Brands Create Customers

By now we’ve all heard how subprime mortgage loans fueled the current real estate bust and financial crisis. One of the most startling results of this disaster is the sight of new homeowners “walking away” from their homes as their house values decline and jumbo mortgage payments approach.

There is broken trust all over the place. If we consider brands at the macro level, “walking away” is a brand problem.

Walking away: when brand culture fails

How can anyone walk away from their dream home—and their obligation to pay it off? That’s like walking away from the American dream, our cultural DNA and work ethic.

While the great majority of these new homeowners aren’t walking away (at least not yet), those that do must feel deeply betrayed by their lenders and by the home-buying process. To me, this widespread breakdown in trust signals a deep-seated brand failure. Walking away is a sign that an brand culture has collapsed, and that is a serious failure indeed.

A $2.5 trillion brand problem

When customers willingly abandon your product, and put themselves and you at financial risk, you’ve got a brand problem. The ties that bind are broken. Approximately $2.5 trillion in subprime loans have been issued, and a significant number of these loans are now working against the homeowners who have them.

A snapshot of the issue:

Subprime mortgages are high-cost home loans intended for people with weak or blemished credit histories. Higher interest rates make sense for higher-risk loans to a point, but the subprime market has been rife with problems that are rare in the mainstream prime market: excessive fees, high penalties for refinancing, refinances that provide no real benefit to homeowners, and steering families into more expensive loans when they qualify for a better rate.

In recent years, subprime lenders and brokers flooded the growing subprime market with dangerous mortgages that come with “exploding” adjustable interest rates. The result is a massive epidemic of foreclosures that is harming families, entire residential communities, not to mention the availability of credit at home and abroad.

What went wrong, brand-wise? We could point to a number of things, but what stands out to me is a new sales-driven mortgage ethos undermining an established (aggregate) mortgage brand culture with mutual protections.

Creating a brand culture

When a brand creates customers it also creates a brand culture. The brand culture is the context of value creation produced by a company and its customers as they work together going forward. It consists of values and relationships that sustain the customer in the new freedoms and opportunities that the brand provides. The brand culture is a collaboration—in context, in identity and in value, core and edge, interactive and reciprocal, kept as dynamic as possible to foster initiative and innovation.

The brand culture of banking and lending

In the home-buying business, the classic brand culture is the iconic culture of banks and banking. This brand culture works as a collaboration between buyers and lenders to create value through the new home, over time. Traditionally, it’s a deliberate, disciplined and measured process, because of the responsibilities and the monies involved. Roles and relationships are very carefully defined. You don’t rush a 30-year relationship.

Elements of the banking and lending brand culture

Elements of the traditional banking and lending brand culture include:

1. Full disclosure and transparency among all parties
2. Procedures to qualify buyers, and to weed out unsuitable candidates to preserve the integrity of the process
3. A process to conform expectations to financial realities
4. A “long-term” perspective (30 years, fixed)
5. Multi-stage lender/buyer interactions, to minimize errors
6. A partnership in incremental value creation grounded in the community (traditionally via “the bank” not far from one’s house).
7. A relationship of reciprocity, opening up future lines of credit and service

This brand culture is one reason why bank brands have traditionally been among the world’s strongest, vault-like in their integrity, and earning deep customer trust.

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