News & Announcements

By Kevin J. Clancy

March/April, 2001, European Financial Marketing & Management Newsletter

In spite of the recent troubles of the New Economy, branding financial services online continues to be a major preoccupation of many leading financial services firms. According to one recent study, will spend an estimated $200 billion on e-businesses in the next three years—and with good reason. In the face of industry and market challenges, these companies have embraced the Internet and other promising technologies such as wireless. Globalization and eroding regulatory barriers have simultaneously increased the growth potential of the industry and the level of competition, forcing the entire industry to consider new ways to offer value to their increasingly diverse and demanding customers.

The virtual world does seem to hold promise for branding financial services. Industry analysts estimate that 27 million Americans—one in 10—now do at least some of their banking online, up from 9 million a year earlier. European customers have also moved online. According to Jupiter Communications, Europeans will open a projected 34 million online banking accounts and 12 million online trading accounts by 2003. That would mean almost one-third of the European online population would bank online while one-tenth will use the Net for trading.

In addition to a growing online customer base, according to a Goldman Sachs study, online banking provides more revenue per customer and costs less per transaction than other methods of access. For each online customer, Wells Fargo, for example, earns 1.5 times more revenue than it earns from other customers. At the same time they spend just 86 cents for each online customer for every dollar it spends on each off-line customer. McKinsey & Co., estimates that in 2002 online financial services will constitute 10 percent of the $400 billion in gross revenue the financial services industry will take in, compared to less than 2 percent of the industry's $340 billion in revenue in 1999.

Furthermore, the implications of the Internet for financial services companies extend far beyond cost-savings and product offerings. A Cyber Dialogue study recently documented the vulnerability of financial brands which indicated that some 10.3 million Americans changed their opinions about financial services' providers as a result of information received online. In fact, 3.1 million of them changed service providers as a result of their online experiences. The respondents were consumers of insurance, brokerage and banking services.

But before we get swept up in the momentum of the Green Revolution—as some in the media have enthusiastically referred to e-finance—or dragged down by the "no"-mentum of those proclaiming the failure of the Internet economy, if Internet pure-plays like Moneygator.com and Egg, as well traditional companies like Barclays and Schwab want to thrive, they first need to get serious about building online brands.

Style over Substance

In the early days of the New Economy, many companies—not just financial services providers—thought marketing and brand building in a space with no clear market leaders would be relatively easy. Go "first to market" with a rave new Internet concept and "grab land." Create a site so cool that the viral marketing-efforts that spread information about a company like a virus from prospect to prospect-goes wild. The mix it up with requisite brand juice-edgy brand names, beautiful logos, clever tag lines, big-ticket promotions to lure people to Web sites, rave launch parties, nonstop publicity, and lots and lots of advertising.

Juggernauts like Wingspan seemed to thrive on a liquid diet of brand juice. When it launched in June of 1999, Wingspan claimed to have all the ingredients for success. An Internet-only bank with access to the deep pockets of its parent, First USA, a large credit card company owned by financial conglomerate Bank One, Wingspan moved quickly and aggressively to market a mere 123 days after the concept was formed with a hug stockpile of cash.

The company intended to create an Internet-based financial-services store offering traditional checking and money-market accounts, credit cards and brokerage services. It planned to partner with other companies to offer loans, insurance and bill-payment services so customers could apply online for accounts and loans with a single application and access all areas of the financial supermarket with a single log-on name and password. Spending upwards of $150 million in its first 12 months on operations and advertising, Wingspan launched with a tagline, "If your bank could start over, this is the kind of bank it would be," offering lower fees and higher interest rates on accounts to woo customers.

Today, the company flounders. It has lost several top executives, including its CEO. Recently it announced that it will have to share information-technology facilities with Bank One to save money. And for months, it has been rumored to be on the block.

Wingspan's dramatic rise and fall stands as a case in point that style over substance cannot build a profitable brand. In fact, following a liquid diet of brand juice gets you about as close to building a brand as reading bumper stickers gets you to spiritual enlightenment.

Sadly, financial services in general have become commodities—despite billions spent on marketing and branding every year. According to a Copernicus and Market Facts study, The Commoditization of Brands and Its Implications for Marketers, financial services providers such as banks and credit cards lead the pack in terms of declining differentiation, becoming much more similar rather than more different over time. With no discernible differences among brands, consumers select financial services products based on price instead of product features or advertising. Compounding their physical world problems, financial services companies—just like most everyone else on the Internet—began giving away the store when consumers failed to migrate to the Web in record numbers and to compete with others who got to the Net first. They slashed fees, gave away checking accounts, raised interest rates, and offered cheaper trading. Companies now find themselves stuck in a low-price rut trying to out-cheap their competitors in order to maintain their market share.

As stock price anxieties mount and branding opportunities on the Internet abound, it's time for financial services companies to recognize that a new channel for reaching customers and delivering services also requires new, counterintuitive approaches to marketing and branding. Real financial services brands are by definition not commodities. They are unique and distinct in terms of their attributes, benefits, features and associations—and demonstrate resistance to price sensitivity in the marketplace. Mixing a solid foundation from which to build a strong and admired brand requires five key ingredients: a financially-optimal customer target; a potent positioning; clear and consistent communication of the brand's "reason to buy" message; communication of the company's marketing message using an effective mix of promotional vehicles; and delivery on the brand's promise through exceptional products and services.

Not all eyeballs created equal

The search for growth in any market—even virtual markets—begins with understanding the customer. Most marketers realize that focusing on subsets of customers offers the most efficient way to develop a marketing program, and the targeting decision—identifying people we want to direct our marketing efforts towards—represents one of the first issues a marketer considers. Most also agree than when choosing a target market, a company ought to consider the prospects' profitability.

Initially, online banks, insurance marketplaces and online brokerage firms focused on getting any potential customer interested in their service without considering what it will cost to reach these people, how many will use their services, or how much money they will spend or invest. Any and every customer looks like a good target group, and profitability gets ignored.

But with no defined target, companies will find themselves stuck trying to reach everyone and be all things to all people. And that spells disaster.

In 1999, American Express launched a revamped online brokerage to go head-to-head with the likes of E*Trade, Datek, DLJ Direct, Schwab, and Ameritrade. Aiming to reach investors at both ends of the financial spectrum, American Express Brokerage offered trades for $15.95, free buys for customers with account balances over $25,000, and free buys and sells for those with more than $100,000 in their accounts. The company offered phone and online consultation with financial advisors, access to nearly 2,000 mutual funds, and financial planning software to customers. Even with all these options, American Express Brokerage floundered, unable to capture the attention of any audience.

Financial services firms need to realize that not all "eyeballs" are created equal-some are much more valuable than others. Rather than be all things to all people, The Share Centre, owned by the U.K.'s Share plc, for example, specifically targets the low-end of investor market, private individuals who have very modest sums of money to invest with real-time trading and services.

The great mind grab

Once a financial service firm has identified the financially optimal target group, the next step is to create a powerful positioning. In an increasingly cluttered environment where buyers have very little time to ponder product and service decisions, it is advantageous to stand for something important, to be remembered for something significant. A powerful positioning leads to a powerful brand.

But positioning is a difficult concept for even the most experienced marketer to grasp because it embodies the value proposition—the bundle of benefits and attributes the company wants to offer buyers at a certain price to positively differentiate the product or brand from the competition. It's a message so clear, so succinct but so powerful that, once launched, it begins to move customers and prospects toward the brand. Most importantly, it is a compelling message to the target group.

Sadly, most financial service firms have no clear positioning at all. Their sites and services look almost identical to those of their competitors, and few can demonstrate how they stand apart from their rivals.

Most firms pay the price of admission to enter a market—whether it's offering higher interest rates on savings accounts or lower trading fees or another common feature the other market players offer—then sit back and watch the movie just like everyone else.

Being "first to market" is not a positioning strategy—a first-mover financial services firm like an Egg or Charles Schwab may have "grabbed land," but the key to survival is grabbing a piece of the customers' minds and desires. Which is just what E*Trade has accomplished. There's a reason why TheStreet.com, Lafferty Internet Ratings, Forbes and Gomez Advisors have all given top honors to this online financial website. And there's a reason why E*Trade's revenues were up 22 percent in the last quarter of 2000 and why they also reported a 75 percent increase in the number of new accounts. And it's not because they were the first to market or because of great advertising.

E*Trade captured our attention and has consistently kept it because they do everything right—from customer service, to new and innovative product offerings to personalization. The company's positioning reflects a "broad product offering for empowered investors with multiple investments needs". And guess what? They've delivered on that promise. The company now boasts a 95 percent retention rate.

More than getting them in the door—Adding value along the way

After determining a positioning, the next step for financial services firms is to translate the positioning into messages and experiences, which deliver on the brand's value proposition. This is no easy task for firms because, even though they have multiple points of contact with the customer—through advertising, customer service, account updates, and the Web site, among others—they have precious little time with the customer. Clarity and consistency of the message become essential to reinforcing the positioning of the brand in the minds of consumers and giving them a reason to utilize a service from the firm.

Many companies, however, have made the mistake of focusing on getting the customer "in the door" so to speak, delivering a compelling reason to visit but not a reason to stay.

Charles Schwab claims some 7.5 million brokerage accounts with more than $870 billion in assets. A whopping 4.3 million of those clients are using its online services and online trades represent 81 percent of all trades through Schwab. How did they do it? For the third quarter in a row, Gomez, the Internet quality measurement firm, ranked Schwab first in the Customer Confidence and On-Site Resources categories, and second in the Ease of Use and Relationship Services categories.

Additionally, Schwab.com was cited for its tight integration among quotes, charts, news, research and trading as well as real time account information and automated performance analytics. The company consistently demonstrates its on-going efforts to deliver real value to their customers.

Service Rule Supreme

Service is, of course, de rigueur for delivering the experience aspect of a brand's positioning and improving customer retention. And as the online sector enjoys tremendous growth opportunity, it will also experience difficulty in managing that growth and retention. Firms must take steps to understand their users and offer services in formats that are customized for each customer and with which each customer is comfortable.

According to a recent Deloitte Consulting survey, in order for the financial services industry to overcome consumer apathy towards online banking, it needs to invest in customer education, improve service, and make customers feel valued.
Allfirst.com for instance, allows customers to actually talk with bank staff through the microphone and speakers that come embedded in most recent computer models. Click on an icon, and the computer calls a service representative. In minutes, a human voice comes out of the speakers: "Thank you for calling Allfirst, may I help you?"

Bank of America, the second-largest bank in the U.S. announced plans last August to introduce customers to online accounts that bring together various statements. They also plan to use their Web-enabled ATMs to advertise various non-banking financial services.

Online financial services are here to stay

While tactical approaches differ in some areas, the fundamental marketing rules for online commerce are the same as for traditional commerce—you can't build a brand on style alone or achieve profitability without targeted marketing efforts. Failed or struggling financial services firms took an intuitive approach to marketing: they followed the crowd and made decisions based on gut instincts.
Successful firms, on the other hand, have taken a counterintuitive approach to marketing. They have understood the importance of finding a target group and a compelling positioning, communicating with customers clearly and consistently, and overcoming a reliance on advertising and service shortcomings.

As financial services firms learn how to balance intuition and experience with serious marketing strategy and online consumer behavioral nuances, they can overcome the commoditization trend, evolving into profitable, market-leading brands.

About the Author
Dr. Kevin Clancy is the co-founder, chairman and CEO of Copernicus, a Newton, Massachusetts-based firm that provides innovative marketing consulting and research services to dramatically improve business performance. For more information about Copernicus, visit www.copernicusmarketing.com.

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