Keep your heart fenced

Emotional tugs are being widely used to sell financial products.

Over the past decade, the financial product landscape has changed beyond recognition, due to the advent of private banks and insurance companies. While product features have certainly improved, aggressive marketing techniques are ubiquitous. For customer outreach, marketers rely as much on emotions as hard facts & figures to market bank accounts, insurance, mutual fund schemes, etc.

This trend has gathered pace for two reasons. One is technology. Today, products rarely enjoy a monopoly for long. Easy availability of technology and know how results in ‘me-too’ products being launched by competitors within weeks.

Two, the move towards simplicity. Nowadays, all regulators stress on simple products, devoid of unnecessary complexity. While simple products are good for consumers, the downside for manufacturers is that these can be easily imitated by others, thereby blunting the edge enjoyed by the innovator company.

As a result of both, marketing professionals are assuming pride of place in financial institutions, who in turn are relying on the ‘emotional tug’. There are two ways in which this happens:

Product design: Marketing departments are active at the design stage itself. Products are packed with enticing features and alluring labels, unconnected with the main value proposition. For instance, women-related savings accounts and credit cards have features which consist of discounts to spas or boutiques, free insurance is bundled with mutual funds, etc.

The hidden costs of such products are often lost in the fine print. For instance, the women’s savings account may require you to maintain an outsized average quarterly balance, a prohibitive annual fee may be levied on the credit card or a senior citizen may get attracted by the insurance-related carrot and purchase a “sector” or thematic mutual fund wholly unsuited to their risk profile.

Exploiting the bonding: Both insurance and mutual funds have taken a leaf out of the FMCG (fast moving consumer goods) marketer’s handbook by targeting parents through their children. They do this by releasing advertisements designed to make parents feel guilty in case they fail to opt for a particular financial product for their kids.

For instance, an ad shows a child exhibiting his ambition by wearing a Harvard T-Shirt. It then displays its child insurance policy which can apparently help parents achieve their child’s dream. Only a few parents would ignore such messages.

Similarly, unit-linked plans will depict a large happy family, with an aged person (usually the head) reminiscing about the time he purchased the policy and how it had secured his family’s financial future.

Pension plans show frolicking old couples, ostensibly delighted that they have attained financial security due to their timely decision to invest in a particular pension plan many years ago. How many consumers are aware that the New Pension Scheme would suit them much better than most, if not all, of such high cost and opaque pension plans?

Naming a mutual fund scheme as a Children’s Gift Plan or Child Education Plan automatically draws a parent towards it. They often ignore hard numbers, which illustrate that there are dozens of other mutual fund schemes which can better meet their financial goals.

Also, celebrities are used to hawk bank accounts, credit cards, gold loans, etc. Even mutual fund distributors are hopping on to the bandwagon, hoping viewers will believe the endorsement and sign up.

It is vital that consumers not fall for gimmicky financial product advertisements. Some of these products (such as life insurance) involve your making a long-term financial commitment and it is imperative that you read and understand the fine print before signing on the dotted line. It is inadvisable to behave like children in a candy store and rush for the chocolate in the most attractive wrapper.

While it is difficult to be completely free of emotions while purchasing anything, please ensure they do not come in the way of your long-term financial health and security.

The writer is vice-president, PPFAS Ltd