There are some brands that mean something to consumers. Indeed, much to the joy of their marketing teams, their brand names have passed into our daily lexicon to signify a particular function or quality unique to their products or services.
My mother, for example, calls vacuuming “Hoovering” and tissues “Kleenex”.
An old boss used to refer to things signifying the best quality as “the Rolls Royce of….” whatever product or service he was talking about.
Most small business owners don’t think of their brands as they’re too busy coming up with a product or service proposition that they think they can do better with or the market lacks.
After two years of trying to get referral arrangements in place, these days we’re careful with whom we associate our brand lest it be tarnished by the misdeeds of organisations whom we don’t control.
You may be surprised to hear that a brand carries value.
This year, of the 20 most valuable brands in the world, 16 of them hail from the US. The top 5 are dominated by tech stocks. Apple was the most valuable brand in the world for the seventh straight year followed by Google, Microsoft, Facebook and Coca Cola.
50 years ago just one of those brands existed let alone be in the top 5.
Very few brands in the top 100 have been around very long. Tech stocks are usually a victim of the onward march of newer technologies that weren’t foreseen. Anyone remember Nokia? Just ten short years ago they were ranked No. 5 and Apple was ranked No. 39. Now they’re (Nokia not Apple) not even on the list. Everyone used to have a Nokia phone. Then, enter the iPhone and almost overnight no-one wanted a Nokia anymore.
Motor vehicle manufacturers once dominated these lists. Now the emergence of new tech has them spending tens of billions to keep up with newcomer Tesla – who’s not even on the list. Their petrol/gasoline products are now mere commodities unless you are a premium brand like Mercedes (17), BMW (21), Porsche (60) or Lexus (64). Even these brands are in danger of having their products becoming commoditised.
There’s nothing wrong with that but it will mean the premiums now being charged for their once premium products will need to be reassessed as the value of the brand is diminished.
For that to happen, there will need to be competing substitute products – as per the iPhone displacing Nokia.
In the 1980’s the Japanese launched an onslaught of luxury car brands led by Lexus (Toyota), Accura (Honda), Eunos (Mazda) and more recently Infiniti (Nissan). Now the Koreans have also launched a premium brand with Genesis (Hyundai).
All these new brands had to establish new dealerships to differentiate their new brands from their existing commoditised brands. A very expensive exercise. More significantly, they had to ensure that the cars were engineered to meet the expectations of premium buyers.
Having now owned quite a few German cars I recognise that the perception of quality for those brands is largely a myth – at least in my experience (and I fully acknowledge that not everyone has had that experience). In my experience the Japanese brands which I have also owned were every bit as good and tended to be far more reliable than the German brands (albeit, they weren’t as much fun to drive).
Which brings me to the topic I should be writing about, finance.
Financial products are largely commoditised these days. Banks used to try to differentiate in certain ways like service, efficiency, friendliness, access etc. These days they don’t even compete on price. However, they’re all scrambling to fend of external threats that exist in the tech sector (Apple Pay for example or non-banks using Artificial Intelligence to provide cheaper platforms).
In our business, we compete on knowledge of our products and the market, experience and exceptional personalised service to our clients. That may sound a little generic and passé but it’s true. We take the time to analyse subtle differences in banks’ policies and arbitrage those differences to our clients’ benefit. Put simply when one lender doesn’t do what we want we check to see if another will. As banks change their product mix and appetite we stay on top of this knowledge base.
We try to make the process of obtaining a loan as painless as possible. However, we recognise that financial products will be so commoditised and personal information so technically integrated that, in time, obtaining said financial products will not require a human being. However, that’s probably in the near future (indeed some providers offer that service now).
For now, though technology – whilst gaining fast – is not up to the task for many financial applications. For us, this means seeing and speaking with the client to determine what their needs are. Assessing whether or not there’s a product that suits them. Finding the best product at the best price then showing a range to the client with a verbal and written description as to the merits of each. Often clients will have questions or may have omitted a crucial piece of information at the initial meeting. This usually comes out in our due diligence and analysis. We then adjust our recommendations.
We have looked at automating and/or outsourcing part of this function but have thus far resisted because it would mean that we would be foregoing one of our differentiators – personalised service. In other words, we would be diluting or perhaps eventually destroying our brand.
I can’t speak for other brokers or banks but when you’ve spent years, decades or centuries building a brand, surely you need to invest in it with more than a marketing budget. Surely, every one of your products and services must reflect that brand. Your staff should be proud of the brand they work for – that’s not what I’m getting when I speak with bank employees.
For banks to change their ways there have to be competing products – just like in the car and tech industries. In the 1980’s when sixteen new banking licences were issued some of the foreign banks tried to take on our local major banks in retail banking (home loans, transaction accounts, credit cards etc.). They all failed. Why? Because our banks had a hundred years of building branches and systems that were unique to our regulatory regime. The foreign banks also had no brand recognition amongst Australians. For the new banks to build a distribution network (in those days, bricks and mortar branches) would have cost billions.
These days branches aren’t really required to launch a bank. Look at Macquarie Bank. When was the last time you saw a Macquarie bank branch? Further, we adhere to a global regulatory regime these days that all banks globally must comply with (Basel III).
Oh, and it helps that the local banks have done their best to rubbish their brands by cutting headcount to appease equity analysts and leaving existing staff to pick up the pieces (I’ve written about this religious adherence to “cost to income” in the past). That’s why when a bank appoints a CEO who has a consulting background I will sell that bank stock immediately – please don’t take that as financial advice that’s just my personal bias.
The foreign banks that haven’t disappeared altogether from our local landscape rely on brokers to distribute their products. More recently HSBC re-launched their broker distribution network (albeit with a single broker). So be prepared for commoditised home loans to come to you via these foreign banks. Yes, ING and Citi have been doing it for years but without the clout that comes from having a local head office who can use decision makers to gauge what’s happening on the ground and adjust their product mix accordingly – although they’re getting better.
As the European banks start looking for ROEs greater than 5% they’ll start looking at our retail banking sector again (our banks are returning 15%). This time they won’t require an expensive branch network to sell their commodity. They will be able to compete on price using a ready distribution network of tens of thousands of brokers. Will they be successful this time? They will have access to negative interest rates and maybe better technology and a ready distribution network. Three things that weren’t available to them last time around.
It won’t matter then what brand you have providing you with a home loan. You’ll just take the best price.
Our banks will adjust and fight back. It’ll be an interesting battle with the consumer being the ultimate winner.
I wait with bated breath.