I am a student of my industry: consulting and banking. If bankers tell me their institution has a superior brand, I want to know what that means. Too often I am told that the FI has a superior brand because customers come up to senior executives and board members on the street and tell them so.
I am no statistician or expert on human behavior, but I have to believe that people willing to approach senior executives or board members of the local financial institution are probably going to say something positive by an overwhelming majority. A polite neighbor does not make for a statistically significant study.
What I do find in many FIs that claim the throne of brand leadership is higher cost deposits, and lower yielding loans. I hear how the FI keeps deposit prices high so customers don't leave, or runs deposit pricing specials to bring new deposits in the door. I find lenders loosening covenants, waiving fees, and lowering rates to "get the deal done".
Is this our perception of brand leadership? I say no.
Mike Schultz and John Doerr, in their 2009 book Professional Services Marketing, identified traits of brand leaders in the consulting industry. Here is what they found:
- Priced their services at a higher level than their competitors in the market; and
- Realized higher actual hourly rates compared to the lesser-known firms in all categories of professionals."
In other words, according to Schultz and Doerr, brand leadership translates to real money as buyers of consulting services are willing to pay more. See the chart below:
I frequently cite such studies, plus life experiences we see everyday of how brand equates to either 1) getting more customers faster than competitors; 2) keeping customers longer than competitors; and/or 3) charging more than competitors. Take Mac users versus PC users. Mac has clearly created a brand that evokes loyalty, even at higher price points. How about Marriott customers, citing Marriott Rewards and the superior quality of the hotels? Remember the old axiom, "you will never be fired for hiring IBM" when it comes to hiring a technology solutions firm? Brand, brand, and brand.
My firm recently lost a small strategic planning engagement because of our price. The price was not particularly high, but it wasn't Wal-Mart low either. We work hard to build an environment for robust dialogue that results in a well thought-out strategy. Background work to bring together the data and prepare to create that environment takes time. This FI was not willing to pay for that time and shame on me for not building a brand that this CEO was willing to pay for. I will work harder to do so in the future.
But my colleagues and I should not be alone in building brand. If community FIs believe they bring greater talent, faster responsiveness, and tailored solutions to their customers, then customers should be willing to pay for it. If not, we run the risk of building Four Seasons expenses that we give away at Econo Lodge prices.
Your brand should mean more than that. What do you think brand leadership should result in?
Link to the Fees and Pricing Benchmarking Report: Consulting Industry 2008
Note: I have no relationship with the authors of the report or the firm(s) that conducted the study. I cite it hear because it demonstrates, in clear terms, the value of brand.
Brand is two fold: prospects vs. current customers. It's unfortunate for this FI that passed on you all because the CEO didn't know much about your brand. Obviously there could be other factors at play but I doubt that the CEO was searching very hard for info about your brand. More likely he was price focused.ReplyDelete
Jeff, you know that I've run into several of your company's clients and the brand you have with them is extremely high (that is not a shameless plug to do biz with Jeff but they do have raving fans among their clients!). But that type of brand building - the kind that comes from doing business with someone - is worth a lot more than the perception of being known industry wide or the idea of what it might be like to be their customer.
Apple has the best of both worlds because as a non-applite, I covet their products and really want one. But my thrifty nature limits me from spending $ on anything that's not a necessity. So, their prospects hold them in high regard and their customers love (LOVE, LOVE, LOVE) them. That dual nature brand is rare.
But, community banks typically have the issue of not having enough customers experience their brands (most are still prospects). That means most of their potential market only get a sense of what the brand is via advertising but never the full customer experience.
Brand is perception and promises until someone walks in the door or buys the product.
A strong brand will enable a company to either (1) sell more, (2) sell at a higher price, or (3) both. That's the whole point of branding. If you have to cut prices to make a deal, you've got a weak brand.ReplyDelete
Thanks for the kind words re my firm.
I agree that customer acquisition is a key priority for community FIs and success would be helped greatly by a strong brand.
Switching costs are very high and I dream of a world where we systematize (real word?) account switching to the point where it is so simple that the best brand, combined with successful delivery of the brand promise, wins.
I fear we have trained our customers to look for price (terms, rate, covenants, fees, etc.) above all else and that one FI is no different than another. If we are to succeed as a community FI, then we need to change that, in my opinion.
As far as the CEO that passed on my firm due to price, there are customers out there that price will rule no matter what. As a consulting firm, and as community FIs, we have to ask ourselves about how much energy and resources should we devote to such a customer.
I agree with 1, 2, and 3. You’ve devoted all of your content to helping FIs elevate their brand to achieve those objectives. Let’s hope it takes!
I believe price will always be a factor...but the degree to which it plays in a decision is based upon the value perceived. Just like CD shoppers, some will ONLY seek price...and some FIs are the same. In my opinion there is an inverse relationship to price and value. The more value the less price impacts the decision.
For an FI,the brand is becoming paramount as the commoditization of our products grows. We have limited barriers to entry for our products and our competitive advantages for new products is short, therefore a brand is the only sustainable competitive difference.
As Mark noted, a brand is a collection of both perceptions and experiences. For non customers, it is only built on perceptions, as they have no experience. The cost of switch is an emotional cost and expected time/toughness cost. Addressing each impact variable will lower the anticipated "cost".
Definitely right! Price will always be a factor. I once read in a book by a couple of smart bankers that FIs must determine their strategic focus as either: Operationally focused, product innovators, or customer intimate (pages 95-96 of Shift Happens, the New Age of Bank Marketing).
There are some FIs that succeed at being operationally focused, but recent piling on of regulations is going to make economies of scale more important for them. Product innovation is challenging for community FIs because they rely on vendor-driven solution, and they all draw from the same vendor pool. That leaves customer intimate as the obvious choice for community FIs to focus resources, develop their personnel, and build their brand.
I think our focus as an industry should be there. What do you think?