Does Bank Advertising Work?

Does bank advertising work. And if so, how? An academic study purports to answer the questions. The study draws on a number of data sources — including a survey fielded by a major marketing research firm, interest rates provided by RateWatch, and advertising spend data from Kantar — to conclude that:

[Bank] advertising is primarily a shifter of awareness as opposed to consideration or choice. Advertising makes consumers aware of more options; thus consumers search more and find better alternatives than they would otherwise. In turn, this increases the market share of smaller banks making the U.S. banking industry more competitive.

Some of the more interesting findings/assertions include:

Awareness is a function of bank advertising, local bank presence, and demographic factors. The estimates from the awareness stage highlight the importance of both advertising and branch presence in driving how aware consumers are of a bank. The study asserts that “the positive effect of local bank presence shows that, in spite of the widespread availability and convenience of online banking, consumers still value having the possibility of talking to a bank employee in person.”

Convenience is a major driver in the consumer shopping process. This was evidenced by the fact that consumers were more likely to open bank accounts with banks that they already had a relationship with and that have branches nearby. According to the authors, this supports the “convenience factor of one-stop-shopping–i.e., consumers only having to deal with one bank for all of their financial matters.”

Consumers are aware of ~7 banks and consider between 2 and 3 banks. The sizes of consumers’ awareness and consideration sets ranged from 2 to 15 for awareness (average=6.8), and 2 to 8 for consideration (average=2.5).

Conversion rates from awareness to consideration and from consideration to choice/purchase varied across banks. As a percentage of consumers who are aware of the bank, consideration ratios ranged from a high of 49% for M&T to a low of 18% for Comerica. The bank with the highest close ratio (as a percentage of consumers who considered the bank) was US Bank at 65%, while the lowest performer among the banks included in the study was Bank of America at 29%.

Bank Consider % of Aware Close % of Consider
BB&T 34% 59%
Bank of America 47% 29%
Capital One 21% 50%
Chase 43% 40%
Citi 28% 41%
Citizens 31% 59%
Comerica 18% 49%
Fifth Third 30% 46%
HBSC 35% 41%
KeyBank 24% 49%
M&T 49% 57%
PNC 32% 42%
Regions 28% 51%
Sovereign 27% 47%
SunTrust 38% 64%
TD 42% 45%
US Bank 43% 65%
Wells Fargo 40% 40%

Source: “Advertising, Consumer Awareness, and Choice: Evidence from the U.S. Banking Industry,” Honka, Hortacsu, Vitorino.

Bank advertising affects consumer awareness more than it affects choice. This is consistent with other studies (not specific to banking) that found the role of advertising to be informative, rather than persuasive. The authors stated, however, that their results contrast with other financial services-related research that suggested a persuasive (i.e., not informative) effect of advertising for mortgages and retirement savings products.

Interesting stuff, no? Unfortunately, there are a couple of things that I didn’t share about the study that might make you change your mind. First is that the consumer survey was fielded in March and April 2010, and second, the study focused only on customers of the 18 largest banks. Any survey respondent who mentioned a bank or credit union in their consideration set that wasn’t among the top 18 banks was dropped from the analysis.

To evaluate the validity of the findings for 2015, we need to take into account a few things that have changed since 2010:

1. Demographics. The coming-of-age of many Gen Yers in the past five years raises the question of whether or not this shift in demographics impacts the study’s findings, in particular, the importance of branches. If you want to argue that Millennials aren’t impacted by traditional advertising, rendering the aforementioned study irrelevant, I’m afraid there’s data to suggest otherwise. According to Nielsen’s Global Trust in Advertising Study, “consumers between the ages of 21 to 34 have the highest level of trust of any age cohort in 18 of the 19 advertising formats tracked in the study, including newspapers, TV and magazines.”

2. Consumers sentiment. In case you don’t remember, 2010 was not longer after the depths of the recession, when consumer sentiment towards banks–Bank of America, in particular–was at an all-time low. This raises the question to what extent consumer sentiment was impacting the consideration and close ratios at that time.

3. Digital ad shift. I don’t have data for 2010, but in 2007, the top 30 banks allocated 10% of their ad spend online. In 2015, more than a third of the total ad spend will go to digital channels. The interactivity of digital advertising theoretically supports more consideration and choice activities.

4. Mobile adoption. Over the past five years, smartphone adoption has skyrocketed. As use of the device permeates everything we do, opportunities for activity-based marketing become more available. These opportunities are primarily about influencing consideration and choice, as awareness is a pre-requisite for the use of the app.

The study’s abstract asserts that consumers’ shopping behavior results in higher market share for smaller institutions. Considering that the study ignored the 6,682 (or so) banks smaller than the top 18, I fail to see how the authors came to this conclusion.

The authors also state that the reason they narrowed the sample down to respondents who only considered the top 18 banks was “tractability.” Personally, I would have lumped all other financial institutions into one of two additional buckets: Other Community Bank or Credit Union. This approach would have accounted for a far broader range of consumer decisions.

One question that the study doesn’t address is: What accounts for the wide discrepancy in closing ratios between banks?

It can’t simply be due to a difference in economic factors like interest rates or fees. Friend/family referrals, perceptions of service quality, and a host of other factors surely play a role.

But to a bank or credit union marketer, the question is: To what extent did we help or hurt the sale because of: 1) a good or bad website, or 2) a good or bad branch interaction?

I’d love to see the authors replicate the study with more recent data. It would be fascinating to see what — if anything — changed in five years.

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