Grass roots, neighborhood marketing can be more effective than mass media in attracting customers. Why don’t more banks adopt it?
Here’s a reality check: it’s hard and expensive to persuade prospective customers to switch banks. So what’s the best way to allocate scarce marketing resources to create the greatest impact and ROI? It might sound like heresy, but if you want to attract more customers you should shift your marketing mix away from advertising and toward more personal, one-on-one interaction.
You don’t change hearts and minds with rate and mass market or direct mail advertising alone. That can have positive impact in establishing awareness, but ultimately you have to convince prospects to talk to you and establish either a new relationship, or expand the relationship they already have with your institution.
If you want to create relationships, you need a personal touch. Politicians have learned this. A recent study by two Yale University political scientists concluded that most impersonal modes of contact (direct mail, mass media, etc.) were far less effective than personal, one-on-one campaigning.
Winning financial institutions, just like winning political candidates, have perfected field level, branch based outreach.
So why do we keep using the same old, conventional tactics?
- Because it’s the way we’ve always done it.
- Because it’s hard to measure true marketing ROI.
- Because it seems easy and inexpensive: place and ad, or send direct mail, and reach thousands of prospects at one time.
- Because advertising agencies have a vested interest in selling mass media campaigns.
- Because it takes time and effort to organize grass roots efforts.
It takes time and effort to organize grass roots efforts the first time but then it becomes a standardized process
- effective and replicable.
Maybe it’s time to re-think your marketing mix.
The TV series CSI features a theme song by Pete Townshend of the Who, with the line: “Who are you, I really want to know.” And that’s the question I ask every new client: Who are you? What’s different about you compared to other banks in your market, like the one right across the street? Why do customers come to you instead of them?
I’ve asked this question enough, and conducted enough mystery shops, to know what I’m going to hear. Almost every community bank else says pretty much the same thing: “We’re local and we give better service.” Competitive differentiation, particularly for community banks, needs to go beyond ‘local presence’ and ‘great service.’
Read more in our BAI Banking Strategies article about how some banks have differentiated themselves, and the key take-aways that you should be thinking about.
I’ll probably get lots of feedback from this, but here goes: Debit Rewards programs mostly reward vendors who sell Debit Rewards programs. There – I’ve said it.
Strategically, it makes sense to encourage customers to use their debit cards and it makes sense to reward loyal customers. But the simple fact is that most Debit Rewards programs don’t significantly shift customer behavior or increase retention, so there is little return for the marketing investment. Here’s why they don’t work, and here’s what you should do about it.
Debit cards are used as a substitute for cash and the typical spend is about $38. At this level of activity, it is very difficult to generate meaningful rewards. Customers recognize this it is why participation in Debit Rewards programs hovers around 8-9%, even when financial institutions offer it for free. Furthermore, revenue from interchange will only decrease in the future, leaving less available to fund rewards programs. More retailers are finding ways to automatically recognize debit cards and direct them to PIN debit (vs. higher interchange Signature Debit), and interchange rates are under significant political and regulatory pressure. Long term, there is no upside for debit interchange revenue, and lots of downside risk.
This is a very different proposition from Credit Card Rewards, where the average spend is higher, the interchange is higher, and there is revenue from interest charges and annual fees.
So it is hard not to come to the conclusion that the typical Debit Rewards program just results in paying incentives for volume that financial institutions would get anyway.
But, as I said earlier, it makes sense to encourage debit usage and to reward customers. There are effective ways to do this — institutions in the top quartile of debit card usage have 27% more transactions and create about $120 per customer in debit related revenue. They do this by better targeting of customers to stimulate truly incremental volume
- not a “one size fits all” rewards program. In fact, many don’t even offer debit related rewards, but just focus their energies on shifting behavior of specific consumer and business debit card usage segments. Here’s just one example: changing the behavior of the 8% of debit card holders that only use their card at the ATM, and don’t use it at all for merchant purchases.
Rewards programs may have their place, especially when they recognize the total financial relationship (consumer and business) that a household has with your financial institution. But for most Debit Rewards programs, the value simply is not there.
———————————————
Need expert help improving revenue from your consumer and business checking accounts? Want more information on how to significantly improve the performance of your debit card portfolio? Peak Performance Consulting Group has best practices and unique solutions, with a proven track record of success helping clients achieve industry leading results.
Contact us
- our experts can help you unlock the key to additional profitability and efficiency.
We had an excellent discussion at BAI’s PaymentsConnect conference recently, where I had the pleasure of serving as moderator for a panel that included Jimmy Allen (Group EVP of Retail Banking at Broadway Bank), Alex Calicchia (CMO at MidSouth Bank), and Dominic Venturo (Chief Innovation Officer, Retail Payments, at U.S. Bank). But more importantly, we had the feedback from over 100 senior bankers who participated in our industry survey.
The discussion focused on two issues: the near term impact of the changes in Reg E, and
- more importantly – what will banks to successfully generate DDA income in the future.
Here are some of the key takeaways:
- Enormous revenue is at risk – management of the opt-in process is critical
- It won’t get easier: deposit fee income will continue to be under pressure, and more restrictions are likely
- It’s not a revolution, but an evolution: most banks won’t impose significant new fees or completely eliminate Free Checking
- There is no silver bullet: banks need to re-focus on building profitable relationships. It’s been too easy to sell “Free” and make money on fees. You need to have the right technology (CRM at the point of customer contact), effective on-boarding, and strong sales process to succeed.
- Product innovation – and a culture of innovation, testing, and continuous improvement
- is critical in this new and uncertain environment
How Banks will Generate Revenue on Payments and Checking in the New Era
Having trouble accessing this presentation? View or download or email us at info@ppcgroup.com and we’ll send you a copy.
In contrast to the industry trend, Bank of America recently announced they won’t attempt to convince consumers to opt-in to the new Reg. E rules. Advocacy groups, the press, and legislators praised this decision. Competitors were left wondering why BofA, which is known for its’ sharp pencil, decided to forego this important revenue stream.
Were they trying to head off additional legislative or regulatory restrictions? I’m sure that was part of the calculus. But here’s my theory.
First, it’s important to understand who pays overdraft fees. Let’s do the numbers:
-
86% of consumers are not likely to opt-in. 74% don’t overdraw their accounts and pay no fees. An additional 12% overdraw less than 4 times a year, typically because of an error or miscalculation about funds availability. For these customers, overdraft fees especially resulting from relatively small dollar POS transactions where opt-in is required — are highly unpopular. Industry surveys suggest that most would rather have the transaction turned down than pay a fee of as much as $35. Plus, if the transaction is rejected, these customers usually have other means of payment, such as a credit card.
- Of the remaining 14%, only 9% are heavy overdraft users. And to parse this even further, 70% of total NSF/OD fees come from the 5% of consumers that are especially heavy users.
This all reminds me of the old story about a sales meeting at a pet food company. The manager is berating the sales force: “We’ve got the best packaging in the industry. We’ve increased our advertising. We upped our incentives. What does it take to get you to hit your sales goals?”
From the back of the room came a lone voice: “The advertising is great, but the dogs just don’t like it!”
Our assessment is that BofA decided it was not worth the effort to convince customers to sign up for a fundamentally unpopular service, and took the high ground. Turn lemons into lemonade: “We’re the good guys, we’re not going to try and convince you to sign up for something you don’t want!”
But I don’t think for a minute that BofA is walking away from this revenue stream. They’ve already hinted that customers will be able to pay a fee at the ATM (or possibly opt-in?) if funds aren’t available. It just won’t be automatic. And I’m sure they are working on alternative approaches to market directly to the 5% who are most likely to need, want and use, what is essentially a short term loan service. Several banks are already testing interesting approaches to meeting the needs of this segment. Stay tuned for more to come!
Put this in the category of inexpensive, good ideas, smartly executed.
Austin, Texas based Amplify Federal Credit Union (www.goamplify.com) tailored their website to support the University of Texas Longhorns football team. Note the football integrated into the logo, burnt orange school color, message tailored to the Texas/Alabama game.
Amplify is particularly innovative in their products, technology, and retail relationship strategy and I thought this was a great example of creating a greater sense of community with web users.
As more customers (or credit union members) access the bank on-line instead of in-person, we need to find ways to create increased relevancy and immediacy. There are expensive to use the web and social media to build greater personal ties and relationships, and there are simple ones and this is an example of paying attention to what’s important to customers today (and in Texas, college football is always important to your customers!).
Follow us on...