During the past 12 months or so there has been a flurry of discussion and debate about the subject of branding. In fact, American Banker, following last year's ABA national bank card conference, ran excerpts from a roundtable discussion on the subject.

It is understandable that the topic is hot when you consider the recent merger-and-acquisition activity, the current regulatory environment making it easier for nonbanks to offer banking products and services, and the rapid application of electronic delivery channels to the banking industry.

Until recently, banks have not had much compulsion to focus on branding as a means of differentiating themselves or strengthening customer loyalty. Previous efforts have focused on product feature differences and pricing or branch location as ways attract and maintain customers.

Another reason branding has not been embraced by many banks is the misplaced belief that banking products and services are commodities, with the assumption that commodities cannot be branded.

The biggest fallacy of this argument implies that all consumers behave and act the same, that their needs are homogeneous. Try telling that to consumers who buy Sunkist oranges, Evian bottled water, Dole fruits and vegetables, or Purdue chickens. The fact is that brands make purchase decisions easier.

Unfortunately, many bankers continue to ignore the important role of the brand. These same individuals fear the entry of nonbanks into their business - for good reason - but don't know how to deal with the potential threat.

Most compelling are offerings from well-known branded consumer companies such as Microsoft Corp., AT&T Corp., International Business Machines Corp., Merrill Lynch & Co., Fidelity Investments, and Charles Schwab & Co.

The threat will only get worse, because these brands have high consumer awareness, powerful and attractive images, and strong customer loyalty - all essential elements of successful brands. Most banks could learn a lot from branded consumer product companies.

Many definitions and perceptions about what branding is and what it can do for banks are being circulated. A complete and authoritative description is needed.

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What is a brand? It is far more than a name or a logo. A brand conveys a set of expectations to the buyer. These expectations may take the form of performance, specific features, value, service, image, or quality. For a brand to be credible and maintain any degree of customer loyalty, the brand and the products it supports must deliver these expectations consistently.

A brand is characterized by a set of attributes. Those characteristics that are tangible and generally measurable, such as taste, content, functionality, speed, and efficiency, are functional attributes. Those characteristics that take on more human qualities, such as friendliness, warmth, status projection, and personality, are emotional attributes. These attributes are ultimately transferred to the products or services that carry the brand name and become the foundation for a bond between the brand and the customer.

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Why does branding work? Because consumers buy brands. Brands are a way of simplifying the decision-making process for consumers faced with so many purchase choices and so little tangible differences among those choices. Numerous recent polls demonstrate that branded products are purchased more frequently than nonbranded products in the same category. In addition, branded products typically command a price premium over similar nonbranded products.

Brands whose attributes are closely aligned with the needs of targeted consumer groups have the best chance of appealing to and attracting that particular customer segment. The brand that is most relevant to those customers will win a higher market share than its competitors. For a brand to succeed, it doesn't necessarily have to compete on unique characteristics. Success can be determined by how well it executes and delivers on what it promises to the consumer.

Why is branding important for banks? Unfortunately, banks are beginning at a slight disadvantage. The public's overall image of the banking industry is not flattering. Many consumers are eager for new nonbank players to offer the same products and services. If those new players have strong brand awareness and relevance to consumers, there will be a customer exodus of tremendous proportions.

The pattern is being repeated in other industries where deregulation is occurring, for example, telephony, cable, and power utilities, and branding thus takes on even more importance. Consumers will have more choices, and more choices create the opportunity to solidify and strengthen the bond with the customer - that's exactly what a brand does.

In addition to building customer loyalty, branding can contribute significantly to the overall financial value of the bank. This becomes increasingly important as the banking industry continues to consolidate. An acquisition target with a well-positioned, well-managed brand will command a higher price. Some powerful consumer brands today consist of few or no physical or financial assets, yet the customer following or loyalty they have created is so strong that it represents billions of dollars in value.

For example, Philip Morris acquired the Kraft brand for nearly $13 billion dollars, over four times the value of Kraft's tangible assets. Bass PLC bought the Holiday Inn brand, with few company-owned physical properties, for nearly $3 billion dollars. What these prices represent are the customer brand franchise, or the relationship the brand has with the customer.

The value of the brand can directly affect a bank's share price. An optimized brand will maximize the appeal of the brand to the appropriate customer groups - broad or narrow niches, high-value or profitable customers - without diluting the brand. Moreover, it will support the offering of expanded products and services, and will ideally command a premium price for them because of the perceived value the brand adds. Even though current U.S. accounting principles and standards do not allow for characterization of brand value as anything other than "good will," balance sheet impact will be increased by the increased value of the brand.

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What's involved in the branding process? Developing, positioning, and managing a brand is still an art, but is becoming more scientific in the way we can measure, track, and evaluate the impact and value the brand provides. Maximizing the full potential of the brand requires a careful, disciplined approach. Understanding several key areas is critical.

*First, the brand's character must be defined. What attributes does the brand "own," both in terms of functional and emotional associations? How strong or weak are they? How do they compare with competitive brands along the same dimensions? What constraints does the brand have? How serious are they? Can they be corrected?

*Second, emerging consumer demand must be evaluated. What do consumers really want and need, in terms of financial products and services, both today and a few years out in the future? What factors will shape these needs - technology, the economy, demographics, political or regulatory developments, and the like. And how will they affect the marketplace for banking and financial services? What brands are best aligned to be relevant to changing consumer needs - existing players or new players? What gaps or opportunities are suggested?

*Next, a vision of the brand identity must be developed. Where is the brand currently positioned and where can it be positioned to maximize its appeal and relevance to targeted customer segments? Do consumers give the brand permission to be positioned as such?

*At this point, a brand strategy must be constructed that identifies the optimal achievable positioning, customer segments of relevance, and the brand trajectory.

What brand strategy options are possible - umbrella branding, sub- or cobranding, endorsement branding, flanker branding, etc. - and which are best suited? What naming issues are suggested? Is a new logo or identity needed?

*Last, a brand action plan must be created and implemented to translate the brand strategy into specific actions throughout all aspects of the business. What products should be developed that can leverage the brand's power to deliver against customer needs? What customer service activities reinforce the brand's expectations? What advertising message reflects the brand's promise? What channels can the brand use to deliver products and services?

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The important thing to remember is that branding is far more than an advertising campaign, more than a name, more than a logo. A brand is a dynamic, valuable asset that, when developed and executed properly, can make a significant difference. Leading brands like American Express, Visa, and Citibank are proof.

Mr. Bergstrom is managing director of the brand strategy practice at the Dove Associates consulting firm in Atlanta.

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