Building a Better Bank: Strategies for Implementing a Marketing ...

MARKETING FINANCIAL SERVICES Building a Better Bank: Strategies for Implementing a Marketing Process

Bruce A. Clapp

1120 Connecticut Avenue, N.W. Washington, D.C. 20036

This publication is designed to provide accurate and authoritative informa-tion in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other pro-fessional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations. Founded in 1875 and based in Washington, DC, the American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation’s banking industry and strengthen America’s economy and communities. The mission of the American Bankers Association is to serve its members by enhancing the role of financial services institutions as the preeminent providers of financial services. This mission is accomplished through federal legislative and regulatory activities, legal action, communication and consumer education, research, and products and services that promote, educate, train, inform and support members. To learn more about the American Bankers Association and the many services it offers, call 1-800-BANKERS or visit us at our Web site: www.aba.com.

This textbook has been approved by the American Institute of Banking for use in courses for which AIB certificates or diplomas are granted. The American Institute of Banking is the professional development and training program of the American Bankers Association. Instructional materials endorsed by AIB have been developed by bankers, for bankers.

© 2009 by the American Bankers Association, Washington, D.C. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronics, mechanical, photocopying, record, or otherwise—without prior written permission of the American Bankers Association. Printed in the United States of America. 10 9 8 7 6 5 4 3 2

Contents Preface

xvii

Part I

What Is Marketing?

Chapter 1

Setting the Stage: Introduction to Key Marketing Concepts The “New” Definition of Marketing Key Elements of the Definition The “Marketing Concept” and Its Four Pillars Customer Orientation Profit Total Company Effort Social Responsibility and Community Citizenship Evolution of the Marketing Concept Declining Sales or Market Share Slow Growth Changing Buying Patterns Increased Competition Increased Budgetary Pressures Stages in the Adoption of the Marketing Concept How Business Strategic Planning and Marketing Planning Differ and Work Together The Importance of Market Definition Product Orientation Operations Orientation Selling Orientation Customer Orientation Summary Points for Review Notes

1 3 4 5 7 7 10 11 12 14 14 16 17 17 18 19 21 22 22 24 24 26 27 29 29

Part II

Getting Started: The Business of Banking

31

Chapter 2

Jumping In: The Financial Fundamentals The Structure of Banking How a Bank Makes Money Reading and Understanding the Balance Sheet Examples of Bank Balance Sheets Managing and Leveraging Expenses Pricing Summary Points for Review

33 34 38 41 41 45 45 46 46

Contents

iii

Chapter 3

Chapter 4

iv

The Playing Field: A Changing Environment Legislation Community Reinvestment Act Gramm-Leach-Bliley USA PATRIOT Act CAN-SPAM Do Not Call Check 21 Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act Regulations Regulation C Regulation DD Regulation Q Regulation Z Regulation B (Equal Credit Opportunity) Real Estate Settlement Procedures Act (RESPA) Regulation R Use of Federal Logos Nondeposit Investment Products and Consumer Protections in Sales of Insurance Compliance Integrating Compliance Compliance Resources Competitive Forces New Competitors Credit Unions Captive Financing Changing Buying Behaviors Summary Points for Review Notes

47 48 48 50 51 52 53 54

Rules of the Game: Organization, Implementation, and Evaluation Organizing the Bank for Marketing The Centralized Marketing Department Decentralized Marketing Organizing for Marketing in a Holding Company Environment: The Relationship of Marketing to Other Departments Technology Systems and Operations Human Resources and Personnel Training Accounting and Finance Bank Investments

73 74 76 79 79 80 81 81 81 82 82 83

Marketing Financial Services

55 57 57 58 59 60 61 62 62 63 64 66 67 68 68 69 69 70 70 71 71 72

Compliance/Legal Services Auditing Line Divisions and Subsidiaries Branches Chief Executive Officer Implementing the Marketing Plan The Quality Movement and Implementation Factors Affecting Implementation Evaluation: Performance Monitoring And Controls Goal Setting The Reporting Process Some Common Problems Encountered in the Planning Process Summary Points for Review Notes

83 83 84 84 85 86 86 87 88 89 91 92 94 95 96

Chapter 5

The Players: Understanding Consumers and the Market Motivation and Consumer Behavior Using Market Planning and Research to Know Your Market The Macroenvironment Economic Environment Demographic Environment Generational Environment Social and Cultural Environment Political, Legal, and Regulatory Environment Technological Environment Natural Environment The Microenvironment Customers Producers and Suppliers Intermediaries Competitors Publics Summary Points for Review Notes

97 99 101 101 101 103 106 106 107 108 111 111 111 112 112 112 113 114 114 115

Chapter 6

The Game Plan: The Development of a Situation Analysis Setting the Stage Why Formalize the Situation Analysis? Solid Foundation Versus “Gut Instinct” The Four Elements of a Situation Analysis Self-Analysis Analysis of Macroenvironmental Factors

117 118 118 119 120 121 122

Contents

v

Analysis of Microenvironmental Factors SWOT—Analysis of Strengths, Weaknesses, Opportunities, and Threats Summary Points For Review Notes Chapter 7

vi

The Background: Marketing Research and Marketing Information Systems Definition of Marketing Research Marketing Research or Market Research? Marketing Research in Banking Using Marketing Research to Understand the Market Types of Market Data Updating Market Data Market Data Sources The Marketing Research Process Step 1: Defining the Problem Step 2: Planning and Designing the Research Project Step 3: Collecting the Data Step 4: Analyzing the Data Step 5: Reporting the Research Finding Step 6: Integrating the Data into Planning When and Why Results Are Used Marketing Information Systems MCIF Introduction MCIF Systems and Marketing Research CRM and MCIF Systems Types of CRM Points of Use and Relevance for MCIF Summary Points for Review Notes

PART III

Building the Foundation: Strategic Marketing Planning

Chapter 8

Master Plan: Developing the Strategic Marketing Planning Process The Marketing Management Process What Is Management? What Is Marketing Management? The Task of Marketing Management The Marketing Planning Process The Importance of Marketing Planning Conducting the Situation Analysis Setting Marketing Objectives

Marketing Financial Services

125 136 137 138 138

139 141 141 142 143 143 145 146 146 146 147 150 154 154 155 155 156 156 157 158 158 159 160 160 160

161

163 164 164 165 165 168 168 169 169

Selecting the Target Market Designing the Marketing Strategy Implementing the Plan Evaluating the Results Why Plan? Some Routine Arguments Prerequisites for Planning The Planning Funnel Three-Year Planning and Flexibility Summary Points for Review Notes Chapter 9

Chapter 10

170 171 174 175 176 178 178 179 179 180 180

The Road Map: Setting Goals and Objectives and Identifying Marketing Strategies and Tactics Setting Marketing Goals and Objectives Importance of Setting Marketing Goals and Objectives What Do Goals Look Like? The Hierarchy of Goals in Business Characteristics of Marketing Objectives Developing a Marketing Strategy Bottom Up and Top Down Involving the Entire Organization Segmentation and Target Market Selection Marketing Strategy and Tactics The Eight-Step Process Strategy Formulation in Action Applying Strategy to a Bank Marketing Plan Applying Strategy to a Product Marketing Plan Summary Points for Review Notes

183 184 186 187 187 189 190 190 191 191 193 195 196 196 197 199 200 200

Ready, Aim . . . : Segmentation and Positioning Strategies Segmenting the Market Avoiding “Analysis Paralysis” Segmentation at Work Segmentation Strategies Segmenting the Commercial Banking Market Target Market Selection Generational Marketing Integrating Generational Marketing Types of Segmentation Undifferentiated Marketing Differentiated Marketing Concentrated Marketing

201 202 203 204 204 208 208 210 214 214 214 214 215

Contents

vii

Positioning Summary Points for Review Notes

PART IV

Building the House: The Marketing Process

Chapter 11

The Foundation: Process Support and Making the Marketing Process Part of Everyday Thinking Structure of Marketing Size and Scope of Marketing Departments Interaction with Operations Call Centers Image Processing Making Marketing “An Everyday Process” Integrating Branding Customer Service and Experience Recency and Frequency Retention and Attrition Summary Points for Review Notes

221 222 223 224 224 225 226 227 229 230 232 234 236 236

Keeping Score: Measurement, ROI, and Showing the Worth of Marketing Methods of Evaluation ROI ROMI ROI and ROMI Combined Gaining Agreement Methods of Evaluation Effectiveness, Efficiency, and Payback Full Organizational Impact Calculations ROI ROMI Calculation of Required Lift Break-even Community Event Calculation of Projected Sales Units Product Profitability Using ROI and ROMI to Define and Refine Your Planning and Execution Summary Points for Review Notes

237 238 238 238 239 240 241 241 242 242 242 242 243 243 243 243 244 245 245 245

Chapter 12

viii

215 217 217 218

Marketing Financial Services

219

PART V

Marketing-Mix Strategies

Chapter 13

Who’s on Second? Product Strategy and New Product Development Importance of the Product What Is a Product? Product Item, Product Line, and Product Mix Services vs. Products Product Strategies Product Mix Strategies Product Life Cycle Strategies Package (Systems) Selling New Product Development Types of New Products New Product Development Process and Stages Product Management Adoption and Elimination Product Adopter Categories Product Failures Product Elimination New Products and Services in the Marketplace Overdraft Privilege Totally Free Checking Remote Deposit Capture Mobile Banking Capacity and Demand Strategies Summary Points for Review Notes

249 250 250 251 252 255 255 257 261 262 262 263 266 267 267 268 269 271 271 271 272 272 272 273 273 274

How Much? The Pricing Strategy The Definition and Role of Price Pricing and the Bank’s Profitability How a Bank Earns a Profit Price Elasticity of Demand ALCO Estimating Customer Response to Price Changes Primary Data and Pricing Secondary Data and Pricing Pricing Decisions Pricing Strategies for New Products Changing the Price of Existing Products How Pricing Decisions Are Made Who Makes Pricing Decisions?

275 276 277 277 279 282 283 283 284 285 286 290 293 294

Chapter 14

247

Contents

ix

Reactions to Pricing Customers’ Reaction Employees’ Reaction Competitors’ Reaction Pricing Segmentation Model Price Sensitivities Regulation and the Pricing of Bank Services Summary Points for Review Notes

x

295 295 295 296 296 296 297 298 299 299

Chapter 15

The Ballpark: Distribution Strategy Marketing Channels A Banking Example Challenges to the Distribution of Bank Services Physical Channels of Distribution for Bank Services The Branch Network Making Banking Services Accessible to the Disabled Beyond Bricks and Mortar Intermediaries in the Banking Industry Summary Points for Review Notes

301 302 303 304 306 306 313 313 320 321 321 322

Chapter 16

Learning From Cracker Jack: Promotion Strategy and Personal Selling The Promotion Mix Advertising Sales Promotions Public Relations Personal Selling Service Quality Concept and Standards Measuring Service Quality and Loyalty Service Process Design and Redesign Differences between Selling and Marketing Selling as an Element of Customer Service Ensuring Loyalty and Not Just Satisfaction The Importance of Selling in Banking Characteristics of a Successful Salesperson Personal Attributes Selling Skills Managing the Selling Process Recruiting Training

323 325 325 325 325 326 326 327 327 327 328 329 330 334 334 335 338 338 338

Marketing Financial Services

339 340 341 341 342 343 344 345 346 346

Motivating Monitoring Results Evaluating the Sales Effort Rewarding Results of the Sales Effort Designing a Training Program Training Program Content Executing a Sales Training Program Summary Points for Review Notes

PART VI

“Hitting the Streets”: Taking Your Marketing to the Market

Chapter 17

The Announcer: Advertising and Sales Promotion— “Generating Excitement” The Promotion Mix Advertising Sales Promotion Public Relations Personal Selling Relative Use of the Promotion Mix Elements The Communication Goal Type of Product or Service Nature of the Market Product Life Cycle Stage Advertising Expenditures Constructing the Marketing Budget The Size of the Marketing Budget The Bank’s Size and Scope Advertising’s Share of the Marketing Budget How Advertising Dollars Are Spent The Goals of Advertising Executing the Advertising Message Measuring Advertising’s Effectiveness The Advertising Agency Bank Advertising Regulation Sales Promotion Point-of-Purchase Merchandising Incentives Seminars Specialties Contests Premiums or Gifts with Purchase

347

349 350 350 351 351 351 351 352 353 353 354 354 355 355 355 356 360 362 366 371 372 373 374 374 376 376 376 377 377

Contents

xi

The Promotional Campaign Summary Points for Review Notes Chapter 18

The Promoter: Communications—Creating Buzz and Spreading the Word The Communication Process Paid versus Public Communications Community Relations Public Relations The Purpose of Public Relations The Position of Public Relations in the Organization The Role of Public Relations Public Relations Tasks Benefits of the Broader Perspective of Public Relations Other Communication Methods E-mail Marketing Direct Mail Telemarketing Web Site Partnerships Summary Points for Review Notes

PART VII

Other Topics in Bank Marketing

Chapter 19

The Complete Team: The Wholesale Side of Banking Business Banking Identifying the Market and Assessing Its Needs Adapting the Marketing Mix to the Business Banking Market Trust Marketing Adapting the Marketing Mix to the Trust Market Summary Points for Review Notes

PART VIII All-Star Game: Comprehensive Case Studies Case A

xii

Conducting Marketing Research to Assist in a New Product Pricing Decision Market Research Report: Pricing a New Low-Cost Checking Account Defining the Problem Planning and Designing the Project

Marketing Financial Services

377 378 379 380

381 383 384 385 386 389 390 392 393 400 401 401 401 403 403 404 404 405 406

407 409 411 411 413 420 421 425 426 426

427

429 429 429 430

Selecting a Research Tool Designing the Sample Collecting the Data Analyzing the Data Reporting the Results

430 430 432 432 437

Case B

Marketing Plan for a New Product: Home Equity Credit Line Executive Summary Situation Analysis Economic Data Demographic Data Political/Legal Considerations Social/Cultural Considerations Competitive Analysis Self-Analysis Summary of Problems and Opportunities Goals Corporate Goals Marketing Goals Detailed Marketing Strategy and Tactics Target Market Product Strategy: Product and Market Expansion Pricing Strategy Promotion Strategy Distribution Strategy and Tactics Measurement and Evaluation of Results

439 439 440 440 441 441 441 441 442 444 444 444 444 445 445 445 445 445 448 448

Case C

Sales Techniques Scenario 1. New Checking Customer—Effective Technique Scenario 2. New Checking Customer—Ineffective Technique Scenario 3. New Savings Account—Effective Technique

451 451 453 454

Case D

Developing a Retail Promotional Campaign Citizens and Northern Bank Introduces New Focus on Students with Ju$t For Kid$ and Sammy Saver Background Setting Goals and Objectives Developing Strategy and Tactics Selecting the Media Creating the Advertising Developing the Sales Promotion Materials Implementing Internal and External Communications Monitoring and Evaluating Results Note

457 457 457 457 457 457 458 458 458 458 458

Contents

xiii

Case E

Developing an Advertising Campaign Introduction Background Analysis of LaSalle State Bank’s Logo Marketing Mix Goals and Objectives Monitoring Evaluation Conclusion Note

459 459 459 460 460 461 462 462 463 463

Case F

Developing a Marketing Plan for Main Street Bank Introduction Situation Analysis Analysis of the Economic Market Environment Analysis of the Demographic Environment Customer Analysis Analysis of the Bank’s Competitive Environment Self-Analysis Summary of MSB’s Problems and Opportunities Goals and Objectives Mission Statement and Corporate Goals Target Market Selection Selected Marketing Objectives Strategy and Tactics (Action Plan) Strategy #1 Strategy #2

465 465 465 465 466 469 471 473 473 476 476 476 476 477 477 477

Case G

Using an MCIF to Create, Manage, Track, and Report a Marketing Program Introduction Goals and Objectives Selected Marketing Objectives Preparation MCIF Research Product Reviews Process Outcomes Strategy Timeline Expected Results

479 479 479 479 479 479 480 480 480 480 481 481

Examples of Bank Community Relations Activities A Community Development Project Franklin Bank Does Well By Doing Good

483 483 483

Case H

xiv

Marketing Financial Services

Community Support Efforts Community Banks Help Battle Floods Community Improvement Project A Major School Initiative Revitalizes a Small Town Notes

484 484 484 484 485

Case I

Marketing Implications of Mergers and Acquisitions Introduction Communication Internal Communications External Communications Product, Pricing, and Distribution Issues Establishing a New Identity Merger Strategies for Customer Retention Conclusion Notes

487 487 488 488 488 488 489 489 489 490

PART IX

Tool Kit and Supplemental Resource Guide

491

Tool Kit

493

Supplemental Resource Guide for Financial Services Professionals

529

Glossary

539

Index

551

Contents

xv