Lord Leverhulme, the founder of Unilever, once famously said, "Half of all the money I spend on advertising is wasted. The problem is, I don't know which half." Although marketing campaigns have become more sophisticated since his day, there is still an element of truth in his statement, especially when it comes down to creating media interest in what you are trying to sell. As the structured products market gets more competitive, getting products noticed is becoming increasingly difficult.
Last November, however, Bristol & West tried a new trick to generate some interest. "We were having a brainstorm about new products," recalls Jim Goddard-Jones, head of third-party distribution at the bank. "One of the guys in the treasury team mentioned how you can insure against rainfall. Somebody else then said snow would probably work better. The idea sparked something. We got it priced up and thought it would work well as an addition to the campaign."
Bristol & West was about to launch the 14th issue of its income and growth plan series and wanted to make it stand out from the crowd and create some publicity. The product itself puts up to half of the investment in an account paying monthly coupons of 125 basis points above the Bank of England base rate. The remainder of the investment is put into a capital-guaranteed bond paying 50% of the rise in an equally weighted basket of four international indexes, with an optional lock-in feature.
To generate media coverage and get people talking about the product, the bank decided to add a snow option. As with all Bristol & West structuring, it used its parent company, Bank of Ireland, to write the option. Investors would receive a payout in Marks & Spencer vouchers equal to 1% of their investment if it snowed at the Met Office's Heathrow weather station on Christmas Day. "For every campaign, its important to have something to hook it to, and I think the snow options provided that," Goddard-Jones says. Taking the icy theme further, IFAs who sold the product were also put into a draw to win a holiday at Sweden's Ice Hotel.
The marketing campaign, which included advertising and direct marketing alongside the incentives for sales people and customers, worked well. Goddard-Jones says the product was one of the bank's success stories, although echoing Lord Leverhulme's comment, he doesn't know which part of the campaign was most efficient.
Sales gimmicks are nothing new in personal finance. Banks and building societies operating in more competitive, commoditised areas such as current accounts have a history of using attention-grabbing stunts to promote their offerings. In the case of bank accounts for children, this has often been in the form of stuffed toys or piggy banks. Midland Bank ran a campaign offering its customers cheap CDs, while others have gone further still. Last year, West Bromwich Building Society launched its 'Brum Brum' mortgage, which offered customers a free Rover 25 when they signed up.
However, incentives such as these are rare in the world of structured products. Some medium- to long-term products do offer investors access to an account offering a high interest rate for a year. And Scottish Widows issued a five-year guaranteed investment bond in May of this year that paid 75% of the upside of the FTSE 100. Investors were also allowed to place up to 30% of their investment in a one-year Lloyds TSB savings account paying 7% AER. Only by taking out the bond, with a minimum £5,000 investment, were you eligible for the account.
Investors in mainland Europe, on the other hand, are slightly more open to gimmicks. Germany's Postbank, which sponsors the German national football team and the forthcoming World Cup, recently launched a three-month product called the Bonus Volltreffer which is linked to Germany's performance in this month's Confederations Cup. Investors put in a minimum of €2,500 and receive a base rate of 1.5%. But this rate is boosted by 50 basis points for every match the team wins. Should a German player be the tournament's highest scorer, the return is enhanced by a further 100 basis points. This effectively caps the total return at 4%, which is well above the standard German savings rate of around 1.5%. Goddard-Jones says he too has been offered football-linked products, but has so far steered clear of them.
Most product providers Structured Products spoke to were not very keen on using such tactics to promote their products. "Structured products were quite a sensitive area for some time," says Roddi Vaughan-Thomas, a director of London-based product provider Keydata. "When the precipice bond debacle was in full swing, we took a steady, cautious approach to all our marketing. It has to do what it says on the tin, and the tin has to be extremely clear and concise," he adds.
Most companies stress that any money spent on gimmicks dilutes the terms of the product and should therefore be avoided. But Goddard-Jones is quick to point out that the cost of the snow option came out of the marketing budget and it was only added once the product itself had been finalised. "It is important that you have a real product underneath that stands alone in its own right. If you're just selling something linked to snowfall, it's more of a bet than an investment," he says.
The snow option also provided the bank itself with some good publicity. "Another reason we did it was to draw attention to the flexibility of structured products and the range of things that can be done with them. We're getting more and more into bespoke products and it's great to be able to display your credentials," Goddard-Jones says. He adds that the number of enquiries the company has received in the past six months for bespoke products with more exotic underlyings has risen, which he feels may be due in part to the snow option. He does add, however, that there have been no specific weather-related calls.
But some market participants are deeply unimpressed by the snow option. The head of structured product sales at one large European asset management firm, who asked to remain anonymous, says the whole affair made him angry. "If people are swayed by a snow option, it's unbelievable. It completely defeats the purpose of what some companies in the industry have been trying to achieve," he says. This sentiment was echoed by other firms, many of whom thought that the market needs to be taken more seriously by everyone involved, especially in the post-precipice bonds environment.
"You're asking a much bigger question here though," points out the head of structured product sales, "which concerns the commoditisation of the FTSE." Selling FTSE-linked products has become a cut-throat area, and product providers are having to think about how to maintain an edge.
Vaughan-Thomas says the latest version of Keydata's once groundbreaking Dynamic Growth Plan, which offers 200% of the FTSE with 50% downside protection, is now priced so aggressively that the company almost runs it as a loss-leader. Does this mean, though, that companies will start using more gimmicky sales tactics? Although most companies say they haven't used any in the past, many also say it's something they haven't ruled out. And when it comes to derivatives-based investments, one can only hope for more interesting bonuses than a ceramic pig.
The week on Risk.net, July 7-13, 2018Receive this by email