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ASIA PACIFIC: NEW ZEALAND

Marketing and the Chameleon Effect on Finance Companies
Author: Liesel Knox, Hesketh Henry

Finance companies are a specific type of entity which operate within New Zealand's financial markets.  They are not registered banks, but they do borrow and lend money to the public through a variety of financing arrangements.  In general, they offer higher rates of interest on deposits than high street banks.  This in turn provides them with an excellent selling point.  Historically, advertisements for finance companies seeking deposits have been entirely interest rate driven - and what better way to sell a product?

Better yet, New Zealand currently has the highest real interest rates in the world.  So, one has to ask the question - why aren't finance companies leading interest rate focused campaigns now?

The answer may be found in the current state of the world’s financial markets.  The collapse of the US sub-prime mortgage market and the subsequent squeeze on funds resulting in the "credit crunch" has contributed to the collapse of 15 finance companies over the last 18 months, in New Zealand. Pre-collapse offer documents including advertising campaigns and promotional documents are being examined very closely on behalf of disgruntled investors wishing to seek legal redress against the directors of those companies. 

The majority of investors in finance companies have been "ma and pa" investors who have sunk their entire savings into the high interest savings products offered by such companies in the hope of making just that little bit more!   Unfortunately, what most investors have not appreciated is that the higher interest rates offered were directly linked to the increased risk associated with the products. 

The bad press which has resulted from the collapse of so many finance companies has unfortunately tarnished the reputation of all who remain in the market.  Those who have money to invest are looking more closely at the fine print and are savvier about what those high interest rates might mean.  Clearly to focus on interest rates now, will only emphasise risk.  Finance companies have therefore had to take a close look at what will bring customers back and the bottom line is trust.  They have set about re-creating their image and the result has seen some very open honest advertising.  Some have started with the basics and changed their names, whilst others are sponsoring family orientated television programming and others still have engaged the services of trusted public faces to front their new campaigns.  Some have gone further yet, and taken the additional step of having themselves rated by independent rating agencies – despite the fact that they are not currently required to. 

The chameleon effect has been swift and dramatic.  It will now be left up to customers to decide whether the campaign has had the desired effect and trust has been re-established. Current indicators do not appear to be overly encouraging for finance companies.