Tag Archives: Marketing

Are Banks Capturing Branches’ Full Marketing, Sales and Service Potential?

A number of recent surveys have shown that electronic channels – notably online and mobile banking – have taken over from branches as the primary customer service channels. This has led to some extreme speculation on the future of the branch channel. The industry consensus is that there will be a role for the branch channel in a future omnichannel banking environment, but there is a good deal of debate on what that role will be.

And banks’ role in everyday banking transaction processing diminishes, banks are starting to tap into the sales, marketing and customer support potential of the branch channel, in areas like:

  • Customer acquisition: A Bancography 2012 survey found that 95% of new accounts are opened in the branch. And a recent Novarica survey found that 58% of people under 30 would not consider opening an account at a branch that does not have a branch nearby.
  • Cross-sell: Some banks are already starting to overhaul both branch structures and staffing to reflect an expanded sales function. Bank of America recently discussed a redesign of its branches, which includes private rooms for meetings with financial specialists, as well as videoconferencing for remote access to experts. Banks should also be looking to upskill and support tellers to generate referrals for in-branch or remote specialists.
  • Branding: The branch is the most physical manifestation of a bank’s brand. As such, branches should reflect and extend overall bank advertising efforts in signage, collateral, etc.  In addition, advertising should promote branch strengths.
  • Customer support: While electronic channels have advantages over branches in areas like convenience and 24-hour access, consumers continue to express a preference for branches for addressing financial needs that are more complex and/or personal in nature. A 2012 Cisco survey found that 84% of consumers are interested in a “specialty branch,” which would provide advice and personal, customized assistance.  The most popular types of advice would be financial education, notary public services and tax preparation.
  • Community relations: Branches are a tangible expression of a bank’s commitment to a specific market. Some banks are already redesigning branches to take on more of a community role.  Umpqua Bank is a standout performer in this regard, with its cutting-edge branches including a “Discover Wall” that showcases neighborhood events, Local Spotlights on selected small businesses in the local area, as well as branch-specific Facebook pages.
  • Research & Development: A number of large banks (such as Citibank, Bank of America and Umpqua) have opened “flagship” stores that showcase the bank’s latest sales and service technologies. In addition to creating local buzz for the bank as positioning it as a cutting-edge financial provider, these branches enable the testing of new products, services and technologies prior to wider deployment.

For banks to get the best return on their branch investment, they need to understand the changes in how consumers and businesses interact with their banks, develop a more holistic view of branch capabilities, and work to integrate branch-based activities with other bank marketing, sales and service initiatives.

Driving Commercial Loan Growth Through Vertical Industry Targeting

Recently-published data from the Federal Reserve indicates that U.S. banks’ C&I loan portfolios continued to grow strongly on a year-on-year (y/y) basis in 4Q12.  This industry-wide view is supported by C&I loan data that appeared in quarterly financial results from individual banks.  However, these quarterly financials also indicated a continued decline in commercial loan yield, indicating that the commercial loan market is becoming increasingly competitive.

So, how can banks continue to differentiate themselves from their competitors and continue to grow commercial loans, while maintaining margins?  One strategy being pursued by an increasing number of banks is vertical industry targeting.

Several banks already following this strategy reported strong growth in industry-specific commercial loan portfolios in 2012:

  • Comerica grew average commercial loans 17% year-on-year in 4Q12, but enjoyed well above-average loan growth rates in energy (+46%), environmental services (+31%). and tech and life sciences (+24%).
  • TD Bank’s included data on gross loans by industry sector in its 4Q12 financials,which highlighted very strong y/y growth growth in health and social services (+30%), professional and other services (+25%), and government/public sector (+21%).

A number of other banks launched targeted industry initiatives in 4Q12:

  • Fifth Third launched an energy lending unit in October 2012, and reported that energy accounted for 12% of new C&I loan production in 4Q12.
  • Associated Bank introduced a Healthcare Industry Banking group in November 2012
  • Also in November 2012, Huntington Bank launched energy lending and agribusiness initiatives.  In reporting 4Q12 financials, Huntington pointed to strength in its manufacturing, healthcare and energy sectors

If your bank is thinking about pursuing a vertical industry strategy, the following are some important considerations:

  • Size the number and composition of firms in the targeted industry within the bank’s footprint.
  • Conduct primary research to understand market characteristics, financial needs and purchase decision-making dynamics.
  • Deploy a dedicated team to develop and implement targeted industry initiatives.
  • Create a communications plan, including developing a presence in key industry media (offline and offline trade publications, social media, events) as well as incorporating industry messaging into key bank channels, such as branch and Internet (it is notable that, of the 20 banks with the largest C&I loan portfolios, 15 have industry-specific sections on their websites).
  • Develop partnerships with national and local industry associations.

Perspectives on Bank Marketing Spending

Directions in bank marketing spend have become more difficult to predict, as banks seek to balance the need to control costs with the desire to capture growth opportunities. Bank marketing spending trends for 2012 show these forces in action. Many large banks now have multi-year expense reduction in programs in place. However, there is growth potential in a number of lending categories (e.g., commercial, mortgage, and auto).

The chart above shows a mixed picture, with double-digit declines in marketing spending for Chase and Bank of America, but double-digit growth by KeyBank , PNC and Discover Financial. So, at first glance, it appears that the largest banks are cutting their marketing budgets, while some regional banks are ramping up their investment.

However, this just provides one year’s worth of data. Taking a longer-term view, the next chart looks at changes in bank marketing spending between 2007 (just prior to the onset of the financial crisis) and 2012.

This gives us a rather different picture, with 7 of 11 banks increasing their marketing spend over the five-year period. And different stories emerge for particular banks as we take the longer-term view.

  • KeyBank’s $68 million in marketing spend is 13% higher than 2011, but 11% lower than the $76 million it spent in 2007.
  • JPMorgan Chase had the largest decline between 2011 and 2012 (-18%), but its $2,577 million spend level in 2012 represented a 24% increase over 2007 levels (and in fact, there were significant shifts in spending during this period, with a 14% fall between 2007 and 2009, followed by a 77% rise between 2009 and 2011).

Even this five-year view does not give us a full picture, as the financial crisis has meant that many banks have changed radically between 2007 and 2012. For example, Wells Fargo and JPMorgan Chase have grown significantly, in large part due to the acquisitions of Wachovia and Wamu, respectively. On the other hand, Citigroup and Bank of America, two of the banks hardest hit by the financial crisis, have embarked on a long-term project to sell off non-core assets.

With this is mind, a more effective way to compare bank marketing spend levels is to look at bank marketing spend intensity (marketing spend as a percentage of revenues).

Taking this viewpoint, we can decipher a number of trends:

  • Banks that lack a retail branch presence (such as American Express and Discover) have the greatest marketing spend intensity. American Express recently reported that, even as it looks to reduce expenses (with plans announced in January 2013 for 5,400 job cuts), it plans to maintain marketing spend at 9% of revenues.
  • Next in bank marketing spend intensity are banks like Capital One and Citigroup, which have national lending franchises but relatively small branch networks. In the case of Capital One, its marketing spend intensity has declined in recent years, from 9.2% in 2007 to 6.4% in 2012. This has coincided with its transition from a monoline credit card provider to a more full-service bank.
  • National banks with extensive branch networks and a full range of services (JPMorgan Chase, Wells Fargo and Bank of America) tend to spend the equivalent of 2-3% of revenues on marketing. There has been some reduction in marketing spend intensity by these banks in recent years, most notably by Bank of America, whose marketing spend as a percent of revenues fell from 3.6% in 2007 to 2.2% in 2012. Wells Fargo stands out from its national bank peers, with marketing spend intensity below 1%.
  • Regional banks’ marketing spend intensity tends to be lower than other bank segments, at 1-2% of revenues.

In summary, bank marketing spend levels are set within ranges that are defined by the bank’s size, structure and product focus. Within these ranges, banks increase or decrease marketing spending from year to year based on both their strategic priorities as well as their assessment of their operating environment.