Agency: Publicis Author: Nick Simmonds

From Uncertainty to an Abbey Ending

SUMMARY

This case history looks at an important part of Abbey National's advertising effort during 1989. It concentrates on corporate advertising developed with the institution's change of status to a public limited company (plc) in mind along with some specific mortgage advertising. The study attempts to show that advertising has played a fundamental and successful role in the smooth transition from building society to plc while the business of mortgage lending, crucial to profitability, was maintained and grown.

It was the 1986 Financial Services Act that provided new legislation allowing building societies to shed their mutual status and become plcs. The incentive to do so was provided by the opportunity to compete directly with other financial institutions. However, it was also felt by some that there was strength in mutuality and that customers were sympathetic to the history and ethos of building societies. Only Abbey National has chosen to become a plc and the process undertaken provides some insight into the difficulties involved.

Abbey National conducted extensive research into the issue which highlighted real concerns amongst key Abbey National customers and prospective customers about the change in status. In particular, there was a fear that shareholder pressure would result in mortgage rate rises. From Abbey National's perspective there was a worry that people would close savings accounts and switch mortgages unless some form of reassurance could be achieved. The issue of mortgage business was particularly important because it is crucial to profitability and at the end of 1988 Abbey National's share of the market was unacceptably low, standing at 4.8%. Consumer concerns were at their height at this time with the change to plc status timed for July 1989 and the preceding months highlighting the issue via the membership vote.

The mortgage market itself had changed dramatically by the end of 1988. From a period of strong growth and growing competition in the early eighties, 1988 saw the market start to contract and force lenders to fight hard for a share of the dwindling pot. Consequently, Abbey National had a major undertaking to ensure the smooth transition to plc while fighting hard for mortgage business.

Research led to the development of a brief for a new corporate commercial to be aired after plc status had been secured and designed to reassure a wide target that Abbey National would retain the building society values of warmth, friendliness and approachability despite the recent change. Also developed was specific mortgage lending TV and press work. The press in particular was required to convey a number of different mortgage product stories to a wide range of target audiences messages ranging from fixed rate offerings to customer care packages.

The corporate commercial itself features Lionel Bart and children singing the 'Abbey Endings' song in an endearing, reassuring manner. The 60-second commercial enjoyed two national bursts and the response was overwhelming. Tracking study data and qualitative research both confirm the impact of the commercial, its branding and its popularity. They also confirm that it succeeded in imbuing Abbey National with the key values of warmth, friendliness and approachability. In addition, the consumer response in terms of positive letters, the release of the record, spoofs on TV and creative awards all point directly to the film's success. It overcame the unforeseen horrendous publicity of the 'share fiasco' and the feared mass of account closures and mortgage changes simply did not happen.

The mortgage specific advertising also received two TV bursts while press ran throughout the year. With the backing of the corporate ad, this activity was able to overcome the problems of the mortgage marketplace and improve Abbey National's share of lending from 4.8% to 14.5% a major turnaround. As a result of this, pre-tax profits were increased by 21% an extremely positive performance.

Consequently, we believe that in a very complex and difficult market situation, advertising really has helped Abbey National achieve some tough objectives. The main effects of the corporate commercial are to some extent unmeasurable and it is easy to forget the volatility surrounding the launch of the plc when PR was extremely unfavourable. Nevertheless, it was critical that Abbey National was able to deliver good profitability growth in its first report to the city. The strong profitability performance allied to the positive mortgage share results shows how the clever use of corporate advertising helped Abbey National retain and improve its business when other institutions were much better placed to capitalise on the negative PR.

INTRODUCTION

This case history looks at an important part of Abbey National's advertising effort during the year of 1989. It concentrates on corporate advertising developed with Abbey National's change of status to a plc very much in mind along with some specific mortgage advertising. The case history seeks to show that advertising has played a fundamental and successful role in the smooth transition from building society to plc while the business of actual mortgage lending crucial to profitability was maintained and grown.

HISTORICAL BACKGROUND BUILDING SOCIETIES

Building societies have a particularly unusual history. They started life as a response to the migration of people from the country to towns during the industrial revolution and the consequent need for houses. Initially, they were 'terminating' societies: a group of perhaps 10 or 20 people contributed regularly until they had saved enough to buy land and start building. Members would draw lots to decide who was housed first! Payments would continue until all members were housed and the society then terminated.

In the early nineteenth century, there emerged societies which paid interest to attract investors who did not want a house, and permanent societies which did not cease to exist when all members were housed, but continued to borrow money from savers and lend to prospective house owners.

Building societies have by definition been mutual companies,wholly owned by their members and this has deeply affected their ethos and persona. The public at large tends to view these institutions with real affection a sentiment that is rooted in their historical past and the sense that originally everyone contributed equally to a society's funds and everyone shared equally in its assets. Although the number of societies has fallen dramatically over the years from 2,000 at the turn of the century to somewhat less than 200 today, the success of those remaining has been based firmly in the mutual ethic. In particular, it can be argued that mutuality:

  • has helped societies to maintain a positive public image as friendly organisations on their customers' side;
  • has reinforced their customer appeal as a safe depository for the savings of working people by restricting building societies to a 'straight and narrow path' of safe, low risk activities;
  • has contributed to high staff morale resulting in good staff motivation and a flexible attitude to work;
  • has fostered long-term management approaches.

FURTHER BACKGROUND ABBEY NATIONAL

Abbey National came into being as a result of the merger in the 1940s of the Abbey Road and National societies. It quickly grew to be one of the largest societies and now has representation throughout the UK. There remains a greater strength in its retail operation in the South and South East the headquarters are in London but over the recent past it has been the second largest society in the country behind only the Halifax.

The 1980s have seen perhaps the most change for building societies, especially Abbey National, since the early 'terminating' days. We will come on to the dramatic competitive changes in key markets a little later, but, as a direct result of financial deregulation under the 1986 Building Societies Act, the societies have been able to offer unsecured loans, insurance products, cheque accounts and credit cards. More importantly, the Act gave societies the power to convert themselves into public limited companies and it was on this course of action that Abbey National, alone so far amongst the societies, chose to embark.

Abbey National chairman Sir Campbell Adamson, in outlining the reasons for this decision has said that conversion would allow Abbey National to 'compete in a deregulated, highly competitive and highly commercial marketplace'. Everyone was also extremely conscious that managing the process and retaining consumer confidence were going to be extremely difficult tasks.

MORTGAGE MARKET BACKGROUND

While the prospect of plc conversion dominated the minds of many at Abbey National after the introduction of the 1986 Act, the ongoing business marketplace was changing out of all recognition. In particular, the mortgage marketplace had experienced vast change. Mortgage lending, as we will see in more detail later, is crucial to Abbey National's business and ultimate profitability. The market in the early 1980s was dominated by the standard repayment and endowment products with rates kept steady by an informal arrangement between societies. Then, with Abbey National in the forefront, the arrangement was broken, and huge growth was experienced on the back of the increase in owner occupation and the government's 'Right to Buy' council house legislation. This has resulted in a change from almost a building society monopoly to a market available to any supplier with funds available. The high street banks actively entered the market and new institutions such as the Mortgage Corporation have had a real impact, originally undercutting the societies by offering rates based on wholesale funding rather than retail funding (international finance markets rather than the domestic retail savings market). All of this has resulted in a marked increase in marketing activity for mortgage products and, indeed, an explosion in the variety of products available (see Figure 1).

Although building societies have invested heavily in promoting their mortgage business, the competition has too, and overall market share reflects the activity.

TABLE 1: MORTGAGE SPENDS (PRESS & TV)
BY INSTITUTION AND MARKET SHARE

19801985198619871988
Building societies
£000s--2,1499,07327,390
% Spend--204466
% Market share net lending10077735059
Banks
£000s-1,5105,2368,01710,387
% Spend-75503825
% Market share net lending-22183527
Others
£000s-5113,1363,7663,441
% Spend-2530188
% Market share net lending-191514
Source: MEAL & Abbey National

1988 saw yet further dramatic changes in the mortgage marketplace. In March of that year interest rates stood at an average of 10.26%, then, as the consumer boom fuelled by the budget became rampant, interest rates steadily rose until they had reached 13.7% by January 1989. Where once funding might have been a problem because of the market's growth, it became clear that 1989 would see all the key players fighting to steal share in a contracting market. Abbey National and the other societies would have the money to lend the key was going to be the fight for the dwindling number of borrowers. As the government's anti-inflationary economic policies took hold, mortgage demand declined and therefore new products designed to persuade consumers to switch from existing lenders were developed. Also, greater concentration was given to targeting specific groups of borrowers such as the first-time-buyer or even the 'careerist'.

ABBEY NATIONAL'S PROBLEMS

The importance of mortgage lending to Abbey National has already been alluded to. Historically, when societies started to offer interest to attract funds they also started charging interest on the money lent (see Figure 2). This single fact dominates Abbey National's profitability position.

In order to maximise profitability, Abbey National needs to lend as cost effectively as possible. Balancing the situation between money raised or invested and the money being lent is critical to all mortgage lenders. In some circumstances, if a society has not achieved a high level of 'liquidity', it will not be able to promote its mortgage products for fear of running out of money to lend. The management of this process, often with the use of advertising, is one of the paramount tasks for any lender.

For Abbey National at the end of 1988, the slowing down of the market's growth meant that liquidity was not a problem. What was a problem was its share of the lending market. At the very least Abbey National believed it should achieve a share of total market lending in line with its size of operation in comparison to other societies, ie around 12%. As it was, in the third quarter of 1988 its share was 9.0% and in the fourth quarter as low as 8.4% of building society lending, while its share of the total market was only 5.3% and 4.8% respectively (see Figure 3).

The problem of Abbey National's share position was compounded by the overall state of the market which has already been described. The task of improving share is made all the more difficult by the economic downturn, the property market recession, a contracting mortgage lending market and genuine economic problems for consumers in terms of being able to afford to buy first homes or move on up the property ladder.

The added dimension to Abbey National's marketing difficulties was the decision to aim for plc status by July 1989 with all the attendant problems that this could cause.

Abbey National plc status

The decision to seek plc status was not taken lightly and a vast amount of research was undertaken to assess the implications and to discover whether the members would be in favour in sufficient numbers. The reality of Abbey National's mutual status meant that the members owned the company and had to vote on its future. The research, both qualitative and quantitative, showed that the vote would be likely to be favourable, but that consumers, both Abbey members and non-members, were confused and uncertain about the change. In particular, people were fearful that plc status might mean that Abbey National, because of future shareholder pressure, would have to put an undue emphasis on profit delivery and force mortgage rates up. Others were concerned that their savings would no longer be safe. In general terms, it was the more traditional and uncertain consumer that feared most. Clearly, Abbey National had a major potential problem. Obviously it was a problem that concerned all its business, but mortgages would be likely to suffer as much as anything by this fundamental undermining of mutuality.

THE ADVERTISING OBJECTIVES

Having established the plethora of unfavourable marketing conditions facing Abbey National in 1988, this paper goes on to show that via judicious use of advertising, Abbey National has been able to improve its market position while converting to a plc and retaining building society values.

ABBEY NATIONAL BUSINESS OBJECTIVES

  • Achieve plc status with minimum business disruption in both the short and long-term.

  • Persuade the public at large that plc status would not result in Abbey National losing its warmth and approachability.

  • Manage the flow of mortgage lending in order to grow market share and improve overall profitability.

CORPORATE ADVERTISING STRATEGIC DEVELOPMENT

A bedrock of qualitative and quantitative research by BJM and NOP into the conversion issue had identified a set of five financial typologies.

The two groups most concerned by the loss of mutuality were those defined as 'anxious' and 'traditionalists'. Combined they comprised 47% of Abbey National's customer base.

The same research also revealed wide disparities in the image of banks and building societies,with building societies being seen as: warm, friendly, approachable, reassuring and safe while the face of banks was seen as harsh, aggressive, impersonal, unfriendly and efficient.

Much of the building society image dimensions are due to the historical mutuality described earlier. The loss of mutuality therefore could potentially weaken Abbey National's traditional image strengths, as well as alienating significant numbers of customers worried about the conversion.

The brief

Given the research findings, the key message for the post plc advertising had to be reassurance, with the main requirement being to produce advertising that would allow Abbey National to retain the positive building society values despite its change of status.

TV was seen as the best medium for conveying the emotional reassurance deemed necessary, and also for reaching the wide target audience identified.

Target audience

The most critical groups for Abbey National were, as previously stated, the traditionalists and the anxious, and this was reflected in them being identified as the creative target audience. However, the message was also relevant to the rest of Abbey National's customer base and prospective customers hence the much broader media targeting.

Creative Audience:Media Audience
Age:2545 (54)All Abbey National
Sex:bothmembers, potential
Marital status:bothAbbey National
Children:possiblycustomers and
Social class:C1 C2 (DE)Abbey National staff.
Income:£8,000+
Attitudinal group:traditionalists
and anxious

SPECIFIC MORTGAGE ADVERTISING

The main task for 1989's advertising was to overcome the hurdle of conversion to plc, but there was also a need for specific mortgage advertising. The ideal was to link this work through to the theme of the corporate commercial, but the mortgage specific advertising also had to provide some real impact and difference in the mortgage market itself.

The key requirement was to create awareness for a variety of product innovations targeted at specific sectors in the market.

TV was used to provide overall impact and awareness. The target audience reflected the wide spread of the communication and was defined as all mortgage borrowers and potential mortgage borrowers.

Press was used for the mortgage product specific advertising. The campaign had to have flexibility to cope with the different products, target audiences and messages. It needed also to link back to both new TV commercials.

A couple of examples of the diversity of the press target audiences are as follows:

First time buyers:
Age:2534
Sex:both
Marital status:single (and married)
Children:unlikely
Social class:(B) C1 C2
Income:£8,000+
Attitudes to finance:intimidated! Worried about the
whole process of getting a
mortgage

£60,000+ mortgage borrowers:
Age:3045
Sex:both
Marital status:probably married
Children:possibly
Social class:BC1 (C2)
Income:£15,000+
Attitudes to finance:confident and relatively
sophisticated, 'improvers'

THE ADVERTISING

The overall theme that was chosen to run through all the advertising developed was that of 'Abbey endings', a simple pun to reflect the positive and enjoyable experience one would have when dealing with Abbey National a summation of the consumer benefit. This was the sign off to the corporate commercial where it was used to denote the 'happy endings' to all things Abbey. In the mortgage advertising, the line featured as 'Mortgages with Abbey endings'. This clearly conveys the same sentiment, but specifically for mortgages. The line highlights the sense of happiness in achieving a new home, as well as that of Abbey National being easier to deal with for borrowers in difficult times.

Corporate commercial

The corporate commercial developed features Lionel Bart at the piano playing a tune and singing a song. He is surrounded by children who variously play, dress up in clothes from an old box, help sing the song and prove to be extremely endearing. The lyrics of the song are deliberately general and only refer to savings and lending without getting into any particular product sell or, indeed, corporate sell.

Ideally, all the positive building society values are wrapped up in the commercial and made to stick to Abbey National.

Mortgages TV commercial

The mortgages TV commercial features the 'Mortgages with Abbey endings' line by linking three film style vignettes each providing an ending. The first is a classic 1970s gangster movie which refers to high value mortgages (over £60,000), the second is a science fiction spoof with the promise of mortgages to 'suit all types' and the third is a romantic 1940s love story in which a first-time-buyer couple achieve their dream cottage because of Abbey National's low start mortgages, the final promise being 'Mortgages with Abbey endings.'

Mortgages press

The press campaign also features the 'Mortgages with Abbey endings' line as a sign off to the copy story.

It has already been stated that Abbey National was looking to a number of new product initiatives to help excite interest in its products. In general, most building societies offer broadly comparable products across mortgages (and savings). The situation in 1989 was no different, although Abbey National sought to create a genuine short-term competitive advantage via its remortgage package. Press treatments included:

  1. Remortgage package
    Designed to persuade £60,000+ mortgage borrowers to switch to Abbey National for a better rate.
  2. Low start mortgages
    Designed to bring in first-time-buyer custom via special mortgage products that allow for lower payments in the early years.
  3. First time buyers' package
    A package to help the apprehensive and intimidated through the first-time-buying process.
  4. Fixed rate targeted at first time buyers
    Highlight the attractive, limited-offer rate, especially of use to first-time-buyers.
  5. Customer care (1)
    Provide reassurance to the increasing number of people having difficulties with mortgage payments.
  6. Customer care (2)
    Highlight the fact that Abbey National looks after its customers better than other lenders, eg by automatically making rate benefits, designed to attract new business, available to existing customers.
  7. Deferred payment mortgages
    To attract those consumers with good career prospects via an initially low-payment mortgage product.

While the aim of Abbey National was to highlight mortgage generating new products, the advertising was also developed to give a sense of Abbey National being 'on your side', looking to provide solutions to people's mortgage problems in an ever more difficult marketplace.

Media

The corporate commercial was timed to first appear after the transition to plc was finally completed on 12 July 1989. It received two bursts, the second timed for September when those savers with less than £100 in their accounts were due to discover how much money they would receive from Abbey National. The activity was national and a very small additional burst featured in the second week of December.

The mortgage specific TV had two near national bursts early on in 1989 while press activity ran throughout the year. See Figures 4 and 5.

THE EVALUATION

How the corporate advertising performed

With regard to the corporate commercial and the concerns with the change of status, what could not have been foreseen was the huge problem encountered by Lloyds in dealing with the mechanics of the share issue. Having publicly stated that all share certificates would be received by the start of trading, Abbey National suffered a huge loss of goodwill and was hit by vast amounts of bad publicity when shares were not delivered, went missing or were finally found burnt in a skip in South London.

Tracking study data reveals that the corporate commercial delivered high levels of recall, high levels of branding and extremely high levels of positive impressions. The commercial does particularly well in terms of creating impact, generating awareness and communicating the 'Abbey endings' sentiment.

TABLE 2: ABBEY NATIONAL TRACKING STUDY: CORPORATE COMMERCIAL

19881989
SeptOctNovJanMar
%%%%%
Advertising recall2742384542
Specific recall of Abbey
National via advertising2745444041
Any positive impressions
of advertising6078746376
Source: BMRB

Extensive qualitative research has also confirmed that the commercial delivered its message of reassurance to all the key target audiences including Abbey National staff. Respondents read a variety of positive values into the commercial such as:

Happy endings from Abbey National from when you are young to old age. Security is their speciality.
Facilities for old and young and those with imagination. Start saving young and benefit in later years.
Trying to say everyone young/old, white or black can save with Abbey.

When asked to relate what values the commercial suggested Abbey National stood for, respondents said:

One big happy family, continuous involvement, security, no money worries.
Source: HPI

Another test of the commercial's effectiveness was the fact that Abbey National did not suffer the feared flood of saving account closures and mortgage switching. (In fact, there was a positive effect on mortgage lending during 1989.) Further evidence suggests itself. Even at the height of negative press comments with regard to the share flotation, the commercial was the single ray of light drawing a favourable response wherever it was reviewed and being featured in a number of press articles attention not normally given to advertising. The line 'Abbey endings' was also featured and parodied by the national press.

PR value of the advertising

The enthusiasm was not confined to the newspapers. More recently, both Bobby Davro and Spitting Image have 'sent up' the commercial, while Lionel Bart's career has been rejuvenated as he appeared on Jameson Tonight and Aspel. (The commercial was also played.) In addition the tune was re-recorded and released as a single by EMI. The advertising therefore also received significant DJ coverage and comment on radio. Finally, the commercial has won a number of advertising awards which include a Creative Circle bronze, two British Television Award silvers, a Eurobest and the Ivor Novello award for music written for advertising.

How the specific mortgage advertising performed

The mortgage specific TV and press activity combined to communicate the range of mortgage product offerings and the 'Mortgages with Abbey endings' sentiment.

As far as the press advertising is concerned recent qualitative research has suggested that it is a highly impactful, simple yet informative campaign. It clearly communicates product benefits and does suggest the feeling that Abbey National are 'on your side' and trying to help.

Comments include:

I like that, the numbers are clear and it tells you what it's about.
It's saying come in, we can help you.

As far as some of the new product areas are concerned, Abbey National enjoyed enormous success with the remortgage package designed to encourage switching and the fixed rate products that were launched in September. In fact, the first fixed rate product sold out within two days and advertising had to be pulled and in total the remortgage package did just over £1,000 million worth of business. In overall terms, Abbey National's share of mortgage approvals improved during 1989 as shown in Figure 6.

These shares represent a remarkable turnaround in the fortunes of Abbey National's mortgage lending. They show a marked improvement despite the difficulties of a shrinking market, intense competitive activity and the problems brought on by the change of status. They do show, I believe, a success story based on the judicious use of advertising advertising that in one form or another has had to be defensive, tactical, thematic, awareness-generating, informative and hard-hitting to a variety of people and with a variety of messages.

A glance at the profits that Abbey National returned in 1989 will further prove that in the area of mortgage lending, Abbey National were able to get their sums right.

TABLE 3: ABBEY NATIONAL 1989 PROFIT/LOSS

19881989% Increase
Pre-tax profits (£ m)414.0501.0+ 21%
Deposits and loans raised (£ bn)29.633.7+ 14%
Lending loss repayments (£ bn)3.44.2+ 24%
Assets (£ bn)31.537.2+18%
Liquidity18% assets18% assets-
Capital expenditure (£ m)70.085.0+ 21%
Source: Abbey National Company Report

CONCLUSION

In a very complex and difficult market situation, advertising really has helped Abbey National achieve some tough 1989 objectives. The main effects of the Corporate commercial are to some extent unmeasurable and it is easy to forget the volatility surrounding the launch of the plc when PR was extremely unfavourable. Nevertheless, it was critical that Abbey National was able to deliver good profitability growth in its first report to the city. The strong profitability performance allied to the positive mortgage share results, we believe, shows how the clever use of corporate advertising helped Abbey National retain and improve its business when other institutions were much better placed to capitalise on the negative PR.

NOTES & EXHIBITS


From Uncertainty to an Abbey Ending

FIGURE 1: MORTGAGE PRODUCTS: TOTAL MEDIA SPENDS
(PRESS & TV)

Source: MEAL

From Uncertainty to an Abbey Ending

FIGURE 2: SIZE OF MORTGAGE MARKET � TOTAL VALUE OF NET ADVANCES

Source: BSA

From Uncertainty to an Abbey Ending

FIGURE 3: ABBEY NATIONAL SHARE OF BUILDING SOCIETY NET LENDING AND TOTAL MARKET NET LENDING

Source: Abbey National

From Uncertainty to an Abbey Ending

FIGURE 4: ABBEY NATIONAL ADVERTISING ACTIVITY VERSUS MORTGAGE SHARE JAN�DEC 1989

Source: TMD, Media Register, Abbey National

From Uncertainty to an Abbey Ending

FIGURE 5: COMPETITIVE SPENDS ON MORTGAGES JAN�DEC 1989

Source: Media Register

From Uncertainty to an Abbey Ending

FIGURE 6: ABBEY NATIONAL SHARE OF BUILDING SOCIETY NET LENDING AND TOTAL MARKET NET LENDING

Source: Abbey National