Karan Chadda

Global digital marketing and communications leader

The posing heron

Walking through Bushy Park last week I came across a pretty rare sight: a heron sitting in a willow tree.

I like taking wildlife photos but I’m not very good at them; partly because I don’t have a telephoto lens yet, partly because I don’t want to disturb the animals, and mainly because I’m not a very good photographer.

Anyway, slowly I walked closer to the heron to see if I could get a close up.

As I approached he turned toward me but clearly decided I was neither scary nor interesting and just sat there crouching in the willow tree while I took photos of him.

I snapped away and it quickly became apparent that this particular heron is a bit of poser.

Deciding he didn’t want too many photos of him slouching, he started to stretch his neck out.

Finally, he stretched fully out, beak pointing skyward, in what is no doubt his favoured pose.

Switching on competition

The Independent Commission on Banking (ICB) published its final report last week. While much of the reporting focused on ring-fencing and capital ratios, one important part went under-reported: competition.

Politicians and regulators have long seen competition as good for consumers. It is said to drive up standards and drive prices down. However, the retail banking is a very concentrated sector – the ICB report funds that the “largest four banks account for 77% of personal current accounts and 85% of SME current accounts”.

So how can we increase competition?

One answer, according to the ICB, is to make it easier for people to change who they bank with, commonly referred to as switching.

This concept is popular among regulators in a number of sectors, Ofgem, for example, looks at switching rates as one indicator of competitiveness among energy suppliers. It doesn’t require the state to intervene and break up firms, it is easy to measure and it is easy to apply to industries which have large barriers to entry.

However, despite the growth of price comparison websites and national advertising campaigns by energy companies only around half of consumers have switched their energy supplier – and this is during a time of squeezed incomes and double-digit energy price rises.

The Energy Secretary, Chris Huhne, recently told The Times (£) that consumers don’t put enough effort into getting the best deal.

“They do not bother. They frankly spend less time shopping around for a bill that’s on average more than £1,000 a year than they would shop around for a £25 toaster.”

If consumers aren’t changing energy suppliers, there’s little evidence to suggest that they’ll switch between banks. So will encouraging switching really switch on competition?

The difference between reputation and brand

It’s not uncommon to see the words reputation and brand substituted for one another in a manner not dissimilar to the way politicians use the words deficit and debt interchangeably. Like debt and deficit, brand and reputation are linked, but they aren’t the same thing.

By far the best definition of a brand that I’ve heard was given by Interbrand’s Rita Clifton who described a brand as the “organising framework” for an organisation. It is central to an organisation and guides everything from the logo and the colour of the reception sofa, to how its products are developed and the way its employees interact with customers, suppliers and one another. The key point is that an organisation owns its brand – it defines and controls it.

Reputation is a different beast. Reputation is how everyone who comes into contact with an organisation, and those who have never come into contact with it, perceives that organisation. Reputation is owned by people not organisations. Reputation is individual. My perception of a company is different from your perception of that company.

Reputation can be influenced, perceptions can be changed over time, but a company can never actually own its reputation.

A taxing solution

Governments across the globe are trying to reduce their budget deficits by reducing spending and increasing revenues. These are the only options available. Governments must set their strategies by deciding what level of spending reduction, revenue increase or both they want to go for. They then need to use all the tactics at their disposal to achieve their deficit reduction targets with minimal pain.

One tactic, used to some success in India, is to make people want to pay more tax.

For the last few years, lists of those who pay the most tax have been compiled in India. It is an imperfect system – tax systems are complicated and many wealthy people pay little in terms of direct taxes, but may pay a lot in other taxes. However, the list is coveted and usually dominated by Bollywood superstars.

For this tactic to work, the value of being seen to pay a lot of tax has to be greater than the value of the tax paid. It’s no surprise then that in India people working in sectors where reputation and public support are important (such as movies) tend to feature in the list.

Last week, Warren Buffett wrote an opinion piece for The New York Times asking the US Government to increase the tax burden on him and his “super-rich” peers. Today, the FT reports that 16 wealthy French individuals have called for an additional tax on the rich as a gesture of national solidarity.

This shows that not only is it possible to make people want to pay more tax, there are already some wealthy people willing to do so.

Regulators flexing their muscles

Recently, Sir Ken Morrison was fined £210,000 by the Financial Services Authority (FSA) for failing to inform the market of share sales in good time. The FT (£) quotes a partner at a city law firm as saying:

“This is a very significant fine for breaches of what some people have regarded as a ‘technical requirement’.”

The fine issued to Sir Ken is not unique. The chart below shows FSA have been handing out more fines since the financial crisis hit.

Indeed, the FSA’s records show that last year, they issued £89 million worth of fines compared to £7.4 million in 2002 (the first year for which data are available).

The credit crunch saw calls for financial regulators to be given greater powers. Although some new powers have been granted, it is worth noting that the FSA is also using its existing powers to a much greater extent. This trend is visible in other regulated sectors.

Alastair Buchanan, chief executive of Ofgem, has taken a very confrontational approach to the energy industry. Discussing competition among energy suppliers, The Times (£) quotes him as saying:

“We will pursue breaking up the stranglehold of the Big Six on the electricity market to encourage more firms, like new arrival the Co-op, to enter the energy market and increase the competitive pressure.”

Other examples of regulators flexing muscles include the continued pursuance of BAA in order to further reduce its influence in the airports sector and the Office of Fair Trading’s (OFT) referral of the concrete and aggregates sector to a Competition Commission enquiry.

The upshot of this new, more confrontational style of regulation is that companies are facing more immediate regulatory challenges than previously thought. The days of light touch regulation are over.

The big issue for companies operating in regulated industries is how to deal with regulators who will not only have a greater number of powers but also demonstrate a greater willingness to use them.