How brand attitudes can help improve profits

by Nigel Hollis | March 02, 2016

Recently, I have been involved in a discussion about what the concept of Premium means in the context of banks. Some believe the idea is irrelevant because the nature of pricing for a bank is complex; does a premium refer to lower interest rates on a savings account, higher fees charged, or something else?

It is true that banks offer a wide variety of services designed to meet a variety of financial needs and budgets. However, it seems to me that people do understand that some banks cost more and some cost less. They will also have a perception on whether it is worth paying for a more costly service or not. For marketers, however, the critical question is, do brand attitudes like these have a systematic impact on operating results beyond higher revenues?

The good news is that when it comes to publicly-traded companies like banks where the brand name is the same as the company name we can look at the annual report to identify operating margins. To explore the potential impact of brand attitudes on financial performance, I paired data from BrandZ with data from annual reports for 101 companies, across 10 different categories, including banks.

Bank building

What I found was that high Premium brands (as defined by Millward Brown’s Premium metric) managed to generate higher revenues even though they were perceived to be more expensive than their competition. This might imply that high Premium brands are better able to attract new users but the difference appears to extend beyond an impact on revenues.

The high Premium brands generated 14 percent more revenue than the average for their category. However, their operating margin is 37 percent higher than the average. This suggests that positive brand attitudes are having an influence on the efficiency of the company not just its size. Why would brand attitudes affect operating margin? It seems likely that various customer-driven benefits accrue to a strong brand in addition to stronger pricing power:

  1.  Lower acquisition costs (a complement to the faster growth we saw in the earlier analysis);
  2. Lower churn as a result of higher customer satisfaction and affinity;
  3. And potentially lower customer service costs, due to higher willingness to forgive poor experiences.

The combination of higher revenues and better margins yields profits that are nearly 50 percent higher than the average for their category. By contrast, low Premium brands make 18 percent less than the average for their category.

Central to our discussion about banks, I found the relationship between brand attitudes and profit to be stronger for banks than for other companies like retailers. Why would this be? Because people believe that it is more important to choose the right bank than the right retailer. Almost 60 percent of people think it is important to choose the right bank brand compared to only 30 percent for retailers.

So what do you think? Does the idea of a Premium bank make sense to you? Please share your thoughts. 

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