waneguard

1© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

Success in taking the road less traveled….


About Vanguard• Founded May 1, 1975

• One of the world's largest investment management companies

• Approximately $950 billion in U.S. mutual funds (as of December 31, 2005)

• 130 domestic funds (including variable annuity portfolios)

• 40 additional funds in

international markets

“…the client-owned investmentmanagement companybuilt to put your interests first®”


What are mutual funds?

“A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds).”

• First started in 1924 by 3 Boston executives

• Industry has grown tremendously over the years

– 55 million households

– 96 million individuals

– $7 trillion in net assets


John Bogle

• Princeton Years

• Wellington Management Company

• Philosophy: No commissions + Low overhead = maximized growth

• Principle: clarity, candor and disclosure


Growth of Vanguard

• 1929: Vanguard Wellington Fund- Endures 1929 crash through diversification

• 1975: Vanguard begins its operations- 28 employees, 11 funds, 1.8 billion in net assets,

• 1976: Vanguard index fund opens

• 1977: Eliminates sales commission (“loads”)

• 1990: Creates first international index funds


Growth of Vanguard (Cont’d ….)

• 1995: Vanguard.com opens for business

• 1996: Vanguard begins offering financial planning for individuals

• 1997: Vanguard begins offering investments to investors outside U.S

• 2003: Vanguard.com reaches 3 million registered users

• 2004: Offers one-step auto pilot program for 401(k) plans


Appeal of Vanguard

• Commitment to low-expenses


Appeal of Vanguard (Cont…)

• Excellent Customer Service

– Executives help man the phones during peak Call Periods

– Vanguard funds dominate Forbes "Best Buy" rankings every year


Why Price Perceived Quality is not applicable in this case?

Class discussion


Vanguard’s low expenses Differentiates itself from competition

• Reluctant to Advertise

• No mass sales force

• Prohibits frequent trading of its funds

• Passive Investing

Still has an extremely loyal, cult-like customer base

www.diehards.org


Class discussion

Do you think that Bogle’s idea of advertisement avoidance is good?


• Word of mouth advertising

• Believing in and sticking to its mission statement

• Publicity from books, and Bogle’s appearances in media

How did Vanguard manage to gain such

loyal customer base?


Take away lessons

• Marketing can be overdone

• The Power of differentiation

• Word of mouth publicity can be very powerful

• Benefits of frugality and passing the value to the customer


Class discussion

Do you think there is an analogy between the success of Wal-Mart and Vanguard?


Competitors of Vanguard

• Fidelity– Founded in 1943 by Edward C. Johnson II– Attracted crowd through their innovative ideas– First to sell through a 800 number

• Capital research management– Founded in 1931 by Jonathan Bell Lovelace– Manages US$850 billion in mutual funds and US$300 billion for

institutions

• TIAA CREF– Largest pension plan provider– Launched 6 no-load mutual funds in 1997– Minimum investment $250


Customer base that Vanguard doesn’t attract

• Those who do not have studied statistics & publications

• Naïve investors

• Those who are carried away by advertisements

• Those who have faith in price-quality perception


Top ten mutual fund companies by assets, 2006 ($000)


Class discussion

Should Vanguard continue as is?

waneguard

Documents