Marketing at the Vanguard Group

Marketing At the Vanguard Group

Description

Vanguard is a unique company in the financial services marketplace, with a strong brand following and high levels of customer support. The company has been able to position itself as both a quality and a cost leader based on its history of strong financial performance, consistency of service quality, and a driven customer focus. However, the stability of this fortunate position is tenuous. Financial deregulation has increased competitive pressures and the maturation of the market for mutual funds means that new business will be more difficult to acquire. The company has previously been able to position itself based on its capabilities and reputation without having to rely on a substantial amount of marketing to drive its positioning. In fact, cost savings from the company's lower marketing requirements has contributed significantly to their competitive cost advantage. Word-of-mouth marketing and strong positioning in a period of market growth (1994-1998) have allowed the company to expand quickly, and build a strong niche (10% of U.S. mutual fund assets or $557 billion) in the mutual funds market. However, the evolution of the market has put the company at a crossroads. Management must decide how to approach rapidly changing business conditions, and find ways to remain profitable within a maturing industry. The company must consider the core value it provides customers, and examine how this can be developed for a new market environment. The company's positioning strategy must adapt to remain competitive.

Value Proposition

Vanguard has pursued a strategy of competitive differentiation in order to separate its funds from other market offerings. The company provides a unique value by offering a specialized service that rewards loyalty and patience. As investors increase their tenure and investment level with the firm, their costs go down. The company has therefore been able to offer a more-for-less value proposition. Vanguard connects with its ideal customers, and builds a deeper relationship over time. In a particularly fast-paced industry this provides the company's products and services with a unique point-of-difference. Vanguard is focused on stability, investment performance, and incremental growth. Their selling point is their method, their process, not just the product.

Vanguard has also been able to introduce process efficiencies into its organization that have enabled the company to operate at a significantly lower cost than its competitors. They had the lowest expense ratio in the industry at 0.26% of assets for equity funds, or 0.17% for bond funds. This ratio indicates there is room for the firm to expand the scope of its operations without overtaxing its resources. Significantly, this cost advantage had continued to grow over the years, as the company successfully focused its managers and employees on process and productivity improvements. Management's ability to effectively steer the company and communicate its philosophy for continuous improvement resulted in productivity improvements, and an enhanced competitive position.

Business Strategy

Vanguard has taken a very principled approach to the formulation of their business strategy. The Vanguard brand stands for a high quality and cost-effective approach to long-term investing. The company lives this philosophy through its actions, as demonstrated by its rejection of major accounts that might have violated these terms by exiting investments quickly. The company has also introduced fees that discourage trading, to go along with the incentives for holding investments. Cash flow (new sales minus redemptions) is 55% of the industry total, and demonstrates Vanguard's strong established position within their market niche. The accumulation of assets, rather than trading fees, is the company's marketing goal. Additionally, the longer the term to maturity is on the investment, the more Vanguard outperforms its competitors, and the less competition exists to erode their competitive advantage. Vanguard has a well-defined strength in this area, and therefore has a strong base upon which it can build its marketing platform.

Vanguard supports its marketing goal through a focus on brand integrity. This is achieved by making sure the company's operations flow from its strategy and positioning. This is organized through the use of marketing dashboards that measure an array of factors including investment performance, product services and market development, sales and marketing effectiveness, employee satisfaction, and operational effectiveness. These factors are evaluated in terms of how they contribute to net expenses, net cash flows, and customer loyalty. This information is communicated to employees through the corporate dashboard, which provides management and employees with a picture of overall company performance. The selection of these factors shows how strongly the company emphasizes a customer driven approach, and communicates this emphasis throughout the evaluation process. The mission of the company is therefore effectively communicated to employees, and is supported by the company's branding, marketing strategy, and operations.

This philosophy has allowed the company to significantly outperform its competition, even as overall market growth has declined (74% of funds earned returns exceeding their competitors' averages). Vanguard is able to focus on a steady investment strategy because they are focused on attaining customer buy-in, and emphasize the customer as the "owner" of the firm. In terms of their marketing effort, "the ideal Vanguard customer was a substantial, cost-conscious investor with a long-term investment horizon." Customer relationships, and customer trust, are therefore a vital part of the company's strategy and success. Customers have faith in Vanguard's capability and authority in investment decisions, and they have been rewarded for that faith.

SWOT Analysis

In order to build on its competitive strategy and move the company forward Vanguard should formulate its growth strategies around a marketing analysis that considers internal and external factors, as well as the larger marketing environment. It can then align its strategic direction around this assessment to ensure focus and effectiveness in its marketing efforts. An effective analysis can be achieved by examining internal strengths and weaknesses, and attempting to comprehend external opportunities and threats. A SWOT analysis provides a starting point for the company's marketing efforts.

Strengths

- Strong cash flow.