Written by Alex Letts: Founder of U
Picture the hair-care section of a popular health and beauty retailer (bear with me). Imagine all the different types of shampoo, the selection of products for dry hair, oily hair, normal hair, coloured hair, damaged hair, flat hair, fine hair, frizzy hair, curly hair — all sold under a huge roster of brand names.
90% of those brands are owned by the three masters of marketing: Unilever, L’Oréal, and Procter & Gamble. So even if you switch between Aussie and Head & Shoulders, TRESsemmé, Pantene, Garnier, Dove — you’re just buying from the same three companies.
It’s market segmentation at its best: products and pricing are carefully matched to a complex matrix of differing consumer typologies, ensuring that for any customer, each of these three companies has a relevant offering. It’s not random, it’s strategically planned. In the retail industry, one size does not fit all.
But in retail banking, it’s a different story. Unlike these global consumer-goods giants, UK retail banks offer one product for all, only with slight variants. Perhaps it’s fair to say that they sell bank accounts a bit more like burgers: large or small, with fries or without, milkshake or a coke. But at the end of the day, it’s basically the same burger, with or without some added value. It’s one homogeneous product repackaged in several guises.
The question is whether banking will continue to sell products like burgers, or adopt the more agile ‘shampoo’ approach. After all, it’s not that easy to churn out a new recipe — or a new brand — if you’re a bank. It’s not even that easy to introduce a new condiment, or a new soft drink, when you have legacy IT (and a legacy banking mentality).
Of course, P&G and Unilever didn’t build most of their brands. They waited for start-ups to show signs of consumer traction and then they bought them. For every new brand that they develop themselves, I’d guess that they probably acquire a dozen more. It’s expensive at face value, but safer, simpler and quicker for growth.
The real question is how many of the big banks recognise that one size no longer fits all? The Fintechs do. We segment the market and provide certain audiences with carefully tailored products. For Monzo read Aussie Shampoo; for Starling read Kerastase, for U Account, I guess, Alberto Balsam! Each of these companies is targeting its own slice of the market, and smashing it, because their customers see a product specifically tailored for them.
I don’t predict the demise of the big banks, but instead an inevitable leveraging of their final remaining advantage: muscle. They will decide eventually that homogeneity no longer works and that segmentation is the future. Only then will they gobble up the smaller brands to create their own portfolio of segmented offerings. And life will go on.
