Savings Bonds' ideal customers thought the lottery was a better investment vehicle.
As brand names go, the U.S. Savings Bond is deeply embedded in the national consciousness. First marketed as War Bonds during World War II, the brand's image hadn't changed much in half a century. But sales had gone into a long, slow decline.
"You saw an extraordinary jump in the stock market, while the entire bond market weakened," says Dino DeConcini, executive director of the U.S. Treasury Department's Savings Bond Marketing Office (SBMO). As the bull market of the '90s began, safe, single-digit growth was out. In 1992, savings bond redemptions outpaced purchases of new bonds.
In fact, the percentage of all families who own savings bonds fell substantially between 1995 and 1998, according to "Recent Changes in U.S. Family Finances: 1998 Survey of Consumer Finances," a report published in the Federal Reserve Bulletin last January. In 1995, 22.8 percent of all families held savings bonds; in 1998, that figure dropped to 19.3 percent. Ownership declined in every demographic group: 26.8 percent of white non-Hispanics owned savings bonds in 1995, compared to just 10.8 percent of all non-whites or Hispanics. In 1998, 22.2 percent of white non-Hispanics were still holding savings bonds; the number of non-whites or Hispanics still in the game had fallen to 9.2 percent.
How to reverse the trend? SMBO hired the Ball Group, a Baltimore, Maryland-based research and advertising company. After 18 months of market research, SBMO unleashed the I Bond, an inflation-indexed savings bond. With the I Bond, customers wouldn't have to worry about getting stuck with a fixed rate for several years. At the same time, the Treasury also overhauled SBMO's EE Bond to make it more competitive with short-term bank CDs.
The first step was finding out how savings bonds were perceived. What they found was "a terrible misconception of what the product was. People no longer knew what savings bonds were," says Ball Group founder Wes Ball. "We'd ask people to describe the [type of] person who buys U.S. Savings Bonds. If they were poor, they'd say it was a rich man's thing. If they were young, they'd say bonds were for old folks. If they were blue-collar, they'd say only someone making a lot more money could buy them. Nobody thought savings bonds were for them."
And that was just the intended customer. As the primary point of sale, banks weren't pushing the product, either. "Most banks were negatively predisposed to the U.S. Savings Bond. They wanted to steer customers to their own products. We came back with a stronger point-of-purchase message," says DeConcini. New marketing materials - mostly teller signs and takeaways - were sent out, and the SMBO created EasySaver, an automatic bank-withdrawal program that allows customers to buy bonds at regular intervals.
Most of the research time, though, was spent with focus groups around the country. There, Ball's staff found a huge market of disenfranchised, insecure savers - people who perceived they didn't have enough money to do anything, much less invest. "We found something we called the `lottery mentality,'" says Ball. "We encountered people who thought it was a complete waste of time to save money. They figured they didn't have enough money to do anything else, so why not spend the money on lottery tickets?"
That attitude cut across all race and income lines, up to about $50,000 household income a year, says Ball. "White and ethnic men were most likely to use the wait-until-I-hit-it-big philosophy. So we would ask them: `What about saving a little bit each month?' That actually seemed to resonate well with women, particularly African American and Hispanic women."
The Ball Group identified several new target audiences. One was "future-builders," goal-oriented people who save money, but not as much as they'd like to. "Lazy savers" know they should be saving for the future but they don't want to think about it. They're happy if money comes directly out of their paycheck and into an investment. "Influencers" think they're "too smart" to buy savings bonds for themselves; instead, they'd recommend bonds to someone they think is less knowledgeable than they are.
Finally, the patriotic aspect of savings bond purchases - a big selling point during and after World War II - was greeted with near-hostility in the '90s. "The focus groups were very negative to patriotic and emotional appeals. They wanted to know: `What's in it for me?' How would it help them reach their goals?" says Ball. "However, when we put across the message that if we're a nation of people who help each other, and savings bonds are a good way to do that, that message was favorably received."
The Ball Group realized it had to communicate to all those audiences that savings bonds are smart, easy to buy, and a safe investment purchase. Unfortunately, there was no media budget available to the SMBO. In the end, the Bureau of the Public Debt spent $625,000 on the I Bond campaign, including $55,000 for research, and the balance for public service advertising, marketing materials such as bank displays, and distribution. Unlike its sister agency, the U.S. Postal Service, there will never be paid advertising for U.S. Savings Bonds in prime time, officials say.
Public service announcements for TV and radio were written separately for English- and Spanish-speaking markets, stressing that regular savings is the way to hold onto your money and get ahead.
In Philadelphia, researchers tested the TV spot and some print advertising with paid placement. Awareness for and inquiries about the I and EE Bonds grew with each airing, and viewers were educated that they could get tax-advantaged returns that would match or exceed products offered by their local bank. In 1998, SBMO moved to roll out a new EE Bond with a higher interest rate and the new I Bond.
Sales of I Bonds have grown steadily since the launch in September 1998. Last November, a total of $66 million worth of I Bonds were purchased at a rate of 6.98 percent, up from $30 million at a rate of 5.05 percent the previous month. The average purchaser of I Bonds in November spent $900, while the average sale of EE Bonds was $89. Overall, over-the-counter sales at banks showed their first positive trend in seven years, according to SBMO.
"We know the I Bond is adding new customers for savings bonds, and they are willing to spend more - 85 percent of sales now are in the $1,000, $5,000 and $10,000 denominations," says DeConcini. "We're very happy."
What the Critics Say
The sales numbers say it all, according to John Rasmus, federal administrative counsel of the American Bankers Association, who has watched the outcome of the new savings bond marketing program.
"For the first time in years, they have a really attractive product, and I like the fact that they feature contemporary Americans of color on the product," says Rasmus. "The inflation peg is a great selling point and it's definitely created something worth looking at - even though the stock market remains so popular."