In the hypercompetitive retail online market, firms
are selling below cost in the hope of purchasing loyalty.
In financial services, the same outcome would be
disatrous.
Steve Burnett
Burnett Group
Mutual fund companies are now coming under the unforgiving
scrutiny of comparison engines. These shopping tools are
perhaps the most significant driver of technology, carrying
the potential to completely change the way people do
business. Already, they make it possible to compare credit
card rates and terms online and even support competitive
mortgage rate auctions for individual customers. But what
happens when intangible factors such as management quality,
investment risk, and other variables come into play?
Good question. Mutual fund companies are now looking at
ways to encourage consumers to value intangibles and buy
funds on criteria other than price alone, thus insulating
the mutual fund industry from what is happening in the
online retail sector. Companies are finding it increasingly
difficult to compete online on brand strength alone when
the environment is filled with search engines that can
quickly find the best price for virtually any item.
Expenditure on product promotion and brand support is hard
to justify when price is the sole driving factor.
For many consumers, price is the decisive criterion. But
price is not the only issue when it comes to asset
management services. Historical rates of return and
management fees also matter. For decades, regulators have
warned consumers that past performance is no guarantee of
future rewards. Nor can management fees alone predict what
profits will eventually find their way into the pockets of
consumers. Every online investor needs to understand these
issues. The question is whether technology can accommodate
that need, and educate consumers in intangible issues such
as continuity, organizational strength, integrity of
investment style, and value-added services.
The jury is still out on this question, but nearly
everyone involved is mindful of the dangers of replaying
what happened in the retail sector. The lowest cost for a
stock trade (market order) has now fallen to $5.00-with
many services offering the incentive of multiple free
trades for new customers. Once truly electronic brokerage
becomes available, the variable cost per trade might easily
fall to nearly zero. Imagine a site that allows investors
to trade for free in exchange for the greater advertising
dollars that more site traffic will attract. Fortunately,
trends emerging elsewhere in financial services technology
indicate that price is not everything.
Personalization
One of the most effective marketing tools emerging from new
Web technologies is the development of highly personalized
interfaces. Their success hinges on their ability to
personalize the vast, impersonal marketplace. Take Dell
Computer. When DellÕs corporate customers visit the Dell
Web site, they are greeted with a customized Web page that
lists only those products already approved by the site
visitor's information technology and purchasing
departments. Should a visitor select a computer for
purchase, Dell automatically routes the request through the
proper purchasing channels on behalf of the customer.
Depending on the customer's seniority and/or ability to
authorize purchases, Dell will either ship the computer
immediately, or send the request to the appropriate manager
for approval.
Another trend encouraging loyalty on the Web is the
addition of personal attention and human contact to online
services. Technology is already available which makes it
possible for customers to "meet" online with their
financial advisor, while sharing access to powerful
databases. The implications of this capability are enormous
in terms of client convenience and communications. For
example, a customer unable to meet her financial advisor in
person because of time or geographical constraints, could
still meet him from anywhere at any time, using a secure
Web site that allows both parties to view and manipulate
financial planning software while discussing the
presentation over the telephone. A broker suggesting an
adjustment in asset allocation, for example, could key in
the new variables and instantly demonstrate the effects of
her recommendations. This interactive technology-which adds
value by both increasing convenience and personalizing
information-may well prove to be a key advantage in
attracting new online customers in the years ahead.
Multimedia technologies add striking new visual and
content possibilities. Already, text-only research reports
are being supplemented with optional audio and video
commentary. This approach improves content and
communication with the customer, while catering to the
attention spans of today's media-savvy consumers. The
irony, of course, is that the very same Internet tools
which made sweeping comparisons based solely on price
possible now allow personality to become more of a factor
in the buying decision.
Consumer education
In the physical world, a big part of winning new business
is simply locating the right prospects and making initial
contact. The Web has changed all that. By reversing the
process and providing instant, unlimited access to
information on literally any subject at any hour of the
day, it is now possible for a new customer to come looking
for a financial services firm, and find one within
seconds.
Show how you "think"
To win new customers, financial services companies must
demonstrate their intelligence, highlight their unique
strengths, create compelling reasons to be the company of
choice, and show their willingness to respect and
accommodate the needs of consumers. Some of the most
effective tools now being used to illustrate these
principles are online models that demonstrate how a
financial services company thinks in terms of management
concepts and consumer needs. Done right, they leave a
lasting and indelible impression. They also provide the Web
user with a valuable experience, and any user who leaves a
site feeling better educated than when she arrived is more
likely to return as a client.
Educating investors
The financial services industry is leading the entire
online community in terms of proving how education can lock
in customer loyalty. The Web and its information
capabilities have given new meaning to the term "educated
investor." Even the most modest investor now has access to
information which was once available to information brokers
only. They can print out pages of data on any public stock,
chart the absolute and the relative performance of their
own portfolios in 3-D, and set up customized news feeds on
articles that mention specific stocks. Schwab excels in
sophisticated screening tools that allow investors to
search for funds or stocks that meet their customized
criteria.
The greatest opportunities lie in helping customers sift
through the enormous volume of information, evaluate their
needs, and identify the products which meet their
requirements. Schwab and Fidelity were early converts to
this approach. They learned quickly that selling their own
products only was not going to work. They realized that
helping people evaluate offerings from other providers
could build loyalty to their tools and methods-allowing
them to push their own products at the same time and keep
their names in front of consumers.
Smart tools
The development of additional smart tools that educate the
consumer, accommodate their personal needs, and add
intelligence to the information-gathering process will be
the next big area of creativity and innovation True
one-to-one marketing is still in its infancy, but the
foundations are being laid. Yahoo! is an excellent example
of progress in this respect. On Yahoo!, the consumer can
keep track of an entire portfolio; receive customized news;
keep track of portfolio performance; and take advantage of
tools that gather financial information. This has enabled
Yahoo! to build a strong following among its consumers,
even though they have never actually spoken to anyone at
Yahoo! or purchased a Yahoo! product (banner ads aside).
They just like what Yahoo! can do for them-and they vote
with their fingers each time they log on and head for the
Yahoo! site first.
The next big step towards true one-to-one marketing is
likely to be customized financial services interfaces. The
challenge is to find ways not only to measure and value
portfolios today, but also to illustrate how and where they
might head in future. Where is the economy going and how
might it affect my portfolio? What should I be doing with
my taxes over the next five, 10 and 15 years? What are the
best retirement planning steps I can take, based on my
specific situation? These are all questions in the minds of
consumers that smart tools need to address.
In short, there is a hungry market out there for smart
tools. I expect these tools to evolve rapidly in the years
ahead to keep pace with consumer demand. As the online
financial marketplace continues to evolve, those companies
that can provide thorough information matched with
personalized planning tools and interpretative services
will be in the strongest possible position to compete and
win.
Steve Burnett is president of Burnett Group, a New
York-based communications firm established in 1979. The
Burnett Group was an early pioneer in the development and
design of corporate Web sites and other multimedia
tools.