Progressive 2006 Annual Report Download - page 13

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which in combination with our acquisition skill, provides for very
exciting growth potential.
We believe we get many benefits by being a pure-play in auto in-
surance and have no plans to deviate from that course, but we are
also aware of consumer needs for other products and the retention
differences that come as a result of having multiple relationships with
the same customer. During the year, we introduced a Progressive-
underwritten Personal Umbrella product in our Agency Business and
entered into a joint marketing relationship with Homesite Insurance
Group for Agency and Direct Business customers interested in a
homeowners policy. The economic contribution of these ventures to
date is far too small for comment, but both represent additional
efforts to strengthen our ability to meet long-term customer needs.
Our Gainshare measure, highlighted last year as our way to cali-
brate the business gain made in any calendar year, for 2007 will reflect
our internal emphasis on retention and the customer. The general
construct remains the same, but two important tuning changes have
been made. Growth, and our stated goal to profitably grow as fast as
possible, will be calibrated for Gainshare in terms of number of poli-
cies rather than in just dollar terms— a simple change intended to
reinforce the importance of every customer interaction. We will also
begin to disaggregate new and renewal policy populations and focus
on the growth of each, with a weighting between the two reflective
of the importance of the cultural shift toward increased retention of
current customers. The loss of a current customer replaced with a
new customer, while a numerical offset, is not a brand or economic
offset we are happy with.
In about the last 20-some years, Progressive has doubled in size
five times— each doubling more challenging than the last. During
2006, we blueprinted the plan for our next doubling incorporating
many of the issues touched on above. While we are cognizant of our
size, market conditions and the strength of competition, we are
confident a Progressive of twice our current size can be a very real
outcome with quality execution on our challenges.
Retention I have reported on retention activities and their importance
for some time, and we have had some successes at improving in-
ternal processes and eliminating what last year I called “friendly fire.”
That said, we have yet to make substantial progress in moving our
retention measures and now realize additional root cause issues exist.
To quantify how we are doing on customer focus and retention
efforts, we rolled out a companywide deployment of a “Net Promoter
Score” in 2006. Underlying this concept is our belief that the strength
of response to a single question, “How likely is it that you would
recommend insurance from Progressive to a friend or colleague?,” can
provide substantial amounts of information about those consumers
who identify themselves as promoters, detractors or simply indiffer-
ent. A referral, or willingness to refer, speaks volumes about an
individual’s attitude toward the company. When further sliced and
diced to every possible consumer grouping, and correlated with the
multitude of customer experiences we provide, this knowledge
trumps the array of inconsistent and often annoying consumer
surveys that preceded it. Moreover, it has created a companywide
customer measure that has quickly taken on the importance of other
key cultural imperatives. We no longer debate the academic pros and
cons of internal and external survey data. Rather, we are committed
to maximizing the benefits from this singular approach. From what
we have seen so far, this is more than an interesting cosmetic meas-
ure; this is something that contributes to a marketing culture.
It is not an unfair characterization to suggest that Progressive’s
culture and business practices, in part, reflect our beginnings
and history as an acquirer of new customers with relatively short
tenure. Transforming our focus to build on that acquisition culture
and more effectively blend it with the necessary changes to retain
customers for more of their insurable lives is proving to be more
than just a subtle change. By our best estimates, Progressive has
acquired more new customers per year than any auto insurer in
recent years. Marketing to our existing customers, done well by
many of our competitors, is an area of exponential internal attention,
Make car insurance simple
in the eyes of the customer.