Will the deal hurt brand NSB?

In a world where most product categories are at the mature stages of the product lifecycle, the key differentiating factor for a brand happens to be the reputation that it has earned in the market place. Be it a fridge that you buy for your home or a packet of milk powder that you get for your kid, it’s all about the image in our mind that triggers the purchase decision.

If you really think about it, in its real nakedness, all milk powder will look the same in a glass. Research reveals that almost 98% of consumers will never be able to identify the brand in a blind form. But as soon as the brand name is tagged, everyone will pick the brand based on the imagery they have in their mind. This is the sheer power of the concept called branding.

A brand

If we take a power brand globally like Google or Apple, the value of the brand will be between 10-35% of the market cap of the enterprise. To be specific, Apple for instance as a brand commands 39.3 billion dollars in value whilst its market cap is 353.5 billion dollars, which is around 11% on brand value to market cap as a percentage.

On the other hand, a brand like Google is valued at 48.2 billion dollars on a market cap of 166.07 billion, which is around 29%, that demonstrates how valuable a brand is as an asset to the company. This is one of the reasons why now brands value is to be included into the annual reports of a company.

If we dig deeper, a successful brand is characterised by the aspects like delivery on a promise, stick to one clear product offering, ruthlessly aggressive on a single-minded idea and every action is in line to the brand values that it wants people to remember them for.

To me in Sri Lanka, brands that live up to this ethos are Cargills Food City and Abans. In fact, Abans’ brand value as a percentage of the enterprise value is at a commanding 36%, which is the best in Sri Lanka.

On the other hand, brands that are weak in the market place are those which get into business away from the core reason that consumers identify them for; they get embroiled in controversies that highlight them for the wrong reasons in the media, the brand strays away from the truth, which ultimately makes the brand identity murky in the consumer’s mind.

In this light if we take the brand NSB, it meets these characteristics and hence we can expect a hit on the brand value which is incidentally around Rs. 11,562 million and the fourth ranked brand in this year’s Brand Finance rankings.

NSB

Total assets of NSB reached Rs. 403 billion as at 2010 performance, passing a benchmark of the total deposits recorded at Rs.355 billion. The post-tax profit increased by 45% to Rs. 5.4 billion, which is commendable given that the bank’s focus is providing a savings bank for the Middle and lower income people of Sri Lanka.

The bank had opened around 29 new branches as at end 2010 mainly in rural areas and loans and advances had grown 20% to Rs. 82 billion, notably housing loan disbursements recording a staggering growth of 120% compared to the year before with non-performing loans reducing by 9%, which demonstrates the power of this brand on a quantitative basis.

From a brand front it is at number four with the brand value at 11,902 million rupees and the enterprise value at 381,207 million rupees making the brand value as a percentage be at 3%. Some can argue that this is a low figure but the fact is that the industry is between 1-3% and hence this value reflects the work that needs to be done to actually leverage the value of the brand.

One can also argue that the incidents like the NSB-TFC deal will not help build the brand value challenge that NSB needs to focus on and in fact it will only erode the proposition, which in my view is the hurt aspect of this fiasco.

Brand hurt

If one scientifically analyses the hurt aspects in depth for NSB due to this scandal, it can happen in three ways; the first being the market risk where in a brand like NSB the top line can get affected. Given that the NSB-TFC scandal is not directly related to a consumer and given that NSB is essentially a savings bank, the impact due to this element will be marginal.

The second is the risk of non-delivery. Here again the risk is not severe given that the strength of the bank is depicted on the asset base. However, if the bank wishes to go to the global market to raise money for the country, then the scandal can become an issue on its performance. The last is profit exposure, which again will not be an issue except that one can argue the governance aspect and if there was stiff competition there could have been severe ramifications.  Hence, from a risk point of view, from a branding model the impact will not be large but from an equity front the dent can be severe. This again will be dependent on the impact of the communication of the issue and how it will be understood by the existing customers. May be a brand equity study if done can determine where the brand has got dented and in which market segments so that a clear way forward can be activated.

Global – Japan

If I were to take an example from a nation branding perspective, the impact of the tsunami on Japan’s brand value is a classic to explain the impact a brand can have with a disaster.

Even before the financial crisis, Japan was struggling with slow growth, high levels of indebtedness and a shrinking work force. The 11 March earthquake and tsunami, which killed 15,000 people, aggravated the country’s economic problems while exposing the country’s weak leadership in driving brand Japan in today’s fast-paced economy.

The tsunami and the nuclear disaster caused all ports in the country to be closed and disrupted economic supply chains with the reconstruction cost estimated to be in the region of $ 288 billion. This is almost 60% of Japan’s $ 461 billion annual tax revenues.

Moody’s rating service downgraded Japan’s debt in August based on the fact that the country had no plan to deal with its debt (which is currently worth 233% of GDP) that resulted in the Japan’s nation brand losing $ 679 billion dollars in value.

The country lost on all three measures of brand strength, especially infrastructure and efficiency as per Brand Finance Global. Supply chain shutdowns, a power crisis and transport disruptions mean that Japan fell from AA+ to A- and is now tied with India on this measure of the Ease of Doing Business.

Japan’s brand equity also fell from AA- to A as perceptions of Japan as a safe and stable country fell massively, which shows the ramifications a disaster can have on a brand. In this background, what should NSB do in the future, purely from a brand perspective?

Next steps

Given that the Rs. 390 million deal between NSB and TFC can have its own ramifications from a brand perspective, the triple A rating that the brand earned for the ninth consecutive time can have a hit. In this backdrop, some of the key actions that the brand must activate in the future are as follows:

1.The brand must stick to its knitting of a savings bank and make a clear statement of its position to the depositors and its potential customers. The people who made the decision must be backtracked so that the brand can have a new leadership ethos and governance structure. A new brand communication campaign must be unleashed above the line and below the line especially at the branch level.

2.The branch managers must get into a direct communication with its customers and ensure that no fallout takes place.

3.A strong sponsorship campaign to demonstrate its brand strength must be done, focusing on the school children so that the parents may be reinforced due to the endorsement of the school.

4.A consumer promotion with a trusted brand like Singer be launched to reassure the relationship to its top loyal customers.

5.Ensure that the brand actions in future will be on the knitting of a savings bank so that a repeat can never happen.

(The author is an expert on category branding and an award-winning marketer in Sri Lanka. The thoughts expressed are his personal observations and not the views of any organisation he serves in Sri Lanka or internationally.)