Putting lipstick on a pig

The sub prime mortgage crisis seems to have been the catalyst for the huge losses recently incurred by banks, the first run on a British bank for a hundred and fifty years or so , collapse of a major US financial institution and the prospect of worse to come. How much of this I speculate is due to an inappropriate application of marketing techniques. I have long been dubious about the idea of promoting financial services as products, but this concept has also been accompanied by, or perhaps even led to, a major change in financial institutions transforming them into businesses that sell products like grocers. In fact the major grocery chains of supermarkets have got in on the act themselves in selling financial products. Although much of what people see of marketing is the advertising and other market communications, like the proverbial iceberg below the surface should be something substantial. We look first to understand the business model and test this before developing marketing plans for a client or prospect. Sometimes the business model is hard to define, or as in the case of one notable potential client back in the ‘dot com era’ – non-existent. Swept up in the enthusiasm of the time this ‘dot com king’ was busy buying other ailing dot coms for ridiculous amounts and raising funds on a stock market aided by investment banks that had collectively lost touch with the fundamentals of business. The financial institutions by transforming themselves into aggressive sales driven businesses abandoned financial prudence so devaluing the product. Banking staff steeped in a long understanding of finance have largely been replaced by sales staff, incentivised by selling products and often recruited from high street retailers. In fact banks actually talk about their retail business. Think for a moment about the marketing process starting with the product. In the traditional model a company would research the market or uncover an unsatisfied need, design or improve a product and add value to the manufacturing process transforming raw materials and components into a product to satisfy an identified or perceived marketing need. Now look at the sub prime business model. Loans made to people on welfare cheques in the American Budweiser belt at 5 or 6 times imagined income were the unpromising raw material that was diced and divided to emerge without any actual added value, as triple A quality investment products. The products backed by the credibility of a major financial institution then traded on global financial markets. What anyone selling goods could have told them is that quality control is also a critical ingredient – as one American colleague once remarked it is no good putting lipstick on a pig. You cannot successfully market an inferior product without some backlash. Of course a brand carefully nurtured over a couple of centuries like a major bank builds goodwill and trust – customers with scant knowledge of financial services believe in the products because of this trust. It is the credibility of the bank that is being leveraged and their professional advice. Bankers trade on their perceived professional status, customers accept their advice the same as they would from doctors or lawyers, in general they are not buying a product at all but simply following investment advice. But breach this implicit contract between buyer and seller and customers soon take their business elsewhere. What is amazing is that the financial institutions thought they could get away with such a devious scheme. Once lost trust is hard if not near impossible to rebuild. The marketing lesson is clear - the product, the business model and marketing message must be credible and sustainable to achieve long term success. Short term views cannot prevail in the long run. If banks had taken an imprudent approach to financial matters they would not have built up a solid reputation in the past.