Data Analytics Forces Community Banks and Credit Unions to Rethink What ‘Community’ Means

Community banks and credit unions must harness the power of data analytics to redefine the 'community' they serve, and build their marketing strategy around new segmentation models.

Traditionally, developing the marketing plan at a community bank or credit union has been a top-down process focused on specific products. The goals are defined by senior management, then handed down to marketing and retail teams who plan their promotions accordingly — campaigns that highlight the product(s) that need to be sold. Indeed, many financial institutions will focus all their marketing muscle and customer-facing communications on one product for a month (or quarter). During this time all the branch signage, statement messages/inserts, online banking banner ads, print ads and billboard all focus on the “Product of the Month.”

This approach to marketing is primitive, obtuse and unsophisticated. If it’s “Home Equity Month,” it doesn’t matter if someone owns a home or not, nor whether they have good credit; they will be subjected to the home equity campaign and endure questions from branch staff. The poor sap with a 582 credit score and no kids who lives in an apartment nevertheless has to hear about how “a home equity line can help you with that dream vacation or your child’s college tuition.”

For community institutions that brag endlessly about their “personal connection” with account holders how well they know customers, this this brute-force shotgun style of selling financial products is hypocrisy. You could call it marketing malpractice.

Community banks and credit unions have a long history of serving the financial needs of local communities by building strong relationships with their customers. This is supported by branches being staffed by people from the community who are able to personally meet with account holders to discuss their unique needs. The president and senior leadership team are typically active in the community, and employees are involved in many local organizations. So why doesn’t marketing reflect this level of intimacy and nuanced grasp of the people each institution serves?

The shrinking number of community institutions is a reflection of the marketing struggles facing smaller banks and credit unions in the data-driven Digital Age. According to the FDIC, there were approximately 14,350 community banks with less than $1 billion assets in the United States in 1985. Today there are fewer than 6,000. Certainly there are many factors that have contributed to this decline, but, it’s hard to ignore the significance of data analytics and its impact on digital marketing.

Serving consumers in today’s digital world can be difficult, particularly when you might never have the opportunity to discuss someone’s financial challenges face to face. Gaining an understanding consumers’ financial needs should happen on their terms — service delivery channels that include mobile, phone, SMS, face to face and branches.

Given this increasing complexity, how do community institutions continue their tradition of delivering a “personal banking experience” in a world dominated by digital (i.e., non-personal) interactions?

The short answer? Stick to the basics. This means community banks and credit unions need to develop a systematic process for understading people’s financial needs and their service delivery preferences. In the old days, this was done with a handshake and a smile… in person. These days, you need to be looking at data.

Uncovering the needs and expectations of today’s digital consumers requires new skill sets. In lieu of face-to-face interactions, community banks and credit unions need to begin collecting and using more of their own proprietary data as well as third-party sources. A database that is properly constructed and managed helps the institution more effectively define and target unique segments, which in turn leads to more appropriate messaging and more relevant product/service offers. In other words, more effective, more personal marketing.

Consider the experience of one community bank. They installed a new customer database, which was appended with third-party data. The real transformation came as they began to outline their goals and marketing plan for the upcoming year. The primary objective was to improve the success rate of the bank’s onboarding and cross-selling efforts. CRM activities were organized by segment, and cross-sell programs leveraged predictive indexes for next-best-product for each segment. Similarly, the marketing strategy and media plan was organized around these segments.

These changes might not seem that earth shattering, but in fact it has fundamentally changed the way the bank looks at everything — from marketing strategy and metrics to budgets and benchmarks. Strategy discussions now focus on the progression of both messages and product offers for specific segments (and sub-segments). People’s preferences determine the appropriate media mix as well as the frequency of communications. Test cells are established for back-end analyses to determine what additional products could/should be cross-sold.

What a difference one year and a new database can make.

Bottom line? In a data-driven economy, community banks and credit unions need to rethink how they go about defining “community” and how they determine who they serve. They should still tap the same basic customer-focused, relationship-building skills they have always used… just augmented with new digital tools.

The modern consumer has come to expect relevant product recommendations based on past buying patterns. People receiving an irrelevant offer can come away with negative impressions of their banking provider. With so many online services tailoring recommendations for everything from movies and music to clothes and restaurants, why would anyone expect anything less from their bank?

Frank Koechlein is the President at Empower LLC and coauthor of the marketing resource book “The New Marketing Analytics.” Frank has over 40 years of marketing experience in the financial services industry, including several senior marketing positions for powerhouse brands like the Dreyfus Corp and Prudential.

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