Friday, December 31, 2010

Bank Product Pushing: Is this our strategy?

Banking has taken a beating in the media and court of public opinion in the past two years. Some of it has been unfair, particularly with how banks were associated with subprime mortgages (very few were originated by banks) and how community banks were lumped in with the practices of very large financial institutions (FIs). But if we are to be honest with ourselves, some of it is deserved and we should take positive steps to repair our image, better serve our customers, and lead us into the future.

This post is part of a three part series regarding strategies to improve our image and move us forward. The three parts include:

1. Executive compensation;
2. Fees;
3. Product pushing

In previous posts I wrote about Executive Compensation and Fees. This post will focus on Product Pushing.

In either a bank strategy session or an educational session, I can’t remember which, a speaker gave an anecdote about shopping for a mattress. A couple enters a mattress store and a salesman, most likely on commission, rapidly approaches them as they walk through the door and says “may I help you”? The couple, in unison, say “no thank you, we’re just looking”. They were just looking… in a mattress store?

Now I don’t know how much you know about mattresses. I know very little about them. But I have to believe that simply looking at a mattress would not be helpful in making an informed “buy” decision. I would need help. But I also think my reaction to an oncoming salesman would be similar to the couple’s reaction. We possess an automatic defense mechanism from being sold to.

In this context, doesn’t “just looking” in financial services seem more unlikely than the mattress analogy? But this is what customers do when they visit a bank’s website to peruse product offerings without ever contacting the bank. We avoid the human interaction because we don’t want to get sold.

Financial services, though, are very complex. Banks typically offer dozens if not over 100 traditional spread banking products. If our FI offers investment, insurance, and/or trust products, the list can grow exponentially. Why do customers not seek us out for help? Why are they “just looking”?

I think there are two reasons: 1) they do not view us as advisers, and 2) they view us more as salesman. We have perpetuated this view by emphasizing cross sales in the branch, pipelines for lenders, and gross production from our investment reps. This emphasis puts greater value on the point-of-sale, or transaction.

The result is that bankers are not perceived as acting in the customers’ best interests. Take the video below as an example of how our industry is viewed. The protagonist needs advice, probably from his parents, to help protect him from a product (in this case a credit card) pushed on him by a banker using giveaways as a promotion. This is classic product pushing, regardless of what is right for the customer.

But what if the bank took a different approach? Perhaps the parents have a great relationship with their local banker, and trust his or her advice. They consult the banker regarding their son going to college and the banker suggests a savings-account collateralized credit card that sports lower interest rates and where the parents can monitor usage.

This may not be a better transaction than giving the son a credit card knowing he is likely to run up the balance at high interest rates. But it increases the loyalty of the parents, and makes it more likely the son will bank with the same person as the parents because of this loyalty. The bank enjoys the higher balances from the parents, and ultimately wins the business of the son once he graduates and enters his earnings and borrowing years. But this philosophy won’t help the banker meet his or her quota of the product de jour.

Which situation would be better? The short-term, walkie-talkie giveaway for a high interest rate credit card would certainly be a better short-term winner for the bank. Long term is a different story. So why are banks perceived as pursuing the short-term strategy? Could it be the incentives we put in place? Could it be the capabilities of our staff responsible for relationship building? Or is it simply misfortune?

We have to ask ourselves the very strategic question of how we want to be perceived? Perception is mostly within our control and is strongly influenced by the people we hire, the manner in which we compensate them, and the strategy we pursue. I have not been in a strategy session where bankers chose to promote the product de jour, push products on customers, or resemble the mattress salesman. We should align our actions with our strategy.

~ Jeff

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