The ROI of Branding in Banking

The synaptic tissue connecting consumers' brains, Neanderthal Man, and brand differentiation in the banking industry. This is an excerpt of the opening remarks delivered by Jeffry Pilcher, publisher of The Financial Brand, to 418 attendees at The Forum 2014 in Las Vegas.

Many CFOs really struggle with marketing. They often see marketing as a pure cost center. They have two columns: expenses on one side, income on the other. And marketing goes in the expense column. But what if I told you there was a way to get your CFO on board? That you and your CFO could see eye-to-eye on the ROI of branding? That they would bless a bigger and bigger budget for you year after year? The next opportunity you get, ask your CFO to rattle off some of their favorite brands. You might get answers like Apple, Starbucks, Nike, Nordstrom, Disney or Harley Davidson. Now what do strong brands like these have in common?

Strong brands… neutralize price.

The stronger your brand, the less important price becomes to consumers — strong brands take price out of the equation. For instance, when somebody decides they want to buy a pair of Nikes, price isn’t a factor — they’re going to get them. When somebody wants an Apple product, price doesn’t usually drive their decision. And when somebody wants a Harley Davidson, what one costs doesn’t steer them to another brand like Honda or Kawasaki.

People will pay a price premium for strong brands they like and trust.

Or, to put it in words that should tickle your CFO, strong brands make more money. It’s that simple! The stronger your brand, the wider your profit margins will be. When you have two similar products, the difference between what a strong brand can charge and what others charge — that differential — that! is the ROI of branding, and it is most certainly something great brands can/do quantify.

Reality Check: If you have the same rates, the same fees and the same number of branches as another financial institution, you can swear up and down you’ve got a strong brand, but you really don’t. If your brand doesn’t contribute to your bottom line, then it isn’t worth anything.

Differentiation is The Key to Branding

In banking, price is often the only factor separating one institution from another in consumers’ minds. Most financial brands look alike, sound alike, sell the exact same things, and in the exact same ways. The only way consumers can tell one banking brand from another is usually by comparing concrete tangibles like rates, fees and branch locations. And when consumers can’t see any difference between one brand and another, they will always fall back on things like price. Simply put: the less differentiated a brand is, the more it is forced to compete on price.

If you want a strong brand, the first thing you need to focus on is differentiation. You have to focus on the emotional benefits, and differentiate around those. That’s what strong brands do. But what do we do in banking? Exactly the opposite. We spend marketing capital trying to rationalize people into buying financial products — rates as low as 1.99%, no fees, and no payment for 90 days. Sure, those messages may trigger a few sales, but they really don’t help build the brand. What you wind up doing is training consumers to be rate-sensitive, while also admitting your brand really isn’t that different.

Differentiation is so critical to the success of your brand because we are hard-wired to notice things that stand out. This is an instinct — a survival skill. Our primordial psychology is wired to alert us whenever something out-of-the-ordinary occurs. 100,000 years ago, when Neanderthal Man wandered the plains, he had to be on the lookout for anything unusual. It was a dangerous world, and his life depended on it. When Neanderthal man spotted something odd, he said, “What’s that? Should I kill it? Or run away from it?” That’s how he stayed alive. It’s part of our “fight-or-flight” mechanism.

Now skip ahead a hundred thousand years or so. We’ve evolved somewhat, but we are still about 98.5% identical to Neanderthal man. And one of the things we inherited was Neanderthal’s hyper-sensitivity to anything different. The modern consumer — just like Neanderthal man — is wired to notice things that stand out. The only difference is that nowadays, when consumers see something unusual, it’s more like, “Woohoo, that’s different! Should I buy it?”

Bottom Line: Consumers pay more (attention) to breakthrough brands because they look and act different.

Brand Equity, The Balance Sheet and The Bottom Line

Brand equity is also easy to quantify. Take two identical banks, both with the same number of customers, employees, assets, branches, profits, etc. How much would it cost to acquire Bank X or Bank Y? If the value of both X and Y is the same, then their brands are the same. But if X has a stronger brand than Y, then X can command a higher takeover price.

Conversely, when a bank like Umpqua with a strong brand wants to acquire another bank, the acquisition target might be considering two or more suitors: one from Acme Financial for $25 a share, and one from Umpqua at $24 a share — a buck less. If Umpqua’s brand can help them shave a buck or two off the share price on their acquisitions (as it probably does in some situations), then you can clearly say there’s an ROI.

There are other benefits of having a strong brand. For instance, consider HR/recruitment. Would you rather be VP of Marketing at PNC? or SVP of Marketing at Acme Financial?

These are just some of the reasons why brand equity is a line-item on any strong brand’s balance sheet — Coke, Starbucks, even Umpqua Bank.

But why do most financial marketers struggle with the ROI of branding? Because most banks and credit unions lack the clarity and commitment to build a great brand worth measuring.

Most of all, they lack the courage to differentiate.

Bottom Line: More differentiation, more profit. Less differentiation, less profit.

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