Joe Ricketts can admit it now. He wasn't optimistic enough about the growth potential of the on-line brokerage industry. "The growth of the Internet absolutely caught us off guard," says the CEO of red-hot AmeriTrade, who acknowledges the paradox that being too conservative nearly caused his company to be left behind. "We thought it would take a generation for the Baby Boomers to adopt on-line as they have. We were wrong."
The result: Omaha, NE-based AmeriTrade was forced to go public ahead of schedule and tap an eight-figure credit line to fund a come-from-behind branding strategy. This year, the company will nearly triple its marketing budget to as much as $60 million. "Advertising and branding (are) key for us now," says Ricketts. "This market has a new paradigm. ...The Internet makes banking, brokerage and insurance a commodity, so you have to distinguish yourself."
out for blood
While exact figures remain elusive, one Madison Avenue source forecasts that on-line brokerage services will spend $300 million this year to distinguish themselves in the evolving Web market.
In other areas of financial services, the march to originating business on the Internet has been slower-particularly for more traditional players. Dozens of insurance companies offer information on-line about policies and rates, but none compete aggressively with a clearinghouse like Quotesmith whose Web site allows visitors to instantly select from hundreds of policies and then sign up with the click of a mouse.
Lenders may promote loans, but lack the traffic and skill of an Auto-By- Tel to actually close the deal. Moreover, players like Beneficial Corp. have found that even when they take credit applications on-line they are not attracting the customers they want. "There is an absolute disconnect here," says one advertising executive who works for top banks but asked not to be identified. "Everyone went out and built a Web site, but they have no idea of how to build traffic or how to even attract the kind of customers they want. They think that name recognition is the key to success. It's only the beginning." D.R. Grimes, CEO of Atlanta-based, Internet-only thrift Netb nk Inc., contends that any effort to make the electronic channel more attractive benefits every vendor. Some banks, on the other hand, are content to let other companies take on the risk and expense of building the market for on- line transactions, and expect to win or buy customers at a later stage in the technology adoption cycle. "That's an arrogant position to take," says Bill Burnham, senior research analyst at Piper Jaffray & Co."The banking industry is in for a rude surprise if they think they can just walk back in and take back customers they've lost for good reasons." Burnham characterizes competition among banks as "nice and sanitary," while, "the on-line brokerages are out for blood."
But there is a strategy to some banks seemingly simple approach. "The message has to be consistent or it results in confusion," says Brandon Cashion, director, financial services group at Addison Whitney, a corporate image consulting firm. Bankers should apply that dictum, he says, to the look and feel of the message, as well as the content of their Web sites. "If a bank's TV commercials emphasize that the bank is friendly and easy to deal with, and then their site is hard to navigate, and you can't find an e-mail address where you can send your questions, the bank is sending mixed signals."
While smaller banks may not have the extensive resources to devote to such message marketing, the Internet has leveled the playing field somewhat. Consider the plan at WSFS Financial Corp., a Wilmington, DE-based community bank which expects to support on-line transactions by year-end. "We're a community bank, and we compete on customer service and availability," says Martin Katz, senior vice president and marketing director at WSFS Financial. "Size is less important; we will soon have a Web page that's as good as or better than First Union, and we're much smaller."
Don Taylor, president of Cendant Strategic Marketing, the Nashville- based subsidiary of direct marketing powerhouse Cendant, says the company's work with smaller banks shows that many view the Internet as part of a retention strategy-not as a way to win new business. "The issue for most is now that you've built this Taj Mahal, how do you get people to come to it?," he says. WSFS' Katz may be more qualified than most to answer this question, having recently joined WSFS after spending the better part of 1997 building brand recognition at AmeriTrade. "To succeed, a Web site has to be interesting, informative, and a little bit fun," he said. "To get people to come back to the site, you need to keep it fresh."
AmeriTrade, for example, released new Internet advertisements-known as banner ads-every two weeks at the height of its marketing push late last year.
beyond price wars
AmeriTrade's Ricketts won't say how his $60 million branding budget will be spent this year, though the company is currently promoting its low-cost trading services on everything from on-line ads to direct mail and national television commercials. "Ameritrade has shown that a brand can be built with brute force-a sort of saturation-bombing approach," says Burnham.
But the challenge remains to retain brand identity in a sea of competitors. E-Trade, for example, is now in the midst of switching strategies from a price-based campaign to a service-based promotion strategy. Charles Schwab has the edge in this particular game-the company has built its service identity consistently over the last decade. Schwab's service strategy, in part, has enabled the broker to rise above current pricing wars.
Such rapid change can be dizzying. Says Ricketts: "We had a five-year plan and we had to change it and squeeze it into about 18 months. The challenge is to constantly find a way to differentiate yourself to customers."
