Company Case: Jefferson- Pilot Financial: Growing the Sales Force
AFTER THE MEETING:
On a hot Friday afternoon in July, Bob Powell and John Knowles walked across a parking lot towards Bob’s car. They had just finished a two- day strategic planning meeting with other members of Jefferson- Pilot Financials (JPF) Independent Marketing channel at the Grandover Resort and Conference Hotel just outside Greensboro, North Carolina. The group had gathered to develop the sales goals it wanted to achieve in the next two and a half years, to identify strategic projects it needed to accomplish to meet those goals, and to assign responsibility for each project.
Wow, it’s going to be hot in your car, John noted. John served as Vice President for Independent Marketing and Bob was Senior Vice President.
Especially after sitting in that air- conditioned room for two days, Bob responded. But, I’m glad were riding together. This’ll give us a few minutes to talk about the sales force strategy project the group assigned us.
JEFFERSON- PILOT FINANCIAL:
Jefferson- Pilot Corporation (JP), a holding company, was one of the nations largest shareholder- owned life insurance companies. Jefferson- Pilots life insurance and annuity businesses, known collectively as Jefferson Pilot Financial (JPF), was comprised principally of Jefferson- Pilot Life Insurance Company, Jefferson Pilot Financial Insurance Company, and Jefferson Pilot Life America Insurance Company. JPF offered full lines of individual and group life insurance products as well as annuity and investment products. Jefferson- Pilot Communications Company, which operated three network television stations and 17 radio stations, produced and syndicated sports programming.
In the previous year, the company amassed $ 3.33 billion in revenues and $ 513 million in net income. JPs Insurance and investment products produced about 84 percent of its net income. JP took pride in its excellent financial ratings, having earned the highest possible financial ratings from A. M. Best, Standard and Poor’s, and Fitch.
Historically, the company generated its individual life insurance sales using a career sales force. The company employed managers to recruit and train life insurance agents, paying the managers commissions based on the insurance premiums their agents generated and an expense allowance to cover their overhead costs. The agents became captive Jefferson Pilot employees who sold only JPs policies.
Like most life insurance companies, the company paid agents on a commission- only basis. The agent earned a commission of 50 to 60 percent of the first- year premium paid by the policyholder. In the following years, the agent earned a much lower commission on annual renewal premiums, usually in the range of three percent. In addition to paying commission, the company provided the career agents with a full range of fringe benefits, such as health insurance, vacation, and sick leave. The individual agent had to pay his/ her own business expenses.
A NEW STRATEGY:
In 1993, JP was a conservative, well- run company. However, the Board of Directors wanted the company to grow more rapidly. The Board brought in a new top- management team and charged the team with speeding up the company’s growth. The new team immediately examined the company’s sales- force strategy. It concluded that although the career sales force had been a valuable asset, the company was not capable of meeting its growth goals using only a career force. It simply took too long to hire and train new agents and bring them up to the necessary productivity levels. Further, industry wide, only about one of every seven or eight recruits actually succeeded in the insurance business.
In addition to career agents, JPF had used some independent agents all along. Independent agents worked for themselves or for independent companies. They, like captive agents, sold life insurance; but they could sell policies offered by a variety of companies. JPF decided to expand it sales force by focusing on the independent agents. It began to recruit these established, experienced independent salespeople, licensing them to sell JPF's policies and encouraging them to do so. Because the agents remained independent, JPF did not have to provide them with typical employee benefits. However, because the independent agents still had to cover these expenses, the company had to pay a higher percentage of first- year premium, usually about 80 percent. The average first- year premium in the independent channel was about $ 5,000. Because there were independent agents located throughout the United States, the company was able to expand more rapidly outside of its traditional Southeastern market area and have agents offering its policies nationwide.
The new focus was extremely successful, and by 1999, the independent channel had become JPF’s primary distribution channel, although the company retained its career agents. In 1999, JPF hired Bob Powell to head the Independent Marketing channel. JPF had begun to recruit not only individual independent agents but also so- called Independent Marketing Organizations (IMO's). An IMO was in the business of serving life insurance agents. IMO’s did not produce or manufacture life- insurance policies; they just served independent life insurance agents. Thus, the insurance company was the manufacturer; the IMO a wholesaler; and the independent agent the retailer. The IMO represented multiple insurance companies and often had a large staff that helped agents develop customized policies to serve special customer needs.
IMO’s dealt with the insurance companies, talked with underwriters and medical directors, and helped secure the needed life insurance on behalf of the agent’s client. This allowed the agents to sell policies without having to worry about the massive amounts of paperwork and administrative details that someone had to perform after an agent made a sale. As a result, the IMO earned an additional fee from the insurance company on policies sold by the agents who worked through it. The insurance company was able to pay this additional fee because the IMO’s performed some functions that the insurance company would have to perform if it sold directly through the agent.
By recruiting IMO’s, JPF was able to bring on more agents more rapidly than it could by having to recruit individual agents. There were also some IMO’s that were recruiting only, that is, they recruited agents but did not provide any of the administrative support for the agents.
Powell and Knowles realized that there was no way JPF could recruit and serve the thousands of IMO’s in the United States from the Greensboro home office. Thus, they began to put together a field sales team. They divided the country into five multi- state regions and, with the help of an Executive Search firm, recruited a Sales Vice President (SVP) for each region.
The SVP's JPF recruited had many years of industry experience with other insurance companies, and several had held similar sales positions with other companies. The SVP’s typically spent several days a week traveling to recruit new IMO’s or to provide training and support for IMO’s with whom JPF had a relationship. They also worked with the IMO’s to resolve policy issuance or customer service problems the IMO’s might have with the home office. The SVP’s were relationship builders. They saw themselves as premium gatherers who wanted to get more shelf space for JPF’s products with each IMO. They wanted to get the IMO’s, their staff, and agents into the JPF culture, make them comfortable doing business with JPF, and make it convenient to do so.
Like the career agents, the SVP’s were JPF employees to whom it paid a small percentage of all the first- year premium dollars generated by JPF policies sold in their territory. Even though the percentage was small, because of the size of their territories, SVP’s could earn a substantial income.
Because the SVP’s put more feet on the street for JPF, and because JPF had very competitive products, policy sales had taken off in the previous year. By the time of this mid- year sales meeting, the IM channel was well ahead of its annual sales targets.
BACK IN THE CAR:
The problem we have, Bob Powell noted, is that we are too successful. We are way ahead of this years targets and you know top management is going to want us to exceed what we do this year next year. And, all of us are working as hard as we can. We can't do more by working any harder. You know that means we will have to add more SVP’s.
That’s right, John Knowles observed, but you saw in the meeting how the five SVP’s reacted when we brought this up. They want to protect and keep all of their territory.
Yes, but we all know that an SVP cant possibly cover eight to twelve states and develop the kinds of IMO relationships we need, Bob answered. I don’t think an SVP can work with more than 30 or so IMO’s. What are we going to do when an SVP gets a full client load? How do we bring on more SVP’s without upsetting the apple cart?
Well, John continued, that brings up the issue of productivity. We have three marketing coordinators now based in Greensboro who work with the SVP’s. However, we don’t have a formal job description for them, and the SVP’s are unhappy that they don’t each have their own coordinator. But you know that in these economic times the company’s reluctant to add more people, more overhead.
I can see that some of our discussions may get as hot as this July weather, Bob laughed.
When I get home, John said, I’m going to dig out the old Kotler / Armstrong marketing textbook I had at Auburn and look back over the chapter on personal selling to see if it’ll remind me of any issues we ought to be considering.
We have a September 30 deadline for our sales force strategy proposals, so wed better get to work, Bob concluded.
Task to do:
Question 1. What are the advantages and disadvantages of using a career sales force versus an independent sales force?
Question 2. What are the advantages and disadvantages of commission only compensation versus salary- only compensation?
Question 3. What problems do you see with JPF’s sales force strategy and structure decisions?
Question 4. What recommendations would you make to JPF to help it deal with these problems?
Source: Officials at Jefferson- Pilot Financial cooperated in development of this case.