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Recommending a Strategy

VIEWS: 5 PAGES: 107

									Graduate School of Banking
          at LSU
 Strategic Bank Marketing
              Rex Bennett, Ph.D.
          University of San Francisco
       President, Achieving Unlimited Inc.
              May 30-June 2, 2011
   Appendix A: Bank Competitive Gap Questionnaire
   Appendix B: Calculations of the Profit Impact of Reducing Customer Loss
    Ratio by 5%
        Calculations for Present Customer Revenue Loss
        Calculations for Revenue Loss from Potential New Customers
        Marketing and Business Development Costs for Replacing Revenue from 15%
         Current Customer Revenue Loss
        Miscellaneous Costs
   Appendix C: Customer Loss Spreadsheet Showing Impact of Increasing
    Percentage of Customers Who Tell Bank About Satisfaction Issues and How
    Customers Rate Bank‟s Performance in Resolving Problem Issues and
    Questionnaire to Gather Needed Data
   Appendix D: Model for Determining the Net Present Value (NPV) of
    Increased Profit Steams from Reducing Customer Loss Ratio by 1 and 5%
   Appendix E: Example Information on Customer Profitability from MCIF
    (Marketing Customer Information File) or CRM (Customer Relationship
    Management file).
   Appendix F: Methods of Increasing Customer Feedback and Improving Bank
    Listening
       Achieving Competitive Advantage

Objectivess
  1. Describe a sustainable competitive advantage (SCA) and
     identify the most important components for achieving it
  2. Understand the factors that affect profitability and a bank’s
     ability to achieve superior profitability
  3. Understand the necessity of creating ‘high-value added’
     experiences for the customer
  4. Recognize the costs associated with poor customer
     satisfaction and understand how to estimate these costs for
     your individual banks
  5. Understand and be able to measure and evaluate the three
     major GAPS that contribute to a bank’s failure to achieve
     customer satisfaction, revenue and profit retention and
     acquisition, competitive advantage, and superior profitability
           Sustainable Competitive
                 Advantage


Strategies that position a bank
So that it can achieve superior, long-
 term, profitability
In spite of:
     industry and environmental changes,
     competitor actions,
     and…market/customer shifts
          Question:

Why should I do business with
 your bank rather than one of
      your competitors?
What differentiates your bank?
What value does your bank provide that
 others don‟t?
What advantages does your bank offer me,
 the customer?
How will your bank help me achieve my
 financial goals?

 Few banks either have or can articulate
 answers to these fundamental, core
 questions.
      What Do You Say In Print and Web Ads?

                             2nd Least
                           Viewed Area
1/3



                                Eye Path


            Focal Point:
            Most Viewed
2/3         Area of Ad


           Least Viewed    Brand Name
               Area



              1/2            1/2
Sample Print Ads
Sample Websites
„Why should I do business with
  your bank rather than one of
      your competitors?‟
If you are not
  DISTINCT
  You will be
   EXTINCT
          Tom Peters
Do Banks Deliver Exceptional
  Customer Satisfaction to
     Attract and Retain
        Customers?
           American Consumer Satisfaction
                       Index
            Consumer Satisfaction Scores: 100 Point Scale
             University of Michigan, National Quality Research Center, December 14, 2010




                                                                            Change Change
                             2007         2008         2009            2010 09 to 10 08 to 10
Wells Fargo                    69           72           73                73               0    1
CitiGroup, Inc.                69           69           68                69               1    0
Bank of America                72           73           67                68               1   -5
J.P. Morgan Chase              74           73           68                67              -1   -6

All Banks                       78           75            75              76              1    1
All Other Banks                 80           80            80              80              0    0
Baseline of total sample of 2,500 customers = 100 August 2009.

Source: BAI and Finacle Index of Bank Consumer Sentiment, May 24, 2010
            Customer Dissatisfaction with
            How Financial Institutions Help
            Them Achieve Their Financial
                       Goals
 Percentage Dissatisfied
 Credit Union Customers: 34%
 Regional and Local Bank Customers: 39%
 National Bank Customers: 47%


 Source: Morpace Inc. Research, Farmington Hills, MI.
                               Bank Attrition Rates

    40.0%                                                           35.0%
    35.0%
    30.0%                                              24.0%
    25.0%
                              14.0%        15.5%
    20.0%
                  11.0%
    15.0%
    10.0%
      5.0%
      0.0%
               Hslds.      Overall      Middle       New:        1st Yr
                                         Mkt         Promo      Attrition

Sources: *ABA Bank Marketing Survey Report, **Celent Communications,
‘Customer Attrition In Retail Banking in the US, Canada, the UK, and France,’
 JD Power 2010 Retail Banking Satisfaction Report, ABA Bankers News.
  If you include share of wallet, the banking
   industry‟s customer, revenue, and
   PROFIT loss ratio is almost certainly

    15% or more.


Sources: American Bankers Association, Bank Marketing Survey Report; ABA Retail Banking Survey
    Report, TARP Research, Arlington, Va.; Rex Bennett research.
          Why Do Banks Lose Customers?




Service Quality Dissatisfaction

                  Customer Dies           1%

               Customer Moves               3%

        Influenced by Friends                5%

 Better Competitive Offerings                   9%

       Product Dissatisfaction                     14%

Service Quality Dissatisfaction                                           68%

                                       0%          20%        40%   60%    80%
        Source: American Society of Quality, Milwaukee, WI.
                    Satisfaction Drives Share of Wallet



           100%
                                                                    Share of Wallet Increased
                                                                    Remained The Same
                      Major Financial Company                       Share of Wallet Decreased
           80%                                       68%
   %
                                   53%
 Action    60%
                                                                       47% 47%
  for                        40%
Share of   40%
 Wallet
                                                            18%
                                             14%
           20%
                       7%                                                               6%

             0%
                       Satisfaction       Satisfaction Stayed          Satisfaction
                        Decreased              The Same                 Increased

    „Building A World-Class Service System and Quantifying Its Payoff,‟ TARP
    Research, Arlington, Va.
Relationship Between Aggregate ACSI Scores and Market Value
 Added (Which Measures A Firm‟s Success in Creating Wealth
              For It‟s Shareholders) of S&P 500
   How Should You View
       Customers?



„Revenue and PROFIT
  Streams Over Time‟
   How Does A Bank Identify
      The Most Important
  Revenue and Profit Streams?

MCIF (Marketing Customer Information
 File System)
CRM (Customer Relationship
 Management System)
ABA: Bank Marketing Survey Report, 2010.
Household Profit Percentiles: 400 Bank Composite
Top 10% Profit Households: Details by Officer
   Key To Competitive
       Advantage



Customer Acquisition
        or
 Customer Retention
Wall Street Journal estimates the average
  business spends six to ten times more
 for customer acquisition than customer
                 retention.

  Typical bank spends six to twelve times
     more for customer acquisition than
            customer retention*

*American Bankers Association, Retail Banking Survey.
Banks send 5 times more to acquire a
 new customer than to retain or cross-
 sell a current one
 (Source: Customer Service Profiles, Omaha, NE and TARP,
  Arlington, VA)
ABA: Bank Marketing Survey Report, 2010.
Banks send an average of only 5% of
 their service time preventing or
 eliminated problems and 95% of their
 time addressing them
 (Source: Customer Service Profiles, Omaha, NE, and TARP,
 Arlington, VA)
            New Customer vs. Existing Customer
                      Report Card



                                      New      Existing
Attribute                           Customers Customers
Knowledge of performance               B         A+
requirements

Knowledge of product usage             C         A-
Knowledge of service needs             D          B
Cost to Acquire                        D          A+
Communication channels                 C+         A
Opportunity for customer feedback      D          A
                      Current Customer Profitability




Keeping one existing customer is
   five to seven (5 to 7) times
         more profitable
  than attracting one new one*

*„Companies Don‟t Succeed--People Do,‟ Graham Roberts-Phelps.
Why Don‟t Most Banks Commit To And
Deliver Exceptional Performance And
       Customer Satisfaction?

   Tangible, Concrete Current Costs
                  vs.
Intangible Cost Savings and „Revenue
          Streams Over Time‟
    Customer Lifetime Profit Value (CLPV)



Net present value of profit
 flows over the lifetime of
       the customer
         Profits Effects of Reducing Customer Loss Ratio


   Decreasing customer loss ratio by 5% for bank customers
    Results in an 85% increase in profits
   Or about a 17% increase in profits for each 1% decrease in the
    customer loss ratio*

   Decreasing customer loss ratio by 5% and maintaining it for 5 years
    results in a 100% increase in profit
   Or about 20% increase in profits for each 1% decrease in the
    customer loss ratio***

   Decreasing customer loss ratio by 5% increases profit by 47%
   Or about an 9+% increase in profits for each 1% decrease in the
    customer loss ratio** (See Appendix D for calculations).


    *Frederick Reichheld, The Loyalty Effect (Boston: Harvard Business School Press, 2003).
    **Rex Bennett, Ph.D., Customer Lifetime Profit Value, calculated with assumed 5% investment return
    interest rate, 2010. Supporting Data: „Managing Customers as Investments,‟ Gupta and Lehmann,
    Wharton School Publishing, 2005.
    ***American Bankers Association, cited by Customer Service Profiles, Omaha, NE.
      Costs of Poor Satisfaction and
   Subsequent Customer Revenue Losses

 Lost revenue from current customers
  who leave
 Lost revenue from potential
  customers who would have moved TO
  the bank and didn‟t because of
  negative word of mouth
 Marketing and business development
  costs to replace actual lost revenue
  from customers who left
 Miscellaneous cost
           $100 Million-$1 Billion Banks

TOTAL COSTS
  U. Total Annual Costs (H + K + N + T - U)                                     $2,716,000
     ($2,416,000 + $644,000 + $1,472,000 +$600,000 - $2,416,000)
  V. Total Costs Of Revenue Stream Over Time--5 Years                          $13,580,000
      Minimum
  W. Net Present Value of Revenue Stream @ 4 Percent                           $12,091,149

NET PRESENT VALUE OF COST SAVINGS                                              $1,209,115
AND/OR REVENUE STREAM INCREASES
 (W X Proportion Reduction In Customer Loss--Estimated
  In the Formula At a Conservative 10 Percent or .10--That
  is, for example, a reduction from a 15% annual customer
  loss ration to a 13.5 loss ratio).


Net Present Value of a Reduction of 10 Percent of the                                7.51%
Customer Loss Ratio (A Reduction of 1.5% From 15% to               Increase in Revenues
13.5%)
               $1-10 Billion Banks

For a $1-10 billion asset sized bank, a 1.5%
reduction in the customer loss ratio would
increase total revenue about 7.5% or
            $11.1 Million
Influencers of Customer
     Satisfaction and
   Customer Retention
             Why Is Website Performance
                     Important?


 90% of customers form perceptions of
  company based on customer service
  center experience…including
  WEBSITES

   Source: Center for Customer Driven Quality, Purdue University.
Bank Website Rankings

               How well a site facilitates
               the completion of specific
               tasks and how well it meets
               user experience criteria.




                 Source: Keynote
                 WebExcellence, Oct. 2010.
      Bank Website: Category Ranking Criteria


 FUNCTIONALITY: What can the users
  accomplish on the site? e.g., can they transfer
  money between accounts?
 EASE OF USE: How easy is it to use?
 PRIVACY AND SECURITY: How well does
  the site protect the users personally
  identifiable information? e.g. are account
  numbers masked?
 QUALITY AND AVAILABILITY: Does the site
  meet content and application quality
  standards? e.g., is there a persistent customer
  service number throughout the site?
      Bank Website: Task Ranking Criteria

   OPEN ACCOUNTS: How easy is it to open accounts?
   LOOK UP INFORMATION: How easy is it to look up
    information?
   TRANSACT: How easy is it to conduct a transaction?
    e.g., on-line bill pay.
   GET SERVICE: How easy is it to get service? e.g., on-
    line chat or person-to-person telephone
    communication?
   LEARN AND PLAN: Are there tools to help the person
    learn about financial products and help plan for
    financial goals and help identify which financial
    products may help accomplish these goals?
Source: ABA Bank Marketing Survey Report, 2010.
             Overall Bank Website Rankings
                         2010 2009      2009-2010
Rank   Bank              Score Score   Score Change
1      Bank of America   89     89             0
                                                      How well a site
2      Wells Fargo       85     82            +3      facilitates
3      Chase             82     81            +1      the completion
4      Citibank          82     84            -2      of specific
5      BB&T              73     68            +5      tasks and how
6      E*Trade Bank      75     75             0      well it meets
6      PNC               75     72            +3      user experience
8      Huntington        73     72            +1
                                                      criteria.
9      Citizens          72     70            +2
9      SunTrust          72     71            +1
11     Capital One       71     70            +1
11     KeyBank           71     69            +2
                                                      Source: Keynote
11     M&I               71     68            +3      WebExcellence, Oct
14     US Bank           70     69            +1      2009; Oct. 2010.
15     Union Bank        67     69             -2

16     Webster           66     64            +2
                               2010 2009      2009-2010
Rank   Bank                    Score Score   ScoreChange
17     Fifth Third             63     64         -1
18     Regions                 62     62         0
19     1st National of Omaha   59     63         -4
19     First Tennessee         59     58        +1
19     TD Bank                 59     53        +6
22     HSBC                    53     56         -3
23     Sovereign               51     50        +1
ABA: Bank Marketing Survey Report, 2010.


There were no questions about the
effectiveness of the websites themselves.
 Web Site Analytics
Analysis of Website Traffic: Visits, Bounce,
   Time of Site, Number of Pages Visited,
                 Conversion
 75% Strongly
Agree or Agree
 71% Strongly
Agree or Agree
  Web
Analytics
     Web Metrics Criteria
                STAR System
Simple (not complex)…must be understandable by
    decision-makers

Timely
Actionable immediately
Relevant…should identify where you are wasting
    business development/marketing dollars and which
    pages/elements/etc. of your website „stink‟

Source: Rex Bennett
           Google Analytics Definitions

 Visits = Sessions:           period of interaction between a visitor's browser
  and a particular website, ending when the browser is closed or shut down, or
  when the user has been inactive on that site for a specified period of time.

 Visitor:       A visitor is a construct designed to come as close as possible to
  defining the number of actual, distinct people who visited a website. The most
  accurate visitor-tracking systems generally employ cookies to maintain tallies
  of distinct visitors.

 Bounce Rate:          Bounce rate is the percentage of single-page visits or
  visits in which the person left your site from the entrance (landing) page.


 Pageview:       A pageview is an instance of a page being loaded by a
  browser. Google Analytics logs a pageview each time the tracking code is
  executed.
 Unique Views: Google Analytics records a visitor as NEW when any
  page on your site has been accessed for the first time by a web browser.
 Bounce means:

  They came to your website
  they barf‟d
  and then they left.
           Google Analytics Definitions

 Visits = Sessions:           period of interaction between a visitor's browser
  and a particular website, ending when the browser is closed or shut down, or
  when the user has been inactive on that site for a specified period of time.

 Visitor:       A visitor is a construct designed to come as close as possible to
  defining the number of actual, distinct people who visited a website. The most
  accurate visitor-tracking systems generally employ cookies to maintain tallies
  of distinct visitors.

 Bounce Rate:          Bounce rate is the percentage of single-page visits or
  visits in which the person left your site from the entrance (landing) page.


 Pageview:       A pageview is an instance of a page being loaded by a
  browser. Google Analytics logs a pageview each time the tracking code is
  executed.
 Unique Views: Google Analytics records a visitor as NEW when any
  page on your site has been accessed for the first time by a web browser.
 Conversion: A conversion occurs when a visitor reaches a
  GOAL which does NOT have to be an account opening or
  sale.
      A URL Destination goal is a page that visitors see once they have
       completed an activity. For an account sign-up, this might be the
       “Thank You for signing up” page. For a purchase, this might be the
       receipt page. A URL Destination goal triggers a conversion when a
       visitor views the specified page.
      A Time on Site goal is a time threshold that you define.
      A Pages per Visit goal allows you to define a pages viewed
       threshold.

Definitions of Google Website Metrics:
  http://www.google.com/support/googleanalytics/bin/answer.py?hl=en&answer=
  33087
www.google.com/analytics
               Visits                       PageViews
             Pages/Visit                    Aver Time on Site
                Bounce Rate                 % New Visits




Traffic Course Overview
                          Referring Sites

                          Search Engines
                          Direct
           Web Analytics Golden Rule

 Spend: 10% on technology
 Spend: 90% on people to interpret




 Occam's Razor by Avinash Kaushik
www.googlewebsiteoptimizer
http://www.youtube.com/watch?v=XJT9TCqzw4U
      COST
  Cost of Google
Analytics and Google
  Web Optimizer:
COMPETITIVE INTELLIGENCE:
    www.compete.com
Social Media:
Understanding
 Your Markets
            Formal Policy for Social Media?

 Does your organization have a formal
  policy regarding employee use of
  external social networks such as
  Facebook, Twitter, YouTube, and
  LinkedIn?
 Yes: 29%
 No: 69%

 Source: Source Magazine, Jan. 2010.
 78% of Consumers Trust Peer
  Recommendations
 Only 14% Trust Advertisements
 So, what does your marketing and
  business development budget look
  like?
 Would you let customers rate your
  bank or your employees? Star
  indicators?
1980-1995

1961-1979
Gen Xers and Gen Yers Are More Willing To
      Switch Banks Than Boomers
                Facebook

 660 million+ users
 50% log in each day
 Average user spends 55 minutes per day
    on Facebook
 35 million+ daily user updates
 Average user is connected to 80
    community pages, groups and events
 Average user creates 90 pieces of content
    each month
 Fastest growing segment:
Over 40% of
individuals over
55 are on
Facebook
What if Facebook starts using its currency so users can
buy real products and services online or thru e retaliers?
Over 1/3 of Gen Xers and Gen Yers Feel They
      Need Help In Managing Finances
Thus, look to and use PFM tools
(Personal Financial Management) such
as Mint and FinanceWorks
ABA: Bank Marketing Survey Report, 2010.
www.financeworks.com
Usage of PFM Tools
                Why Have A Social Presence?

   Affordable marketing
   Opportunity for viral effect
   Enhances brand
   Builds credibility with target markets
   Increase traffic to website
   Engages customers (2 way communication)
   You MUST to SURVIVE. (Rex Bennett Opinion)

    Eric Cook, Certified Internet Business Consultant, WSI Internet Consulting, 2010.
   What about Negativity?

 Cannot control
 Opportunity for feedback
 Open conversation
 Do respond….show how
  you handle issues
http://mashable.com/
                                    Websites
    http://mashable.com/
    Probably the best site for overall social media information
    http://mashable.com/2009/01/12/track-online-traffic/
    50+ Ways to Track Web Traffic and Use Analytics
    http://www.doshdosh.com/list-of-social-media-news-websites/
    Information on most usable social websites.
    http://www.netbanker.com/
     Extensive updates on web and mobile banking
    http://www.google.com/analytics/tour.html
    Home page for signing up for and using Google Analytics
    http://google.com/alerts
     Google monitors keywords and alerts you
    http://docstoc.com
    Store documents for sharing with customers and potential customers
    http://slideshare.com
     Store slide shows for sharing with customers and potential customers (can imbed in LindIn and
     Facebook)
    http://www.ping.fm/
     One site for updating all social media.
    www.compete.com
     Site for comparting website performance among competitors.
    www.financeworks.com
     Site for Intuit PFM Tool

								
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