Category Archives: Commercial Banking

Leading U.S. financial institutions grow marketing spend in 1Q11

Financial institutions (FIs) reported continued strong growth in advertising/marketing spending in their quarterly financials.  The 10 leading financial institutions in the chart below spent a combined $3.0 billion on marketing in the first quarter of 2011, a growth rate of 19% over the first quarter of 2010 (and this comes on top of a 18% increase between 1Q09 and 1Q10).  8 of these FIs reported double-digit growth rates in 1Q11, with particularly strong growth rates for Discover (+60%), Capital One (+53%) and Citi (+31%).

 

For most FIs, this increased marketing has not yet translated into significant revenue growth.  In the coming quarters, they will be expecting to leverage some of the beneficial impacts of their investment (such as growth in checking accounts, as well as improved customer retention and satisfaction) into increased revenue as economic recovery continues.

One FI that can show the bottom-line impact of its marketing investment is American Express.  Following the financial crisis, Amex shifted its marketing focus to drive increases in card spending, which has resulted in strong growth in recent quarters.  In the most recent quarter, its U.S. Card unit reported an increase in card spending of 15%, which translated into a 9% rise in noninterest revenue.

Growth top of the agenda in banks’ upcoming quarterly financials

Since the onset of the financial crisis in the second half of 2008, much of the coverage of banks’ quarterly financials has focused on the quality of their loan books. With key credit quality metrics starting to come under control, banks have reported profitability growth in recent quarters, with much of the profitability coming from lower provisions for loan losses.  With credit quality metrics starting to return to normalized levels, the focus of attention is now starting to shift towards revenue generation (both net interest income and noninterest income).

Net interest income of course is dependent on loan growth, as well as the net interest margin.  For many banks, the net interest margin has risen in recent quarters, as the deposit mix has shifted to non-interest and low-interest deposits.  However, banks now also need to show evidence that of growth in their loan portfolios.   Leading bank card issuers have indicated that credit card outstandings will grow in 2011.  In recent quarters, banks have reported significant growth in small business loan originations (although overall small business loan portfolios continue to shrink).   And banks are indicating growth in other lending categories, such as auto lending.  So, for 1Q11 financials, industry experts will be looking closely at banks’ loan portfolio details to find evidence of loan growth.  They will also be listening closely to bank executive statements on the prospects for loan growth for the remainder of 2011.

Industry observes will also be looking at noninterest revenue closely, focusing on overall revenue growth, composition of noninterest revenue and statements by bank executives on their plans to accelerate noninterest revenue growth in the coming quarters.

1 + 1 < 2: Connecting Customer Retention to Customer Experience Optimization

When it comes to customer retention, all too often companies think of it as a transaction and seek to optimize performance at a decision point—for example, at the time of a contract renewal—but this is too little, too late. Many of the experiences that influence customer decisions occur long before the time of the renewal/re-purchase decision.

Maximizing the retention opportunity requires not only a strategic, well-executed retention marketing campaign, but also a comprehensive customer experience optimization strategy. Moreover, to be successful and efficient, these efforts must be coordinated, rather than siloed in functional areas. Look at the following three examples and decide which one you would want your company to be:

  • A company charging an annual membership fee promotes renewal of its program through a combination of email and inside sales outreach to existing customers. Almost 50% of the customers do not renew because they were dissatisfied with their experience.
  • A company markets its offering and brand to existing customers and also conducts semi-annual NPS surveys with organizational support and follow-through leading to extensive investment of resources to improve issues highlighted in NPS. However, the company never mentions these improvements in its customer marketing communications, nor does it take any measure of the degree to which improvements have led to a share-of-wallet increase among existing customers.
  • A company with a complex product conducts voice-of-the-customer research including NPS to understand drivers of follow-on purchases. This research leads to the creation of a new customer onboarding program focused on driving training attendance and an outbound marketing campaign emphasizing the benefits of loyalty. The two efforts in tandem produce an 84% lift in revenue from existing customers and a 60% decrease in customer churn.

Our point: You can’t retain customers if you don’t understand what drives their loyalty and satisfaction. And if you do have this understanding but don’t use it to make your retention marketing more effective, you’re wasting your money.