Today’s community banks have to contend with competitors that are not just bigger, but getting better. One way they’re fighting back is with technology designed to give their marketing messages extra bite.
Having built out their online networks and exhausted their infatuation with that mode of delivery, big banks are focusing more attention on their branches, where, it turns out, most customers still prefer to do their banking. This shift has not been good news for small banks, which are accustomed to dominating the market for personalized, face-to-face service.
Large institutions are using marketing tools to grab a bigger share of the deposit market, such as questionnaires that invite customers to critique the treatment they received during branch visits. Attention-getting offers of $25, $50, or even $100 for opening certain kinds of accounts, as well as the decision to keep more branches open for longer hours, are also contributing to a burst of big-bank deposits.
Recent research shows big banks are starting to close what had once been a healthy gap against the deposit-gathering abilities of their smaller competitors. New York-based Mercer Oliver Wyman found banks with assets less than $250 million grew deposits 2.36% between 1999 and 2004, while those with $5 billion or more lost deposits at a rate of 1.67%. When only 2002 to 2004 are examined, however, the picture is not so bleak for big banks. Small banks grew deposits more slowly during this time, at 1.44%, while big banks lost them more slowly, by only .75%.
Findings from New York-based First Manhattan Consulting Group tell a similar story. Among the 150 largest U.S. banks, those ranked 101 through 150 in assets grew retail deposits five-and-a-half times faster from June 1998 to June 2004 than the top 30 banks, which, on average, grew them only 1.7% per year during that time. But the big banks have a much stronger showing when only recent years are considered. Between 2003 and 2004, the 30 largest banks grew deposits 3.1%. That was still twice as slow as the smallest 50 of the top 150, but for the first time in the last six years, big banks surpassed the mid-sized banks ranked 31 to 100, which grew only 3.0%.
The improved performance of large institutions is enough to make some smaller banks reconsider how they compete against the superregional banks in their midst. For some, that means more aggressive marketing by shooting out offers that are timelier and thus, far more effective.
The old adage that timing is everything is particularly true in marketing. Being able to contact a customer just when some unusual financial activity is occurring in their lives offers a near-automatic boost to response rates. Consider the power of promoting an attractive mortgage rate just as a potential borrower is mulling the purchase of a new home, versus when they’ve already committed to another lender. Then compare that to the standard practice in today’s marketing world, which is to send out offers based on monthly snapshots of customers’ accounts. Monthly updates are of little use in detecting, say, an inheritance parked in a checking account for a few days until a decision is made on where to invest it. Only by knowing the money briefly existed in its coffers could a bank be in a position to offer up its own investment services. Similarly, if a bank could detect that a checking account balance had dwindled to practically nothing, it might be able to come up with an offer to induce the accountholder to stayu00e2u20ac”before the account was closed.
Software is now available to help banks analyze changes in customer account data on a nightly basis, enabling them to swoop in on unexpected opportunities. Such event-based marketing systems typically employ neural network technology to constantly update their knowledge of customer activity and better identify anomalous behavior. They also generally include a mechanism for delivering leads to branch personnel, who have a couple of days to act before those leads go stale.
Synapse Technology Inc., a Charlotte, North Carolina-based provider of marketing software, has developed a spreadsheet with various assumptions to help determine payback on the event-based marketing software it began selling to banks about three years ago. After a ramp-up period of a month or two, banks generally show a 2.5% to 6% lift in deposits by using the solution, claims Mike Berry, senior vice president for financial services.
With those kinds of results, the return on a bank’s investment tends to occur in a matter of months. The cost of a Synapse system varies almost entirely according to the size of the institution, from $150,000 a year for smaller banks to $1 million a year for larger ones, Berry says.
Bank of Oklahoma in Tulsa began using Synapse just over two years ago because it dovetailed with an in-branch sales process the bank had in place that stressed daily, proactive contact with customers. After analyzing all the transactions that occur daily and comparing that activity with past customer behavior, the software identifies unique situations that indicate potential sales opportunities. It then prioritizes those leads and downloads them to branch personnel.
At Bank of Oklahoma, each branch gets 10 leads a day to follow up on. “This is a mechanism for making that contact very easy,” Scott Ellison, manager of consumer banking information services, says. “You don’t have to come up with your own leads.”
Hot leads are not always related to cross-selling a product. Sometimes they focus on retention. An extra-large withdrawal could indicate a customer may close an account. Another telling signal could be lack of activity. A particularly vulnerable time for account closings is at the beginning of a bank relationship. Thirty percent of customers leave in their first year, according to Frank Noyes, vice president and financial markets adviser at Harte-Hanks, an Atlanta-based provider of marketing software.
Beyond instructing branch personnel on how to interpret the leads and what to say to prospects, senior managers need to be dogged about pushing employees to use the system, experts say. Most banks using the system steer five to 10 new leads to each branch employee daily, Berry explains. In an ideal world, employees work those leads and get new ones the following day. The Synapse system compensates for leads that have not been pursued by handing out fewer of them the next day to those employees. Leads generally have a maximum shelf life of five days before they lose their potential. Then they disappear from the system. “The client meets their need with you or without you,” Berry says.
Ellison of Bank of Oklahoma makes the point that senior management buy-in is essential to the success of event-based marketing. For a six- to eight-month period senior managers at his bank were not focused on the results of the marketing system, and performance dropped off. “The line picks up on that right away,” he says.
Some banks penalize branch employees for not following up on leads, while others reward them when none of their leads expire, both of which are strategies Berry’s company applauds. “You can have the best technology and the best analysis, but if you don’t have people making the calls, it’s almost pointless,” he says.
Another way to improve the timeliness of marketing offers is to catch customers when they are already in the mindset of taking care of financial matters, such as when they are on the bank’s website or interacting with the call center. According to the Gartner Group, a Stamford, Connecticut-based technology research firm, these so-called inbound marketing efforts result in response rates that are 10 times higher than typical outbound promotions.
Since the beginning of this year, Atlanta-based NetBank Inc.u00e2u20ac”which uses the Internet as its primary distribution and service networku00e2u20ac”has been using software from E.piphany Inc. in San Mateo, California to download relevant offers to customers as they peruse the bank’s website. The software analyzes ongoing behavior to predict the product a customer is next most likely to buy, and presents that offer as a banner ad. By the end of the year, NetBank expects to use the same tool to enable its call center reps to make offers to customers as they call in.
For a five-month period running through May 2005, NetBank saw a 12% increase in the number of customers who click on one of the targeted banner ads, says Marsha Calfee, director of CRM delivery. One product offer in particular garnered a 20% increase in the click-through rate.
Whether banks grab customers as they are doing their banking on a website or when their financial lives are undergoing change, a marketing approach that emphasizes timeliness is far superior to one that relies on randomly timed contacts and potentially outdated information. Better timing is a solid strategy for gearing up against ever more formidable big-bank competitors. Located in a second-tier market, Bank of Oklahoma has yet to contend with large banks big-footing their way into its territory. “But in case they ramp up,” Ellison says, “we’re prepared.”