According to EMI Strategic Marketing’s analysis of data from the Federal Financial Institutions Examination Council (FFIEC), U.S. banks spent $17.1 billion on advertising and marketing in 2016. This expenditure represented 2.4% of bank revenues. Five banks (JPMorgan Chase, American Express, Citigroup, Capital One and Bank of America) each spent more than $1 billion, and together accounted for more than half of the industry’s total expenditure. The following chart looks at 2016 marketing-to-revenue ratios for 20 leading U.S. banks (note that for JPMorgan Chase and Capital One, marketing spend data is provided for both their retail bank charters and card-issuing units).
Most banks grew their marketing spending in 2016, as they looked to drive revenue growth in an improving economy. 10 banks reported double-digit percentage rises in their advertising and marketing budgets. In some cases (e.g., KeyBank and Huntington), the strong increases were in part the result of significant bank acquisitions.
13 banks grew their marketing-to-revenue ratios in 2016.
Half of the banks in the chart (mostly branch-based banks) have marketing-to-revenue ratios of between 1.5% and 3%.
Several banks have been ramping up their marketing spend in recent years. Between 2014 and 2016, Santander Bank’s spend nearly doubled between 2014 and 2016, and its 2016 marketing-to-revenue ratio of 4.0% was the highest among branch-based banks.
At the other end of the scale, both Wells Fargo and BB&T have ratios consistently below 1%.
Credit card-focused banks/bank charters have the highest marketing-to-revenue ratios.
Chase Bank USA (JPMorgan Chase’s card-issuing bank) had a ratio of almost 20% in 2016. The sharp rise in the ratio from 2014 and 2015 was due to both a 6% rise in advertising and marketing spend (to support the launches of Freedom Unlimited and Sapphire Reserve), as well as a sharp decline in noninterest income.
American Express increased in its advertising and marketing spend by 15% in 2016, and its ratio rose to nearly 12%.
As banks look to scale back their branch networks both to save costs and adapt to changing bank channel usage (in particular for everyday banking transactions), they are also cognizant of the potential loss of the branch’s role as a branding beacon in local markets. Therefore, it’s likely that a portion of the cost savings from branch network reductions will be diverted to advertising and marketing budgets. As a result, we may expect banks’ marketing-to-revenue ratios to gradually increase in the coming years.
In recent years, banks have been primarily focused on cost cutting. However, as the U.S. economic recovery continues to gain momentum, banks are identifying opportunities for revenue growth. As banks look to capture this, they will obviously be looking at the size and composition of their marketing budgets.
EMI’s analysis of the latest FDIC data for 20 leading retail banks found little evidence that banks are growing their marketing budgets. In fact, marketing spending for these banks over the first 9 months of 2014 was 2% lower than the same period in 2013. As seen in figure 1, 10 of the 20 banks reported growth in their marketing budgets, led by PNC and Capital One.
These 20 banks invested an average of 1.5% of their net revenues in marketing during the first 9 months of 2014. Although this marketing-to-revenue ratio rose 2 bps y/y, it is well below the 2% average that existed prior to the financial crisis. For banks looking to grow revenues, they will need to return marketing-to-revenue back to this 2% level.
Figure 2 shows that 14 of the 20 banks have marketing-to-revenue ratios of between 1% and 2%. For Chase, Bank of America and Capital One, the ratios are for their retail bank charters; marketing-to-revenue ratios for these banks’ credit card charters are much higher (as seen in figure 3).
Of course, banks looking to increase their marketing investment in order to grow revenues also need to ensure that these marketing budgets are effectively deployed, in order to optimize marketing ROI. The following are some considerations for banks as they prepare marketing budgets for 2015:
Consumer perceptions of banks have changed. In the aftermath of the financial crisis, banks suffered reputational damage as they were seen as key contributors to the crisis. In recent years, banks have worked hard to change their business models in order to focus on their core competencies (and this has been recently seen in improved customer satisfaction ratings). Marketing will play a key role in communicating banks’ key positioning as trusted providers of financial services and support.
Consumer banking behavior has changed. Consumer adoption of self-service-channels (online, mobile, ATM) has now attained critical mass and these channels account for a majority of everyday banking transactions. These channels create significant advertising and cross-selling opportunities (and challenges) for banks.
Bank branches have untapped marketing potential. As everyday bank transactions move to self-service channels, banks are cutting branch numbers and reinventing various aspects of the branch (size, layout, staffing, integration with other channels). Banks should also consider the fact that the branch is the key physical expression of the bank brand, and should allocate a portion of their marketing budgets to capturing branches’ marketing potential.
Bank need to embrace non-traditional marketing channels. Younger demographic segments (such as millennials) have very different media consumption patterns than their older peers, with significantly higher usage of online/mobile and social media. However, banks’ innate conservatism has resulted in their failure to fully embrace new embrace new media. Banks need to both significantly increase their investment in non-traditional marketing channels, but also find innovative ways to convey their core messages to a new audience.
An analysis of 4Q13 and full-year 2013 financial results for the leading U.S. banks reveals that most are continuing to reduce their marketing spend. This is being driven by both economic uncertainty as well as banks’ long-term desire to cut costs and maintain profitability as they struggle to generate revenue growth.
Of the 12 banks studied, 8 reduced marketing spend between 2012 and 2013, with 5 of these cutting budgets by more than 10%.
Taking a longer term view, 8 of the 12 banks increased their marketing expenditure between 2008—when the financial crisis hit—and 2013.
At first glance, this would imply that banks have ramping up their marketing spend in recent years. However, many of these banks have changed dramatically during this period, mainly through acquisition. For example, Wells Fargo acquired Wachovia, Chase bought Wamu, and PNC purchased both National City and RBC Bank. So, to ensure that we are comparing like-with-like, we need to look at “marketing intensity”, which we define as the ratio of marketing spend to net revenue.
In 2013, there was a broad disparity in intensity for the various bank categories: highest marketing intensity (>8% of revenues) for branchless monolines, which have no branch networks and which are overwhelming focused on selling credit cards; lowest intensity for regionals (<2% of revenues); and megabanks tend to spend 2-3% of revenues on marketing, with the notable exception of Wells Fargo. Capital One is a monoline/branch bank hybrid, with a branch network but also a continued high dependency on credit cards; this is reflected in the 6% of revenue it devotes to marketing, higher than traditional branch banks, but lower than monolines.
So, even though 8 of the 12 banks increased their marketing expenditure between 2008 and 2013, during this period, 9 of the 12 banks reduced their marketing intensity levels. It is notable that the two “banks” with the highest marketing intensity—American Express and Discover—have both increased in intensity over the past five years. On the other hand, the largest decline was recorded by Capital One, which has been transforming itself from its credit card monoline to full-service bank.
As there are now signs that economic recovery is gaining strength, increases in consumer and business confidence should translate into a greater demand for financial revenues and opportunities for banks to grow revenues. However, the need for increased marketing investment to capture business growth will be battling against banks’ cost-cutting culture that has become in recent years.