04 May 2009  Research & Ideas

What’s Next for the Big Financial Brands

Some of the great financial brands such as Merrill Lynch built trust with customers over decades—but lost it in a matter of months. Harvard Business School marketing professor John Quelch explains where they went wrong, and what comes next. Key concepts include:

  • Turmoil and distrust in the financial services sector is an open invitation to non-financial companies to exploit the brand vacuum created by the demise of the likes of Merrill Lynch and the Royal Bank of Scotland.
  • Financial brands today must address the most basic of consumer concerns: Will my money be safe with this company?
  • Financial brands should continue to advertise but with messages that help customers with recession-relevant product and service offerings.

 

(Editor's note: Harvard Business School professor John Quelch writes a blog on marketing issues, called Marketing KnowHow, for Harvard Business. It is reprinted on HBS Working Knowledge.)

Recent news coverage of the cosmetic name change from AIG to AIU at the failed company's New York headquarters reminds us that a brand is a precious asset. The value of any brand asset depends upon whether it has delivered on its past promises and is believed likely to do so in the future. It takes years of effort to build brand trust but only a few months—or minutes—to squander it. A brand that has lost consumer trust is no longer a brand; it is merely a name.

The Merrill Lynch brand is unlikely to ever recover and Bank of America should drop it.

Merrill Lynch is no longer a brand. Both before and after the collapse of the Internet bubble, Merrill and its commission-based executives were challenged by investors and government regulators for hyping stocks and other questionable practices. The last CEO spent over one million dollars to redecorate his office and pushed through $3.6 billion in executive bonuses the day before he agreed to a takeover by Bank of America. The Merrill Lynch brand is now close to worthless. It drags down Bank of America's brand every time it is mentioned in the same breath. The Merrill Lynch brand is unlikely to ever recover and Bank of America should drop it.

Merrill Lynch was one of 25 financial services brands that appeared on BrandZ's 2008 top 100 most valuable brands list. The rival 2008 Interbrand ranking of the top 100 global brands included 13 financial services brands. Citi appeared on both lists. Today, with its brand reputation seriously damaged, Citi's stock price is in the doldrums and the bank is all but insolvent (depending on how much credibility you place in the bank's valuation of its assets). Why then has there not been a run on the bank? Being too big to fail is hardly a solid basis on which to build brand equity. The true answer to the question is that retail depositors who do not trust Citibank do trust the Federal Deposit Insurance Corporation.

Today, the FDIC is the most important ingredient brand in the world, way more important than Intel. Trust in the FDIC and the United States Government enables consumers to confidently deposit up to $250,000 in any insured bank in the USA. In these uncertain times, only FDIC insurance persuades consumers across the nation to deposit funds in higher interest CDs in Puerto Rico banks and in non bricks-and-mortar, low-cost Internet banks such as ING Direct.

Safety first

Financial brands today must address the most basic of consumer concerns: Will my money be safe with this company? So long as they are not triumphalist, large banks like JP Morgan Chase and Wells Fargo that were less involved in chasing too-good-to-be-true subprime returns have a differentiating advantage. But it's hard to rebuild consumer trust based on the fact that as Jamie Dimon, JP Morgan's CEO, has stated: "We suck less." Especially since the reward these banks and their consumers and shareholders earned for being prudent was being forced by the United States Treasury to absorb the failed banks, Washington Mutual and Wachovia, respectively.

The FDIC is the most important ingredient brand in the world, way more important than Intel.

In any recession, consumers focus closer to home. They become more local and less global in outlook. So these are times of opportunity for the thousands of conservatively run community banks that have never held any exotic financial instruments and continue to assess accurately the risk profile of each local customer seeking a loan. As advertising for PNC Bank states: "Now more than ever responsible lending is everything."

When consumers are uncertain, they need to have their hands held. They need to feel that the brands they use identify with their predicament. They consult their friends and neighbors more than ever. Advertising that captures these mood shifts is more effective. Thus, in Kansas, billboards use the first person to proclaim "I trust Intrust." Charles Schwab's two-year-old advertising campaign focusing on retail investor pain points is perfect for the recession. In one recent ad, a consumer says: "I've got a lot less cash and a lot more questions." The voiceover then invites the consumer to "Talk to Chuck." Investors are also searching around longer before making a purchase decision. That leads a niche player like TD Ameritrade to extend a similar invitation: "Why not talk to TD Ameritrade? There's never been a better time for a second opinion."

Advertising by financial services firms in the USA is down around 40 percent year-on-year. Should financial firms continue to advertise when media stories of trips and bonuses remind consumers of their extravagance and malfeasance? For consumers to change banks is burdensome but they can easily move assets among their accounts at different firms. No advertising by a brand might be interpreted by consumers as indicating guilt, lack of customer care, or financial weakness. Financial brands should continue to advertise but with messages that help customers now with recession-relevant product and service offerings.

Bank of Google?

Useful, full-page ads in national newspapers were placed recently by NatWest Bank in the United Kingdom. Signed by the head of retail banking, the ad itemized four ways in which NatWest aims to help property owners, mortgage holders, and all customers, with an invitation to "talk to us" and a practical promise of "extended opening hours" at retail branches. NatWest was acquired about ten years ago by Royal Bank of Scotland (RBS). RBS has been fiercely criticized and is perhaps the worst UK example of bad bank behavior surfaced by the current crisis. RBS advertising these days is minimal; advertising is being placed behind the acquired NatWest brand, uncontaminated by the scandal and previously on a slow glide path to oblivion. The RBS brand, like the Merrill Lynch brand, is dead. We may well see RBS branches rebranded NatWest and NatWest become the dominant surviving retail brand within what was the RBS group.

The turmoil and distrust in the financial services sector is an open invitation to other non-financial companies to exploit the brand vacuum created by the demise of the likes of Merrill Lynch and RBS. Look to Tesco, the leading retailer in the United Kingdom, to extend further its reach into financial services. Look to trusted brands like Wal-Mart and even Google in the United States to do the same. After all, the financial services industry is crying out for a brand that promises to "do no evil."

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