When most people think about brand, they think of a product name or company logo. Those are important brand elements, but far from the whole story.
Three years ago, Bancography, a bank consulting firm, created the Bancography Brand Value Index (BBVI) as a way to quantify the value of financial institution brands, typically perceived only in subjective terms. Or, as Bancography President Steven Reider puts it, to quantify “those elements that bring value to a company above and beyond financial and market factors.” The index is based on the company’s price/earnings multiple and cost of funds—with various adjustments for such factors as operating in a high-growth region.
In announcing the results of the third annual bank brand rankings, the Bancography noted that new banks top the lists in all four size categories, as can be seen in the accompanying rankings of banks and savings institutions.
There was a strong regional correlation to the results, the company noted in a press release. Banks in the Southwest, Midwest, and West (with the exception of California) placed strongly in the rankings, occupying 32 slots among the four top-ten rankings. Just eight institutions represented the South, Northeast, and Mid-Atlantic. Commenting on the trend, John Mathes, Bancography’s director of brand strategy, stated: “The 2010 BBVI reflects the fluid financial services landscape as providers continue to confront the aftermath of the recession. … It is abundantly clear that in the more stable geographic sections of the country, bank brands were able to stay on point with their customers by not dialing back effective dialogue and service.”
In explaining further about how the brand index is calculated, a document on the company’s website [http://www.bancography.com/downloads/Bancology0608.pdf] says: “To calculate a financial institution’s brand value, Bancography first determines a rational long-term valuation for the institution using an amalgam of two common measures: premium on deposits and the price/earnings multiple (a close relative of discounted cash flow analysis). Both measures are adjusted to reflect each institution’s specific financial and market profiles.” The document goes on to say, “Any institution can raise funds by bribing customers with top-of-market rates, but only a powerful brand can attract and retain customers while maintaining market-level pricing.”
Finally, in the price-earnings valuation, the document notes that earnings are quantified over several years, with extraordinary gains excluded.
In an interview, Steve Reider gave this example: If a bank has a tangible book value of $100 million but sells for $150 million, or 1.5 times book, what makes the difference?
“Part of it could be earnings momentum,” he said, “particularly if it is situated in a high-growth market, or in a market with above-average incomes.”
Bancography adjusts for those factors and also for the bank’s cost of funds, as noted. What’s left are intangible factors.
“Why are people—customers and investors—rewarding this bank?” Reider asked. “Because of their logo? No, because of the institution’s entire service philosophy and the core values for which the bank stands.” In the case of Woodforest National Bank, the number one ranked bank brand in 2008 and 2009 (and number two this year), the value proposition is built around convenience, said Reider. The bank operates many branches in Wal-Mart stores. Several of the branches are open 24 hours. Other banks might build their brand around serving high net worth individuals.
“Even big banks can have a distinct value proposition,” said Reider. With Wells Fargo, for example, it is ubiquitous access to delivery channels including “the gold standard of online banking and billpay.”
For community banks, said Reider, the brand value often relates to community involvement and outstanding service quality in the branch.
Topics: Retail Banking,