News, Vision & Voice for the Advisory Community
New Yorker writer warns against the amorphous marketing blob that GM and Dell succumbed to
April 2, 2010 — 5:30 AM UTC by Brooke Southall
Brooke’s Note: In this week’s issue of the New Yorker magazine, James Surowiecki artfully showed how some companies market themselves to great success and how others spin their wheels. I believed after reading it that RIAs could learn much from what he wrote about Apple, Ikea, General Motors and Dell. The latter two companies, he writes, are struggling because they serve the “mushy middle” whereas the former two companies succeed by existing at the top and bottom of the price scale accordingly. But to better draw the parallels to the RIA business I interviewed some of the top consultants and marketing experts in the financial advisory field including: Tim Welsh, Matt McGinness, Eliza De Pardo, Pat Allen and Dan Inveen. Their observations can be read later in this article.
Apple Inc. is taking a gamble with its release of iPad because the device, at about $500, will be a significantly more expensive tablet than competitive products, writes James Surowiecki in the March 29 issue of the New Yorker in an article entitled, “Soft in the Middle.” [RIABiz webmaster Nevin Freeman notes, however, that most competitors haven’t released their tablets or the prices.]
But the bet looks promising because Apple’s build-it-and-they-will-pay approach has worked for the company in a variety of other categories — iPhones, iPods and Macs, he writes.
The article goes on to say that the irony of Apple’s success is that Ikea, H. & M., and the makers of the Flip video camera are also succeeding with what appears to be the opposite strategy.
Success isn’t excellence
“They’re engaged in what Wired [magazine] recently christened the 'good-enough revolution’,” Surowiecki writes. “For them, the key to success isn’t excellence. It’s well-priced adequacy.”
But he adds that both these approaches have one crucial thing in common: “They don’t target the amorphous blob of consumers who make up the middle of the market,” Surowiecki writes. “Paradoxically, ignoring these people has turned out to be a great way of getting lots of customers, because, in many businesses, high- and low-end producers are taking more and more of the market.”
So, if financial services is thought of as a three-tiered market, where do RIAs fall?
Dan Inveen, principal and director of research for FA Insight believes that generally RIAs are on the top tier where Apple sits in consumer electronics. RIAs are offering high-value services to big-spending customers, he says.
Underestimate what it takes
“I see most RIAs going the Apple route, i.e., comprehensive wealth management for high net worth clients,” he adds. “The challenge here is that this [segment] is where all the competition is and many firms underestimate what it takes to truly provide comprehensive wealth management to high-net-worth clientele. There is less competition for advisory firms that go the Ikea route and cater to the mass affluent. The catch for the Ikea advisors is to be very disciplined in terms of sticking to set processes, set service packages and a target client in order to keep costs down.”
Timothy Welsh, president of Nexus Strategy LLC in Larkspur, Calif., agrees RIAs could be put into the build-it-and-they-will-pay slot in the market. RIAs command high fees – and they promise better service.
“The reason RIAs win is because they’re unique and different — different distribution, local and holistic,” he says.
Inveen also knows where a financial advisor does not want to go.
“I would advise advisory firms to stay away from the mushy middle as that is a kind of no man’s land – you can survive there but your growth prospects will be limited,” he says.
Squeezed from both sides
The companies famously in the “mushy middle” — Sony, Dell, General Motors, and the like — find themselves squeezed from both sides, Surowiecki writes. The products made by midrange companies are neither exceptional enough to justify premium prices nor cheap enough to win over value-conscious consumers, he adds.
In seeking to avoid the mushy middle, advisors don’t need to apply that logic to how they charge fees, according to Eliza De Pardo, principal and director of consulting for FA Insight.
“To be successful in delivering advice a firm does not need to be cheap or expensive, in the middle on fees is not a disadvantage,” she writes in an e-mail. “I would contest that no one wants to hire the cheapest heart surgeon or the cheapest financial advisor! However, the ability to define a distinct offer to the market and communicate the value delivered will dramatically impact on their ability to grow and compete.”
Pat Allen of RocktheBoatMarketing of Chicago believes that there are marketing principles for RIAs to adhere to that steer them clear of the mushy middle.
“One of the reasons I believe so deeply in social media for advisors is that advisors can use their online presence to draw like-minded clients to them,” she says. “Contrast that with the guy who hangs a shingle and accepts whatever business materializes. That runs counter to business-building advice that encourages entrepreneurs to 'know what business you’re in.’
Blogging or tweeting
Allen adds: “By blogging or tweeting or taking part in targeted topics online — I’ve seen wine-loving advisors, marathon-running advisors, etc. — advisors can shape their practice into a specialty, which should enable them to scale and be more profitable and maybe more satisfied. This happens offline but only when someone already has an advantage, as in the ex-pilot who becomes an advisor and his practice is all pilots and ex-pilots.”
Matthew McGinness, principal of Best Practice Research in San Diego, says that, RIAs aside, financial advisors in the “W-2” market [i.e. employees] have a mushy middle — and more successful models in the Apple and Ikea realms.
On the pricey, better-mousetrap side of the equation, you could perhaps place private bankers who serve ultra-affluent investors, he says. The amorphous middle might equate to all the brokers who work for wirehouses, Edward Jones-type broker-dealers and regional broker-dealers.
Scottrade and Ikea can be equated
The low-end but well-priced adequacy could be equated with the retail offerings of Scottrade, E*Trade and the like, he adds.
In financial services, it’s not yet clear how well consumers are attuned to the differences between a broker at Charles Schwab & Co. and Merrill Lynch – or an RIA, McGinness says. “I’m not sure there’s any research that validates that consumers perceive any differences” between those two kinds of employee-brokers, McGinness says.
For more, read Surowiecki’s article in the New Yorker, Soft in the middle.
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