The huge investment that retailers have been sinking into financial services to sell loans and investment plans alongside groceries and clothing at last appears to be paying off. And with their sights on a larger up-take of their financial products, supermarkets and other retailers are again boosting their marketing efforts.
Sainsbury’s and Tesco, now turning a profit from financial services operations launched back in 1997, have both invested in new TV ad campaigns. Meanwhile, Marks & Spencer Financial Services (M&S FS), one of the first into the market when it introduced a customer chargecard in 1985, has boosted its marketing team with the appointment of former First Direct brand marketer Nick Bowyer (MW January 23).
The financial services market was opened to non-traditional institutions in the Nineties when regulatory restrictions were removed and the technology became available. Motivated by new revenue streams and increasing customer retention, retailers quickly moved into the arena through joint-venture partnerships with existing financial institutions.
The equivalent of 9.3 million UK adults – one-fifth of the UK adult population – have purchased at least one financial product from non-traditional financial services institutions, according to Mintel. But retailers still only represent two to three per cent of the overall banking sector. And Sainsbury’s and Tesco banking arms have yet to live up to the predictions of analyst Merrill Lynch, which had expected them to deliver combined profits from financial services of more than &£300m by 2003.
Last year’s Sandler report, which advocated a simplification of pensions and savings products, could give supermarkets and other retailers a further boost by opening up new financial services product areas.
Supermarkets and other retailers are looking again at how they can most effectively use their brand to increase their share of the financial services market.
At the end of last year, M&S FS announced a review of its sales and marketing strategy, including its name, values, means of communication and offering. It is thought likely that the M&S FS’s name will be replaced with M&S Money, establishing closer ties with the core brand.
Sales and marketing director Alistair Milne says: “M&S FS has never really been separate to the core brand, but it has never been effectively integrated into the store network.”
In recent months, M&S FS, which sells personal loans, insurance, unit trusts and pensions, has intensified efforts to raise its profile using on-pack promotions on its groceries. It has also been trying out a credit card scheme in South Wales since October, which will also act as a loyalty card.
Unlike M&S FS, which owns its financial services products, Sainsbury’s Bank and Tesco Personal Finance operate as “virtual” banks through joint ventures with HBOS and the Royal Bank of Scotland. Sainsbury’s Bank calculates that it is 60 per cent cheaper for a branchless bank to gain a new customer than it is for a high-street bank.
Since its launch, Sainsbury’s Bank has signed up 1.4 million customers but it still has a long way to go to hit its target of selling to between 20 and 25 per cent of the 10 million customers that visit its supermarkets each week. The division’s operating profit in 2002 increased 66 per cent year on year to reach &£22m.
The Sainsbury’s logo was used to glue the bank to the main brand when its financial services arm was launched, but that was about it. Now Jamie Oliver, the “face” of the supermarket, is also being used to advertise the supermarket’s financial products.
Sainsbury’s Bank chief executive Tim Pile says: “It was obvious that we should use Jamie because our biggest asset is the brand, so why would you use anything else?”
The most high-profile attempt by Sainsbury’s to boost customer loyalty has been its involvement with the Nectar scheme, which allows its credit card customers to collect points by using the card.
Founding Nectar partner Barclaycard is not worried by the move. A spokesman for Barclaycard, which has 9.4 million customers, says: “Bearing in mind the size of its card portfolio, it doesn’t present us with a problem.”
The strategy of Sainsbury’s Bank rival Tesco Personal Finance has always been to follow the lead of its core supermarket brand.
“Our marketing strategy is very much to follow Tesco,” says commercial and marketing director Andy Dewhurst of Tesco Personal Finance, which has 2.57 million customers and generated a pre-tax profit in 2001 of &£40m, up from &£6m in 2000.
But rather than using the same creative theme as Tesco’s TV advertising featuring Prunella Scales, the division has chosen to develop its own ads, featuring animated trolleys. “We consider ourselves to be of a size and stature that makes it appropriate for us to have our own campaign,” says Dewhurst.
Supermarkets Safeway and Morrisons have also moved into the market through partnerships with Abbey National and HSBC respectively. Asda only offers travel and pet insurance, but is rumoured to be recruiting senior retail financial services experts. Asda’s US parent company, Wal-Mart, already offers own-branded ATMs, money orders, and payroll cheque cashing. Other retailers developing their financial services include DIY retailers Homebase and B&Q.
Paul Gordon, managing director at advertising agency CCHM, says: “It could be argued that consumers are likely to put more trust in retailers’ financial services because of various financial mis-selling scandals. But they are unlikely to go to a retailer just because they have had their fingers burned by the Equitable Life fiasco.”
Utilities companies such as Centrica, through the Goldfish brand, and Npower have also entered the financial services market. But Centrica is now understood to be considering selling off its financial services division.
Areas where non-traditional financial services companies have made some inroads are insurance and credit cards, markets characterised by price-led competition. Few retailers offer the more complicated products, such as life protection, mortgages and pensions. Nor does everyone believe that they should offer these products. CCHM’s Gordon says: “If these trusted high-street brands are going to get into investments, they’ve got to be careful, because investments are uncertain, unpredictable and often unguaranteed.”
As retailers attempt to expand their financial services businesses they must be aware that any investment does not come without risks that could potentially damage their core brands.