As customers more fully embrace multi-channel banking, regional players need to finely calibrate their outreach for each major market they serve.
Banks have been thrust into a delicate market transition, forced to adapt as more shopping-related customer activity shifts online, yet limited in their ability to quickly unwind expensive branch capacity as lobby traffic dwindles. The slump in retail profitability only adds to the pressure, leaving banks scraping for revenues and cost cuts and worried about changing competition and customer preferences.
At the headquarters of multi-regional banking companies, central teams are busy at work on the challenge, yet they are being held back by traditional business practices centered on the branch network. For years, banks got by with a loose coordination of marketing, product and branch divisions, buoyed by strong customer need for branches and ultimately unified in the end game of driving branch traffic for sales.
Now, however, the branch is but one of many factors that build customer awareness, elicit shopping consideration and enable sales fulfillment. Beyond the basics of local branch density, players must pay closer attention to the influence of remote ATMs; local signage and visibility including billboards; staffing levels and skills; the online and mobile experience; contact center linkages; product features and pricing; and the marketing mix, spend and message.
Some of these factors may play out similarly across various markets but often there are significant differences. After all, markets vary widely in terms of competition, local demographics, network configuration, market share and local and legacy management decisions. The question is how to respond to these differences in a way that still capitalizes on central strategy while optimizing locally for retention and growth.
Against this backdrop, the time has come for a new form of strategic planning that relies on a set of “market playbooks” to solve for a central strategy executed locally. Based on a multi-faceted analysis of growth and cost drivers in each market, playbooks provide key guidance in setting priorities and allocating revenues across the franchise (Figure 1). The ultimate goal is fostering growth and profitability amid the transition to fuller multi-channel competition.
Assembling such playbooks will require new measurement and analytic capabilities, drawing on inputs from disparate sources, both internal and external. More than anything, the bank needs a broad set of metrics that compare its performance and position to competitors across marketing, product and distribution, with particular emphasis on convenience, price, brand visibility and the online shopping experience.
Success with market playbooks also depends on a combined planning process, requiring various business silos to work together much more closely than before. Longer term, this implies changes in the governance structure of the bank.
Break from the Past
Customer behavior is clearly changing. With each day that passes, fewer customers rely on branches and more use alternative channels. Consumers who formerly could be counted on to shop, buy and fulfill in branches are now freely roaming across channels, for example, shopping online, buying in a branch and transacting on the mobile device. In an era when banks have a pressing need to bolster retail customer acquisition, the old way of doing so (build a branch, entice people to walk in) is failing.
Today, most of the sales transactions completed in the branch are influenced by online research conducted before customers ever set foot in a lobby. In turn, retail banks have to think differently about where and how they invest to nurture marketing and sales. To gain profitable market share, a bank needs to build awareness in the right segments; get on the consideration list for target customers; and provide effective, convenient channels to convert consideration into buying behavior.
In a multi-channel marketplace, awareness, consideration, and purchase pull-through can be created in many ways. But in sorting through the options, it is important to keep sight of local markets. Each bank finds itself in a different position, market by market. The competitive set and customer base will vary. Opportunities for growth and cross-sell will differ. The bank’s branch network and ATM density will differ, along with local operating costs. The level and type of marketing spend will differ.
These important variations work against the generalized plans that tend to be favored by the various management divisions of the retail bank. In the blind pursuit of consistency, a bank can wind up under-investing in key markets where competitors are making a major push. Erroneous assumptions about marketing spend can lead to mis-allocations of scarce resources. Reliance on traditional models for local network coverage can forfeit opportunities to reconfigure branch and remote ATM networks.
Instead of trying to impose a consistent framework across the franchise, the successful bank will optimize returns market-by-market. The goal is to capitalize on strengths as they occur in each competitive setting (Figure 2).
The planning process begins with identifying the bank’s current position in the minds of customers, and then linking awareness, consideration, and purchase pull-through with key performance drivers. These include marketing spend and mix; product features and presentation; and convenience and market density, whether delivered in branches, ATMs, online or by phone. Banks will need a systematic way to “play the hand they have been dealt” in each major market they serve.
A critical question is how to quantify the particular blend of growth drivers that will work best in each market. This gets into cross-functional tradeoffs and the need to coordinate the efforts and expenditures of various teams within the bank.
There still is a strong tendency for each business unit and function to optimize its investments separately. The folks in marketing try to normalize all “non-marketing” factors, leaving only the marketing mix return on investment. Elsewhere the pricing team works to eliminate “non-price factors” from the impact of pricing decisions. Meanwhile the distribution planners labor to quantify the impact of branches and ATMs, trying to isolate the value of physical network coverage.
This type of silo-by-silo optimization worked better in prior years when capital and revenues were plentiful and precision mattered less. Branch density was the centripetal force in the collective effort. Today, because of the fragmentation of the customer buying process and the scarcity of available investment cash, getting it wrong is much easier – and much more expensive.
Awareness. Marketing can drive awareness, as can distribution, via advertising or location density (branches, ATMs, billboards). However awareness can also be fostered by community events, a dedicated sales force calling on customers (e.g., small business, wealth), and direct outbound calling. Even the traditional elements of advertising and branch density are subject to qualification today: billboards augment the customer perception of convenience in ways that TV does not; and branch signage can raise or lower the perception of branches through greater or lesser visibility.
In determining the key drivers of customer awareness, a bank needs to quantify each of the major factors and their interplay. For example, marketing ROI models often overweight dense branch markets. Yet our recent work shows that there is in fact a trade-off between branches and marketing. It turns out that awareness can be built either through either dense branching or advertising and spending, but the heavy use of both in similar markets actually creates diminishing returns to scale.
Consideration. Many factors influence a customer to consider a particular provider and/or product. Factors include convenience (in the traditional form of branch density, hours or ATMs); the online shopping experience; pricing; and product features and fees. Our research shows that customers not only actively trade-off between elements of the value proposition, such as convenience and price, but that there is a direct correlation between the quality and ease of the online shopping process and consideration rates among consumers who are actively shopping for products and providers.
The competitive dimension must be assessed as well. The fact that people are shopping online means that they likely are comparing product sets from a number of providers with local presence before having a conversation with a particular bank. Both in presenting offers and in preparing staff for sales conversations, the bank needs to understand how it stacks up relative to other players in the market.
Purchase pull-through. Even though our research shows that two out of every three customers prefer to shop online for banking products and providers, the branch remains the locus of sales fulfillment, also preferred by two-thirds of customers. As such, the current winners of the sales game are still largely branch-dense banks.
But customer allegiance cannot be taken for granted as people loosen their ties with the branch. Our research shows that some “thin” players (i.e., with little branch presence) are leveraging their national brand recognition to achieve similar levels of awareness and consideration as the dense branch banks in major markets. They also are enjoying solid, if low, levels of purchase pull-through.
Some banks have decoupled “convenience” from branch share as well, and are now seen as highly convenient even in markets with low branch share. This is an important departure from the norm, as most regional banks are only seen as convenient when they have branches. Winning banks will capitalize on this development by cultivating forms (and customer perceptions) of convenience that do not depend on branch share, either through messaging, digital presence or foreign ATM expansion, or just better use of current branches and ATMs through signage, hours, and staffing.
The situation also spells opportunity for even more attackers, whether existing banks with thinner networks or non-banks with strong brands, such as Wal-Mart Stores, Inc., Amazon.com, Inc., and Charles Schwab Corp. Thus for regional branch banking companies, the market playbook increasingly will need to anticipate the impact of online brand competition and incorporate plans and tactics to preserve local sales volume.
In building the foundation for market playbooks, the first step is to assemble all of the facts need as part of a comprehensive review. Second, where possible, this analysis needs to move beyond qualitative assessments (which are necessary to set strategy) to quantitative models designed to optimize investments market-by-market.
Doing so requires much better cross-functional metrics and data than what are commonly used today. While banks often have most of the needed data stored “somewhere,” ̶ usually little or no effort has been made to integrate the disparate sources of information to create comprehensive pictures of local markets.
As this gets done, fuller attention can be turned to building quantitative market models. Each stage in the purchase funnel is treated as a dependent variable (i.e., determine the drivers of awareness, hypothesize the relationships, work to quantify the single variable impacts, then assemble the more complex multivariate model).
Today there are optimization models for pricing, fee elasticity, advertising ROI and branch locations. The problem is that each is blind to the other. Building the multi-factor optimization model will not be done overnight. But the main thing is to get started now, and not wait for the perfect information that likely will never come.
Lastly, planning in this way challenges the established management divisions within the bank, whether simply gathering the data, making decisions or executing in the field. Each discipline – marketing, product management and distribution – has evolved as a specialized area with its own models, plans, metrics and budget processes. The move to market playbooks will require unprecedented levels of cooperation and coordination among these quasi-independent teams.
While ultimately the transition may require a new organizational structure, initially it requires a combined planning process. The challenge is winning up-front agreement from all of the players to abide by the facts and negotiate the budgets. As with all true optimization, there will be tradeoffs, particularly the resources devoted to marketing and distribution in various local markets. Finding and collaboratively implementing those tradeoffs is critical.
Kevin Travis is a Managing Director at Novantas Inc., a management consultancy based in New York City. Also contributing was Brandon Larson, a Principal in the New York office. They can be reached at email@example.com and firstname.lastname@example.org, respectively.