5 Reasons Your Branches Don’t Stack Up to Your Competition

There are two completive branch in town — one shines and the other's a dog. What accounts for the difference? Some factors may be baked-in, but some can still be remedied by rigorous analysis.

I repeatedly encounter situations in my market studies where one competitor significantly underperforms a local competitor of similar size. In conversations with senior leaders at the underperformer, I often find both awareness of the lackluster performance and an understanding of a few key differences between the two institutions.

Yet, the underperformer’s management typically has taken no steps to resolve the issue. What gives?

Some differences in performance are bound to occur. But when two similar-sized competitors compete in a common market, and one significantly outperforms the other, it begs the question “Why?”

Five potential causes lie behind such differences and each is within your control to some degree.

For purposes of this discussion, let’s say that two banks operate ten branches each for a 6% branch share in a mid-sized market of 250,000 households. Both banks have been around for more than 25 years. Bank A holds $600 million in deposits locally versus Bank B’s much higher $1 billion.

1. Brand: How Do Consumers See You?

Let’s start with Brand. In this context, your brand is what people think of your firm, not necessarily what you want them to think.

Many financial institutions do brand marketing from time to time. Sometimes it’s after a major change like a merger or adoption of a new name. Other times, it’s after some negative event.

A good example of the latter is Wells Fargo’s “sales issue” a few years ago. As details of the scandal were revealed, and the negative press built up, Wells knew it had to launch a counter-narrative to rebuild consumer confidence … and its brand.

Ask yourself how your brand stacks up to your competitor’s brand. Does Bank A have something in its recent past holding it back? Is Bank B thought of as being more innovative?

It could be as simple as this: Say Bank B invests in advertising their good works in the community every year, while Bank A stays silent.

2. Capabilities and Channels: How Strong is Your Menu?

This is critical in today’s environment. Do you have a strong online and mobile offering?

Branch or Museum?

I’m always surprised when I encounter a traditional consumer bank that doesn’t even have ATMs at all their branches, let alone a good mobile app. You can’t attract a younger customer today without both.

So, has Bank B attracted a broader customer base by offering a superior mobile app?

Most consumers use a mix of channels when interacting with their bank or credit union. The specific channel they select for a particular transaction often depends upon the size, complexity and importance of the transaction. The greater the complexity and importance to the customer, the more likely they will do it in person.

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3. Branch Network: Is Yours Strong or Ailing?

Time to scrutinize your branch network, starting with your branch location and site choices.

I recommend viewing those two factors, often treated interchangeably, as distinct from each other.

  • A “location” is the retail setting you choose to operate from. This could be a small commercial strip center, an office building, a grocery-anchored shopping center, or a mall.
  • A “site” is the placement of your actual building, such as an inline storefront or a freestanding building on an out-pad at that same location.

A weaker location will attract fewer potential customers, and a weaker site will make it harder to capture that demand.

Has Bank B built out better sites? Has it made better location choices? Does Bank A have supermarket branches in the mix? As I’ve discussed in an earlier article, such locations typically perform at only 25% of a traditional branch.

The overall quality of a branch network is critical to understand. If you have a decent network and still underperform the market or a close competitor, it’s likely some operational aspect holding you back.

You also need to consider other physical assets in the market. For example, has Bank B deployed a strong remote network of deposit-taking ATMs? These small, low-cost sites can handle about 90% of branch teller transactions and create the illusion of a much larger, more convenient branch network.

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4. Products and Pricing: Are You Meeting Key Needs?

Does Bank B offer a broader range of services, like small business or mortgage specialists? Do they offer better rates on both deposits and loans, betting that they can attract more customers by narrowing their margins?

Remember that operating a financial institution is largely a fixed-cost business. “Banking” is both a manufacturer, in that it has fairly high start-up costs ($2 million+ capital to build a branch), and a subscription service like a magazine, in that it derives annual revenues from clients, but only if it retains them year after year.

The more business you can attract, the higher your revenues, obviously. But expenses don’t grow proportionately.

5. People and Process: Are They Helping or Hurting Results?

Branches are over-performers, average-performers or under-performers. In analyzing each office, you must compare performance versus plan, or actual sales versus sales goals.

If account sales goals are created correctly, they consider local available opportunity and likely capture rates, as well as past branch performance. When comparing the characteristics of the over and under groups, the most common differences between the groups are the quality of the staff (experience, training, sales skills, etc.) and whether a sales process was employed and followed.

Diagnosing Anemic Performance

Each of the five factors must be weighed, and then you can focus on what’s found to be weak.

If Branch A has a strong brand, offers a broad set of digital channels, maintains market-competitive pricing, and has a decent set of branch and ATM locations, the likely culprit for performance differences from their local competitor Bank B is the lack of a sales process. That may include lack of sales training and incentives for achieving company goals. There’s no mystery to that — it’s within your control and is solvable.

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