Goldman Sachs and Morgan Stanley Make a Brand Mistake

The outcome of our current financial crisis is far from clear, but one thing is obvious to the Marketing Doctor: Morgan Stanley and Goldman Sachs have made a big mistake by turning themselves into commercial banks.

Unfortunately, I think theirs is a case of branding by desperation —never a good idea.

Here’s why:

1)  Morgan Stanley’s and Goldman Sachs’ brands have basically gone from being market leaders in one field (investment banking) to being rank beginners in another (commercial banking).  Their brands appeal to professional money people, not the man, woman or small business on Main Street.  Marketing is all about satisfying your customer’s needs, and Main Street has never really been part of the mix for these two companies.

There is also one huge difference between the two fields: risk.  As Warren Buffett once famously said: the CEO of a commercial bank ought to have a deep aversion to risk.  The opposite is true of the investment banker who embraces risk and higher returns.

2)  Neither Morgan Stanley nor Goldman Sachs have experience operating as commercial banks, even though both have the wherewithal to quickly ramp up these businesses (Goldman Sachs already has $20 billion in customer deposits and is reportedly creating GS Bank USA, which will have more than $150 billion in assets, making it one of the 10 largest banks in the U.S.) 

Both Goldman and Morgan Stanley will probably expand through acquisitions (beware regional banks, see this take from Bloomberg).  If they do, I hope they let these banks do what they do best and contribute to the revenue stream with minimal interference from above.  In other words, let these brands be themselves without trying to “improve” them.  Even so, neither company’s core characteristics match those of commercial banking.

3)  Neither company has a brand identity in commercial banking.  This might not have mattered even a few years ago, when commercial banks were expanding into financial monsters doing all sorts of different businesses; but times have suddenly changed, and we’re probably heading back to the old-fashioned banking model. (Either that or government ownership of most banks!)

In the financially conservative period ahead (i.e., emphasis on thrift and savings), Morgan Stanley and Goldman Sachs will be competing with established brands (i.e., Bank of America) who are already well on the road to growing their customer deposits. And how are they going to get customer deposits: open up branches, advertising, purely Internet banking?  Most likely, as mentioned above, it will be expansion through acquisitions of other brands; but it's not as if they are commercial banking conglomerates that can then fold these acquisitions into one unified brand that already has an established identity with consumers.  In short, the brands will be schizoid —great reputation in investment banking (wholesale); neglibile or negative rep on the retail banking side.  At best, they’ll be seen as risk takers who had no choice but to change their business model; and it’s never good to do a brand extension against your will.

While this move to become commercial banks might be absolutely necessary for their continued independence, it comes at a cost of much heavier regulation and a change in brand identity that will likely hurt their core businesses, which will continue to be investment banking.

From a brand perspective, I would say that Goldman Sachs and Morgan Stanley’s move smacks of desperation and confusion about their brand identity while putting their brands in competition with much more established brands and in conflict with their very own investment banking DNA.

If they are smart moving forward —and both of these companies have historically been very smart— then they will navigate these tricky marketing waters —but the situation is far from ideal.  This is because if you are a company that subscribes to the marketing concept, you identify your Target Market and provide it with the products it wants.  You could argue that going public was Goldman Sachs’ first marketing mistake because it made it subject to the whims of the stock market. (Their current situation wouldn’t even be happening if they weren’t public.)  Both companies need a marketing bypass, and that means figuring out who their Target Market is for the near- to long-term and then meeting its needs.

A little bit of history.  The photo above shows FDR signing the Glass-Steagall Act in 1933.  What Morgan Stanley and Goldman Sachs are doing is only possible because this rule, which separated commercial banks from investment banks, was overturned in recent years.  Who knows —with all of the cries for regulation, we might see something like it make a comeback (and yet another change for these two brands)!

And remember, it’s always easier when you keep marketing and branding in mind.