Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewthe resurgence of the brand in banking
Branding has been a dirty word among bankers for years. Marketing Directors were repeatedly rebuffed in their attempts to win allocations for brand building and image advertising. Against this backdrop, it is surprising that today, we find more and more CEOs interested in discussing branding initiatives, and even willing to fund them.
A brand is a set of expectations and associations evoked from any experience with a company or a product. It is an emotional reaction to the company or merchandise. A brand has several components:
· Image (how the customer perceives the brand)
· Positioning (carving out a distinct space for the brand in the customer's mind)
· Promise (the pledge of what customers can expect from your brand)
· Equity (the monetized value of the brand)
We all know that a strong brand has many benefits, from higher customer loyalty to reduced risk of new product failure and, ultimately, to a sustainable competitive advantage. At the same time, it is extremely expensive to build, and most banks can't compete with the mega-banks on pouring advertising dollars into the brand to achieve a strong identity in their customers' minds.
Customers, on the other hand, like brand identity because it helps them know what to expect from the company or product, and thereby reduces their risk of buying a disappointing product or service. This value works, however, only when the product or company consistently delivers on their promise and indeed provides superior goods and service levels.
Brands fail because consistent execution is extremely difficult. At some point the drive for profits causes a trade-off in execution that compromises the brand promise, and, in other situations, strong brands simply take their customers for granted and become over-confident. As Howard Schultz, the Chairman of Starbucks, said, "We desperately need to look into the mirror and realize it's time to get back to the core and make the changes necessary to evoke the heritage, the tradition and the passion that we all have for the true Starbucks experience."
A brand can become just as much of an asset to a company as its people and products. Its value is expected to grow if properly nurtured and executed. Banks are beginning to realize that as Gen X and Gen Y customers have become more brand loyal and brand sensitive, and as purchasing and research on the Internet have increased, the importance of the brand in the purchasing decision and company selection has increased as well. Yet, in almost all cases, when a bank gets acquired its brand is erased, as is the entire investment in its building. This tells me that many banks have failed to increase their brand value over time enough to make it a variable in the buyer's decision to both purchase the bank and later to integrate it. I know this isn't always the case. When Norwest and Wells Fargo merged, an in-depth brand study showed that the Wells Fargo brand is far more valuable in terms of both financial and economic value than the Norwest brand, and the name of the company was changed to reflect that. Achieving such distinction can be an important goal to bank managements going forward, since their brands can become valuable to both shareholders and customers.
There are clear and sophisticated methodologies to value brands. Coca Cola is the #1 brand in the world in value at $67 billion and Microsoft close behind at $50 billion. Some brands are growing in equity value, like Google and Starbucks, and others are declining, like Intel. Among banks, the most valuable brand is Citi, valued at $35 billion, or about 14% of its market cap in 2005. Wells Fargo's brand is valued at $14 billion, and American Express at $31 billion or 28%+ of its market cap in 2005.
These are all gargantuan brands, and they span the globe. A community bank can achieve similar results in its own market with far less investment and execution risk. It can get there by answering four main questions:
· How different is my brand in my market from other competitors?
· Does my brand have personal relevance to the customer?
· Is my brand held in high regard and considered best in its class?
· Do prospects understand what my brand stands for?
The first two questions address differentiation and relevance, two indicators of the brand strength. The second two elements—knowledge and esteem— relate to the brand stature.
Research shows that brands that grow their differentiation have 50% higher operating margin on an average than those who are not well differentiated. This statistic comes from manufacturing; I believe the number can be even higher in service industries such as financial services, where product differentiation is murky at best. The same research indicates that brands that grow both their differentiation AND relevance report the greatest increase in operating earnings.*
Community bank executives have come to realize the power of the brand, which is why their interest and willingness to invest have increased. The task remains daunting in face of the magnitude of competitor investment and sophistication; yet, I believe that the main impediment to strong brand building is management's inability to clearly articulate a differentiated strategy and market position. In our quest to be all things to almost all people, differentiation eludes us.
Strong brand identity starts from a crisply differentiated strategy emanating from the executive suite, and not from the marketing department. Beginning to evaluate your own bank’s brand, and whether it communicates the values you want it to communicate, can be a good first step on the path to building a recognizable, valuable brand for your bank. Banks should consider making investments in their brand identity if they consider their brand valuable and if they believe the message it conveys is clear. Banks with a strong and clearly articulated culture that is embraced by their customer contact staff will benefit from brand campaigns more than those who are undifferentiated in their identity and message.
*Methodologies of brand valuation are discussed in the book Brands and Branding, An Economist Book, in the chapter titled "Brand Valuation". The book is published by Interbrands at www.interbarnds.com.