In the heyday of regulated markets and guaranteed interest spreads, bank marketing consisted of running a rate ad in the Sunday paper and waiting for new customers to walk in the door.
Unfortunately, while advertising strategies are much more upscale, good sales programs seem to be lacking at many large regional banks. Many line managers still believe that a good sales strategy consists of pushing every product at anyone breathing in the lobby.
This "shotgun approach" to sales is hardly the method to develop long-term, profitable market share.
Today's highly competitive deregulated environment is drastically different from that of 10 years ago. It demands that banks take a closer look at their market segments.
There are more players on the field since brokers and insurance agents entered the game several years ago. Consumers also know more about financial products today, and there are more products available to them that are very tempting in today's lower rate environment.
Insurance companies have reworked annuities into super tax-deferred products with options allowing a great deal of flexibility for the owner. Bankers have developed similar products, yet deposit and loan growth adjusted for acquisitions is stagnant at many institutions.
What is the difference between the banks that are growing in their markets and those that are not?
The answer is not necessarily in the products and features they offer, but how they deliver them. While many banks still blast products at consumers, the competition is picking off their customers with well-targeted sales strategies.
Driven by competitive pressures and advances in technology, many banks have developed or purchased systems to measure profitability information.
Some look at relationships, others at profits by products, and still others by profits at the business line or responsibility unit level. All of these have merit and will be a definite force in leading the bank to better profitability.
Unfortunately, the use of that information seems to remain strictly at the disposal of senior management, instead of with line managers who can take action.
The return on retail bank products varies from less than 1% to as high as 30%. Given this information, I believe managers will begin to target clients that yield higher returns.
I am well aware of the objection to this premise. I recently heard the senior manager of retail banking for a large regional bank say:
"Our staff doesn't need to worry about the types of profits or the accounts they bring in, they just need to keep bringing them in. They don't control the types of accounts they can get. That is dictated to them by the demographics of their market area."
However, with advances in transportation and communication, strict geographic markets are much wider than before. Additionally, every market has its jewels and finding them is exactly what we should ask our people to do.
If every bank employee understands each product's profitability, sales of the most profitable products will increase.
Wholesalers and retailers have known this for years.
Shotgun selling trains people to sell the easy products. To be effective, branch personnel need to profile the most profitable accounts and the types of customers who use them, and then aggressively work on solidifying relationships with those clients.
Rest assured, if you don't do it, the brokerage house, investment bank, or insurance agent across the street will.
The message, then, is don't let your profit systems become just a new way to roll up the net income of the bank. Use it to strategically focus your bank's sales effort.
Through better use of product information, many banks have refined product and relationship structures to enhance superior profits for the future.