Financial institutions of all sizes are facing challenges to their retail branch system. Technological innovation, starting with the introduction of ATMs, then internet banking, and most recently mobile banking, has resulted in declining branch usage. Consumers and businesses don't need to go to the bank as frequently as they did in the past now that routine monetary and service transactions can be easily handled on a personal computer or smartphone.
Consumers want branches, but declining usage is reducing sales opportunities and revenue growth. As routine servicing and monetary transactions continue to migrate out of the retail branch, the fundamental nature of bank branches must undergo a dramatic transformation.
The bottom line is that, with fewer teller transactions, branches must become more efficient as sales and marketing centers. This can be achieved through greater micro-market targeting of marketing messages in order to maximize the sales opportunity from limited branch traffic and to optimize trade area sales penetration.
Up to now, many financial institutions have employed a one-size-fits-all strategy. Branches are often similar in size and style with limited differentiation. More importantly, marketing strategies are frequently implemented uniformly across the network with limited variation of messaging based on unique branch or trade area characteristics.
Improve Revenue with Targeted Strategies
Moving forward, financial institutions need to adopt a more sophisticated "Rubik's Cube" approach where messages are specific to the trade area market opportunity. This should form part of a comprehensive system that uses both market and internal data to create sales and marketing protocols.
It is critical to have a comprehensive view of the opportunities in each trade area in order to inform both sales and marketing strategies. At leading institutions this goes beyond basic demographic data to include specific product messaging based on: trade area lifestyle segmentation; product-specific growth opportunities (which products are under-penetrated within the trade area); and day-part customer arrival information (which messages are most effective at which time of day).
The table below reflects a very simplified, high-level summary view of an analysis conducted for a regional bank. This formed the basis for coordinating product messages and message styling (language, family depiction, etc.)
Simplified Trade Area Analysis Example
|Characteristic||Branch 1||Branch 2||Branch 3||Branch 4|
|Wealth Segmentation||Affluent||Mass Market||Lower Mass||Young Urban|
|Lifestyle Segmentation||Older, family and retired||Family lifestyle, children at home||Young families, retired||Singles, small families, LGBT|
|Racial/Ethnic Mix||88% Caucasian, 9% Asian||63% Caucasian, 17% Hispanic||47% African American, 23% Hispanic||55% Caucasian, 19% Hispanic, 8% African American|
|Business Density||Moderate||High||Low||Very High|
|Primary growth opportunity||Investment||Basic banking||Basic banking||Business Banking|
|Secondary growth opportunity||Personal loans||College Savings, Home Improvement||Money transfer and other fee based services||Home purchase|
Conceptually it makes sense to have a comprehensive view of trade area opportunities as a basis for defining targeted messaging strategies. But how should you get started?
Banks normally have a wealth of information on customer and branch characteristics. It's likely that you already have most of the information you need, and certainly it is readily available from external sources. The challenge is finding and organizing this into a useful scheme that can then be used to drive the creation of hyper–localized messaging at the branch level.
The first step is to create a meaningful framework for obtaining, organizing and using your data. Start by determining the categories of information that will be most helpful in differentiating branches for messaging purposes. Looking beyond basic customer demographics, here are some questions you might ask:
By asking these and similar questions you can identify specific data that can form the basis of a targeted strategy.
It's important that the strategy reflects your broader marketing objectives and can be practically implemented. When localized and relevant messaging acts to support wider marketing and sales goals, you have the greatest opportunity to maximize effectiveness.
Despite all the discussion about "the death of branches", the fact remains that bank branches are here to stay. There are approximately 97,000 FDIC insured bank branches in the United States, and about the same number of credit union facilities. Even assuming an aggressive 1% annualized decline, the bank branch will still be the dominant financial services distribution channel for the foreseeable future.
As consumers and small businesses shift to alternative channels, it is critical that financial institutions improve the operational and sales efficiency of the brick and mortar channel. That means fine tuning every point of contact to optimize effectiveness.
David Kerstein is President of Peak Performance Consulting Group, which specializes in retail banking strategy and management. Clients include 50% of the top 10 banks and numerous regional and community banks.
Prior to forming Peak Performance Consulting Group in 1998, Mr. Kerstein held senior retail banking positions at Citibank, Bank One (now JP Morgan Chase) and Old Kent Financial Corporation (now part of Fifth Third Bank).
David has been active in the BAI, Consumer Bankers Association and the International Academy of Retail Banking. He is a frequent speaker at industry conferences, a regular contributor to Banking Strategies, and is the founder of LinkedIn's Retail Banking Network which has over 65,000 members.