Government ownership has implications for banks marketing strategies

The banks bailed out by the Treasury now face calls for prudent marketing

Following the implementation of the government's historic £37bn bail-out package for the banking sector, the expenditure of high-street brands Lloyds TSB, HBOS and Royal Bank of Scotland (RBS) has come under greater scrutiny. Each has a multimillion-pound annual marketing budget, and questions are being asked about why banks should, in effect, fund their advertising with taxpayers' money.

After the unprecedented nationalisation of Northern Rock in February, there was speculation that its marketing budgets would be slashed and sponsorship agreements terminated. It was even suggested that the COI would assume responsibility for many of the bank's marketing functions. However, it was decided that, to retain commercial competitiveness, Northern Rock would continue its sponsorship of Newcastle United FC and rugby union team the Newcastle Falcons.

The brand repositioned in the savings sector, and marketing activity continued almost uninterrupted, with a particular emphasis on press advertising. Now, Northern Rock finds itself in surprisingly decent shape, and there has even been discussion about it taking on Bradford & Bingley's £42bn mortgage book.

A spokesman for Lloyds TSB said it was 'too early' to comment on what impact the government bail-out will have on marketing spend. Although the Treasury claims it will remain at 'arm's length' from the bank's commercial operations, leading marketers are in little doubt that ad budgets will come under pressure.

According to one financial-services marketer, TV and sponsorship are most at risk. 'There will definitely be a squeeze on TV advertising, as it is more brand-focused,' he says. 'Press spend should fare better, because it is seen as part of the sales process, but sponsorship is often perceived to be the least important part of the marketing mix.'

Anthony Thomson, chief executive of the Financial Services Forum, agrees that directors may feel a gentle pressure from the banks' new shareholder to spend more carefully.

'There may be some tacit political discouragement from doing anything that could be seen as profligate,' he says.

'All costs, including marketing, will be under scrutiny, but I don't think that will be entirely due to changes of ownership.'

Paul Gordon, managing director at marketing agency Tangible Financial, says the style and tone of banking ads will change to suit the times. Nonetheless, he is adamant that, in the main, the Treasury will allow marketing to continue unaffected, as brands must continue to operate as 'commercial animals'.

'In my view, the government intervention is a short-term measure to stabilise the banks, and the Treasury will want to make a return on its investments,' he explains. 'This will only happen if the banks have successful commercial structures, so they will still have to behave like brands.'

According to Gordon, one result of government investment may be the emergence of a slower, more long-term style of marketing planning. He cites the retail-style strategy of Halifax, with its rapid product development and communications, as an example of an approach that banks will now avoid. 'In hindsight, Halifax played it wrong. You have to market in a more measured, risk-averse way,' he adds.

Directors at Lloyds TSB, which is to receive £5.5bn in government funding, would no doubt argue that its £80m sponsorship agreement with London 2012 is an integral part of its long-term 'For the journey' strategy. Moreover, it is unlikely that LOCOG would allow the brand to cancel its contract, even if the Treasury were uneasy with further millions of taxpayers' money being spent on the Games.

 

Contractual ties

The spotlight has also fallen on RBS' six-year sponsorship deal with the 6 Nations rugby union championship, which is due for renewal after next year's tournament. Although no decision has been taken on whether RBS will look to renew the contract, it has released a cautious statement stressing that its sponsorship deals are 'reviewed on a regular basis to ensure they are aligned with business objectives'.

But Nigel Currie, director at sports sponsorship and marketing agency brand Rapport, is confident that financial-services brands will continue sponsorship activity, not least due to contractual obligations. 'I think there will be pressure on marketing and pressure on sponsorship, but you have to remember that contracts are in place,' he says. 'Banks may be vulnerable when sponsorships are up for review, but in many ways banks are a safer sponsor; if they end up in trouble, you can be confident they will be saved'.

The government must somehow tread the fine line between returning banks to profit and avoiding accusations of corporate success based on state sponsorship, which are likely to be levelled by brands such as HSBC, should Lloyds TSB, HBOS and RBS go on to perform especially well.

Marketers, meanwhile, are faced with the unenviable challenge of maintaining a competitive presence while steering clear of boastful communications on the back of their new-found security as nationalised institutions.

 

 

      Adspend*

Halifax     £21.5m

Lloyds TSB  £20.0m

Barclays    £15.0m

NatWest     £9.2m

RBS         £3.2m

 

      Treasury investment

RBS         £17.0bn

HBOS        £11.0bn

Lloyds TSB  £5.5bn

Source: Nielsen Media Research  

*refers to above-the-line spend Jan-Aug 08

 

 

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