We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

IDS Financial Services Case Study

The whole doc is available only for registered users

A limited time offer! Get a custom sample essay written according to your requirements urgent 3h delivery guaranteed

Order Now


IDS Financial Services operate in the consumer financial service industry. After the acquisition by American Express in 1984 the company went through tremendous growth for three consecutive years in terms of revenue (average 30%), financial plan fees (174%) and its sales force (annual rate11%). The company was facing new challenges as to how to maintain this 30 percent growth rate in the market place where the competition was increasing day by day. The consumer financial industry is growing very fast which creates new opportunities to be exploited. With this the competition is also growing as the competitors are becoming more and more aggressive in marketing and selling their products. Now the company is pondering on what should be the strategy in future so that it will come out as a winner. In order to get a comprehensive picture of the situation, the analysis is divided into four sections, Customer, Compititor, Company and Context as follows.


The target customers were primarily those people who had annual income of more than $25000. There were mainly two types of consumers as confident investor and advisor-dependent. As far as financial plan was concerned, there was less chance in case of confident investors as these people were more educated and had the capability to manage their own financial needs. The real opportunity lies in targeting the advisor-dependent investor as they don’t have time or interest in self financial management. People generally go for financial plan when they require long term investment for some future benefit like career advancement, approach of retirement, purchase of house, inherited wealth etc. There is huge potential of income from financial plan as 9.17 ((42 million* 84%)* 26%) million people are ready to go for a financial plan within next 12 months as per a market survey.

Due to lack pf proper information and insight people tend to go for financial plan as it provide them best possible option available. But there were confusion among consumers due to the varied use of this term in different context by different companies. They also had perception of financial planner as insurance agent and beliefs that only wealthy people get benefits out of it. The consumer insight is that people were very skeptical about money matter and don’t easily go for a financial plan unless it was referred by trusted friend or associate. Therefore aggressive marketing to clear the confusion and good service to the existing consumer can generate high quality reference.


Merrill Lynch Integrated Resources FSC Securities IDS

High,Middle market clientele High

Net-worth clientele High, Middle market clientele High, Middle market clientele

Pathfinder: $300

Discount: 55% less on commissions

30% less transactions

80% less on metal transactions 4120-$600/ plan

Or $75-$180/ hour Avg. price for planning software

$ 725 Average fee: $ 360


are employees Independent contractors Independent contractors Independent contractors

Focus on financial planning Focus

on planning software Focus on planning software Focus on financial planning

Strong training program and sales support Little training, hired

IDS planners Little marketing or field support The best training program plus heavy marketing


IDS is a rapidly growing financial services firm with a growth rate of 30%. Its strong points are its training programs buttressed by heavy marketing promotion activities for its sales force. Another advantage that IDS has is its success in small towns and where it has made in roads.

It is into various product lines and this has led to lack of synergy within the organization. There is no clear positioning in the mind of the customer as to what IDS stand for. Similarly this lack of synergy and coordination will also affect the sales force performance.

Its current dilemma is to grow at the same rate while expanding the market and keeping its costs low.

There are also some internal challenges for the Marketing VP Reed Saunders of convincing the management for more resources. To achieve the target of 30% growth in revenues one of the options with Saunders is to expand his Sales force. This expansion plan might be curbed internally as it goes against the other key objective of reducing cost.

Saunders would have to put across this expansion as an investment and not a cost.

He should also reiterate the fact that IDS’ competitors are doubling their sales force.

Saunders would probably face a challenge to change the complex salary structure of the planners as well. It is critical that this complex structure be simplified and the remuneration benefits be clearly shown (to the sales force) if Saunders has to curb attrition (attrition rates being high the expected growth might not be possible). He might face a hurdle in this regard due to the fact that a complex system would have been put in place to handle all the paper work e.g. there are 150 different commission schedules but general repulsion to change in the workplace would be a hurdle.

Here, Saunders could emphasize that keeping the sales force is all important especially since:

– Big players like Merrill Lynch have also started operating in the middle market and IDS has to consolidate its position there. This is possible only with a trained retainable work force.

-If IDS has to target the higher market of high net worth individuals where it has a smaller presence, then retaining trained personnel is all the more important

– The fact that this investment would help maintain the 30% growth in a difficult competitive environment.

Increase in the marketing programs will be another aspect which the top management might not agree to. Saunders can try to overcome this challenge by showing the conversion of leads into clients (Exhibit 7) due to the client programs. He should also stress that these programs and the costs associated with it would not be carried always but up until the clients increase, after which they would be loyal due to IDS’s superior service, and the marketing programs would have served their purpose.


The financial services scene is set at a time when Individual Retirement Accounts were introduced which required individuals to make their own financial planning decisions. The fact that this also led to many pseudo financial planning advisors (sold products alone) meant that any player with the ability to offer sound financial advice along with financial products would gain credibility initially and this would help in the long run also as the market grows.

Distribution is also a key factor in this scenario, where reaching the end consumer and making sure that he/she is aware of your service offering is critical. The fact that the advice offered by various organizations cannot be compared or sometimes differentiated, it is important for players to have a first mover advantage in this growing market.

Market potential:

To calculate the market potential for financial services in the context of the case, we started with the figure of 42 million high-potential customers.

Also, 16% of these households were existing financial plan users and IDS wanted to concentrate on existing users and accounts so going by this, we would get 6.72 million as the potential.

Of the remaining 84% (35,280,000), 7% were likely to get a plan and this number came to 2.469 million. Add to this the number who had given this serious thought – 6.7032 million – and we get a combined market for ‘probable’ users of 9.1728 million.

The total market potential would then come to 6.72+9.1728 million =15,892,800

Next, going by the value that 18% of the high potential market favored a commission-only arrangement and as IDS did not operate in this manner, we discounted this 18% from our target market. So, 82% of 15,892,800 i.e. 13,032,096 is the potential market.

Sales Force Issue:

The first challenge for IDS as mentioned in the case is to increase its sales while decreasing the cost. The fact that the marketing expenses have been increasing steadily (Exhibit 6) make this proposition all the more a challenge.

Another critical issue facing IDS is the high attrition rates between the 2nd and 4th years. This implies two things; first that the through the training period the Planners are satisfied with IDS but immediately after training they shift to other competitors for want of better margins and business. Secondly, after the 4th year the retention level is high because they see a long term gain over short term benefits.

Staying inline with the objective of increasing growth through the option of accelerating field growth implies that IDS cannot afford to lose any of their trained sales force initially. This is an aspect ID cannot ignore.

The next concern with respect to the financial planners is the complicated compensation package which did not result in immediate cash benefits. If IDS really had a better package then its long term benefits should be spelt out clearly to the existing and new planners.

In terms of cost the client marketing programs were expensive for IDS and the return for these initiatives taken by IDS also was not commensurate.


Expanding competition, who are doubling their sales force is a problem for IDS. This is accentuated by the fact that IDS is unable to retain their trained sales force initially.


Short Term Objective: Increase sales revenue by 30% over the next 3 years while reducing the cost of sales by 5% per year.

Also, increase the earnings by 24% over the next 3 years.

Long Term Objective: To become the premier financial firm in the world.


1 Increase Productivity by

a. Increasing No of clients per planner

b. Increasing No of accounts per customer

2 Increase the no of IDS financial Planners


The criteria for evaluation based on the objectives set are:

The Revenue generated by the different options and the Return on Investment for each would be key aspects to evaluate the options on. The revenue generated would be a direct indication of the growth increase in sales.

The second criterion is the Net Income generated by each of the options. This would allow us to see how the expenses or costs are affecting the revenue. This would show if the money spent is a sound investment or not. This would also show if the costs are being kept low – one of the objectives.


Before evaluating the criteria these are the projected Revenues and net incomes expected by the IDS management

1986 1987 1988 1989 1990

Revenues 2909946000 3782929800 4917808740 6393151362 8311096771

Net Income 128643000 159517320 197801477 245273831 304139551

Option Evaluation:

1.a Number of clients per planner: The number of clients handled by one planner is 208 (1.4 million/6731 planner) Exhibit 1. Revenue per client can be calculated as $2078.57 [2910m (Total revenue)/1.4m (Total client)]. The cost incurred to get a new client is found out as $120.36 ($21388000/177693) Exhibit 5 and 6. In this case the return on investment on $1 is $17.26 ($2078.57/$120.36).

Now an additional client would bring about a revenue increase of $2078.5 and assuming profit of about 4.5 %, assuming an increase to 308 clients per planner

Cost to the company: 72962232

Revenue generated in 1987 would be: 3,880889733

If only this alternative and increasing the sales force were to be used, an additional expenditure of about 72 million is to be undertaken, this is quite a formidable investment

1.b Number of sales per planner: According to exhibit 5 average accounts per client is 2.34. These 2.34 accounts contribute to the average 2078.57 revenue per client. Therefore revenue per account is

$2078.57 / 2.34 = $888.28

The cost for getting a new account can be calculated from Existing -Client Programs.

$1651650 / 53240 = $31.02

This is the cost for getting one new account.

The return on investment will be

$888.28 / $31.02 = $28.63

For the revenue target to be matched

The accounts per customer has to be increased to 3.041

The cost occurred would be $ 30483764.82

1.c Increase sales force size: From exhibit 6 the total cost for education/ training and Recruiting/Licensing is

$10872000 + $ 2369000 = $13241000

Total number of planner appointed in 1986 is

2321 * 0.86 = 1996.06 (From exhibit 8 and 9)

The cost incurred per planner is

$13241000 / 1996.06 = $6633.56

Therefore return on investment is

$ 432328 / $6633.56 = $65.17

Based on the return itself this option would be the most favorable one and one which would cost the least amount of money

From the above analysis it is clear that adding new sales force would bring more return to the company. Again increasing number of sales per client will add more value to the company than increasing the number of clients per planner.

2) Increasing sales force size: The revenue can be increased by expanding the sales force size.

Increase sales force size: From exhibit 6 the total cost for education/ training and Recruiting/Licensing is

$10872000 + $ 2369000 = $13241000

Total number of planner appointed in 1986 is

2321 * 0.86 = 1996.06 (From exhibit 8 and 9)

The cost incurred per planner is

$13241000 / 1996.06 = $6633.56

Therefore return on investment on $1 is

$ 432328 / $6633.56 = $65.17

From the above analysis it is clear that adding new sales force would bring more return to the company and this is in line with the company’s objective of doubling the sales force by 1990, increasing number of sales per client will add more value to the company than increasing the number of clients per planner.

The main problem with increasing the sales force is that the net addition to the sales force is quite lower than the intake amount and to compound the problem s 32% of the terminated planners join rival firms this is 1986 was approximately 540 planners. Considering the fact that IDS’s competitors are also planning to increase the sales force , the retention rates are expected to get even lower.

Primarily IDS was concentrating on middle segment income group. Their major customers were from this group who had small pocket. In order to get high revenue IDS had to focus on high net worth people. This segment could provide high revenue per account or client. In order to compete in the market and become a premier financial institute IDS had to look into the option of expanding in major metropolitan areas. The big players like Merill Lynch were expanding into the middle market and competition was getting heated up due to high competition. To sustain its growth IDS had to expand in major metropolitan areas. Another cause of worry is that IDS tends to expand in areas in which it is highly present, this would bring in more competition amongst planners and a loss in revenue due to the higher no of planners in a particular district. They would be better of achieving geographical expansion.

We calculated the life time value of the consumer to be:

Contribution Margin: Product Revenue – Product Variable Costs

Product Revenue

Product revenue= 2078.53

VC = 1835.785

CM = 242.745/2078.53 = 0.11


Perpetuity = Contribution/ r = 242.745/.12 = 2022.875

Customer life time value is $ 2022.875.

Increase the budget in marketing programs: The table below shows the marketing programs that are most effective in generating new customers and accounts.

Right No of leads Amex Marketing Prog Seminar Prog Pre-Retirement Segment Mkt Prog Local Prospecting Prog. Yellow Pages Prog EFP

Literature promotion 18918350 3945000 1806500

Lead 539600 108000 11606 31584 6240

New client 21100 5200 3190 1232 3504

IDS expense 2533740 1201530 370000 182710 752600 521510 4825480

Planner expense

Total 2533740 1201530 370000 182710 521510 4825480

leads/client 25.57346 20.76923 3.638245 25.6363636 1.780822

expense/client 120.08246 231.0635 115.9875 148.303571 1377.135

The above table shows the calculation of leads per client and expense incurred by the company for all types of marketing programs. Among the given options EFP is highly effective in converting the lead to new client with value 1.78. But the concern is that it is very costly affaire (Expense per client = 1377.135). Right No of Ideas, Amex

Marketing Programs and Pre- Retirement Segment program generate very low quality leads. Seminar program is quite effective as the leads per client is pretty i.e.3.63 and the expense per client is lowest among all option. Therefore the company should focus more on seminar programs. Here we assumed that the planner’s expenses are their own expenses and is not related to the company’s expenses.


The best way to attain the objectives of realizing the 30% growth at the lowest additional cost would be to add more financial planners. Emphasis must also be placed on selling more accounts to the customer. Financial plans should be the growth driver as they offer a method by which you can synergise your entire product offerings.

Related Topics

We can write a custom essay

According to Your Specific Requirements

Order an essay
Materials Daily
100,000+ Subjects
2000+ Topics
Free Plagiarism
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access

Your Answer Is Very Helpful For Us
Thank You A Lot!


Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?

Get access to our huge, continuously updated knowledge base

The next update will be in:
14 : 59 : 59