By Ron Shevlin, Senior Analyst with Aite
My first job out of school was as an Assistant Executive Director of a large hospital. My boss, a good ‘ol boy from Alabama told me:
“Your job is simple, son. There are only two things for you to do: Protect and grow the business.”
My boss had no experience in the financial services industry, but it looks like some bank CEOs could learn something from him.
A financial marketing agency conducted a survey of 120 CEOs from small banks (asset size ranged from $45m to $3.5b, median size of about $500m). When asked about their biggest marketing challenges, the top three answers were: 1) difficulty measuring marketing ROI; 2) figuring out social media; and 3) insufficient budget. Here are the results from that survey:
|What is your biggest marketing and branding challenge?|
|Difficulty measuring/proving results/ROI||60.3%|
|Figuring out social media||36.4%|
|Ill-defined undifferentiated brand||25.6%|
|Regulation and compliance issues||24.8%|
|Inadequate MCIF/CRM database||23.1%|
|Too many initiatives||22.3%|
|Employee support for marketing, branding, sales||19.0%|
|Silos in the organization||15.7%|
|Inflexible and limiting IT||12.4%|
|Takes too long to make decisions internally||9.9%|
|Risk adverse/slow to adopt new ideas||9.9%|
|Lack of consumer trust in the financial industry||7.4%|
|Inferior products or pricing||5.0%|
Source: Survey of 120 bank CEOs, Q2 2012
My take: There are three — and only three — challenges that Marketing faces: 1) acquiring the right customers; 2) retaining the right customers; and 3) growing the relationship with the right customers.
In other words, protect (retain customers) and grow (acquire new customers and expand the relationship with existing ones). Everything else — and I mean everything — is related to one of these challenges.
“Difficulty measuring marketing ROI” is a red herring. If your organization’s rate of new customer acquisition, improvement in customer retention, and growth in existing customer relationship was double what it was last year, and double the rates of your competitors, I’ll bet you $100 that your CEO doesn’t think the firm has a problem “measuring marketing ROI.”
Second, if a bank isn’t putting up strong new customer acquisition and existing customer growth numbers on the board, and its CEO thinks that “figuring out social media” is going to solve the firm’s marketing problems, then s/he should be fired.
And if marketing has an “insufficient” budget, then increase the budget! You’re the CEO! You can do that, you know.
For sure, the folks who prattle on about how the ROI of social media doesn’t need to be calculated (or compared to the “ROI of your mother”) should shut up. But ROI is a tactical — not strategic — measure.
It’s possible that you can run 10 campaigns in a year, generate an average of 250% ROI, and still fall short of overall marketing success if the investments were too small to generate significant growth in customers or profits.
ROI tells you how successful your investments were. But it doesn’t tell you if those investments were the right investments to make, or if you invested enough. I’ll take a 25% ROI on a $10m investment over a 50% ROI on a $100k investment any day.
Before the surveyed CEOs worry about the ROI of the marketing investments, they should be worried about the quantity and allocation of those investments. The research I’ve done at Aite Group suggests that community banks and credit unions are: 1) under-investing in marketing, and 2) not optimizing the allocation of what they do invest.
|Type of Institution||% of
Source: Aite Group
According to the research, 34% of consumers who consider a community bank their primary FI referred their community bank to friends/family. That’s two percentage points more than large banks turned in, but 13 points less than credit unions. If — as many people believe — referrals are an important driver of new business, this is a warning sign.
Both community banks and credit unions have a lower percentage of customers who expanded their relationships than large bank customers in 2011. This suggests that community banks and CUs are less effective at marketing to existing customers.
Improving the measurement of marketing ROI isn’t going to fix these challenges for community banks and credit unions. “Figuring out social media” would have to produce miracles in order to close the gap in customer relationship growth when you consider that the percentage of consumers who follow their financial institution on Twitter is in the single digit percentages and barely in double digits for Facebook. And throwing more money at marketing won’t help if that money isn’t put to productive use.
Bottom Line: Bank marketers need to begin marketing-related discussions with the senior management team focusing on the three challenges. Any discussion of tactics and strategies should be put in the context of how potential investments and initiatives address the challenges.
Ron Shevlin is a senior analyst at Aite Group, a Boston-based research and advisory firm serving the financial services industry. You can pick up a copy of Ron’s latest book, Snarketing 2.0, at Amazon.com. The book is a balance of keen, entertaining observations loaded with educational and practical advice that doesn’t pull any punches. Ron is a regular contributor here at The Financial Brand. You can read more from Ron on his blog, or follow Ron on Twitter.