By Mark Gibson
Community banks are under pressure to grow and remain relevant—to attract new customers as their existing customer base ages. But smaller banks face particular challenges. Some alarmists are even sounding the death knell for small community banks.
That’s entirely premature. By understanding their own competitive advantages, community banks can pursue a number of avenues to fight back and win. Here’s how.
Determine who prefers you.
There are absolutely large groups of consumers and business owners who prefer the unique type of banking that most smaller institutions offer. Some of these groups are shrinking in numbers—but they are still sizable. In general, they are older and have more complicated finances (larger deposit and loan balances, more investable assets).
But research shows that many millennials and Gen X consumers are also searching for a knowledgeable trusted financial advisor. Large banks have tried very hard to cater to these consumers—usually with a special package of products—and sometimes with a differentiated level of service. However, many customers either haven’t found those special programs, or want something more customized.
On the business side, larger businesses with complex loan, derivative, and treasury management requirements are forced to deal with regional or national banks. However, there are many business owners who crave personal attention from a knowledgeable banker who doesn’t get transferred every two or three years.
Kevin Tynan’s recent ABA Bank Marketing article laid out a systematic approach to identifying who these customers and prospects are, so I won’t repeat it here. But trust me, they are out there in sizable numbers and many of them are waiting to hear from you.
Manage your relationships.
Large banks are getting better at systematizing this to accomplish an almost community bank-like feel.
But you ARE a community bank!
Make sure you are acting like one, by purposely assigning and managing every one of your significant customer relationships. Establish clear expectations for frequency and content of your calling program. And think cross-line-of-business.
Enhance and clarify your advantage.
Marketers often call this your “value proposition.” Simply put, what can you do to ensure that orphan customers select your institution over others?
- Make it easy to do business with you. Large banks are great until a client has a problem, then it may require multiple 1-800 calls and hold time to resolve. Also, many large banks have instituted so much fraud protection that it’s more difficult for a client to log into their online banking than it was in the past. Work with your technology provider and compliance officer to streamline that process. Best practice: Fast turnaround on business loans; thumbprint log-in.
- Empower your bankers to customize. You obviously can’t “give away the store,” but there are plenty of things your bankers should be able to do for your customers without asking their boss or their boss’s boss for permission. This may seem trivial, but for anyone who has been told that “it’s our policy and we can’t change it for anyone,” this is a powerful differentiator. Customers expect that a local bank will have faster local decision-making. Make sure you do! Best practice: Tailor your mobile deposit and debit card limits to each customer’s needs and value to the firm.
- Advise, don’t sell. Most people hate to be sold to, but they welcome someone who listens and provides information and insight about their particular situation. This takes a higher level of skill than selling widgets, as many large banks are prone to do. Recently, a community bank CEO overheard one of his top bankers tell a customer, “We don’t do that here. You need to go talk to Rachel down the street. Here, I’ll call and tell her you’re coming.” There’s a reason this banker is a top performer. She has earned her customers’ trust. Best Practice: Double down on recruiting and training front-line colleagues to deliver advice, whether or not it leads directly to a sale.
- Recognize that risk is personal. Remember when banks made character loans? Of course, some still do, but most use automated analytics to speed up the process. Not that efficiency isn’t important to community banks—it is. But one of your competitive advantages should be that you know your customers, and if you know them, you should know who is a good credit risk. Best Practice: Provide small secured loans to your best customers’ college-age children, helping them establish credit.
- Only charge fees for delivering value. Critics perceive that the banking industry has a practice of inventing new fees and charging what the market will bear. For instance, I just saw my first routine $4 foreign ATM fee the other day. Customers are willing to pay for things they see value in, but too often customers are charged fees that colleagues have a difficult time explaining or justifying. The last time I checked, fees were one of the biggest drivers of bank switching. The next time you are reviewing your fees, why don’t you have a real customer sit at the table in addition to the banker whose bonus is dependent on raising them? Best Practice: Understand what customers are willing to pay for, and make sure there is a clear rationale for each fee you charge. And be fair. If your bankers struggle to justify the fee to customers after sufficient training, it’s probably a bad fee.
Get the word out.
Okay, so now you have figured out who prefers to do business with you, and you have crafted a pretty attractive value proposition. The problem is that nearly everyone is aware of the giant banks, and hardly anyone is aware of your much smaller institution. And you simply can’t justify the advertising expense to change that.
This is not a de minimis hill to climb, but don’t think about competing with a giant head-on. Similar to our customer targeting strategy and our value proposition, we need to use communication techniques that are more cost effective and better suited to our situation and budget. In other words, when the large banks “zig,” we “zag.”
So what can you do to beat the large banks at their own awareness game?
- Define your target’s media usage. You’ve already determined who you are targeting. Now use your media agency or secondary research to figure out what media they consume—especially when they are researching financial services. And don’t think big broad expensive media like broadcast TV or radio unless you can afford it. Rather, think about very targeted media, like addressable digital, direct mail, and mobile and mobile geo-fencing.
- Recognize that not all awareness is equal. Remember, it’s not enough for people to know your name. To choose you, they need to like you enough to give you their money. That’s called “preference” and it takes more than a tweet or a billboard to create. The best method—if practical—is a one-on-one conversation. But whatever technique you use, the message needs to be relevant and have positive emotion associated with it.
- Remember that not all awareness is created by advertising. There are lots of other effective ways for you to reach your target prospects that don’t involve advertising. Some don’t even involve marketing. In fact, the more tightly you can define your audience, the more likely it is you can reach them without advertising. For instance, if one of your target prospect groups is real estate developers, they probably have gatherings, trade organizations, and certain accountants or lawyers they patronize. Here’s a thought: Where do these people go when they want to spend time with each other, learn about their business or their finances? Maybe you should be there too.
- Be the expert. The more money people have, or the more complex their finances, the more information and advice they need. Why not position your bank and bankers as the place to go for financial information, education, and advice? Either write articles under your bankers’ byline, or have them quoted in relevant publications. Then share those articles on LinkedIn or other channels your prospects frequent.
While profitable growth isn’t easy, there remains ample market opportunity for community banks. They are in the best position to provide a particular style of banking that’s compelling to a large swath of consumers and business owners. Although success may require some strategic thinking and new tools, it’s certainly within the grasp of most community bank management teams. And the financial rewards are tangible and sizable.
Mark Gibson is senior consultant at Capital Performance Group, a management consulting firm that provides advisory, planning, analytic, and project management services to the financial services industry. Email: firstname.lastname@example.org. LinkedIn.