Campaign plans rely on brand building
Product quality matters only so much. In these days of unrestricted competition and open architecture, the brand name backing the product is what really counts. Roxane McMeeken talks to industry experts about the expanding role of marketing.
Two factors have changed Europe’s investment market in the past three years – the economic downturn, and the arrival of the paradigm of open architecture. Both are prompting financial institutions to look again at the positioning of their brand.
Against the less than ideal background of client disappointment and outright suspicion, the wealth management industry has been undergoing radical changes.
On the one hand, some distributors are starting to sell investment products carrying other companies’ brands, alongside their own products. On the other hand, some product manufacturers – fund managers – are finding that their own brand is having to take a back seat, as distributors are demanding white-labeled products.
Meanwhile, some of those firms who have built brands based on both distribution and manufacturing are now being forced to focus on only one of these two competencies.
Magnus Spence, head of pan-European research firm Sector Analysis, argues that branding has become a much more vital issue for financial firms than ever before. But he says some financial players fail to realise this, to their great detriment.
“Brand does matter and this has come as a shock to the system of the industry,” believes Mr Spence.
“In the past, financial people never used the word brand. They thought that brand only mattered to people who make chocolate biscuits or cars. But distributors of investment products tell us that brand matters – both to them and to the end consumers. Both want the reassurance of a strong brand.”
Mr Spence observes that “some companies are aware of this and have sophisticated, polished marketing tools. But at the other end of the scale you have product-driven companies who think that brand is nonsense and what you have to do is rush around having lots of meetings.”
Building a brand – particularly a pan-European one – is no mean feat. And a brand that reaches the end investors rather than simply their advisers is even harder to achieve, according to Mr Spence.
“The costs of building a pan-European consumer brand are horrific, especially for an industry that is only just starting to get used to a marketing budget, let alone a branding budget. It involves television adverts, for example.”
However, he warns, “in the long run the winners will be those with strong brands.”
Brands in a bear market
The bear market has changed the behaviour of investors, says Matteo Perruccio, chief executive of Pioneer Investments, the funds arm of Italian bank Unicredito. He draws an unexpected analogy with the advent of mad cow disease.
“The vast majority of people were buying their meat from the supermarket. But when BSE came out they all rushed back to their local butcher,” says Mr Perruccio. “They had let this person down for years because it was cheaper to buy from the supermarket, but now they needed a source they could trust.”
In the same way, he says, in recent years many investors went away from their local banks to buy funds and got badly burnt. But now, “people are returning to distributors with a long tradition of trust – typically banks”. He adds, “of course people don’t trust any financial institutions really”, yet the trend among investors for retreating back to what they know best has been widely observed.
Notable examples include the failure of new wealth management businesses, such as Deutsche Bank’s DB24 and the joint venture between Merrill Lynch and HSBC.
One of the challenges facing financial institutions is how to turn their brand into a trusted name. Another is whether to market that brand to the end investors or just to their advisers.
Mr Perruccio, who has an ambitious plan to grow Pioneer’s E100bn under management in Europe, suggests that a financial company can turn its name into a trusted brand by focusing on service and breadth of product. He believes that while most financial firms pay lip service to the idea of high standards of customer care, few actually put it into practice. He asks, “how many of us like the service we get from our banks?”
But service is to become a critical differentiator, according to Mr Perruccio, because “you can’t talk to clients about performance any more”. Quality service entails transparency of information, strong risk management techniques and “listening to what your distributors want”.
The flight back to tried and tested traditional banking arrangements also presents a golden opportunity for wealth managers, he adds, because it means large amounts of money remain uninvested.
Tough touches
The development of open architecture has also forced a reassessment of branding strategies. The first thing it means is that financial firms must decide whether they are distributors or manufacturers, says Elizabeth Corely, head of retail and third party business for Merrill Lynch Europe.
She argues that the most successful players will opt for one capability and stick with it. The winning distributors, she believes, will be local advisers. “Regulation still comes down significantly to local issues and this is what will drive advice, along with culture”, says Ms Corely. Manufacturing, by contrast will be pan-European, since “distributors don’t mind where a fund is based.”
However, Marc Hoffmann, chairman of the executive board of Dexia, argues that the question of whether to concentrate on distribution or manufacturing is outdated. “You can be both manufacturer and distributor,” believes Mr Hoffman. “Today we are selling in-house products to our clients. This is only possible because we have excellent manufacturing capability.”
Similarly, HSBC straddles distribution and manufacturing simultaneously. But again the size of the firms gives them an advantage.
Side by side
A further consequence of open architecture is that distributors of funds are selling products stamped with brands other than their own, alongside their in-house range. On the face of it this would seem to amount to, at best, diluting the strength of their brand and, at worst, actively working to benefit competitors.
This appears to be why Franco-Belgian banking and asset management firm Dexia appears determined to keep the business of selling third party funds to a minimum. Mr Hoffmann says: “We offer a large array of funds with almost no gaps.”
As a result, Dexia does not encourage its retail or private banking clients to invest in non-proprietary products. However, “if a client wishes to buy a fund from Fidelity, Schroders or any other manager, we will buy it for him.”
Yet Jonathan Polin, managing director of HSBC’s UK intermediary business, is more confident that his company’s brand can withstand selling third party funds. In fact, he thinks it might even boost the brand. “We will sell our funds only where we have best of breed. We are not going to risk damaging our brand by selling funds if they aren’t the best on offer. It’s much better to retain a client long term then to get short term revenue. Your reputation can swing like a pendulum in this business.”
White labeling
The other side of the coin is that open architecture models are putting some manufacturers in a position where their products are being sold bearing another company’s brand.
But this does not worry HSBC either. Mr Polin says the HSBC brand is big enough to handle selling white labeled funds to distributors. “As long as you can still see our branches in every high street and our name sponsoring films and so on, it won’t do our brand any harm.”
Furthermore, agreeing to white labeling deals can help cement the relationship with a distribution partner. “You have to respect the integrity of your partner’s brand. They want to develop and augment it.”
In the UK, HSBC actually plans to increase its white labeling business since the advent of depolarisation, which should encourage banks to offer more third party funds.
Another option, points out Mr Polin, is to dual brand products manufactured and distributed by two different firms. For example, HSBC supplies funds to UK building society Skipton, which are presented to customers as “Skipton funds, which have the backing of HSBC”.
But white labeling is all very well for household names like HSBC. Carsten Majer, head of marketing for Invesco in Germany, argues that “open architecture only benefits big global brands”.
“If you don’t have a strong brand or you are strong only in your domestic market, you can easily drop off, especially if your performance is weak,” he says.
General distribution through third parties poses a further problem for fund managers, according to Mr Majer. He says they are presented with a communication challenge when they sell funds through third party intermediaries. “You have to establish a direct link to the investors in order to build a brand.”
HSBC’s Mr Polin says that while some smaller specialist boutique fund managers will survive as open architecture becomes more prevalent, “the middle tier will go to the wall”.
This is because they have neither the “brand strength”, nor the potential for organic growth, nor the resources for significant acquisitions that necessitate survival.
So it seems that the new world of open architecture and turbulent markets makes for an easier environment for larger, international brands.
Market positioning
Carsten Majer, head of marketing for Invesco Germany, outlines seven steps to developing a thriving brand:
- Penetrate the banks, which are the biggest channels for all the players in the wealth management market
- Establish independent direct communication/marketing channels to investors
- Get a good performance record in place
- Offer a quality product range
- Do your research – establish a brand vision and what you stand for
- Build the brand – through marketing but also client servicing
Measure the results of your brand building:
– How aware is the market of your company?
– How is the quality of your service perceived?
– Are clients loyal to you?
– What does your company stand for in the view of its customers?
