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The Actuary The magazine of the Institute & Faculty of Actuaries

Branding in financial services

Twenty years ago discussion of brands and their value and effect on customer loyalty was confined to analysis of the consumer goods market. The concept often only made sense in the context of vast advertising campaigns that were used to develop and maintain market share by linking purchase to familiarity and trust. But things are changing.
Branding specialists Interbrand currently estimate that one-third of global wealth can be accounted for by brands. Within the next 25years they expect this to rise to 50%. Whatever the somewhat arbitrary calculations underpinning this brand is, after all, an intangible asset there is little doubt that the impact and consideration of branding and its effect has spread way beyond Heinz and Kellogg. In no sector has the expansion been as marked as in financial services.

Public perceptions
The first real examples of the phenomenon arose following the entry into the market of new product providers such as Marks and Spencer and Virgin. Capitalising on the desperately poor perception the public had, and continues to have, of the long-established traditional providers, and using brand qualities built elsewhere, their entrance to the market was considerably eased. In retrospect, attacking an industry perceived as devious, which deliberately designed products that were incomprehensible to all but the initiated and which offered, in the main, poor value for money, was as open a goal as can be imagined anywhere.
Marks and Spencer’s brand was clearly built on trust, dependability, and value for money. It was no surprise then that its first financial services product, launched in 1989, was a generalist unit trust, with investments spread across the globe in equities and fixed-interest stocks a classic life office ‘mixed fund’. Eleven years on, Marks and Spencer’s financial services arm is now responsible for one-quarter of total group profit annually. It is interesting to note that even in these difficult financial times for the group, its brand perception has been almost unaffected.
Virgin, of course, is more closely associated with championing consumer interests and taking on vested interests, in the style of David against Goliath. Add fun, irreverence, and informality and Virgin’s brand lends itself ideally to attacking financial services. The popularisation of tracker funds began at Virgin, which found it easy to promote the benefits of a straightforward, transparent product to a hugely mistrusting public and this despite the fact that the product took investors from cash deposits to full-blown equity in one short step.
The continuing strong performance of Virgin is hardly surprising all recent surveys indicate that consumers are becoming increasingly brand-led. Car retailers’ and consumer goods companies’ spending on branding has had to rise just to maintain market share, and more spending is necessary to boost it. In many cases, consumers’ trust of the product provider leads to a sale, even if they themselves do not understand the proposition. It is the link between brand and trust (and the lack of it for traditional providers) which spurred many of the initial new entrants to the market.

Prudent tactics
While I would accept that many traditional financial services companies could demonstrate high name awareness, virtually none has a strong consumer brand and, in many cases, those brand values which do exist are highly negative. In such circumstances, what should existing providers do? In the case of Prudential, on deciding to establish a banking operation, it elected not to follow the lead of Scottish Widows and Standard Life by tacking ‘bank’ onto the existing trading name, but to develop its own brand: egg. Cynics might suggest that this had as much to do with a brand tarnished by personal pensions mis-selling and backlash following withdrawal from its traditional industrial business as with a desire to select an apposite corporate name. Nevertheless, and partly due to a very aggressive pricing policy, egg has been a huge success and has developed a very strong consumer brand in just over a year.
Positively, traditional players should take much from the entrance of branded competitors. Entrance by brand requires a conscious effort to ensure it is not blemished. There is little doubt that, in the longer term, competition will drive the industry towards higher standards (through better customer care) and better products (more innovative design).

Teaching old dogs new tricks
It is time that traditional financial services product providers began to realise the impact that their branding can have; the world now is very much marketing-led and these companies must respond accordingly. Furthermore, they must realise that it is not just about advertising it is also about products. It is not acceptable to offer old-style, non-transparent, expensive, and poorly performing products wrapped up in a cosy new lower case name! Investors will quickly catch on and the brand cornerstone of trust will be lost forever.