Why Brand Matters

Umpqua Bank’s President and Chief Executive Officer Ray Davis is not a fan of the traditional bank.

“You know from your own experience that the typical bank is quiet, cold and boring,” he writes in his book: “Leading for Growth, How Umpqua Bank Got Cool and Created a Culture of Greatness.” “It has ropes to keep people in line and empty desks and stale coffee.”

So Davis went outside the banking industry to come up with a solution for quiet, cold and boring. After being installed in 1994 as the head of South Umpqua State Bank, he decided he was really in the retail business. South Umpqua just happened to sell financial services. He sent a team of employees to study what the best retailers did: Nordstrom and Ritz-Carlton were on his list and were models for the way he wanted his bank to look and feel. He started hiring people with a retail background to work as tellers instead of people with a teller background.

This is the way Davis got started building what could be the best regional bank brand in the country. Umpqua Holdings Corp. in Portland, Oregon, had $11.8 billion in assets as of the third quarter and 184 branches in its home state of Oregon, as well as California, Nevada and Washington. In 1995, shortly after Davis took over, it had just six branches and $140 million in assets.

Other community banks and big banks have something to learn from the likes of Umpqua. The industry has not embraced the idea of a strong brand like the retailing industry has. While there is a lot about the banking industry that is different from retailing, now may be a more crucial time than ever to pay attention to the financial benefits of brand, when many banks will struggle to survive in the face of low interest margins, high regulatory costs and slow economic growth. The public image of banking has been severely damaged in the wake of the financial crisis, with customers now differentiating between the banks that are good and trustworthy and the ones associated with wrongdoing, duplicity and greed. Even community banks financially benefit from having a strong brand because there are so many of them and they look so much alike.

“The best way to silence a room of community banks is to ask them to describe themselves without using the words ‘people,’ ‘service’ and ‘community,”’ says Jeff Stephens, chief executive officer of Portland, Oregon-based Creative Brand Communications, which helps community banks and credit unions with their brands.

His point is a familiar refrain among the people who handle branding campaigns and advertising for a living: Banks just don’t get it. They are a commodity and they all sell pretty much the same things. They sound the same. They look the same. They just don’t realize it. Or, they just don’t care.

In other words, they have weak brands. One market researcher determined that bank brands were less differentiated than bars of soap. They are more like motor oil. Another researcher discovered after polling 16,000 consumers that people like their credit card companies better than they like their banks. Ouch.

Granted, it’s hard to expect someone to get as excited about a bank as an iPad or a great pair of shoes. Banking is neither a cool tech gadget nor a fashion statement, at least not traditionally. Still, that’s why branding matters even more in banking than other industries, says Anne Rivers, senior vice president and director of brand strategy for BrandAsset Consulting in New York. If the product is pretty similar across the board, then what else matters but brand?

“I think in general, [bankers] don’t have a clue,” says Stephens. “I do this 40 hours per week, and I have yet to find someone [in banking] who grasps the concept. Or they grasp the concept and they are unaware that their brand is not different from every other bank in the country.”

Having a strong brand helps a bank avoid competing on price alone. If you’re selling a commodity, it’s easy to keep lowering the price until you and your competitor have gone out of business.

The concept of branding is simple, says Joe Sullivan, the founder and CEO of Chicago-based Market Insights. It is a collective set of impressions you create with a target audience, he says. Advertising is something totally different. “Bankers will equate advertising and branding together,” he says. “Advertising is a small little piece that banks spend too much money on. Unfortunately, most advertising is about pushing products.”

Branding is much bigger than advertising, which supports it, Sullivan explains. A good bank knows its market and who the customers are. Stephens says you don’t know your brand if you can’t answer the question: Who is my company not a good fit for?

Sullivan says strong brands have these qualities: knowledge of market; focus on aligning products and services to fit that target audience; an internal delivery system that is top-notch; and consistency. For instance, Starbucks does very little mass media advertising. But when you walk into a Starbucks, the employees often know your name and your favorite drink by the third time you’re in the store, Sullivan says.

“They are giving you a $5 vacation in a cup,” he says. “They have done their training. When the customer walks in the door, they know who they are. They know their drink. That is delivered consistently across cities and neighborhood across the country. That is a focus on training.”

“There is nothing in advertising that says, ‘We know you and we know your drink,”’ Sullivan says.

Many companies will falsely assume they can pay for an advertising campaign that defines their company one way without worrying about whether the company actually is who it says it is, says Carola Jain, senior director of strategy in the New York office of brand consultancy Interbrand. “We tell them to really build the brand internally before you just go out and try to tell people,” she says.

The best brands tend not only to influence customer choices, but also attract the best employees. People want to work in the best places, not the worst places. So the value of the brand, as intangible as it is, tends to build on itself, brand managers say.

Anne Rivers of BrandAsset Consulting, which surveys 16,000 consumers quarterly in a survey that’s been going on 18 years, says commercial banks have some of the weakest brands in the financial sector, below credit card companies and investment banks. The company measures brand strength and stature on qualities such as differentiation, relevance to the consumer, how well-regarded the brand is, and the consumer’s knowledge of the brand. She estimates that the average financial services company has about 7 percent of its total value in its brand.

Jonathan Knowles thinks that’s about right. He’s founder and CEO of Type 2 Consulting in New York. For financial services, he calculates the average brand value is about 10 percent of the market capitalization of the company, basing his estimate on a review of valuation approaches of such firms as Brand Finance, Millward Brown, Interbrand and the European Brand Institute. That compares to 35 percent of the market cap for a consumer durable goods company.

“A weak brand versus a strong brand can move your stock price relatively significantly,” he says. “Adding 2 percent to market cap can be significant.”

Knowles says people don’t identify with a bank the way they do with a strong consumer brand, such as Apple or Gucci. People aren’t interested in companies in general and they’re certainly not interested in banks, he says. “They’re interested in ‘what can you do for me?”’ he says.

Brands are most influential when people lack the information to make informed product choices, says Dawn Lesh, the executive director of the Center for Measurable Marketing and an adjunct professor at New York University’s Leonard N. Stern School of Business. She has worked in marketing for some of the biggest banks in the country, including JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co.

Lesh says that brands are really important in banking, because a decision to go with a bank is like buying a washing machine or a car: you don’t buy them very often. It’s a complex choice that involves something more than price. You know you’ll be stuck with your decision for some time to come.

One reason why most banks tend to undervalue the importance of brand is that it’s a numbers oriented business dominated by people with a financial-rather than marketing-background. Many times, the finance people in the bank don’t communicate well with the marketing people, which can hurt what they’re both trying to do. “I think some people in banking think [brand is important] and some don’t,” Lesh says. “Those in the finance department tend to view marketing professionals as speaking a different language, like [in the movie] ‘Legally Blond,’ while marketing views the finance department as ‘Darth Vader.’”

Umpqua Bank is one bank brand, however, that seems to have figured out a strong brand can help you grow. The company’s CEO, Davis, realized that the small bank, with just six branches when he was recruited in 1994, wasn’t going to compete in terms of resources and products with the big banks, says Lani Hayward, executive vice president of creative strategies for Umpqua, a position that is akin to marketing director.

Branding is so important for Umpqua that Hayward is part of the executive team and reports directly to Davis. “[Davis] understood that brand did matter and creating an experience did matter, and that was the only way this little bank in Oregon was going to grow,” she says.

Davis, who had spent a decade as a consultant before taking over at Umpqua, had lots of time to think about what banks were doing wrong. And he remembered his favorite consumer brands and what they did right. While staying at a Ritz-Carlton once, he asked a bellman how the hotel had done on its most recent internal review. (Davis happened to know about the hotel chain’s stringent inspections of each location.) The bellman said they had failed because of the TV Guide. Davis assumed the magazines in the room hadn’t been replaced weekly with the most up-to-date versions. No, the bellman said, the red bookmark inside them hadn’t been moved daily.

Davis wanted to create a bank that had such exacting standards, a sort of Ritz-Carlton of the banking world. “With that level of discipline,” he writes in his book, “they can charge more for their rooms and people are happy to pay.”

Umpqua hired consultants and architects who didn’t work for banks; they worked for retail companies. He gave his branches a new name: stores. When you walk in, you aren’t greeted by a bullet-proof glass wall of tellers and empty desks with people who ignore you.

Instead, you hear music, see art and flat screen televisions on the walls and sit in comfortable chairs. Tellers work at stylish looking desks, but they are trained to help you with anything you need, whether it’s a loan or a certificate of deposit.

“We didn’t want you to walk in and say ‘I need a loan,’ and be told, ‘Joe does loans and he’s out to lunch,’” Hayward says. After all, you wouldn’t walk into a Nordstrom and expect to be told the person who does make up is out to lunch, would you?

Tellers had the opportunity to be paid better through sales commissions, which meant they could serve the customer better and have incentives to do so. The whole idea was to take the practices of the best stores and restaurants and hotels, not the best banks.

“For 500 years, banks have been pillar and marble and not very hospitable,” Hayward says. “The big thing was how do you differentiate yourself? We wanted people to drive past other banks and come to our branch.” One way to differentiate your bank from a competitor across the street is to open yourself up to groups wanting to use your offices. At any given time, there might be a yoga class or a homeowners’ association meeting or an art class gathered in an Umpqua branch.

Unlike other banks, Sullivan says Umpqua employees really understand what branding is all about. It’s creating an emotional connection with customers that is so important for banks whose products are in danger of being viewed as commodities. Making that happen meant creating the kind of supportive environment for employees that would empower them to be the best they could be. It also meant an exacting standard. The bank conducts training that worked out to about 57 hours per employee last year.

In the branding industry, this focus on execution is often called “internal” branding. What goes on in your company must match the brand you are trying to create.

For instance, Davis once complained to the employees at one Umpqua branch when he found out they weren’t spending enough money. The bank had created a petty cash account to pay for things like flowers or chocolates for customers, and handed employees a gift catalog to use to make their customers surprised and happy. He had to follow-up with them when he found out they weren’t spending the money.

Another time, he learned that a drive-up teller machine was broken, which backed up traffic for customers waiting to cash paychecks and make deposits. Davis told the manager of the store he should have handed out cold sodas or $10 to each person who had to wait in line.

Every morning, staff begins the workday playing a “motivational” game to help them focus on teamwork, each other’s needs and the customers. (One exercise is to build Legos in teams of two, with one person giving instructions to the other verbally, an exercise to encourage communication.)

Davis notes in his book that one of his executives, named only “Bob” in the book, made fun of his motivational exercises and eventually left the company after Davis dropped a hint that he was no longer wanted.

Creative Brand’s Jeff Stephens, who worked at Umpqua previously, says the company had exacting standards and focused on the total experience for customers. Every detail mattered. For example, you would never be handed coffee in a Styrofoam cup because in eco-sensitive Portland, something that didn’t recycle or biodegrade would be unacceptable.

“In branding in general, they’re just good,” Stephens says. “It’s just in comparison to everybody else in banking, they are excellent,” he says.

And Umpqua’s reputation for branding is good enough that people travel from all over the world and pay up to $25,000 as a group to learn about it. Hayward says those who have taken the bank’s two-day introduction to Umpqua’s brand management program include a car company, an Australian TV station and a lot of foreign banks from South Korea, China and Japan.

It hasn’t all been about the novelty attention. It’s also about creating value for the bank’s enterprise and real profits to match. Umpqua is the top ranked bank by J.D. Power & Associates in the Northwest. The research firm polls customers on such topics as product offerings and ease of access.

Its attention to the quality of its brand has paid off in terms of its growth, too. In 1995, Umpqua ranked 20th in deposit market share for the Portland area. Today it is ranked 4th, according to the Federal Deposit Insurance Corp.

Knowles says Umpqua is tapping into a feeling that you’re doing business with real people in a real community, in an age where people gladly send money to companies who have no physical presence or employees you can meet in person. “They really understand they’re embedded in communities,” Knowles says. “They understand they have a customer experience. It’s almost like throwing the clock back 60 years.”

The 2008 financial crisis was tough not just on bank balance sheets, but on the reputation of banks in general, which brand managers say has suffered greatly. The flap over debit card fees made some of the largest banks look bad, as well, and the industry is attempting to counter some of the negative publicity and reputational damage resulting from the financial crisis.

“I think [the banks] are realizing that it’s just not worth it for the customers to be unhappy with us,” says Jain of Interbrand. “I think they’re realizing they need to work on their image. Overall brand is a part of that. It’s about reputation and how they are perceived.”

Jain says customers want to work with companies they perceive to have their best interests at heart. That is not a quality people normally associate with banks. But it is a quality that can differentiate banks and their brands from each other.

The research and consulting firm Forrester Research Inc. does a survey of consumers that specifically asks: Does your bank do what’s best for you, not just for its own bottom line? Customers who say yes are less likely to leave their banks and more likely to buy other products from them, Forrester says.

Non-traditional banks such as USAA and ING Direct (which agreed to be acquired last year by Capital One Financial Corp.) both did better in the firm’s 2011 survey than the big retail branch networks, at 68 percent and 44 percent. Wells Fargo did better than most of the other big retail banks, with 38 percent of its customers saying yes. Still, when you’re in the financial services business and fewer than half of your customers think you have their best interest at heart, that’s not a good sign.

Community banks and credit unions did better than big banks, with 58 percent of their customers thinking they did what was best for them. Only 22 percent of Citigroup customers said yes in the firm’s 2011 survey; 28 percent of Bank of America customers said yes.

Jain says dissatisfaction with financial institutions comes as customers learned after the financial crisis that some investment banks were secretly trading against the very same products they were promoting and selling their customers. Goldman Sachs, which used to be the gold standard in investment banking, has had its brand hurt by such revelations following the economic turmoil, Jain says.

Goldman is trying to recover through advertising campaigns that emphasize good deeds: investing in renewable energy, for example.

UBS, another large investment bank, started a campaign last year saying, “We will not rest. UBS.” It featured various celebrities, including images of Neil Armstrong. Unfortunately, another person who wouldn’t rest was a rogue trader in its London offices who cost the bank $2.3 billion last year.

“There’s a negative perception of financial services right now,” Jain says. “(Banks) are trying to step up and say: ‘We’re a leader and we do something good for society aside from just paying people top dollar.’” Bank of America, for instance, is running ads that say it invests in small business and renewable energy.

However, you wouldn’t know there was any erosion of brand when looking at deposits and most ranking systems for bank brands. The biggest banks in the country have been growing deposits the last few years, not losing them. This same group also has some of the top brands in ranking systems such as Interbrand’s, because those ranking systems are closely tied to market capitalization, or total revenues and the prospects for future revenues.

Brand Finance, a London-based firm that assesses brand value for private equity firms and others looking to make investments, ranked Bank of America number one in terms of bank brands, and Wells Fargo number two.

Interbrand ranks the top 100 brands globally, so global brands such as J.P. Morgan and Citigroup do well. But Interbrand’s director of strategy, Jain, downplayed the significance of the ranking, saying that truly great brands “put customers at the core of everything they do.”

Trust is an important differentiator, she says, because long-term business partners want to know you’re going to be there 15 or 20 years down the road and that you’ll honor your agreements. Banks that truly have good brands will attract better and more loyal business partners.

Robert Passikoff, the founder and president of Brand Keys, introduced his “Customer Loyalty Insights Reports” to figure out what people expect out of their ideal bank. “Banks do far worse than what people expect,” he says. He noted Bank of America’s move to institute a $5 debit fee per month on all customers, which he says made its customers angry and even got President Obama criticizing the bank. Bank of America retreated and canceled the fee.

Passikoff, whose research also determined that banks were less differentiated than bars of soap, says that brand really does matter in banking.

“The brand becomes a surrogate for added value,” he says. “If you’re not offering different products and different prices and different locations, then all you have to differentiate yourself in the marketplace is your brand.”

San Francisco-based Wells Fargo, with $1.3 trillion in assets, heads his list of top bank brands in terms of meeting customer expectations. It also did better than other big banks on Forrester Research Inc.’s customer advocacy ranking.

Tye Jackson, the chairman of the marketing department at California State University in Los Angeles, who used to work as a small business banker for Wells Fargo in the mid- to late 1990s, says Wells Fargo has built its brand with less advertising than other big banks and more positive public relations. The bank tested a $3 monthly debit card fee last year in a few markets, instead of franchise-wide like Bank of America did, and then dropped the idea when it saw how unpopular the new fee was.

Not only did Wells Fargo avoid the face-plant Bank of America did on debit cards, it generated goodwill when it acquired Wachovia, says BrandAsset Consulting’s Rivers. Its advertising campaign used the phrase: “one team, twice as strong,” and portrayed “with you when you want to keep moving forward” with the perennial stagecoach stampede that is Wells Fargo’s logo.

JPMorgan, in contrast, announced its acquisition of Washington Mutual with the advertising campaign that included the boast that it had “a trillion dollars” and “power.” Following the brand campaign, BrandAsset’s surveys found people began using the phrase “arrogant” and “unapproachable” when talking about JPMorgan, whereas Wells Fargo took on some of the better attributes of Wachovia, which people associated with being innovative and trendy.

Wells Fargo has built a business on core commercial banking, not investment banking and the sale of questionable financial products. The bank has had fewer bad loans and charge-offs than other big banks, and now, with the purchase of Wachovia in 2008, it has bank branches coast to coast. “They have been a safe haven for people to flock to when other banks have had a lot of overhang issues,” says Marty Mosby, a bank stock analyst at Guggenheim Securities in Memphis.

Unlike some other banks, Wells Fargo requires its bankers to follow up consistently with customers.

Wells Fargo also sells a lot of products to each customer, averaging 5.91 products per customer. “The depth of our relationships is something the rest of the industry admires,” says Wells Fargo Chief Marketing Officer Jamie Moldafsky.

Simply stated, Wells Fargo spends less on traditional advertising than its competitors and more on getting to know its customers and improving their experiences, says Jackson, the California State professor.

Something seems to be working. Wells Fargo has gone from being ranked number four in terms of deposit market share in the year 2000 to number two last year, according to SNL Financial. So if Wells Fargo has a better brand than its competitors, what does that really mean for community banks, which can’t compete in the bigger-than-thou sphere? Sullivan thinks community banks have really walked away from an opportunity to differentiate themselves from the big banks. Even Wells Fargo saw its property vandalized by angry Occupy Wall Street protestors.

“Bank is a four-letter word in the eye of the consumer,” Sullivan says. “People have become doubtful and mistrustful of financial institutions even though most financial institutions were not involved in causing the crisis. [Banks] are letting a few angry customers define them. In the absence of a good story, people will define you.”

Sullivan suggests that community banks use the opportunity to really connect with customers. People have a lot of financial challenges, he says. They’re asking what to do with their 401(k)s. They want to know what to do when they’ve lost a job. “Banks have the understanding and the technical experience to help their customers,” he says. “Banks don’t realize how much they can help.” Here’s one way of helping: Identify exactly who your customers are and what stage of life they are in, contact them and offer to help with their various financial needs.

Stephens agrees that this is an area community banks could improve on.

“It’s probably even more important for a community bank to build a strong brand [than a big bank] because that’s the single biggest thing they have to compete with,” he says. “If you take away branding from the discussion, community banks don’t have a lot of strong competitive advantages. They don’t have the deep pockets, resources, biggest distribution networks, the best talent in management or the pricing power. Your brand is what people think it is, rather than just what you say it is. But you have the ability to influence that.”