Tuesday, July 13, 2010

Repositioning Financial Services?

An interesting article in the WSJ today talked about whether financial services are headed to a new venue.  That is, the supermarket.  The article speculates what might be a sign of things to come based on a recent deal by Sam’s Club to offer small-business loans up to $25k in stores through a partner lender.

What’s interesting is that this idea is not new.  Sears bought Dean Witter back in the 1980s to combine retailing and financial services.  Also, banks have had branches and ATMs in supermarkets for years and H&R Block has offices in strip malls throughout the country.

The idea goes something like this.  Consumers shop in retail stores.  Consumers need financial products like checking accounts, mutual funds, and loans.  So, put these together and we have an “innovative” approach to selling financial services.

The question that needs to be asked is, “Are these really related in the mind of the consumer?”  In other words, do consumers really see financial services as part of their weekly grocery shopping experience?  It is understood that having them physically located in the same place makes sense from a convenience perspective.  That’s not really what I am talking about.  Rather, in the mind of the consumer, does Sam’s Club “have the right” to offer financial products.  Is the Sam’s Club brand connected to financial services?

Many companies try to make this leap by extending their brand to other product categories.  Some are quite successful, like Virgin Group extending from record labels to transportation (airline, trains) and video/game stores, while others fail miserably diluting their brand value by confusing their customers.


In financial services, the WSJ article reasons that it makes sense to combine products that have largely become commodities (like mutual funds) with either trusted retailers or financial information-providers, such as Microsoft and Yahoo, who have built up goodwill and a brand name with their financial websites.  However, if I were an executive in one of these companies, I would really want to know how the brands are connected in the minds of the target customer before I spent billions acquiring companies hoping to extend into financial services.  What do you think?