Delivering Value: Why should marketers start to think differently about how they spend their marketing dollars?
Steve: I think the majority of marketers who set budgets are frustrated because they have to allocate future funds without always having measured results from past campaigns. So they end up taking a shot in the dark, not knowing what sort of impact their prior marketing initiatives have had. When we talk about getting marketers to start thinking differently, first and foremost it’s about using intelligence rather than guesswork to set budgets.
DV: Don’t most marketers do some kind of measurement?
Steve: The problem is not that they aren’t measuring results. It’s that marketers are not necessarily using measurement as effectively as they could. They’re not relying on data that specifically shows what worked and what didn’t when allocating their marketing funds, so they’re deciding the following year’s plans without knowing the full results of current marketing programs. But this is a complex issue, because it ties in to the many challenges marketers face. In fact, research from The Financial Brand shows that the top two challenges marketers say they face are insufficient budgetary funding (46 percent) and difficulty measuring and proving their efforts (38 percent). Clearly, they have a lot to deal with.
DV: How can financial institutions use market research more effectively?
Steve: By measuring on a monthly basis, marketers can stay on top of the impact their initiatives are having. Prior to joining Harland Clarke, I worked for several financial institutions and I always measured the results of our marketing efforts. I did that to justify the initiatives to myself, my CEO and the board of directors so everyone could see that the budget was being spent as effectively and judiciously as possible. If it wasn’t, that would mean I wasn’t doing my job and being an effective custodian of the money our account holders had entrusted to us.
Betsy: Many small and regional banks and credit unions have limited marketing resources. So while they know it’s a best practice to utilize marketing research, they just don’t get to it. Instead, when developing their marketing budgets, they’ll say, “Let’s increase it by five percent.” It’s not nearly as scientific as it should be.
DV: Is it because of lack of time?
Betsy: That’s a good question. Market researchers may also be product managers, with five or six different job responsibilities. So market research may sink to the bottom instead of bubble to the top in priority. Often they don’t get to it, and it is a resource issue. Also, if the CEO doesn’t ask questions and focus on getting a marketing return on investment (ROI), and instead sees marketing mainly as a cost center rather an investment, the marketing department isn’t going to be motivated to conduct the research.
DV: So top executives need to demand ROI data?
Betsy: Absolutely. And whether those questions are asked depends a lot on how a financial institution is organized — whether the marketing department reports to the CEO or to operations.
Steve: Coming out of the recession of 2007–08, I believe many financial institutions learned they were not marketing as aggressively or effectively as they should have. Since 2008, we’ve seen much more government regulation, which has made it difficult for financial institutions. The recovery has been slow. We’ve seen a slowdown in consumer spending, a mortgage market that is still working through a lot of challenges and bankruptcies in the United States at record highs. These factors have made it harder for financial institutions to be successful. CEOs are in a position where they have to find a way out of this mess for their organizations. And building a branch on another corner is not the answer it once was because capital is under a lot more pressure today than it was three or four years ago.
Only lately have financial institutions realized how important marketing is, and that perhaps it’s better to rely more on marketing to get from point A to point B.
DV: When is a good time for financial institutions to start preparing their marketing plans for the upcoming year?
Steve: Summer is ideal because gathering data and analyzing it require both a process and time. This is the time to survey existing account holders about their likelihood to buy products and services, their satisfaction with the institution, and where they may see gaps in delivery channels or product lineup. Marketers want to have all the information they need so they can start collaborating with product managers and other internal sources to put together an effective plan.
Betsy: During this process of gathering and analyzing data, marketers often identify gaps in intelligence. Summer is a good time for receiving vendor proposals that can help provide the big picture. This is a time for the “big ask” — identify what is needed and ask for it in the budget.
DV: When do most banks and credit unions need to finalize their marketing budgets?
Steve: For a calendar year budget cycle, late August or early September is the time to start putting together a budget. It has to go before the board of directors, which typically takes place late in the fourth quarter. There tends to be a lot of communication among senior management during the fourth quarter to make sure the budget supports the overall goals and objectives of the institution. Marketers will want to work as diligently as possible to ensure the board of directors is able to vote on a final budget that has the fingerprints of the senior management team. Even during the fourth quarter, some programs need to be in development so that on January 1, they’re ready to launch.
DV: What steps should financial institutions take when planning their marketing budget?
Steve: First and foremost, the marketing plan shouldn’t be created in a vacuum. Marketers need to talk to product managers and reach out to other functions within the organization to collaborate.
Second, the marketing plan doesn’t belong on a shelf after it is developed. Many organizations, including some financial institutions, operate with a fire drill mentality. For example, January arrives, and in response to addressing an immediate need that has developed, the organization goes into reactive mode rather than sticking to the proactive environment that a plan provides. Too soon the well-researched and carefully crafted marketing plan is going unused.
There will always be immediate priority needs that marketing must help address. But the bigger plan is the road map for the year to achieve the defined goals. Marketers should go back weekly, or at least monthly, to make sure they’re doing their best to adhere to the timetable and living up to what they said they were going to do.
Betsy: And they need to get buy-in from all areas prior to the approval process. I know of a financial institution marketer who said, “Oh, we have a marketing plan, but it’s just on paper. We don’t actually follow it.” I would imagine it’s not being used because it didn’t have buy-in from other departments and processes. The plan was only for the marketing department’s purposes, as opposed to supporting the bank’s mission and goals.
DV: What sort of information do marketers need to effectively put together a marketing budget?
Steve: There are five things marketers can do.
First, analyze account holders with research tools like surveys, focus groups and mystery shopping to identify gaps in products or service delivery. This data will help marketers understand whether account holders are likely to borrow more next year or to deposit more; if they are relying on brick-and-mortar facilities or banking online; and what products and services account holders have at other financial institutions and why.
Betsy: It is important to understand which account holders are using which products. For example, how many have checking accounts, how many have loans and what percentage are single-service users? What products do new households have, and what's their attrition rate? Should the focus be organic growth or acquisitions? This ties back to management asking such questions. Many times marketers don't have this level of behavioral data because the questions simply aren’t being asked.
Steve: This is where a data analytics tool is helpful in highlighting the areas that will generate the best ROI. It’s about spending marketing dollars as effectively as possible.
Second, look at demographics of the communities near the institution's branches (income, home ownership, population age, etc.) to ensure the right product is marketed to the right audience. For example, marketing loans near a retirement community might not be as effective as deposit-related products, because older consumers are likely to borrow less and deposit more.
Third, know the competition. Questions marketers should ask themselves: Who is the competition, and what is our market share relative to them? Is it growing or shrinking? Where are their branches? What are their trends with regard to deposits and loans? Are they marketing more or less?
Fourth, collaborate internally. Marketers need to be sure they have a handle on what the departments within their institutions are planning. For instance, if the loan department is launching a new mortgage product, it’s important to find out why, understand its features and benefits as well as the department’s expectations, and collaborate on a plan to make sure the new product has as successful a rollout as possible. Alignment is essential.
Fifth — and this is critical — ensure the marketing plan supports the institution’s overall business goals and objectives. I have seen a number of financial institutions that don’t have quantifiable goals. Every bank and credit union ought to have goals for net deposit growth and loan growth. What are the institution’s goals for new account holders, and for customer or member satisfaction — and how much will need to be spent in order to reach these goals?
DV: Is there a rule of thumb for how much should be budgeted for marketing?
Steve: Yes. Although this varies depending on how a financial institution categorizes its marketing investment, a general guideline is that the marketing budget should be approximately 10 basis points of assets. For example, if a bank has $1 billion in assets, the marketing budget should be $1 million or so, depending on the bank’s goals and opportunities.
DV: What factors should marketers consider as they allocate their budgets?
Steve: Everything in the plan must support the financial institution’s goals and objectives. For example, if the biggest challenge is bringing in loans and loan penetration relative to the institution’s internal benchmark is low, the best opportunity might be to cross-sell loan products to account holders. That’s how to get the best ROI.
Betsy: It’s also important to remember that multiple and varied marketing channels — social media, direct mail, website — can’t operate in a vacuum. All channels need to work in a complementary manner that supports the overall brand. Also, it’s critical to explore using all available channels so the institution is communicating with account holders and prospects in the ways they prefer to be reached.
DV: What are some current marketing trends for financial institutions?
Steve: Because of the economic issues facing the country today, American consumers have been in a debt-reducing mode rather than a debt-buying mode. So the challenge lies in growing loans. Liquidity is not an issue; financial institutions have more dollars on deposit than they want. Yet, it’s still a good time for institutions to go after DDA accounts because checking is key to the account relationship. Growing checking accounts is critically important because of the changes that many financial institutions have had to make — such as added fees or higher minimum balances — in reaction to Dodd-Frank and the Durbin Amendment.