Lloyds TSB’s emergency takeover of Halifax Bank of Scotland last week dramatically transforms the landscape of UK financial services marketing.
Not only is the new behemoth likely to scrap a number of long-standing and well-known financial services brands, barring a last-minute counter offer from a rival, but Lloyds Halifax, as it is already being dubbed, could also precipitate a steep reduction in the number of mortgage, savings and current account products on the market by axing the aggressive price-slashing tactics of Halifax. That would deal a severe blow to the finance industry’s development and consumer-marketing functions, which have been centres of frenetic activity over the past two decades.
Lloyds TSB says it has yet to decide what it will do with its swollen portfolio of brands, though it will look for £1bn of cost savings in merging the two businesses by 2011.
This has, by any reckoning, been a momentous week for UK banking. In one fell swoop, the Government-backed deal has created a new super bank which will dominate the high street with 23 million customers, a 28% share of the mortgage market, 35% of current accounts and 3,000 UK branches.
The Government has over-ridden competition concerns to usher the deal through. This followed fears that HBOS would collapse, after its share price fell 80%. The Government argues that avoiding the demise of the UK’s biggest mortgage lender is the only way to ensure financial stability, and most agree that forestalling a wider crisis trumps any anxieties about the anti-competitive tendencies of this new UK megabank.
Even so, the wider effects of the deal on competition are likely to be profound and long-lasting, according to some observers.
One highly placed banking source says the price-fighting strategy, pursued by HBOS’s high street bank Halifax under the leadership of chief executive Andy Hornby, is effectively dead.
Hornby, a former executive at Asda, imported the price-cutting retail mantra of “sell it cheap, pile it high” to the banking sector. This meant heavily promoting market-busting rates with, for instance, the singing and dancing Howard Brown “Who gives you Xtra?” advertising campaign. The strategy had disastrous results. HBOS had to borrow heavily to fund its low-priced mortgages and high-interest savings accounts, and was brought down after doubts emerged about its ability to repay those debts.
The source says: “Halifax is the ultimate competitor on price, probably more so than even Nationwide. It has been responsible for a lot of the competition in mortgages, savings and accounts, and has become a first-mover on price. Lloyds is a very different business – it doesn’t have the same appetite for risk.
“The takeover by Lloyds could result in substantial changes to competition in the market. If the new giant moves away from that ultra-competitive approach, it will take away the stimulus for other banks to compete with its ownnew products.”
He adds that the immediate challenge for both Lloyds TSB and HBOS is to reassure customers that their money is safe and that the banks are conducting business as usual. This weekend, both companies have continued to advertise heavily with full-page ads in the press and television spots.
Meanwhile, some marketers are pondering the future of those brands in high street banking, mortgages, current accounts, savings and insurance that Lloyds HBOS will own.
In many areas it has two and, in some cases, three brands. The Lloyds TSB chain is joined by Halifax and Bank of Scotland on the high street. In mortgages, Lloyds brings its Cheltenham & Gloucester brand to sit alongside Halifax, which has a 21% mortgage market share, and operates alongside specialist mortgage arm Birmingham Midshires. In life assurance and pensions, Lloyds’ Scottish Widows and Scottish Widows Investment Partnerships joins HBOS’s Clerical Medical and Halifax Life. HBOS runs Sainsbury’s Bank. Online services include Halifax Online, Intelligent Finance and insurer Esure, formerly advertised by film director Michael Winner.
A spokeswoman for Lloyds TSB says: “Our chief executive Eric Daniels has said that we like all the brands in the group, but what we do with them is not a decision to be taken casually or lightly, so we will have a think and review the catalogue of brands and then make some sensible decisions.”
Lloyds TSB group marketing director Nigel Gilbert is no doubt working overtime alongside Daniels to decide the fate of many of these powerful brand names.
It has been reported that Scottish Widows will be the dominant brand in life assurance and pensions, subsuming Clerical Medical and Halifax Life in a head office based in Edinburgh. SW will preside over a combined £200bn asset management business.
Meanwhile, a senior marketer who has worked at Unilever and Whitehall, believes Lloyds TSB may well maintain some brands in the short term, in case competition authorities require it to divest some of its interests.
The top marketer plays down suggestions that Halifax, which has about 1,000 high street branches, is a lethally-damaged brand name, which has been irretrievably discredited by close association with the financial crisis.
She points out that Northern Rock is still going, despite collapsing last year and being nationalised. “People have very short memories for brand disasters. If you look at history, my data would suggest that brands can actually benefit from a crisis because they get a lot of familiarity and they increase their brand recognition scores.
Do not over-estimate the awareness of the great British public. I would have thought the Halifax brand has the potential to bounce back because it can blame the crisis on someone else. History shows brands can benefit from negative publicity.”
Another source ponders the future of HBOS’s mortgage arm Birmingham Midshires, given that Lloyds already offers mortgages from its high street bank, from Cheltenham & Gloucester and now from Halifax. He believes Esure, the online insurance brand, is likely to be kept, though he doubts Intelligent Finance has much of a future, given that it has already axed credit cards, accounts and loans for new customers.
More details of this extraordinary deal will emerge over coming weeks. But, in the long-run, last week’s momentous events are likely to severely curtail the freewheeling and dynamic market for financial services products that has boomed since the de-regulation of the mid-Eighties. This will have a powerful effect on the marketing of financial services products.