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The New Math of Distribution Planning

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The race to consolidate branches has taken on additional urgency during the pandemic due to earnings pressure and shifts in customer behavior toward digital banking. The role of the branch in new-to-bank acquisition has been underappreciated, however, and efforts to recoup lost sales through marketing investments are complicated by the efficiency and effectiveness of incremental marketing spend.

At the same time, the industry is being rattled by a group of new competitors who are appeal to customers in fresh ways.

There is no simple formula to drive new customers to the bank when there are fewer branches in their line of vision. Instead, banks must tackle the challenge by assessing the roles of density, awareness, digital targeting and distinctiveness.


Changes in customer behavior have led to bank branch consolidations across the globe over the last decade. (See Figure 1.)

The pace of change has varied across markets due to differences in customer attitudes, competitive structures, retail banking economics and lessons learned from the financial crisis. The U.S. branch count has drifted downward at a steady rate of 2% per year, but the U.K. has shuttered branches at a much faster pace. The initial pace was slow in Australia, but it has recently accelerated. That may serve as a harbinger for Canada, which has been slow to reduce branch count, but shares many of Australia’s market characteristics.

The reductions in branch count have been consistent with the changes in customer behavior. Customer channel segmentation research from Novantas shows a plurality of consumers are now part of the “thin-branch ready” segment. (See Figure 2.) These are customers who want access to branches, but don’t require a high level of branch density because they visit branches infrequently. Even as a growing number of consumers embrace all-digital neobanks, the number of “digital ready” consumers who don’t require branch access is still a surprisingly small segment of the population.

Figure 1: U.S. Branch Count

Source: Novantas BranchScape

Figure 2: Channel Segmentation Trends


Branch Dependence and Attachment

Note: 2020 N=1,008, 2017 N=4,351, 2015 N=4,346, 2014 N=4,125
Source: Novantas Research | U.S. Multi-Channel Survey

Historically, physical proximity created awareness. Novantas believes the current changes in customer reliance on the branch has decreased that importance in driving new-to-bank customer acquisition while increasing the role of marketing, distinctiveness and digital targeting. In recent years, some banks have been successful in replacing branch operating expenses for other these investments, allowing them to close underperforming locations with limited lost sales.

As density becomes less important, visibility takes on additional value to drive awareness. Banks need to ensure that their expensive physical investments create higher levels of awareness for prospects and not just physical convenience for existing customers. Using anonymized mobile geo-analytic data to evaluate the “billboard value” of bank branches, Novantas has found that banks can achieve as much as a 20% improvement to awareness through better branch placement.

Historically, network planning focused on providing multiple points of access through overlapping branch trade areas. As customer dependence on branches diminishes, banks only need a branch within a reasonable distance from the customer. Recent Novantas research in the U.S. found that most customers want a branch within 15 minutes of their location regardless of how often they actually go to the branch. (See Figure 3.) The case for additional consolidation, therefore, is upon us.

Figure 3: Willingness to travel to bank branch – By channel segment

Thin-branch Ready
Channel Mixer
Branch Traditionalist
Innovation Seeker
Internet Ready

Q27 How far are you willing to travel to a bank branch?
Source: Novantas | 2020 U.S. Branch Centricity (N=1008)* unweighted


Over the last few years, banks have generally plucked most of the low-hanging fruit. Branches with low sales, low transactions and/or low (or negative) profitability have largely been closed. Along the way, the impact of customer attrition and reduced new-to-bank customer acquisition have been manageable. Now, however, there is a divergence in the consolidation and reinvestment profile of market participants. (See Figure 4.)

As density becomes less important, visibility takes on additional value to drive awareness.

Figure 4: Implications of Consolidation/Reinvestment Programs

High visibility, dense markets can continue to be harvested efficiently (e.g., 40% reduction leads to 8-16% sales loss)

Moderate to thin scale market performance will continue to erode with closures (e.g., 40% reduction leads to 16-27% sales loss)

Reinvestment into highly effective marketing and digital required to sustain growth

Source: Novantas research


As we survey the market, we see that banks fall into a few different archetypes — from large-scale players across all markets to banks that primarily compete as a thin-market player. Depending upon the bank’s situation, there are a number of strategies that can be pursued as branch closures continue.

National players can thin their networks across most dense markets and still experience a limited impact on new-to-bank customer acquisition. These banks already have high levels of awareness and consideration regardless of branch scale. Reinvestments in marketing and digital targeting may be expensive on a CPA basis, but they will be more efficient than the cost of operating too many ineffective branches.

Sub-scale national and super-regional banks need to pick their spots, pulling expenses out of dense markets to reinvest in growth across thinner markets. In some cases, they may need to sacrifice thin markets where they lack sufficient awareness, distinctiveness and density required to win.

Thin-scale regionals will be quite challenged to re-deploy network operating expenses as customer behaviors shift. These banks already face challenges with awareness, which may make digital targeting more difficult. The best way forward would be to target a specific segment that may allow them to compete effectively despite their thin scale.

Customer behaviors are changing rapidly and branch scale is becoming less important in driving growth. Assessing capabilities across network planning, marketing and digital will be critical to ensuring survival.

These critical capabilities include the use of customer-level data in network planning to better understand the impact of physical network decisions on new-to-bank customer acquisition as well as retention of existing customers. Banks that accelerate branch closures without a clear plan for driving customer growth do so at their peril.

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