Market Study: Banking Industry Problems are Deep and Wide

**Update May 2010**

Since this study was conducted two years ago, the landscape has changed and remained exactly the same all at once. The market landscape looks different, as acquisitions have ruled the scene, with Wells Fargo buying Wachovia, Chase buying up the resources of WaMu, TD Bank snapping up Commerce Bank and PNC acquiring National City.

What has not changed is the stunning similarity of their messaging. All of them, with few exceptions, still market the table stakes of having many ATMs, keeping your money safe, being convenient, having online and mobile banking, along with low fees and better rates.

That is, from the point of view of potential customers, just noise that does nothing to create preference. Even by acquiring a unique brand like WaMu (which in terms of attitude and tone was on the other end of the spectrum from Chase), Chase is still about “Chase What Matters,” an overly clever line that feels like it was written on Madison Avenue and is, therefore, not believable.

And table stakes, what you need to even play in the game, still take prominence.

It’s the same with the Wells Fargo-Wachovia merger. Wachovia had remained the king of an undifferentiated brand with only a “Wells Fargo Company” listed near the bottom in red in their marketing. TD has swallowed up Commerce by carrying Regis & Kelly over into the acquisition and, while it has a nice feel, it doesn’t create preference. (TD Bank does look different, however, but it’s messaging around ease-of-use and convenience doesn’t resonate.)

As we stated in the original study, the financial straits the nation found itself in – and even with the anger directed towards banks – was actually an opportunity for bank brands to take advantage because consumers were emotionally raw. (And let’s not even get started on the failure of credit unions to take advantage by being stuck in the same stories they’ve been peddling for decades.)

We could only come up with one bank that tried to take advantage, which was SunTrust, a regional bank with locations mainly in the Southeast. Its themeline of “Live Solid. Bank Solid” is a reaction to overspending and making bad loans, and can suggest a feeling of comfort. (“Comfortably,” by the way, would have been a better marketing word than “Solid.”)

However, our research has shown that the idea of “safety,” an overused message in light of the financial crisis, wasn’t a switching trigger nor was emotional. Even the WaMu customers felt their money was safe despite the Chase takeover. They still had their money.

The frightening thing for nearly all of the players in the industry is that the only one attempting to be a reflection of the target audience is the market leader, Bank of America. The banking giant has gone through its own evolution (even making red its primary color instead of blue, which has dominated the market), and it has pushed the reflection of Americans – as voiced by Kiefer Sutherland – who take control and don’t like to be told what to do.

When the market leader has the best branding, that spells doom for the rest. A market leader can market table stakes as a defensive posture because the market leader is often the default choice among potential customers. But Bank of America has worked harder than that.

You would assume that, with all the turmoil surrounding the banking industry, smaller regional banks and local credit unions would be making hay on all the anger and discontent.

You would be wrong. They continue to wallow away in what they “believe” differentiates them: Knowing your name, being friendly and being local.

Two things are wrong with this approach. First, it assumes that those that bank elsewhere find the employees unfriendly and treat them like a number. Research tells us that nothing could be further from the truth. All banking is local and the relationship is with your local branch.

Secondly, they confuse those values with the triggers that cause a customer to switch. In fact, they are neither rare or terribly important as switching triggers.

Opportunity still exits – Citibank, for example, has an opportunity it hasn’t nabbed – but time is running short. The biggest players will continue to look to acquisition as the only way to grow, instead of doing the smarter and less costly chore of creating brand preference.

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The Original Banking Study posted in 2008:

More Trouble Ahead for Banks

The banking category is in the midst of tough times. Certainly, the mortgage market has created much of the terrible financial news and the steep declines in shareholder value. Profits are down, confidence is low, and the heads of many of the nation’s largest banks have rolled or will be lopped-off soon. Is all of the bad news a result of the poor financial decisions the banking executives pursued to quench the greed of their shareholders? Is another fundamental problem looming on the horizon? A problem banks will be forced to come to terms with shortly? The answer is a resounding yes.

Tough economic times often reveal more fundamental flaws in an industry. For example, the skyrocketing fuel costs crippling the airline industry has opened a window to an operational model that is fundamentally flawed. If the airline executives use this momentary clarity to fix those problems, they will emerge more competitive and powerful. The same can be said of banks.

No Brand Differentiation

We conduct marketing research all over the globe, evaluating brand meanings, preference, loyalty, switching triggers and equity as the start to brand building – and the answers we are hearing are the same. The banking industry is in desperately bad shape.

No major bank has differentiated itself from the competitive set. As you’ll see, it’s shocking how similar the messaging is between the market’s players. Banks have been satisfied to spend recklessly on ineffectual advertising that does nothing more than build a bit of awareness and no preference instead of battling for customer loyalty based on definitive brand practices that create preference,

As the chickens come home to roost, we can expect shareholders to hold these banks accountable for the huge sums spent on advertising and demand some return on that investment.

What Banks Do Today

Consider the typical bank advertising you see every day. Ostensibly, most advertise to gain access into a new customer’s considered set of possible banking choices. The idea here is to create awareness in prospective borrowers and savers, and then instill in them a preference of a bank over the competition so that bank can attract assets.

The banks are hopeful that a potential customer will leave their current bank, switching or adding, for example, checking accounts. The thinking is that most banking customers (and we will include credit unions in this mix as well) consider their primary bank to be the one in which they currently maintain their checking account. Once the bank has your primary checking account, it attempts to strengthen that relationship by gaining more “share of wallet.” They try to establish other types of accounts, ranging from CDs, savings, securities, credit cards, mortgages (gasp) to all manner of personal and business loans.

What Banks Need To Consider

The science of stealing market share, which is the only reason to advertise in any mature marketplace (and banking is a very mature market), requires that you know and understand the answers to three questions about the target audience you wish to influence.

1. What constitutes the prospects’ belief systems and how can your brand best reflect the values and precepts of that target audience?
2. What is the highest emotional intensity in the category, often represented by a key switching trigger?
3. To what does the customer aspire and what are they most fearful of?

You will notice that the subjects of all of these questions are customers, not the bank and its services. This is because, in commodity markets, it is impossible to differentiate yourself based on product or service alone. In other words, you can’t grow a bank’s market share by “out-banking” a competitive bank. You need to instill the prospects’ self-description into the brand so powerfully that they are in fact choosing an extension of themselves rather than a brick and mortar bank.

Today Banks Only Sell the Process of Banking Itself

So what do banks tell you today that is meant to influence your loyalty and get you to switch brands? Well, as you will see, they promise that they listen to you and they feature free checking, ATMs, competitive rates, friendly employees, convenient hours and locations. These are simply descriptions of what it means to be a bank. Research proves that few pay for checking today, while most believe their bank is convenient and think the local branch employees are friendly. Otherwise, they would likely not stay. So, if a customer already has free checking, why would anyone switch banks so that they can get free checking or, as we have seen, “extra free checking”? This makes about as much sense as a restaurant trying to get new customers by advertising that they have food.

Two Big House of Cards Ready to Fall

A bank’s first house of cards begins to tumble when shareholders ask the bank to demonstrate how effective the marketing dollars are being spent to create preference. Shareholders are demanding greater accountability, especially in the current financial climate.

Banks are coming face-to-face with the fact that their marketing of brand preferences is a figment of their own imagination. What this means is that in a vastly similar market (see the individual brand analyses below), preference is being decided by location and convenience — the second house of cards that’s about to collapse.

In the absence of any demonstrable differentiation or preference, banks have traditionally invested in bricks-and-mortar and delivered asset deposit growth by building more branches. Therefore, the nature of growth can be categorized into more locations (organic growth) and acquisition (fiscal growth). Both of these, without brand preference supporting them, are disasters waiting to happen.

Banks Have Developed Little to No Brand Preference

Currently, real estate and construction costs are the bank’s greatest investment and resulting main asset. Research demonstrates that customers, who have developed very little brand affinity with any major bank, are hoping that they will never need to visit a branch or ATM and can conduct their financial business with a debit card, direct deposits, email deposits and direct bill pay. The moment this desire becomes completely realized, the bank’s main asset quickly becomes its greatest liability and a bank branch simply becomes an expensive and cost-wasting billboard rather than a place of needed financial transaction. All of the investment in branch amenities, teller pods and meeting rooms is transformed into the habitat of dinosaurs.

Major Changes Ready to Happen

For customers, the above scenario is not very far off. From the perspective of the bank, such pronouncements of doom have been heard before and are about as believable as those cranks who warned of over-exuberance in mortgage lending, the foolishness of interest-only home mortgages and the dangers of escalating ARMs. 

This is the next shoe to drop and the general population cannot wait to rid itself of the need to visit a bank, and most have already done so. It is simply an inconvenient necessity.

The Biggest Players
Let’s start with the default winner in terms of who does the best job of branding. Be warned, however. The bar is set pretty low.

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