vehicle with limited emissions while achieving at least 100mpg. It sounds like Progressive is funding the $10M prize, although it’s unclear whether that is the extent of their investment.

While the X PRIZE is certainly a noble pursuit, will it help Progressive’s shareholders? One stock blogger sees the X PRIZE as a move to keep people driving in an era of expensive oil. It could also be viewed as an opportunity to capture the imaginations of environmentally-conscious “green” consumers.

Looking at the past year, Progressive.com traffic is above its 12-month average, but has been flat in the period since the X PRIZE sponsorship was announced. Referrals to Progressive.com based on X PRIZE related searches have been minimal. I could only find one X PRIZE related search term driving measurable traffic to the site – and it was ranked 139 among all search terms referring traffic to Progressive.com.

In fact, 54% of the traffic related to X PRIZE searches go to either XPRIZE.org or Wikipedia (below are the top 5 destinations for the term).

1. xprize.org
2. wikipedia.org
3. thetruthaboutcars.com
4. progressiveautoxprize.org
5. googlelunarxprize.org

More importantly, from February 2008 to March 2008, Compete data indicates a drop-off in prospect traffic of 17%. Combine flat traffic with a decline in prospects and my conclusion would be that Progressive is seeing an overall decline in serious auto insurance shoppers at Progressive.com.

I can certainly buy the hypothesis that in the long-run there are benefits to Progressive from the sponsorship. However, there doesn’t appear to be an immediate payoff in terms of traffic, quotes, or business.

Most major advertisers have become pretty good at SEO. So, once you have wrung out all the benefits from search optimization, what’s next? How about targeting your message to the right group of consumers at the right time in the right place? That is the principal behind segment-driven marketing.

Compete recently fielded a survey to marketers to see how they are utilizing target segments in their marketing efforts. Overall, the results show that the majority of companies using segment-driven strategies are focusing their segmentation efforts in online and search engine marketing activities.

But there still remains a significant opportunity to improve ROI on web-based advertising by understanding how to use segment-driven marketing more effectively. Some highlights from the survey include:

• 92% of respondents say they are using segments to manage their online advertising and/or search marketing
• 84% of respondents indicate that segment-driven marketing will be more important in their organization in three years (only 39% say it is very important now)
• 76% of respondents say that their segment-driven strategy will be ahead of their competitors in three years

…But returns from segment-driven marketing have been elusive

• 77% of respondents are having trouble demonstrating real business results (i.e. improvements in market share or share of wallet) from segment-driven marketing
• 27% of respondents aren’t seeing improved marketing results from their segment-driven marketing efforts
• Among our respondents, the most consistent obstacle to successful segment-driven marketing has been identifying the right segments

What is Compete’s take on improving segment-driven marketing? Glad you asked. As companies look to get more bang for their online ad buck, we recommend advertisers avoid pursuing the “average” online consumer by initiating more data-oriented, segment-driven marketing strategies.

If you want to learn more about segment-driven marketing, check out a recent webinar led by our CMO, Stephen DiMarco, where he gives real-life examples of successful segment-driven marketing opportunities. And as always, we’re happy to help

The first of the baby boomers (born 1946-1964) registered for Social Security in October 2007. Over the next two decades, the boomers will retire, and the fight is on for their retirement savings. Financial Services researcher Cerulli Associates projects new IRA rollover contributions will increase from about $300M per year now to over $400M per year in 2012.

Over the coming decade or two, there will be trillions of potential rollover dollars in play for the investment industry. Employees hold almost $7 trillion in 401k, 403b, private pensions, and other employer-sponsored retirement accounts. Boomers’ money in these plans has to roll somewhere as the boomers retire and leave the labor force.

Companies offering IRAs, including investment firms, banks, and insurers, will rake in new accounts and assets from the flood of rollover money. The battle for share of online rollover dollars is up-for-grabs.

Table 1 shows the top sites receiving referrals from key search terms like “401k rollover,” “rollover IRA,” and “IRA rollover.”

Two key takeaways from these data:

• Informational sites dominate. Consumers are seeking help in understanding their options from sites with strong investment content, including investopedia.com and about.com.
• Only 3 financial services firms – T. Rowe Price, Bank of America, and Fidelity Investments – are ranked among the top 10 for any of the search terms (we can add TD Ameritrade to the list if we expand the search terms to include “IRA” without the term “rollover”).
  • The implication is that investment providers’ paid search campaigns are not particularly effective at driving site traffic.

In terms of assets, Fidelity is the current leader in the IRA space with $539B; Charles Schwab and Wachovia are distant runner-ups. Schwab is on the radar for online referrals, showing up in the top 20 for all the search terms above. Wachovia, however, appears to be bypassing online IRA advertising entirely – likely a strategic move consistent with their model.

I would hypothesize that scalability is going to be the biggest obstacle for investment providers as millions of boomers move out of the workforce. The online channel is central to growing a scalable retirement business and these preliminary data suggest a tremendous opportunity for the first investment provider who develops an effective and efficient online go-to-market strategy.