Thursday, 10 September 2009

Marketing after Lehmans

One year on from the collapse of Lehmans, what should marketers have learned?

We have a difficult job to manage the reputations of our brands when the C-suite could be gearing the business by up to 44 times the total value of assets, as Lehmans did. And don't our customers know it.

Historically, savers have always been prepared to accept lower savings rates in exchange for retail deposit accounts being effectively risk free. Now, savings marketers are being hit by a triple whammy: the savings ratio is going down (hence banks started looking to the interbank markets in such volume in the first place), base rate is still at an historic low of just 0.5% and customers are now less prepared to accept low savings interest rates as they no longer perceive savings accounts as risk free.Indeed, some very senior people are speaking loudly about the need for banks to be allowed to fail 'for the greater good' - not much help if it's your life savings they fail with.

The Financial Services Compensation Scheme has had to increase its limit to £50,000 to maintain confidence. Liquidity markets are still not flowing as freely as before the crisis, capital adequacy requirements have increased and banks are having to implement huge amounts of complex regulations - causing great pressure on funds.

Lending criteria have been tightened due to the increased likelihood of default and insurance companies are experiencing higher levels of suspected frauds, with correspondingly higher administration costs.

However, the pressure on margins is not the biggest problem marketers have. Financial services has always been a prestige industry that has been hugely trusted by customers. Now, that view has changed and bankers are often seen as money grabbers, dishonest and incompetent.

This is where transaction cost economics (Williamson 1985) and resource dependency theories (Pfeffer & Salanik 1978, Heide 1994) come in. These theories cover long term buyer/seller relationships where the relationshipis perceived to involve risk - the position banks now find themselves in. Both parties seek to mitigate their risk by building in safeguards - Heide and John 1988 - (such as tightening lending criteria), to exert control over the relationship (such as offering higher rates of interest in return for locking funds away for long periods) and looking for incentives for risk taking behaviour (such as increasing interest rates on loans).

Banks have done a great job of managing the risk on their side of the equation. But as marketers, we should be asking ourselves: what will our customers be looking for to minimise their risks? They too will want to build in safeguards (by choosing strong brands with stable, conservative reputations), exert control (by demanding higher service standards and more convenient, easy access to their funds) and incentives to take risks (better rates of interest.

These points should be key marketing messages at the moment. And, because of the general cynicism and lack of trust around at the moment, they should be demonstrably true - backed by real evidence at every customer touchpoint and level of the business. The banks that manage to convince customers that they are able to offer them the most control will be the ones that succeed.

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