Thursday, November 30, 2000

Online Traders: From Brokers to Wealth Managers

UK online stockbroking business models are floundering as today's sites under-serve the needs of mainstream investors, who will comprise 80% of the nation’s 2.4 million expected online traders in 2005. According to a recent report from Forrester Research, a new breed of investment sites -- wealth managers -- will emerge, wooing mainstream investors with portfolio consolidation, analysis and advice.

"The UK online stockbroking market has proved tougher than expected. UK online stockbrokers are struggling to make their business models add up, with fewer online customers and higher customer-acquisition costs than anticipated, and few sources of revenue other than volatile trading commissions," commented Charlotte Hamilton, analyst at Forrester's UK Research Centre. "By 2004, nearly all new customers will be from the mainstream -- investors who trade less often, have less appetite for risk, invest more of their assets in funds and want more decision support than the early adopters of today."

"Most of today's execution-only online stockbrokers are poorly placed to serve these mainstream investors. The bare-bones trading platforms that firms offer give little reassurance about security, education about investment risk or help with investment decisions. Also, few offer online customers channel choices other than the Web -- such as access to branches in the high street."

Forrester asserts that wealth managers will consolidate customers' investments using nominee accounts -- giving investors a combined net-worth view of investments. Stock- and fund-performance charts will evolve, letting customers analyse and model portfolios and create their own benchmark indices. As well as portfolio analysis, mainstream investors will require decision support for investing online. Wealth managers must offer educational tools to help less-experienced investors and build advice tools helping customers choose investments.

Forrester believes firms attempting wealth management must meet a number of tough criteria. Wealth managers must partner with multiple vendors and other financial-services providers to build online tools, broaden the product range and expand across channels to reach more customers.

"Many of today's undifferentiated, execution-only stockbroking sites won’t survive -- becoming extinct or succumbing to industry consolidation," Hamilton concluded. "Those that remain will assume one of three roles: compete against private banks and portals in online wealth management; adopt a niche role serving active or high-net-worth online traders directly; or act as a white-label stockbroking platform, offering their online broking services to other sites."

For the Report Overhauling UK Online Investing, Forrester spoke to 27 of the 29 firms that offer online stockbroking in the UK -- including banks, online-only and multi-channel stockbrokers.

Study Shatters Internet Marketing Myths
Companies that are spending lavishly on Web brand marketing and advertising in hopes of attracting young and trendy customers to their websites are overlooking the most profitable consumer sector and the simplest marketing remedies. These are just two of the surprising findings, released today, in an eBranding study conducted by Andersen Consulting, a leading global management and technology consulting organization, and Online Insight, an eCustomer Relationship Management technology company.

The nationwide study on Internet marketing spending, “Beyond the Blur: Correcting the Vision of Internet Brands,” shows that companies could realize dramatic returns from online marketing efforts if only they targeted their marketing to the ten percent of the population that buys 70 percent of all products online. That ten percent is primarily comprised of people 35-and- older, not the GenX segment so often associated with the Internet. Furthermore, the study found that the best ways to reach the buying public are:

1) Provide a rewarding customer experience, instead of barraging them with massive brand advertising.

2) Recognize who their customer really is; consumer needs are very, very different between segments and a website should not be designed as “one size fits all.”

“When it comes to online marketing initiatives, companies are ignoring the basic marketing principles traditional businesses use – first, choose your target more deliberately, and then focus marketing efforts to reach them,” said Stephen Dull, partner in Andersen Consulting’s eBranding practice. “Instead, many companies are spending a lot of money on sweeping Internet marketing initiatives and huge advertising buys that are not targeted. This study affirms that ‘Marketing 101’ applies in the Internet world. Success is not achieved by throwing around as much money as possible, but by inspiring customers to buy more.”

This U.S.-focused B2C research of online customers, offers important new insight into the perceptions of digital consumers. The landmark study’s findings will help companies to measure and understand the true driving force behind their online customers’ purchasing and, in turn, to devise better brand-building strategies across all customer interactions. The study’s findings are especially vital to companies seeking to profit from online marketing initiatives during the expensive holiday and Super Bowl advertising cycle.

Another surprising finding is that nearly a third of online consumers are not motivated by price. According to the study, these online consumers are more interested in website speed, ease of use, security, and overall brand selection.

“The secret to building brand equity is not so much in huge advertising buys, fancy logos or constant price- slashing; it’s in fully understanding customers’ needs and providing them with an exceptional experience tailored to those needs,” said Dull.

The comprehensive study’s findings are pertinent to companies seeking to establish, build, and sustain an Internet brand.

The study measured the desires of more than 2,000 online purchasers using B2C websites across 17 industries, including automotive, entertainment, communications, financial services, high technology, healthcare, retail and travel. Participants also were surveyed on a variety of issues regarding their Internet usage, brand awareness, knowledge of pricing and product information, and customer service.

“For many people, a brand conjures up thoughts of company logos, product packaging or images and feelings associated with a particular product or company,” added Mark Wolfe, lead strategy partner in Andersen Consulting’s Customer Relationship Management service line. “Yet, a brand is so much more. This research shows that a brand should be defined as ‘the sum total of the customer’s experience with, and perceptions of, a product or service.’”

“It’s a highly competitive marketplace and companies must move quickly to protect their eBrands,” said Ken Forster, president and CEO of Online Insight. “Our research proves that understanding how consumers make decisions is key to surviving in this Internet economy.”

Three of the eleven B2C marketing myths that this study proved false include:

Myth #1: Target the young. Success in the online world comes from grabbing as many young, hip and trendy customers as possible.
Reality: In fact, only 10 percent of the population accounts for 70 percent of all online spending and the heavyweight spenders are 35-years and older.
New Strategy: ‘Forget the eyeballs and focus on the wallets.’

Myth #2: It’s all about the price. Most customers opt to buy on the Internet to get things more cheaply.
Reality: Pricing contributes no more than 10% to the eBrand value. The other 90 percent has nothing to do with price but everything to do with website features and brand availability.
New Strategy: ‘Focus on your experience to raise the bottom line.’

Myth #3: Marketing is the key to brand building.
Reality: The consumer experience is key. Online brands can build more value by improving the overall customer experience and by tailoring their websites to their target audience.
New Strategy: ‘Think segments to streamline the right experience for the customer.’

The study was conceived by Andersen Consulting’s eBranding practice and conducted jointly with Online Insight. Online Insight conducted the nationwide research of more than 2,000 online consumers focusing on consumer needs, including Internet usage, broadband usage, spending, brand reputation and satisfaction, and demographics. The results address issues on branding that apply across 17 industries.

News Tidbits (appears every day on front page)
- Amazon.com is fighting against unionization. The company is encouraging employees to reject union offers and is giving supervisors a list of warning signs to look for when employees may be considering voting in favor of a union.

-iCast closed its Website this morning. The entertainment Website is just another of dozens that failed to make it online. Click here to see their goodbye message.

-A judge has rejected Dendrite International's request that the names of four people posting anonymously on Yahoo be revealed to the company because the four committed libel and publicly posted company secrets.

-A new law in Japan that takes place beginning next year will loosen regulations surrounding the Internet in order to increase eBusiness and usage.

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