The relationship between sales and marketing differs significantly among the various financial subsegments. Some segments have no sales function. Marketers that deal directly with the end user—such as credit card issuers, no-load mutual funds, and direct insurance sales—acquire and service their customers without the aid of a relationship-based sales force.
Some subsegments, such as banks and credit unions, sell primarily through a noncommissioned sales force. This is an example of “top-down marketing” in which a central group—either a product group or marketing group—sets goals and then instructs its staff to fulfill the directives. For example, a bank may decide that spring is a good time to sell home equity products. The marketing department oversees an ad campaign, branch signage, perhaps creation of a customer incentive, and telemarketing, direct mail, and Internet campaigns. Each branch is given a sales goal, and contests or other means are used to “mobilize the troops.” The branches with the most home equity loans originated are given a special prize, or the branch manager takes them all out for a pizza. Consumer banks have a mix of commissioned and noncommissioned sales personnel. The commissioned people include institutional sales executives, middle market and small-business calling officers, insurance and investment brokers, and mortgage bankers. The platform workers (tellers, supervisors, branch managers) are not on commission, even though they are usually expected to push products. Top-down marketing is efficient—all decisions are centralized and marketing budgets can be allocated on a rational basis. Campaign effectiveness can be easily measured, promotions stay “on brand,” and niche markets can easily be targeted.
Unlike branch staff, commissioned salespeople tend to think like entrepreneurs. They are only interested in a marketing program if it will translate to their bottom line. Sometimes called “bottom-up” marketing, in this arrangement marketing must “sell” the sales force first and then the end client. As an example, a major brokerage company wanted to consolidate and centralize client information in order to be able to handle any client inquiry seamlessly, whether the inquiry was to the broker, the customer service center, or online. In a bank this would be routine practice. But in the brokerage industry, the sales force has traditionally maintained its own records for each rep’s personal use. A broker considers his “book of business” his personal property, notwithstanding lawsuits that routinely take place when a broker leaves one firm for another and takes his clients with him. In this example, marketing and sales were at loggerheads. Marketing won, but not without a great deal of reluctance and ill will on the part of the sales force. In most bottom-up industries, which include brokerages, insurance, and institutional sales, in-house commissioned salespeople have nearly exclusive access to clients. If the marketing department wants to reach a client, they must work through the salesperson. Finding a way to convince the salesperson that a particular product will lead to more sales may involve creating costly materials. Items such as sales guides (how to sell the product), PowerPoint presentations, sales letters, articles for the sales force to place in local publications under their bylines, local customizable print ads, and radio spots are routinely provided by marketing or product management.
In order to sell the sales force, marketers have to budget more for any promotion. Yet, at the same time, they have less control over results. Prospect leads generated by advertising, direct mail, telemarketing, or online campaigns are turned over to individual salespeople (or their branch managers) for conversion. Thus, a successful lead generation campaign could well prove unprofitable if the conversion rate is low. And sales staff are notorious for ignoring sales leads generated by such campaigns. By one estimate, 80 percent of marketing expenditures on lead generation and sales collateral are wasted because these efforts are ignored by the sales force. Another difficulty encountered by bottom-up marketers is overlapping responsibilities between the marketing and sales management organizations. In most firms, sales management controls commission rates, bonuses, sales contests, and all other forms of compensation. With its limited input over the most crucial sales motivator, marketing has limited impact on sales results.
If the job of a marketer selling to a captive sales force sounds difficult, consider the plight of the marketer whose target is a third-party salesperson. Commissioned sales representatives may be independents, or work for banks, brokerage, or diversified financial firms. In insurance, for example, companies without a captive sales force may sell their policies through independent insurance brokers, who can recommend anyone’s policy to their clients. Similarly, mutual funds, retirement funds, and other investment vehicles often sell through third parties. In the early 1990s, about 40 percent of mutual funds were sold directly by fund management to end consumers, as no-load funds (that is, without an added sales commission). By 2003, only 18 percent of funds were sold directly to consumers. Of the rest, 37 percent were sold through financial supermarkets, such as those offered by Schwab and Fidelity. (These funds may be sold with or without loads at the discretion of fund management.) And 45 percent were sold through brokers as load funds, up from 32 percent in 1998. When selling through brokers, companies that previously offered only no-load mutual funds developed new share classes that carried loads—including front end, back end, and contingent loads. Then these companies had to develop mechanisms for selling these load funds to brokers. Since there are more than eight thousand mutual funds in the United States, getting a mutual fund (or closed-end fund or annuity or money manager/wrap account) in front of a third party has become as difficult as getting a new grocery product on a shelf. And like groceries, brokerages started charging for “shelf space.” In this arrangement, fund families paid “revenue-sharing” fees to the brokerage firm in order to gain access to the brokerage’s sales force. In addition, some funds used “directed brokerage” in which a fund company agreed to direct a specified amount of trades to a brokerage in exchange for greater access to its sales force.
Along with other questionable sales practices, such as compensating sales forces with 12b-1 fees and using sales contests to raise commissions for brokers who sold certain funds, these actions have drawn the scrutiny of regulators. And even if these particular practices have been reformed, fund marketers still face the problem of breaking through the clutter to sell to third-party brokers.
The high-net-worth (HNW) market is served by many types of financial firms, from trust departments, private banks, and upscale investment banking firms to individual financial advisers or “wealth managers.” Although $500,000 in investable assets will get someone HNW status with some financial advisers and firms, it may take $5 million or more to qualify for a private banker. For Goldman Sachs to handle a portfolio, the cost of entry will be $25 million or more. One of the most competitive areas is the managed-account business, in which money managers compete to handle the accounts of individuals through their brokers or bankers. The money-management company must first be selected by the institution to participate in its managed-account program and then must be picked from the list of approved managers by the individual adviser for his or her client. Not only is there intense competition among money managers but the number of banking and brokerage firms that offer managed accounts has skyrocketed in recent years as they have become popular with HNW clients.
People who become commissioned sales reps tend to be independent, which makes them difficult for marketers to influence. As one goes up the selling ladder to those who deal with the really big-ticket sales, particularly to institutions, the role of marketing becomes less and less important. These are sales that require a painstaking, one-on-one process, often involving long intervals between initial contact and closing the sale. Consumer sales cycles can take hours (for e-mail campaigns), days, or perhaps weeks. Institutional sales cycles—getting a new client for securities trading, investment banking, institutional asset management, plan consulting, credit analysis, risk management, prime brokerage, back-office services, or technology routinely take years.
Neuberger Berman provided modeling and profiling tools, seminars, programs to which brokers could invite their own clients, customizable newsletters, presentations, white papers, and other tools to help brokers keep abreast of new ideas and build their practices. “The real key is in the execution,” noted Trachtenberg. “It’s not enough to give the salespeople interesting information. It has to be actionable.” As an example, she cited a survey Neuberger Berman conducted on entrepreneurial wealth. Rather than simply presenting the survey results, the company put together a sales kit that walked brokers through the information and showed them how to use it to interact with their own clients and prospects. These were expensive programs, but they paid off for Neuberger Berman. According to Trachtenberg, the return in new business was as much as one thousand times the amount spent.
At the highest levels, the people who make the sales do not think of themselves as salespeople, but as partners, underwriters, or bankers. They don’t market—they network. A marketing expense might be flying a potential buyer in one’s private plane to Ireland for a round of golf.6 But even below this
Most institutional salespeople disdain retail-type tactics such as direct marketing. Although this attitude is changing and institutional sellers are beginning to think more strategically, most wholesale institutions have a long way to go before they are true marketers.
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