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Bank to the future

It is always difficult to imagine the future. According to the Junior Encyclopaedia that I pored over in my childhood, by the year 2000 I was supposed to be flying to work in my own private helicopter and eating a lunch made up of a handful of brightly coloured nutrient-packed capsules. In fact, of course, I fly my private helicopter over to have lunch in posh restaurants like The Ivy, along with everyone else in agency life.

Still, in an industry in which there are so many pressures forcing change upon us, it is important to keep a handle on how the future is looking to the top bananas. Sure, they could be wrong (everyone enjoys the quote from the head honcho at IBM who said, back in the 1950s, that he could imagine a total world market for, gee, I dunno, maybe even as many as a dozen computers), but you need to know what they are thinking.

That is why CCHM recently commissioned a new qualitative research study to find out what the prospect of depolarisation looks like to a number of top people – chairmen, CEOs, MDs – working in a cross-section of manufacturing and distribution companies.

Given our interest in brand and marketing issues, it will come as no surprise that the focus of our study fell on these areas. And as far as I know, it is the only public research to have done so.

As a result, our top team of highly experienced financial services researchers – Judy Jones, Dave Skelsey and Lynda Sale – came back with some very thought-provoking material.

In this article, I will be covering some of what was said about distribution businesses – mainly, but not exclusively, those that are currently IFAs. In a second article next week, I will look at some of the main implications for manufacturers.

As far as distribution is concerned, probably the best one-sentence summary I can manage is that there was a big, no, huge gap between theory and practice.

In theory, respondents could see a combination of all sorts of issues – not just relating to polarisation but also to all sorts of other live strategic developments in financial services today – which look set to turn today&#39s distribution industry upside down.

In practice, when they looked at the various parts of that industry and tried to imagine what would actually happen to them, they struggled to see what would change, or why.

In theory, respondents thought – unsurprisingly – that the two mega-trends would be a: consolidation, especially among IFAs, and b: expansion of the financial services arms of banks.

In theory, both of these two trends were thought to have clear and obvious implications for brands and branding. Large, consolidated financial advice businesses – whether still independent or not – would be able to develop strong consumer-facing brands in a way that small, fragmented businesses never could.

And, as for the banks, the implication here was not about building brands per se – they already spend tens of millions of pounds on this – but rather about “stretching” their brands so they are perceived as credible providers of a full range of financial solutions, not just banking services.

However, when respondents thought about the realities of all this, their theoretical certainties wavered a good deal.

Very few respondents – and none of the IFA respondents – could seriously imagine consolidated advice businesses really investing big money in brand-building. Two main problems came up time and again – one real, the other largely imaginary.

The imaginary problem is the perception that it is simply unaffordable. Distressingly, from my perspective, it seems that agency people like me have frightened our new business prospects off with talk about the enormous cost.

This was not at all what we intended – we just wanted to soften the market up for some reasonably chunky invoices – but it seems we have gone too far. “If you&#39re not willing to spend, ooh, I don&#39t know, several million pounds a year for several years, then you&#39d better not start playing the branding game,” we&#39ve said.

“We&#39re not willing to spend anything like that,” the IFAs have said, “so we won&#39t.”

Agency people are left chasing after the departing prospects shouting that, on second thoughts, we could do it for a few hundred thousand. The damage has been done.

Still, if this problem is all a misunderstanding, the other major obstacle to building brands in consolidated advice businesses is very real indeed.

It is, quite simply, that our respondents struggled to imagine how businesses like these could offer the kind of consistent consumer experience which must lie at the heart of any branded offering. If each pint of Guinness came out a different colour, strength and taste from the last, then the Guinness brand would have no meaning.

If brands are not a guarantee of some kind of consistency, they are nothing. Again, our research respondents could imagine how big advice businesses could theoretically engineer a reasonably consistent consumer experience these days – the adoption of a core technology platform being the starting-point – but it was the human factor that troubled them.

Even given a consistent technology platform, respondents believed that, almost as a matter of principle, 100 IFAs would come up with at least 100 different ways to use it. The familiar theme that organising IFAs is like herding cats came up in plenty of the interviews.

Frankly, from my point of view, this objection is a bit of a show-stopper. I have passionately believed for a long time that regulatory distortion is the only major obstacle to the rapid emergence of a branded financial advice industry, in which a handful of major national players share the lion&#39s share of the market between them. On the basis of our research, it seems I may have been mistaken.

In the absence of new players looking to invest significantly in building advice businesses from scratch, it looks as if the so-called cottage industry may remain entrenched in its cottages for a while longer.

Turning back to the banks, the practical doubts about their brand development strategies were, if anything, even more fundamental.

The more they talked about it, the more dubious our respondents became that the banks have any great interest in taking on the role in the future financial advice market that everyone – Government, regulator, providers and advisers – seems to have carved out for them.

Again, there are two levels of objection. First, a few of our respondents challenged the assumption that banks have any great interest in financial services at all. They are called banks, as one shrewdly pointed out, because they do banking. That is their culture, their heritage and the huge majority of their income and profit. Perhaps they could make some more income and profit out of building big financial services businesses but then again perhaps they could make some more income and profit out of shoe repairs or pizza delivery.

Just because an organisation could do something does not mean it will.

Still, the majority of respondents accepted that the banks will make some kind of moves in financial services, even if only to avoid the wrath of the Government.

What they challenged was the idea that banks would helpfully and co-operatively concentrate their efforts on promoting extremely low-margin products to mass-market people making low levels of contributions. This, it was pointed out, would be commercial suicide. Going to all the trouble and expense of stretching a bank&#39s brand so that it becomes the obvious port of call for someone who needs a lot of advising and persuading to invest £50 a month in a 1 per cent pension seemed a questionable strategy to all our respondents, not least those who worked for banks.

They pointed out to our researchers, in the kind of slow and patient voice that people use when they are pointing out something very, very obvious, that the name of the game in retail bank marketing over the next few years is going to be segmentation – that is, dividing their enormous customers bases up into a number of distinct groups and designing product and service packages which meet the needs of those groups in a way that maximise their profit potential for the bank.

This segmentation-based approach will involve delivering face-to-face financial advice to customers who want it and to whom it can be profitably provided, but not to those who don&#39t and to whom it can&#39t.

This segmentation idea is already leading to some change in the banks&#39 branding and marketing strategies – it is interesting to see what Barclays is doing with its Barclays Premier offering and how RBS NatWest is now integrating Coutts as a clear (and very powerful) segment brand. This is sensible and interesting stuff but it is far from revolutionary.

In that sense, it is somewhat typical of the rather paradoxical findings from our opinion-leader research.

Sure, depolarisation – together with a whole bunch of other pressures – should lead to revolutionary changes in the financial services distribution industry as a whole and, as a result, to the brand strategies of the organisations involved in it. It is just that when, in real life, we look more closely at those organisations and the people in them, it is difficult to keep on believing that they stand on the brink of revolutionary change.

You might imagine that this same mild schizophrenia would follow through in respondents&#39 attitudes to the outlook for manufacturers. You would be very sensible to imagine this. However, you would also be largely wrong. Respondents were much more single-minded in their opinions about manufacturing – and also, it must be said, a whole lot more bearish, reminding our researchers of that Scottish one in Dad&#39s Army whose catchphrase was “We&#39re all doomed.”

But more of that in next week&#39s rather less cheery article.


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