It is about being different and creating a business system that reinforces this difference. The "it" is an identifiable brand-something that many companies have but banks as a rule do not. Their need, however, is great.

Branding is virtually the only way to "de-commoditize" financial products. Unlike many consumer and industrial products, financial offerings generally lack inherent distinctiveness, and whatever innovative features may exist are quickly erased by competitive emulation.

So a CD is a CD is a CD. But not necessarily. If that CD is offered by a bank to which the customer has formed an emotional attachment, it is not just a CD; it is "the" CD. And as such, the bank may be able to price it more favorably than competitors' without customer loss. Alternatively, it may sell more CDs at any given price than the competition.

The amount of value a brand adds to a company is called brand equity. Brand equity is buttressed by four pillars: difference, relevance, esteem, and familiarity. Of these, difference is by far the most important.

A product or company must stand out from the crowd-favorably, of course. If a product or company stands out but isn't terribly relevant, we call it a niche item (company). It will enjoy a high margin but fetch a low gross unless its perceived relevance can be increased.

By contrast, a product (company) that exhibits weak differentiation but high relevance is a commodity. People may use it or patronize it, but they are also persuaded that what is being supplied is obtainable virtually everywhere. So competition depends not on product or company attributes but rather on price.

Unfortunately, this is the situation in which most banks now find themselves.

Achieving differentiation may be possible, but it will require choices that many could refuse to make. After all, the industry's profits are unusually strong, which tends to discourage investment in the unfamiliar task of brand building. Still, a substantial minority of bankers feel that, unless reinvigorated, the banking franchise will erode in value.

Reinvigoration via branding requires fundamental changes in bank SOPs. Banks are, and many want to remain, "all things to all people," believing that any limits placed on the universality of their appeal and reach will compromise returns. Self-evidently this approach makes it difficult to achieve differentiation.

Nevertheless, it may be possible to develop a set of sub-brands, each of which embodies the institution's appeal to a discrete customer grouping, and then link these brands in some coherent manner to an overarching corporate concept, or megabrand.

Thus, a bank that touts itself as an institution whose "deep experience" benefits its customers, as one bank recently did, can quite conceivably demonstrate the benefits of that experience to such diverse groups as private banking clients ("experience means wiser money management") and credit card customers ("experience means better rewards programs").

The first step in the branding process is to discover how customers currently perceive the institution relative to its competitors. Having done so, the bank must next consider whether the qualities for which customers give it high marks are those that are worth defending and are in fact defensible.

Such an analysis presupposes a review of the company's business systems and the technologies it possesses or can purchase. For example, if customers value the bank for ease of access, then it has to cultivate and update a great many delivery channels. If they value the bank for its advice or its investment performance, then the need is for top-level branch and telesales representatives or highly compensated portfolio managers.

What qualities should a bank seek to acquire and defend? Although the answers will vary by bank, a good case can be made for attempting to build a reputation in the retail area as the preferred financial counselor to the middle-income American. This consumer has five basic financial needs: transactions, credit, investments, insurance, and financial planning.

Banks have traditionally served only the first two. They have just started penetrating the investment and insurance areas. But they do nothing in financial planning, except, of course, for their private banking and trust clients. Yet arguably, it is in financial planning, which should inform and orchestrate all other financial purchases, where the needs of middle-income Americans are greatest and where a handful of nimble banks have the potential to build a distinctive presence and, concomitantly, a large amount of brand equity.

It is often said that while Americans don't plan to fail, they often fail to plan, which is almost the same thing. For want of adequate planning, middle-income households earn less on their surplus funds than they should for the level of risk they assume. Who is better positioned than a banker to remedy this situation by persuading people to improve returns in a relatively safe fashion through changes in their asset allocations?

It is widely believed in the industry that customized financial plans for the middle-income consumer are too expensive. This notion is questionable, but, even if correct, it is irrelevant. A bank that is willing to help customers use a plan to reallocate resources optimally, both within and among the four basic product types (transactions, credit, investment, and insurance), stands an excellent chance of becoming the preferred product provider in all four areas, either directly or indirectly. Were this the case, any losses it may incur in generating a customized plan could be swamped by its increased composite product return.

More than that, the affected customers would become linked, almost indissolubly, to the institution, reducing its vulnerability to competitive challenges.

There's only one way of determining whether this type of branding, or any other, will enrich shareholders. Do a pilot. Isolate some representative sample of middle-income customers, integrate the bank's data base knowledge about them, and begin serving them in a truly financial- advisory capacity.

If, after some reasonable period, the expected net present value of lifetime customer relationships increases by more than would otherwise have been forecast, the experiment is a success and should be broadened. If not, the experiment is a failure, and the bank should pursue other branding initiatives.

To outline these steps is to expose a basic problem: Most banks don't measure the value of the overall customer relationship. Rather, each product division presumably measures the customer's contribution to that division, and this information is not available, nor indeed of interest, to others in the bank.

Such a state of affairs creates an atmosphere in which heads of product divisions are bent on hawking their own wares regardless of objective customer need. To remedy this, the bank must encourage product executives to emerge from their respective silos. This can only be done by basing their compensation not on profits from discrete product sales but rather on their collective success in raising the customer's total worth to the bank, a number that should be calculated and routinely updated.

This is a do-able task with today's information technology. It is also the only way for a bank to capture what is one of the most enviable of brand images-that of objective and concerned financial counselor.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.