While some funds have affiliated with consumer product companies to offer promotions and give-aways, the companies that have had the most success with affinity marketing programs have typically formed alliances with organizations whose members have a need for their products, according to financial services marketing executives.

Groups like Zurich Scudder, SunAmerica and USAA have established ties with organizations that allow them to directly market products and services to those organizations' members.

Affinity marketing allowed insurance and financial services giant USAA of San Antonio to develop an investment management company in 1970 that has grown to the 47th largest mutual fund company by assets, according to the Investment Company Institute. Through affinity marketing, USAA has generated $27 billion in fund assets.

The company started in 1922 as an insurance provider to members of the military. Today, the firm maintains its affiliation with the military, selling and marketing exclusively to military personnel and their families.

Cross-Selling Key

While the firm's investment products are available to all investors regardless of service history, the firm does not market to the general public and instead focuses its marketing dollars on cross-selling investment products to existing members.

The company's success is directly linked to its affiliation with the military.

More than tapping into military members loyalty, USAA's marketing strategy is to develop an understanding of the needs of its client base, said Tom Honeycutt, a company spokesman. The company maintains a comprehensive database on each policy holder or investor, allowing USAA representatives to cross-sell products based on a client's needs.

While using a database to cross-sell products is not uncommon among other insurers who also sell investment products, USAA is unique in that each member technically buys into the company and receives dividend payments based on the performance of the company, Honeycutt said.

USAA members tend to be loyal policy holders and investors, Honeycutt said. "We have a group of around 50,000 to 100,000 people who have been with us for longer than 50 years," he said. "There are some longstanding relationships."

USAA's strategy hinges exclusively on marketing to a niche group and that strategy is not likely to change in the near future, Honeycutt said. "Why would you change what you're doing if you have success and recognition in a niche market? We have no interest in being a provider of choice for everybody because we lose that affinity group."

The Dos and Don'ts

USAA's affinity marketing approach works because it follows a logical approach, said Brian Runnels, a principal with Affinity Marketing Consultants of Seattle. All members of the military have a need for financial products and besides providing a low-cost, unique product, USAA has an understanding of its client base, he said.

The niche is especially valuable to USAA because members and veterans of the military have a stronger sense of loyalty compared to the memberships of other organizations, he said.

Partnerships with organizations where there is a logical financial tie-in will typically be the most successful, he said. Establishing affinity marketing partnerships with groups whose memberships have an immediate need for financial services makes sense, but a fund group aligning with the Boy Scouts, for example, may not make as much sense.

Another affinity marketing disaster can occur when both groups have products or services that run contrary to each others' brands, according to Larry McNaughton, managing director of Corporate Branding, a branding consulting firm based in Stamford, Conn. For instance, a fund group that offers a line-up of natural resources funds would be ill-advised to try to establish a partnership with the Sierra Club, he said.

And an affinity marketing partnership that may fit well with a fund company's business strategy may lose its effectiveness and compromise the company's brand if that business strategy changes significantly, said David Srere, a branding consultant with New York-based Siegelgale.

A case in point is Zurich Scudder's partnership with the American Association of Retired Persons. In 1984, Scudder Investments agreed to become the exclusive provider of mutual funds for the AARP Investment Program. The program has enjoyed moderate success with some $14 billion in assets. It currently provides 34 different no-load funds to AARP members.

However, Scudder's strategy changed. Since being acquired by Zurich, Scudder has added loads to all of its funds in an attempt to gain greater access to intermediary distribution channels.

The AARP program, though it is still chugging along, is now incongruous with Zurich Scudders overall strategy, according to industry observers.

The program has been a success and there are no immediate plans to stop offering it according to representatives from both the AARP and Zurich Scudder.

While there are some pitfalls associated with affinity marketing, the upside is the added marketing push two organizations can offer together. SunAmerica's alliance with the U.S. Chamber of Commerce is one such example.

Aiming Small

Last year SunAmerica began marketing CHAMBERplan, a 401(k) plan directed at small business chamber members with less than 100 employees.

The partnership was borne out of a need among small businesses, which employ 38% of the workforce in the U.S. and include more than 98% of U.S. employers, to provide retirement programs for their employees.

The plan is marketed by SunAmerica's network of some 9,000 intermediaries to the 250,000 small businesses that are affiliated with the Chamber. More importantly, the product gets a vital stamp of approval and marketing push from the Chamber itself, said Sonia Fiorenza, a SunAmerica spokeswoman. "It's a way to get a foot in a door with these businesses," she said.

And that's a key ingredient in a successful affinity program, said Runnels of Affinity Marketing Consultants. Gaining access to an organization's membership list and winning its support, fund companies can market to a select group of investors much more cheaply than they could on their own, he said. "Either the data base or customer list has to deliver a cost base lower than the cost of going out and getting it yourself."

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.