To get an idea of what mutual fund advertising may look like in the future, Mutual Fund Market News freelance reporter Lori Pizzani asked several marketing executives their views on the subject. Those interviewed included:
Mark A. Beeson, senior marketing director for the One Group Mutual Funds of Columbus, Ohio.
Catherine Bernard, director of corporate advertising and media for American Century Investments in Kansas City, Mo.
Gail Eisenkraft, director of retail at Warburg Pincus Mutual Funds of New York.
Rui Moura, chief marketing officer at Jones & Babson in Kansas City, Mo.
Howard Schneider, director of marketing for the U.S. retail group and managing director of Scudder Kemper Investments of New York.
Gavin Spitzner, vice president of strategic communications, Prudential Investments' Marketing in Newark, N.J.
MFMN: Has mutual fund advertising significantly changed and, if so, in what ways?
Mark Beeson: Ads have changed, but they are still mostly performance driven. In the past, we saw tombstone ads. Now ads are more sophisticated. We are now seeing funky little ads that catch the eye. It's the dot-com influence. We are starting to see more brand ads and the "load effect" of ads promoting using an adviser. Fund companies are spending more on radio and television advertising.
Catherine Bernard: Previously, performance ads dominated; now there's more of a mixture of performance and image ads. With the increase in image advertising, television seems to be playing a greater role.
Gail Eisenkraft: It's far more cluttered now and expenditures have reached new heights. Everybody is in the game now. Some ads appear unchanged. But some are clearly attempting to break through.
Rui Moura: I think it has changed in a number of ways and it is changing for the worse. Fund ads are gimmicky now, not factual. For the past few years, we fund marketers have had to contend with Proctor & Gamble tactics in the advertising arena. That means we can no longer compete on [just] performance. Branding and positioning have become increasingly important. Now you see humor being injected, you see personalization and you see blind-faith advertising that says "give me your money because I am a big-name fund company."
Howard Schneider: Advertising is evolving as funds are maturing from hawking product to the need to establish a brand. There are two drivers at work here. The industry has recognized that the days of easily attracting assets are over. Also, there's an increasingly crowded marketplace with firms such as E*Trade and Schwab adding to the greater noise. It's all part of the industry's hyper-growth phase to maturity. And as consumers are maturing, their expectations are changing. The market is no longer homogenous. There are micro-segments to address.
Gavin Spitzner: I don't think fund advertising has truly changed all that much. Most firms still tend to go to one extreme or another - either pure performance or pure image. In my view, both are ineffective. Performance is a "cost of entry." There's no question you have to have it, but it is a commodity and generally doesn't make the sale.
Image without differentiation isn't effective either. "Brand" advertising is the buzzword these days and it's important. But not if it just means "name recognition" like all the dot-coms are notoriously unsuccessful [in achieving]. One significant improvement is that companies are integrating their fund advertising with other elements of their marketing plan. You are seeing ad designs and messages being mirrored on websites and collateral material.
MFMN: Do you believe that mutual fund advertising will further evolve over the next several years? If so, how will it change?
Beeson: I personally think market conditions will change and performance bands will narrow drastically. The messages will change to "let's talk asset allocation."
Bernard: Yes. As companies employ multiple channels of distribution, the nature of mass communication will need to change so that it is relevant to the different audiences in those channels.
Eisenkraft: Some ads are a function of the bull market. But, if the market changes, ads will change and become more conservative. Ads may increasingly send people to websites to find answers.
Moura: Yes. The value proposition isn't "why we are the best for you" or "here is what we stand for and why you need us." It will be more brand-oriented toward a general audience for the big boys and much more targeted for the small fellas. The big boys will own the television, radio and general magazine media. The small shops will have to use electronic means and will try to get the message out through trade pubs, conferences, regional and community media.
Schneider: Many will pursue TV ads more aggressively. With increasing combinations of financial services firms, we are also going to see the whole nature of advertising change. I believe the starting point for marketing strategies will have to become more sophisticated and off the beaten path.
Spitzner: Fund marketers will realize that, for the most part, they are speaking to investors that already have a portfolio. So they'll focus more on aspects of managing your portfolio, how to figure out what kind of fund to add to a portfolio, for example, versus "here's a fund, isn't it great?"
I think the recent trend of focusing more on the process that resulted in performance and demonstrates how a fund aims to achieve future results rather than just past performance is positive and will continue.
MFMN: Do you believe securities regulators will have a greater role in fund advertising in the future?
Eisenkraft: This year we have seen them play a significant role because of the focus on triple-digit performance. And we've seen them require greater disclosure about the impact of IPOs and "unusual market conditions." Issues may change but the regulatory role will be there.
Moura: I think securities regulators will be more lax in the future. It may be impossible for them to regulate the sheer size of the industry although they have done a good job of it so far. The Internet will be their greatest challenge. How do you regulate a medium that is so fluid and so time critical? We cannot have the NASD take four days to approve a blast e-mail to all shareholders if the market expectation is "Yesterday I wanted it. Today is too late!"
Schneider: As channels of advertising emerge, regulations will have to evolve based on how consumers want to get information. Regulators will still be watching over our shoulders. Especially regarding the privacy issue and how companies can use the information garnered from the consumer.
Spitzner: I think that with or without securities regulators, fund companies will tone down the incredible performance claims. That sets up fund companies for redemptions. Those 100-plus percent returns cannot be sustained. Fund companies will eventually recognize that you cannot consistently claim performance superiority.
A more effective long-term bonding with investors can be created by understanding and addressing the issues they are grappling with. In this way, you are the one helping them make good decisions. If you are the one defining the process and rules of the game, you are halfway home.
MFMN: What influence has the Internet had on advertising? Will the mainstreaming of the Internet present opportunities for fund advertising? Or will the Internet's ubiquitous nature present significant challenges?
Beeson: We use the Internet as a marketing support to advisors in providing tools. But it should also encourage shareholders to come back and view the site to get more information.
Bernard: A significant impact of the Web is the investor's ability to get reams of information quickly and act on that information by clicking on a mouse. That has made the Internet more of a distribution channel than an advertising channel. How it will evolve is anybody's guess.
Eisenkraft: Many firms have spent a fortune on banner advertisements just when consumers have spent money buying software to block them. There has been a significant decline in click-through rates.
Many firms have tried to do traditional ads online, but I'm fairly skeptical this works. I believe in the online world, content replaces advertising.
Schneider: It's the "dot-comization" of the world. The Internet offers a great opportunity, but the same challenges as with other mediums such as how do you get your advertisement noticed and find relevance. The Internet simply presents another playing field.
Fund companies need to decide how the Web integrates with their marketing strategies.
Spitzner: I'm skeptical about the effectiveness of banner ads. I think creative alliances and securing premium positioning on targeted sites are the wave of the future.
MFMN: Do you think mutual fund sponsors will want to develop a single campaign that speaks to a variety of audiences across different media? Or will they opt to hone medium-specific messages to individual audiences?
Beeson: I think the smarter ones will tailor messages to the audiences that they are serving. I think most that try to have the same message for all demographics will lose.
Bernard: The ability to communicate one-to-one successfully depends on how much information you have about that person and your ability to target them directly. Currently there is much debate about how marketers get their information and what type of information they get. This has led to the notion of "permission marketing," which puts the customer in the driver's seat.
Eisenkraft: A single campaign in traditional media is not the way of the future. There's a glut of new magazines to target specific audiences. Some who have placed print ads in non-financial magazines have discovered it doesn't work. You can customize on the Internet but different media have their limitations.
Schneider: Fund companies will do both. Some organizations that have such a large customer base will talk broadly supported by more targeted messages. Others have more laser-like audiences. The general trend however is to present the same image across all vehicles - to have a consistent look and feel with a logo, image - but customize messages.
Spitzner: Fund companies will improve their ability to segment their target market and create segmented product and service offerings. Advertising will reflect this segmentation strategy. We'll see all-things-to-all-people advertising replaced with advertising that is highly relevant to certain segments.
