Why banks struggle with branding

Branding Banks for shareholder value Discussion Draft Section 5.0

Branding banks
for shareholder
value
Section 5.0

Why can‟t
banks brand?

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© Geoffrey Johns 03 June 2010


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

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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

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 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

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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.

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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.

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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.

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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.

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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.

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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

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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

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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
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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.

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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.

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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

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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

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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:

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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‟;

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 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.

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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.

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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

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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

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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:

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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!

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Simple brand
communication 001

Actually, my reality looks more like this:

Brand
Brand identity
awareness
transmission
reception

Multiple sources

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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

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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.

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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


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


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


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


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


 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


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


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


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


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


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


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


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

Corpo ra
Suppliers of te
Stock analysts
capital
Medium
Mortgage brokers
Independent
intermediaries Financial Planners
Small

Customers
Personal
Affiliates Mas s m
arke t


Staff A fflue n
t
Joint ventures
Operational
Unions

ICT
Suppliers

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


Credit ratings In stitutio
nal

Corpo ra
Suppliers of te
Stock analysts
capital
Medium
Mortgage brokers
Independent
intermediaries Financial Planners broker
Small

Customers
Personal
Affiliates Mas s m
arke t


Staff A fflue n
t
Joint ventures
Operational
Unions

ICT
Suppliers

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


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


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


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:

http://en.wikipedia.org/wiki/List_of_trading_losses 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


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


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

Why banks struggle with branding

Why banks struggle with branding

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