Actionable content and engaging material is in, lead churning is out as Martin Sorrell comments on his $150 million acquisition
Actionable content, proper client engagement and content marketing are the priority of the large $150 million dealmakers, not leads, churning and conversion. Just ask Sir Martin Sorrell as his new venture goes to battle at the very top level
In the retail FX business, ever since the dawn of now ubiquitous off the shelf platforms – particularly MetaTrader – that have facilitated ease of entry to companies and individuals whose expertise and previous career lies outside that of the development of financial technology and brokerage operations, marketing represents a vast proportion of corporate expenditure.
A vast amount of consideration has been given to how to evolve the marketing effort of many retail online trading companies by innovative newcomers, however a stagnation has been prevalent over recent years, with many firms sticking to the obsolete and ineffective performance marketing and affiliate network arrangements that are a hangover from the mid-2000s gaming and entertainment site ownership that many new entrants to MetaTrader-based FX brokerages came from at the time.
There is no question that when operated correctly, the retail FX business represents the leading edge of the development of tomorrow’s general mainstream financial technology and is at the forefront of paving the way toward new means of self-directed investment and trading solutions for private individuals around the world, however due to its online nature, marketing and brand presence will always be a large and important component.
For this reason, it is perhaps important to look closely at the way in which marketing is going within its own highly digitized and global industry, especially with regard to the value of recent mergers and acquisitions, and the investors’ will to enter fierce competition with global marketing giants.
Sir Martin Sorrell, one of Britain’s most prominent businessmen with a personal net worth of £495 million, is a case in point.
Sir Martin founder of WPP plc, the world’s largest advertising and PR group, both by revenue and the number of staff and has served on boards and advisory bodies of a number of high-profile public, academic and business organisations, including several leading business schools, both in the UK and internationally hence his acumen is credible.
This week, Sir Martin made his first comments regarding the direction taken by his new company, S4 Capital which is the marketing venture set up by Sir Martinl after he left WPP, the publicly listed advertising conglomerate earlier this year, after the new company made its second acquisition by purchasing programmatic advertising giant Mightyhive which has worked with firms such as Opentable, Yamaha and Sephora, in early December.
From Sir Martin’s comments this week, it is clear that he is looking at marketing from a very interesting perspective.
Sir Martin has now stated that S4 plans to integrate the US-based online advertising and marketing firm Mightyhive as part of its drive to form a new business combining media and technology following the $150 million acquisition of Mightyhive earlier this month and on Christmas Eve confirmed the merger and the admission of 8.9m ordinary shares to trading on the London Stock Exchange.
Sir Martin said: “S4 Capital is now in a position to compete for comprehensive digital-first mandates at the highest level and is beginning to succeed meaningfully” and of specific interest, he added that his new company was now “fully operational” in the areas digital content and programmatic media planning and buying.
Digital content is a very important tool for the FX industry and considering that it is one of the key tenets of Sir Martin’s new company should be testimony to the notion that it is a central engagement tool for this generation of online product and service marketers.
Attracting and retaining clients is now one of the biggest challenges for brokers as the FX industry matures and as CPA (Cost Per Acquisition) which is a major factor within an online advertising model grow highers, averaging $1000 per funded client in western countries.
To tackle the issue, some of the smaller retail brokers to whom cost of acquisition and retention is extremely important, have been ever more active in developing their differentiation angle via various means, ranging from promoting the social trading experience to offering deposit bonuses and cash rebates, as well as loyalty programs and interactive marketing campaigns, while automating data intelligence for the sales teams.
On that note, trading platforms such as MetaTrader 4 may pose an issue given that the ubiquitous trading platform acts both as a key facet with which to onboard clients and as a retention problem, becoming one of the main criteria when choosing a broker to open an account with, which also means those brokers risk being easily substituted following a minor incident or an aggressive marketing campaign by a competitor.
This may well appear as though it is a complex lesson in mathematics; a matter in which accountants must balance the cost of leasing trading infrastructure from a third party platform supplier against the cost of buying media and generating leads, then subsequently factoring in the cost of sales staff to call the leads and then add up the profit post-conversion.
The reality is that in today’s retail FX industry, where the end users have become ever more sophisticated and can absolutely tell if a broker is surviving from their deposited capital instead of connecting to a live market, which has exponentially improved the standards in terms of execution of trades within many medium sized retail brokerages, however it has left a conundrum, that being the completely outmoded marketing model which is not compatible with the commission business that brokerages offering genuine market execution now provide.
As the infrastructure of OTC electronic trading firms becomes the increasing subject of regulatory remit as defined by the pan-European MiFID II which uses the coercive powers of the European Commission to ensure all market infrastructure and execution policies are standardized across multiple jurisdictions, brokers find themselves faced with high expectations from extremely analytical traders in the most high quality regions for electronic markets, and difficulty differentiating themselves from other retail brokerages using the same third party platforms.
Most importantly, however, aside from the 1231 near-identical MetaTrader 4 retail entities that currently exist, is that the execution model required nowadays means that brokers should do what brokers are supposed to do – charge a commission for processing trades to their liquidity provider and provide their clients with an aggregated price feed consisting of prime of prime liquidity from Tier 1 banks and non-bank market makers.
This is excellent for customers if conducted correctly, but means that brokers pay a dollar-per-million charge for their liquidity management system and market liquidity, and can charge a commission rather than have the vast margins that had been the case within so many smaller brokerages several years ago which resulted from the profit and loss model that many operated.
The brokers that came to market in the middle of the last decade with a profit and loss model (living from client losses) were never able to gain market share among quality jurisdictions where the established competition was already operating a good quality trading environment for clients – and rightly so, nobody laments the passing of firms which do not have their customers’ best interests in mind – instead coming from the affiliate marketing and media buying sector.
Now, many of those entities have adopted proper execution, facilitated by the market infrastructure specialists and prime of prime brokerages that serve the retail FX industry, but their marketing techniques in many cases remain in the mid 2000s, and in the retail FX industry, the mid 2000s is akin to the dark ages.
The fact of the matter is that high CPA of today requires ambitious goals when it comes to the client base, which means having enough available funds to embark on large marketing operations and have a unique value proposition to lower the CPA.
The quest for differentiation may also lead to the in-house development and maintenance of proprietary software despite the obvious costs because in addition to promoting their own platform to their clients and increasing the rate of client retention as they grow accustomed to an environment they will not likely find elsewhere, these brokers can also reduce their costs or even make profit out of offering white labeling solutions to other firms.
Simply, buying leads and hoping for sales calls to convert them into live clients is futile.
This is because the same leads are being recycled between brokers, the same leads are being targeted by firms offering similar propositions, and the media buying cost vs the actual conversion rate is as low as 1% in the retail sector.
Hence, one-off retail clients from non-aligned countries, with very little capital and in some cases no chance of being able to satisfy compliance requirements are depositing between $500 to $1000 as a first time deposit, and the cost of acquiring the customer is now past $1500, with a lifetime value of just three months.
Whichever way that is viewed, it is a loss.
One of the reasons for the high cost and lack of efficiency is that, according to two London-based media analytics firms that have provided digital marketing data to FinanceFeeds, the potential customers are in many cases no longer potential customers because these are leads that have been to over ten brokerages, hence the same people are being bombarded by the same calls from almost identical companies, and many have lost their initial deposit with the first company, and are therefore now worn down by the repetition of calls.
FinanceFeeds spoke recently to Charlotte Day, Director of ContentWorks, a marketing specialist and long standing senior FX industry branding and strategy specialist to gain perspective on exactly this.
Ms Day said “Smart content attracts smart users. If you want to onboard serious traders (clients), then you need to cater to their wit and intellect. If you’re aiming for bottom of the barrel then go ahead and buy leads. You may get a lower initial CPA but you’ll get a high churn rate and probably a higher level of arbitrage which in reality makes for a less profitable business model. The choice is yours!”
During meetings with several retail FX brokerages in Cyprus last week, it was explained to FinanceFeeds that the dubious practice of onboarding clients by asking sales staff who have worked for other brokerages to bring leads with them – effectively stealing from their former employer for a fee – is still very much in existence.
FinanceFeeds has been notified of an advertisement made by one particular retail FX firm which is aimed at recruiting sales people, with the company specifically stating that a ‘bonus’ will be paid to new employees who are able to bring a database with them, effectively encouraging the stealing of intellectual property, and whilst this is insidious enough, it contributes to the small lead pool that is being overtargeted.
With wiser clients who possess extremely advanced analytical skills which is very obvious when looking at how much of the retail FX market worldwide is now participated in by traders who develop their own user interfaces, automated trading systems and solutions that rely on charting and sentiment indicators with granular information and that is before even considering the dim view that regulators take toward lead buying and cold calling.
The demand for historical tick data has never been so high, and one only needs to type the word ‘forex’ into generic discussion portals such as Reddit and a noticeable number of discussions about running performance analysis on historical tick data would be prevalent.
Thus, modern clients do not want to be treated as targets or ‘leads’ or ‘conversions’, they want genuine actionable content.
This is well known by firms such as Saxo Bank, Swissquote and specialist financial technology developers, notably Autochartist which provides fully integrated automated actionable content to brokerages which not only engages their clients for longer and creates loyalty but also gives a genuine value proposition in offering tools that help traders form their decisions, rather than the old-fashioned method of dangling a carrot and then pushing for deposits.
Thus, content marketing, especially that of value to customers, is the future and if Sir Martin is investing so much in this, it is perhaps a yardstick.
Sir Martin’s S4 which now owns Mightyhive, plans to bring together content, analytics and new technology to reach clients, based on a model which is focused on leveraging major tech platforms such as Twitter and Facebook – both darlings of the FX brokerage sector, and is being described by Sir Martin as a dynamic machine that can take on every high-end contingent in the marketing arena.