Tag Archives: Marketing

Trends in Bank Marketing Spend

As banks look at their advertising marketing spending, they are impacted by a number of different forces. On one hand, they are under pressure to reduce expenses in the absence of strong revenue growth. On the other, there are some signs of economic recovery (although dangers remain), as well as growing consumer and business confidence. If this confidence translates into growing demand for financial services, banks will want to be in a position to benefit from this market growth, and so will seek to grow their marketing investment. Another key issue for banks is how they direct their advertising/marketing spending, given the ongoing demise of traditional marketing categories, such as print, and the emergence of new media.

With these issues in mind, EMI Strategic Marketing studied marketing spend levels for 13 leading banks for the first 9 months of 2012, relative to the same period in 2011.  Ours analysis reveals that:

  • Overall marketing spend fell 5% y/y.
  • 5 banks reduced spending, but, significantly, these included 4 of the top 6 banks.
    • The largest percentage declines were reported by Chase and Bank of America, who both decreased spending 17%.
    • Chase had the largest dollar decline, reducing spend by $400 million. However, it is notable that Chase’s 2012 decline follows a 77% rise in marketing spend between 2009 and 2011.
  • Among the 8 banks increasing spending are:
    • Regional banks PNC, Regions and KeyBank, who grew marketing spend by double-digit rates.
    • Capital One, which has traditionally been a heavy advertiser, but dramatically scaled back its spending significantly in the wake of the financial crisis.  Since then, it has gradually returned its advertising spend to pre-financial crisis levels.

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.

Financial institution financials reveal differences in marketing spend intensity

A review of reported marketing/advertising expenditure by leading financial institutions revealed the following trends:

  • 2011 spend levels: Five FIs (JPMorgan Chase, American Express, Citigroup, Bank of America and Capital One) each spent more than $1 billion on marketing in 2011.
  • 2010-2011 trend: Of the 12 FIs included in the review, six increased marketing spend by double-digit percentages in 2011, led by Citigroup (+43%) and Capital One(+40%). Four FIs reduced marketing spend in 2011.
  • 2007-2011 trend: Taking a longer-term view, we see that although Citigroup and Capital One had very strong growth in 2011, spending was actually down relative to 2011, indicating that these banks’ recent strong growth is more of a return to historic norms. JPMorgan Chase, Wells Fargo and PNC all had strong growth between 2007 and 2011, but each of these FIs had made a big bank acquisition during this period.
  • Marketing as a percentage of revenues: To eliminate the effect of merger and acquisition activity, and get a gauge on marketing investment intensity, we also looked at marketing as a percentage of net revenuefor 2007 and 2011.
    • American Express has the highest level of marketing spend intensity, with its 2011 marketing expenditure representing 10% of net revenues in 2011, up 70 basis points from 2007
    • Other leading FIs for marketing investment intensity are Discover (no branch network, national credit card operation) and Capital One (regional branch network, national credit card operation)
    • Among the regional national banks, JPMorgan Chase has the highest level of marketing intensity (3.2%), ahead of Citigroup (3.0%). Chase, which has both an extensive branch network and a national credit card operation, actually increased marketing intensity by 33 bps from 2007 to 2011. Citigroup has a limited U.S. branch presence, but again has a national credit card franchise.
    • Bank of America’s market spend intensity fell from 3.5% in 2007 to 2.4% in 2011
    • Wells Fargo maintains significantly lower marketing spend levels than its national bank competitors, with a marketing spend intensity of 0.7% in 2011.  However, it was recent named as the leading U.S. bank in The Brand Finance Branding 500 rankings, indicating that topline marketing spend does not necessarily correlate to brand strength.  However, it should also be recognized that, unlike some of the other leading banks, Wells Fargo’s operations are mainly concentrated within its retail banking footprint.

 

In terms of setting optimal levels of marketing investment in 2012, financial institutions face competing forces. On the one hand, many FIs have established cost containment programs with defined targets, and this will put downward pressure on marketing spend. On the other hand, the above table shows that many FIs have reduced their marketing intensity levels in recent years. With signs of economic recovery now emerging, these FIs may need to increase their marketing investment to compete effectively in a growing market.