About Me

John Fahy is the Professor of Marketing in the University of Limerick and Adjunct Professor of Marketing at the University of Adelaide. He is an award winning author and speaker on marketing issues around the world.

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Tuesday
Feb012011

VHI's Own Goal

When it comes to the Christmas festivities, it is generally accepted that marketing people can party with the best. But one can only speculate that the marketing staff at the VHI were still in recovery mode when the health insurer announced on January 6 that it was raising the prices of its product range by between 15% and 45%. You read that right – 45%

As all students of marketing know, price is one of the venerable 4Ps. So one has to assume that the marketers at VHI had some input into the decision. What were they thinking? Having a price premium over your competitors, even a relatively small one, is only justified if you are delivering a superior level of value to your customer. For a 50 percent premium, you need to be Apple! Unfortunately in health insurance, differential levels of value are not obvious and consumers tend to choose suppliers based solely on price. And this is not good news for the VHI.

Of course the company will be able to come with lots of reasons why it should implement these price increases such as its poor financial position, the rising cost of claims, the increased costs of hospital services, etc., etc. But unfortunately for them, the customer will not be able to think of any reason why she should accept them. As a result, the likely impact of this decision is entirely predictable. Customers will dessert in droves as would appear to be already doing. A call to the VHI is now met with the message that ‘our lines are very busy’. I doubt it’s people calling them up to tell them what a good idea the increases are.

In time this ‘strategic’ decision will be seen as a very poor one. It gives customers an obvious reason to leave and competitors a reason to be cheerful even to the extent of lifting their own prices as Aviva has recently done. The VHI’s financial position will worsen and forces outside the company’s control will be blamed. As ever, the answer is a little closer to home.

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