Branding Banks For Shareholder Value 5.0 Why Cant Banks Brand


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The fifth section of Branding banks for shareholder value. This describes the difficulties banks face if they are to brand succesfully

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Branding Banks For Shareholder Value 5.0 Why Cant Banks Brand

  1. 1. Branding Banks for shareholder value Discussion Draft Section 5.0 Branding banks for shareholder value Section 5.0 Why can‟t banks brand? 1 © Geoffrey Johns 03 June 2010
  2. 2. Branding Banks for shareholder value Discussion Draft Section 5.0 Delivered and planned series of papers Discussion Draft Release Date Order.Version Creating shareholder value - an outline 1.0 Mar-10 Knowing customers 2.0 Mar-10 How customer perceptions develop 3.0 Apr-10 Why brand banks? 4.0 Apr-10 Why can't banks brand? 5.0 May-10 Measuring customer perceptions 6.0 June-10 Measuring customer value 7.0 TBA Gaps diagnosis 8.0 TBA Bank structure and brand control 9.0 TBA Process level brand control 10.0 TBA Building the brand story 11.0 TBA Communicating bank brands 12.0 TBA Valuing bank brands 13.0 TBA Brands and the future of banking 14.0 TBA Competitive bank branding strategies 15.0 TBA 2 © Geoffrey Johns 03 June 2010
  3. 3. Branding Banks for shareholder value Discussion Draft Section 5.0 Introduction In this section, I pursue four lines of thought:  Branding banks is at the extreme end of difficulty along the spectrum of all brands.  The standard tools and mindset we use in thinking about brands have to be rethought for the banking sector.  Because brands are so valuable to banks (as I argue in the previous section) and because achieving a good brand is so difficult the ability to be able to do so is a significant source of sustainable competitive advantage.  A first step to surmounting the challenges is to have a profound understanding of them and their causes. Banks which try to manage their brands as if they were Coca Cola are not going to win. Branding Branding banks is next banks is vital to impossible Surmounting the impossibilities creates sustainable competitive advatage I support these assertions with three arguments:  banking by its nature makes banks unusually difficult to brand;  bank brand messages are unusually difficult to convey; and 3 © Geoffrey Johns 03 June 2010
  4. 4. Branding Banks for shareholder value Discussion Draft Section 5.0  banks‟ brands must be exceptionally resilient to change both cyclical and structural. But first, what evidence is there that banks are indeed bad a branding? Is it really true that banks are bad at branding? Each year Superbrands commissions a survey of Britain‟s top brands, performed by The Centre for Brand Analysisi. Stephen Cheliotis, Chief Executive of The Centre for Brand Analysis has kindly given me permission to use some of the findings of the 2010 survey in this book. In Appendix 1, I reproduce part of that data. I shall discuss some implications in more detail later in this paper. For now though I wish to observe that in the top hundred UK consumer brands there is no bank at all. Lloyds TSBii and Barclays are the highest ranked in the listing at 105th and 107th respectively. Later, in this section I note the potential reach of British bank brands into the economy and the community. In the light of this reach it seems that the relatively poor perception of them in the market is some confirmation of the assertion made in this situation. Despite all their potential power the branding of banks is poor. Listed below are some of the leading brands in the eyes of the British as measured by Superbrands. I shall refer to some of them in this paper as I make a case that bank brands have features that make them quite distinct. Brand Rank Index Microsoft 1 100.0 Rolex 2 99.9 Google 3 93.4 British Airways 4 90.3 BBC 5 86.8 Mercedes Benz 6 86.2 Coca-cola 7 83.2 4 © Geoffrey Johns 03 June 2010
  5. 5. Branding Banks for shareholder value Discussion Draft Section 5.0 Lego 8 82.9 Apple 9 81.4 Lloyds TSB 105 48.6 Source: Superbrands 2009 The nature of banking There are some things about the nature banking that collectively make banks unique in terms of branding. I outline in the following paragraphs the implications of:  banks as service businesses;  business to business marketing as a special case in branding as well acting in tandem with business to consumer marketing; and  the abstract, hard to portray, nature of banking. Banks are service businesses Several authoritive books on branding I have consulted to write this book have separate chapters for service industries and Business to Business brands. This includes, for example „Kellogg on Branding‟ iiiwhich carries the name of what is arguably the premier marketing school in the world. There is a clear indication that brands within these categories are seen to be somehow different in nature to the sort of products that we are used to calling brands. In the exhibit below, I illustrate a key feature of services. Perceptions of the brand are much influenced by a series of interactions which are commonly called „touch points‟. I refer again to the diagram I used in Section 3, „How customer perceptions develop‟. At each touch point the customers is checking his or her experience against the messages they receive from the environment and most importantly their own past experience. While these modify their interpretation of the immediate experience in the way I discuss in Section 4 they cannot override it. It is more likely to be they who are re-evaluated. 5 © Geoffrey Johns 03 June 2010
  6. 6. Branding Banks for shareholder value Discussion Draft Section 5.0 A second feature of the service brand is that it is difficult to evaluate except by trial. You can‟t, as it were, „look at it in the window‟. This is not so important for a service such as a haircut, inexpensive and one-off, but for an ongoing relationship such as banking it matters more. This is especially true when the value of the relationship occurs relatively infrequently. For example, some people like to have a good ongoing relationship with their bank for rare occasions when they want to borrow. A third, a very important feature, is that people are involved and so consistency of service is difficult to achieve. Where the outcome depends on collaboration between the service provider and the client this becomes even harder to manage. A fourth is that services can‟t be stored as inventory. There is no buffer between supply and demand. This means that the forces of oscillation present within banks are magnified. Cost reductions are often resisted up to a point and then are resolved by often large scale, staff lay-offs with adverse implications for service. 6 © Geoffrey Johns 03 June 2010
  7. 7. Branding Banks for shareholder value Discussion Draft Section 5.0 A fifth is that service activities need to be carried out in proximity to the customer. In the case of banks this involves branches and, in most cases, regional control. Let me offer the following conversation I recorded between myself and the General Manager for Westpac in Queensland around 1990. Me (then in corporate centre strategic planning): “Bill, I should very much like to visit Brisbane to understand the unique features of the Queensland market”. General manager Queensland: “You‟re very welcome, we‟ll certainly show you how we do things better in Queensland”. Those two sentences, and the obvious misunderstanding they convey, tell much about the nature of branch banking. Some autonomy is necessary, even desirable. But it does very little for geographic brand consistency. Of course this is even more so for multi- country bank brands where there really are regional market differences to be taken into account. Rating the service element in brands I have tried to look at the brands highest rated by Superbrands in terms of how exposed they are to the service element in their offerings. Here are my criteria for making these assessments. A 10 means that the customer experience of benefiting from the product or service is highly dependent on employees who:  are skilled;  operate with some discretion in managing customer relationships;  are not easy to supervise or measure in performance;  have to deal with a wide variety of issues;  who are largely responsible for delivering the client benefit.  who have to collaborate with the customer to create the solution. 7 © Geoffrey Johns 03 June 2010
  8. 8. Branding Banks for shareholder value Discussion Draft Section 5.0 I think a 10 might be scored by a hospital or school. I‟ve lowered the bar a bit in my ratings so my examples don‟t cluster too much at the lower end of the scale. As with all my ratings of this kind you are invited to make your own assessments and see if you come to the same conclusion. Brand My rating Microsoft 3 Rolex 2 Google 2 British Airways 7 BBC 2 Mercedes Benz 2 Coca-cola 1 Lego 1 Lloyds 8 My conclusion is that along the scale of dependency on service elements banks are well towards the high endiv. A large element of B2B Looking at the exhibit I used in Section 2.0 of this series it is clear that a bank is likely to have a large business component. It is reasonable to think of perhaps half of shareholder value being attributed to the non-household sector. 8 © Geoffrey Johns 03 June 2010
  9. 9. Branding Banks for shareholder value Discussion Draft Section 5.0 Bank Professional Retail Corporate Institutional markets Personal SME Mass Affluent market Books on branding, including „Kellogg on branding‟ cited above often have a separate chapter on business to business brands. In a similar way to service brands they are seen as being distinct. They are different to consumer brands in several regards:  their major buying decisions are more likely to be taken by a group rather than an individual;  their major buying decisions often involve a technical specialist) in the case of banking, the accountant or chief financial officer;  there tend to be a precise specification for the supplies and a more formal purchasing process;  many buying decisions come down to cost and monetary benefit. There is probably more emotion attached to the decision than people think but there is a strong tendency for this to be true.  There is often more pressure on the buyer to make a formal assessment of the purchase prior to the decision to buy. For all these reasons, brand effects are more likely than in personal markets to be overridden by the actual experience. That is to say, perceptions of the experience are less likely to be modified by brand effects. 9 © Geoffrey Johns 03 June 2010
  10. 10. Branding Banks for shareholder value Discussion Draft Section 5.0 It is not only true that banks have a large part of their business based on this distinct arena of branding. It is also the case that they have to manage both consumer and business brands. As we shall see in Section 7 on structure and control this is not a simple issue for banks. For example, business customers, often relationship managed face to face, still have to use branches and often do so more than we thinkv. As I did with services I essay a comparison between Superbrands leading brands in terms of the demands of business to business branding placed upon them. My criteria for scoring a 10 (the largest commitment to business to business) are as follows. The business component must to only involve sales to business but this must involve a business model quite distinct from that brands consumer model. There must be a need to reconcile and integrate these different models within the same organisational framework. Brand My rating Microsoft 7 Rolex 1 Google 3 British Airways 4 BBC 1 Mercedes Benz 1 Coca-cola 1 Lego 1 Lloyds 8 My conclusion is that by comparison to more successful brands banks tend to have a larger burden placed upon them in responding to business branding needs. (Again you can make your own rating and draw your own conclusion if you wish.) Managing risk, at the heart of banking, is abstract What banks do to add value within the economy is partially to offer a service to make payments and transfers. But more importantly at the heart of banking is the 10 © Geoffrey Johns 03 June 2010
  11. 11. Branding Banks for shareholder value Discussion Draft Section 5.0 management of risk. The banking equivalent of the engineering department in a large manufacturing company is the risk management department. The main risk that a typical commercial bank manages is not in the heady world of hedging and derivatives. It is to manage the lending long (mainly home mortgages) against the short term deposit taking (large at call). This management permeates the organisation. It results from thousands of decisions firmly grounded in prudent standards and on the banks culture. It isn‟t something customers can see, touch and taste. In fact when customers do see it, it often seems cold and hard as in the regulation required caveat in the advert below. A new Apple product was described recently as „lickable‟. Somehow you just don‟t want to lick a residential mortgage agreement. Try this: Microsoft being productive Rolex feeling rich Google being connected 11 © Geoffrey Johns 03 June 2010
  12. 12. Branding Banks for shareholder value Discussion Draft Section 5.0 British Airways getting there BBC being in the know Mercedes Benz riding in style Coca-cola icily refreshed Lego playing, building, creating Apple in tune with the world Lloyds TSB queuing for something you don't understand Yes, I know, unfair – but maybe just a tiny ring of truth. In Section 4, „Why brand banks?‟ I talked about brands in terms of how they:  contextualise a product or service in that they create a space where it fitted in with people‟s everyday lives; and  make the product or service tangible in the sense that people could relate to as closely and immediately as they could to a ripe peach. Services that are abstract in nature make this so much harder. So to summarise thus far: Brand identity is hard to define Banks are service Much bank value lies in B2B. This Banking itself (especially businesses hard to define involves more pragmatic risk management) is in traditional brand terms. So much depends on purchasing decisions with different abstract and cold – difficult criteria and controls for people to form a customer by customer experience. relationship with Bank brands are surrounded by inertia 12 © Geoffrey Johns 03 June 2010
  13. 13. Branding Banks for shareholder value Discussion Draft Section 5.0 Banks are subject to:  the weight of history;  having roles seen as akin to public utilities;  the fact that by contrast to many brands their customer relationships are ongoing. Long history, long memories, long relationships A while ago I was put in charge of commercial marketing strategy at an Australian bank. It turned out that a computer programmer had reset all the customer acquisition dates to the first of January that year. So I went to the banks oldest business banking branch and started to look through files. There were customer relationships that went back beyond memory, over a hundred years (think Ned Kelly here) vi. Think also of the NPV of the relationship at the time of acquisition! And there are not a few personal customers that have had an account with a bank all their lives with perhaps a family relationship that goes back generations. Go to, say, Bradford and look at a group of imposing bank branches constructed on the bank of a burgeoning wool trade over a hundred years ago. 13 © Geoffrey Johns 03 June 2010
  14. 14. Branding Banks for shareholder value Discussion Draft Section 5.0 The Victorian grandeur of the banks lasted long after the wool trade ceased to exist. It may seem too obvious to say but bank brands have been part of the fabric of communities for a very long time. It takes a lot of branding effort to push them more than an inch or two. The NatWest branch I show above was clearly designed to say:  We are safe  We are civic leaders  We are part of the industrial revolution. Whether or nor that is the image a bank may want to communicate today is irrelevant. My point is that changing the buildings is not an option really. Bank branches come in all styles. Like this one many came along with a bygone merger or acquisition. Bank brands reach far back in time. Banks seem much like public utilities Banks have some characteristics of being public utilities in that they provide a service in payments and transfers that is almost a necessity for most people. In fact many banks have been in public ownership. They are a necessary part of the fabric of society. This leads to people having perceptions of them that are very much illustrated by the dis- satisfiers in Kano Analysisvii. Things are expected to work smoothly banks get little recognition when they do and enrage their customers when they don‟t. This is one of the reasons why banking is such a football for politicians and the media. They are an entitlement because they are essential. Leading on from this is the fact that it is hard for a bank‟s brand to transcend that of the category. People have such a fixed idea, developed almost form childhood of what a bank is that this dominates. Their concept of bank nearly always precedes in their minds the brand of any individual bank. Actually this does reinforce inertia, making it harder for a non-bank to enter the market. Inevitably though it makes the task of branding harder. 14 © Geoffrey Johns 03 June 2010
  15. 15. Branding Banks for shareholder value Discussion Draft Section 5.0 Customers have an ongoing relationship with their bank A key feature of banks is that their relationships with their clients are ongoing. The actual moments of contact may only be once in every few years in the case of a residential mortgage only relationship or almost every day in the case of an online transaction account relationship for a small business. Each time you buy a Coke in preference to a Pepsi you are deciding to reinforce that preference in your mind. Each time you tune into BBC Radi0 2 rather than, say, Capital Radio you are reinforcing your preference for the BBC. With a bank it is different. Each visit to a branch or log in online is in some way because you are captured by the relationship. Interactions with a bank are not chosen each time. If they are unsatisfactory from the customer‟s viewpoint their annoyance is likely to be greater. Customer inertia creates much value for shareholders but it comes at a price. Bank brands are weighed down by inertia Expectations based on long Banks can look much like public Customers have ongoing histories are difficult to utilities relationships with their overcome or for individual banks that are easy to take brands to transcend for granted Banks exist in a complex and diverse marketplace Bank brands reach far into the marketplace In the chart below, I show my rough estimate of the reach some of the brands ranked highly in the Superbrands survey. I took Lloyds TSB as my bank in this list as first, it 15 © Geoffrey Johns 03 June 2010
  16. 16. Branding Banks for shareholder value Discussion Draft Section 5.0 came highest of the banks in the Superbrands survey (notwithstanding that it is nearly a hundred places below the 9th firm in the rankings) and secondly, putting aside the problems it caused itself by its rescue acquisition of HBOS, it is a well balanced and, in the long run, successful bank. I also included Tesco on my list of leading brands. It wasn‟t, by contrast to the others, in the Superbrands top ten but I thought it fair to include a heavyweight retail brand. I made the estimate by rating each brand against eight criteria. I used a scale of 1 – 10 where 1 = virtually no brand presence and 10 = as much presence as I could imagine. Note they are only my estimates. You could try it yourself and see if you come up with anything significantly different. Brand reach estimate 70 Estimate (see text) 60 50 40 30 20 10 0 Selected brands 16 © Geoffrey Johns 03 June 2010
  17. 17. Branding Banks for shareholder value Discussion Draft Section 5.0 Business Outdoor Broadcast In home Online Customers Staff and Media Total premises signage / advertising /Direct presence talking their talking / Point of / print mail online about the families about branches Sale / advertising brand talking the ATMs about brand the brand Microsoft 1 2 6 1 8 7 1 7 33 Google 1 1 4 1 9 7 1 7 31 British Airways 3 2 8 3 2 6 4 7 35 BBC 1 2 9 10 7 9 2 7 47 Mercedes Benz 4 2 2 2 1 2 1 1 15 Coca-cola 1 7 4 1 1 7 2 1 24 Lego 2 2 2 2 1 5 1 1 16 Apple 4 1 3 1 7 3 1 7 27 Tesco 9 2 6 3 3 8 9 7 47 Lloyds BG 9 7 6 7 6 7 9 7 58 By business premises / branches, I mean high street presence – everyday visibility and interaction. This is important in terms of the daily integration of a brand into our routines and habits. Navigant Consulting research indicates a strong correlation between the number of branches a bank has and its share of current accounts. Branches it appears are still the bastions of retail banking. Tesco of course has stores in much the same was a banks have branches and they are comparable in terms of frequency of visits and by numbers of customers visiting. The other brands on my list fall well short of this, however. By outdoor signage, point of sale advertising and ATMs I mean those constant, almost subliminal nudges through which brands remind us of their presence – often unobtrusively but constantly. For banks this is primarily ATMs, less so in the UK than in Australia where I never seem to be more than a few yards from one. For point of sale signage and advertising, Coca Cola is strong but most brands on our list don‟t come close. In Broadcast advertising / print I refer to the most traditional forms of marketing communication. I don‟t have expenditure figures but I should say that banking is a leading sector in both broadcast and print. I want to note here that by contrast to many leading brands banks tend to have more authority to take such expenditure decisions in their domestic markets. Looking again at the top brands according to Superbrands: 17 © Geoffrey Johns 03 June 2010
  18. 18. Branding Banks for shareholder value Discussion Draft Section 5.0 Highest level of marketing decision making located in the UK Microsoft N Rolex N Google N British Airways Y BBC Y Mercedes Benz N Coca-cola N Lego N Lloyds Y By In home I mean everything that comes through your door. I am including television and radio in this so this is where the BBC gets a boost. Online is everything paid for by a brand you see on your computer screen plus all the dealings you do with your bank online. It‟s your computer screen as your window on the world. Customers talking about the bank means what is called word of mouth. In includes what intermediaries have to say too. For the business market, accountants are almost certainly the strongest influence. The power of word of mouth is difficult to evaluate. Staff and their families talking about the bank whether it‟s good or band. A quick calculation suggests that in Australia and the UK there are getting on for 1 bank employee for every 100 people. Compared to other brands I‟d say that was pretty pervasive. Media talking about the bank comes in four ways:  commentators on bank products such as you find in the Money pages of the Sunday Times;  commentators talking about banks in the context of the their role in society (We usually refer to this as „bank bashing‟; 18 © Geoffrey Johns 03 June 2010
  19. 19. Branding Banks for shareholder value Discussion Draft Section 5.0  commentators on the role of banks in the economy;  commentators talking about banks in terms of their value as an investments such as in the pages of the Investors Chronicle. So it seems to me incontrovertible that banks have a long reach into the community and the marketplace. There are four conclusions I draw from this:  through sheer presence they should have strong awareness and the opportunity to create strong brands (after all the constant nudging „I am here‟ to build and maintain awareness is an important use of brands);  no doubt the coordination and integration of messages presents complex problems;  a good reach but a poor brand can do more harm than good; people are continually jogged to reinforce the wrong message; but  there must be other reasons that the reach of banks fails to be turned into more valuable brands. Large and diverse client base Putting aside the business customer base of banks and just looking at the personal market, it is impressive in its diversity. It is generally hard for banks to focus easily on specific groups of customers. There is of course private banking and in Section 4, I noted some exceptions. Mostly though, a typical retail bank will have a customer base that is highly diverse in these key dimensions that I introduced in Section 2. 19 © Geoffrey Johns 03 June 2010
  20. 20. Branding Banks for shareholder value Discussion Draft Section 5.0 Attitude to finances Affluence e ag st fe Li The result is that branding messages have to work for all segments along the dimensions shown above. Many products, many markets By comparison to many successful brands in other industries banks cover a big territory in the product market spectrum. In the exhibits below I compare a typical large bank with some other brands that ranked high is the Superbrands survey. Please note I am not suggesting that this is these are the product market matrices actually used by these brands. They are simply my interpretation based on what seems to me much the same scale of cell segment as I show below for a bank. Typical large bank (Lloyds TSB being ranked 105th by Superbrands) The highest bank brand rated by Superbrands in the consumer survey was Lloyd TSB at 105th. I imagine it has a product market pattern something like this. Note that by risk management I mean for personal markets largely insurance products whereas for business / institutional markets they are more likely to be things such as hedging. 20 © Geoffrey Johns 03 June 2010
  21. 21. Branding Banks for shareholder value Discussion Draft Section 5.0 Institutional Mass Affluent SME Corporate and financial personal personal markets Loans Deposits Risk Mgt Investments Transactions Microsoft (Ranked 1st by Superbrands) Personal Business Productivity software Entertainment sofrware Consumer electronics British Airways (Ranked 4th by Superbrands) Personal Business Long haul Short haul 21 © Geoffrey Johns 03 June 2010
  22. 22. Branding Banks for shareholder value Discussion Draft Section 5.0 Coca Cola (Ranked 6th by Superbrands) Personal Soft drinks For me, therefore it seems that banks have a significantly larger product market framework than other, apparently stronger brands. Bank brand identity is a broader umbrella and tends consequently to be weaker. The value of customers is difficult to assess At the time of acquisition a bank never knows if a customer is going to be valuable. This is partially because the customer‟s imposition on bank operational costs is unpredictable. Also in the case of customers that incur a cost of risk to the bank. These costs are unpredictable and can change over time. Customers consistently say, in interviews, however, „I give a lot of business to the bank. I deserve to be better treated.‟ If the bank isn‟t sure how valuable the customer is what chance does the customer have? So any cost incurred in managing relationships, including branding, is doubly opaque both from the bank‟s assessment of the improved value of relationships and from the customer‟s perception of it. Climbing for the most desirable brand real estate neuters differentiation 22 © Geoffrey Johns 03 June 2010
  23. 23. Branding Banks for shareholder value Discussion Draft Section 5.0 A clear differentiating message for a bank is good to have. Early in my consulting career in accordance with the fashion of the day I was much involved in facilitating workshops in which business teams have laboured over the „word-smithing‟ of a mission statement. Everyone had to have one. Many teams found is a dispiriting exercise because after a few hours spent haggling over the words, they finished up with a motherhood mission, bland and obvious. That‟s the trouble with trying to construct a mission. All roads tend to lead to „trusted by delighted customers‟ or something close that. Differentiation is elusive. It‟s the same with branding. Every bank wants to say that they are risk free and treat every customer as an individual and so on. The trouble is this branding pinnacle of Everest is very crowded. In summary therefore: The brand’s market place is diverse and complex Banks brands must be relevant to banks find it hard to Bank brands must be diverse customer bases where differentiate clear brands relevant in many product customer value is hard to measure because they all want to markets claim the middle ground And so to summarise this part of Section5 in full: 23 © Geoffrey Johns 03 June 2010
  24. 24. Branding Banks for shareholder value Discussion Draft Section 5.0 Brand identity is hard to define The brand’s market Bank are Bank brands are place is diverse intrinsically hard to weighed down by and complex brand inertia Bank brands must be relevant in many product Banks are service markets businesses hard to define in traditional brand terms. So much depends on customer by customer Expectations based on long experience. histories are difficult to overcome or for individual brands to transcend Banks brands must be relevant to diverse customer bases where Much bank value lies in B2B. This customer value is hard to measure involves more pragmatic Banks can look much like public purchasing decisions with different utilities and are saddled with those criteria and controls expectations banks find it hard to differentiate clear brands because they all want to Banking itself (especially claim the middle ground risk management) is abstract and cold – difficult Customers have ongoing for people to form a relationships with their relationship with banks that are easy to take for granted In the paragraphs above I have tried to draw out the features that make banks both different to other organisations and more difficult to brand. I want to turn now to the problems associated with transmitting the brand, however undefined, to its intended audience. Transmission and reception of the brand Transmission and reception of the brand is really just another instance of the special nature of banking. We shall see that banks differ from other industries in several important respects. Most importantly, by contrast to the picture shown in the exhibit below, the transmission is blurred because it has many sources and many audiences. What is more they do not communicate on a straight one to one basis. If only communication was as simple as the shown in the exhibit below! 24 © Geoffrey Johns 03 June 2010
  25. 25. Branding Banks for shareholder value Discussion Draft Section 5.0 Simple brand communication 001 Actually, my reality looks more like this: Brand Brand identity awareness transmission reception Multiple sources 25 © Geoffrey Johns 03 June 2010
  26. 26. Branding Banks for shareholder value Discussion Draft Section 5.0 The exhibit below give a view of what a bank‟s organisation structure might look like roughly speaking. Obviously this is a simplification. Board CEO Business unit line heads Staff function heads HO PB HO BB HO IB HO WM HO IS HO Int B CFO CRO CIO CHRO CMO Abbreviations Regional Head HO Mortgages HO Online banking CEO = Chief Executive Officer HO = Head of HO Investor Relations PB = Personal Banking BB = Business Banking IB = Institutional Banking WM = Wealth Management IS = Insurance Services Branch manager Int B = International Banking FO = Financial Officer RO = Risk Officer IO = Information Officer HRO Human Resources officer MO = Marketing Officer Front line customer service Let‟s take a look at how they might communicate with the outside world. I‟ve taken away the organisation reporting lines because, the CEO aside, hardly anyone outside the organisation has a clear idea of who‟s who inside. Then I‟ve just tried to give a flavour of the range of communication the insiders have. It‟s very simplified because the reality is so complex that it can‟t be pictured. Do other brands have a similar problem? It is true that they have to talk to ratings agencies and stock analysts. But usually they have less complicated stories to tell as their businesses are more transparent. Of the Superbrands‟ list of top brands, Microsoft and Apple do have complex relationships with their affiliates of one kind and another. The BBC is enmeshed in the politics and culture of the country as, in a different way, is British Airways. By and large, however, I‟d say that Lloyds Banking Group, as a bank example, has much the harder task. Also in my experience of banks, however 26 © Geoffrey Johns 03 June 2010
  27. 27. Branding Banks for shareholder value Discussion Draft Section 5.0 disciplined and „on message‟ they try to be there are inevitably many people who speak for the bank in one way and another. Institutions and Everyone out there Business leaders, analysts governments Software developers. SME community Board Hardware providers Staff, unions CEO Business unit line heads Staff function heads Personal customers The brand audiences HO PB HO BB HO IB HO WM HO IS HO Int B CFO CRO CIO CHRO CMO The financial press Regional community Ratings agencies Regional Head HO Mortgages HO Online banking HO Investor Relations Mortgage customers, Institutions, stock intermediaries analysts Local community Branch manager Other nations The world online audiences Customers, friends, family Front line customer service They talk to each other too. But perhaps they do so more sporadically than you would think and in a much less coordinated way. But they do talk and influence each other. Sometimes compound messages are transmitted that are very different to what the CEO might hope for. 27 © Geoffrey Johns 03 June 2010
  28. 28. Branding Banks for shareholder value Discussion Draft Section 5.0 Brand Brand identity awareness transmission reception The way in which a group view is formed is rarely satisfactory. About the time of deregulation most banks that I know of had a well defined corporate culture. A large number of people in senior management roles had worked for the bank since they left school (rarely university). Managers had mostly got their first step up the management ladder merely by being male. Being at any level of management made people feel part of the management team of their bank. Then things changed as banks became more complex. Specialists were introduced at senior levels in staff functions. So there would be, say, a chartered accountant as CFO, an information specialist as CIO, an advertising account manager as CMO and so on. All of them made improvements in some ways. Accounts for example came to decision makers faster, more accurately and better presented. But then other things didn‟t work so well. People coming into the bank from outside had no real feel for the culture of a bank. Indeed, in their efforts to make rapid and decisive change they often saw the culture as the enemy to be defeated. And then, sitting mostly at the top of the organisation, they had no real feel for the complex people entwined with technology processes that makes a bank work. Finally, they had difficulty coming to grips with the engine room of a bank – risk management. It isn‟t something grafted on the side that 28 © Geoffrey Johns 03 June 2010
  29. 29. Branding Banks for shareholder value Discussion Draft Section 5.0 you can ignore if it doesn‟t seem to have anything to do with you. It is the heart. It is the bank itself. Now of course that has changed and banks did get better at bringing in experts from outside. But, and this is my point, don‟t ever imagine, necessarily, that someone very senior talking on behalf of a bank necessarily has any clue at all what‟s going on inside it. Also bear in mind the banking lacks the linear control processes found in other industries. Manufacturing Banking Design Engineer Sales Manager Product Manager Risk Manager Marketing Manager Factory Engineer Production Sales Sales Who reports to who is not a trivial issue. I shall return to this point in Section 9.0 „Bank structure and brand control‟. Multiple audiences Aside from the fact that banks have an often inconsistent transmission of brand they also have a diverse and complex audience for their messages. I try to illustrate this in the exhibit below. 29 © Geoffrey Johns 03 June 2010
  30. 30. Branding Banks for shareholder value Discussion Draft Section 5.0 Credit ratings Instituti onal agencies Institutions Corpora Suppliers of te Stock analysts capital Medium Mortgage brokers Independent intermediaries Financial Planners Small Insurance brokers business Customers Personal Affiliates M a ss m arket Brand audiences Management Card schemes Staff Affluen t Joint ventures Operational Unions ICT Suppliers Employment Asset advisors Consumer / trade Management Regulators Consultants Bank Supervisors Ad agencies Consumer groups Commentators Media Politicians Core stakeholders The first part of the brand audience is the core stakeholders. The best definition of stakeholder that I know is: Someone who stands to personally lose as a direct result of the organisation declining or ceasing to exist. Several other types of people can regard themselves as stakeholder but to my mind the primary stakeholders are the three shown in the exhibit below. Their fortunes are operationally integrated. By this I am not merely saying that is just and fair that they 30 © Geoffrey Johns 03 June 2010
  31. 31. Branding Banks for shareholder value Discussion Draft Section 5.0 should be given equal primacy as stakeholders. It is more of a case that each cannot exist without the other within the context of this bank system. Customers Staff Shareholders Referring back to Section 1, this integration of interests is the endogenous goal of Fiordelisi and Molyneaux‟s definition of the goal of the system which I accept as the starting point for this book. Endogenous drivers Controllable at business unit level Optimise Endogenous customer goal Final Goal satisfaction Improve the relationship Shareholder between Optimise bank Value creation shareholders efficiency and other stakeholders Controllable at corporate level Optimise bank’s Adapted from Shareholder Value financial in Banking, Franco Fiordelisi, structure Philip Molyneux 2006 Optimise the mix of business activities 31 © Geoffrey Johns 03 June 2010
  32. 32. Branding Banks for shareholder value Discussion Draft Section 5.0 Suppliers of capital These include both equity holders and their agents and the holders of securitised debt. The audience here includes:  „Buy-side‟ analysts;  „Sell side‟ analysts;  Ratings agencies and  Institutions. The message they (aside from ratings agencies) want to hear is about dividend growth. Ratings agencies are not concerned about dividend growth. Their attention is restricted largely to interest cover. What they all value is transparency, openness and candour. They want, especially a Board they can trust, a CEO and his team who can deliver. Customers Much of this book is devoted to customers‟ brand perceptions so there is little to add here. The key messages that customers want to hear are about consistency, reliability, flexibility and a bank that keeps up to date in products services and delivery systems. Independent intermediaries These can be:  Mortgage brokers  Insurance brokers  Financial planners / advisors  Commercial loan brokers (especially in lease finance) 32 © Geoffrey Johns 03 June 2010
  33. 33. Branding Banks for shareholder value Discussion Draft Section 5.0  Accountants, who occasionally offer some of the above services), in any event, are one of the most respected sources of financial advice in the SME and affluent personal sectors. These can be important implications for brand when banks essentially give up to them the relationship management function. What intermediaries are looking for in a bank brand is assurance of: reliability and consistency in processing and continuity of policy. I have researched the intermediary market from time to time. Intermediaries like to work with a limited panel of end providers who respond quickly and with predictability to the deals they put forward. They dislike arbitrary and unexpected changing of the rules. Staff Increasingly the number of people who see themselves as part of the bank‟s management team has contracted. Along with this the needs of each group have diverged. Corporate suite management Generally this group does have much common ground with shareholders, tied as they are by the reward system. But for that very reason they can be more risk propane as seems to have happened with HBOS and RBS. Management The wider management group seek messages of growth and of learning and advancement opportunities. Operational staff 33 © Geoffrey Johns 03 June 2010
  34. 34. Branding Banks for shareholder value Discussion Draft Section 5.0 Operational staff covers more different types of workers than it used to, including  Branch staff;  Call centre staff;  Back office processing staff;  IT operational and development staff;  Specialist function staff, accounting, marketing, legal and so on. Issues that they want to hear communicated include: fairness, growth opportunity, continuity, predictability and stability. Unions Broadly unions have a commonality of interests with staff. Consistency and predictability are the message a bank tries to send. These strengthen the bank‟s bargaining power in disputes. Suppliers Of course banks buy everything from paperclips upwards. But some suppliers have very important roles. Mostly these are management consultants of all kinds and the suppliers of information technology in the broadest sense. These are especially important although there are others that a bank would desire to have a long term relationship with. The latter include lawyers, actuaries and property consultants for example. In having a long term relationship the bank naturally cares what they think and hence how they see he brand. But with the suppliers of information technology and consultancy services there is a more profound branding effect at work. Once upon a time banks created all their own systems. Well to be exact many large banks did. In the United States there are even now more than 6,000 banksviii many very small. These have always been reliant on external suppliers of software. I well 34 © Geoffrey Johns 03 June 2010
  35. 35. Branding Banks for shareholder value Discussion Draft Section 5.0 remember, however, buying software for Australian banks and discovering that what was on the market could not handle the volumes of branches or customers that Australian banks had. Most systems, therefore, were developed in-house. I‟m sure that must be the case for many countries with different banking systems to the US, certainly most other English speaking countries and European countries that I know of. By systems I mean the complex human – machine interfaces that make a bank go. When these systems were developed by banks in-house there were some important outcomes. First, I should say here that these systems were in general remarkably good. This is mostly in the sense that no one remarks on them: they just work. Among all the critics of banks, you don‟t hear much about how smoothly ATMs, point of sale and credit cards were introduced. Nor the fact that it is very rare for a payment to go anywhere other than where it was intended to go. All taken for granted, you see. It is very much an aspect of Kano Analysis which I have already discussed. But, having doffed my cap to the information systems developer and operators of banks, I need now to make an important point. When bank systems were almost wholly built in house not a lot of the required organisational competence escaped. Three interrelated things changed that. They were:  Networked micro-computers;  Enterprise Resource Management software, such as SAP and Oracle;  The legitimisation of outsourcing. The end result of this is significant. Not so long ago, perhaps a decade or two, nobody outside a bank knew much really about the detail of its systems. Now there are some large global players who know a lot. And what they don‟t know they can find out, because the world is awash with freelancers. This has important implications. Proprietary competence is now lost to organisations independent of banks. This means that into the little „Lego‟ assemblies that could be used to reconstruct the world banking industry a significant wild card has been introduced. This in turn means that should someone want to cobble together a new bank brand as, say, a joint venture between a retail chain and a telecommunications company the computer software and hardware is not hard to come by. I imagine that this trend continues. 35 © Geoffrey Johns 03 June 2010
  36. 36. Branding Banks for shareholder value Discussion Draft Section 5.0 Affiliates At one time the Midland Bank (now part of HSBC) was the largest bank in the world in terms of its network of correspondent relationships. I suspect that affiliations of this kind are going to increase in significance in the near future. In general bank brands do not export well. International affiliations are going to become important in a more global economy. The other major affiliation that banks have is with card schemes. All three major card schemes are now independent of bank ownership and able to create their own destinies. The Superbrands survey elsewhere referred to in this section suggests that it may be easier for card schemes to brand than banks. A key issue for financial institutions of all kinds is the strategic decisions about which networks to commit to. This means being able to pick the networks that will gain hegemony. By networks I do not just mean plastic cards (or whatever electronic form they develop into) but cards are going to be a big part of it. For one thing they have significant organisational skill in managing affiliation. Regulators Regulators can regulate:  Employment;  Consumer protection;  Money laundering;  Risk supervision. They include  government employees;  politicians; and, indirectly,  pressure groups. 36 © Geoffrey Johns 03 June 2010
  37. 37. Branding Banks for shareholder value Discussion Draft Section 5.0 You may imagine that regulators are immune to brand effects. I argue that they are not. Regulators have to make decisions about where to focus their attention. Usually they have much power to investigate and demand information. But there is discretion where and when to use this power and to what extent. I would argue that the recent failure of the UK Financial Services Authority to investigate HBOS and RBS was, in part at least a brand effects working both on the supervisory authority and its political masters. Commentators As I said earlier in this section, there are at least four types of commentators on banks:  on bank products;  talking about banks in the context of the their role in society;  on the role of banks in the economy;  talking about bank shares as an investment. When bank bashing time comes around they can often hunt in a packix. Looking again at the exhibit below, i want to return to the customer influence process. 37 © Geoffrey Johns 03 June 2010
  38. 38. Branding Banks for shareholder value Discussion Draft Section 5.0 Marketing communications Media comment Trusted advice Contradiction Own Confirmation filtered experience sought reinterpreted Information When perceptions, based primarily on individual experience are in the process of change the first influence is most likely to be advice sought from trusted friends, family members and professional advisers. This can be confirmed and contextualised by media comment, which thus has a strong effect. Marketing communications are ineffective (for banding at least) when unaligned. Around the early 1990‟s Westpac suffered from string adverse press comments on nearly all of the four subject areas outlined above. Ironically the division that suffered most in market performance as a result of this was its nascent wealth management arm, Westpac Financial Services. This division had pretty much nothing to do with the problems but because buying decisions in wealth management are taken cautiously and will little information available to the buyer who can choose from several funds, the merest hit of adverse media coverage results in a big loss of new business. Banks with adverse publicity simply do not make short-lists. At the time there was a lot more than a hint. My then colleague John Neal who was advising on cost cutting was only half joking when he said, „well you may as well sack the marketing departments because for the next couple of years nothing they do is going to work‟. Competitors 38 © Geoffrey Johns 03 June 2010
  39. 39. Branding Banks for shareholder value Discussion Draft Section 5.0 Competitors too are an important brand audience. Banks thrive in an oligopoly. In the absence of collusion (and I have worked in senior roles in two different banks and never saw any evidence of it) oligopolies rely on:  a system of signalling that works not unlike bidding conventions in bridge, and  people in control who have a profound understanding of banking and likely cause and effect patterns.;  a tolerant political / regulatory environment;  sufficient power on the part of the key incumbents to shrug off competitive threats from substitute producers / services.; and  a well defined domestic market with barriers to entry. Brands actually have a role in all of these things but, obviously most importantly in the first. It is part of the signalling system. What a brand needs to say in this context is: „we‟ve got our market position sorted out. This is what we will defend to the death‟. Mixed messages In the table below I make a first cut attempt to analyse key messages by audience. My key point for now is that a „one size fits all‟ bank brand is a tough ask. cy s i on tation nce y y ity tati on poten wth il ty ucc es rtunit istenc nki ng pa ren Stabil entat onsib Prude gr o ti al orie n or ien s Op p o nd ba Cons Tr ans hor e re of th ori l resp th Profit Be yo Off-s Cultu Gr ow grow Soci a Share analysts Ratings agencies Customers Intermediaries Senior Mgt. Operational staff Unions Technology firms Affiliates Regulators Commentators Competitors 39 © Geoffrey Johns 03 June 2010
  40. 40. Branding Banks for shareholder value Discussion Draft Section 5.0 The brand jostle Here I want to discuss the actual process in which a bank brand image becomes created in people‟s heads. I see this as a kind of jostle in which people‟s brand perceptions are bounced off each other and have a tendency to merge. This does not happen fast but it happens slowly over time within a contest of much else happening besides. Of course this makes decisive intervention by the bank difficult. To offer an example: Credit ratings In stitutio nal agencies Institutions Corpo ra Suppliers of te Stock analysts capital Medium Mortgage brokers Independent intermediaries Financial Planners Small Insurance brokers business Customers Personal Affiliates Mas s m arke t Brand audiences Management Card schemes Staff A fflue n t Joint ventures Operational Unions ICT Suppliers Employment Asset advisors Consumer / trade Management Regulators Consultants Bank Supervisors Ad agenc ies Consumer groups Commentators Media Ad exec Politicians An advertising executive, say, from the bank‟s agency is a personal bank customer and also a director of a small business. He is married to a journalist who is recorded as an affluent customer and who has a meeting to discuss a mortgage with a broker who deals with the bank. 40 © Geoffrey Johns 03 June 2010
  41. 41. Branding Banks for shareholder value Discussion Draft Section 5.0 Credit ratings In stitutio nal agencies Institutions Corpo ra Suppliers of te Stock analysts capital Medium Mortgage brokers Independent intermediaries Financial Planners broker Small Insurance brokers business Customers Personal Affiliates Mas s m arke t Brand audiences Management Card schemes Staff A fflue n t Joint ventures Operational Unions ICT Suppliers Employment Asset advisors Consumer / trade Management Regulators Consultants Bank Supervisors Ad agenc ies Consumer groups Ad exec Commentators Media Politicians Analyst I could of course on an on, but I‟m sure you get the picture. My point is that the brand of a bank is more than usually created in people‟s mind by a process of jostle. There are no easy to identify defining moments, although it is true that the energy of the jostle ebbs and flows. It happens over a long period of time. It isn‟t easy to know how to intervene in the process. I shall now recount what I believe to be one the stories where we can discern the jostle process at work. The NAB story National Australia Bank (NAB) emerged from a round of take-overs after the deregulation of Australian banking from 1979 to 1982 as the leaner, meaner number two bank snapping at the heels of Westpac Banking Corporation (WBC). By the early nineties Westpac was commissioning research into why financial analysts reported NAB much more favourably than WBC. Part of the reason was obvious, according to one calculation WBC had achieved shareholder expectation of return only once in the last ten 41 © Geoffrey Johns 03 June 2010
  42. 42. Branding Banks for shareholder value Discussion Draft Section 5.0 years whereas NAB had failed to achieve it just once. In my own, calculations made for the implementation of Basel I, National Australia Bank was in the top quartile of world banks, for which I had data, on Return on Risk Adjusted Assets the others in the group being American super regional banks which were significantly smaller than NAB. WBC was third quartile. National Australia bank had been sticking to the knitting. This cartoon, published at the time, gives an excellent summary of Australian banking as it was on the brink of deregulation. Partially as a result of fear of foreign bank entry and partly as a result of a belief that a business has to be first or second in its industry to thrive banks consolidated. Here we see the stately Westpac, recently rebranded from the Bank of New South Wales to suit the global role it aspired to, about to consume the Commercial Bank of Australia. Then there is the ANZ, a bit worse for wear as a result of sovereign debt defaults. What I really like though is the savage depiction of National Australia Bank as it lunges for the Commercial Banking Corporation. My guess is that at the time National Australia Bank was the best branch bank in the world. WBC had a more expansive strategy involving developing a somewhat beyond state-of-the–art computer system and an international strategy to become „Australia‟s world bank‟. Neither the strategy nor the computer system worked. By 1992 it was game over Westpac recorded an AUD1.6 billion loss in that year and came close to insolvency. NAB was the dominant bank in Australia. It wasn‟t just the financial performance and the strategy though. There was more. When the opinions of journalists, financial analysts and other industry observers were canvassed there was a 42 © Geoffrey Johns 03 June 2010
  43. 43. Branding Banks for shareholder value Discussion Draft Section 5.0 clear story. NAB executives, led for the first part of the story by the redoubtable Nobby Clarkx, were said to be down to earth, practical people you could hold a conversation with. The same could not be said of Westpac Executives. And by the way, Bill Mitchell got it right in his cartoon. The gentlemen of the Wales really were gentlemen, it‟s just that they didn‟t really get the hang of the post-regulatory world in the way that Nobby Clark and his team did. I think they won the brand „jostle‟. National Australia Bank people were consistently saying the right things to the right people across a broad spectrum. Too many people were hearing the wrong things about Westpac. And then something happened. Some cracks appeared in National Australia Bank‟s strongest competence, its credit risk control. It‟s investment in HomeSide Lending, a leading US mortgage originator and servicer was written down by about AUD 2 billion. Investors are in shock today, having seen the value of the country's third biggest company -- National Australia Bank -- drop by 15 per cent in just a few hours yesterday, before recovering just a couple of percent of that loss today. The cause of the slump was a surprise $3-billion write-down in the value of the bank's US subsidiary, Homeside Lending. ABC 4/9/2001 This was no doubt unfortunate but it didn‟t necessarily seem to indicate a system failure of credit control affecting the mainstream of the bank‟s activities. But things were to get worse. NATIONAL Australia Bank, which owns the Clydesdale, dismissed three senior executives and five traders yesterday in the continued fall-out from a humiliating foreign currency trading scandal. The bank has already lost its chairman and chief executive following a series of rogue trades which cost NAB around A$360m ((pounds) 150m). Frank Cicutto, its chief executive, resigned last month before Charles Allen, the chairman, quit days later. Herald Scotland 13 Mar 2004 43 © Geoffrey Johns 03 June 2010
  44. 44. Branding Banks for shareholder value Discussion Draft Section 5.0 Just a few years earlier NAB could do no wrong. The ferocity of the response of buy and sell side analysts and the media took me aback. The Australian Prudential regulatory Authority was on the alert following accusations it has been asleep at the wheel when HIH, an insurance company, failed in 2001. It found over 50 failures of operational risk at NAB. It increased NAB‟s prudential capital requirement to 10% - a slap in the face that could be heard in Sydney. NAB appeared shell-shocked. Was this a brand issue? I believe so, at least in part. People who I spoke to who dealt with NAB had increasingly found them to be arrogant and out of touch. Much like Westpac had been twenty years before. Would NAB have been treated more kindly by the market and regulators had it maintained a better brand image in their eyes. No one can be sure but my impression is that the CEO and chairman may have survived. In brand terms NAB was a disaster waiting to happen, not among its customers perhaps but among all those other groups that can shape a bank‟s brand. In fact in the realm of trading losses the NAB Foreign currency options loss ranks only as the 30th largest as reported in the Wikipedia table here: Societe Generale takes the prize with a loss of nearly USD 7 billion. Apart from the trader no one was fired. To summarise this part of my story the exhibit below captures the essence. 44 © Geoffrey Johns 03 June 2010
  45. 45. Branding Banks for shareholder value Discussion Draft Section 5.0 Brand identity is hard to transform into the brand image the the bank intents There are multiple Poorly coordinated audiences. Each with messages from within the different needs. Each with bank leads to a blurred different interpretations of identity that is not the brand message. The necessarily one the CEO ‘jostle’ of interactions might want between them is part of the way the brand image is created. So my argument thus far is in summary: Bank can’t brand A banks brand A bank’s brand identity is hard identity is hard to transform into the brand to define sharply image the bank intends I now want to add the additional complication that banks are more exposed than other brands to change. The changes that affect banks are both cyclical and structural. 45 © Geoffrey Johns 03 June 2010
  46. 46. Branding Banks for shareholder value Discussion Draft Section 5.0 Forces of change that impede banks branding Bank brands are affected by both cyclical and structural changes. Cyclical change Economic cycles Naturally banks behave differently in different parts of the business cycle. They tend to oscillate between being risk averse and risk propane depending on the prevailing economic climate. This is of course sensible management but it isn‟t so good for the brand. Part of this problem occurs at board level. It isn‟t hard for trust between the Board and top management to deteriorate and boards are much influenced by published data. Loss of market share and bad debt write-offs both can move boards to action making the oscillation more extreme than it would otherwise have been. However necessary changes in policy might be they are not good for brands that would like to incorporate an image of consistency and continuity. Banking industry crisis cycles It has to be confessed that banks are prone to mistakes big horrible mistakes. In a way these seem cyclical but the cycle, if it exists is hard to pin down. At the end of the 1970s we were in the throes of sovereign debt crises. Through the 80s and 90s we have the United States Savings and Loans ongoing problems. At the end of the 1990s it was property lending and as I write we are back to sovereign debt having passed through Subprime, High yield bond, leveraged loan defaults and write-offs. 46 © Geoffrey Johns 03 June 2010