Which ads are usually more effective? Those ads that present objective information about a product so that a consumer can update their views and make an informed decision, or ads that determine what the consumer currently believes and says their product is aligned with those beliefs? You can probably guess; it’s the ad that confirms what the consumer wants to believe that is more successful. And it doesn’t matter if what they believe is wrong—as long as the ad confirms what they already think it’ll help make a sale. Indeed, it is a waste of time to try to rationally show through marketing that what the person believes is incorrect when they are looking for confirmation—because they won’t accept it.
A prime example of this is during exuberant bull stock markets. Equity mutual funds advertise how high their returns are to a greater extent as more money flows in while the market keeps going up, thus helping to confirm why the consumer is buying. But in a bear market, funds are unlikely to use return charts to provide a rational reason why the consumer should be buying when the price is low.
A new study says our reaction is more nuanced that simply either seeking confirmation or logic, but that we tend to use logic for low-risk decisions and our “animal evolution” decision instincts for high-risk ones. Therefore, marketing approaches showing high returns for stock funds help to overwhelm the emotional risk avoidance feeling that investing in stocks can create. By contrast, a factual approach can be effective on a low-risk product.
What this means is that if the consumer is looking to start a low-risk bank savings account, they are likely to analyze the ad or marketing materials for new data to update their beliefs and react negatively if they believe important information is missing. By contrast, if a consumer is looking to buy a growth mutual fund they want confirmation that the hunt and kill (picking the fund and purchase) is worth the risk and will ignore data that doesn’t talk about and reinforce the reward.
Where do fixed annuities fit? By design they are low-risk financial products, thus it would appear the correct marketing approach is to promote facts and ample disclosure. This approach is the correct one if the consumer is looking to buy fixed annuities. But what if the goal is to persuade the consumer not to buy the mutual fund, but to buy the fixed annuity instead? The marketing message then is to tell the consumer to listen to their risk avoidance voice.
It is a waste of time to preach the risk avoidance message during the raging bull market for the same reason that mutual funds don’t talk about returns in the pits of bear markets. But the fixed annuity message becomes stronger every day the bear market continues because the new belief being confirmed is that being involved in the stock markets without protection from market loss is a bad strategy.
Today the consumer belief has a bearish outlook, based on looking at mutual fund outflows (www.ici.org/research/stats), and it explains why sales of fixed rate and fixed index annuities began the year strong. It also suggests that the best fixed annuity marketing approach today is facts and more facts.
Reference:
R. Ferretti et al, A test of the Behavioral versus the Rational model of Persuasion in Financial Advertising, CEFIN Working Papers No. 59, (May 2016).
