Securities industry takes new look at customers' needs to shape its marketing
Looking for a place to invest your money? Whether you are an individual or an institutional investor, much more elaborate welcome mats may soon be laid out by brokerage houses, banks, and insurance companies. In the quest to attract investors, marketing is becoming pivotal in deciding which firms will survive into the 1990s, according to a study on the future of the securities industry by Arthur Andersen & Co., the accounting and consulting firm, and the Securities Industry Association (SIA). The study, released Wednesday, was based on 600 interviews with bank, securities, and insurance executives as well as regulators and customers.
``You will find an industry much more attuned to the customer,'' predicts Marc Sternfeld, an Andersen partner.
Whether the industry responds to consumer wishes may depend on its taking this study to heart. For one of the major findings is a difference between what customers say they want and what the companies say is important to the customer.
For instance, given six criteria for choosing an investment firm, clients rated image and reputation as second most important to them. But the industry executives put that at the bottom of the list. And having a variety of products to choose from was high on the executives' priorities, while customers indicated it wasn't a primary consideration.
Understanding the retail client's needs and developing a product to meet them is one of the basic steps of marketing. But according to the study, the traditional approach of the securities industry has been to develop what is considered a good investment vehicle and then to sell the customer on it.
``The security industry just hasn't focused on understanding the retail customer,'' Mr. Sternfeld says.
That's beginning to change, says Stuart Sklar, senior vice-president for marketing at Prudential-Bache. He cites expanded client surveys conducted by his firm in the last year or two. And industry observers concur that the value of a customer voice in the initial stages of product development is just now becoming widely recognized.
There is also a growing awareness of what some consider a glut of new products -- more than any one broker can keep abreast of and more than most customers are interested in. ``The number of new products in the last couple of years is mind boggling,'' Mr. Sklar says. And he points out that new product development is expensive.
Jeffrey M. Schaefer, SIA director of research, predicts: ``You're going to see the industry making the hardest of managerial decisions: subtracting products.''
Perhaps. But Sklar of Pru-Bache notes that if a competitor comes out with a solid new product, there is pressure for other firms to match it.
The toughest competitor for banks and securities firms will be diversified financial service firms, such as American Express and Sears, Roebuck, according to the study. They bring with them deep pockets and the proven marketing expertise that is expected to be so important in attracting retail clients.
Most firms will aim their marketing at individual customers earning more than $80,000 annually and middle-market companies -- Fortune 1,000 firms.
For the industry itself, the sources of growing revenue will be fixed-income kinds of products, underwriting, and mutual fund sales and supervision. But with intense competition, securities companies will be beset by a squeeze on profit margins. Indeed, ``for the 1980- 1983 period, securites industry expenses have been rising at a faster annual rate than revenues,'' the study reports.
That trend may continue. Industry bosses predict that by 1988 the cost of technology (designed to increase productivity) will have risen by a compound annual growth rate of 34 percent. Promotional and communication costs will also rise, by 26 and 27 percent, respectively. But executives also list controlling costs as the most important thing affecting profits. Customer service, pricing, and marketing are secondary.