Aflac, Inc. is a large insurance company founded as American Family Life Assurance Company in 1955 by

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Aflac, Inc. is a large insurance company founded as American Family Life Assurance Company in 1955 by brothers Paul, John, and Bill Amos in Georgia, United States. Aflac is specialized in supplementary insurance, which pays cash benefits to employees in case of accidents or illness. Throughout the years, Aflac has remained one the most profitable insurance companies, both in terms of earning as well as ROE. In 1974 the company became listed on the New York Stock Exchange. In the mid-1970, Aflac embarked on an unusual international expansion. Instead of moving into culturally close foreign markets, such as the UK or Australia, it entered the Japanese market, considered even to this day as one of the most protected and difficult markets for foreign companies. In particular, the Japanese insurance market was, for a long time, highly regulated, making it almost impossible for foreign insurance companies to establish a profitable business there. Amazingly, the Japanese subsidiary of Aflac now accounts for more than 75 percent of Aflac's annual revenue, making it predominantly a "Japanese" venture. This overshooting internationalization is rare, but it poses the question of what are the consequences. The dominance of the Japanese market poses risks. For instance, the headquarters is in the U.S., making it not as close to the market in Japan as its Japanese competitors, which is looked upon unfavorably by regional and national public administrations in Japan. Another risk is that Aflac's affiliates can damage the brand in Japan by advertently or inadvertently offending Japanese customers by overstepping Japanese customs.1 One strategic option is to "go local". For example, when the U.S. retailer 7-Eleven Inc. filed for bankruptcy in 1998, a exceedingly more successful Japanese subsidiary took over worldwide operations and 7-Eleven emerged from bankruptcy as a Japan headquartered corporation, eventually renamed Seven & i Holdings.

Another option is to expand operations to other countries. The tremendous success of Aflac in Japan, however, was due to local idiosyncratic conditions that rendered its business model a niche product that was overlooked by local insurance companies. However, the same opportunities do not exist in other countries. The insurance market is globally fragmented and marked by national regulation, traditional national health insurance systems shaped by age-old political arrangements, and cultural characteristics. Foreign insurance companies need to bring a compellingly clear advantage into a local market in order win customers away from the national insurances. Continuous globalization, therefore, would require a broader product range, which could water down Aflac's clear brand positioning. Entering other foreign markets with a different flag ship product and brand positioning could also lead to inconsistencies and contradictions in its global brand image, which could weaken its brand communication back home and in Japan. On the other hand, given the strong local flavor of the Aflac brand in Japan, is it possible for Aflac to globalize by becoming a "local" nation-specific brand in many countries at the same time, thus ignoring the thrust of global brand appeal. What is clear is that a global brand strategy must be spelled out that gives clear guidance about what to do next.

Aflac Brand Communication

Aflac has around 8,500 employees worldwide, of which slightly less than 50% are employed in the U.S. Its main business model is the supplemental insurance plan. In the US, many health care plans are not comprehensive, which means that costs occurring with illness or accidents have to be partly covered by the patient. Also, accidents and illness often lead to a suspension of income, which is especially distressing for the patient when mortgages and other monthly bills have to be paid. Supplemental insurance covers additional costs and income deferrals. Aflac also sells these insurance plans directly to companies who then include it in their employee benefits. Until 1989 the American Family Life Assurance Company followed a direct selling approach. In 1964, it had pioneered worksite marketing and a cluster-selling strategy. Since the main target population are employees of large corporations, cluster selling involves insurance agents visiting companies and making presentations to groups of employees who are interested in extending benefits in the case accident and illness, which are not covered by their health care or employee benefits. Many companies eagerly facilitate these selling events because they have an incentive that employees take up these supplemental insurance policies themselves. As a results almost all Aflac policies were purchased at companies, mostly on a payroll-deduction basis. This stabilized the cash flow and retention rates were kept high. From 1989 onwards, the company switched to a nationwide mass marketing approach and build up of a nation-wide distribution system of independent insurance agents and insurance brokers. It adopted the acronym Aflac in order to make itself more distinguishable from the large number of other companies whose names began with "American". In 1991, it launched its first national advertisement campaign. However, 2 name recognition remained low. At the beginning it stood at about 2% and a decade later it was still below 10%. The rather awkward name, which is difficult to remember and recall was suspected to be the main culprit for the botched market entry. Changing the name would have caused Aflac to lose their insurance license and it would have to reapply for a new one in every U.S. state. Instead, a campaign was envisioned that would focus on name recognition. This is when the Aflac duck was introduced. Aflac invited advertisement agencies to pitch a creative idea. As Daniel Amos, the son of the founder who became CEO in 1990, remembered in a Harvard Business Review article; one agency, Kaplan Thaler Group, an advertising agency based in New York City, had come up with an idea of how to increase name awareness because they themselves had a hard time remembering the name of the client (Amos 2010). After a Kaplan Thaler Group employee repeated the Aflac name over and over, they envisioned a duck yelling out 'Aflac'. The objective of the campaign was entirely based on name recognition of the, at that time, rather unknown insurance brand. The self-depreciating approach to brand name recognition was certainly not normal for an insurance that deals with serious illness. Amos realized that it would be a considerable risk to use this idea. The risk was that if the approach backfired, it would not be taken seriously and offend the existing policy holders and corporate clients. Despite good alternatives, Amos decided to go with the high-risk idea. The Aflac Duck campaign debuted on January 1, 2000, with the television commercial "Park Bench." In the ad, a duck interrupts prospective policy holders quaking the name of the insurance company trying to get heard, until it frustratingly resigns its efforts. Since then, Aflac has stayed with the same concept, only varying the context in which the duck appears to prospective customers, which is also increasingly infused with celebrities. The campaign is considered one of the most successful campaigns in advertisement history. In the first year name recognition in the United States was up by 29% and doubled within three years. Aflac's name recognition was up to 67% after two years of running the commercials (Amos 2010). During the whole time span of the campaign, Aflac's name recognition increased from around 10% to more than 90%. Even after Aflac's main goal accomplished, the main storyline continued for its comical effect. Only from 2009 onward, the ad campaigns shifted to explaining specific benefits of insurance plans. However, the duck stayed. The initial name recognition market became a permanent company mascot and face of the brand. In 2005, Aflac even changed its logo to include the Aflac Duck (Exhibit 1). Today, ad spending totals US$65 million.

Beneath the clean and humorous surface of a successful clear brand communication of a health insurance, which would cover the financial burden of diseases beyond core medical expenses, lurked a fundamental and frightening need. Particular diseases can financially overwhelm a patient's family due to the long duration of treatment and the inability to earn money until full recovery. Since the 1950s, one of the most debilitating and threatening illnesses for a family was cancer. The Amos brothers founded the company after they realized the hidden costs of treating cancer that had afflicted their father. In 1958, the company introduced a new disease specific insurance, a product called cancer expense insurance, that would become a main driver of its growth and success. Cancer was already highly publically discussed in the U.S. at the time, with charities campaigning to increase awareness and in 1971 the medical administration even declared a medical "war on cancer". Aflac not only offered cancer insurance, but communicated its commitment to help fight the disease. This became a central cause-related marketing approach for Aflac, providing the brand with a unique company-cause congruence. Most visibly the Aflac brand is associated with helping families cope with children. In cause-related marketing, a company and its employees or customers give a donation, often a fraction of the sales price, to a cause. In the 1990s, Aflac's focus on the cancer cause led to the establishment of the Aflac Cancer and Blood Disorder Center of Children's Healthcare of Atlanta in Atlanta, Georgia, and the Aflac Parent Houses, which were funded by donations of the company's employees and sales agents. As a result, Aflac has been ranked among the world's most ethical companies by Ethisphere Institute, a leading adviser of ethical business practices. The focus of Aflac's brand communication has a distinct profile, a high degree of awareness among the target population and an ethical quality that is rare among insurance companies. Yet, the success at home would even be eclipsed by a market entry abroad. At the end of the century around three quarters of Aflac's revenues were generated in Japan.

Aflac in Japan

In Japan, cancer policy insurance would become an even more decisive innovation. The main market for it were Japanese employees, the famous "salarymen". Cancer was, and still is, relatively prevalent in Japan due to higher life expectancy and a relatively lower pervasiveness of western lifestyle diseases such as obesity and diabetes. In fact, cancer was the No. 1 disease-based killer.When John Amos traveled to Japan in 1970 for the world expo in Osaka, he was impressed by the health consciousness of the Japanese. Out of curiosity, he later discovered that while in Japan everyone was covered by health insurance, payments under Japanese health plans were not enough to cover all the costs associated with a disease like cancer, just like in the U.S. Yet, no insurance company offered a cancer policy that would cover these costs, which Aflac had successful marketed in the U.S. Amos saw a market opportunity and Aflac investigated whether it could enter the Japanese market. U.S. trained insurance executive Yoshiki Otake was hired to build Aflac's first bridgehead abroad. At the time, the consumer market was virtually closed to all foreign firms due to government protection and a prevailing preference for local produce and brands. The only opportunity for foreign firms was an inability of Japanese firms to provide the products or services that people wanted or needed. In those cases, the preferred market entry method was to team up with one of the large Japanese trade corporations, or to license to a local firm with the assistance of the Japanese authorities. In the case of cancer insurance, however, no Japanese insurance company responded to the invitation of the Ministry of Health. The Japanese insurance companies even declined the offer by Aflac to tap into the market as a joint-venture partner. Ichiro Murakami, general manager at Aflac Japan, remembers well the curse-like spell that cancer was afflicted with in public. In Japan, cancer was a taboo that no company wanted to be associated with. In Ichiro Murakami's words, "A cloud of fear surrounded the disease, and all kinds of superstitions had cropped up in public discourse. Some believed cancer was directly inherited. Others believed that marrying cancer victims or their relatives was a bad omen" (Williams 2011). Cancer also threatened the lifelong employment arrangement with a firm, as the prospects of continuing with one's career or even getting a similar job after overcoming the disease was diminished. The children of cancer patients also have an incentive to put the lid on the topic out of fear of being seen as possibly inheriting the disease, and therefore reducing their prospects for career and marriage. The stigma as well as the financial burden led to many suicides. As a result, doctors even avoided to inform patients that they had cancer, considering the diagnosis too dispiriting for patients to hear (Phillips 2013).2 This situation only changed in Japan as recently as the 1980s, most notably due to the publication of books and regular newspaper columns of journalist Atsuko Chiba, who was afflicted by breast cancer and broke the public silence on cancer, criticizing the Japanese medical establishment (Chiba 1981). Aflac, however, was a pioneer in the 1970s and there was a real need for such insurance. Since Aflac was a relatively small company, the Japanese administration was less worried about its market entry in Japan. Philips (2013) quotes an analyst's view of Japanese policy makers at the time: "Nobody is going to buy dreaded disease insurance, so let's give it to the Americans. Let them have it." After four years of negotiation with the Japanese health ministry, Aflac received the right to offer cancer insurance in Japan on its own exclusivity for 8 years, giving it time to build up its brand equity. From then on, Aflac built up an extensive sales network with banks and a large number of agents to market Aflac's supplemental policies. Now, more than 19,700 sales agencies with more than 120,700 licensed sales associates represent Aflac Japan. Most effectively, however, large Japanese corporations such as Hitachi, Sony, Toyota, and Nissan supported the selling of the policies to their employees through in-house agencies. These in-house agencies are often headed by retired executives of the company and therefore enjoy the trust of the staff. According to a New York Times article, at the beginning of the 1990s there were agencies in 43,000 Japanese companies, offering employees supplemental cancer insurance (Lohr 1992). The pioneer advantage is a crucial asset in Japan, because customer loyalty is high and there is a mutual understanding of a long-term relationship between service provider and customer. After building up awareness, trust, and a customer base, it was difficult to unsettle Aflac as a leader in the niche of supplemental health insurance. Eventually the success of the supplemental disease specific health insurance segment in Japan eventually attracted many mainstream Japanese insurance companies such as Nippon Life and Tokyo Marine. However, Aflac remained the market leader, with 50% of the cancer insurance market in 2012, a feat that is rather unusual in Japan. The achievements in Japan are most impressive for a non-Japanese company. Nearly 90% of the companies listed on the Tokyo Stock Exchange offer Aflac products to their employees. Aflac covers more than 140,000 small businesses in Japan. Aflac insures one in every four households in Japan and - even more incredibly - is the largest insurer in Japan based on the number of policies (Amos 2010) On the basis of the duck's tremendous success in the United States, Aflac then took the same name recognition concept to the Japanese market. However, instead of a scare tactic about a dreaded disease, Aflac was going to use its positive, humorous awareness focused approach to communication. Also, the notion of synergy and consistent global branding was an important concept for the internationalization of the Aflac brand. A global brand needs a consistent image, and a consistent logo and mascot is order to be trustworthy and leverage its global brand equity. However, due to differences from country to country, local managers in subsidiaries are most of the time skeptical about ideas from headquarters and emphasize adaptation to the local cultural context. Here as well, Aflac's Japanese marketing director was in opposition as Daniel Amos explains in a 2010 Harvard Business Review article (Amos 2010). Although the Aflac Duck had become integral to who we were in the United States, he could not imagine that a white duck would sell insurance in Japan. Advertisements in Japan are very different, they lack the self-deprecating humor and are more gentle and pleasing. The whole storyline of the duck interrupting a discussion about accidents and yelling at them is considered rude and clearly an inappropriate pitch for an insurance company. Also, the connection between a duck and the brand name Aflac was confused by the fact that in Japan a duck doesn't say "quack-quack," it says "ga-ga."

Eventually, the duck was used as a mascot but in a slightly different way and with a 6 softer voice. In the ads, the duck is more like a "lucky charm" or smart financial adviser who recommends the policy to various people. In 2003, the Aflac Duck made its first appearance in Japan and just as in the U.S., it became a favorite advertising icon. Aflac Japan's sales increased by 12% in the year it introduced the duck. The main goal, global consistency was achieved because the duck became the symbol of Aflac in Japan, while allowing adaption to the local context. The successful transfer of the duck rendered even more adaptation acceptable. Since cats are more adored in Japan than ducks, Aflac Japan added the Maneki Neko in 2010, a white cat with a raised paw, which is a traditional lucky charm in Japan. The new ads combine the Aflac Duck with the Japanese character Maneki Neko. The cat-duck duo has become very popular as well. Later, a black swan representing bad luck and bad advice was introduced as an adversary, which the Aflac duck would either chase away or otherwise tame. The cause related marketing approach was also extended to Japan. In 1995, Aflac Japan associates and Aflac employees donated US$2 million to relief efforts for the Great Hanshin Kobe earthquake. In 1999, Aflac Japan joined with the Children's Cancer Association of Japan to build the Aflac Parents House. Aflac is also involved in the area of pediatric cancer research and treatment within n U.S.-Japan research initiative.

The Road Ahead

What is next for Aflac? The day when it could sail under the radar of big corporation is over. In 1993, Aflac gained the license to sell comprehensive health insurance and is becoming more of a broad health care insurer, instead of a niche player. In 2001, Japanese insurance giant Dai-ichi Mutual Life Insurance Company and Aflac Japan formed a business alliance. Aflac went mainstream, became one of large players in the insurance industry and today faces much tougher competition. It is also difficult to find new niche products and given its size niche markets are probably not attractive for Aflac anymore anyways. Though its market share in cancer insurance has halved over the years, it is still a very profitable and growing business. Aflac just finalized a deal with Japan's state owned Postal Corporation to expand the offerings of Aflac cancer products at post office locations throughout the country. Are the next logical steps to further broaden its product offerings? But what competitive advantage does it have in other product areas? Another question has occupied the CEO and son of the founder Dan Amos for some time now. With so much of Aflac's success being tied to Japan, economic challenges that the island nation faces have direct consequences for Aflac's overall business. When the earthquake struck in 1995 in Kobe, Aflac's stock price, like many firms with major Japanese operations, was down more than 10% the following day. Recently, Japanese economic policies have caused the yen to lose value against the dollar, and a boost to the nation's consumption tax in April led to a huge decline in gross domestic product as well as fears of a longer-lasting economic slowdown has held back enthusiasm over Aflac's growth prospects there. Moreover, although Japan's older demographic holds some promise for selling new products to Japanese consumers, it also carries long-term concerns about a potential drop in population causing a drop in demand in future years. Older people are normally not an attractive target group for an health insurer because the health risk is high which renders the policy too expensive for most. Where are the growth areas? Probably newly industrialized countries with a large economically successful younger middle class. Korea, Taiwan and even Vietnam comes in mind. Mr. Otake, who started Aflac Japan, reportedly said recently that it's too early to start a business in China. Mr. Murakami wouldn't comment other than to say that the future looks bright in Japan, despite worrisome trends in the broader economy. Meanwhile, in the U.S., the aging population also carries opportunities for Aflac. With Americans dealing with the impact of the Affordable Care Act, Aflac has a chance to demonstrate why its narrowly tailored voluntary coverage adds value beyond what even top-tier plans under "Obamacare" can cover.

Table 1: Aflac Policies in Force in Japan 2013-2014 2013 Year-end Cancer Insurance Long-term Care Insurance a) How did Aflac successfully build a brand in Japan?
b) Why were some people initially skeptical about the prospects of Aflac in Japan?
c) What would you recommend to grow the Aflac brand in the future?