In light of an evolving market, faced with new competitors, and after a careful analysis of their current customers, the Vanguard Group (hereinafter referred to as “Vanguard”) realizes it must rethink its entire marketing strategy. However, in order to protect and leverage their competitive advantage, which is their low management fees, and to optimize the loyalty that their customers continuously demonstrate toward their organization, they must now target the most profitable segment for them, and develop the best way to serve and delight these customers.
•Low fees strategy;
•Consistently above average performance and competitiveness of the majority of Vanguard funds (Exhibit 2); •Quality driven corporate culture;
•One of the highest loyalty scores in the industry, with a redemption rate under the industry average; and •Good reputation.
•Low brand and advertising awareness;
•Under-exploited customer database;
•Vanguard sees marketing strictly as an expense, rather than a long-term investment; •Website is geared towards providing information instead of selling Vanguard products; and •Excessively low fee pricing policy doesn’t allow higher revenues when they perform better. Opportunities
•80 to 90% of Vanguard clients have funds in other organizations; •Investment opportunities with pension plan members to offer them additional services (cross-over), as well as to reinvest their pension plan earnings after they retire (roll-over); •Competitors are fleeing the under one (1) million dollar segment, which represents 8.9 million households; •New opportunities for online transactions, which are low cost; and •Brokerage firms would be willing to sell Vanguard products in exchange of a fee/commission. Threats
•Two (2) major competitors in the below one (1) million dollar market (Vanguard’s relevant market segment), which are Fidelity and American Funds; •Financial Services deregulation allows major competitors to enter Vanguard’s line of business; •Slow growth rate across the mutual fund industry (Exhibit 3); •Most big companies (institutional clients) already have their retirement plans in place; and •Mutual funds sector experienced high redemption in 2002.
IDENTIFICATION AND EVALUATION OF ALTERNATIVE STRATEGIES
Identification and Preliminary Evaluation of the Alternatives
Concentrate on their current clients, broaden and deepen their relationship with them, while maintaining current offerings PROS:
•Easier to market to current clients (Vanguard already has information about them and a direct way to communicate with them = low marketing costs involved) •More than 80% have funds in other organizations (big potential) •High satisfaction and loyalty rates
•Strengthens the customer focus orientation
•The needs of the below $1M segment are in line with the current Vanguard product offering •Important database of members involved in pension plans (through their employers)
•Clients may not want to put all their holdings with Vanguard •Not all the current customers are profitable
•Vanguard may not offer all the products and services that these clients need •High net worth clients are expensive to serve
Target competitors’ market share by attracting customers from competitors in the mutual fund business PROS:
•Increases the number of customers
•Good reputation and high performance of Vanguard funds
•Competitors are fleeing the under $1M segment
•Not all the competitors’ customers are profitable for Vanguard •The competitors are also trying to keep their customers
•It’s very costly to attract customers from competition Alternative 3:
Develop new services and businesses (stocks, derivatives, foreign exchange, commodities and hedge funds, among other things) and become a full-service financial...