Banks will pay the price of lost trust

The arid calendar of financial reporting occasionally offers some productive insights. Thus, last week, we had abysmal results from Colgate-Palmolive and Unilever juxtaposed with another record-breaking performance by Tesco.

It was difficult not to read into these a tale of parabolic significance. Packaged goods companies, for all their five-year plans, their shareholder-pleasing rhetoric and careful brand consolidation, face a grim future. In an age of ‘product parity’, where quality is no longer an adequate brand differentiator, they are fighting a losing battle against the grocers’ superbrands, with their superior own-label ranges, customer insight and ‘trusted brand’ status. This is no Tesco-centric story confined to the UK (though Tesco certainly exemplifies the trend). JP Morgan recently predicted that own-label’s share of the European market will rise from 22 per cent to nearly 30 per cent by 2010.

What Tesco and its competitors have done to packaged goods they are now proving they can do to financial services. High street banks and insurance companies had better watch out, for never have the pickings in a sector been more appetisingly vulnerable. Packaged goods companies are the school that has taught supermarkets and banks alike everything they know about marketing. The difference is the grocers have surpassed the achievement of their masters, while banks have failed to learn an important lesson: marketing is not a bolt-on extra to convince people that they are, at heart, customer-focused organisations.

At first sight this verdict might seem harsh. After all, the Nineties was a particularly fecund period for ‘bancassurance’ marketing. Following the slow-burn departure of telephone banking with First Direct and the rather faster progress of Direct Line, we witnessed a string of internet-driven launches. Most prominent among these were Egg (owned by the Pru), Intelligent Finance (owned by Halifax) and Cahoot (owned by Abbey). It would be unfair to say these were entirely cost-driven exercises (although they did cut expensive establishment overheads), for all affected to bring something new to the ‘customer experience’. The trouble is, after initial successes, most have failed to move the needle. For example, Egg’s commercial logic remains unproven, while IF (whose USP was offset banking) is undergoing an identity crisis. The sad fact is most people remain deeply sceptical about banks and their AER-driven product marketing.

But they do trust supermarkets. Supermarkets, for their part, have been skilful in building on that credibility. Their success in food retailing has brought them a colossal captive footfall that retail financial organisations can only envy; they have an open, consumer-oriented rather than closed, bureaucratic culture, which makes cross-selling much easier. As one personal finance marketing chief puts it: ‘Customers see us as Tesco rather than Tesco Financial Services.’ Quite. But it’s not just Tesco. Sainsbury’s, against its food retailing trend, has made tremendous strides with its bank operation, particularly on the loans side, and is now extending its insurance offering. Asda and Wm Morrison/Safeway are also cranking up their personal finance operations.

Banks may console themselves that financial services are thus far a small part of supermarket operations; and in any case, in their hunt for better margins, supermarkets are more interested in clothing. Moreover, the supermarkets have been dependent upon the banks to provide ‘white label’ services when setting up their finance operations. Surely they wouldn’t bite the hand that feeds them? That’s what the food manufacturers used to think.

Stuart Smith, Editor

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