By Steven Miyao Chief Executive Officer kasina
Retailers know it. Successful asset management firms know it, too. The fact is that when it comes to selling products, not all shelf space is created equal. How much you sell depends heavily on where your products are and how they are presented, whether they're on display in a store or on a Web site.
Historically, firms have been happy to sign selling agreements with distributors and then trumpet their access to an expanded platform. But while the selling agreement gets you in the virtual door, it doesn't help you close a single sale.
Maximizing shelf space value is not just an exercise in adding more slots but of securing the most valuable slots across the industry. Asset managers need to recognize that shelf space is not made available in random ways. Distributors have processes that drive additions and deletions of products from shelves that determine when shelf space opportunities will exist.
Packaged & Trendy Products
Like most sales organizations, financial product distributors want to move the inventory. To that end, they promote products on their shelf space that bring them the most profits. These include packaged products like defined contribution, mutual fund wrap and separately managed account wrap platforms that are profitable and easy to market. Distributors and financial advisers like these packaged products because they streamline operations and provide clients with asset allocation and automatic rebalancing.
Behind that comes the "it" products of the day - adviser-as-portfolio-manager, alternative investments and exchange-traded funds, for example. These are attractive to the investor and not as profitable or operationally beneficial for the broker/dealer as the packaged products, but their popularity warrants the increased visibility of the shelf space.
Finally, there is the virtual "bargain basement," where traditional mutual fund, variable annuity and individual security products are put. These are generally lower margin, and also mean increased operational hassles for the broker/dealer.
Every distributor is unique, but understanding their floor plan is critical to product development and marketing efforts. Firms must understand where to best put their products to get the best exposure to advisers. For asset managers that want to avoid the bargain-basement treatment, the solution is clear: Make sure your offerings are aligned with the way products are presented to advisers within the distributor's virtual store.
Measuring Shelf Space
Shelf-space opportunities do not simply happen. Allocations are dynamic and reflect changing marketplace needs. No matter where you are positioned today, there is always opportunity to capture, or lose, additional acreage.
Calculate the value of your shelf space by using a formula that weighs the size of the shelf space by looking at: market-share opportunity, stickiness of assets, number of competitors, recent product sales and revenue potential. Shelf space is optimized when a firm has fully leveraged the value inherent in the space to maximize revenue generation, profitability and the strategic value of the relationship.
But to move up in this world, you must first know where you are. Unfortunately, many firms have no formal process in place for measuring shelf space beyond a listing of the products they make available to the distributor. A more active program would seek, at a minimum, to capture shelf-space data with an eye toward anticipating product turnover and new opportunities. By understanding how cost and performance impact a distributor's decision-making, the asset manager is positioned to develop and offer new products to meet these changing needs in a timely way.
Interestingly, the value of shelf space within an organization is not always equated with high volume sales. In one instance we examined, a firm focused on selling a short-term bond fund that was gathering substantial assets. The product won a significant amount of shelf space in a national wirehouse channel. However, following an evaluation of the shelf space, the managers realized that the turf they occupied was not very valuable after all. Redemption rates were high and profitability was low. As a result, they changed strategies, moving their shelf space to a more profitable large-cap product with better stickiness.
The Way to Bet
The writer Damon Runyon once wryly noted that, "The race isn't always to the swift nor the battle to the strong, but that's the way to bet." Similarly, capturing shelf space may not resolve all an asset manager's sales issues, but without it, the battle certainly will be lost.
Runyon would no doubt agree that in making a wager, the bettor is well served to have as much information at hand as possible. That is the basis for what we call our "intelligent acquisition" strategy, a collaborative effort on the part of managers that combines executives from key accounts, distribution and sales, and product development to drive new sales. Intelligent acquisition provides a framework for integrating the efforts of these groups, from understanding how a particular distributor allocates shelf space through new product design and support. Properly executed, it will help firms maximize their presence in the virtual store, while increasing the profitability of products sold.
Financial services consultancy kasina has published a new whitepaper, "Beyond Key Accounts: A Smarter Way to Work With Distribution Partners," that provides a more detailed analysis and recommendations for asset managers seeking to capture and hold shelf space. For more information, or to purchase a copy, contact them at: www.kasina.com.
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