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Marketing Wiz has been consistently providing you insights on how you can use smart marketing techniques to win new clients and boost business growth. But marketing is not only about winning new clients. CEOs of large firms also look to their marketing teams to come up with strategies that can effectively combat powerful new competitors or new solutions to existing consumer needs - which are threatening or eroding their existing customer base.
For mutual fund distributors, the big disruption in business has been the advent of direct plans that offer the same product at a lower price. Many distributors are seeing clients who have been with them for several years, now shifting to direct plans, as they are cheaper. Many distributors are unable to respond convincingly when clients ask them why they should buy the same product at a higher price, when a cheaper option is available.
Is there a marketing solution for the challenge of direct plans? Perhaps there is. It's not easy, but here is a humble attempt from Marketing Wiz, to help distributors start thinking on the best way to respond to what is turning out to be a big challenge.
Reframing value
Marketing gurus will tell us that the answer lies in the concept called "reframing value". Value is the benefit that a consumer derives from a product or service he buys, and price is the cost he pays in the hope of getting the desired benefit.
A lower cost competitor will advertise the lower cost as the key benefit. He seeks to reframe value in the eyes of the consumer as the lower cost of his product. The entrenched player - whose product is suddenly looking like a "high cost" option and therefore one with lower value, has to do his part to reframe value in the eyes of the consumers, to enable them to see the benefits of his product or service. Of course, it follows that this will work only if the benefit of opting for the higher cost solution is indeed higher than that of the lower cost option.
In the case of direct plans, media has been consistently playing up the lower cost of direct plans as a key benefit. Value is being reframed as a lower price point. What should distributors do? Attempt to reframe value by showcasing the benefits of their advice and service, which come alongside the decision to buy regular plans from them.
But, Indian consumers are very price conscious
Many distributors believe this is a no-win battle, because the Indian consumer is exceedingly price conscious. Numerous examples will be given to show how Indian consumers naturally gravitate towards a "good deal" and towards lower cost solutions. While that argument certainly has some merit, it may be useful for us to stop and consider just a couple of Indian consumer behaviour traits that show us that cost is not everything for the Indian consumer, especially when they see value.
We are very used to seeing new movies by either buying pirated DVDs or downloading them from the net, for free. Why pay Rs.250 per head for a family of 4 to watch the movie in a multiplex, when you can buy a pirated DVD at Rs.100 and watch it at home? And, if you are patient enough to wait for a week after the release, the DVD print will also be a good quality one! But, somehow that argument goes for a toss when there is a festival release of a blockbuster movie of one the Bollywood kings. The mood is to go with family and friends to see this big movie on the big screen during the festive weekend. "Yeh picture toh bade screen mein dekhna hai!" And, when you go with the gang for the movie, you don't think twice about the additional amount you spend on popcorn, ice-creams and so on. Why is the price conscious Indian consumer blowing so much money on this movie, while he waits for a week for another release and buys a pirated DVD at a fraction of the cost? Because he sees value in the overall experience of seeing this big blockbuster "on the big screen" with family and friends on a festive weekend. It is the overall experience that he is willing to pay a much higher cost for, knowing fully well that a much cheaper option is available.
If price was indeed everything for the Indian consumer, why is it that all of us are not owning the lowest priced mobile phone - the basic ones that come within Rs.2,000 - Rs.3,000? Each one of us has a finely developed price-to-value equation when it comes to buying mobile phones. Some of us want better cameras and are willing to pay for that, some want more games and are willing to pay for that, some want a super-sensitive touch feature and are willing to pay for that, some are very brand sensitive while others are not, and so on. Mobile phones are available from Rs.2,000 to Rs.45,000, and each one of us makes a choice on what works best for us. Price is not everything - it is the value that each one of us sees in the extras that are thrown in beyond normal voice and text functionalities. From a marketing perspective, each mobile player attempts to play up the value proposition that they want consumers to connect with. Some talk about lower cost, others talk about superior features, and the benefits of these features.
So, how should a distributor reframe value
If we accept the notion that its not only price that matters, and that the Indian consumer is willing to pay a higher price PROVIDED he or she sees value, then the task at hand is to showcase value of your proposition, in a manner that your clients can relate to and appreciate.
Here is a framework for you to think about, when you are trying to reframe the value of your proposition in the eyes of your clients:
What is the outcome that you are working towards, when you draw up a financial plan for your client and commit yourself to periodic reviews over the next 10-20 years of this plan? The outcome is simple: that your client will achieve his financial goals, and therefore live a life free of financial worries.
What is the biggest risk in achieving this plan? The biggest risk is not market volatility or wrong fund selection - it is falling prey to market volatility and making wrong decisions at the wrong time, during this 10-20 year journey, and therefore jeopardizing the entire plan
How do you mitigate this risk? You are an experienced advisor who has seen several market cycles, whose job is to stay in tune with market developments and decide when to take corrective action and when not to. This wisdom gives you the ability to provide emotional support at times when clients are nervous and you are not, and take corrective action in the portfolio when clients are euphoric while your experience suggests otherwise.
Reframe value in a manner your clients will understand
Markets are like a rollercoaster - they go up and down at dizzying speed, but eventually get you to your destination.
You have fun in a rollercoaster ride, like the people in this image, only when you have the protective gear around you, which they are clutching. It is this protection that gives them the confidence that they will be safe - only then are they able to enjoy the ride.
You offer that protection, when they embark onto a journey in equity markets. It can be a wonderful ride, when you know that you are in safe hands, it can be a terrifying journey when you are not well equipped.
Lets say the amusement park offers a discounted deal - 25% less for rides without the protective gear. How many will take this up as a smart deal?
To conclude
Some of your clients have reframed value based on media reports to believe that buying a direct plan is a smart move. Your job is to re-define value in their minds, rather than fighting on cost. Good things don't come cheap. There is a price to pay for a higher value. The Indian consumer does pay for value when she sees value. Your job is to showcase the true value of your proposition over the next 10-20 years, and help your clients reframe value from cost to benefit.
All content in Marketing Wiz is created by Wealth Forum and should not be construed as views of Kotak MF.
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