The premise underlying some current thinking about branch systems is that they are a high-cost distribution channel that does not generate enough revenue.

Branches are also believed to serve only existing customers, and to have salespeople who are often incapable of acting as financial advisers.

Given the inevitable move to direct access, the thinking goes, physical distribution is a drag on profitability and an impediment to "virtual" progress.

The industry is moving toward direct access, but the pace of that trend and its magnitude have been grossly overestimated. Remote access is an important component of distribution, but physical distribution is not dead.

Traditional branch systems are indeed costly-but they can also generate a lot of revenue. In-person contact is still crucial in the business of retailing financial services, particularly in the buying-decision stage. Branches fulfill this role.

Such financial companies as Charles Schwab to Fidelity view physical distribution as a complement to mail, telephone, and on-line relationships. Their moves in the physical direction after becoming successful in the virtual world confirm the importance of stores.

Does this mean our antiquated physical distribution networks are the right answer for the future? No. But it does mean that the rumors of the branch's death are premature.

Bankers generally do not understand where customers are moving and how the change will affect the many distribution channels. Many bankers lack a clear vision of the various channels' roles in an integrated approach to distribution.

I recommend starting with an organizational design that identifies a strategy for each channel and tells how all of them come together in the customer experience.

A consistent experience for the customer may become the single point of differentiation among financial institutions. Customers expect such consistency across all delivery channel.

It is essential to define each channel's role accordingly. Optimizing the physical part of the network is a part of the puzzle.

To develop a truly integrated distribution strategy, banks must first define their customer strategy. Is it relationship-oriented? Is customer acquisition driven by mass marketing, mass customization, information-based marketing, or one-on-one selling?

Once corporate strategy is defined, use the customer's perspective on current and future use of each channel. The customer experience can be designed to maximize revenues and minimize costs.

Charles Schwab built a physical distribution strategy very different from banks'. What has made Schwab so effective is a clear vision of the role each channel plays in the customer relationship. Banks' challenge is to do the same.

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