Three storylines are likely to be circulating in the coming days about the merger of Clydesdale and Yorkshire Bank with Virgin Money. But in the modern financial industry, with banks losing market share to aggressive startups, the large price paid to use the Virgin Money brand deserves its own discussion. Not least because it affects the other three stories.
The first obvious storyline is the finances (all share deal, valuing Virgin Money at £1.7bn). The second narrative is that of the people and jobs (expected losses of 1,500). The third will be about the operations (keeping the Gosforth HQ and whether branches will disappear from high streets). All are important. But the fourth story, and the one that ties all the others together, is that CYBG will be paying £15m per year to Richard Branson to use the Virgin Money name and brand. It might not be worth it.
Unlike Virgin Money, which was founded less than 20 years ago, most of the high street banks we know today have their origins in the 17th and 18th centuries. It’s often said in the marketing world that ‘repetition is reputation’ and 200 years of doing roughly the same thing again and again have built these banks’ reputation and their brands. A brand isn’t the name or logo (that’s branding) but the reason for you and me to trust a company, the promises (overt and subconscious) that they make about the levels of service they’ll offer, the way they’ll behave, the way they’ll talk to us.
In modern banking it’s the brand – that subtle psychological appeal – that differentiates the operators. After all, any differences in savings interest rates are inconsequential, there are cash points on every street, and none of them seem to want us hanging around in their branches using up staff time.
Under ISO 10668, a company’s brand has its own separate valuations and its own place on the balance sheet. Lloyd’s brand is valued at $6,398m.
And quite rightly. It’s the external communication of the brand that wins new customers (do I want the historic appeal of Lloyds or am I more attracted by some modern people who’ve been doing thinking about things for me, like Natwest?).
It’s the operation of that brand promise day to day (how am I treated in store, how responsive are they when I have a problem, do they use a modern tone of voice with me or continue to talk ‘suit-to-suit’?) that makes our relationship with our bank sticky and hard to leave.
And that brand is valuable inside the company: a clear brand vision aligns everyone in the company, so that when they decide how to handle a complaint, which product to launch, how to allocate resources, who to hire, how to train (or some of the other bigger ethical decisions) everyone makes consistent, mutually-reinforcing decisions.
The problem for CYBG might be that 1+1 doesn’t equal 3. CYBG isn’t a ‘challenger brand’ in the true sense of the word: it’s small, yes, but it isn’t challenging the status quo of the large incumbents by doing anything radical. And nor is Virgin Money: its website promises “We’re not like other banks. Discover what makes us different” but that difference turns out to be “an honest deal with no surprises.” (Shush, cynics). The brand doesn’t have branches, only “stores”, which feature “lounges” where you can read a newspaper.
So externally, the Virgin Money brand doesn’t appear to be significantly more appealing than other high street banks.
And Virgin Money recently admitted its previous assumptions that customers will stay for seven years ‘looks optimistic’. So, the lack of services, the lack of imagination, and the overly matey tone of voice of the brand isn’t making the relationship sticky either.
Finally, the Virgin Money brand hasn’t inspired colleagues to create any radical services, as the true challenger banks have done. One of these is Monzo, an app-based bank where you sign up in minutes and can use the app to see how you’re spending your money… all from your own lounge, where you can read your own newspaper.
Sir Richard Branson said in the past that the failure of Virgin Cola taught him never again to “make the mistake of thinking that all large, dominant companies are sleepy”.
Companies such as Brand Finance say that brand valuations represent an increase in value to the shareholder for owning the brand.
But another way to look at it is this: how much would it cost to give the new entity an entirely new brand? The new merged entity will need a single vision to align all its operations, the owners will need to inculcate a single story into its leadership, it will need to speak – internally and externally – with one voice. It might be that all this could have been achieved for a lot less than £15m per year.
Chris West is the founder of Verbal Identity