Sudip Chakraborty, Nupur Jindal and Vance LaVelle


Let your branches not live in shade

Less then a decade ago, bank branches were considered high cost operations that serviced retail consumers who were regarded as low value clients. In order to reduce costs, banks started moving customer interactions to phone and internet and expected electronic banking to gradually replace the actual branches. However, recent studies show that 86%¹ of US consumers visit a branch at least once a month. This can imply that when it comes to money and advice, consumers still prefer to visit a branch. Perhaps in recognition of that banks have started a new wave of branch expansions which may involve new retail stores, updating in-branch customer flow and enhancing the look and feel of a particular space. According to a July 2007 article of The New York Times, there were some 94,559 federally insured branches in U.S. in 2006, up from 92,394 in 2005 and 82,302 in 1996². More than 40%³ of U.S. banks are now using branches for cross-sell, up-sell and retention programs.

Operating bank branches is a costly exercise. However, if these operations are well managed and fully optimized, they can be big revenue and deposit drivers. If not, they can be a significant drag on a bank’s profits. Recent studies have shown that sound marketing through branches can actually be 30 times3 more effective in sales conversion as compared to marketing through direct channels. At a branch, banks have the customer's time and attention; the real-time nature of such interaction creates opportunities to address customers on a personal basis and present relevant messages and offers. However, investing in branches does not bring immediate results and hence banks need to have a long term vision. Heavy financial investments in branch location, design and layout need to be paired with cultural change within the organization. Lack of adequate information about the target customers while selling a product as well as fragmented technology systems could hinder growth potential, make branches uncompetitive, and may lead to disappointing financial returns.

While there are several decisions that need to be made for effective branch marketing, we have identified three key marketing decisions that are very important for branch marketing success:

Who to target? What product to offer? And which seller?

Traditionally, these decisions have been made using a combination of experience, intuition and data. However, our experience suggests that a comprehensive analytical approach will yield far superior and consistent results. This paper discusses our approach to making these decisions.

Who to target?

Customer segmentation, customer data integration and channel integration can help banks identify the target customers.

Customer Segmentation
Banks need to understand their customers and segment them to allow for more effective targeting. Customer segmentation can be performed in many different ways. This can be based on demographics (e.g. age or income), financial behavior (e.g. transactors vs. revolvers in the case of credit card customers), value to bank (current value or potential value), lifestyles (young digerati, gadget grabbers), attitudes (e.g. driven, sophisticated) or value (e.g. current value to bank and potential value). Banks need to evaluate these and understand how to develop actionable segments. This can be a complex undertaking and requires a combination of domain experience, knowledge of sources of data and deep analytical expertise.

Customer Data Integration (CDI)
For segmentation to be effective, banks need a 360º view of their customers. Currently most banks have multiple customer datasets across business units and products without adequate linkages between them. In order to create a 360º degree customer view, banks will have to consolidate customer data across product lines and usage. There are several off-the-shelf Customer Data Integration (CDI) tools that can be used to match customer records across various datasets. However, for large banks, the best results are obtained by developing customized matching algorithms that maximize matches and minimize errors (false positives and false negatives).

Example: A Fortune 100 US financial institution, with a database of over 5 million customers across various products, wanted to identify cross-sell prospects. Inductis designed a state-of-the-art CDI solution for the client that provided a complete and consistent customer view. For the first time the client had a single customer view across various product groups. This led to a deeper understanding of customer relationships and a better assessment of their true value. The estimated impact of this was over $50mm on an annualized basis.

Number of products per customer

Once customer data is integrated, both internal data (at account, statement and transaction levels) as well as external data need to be appended to enable a complete view of customer demographics and behavior – both at the bank and in relationships with other organizations.

Channel Integration
In addition to integrating customer data (account, statement and transaction), banks must also synchronize customer interactions across multiple channels. For example, a customer who opened up a credit card application on the Internet but did not complete the session may be referred for a credit card on her next branch visit. Such initiatives will make real time customer status information available across all channels and help banks identify the target customers and offer them seamless service across channels.

What product to offer?

Developing the right product portfolio is a crucial first step. In addition, analytical techniques such as product choice models can help identify the right products to offer. The product portfolio and powerful analytics can be only fully leveraged by providing adequate training to branch staff and aligning their incentives towards selling more products.

Developing the right set of products to cross-sell or up-sell at the branch level is critical. Therefore, banks must deliver consultative services like financial advice and planning, wealth management, retirement products, insurance, tax and accounting services to augment their product array. A large portion of customers value such products and visit branches for their specific needs rather than simple transactions.

In addition, banks must match the right product or set of products to the right customer or customer segment. Using analytics, e.g. by using a product choice model, together with the integrated customer and channel data will help in better understanding of customers and their needs. This in turn, will help in identifying the right product fit for customers. Product offering decisions can be based on historical as well as real time data as explained below:

1. Pre-decided offers: Marketing departments in banks must identify and qualify one or more offers for its customers. This can be done in a batch or offline mode by using traditional analytical techniques such as product choice models as well as emerging ones such as collaborative filtering. These would allow branch staff to offer the right products to customers without engaging in a lengthy conversation. For example, pre-approval for credit cards would allow customers to be offered an appropriate credit card product without the long wait times generally associated with the approval process.
   
2. Real-time product offering decision at branch: Branch staff must be equipped with and trained to use real-time decision making tools such as decision trees that will enable them to find right product(s) to cross-sell or up-sell to a customer based on their needs, preferences, values and interests.

While matching the right product with the right customer is a crucial marketing decision, the information will be effective only if used in conjunction with adequate training for the branch staff as well as an appropriate incentive structure for the sales staff.

Example: French bank, Societe Generale (SG) has successfully used sophisticated analytics such as collaborative filtering techniques to increase their depth of relationships with their customers. SG’s customers on average have a staggering 7.8 products. SG also used predictive scoring techniques to identify the customer’s propensity to close an account in order to proactively contact the customer at the right time. Within the U.S., Fifth Third Bank and Wells Fargo have taken similar initiatives.

Which Seller?

Sales force effectiveness processes will enable routing of customer to most appropriate sales staff.

Once the banks have identified who to target and what product to offer, they need to make sure that the loop is closed by making a successful sale. For this, it is very important that the customer is routed to the most appropriate sales staff at the first attempt. Customer routing processes should be managed to minimize the number of transfers because customers lose interest when they are transferred multiple times between sales staff. To maximize sales effectiveness, banks need to deploy systems to measure sales staff effectiveness for each customer segment and each product or product suite. These measurements then need to be used to ensure that customers are routed to effective “high closers” while remedial measures are made available for “low closers” to allow them to attain necessary skills to become more effective.

Even if all these decisions are made effectively, several steps need to be taken to ensure that these are used optimally for profitable results. While the analytical, technology and data challenges are significant, other challenges such as culture and politics need to be overcome before any new system and process can be deployed. Banks have traditionally operated as silos where sharing of information between business units is not common. Therefore, it is important that branch marketing initiatives are driven by a senior executive who can transcend these barriers.

Two additional factors for effective branch marketing are training and incentives. The branch staff, especially those who interact with customers, must be trained to use the information that will be generated by the above framework. In addition, it is critical that the right incentive structure is put in place to drive the employee to maximize sales.

With training and incentives in place, training and deployment strategies play a key role to ensure that proper resources are funneled to realize greatest impact. It is advisable that branches determine the percentage of staff that will be trained on business of transactions or consultative sales solutions. Aligning the strengths of an employee to either of these two factors will allow a branch to utilize staff more effectively.

Conclusion

Banks are investing millions of dollars in building up their branch networks and are developing an ever growing suite of products. While these are necessary for successful branch marketing, they are not sufficient to obtain optimal results. Our experience shows that optimizing the 3 analytical decisions identified here – “Who to Target? What product to offer? And Which Seller?” goes a long way in reaping the benefits of having a branch network. Some of the largest financial institutions and banks are already using this successfully. Perhaps it is time that more banks adopt such a model.

References

1. "Bricks-and-Mortar Banking Bias?" emarketer.com. October 2004.
2. “SQUARE FEET: SPOTLIGHT; A Building Binge For Bank Branches”, The New York Times, April 22, 2007.
3. “Inbound Customer Marketing” Capgemini in collaboration with Epiphany, August 2005.

About the Authors

Sudip Chakraborty is Co-Founder and Principal in the New Jersey office of Inductis. Sudip has over 15 years of experience in strategy, analytics and technology in the financial services, information services and software industries. He has advised several Fortune 500 financial services companies in the areas of marketing strategy including customer acquisition and retention, marketing optimization, data management and integration. He can be reached at sudip@inductis.com.

Nupur Jindal is an associate in the New York office of Inductis. Nupur has over 4 years of global consulting experience with leading financial services firms in the area of business strategy, sales and marketing, cost management, customer analytics and credit card portfolio management. Nupur can be reached at njindal@inductis.com.

Vance Williams Lavelle is a senior advisor to Inductis. Vance currently leads subscriber sales, marketing and service as an executive of Sirius Satellite Radio and has over 20 years of experience in business management, marketing, and strategy development. Her former roles include Chief Marketing Officer of PNC Bank and SVP of Marketing at JP Morgan Chase.