Mutual Fund Marketing during Bear Market Periods - 2001

July 2001

Many asset management companies on both the retail and institutional sides are focusing on customer retention by beefing up their marketing staffs despite dip in the stock
Instead of abandoning their marketing plans as the Nasdaq plunges, smart asset management companies on both the retail and institutional sides are focusing on customer retention by building up their marketing staffs
Distinction between Marketing and Sales: The American Marketing Association says marketing is "the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives." In a textbook definition of sales, it is "the process of using personal communication in an exchange situation to inform customers and persuade them to purchase products." While certainly there are overlaps between marketing and sales, one of the main differences between the two is the degree of client contact involved. In an increasingly sophisticated market, asset managers can no longer create products in a vacuum, and push the same products through different channels. Each channel requires different methods of packaging, servicing and pricing, and the separate sales and marketing functions must work together to meet those needs.


Many financial services companies are recognizing the value of retaining and building loyalty among their existing customers. After all, it's less expensive to retain clients than to acquire new ones. As an example, a recent Harvard Business School study showed that loyal customers purchase more products, will pay higher prices and will cost less to assist as compared to the cost of acquiring new costumers. What's more, the study also demonstrated a clear bottom-line benefit to boosting the customer retention rate: increasing customer retention from 90 percent to 95 percent increased pre-tax profits by 45 percent.

Because a shotgun marketing approach is ineffective and expensive in a tight economy, financial services companies are using analytics to implement aggressive, sophisticated marketing strategies to deliver unique client-tailored experiences. If the right personal touch is there, clients are willing to pay for it and will consider it a value. Moreover, a professionally crafted and implemented marketing plan and corresponding client-centered services result in more than market domination: they result in market ownership. Sales, referrals and client loyalty naturally follow that relationship and in fact, it accelerates during bear markets.

On the institutional side of the business, "marketing" has often meant "sales" efforts. Institutional money managers have historically relied upon the strong relationships that institutional salespeople cultivate within the tight-knit institutional investment community, both with clients and investment consultants.

But branding has become increasingly important to maintaining a competitive edge and helping bring in more assets to institutional firms. In fact, a study on institutional brand perceptions and marketing effectiveness, conducted by Eager Manager Advisory Services and highlighted in a July 2000 newsletter published by William M. Mercer, found that "strong brands more easily leverage selling efforts into sales success." The study analyzed common characteristics and strengths among nine money managers who are most often considered for hire and suggested these managers have the competitive edge in five brand attributes: expertise of personnel, investment approach/process, investment performance, organizational depth and stability and service.

Further, these hiring leaders tended to be highly rated in marketing criteria such as "salesperson's knowledge/expertise, effectiveness of sales calls/presentations, and marketing materials, understanding your needs, and building trust and confidence." The Mercer newsletter commented that while marketing activities may seem to be transitory, "...they create a cumulative measurable impact over time.and.should work in concert to create the positioning for your "brand" that your marketing strategy dictates."

Institutional shops have had to embrace branding for other reasons as well. One is the emergence of the "instividual"-typically, high- networth clients who demand institutional-type investment and client services and communications. In fact, The World Wealth Report, compiled annually by Merrill Lynch and Gemini Consulting, shows a new category of ultra high-net worth clients who have replaced clients with inherited wealth. Instead, these new billionaires derived their fortunes from hard work in software, computers, telecommunications and the internet. Among these sophisticated investors, an established, well-known brand can help distinguish an otherwise homogeneous investment strategy.

Branding and marketing initiatives become increasingly important as the lines continue to blur between institutional money management and retail funds, such as the subadvisory (private label) market. Many financial services companies today, including banks and insurance companies, have found over the last few years that they don't have the requisite experience in-house to run proprietary mutual funds. But they do often have powerful distribution networks, and therefore outsource the investment management function to institutional asset management firms while keeping their own company name on the mutual fund. In these cases, branding addresses the challenge of making a particular investment product or family of investment products stand out on the financial services "supermarket" shelf.
As this weren't evidence enough, other trends signal an increased demand for marketing professionals. Product development, marketing communication and customer service teams and even classic sales professionals such as mutual fund wholesalers are being called up for duty in customer retention efforts. A recent trade magazine article counted the many ways wholesalers can provide support for beleaguered brokers by building customized product recommendations, troubleshooting, or even crafting "down market" letters.
Looking ahead, the 60 million members of the "Echo Boomers" generation, now aged 7-20, are expected to consider financial literacy as critical as Internet or skateboard proficiency. Since this group already spends $153 billion every year, it's a given there will be high demand for marketing professionals who can speak the lingo well enough to sell investment products.
companies that have taken the time to segment and expand their marketing departments stand a better chance of surviving it. As William M. Mercer's July 2000 newsletter noted, "...the dynamics of a strong brand presence can work for you 24/7, even when your salespeople can't be there."


Excerpts from article by Tom Kellerhals, The Westminster Group
http://www.wgpeople.com/itn_finservmktg.htm