There has been a lot of talk about financial institutions which are too big to fail due to the fallout that would be caused should they fall over. Billions worth of taxpayers' cash has been expended in propping up some of the bigger names in the world game, including international insurance and financial services organisation, AIG, and US-based mortgage lenders, Fannie Mae and Freddie Mac.
But another phenomenon which hasn't received much coverage is the rise of a monolithic* brand architecture with which most major financial institutions go to market. Citi (the international financial conglomerate with operations in consumer, corporate, and investment banking and insurance) is one of the leading proponents of this strategy. Its drive to become a so-called 'financial supermarket' - with the aim of selling just about every conceivable type of financial services product - saw it become one of the biggest companies in the world.
But it begs the question: are some of these businesses getting too big to operate under a single brand?
Locally, Standard Bank makes for the best example of a monolithic brand, having rolled its corporate and merchant banking unit, SCMB Securities, into the Standard Bank brand some years ago. ABSA and Nedbank make use of a hybrid monolithic structure (e.g. ABSA and ABSA Capital; Nedbank, Nedbank Private Banking and Nedbank Capital). At the other end of the spectrum, First Rand uses multiple brands (FNB, WesBank, Rand Merchant Bank) to reach different business categories.
Whilst the monolithic approach seems to make sense in terms of achieving economies of scale, creating a single culture and getting teamwork going across the business, it also raises a number of other obstacles. One has to ask if financial institutions are merely branding their businesses according to their organisational structure, or are they genuinely trying to understand how customers shop in their particular category, and then designing their offerings to take to market in an appropriate manner?
One of the key weaknesses of a monolithic structure is that brand positioning is becoming more and more challenging as these brands stretch to encompass more offerings.
A successful brand positioning is one that is focused, can be consistently communicated across the business and its offerings and, even more importantly, provides strong differentiation from its competitors. As the monolithic brand stretches to encompass more and more disparate offerings, the number of areas for a brand to position itself starts to decrease as trade-offs are made to ensure all offerings are covered. I liken it to a decision made by committee: a portion of everyone's view is incorporated into the final product, but no one walks away entirely satisfied with the end result.
A poor and unfocused positioning is thus the result. Just think about it - is it really possible to identify a compelling positioning that adequately appeals to the investment banking market, a low-end retail customer and someone looking for a funeral plan? As one compromises the positioning for the sake of the monolithic brand, its competitiveness versus a specialist brand decreases. As an example, think Alan Gray versus ABSA when investing in unit trusts.
Taking a look at a company like First Rand, which follows the 'house of brands' model, you have the FNB brand focused on retail banking and RMB being used to contest the investment banking space, and Wesbank operating in vehicle and related financing. Given the freedom to focus, FNB has very clearly and consistently communicated the brand since 2005 when it launched the 'How can we help you?' campaign, which has reaped huge rewards.
This is certainly evidence that a clearly-focused positioning which covers a smaller category of offerings can, indeed, be more powerful than a large monolithic player over the long term.
Further, there are only so many positioning areas that can actually encompass these huge offerings - a common denominator, if you will. With so few positioning areas available, the monolithic brands all end up chasing a similar positioning. And so we get a market categorised by 'me-too' brands. For example, consider these slogans for three of our major SA financial institutions and see how little they differ in concept:
- 'Moving Forward' (Standard Bank)
- 'Today, Tomorrow, Together' (ABSA)
- 'Make things happen' (Nedbank)
Another significant risk faced by large monolithic brands is that, as the offerings sold under the brand increase, so too do the chances of a dissatisfied customer being encountered.
How about this nightmare scenario for a financial institution: A customer holds their transactional banking account, mortgage, investments and insurance with a single institution branded under the same name. One day he receives a call from the mortgage division informing him that payments are in arrears and that the institution intends to seize his home. Shortly thereafter, there's a call from the investments division offering to sell the customer a new pension plan, or asking him to invest a lump sum into a fixed deposit.
So, the same brand is taking away a home on the one hand, yet still wanting to get additional investments from a customer who is clearly in arrears. Sure, there's a systems issue at play, but it's a plausible scenario. The ramifications for the brand and its reputation as a sound and trusted institution would be severely tarnished, and the customer is likely to take all his business elsewhere.
An article by acclaimed professor of economics, John Kay, in Britain's The Financial Times
highlighted this as he revisited the work of Dr Peter Lawrence, the man who rather modestly lent his name to the Peter Principle. Dr Lawrence's basic premise was that people who were good at a job would get promoted until they reached a position they were no longer good at. At this point they would cease to get promoted further, or fail entirely.
Kay likened this principle to some of the financial giants which have collapsed of late. The premise this time being that these businesses diversify into their level of incompetence. "They extend their scope into activities they understand less, until they are tripped up by one they cannot do," he wrote.
Kay notes numerous examples, including the insurance giant, AIG. "The company did not just undertake credit insurance, but was the largest trader in the credit default swap market. That is how its financial products group, employing (just) 120 people in London, brought about the collapse of a business that employed 120 000."
So a small division almost caused the failure of the entire AIG organisation and certainly dented the brand value. In fact, Millward Brown's BrandZ brand valuation tables attributed a brand value of $7.14-billion to the AIG group in 2008. In 2009 that value had fallen to $1.49-billion - all because of one small division!
These are just some of the potential pitfalls of such a monolithic approach. But how did this one-size-fits-all strategy come to exist in the first place?
A dominant organisation
One hypothesis is businesses have merely made the brand architecture decision based on the business strategy of building a single, dominant organisation. As time goes by the organisation forgets to ensure that the brand is still relevant to the very customers who keep it in business. Monolithic branding is pursued as a matter of course, no matter what offerings are brought under the umbrella.
Linked to this is the fact that brand architecture, as a discipline, is misunderstood by many, partly due to some complex jargon and, more importantly, that inherent human need to find a box for things and to neatly classify them. Organisations get stuck by classifying their brand as fitting into one of the boxes - monolithic or branded. They then blindly follow an approach which aims to ensure they remain true to the 'rules' of that box. Any new brand that is acquired, or offering that is developed, immediately ends up getting branded according to the box the organisation has chosen.
Instead, they should be looking at each new offering on its own merit and deciding what the most appropriate brand for that particular offering is, based on the context of the bigger organisation, brand and customer need or behaviour.
I believe the approach to brand architecture should be more fluid and flexible, especially in these turbulent times. The different alternatives available should all be considered. This will take a new level of maturity from organisations and will require them to go back to the basics of really understanding customers and their needs, rather than automatically defaulting to the monolithic branding approach.
Just as the Peter Principle sees employees rising to their level of incompetence, Kay sees the same happening in the world of business, with diversification into areas of incompetence. Perhaps the monolithic branding approach suffers a similar fate - it too can be stretched too far; covering offerings it isn't competent to represent. In other words: Too big to fail, too big to brand!* Brand architecture is notoriously filled with over-complicated jargon and with various practitioners favouring different nomenclature.
For the purposes of simplicity, I draw from the two most commonly accepted models. The first is that of a 'monolithic' or 'master brand'-dominant approach. In this approach, all offerings are rolled into a single brand which represents the entire business and all its offerings. I count brands using a descriptor system (normally used to help customers navigate the offering) into this approach. Standard Bank makes for a good example here.
The second approach is that of the 'branded house'. This approach makes use of multiple brands to take the offerings to market. First Rand use this approach in tackling retail banking through FNB, vehicle financing through WesBank, and using RMB as its investment banking brand.