TARP Guidelines for Sales & Marketing Spending – much ado about nothing

This post was linked to a story on CNN (see the bottom section "From the Blogs")
Last Tuesday, I was quoted by BtoB magazine in an article entitled “Bank bailout a game changer. ” The focus of the story is the impact of the economic downturn and potential TARP guidelines on the financial services industry. What I said and what was written didn’t exactly match…so let me clarify.

What was quoted; “They can’t do anything flashy” said Scott Gillum, senior VP at consulting firm MarketBridge. “These guys are notorious because of relationship marketing. They have to relook at their investments. This is a PR nightmare now.”

“I’m expecting banks and insurance companies that are financially stable and sound to really take advantage of this opportunity,” he said. This is a business that has been relationship-based. You get the people, you get the customers.”

The first quote was in response to the Northern Trust involvement/sponsorship in a golf tournament. It’s the “These guys are notorious because of relationship marketing” part that needs to be clarified. What I said was that in the B2B world of Financial Services (Investment Banking, Commercial Insurance, etc.) marketing investments go to “strengthening the brand and the relationship.” Businesses are built on relationships and relationship managers...one of reason why Wall Street firms and AIG risk public outcry over paying bonuses to their top sales folks. If they leave, the business tends to go with them…the second part of my quote was correct.

What has driven this industry prior to the meltdown:

• The Brand – in the good times, a name actually meant something
• The Relationship – who you know and what they control
• The Deal – economic models, which we have now come to learn may or may not have been right/legal

FS companies have long invested millions in sponsorships, events and sports marketing. Not just to have their name/brand associated with the event but more importantly to invite clients for some good old relationship building. The industry has grown up that way and it is a culture of entitlement. Getting tickets to a prestigious golf tournament or a box seat at the "big game" has been a part of doing business. “These guys” aren’t “notorious because of relationship marketing”…they’re notorious because they are now spending someone else’s money (ours) to do it.

So with all the public flogging about their spending habits will anything change? In February, a Coalition representing various groups from the Travel and Events industries put together “guidelines’ to try and preempt the US Treasury . The group created a set of guidelines for companies who received TARP funds regarding Meeting, Events and Incentives. It could be one of the most transparent cases of the “fox in the hen house” I’ve ever seen. I’m sure that lobbyist are trying to get these guidelines “approved” as THE US Treasury endorsed guidelines.

But to this point, it appears that no formal guidelines or regulation have been issued by the US Treasury or anyone else, despite a lot of noise coming out of Barney Frank (Financial Services Committee Chairman, oh BTW check out his Top donors – good luck on getting real reform), and other opportunistic politicians who’ve taken companies to task for their spending. From what I’ve seen (or lack of) so far, nothing indicates that this industry will be forced to change.

Most likely, the practices that have driven the industry pre-meltdown will most like drive the industry post-meltdown...old habits are hard to change, unfortunately. In October of 2008, we conducted research in the Commercial Insurance industry on ways to improve the go to market model; a broker gave us this feedback.

"I thoroughly enjoyed the discussion and look forward to reviewing your results. I apologize if I came across too strong, but this is a subject near and dear to my heart…and wallet. The insurance industry is in dire need of change. Our long history of profitable results (both sides) has done nothing but perpetuate mediocrity. Eventually, those days will come to an end."

Even though no new real sales & marketing reform exists today or seems close, there are some things that have the potential to change the business, at least temporarily, such as:

• The Media – lots of villains out there that fit their 4 “C’s” of FS (Crisis, Controversy, Conflict and Crime). What has been amazing to watch is how “locked in a box” CEO’s of companies who have received TARP funding are when it comes to their business practices. How could you not know that people would be outraged at paying bonuses, or holding lavish meeting events…c'mon.
• Your buddy is no longer there – another 44K jobs lost last month in the FS industry
• Your buddy is there, but no longer has power - uh, oh, what happens to the relationship?
• The US Treasury might grow a “set” and create guidelines with some real teeth

But will this be enough to create real lasting change? When profitability returns to the industry, will anyone have the guts to do something different? Probably not, but it might be enough for a new competitor or two to enter and stir things up.

Years ago I read an interview with Charles Schwab in a business magazine about the success of his company. He said that the reason he knew he was onto something (a direct model) was because his competitors refused to believe that customers wanted to conduct transactions in any other way than face to face.

As others get back to "business as usual," a company that has a disruptive model might just slip in unnoticed and change the way the game is played. If you look at what has happened in other industries, new companies emerge by catering to the needs of customers who feel/are neglected and/or who distrust the current system/providers.

Sounds like the setting is right, now let’s see what emerges. We might not get reform but we just might get a renegade.