By Mark Gibson
The marketing function has evolved in many banks from primarily a communications function to a partner with lines of business to grow revenue. This evolution has been evident for years, but gained momentum during the pandemic and has become more essential as interest rates have squeezed industry profits.
TOOLKIT > Mark Gibson will speak alongside leading experts at the ABA Bank Marketing Conference in Chicago, Oct. 6-8. For more information on all ABA conferences, check out aba.com/conferences.
Why marketing is more important now
Leading financial companies have known for years that marketing is an investment that can drive new accounts and customers. However, most financial institutions have traditionally viewed marketing as an expense to be managed, and in difficult economic times like these, minimized. However, recent changes in customer behavior and technology have elevated the visibility and importance of the marketing function.
First, executives have realized that having a strong brand can help differentiate an organization on criteria other than rate and price. This allows an institution to attract customers more profitably and expand its margin.
Second, the pandemic and the temporary shuttering of branches highlighted the importance of digital channels in converting sales and customers. Marketing is required to drive prospects to the website, then an effective account opening system converts them to customers. These two functions augment, and in some cases, replace sales efforts typically managed within the branch.
Finally, new technologies such as digital media, website analytics, marketing automation, and CRM allow for much more effective correlation, or ‘attribution’ of sales to specific marketing activities. This achieves the ‘holy grail’ of linking marketing activities to sales results, and allows executives to establish measurable and predictable flows of deposits, loans and new customers, essentially creating a ‘lever’ that can be scaled up or down, depending upon the growth goals of the organization.
These three changes have transformed marketing from an expense to be minimized to an investment to be optimized. This point is substantiated by the fact that the larger and more sophisticated the organization, the larger their marketing budget. In Capital Performance Group’s recent analysis of the size of 2023 bank marketing budgets, for banks under $50 billion in total assets, marketing expenses ranged from 0.06 to 0.08 percent of total assets, while banks over $50 billion spent 0.11 percent on marketing, on average.
How marketing Is changing
Historically, bank marketing focused on a variety of communication activities, event and sponsorship management, and charitable contributions. It was a support function to the entire organization and did not have a strategic role to play. Interestingly, this is quite different from marketing’s role in organizations outside of banking, where marketing often plays a larger role in customer segmentation, product and value proposition development, pricing, new customer acquisition and existing customer engagement.
However, to capitalize on the changes outlined above, bank marketing functions have begun to resemble more closely those found in other industries. Those focus areas can be characterized into four ‘buckets’:
- Customer acquisition and lead generation. Since the pandemic, our industry has learned that marketing has a larger role to play in generating sales leads, and in some cases, closing the sale exclusively through digital channels. This requires a new kind of marketing talent that understands the buyers’ journey, the sales conversion funnel, and the math behind generating a new customer at an acceptable cost (Customer Acquisition Cost or CAC).
- Segmentation and targeting. In order to perform acquisition well, marketing must understand who the bank wants as a customer. The more precisely this is defined, the more tailored the product and offer can be. And the more relevant and motivating that offer, the more customers are created. Similarly, if the audience is well defined, a media program can be created to reach those specific people, and not others. This potentially accomplishes three things: drives up your response rate; reduces your media cost; and allows you to exclude your current customers, reducing repricing risk.
- Cross-selling and upselling. Bankers have known for years that it is a lot easier and cheaper to sell an additional product to an existing customer than to a new one. Marketing’s recent contribution is to partner with sales teams, harnessing data analytics to refine the targeting based on expected need and propensity to buy. As an example, it can be straightforward to understand which of your existing customers are likely to have deposits elsewhere. Providing this type of insight to your front line can dramatically improve their productivity, and their results.
- Data analytics and measurement. The foundation of success of marketing’s new role is its ability to use data to craft smarter campaigns, and to effectively measure the impact of those campaigns. Whether data analytics resides in the marketing department or not, marketers need to use data for several critical functions: selecting the right target audience; choosing the right media to reach the audience; measuring engagement and activity through tools such as Google Analytics; and correlating marketing activities with online and branch sales results. One of the hallmarks of ‘new school’ marketing functions is their ability to track and report the results of their campaigns in a way that makes sense to senior management, holding campaigns and initiatives accountable to achieve ROI and performance goals.
A real-life example can illustrate how these four enhancements can make a real difference. Growing deposits cost effectively is a goal shared by many institutions. Marketers are performing analytics on the bank’s current customer base (both consumer and business) to understand who are the institution’s ‘best deposit customers.’ Armed with this insight, the marketing team can look for other customers who share those characteristics but don’t have large deposits. There is a high probability those customers have large deposits elsewhere. This insight also provides valuable input when targeting prospects. In fact, several of our bank clients have identified the specific households and businesses they would like to bank in their footprint and created very targeted marketing programs directed at those prospects. Finally, marketing works alongside the sales teams within relevant lines of business to coordinate activities and frequently review results. This enables testing and optimization of both the marketing and sales activities, leading to greater success.
Growing your customer base strategically
An important function of banks is meeting the financial needs of their entire communities, and marketing programs need to be in place to reach this broad base of consumers. However, that goal does not preclude the institution from being strategic and selective about what its ideal customer looks like and having specific marketing programs to achieve that objective. These two programs sit side by side to meet the needs of the entire community.
For example, many community banks find themselves with a customer base significantly older than the average age of consumers in their markets. Thinking about long-term viability, this requires a strategic decision to attract younger consumers to the institution, whose financial needs will grow over the coming decades.
Each consumer or business segment has vastly different financial needs, behaviors, and ‘lead product’ opportunities (those products they are willing to switch from their current provider to buy). In some cases, those are deposits or checking accounts; in other cases, certain types of loans. Marketing can play a critical role in bringing this customer insight to the table, making sure the right lead product is selected, the right key product feature is highlighted which that specific segment finds valuable, and then finding the right media to reach those people.
CPG has found that getting this combination right can improve financial results by at least 50%, and often several multiples of that. Even more than that, it can restructure your customer base to provide revenue streams far into the future. That’s the power of ‘new marketing.’
Supercharging your marketing for growth
There is a compelling case for institutions to expand their marketing function beyond communications, partnering with lines of business to fuel revenue growth. The results are proven, the roadmap is clear; and other banks have blazed the trail for your institution to follow. A five-step action plan is outlined below.
1. Build the interdisciplinary team. Getting marketing and sales on the same page contributes to a big portion of the increased performance. Placing them both on a Customer Growth team, clarifying roles, aligning goals and communicating frequently is the first step to enhancing marketing’s impact.
2. Design the campaign together. The customer growth team (marketing and the line of business sales team) agree on the goal; the target customer; the compelling product, offer and messaging; the marketing program; and the sales tools necessary for success.
3. Establish tracking and reporting. Team reporting and executive dashboards are essential, and rapid communication between the sales and marketing teams needs to be established. In short, there needs to be transparency between marketing activities and sales results. Otherwise, the entire process breaks down. Marketing and sales roles need to be clarified and enforced to achieve this visibility.
4. Select the right partners. Growth marketing requires an analytical and informed approach which many legacy direct mail and advertising agencies do not have. Make sure your partners are thinking through emerging trends and considerations in hyper-specific IP-address targeting, programmatic media buying, cookie-less targeting, and real-time reporting with an emphasis on business results.
5. Align your strategic priorities. Select an objective that is essential to your institution’s success such as growing deposits or attracting a new customer segment. Start with a moderate budget, but be prepared to increase it as results roll in and acceptable ROI is achieved.
Marketing is making a real difference to banks’ ability to rapidly grow customers and business. The time is now to deploy these proven approaches, harnessing marketing to supercharge your organization’s revenue growth.
Mark Gibson is the marketing practice leader at Capital Performance Group, a strategic consulting firm that assists banks in improving the return on their marketing investment. He can also be reached on LinkedIn.
