Boost for finance may be ill-advised

Marks & Spencer is keen to build its financial services arm, but analysts question the move, saying the company’s core food and clothing divisions should be given the kiss of life first. By Gary Thurtle

As Marks & Spencer’s profits have plunged in the past few years, so has the performance of its financial services division.

With the store’s brand perception also taking a dive, it may come as a surprise that Marks & Spencer Financial Services has chosen this moment to recruit new customers with its first generic campaign rather than focusing on product marketing.

Analysts say the M&S brand needs to be rebuilt from the core and question whether the time is right to embark on a branding exercise for its financial services division.

Richard Hyman, chairman of retail analysts Verdict, says: “The bottom line is that financial services is an adjunct. It is vital they get the branding of the main business – clothing and food – right first. If it does that, the effects will percolate down to financial services.”

Justine Shah, European banks analyst at Commerzbank Securities, agrees: “Are you going to trust Marks & Spencer with your money when you don’t buy the company’s clothes anymore?”

Pre-tax profits at M&S fell from &£517m in 1999/2000 to &£481m in 2000/2001 and, within that, the financial services division saw a slide from &£115.9m in 1999/2000 to &£96.3m in 2000/2001.

This contrasts with Tesco Personal finance, which saw profits rise from &£11m in 1999/2000 to &£21m in 2000/2001.

Profits at Sainsbury’s Bank also increased from &£3m in 2000 to &£13m in 2001. Boots does not publish separate results for its financial services division.

Chris Larkin, head of brand and communications for M&S Financial Services, stresses that the division will continue to run ads focusing on products. These include the storecard, pensions, loans, unit trusts, life assurance and private medical insurance. The division’s reputation varies depending on product.

M&S claims its storecard has the lowest APR apart from one offered by John Lewis.

According to analysts Moneyfacts, M&S is the leader in providing five-year, unit-linked personal pensions.

But, increased competition in the life assurance market has seen M&S pushed out of the top ten providers’ list in the past six months. The market leader is Tesco Personal Finance.

Other analysts feel M&S has kept its financial services arm – established 16 years ago – in the shade for too long. While profits were rising, it chose to cross-sell products to its 6 million storecard holders rather than the public at large.

Hyman says: “M&S could have moved faster to exploit the brand, but branding in the marketing of financial services is still poorly developed. The bus hasn’t left town yet.”

Communications strategy agency Naked has been appointed by M&S to determine what media is suitable for reaching potential financial services customers who are not existing storecard holders but among the 10 million visitors to the stores each week.

Creative work for the campaign, due to launch next year, will come from Creative Leap.

M&S is also investing in a public face for the financial services division by increasing the number of dedicated in-store units from 15 to 100.

“The companies winning are those that are aggressive and pop out of the pack. M&S needs to get aggressive to find a way of making themselves stand out.”

Larkin says: “When asked what M& S does, customers recognise food and clothing but awareness of financial services is not that high.

“We believe a brand-building project will go a long way to help us. There’s a raft of customers who are warm to the brand but not account holders. The issue of awareness becomes important.”

He believes branding for the financial services division draws on several factors.

“M&S stands for quality, good service and value. All of these can be applied to financial services products. But we’ve also got to think about what the company does.

“We need to be built around simple-to-understand, transparent products. The over-arching word is trust.”

Bryan Roberts, retail analyst at Retail Intelligence, says: “With the disposal of the European operations, we’re seeing M&S trying to focus on core business.

“The negative images aren’t doing the company any favours at the moment. It needs to focus on clothing first and put branding of financial services on the back burner.

“Overall the brand is strong enough to recover,” he adds.

Shah also believes it is not the right time for the financial services division to use a generic campaign building on the mother brand. Instead, it would be better off placing greater emphasis on the development and quality of products.

She says: “The focus should be on the customer. Relationship management is the current trend. But, at the moment, for many financial services companies, this just seems to imply direct marketing to customers based on basic income and behavioural data.

“It should be more about developing the whole business, including systems and processes, around the customer. They require lifestyle financial propositions built around a thorough understanding of their needs.”

The financial services division is well-placed to build on the profile of the stores’ traditional customers, who fit naturally with the demographics of financial services customers.

“One good thing is that it [the M&S brand] appeals to Middle England and these are people who have money to put into financial services products,” says Shah.

At this juncture, a brand-building exercise may not be the best move for the financial services division, but as Wiseman observes: “Time is something it doesn’t have.”

In any event, the fortunes of M&S may turn by the time the financial services branding campaign launches next year.

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