mutual funds

Marketing on Price the American Funds Way

Posted by Mike McLaughlin on Oct 25, 2010, in Thoughts , tagged with , ,

Part 3 in a series of three posts regarding price competition.  Read Part 1 here and Part 2 here.

Last week I argued that there’s an ocean of opportunity for asset managers to integrate price into their marketing efforts.  For a straightforward example of how this can be done effectively, look no further than American Funds, which does three things very nicely:

A simple graph on fees with a strong competitive message.

But we’re not American Funds.  That’s the easy objection.  And true.  But the principles of the approach can be adopted in specific ways that suit each firm.  For most every firm, one of the following is going to be true:

  • Fees or other costs have been reduced, in some cases dramatically, over the past few years.
  • Specific products are relatively inexpensive compared to peers.
  • Specific products have significantly outperformed competitively-priced peers.

Some are always going to be more capable in keeping prices low on a broad scale.  But all firms care about operating efficiently and should have evidence in hand to demonstrate that.  In other words, every firm can make price a part of their value proposition.  It’s up to marketers to identify the best way to do so.

Ignoring Price Means Firms Have to Play Defense

Posted by Mike McLaughlin on Oct 22, 2010, in Thoughts , tagged with , , , , , , , ,

Part 2 in a series of posts regarding price competition.  Read Part 1 here.

In yesterday’s post, I suggested that price is an underutilized tool in mutual fund marketing. That the industry, while very price competitive, rarely makes that competition publicly explicit.  In light of the traditional 4P marketing mix, which Anu used to discuss PIMCO, this is like leaving 25% of the tools in the toolbox.

Of course, at one end of the spectrum you have a firm like Vanguard, where:

  • “Exceptional value”, which includes performance, service, and costs, is highlighted as a core reason to invest with the firm.

  • The words “low cost” appear consistently in marketing messages, including on the homepage of the advisor Web site.

Most every other mutual fund provider sits at the opposite end of the price-marketing spectrum.  In defining who they are, firms like Columbia, Invesco, DWS, Oppenheimer, and myriad others make no mention of fees/pricing/efficiency as part of their overall value proposition.

The danger in passive strategies toward price discussions is that they can eventually force firms to play defense.  Consider the responses of BlackRock and State Street to the recent fee reductions on Vanguard’s ETFs.  The answers are fine, but the discussion has those firms having to defend existing policies.  Without exceptional performance, “why do you charge X when another firm charges Y?” is a question nobody wants.

Introducing price more proactively is a chance for some firms to gain higher ground in marketing against the competition.  And there are subtle ways to do this.  Some tactical ideas to come next week…

The Strange Issue of Price Competition in Asset Management

Posted by Mike McLaughlin on Oct 21, 2010, in Thoughts , tagged with , , , ,

Part 1 in a series of posts regarding price competition.

Two articles from last week caught my attention.  Both centered on product pricing.  One suggested a looming price war among ETF providers, which BlackRock downplayed (FT.com, free registration required) just this morning; another reviewed the implications of Vanguard’s lower investment minimums (WSJ, registration required) for its Admiral shares.

Over the years it seems that 99.9% of all articles on fees in the asset management industry revolve around Vanguard.  But maybe my memory is selective; my experience tells me that price competition is very real across the board.

To illustrate, I spent a few minutes reviewing the mutual fund products offered to me by Merrill Lynch.  A review of available equity funds shows:

  • 1,454 have annual expense ratios lower than 1%
  • 253 have annual expense ratios below 0.25%

The 253 funds with the lowest expense ratios are offered by 31 different providers, 24 of whom have more than one fund among the group.  This is not comprehensive scientific research, but confirms what we all know.  Price is an important competitive ingredient in the industry.

So what is the “strange issue” teased in the title of this post?  It’s the fact that price, a critical competitive variable, is almost completely absent from firm and product marketing. Fees are disclosed, but there’s very little overt discussion and proactive use of pricing in marketing strategies.

Isn’t this a big missed opportunity for fund marketers?  More to come…

Does Focusing on Performance Ever Help Fund Marketers?

Posted by Mike McLaughlin on Sep 26, 2010, in Thoughts , tagged with ,

I recently listened to a webcast with the head of a prominent mid-size fund family.  At one point during the discussion, a slide appeared with performance data on two of the firm’s funds.  A generic version appears below:

First off, the data presented looks great.  The 10-year performance of both funds is fantastic.  The problem lies in what happens after the table is digested.  Smart investors/advisors/instittutions start to ask questions like:

  • How did the funds do during other intervals (1 yr, 3 yr, etc.)?
  • How has the fund performed since inception?
  • How has the fund performed against its peers?

In this case, the firm’s Web site answers some, but not all, of these questions.  Of course representation of performance is tightly regulated, but many firms still have room to grow when it comes to balancing:

  • The message that puts the fund in the best possible light (e.g., the 10-yr data above)
  • Complete, customizable performance data for all timeframes
  • Full transparency against benchmarks and competitive products

This makes me wonder:  is leading with fund performance, even when it’s strong, ever a good thing? Or does it instead result in a slew of questions intended to shoot holes in the data that’s presented?

I don’t think the answer is an absolute yes or no, but it’s increasingly common to look for a catch in marketing material that highlights performance, especially when the source has a vested interest in making a product look good.  And while I’m not saying performance should be ignored, marketers do need to consider using performance only as a supporting character in a product’s story.