- This is an edited version of a story that was originally published in the May/June edition of NZ Marketing.
For many years, the National Bank has been beating a premium drum and very few would disagree that it is, as the advertising claims, ‘the thoroughbred of banks’ in the local market. It’s close to the top in rural, personal and small business and, as a big bank that’s preferred by the affluent but is also appealing to the masses, it inhabits a position on the banking spectrum many of its competitors are undoubtedly envious of. But, as many have already speculated—and as recent events attest—the black horse appears to be on its last legs.
Since 2003, when ANZ purchased National Bank for $6.3 billion from Lloyds, the two brands have largely been kept distinct in the eyes of consumers. And for a bank that’s in 32 countries and is currently implementing its ‘super-regional’ strategy in the Asia Pacific, having two brands in its smallest market is incongruous.
For the bean counters, getting rid of the brand—or as the spin doctors would probably say, streamlining the business—undoubtedly makes financial sense. As well the license fee paid to use “the Black Horse, Shield Device, Thoroughbred, and Colour Green trademarks” until 2014, there are other big costs in feeding two beasts, such as additional retail space, labour, marketing and, up until recently, separate back-office and IT functions.
Australian-based ANZ Group chief executive Mike Smith has openly said it’s an inefficient system so, for some, the National Bank is presumably seen as a figure on the spreadsheet; a cost that could potentially be removed.
For insiders in the marcomms space, it’s less about a cost and more about the value of a brand with a hell of a lot of equity. Adding to the complex scenario, the brand that it will seemingly be folded into, ANZ, has long been at or near the bottom of the table for customer satisfaction and service and is, as one source who wished to remain anonymous says, “the most blue collar bank of the bunch”.
“It’s not like they’re asking customers to swap an Audi for a Mercedes. They’re asking them to swap an Audi for a Toyota Corolla,” the source said.
We asked to speak with ANZ’s chief marketing officer Mike Cunnington about the bank’s contingency plan for the departure of the National Bank brand, but the corporate comms team responded with: “Thanks for the invitation, but we don’t really have much to say at the moment. As we’ve said previously, the time will come to review the question of our brands. However, there’s no urgency as we renewed the Lloyds trademark until 2014.”
Unusually, David Walden, chief executive of ANZ’s agency TBWA\, which took it off DDB after a regional alignment in 2011, didn’t have anything to say either. And National Bank’s agency DraftFCB was also keeping mum and claimed to be in the dark on any of the bank’s plans.
Fishing for efficiency
It’s certainly no secret, however. Like Smith, New Zealand ANZ chief executive David Hisco has been fairly outspoken about a review of the dual brand strategy but told Interest.co.nz late last year it had been parked and that the horse could potentially survive until the license runs out in 2014.
One of our sources said Hisco originally wanted to “kill off the horse” just six months after he joined in September 2010, but the huge logistic challenge of fusing the two IT systems into one, which has cost many millions, means the ‘one kitchen, two dining rooms’ set-up is only just coming to fruition (ANZ has shifted to National Bank’s IT system).
It’s thought the goalposts for a possible National Bank switch-off were then moved closer to the Rugby World Cup, which was deemed a good time to do the deed because of all the ANZ activity and the feelgood factor that came with it being a major sponsor of the hugely successful tournament. But again, due to what our sources say were delays fusing the IT system, the horse was able to trot on.
While some would like the horse to stay (there’s even a Facebook page to that effect), we’ve been told there is no right of renewal on the license come 2014. If that’s the case, National Bank will either disappear entirely or have to be rebranded. Back when ANZ was negotiating the last license deal, it was unclear whether Lloyd’s would give the go ahead at all, so a contingency plan was put in place and it’s thought Designworks developed a series of new logos without the crest, without the horse and in a different shade of green. Presumably those creations are still in the filing cabinet. But all the evidence appears to be pointing towards a gradual decrease in activity for National Bank while ANZ attempts to work its way up the likability charts and fight for some of that high ground.
So what’s the plan of attack? In an effort to change its perception among New Zealanders and become a more grown-up, premium brand, ANZ is using the Australian-made campaign starring Aussie actor Simon Baker in character as The Mentalist’s Patrick Jane. It sponsors a lot of charities and has signed up for a host of sponsorships, such as the Rugby World Cup, the Trans-Tasman Netball Championship, the New Zealand Olympic team and even the Air New Zealand quiz. And, when the time comes, there’s no doubt it will be offering aggressive rates and other incentives to keep existing—and attract new—customers.
National Bank is still actively marketing, but its on the slowdown. Its sponsorships have either been wound up, like Country Calendar, or modified, like the NZ cricket team now sporting ANZ logos on their shirts. Added to that, ONE News now features ANZ branding and ANZ is now a sponsor of Fieldays. Its last Dr Seuss-inspired campaign moved away from its slightly fusty heritage and became slightly more frivolous, with only fleeting glimpses of the black horse and a jaunty version of Vivaldi’s Four Seasons. But perhaps the biggest indicator that the end may be nigh is ANZ Group increasing its ad spend by 54 percent to $30 million for the ANZ brand in 2011 according to Nielsen AIS figures, while National Bank spent just $4 million, down from $17 million in 2010.
Hisco told Interest.co.nz that, based on its own research, 99 percent of customers didn’t care about the brand “as long as the person who serves them at the bank is going to be there the next day and the customer service levels are strong”. In his opinion, the whole glue factory debate is a bit of a storm in a teacup. He said the biggest concern was the closure of branches and loss of front-line staff, but he has given assurances their jobs are safe because “we need all our frontline staff to serve our customers”. They might just be wearing a blue vest rather than a green one [according to Stuff, 20 branches are expected to close, leaving 280 across New Zealand, and ANZ is planning to take over all National Bank sponsorship and community commitment, like Daffodil Day].
Not surprisingly, the same assurances weren’t given for those working at HQ and, in March last year, the company announced a restructure that affected 15 regional management roles and 30 back-office support jobs.
Horses for courses
According to the National Bank’s website, the logo had its beginnings in London in 1677 when it was first adopted by Humphrey Stockes, a goldsmith and ‘keeper of the running cashes’. When Lloyds took the site over in 1884 it became the symbol of Lloyds and then The National Bank of New Zealand in 1978, when head office was transferred from London to New Zealand.
The agency responsible for bringing the black horse to New Zealand was MacKay King, with Bob Hall the creative director and Donald Ryder the account director. Founder Terry King says it was a very different form of advertising for its time as it was about “developing the recognition of the symbol and then telling viewers what that symbol meant”. And it’s a tribute to the power of that symbolism, which was implemented in an effort to bring some British gravitas to the New Zealand market, that it is still working.
When Mackay King joined forces with an Australian agency that held the Westpac account in 1983, it had to resign the National Bank business, but when it was purchased by Saatchi & Saatchi in 1988, the bank came back for more.
It’s not clear how much ANZ paid when it relicensed the use of Lloyds trademarks in 2010, but Massey University banking expert David Tripe has estimated the bank could save $250 million a year if the two banks operated as one unit (given ANZ checked in with $415 million profit for the three months to December, 2011, up 60 percent on the same time a year earlier, that almost seems like petty cash).
In the purchase price of $6.3 billion was $3.2 billion in goodwill for the National Bank. But this doesn’t need to be written down if its drops the brand because the goodwill is backed by cash flow rather than simply a brand or logo valuation.
In part, this is thought to be due to the timing of the deal and a loophole in the accounting standards. Now, business combinations need to identify all the assets—the goodwill, the customer base, the distribution rights.
Mark Hucklesby, partner and national technical director of audit at accounting firm Grant Thornton, told the Herald: “All the accounting standards require you to do is to say ‘will the cash flows arising from the entities and structure that you acquired still have the ability to generate future cash flows sufficient to support that carrying amount?’ So in other words the network of National Bank branches. I would have thought, looking at the profitability of banks and banking in New Zealand, that even if they were to remove the National Bank brand the infrastructure and all the other components that came with that acquisition would still be generating future cash flows well in excess of that carrying amount.”
So what kind of treasures are likely to be on the table for the other banks should National Bank shut up shop? Some we’ve spoken to said evidence from previous banking combinations in New Zealand like National into Countrywide or Westpac into Trustbank showed there was about a five percent customer churn rate. But we live in very different times now. Back in the late ‘90s, around 85 percent of the country’s mortgages were fixed and couldn’t be broken, which meant many were forced to stay put after the name of their bank changed. Now, around 35-40 percent of the country’s mortgage holders are on fixed rates, so there is much more freedom to change.
Added to that, other banks, particularly KiwiBank and ASB, have actively communicated how easy it is to switch. As a result, those we spoke to thought ANZ was underestimating the power of the National Bank brand, the loyalty customers have to it, and the impact its closure will have on those patriotic souls who might not want to stay with one of the Big Aussie Banks.
There have been some big shifts in bankland recently, with ASB changing from Droga5 to Saatchi & Saatchi, BNZ shifting from Sugar to Colenso after an alignment and Westpac with DDB. ANZ also changed last year when TBWA\ cut DDB’s lunch after a regional alignment.
None of the banks would discuss their plans, claiming it was commercially sensitive. But it’s fair to assume there’s not a bank in the country that isn’t looking at ways to benefit from this big change.
ASB is considered to be the people’s bank, is highly regarded for its customer service and has had plenty of success attracting new customers through its impressive Experience ASB campaign. But Westpac and BNZ appear to be in the best position to stake a claim on the premium space that could be left empty if the National Bank disappears (BNZ ran an aggressive campaign in the rural press recently with the line ‘Is it time to back a different horse?’).
Some of the smaller, locally-owned challenger banks, such as TSB, Kiwibank and the newly rebranded Co-operative Bank, which generally have the highest customer satisfaction rates, will also be hoping to play in the big kids’ sandpit as aggrieved customers potentially look around. And HSBC, which claims the high-ground in many other markets, appears to be upping the ante in the premium space in New Zealand.
There will certainly be a big gap at the top end waiting to be filled, and the lolly scramble for the leftovers—and the attempts of ANZ to stem the flow—will be a good battle to watch.
Of hearts and minds
Former Colenso BBDO planning director James Hurman, who's now managing director at Y&R, knows the local industry well but doesn’t have any conflicts or connections to ANZ or National.
“From my point of view, not as a planner, but as a New Zealander, it’s a brand with a lot of stature, a brand that people have a lot of respect for,” he says. “But ANZ is more like a faceless corporation. So it does seem strange to replace a premium brand with a brand that’s so, how should I put this, uniconic.”
He says you don’t do something this drastic unless there’s a sound, usually financial, reason for it. But he’s also predicting some heavy casualties.
“I think they’ll create a wonderful opportunity for the other banks to come in and take National Bank’s customers,” he says.
Anecdotally, we have heard of National Bank customers, both business and personal, who are now dealing with new staff and will definitely look at their options if they’re forced to switch to ANZ. And while it takes a lot for someone to shift, Hurman says customers do move banks, particularly if there’s a catalyst.
“It’s trickier than changing your telco. And the pain in the ass factor of changing banks means a lot of people don’t do it quickly,” Hurman says. “But I think this will create an opportunity for someone to say ‘maybe it’s time to try something new’.”
He’s not sure ANZ will be able to advertise its way out of it either and thinks it will need to do something pretty special, inventive and interesting to show it really cares about National Bank customers. And while good rates and cash incentives will undoubtedly help smooth the process (“they always do”), he says a very personal thing like finance means it needs to be deeper than that.
“If they want to build value into the ANZ brand, which they’ve been unable to do in God knows how many campaigns over the years, they really need to do something out of the box. I don’t think the brand strategy of ‘We live in your world’ is convincing enough. In Australia, the bank is perceived differently. But here it seems like a platitude,” he says.
DDB’s Welcome the World campaign for the Rugby World Cup was certainly an attempt to connect with New Zealanders on a deeper level and the ANZ’s line was that the sponsorship showed how much of a commitment ANZ had made to the country.
And when banks largely sell the same things at similar rates, give or take a few trinkets on the side like Facebook branches or smartphone apps, brands and likability are huge factors in customers’ decisions.
Jeffry Pilcher, publisher of The Financial Brand website (www.thefinancialbrand.com) says that while he isn’t familiar with our banking brands, it seems strange for a low-end brand to acquire a high-end one: “The very act of the acquisition would instantly kill the premium qualities that undoubtedly sparked the acquisition in the first place.”
Some studies put the eventual defection rate of customers from a merger as high as 30 percent, he says. The worst-case scenario? “The acquired brand was local and well-loved, the acquiring brand is national or global with an image that typically goes along with such big organisations, and it phases out the acquired brand quickly and abruptly—within months, rather than years.
“The truth is that no matter how well the acquiring brand tries to mitigate defections, some percentage of people will switch no matter what, no matter how smoothly the transition is handled. Why? Because people hate change, even change for the better. Inertia is the huge factor playing in favor of banks acquiring other brands. They know that between things like online bill payments and direct deposit, it is a massive hassle for consumers to switch banking providers. So some people will never switch, regardless of how irritated they might get.”
Brian Richards from brand and design specialist BRR believes we’re slowly ‘Tindallising’ the nation by removing all the high-end brands. He believes it makes no sense to completely throw away all the equity the brand has gained and, even if the main branding has to go, a smart design company would be able to create a “gravitational point” within ANZ to appeal to the upwardly mobile and aspirational, almost like the financial equivalent of a McCafé inside McDonald’s (which many said wouldn’t work) or offering gold status on a credit card.
When Westpac bought Trustbank in 1996, it decided not to heed advice to choose one brand and ended up spending millions cobbling together the two disparate brands—one high-end, one low-end—into Westpac Trust. It didn’t retain the integrity of either, he says, so it eventually reverted to Westpac in 2002. But he says a dual approach can work if done right and even if it can’t use the horse, crest and colour, it could rebrand and maintain the name to keep the focus on the aspirational customers.
“I would be very careful about killing off the horse. I think they should find some other medium to keep the brand going. If you’ve been opening your bank statements for 10 years, there is an emotional connection to the brand.”
And it’s that emotional connection that’s so difficult to acquire and so valuable to financial marketers. So it will be very interesting to see how doing away with one of the country’s most powerful—and lucrative—brands and status symbols will play out.