Category Archives: Retail Banking

Banks pull back on marketing spend in 2Q12

A scan of second quarter 2012 marketing spend data for leading U.S. banks revealed that most reported year-on-year declines.  These declines have been driven by both general economic uncertainty, as well as the fact that many banks have recently put ambitious cost-cutting initiatives in place.  Of the 12 banks studied, only four reported y/y increases in spending.  And Capital One’s spend excluding the impact of the HSBC card portfolio acquisition was also lower than in 2Q11.

The largest declines among the banks studied were at SunTrust and Bank of America.

  • SunTrust reduced marketing and customer development spending 30% y/y in 2Q12.  Its spend for the first half of 2012 was also down 30% from the same period in 2011.  In the presentation of its financials, the bank provided an update on its PPG Expense Program, which it expects to generate $300 million in annualized savings by the end of 2013.
  • Bank of America is following a similar a pattern, with marketing spend down 20% y/y in 2Q12, and down 19% y/y in the first half of 2012.  Like SunTrust, Bank of America devoted a section of its earnings presentation to discussing its New BAC cost reduction program, which has a goal of generating $5 billion in annualized cost savings by the end of 2014.

For other banks, the declines in 2Q12 follow significant recent growth in marketing spend.

  • JPMorgan Chase’s marketing spend in 2Q12 was down 14% y/y.  This follows a rise in 28% spending in 2011.
  • Citigroup reduced its marketing budget 6% in 2Q12, following a jump of 40% in 2011.

For some banks, marketing spend patterns can be related to timing of campaigns.

  • U.S. Bancorp’s marketing and business development spend was down 11%.  However, looking at the first half of the year, spend is up 22% over the same period in 2011).
  • Capital One actually grew spending 2% over the same period in 2011, and it reported that spending in the second half of 2012 would increase, due to the timing of some marketing campaigns.
  • KeyBank increased marketing spend 6%, which it attributed to a spring home equity lending campaign.

Finally, American Express reduced spend 3% y/y, but (at $773 million) its marketing and promotion expense still represented 10% of net revenues, a much higher percentage than at other leading financial institutions.  American Express’s goal is for its marketing and promotion expense to be around 9% of revenues.

A Look Inside Sales and Marketing at SaaS Companies, Part 2

In a previous post reviewing some of the data from the Pacific Crest SaaS company survey, we highlighted some of the sales and marketing strategies that distinguished higher growth companies from their slower-growing peers. This time, we’ll look at other data from the survey that reveals that for all SaaS companies, there are significant areas of missed opportunity.

The chart below speaks to the ability – or inability – of SaaS companies to upsell existing customers.

Across the entire sample population, the mean percentage of new annual contract value dollars coming from upselling existing customers is only 19%. Larger companies (20%) are no better than small companies (23%) who are themselves not much better than mid-size companies. With a business model that depends on future revenues to payback initial sales and service costs, there seems to be a significant missed opportunity for maximizing lifetime customer value. In addition to needing that upsell revenue to maximize profits, SaaS companies have a wealth of usage data that can and should be used to target upsell offers based on actual customer behavior.

The next chart, which shows the distribution of respondents based on contract renewal percentage, also points to missed opportunities for maximizing lifetime customer value.

While this data isn’t segmented by size or growth attributes, the sheer fact that fewer than half the respondents achieve a 90% or greater renewal rate – and that 25% don’t even reach 80% – suggests a widespread lack of execution. Often, sales and service efforts are entirely focused on closing the deal and getting the customer up and running; ongoing support, nurturing, and engagement are neglected. To help correct this neglect, consider a service like Totango, which enable SaaS companies to monitor usage behavior and thus identify underutilization (which can lead to a lack of value recognition on the customer’s part at renewal time). Then create email campaigns that target the areas of underutilization with news about training and support options. Greater utilization leads to greater value recognition, which should have a significant positive impact on renewal rates.

A Look Inside Sales and Marketing at SaaS Companies, Part 1

A survey of SaaS business executives recently published by Pacific Crest (results available free here) reveals some interesting information about the profiles of higher-growth companies.

In their graph below, we can see that while the greatest number of SaaS companies use a field-based sales strategy, those that use inside sales that are actually growing the fastest—on average, almost 75% faster than the field sales companies. (Growth is defined as year-over-year change in revenue.)

The complement to this graph is the one below, which shows that the Fast Growers (>45% growth) have lower customer acquisition costs. This differentiation is undoubtedly driven in part by the use of an inside sales force.

The final piece of the puzzle is revealed in the following graph. This slice of the survey data shows that Slower Growers are much more focused on Enterprise customers. Fast Growers, on the hand, balance their Enterprise sales with a healthy dose of SMB sales.

Of course, this data shouldn’t be read as an indictment of SaaS businesses that use field sales to sell mostly to the Enterprise; there are highly successful examples of such businesses. Instead, the data serves to highlight the achievement of those Fast Growers, and I hypothesize that effective marketing has played a key role in their success. It isn’t easy selling through an inside sales force to SMB; relationships are difficult to build over the phone and SMB management is often difficult to reach. Success, then, becomes a numbers game: Maximize leads (with a focus on inbound), and optimize conversions by creating tools to move prospects through the funnel. Without a highly capable marketing function, the numbers don’t add up and growth is elusive.