Branding Banks For Shareholder Value 5.0 Why Cant Banks Brand

Branding Banks for shareholder value Discussion Draft Section 5.0

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© Geoffrey Johns 03 June 2010

Branding banks for shareholder

value

Section 5.0

Why can‟t

banks brand?


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Delivered and planned series of papers

Discussion Draft

Order.Version

Release Date

Creating shareholder value - an outline 1.0 Mar-10

1

Knowing customers 2.0 Mar-10

2

How customer perceptions develop 3.0 Apr-10

3

Why brand banks? 4.0 Apr-10

4

Why can't banks brand? 5.0 May-10

5

Measuring customer perceptions 6.0 June-10

6

Measuring customer value 7.0 TBA

7

Gaps diagnosis 8.0 TBA

8

Bank structure and brand control 9.0 TBA

9

Process level brand control 10.0 TBA

10

Building the brand story 11.0 TBA

11

Communicating bank brands 12.0 TBA

12

Valuing bank brands 13.0 TBA

13

Brands and the future of banking 14.0 TBA

14

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 banks is next to impossible

Branding banks is vital

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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Retail Corporate InstitutionalProfessional

markets

Personal SME

AffluentMass

market

Bank

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:

Much bank value lies in B2B. This

involves more pragmatic

purchasing decisions with different

criteria and controls

Banks are service

businesses hard to define

in traditional brand terms.

So much depends on

customer by customer

experience.

Banking itself (especially

risk management) is

abstract and cold – difficult

for people to form a

relationship with

Brand identity is

hard to define

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.

Banks can look much like public

utilities

Expectations based on long

histories are difficult to

overcome or for individual

brands to transcend

Customers have ongoing

relationships with their

banks that are easy to take

for granted

Bank brands are

weighed down by

inertia

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.

010203040506070

Esti

mat

e (

see

te

xt)

Selected brands

Brand reach estimate


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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:

Business

premises

/

branches

Outdoor

signage /

Point of

Sale /

ATMs

Broadcast

advertising

/ print

In home

/Direct

mail

Online

presence

online

advertising

Customers

talking

about the

brand

Staff and

their

families

talking

about

the

brand

Media

talking

about

the

brand

Total

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


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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‟;

/for


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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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Life

sta

ge

Attitu

de

to

fin

an

ces

Affluence

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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Loans

Deposits

Risk Mgt

Investments

Transactions

Mass personal

Affluent personal

SME Institutional and financial

marketsCorporate

Microsoft (Ranked 1st by Superbrands)

Productivity software

Entertainment sofrware

Consumer electronics

Personal Business

British Airways (Ranked 4th by Superbrands)

Long haul

Short haul

Personal Business


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Coca Cola (Ranked 6th by Superbrands)

Soft drinks

Personal

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:

Banks brands must be relevant to

diverse customer bases where

customer value is hard to measure

Bank brands must be

relevant in many product

markets

\banks find it hard to

differentiate clear brands

because they all want to

claim the middle ground

The brand’s market

place is diverse

and complex

And so to summarise this part of Section5 in full:


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Banks are service



So much depends on


experience.


risk management) is



relationship with

Brand identity is

hard to define


utilities and are saddled with those

expectations




brands to transcend




for granted

Bank brands are

weighed down by

inertia




Bank brands must be


markets






place is diverse

and complex

Bank are

intrinsically hard to

brand

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 identity transmission

Brand awareness 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.

CEO

HO PB HO BB HO IB HO WM HO IS CFO CRO CMO

Regional Head

Front line customer service

CIO

HO Investor Relations

Business unit line heads Staff function heads

Branch manager

Board

CHROHO Int B

HO Mortgages HO Online banking

Abbreviations

CEO = Chief Executive Officer

HO = Head of

PB = Personal Banking

BB = Business Banking

IB = Institutional Banking

WM = Wealth Management

IS = Insurance Services

Int B = International Banking

FO = Financial Officer

RO = Risk Officer

IO = Information Officer

HRO Human Resources officer

MO = Marketing Officer

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, stock

analysts

Local community

CEO

HO PB HO BB HO IB HO WM HO IS CFO CRO CMO

Regional Head

Front line customer service

CIO

HO Investor Relations

Business unit line heads Staff function heads

Branch manager

Board

CHROHO Int B

HO Mortgages HO Online banking

Customers, friends,

family

Business leaders,

governments

Everyone out there

Regional community

SME community

Ratings agencies

Staff, unions

The brand audiences

Institutions and

analysts

Software developers.

Hardware providers

The world online

Mortgage customers,

intermediaries

The financial press

Other nations

audiences

Personal customers

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 identity transmission

Brand awareness 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


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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.

Design Engineer

Factory Engineer

Production

Product Manager Risk Manager

Sales

Marketing ManagerSales Manager

Sales

BankingManufacturing

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.


30


Brand audiences

Staff

Customers

Suppliers of

capital

Regulators

Stock analysts

Credit ratings

agencies

Personal

business

Mass market

Affluent

Institutional

Corporate

Medium

Small

Commentators Media

Consumer groups

Politicians

Suppliers

Management

Operational

ICT

Management

Consultants

Asset advisors

Independent

intermediaries

Unions

Ad agencies

Mortgage brokers

Financial Planners

Insurance brokers

Institutions

Bank Supervisors

Consumer / trade

Employment

Affiliates

Joint ventures

Card schemes

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


31


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.

StaffCustomers

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.

Shareholder

Value creation

Improve the

relationship

between

shareholders

and other

stakeholders

Optimise

customer

satisfaction

Optimise bank

efficiency

Optimise bank’s

financial

structure

Optimise the

mix of business

activities

Controllable at business unit level

Final Goal

Endogenous

goal

Endogenous drivers

Controllable at corporate level

Adapted from Shareholder Value

in Banking, Franco Fiordelisi,

Philip Molyneux 2006


32


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)


33


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


34


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


35


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.


36


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.


37


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.


38


Own experience

Media comment

Trusted advice

Marketing communications

Contradiction

filtered

Confirmation

sought

Info

rma

tio

n

rein

terp

rete

d

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


39


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.

Stab

ility

Co

nsi

sten

cy

Tran

spa

ren

cy

Pru

den

ce

Gro

wth

ori

en

tati

on

Op

po

rtu

nit

y

Soci

al r

esp

on

sib

ilty

Pro

fit

ori

enta

tio

n

Off

-sho

re g

row

th

po

ten

tial

Be

yon

d b

ank

ing

gro

wth

ori

enta

tio

n

Cu

ltu

re o

f su

cces

s

Share analysts

Ratings agencies

Customers

Intermediaries

Senior Mgt.

Operational staff

Unions

Technology firms

Affiliates

Regulators

Commentators

Competitors


40


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:

Brand audiences

Staff

Customers

Suppliers of

capital

Regulators

Stock analysts

Credit ratings

agencies

Personal

business

Mass market

Affluent

Institutional

Corporate

Medium

Small

Commentators Media

Consumer groups

Politicians

Suppliers

Management

Operational

ICT

Management

Consultants

Asset advisors

Independent

intermediaries

Unions

Ad agenc ies

Mortgage brokers

Financial Planners

Insurance brokers

Institutions

Bank Supervisors

Consumer / trade

Employment

Affiliates

Joint ventures

Card schemes

Ad exec

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.


41


Brand audiences

Staff

Customers

Suppliers of

capital

Regulators

Stock analysts

Credit ratings

agencies

Personal

business

Mass market

Affluent

Institutional

Corporate

Medium

Small

Commentators Media

Consumer groups

Politicians

Suppliers

Management

Operational

ICT

Management

Consultants

Asset advisors

Independent

intermediaries

Unions

Ad agenc ies

Mortgage brokers

Financial Planners

Insurance brokers

Institutions

Bank Supervisors

Consumer / trade

Employment

Affiliates

Joint ventures

Card schemes

broker

Ad exec

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


42


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


43


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


44


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.

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


45


Poorly coordinated

messages from within the

bank leads to a blurred

identity that is not

necessarily one the CEO

might want

Brand identity is

hard to

transform into

the brand image

the the bank

intents

There are multiple

audiences. Each with

different needs. Each with

different interpretations of

the brand message. The

‘jostle’ of interactions

between them is part of the

way the brand image is

created.

So my argument thus far is in summary:

A bank’s brand identity is hard

to transform into the brand

image the bank intends

A banks brand

identity is hard

to define sharply

Bank can’t brand

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.


46


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.


47


Is there any systemic reason for this? Many people would just shrug and reply, “greed”.

It is hard to deny this of course. There are also of course many theories from various

viewpoints.

“Like unemployed teenage boys, these banks have shown a terrible knack for

getting into trouble when left to their own devices” John Authors Financial

Times 21 May 2101

To add my two pence worth some factors to consider are:

There is a tendency of bankers to convince themselves that artificial regulatory

constructs are in fact the real world. A good example of this is Basel I. When bankers

discovered that they had to hold 4% of their risk adjusted assets as Tier 1 Capital and

4% as Tier 2 capital the ones I knew immediately began plans to reduce shareholders

funds and issue subordinated debt. It took the best part of a year for the penny to drop

that a although this was the most cost of capital reduction they could get away with in

terms of regulation it made no real world sense, I remember a quant telling me that on

his calculations the bank could be estimated go bust once every 67 years. This seemed

to me a dangerously short span.

Similarly there was a time when bankers actually argued that, because it was

unregulated, market risk didn‟t exist. Because of this they believed that any trading

profits required no capital support and hence had no cost of risk attributable them – a

high return on capital indeed.

Then there is the tendency to believe that banks can grow consistently faster than the

economy. I know for a fact that the major Australian banks had at one time target

market share growth rates that added up to something getting on for 200%. In

situations like this where targets must be achieved risk suffers.

Finally, there is the tendency to look on a bank and think of all that unexploited risk

potential a within a bank and how it could be channelled into large bonuses. I have

plenty of experience of the Institutional arm of banks looking upon the retail arm as a

low risk resource to be plunderedxi.


48


All these things to cause a problem require of course, poor bank supervision. In the

recent crisis bank supervision in Canada, Australia and many Asian countries was equal

to the task. In the US and UK the regulators were not.

Crisis is the obvious enemy of branding. The lesson is unmistakeable; if you want a

good brand manage risk well.

Political cycles

Superimposed in the business cycle is the political cycle. This is not just change in

government, although that is important as governments can have very different views

not only on the regulation of banks but on the role of banks in society. Of importance

also is cyclical change in the mood of the electorate between statism and individuality.

Negative Very positive

Very negative

Recession Expansion

Ind

ivid

ua

l

Po

litic

al cycle

s

Positive

Co

llective

Economic Cycles

Economic and political cycles interact sometimes exacerbated by the bank catastrophe

cycle. The end result is a very unruly composite cycle indeed.


49


Technological cycles

There are important structural changes relating to technological advances which I shall

come on to. But also there are cyclical ones.

Banks always have limited resources for improvement to the systems that serve

customers. Banks can never maintain sufficient resources (almost entirely people) to do

all the projects needed. Gearing up quickly is difficult to coordinate. Usually there is a

large maintenance workload and also there are imposed workloads. Examples of these

include:

The „Millennium Bug‟ code rewrites;

Major changes to taxation such as the introduction of value added taxes; and

Basel II compliance systems.

People say these are just one offs but they seem to hit with some regularity. And this

means that banks are forever delaying improvements to customer service systems.

Moreover the imposed demands hit all banks at much the same time. The upshot of all

this is a technology cycle that improves service in jumps and starts. This has

implications for both customer service and brand.

Don‟t other types of brand have cyclical issues

problems too?

Below I make an assessment of how other brands fare as a result of the sort of cycles I

have described. I have tried to ascribe a rating from 1 = negligible problems to 10 =

the worst I can imagine.

Microsoft 6 Product launch cycles

Rolex 1 Google 1 British Airways 3 Aircraft purchase cycles


50


BBC 1 Mercedes Benz 2 New model launch cycles

Coca-cola 1 Lego 1 Lloyds 8

Broadly, I‟d say that other than banks businesses themselves may go up and down with

cycles but their brands don‟t.

So this is how we might see cyclical changes in the scheme of things.

Bank crisis

cycles

Economic

cycles

Cyclical changes adversely

affect banks ability to brand

Technology

cycles

Political

cycles

Customer and

other brand

audiences

needs for

consistency and

certainty

Structural trends that prevent banks

branding

Technological

There is not much personal banking that cannot be done through online, phone and

plastic. And, of course many bank customers prefer to deal this way. I haven‟t seen

any reliable research data but everyone I talk to can‟t talk well enough of First Direct,

direct for example.

Here is a quotation from the archives of Westpac. I invite you to fill in the blank.


51


Who authorised the “--------------“ in conjunction with our business? – It

is quite unwarrantable these independent vagaries without my

permission. When was it done? What is the £5 annual rent? What is

the thing being used for? It will be used no more without a full written

explanation. We have declined this invention in all the colonies thus far

and I will not submit to its dangers being imposed on us by the least

experienced of our superior officers – and where it is least needed. I

think the officer who sanctioned it will have to pay for it himself.

That was the annoyance of Shepherd Smithxii, General Manager of the Bank of New

South Wales, recorded in the half Yearly Balance Book, 31, March 1883. He is talking

about the telephone. Now here is my main point about this vignette. You will already

have bracketed Shepherd Smith among the more Jurassic of dinosaurs, I expect. But in

fact he is one of the most successful bankers who ever lived. Westpac Banking

Corporation, which I recently calculated as top among banks in creating shareholder

value, should put up a statue to him in front of the 60 Martin Place, the head office.

The man who was best for then could not foresee in any way at all the world to come.

The best banks today may not own the future of banking.

So far we have been a bit premature is our reaction to technological advance in banking.

In the late 70s we were drawing little diagrams showing bank terminals in the home xiii.

In the 90s we closed down branches way too early. But now it seems things are moving

fast. Continuity with the past is important to branding banks. But so is a suggesting a

bridge to the future. This is a challenge that can‟t be avoided.

Some of the changes that can be predicted include:

Increased realisation (finally) of economies of scale in banking;

Increased realisation of the also elusive economies of scope;

Making „segment of one‟ relationships possible even where no face to face exists

making customer centric banking possible;

Detection of fraud patterns;

Increased opportunity for partnerships and joint ventures among financial

institutions.


52


Sequencing and scheduling improvement and integrating these with marketing is a

strategic issue that will inevitably see winners and losers.

Global change

Global changes are also structural. There will be no reversal. A lot of what is happing in

emerging economies is simply deciding to learn from developed economies and removing

the impediments to growth. To quote Bill Emmott, one time Editor of the Economist:

„Globalisation is simply the voluntary adoption of international capitalism‟

The single biggest fact I know about China is that it could have launched the industrial

revolution around the 13th century (CE) and decided not to. The reason it seems was to

preserve the existing way. No bank can do that, of course, although I expect some

bankers want to.

Why has HSBC grown at 20% per annum compound for over 25 years?

Because it‟s been providing banking services in this environment (Hong Kong)

rather than Britain. Sir John Bond, Chairman of HSBC 1998 – 2006.xiv

This simple statement says everything that needs to be said about growth. Banks in

oligopolistic domestic economies that are expected by share markets to grow beyond the

pace of that economy must seek overseas revenues. But bank brands do not travel well.

HSBC and Standard Chartered are rare exceptions. The international norm for retail

banking is for a relatively small group of domestic banks to dominate.

Bank brands don‟t travel well

In September 1985, as part of the deregulation of Australian banking, the Hawke Labor

government granted banking authorities to 16 of the world largest and most successful

banks. At the time we all expected a real shake- up in the domestic Australian market.


53


Although in fact only at most half a dozen authorities were expected to be granted. Of

the 16 that were only 3 now have a foothold in the retail markets. The following exhibits

are taken from a presentation I made in 2005 to give a sense of proportion to a group of

people who wondered why some of the most powerful banks in the world held so little

sway in the Australian market. It is hard to imagine a more hospitable market for

overseas banks than Australia.

First a comparison of the overall market capitalisation of the overseas banks with retail

operations in Australia compared to local banks as they stood at that time.

Next, here is a a comparison of the share of domestic Australian bank assets.

19%18%

16% 16%15%

6%

3%2% 2% 2% 1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Share

of

Austr

alia

n b

ank resid

ent a

sse

ts

(AP

RA

Sep

t 2005


54


Finally, the share of the overseas banks‟ assets that were held in Australia.

Australian bank forays into overseas markets have rarely been successful either.

National Australia bank sold its investment in Michigan National Bank, which it acquired

in 1995 in 2000, without having made any inroads into the US market. Similarly its

investment in UK Banksxv didn‟t progress far (although at the time of wring there is talk

of a joint venture to make further acquisitions in the UK).

I watch with interest the progress of Grupo Santander‟s acquisitions in the UK, including

the Bradford and Bingley whose Bradford branch appears, incongruously to me, in the

picture below.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

HBOS ING HSBC Citibank

Share

of

glo

bal a

sse

ts resid

ent in

Australia

(F

orb

es a

nd

AP

RA

)


55


Much depends on the outcome of reactions to the recent crisis. Will regulation stifle

global banking? Or will more global regulation give it a spur. Which brands will shrug

off the recent past? Will HSBC and Standard Chartered remain historic exceptions?

I think this view is part of the answer. Dame Edith Penrose in „The theory of the growth

of the firm‟ (1951) argued that divisionalisation enables economies of scale to prevail

while diminishing diseconomies of scale. She identified management availability, seen

as a scarce resource, as the true constraint on a firm‟s growth. I wish to argue that,

simply by doing banking, bank‟s create a growing pool of management talent that

sometimes has no outlet in the domestic economy. Moreover investor‟s impute growth

expectations to share prices that are overly challenging in domestic markets. According

to my analysis HSBC, through exposure to fast growing economies, was able to grow

without major departures from traditional prudent banking. For this reason it was able

to escape the riskier paths taken by its domestic rivals.

Remoulding the category


56


I want to return now to the Superbrands data in Appendix 1. I classified the brands

rated and ranked by Superbrands into these categories

Banks

Non-bank financial

Online with financial capability / potential

High Street with financial capability / potential

Trusted financial media.

Superbrands applies an index based on rating the top brand, by its criteria, 100.0. I

have summed the indices for firms by the above categories. The result are summarised

in the exhibit below.

On the basis of this data, if you accept it, there is a suggestion at least that the brands

that banks to some extent compete against (or potentially could compete against in the

future) in the high street and online are stronger. Now against that it must be said that

their brands are not necessarily seen as bank brands. That is to say you may trust your

telephone company to make your phone work well but would you necessarily trust your

finances to an organisation that responded to a late payment of a bill by cutting your

phone off. But then I would advance two lines of thought:

0

100

200

300

400

500

600

700

Banks

Non-bank financial

Online with financial capability / potential

High Street with financial capability /

potential

Trusted financial media.


57


The reputation of banks has never been lower; their defences against entry are

weakened in a way that is unlikely to be repaired any time soon; and

Information technology is changing the game rapidly. Bank technology can be

deployed by new entrants without a lot of difficulty.

What is left to banks are:

market inertia

brand; and

competence in managing highly complex person – computer systems.

The last point is very important. However, it is not an unassailable barrier to new

entrants. These can chip away (as they are doing) in the relatively less protected and

often valuable parts of bank‟s business. For banks the best defence to share up is

brand. But how many banks really want to do this?

As I write banks in the UK are waiting to see the outcome of the sale of nearly 1,000

Lloyds TSB and Royal Bank of Scotland branches as a result of European Commission

decisions. Metro Bank is a likely new entrant to the market and Tesco is increasing its

range of financial services. Virgin Money is also likely to increase its branch network.

The interplay of cyclical and

structural change

It isn‟t just the addition of cyclical and structural change. The difficulty banks face in

responding to cyclical issues seriously impede any progress towards branding that makes

a bridge to a value creating future. The cycles mask the reality and make charting a

course forward much harder. At the very least there must be a shared understanding at

higher management levels of where both the bank and its sector are in the web of cycles

and how they want to face the structural changes.


58


Is not bothering to brand a realistic option?

All banks have brands good, bad and indifferent. I suspect very few take a

comprehensive approach to branding. There are two dominant cultures in banking: both

are vital. The first is the risk management culture. The second is the bureaucratic

distribution culture. It is worth taking a bit of time to understand each of these.

The risk management culture

It is the risk management culture of a bank most often, in my experience, dominates. A

glance at Appendix 3, recovered from the darkest recesses, of my files tells you all you

need to know about a bank‟s risk culture. I thought when I was given this many years

ago that it was unique to the bank where I was working. It now seems to me there are

versions of it in pretty much every bank. This thinking is engrained in people‟s minds.

There first instinctive reaction is described on this single piece of paper. To a person

who thinks like this marketing is not just the enemy. Marketing is irrelevant. It sits in its

ivory tower making adverts.

The bureaucratic distribution culture

The bureaucratic distribution culture is the vast, sprawling everyday of banking. Imbued

as it is with the risk culture it is bank centric, mistake avoiding, measure driven. There

is nothing actually wrong with that. In a way it is inevitable in a successful bank. The

problem is that it is here the sales culture, such as it is resides, not in marketing.

The default position of banks is in effect a decision not to brand. The challenges

presented to the twin cultures that got the bank this far are just too great.

If branding a bank is to mean more than putting out the odd advert, then the head of

marketing has to create a brand culture. The second half of this book will explain how.

However, it has to be said that branding a bank is difficult at best. To decide to take a


59


superficial approach to it is certainly an option. To choose this option though may mean

accepting a prolonged if almost imperceptible decline.

Brand dimensions

In writing this section, I have become more convinced that bank brands are different;

indeed all brands seem to be in some ways unique. Here are five dimensions I have

identified that allow brands to be categorised:

The importance of the outcome of using the product / service to the customer;

The commitment required of the customer in terms of money, energy, time to

use the branded product or service to achieve the required outcome;

The dependence the customer has on the brand when the product might be

difficult to understand or to trial and the purchase decision might be hard to

reverse;

The risk to the customer of the brand when there might be risk of serious

unforeseen consequences;

The engagement the customer has with the brand in terms of the extent to

which the solution the brand offers is a source of pleasure to the customer.

I believe that brands tend to have quite different profiles using these dimensions. I shall

explore this further in subsequent papers in this series.

An overview

To reiterate my opening argument of this section:

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.


60


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.

The following exhibits summarise my arguments in this section as systems dynamics

diagrams.

Brand identity is hard to define





Banks are service



So much depends on


experience.


risk management) is



relationship with

Brand identity is

hard to define


utilities and are saddled with those

expectations




brands to transcend




for granted

Bank brands are

weighed down by

inertia




Bank brands must be


markets






place is diverse

and complex

Bank are

intrinsically hard to

brand

Brand identity is hard to communicate


61


Poorly coordinated

messages from within the

bank leads to a blurred

identity that is not

necessarily one the CEO

might want

Brand identity is

hard to

transform into

the brand image

the the bank

intents

There are multiple

audiences. Each with

different needs. Each with

different interpretations of

the brand message. The

‘jostle’ of interactions

between them is part of the

way the brand image is

created.

The forces of cyclical change make consistent brand themes

hard to sustain

Bank crisis

cycles

Economic

cycles

Cyclical changes adversely

affect the ability of banks to

adapt their brands over time

brand

Technology

cycles

Political

cycles

Customer and

other brand

audiences

needs for

consistency and

certainty

In all this bank brands must adapt to the needs of the future


62


Technology is

transforming

banking

Structural change means

banks have to continually

update their brands to meet

new demands

Globalisation is transforming

banking but banks individually find

its hard to be global

The industry

boundaries

are being

redefined and

reshaped

My conclusion is that banks can‟t brand

Brand identity is hard to

define

Brand identity is hard to

transform into the brand

image the the bank intents

Cyclical changes adversely affect the ability of banks to adapt their brands over time

brand

Structural change means banks have to continually update their brands to meet new demands

Banks can‟t brand

If a bank is to brand successfully, and now of all times sees increased prize money at

stake, all these challenges must be met and mitigated, if not overcome. Banks that truly

attempt this will be few. Banks that succeed will be fewer.


63


Appendix 1

Analysis of Superbrand‟s ranking of UK brands

Brand Rank Index Banks Non-bank

financial

Online with

financial capability

/ potential

High Street with

financial capability

/ potential

Trusted financial

media

Microsoft 1 100.0

100.0 Rolex 2 99.9

Google 3 93.4

93.4 British Airways 4 90.3

BBC 5 86.8

86.8

Mercedes Benz 6 86.2 Coca-cola 7 83.2 Lego 8 82.9 Apple 9 81.4

81.4 Encyclopedia - Britannica 10 80.2

Marks & Spencer 13 78.3

78.3 Thomas Cook 26 70.2

70.2

John Lewis 35 64.6

64.6 Harrods 50 60.6

60.6

Post Office 66 55.9

55.9 Visa 91 50.9

50.9

Sainsbury's 92 50.5

50.5 BT 99 50.1

50.1

Mastercard 102 49.6

49.6 Lloyds TSB 105 48.6 48.6

Barclays 107 48.5 48.5 American Express 114 47.7

47.7

Tesco 116 47.5

47.5 Waitrose 119 46.8

46.8

The Times / Sunday Time 131 46.0

46.0

BUPA 138 45.6

45.6 Yahoo 140 45.3

45.3

Vodafone 151 43.9

43.9 Amazon 155 43.6

43.6

Financial Times 156 43.5

43.5

HSBC 157 43.5 43.5 Barclaycard 196 38.5

38.5

O2 204 38.4

38.4 ASDA 226 37.1

37.1

Natwest 231 36.4 36.4 Facebook 248 35.3

35.3


64


Which? 256 34.8

34.8

Royal Bank of Scotland 278 33.2 33.2 Halifax 310 31.4 31.4 Nationwide 318 30.4

30.4

EBAY 322 30.1

30.1 The Economist 360 27.7

27.7

Paypal 368 27.1

27.1 Saga 380 26.4

26.4

Virgin Mobile 384 26.1

26.1 Abbey 389 25.9 25.9

The Cooperative 478 21.5

21.5 The Independent / Ind on

Sunday 491 21.1 Prudential 493 20.9

20.9 Totals

267.5 283.6 614.7 533.0 265.2

Superbrand‟s Methodology

The entire selection process is independently administered by The Centre for Brand

Analysis (TCBA). The key stages of the selection process are as follows:

- TCBA researchers compile a list of the UK‟s leading brands, drawing on a wide

range of sources from sector reports to blogs. From the thousands of brands

initially considered, a shortlist of just under 1,400 brands is created.

- These brands are scored by the independent and voluntary Expert Council, which is

assembled and chaired by TCBA‟s chief executive. The Council is refreshed each

year. Bearing in mind the definition of a Superbrand, the council members

individually award each brand a rating from 1-10. Council members are not

allowed to score brands with which they have a direct association or are in

competition to, nor do they score brands they are unfamiliar with. The lowest

scoring brands (approximately 40 per cent) are eliminated after a council meeting

to discuss the results and to ratify the scores.

- The remaining brands are voted on by a nationally representative sample of more

than 2,100 British consumers aged 18 and above. These individuals are accessed

via a YouGov panel.

- The number of consumer votes each brand received determines its position in the

final rankings. Only the top 500 brands in this ranking are deemed to be

Superbrands.

When voting on the brands, both the expert council and the consumers consider the

following definition of a Superbrand: “A Superbrand has established the finest reputation

in its field. It offers customers significant emotional and/or tangible advantages over

other brands, which (consciously or sub-consciously) customers want and recognise.”

In addition, the experts and consumers are asked to judge brands against the following

three factors:


65


- Quality. Does the brand represent quality products and services?

- Reliability. Can the brand be trusted to deliver consistently against its promises

and maintain product and service standards at all customer touch points?

- Distinction. Is the brand not only well known in its sector but suitably

differentiated from its competitors? Does it have a personality and values that

make it unique within its marketplace?

2009/10 Superbrands Expert Council

• Stephen Cheliotis (Chairman) – Chief Executive, The Centre for Brand Analysis

• Nick Blunden – Managing Director, Profero London

• Tim Britton – Chief Executive, UK, YouGov

• Vicky Bullen – CEO, Coley Porter Bell

• Hugh Burkitt – Chief Executive, Marketing Society

• Colin Byrne – CEO, UK & Europe, Weber Shandwick

• Jackie Cooper – Founding Partner, Jackie Cooper PR

• Peter Cowie – Managing Partner, Oystercatchers

• Leslie de Chernatony – Professor of Brand Marketing, Università della Svizzera

italiana, Lugano and Aston Business School

• Tim Duffy – Chairman & CEO UK, M&C Saatchi

• Stephen Factor – Managing Director, Global Consumer Sector, TNS

• Peter Fisk – Founder, The Genius Works & Author, Customer Genius

• Avril Gallagher – Group Client Managing Director EMEA, Starcom MediaVest Group

• Cheryl Giovanni – European President, Landor Associates

• Martin Hennessey – Co-Founder, The Writer

• Graham Hiscott – Deputy Business Editor, Daily Mirror

• Mike Hughes – Director General, ISBA

• Paul Kemp-Robertson – Editorial Director & Co-Founder, Contagious

• Sophie Lewis – Group Planning Director, JWT

• David Magliano – Director of Commercial & Marketing, England 2018

• John Mathers – Chief Operating Officer, Blue Marlin Brand Design

• Crispin Reed – Managing Director, Brandhouse


66


• Raoul Shah – CEO, exposure

• Prof. Robert Shaw – Honorary Professor, Cass Business School & Director, Value

Based Marketing Forum

• Mark Sweney – Media Correspondent, Guardian Newspaper

• Alan Thompson – Founding Partner, The Haystack Group

• Lucy Unger – Managing Partner EMEA, Fitch

• Harry Wallop – Consumer Affairs Editor, The Daily Telegraph

• Andrew Walmsley – Co-Founder, i-level

• Mark Waugh – Deputy Managing Director, ZenithOptimedia


67


Appendix 2

I have included this extract from an internal presentation I made in 2006

again based on the Superbrands survey really just to answer the issue of

whether the poor showing of banks was a reflection of the crisis. It seems

not to be – bank brands were just as weak in 2006.

As an example we have taken a listing of Britain‟s most successful brands published a

insert to the Times in July 2006. It represents the views of 650 survey respondents

that are representative of the British population and a panel of marketing experts.

Broadly the views of the two groups were fairly similar. I have colour coded the

brands listed to indicate my view of the capability of each to extract some value from

the finance sector. The coding is shown in the next slide. The original listing was for

500 brands. The overview slide covers the top 125 of these.

The audience of this presentation is welcome to second guess me.


68


1 Microsoft

2 BBC

3 British Airways

4 Mercedes Bez

5 Porsche

6 Marks & Spencer

7 Google

8 Heinz

9 Duracell

10 Sony

11 Dyson

12 Nokia

13 Durex

14 Royal Mail

15 BMW

16 Jaguar

17 McDonald's

18 Tesco

19 Black & Decker

20 Nurofen

21 BT

22 Boots

23 Harley Davidson

24 Bosch

25 Apple

26 Dulux

27 Kodak

28 Beechams

29 Coca-Cola

30 Hoover

31 Next

32 Playstation

33 Fairy

34 Lego

35 Gillette

36 AA

37 Sky

38 Pizza Hut

39 Elastoplast

40 British gas

41 Lemsip

42 American Express

43 Ipod

44 Colgate

45 Walkers

46 Harrods

47 Virgin Atlantic

48 Ikea

49 Hilton

50 Domestos

51 Starbucks

52 Moet & Chandon

53 Amazon.co.uk

54 Birds Eye

55 Haagen Dazs

56 Persil

57 Visa

58 Sellotape

59 Chanel

60 Ebay.co.uk

61 Vicks

62 Burger King

63 Roiyal Doulton

64 Sainsbury's

65 KFC

66 Gap

67 Kleenex

68 Monopoly

69 Hotpoint

70 Bang&Olufson

71 IBM

72 Kenwood

73 Thorntons

74 Andrex

75 WH Smith

76 Panasonic

77 Canon

78 Guiness

79 Johnson & Johnson

80 The Times

81 McVitie's

82 Argos

83 Nike

84 Zanussi

85 Jack Daniel's

86 Mastercard

87 Mars

88 Pentium

89 Post Office

90 Mr Kipling

91 Levi's

92 Asda

93 Wedgwood

94 Sony Erikson

95 Anadin

96 Tampax

97 Encyclopaedia Britanica

98 Harry Potter

99 Yellow pages

100 HP

101 L'Oreal

102 Hovis

103 Pepsi

104 Debenhams

105 Dettol

106 RAC

107 Vodaphone

108 P&O

109 Nintendo

110 Thomas Cook

111 Nescafe

112 Tate & Lyle

113 Ariel

114 HP

115 Fisher price

116 Wooworths

117 Xbox

118 B&Q

119 Dell

120 Oxo

121 Philips

122 Waterstones

123 Hellman's

124 Dairy milk

125 Wilkison Sword

Financial Institutions

Finance sector facilitators

Strong finance capabilty

Medium finance capability

Weak finance capability

No finance Capability

Sector participants

Sector participants

Often sector participants

Close to the sector’s borders

Distant but in many cases could (say) co-

brand a card

Probably not considering the sector but could


69


Appendix 3 – This is how a bank‟s

risk culture looks


70


Notes and comments to Section 5

i TCBA was founded in 2007 by Stephen Cheliotis and Ben Hudson.

Stephen Cheliotis is a Director and Chief Executive of The Centre for Brand Analysis.

He is a leading commentator on branding and a frequent guest on CNN, the BBC and

Sky.

ii Now a part of Lloyds Banking Group

iii Kellogg on Branding – 2005, Alice M Tybout and Tim Calkins, John Wiley & Sons ,

ISBN 13 978-0-471-69016-0.

iv I have been experimenting with dimensions I can use to classify service brands.

The exhibit below represents my current thinking on this.


71


To

tal in

ve

stm

en

t co

st o

f a

cq

uirin

g th

e s

kill

Percentage of total service cost that is skill based

Branch banker

Hairdresser

Consultant surgeon

IP lawyer

Low customer participation in

outcome

High customer participation in

outcome

Size of circle

indicates

importance of

outcome

v A study I did around 1999 showed that more than half of financial decions makers

in firms under AUD 5 million turnover visited the branch at least once a week.

vi The bank of new South Wales the main antecedent of Westpac Banking

Corporation was founded in 1817, not much more than a generation after the first

white settlement.

vii See the more detailed discussion in Section 3 of this series.

viii Around 1980 there were nearly 14,000.

ix I once wanted a good news bank story published. The magazine staff writer I

spoke told me the editor would fire him if he lodged a favourable bank story right

then.


72


x Former National Australia Bank chief executive Nobby Clark lambasted the board at

yesterday's annual general meeting for the bank's lack of leadership, poor corporate

governance and disastrous investment decisions over the past four years.

Mr Clark, who led the bank between 1985 and 1990, was one of the 1320

shareholders who piled into the Melbourne Concert Hall yesterday afternoon to vent

their anger at the bank's dismal year. Sydney Morning herald February 1, 2005.

xi I wonder, sometimes, if the bank catastrophe cycle might be a „predator and prey‟

cycle but have never found the means to pursue this line of thought.

xii Shepherd Smith was appointed General Manager in 1864. Under his guidance the

bank became the largest in the colonies in terms of deposits and advances and won

repute for stability, leadership and independence.

xiii I can‟t give a precise source for this but it was certainly shown in Lafferty

publications in around 1979.

xiv Quoted in The Future of Banking, Henry Engler and James Essinger Pearson

Education 2000 ISBN o 273 65038 6

xv In 1987, NAB bought Clydesdale Bank (Scotland) 1987 and Northern Bank. In

1990, NAB bought Yorkshire Bank (England and Wales

Economy & Finance

Branding Banks For Shareholder Value 5.0 Why Cant Banks Brand