Marketing at the Vanguard Group

Submitted by:

Anubhav Dhyani (25) | Vinay Gatagat (58) | Abhijit Joshi (74)

Situation Analysis
Vanguard is a mutual funds company which sold mutual funds to customers interested in low cost, long term investing and is the industry's growth leader. In early 2003 Vanguard recognized the need to improve its customer management, consolidating disparate marketing function. They have also commissioned a major client segmentation study in order to identify potential new segments and devise new approaches to market more effectively in order to retain existing customers buy recognizing their needs. But some managers were in disorientation regarding the emphasis given on customer segmentation and suspected that it would complicate the company's operations and take away from its basics. But nevertheless the client segmentation is necessary as well feasible in the light of maturation of mutual fund market and the company's growth. The market is evolving with new competitors and after the careful analysis of their current customers the company realized that they must restructure its complete marketing strategy. Also they should target the most profitable customer segment in order to best serve them in order to leverage their competitive advantage which is low management fee and optimize the loyalty that their customers have demonstrated over the years

Problems and Solutions

1. Whether to shift from simply being a mutual fund company to a full service investment management company with a broad portfolio? Vanguard should shift to be a full service investment management company for the following reasons: - Deregulation of financial services - Competitors will expand their portfolio and enter each others line of business. This will lead to Market Saturation. - Mutual fund business was declining (-33.7% annual average return between 2000-02) and trends predicted a further decline - Fluctuating capital markets were affecting Mutual Fund returns - Allow them to work with financial advisers to use Vanguard funds in portfolios to be managed for the clients 2. Whether to be a low cost provider or not? Vanguard has essentially been a low cost provider whose offerings have been clear to the investors. But the emerging mass affluent level cannot of 9 million households with investable assets between $50000 & $1 Million cannot be ignored.

Vanguard needs to clearly define its offerings so as to avoid confusion among investors. Appropriate schemes for low cost offering as well as schemes for the mass affluent level have to be offered without any confusion among them. Despite being a small segment, the growth potential in the mass affluent level is tremendous. Targeting this relatively smaller share of market fits in with Vanguards tendency to focus very tightly. The under $1 Million marketplace is expensive to serve and Vanguards positioning will have to be tweaked to suit them. Similarly, while tweaking, both the categories can be addressed.

3. Was reorganization of Vanguard a right decision? Yes. - Brought about consolidation of operations - Centralized CRM - Offer extended services and cover all investment needs - Clear ownership and accountability for the objectives - Put focus on sales, marketing and managing the brand - Integrate the corporate dashboard and the marketing dashboard - Roll out proactive and direct marketing which increased the brand & ad awareness levels

Alternative Solutions
Introduce attractive schemes for emerging mass affluent level segment ($50K $1M assets) as well as for under $1 Million segment Tie-up with brokerage firms to attract new businesses Use aggressive marketing to create brand awareness, reach out to more consumers Update their website to include more information and offer more portfolio management services through it International expansion Restructuring of price