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Brand Commoditization in Retail Banking: What Can Banks Do About it?

Posted by Lincy Therattil, Assistant Manager, Banking & Securities, Deloitte Services LP, on May 21, 2014

With similar product features, pricing structure and promotional offers, basic banking products exhibit characteristics of a commoditized product, i.e., customers do not see much difference between a product offered by Brand X or Y.1 As such, customers are unlikely to have preferences for any specific brand.2

Why does this trend matter to banks? It matters because these basic financial products are usually the ones with which a customer initiates a relationship with a bank, and indifference to a brand at this stage could mean lower customer stickiness. Even after signing up for basic products, new customers may not consider utilizing that same bank's more complex financial products.

To complicate matters further, while product commoditization was a concern earlier, the growing influence of technology on banking functions is threatening to commoditize even the most personalized aspect of traditional branch-banking models — customer experience — due to the gradual movement of customer interactions to the virtual space.

Compared to the face-to-face interactions at a branch, these virtual interactions tend to be impersonal due to their standardized and automated nature. Similar to some long-established customer touch points like ATMs, mobile banking applications do not require an intervention from the bank's customer service representatives. These online platforms, tools and applications are usually designed by technology vendors who provide similar solutions to multiple banks. And as standardized tools are likely to give only standardized experiences, this further limits brand differentiation.

This phenomenon might partially explain bank brands' lower brand equity in the 2013 Forbes' list of "The World's Most Valuable Brands," where none of the financial services institutions figured in the top 25.3

So what can banks do about this situation? During virtual touch points, is there scope for digitization to offer brand differentiation? Potentially, yes. Digitization does not have to be a limiting factor and has the potential to break the barriers of commoditization. Let's explore how.

While delivering these highly commoditized products, banks have an opportunity to differentiate by leveraging technology to make client experiences more meaningful and personalized, whether it's through a self-service banking tool or interaction with customer-care-center employees. Such customization is especially relevant now, despite digitization, as customers increasingly expect exclusivity and service personalization when they perform banking functions or contact bank representatives in the virtual world – "read my mind and provide me what I want (or am likely to want) the way that I want it."

With this focus, banks will have to revisit their service delivery strategies and deploy innovative ways of customizing experiences, irrespective of the channel. Adopting experiential innovation strategies will help, optimizing customer experience rather than just focusing on the functional benefits of the organization's products and services.4 What will matter going forward is how well banks do this and whether they are willing to go to the next level of customizing virtual tools — or just be content with the standardized tools available to all banks.

A positive example is American Express, the top-rated financial brand per Forbes5 and Interbrand,6 which has continuously invested in meaningful social and digital experiences.7 For its digital wallet, American Express Serve, Amex went beyond the traditional tools and entered into several partnerships — with technology firms, carriers and payment companies — to provide personalized consumer experience, offerings and deals based on their interests, past usage and spending habits.8,9

Having said that, banks will have to take care adopting an egalitarian approach toward its customers, as banks have limited resources at their disposal. Banks first need to determine which customer groups are most likely to be influenced by such an experience offering, providing maximum customer lifetime value.

Such a targeted approach will go a long way in providing brand differentiation, improving customer stickiness and potentially encouraging customers to consolidate their financial life with their bank. In the increasingly commoditized banking space, the winners are likely to be the ones offering customers personalized digital experiences that matter.

1 "The Decommoditization Manifesto: Part 1," Creative Brand Communications, May 2010.
2 Ibid.
3 "The World's Most Valuable Brands," Forbes, November 2013.
4 Chris Voss and Leonieke Zomerdijk, "Innovation in Experiential Services – An Empirical View," London Business School and Advanced Institute of Management Research, June 2007.
5 "The World's Most Valuable Brands," Forbes, November 2013.
6 "Best Global Brands 2013," Interbrand, September 2013.
7 Ibid.
8 Leena Rao, "American Express To Release An API For Digital Wallet Platform Serve; Focuses On Data And Personalization," Tech Crunch, October 9, 2011.
9 Rimma Kats, "American Express raises brand awareness via interactive mobile ad campaign," Mobile Commerce Daily, June 12, 2012.

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