Socks - check, pants - check, mortgage - check – The M&S bank, a brand extension too far?

You have picked up your new pants, found a nice pair of stripy socks and might even have bought a treat from the food section. Next would be paying your mortgage then. Yes, this is the new world for M&S customers after its announcement that it is launching 50 in-store banking branches over the next two years. So why is M&S, the bastion of the British high street, launching a bank? Well it’s a simple case of brand extension.

A brand extension is as it sounds, when a brand famous for one thing extends into another area, either product or service, to grow. M&S are another in a long list of companies and brands to do this. I can still remember when supermarkets used to just sell food, but my children will grow up thinking that Tesco’s has always sold toys, and spades and televisions and books. They will think nothing of a Tesco branded mobile phone service or credit card.

Brand extensions can be a good way to grow your business. If you are well known for one thing you may be able to take your brand equity, whatever you are known for to your customer base, and apply that to a new market and even take existing customers on that journey with you. Virgin started selling records and then took its reputation for customer service and innovation and moved into everything from air travel to banking. This though does not always work. You may remember Virgin Cola but you will struggle to buy a bottle today.

Brand extensions work best if they are linked to your current product or service. Also if you can take existing customers with you and use your brand equity in that market. Finally it helps if the competition in the market you are looking at are not dominant as Virgin found when they thought it was a good idea to try and take on Coca Cola and Pepsi.

In the case of M&S they know that their competitors are not dominant. A recent YouGov survey showed that 63% of consumers say that they cannot trust any bank and 57% not trusting any building society. M&S also has massive trust and associations with quality and service. It also has a loyal customer base of around 21 million shoppers. They also already have financial products from M&S money (owned by HSBC) such as savings, credit cards and loans but no physical presence for that brand.  So re-branding M&S Money to M&S Bank and extending to current accounts and mortgages with in-store physical counters is not that much of a stretch.

The new offering will be owned by HSBC but will operate as a profit share venture. No doubt both parties will hope that more of M&S loyal customers will use its new service and existing M&S money customers will take other products in its portfolio.  Whatever the result they certainly have followed the golden rules of brand extensions and with the current distrust of the banking system, have a chance of taking a share of a £10 billion market.

Tim Youngman is head of digital marketing for Archant follow him on twitter @timyoungman