The new synthesis of branch and digital channels is forcing a redefinition of brand strength, especially now that online shopping has become prominent.
As customers retreat from branches and convenience and shopping shift to digital devices, banking is increasingly becoming a branded consumer business. But by that standard most bank brands today are unhealthy, with vulnerabilities including low consumer awareness, limited favorability and few clear points of distinction — if any.
A major hang-up is that banks have relied so long on branch density to do the hard work of sales that many overlook the need to build new perceptions of convenience into their brands. Also a self-defeating attitude of cost control has arisen with marketing spend, leading to budget cuts at precisely the moment when more resources will be needed to build presence in the minds of consumers and grow sales. Then when marketing teams finally do take action, there is a lot of confusion about how to proceed.
The result is that a powerful competitive tilt has begun to emerge. A handful of brand-heavy players, including both national and niche banks, are gaining inroads among the growing ranks of mainstream retail customers who have significantly reduced ties to the branch in favor of a strong digital center of gravity.
As highlighted in the 2014 edition of the Novantas Multi-Channel Preference Study, the ranks of “thin-branch ready” customers swelled from 25% of the retail base to 39% in just two years. Strongly oriented both to online convenience and to online shopping, these customers repeatedly show up in our research as demonstrating outsized allegiance to banks that can establish brand advantage in regional markets.
To cope with this changing environment, bankers need to pursue three priorities:
First, banks need to track and measure brand health to ensure distinctiveness, favorability and perceived convenience. Novantas consumer research shows that many regional banking companies have varying degrees of handicap in all three areas. Yet these factors can be improved once identified and addressed.
Second, network planning objectives need to be reconsidered. With former paper-based branch transaction services largely shunted to digital channels, the network’s primary function is narrowed to sales and complex servicing. In turn, the bank needs to ensure that its progressively focused local networks have the right “sales value” based on visibility and marketing lift.
Third, a locally-flavored digital presence is needed, both to reinforce the brand and local stance and to drive favorable consideration and perceived convenience. The online team should not view itself as being on a separate journey, but rather should be collaborating on the market-by-market branding agenda.
The new synthesis of branch and digital channels is forcing a redefinition of brand, especially now that online shopping has become prominent and online account origination likely will eventually surge as well. The careful integration and reinforcement of emotional and functional brand elements is now a top marketing priority.
So what are today’s brand drivers and how do they make a difference?
Certainly trust remains a foundational brand attribute in banking. While the industry took a huge hit during the banking and economic crisis, our consumer research shows that public trust has largely been restored to pre-crisis levels. But competitively, trust lands in the category of table stakes – not a point of differentiation.
Elsewhere, service and advice are often touched on as major brand attributes, interwoven with convenience. But these factors do not drive sales, rather influencing customer retention and word-of-mouth referrals.
This turns the question to convenience itself. Now, as it has been for a long time, convenience is the primary differentiating brand value. The catch, however, is that the definition of convenience is rapidly changing.
In the fast-receding world dominated by physical payments, an ability to easily get cash and deposit checks was paramount in the customer’s selection of a bank. Market share was largely a function of branch share. Today, however, the dematerialization of banking and its merger with other forms of digital and remote commerce online (particularly on smartphones) means that convenience is being reinvented.
Being perceived as convenient now matters as much as having branches nearby, and perceived convenience is driven by a number of factors beyond brick-and-mortar presence, including digital capabilities and ease of use, overall local visibility, etc.
In a multi-bank, multi-market study that evaluated which factors influence the final purchase decision after consumers narrow down their shopping consideration to a few banks, we found that customer rankings of perceived convenience explained 75% of the variability in the local purchase rate. That compares with a 50% explanatory power of local branch share relative to the local purchase rate. (Figure 1: Purchase Drivers — Branch Share vs. Perceived Convenience). And over time, we would expect the statistical relevance of branch share to fall, implying a need for ongoing attention to the perception of convenience in a bank’s value proposition.
Most banks are struggling to adapt, with brand awareness lagging even in markets with dense networks. In our regional consumer research, only a slice of survey respondents assign highly favorable ratings of brand strength for most banks in their market. And when consumers are asked to select from a list of potential differentiating factors for a particular bank, one of the most frequent responses is “none of the above.”
By contrast, a few national banks and regional innovators are breaking the mold, cultivating favorable perceptions of convenience at levels that materially exceed the heft of the local branch network. In a few high-density markets, for example, one new entrant has been able to gain meaningful traction with just a sprinkling of high-visibility banking centers that do not even have teller windows, succeeding largely on the strength of marketing and online appeal.
If marketing-led organizations are allowed to build on their leads unchallenged, the brand disadvantages of more tradition-bound players will only grow. A case could even be made that some degree of further erosion is inevitable, given the throttling of marketing budgets and confusion about the proper role of the marketing team (keepers of the brand; sales drivers; or just glorified product campaign managers?).
Silver Lining: Where Branding May Go
In a sense, the logic of perceived convenience is a stopgap measure. Customers are still wedded to branches in a very fundamental way, and most will remain so (in one way or another) for years.
But branding requirements will evolve as Millennials become the dominant segment of banking customers. In a digital-first world, perceived convenience may not be adequate to protect a franchise or a market.
The good news is that banks will become progressively more able to specialize by segment, and reach segments across the country, in a much more efficient way than they could ever hope today, either in a region or nationally. The implication is a steady expansion of branding possibilities as banking embraces the digital economy.
Not all possibilities have to wait for the future, even though banking today is largely a commodity product (in terms of fundamental product features and functionality) differentiated mainly by local competitor mix.
There are some distinct brand positions available by region, with community commitment being an example. Another is price leadership, or low cost. There are even some anti-establishment brand positions being effectively used by several banks today.
Banks that adopt such positions (and demonstrate their commitment to them with valid proof points) can create distinctive awareness, if not favorable consideration. But they tend to be tweaks to the underlying convenience argument.
In the future, banks that appeal less to the functional components of banking and more to the emotional factors should emerge. While there may not be enough of a segment in, say, Atlanta to allow a bank to specialize, nationally there certainly will be.
This may be a silver lining for regionals. It gives them a chance to specialize in particular segments and not necessarily have to take all comers out of a need to fill the branches (although differentiating an entire organization by specialized brand will be difficult, with limits on the number of clearly distinct propositions).
In time, there could be banks (or branded subsidiaries) that tout social responsibility, simplicity, recognition, even hipness. Branding values that lie buried in the attitudes and preferences of the next generation, and even unappreciated in the current ones, could be discovered and exploited in a more complete digital world.
— Rick Spitler and Kevin Travis
Stopping the Rot
Building a healthy brand starts with knowing which factors are foundational to success, and in the banking industry right now, the critical factor is building perceived convenience. The bank must learn how to boost convenience appeal without relying simply on branch share.
Take automated teller machines, for example. In many cases, four well-located standalone and branded ATMs can capture the equivalent market presence of a branch.
Online presence is another. Through search engine optimization and other tactics, the bank can bring its brand to the foreground as customers shop online for products or peruse local websites. This type of screen adjacency contributes to the consumer sense of accessibility. Product functions and features can also contribute to the perception of convenience. So too can local signage and even the tone of messaging in advertisements.
The factors and investments needed to create perceived convenience typically will vary market by market, depending upon physical presence, product positioning, messaging and the online presence a bank has in that market. In a market where the bank has a thin presence, for example, the convenience formula may call for a select group of high-visibility branches, supported by branded ATMs, with overall presence amplified by a blend of signage, advertising, online capabilities and localized online content.
It is not for marketing to do alone, but rather in concert with the other bank functions. Convenience used to be the province of network planners. But perceived convenience requires extensive internal coordination across network planning, marketing, advertising, product management and, likely, segment management.
Making it Work
Establishing a market-by-market view of what drives perceived convenience is only the first step. The new reality requires substantial change in how bankers think and build out their brand. Perhaps the hardest thing is to create the cross-functional coordination necessary to balance the various levers.
It is simply no longer the case that each organizational unit can succeed independently of the others. All must work in harmony to achieve the cross-functional branding objective. This requires planning coordination, budgeting flexibility and, equally important, the willingness to pull up mid-year and readjust. Doing so requires a new mindset, as well as different measurements and incentives.
First and foremost, a bank needs a good compass to make sure it is going in the right direction. Typically this is embodied in measures of the brand health. Too many banks either fail to even track the performance of their brands, or they rely on more shallow assessments that may highlight general symptoms but shed little light on the kinds of specific remedial actions that can or should be taken. Many syndicated trackers of brand health are too focused on generic qualities found across industries, whereas the specifics of banking require sharply focused health indicators.
Unaided awareness (or the extent to which consumers say they recognize a brand without being prompted) is a foundational strategic metric that drives bank sales success. Branch networks drive unaided awareness, but so too can marketing spend and digital capabilities. These attributes will always need to be tailored to a bank’s specific strategy and value proposition, and should be tracked at the market level, not the network level.
Ideally, switchers, prospective switchers, and current customers should be tracked separately. Each group may have radically different views of a bank, and driving new-to-bank sales and cross-sales likely will depend on very different sets of attitudes.
Second, network planning needs to be re-thought. In particular the decision process for branch locations needs to change, given the shifts in channel preferences.
Historically, planning for branch locations and formats was heavily biased toward transactional service delivery. As customers frequented the branch for cash and deposits, branches could sell additional products and provide personalized complex services.
In the new world of minimal transactional traffic, branches should be located to support the sales agenda. Success should be measured in terms of the network’s impact on unaided awareness. If a bank were to enter a market de novo, it should locate branches to maximize sales, not to optimize servicing economics.
In using this as the primary design principal, we have found in various markets that about 30% of the branches in a typical local network are not needed at all, and another 20% should be relocated. Clearly banks cannot implement such massive changes suddenly. It will take time. But the design objective should be well understood. It is to optimize sales.
Finally, digital channels and strategies for online presence need to be tailored for optimal “perceived convenience.” This includes careful positioning to reinforce the brand, build local presence and drive favorable consideration.
One management challenge is that the internal digital banking group is too often on a separate journey to build an online and mobile business. While necessary for the long-term, this focus often comes at the expense of short-term needs to project localness and perceived convenience in each market across the network footprint.
The role of digital must be integrated into the overall market-by-market plan and branding agenda, with capabilities that are easy to use and an image that projects localness and convenience. Web-based technologies allow banks to tailor content to local events. Product and marketing messaging should be simple and easy to comprehend. The dollars spent on online advertising need to be adjusted to the level of awareness and consideration the brand has in a particular market.
These changes in establishing a distinctive local brand are just some of the more salient needs. The future point of arrival in branding will be market-by-market plans that are optimized though a strategic brand management process and integrated across organizational boundaries.
Branding for banks has never been so difficult, nor so important. Banks need to respond to the transformations wrought by virtualization. That implies focusing on translating “convenience” into the new multi-channel digital construct. But banks can’t stop there. They must think beyond the current local nature of the category to a more segmented and national market in which they attempt to attract particular segments.
Banks in many ways today resemble department stores — something for everyone to cover the huge fixed cost of local distribution. The future will be far more fragmented and tailored, reflecting the particular interests of segments and providing a much better fit with the functional and emotional needs of different types of customers.
Rick Spitler is a Managing Director and Co-CEO and Kevin Travis is a Managing Director at Novantas Inc., both in the New York office. They can be reached at firstname.lastname@example.org and email@example.com, respectively.