Collect Data, Test, Analyze!

By Walt Albro

This is how to properly conduct product development and management. The process never stops at First Citizens Community Bank, Pa., even with long-time successful offerings

You’ve created a popular new product that is generating revenue. Since everything is going smoothly, you can put the product on the back burner, and let it take care of itself. Right?


One of the most important aspects of product development and management is monitoring the performance of your priority products, no matter how successful they have been traditionally. Among other things, the market can suddenly shift and that well-performing product can start to become unprofitable.

Large banks recognize the importance of product management by assigning full-time people to deal exclusively with product development and monitoring—often with separate retail and business product managers.

But most community banks with assets of less than $3 billion lack such manpower resources. One way that community banks try to bridge the gap is by organizing a product committee, which is made up of representatives of various bank departments. These committees assist with everything from new product design to existing product review and revisions.

Located in north central Pennsylvania

First Citizens Community Bank (assets: $914 million) of Mansfield, Pa., is an example of a financial institution that created a product committee “to help improve the structure of our product management and development process,” says Kathleen Campbell, CFMP, senior vice president, director of marketing and training. The committee was created 13 years ago.

First Citizens has 18 locations in north central Pennsylvania. Its market is rural, with mostly small towns. Main industries include farming, lumber, and mineral exploration. The market covers a wide geographic area that stretches about 130 miles from end to end.

The committee meets monthly and has formal agendas that are sent out a week in advance with all supporting information to facilitate the discussion. Minutes are produced for each meeting.

The committee isn’t just a review-and-approval group. “They are involved from the start, with everything from generating ideas to facilitating the execution of the changes in their respective areas,” says Campbell.

Areas participating in the product committee include:

–Community offices.

–Business banking.

–Wealth Management.


–Information technology.

–Deposit operations.

–Loan operations.

Representatives from compliance and training occasionally attend a meeting, but they are not permanent members.

The committee takes a strategic approach to product development. “Sometimes people come back from a conference, and they talk about this cool new product that they saw at an exhibit,” says Campbell. “We encourage people to suggest product ideas, but we are not going to adopt one simply because it is fashionable. There has to be a strategic justification.”

Larger banks typically have a number of new product innovations they are consistently reviewing with their product committee. Community banks typically do not compete on product innovation due to resource limitations and they typically evaluate new product opportunities in reaction to a competitor or market change or as the result of a product offering from an outside provider, Campbell observes. “And although community banks do use their product committee to evaluate new product opportunities, it would serve them well to spend time evaluating existing product performance with some regularity.”

Adds Campbell, “If you are not evaluating the sales and profitability of your priority products with some regularity, you are missing opportunities to create value.”

Below are two examples of First Citizen’s product development and management process. The first involves a strategic decision to introduce a new product—business remote-deposit capture. The second deals with an ongoing effort to tweak a long-established profitable product, senior checking, that began to slip in profitability because of external market conditions.

Business remote-deposit capture

Campbell says that low-cost deposit growth is a consistent goal for First Citizens and increasing business checking deposits remains a priority in achieving this goal. About five years ago, the bank conducted an analysis of its current market and existing business households to identify opportunities for business checking acquisition. The bank also reviewed its business checking product line to ensure that its products were competitive. In looking at the results, First Citizens realized that because of its rural market area, many businesses would not find the bank’s locations convenient and research shows that a convenient location is a high priority for business customers.

Thus, the opportunity looked viable, but the bank had to overcome the convenience barrier. Two possible product solutions were evaluated by product committee—a courier service and remote-deposit capture. The committee explored the costs and benefits of each option. The courier service was more expensive and seemed more suited for customers that needed daily cash deposits. The committee decided to proceed with a remote-deposit capture product and target customers, such as lawyers, doctors and accountants, who typically have larger checking balances with the need to deposit high-value checks

Next, the committee looked at pricing. How much, if anything, to charge for the remote-deposit scanners? How much to charge for the service? By checking the competition, the bank found that others were not giving away the scanners or the service for free. They were pricing it for the value. So, the committee opted to charge for the scanners and impose a monthly fee.

For the launch, the committee chose to target “low-hanging fruit,” which were business-loan customers who did not have a checking account. However, sales turned out to be more challenging than anticipated. One cultural factor was that some small-business customers actually enjoyed making the trip to the bank to make deposits. “They viewed it as a social event,” Campbell notes. More significantly, they balked at the cost. They also found that although competitors were advertising fees, they were waiving them to get the business.

The committee went back to the drawing boards and made a couple of tweaks. One involved letting prospects have the scanner and the service free for a limited time. The theory was that once the customers realized how valuable the service was, they would be willing to pay. Another involved giving special training to a single bank salesperson who would focus on remote-deposit accounts. “We learned that it was helpful to have someone who was extremely knowledgeable about the product and could clearly explain the benefits,” says Campbell. The latest review of remote deposit capture will include a discussion regarding the impact mobile banking will have on it, she adds.

A successful product that lost profitability

Product profitability changes over time, even for the most stable and successful long-term products. This is why it is so important to monitor the performance of your priority products, Campbell emphasizes.

“When you see a red flag, that’s the time to start digging into the data,” says Campbell. An example of this is the bank’s senior checking. Like many community banks, First Citizens has offered a senior checking account for years. Nothing about how seniors used the product has changed: They were still keeping the same high balances in their accounts and were writing the same number of checks. What had altered, however, were external market conditions. Since the 2007 recession, the bank was not earning as much on those balances through lending and investments. Thus the credit assigned to those balances as part of their profitability model was reduced greatly and the high-balance senior checking accounts were not as profitable as they had been in the past.

“You can respond either by increasing revenue (fees) or lowering costs by removing some of the benefits or changing the way they use the account,” Campbell observes. But both options involve potential risks. The bank could add a monthly fee to the account. “But do you really want to irritate a customer who might have $500,000 in deposits,” she asks. The customer relationship should always be part of your evaluation. Plus, if your competitors aren’t charging, adding a fee may impact sales and cause run off.

A more subtle way of raising revenue might involve encouraging seniors to make more debit card transactions and write fewer checks—but that could be a change that this lifeycle segment doesn’t embrace. On the expense side, the bank could cut costs by removing benefits such as free checks or offering incentives for the seniors to stop receiving paper statements by mail and to switch to electronic statements. “Again, as part of your evaluation process, you need to understand this lifecycle segment’s comfort with e-statements,” says Campbell.

As each viable idea comes before the committee, the committee evaluates the impact on existing customers, future sales, regulatory barriers, operational capabilities, etc. “The changes that produce the best results are the ones that will be adopted,” she adds.

A product committee and structured product management and development process is essential no matter the size of the bank. Many community banks think they can’t do it and the fact is, they may not be able to all of it, she says. “But, having a product committee with some level of structure is better than nothing and is always a step in the right direction.”

Walt Albro is the editor of ABA Bank Marketing and Sales magazine, Washington, D.C. Email: [email protected].