It is probably little surprise to anyone who watches TV, listens to the radio, goes to sporting events, travels on public transportation or surfs the web to see Geico as the leading advertiser among auto insurers in the US. The infamous little lizard is everywhere! However, would you guess Geico spends almost 25% more than the next competitor? This includes the aggressive marketing machine of Progressive and other large auto insurers such as State Farm and Allstate. Geico as reported by the Insurance Journal with the research conducted by data provider SNL Financial, reported Geico spent $994 million on advertising in 2011, which almost doubles the $536 million Progressive spent in the same year.
Geico’s advertising leverage
The business model of Geico has been the major reason for allowing the Berkshire Hathaway company to invest profits back into the business. Geico’s overhead is much lower when you compare to insurers such as State Farm and Allstate who have a higher number of physical offices and field agents that carry a greater fixed cost. Geico has done an excellent job of leveraging technology to get more from their resources. The customer service for existing clients and signing up new customers is a lean process where limited cost are applied to serving a large number of motorist on the phone or over the internet. This direct model has enabled Geico plenty of extra cash to barrage the market with the Geico image as well as provide competitive pricing to attract new customers.
Has advertising paid off for Geico?
Over the last 20 years the market share of Geico has almost quadrupled. It is obvious all of the advertising being done by Geico is bearing fruit. It is scary to think how lower our car insurance prices would drop if all of these insurers were not spending so much on advertising. Geico has done an excellent job of maintaining competitive prices while also being the 1000 pound gorilla in the car insurance advertising space. If Geico can continue to keep pricing on level with the competition and spend almost 25% more on advertising they will continue to be in excellent position to take market share.
What should we expect going forward?
The explosive market share growth has certainly widened the eyes of Geico’s competitors. Allstate, who mostly provides support from local office agents made a stride to a direct model in 2011. By purchasing Esurance in May 2011 from White Mountains Allstate added a strong presence online where they can go directly to potential customers. It is likely we will continue to see the leveraging of technology to build a competitive advantage and insurers not adopting quickly will certainly pay the price. Whether we are sick and tired or enjoy seeing the Gecko and caveman we likely will continue to see the familiar images on our favorite TV show or while following our sports teams.
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