Lemonade, the US based insurance company, is on an absolute tear.
Last month, the business announced that it will be adding car insurance to its offering, marking the company’s third expansion into a major category in less than 12 months. Since launching in 2015, the company has amassed over 1 million customers and eclipsed US$100 million ($127.3 million) in annual recurring revenue.
Customers absolutely love it. In a category where the average net promoter score (NPS) is under 20, Lemonade’s is an astounding 70. In fact, customers love it so much that an estimated 5% of policyholders returned the money they received after making a claim, when a lost or stolen item was subsequently found.
Lemonade, a plucky startup, has achieved all of this in a market that’s dominated by 800-pound gorillas. The top three US insurers spent a combined US$3.5 billion on advertising in 2019.
Lemonade’s total funding since inception is a little more than 10% of this.
Scarcity drives focus, and like most startups, Lemonade has been forced to place fewer, bigger bets than their deep pocketed, long established rivals. When viewed through a behavioural science lens, it’s easy to see why this has been a winning strategy.
While conventional wisdom states that we should be creating outstanding, end-to-end customer experiences, scientific research suggests otherwise. As important as experiences are in the moment, it’s the memory of those experiences that we carry around with us for days, months and sometimes years afterwards that really matters.
After all, it’s the memory, not the experience, that drives how we think about, talk about, repeat or recommend what we’ve just lived through.
Experiences and memories are interrelated — but are not the same thing. In fact, the Nobel prize-winning Israeli psychologist Danny Kahneman has spent much of his career examining the differences (and the relationship) between our ‘experiencing’ and ‘remembering’ selves.
In a study by Kahneman and Schreiber (2000) participants were asked to listen to audio tracks that were comprised of irritating sounds of varying loudness and frequency. At the end of the track, participants were asked to rate the overall ‘annoyance’ of what they’d just heard. Rather than answers being correlated to the track’s average level of annoyance, the answers were far more in line with the peak levels of annoyance, as well as how the tracks ended.
Kahneman aptly named this phenomenon the ‘Peak End Rule’, which states that people’s memories are formed largely based on how they felt at the most intense part of an experience (the ‘peak’, which could be positive or negative) and how they felt at the end, rather than the total sum or average of how they felt throughout it.
This perspective helps us understand how a terrible flight home can ruin a wonderful holiday, why a beautiful brunch can be tainted by a surprise surcharge on the bill, and why, despite insurance being a grudge purchase for almost every human on the planet, Lemonade customers leave delighted.
Two of Lemonade’s fewer, bigger bets have focused on the most critical (peak) moments of a relationship between a customer and an insurance company; the sign-up and claiming process.
Historically, both have been bureaucratic, cumbersome and painstakingly slow. Lemonade met this head on by pouring its funds, talents and behavioural science expertise into developing two world-class chatbots that completely shatter category norms.
Maya, the sign-up bot, is available 24/7 and can have the average new customer signed up in under a minute. Jim (the claims bot) makes Maya look slow, regularly settling claims in under three seconds. This includes cross referencing the claim against the relevant policy, running over a dozen anti-fraud algorithms, approving the claim, sending wiring instructions to the appropriate bank and notifying the customer of the good news. All in under three seconds.
When we consider how people think about or remember their relationship with their insurance company, it’s easy to see the disproportionate impact that initiatives like Lemonade’s Maya and Jim have. 15 years of polite renewal letters or cutesy social media content are all but meaningless in the face of a real ‘peak moment’ for an insurance customer. When the stakes (and emotions) are high, an immediate resolution within seconds, anytime of the day or night is near impossible to beat.
While chatbots have their place, they’re clearly not applicable to every business or situation. What they do demonstrate in this instance, however, is that it pays to go big on the one or two most important points along a customer journey, even if it means compromising down to ‘average’ on everything else.
The data is clear. One or two moments (preferably towards the end) that register as a 15 out of 10, will have a far greater impact on the way people remember you, than bringing the customer journey up to a solid — but largely forgettable — 8 or 9 out of 10 across the board.