The banking industry has been known for its fads. Among the recent ones is branding. Banks are struggling with how to define, value, and hone their brand identity while exploring the creation of cobranding opportunities.
What is a brand worth? Which brand management strategy works?
A recent study by Bain & Co., a strategy consulting firm in Boston, identified two major variables in brand profitability.
The first is the brand category. In the premium category, most participants are profitable, and margins are wide. In the value or private- label category, returns are lower across the board.
Market share is the second variable. Having a high share in a premium category can generally earn companies more than a 20% return on sales.
Continuous innovation is the first key to success in this category. Consumers of such brands tend to be loyal and willing to pay premium prices, but in return they look for real value.
Kraft macaroni and cheese is a good example of a brand that has sustained its position, according to the study. Kraft often varies the pasta and the cheese to meet the evolving taste of today's youngsters.
Another excellent example of brand innovation is Barbie. Barbie has remained popular for 50 years because she is constantly reinvented, so the brand remains fresh. The innovations include ethnic versions and Barbie's new handicapped friend, Share a Smile Becky. This is not only a socially correct doll-it's a clever business idea that calls for a whole new set of Barbie accessories.
Though innovation is crucial, reasonable pricing is also important. Overpriced products like Advil aren't distinctive enough to keep no-brand competitors from gaining market share.
Raising entry barriers is the third key ingredient of a successful premium brand/high-market-share strategy. One example is a multiproduct line, like that of Head & Shoulders and other high-end shampoo products. Another is a distribution system that ensures product freshness and effective inventory management; some distribution networks are actually owned by the manufacturer, not the distributor.
Managers of premium brands with high market share must spend heavily on marketing, research and development, and capital improvements.
Many banks that think they have brand equity really do not. When a bank is sold, the buyer rarely keeps the name, the logo- even the spokesperson. This clearly implies a judgment that they weren't worth keeping.
If McDonald's were acquired, it is inconceivable that the Ronald McDonald character would be discontinued. But when Boatmen's Bancshares in St. Louis was recently acquired, its spokesman, the "Boatmen's guy," as well as its logo, name, and signage were all discontinued.
There are lessons here for both the high-end and the low-end segments of the business.
Ask yourself: Do I truly have a brand name to capitalize on? If so, how committed am I to building equity in that name?
Our industry has been known to flood highly profitable sectors after they became in vogue, destroying the hefty margins and overcrowding a market to the point of deteriorating asset quality.
Branding is an excellent concept, but it is not for everyone. Before jumping in, bankers should be clear about why they want to and how it would build shareholder value. Make sure there is a pot of gold at the end of the branding rainbow before you start down that road.