Reasons to look beyond your industry when marketing your business

OLYMPUS DIGITAL CAMERAWhen evaluating marketing strategy and tactics, executives need to emerge from their silos and seek out and draw analogies from other industries. My latest example of this inter-industry inspirational technique was a set of case studies in my marketing class, where students presented service-related issues encountered by a company or industry. By happenstance, both presentations made last week focused on firms that, following high-profile negative incidents, launched marketing campaigns that sought to bring consumers back to basics. According to the presenters, Carnival Cruise Lines refocused on onboard fun while JetBlue emphasized customer service.

Immediately, I saw applicability to the retirement income industry, particularly the variable annuity industry.

In early 2010, while working at Cerulli Associates, I authored a research report called Evaluating Your Variable Annuity Product Line. Among the findings were that, in the wake of the financial crisis, the industry had entered a period of “stabilization and rationalization” and a return to basics would emerge gradually in the years ahead. These findings met with some controversy, as the prevailing belief was that, despite data to the contrary, the presence of comprehensive guaranteed lifetime withdrawal benefits (GLWBs) increased sales. Yet, let’s fast-forward three-and-a-half years: many insurance companies reduced benefit levels or increased the costs, some discontinued the GLWB, and some firms exited the business altogether.

That said, the annuity industry—primarily the fixed annuity industry, however—has started to return to basics with the introduction of the deferred income annuity (DIA), a lifetime annuity variation that provides an income stream that commences a couple of decades from the time of purchase. Beacon Research estimates that sales of fixed annuity market DIAs have increased during each of the past six quarters, culminating in a 40% increase during second quarter 2013. At the same time, however, several insurers continue to tweak VAs by offering new products in which both parties share any losses the policies might incur. While this makes the VA more palatable (to both consumers and insurers), it is also a complex notion, yet one can argue that it is a way to preserve the traditional function of the GLWB.

While it is too soon to measure the impact of Carnival’s September 2013 campaign, my classmate related that JetBlue had success with its You Above All™ campaign in 2010. Nostalgia? Perhaps. Yet it also showed how companies can, or can hope, to rebound from a disruptive event by returning to their roots.

Learning from sequestration – a case for a base income

A recent article in The New York Times described the human impact of reductions in unemployment compensation due to the federal government’s automatic budget cuts. According to the article, the level of emergency unemployment compensation (EUC)—defined as payments to those who have collected benefits for more than 26 weeks—decreased by nearly 11% effective this week for New Yorkers. (In my state, Massachusetts, EUC reductions will be 12.8% as of the first week of May.) These decreases, which will impact every state to varying degrees, will be in effect through September.

The New York Times profiled two individuals—a GenXer who is a married mom of a 7-month-old child, and a Millennial whose $60,000 per year job vanished nearly a year ago. There was no questioning their fear. How were they going to pay for groceries, for diapers, for medical needs? As one of them put it, “$40 a week adds up.” These are not luxuries; rather, they are basic living expenses.

Their stories got me thinking of parallels to income in retirement.

The key takeaway for me was that, no matter what your age, a base level of income is absolutely critical.

To be clear, there was nothing that long-term unemployed individuals could have done to avert their current financial situations. (Even an emergency fund would have, very likely, run dry by now.)  Yet, this brings to mind something they may be able to rely on later, once they’re able to amass several years’ worth of savings—an income, or immediate, annuity.

Data from the Beacon Research Fixed Annuity Premium Study shows that income annuities are growing in popularity. During 2012, income annuity sales represented 13.8% of total sales of fixed annuities, up from 11.1% in 2011, and sales of the product grew 8.5% year-over-year.  

So, will memories of unemployment be the impetus for even greater consideration of income annuities down the road?  Will Boomers, many of whom are also dealing with extended unemployment, roll over a portion of their 401(k) assets into income annuities? Only time will tell. Speaking for myself (a trailing-edge Boomer), the uncertainties of the financial markets have shown in real terms—not just via conceptual actuarial calculations—the importance of having a base income.

I will be paying close attention.