Category Archives: Marketing

Advisor Survey Suggests Areas of Opportunity with Gen Y Investors

Recently, Principal Financial Group released results of their study, the Principal Financial Well-Being Index: Advisors, in which they surveyed a variety of advisors across the country about the state of their practices, the industry, and client trends. Among the key takeaways:

  • 22% of the advisors’ clients live beyond their means, 15% don’t save enough and 11% do not start to save early enough in their careers.
  • Over half (52%) of the respondents said that only 25% of their clients start saving early enough to achieve the recommended level of retirement savings.
  • Only 18% of the advisors surveyed target Gen Y clients.

This suggests a very real opportunity for product providers and distributors to help advisors facilitate meaningful relationships with pre-affluent millennials during their most formative years.

Product providers, particularly those in the defined contribution world, should work with plan sponsors to help educate employees and encourage saving. Product providers can:

  • Create and distribute educational, client-ready content that sponsors can share with newer employees.
  • Develop tools for sponsors – such as a one-page reference guide, brochure or video – that will assist them in using the client-ready content to start conversations with new employees about their saving options and the benefits of the plan.

Initiatives like these can help providers build long-term trust and brand equity with their clients and their clients’ employees. They will also help the company gets the most out of the plan, which can further enhance brand/product loyalty. Finally, there’s a secondary benefit for product providers: Getting plan participants on the path to financial security means they will be better positioned to consider a broader set of investment and retirement solutions later in life (e.g., life insurance, annuities).

Product distributors relying on large advisor networks should provide tools to help advisors connect with existing clients’ next of kin. Studies show that more than 95% of heirs change advisors after they inherit assets. Distributors should arm advisors with:

  • Educational, client-ready content they can share with their clients as appropriate
  • A one-page guide for advisors on how to use the content effectively

In addition, distributors should be working to educate advisors on the business case for pursuing Gen Y and how reducing that generational turnover. By creating a low-cost, scalable solution that has a low impact on advisors’ time but a high impact for long-term relationship-building, distributors can increase mindshare and build loyalty in the intermediary channel.

Banks Reducing Marketing Intensity

An analysis of 4Q13 and full-year 2013 financial results for the leading U.S. banks reveals that most are continuing to reduce their marketing spend.  This is being driven by both economic uncertainty as well as banks’ long-term desire to cut costs and maintain profitability as they struggle to generate revenue growth.

  • Of the 12 banks studied, 8 reduced marketing spend between 2012 and 2013, with 5 of these cutting budgets by more than 10%.

  • Taking a longer term view, 8 of the 12 banks increased their marketing expenditure between 2008—when the financial crisis hit—and 2013.

At first glance, this would imply that banks have ramping up their marketing spend in recent years.  However, many of these banks have changed dramatically during this period, mainly through acquisition.  For example, Wells Fargo acquired Wachovia, Chase bought Wamu, and PNC purchased both National City and RBC Bank.  So, to ensure that we are comparing like-with-like, we need to look at “marketing intensity”, which we define as the ratio of marketing spend to net revenue.

  • In 2013, there was a broad disparity in intensity for the various bank categories: highest marketing intensity (>8% of revenues) for branchless monolines, which have no branch networks and which are overwhelming focused on selling credit cards; lowest intensity for regionals (<2% of revenues); and megabanks tend to spend 2-3% of revenues on marketing, with the notable exception of Wells Fargo.  Capital One is a monoline/branch bank hybrid, with a branch network but also a continued high dependency on credit cards; this is reflected in the 6% of revenue it devotes to marketing, higher than traditional branch banks, but lower than monolines.

  • So, even though 8 of the 12 banks increased their marketing expenditure between 2008 and 2013, during this period, 9 of the 12 banks reduced their marketing intensity levels.  It is notable that the two “banks” with the highest marketing intensity—American Express and Discover—have both increased in intensity over the past five years.  On the other hand, the largest decline was recorded by Capital One, which has been transforming itself from its credit card monoline to full-service bank.

As there are now signs that economic recovery is gaining strength, increases in consumer and business confidence should translate into a greater demand for financial revenues and opportunities for banks to grow revenues.  However, the need for increased marketing investment to capture business growth will be battling against banks’ cost-cutting culture that has become in recent years.

Reasons for Optimism in Credit Card Issuer 3Q13 Financials; What are the Marketing Implications?

The leading U.S. credit card issuers continued to exhibit trends that have become established in recent quarters, but there were also some signs of change:

  • Outstandings: Average credit card outstandings continued to decline y/y, with the big four issuers (Chase, Bank of America, Citibank and Capital One) reporting portfolio decreases.  However, both credit card “monolines” (American Express and Discover) and some regional bank card issuers reported relatively strong growth.  Even among the big three issuers, there were indications of growth: Chase reported a 6% y/y rise in new accounts (1.7 million); and Bank of America new accounts rose from 850,000 in 3Q12 to more than 1 million in 3Q13.

  • Volume: Reflecting the change in the industry in recent years from a lend-centric to a spend-centric model, most issuers reported strong y/y volume growth.  Wells Fargo volume rose 14%, as new accounts grew 11% and  credit card penetration of its retail bank households increased to 35%.  And it is looking to further propel volume growth with its recently-launched rewards program.  Bank of America and Chase also translated strong new account generation into double-digit volume growth.  Discover had relatively low volume growth of 3%, but is aiming to increase volume and outstandings at the same rate.

  • Credit quality: charge-off rates continue to decline for most issuers.  Of the 12 issuers who provided charge-off rate data, 10 have rates below 4%, and three issuers (American Express, Chase and Discover) have rates below 3%.  As a result, provisions for loan losses continued to fall for most issuers, which boosted profitability.  For 30+ day delinquency rates, issuers reported y/y declines, but q/q increases.

We expect that, as the economic recovery continues, consumer confidence will grow, as will their willingness to take on credit card debt.  This may lead to increases in charge-off rates from these historically low levels, but issuers will feel that the resulting growth in noninterest and net interest income will more than offset any rises in provisions for loan losses and noninterest expenses, such as marketing costs.

However, as issuers look to ramp up credit card marketing, they need to factor in the fundamental changes in consumer perceptions and usage of their credit cards.  These changes impact various elements of the marketing mix, including:

  • Positioning: Following the financial crisis, issuers shifted away from positioning credit cards as easy ways to access credit, and towards credit cards as an efficient payments method.  As consumer demand for credit recovers, issuers may need to adapt positioning once again to have a balance between a lend-centric and spend-centric focus.
  • Product: Issuers continue to target more affluent cardholders, so they will need to have a card portfolio that is appropriate for this market.  This explains why both Wells Fargo and U.S. Bank recently entered into card-issuing deals with American Express.
  • Pricing: As the CARD Act places many restrictions on issuers’ ability to change APRs, we expect that there will not be huge price competition in APRs, but rather the focus will be on lengthy zero-rate introductory offers, in particular on balance transfers.
  • Loyalty: Issuers will continue to enhance rewards programs (and accompanying offers) to drive activation, retention and ongoing spending.  To maintain control over costs, issuers are looking to develop more merchant-funded programs, and this trend may gain traction as issuers develop mobile wallets that will enable consumers to manage loyalty programs on their smartphones as well as receive specific merchant offers at the point of sale.
  • Channel: There has been much coverage of the fact that branches are rapidly losing share for everyday banking transactions.  Many banks are looking to redefine the role of the branch, in particular to leverage its potential as a key sales channel.  Wells Fargo recently reported that 80% of new card accounts are opened in its branches.  The online channel has also become a key credit card sales channel: Chase reported that 53% of new credit card accounts were acquired online in 3Q13.