An Empirical Study on Product Objectives of LIC of India

Author

Abstract

In the present epoch of fierce competition in life insurance market in India the formulation and effective implementation of product strategy has become indispensable. In fact, product strategy is formulated as per the set product objectives. LIC of India being the market leader has its significant product objectives. The present paper is a humble attempt to investigate the product objectives of LIC of India. In order to carry out the research, primary data have been collected with the help of structured questionnaire. A sample size of 107 officials working in Divisional office, Varanasi of LIC of India has been considered by using judgmental sampling. Exploratory factor analysis has been used for the purpose of analysis. The findings of the present study include the product objectives into four factors such as effective product management, strategic approach, societal marketing perspective and legal consideration . It may be noticed that the LIC of India has adopted a proactive approach while setting product objectives. This study provides new theoretical insights pertaining to product objectives of LIC of India which is a market leader throughout the time. The product objectives of LIC of India will provide great help to other life insurers in boosting their market shares and market penetration.

Keywords- Product Objectives, Life Insurance, LIC of India, IRDAI, Competition

Introduction

Strategies are formulated to achieve certain objectives and mission. The objectives are determined initially at the corporate level i.e. by top management after scanning the environmental forces. The organisational objectives include marketing objectives, production objectives, financial objectives, etc. The marketing objectives of any organisation facilitate in setting the product objectives, pricing objectives, distribution objectives and promotional objectives. As per product objectives, the firm takes decisions regarding the kind, width, length, modification, pricing, target market, innovation etc. of the product/product mix. (McCarthy, J.E 1964). Apart from the customer orientation, a better product strategy aims at considering the available company resources. The product objectives of LIC of India have changed with the passage of time because of competition. One of the most fundamental objectives of any organisation is to achieve the predetermined sales target i.e. either in terms of an absolute rupee sales or a definite percentage of market share. (Agrawal, R. 2001). To accomplish such an objective, a firm may continue its existing product line or may introduce new products whether by dropping any existing product or not. In life insurance, the objective of sales growth is also determined in the form of number of policies to be sold and/premium to be collected on monthly basis or yearly basis at headquarter level, then ultimately passes to the branch level. In LIC of India, the same stated objective is determined at corporate office then to Zonal office, Divisional office, Branch office, Development officer and Agents in sequence.

The volatile nature of market because of technological advancement, consumer tastes and preferences, competition and regulatory changes; the products become obsolete in any industry including insurance. In the recent past many of the changes have been made by regulatory body IRDAI in context of product offering viz. lock in period from 3 years to 5 years in ULIPs, return related and service tax by the Government of India. Every product has a limited life which passes through distinct phases of its life cycle: introduction, growth, maturity and decline. Each stage of PLC confronts different responses and forces. At the time of formulating the product strategy, a marketer considers the lengths and character of each phases of product’s life cycle. The profit margins begin to decline after touching the optimum level as the product enters the maturity stage because of stiff competition offered by new players in the industry, frequent price reduction and increased cost of production. The organisation endeavours to introduce the new products to grab such prevailing opportunities.

Literature Review

Ferris et al. (2008) found that having an excellent product development process is an important factor in achieving the consistent, organic, top-line growth that companies are seeking today. They emphasised on product idea initiation and generation- sources for new product ideas, product design and pricing, project management/ product implementation process, product IT infrastructure, and product development assessment. In most of the firms, particularly service organization has eight steps viz. idea generation, idea scanning, concept development and testing, marketing strategy development, business analysis, product development/service development, market testing, and commercialization (Rao,2007). The new product development process begins with the conception of ideas. The ideas may come from the stakeholders of the organization such as customer, channel members, employees, scientists, engineers, marketing agencies, top management, rivals and others. Frylinck, Michael (2012) elaborates about the steps involved, methodology used, challenges faced, product development process, sources of product ideas like inspiration/creative genious, overseas more mature market, competitors’ new products, reinsurers, intermediaries, customer focus groups, gap in existing product range, outdated/ unprofitable/ excessively risky existing products. From the life insurance perspective, the ideas can be segregated into internal sources as well as external sources. The former one entails actuary, top management, marketer, etc., whereas, the latter one includes policyholders, agents, IRDAI, etc. The idea for variable insurance product has been borrowed from foreign insurance market, and LIC has introduced various ULIPs and variable insurance policies to gain competitive edge by finding the features gap in competitors’ products. The ideas behind new trends such as hybrid distribution channel, regulatory trend, difficulty in designing marketing mix, online policy, claim management, customer servicing and FDI and growth have contributed in the development of life insurance market (Barik and Patra, 2014). Kipp and Snook (2008) argued that insurers need to classify health insurance risks as per personal profile and values in order to avoid the health insurance to Indians. Rao (2006) analysed that by adding value in policies and by minimising the distribution cost and transaction cost the development of present policies could be made successful. Balasubramanyam (2006) mentioned that most significant factor in the determination of premium is the expected rate on investment. Khansili (2004) mentioned about the innovation in product design and pricing by LIC. Generally, innovation in the life insurance market is attributed to initiatives taken by private companies. Private life insurers have joint venture partners from the countries operating in the U.S., U.K., Germany, Canada, Australia, France and South Africa and naturally, the practices of the life insurance market of these countries are reflected in the products being made available in our country by these private life insurer. This is reflected in all the products, be it individual life products, unit linked products, universal life products or health products/riders. Gupta and Chuganee (2001) stressed on several steps to be taken by LIC to compete with the new players. Due to the opening of insurance sector, the public giant LIC faced fierce challenges. Various major decisions are to be taken in regard to products, services, information technology etc. The above analysis of the previous studies reveals that there are few studies related to product objectives, however, there is no any specific study. The present study is unique from past studies as it focuses on the product objectives rather than performance appraisal of marketing practices in the field of life insurance. The present research is a case study and specific to LIC of India.

Research Methodology

Research Materials

The present study is exploratory cum descriptive in nature. It makes an effort to gain insights pertaining to product objectives of LIC of India. Judgmental sampling technique has been used to obtain the views of officials of LIC of India. A sample of 150 officials working under the Varanasi Divisional office, LIC of India has been chosen, however, completed questionnaires from 107 respondents have been received. This survey has been conducted during the period of two months i.e. from April, 2017 to July, 2017. The study is based mainly on primary data which have been gathered with the help of structured questionnaire containing different types of questions like dichotomous, multiple choice, scaling and open ended questions.

Research Methods

The data gathered from different sources have been suitably tabulated, analysed and interpreted with the help of factor analysis using SPSS 17. The data have been tested at 5 percent level of significance through KMO and Barlett’s Test to examine the appropriateness of factor analysis for the dataset and checks the overall significance of correlation matrices with the help of examining null hypothesis i.e. “variables are not correlated”. Principal Component Analysis has been adopted for determining the total variance explained.

Results

Under the present study, an attempt has been made to assess the product objectives of LIC. In this regard, the LIC officials working under Divisional office, Varanasi have been asked. For the purpose, twelve variables were identified. These are meeting competition (V1), beating competition (V2), changing consumer attitudes and perceptions (V3), IRDAI’s directives (V4), sales growth (V5), utilisation of resources (V6), offer of a full product line (V7), balancing declining product (V8), managing product life cycle (V9), maintaining the market position (V10), new profit opportunities (V11), and social obligation (V12). The responses were rated on five points Likert Scale ranging from not unimportant (1) to most important (5). Factor analysis method has been employed to extract vital information. The factor analysis encompasses KMO & Bartlett’s Test, Principal Component Analysis and naming of resulted factors with concerned variables.

Table 1 shows the result of KMO & Bartlett’s Test. The Kaiser-Meyer-Olkin measure of sampling adequacy is an index used to examine the appropriateness of factor analysis. High values (between 0.5 and 1.0) indicate factor analysis is appropriate and the values below 0.5 imply that factor analysis may not be appropriate. Our calculated KMO values (.722) show that factor analysis is appropriate for the present database. Bartlett’s test of Sphericity checks the overall significance of correlation matrices with the help of examining null hypothesis which is “variables are not correlated”. The calculated value of Bartlett’s test (chi-square value 1163.672 with degree of freedom 66 at 5 percent level) was found more than the tabulated value. Hence, the null hypothesis was rejected and it was concluded that the variables are correlated. The above calculation confirms that factor analysis may be applied to analyse the dataset. Further, the Table 2 presents the communalities of variables of the dataset. Communality is the amount of variance a variable shows with all the other variables being considered. This is also the proportion of variance explained by the common factors. Thus, the variances of the variables have been shown in the table.

Extraction Method: Principal Component Analysis

Table 3: Total Variance Explained