This month Lucian asks if differentiation comes down to being more targeted.
When you start thinking about it, it really is quite surprising how little real, marketing-driven differentiation seems to exist between groups of close competitors in financial services.
Some firms are differentiated for reasons to do with their history or heritage (Nationwide as the last big building society, the Co-op Bank also with roots in mutuality) and some by differences in business model or strategy (First Direct as the first to go branch-less, and Metro as the last to be “branched,” if there is such a word). But in terms of marketing-led differentiation, pretty much the only dimension that really stands out is to do with advertising properties or icons - Compare The Market has meerkats while Go Compare has an opera singer. Scottish Widows has a widow while Royal London has a lute player, among many others. If I was feeling generous I might say that Direct Line, with its big idea about being in the business of providing help rather than insurance, occupies territory that’s genuinely different from its peer group. But if I was feeling less generous, I’d say that the cumbersome and distracting Winston Wolfe TV executions do a good job of preventing us from noticing.
The examples I’ve quoted so far are mostly big, well-established institutions. The position may be different among the large flock of fintechs, challengers and start-ups, but it’s hard to be sure: as I’ve often grumbled on previous occasions, most of these are so low-profile that it’s impossible to tell what they stand for. So, why is there very little marketing-led differentiation in financial services? I can think of three main reasons. 1. Many sectors are – still – so crowded that it’s difficult to imagine successfully staking out a patch of ownable ground. There are still dozens of insurers, scores of mortgage lenders and hundreds of asset managers, all with a market share and a share of voice that’s a single-digit percentage: compare that to FMCG sectors where it’s only necessary to differentiate against a couple of key competitors.
2. In another sharp contrast with FMCG markets, financial institutions suffer from the fact that it’s hard – although not impossible – to differentiate at the level of corporate brand. Some firms manage it (BMWs are good to drive, Volvos are safe) but differentiation is usually stronger and clearer at product level. Hardly any financial services providers are interested in product level branding; almost all put the emphasis on the corporate brand. The bigger and more diverse the corporation, the more difficult differentiation becomes.
3. I can’t decide if this is actually a third point, or just a different way of making the second point, but fundamentally differentiation works, and adds value, when there is a target market with a need that can be satisfied in a differentiated way. Apologies for the slightly odd examples, but Head & Shoulders only works because some people have dandruff, and Quorn only works because some vegetarians want to eat something that’s a bit like meat. In fact, I’d argue that the whole process of creating differentiated products and services starts with identifying specific, differentiated needs.
In financial services we very rarely do this. For reasons I’ve never understood, asset managers with market shares of a couple of per cent still insist on targeting the whole market, offering every kind of investment to every kind of investor. If, instead, they adopted a growth strategy that said they aimed to dominate (say) the Responsible Investing segment, or the pension drawdown segment, or the monthly savings segment, or any of the hundreds of other segments that could be carved out of the asset management market, then the need for a differentiated positioning would be obvious – but for as long as they’re trying to be everything to everyone, it isn’t obvious at all.
When you look at it in this way, it’s clear that there are in fact several brands with differentiation that is relevant to their particular target segment. Coutts is relevant to posh people. Wesleyan to people in the professions, NFU Mutual to people in rural communities. Once you start creating alignments between target segments and brands, the whole business of differentiation suddenly starts looking very simple. I just wish a few more firms were willing to do so.
Lucian Camp is Managing Director at Lucian Camp Consulting. To find out more, or read some of Lucian's other musings, visit www.luciancampconsulting.com.