How to Get Off the Hot Rate Ferris Wheel

I recently spoke at the DCI Annual Users Conference and the ABA Bank Marketing Conference about, among other things, how bankers can get off the the "hot rate" kick. I can think of no reason why a bank would claim the mantel of brand leadership if they must routinely price up deposits or reduce loan yields or structures to get new customers.

As part of the presentations, I had an audience participation segment where attendees suggested how to get off the hot rate addiction and I promised to publish their responses on my blog.

Here were their answers.

How to Get Off the Hot Rate Ferris Wheel

Specialize/Niche- Given by a Midwest banker, the thought process goes that if you're a really good ag lender and understand the needs of the customer and issues facing them, the customer will not put their loan up to multiple bids and dump you for an eighth. Same goes for other niches such as business transition loans, trucking, oil/gas exploration, etc. 

Speed to Close- Given by another Midwest bank CEO, the thought process goes that there is less price sensitivity if you can get to the closing table faster than competitors with as few pain points as possible.

Deep relationships- I suppose this bank marketer used the word deep to emphasize relationships when oftentimes bankers use "relationships" as something they have, yet must be best price to get the business. In other words, they really don't have "deep relationships." The cynic in me thinks instead of deep relationships, this should be actual relationships. But I go with what the banker gave me.

Ideas From My Presentation

Reward Loyalty- Rather than paying the best rates to non-customers to entice them to become customers and then make up the profit difference from your existing customers, why not reward your existing customers to entice them to increase their balances with you? Some do this in terms of special dividends to core deposit customers at the end of the year if the year has been a good one.

Flash Sale to Core Depositors- Along the same lines, give your customers more reasons to bank with you and tell their network to bank with you. Have occasional "blue light specials" to existing core customers as a benefit for their doing business with your bank.

Build relationships- Same as the Deep Relationships above. It's harder to dump your bank for minor rate variations if the customer has an actual relationship with one or more (preferable) of your bankers.

Don't screw your customers- Why torment loyal customers with a 7-month CD promo only to drop it to the lower 6 month rate when it matures because you know 70% of takers will be asleep at the switch. How does that build trust?

Store of Value Vs. Accumulation Accounts- A customer isn't normally 100% price sensitive on all of their accounts. They may be on IRA CD's or their emergency fund account, where they at least will want to cover inflation. But they may not be in their operating account or some special purpose savings accounts where they want the FDIC insurance and efficient transaction processing. Know the difference per customer.

Empower bankers on pricing- This is relating to the Store of Value idea above. It would be very difficult to know institutionally that a particular customer views a particular account as a store of value versus accumulation account. But it would be easier for the banker with the relationship. This implies you allow them to have pricing flexibility, within guardrails of course.

Be part of customers' personal brands- "I gotta have my Starbucks!" "My broker is EF Hutton, and EF Hutton says..." "I'm a member of Lancaster Country Club." If you're brand is worth bragging about to burnish the personal brand of your customers, you don't have to be the best price in town. In fact, being the best price in town might diminish your brand. Like Starbucks going into turnpike rest areas.

Any more ideas on how to get off the hot rate Ferris Wheel?

~ Jeff

Please consider reading my book: Squared Away-How Can Bankers Succeed as Economic First Responders. 

Ten percent of author royalties go to K9sForWarriors.org, who work to bring down the suicide rate among our veterans. 

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Thank you!

Three Ways to Align Marketing With Profitability

The inability to connect Marketing activities to the bottom line is what I frequently hear from bankers that think the Marketing Department is a cost center. Measurement is difficult. 

I also hear that silos are a problem in banking. Yet Marketing is frequently held to account for the ROI of the checking or home equity campaign. And branch bankers say they weren't consulted nor were they included in promotion planning. They often hear of the campaign on the radio while driving home. 

If you read my articles, watch my videos, or have heard me speak you know I'm a big proponent of the Marketing function taking a more prominent role in banks because customer acquisition and the customer experience has changed so much in the past decade. There must be an integrated, cross functional approach to acquiring, onboarding, and serving customers well to deepen relationships and turn them into champions of your brand. And that includes support functions. Nothing is more frustrating than turning a raving fan customer into a cynic because they get buzz sawed by the wire transfer person at HQ.

I have a bias towards profitability and against widgets. I remember doing a process review at a bank where one branch had hundreds of checking accounts with $100 or less. When I asked... you know the answer, right? A CD promotion that required opening a checking account. Widget counting. If the branch manager was accountable for consistently improving the profitability of her branch, and the Marketer was responsible for the continuous profit improvement of retail checking, this wouldn't have happened. Because having hundreds of low balance retail checking accounts attracts cost, with little revenue. But I bet you the CD promotion report had none of this.

So here is what I suggest:

1. Make profitability the ultimate accountability. 

Mandatory disclosure, my firm measures line of business, product, and feeds to customer profitability systems. And I work diligently with banks to analyze, adjust, and improve their profit trends using this information. Because I believe it is the way to go. Imagine if Marketing were responsible for the continuous improvement of the home equity line of credit product (see table).

The pushback from using profit and profit trend as the ultimate accountability, and not just from Marketing mind you, is that there are so many things outside the control of the marketer. True. But isn't that the case for any line of business with their profit and loss responsibilities? I have no control over the D&O insurance premium at my firm. But I'm sure as heck responsible for the firm's profitability. Which leads me to my second way to hold Marketing accountable.

2.  Implement Product Management. 

Which is totally related to (1) above. If Marketing was accountable for managing the HELOC product, wouldn't they engage in cross-functional collaboration to improve the profit picture? For example, in examining the above table, it is clear that the Bank has done a good job at increasing the product's spread. Fee income has been flat. And operating expense as a percent of the portfolio has been rising, even as the portfolio has been growing. Aha! What is afoot? Is credit underwriting manual? Do customers apply online and the loan moves seamlessly and electronically through the bank's underwriting, closing, and booking process? Does someone in loan servicing spend half their time on insurance tracking? i.e. are your processes scalable and efficient? Did you have a $100,000 marketing spend to generate 10 loans? All would be on the table as the person responsible for the continuous profit improvement collaborates with all areas of the bank that touch the product to improve the profit trend. And if the HELOC profit trend improves, branches will be more profitable (if they are the line of business responsible for HELOC origination).

3.  Identify Root Causes and Track Improvement. 

I'm currently reading the book Everything They Told You About Marketing Is Wrong by Ron Shevlin. In it, Ron says "The key to future profitability isn't in simply keeping customers-it's from deepening their relationships. And engagement is a necessary precondition for that to happen." There's that profitability word. What was Ron thinking? But fine, let's assume that "engagement" is key to keeping and deepening relationships. What the heck is engagement? Ron says it's whatever the bank thinks it is. And here was the chart from the book to highlight the point: 

I took a picture from my Kindle. Don't judge.

I asked Ron how to measure it, and he sent me a slide deck that showed it was measured by survey. If there was evidence that there was a strong correlation between engagement and customer profitability, I think the savvy marketer can measure it without having to perform surveys in today's AI and CRM world. But let's assume engagement deepens and lengthens a relationship. Let's look at the profit trend of a business interest checking product.

This product is much more profitable than the HELOC. In terms of ROE, fuhgetaboutit. So profitability should drive what marketing initiatives you implement.

Back to increasing engagement to increase profitability. If Marketing was responsible for assisting bankers migrate customers from low, to medium, to high engagement, how would that impact the profit picture? For one, it would lessen the operating expense as a percent of the product portfolio, because there would be no Know Your Customer, Address Checks, promotions to win a new customer, etc. And second, the deposit spread would increase because the duration (CFO term) of the product would increase, yielding a greater FTP Credit for Funds. 

By increasing the profitability of Business Interest Checking, you also increase the profitability of branches that are generally responsible for deposits, and possibly the commercial lender if the bank measures their portfolio profitability, including the deposits they brought in. 

So identify root causes with high correlation to improving product profitability, and measure Marketing on them. 

This level of accountability breaks down silos as Marketing now works with various departments within the bank to improve the profit picture, and aligns Marketing interests with those of profit centers (i.e. no hundreds of low balance checking accounts). When product and therefore line of business profitability goes up, so goes the bank.

What's stopping you?

~ Jeff

How To Do Product Management Without Product Profitability

Quick answer: I don't know.

I posited this question on Twitter because product management has come up during various financial institution strategic planning sessions. I also don't know of many new banking products since I've been in the business. See my post on that subject here from nearly two years ago.

But product management is a function that is performed, at some level and degree, in most financial institutions. Even if they have no title Product Manager. But if you don't measure product profitability, I'm not certain what financial institutions are managing to.

The video below discusses how Product Managers can use profitability information to improve the profitability of products and ultimately their institution.

How do you do Product Management?

~ Jeff

Bank Products: Blah Blah Blah

At a recent banking conference, Ray Davis of Umpqua Bank took center stage to tell of his journey from a small, Oregon community bank to a regional powerhouse. He mentioned products only briefly. And product was not part of the bank's success. I thought, Why?

Stuck on the topic, I jotted down the products that I remembered from when I landed my first banking job in 1985 while Davis spoke. I never claimed to have a great attention span. And I used those hotel notepads. Someone has to use them. Here was my list:

Products Circa 1985

Mortgage loan

Car loan

Personal loan

Home equity loan (?)

Business loan and line of credit

Commercial mortgage loan

Construction Loan

Checking account (business and personal)

Savings account (business and personal)

Certificate of deposit (business and personal)

Merchant services (?)

Trust

Then I wrote down how that list has changed.

New Products: Circa Today

Money market accounts (although could be classified as hyped savings)

Investments

Sweep accounts/cash management

Hedging

Options

The hedging and options might be categorized as features of business loans, versus products in and of themselves. But let's not quibble over insignificance.

What do you notice about the above lists?

What I notice is there is little difference in the products of today and the products when MacGyver developed improvised explosive devices with his shoes.

Bank products, at their base, have not changed. So, perhaps, instead of developing complexity in our product set, we should look to develop simplicity. Wouldn't we all benefit from more simplicity?

What sparked this post was a recent article in ababankmarketing.com written by Mark Gibson and Kevin Halsey of Capital Performance Group in Washington DC. It was a precursor to a presentation they gave at the ABA Marketing Conference in New Orleans titled "How to Build Remarkable Products". One of their slides from that presentation is below.

This slide, and another I was privileged to see, dubbed as one of the most popular by the authors, speaks nothing of product. In fact, I will confess to you that when I hear bankers talk about products, product management, product design, etc., I have no idea what they are talking about. Bank products have been the same since I've been in banking.

Yes, there are different features to products, such as high interest rates for checking account customers that engage in specific behaviors, or option-based CD's as developed by Neil Stanley of The CorePoint. Still a checking account. And still a CD.

Distribution is different. Back to my notepad, I penned the 1985 distro points as person-person, in-branch, telephone, and ATM. Today we could add online, mobile, and social (for customer service). As a list, not very impressive.

However, in terms of customer utilization, distribution has been massively disrupted.

Sure, bankers can tick off all of the new features added to that standard product list, as mentioned above. But new products? Hardly.

So why not simplify? Like Southwest did when they went with one airplane model. Why not have a personal checking account, that is non-interest bearing up to a certain average balance, which could differ based on customer utilization that could easily by solved by AI, and bears interest above that level. Same with business checking, now that we can pay interest on those accounts. 

Savings accounts could easily have sub-accounts. Like the proverbial envelopes in the night stand drawer that tucks money away for certain things such as Emergency, Vacation, and Holiday. I believe PNC did this with the Virtual Wallet account. To me, Virtual Wallet is nothing more than a practically thought out savings account. 

I recently commented to a bank's strategy team that I thought the days when bankers could rely on sleepy money are coming to an end. The 13-month CD special trick, where the CD reprices at the lower 12-month CD when it matures, is over. A business model that relies on the stupidity of your customers will die. Imagine a customer getting a text from a financial management app that says "your bank is screwing you". It may not say that, but it would say that a CD is maturing and the rate it will role into is below market.

No, we can no longer rely on sleepy money. But perhaps we should focus Marketing on touching the customer in every phase of the buying journey instead of concocting schemes to complicate products, tinker with pricing, and rely on Rip Van Winkle customers. This is what I believe my friends at Capital Performance Group were emphasizing.

If I were a marketer, I would focus on simplicity in product design. And sophistication in the customer acquisition or relationship expansion funnel.

But I'm not a marketer. 

~ Jeff

Stupid Bank Names

In the mid to late 1990's, my employer, First National Bank of Maryland based in Baltimore, bought Harrisburg, Pennsylvania based Dauphin Deposit Bank. They put together a transition team. I was on

that team. One of our responsibilities was coming up with a new name. After thousands of hours and millions of dollars, Allfirst was born. And hence the title for this blog post.

Are you going through a similar exercise? With Allfirst still fresh in my psyche, I occasionally throw stupid bank names at bankers contemplating a name change to increase the likelihood they won't make the same mistake. Here is what I came up with so far...

Allfirst - My poster child for stupid bank names. They didn't even include bank in their marketing materials, leaving customers and potential customers wondering, who?

Open Bank - I featured Open Bank in my annual total return top 5. Kudos for delivering value to their shareholders. As for their name... what if they are closed?

First Bank - The context of this blog post is for considering a new name. I know many of you may be named First Bank because that's the way it was 100 years ago, or your name was First Savings Bank and you dumped the Savings or First National Bank and you dumped the OCC. But there are 77 other First Banks in the country. If your brand strives for assimilation, then go with it.

Rabobank - Not a large leap to Rob A Bank.

IndyMac Bank, FSB - Sound like a burger joint to anyone else?

First Integrity Bank - This Minnesota bank failed in 2008. If you have to put integrity in your name, well... The same with Honest, Fair, or any other similar name describing behavior that should be part of the culture. The exception being Trust, since this is a distinct charter and/or service offering. I may get a call from my friends at a similarly named bank near my home on this one. But they should've given me a call before printing the letterhead.

Bank of Bird In Hand - This is an Amish focused bank. Named for the town where it is located. So they probably don't view the name with the same smirk as me. And no, for my non-Pennsylvania friends, you cannot drive from Blue Ball, through Bird In Hand, on to Intercourse, and arrive in Paradise. All Central Pennsylvania towns. But not lined up in that order. My point here is, not every town name should be on your billboard.

MutualBank - On the surface, not a bad name. And I may get an e-mail from my FMS friend, Chris Cook. But truth be told, MutualFirst Financial of Muncie, Indiana, the holding company for MutualBank, is publicly traded. It's not a mutual.

BestBank - A distinction earned, not bestowed. Same with Superior Bank, etc.

Excel Bank - A spreadsheet?

K Bank - In today's abbreviated texting and social media world, this is a bad name, K?

Innovative Bank - Through the worst banking crisis since the Great Depression, only about 5% of FDIC-insured financial institutions failed. Could being in the 5% group qualify you as innovative?

This is only a small list of banks based on my personal knowledge and some database searches. I'm sure there are more out there.

You may be surprised that I excluded some names such as the often lampooned poster child for stupid bank names, Fifth Third Bank. But it is a distinctive name, that has been around for a long, long time. I also respect some old school bank names, such as Old Second, etc. And banks with small town names that don't result in sophomoric snickers are also fine, in my opinion. Even affinity branded banks, like Red Neck Bank (actual division of a bank), have some merit.

So if you are grappling with the bank name issue, make sure that when you are presented with options as to what to call your bank, take a step back, and think. Ask somebody outside of the re-branding process. Common sense trumps a marketing study.

What other stupid bank names are out there or were out there?

~ Jeff

P.S. If I offended anyone, I apologize.

Why Does Kim Kardashian Kick Your Bank's A**?

I have never heard Kim Kardashian speak. I never watched her show. I don't know the family story. I can't name family members beyond Bruce Jenner. Until today, I never searched on her name.

But I know who she is. I know she's pretty. I have heard her claim to fame is an online sex video. I have seen her butt. But not in person. I saw it on a prime time news program. That's right, her derier was featured on a prime time news story.

How has this person turned nothing into significant brand recognition and revenue stream?

By typing Kim Kardashian, and adding her as a label, I just significantly increased this blog post's SEO, or search engine optimization. According to Yahoo, she was the  sixth most popular search during the year. There were no banks in the top 10. If I add her picture, which I am contemplating doing, I would increase my traffic. This is known as "click bait". Put a pretty girl next to any post... be it about fishing or the Victoria's Secret fashion show, and you'll get more clicks, so they tell me.

In fact, when I searched (via Bing) "Washington Trust Bank", a $4.7 billion in asset community bank based in Spokane and founded in 1902, I had 74,900 hits. I did the same for "Wells Fargo" and got 3.4 million hits. Kim Kardashian: 4.3 million hits.

Strategy teams perform a Situation Analysis prior to developing bank strategy, surveying reams of facts to get an accurate assessment of their operating environment. One particular part of a US bank's environment, sadly, is that we are celebrity obsessed. You want to follow Will and Kate, our crack news coverage has you covered. Wonder how far along Iran is in their nuclear program? Good luck.

This became apparent to me when I was speaking to a Washington state banker about his most famous customer, Sig Hansen, the captain of the F/V Northwestern, a crab fishing vessel. Yes, I hot linked to a crab fishing vessel. They have a website, and a pretty nifty one too. How could this be? Because Sig and the Northwestern are front and center on Discovery Channel's Dangerous Catch. Click over to their website and you can buy the coffee Sig drinks. Clearly, Sig's celebrity has aided the cash flow ups and downs typical of a fishing vessel.

How can banks respond to our celebrity obsessed culture? I don't think it is by hiring a celebrity to pitch your bank. Society has grown accustomed to this, and I'm not convinced it moves the needle much. Honda recognized this by enlisting Stretch Armstrong as spokesman for its line of cars this holiday season.

But perhaps we can make a celebrity or two out of our senior executives. For example, I live in Central Pennsylvania, where a credit union uses its CEO in all of its advertisements, billboards, etc. Forget the fact that he wears tights and a cape in most ads. No, seriously, I'm trying to forget that fact. But you get my point. This credit union has made a celebrity out of their CEO, and he is widely recognized in the community.

If done properly, this strategy could leave you exposed to the new celebrity departing the bank, or demanding higher compensation due to their new found status. There are ways to mitigate this risk. Progressive Insurance did so with Flo.

Do you think turning key employees into celebrities would help execute your strategy?

~ Jeff

P.S. I went with Sig Hansen's photo. Not as pretty as Kim.

Are Your Customers & Prospects Lovers, Haters, or Swingers?

I recently attended the Pacific Coast Bankers’ School at the University of Washington as an observer. Instead of observing, I went to learn from the many quality industry professionals and college professors that make up the faculty. One was Michael Swenson, a Ford Professor of Marketing at Brigham Young University. 

During his class, he discussed a case where the American Plastics Council (APC, now the Plastics Division of the American Chemistry Council) was trying to get people to feel better about using plastic. It seemed to me that the advertising campaign that ensued was specifically designed to get you to respond “plastic” when confronted by the pimply teenager at the supermarket checkout line that mumbles “paper or plastic”.

After spending millions, the APC was getting no traction. In fact, public opinion of plastics was getting slightly worse. That must have been an uncomfortable conference call.

So the APC brought in some fresh blood to figure out what to do. I can’t recall the agency they hired. But their approach was to divide their constituents into three groups: lovers, haters, and swingers. I think Professor Swenson called them the love group, hate group, and swing group, but I like my names better.

My first thought was, how could somebody “love” plastic? Not that there is anything wrong with that. But the context was that plastic had some positive influence in this group’s lives, such as the local little league switching from a chain link to a plastic-based fence just before their son Timmy (or Justin in modern day) plowed into the fence shagging a deep shot to left. So you get the picture where this group’s heads were (see video).

The hate group generally was of the tree hugging variety... plastic clogs landfills, never biodegrades, kills Flipper, etc. Swingers were indifferent. You may add a funny line now.

Based on the results of the study, you would think the APC would go about changing the hearts and minds of the haters. It’s human nature to try to get those that don’t like us to like us. But you would be wrong. Instead, the APC set to work on the swing group.

Here is where the big learning moment came for me. Instead of parading swingers into a room to do a focus group [insert joke here], the APC brought in the lovers to learn why they felt the way they did about plastic.

They took what they learned from the love group, and began a campaign to change the hearts and minds of the swing group through the eyes of the love group. And it worked.

Aha! *insert light bulb on top of head*

~ Jeff

Job Description: EVP of Distribution and Service Excellence

Figures don't lie. Financial Institution (FI) customers interface with us online far more frequently than in person. Has our organizational structure evolved to meet this challenge? I think not.

This post is geared toward drafting a job description of an FI EVP of Distribution and Service Excellence. Flowery name, I know. I also look at names such as Chief Experience Officer with extreme skepticism. But this position is different. And it's not my idea. I first wrote of such a position based on an idea posed by a student in my class at the North Carolina School of Banking.  I envision the person occupying this role to be a savvy marketer with strong IT skills, as well as senior leadership abilities. Here is my job description for such a position. 

EVP of Distribution and Service Excellence

Summary of Responsibilities: Member of Senior Management... As a member of senior management, this person participates in setting and executing the FIs strategy. Ensure compliance with all industry laws and regulations. Assist the Board in setting organizational policy and develop procedures to follow policy. Run the FI in a safe and sound manner. Participate in community events and represent the FI within the community. Join one community organization consistent with FI strategy and employee interests/values and be active in the organization's leadership. Participate in trade association(s) and assume a leadership position in at least one industry trade association.

Marketing and Product Development... Direct supervision of the Marketing and Product Development department. The department's responsibilities are to collaborate with business line leadership in developing tactics to deepen existing relationships and win new relationships with customers consistent with strategy. Develop and support a brand that is consistent with strategy, including traditional and non-traditional advertising, social media, and service excellence criteria. Develop products and product packages consistent with customer wants and needs and FI strategy.

Information Technology (IT)... Direct supervision of the IT department. The department's responsibilities are to implement and manage a stable core processing system and ancillary systems. Maintain system security. Evaluate existing and prospective systems that are consistent with strategy and safe and sound operations. Implement selected systems. Manage technology driven distribution such as online banking, mobile banking, automated teller machines (ATMs), automated teller stations, ACH, or other distribution systems that evolve. Manage relationships with technology vendors. Collaborate with other departments to ensure competitive technology driven distribution channels.

Human Resources (HR)... Direct supervision of the Human Resources department. Develop compensation, incentive, and benefits programs to attract and retain high quality employees with the greatest potential to successfully execute the FIs strategy. Ensure compliance with all HR related laws and regulations. Establish employee review program that encourages positive performance, professional growth and expertise, and remediation for low performing employees. Assist supervisors to positively influence employees, recognize superior performance, remediate poor performance, and remove employees with little chance to add to organizational growth. 

Training... Direct supervision of the Training department. Collaborate with department supervisors to develop development plans by position that focuses on skills consistent with the FIs strategy, technical, and compliance training. Develop leadership and supervision training so supervisors have the skills to motivate employees, identify high performing employees, coaching, and improve overall team performance. Manage the training aspect of FIs Succession and Executive Development plan. Be the champion to expose high performing employees to different disciplines within the FI. Ensure compliance training is consistent with industry standards.

Other duties as assigned.

Is it time to elevate technology from the current bits and bytes mentality, which in my opinion is why IT ends up reporting to an operations officer?

~ Jeff

Big Data or Big BS in Banking

Banking is becoming increasingly and irreversibly data driven. The amount of information we collect on customers exceed most industries, with the possible exception of the medical industry. Much like medical, the information we collect is highly personal. Since outsiders (i.e. thieves) want our money, this data is constantly under hacker siege.

But, in my experience, bankers don't often effectively use the data they have for good. By good, I mean to improve customer service, market intelligence, and bank performance. Instead, we have core processors and component systems that don't communicate well, or are not used to their fullest potential. I reflected on this while reading a Harvard Business Review article on Making Advanced Analytics Work for You. The article contained three benefits from big data: Multple Data Sources, Prediction and Optimization Models, and Organizational Transformation. I thought of three similar approaches that are more applicable to banking.

Here is what I came up with.

How Financial Institutions Can Benefit From Big Data

1.  Manage Risk

Boards of Directors/Trustees, regulators, bureaucrats, consultants, etc. all have ideas on how to manage risk. Some are mandated, so I don't have anything further to say there. But data to help manage risk should be simple and effective. By effective, I mean it should lead to the decision to mitigate, accept, or reject the risk. Interest Rate Risk reports are a good example of data required to make this decision. But what are we trying to accomplish with IRR reports? I would say we are trying to estimate the impact to net interest income from interest rate fluctuations. By knowing these impacts, we can manage our balance sheet accordingly to mitigate the risk. But the 100-page report that includes items such as economic value of equity calculations seems unnecessary to me. I know of no bank that is valued in this manner. Let the quants disagree.

2. Measure Performance

Again, this can be a simple endeavor. There are managers that do detailed reporting to manage the performance of their direct reports, such as manual closed account reports that take time to prepare, and often don't lead to actionable items. But what if, instead of measuring branch managers by such granular information as account closings, you managed them on revenue growth. That is what one of our clients did using a similar report to the below table. Imagine the behavior changes and profit improvement that could ensue if branch managers owned their income statement.

3. Marketing Data

Think of a gung-ho business banker that wants to expand his or her client base and portfolio. Can he or she peruse the customer base via NAICS code around a geographic area to look for opportunities to expand relationships and profitability with existing customers? Is this data merged with non-customer data, so he or she can see businesses within a geographic footprint to bring in new customers? Can he or she see the customers of the bank's insurance, or investment subsidiary? Even if the bank aggregated the data, can the gung-ho banker access it without navigating some bureaucracy? I doubt it. We need to feed our front line this data so they can institute effective business development efforts to improve their performance.

These are the top three uses of Big Data for banking, in my humble opinion. In a time when we are deluged with huge volumes of information, how we capture and distribute relevant data is more important than the amount of data we capture. Narrow your needs, and build the applications to use data effectively and you will have an advantage over your competitors.

Do you believe that the sheer amount of data available inhibits effective use of data?

~ Jeff

Best Book Ever on Word of Mouth and Direct Mail Marketing

I hope the title of this post compelled you to read its contents. If so, I suppose you are expecting me to offer my opinion on the most recent thought leadership on word-of-mouth and direct mail marketing. But I will not.

Instead, I will offer you my opinion on a book whose author is not 100% known, but thought to be a Syrian from Antioch named Luke. Recent? No. But would you be interested in a book that describes how to grow raving fans that span the globe from one poor person from a small town? Would you be interested in a book that doesn't only stand the test of decades, or even centuries, but millenia? How about a book that boasts adherents from about one-third of the world's population (see chart)?

Source: http://www.religioustolerance.org/



I'm not talking about Facebook, whose founders are plotting as you read to turn their paper into big money. I'm talking about the biblical book Acts of the Apostles.

Now before you browse away because you may not be religious or not be a Christian, hold on. This is not a post about religion. It has been suggested to not discuss religion or politics in a business blog. But it's my blog! And ignoring how a tiny sect of Judaism, whose apostles feared for their lives and locked themselves in an upper room, grew to a religion followed by 33% of the earth's population is worth discussing.

How did the Apostles do it? The book of Acts tells the tale with a specific focus on two: Peter and Paul. Peter, as many of you know (perhaps a third of you), was appointed by Jesus to build his church after Jesus' death. Indeed, Peter is considered the very first pope.

After Jesus' death, the apostles weren't out canvassing the countryside preaching the faith. As I mentioned, they hid from possible persecution. Jesus had to appear to them several times after death to get them out of the room. Have you ever heard of a doubting Thomas? Biblically based. Jesus had to guide Thomas' hands into his wounds to convince him.

But convince him, and the rest of the apostles he did. They immediately began their ministry, teaching to mostly Jews, healing them, converting them. There was no Internet. No newspaper to take out ads. No postal service to send a direct-mail postcard. No PowerPoint deck. They only had each other and their words, that were inspired by the Holy Spirit, according to the Bible.

They also had a solid foundation of a legend, although it typically takes decades, sometimes longer, for legends to achieve legendary status. In a word-of-mouth world, legends were slow to come. But Jesus' ministry resulted, in part, for the making of a legend that was to attract followers like no other legend before, or since.

The apostles were selected by Jesus not because of their stellar standing within the community. Most were poor and some were in positions not well admired, such as tax collector (not sure their social status has improved much). Nobody knows what Jesus was thinking when he chose such a humble lot. But I surmise he knew what he was doing... such as selecting good men, with good presence, that he could teach/were teachable, and who could preach to the world.

Paul was a different story. Not an original apostle, he enters the picture in Acts as a persecutor of Christians... until his fateful ride to Damascus. According to Acts, he was struck down and blinded by Jesus, and sent off to seek counsel in the faith before his sight was restored. Lesson learned: to knock the cover off the ball in word-of-mouth marketing, convert your biggest critic, and make him/her your raving fan.

Acts ends with Paul's first imprisonment, as it was typical for Christians to be persecuted. Paul's ministry focused on the Gentiles from Asia Minor to Rome. When not spreading the word in person, Paul wrote many letters to various Christian leaders. Much like a political campaign, the lesson learned here is to appoint leadership in key geographies and communicate, teach, and encourage them often.

Lastly, Acts shows the beginnings of the organization of the Christian church (present day Catholic church, as Protestant faiths took root as a result of the Reformation in the 1500's). This organization lives to this day, 2,000 years after its first seeds were planted by a poor carpenter from Nazareth and a few followers that included fishermen and tax collectors.

In summary, my take on the lessons learned from the book of Acts of the Apostles for word-of-mouth and direct mail marketing:

1. Choose your first WOM marketers carefully, make them passionate followers, develop and train them, set them loose;

2.  Lay the building blocks to achieve legendary status;

3.  Develop an organization that is built to last with leaders in key geographies;

4.  Turn your greatest critic into your greatest apostle.

Wouldn't it be shortsighted to ignore these timeless and proven word-of-mouth marketing techniques because they are found in the Bible?

~ Jeff

Note: My fascination with Acts of the Apostles as a quintessential word-of-mouth marketing guide does not make me a Biblical scholar. As one of my favorite comedians, Kathleen Madigan quips, "I'm a Catholic, I don't read the Bible." :)

V-blog: From the desk of jfb. How should FIs use social media?

Financial Brand August 2010 Survey of Banks Social Media Presence
http://thefinancialbrand.com/13111/2010-bank-credit-union-online-marketing-study/

Frank Sorrentino’s (Twitter: @franksiii) Blog
http://www.bankingonmainstreet.com/

Susquehanna Bank’s blog
http://blog.susquehanna.net/

Chase’s Community Giving Facebook page
http://www.facebook.com/ChaseCommunityGiving

Banking: Data hungry and decision challenged?

I had lunch today with a client's regional manager. We discussed many things, but one thing he told me stuck... they used average balances to determine their highest priority customers. Many of my comrades in the community FI blogosphere feed on data, some good, some bad. But using average customer balances to determine your best customers is unfortunately very common... bad use of data.

Similar to the above, a client of ours requested that my firm identify their top 100 customers by coterminous spread. We distributed the list. They reviewed it quizzically. The senior management team did not know half of the customers on the list. Their perception of their best customers also revolved around balances.

Financial institutions have in their possession more information about their customers than any other industry, with the possible exception of medical. How do we collect it, parse it, and use it? My guess is we don't do a very good job of harnessing this information to identify top customers, profitable products, or strategic opportunities.

I teach at the ABA School of Bank Marketing Management. One of my courses is Profitability & Strategic Issues. I distribute a questionnaire to determine what information students' FIs use to make strategic decisions. The below chart identifies their response to one of the questions.

Forty three percent of respondents reported that their institution did not use marketing data for strategic planning. Another 11% reported using it sometimes. This is astounding but consistent with past years' responses. Marketing data about customers, products, and markets should be critical to strategic decisions. Yet frequently, this data remains within the confines of the Marketing Department. Trapped as bits and bytes in the FIs MCIF or similar system, only to be busted loose to help with the next product promotion.

Aside from information trapped within our core processing and ancillary systems, there is ample data available for strategic decision making in the public domain and primary research conducted by industry professionals. Are we identifying the necessary data points to make important decisions?

For example, if considering branching, one would think the key data points are as follows: Are their enough of the types of customers within a certain community that we typically target and have success with? How many competitors are in the community and what is their branch size? Are branch deposits growing or declining in the community? Are businesses growing and in what industries? Are new housing developments on the horizon and are average home prices increasing? Are branch sites available in locations with adequate traffic?

Most if not all of the data mentioned above is either publicly available or can be obtained from private sources such as local realtors and from the FIs own marketing databases. But if your experience is similar to mine, you understand many branch decisions are made based on anecdotal data or because somebody we know owns the prospective branch property.

As succeeding in financial services becomes more challenging, making informed strategic decisions will be critical to our success. The days of throwing grass into the air to determine wind direction is no longer adequate. Important information need not be out of our reach. Much can be obtained freely via public sources, or can be mined from our own systems. When making decisions with long-term impact, FIs must identify the information needed to make informed decisions and collect and analyze it. Successful execution of the strategies to lead us into a successful future depend on it.

How does your FI use data to make strategic decisions?

~ Jeff

An open letter to bank marketers...

Change is difficult. Consider the difficulty in changing our own behaviors. A friend of mine that runs fitness clubs on Florida’s Gold Coast told me that it can be more effective to increase weight training in my workout regiment if I want to shed some pounds because muscle burns calories. This required me to rethink and change my workout routine. The end result: I decreased my cardio workout and increased weight training five measly minutes.

I did not doubt my friend’s advice. I had difficulty changing my routine, a routine that is totally under my control. Imagine changing the culture of a whole organization. To my bank (thrift and credit union) marketing friends, I throw this challenge to you.

The talent of the individuals facing me these past two days at the ABA School of Bank Marketing Management in Dallas was impressive. Collectively, they have intelligence, education, intuition, and the ability to think strategically. Marketers, in my experience, have demonstrated a greater acceptance of the need for cultural change in banking.

But there is a challenge to them. In many instances, they have been marginalized in their institution; relegated to running the ad budget or organizing the next customer mixer. Many, if not most bank employees, think about the next loan deal, or the next CD promotion. Marketers are the proverbial right brain thinkers in a left brain world.

But banking is changing rapidly. The need to develop a vision and a strategy to support achieving that vision is greater today than at any time since post WWII. If our bank is simply an efficient processor of debits and credits, are we needed? There are plenty of other financial institutions to fill that role. Each bank must assess where it stands in its communities and among its customers. Once completed, they need to identify the type of bank they want to be and set about getting there.

Marketing is in a unique position to play a critical role in evolving our industry and be the lynchpin for cultural change (see link to Susan Heathfield’s blog on organizational cultural change below). The personality of Marketing leaders are typically well-suited for strategic thinking. They have their fingers on the data about the bank’s customer base, markets, and prospects that is critical to creating strategy. They have the skills to design service standards that are truly superior, to implement training that goes beyond compliance, and to demonstrate to employees how to execute on those standards.

But how should a bank marketer implement cultural change in an industry that has not yet embraced it? How should one convince a CEO that the long-term relevance of the bank is dependent on cultural change and not simply minor tweaks to business as usual?

I don’t think this will be easy. But I find the marketing function to be in a unique position to start the process of cultural change. Marketers intuitively recognize the need for change, have the ability to pull back the camera and think strategically, and have the ideas to show a path to successful change and lead their banks back to relevance. Take the initiative.

-Jeff

http://tinyurl.com/2syu3m

You call yourself a brand manager?

The Pennsylvania Turnpike’s Valley Forge rest stop is a common waypoint for me on my travels. This week, I stopped and bought a 12oz cup of coffee from the Starbucks kiosk… cost: $1.69. Curious, I moved 10 feet to my right and asked the helpful Burger King clerk the price of a 12oz cup of coffee… $1.15. I paid 32% more so my cup would say Starbucks on it. I must be a victim of a saturation ad campaign. Oh wait, I can’t recall ever seeing a Starbucks ad.

We make premium pricing decisions every day (see chart). For reasons that may be different by customer, we place a monetary value on a good or service that is greater than a similar replacement good or service. We do so even when it is difficult to justify paying the higher price, such as my coffee example. Sure, we rationalize by saying it tastes better, or some other reason. This reminds me when my daughter performed a soda taste test at the local swimming pool, pitting Coke, Pepsi, RC, and a generic brand against each other. The winner: generic brand. Without the labels, top-selling brands are difficult to pick out.

So why can’t we achieve premium pricing in community banking? Why do our lenders price aggressively to “get the deal done” or branch managers rely on rate promotions to grow deposits? A response I often receive is that money is a commodity, and one bank’s greenbacks are the same as another’s. But isn’t a cup of coffee also a commodity? And what about “superior customer service” or “access to decision makers” I keep hearing about in community bank strategy sessions?

I believe that a critical component missing in community banking is a brand. Resist it if you must, but people pay more for a Marriott Hotel room because it’s Marriott and more for a Mercedes because it’s Mercedes. Those brands stand for something that people are willing to pay for. What does your brand stand for?

I am on the faculty on the ABA School of Bank Marketing Management (aside: I am tardy submitting my lesson plan). These students are tough when it comes to instructor critiques. So before I receive my traditionally poor performance reviews and be perceived as having sour grapes, let me be tough on them. Marketing in community banks has not been successful in positioning the function with a strategic focus, pays far too much time dabbling in retail, and has not descended from 10,000 feet to the ground level in building the bank brand. Although I’m sure there are some, I cannot think of one community bank where customers feel they have to bank there regardless of price variations, like they do when they talk about going to Starbucks.

Not to lay all of this at the feet of marketing. Many, if not most, community banks are run by former lenders. The commercial lending function does not often call on marketing for assistance. They think marketing runs the ad budget. And as one CEO told me, “we don’t get business customers from running a billboard campaign.”

Fair enough. But can you get customers to pay more for your money than the competitors? Are you positioned as a trusted advisor? Are your lenders knowledgeable enough to advise? Do business customers rave about you to their contemporaries? Are you the “go-to” bank for education on small business balance sheet management?

My ABASBMM students are pretty bright, and they talk a good strategic marketing game. But what’s the point if they go back to their banks and run the next spring home equity campaign? I get frustrated when my company performs a costing study at a bank focused on commercial customers and the marketing department expends 80% of their time in retail banking endeavors, or is subordinate to the head of retail (both true stories). If your marketing department fits a similar mold and is not aligned with your bank’s strategy, or your bank does not have a strategy, it’s time for a change. Force the issue! Don’t wait for the former commercial lending CEO to take the initiative. The success of your brand, your bank, and your future depends on it.

- Jeff