Russell Investment Group

Marketing Audit Part 1 & 2

Ashley BrosiusErik Gracey

April 4, 2006

Introduction

Although not on the Fortune 500 list, Russell Investment Group is one of the most

respected investment companies in the world. Russell manages $167 billion in assets

directly, but also acts as a consultant on $2.3 trillion in assets. They also deliver

investment programs to more than 2,000 clients in 39 countries. Russell manages its $167

billion in assets in a variety of mutual funds, multiple-manager funds, retirement plans,

commingled institutional funds, and private accounts. They also provide a full-range of

investment services to firms, institutions, governments, and individual investors. Well

known clients include the pension plans of global corporations such as Toyota, AT&T,

BHP Billiton, Compaq, and General Motors. Globally, millions of individual investors

have access to Russell’s services through a network of alliances that includes many of the

world’s top banks, insurance companies, brokers, and independent investment advisors.

History

Frank Russell, a Wall Street broker, moved to Tacoma, Washington in 1936 and

established Frank Russell Company to market “Bond Stock,” a forerunner of today’s

mutual fund. Frank Russell has maintained its headquarters in Tacoma, and has grown

substantially, moving from small business offices in rented spaces, to eventually

constructing a luxury, technologically advanced 12-story building overlooking

Commencement Bay.

Investment Strategy

Russell’s strategy is designed to minimize risk and build long-term wealth. To

develop long-term financial security, a financial advisor from Russell can diversify

portfolios at these three levels, based on investment goals and risk tolerance:

Multi Asset — Each of the major fields of investment can be included in a

portfolio, in proportion to the objectives of the client. This involves investing in many

different types of assets, including, but not restricted to U.S. Equities, International

Equities, Emerging Stocks, Bonds, T-bills, and Real Estate.

Multi Style —This investment strategy has representative managers from each

style category. No matter which style is in favor at a time, this blending of styles can help

reduce risk and work toward more consistent returns. The styles of certain money

managers are very important when choosing one. A manager that places a lot of emphasis

on small cap stocks may have volatile returns. A manager in growth could be number one

or last depending on luck, the market, etc. Russell seeks to combine styles to best fit the

ability and the goals of the investor.

Multi Manager —Russell often uses this approach when acting as a consultant.

The multi manager approach manager-of-managers approach. Russell has stringent

guidelines concerning which money managers they choose. Russell seeks money

managers that demonstrate consistent success. Russell does not choose the “hot pick” for

the year. Russell chooses its money managers based on their style of investing and takes

into account ethics, personnel, etc. Consistency is the key to long-term investment

success.

Russell’s Investment strategy is focused on diversification. Diversification can

allow investors to eliminate diversifiable risk. Investors that have a large degree of

diversification can increase their earnings while still remaining confident about the

security of their investment. The following diagram is a representation of Russell’s

commitment to risk aversion.

Figure 3

Mission Statement

“To Improve financial security for people

as we behave with non-negotiable integrity.

We have a genuine focus on our people, including family, community, and

personal goals.

We strive to exceed client expectations.”

This mission statement is strong because it explains what Russell is

serving (people) and what those people need (financial security.) It also portrays

Russell as a company with sound ethics. The mission statement is a little bit

vague on who the “people” are. The mission statement could be improved by

making it more clear who the target is.

Objectives

-Business Objectives:

1. Russell’s primary business goal is the same as most other financial managers; to

maximize the value of its clients’ portfolios. The firm seeks to achieve this goal by

devoting the necessary resources to research and analyze money managers around the

world.

2. To stay on the cutting edge of technology. It is vital that Russell expand upon their

commitment to technology in order to maintain their competitive advantage.

3. Expand further into the global marketplace. This is an important objective because of

the rapid growth in the international market.

4. Increase the value of their products and establish their benchmarks as industry leading.

-Non-Business:

1. Improve the human condition. Russell engages in issue sponsorship to combat many

things affecting human progress, including the fight against AIDS and world hunger.

2. Maintain a worker friendly environment. Russell limits the workweek and attempts to

make work as fun as possible.

3. Protect the environment. Russell endorses recycling initiatives and generally supports

most actions to protect the environment.

The objectives are inadequate at this point in time. The non-business objectives

are good, but the business objectives should include a goal for increasing market share or

other quantifiable objectives.

Competitive Advantage

Russell understands that advantages in cost are subject to volatility and therefore

focuses on product/service differentiation competitive advantages. Broadly generalized,

Russell competes on diversification and its degree of applied research. Russell excels in

the investment segment because of the amount and quality of research used to analyze

market options. The money-manager approach to investing is a sustainable competitive

advantage that has helped establish Russell as one of the most reliable investment

companies in the market. Russell also maintains a very personal relationship with its

money managers. Unlike their competition, Russell meets face to face with the money

managers, flying frequently all over the world to ensure the confidence of their clients.

Another advantage that Russell has over its competition is the ability to

customize. Russell has investment strategies for any investor. For example, Russell’s

approach allows employees of a Russell managed company to diversify different assets,

levels of risk, and management styles to customize their 401K plans. The customizable

401K-portfolio investment strategy allows employees to get the flexibility they require

without the inconvenience of having to invest through several companies.

Relationships/Strategic Alliances

Russell’s entire system of investing is based upon its relationships with its money

managers. Russell uses its state of the art technology to track the best money managers

and than create a relationship that is mutually beneficial to Russell, the money manager,

and the investor. Russell has had to make numerous strategic alliances to enter the

individual investor market. To reach individual investors, Russell has strategic alliances

with state banks, power brokers, large insurance companies, and independent investing

advisors.

Conclusion

Russell Investment Co. is in position to continue its growth in the investment market. By

going global, Russell has stayed ahead of the curve. These emerging markets will only

become more important and profitable as development continues. Russell has also

entered the market for individual investor’s accounts. By diversifying their client base

without sacrificing their reputable investment strategies, Russell has situated themselves

in the middle of a market ready to explode with the retirement of the baby boomers.

Russell could benefit from a more aggressive marketing campaign to secure its name in

Wall Street. Russell should use its strong reputation to increase market share and firmly

entrench themselves in the highly volatile investment management market.

SWOT Analysis

Strengths

1. Company Culture: The Company culture at Russell is well defined and understood by

all of its employees. This culture was established by Russell being a family-owned

company up until 1990. Russell has a strong emphasis on integrity. Russell empowers its

employees to make sound decisions and represent the firm. Russell maintains that

employees should also value their free time and therefore does not operate on weekends

and limits the workday to five o’clock. Russell is currently listed as the 66th best company

to work for by Fortune magazine in 2006. A strong company culture helps avoid agency

problems. Employee satisfaction leads to low employee turnover, which helps the

company stay efficient by focusing on retaining clients, not employees.

2. Growth Rate: Russell, though still small compared to industry leaders has grown

substantially in the last 10 years. Russell has recently gone global, stimulated primarily

by internal growth. A steady growth rate is a sign that a company is stabile and capable of

delivering consistent profits and is very important to investors. If and when Russell

decides to go public, a stabile growth rate could allow Russell to achieve a very

successful IPO.

3. Business Reputation: The business reputation of Russell is one of its biggest strengths

and reasons for their success. Russell’s reputation is based upon the firm exceeding set

benchmarks, which often become industry-leading benchmarks in themselves, for

example the Russell 1,000 index is used as an industry leading benchmark. The

investment industry is one dominated by reputation. Businesses and individual investors

alike are very coy about investing their life savings in a firm that does not have a

reputation for delivering high returns and security. Russell’s reputation is an intangible

asset, but is probably its most valuable.

4. Ethical Reputation: Russell donates a very large portion of its profits to charities.

Russell also encourages its employees to donate money to charities and also run

volunteer programs in local soup kitchens, etc. Employees that engage in

volunteer/charity work receive full pay for their time. In addition, Russell will match any

donation of $25 or more made by an employee. Russell sponsors a “jeans day” every

month where employees may buy a sticker for $5 allowing them to wear jeans to work.

The proceeds go to a charity of the month chosen by employees. Russell is also a strong

advocate for protecting the environment. A good ethical reputation is important because

it allows Russell to appeal to those companies or institutions that share the same

concerns. A company like Dupont, having proven its commitment to saving the

environment, may choose Russell over a company of similar business stature that does

not emphasize environmental awareness.

5. Employee Diversification: Russell strives to hire employees based on their abilities,

but also sees the benefit of having different perspectives in the workplace. Half of the

global equity team in the Tacoma headquarters is from different countries around the

world. Employee diversification has the ability to keep the workplace “fresh.” People of

different backgrounds and introduce new ideas that could lead to a decrease in costs or

increase in revenues. Diversification is also important to portray a commitment to a

global concept of business. Diversification is very important within the sales force. The

ability of the sales force to present the company positively can be greatly increased by

having a sales force that fits the company’s demographic profile.

6. Money-Manager Relationship: Russell has a very strong relationship with all of its

money managers. This is a strength because Russell can depend on its managers to

operate fairly and efficiently for them. The money managers have lots of clients besides

Russell, but may get preferential treatment.

7. Privately Owned: Being privately owned allows Russell to focus exclusively on its

operations instead of having to cater to the needs of stockholders.

Weaknesses

1. Growth and Reputation: Two of Russell’s strengths could become weaknesses.

Russell relies dangerously on its reputation and its internal growth. As stated earlier,

Russell has a great reputation, but bad PR or successive losses could put the firm in

jeopardy. The ability to grow internally is a major bonus for Russell and a luxury that

many companies strive for, but is not efficient by itself. Even though Russell is a private

company it could still benefit from increasing financial leverage by financing a portion of

its operations with debt. This would also allow Russell to free up some cash for

marketing.

2. Location: Although Russell has strong local ties to the Tacoma area and its

community, the location can be viewed as a weakness. Financial companies are

concentrated on the east coast; therefore the media that covers them is there too. Russell

slips under the radar in the media because it is not localized in the area most of their

readers and viewers are. Additionally, Russell is too far away from the east coast to fly

back and forth in one day for a meeting. This slows Russell’s response team, even if it is

only a day. One day in the financial world can play a huge role in the attempt to

capitalize on spontaneous investment opportunities.

3. Response time: Russell does not have the capacity, or the response time to react to

market trends and demands. The firm does not have as many employees compared to the

norm of businesses in this market. Russell has always been slow to respond, which can be

considered both a strength and a weakness because they do not overreact to trends.

However, since they don’t react quickly, they are giving up a large possibility of gaining

significant profits. Overall, Russell may be too cautious.

4. Privately Owned: Being privately owned is also a strength and a weakness.

Stockholders give firms the capital to grow or otherwise improve the company. Russell

still has the ability to grow, but is restricted by having to finance based through debt or

with its bottom line. This inevitably leads to a slower growth rate than publicly traded

firms.

Opportunities

1. Concerning pension funds, there is a huge opportunity for growth and profits due to the

trend towards retirement needs. Baby-Boomers are the largest age segment and are

increasingly seeking to secure their future finances. Russell is able to capitalize on this by

creating world-class pension plans for companies like AT&T. Russell gives clients like

AT&T the confidence that their pension plans will earn the best returns in the industry.

2. Russell has a better global footprint than most firms it size. Russell has roughly 60% of

its business inside the U.S. and the other 40% can be found in international markets.

Russell has “gone global” to take advantage of emerging international markets that could

offer a higher ROI than the U.S. market allows. This helps them stay competitive and on

the cutting edge. Russell’s emphasis on global growth has helped to secure the Russell

name in the international investment arena.

3. Russell has expanded its operations to manage both corporate and now individual

investors’ accounts. Russell has established an outstanding reputation based on real

results. This will no doubt make Russell a factor in competing for the accounts of

individual investors.

Threats

1. Competition: There are other firms that offer similar services such as Goldman Sachs,

TD Waterhouse and other large banker/brokerage firms. Russell has been under the radar

up until the last few years because of their small size. As Russell grows, they are

attracting more attention from their competition. Russell needs to protect its competitive

advantage from the larger brokerage firms. If one of the large companies decides to steal

Russell’s investment strategies they could be squeezed out of the market. This is mostly

because Russell has not yet built a commonly recognized brand name, despite its strong

reputation.

2. The Market: Like all financial companies, the uncertainty of the market is always a

looming threat to the success of the company. If the stock of a money manager that

Russell has selected for its clients falls dramatically, this will bring down the whole

Russell benchmark and lose their clients a lot of money. This can be traced back to

Russell being too dependent on its reputation and relying dangerously on its ability to

grow internally.

Marketing Research

Russell has a very direct market research approach involving their customers.

Their marketing research strategy involves direct communication with their clients.

Russell will frequently communicate with their clients via telephone, Internet, or in

person to find out what Russell can do better. The tips given by clients is gathered by

investment analysts, recorded and put on the company database. These files are spread

throughout the entire global company so that Russell can best implement the most

important suggestions. This also enables Russell associates to see how customers feel

about their services. This type of marketing research has provided many opportunities for

Russell including how to best enter the individual investor market.

This direct approach works well with Russell. Due to their clientele, it would not

be appropriate for Russell to use surveys or other techniques associated with consumer

markets. The one on one interaction shows to their customers that Russell is willing to be

flexible and gives the clients a feeling of worth. It also gives Russell the opportunity for

substantial learning about which products are doing the best and which need to be altered.

This also improves their quality of decision making by getting an outside opinion.

Competitor Mission Statement

Goldman Sachs:

-Our mission is to offer each client outstanding investment performance, research

excellence, investment discipline, world-class talent, and exceptional client service and

term perspective.

Goldman Sachs’ mission statement is strictly based on investment performance. It

is very clean and straight to the point. It gives the feeling of a big business, and does not

feel very personal. It strongly differs from that of Russell’s. Russell’s mission statement

still gives the feeling of a family owned business. It includes employee and customer

happiness, which Goldman Sachs does not. A company like Goldman Sachs is the

conglomerate of the business, and expresses this through their mission statement.

Although well written and gives a good overview of the company’s mission, it gives the

impression that the company cares only about profit.

Market Strategies

Russell’s broader market for consulting includes individuals, corporations,

pension funds, non-profits, and governments worldwide that wish to take advantage of

Russell’s innovative multi-manager approach to investing. Russell has many investment

options for the broad portion of its market. Russell’s target market is in the middle of

broadening from its traditional reliance on businesses and institutions to incorporating

individual investors. Russell targets mainly small businesses, but when possible bids for

larger contracts as well. Russell has 40% of its assets managed overseas where a

significant portion of its target market resides.

NAICS Code

Russell Investment Group would be classified by the North American Industry

Classification System as 523920 – Portfolio management, their index entry is investment

management.

Target Market

From our careful analysis, we have identified four distinct target markets for

Russell: the business, institutional, individual investor, and emerging markets. These

markets represent the most profitable points of focus for Russell.

Business Market

The business market is the biggest and most important market for Russell.

Marketing in the investment industry is very different from any consumer industry.

Marketing is mostly in the form of PR because of the scale of the product. Russell is

offering a very complex and expensive product, both in its services and opportunity cost.

There are very few companies that would respond to a direct mailing campaign or other

“attention getter.” Companies are usually aware of the options for the management of

their employee’s pension plans and are looking for reputation based upon results.

Word of mouth marketing dominates the business market. For Russell to increase

their word of mouth marketing, they must achieve better results than their competitors.

Russell could also benefit from the free PR brought by media in the investment industry.

Magazines such as Forbes, Times, Business Weekly, target the people that are interested

in investing or managing companies, both of which are important demographics for

Russell. Other venues are periodicals, most notably the Wall Street Journal. The

psychographics of buying the services of an investment firm are very focused on trust and

reputation. Russell should therefore focus any advertising on establishing trust before

pushing their investment products.

-Marketing Suggestion

Russell should advertise through the media outlets listed above. Advertising and

offering free investment advice will increase brand awareness. Russell’s weakness

described in the SWOT analysis is apparent in media outlets outside of the Northwest.

Russell sits in the back row compared to East Coast investment companies located in the

investors hub (Chicago, Boston, New York). Russell needs to show that although they

still follow the same values as a small scale, family-run business, they are not in that class

anymore. Free publicity is good and easy to find on the West Coast. Russell is dominated

by larger firms on the East Coast. Russell does not receive enough publicity to make a

difference. In order to reach their target market on the east coast, Russell must buy ad

space.

Institutions

Of the $155 million in funds managed directly by Russell, almost half belong to

institutions. Many institutions, like non-profits, have tax-exempt status. Russell offers a

special line of funds to take advantage of high tax investments that other investors usually

shy away from.

Russell researches money managers for the Bill and Melinda Gates Foundation.

Promoting greater equity in global health, education, public libraries, and support for at-

risk families in Washington State and Oregon, the Seattle-based foundation is a

substantial endowment from the personal generosity of Bill and Melinda Gates. Their

endowment funds are invested with a balanced portfolio of equities, bonds and real estate

funds with a focus on achieving long-term growth. This is the largest institution that

Russell manages, with a total worth of $25 billion. The Bill and Melinda Gates

foundation is a great example of a new demographic. Institutions that are created to

combat serious illnesses, such as cancer are growing into a considerable niche market.

Marketing Suggestion:

Russell should take advantage of their ethical reputation and commitment to moral

programs. Non-Profits, such as the Bill and Melinda Gates Foundation, are an untapped

market. Russell should focus on improving communication between itself and institutions

dedicated to a cause. Issue sponsorship is a channel that Russell could use in targeting the

serious illness non-profits. By sponsoring special events or making public statements,

Russell could potentially generate leads. After generating leads by finding common

ground, Russell should attempt to create a working relationship. Any relationship that

manifests itself has the potential to become profitable.

Individual Investors

This is an area where we believe Russell can achieve great success. The market

for individual investors is going to increase in the next 10 years with the aging of the

baby boomers. The baby boomers and generation X are by far the two most important

demographic groups. The baby boomers control 50% of consumer spending power. Their

wealth and concern over their retirement make them a perfect target market for Russell.

Baby boomers are notoriously skeptical of high-pressure sales. Russell’s relationship and

personal selling strategies would suit well to this demographic. The Generation X

demographic is made up of 40 million consumers. The Gen X group has the largest

percentage of women in the workforce. Gen Xers are a good target market for Russell

because many start to invest heavily in 401K’s. Both of these groups have the potential to

be very profitable to Russell.

Russell could try to enter the market alone or use push tactics to increase sales

through their subsidiaries. Russell could still use the same money manager approach that

it uses presently albeit expansion into the brokerage arena will take more marketing than

in the business sector. At the present time, the Russell name is known for its work

managing the 401K portfolios of large corporations like AT&T and GM. Individual

investors are much more fickle than businesses are. Pension plans are important, but

individual investors are betting their own wealth and are therefore much more

scrupulous. It will take a great deal more marketing by Russell to enter the individual

investor market on its, than through its subsidiaries.

-Marketing Suggestions

The large brokerage firms dominate this market. If Russell is to compete with the

large brokerage firms, they must be innovative in their message. Russell has been

successful because of their innovations in the business market. The multi-manager/multi-

asset approach must be the center of the marketing campaign. Russell should seek a

diversification and market development strategy by offering the same products available

to businesses plus create some new funds unique to the individual investor market. The

best way to push their products to the market is through the ads of their partners.

Emerging Markets

-Example: India

India is fast becoming one of the biggest economies in the world. The target

market for India is its 10 million upper class citizens and its rapidly expanding middle

class. India’s middle class of 300 million people is the largest in the world. India’s GDP

has grown steadily for the last two decades. As of 2005, India has the world’s fifth largest

economy, behind the United States, EU, China, and Japan. Unlike China, India’s growth

has been a result of its booming services sector. India’s service sector growth is

considered less susceptible to change than China’s low cost goods and growth from

foreign direct investment. India does have problems with unemployment and poverty, but

the government has shown that it is willing to take steps to alleviate this problem.

GDP Growth in India

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2000

2001

2002

2003

2004

2005

2006

Period

Perc

en

tag

e o

f G

row

th

GDP Growth

Figure 1

-Marketing Suggestion

Although India’s economy is the fifth largest in the world, it is important to note

that its GDP per capita is ranked much lower. The distribution of wealth in India is very

poor. The two states marked INV #1 and #2 are the highest per capita GDP states in

India. We recommend that Russell begin their marketing efforts in these two states.

Russell should create a subsidiary that attempts to capitalize on the growing wealth in the

two states of GOA and Punjab. The “Americanization” of these two states is much more

advanced in comparison to the rest of India. Television and magazines are both outlets

that could be used to market Russell Investment Group to Indian companies in GOA and

Punjab.

INV. #1

INV #2

-Other Emerging Markets

China

Brazil

Indonesia

Turkey

Conclusion

Russell has an edge over their competition within their existing target market. At

the present moment, Russell cannot compete with the larger firms for overall market

share, but have the potential if they continue to grow within their boundaries. The

marketing edge that Russell has over its competition lies in their reputation. Larger firms

like Goldman Sachs imply that they will manage your assets, but that’s it. For some

companies that approach works. Russell should focus on the companies that want an

approachable-ethical manager. By generating leads through outlets like issue

sponsorship, Russell can hope to create long lasting relationships. Russell is not just an

ethical company. Russell is an under the radar industry leader in ROI. It is important for

Russell to maintain their niche advantage in ethics to provide a platform, but Russell’s

future lies in their ability to market their effectiveness.

Bibliography

Figure 1: Yahoo Web Services India Pvt. Ltd. 2006.

http://in.biz.yahoo.com/060227/21/62poz.html

Figure 2: http://www.indianembassy.org/ indiainfo/india_map.jpg

Figure 3: The Russell Investment Approach. Russell Investment Group. 2006.

http://www.russell.com/us/why_multimanager/investment_approach.asp

David Burton. (2004). Emerging Asia: Outlook, Challenges, and India’s Growing

Role [Speech]. New Delhi. IMF2004.

http://www.imf.org/external/np/speeches/2004/102104.htm