What the Employee Benefits Business Can Learn from the E-Commerce Revolution

What the Employee Benefits Business Can Learn from the E-Commerce Revolution

As today's workers increasingly look for more expansive benefit packages, employers and their advisors can take a history lesson from the retail industry to truly understand the power of diversification and choice.

The E-Commerce Revolution

There's a reason why Amazon and Netflix became the giants they are today. Both e-commerce companies took advantage of the "long tail" of retail—a concept coined by Wired Magazine's Chris Anderson to describe the opportunity for a wide variety of lower-demand products to make up a market share that rivals or exceeds that of a narrow variety of higher-demand products.

Flashback to around the year 2000, when brick-and-mortar was still the prevailing model in retail. Barnes & Noble was everyone's bookseller of choice. A typical store carried roughly 150,000 titles, but half of all sales came from only 10-15 percent of those titles. Think Stephen King and Harry Potter books. Meanwhile, Blockbuster dominated the movie rental game. And out of 2,500 titles in stock, it was the handful of "new releases" that accounted for 40 to 60 percent of all rentals.

Amazon and Netflix saw an opening. Instead of selling a high volume of a small inventory of products, they would do the inverse—sell less of more. Amazon launched with the promise of being able to buy practically any book that's ever been printed. Similarly, Netflix's mail-order DVD system gave movie lovers access to a seemingly never-ending supply of their favorite genres. Consumers were willing to wait a couple of days to get their books or movies, because they couldn't find these things at their local brick-and-mortar store. And within a decade, Amazon and Netflix had taken over their respective industries.

Expanding Choice in Employee Benefits

Just as Amazon and Netflix seized on the opportunity to give consumers access to greater choice in the retail space, employers today can create more competitive benefit packages by diversifying their offerings with a wide array of voluntary benefit options. Call it the "long tail" of benefits.

Although its not a perfect translation, the "long tail" concept gives us a solid framework for how employers can take advantage of non-traditional benefit products that add value for employees without adding much cost for the organization. We just need to tweak the axes a little.

Medical, dental and vision insurance, along with retirement benefits, are in retail terms the "best-sellers" or "new releases"—representing the relatively narrow variety of high-demand products that make up the bulk of employer benefits spend. They're foundational to talent attraction and retention. 

However, as employer health plan design continues to shift costs onto employees, and more retirement plans move from a defined benefit model to a defined contribution model, the "best-seller" benefits are no longer enough to differentiate employers in the eyes of workers.

That’s why traditional voluntary benefits like accident, critical illness and hospital indemnity insurance have become so important. These products are now table stakes for many workers, who expect employers to give them options to mitigate the risk of increasingly high out-of-pocket health care costs. The good news is that these supplementary benefits can be offered at little or no cost to the employer.

But the greatest opportunity for employers, in terms of both talent attraction and cost-effectiveness, lies in more non-traditional voluntary benefits that have begun to emerge. Sometimes referred to as lifestyle benefits—products like identity protection, legal insurance and pet insurance—products that cover other aspects of employees' lives beyond health care. Offering lifestyle benefits enables employers to round out their benefit packages and diversify the value they're providing to employees—and do so at little or no cost.

We're already seeing benefits diversification take hold. According to Benefitfocus' latest State of Employee Benefits research, nearly 75 percent of large employers currently offer 11 or more benefit types to their employees.

Still, with diversity comes the potential for greater complexity. So how can employers expand their benefit offerings without adding undue administrative burden? Get our experts' take in the on-demand webinar, The Great Benefits Balancing Act.