Online Brokers Push to Build Their Brands at Internet Speed

By GREG JOHNSON

May 13, 1999 12 AM PT

TIMES STAFF WRITER

Datek Online enlisted shock jock Howard Stern to drum up business, and Discover Brokerage Direct uses a mythical tow-truck driver named Al to attract customers. E-Trade Group, with tongue firmly in cheek, cautions that “waiting for your rich uncle to die” probably isn’t a rock-solid investment strategy.

The flurry of ads for online stock brokerage firms is part of a gathering storm that will push print and television advertising expenditures to $500 million during 1999, from less than $1 million in 1995. The dollars are chasing consumers who are moving into online trading at a rapid pace.

Along the way, online brokerages have sparked criticism from regulators who worry that the promos might mislead neophyte investors about the real potential for losing money.

It’s a heady time for online brokerages, which previously used their limited budgets to buy banner ads on Web sites. With advertising spilling over into daily newspapers, newsmagazines and network TV shows, marketers are using every trick of Madison Avenue’s trade to transform their companies into trusted brands.

No matter, observers note, that it takes companies in the bricks-and-mortar world decades to establish a brand. True to Internet time, the online traders hope to become household names in mere months.

“As the Internet becomes accessible to everyone, people are participating in it like a mass audience,” said John Yost, co-founder of Black Rocket, a San Francisco-based advertising agency that created the tow-truck commercial for Discover Brokerage Direct, a unit of Morgan Stanley Dean Witter & Co. “They’re gravitating toward brands that make them feel comfortable . . . and it’s happening in a very, very short period of time.”

Discover Brokerage Direct’s tow-truck commercial illustrates the uncharted waters that online trading companies and ad agencies are navigating. The commercial shows a tow-truck driver named Al surprising a smug businessman by hinting that he’s used online trading profits to buy his own tropical island. The commercial stopped airing in April, before criticism from regulators surfaced, the company said.

Securities and Exchange Commission Chairman Arthur Levitt targeted the tow-truck commercial during a May 4 speech that cautioned against advertising that creates unrealistic expectations among unsophisticated investors.

Some industry insiders worry that, without industry self-policing, federal and state regulators might call for rules mirroring those of the pharmaceutical industry, where manufacturers include explicit warnings about potential adverse side effects.

In a prepared statement, Discover Brokerage expressed agreement with Levitt’s “vision of an informed investing public.” But the San Francisco-based online brokerage continues to rely on an emotional approach to its brand-building campaign.

A new commercial shows a woman on an airplane who gets the cold shoulder from a businessman when she tries to talk investment strategies. The man gets his comeuppance when a distinguished gentleman wearing a cluster of medals strolls out of the first-class cabin to thank the woman for bailing out his country.

Yost maintains that critics of online advertising must consider “the complete, total package that consumers are seeing. . . . The [television] ads expose consumers to our case, but an equal amount of money is being spent on [print and online] advertising that contains rational, product-oriented information that’s very, very factual.”

There are signs, though, that some online competitors are siding with regulators when it comes to ads that use humor to grab investors’ eyes and ears. In newspaper ads published Wednesday, Charles Schwab & Co. Chairman Charles R. Schwab says he finds it “heartening that many of our nation’s policymakers have focused on Internet trading.” The ads describe investing as a “serious” business and underscore the need to “do your homework.”

Brokerages are rushing to develop brand identities to raise their profile with investors who are increasingly enamored of online trading. Nearly 8 million online brokerage accounts are now open, soaring to 14 million next year, according to Gomez Advisors, a Concord, Mass.-based market research firm. Credit Suisse First Boston reports that the volume of shares traded online in April was 40% higher than the volume for the first quarter.

Some confused investors are seeing ads even where there aren’t any. Three percent of Iselin, N.J.-based Datek’s customers maintain they were drawn to the company by its television ads.

“But we don’t have any TV ads,” explained Robert Bethge, the company’s marketing vice president. “There’s so much noise in the category now that it’s hard to get a clear message out.”

It’s going to get noisier. Up until a year ago, Datek spent its limited advertising budget on banner ads. It then shifted 30% of its budget to such print publications as Forbes and Fortune and hooked up with radio personality Stern, a deal that Bethge described as “amazingly successful. . . . I’m shocked at how well his audience has performed for us.” Datek will unveil its first television commercials in the fall, most likely on cable financial networks.

E-Trade, a Palo Alto-based competitor, is heading in the same direction. The online trading company launched a brand-building campaign in April with print and television ads designed by San Francisco-based Goodby, Silverstein & Partners. E-Trade is shifting its TV spots from financial news programs to season finale episodes of such mainstream programs as “ER,” “Ally McBeal” and “The X-Files.”

The media assault mirrors the frenzied marketing push evident across the spectrum of Internet companies, said Glenn Tom, senior vice president of marketing at Discover Brokerage. “Internet companies see the need to compress the process and build brands quickly. . . . You’ve got companies that weren’t even heard of as little as six months ago that now are fighting hard for attention in the marketplace.”

“Six or eight months ago, everyone was trying to grab customers any way they could,” Bethge said. “Now, the messages are clearly ones of differentiation. And the competitors are spending hundreds of millions of dollars to get those messages out.”

The online advertising wave will get bigger in the coming months as Merrill Lynch and other powerful players rev up online trading operations. It’s uncertain which online brokerages will succeed, fail or be snapped up by competitors with deeper pockets.

Datek, for one, plans to stick close to its Internet roots even as it broadens its reach to television and print. “Our audience is much more narrowly defined than the Schwabs and Discovers,” Bethge said. “We’re going after self-directed, tech-oriented investors who actively manage their portfolios. We don’t offer a lot of bells and whistles and we don’t try to be all things to all people.”

Discover’s advertising will underscore the “distinct advantage that we have of a parent company with a strong existing brand that’s trusted and well known,” said marketing chief Tom. “I think Morgan Stanley Dean Witter allows us to bring credibility to the table that some of our competitors might not have.”

John Hearn, an analyst with Stamford, Conn.-based GartnerGroup, says online trading’s future will belong to brokerages that can market themselves across the board. “It’s now a multichannel world, and, with very few exceptions, there are going to be no pure Internet plays,” Hearn said, “particularly when it comes to sales and marketing.”

Being one of the first competitors to offer goods and services online isn’t a guarantee of success, just as coming from the bricks-and-mortar world doesn’t mean failure.

“When I speak to traditional companies that are facing competition from online rivals,” Hearn said, “I constantly remind them that their track record in managing multiple sales and marketing channels could be their refuge and saving grace.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Targeting Online Traders

As online stock trading has increased, advertising for that sector of the market has grown. For the first two months of this year, advertising by online operations was more than half that of traditional brokerages.

1995 (Includes E-Trade)

Online: $774,000

Traditional: $263.7 million

1996 (Includes E-Trade)

Online: $5.7 million

Traditional: $398.3 million

1997 (Includes Ameritrade, E-Trade, Discover)

Online: $46.9 million

Traditional: $521.8 million

1998 (Includes Ameritrade, Charles Schwab, E-Trade, Discover)

Online: $102.9 million

Traditional: $515.7 million