Invisible Brand

It’s a sort of Trojan-rocking-horse strategy, in which the Government’s gift comes with its own inbuilt hidden agenda.

WHEN THE FIRST OF THE NEW Child Trust Funds mature, the Government hopes to have created a whole new generation of financially-literate young consumers. It is further hoped that, by extension, their parents will have become better-informed financial planners and self-providers. Will commentators in 2020 look back on this initiative as having been a golden opportunity for today’s financial marketers?

On the upside, the Chancellor has created a very sizeable new sector in the savings and investment market.The Chancellor’s proposals for Child Trust Funds will give a silver spoon – or at least a silver-plated one – to every child born after 1st September 2002. On a rough calculation, that suggests the funds are likely to be worth around £1 billion by the end of the first year, and up to about £10 billion by the time they start to mature in 16 years’ time. That’s a pot of money well worth going for.

On the downside are three big issues. First, it doesn’t look as if there’ll be much money to be made, least of all in the short term. Even with the Chancellor’s somewhat begrudging increase of annual charges from 1% to 1.5%, the Year One gross revenue from a stand-alone £250 investment is just £3.75.

Second, the target market, whilst statistically quite large, is also problematically niche, because it consists mainly of parents in the few months after a child is born – a situation most will find themselves in just twice in a lifetime. Is it worthwhile to load up the shotgun and try to build long-term awareness and preference for your particular brand against such a moving target? This has to be debatable. But insofar as there are opportunities for the rifle, you have to recognise that all 150 potential players could be firing their weapons more or less simultaneously – the main effect of which could be that the target runs for cover.

Dismantling the barriers
The third issue is that the market will consist overwhelmingly of people who have minimal interest in financial services marketing communications and little, if any, financial literacy. The experience of trying to promote governmentbacked savings and investment ideas to such people to date has not been encouraging.The few organisations who tried to promote stakeholder pensions to them, for example, were thwarted by barriers of ignorance, distrust and lack of enthusiasm.ChildTrust Funds, admittedly, have two big advantages: parents don’t have to put their own money in; and providers can put pictures of cute babies in their ads. These considerations hardly guarantee that people will pay more attention to marketing communications for CTFs than they do for any other financial category.

As of today, there are a couple of million adults in this country who are interested in savings and investment propositions, and about 38 million who aren’t. Generally, the couple of million who are interested  consist largely of upmarket, middleaged and elderly men, who can safely be said not to represent the core target market for baby bonds. In terms of marketing efficiency, the name of the game must clearly be to identify the segments within that 38 million who really are ripe for conversion. (Of course, all parents of children born after September 2002 will have to sign up for something – but the best opportunities must lie with families who take a positive interest and can be persuaded to top up the CTF, or can be crosssold other products.)

Who stands to gain most?
The marketing opportunities appear to differ considerably between different kinds of potential provider as a result of their different kinds of customer relationship.

For big providers with lots of customer contact (i.e. most banks, and arguably some major retailers), it’s probably straightforward. They will make an initial splash in marketing and communications terms and  encourage customers to self-select with the help of strategically placed take-ones in-branch and in-store. They will then rely largely on direct marketing to target potential customers, using a variety of techniques including demographic profiling, analysis of patterns of expenditure and instructing branch staff to look out for female customers in a visibly delicate condition.

It’s what everyone else should do that’s hard to call. Assuming that the full spectrum of life companies, fund managers, building societies, friendly societies and others avail themselves of the opportunity and  decide to go for it, then it’s interesting to speculate about what ‘going for it’ actually consists of – especially when you’re up against competitors like Tesco who can spot the first appearance of Pampers on the Clubcardholder’s till receipt.

Savings-savvy children?
There is also a potential long-term branding opportunity to win the hearts and minds of these future adult financial consumers. If the presence of Kelloggs, Andrex or Fairy Liquid in their home throughout childhood is enough to create a powerful, subconscious brand allegiance in later life, why should the same not apply to their CTF providers?This may well prove true but, as a reality check, it might be worth asking oneself which topic of conversation would be most likely among a future group of 18 year olds about to get their hands on their maturing funds.The best choice of OEICs for their long-term investment strategy?

Or the best gap year fun you can get, complete with sex, drugs and rock ‘n’ roll? Possible outcomes Although the total amount of money invested in CTFs will become very substantial over the years, so will the number of child investors and the consequent administration costs. In the main, this is going to be big market share, low margin business, leaving only one or two winners with any real scope for profit in the mass market.There will undoubtedly be scope, too, for niche operators such as Witan to profitably exploit even a small market share by positioning the product as a taxfree savings platform for the children of more affluent families. And, of course, someone will surprise us with bright, lateral thinking. Would anyone be surprised if Virgin came up with a transfer product with ‘cool’ goodies attached?

There’s still almost a year till the launch of Child Trust Funds, and it’ll take a while to form a balanced view of the marketing opportunity they represent, not least because the initial launch will be distorted by a sizeable blip as vouchers for an accumulation of children born over 2 years are issued in one go. That’s bound to create a little excitement, but we may have to wait a little longer – perhaps until the lucky recipients reach 18 – before we can really read the impact of this initiative on the marketing of savings and investments.

One thing is for sure; no organisation intending to make a profit out of these activities is going to want a business model that calls for face-to-face selling or advice. As a result, a critical success factor will be readiness and ability to play in the direct market. It will, of course, be possible to do this on a cunningly-targeted basis. For example, it seems probable that our clients at Witan, the international investment trust, will use their children’s sub-brand Jump, to focus on the more aspirational and investment-literate young professional parents who reside in the ‘Nappy Valleys’ of Battersea, Putney and Richmond.

Finding the right way forward in the direct market will be trickier for the mid-size players who don’t have the depth of pocket or the customer access of the big generalists, nor the targeted propositions of the niche players. Among these are the friendly societies so it is all the more impressive to note that one of them – the former Tunbridge Wells Equitable, now The Children’s Mutual – is so excited about the potential of this market that it has rebranded in order to focus single-mindedly on it.There is talk that others may follow in their footsteps.

The wider agenda
Perhaps one of the most interesting aspects of the initiative is that Child Trust Funds are intended to provide both the means and a motive for parents (as well as their children) to learn about the whole business of managing savings and making investment decisions. It’s a sort of Trojan-rockinghorse strategy, in which the Government’s gift comes with its own inbuilt hidden agenda.

Given the declining capacity of the welfare state to meet our financial security needs, this makes sense and, if successful, could benefit not only the Treasury but CTF providers too, offering them (and their products) an entrée to the needs and aspirations of countless families, thereby significantly broadening the business opportunity. This is all very well so far as it goes, but just how far can it go? The combination of providers who need to cut every cost in sight, and consumers who engage as little as possible with tiresome and incomprehensible financial stuff, could put paid to the idea, at least where a sizeable majority of massmarket consumers is concerned.