When life gives you parity products, make Lemonade

Trivia question for you: What was the first product ever sold online?

The answer, explains Smithsonian Magazine, depends on how you define “sold.” If a legal product and digital payment needn’t be components, then the winner is: weed! If legality matters but funds transfer still doesn’t, then the winner is: groceries! But if you require check marks by both “legal” and “digital payment,” then the winner is: a Sting CD!

My reluctant vote goes to the Sting CD. Reluctant, because weed-as-trailblazer is funnier.

Today, it’s difficult to name a product or service you can’t buy and pay for online. Financial products from banking to insurance have in large measure led the way. (Right behind porn. Like it or not, there’s no arguing the role porn played in helping digital payments take off.)

As online financial services grow in ubiquity, differentiation proves an increasingly difficult challenge. That’s especially true for insurance, which is arguably the quintessential parity product: Give us some money, and if something bad happens, we’ll give you some money. The sameness leaves insurers scrambling to set themselves apart. Geico features Martin, a lovable lizard who, in his inimitable Aussie accent, promises low rates. (Pre-Martin, how many Americans even knew what a gecko was?) Progressive’s spokesperson Flo hawks low rates, too, talking up a website that comparison shops before your eyes. Allstate and Farmers promote easy claims processing, the former with a character personifying mayhem, the latter parading odd claims the company has honored.

In all of the above, product features seem to take a back seat to self-deprecating humor. The advertiser’s goal may be to endear itself by not taking itself too seriously, humanizing an industry typically seen as heartless. (Discussion question: Is Flo endearing or annoying?)

The Lemonade mix

But now there’s a new online insurance company in town, and it has found a way to make lemonade from parity in a new way. I refer to Lemonade, Inc. with its Giveback program. Forbes sums up Lemonade as …

… powered by a unique combination of artificial intelligence and behavioral economics to disrupt the centuries-old insurance industry. It offers homeowners and renters insurance in the U.S., and gives underwriting profits to nonprofits selected by its community during its annual Giveback.

Lemonade cofounders Daniel Schreiber and Shai Wininger come from legal tech backgrounds, not a financial one. Instead of having to drag legacy systems screaming and kicking into the 21st century, they built Lemonade as a digital company from the ground up. PYMNTS.com characterized Lemonade as not “bogged down by outdated systems and processes—and many of the market’s biggest points of frictions can be overcome right from the start.”

Lemonade’s marketing strategy also seeks to endear itself, not by appealing to humor, but rather by appealing to humanity. As quoted in the above-referenced Forbes article, Schreiber said this:

“Lemonade set out to make insurance loveable, but also to transform it from a necessary evil into a social good. We built an unconflicted business model powered by AI and behavioral economics, and invented the Lemonade Giveback, where leftover premiums are donated to charities our customers choose.

The approach seems to be working, for Lemonade is growing. Why the approach is working is not as obvious one might think. Donating a percentage of sales to charity can make for great PR, less so a sales-booster. And though PYMNTS.com suggests that the Giveback program may reduce “so-called soft fraud, in which a policyholder files a claim for more funds than they actually need,” well, call me cynical, but I think that’s wishful thinking. For what it’s worth, so does Insurance Nerds’s Nick Lamparelli.

But here’s what Giveback definitely does: It removes Lemonade’s incentive to overcharge and to deny claims, thus neutralizing common perceptions of the industry.

For a product category that no one particularly wants but everyone needs, that’s a strategy that could actually prove a game-changer.

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