Online brokerages face a marketing dilemma if the current stock market volatility continues, industry executives and observers say.
The nightmare scenario for online companies is watching nervous investors flee their keyboards to return to hand-holding human brokers.
"As things get more volatile and it isn't as easy to make decisions, consumers will seek more guidance," said Steven Hall, senior analyst for researcher Gomez Advisors. Currently, most online brokers "do not do a very good job" of offering that.
Marketing could be key to changing such perceptions.
The stock market volatility "may cause us to review our [advertising] message a bit to see if there are any issues" to address, said Mike Anderson, president at Ameritrade.
BEEF UP INFORMATION
Mr. Hall said online brokers would be wise to beef up customer information resources and emphasize that in their marketing. He also said online brokers should try to reach people not yet engaged in online trading.
Online brokerages are boosting ad spending. Last year, E*Trade broke a $25 million campaign via Gotham, New York; it spent just $2.1 million in 1996, according to Competitive Media Reporting. Discover Brokerage Direct, a unit of Morgan Stanley, Dean Witter, Discover & Co., soon will break a $20 million effort from Black Rocket, San Francisco; that's quadruple '97 spending.
Online brokers are not likely to cut ad spending since they're in a relatively young industry, trying to build brands in what is in many ways a commodity business.
"The online brokerage wars will be won or lost on the power of branding," said Denise Benou Stiers, senior VP-marketing for DLJdirect, which touts its 10 years of experience in advertising from Romann Group, New York.
Brand-building could be more important in a bear market because online brokers would need to establish their advantages.
This is especially true because the top 10 brokers--led by Charles Schwab & Co. and Fidelity Investments--control the lion's share of the business. Three million people trade stocks online, Mr. Hall said, while an additional 7 million use the Internet for other financial transactions.
The upheaval challenges even the largest financial services providers.
Prudential Securities and Fidelity both ran ads after the Dow's 513-point drop Aug. 31 to assuage client concerns and demonstrate their vigilance to potential customers.
Prudential handles ads in-house; Fidelity's agency is Hill, Holliday, Connors, Cosmopulos, Boston.
Fidelity broke a new campaign during the weekend, tagged "Where 12 million investors put their trust," with some spots featuring comedian Lily Tomlin. While planning the campaign, it prepared ads explicitly directed toward market turbulence.
Contributing: Alice Z. Cuneo
Copyright September 1998, Crain Communications Inc.