TSB merger ends as Lloyds wooden horse

The latest twist in the “Tales of the Black Horse” was last week’s appointment of TSB marketing services director Tim Pile to the same position at Lloyds TSB (MW May 17).

Ever since Lloyds Bank “merged” with TSB last September to create a 13.6bn company, it has been at pains to play down suggestions that the bank that said “Yes” didn’t have much choice in the matter and would, in time, become subsumed into Lloyds. The language was of “merger” and “partnership” – “takeover” was not in the dictionary.

In January, it appeared a genuine merger was taking place when Marketing Week revealed that TSB chief executive Peter Ellwood was taking the same role on the newly merged Retail Financial Services (RFS) board (MW January 26).

Last week, Lloyds TSB revealed ex-director of TSB PhoneBank Paul Swainbank is to be managing director of telephone banking and another ex-TSB man, Peter Ayliffe, will take over as managing director of savings and investments.

Ellwood, Pile, Swainbank and Ayliffe – it seems the TSB gang is holding its own in the new structure. But there are signs a “Lloydsification” programme is in place.

Apart from confirmation that the purpose-built Birmingham office of TSB will be closed next year and marketing staff relocated to Lloyds’ Bristol base, the new structure of the combined operation has a distinctly “equine” feel to it.

According to one high-level TSB source, Ellwood will relinquish his position next year, concentrating his time on the board of Lloyds TSB plc.

It is thought Ellwood will eventually be replaced by ex-Lloyds man Paul Brown, currently deputy chief executive of RFS. Brown’s board-level responsibility for marketing services is then likely to move to former Lloyds colleague Colin Fisher, who is presently RFS director with responsibility for cards, loans, current accounts and small businesses. Several other TSB appointees will eventually be replaced, the source says.

For Lloyds, the main attraction of the TSB takeover was to build market share in the highly profitable small business sector, rather than to amass unprofitable current accounts.

Lloyds holds 15 per cent of the small business market compared with TSB’s three per cent. But TSB’s 1,100 branches cover the North and Scotland well, while Lloyds presence is minimal. The new arrangement is a good platform for Lloyds to help it sell its small business expertise.

According to Lloyds sources, it’s likely the Lloyds brand will eventually replace TSB on the high street. Later this year, there will be an announcement about branch cutbacks, especially in the Midlands where there is a high degree of overlap.

The two organisations are economically and culturally very different. Apart from the sharp contrast in geographic and demographic customer bases, they are organised along different lines and have been pursuing strategies with little in common.

TSB centralised its product development under Ayliffe. Savings and investments, credit cards, cheque accounts and commercial banking all came under his control and the products were fed into the retail operations. Product launches such as TSB PhoneBank in October 1994 have always been carried out swiftly by TSB.

Lloyds, on the other hand, had autonomous product divisions that scarcely talked to one another.

The banks also differ in their approach to marketing. Lloyds focuses primarily on branding campaigns, with almost half its 11.6m media spend focused on the brand.

But TSB, under Pile, reacted against the big branding idea in the belief that fmcg marketing was inappropriate to financial services. It spends only a quarter of its 11.3m media budget on branding campaigns, the rest going on promoting products like mortgages, savings and telephone banking.

However, the greatest difference is TSB’s emphasis on direct marketing. Its database management is legendary in financial services. As Pile points out: “TSB’s data management is a significant strength and being able to predict customer behaviour has become centrally important to the business.”

Pile says: “We start from the customer’s viewpoint. TSB treats its customers as individuals, rather than a target for cross-selling products.”

Lloyds has been criticised in the past for cynically using its database to cross-sell other products, rather than use it to develop relationships with existing customers.

“TSB’s marketing people have always prioritised DM and customer retention, with senior people working on it,” says a source close to TSB. “Lloyds, on the other hand, has always seen it as the poor cousin of TV advertising.”

In the new operation, there is no central product function and TSB’s once-prized integrated retail arm has been split into segments. While Pile is responsible for all marketing services, he has no co-ordinating role. It could also be argued Ayliffe’s role is also a downgrade – he has gone from director of product development for the whole of TSB to being managing director of savings and investments at one of the separate units within Lloyds TSB.

It is likely TSB’s small business, credit cards, phone banking and mortgage products will be combined with Lloyds. TSB’s 9bn mortgage book is likely to be swallowed by Cheltenham & Gloucester.

In its eagerness to take over TSB, it appears Lloyds has missed an opportunity to reorganise product management and change its marketing culture. In his new job, Pile may find you can lead a Black Horse to water, but you can’t make it drink.