Bank & Financial Institution Marketing 1

Bank & Financial Institution Marketing Joseph Kulwicki FIN 509: Bank and Financial Institution Management Walsh College- Spring 2013 June 3, 2013

Bank & Financial Institution Marketing 2

Abstract As banks and financial institutions begin to shift out of the most recent financial crisis, it is critical they remain competitive to maintain current clients and more importantly develop new clients. Almost daily we hear about new marketing

plans by large retail and restaurant chains and the automotive industry; never do we hear from companies about their new marketing in the financial sector. It is critical for companies

such as Bank of America, GE Capital, and other banks and financial institutions to increase their marketing to obtain market share for both their retail and commercial operations. Banks and financial institutions must understand who their largest current and future audiences are. Further, they must

develop strategies focused on attracting and retaining these target markets.

Bank & Financial Institution Marketing 3

Bank & Financial Institution Marketing Andrew Needham and Philip McNaughton once said, Consumers' desire to be listened to and involved more directly in what a brand does and says means that now, more than ever, there is a great opportunity to market with consumers rather than at them. In order for any company to set themselves apart they are in need of a marketing team which knows who their client is and how to reach them. This is true for a company like McDonalds and Banks

even more important for banks and financial institutions.

have large marketing budgets, but they are not spending it in the manner that brings them the same amount of exposure. It is

true banks are not as fun or as sexy as the new Camaro, however, they account for a significant portion of the US GDP and all consumers interact with banks on a weekly basis. As the world

emerges from the global financial crisis, banks find themselves in a challenging environment. Low interest rates are making it difficult to generate revenue in traditional ways, while raising capital and reducing risk have become the new priorities (Farah, Macaulay & Ericsson). Marketing is key to making this change.

Just do it (Nike), Diamonds are Forever (DeBeers), Theyre G-r-r-r-eat (Frosted Flakes); these are three of the top 20 marketing slogans of all time ("The top 20," 2011). Only

one Financial Institution made this prestigious list, American

Bank & Financial Institution Marketing 4

Express.

Dont Leave Home Without It- The history of this

campaign began in, 1975 when American Express first advised to consumers that they shouldn't leave home without their AMEX card. These slogans attempted to establish American Express as the top provider of traveler's checks and cards that could be used in every-day life. American Express also used celebrity endorsements to help cement this phrase into the minds of consumers. The first commercials featured Academy Award winner Karl Malden. Other celebrities that provided endorsements, over the years, included Stephen King and Jerry Seinfeld. (Investopedia) Almost 40 years later, we have not had a

marketing campaign from a bank or financial institution that has been as prevalent as American Express. Banks, in a broad sense, target two types of clientsconsumer and commercial. These clients are served via a retail Consumers are

branch, online, and direct sales from bankers.

typically interacting with the banks through the following services: i. Savings Account- A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. (Investopedia)

Bank & Financial Institution Marketing 5

ii. Checking Account- A transactional deposit account held at a financial institution that allows for withdrawals and deposits. Money held in a checking account is very liquid, and can be withdrawn using checks, automated cash machines and electronic debits, among other methods. (Investopedia) iii. Mortgage- A debt instrument that is secured by the collateral of specified real estate property and that the borrower is obliged to pay back with a predetermined set of payments. (Investopedia) iv. Loans (Home Equity, Auto)- The act of giving money, property or other material goods to a another party in exchange for future repayment of the principal amount along with interest or other finance charges. (Investopedia) v. Refinancing debt- Consolidation of debt into one monthly payment. vi. Certificate of Deposit- A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are

Bank & Financial Institution Marketing 6

insured by the FDIC. The term of a CD generally ranges from one month to five years. (Investopedia) Businesses interact with banks through the following financial services and instruments: i. Business Capital- Providing ongoing capital lines in order to meet short term and long term obligations. (Investopedia) ii. Cash Management- assisting in the process of collecting, managing and (short-term) investing cash. A key component of ensuring a company's financial stability and solvency iii. Clearing and Financing Solutions- consisting of hedge funds, professional traders including market makers and proprietary trading firms, ECNs/AT Ss, research sales and trading firms, advisors, and investment banks ("Clearing and financing:," 2013) iv. Asset Based Lending- A business loan secured by collateral (assets). The loan, or line of credit, is secured by inventory, accounts receivable and/or other balance-sheet assets. (Investopedia)

Bank & Financial Institution Marketing 7

v.

Global Markets- access to global markets, equities, funds, and currencies

The above listed services are standards product and services most commercial banks provide. Bank of America, Wells Fargo,

and JP Morgan Chase provide all of these services in very similar manners. It is up to the individual marketing

departments within these banks to set themselves apart from the competition.

Marketing to consumers is much different than marketing to commercial businesses. When marketing to consumers, banks

leverage the local retail location, internet, and local media. The question marketing teams need to ask themselves is what makes our products different? In the past few years, marketing The

teams have been getting better at answering this question. simple answer is through customer service and ease of doing business. Rene Domingo talks about the concepts within the

banking community using a term called responsive banking, The objectives of responsive banking are to cut customer waiting time, reduce transaction time, and cut costs and wastes through reduction in idle time, wastes, and other inefficiencies in both the front-line and back rooms. Responsive banking prevents the loss of customers by eliminating the causes of slow and insensitive bureaucratic service. It addresses this concern with

Bank & Financial Institution Marketing 8

system changes that result in paperless and queue-less banking. Citibank's Global Branch concept eliminates queues by shifting customer service from the teller area (windows) to the sales and service section (desks), where customer relationships are opened, serviced, deepened, and broadened. Global Branches look exactly the same - furniture, lights, service standards, facilities, ala McDonald's, with no surprises. Using the machines in these branches, customers can print up-to-the-minute statements with a push of a button. They can also enjoy the convenience of paperless, formless deposit and withdrawal transactions.

In recent years, banks have understood the importance of beginning to increase their spend within marketing and advertising. According to the ABA Bank Marketing Survey Report,

Some of the surveys findings include advertising expenditures accounted for 53 percent of 2005 marketing expenditures. Other major expenditures include public relations (23 percent) and sales promotions (16 percent); Banks increased spending for newspaper advertising to 31 percent of total advertising dollars spent, compared to 26 percent in 2003. Spending for radio commercials decreased from 15 percent in 2003 to 12 in 2005. Television commercials' share of advertising expenditures remained at 6 percent; Fifty-eight percent of public relations

Bank & Financial Institution Marketing 9

expenditures went towards community relations activities, up from 49 percent in 2003. Banks with $5 billion to $24.9 billion in assets spent 19 percent of their public relations dollars on shareholder relations, however those with $25 billion or more in assets spent a comparable proportion on media relations; Banks with less than $5 billion in assets spent the largest share of their sales promotion budget on give-away items (32 percent). Banks with $5 billion or more in assets spent almost half (48 percent) on point-of-sale materials, such as displays, banners and brochures. Although companies are increasing their marketing budgets they are quickly losing market share (see chart below). According to Franklin Edwards, In the United States, the importance of commercial banks as a source of funds to nonfinancial borrowers has shrunk dramatically. In l974 banks provided 35 percent of these funds; today they provide around 22 percent. Thrift institutions (savings and loans, mutual savings banks, and credit unions), which can be viewed as specialized banking institutions, have also suffered a decline in market share, from more than 20 percent in the late 1970s to below 10 percent in the 1990s.

Bank & Financial Institution Marketing 10

When banks are marketing to their commercial clients, we see a much more direct approach. Often for these clients who

have significant deposits, a banker is assigned to handle the relationship between the bank and the client. The typical role The

for a banker is to be a salesman and adviser to the client. banker opens the door to all the services we listed above and more. They provide a one point of contact to the client.

I completed a two week study where I kept track of how many times I heard or saw an advertisement from a bank or financial institution versus fast food chains. any online advertisements. My study did not include

These are my findings:

Advertising During 2 Week Period Fast Food 15 12 8 4 4 43

Banks/Financial Institution Television Commercials Print (Newspapers, Magazines) Billboards Radio Other Total 6 5 12 14 1 38

Bank & Financial Institution Marketing 11

Collectively, fast food restaurants (primarily McDonalds and Burger King) had more points of exposure than banks and financial institutions. Fast food restaurants had almost three

times the amount of television commercials and more than double the amount of print advertising than the banks. I was exposed

to more billboards and radio spots focusing on banks than fast food restaurants. Bank. The most unique campaign was by Huntington

According to Mlive, Instead of advertising its rates or

products, Huntington Bank East Michigan Region President Michael Fezzey interviews business leaders and then features them on the Best in Business spot on WJR radio. The article quotes Rhan

Rampton, a marketing executive for Huntington Bank, The idea is that we dont advertise anything about Huntington, we dont make an offer, we dont quote a rate, we dont highlight productsWhen you think about it, what a bank does on a day-today basis is evaluate companies, so why not highlight them for being good customers, for being good businesses. Huntington

Bank is attempting to try something new to attract new clients. Through the use of these radio spots, Huntington Bank is letting potential clients know they are in the business of lending. Further, people have an immediate comfort level with Huntington Bank since they are with local small businesses.

Bank & Financial Institution Marketing 12

In addition to keeping track of how banks were marketing in a two week period, I also observed who their target market was. My findings showed the primary target market for all ads were the consumer. These ads focused on free checking, savings, and

Certificate of Deposits. Bank/Financial Institution Target Markets Quantity Percent 17 45% 9 24% 5 7 38 13% 18% 100%

Consumer Small Business Middle Market / Large Corporations No Specific Target Total

Banks need to change the way they to market to clients. They also need to

understand the largest growing market share is Generation Y. According to

Beacon Asset Managers, the largest generation with potential growth is Generation Y at 16%. As these consumers begin to

graduate college and enter the workforce, there is ample opportunities to create a loyal client and cross sell and maximize return. As a Generation Y exits college, they will

need a checking account in order to deposit their paycheck.

Bank & Financial Institution Marketing 13

Next, they will need auto loan to replace the car they have been driving since their sophomore year of high school 8 years prior. Four years later, after getting married, the client will need a mortgage to purchase a house; this loyal client will hopefully come to the bank. In order to improve the home, they will need Two years later, the married Hopefully, It

a home equity line of credit.

couple will need to start thinking about retirement.

the bank can provide a financial adviser for their client.

is important for a bank to cross sell their services in order to maximize profit. Most consumers are attracted to a bank for the

free checking and $100 which will be deposited into their account after three months of use. The hardest part is ensuring

the client knows to come to you when they need a loan or other product/service. Marketing Departments need to understand what Generation X is looking for in a bank. Cisco IBSG prepared a study with the

following recommendation to better penetrate Generation X and Y. These recommendations include: A mobile-enabled online PFM(Personal Financial Manager) offering that emphasizes a holistic view of customers financial situations and behaviors

Bank & Financial Institution Marketing 14

A video-centric advisory model to allow consumers to interact with remote financial advisors via video kiosks in the branch as well as from the home

A bank-moderated community of interest and social networking venue to provide virtualized advice on demand

The research and recommendations show the importance of utilizing technology to attract and obtain new clients. Chase

Bank introduced a mobile check deposit as part of the smart phone app in 2009. Robin Sidel writes in the Wall Street

Journal, The trend is taking hold with younger consumers who increasingly rely on smartphones for everyday tasks. It is less clear, however, whether older bank customersmany of whom took a while to embrace online banking and who are among the industry's most profitable customersare willing to make another switch. The efforts come as banks of all sizes look for new ways to attract customers during a period of low interest rates, tepid loan demand and tight profit margins. Leveraging technology

leads to meeting customer demands, expanding profits, and attracting new customers.

It should be the goal of every business to grow.

This is

true for manufacturing, retail, hospitality, and just as important for banks and financial institutions. In order for

Bank & Financial Institution Marketing 15

banks to grow a greater market share with its clients, it needs to step back and better understand their needs. This paper has

demonstrated the importance of banks to target specific markets (Generation X) in order to turn a onetime client into a lifelong client. This will result in banks gaining a greater market Additionally, gaining and

share resulting in increased profits.

retaining a new client is possible with fewer personnel through the leverage of providing technology which allows clients to manage their portfolio without entering a retail location.

Bank & Financial Institution Marketing 16

References Beacon Asset Managers. (2009, October 22). The future of u.s. consumer spending: It's a generational thing SeekingAlpha, Clearing and financing: Bank of america and merrill lynch. (2013, May 21). Retrieved from http://corp.bankofamerica.com/business/ci/clearing-andfinancing Domingo, R. (2003). From reactive to responsive, proactive banking. In Banking Service ManagementRetrieved from http://www.rtdonline.com/BMA/BSM/9.html

Edwards, F. R., & Mishkin, F. S. (1995). The decline of traditional banking: Implications for financial stability and regulatory policy. FRBNY ECONOMIC POLICY REVIEW, Retrieved from http://www2.econ.iastate.edu/classes/econ353/ganco/document s/DeclineofTraditionalBanking.pdf Farah, P., Macaulay, J., & Ericsson, J. (n.d.). Retrieved from http://www.cisco.com/web/about/ac79/docs/fs/nextgrowthoppor tunityforbanks.pdf

Bank & Financial Institution Marketing 17

Federal reserve board: Data releases. (n.d.). Retrieved from http://www.federalreserve.gov/econresdata/statisticsdata.ht m Investopedia. Retrieved from http://www.investopedia.com/ Muller, D. (2013, January 31). Huntington bank celebrates inaugural 'best in business' class in metro detroit. Mlive Sidel, R. (2013). Banks make smartphone connection. Wall Street Journal, C1. The top 20 ad slogans of all time. (2011, November 22). Retrieved from http://www.spaciousplanet.com/world/new/top20-ad-slogans-of-all-time