A recent paper by Steven Sessions ”Competition in the Banking Industry” called for banks to move up to what he terms the Third Stage of marketing by unleashing the potential of one their more under-utilized corporate assets, their brands. As Sessions notes, the return of the mega-merger is pushing the industry into new competitive arenas. But are banks up to the challenge?
Understanding the dilemma bankers face in implementing brand strategies requires recognition of the P’s of bank culture when it comes to marketing.
The self-image of most bankers is as a professional akin to doctors and lawyers. Ask a banker to choose between budgeting US$ 500,000 for brand advertising and hiring three or four lenders, and the latter will get the nod. The professed reason: banking is driven by relationships, which are believed possible to build only through personal contact.
But the marketing drawbacks can be seen in what is happening to professionals in health care. Each year millions of Americans change doctors mostly because of health-insurance requirements. Doctors are understandably concerned by patient turnover. Yet the Harvard Health Care Letter reports that changing is not a significant problem for consumers because “most [people] start with the assumption that the doctors they encounter are competent.” Unlike soft drinks, cigarettes or running shoes, doctors are viewed as more or less the same, something that also holds true for banks.
Who would have imagined just a few years ago the changes in the brokerage industry as a result of strong brands such as Charles Schwab? In an age of industry consolidation and mobile workforces, stronger branding strategies can help increase customer loyalty.
To paraphrase Tip O’Neill: “All banking is local.” Even today, there are very few truly national bank franchises, Bank of America and Wells Fargo come to mind, with a handful more operating regionally. American banks are still tied to local markets, something reflected in the regulations for banks to demonstrate lending, investment, and service performance based on geographic criteria.
The local character of most bank franchises has discouraged stronger branding, which has existed in other industries since the second half of the nineteenth century. In those environments, branding proved itself as an efficient and effective way to differentiate products as national companies began to compete against local providers.
The average banker has not confronted competition on that level, even with the name changes seemingly taking place with regularity. But with continued consolidation, companies will operate over greater distances. They will reconfigure supply chains, service networks and market positions. They will need to assimilate former competitors’ employees and other constituents. As with other industries in earlier times, strong brands will help lead the way.
The average bank’s approach to promotion might best be termed paternalistic. Even customer relationship management (CRM) databases unfortunately still look at things from the banker’s side of the teller window, obscured as the view is by Post-It notes and bullet-resistant glass.
Customer-profitability matrices and so-called customer-centric marketing programs manage portfolios based on internal criteria such as product-profitability models, asset-liability matching and a blind faith that, when in doubt, bigger is inherently better. On the loan side, paternalism is ingrained in such policies as conforming mortgage guidelines, which assume certain income, credit and asset-accumulation patterns as standards for all borrowers.
An area ripe for improvement, as recent Federal Financial Institutions Examination Council (FFIEC) lending data suggest, is that too many borrowers may be unnecessarily overpaying for access to credit. Strong branding programs by reputable institutions, such as Washington Mutual’s recent “The Power of Yes” national mortgage campaign, have the potential to increase sales volume and name recognition while serving customer interests in a “win-win” situation.
Following a recent management trend, many banks have decentralized the marketing function and pushed it down into the business lines, encouraging a product-centered approach. This practice is believed to have several advantages, among them making marketing more responsive to the tactical needs of business units and facilitating reporting for management and budgetary purposes. But something important is being lost, namely the consistency across channels that is essential for sustaining strong brands.
The product-centered approach (politically correct term for “silo mentality”) is myopic. A more enlightened view recognizes that customers may not know or care they are crossing lines in the chain of command to conduct business. For example, the employee contact of a treasury management account may also have a home mortgage loan and personal deposit and investment accounts. Yet representation of the brand at many banks is uncoordinated, neglecting its importance as the symbol of trust that connects producer and consumer.
Some banks have recognized this pitfall. Those institutions, such as Ohio-based Keycorp, have re-centralized the marketing function and budgets at the corporate level to better control brand presentation.
When compared to infrastructure (facilities, equipment, technology, etc.) most banks allot a pittance of their annual operating budgets to brand management. On the other hand, Nike, one of the world’s strongest brands, spends on average more than three times as much for marketing and promotions as for capital investments. Penny-pinching on the banks’ part has starved brands and fed bureaucratic overheads for years.
It would be foolish to suggest that banks go on a spending spree simply to keep up with the Joneses in unrelated industries. Yet there is cause for re-evaluation. Many banks essentially manufacture deposit accounts and other products by maintaining in-house data processing systems, and great many are also in the real estate business through investments in brick and mortar.
Athletic apparel companies have outsourced production for decades and dramatically increased margins by concentrating on brand management, design innovation and marketing. By similarly examining their value chains, banks can better leverage the value of their brands. The model exists in retail investment programs, which market brands customers know and trust (Fidelity, Oppenheimer, John Hancock, etc.) rather than restrict themselves to proprietary products. Another area of opportunity is franchising, used by the service sector and virtually untouched by banks, which offers the potential for offloading overhead and increasing the return on brand investment.
Brave New and Improved World
Scott Bedbury, former Starbuck’s marketing head and Nike advertising director, states in his recent book, A New Brand World: Eight principles for brand leadership in the twenty-first century, “I can think of no better organizing principle for a company than the brand itself.” A well-managed brand mobilizes all of a company’s stakeholders (employees, customers, investors, etc.) to create value.
There are still those who believe that bank branding is not practical because for the most part banks are alike, providing a similar range of products and services at roughly equivalent prices in environments that are more or less the same. Yet that is exactly the environment in which strong brands have historically prevailed.
Vince Carducci studies culture and media at the New School for Social Research in New York City and consults for Legacy Brand Center, a Michigan-based company that helps clients maximize the value of their brands. He has 25 years experience in financial services marketing, including as senior vice president, director of marketing and corporate communications, for Standard Federal Bank in Troy, Michigan.