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This article originally appeared in The Journal of Financial Advertising & Marketing, www.financialadvertising.com, and is reprinted here with the publisher's permission.
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Small Business Banking: Lessons in Acquiring and Retaining Customers
By Robert Levin, Editor & Publisher, The New York Enterpise Report
Anyone walking the streets of New York City recently, will notice an increasingly common sight – banks on every corner. With rental prices in excess of $100 a square foot, these banks are aggressively looking for new customers, particularly small businesses.
The marketing campaigns directed to small businesses have been just as aggressive. There is much wrong with these marketing approaches, but let’s look at a number of ways around the problems. I would like begin with a caveat. I do not have 20 years of marketing experience or an intimate knowledge of the banking industry. Rather, my credentials consist of being the editor and publisher of The New York Enterprise Report which serves the small business market. In addition, I have several years of experience as a CEO and CFO of different small businesses. Accordingly, I have been a small business client. The Report also recently conducted a survey on banking issues with our readers.
The message and the focus
To begin with, look at the copy for banks’ marketing and advertising campaigns. As the banking market has heated up, most of them have offered some form of free checking and almost all offer free online banking. So much for creating and promoting a competitive advantage. So why is this a common focus of marketing initiatives? Why would a bank expect to gain new customers or build its brand with this offer?
To further this point, 77 percent of small business owners say they don’t mind paying fees that are comparable with the level of service they receive. Not only do many banks already promote a commodity–like service, they are promoting features that do not have a highly perceived value to small business owners. Most marketers at banks and agencies I have spoken to state that one of their main goals is new customer acquisition. Few stated that retention is as important. It seems that many banks have forgotten the old business adage “treat your customers as if they were your best prospects.” One bank’s agency told me that their performance is evaluated purely on the number of new accounts opened within a particular region. Of course, this is the client's directive.
I recently spoke with a branch manager at a bank that is aggressively networking in order to go after new business accounts. When I asked him what his biggest challenge is to getting new business customers, he replied “most business owners believe that there is too much work involved to switching banks.” While this makes acquisition a little more difficult, it really doesn’t have the makings of a robust retention effort. According to The Report’s survey, 68 percent of small businesses would consider switching banks for their business.
As a small business client myself (I’ve made the banking decisions for four different companies and seven banks), I can count on one hand the number of times a banker has called me. My perception has always been that at least one of the following apply: 1) they are too busy with administrative and bureaucratic work; 2) they are too busy finding new prospects to make a quota; and 3) no one ever told them to call on customers. I am not alone. Fifty-eight percent of our survey respondents said that they have never been contacted by someone from their bank, while only 16 percent said they are contacted at least once every quarter. Even more interesting, when I mentioned this to a few marketing professionals at banks, they all seemed to think this was happening at someone else's bank.
On a similar note, the comments I hear in passing from small business owners seem to be different than the perceptions up the corporate ladder. I can recall a conversation with one executive at a nationwide bank who said something to the effect that “we are the best bank for small businesses in New York. Our customers love us and are even buying nonbanking services such as payroll and insurance from us.”
As if on cue, the same week I spoke with that executive, I talked to two business owners who slammed the first bank for poor service and ineptitude. When I asked one of them if they would consider doing their payroll with the bank, they replied “I couldn't even get someone at my branch to wire money to South America. I wouldn't ever consider giving them my payroll.” If the bankers in the branches are not calling the clients, how can the executives, who are far removed from the action, have a clue what is going on? Some of the most successful business leaders of all time are known for having “gone into the field” in order to talk to customers. Think of Jack Welch at General Electric and Sam Walton at Wal-Mart. Even Larry Ellison of Oracle finds time away from his yacht to attend meetings of General Electric, its biggest client. This allows executives to discover first hand the level of service provided by the bank, as well as their needs, so new products and services can be developed. By getting out into the marketplace, marketing executives will have a much better idea which buttons to push for their marketing initiatives and will not have to rely on second- and third-party research (including this article).
Developing a retention strategy
It is much more expensive to gain a new client than to keep an existing one. However, many banks seem to be totally focused on new client development. Since the banking market seems way too crowded (especially in New York), many players, particularly regional banks, are in a race to open as many branches and sign up as many new accounts as possible. That way they can position themselves for an inevitable industry consolidation. But remember to look at retention as well as new customer growth in the due diligence process. More resources should be dedicated to retaining clients and increasing revenue from existing clients by providing other needed banking services. Banks should have a formal policy for their executives to touch base with their business clients on a regular basis. The frequency of contact could depend on many things such as what resources are available and the characteristics of each client. These characteristics include size, industry, number of banking products and services they are currently using, and opportunities to sell other services. Give the bankers a template of questions to ask clients for each call. Ask them how their business is. It’s my favorite question — an open ended, easy starter that can uncover a lot of opportunities. Also discover what else the bank could do for them, whether they are happy with the bank’s services and if any new initiatives are planned by the business.
This is an easy way for the bank to start building the critical relationships it has been preaching about in its ads. These initiatives will not only lead to retention, but will find new opportunities for additional services, such as loans and credit cards. As these initiatives start to create their desired effect, the opportunity for what is considered the best form of marketing — referrals — starts to take place.
There are other marketing initiatives that can help the retention process, such as sponsoring events and seminars for clients and prospects. For example, The Reportproduces events that feature small business experts and networking. By participating in these events as a sponsor, the bank shows clients and prospects that it is interested in more than selling banking services, although the networking portion of the event provides a great selling opportunity for new business. Events can also be easily produced in the branch with a short presentation by a business expert on critical small business topics such as sales, marketing or human resources. Of course, these events are also a great reason for bankers to reach out to their clients and prospects.
Some of our bank advertisers also distribute copies of our magazine to their business clients and prospects. Again, because The Report’s focus is on “how-to” articles to help small businesses, this gift shows the business owner that the bank is interested in more than selling banking products. The magazine is certainly more useful than a pen with the bank’s logo.
Messages outside the box
As is often the case, the message in advertising should be tied to how a bank’s core competencies will help the business owner. Since most banking services are now being viewed as a commodity, it is even more important to show how the bank is different. The bank needs to show how that is tied to the needs of the small business owner.
One local bank in New York has promoted its $150,000 unsecured credit line with a 24-hour decision — a great way to get the attention of a business owner. This bank has decided to do a direct mail campaign using copies of The Report with a tip-on glued to the outside of the magazine as a direct mail piece. Another local bank sends someone to pick up deposits from business clients. Larger banks can focus on advantages like the number of branches and breadth of services.
If a bank does not have a product or service that is out of the ordinary, at least its advertising should be. Banks, by their very nature, have always had the perception of being conservative and somewhat boring. But times have changed. Not only has the marketplace become more cluttered, some of the most staid institutions are getting bolder. Business owners are among the busiest people in the world. To get their attention, advertisers should convey that they will help make the business more profitable and make the owner's life easier.
In these ultra-competitive times, banks that target small businesses need to be out-of-the-box with their marketing efforts. From the advertising strategy and copy to the methods they use to attract prospects, banks need to break out from the traditional “features and benefits” methods. In addition, they need to start treating their clients like their best prospects. It will not only stem attrition, but also lead to cross-selling opportunities. Some of the points and recommendations in this article involve more than advertising. They also involve strategy, product management and training. But in order for the banks to make an impact with this hard-to-reach market, a comprehensive effort will be needed.
Robert Levin is the editor and publisher of The New York Enterprise Report, a magazine that features “how-to” articles for small business owners and executives. A CPA, Levin has also held CEO and CFO titles at several small businesses. He can be reached at rlevin@nyreport.com.
