You Can't Buy a Customer's Love?

I recently attended the ABA Marketing Conference in San Antonio where a speaker from USAA said something similar to this post's title. Really? How do I explain the branding study by a client that identified Ally Bank as the most recognizable brand in their market?

As most readers know, Ally is the former bank-finance arm of General Motors (GMAC). They required a substantial capital infusion from Uncle Sam to keep them solvent during the financial crisis. I don't think they have many, if any branches. So how do they earn "most recognizable"? My money is on their ad budget. In other words, they bought their fame. Love? No. Head above the crowd? Looks like it.

This flies in the face of conventional wisdom spoken so eloquently by the USAA speaker. How could blast, one directional messaging still yield results in today's engagement world? And if money can buy customer love, what can community banks with limited ad budgets do to survive?

USAA is highly regarded in banking circles for their omni channel marketing approach. But I find it interesting that their representative took the position that budget heavy blast messaging was not effective at gaining customer loyalty.

Why? I'm a veteran and USAA insurance customer. I cannot recall speaking to a live person from the insurance or bank side. But I see plenty of TV ads during prime airtime, receive a couple of e-mails per month, and occasionally receive direct mail from them. Is this how to win my love? Perhaps. I'm not sure. But, according to their actions, they must think so.

But I do know most community banks cannot afford this path. We don't have the resources. So what are we to do?

Customers switch banks when something happens that compels them to do so. For each customer, it may be a slightly different "something"; a declined credit, difficulty sending a wire, accidentally bounced check, a bad experience with their banker. The key to be the bank they go to once "something" happens is to be on top of their mind when they decide to switch. Ally and, yes, USAA, do that through their ad budgets. You, on the other hand, must work harder and smarter to be that top of mind bank.

Traditional advertising can play a role. But actually knowing potential customers can go a long way. Do your employees, front line and support staff, participate in community organizations? Are they on LinkedIn and do they follow your bank's LinkedIn profile?

Does your bank blog, and interact with community members on the blog? Have you positioned your employees as subject matter experts on the blog, and host community based education sessions such as "How to Finance a Small Business"? Does your brand have personality, such as supporting the local sports team(s) by using Facebook post factoids on team athletes, and wearing team colors in your branches before a big game?

Whatever path you choose to combat big bank big ad budgets, ensure it is consistent, constant, integrated, interesting, relevant, and genuine.  USAA is thought to be best in class in omni channel engagement. You can be genuinely best in class. But you have to build the strategy and execute it.

What are you waiting for?

~ Jeff

Bar Rescue: Bankers Edition

My buddy Dave Gerbino and I are speaking about product profitability at the ABA Marketing Conference in San Antonio next week (Monday, September 23rd, 11am if you're in town). While developing our presentation, Dave drops Bar Rescue on me.

Never heard of it, I said. Apparently, it's a Spike TV reality show where a bar expert (great job!), Jon Taffer, helps owners turn their flailing establishments around (see video clip).

Dave said product profitability reminded him of Taffer badgering bar owners for their liquor cost. How much are they paying for their liquor and what is their gross margin? Most didn't know. Should they know?

That's a rhetorical question. But, let's be honest, most of us don't know our liquor cost. I read fascinating articles and hear endless speeches on big data, data analytics, deep data dives, relationship profitability, customer profitability, and segment profitability. But nary an article, speech, or mention of product profitability. It is the Rodney Dangerfield of big data. It gets no respect.

Its absence is peculiar. Peculiar because it is a pre-requisite for most other profitability endeavors. How do you determine customer profitability without cost per account? That's an output of product profitability. Go ask your deposit operations clerk how she spends her day. Will she say she spends two hours working on your Main Street branch overdrafts, or ABC Company's wire transfers? No, she'll say she spends two hours working on checking overdrafts. 

Do you calculate customer profitability using Return on Equity (ROE)? How do you calculate the "E" allocated to the customer? You do it by risk characteristics of the product(s) used by your customer. Again, an output of product profitability.

So where is your product profitability? What's your liquor cost?

~ Jeff

FYI: Dave Gerbino and I will be speaking more on this subject at the ABA Marketing Conference on Monday, September 23, 2013 at 11am in San Antonio. They think so many marketers are interested in their liquor cost that they made us repeat our performance at 1pm.

Your Branch in Your Pocket

I am attending the annual ABA Marketing Conference, where I spoke on how marketing can focus efforts on improving profitability and moving their bank forward.

The program had plenty of learning opportunities. One was the best attended general session in conference history, Brett King on the future of banking. Brett is the author of Bank 2.0, Branch Today, Gone Tomorrow, and the forthcoming Bank 3.0 and is what I would term an industry futurist, predicting and staying ahead of where he perceives the industry is going.

In the below clip, Brett speaks of the friction in our system that is slowing our adoption of change. He used the example of Compliance friction, that often thwarts efforts for online account opening and other technology adaptations. He makes the point, quite correctly in my opinion, that there is an irreversible trend in our industry away from customers coming to our branch, and calling us on the phone.

That puts a premium on building our bank's team on customer and prospect outreach, visiting them on their turf, with convenient technologies. Because if we wait for them to come to us, they're likely to go somewhere else.

Are you trying to reverse the trend and encourage customers to come to your branch? If not, how do you reach them?

~ Jeff

Customer Profitabilty in Banking: Do you do it?

According to an ABA survey (see table), I doubt it.

I am speaking at the upcoming ABA Marketing Conference next week. Well, maybe not as much speaking as appearing. Mary Beth Sullivan and I are appearing as guests of Susquehanna Bank's Susan Bergen, in an Oprah like talk show format. I suggested Saturday Night Live's Point-Counterpoint format, but it was rejected. To appease my objection to appearing on Oprah, they orchestrated my entrance to a Pitbull song. I did not know who Pitbull was.

Our discussion will revolve around an ABA survey done this summer regarding actions banks have taken, or intend to take, to improve profitability. One question that didn't make the cut in the interest of time, was the one represented in this post's table: Does everyone in management know profitable versus unprofitable customers the bank serves today?

If you were in the corporate headquarters of McDonald's, you would be alarmed at the results. If you are in banking... not so much alarmed as happy that so many others remain as in the dark as you. I think lack of knowledge of profitable customers comes from three things:

1. Getting such a number requires investment in resources your FI currently does not have:

2. The regulators don't require the information; and

3. Even if you had the information, what would you do about it anyway?

All are related. FIs earn money on the spread. In order to create spread, FIs focus on creating a basket of the highest yielding assets within risk parameters, while funding them with a basket of the lowest costing funding. Why do you need some fancy profitability information to tell you that?

Problem: Various assets and liabilities take differing amount of operating expenses to accumulate. Also, based on risk, different assets and liabilities require different equity allocations. If your attitude is that the "incremental" cost of chasing this business or that is minimal, you may very well be mis-allocating your precious resources to low profit customers.

For example, we have a client that served the bar/restaurant business in a college town. These establishments brought decent balances to the bank. The problem: we found employees that spent half their day sorting through the bag-fulls of cash delivered every day. Could the bank allocate that operating expense to a campaign to acquire and serve higher profit customers? Without determining the profitability of those customers, we would never know about the opportunity lost.

I think it's time to change the paradigm from acquiring the highest yielding assets and the lowest costing liabilities based solely on interest earned or cost of funds. We should instead focus on acquiring and serving baskets of the highest profit customers. Doing so will efficiently allocate resources, improve our profitability, and enhance our FIs value.

~ Jeff