News Release: Finance and Economics

Apr. 17,  2009

Is Finance by Any Other Name Still as Sweet?

From Knowledge@Emory

As the federal government continues to hand over billions of taxpayer dollars in a bid to rehabilitate Wall Street firms, some people are asking if the financial aid also should be accompanied by a name change—a sort of corporate facelift designed to hide the blemishes that currently taint many financial services firms.

A fresh identity might in fact help out say some faculty from Emory University's Goizueta Business School. But the leg up is likely to be cramped unless it’s supported by significant changes, they add.

“The advantage of rebranding is the opportunity it may offer companies to get away from negative associations,” says Ryan Hamilton, an assistant professor of marketing at Goizueta. “This is especially important for companies like AIG, which are drowning in bad press. The challenge will be in actually creating the new brand awareness among customers. It’s an expensive and lengthy process.”

In fact, AIG has already taken some steps to do just that.

On March 9 the wounded financial giant announced that it will form an insurance holding to be called AIU Holdings, Inc., with its own board of directors, management team and brand.

“I think the AIG name is so thoroughly wounded and disgraced that we’re probably going to have to change it,” AIG’s chief executive officer Edward Liddy reportedly told a congressional subcommittee.

The company also has changed the name of its auto insurance arm from AIG Direct to 21st Century Insurance.

Hamilton says the company could simply chuck the name entirely and replace it with a different one that is not tainted with any controversy. But that approach has its drawbacks.

“Simply slapping a new name on a company may not wipe out past associations,” he says. “Philip Morris & Co. changed its [holding company] name to Altria in an effort to distance itself from the association with tobacco—the company also owned food and other brands—however, newspapers still routinely refer to Altria as ‘the former Philip Morris,’" even though the changeover occurred in 1985.

The challenge may be particularly tough for financial services companies, which typically deal with savvy customers.

“These companies are not mass-market brands,” Hamilton says. “Their customers are sensitive to these issues. It’s not like you’re talking about a consumer group that’s buying potato chips, where the consumer is a lot less likely to connect the dots between a new brand and its earlier incarnation.”

That’s because a person who buys snacks, for example, is making a decision based on taste and other traits, and likely is not concerned with the food company’s corporate parent or even the management team.

“In contrast, financial services are tied into a network of associations with key players,” he says. “These are individuals whose skills and judgments are a key part of the company’s success or failure. So their reputation—and the reputation of the corporate parent—does matter and if that identity is now clouded, the company may have to make some strategic decisions about whether or not the presence adds to the firm or detracts from it.”

Bank of America, which last September announced it was buying Merrill Lynch in a $50 billion all-stock transaction, will have to consider that issue, adds Hamilton.

“The transaction gives Bank of America a historic name and immediately boosts its retail presence [adding 16,000 Merrill financial advisors to B of A’s stable of 4,000, according to a Bank of America announcement],” Hamilton points out. “But there’s also a lot of baggage associated with the Merrill brand, as a result of the economic fallout and the big bonuses that were reportedly disbursed to Merrill executives,” even as taxpayer money was bailing out financial institutions.

On the other hand, Hamilton suggests that the entire financial services industry is tarred by the economy’s collapse, potentially reducing the value of a rebranding campaign.

“I’m not sure how much of a relative advantage would be gained by rebranding in the immediate future,” Hamilton says. “The entire financial services sector is suffering from a lack of consumer confidence. It’s not clear that consumers would be willing to trust a new financial services brand right now more than they would a more established brand—even one with a less than sterling history.”

In fact, financial services firms will not benefit from a stand-alone rebranding campaign, according to Jagdish Sheth, a chaired professor of marketing at Goizueta.

“In general, it may be desirable to rebrand when a company’s image carries negative or obsolete connotations,” says Sheth, pointing to businesses like the discount retailer F. W. Woolworth Company, which rebranded as Foot Locker Inc., a sporting goods company. “But companies like AIG, which do not sell products in the traditional sense, must earn a new reputation by either changing their basic business strategy and operations or by establishing a new division that does so.”

He also cites examples like AT&T, known primarily as a phone company, which branched out into technology by establishing a new division [later spun off and ultimately acquired by a French telecommunications firm] known as Lucent Technologies.

Similarly, Hewlett-Packard Company, an information technology firm, rebranded by creating—and later spinning off—Agilent Laboratories, which concentrates on electronic and bio-analytical measurement.

Sheth says that for financial firms like AIG, rebranding is likely to be aimed at shareholders instead of retail customers.

“We see this in campaigns like Woolworth Co., where corporate brand matters more to investors than to consumers,” he says. “We also saw this when Philip Morris set up a new holding company named Altria. Even though it was still heavily involved in the so-called sin stock of tobacco, the company wanted to distinguish itself from the tobacco category in the hope that investors would see it as a next-generation operation.”

Financial service companies also could break up the central brand, and set up separate divisions as affiliated companies, with each one having its own brand name.

“Something similar to this occurred at AT&T when it was forced to break up into separate “baby bell” units,” Sheth explains. “Each company took on a new corporate identity, like U.S. West [which was later bought by Qwest Communications International Inc.].”

In addition to the tactical considerations related to branding, Sheth says financial services firms should also consider a strategic issue: do they want to be considered a branded house, or a house of brands?

“There are significant differences between a branded house and a house of brands,” he says. “Deciding to use one or the other will likely depend on a number of factors.”

Under a “branded house” model, many or even all of a company’s subsidiaries operate under a single name.

Examples include Bank of America, which acquired FleetBoston Financial Corp. in April 2004 and rebranded it under the Bank of America name and logo.

“In contrast, consider a company like Procter & Gamble, which is a house of brands,” Sheth says. “Although P&G makes a variety of products, including personal care items like Ivory soap, laundry detergents like Tide, and snack foods like Pringles, each product line has its own brand and identity.”

Generally, a “house of brands” strategy is useful when a company fields products that have distinct characteristics, and distinct target markets or cultures, according to Sheth.

“A house of brands approach lets P&G tightly focus each brand,” he notes. "It also enables P&G to avoid a brand association that might be at cross purposes with another brand offering, potentially hurting the other brand's performance.”

A branded house approach might be adopted when a company’s product lines share common target markets, or if they share a common overall category.

“Citibank is a branded house,” says Sheth. “Financial services like banking, insurance and investments are all brought together under the Citi name.”

The approach has the advantage of helping to cement the concept of a corporate identity, but Sheth warns that it also can expose the firm to more damage in the event of a mishap.

“In a branded house, a slip-up by any one product line may place the reputation of the entire company at risk,” he says.

There may be some backlash against Bank of America, for example, following its acquisition of Merrill Lynch.

In response, says Sheth, Bank of America may wish to maintain a separate identity for Merrill Lynch instead of bringing Merrill’s operations under the Bank of America logo.

“This approach is known as the ‘master brand’ approach,” Sheth explains. “It leverages the corporate parent identity, but also establishes some separate brands.”

Coca Cola for example, has more than a dozen varieties of cola drinks under the Coke and Coca-Cola names, notes Sheth.

But the company also fields soft drinks under brands that include Canada Dry, Fresca and Hi-C; and energy drinks like Full Throttle and Powerplay.

“That could be the answer for brands like AIG and Merrill Lynch,” says Sheth. “They could break out into a series of smaller brands, and transform the current corporate brand into a smaller component of the overall company.”

For financial services companies, there’s some urgency about the issue of rebranding, observes Brandon Smith, a senior lecturer in the practice of management communications at Goizueta.

“Right now, many people have questions about financial organizations,” says Smith, who is also a founding principal of Core Growth Partners, a growth strategy and executive development consulting firm. “The decisions they have to make about rebranding are very important and challenging.”

It’s primarily a question of what kind of value the financial firms can offer as the economy moves ahead, he says.

“Right now people are concerned about the economy’s stability, and there’s a big rush to safety,” he says.

Anecdotal evidence indicates client turnover is increasing among financial services companies in reaction to their “insensitive response” to the turmoil.

“Overcoming this perception may entail a leadership change,” Smith notes. “There is precedent for this approach in other situations, including the Big Four accounting firm KPMG.”

In August 2005, the Internal Revenue Service and the U.S. Justice Department announced that KPMG admitted taking part in a sophisticated but fraudulent tax shelter scheme that generated at least $11 billion dollars in phony tax losses that resulted in at least $2.5 billion dollars of evaded taxes. A series of top former KPMG executives were indicted in connection with the scheme.

The firm itself avoided criminal prosecution by cooperating with authorities, but was fined $456 million.

“As part of its efforts to clean house, KPMG appointed Timothy Flynn as the new global chairman,” says Smith. “The firm needed to have a leader that was not tainted by the scandal. Flynn quickly admitted that there were problems at KPMG and took decisive steps to change the firm's governance structure and culture.”

But some faculty members say that companies may be able to rebuild their reputations without taking the extreme step of a leadership change.

“In my opinion, Wall Street firms will gradually rebuild their reputations over time,” says T. Clifton Green, an associate professor of finance at Goizueta. “Historically they are not big advertisers, so I think this will happen more by just trying to stay out of the news. If and when AIG is able to emerge from government ownership, though, I think the company will seriously consider a name change.”

Or will it?

For Douglas Bowman, a professor of marketing at Goizueta, a name change may not be vital since it provided very good service to its customers. “If I understand the AIG situation correctly, it's a little different than the average consumer financial services firm,” Bowman says. “It seems like the company would insure almost any risk its [business] customers asked them to take on, so its customers must love it.”

He says companies like AIG are different than firms like ValuJet, a low-cost air carrier that suffered after one of its planes crashed in May 1996, killing 110 people. In July 1997, ValuJet announced it would acquire a smaller air operator named AirTran Airlines; in September 1997, the company retired the ValuJet name and took on the AirTran moniker.

“AIG's customers should be sophisticated enough to see past any baggage from the past,” says Bowman. “I’m not so sure that AIG and similar companies really need to rebrand themselves.”

 

Tom Smith, an assistant professor in the practice of finance at Goizueta, says the benefits of rebranding may be mixed when it comes to financial services firms.

“AIG does some business with consumers, but is also the go-to institution for many banking and wholesale insurance companies, so in some respects rebranding will not matter much for AIG,” he explains. “On the other hand, perhaps companies like Bank of America should consider a re-launch of Merrill Lynch, perhaps trying to reposition it by noting its history, while getting the message across that things are different.”

From a public relation standpoint, it would help if the firms at least take responsibility for their actions, Smith adds.

“It’s a good idea not to blame others for what happened, and try to shift the attention away from what went wrong and instead focus on your product,” he says. “Think of what happened when Coca Cola introduced “New Coke” [in 1985] and consumers rejected the new taste. The company quickly reintroduced the original formula, labeling it as “Classic Coke.” This was a case where rebranding did work.”

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