Progressive Corp Stock’s Marketing Muscle Is Paying Off

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PGR stock - Progressive Corp Stock’s Marketing Muscle Is Paying Off

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I write a lot about numbers in my articles. We need to have a certain focus on numbers in order to understand the health of a given stock. However, Progressive Corp (NYSE:PGR) had a rather interesting company presentation a couple of weeks ago, and I want to highlight it, because it tells us a lot more about PGR stock than an earnings report could.

Insurance is a great business and PGR stock is solid, because underwriting is robust these days at virtually every company. But what is it that sends consumers to any particular insurance company for their needs?

Cost is always going to be a major factor. Another is confidence — that is, confidence that the insurance company will be there for you when you need to file a claim. Those messages have to be delivered to consumers, and the way those messages are delivered through advertising. PGR stock has done well because of its advertising.

PGR Stock Benefits From Advertising

Property and casualty insurers have been increasing advertising spend significantly over the past 20 years. In 1996, just under $1 billion was spent by the entire industry. In 2016, that number was $7 billion.

PGR has been following the trendline of the increase in ad spend fairly carefully, to the point where, in 2016, it spent just under $700 million, almost 10% of the entire ad spend of the industry. Indeed, PGR stock holders must be very happy to note that direct sales of auto insurance have increased at roughly the same rate that ad spend has increased.

Ideally, PGR stock increases because it earns far more over the life of the policy from premiums than it did to acquire the customer in the first place. In the past four years, the collections have been increasingly more than the cost per sale. In other words, acquisition expenses as a percent of lifetime earned premiums have been trending down since 2011.

That’s great news for Progressive stock.

The effectiveness of advertising as far as medium is concerned is particularly interesting. The average time spent viewing traditional television per week has fallen from about 30 hours in 2009 to 22 hours in 2017. Meanwhile, as streaming services exploded into the market, those services have gone from about two hours of watching per week to almost 11 hours/week.

Obviously, Progressive is staying on top of all the data it is collecting, so it is more able to effectively negotiate with networks and streaming services for advertising. This, by the way, will be of interest to investors in Roku Inc. (NASDAQ:ROKU), which hopes to build advertising revenue into its new model going forward.

Progressive’s presentation is also worth looking at for more subtle angles to marketing. The company identifies different types of consumers and how they might better reach those consumers.

Different Types of Insurance Consumers

PGR takes a hypothetical “bundled homeowner” consumer. Progressive recognizes their insurance needs right now as “complex”, and wants to move the perception of that need to “simple”. It wants to make this hypothetical family a little more active in searching out the exact insurance that it needs, and wants them to focus less on price and more on quality. Most importantly, PGR feels that this typical family does not have the best perception of Progressive and believes there’s a lot of work that can be done to bring Progressive to them in a more positive light.

Finally, the company believes that PGR stock will benefit over time by paying greater attention to its commercials. They already have the character of Flo, and her presence in the so-called superstore concept. It also is going to launch a series of pilots called “It’s Funny Because It’s True” designed to take a humorous approach towards insurance.

It’s worth taking the time to look at company presentations from time to time.

In the case of Progressive, it gives some really good insight into how management plans to support the price of PDR stock with a detailed view of marketing and advertising.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/progressive-stocks-marketing-muscle-paying-off/.

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