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 fi nancial services institutions as the preeminent providers of fi nancial 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.
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© 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
This textbook has been approved by the American Institute of Banking for use in courses for which AIB certifi cates 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.
Contents iii
Contents
Preface
xvii
Part I
What Is Marketing?
1
Chapter 1 Setting the Stage: Introduction to Key Marketing Concepts 3
The “New” Defi nition of Marketing 4
Key Elements of the Defi nition 5
The “Marketing Concept” and Its Four Pillars 7
Customer Orientation 7
Profi t 10
Total Company Effort 11
Social Responsibility and Community Citizenship 12
Evolution of the Marketing Concept 14
Declining Sales or Market Share 14
Slow Growth 16
Changing Buying Patterns 17
Increased Competition 17
Increased Budgetary Pressures 18
Stages in the Adoption of the Marketing Concept 19
How Business Strategic Planning and Marketing Planning Differ
and Work Together 21
The Importance of Market Defi nition 22
Product Orientation 22
Operations Orientation 24
Selling Orientation 24
Customer Orientation 26
Summary 27
Points for Review 29
Notes 29
Part II
Getting Started: The Business of Banking
31
Chapter 2 Jumping In: The Financial Fundamentals 33
The Structure of Banking 34
How a Bank Makes Money 38
Reading and Understanding the Balance Sheet 41
Examples of Bank Balance Sheets 41
Managing and Leveraging Expenses 45
Pricing 45
Summary 46
Chapter 3 The Playing Field: A Changing Environment 47
Legislation 48
Community Reinvestment Act 48
Gramm-Leach-Bliley 50
USA PATRIOT Act 51
CAN-SPAM 52
Do Not Call 53
Check 21 54
Fair Credit Reporting Act and the Fair and Accurate Credit
Transactions Act 55
Regulations 57
Regulation C 57
Regulation DD 58
Regulation Q 59
Regulation Z 60
Regulation B (Equal Credit Opportunity) 61
Real Estate Settlement Procedures Act (RESPA) 62
Regulation R 62
Use of Federal Logos 63
Nondeposit Investment Products and Consumer Protections
in Sales of Insurance 64
Compliance 66
Integrating Compliance 67
Compliance Resources 68
Competitive Forces 68
New Competitors 69
Credit Unions 69
Captive Financing 70
Changing Buying Behaviors 70
Summary 71
Points for Review 71
Notes 72
Chapter 4 Rules of the Game: Organization, Implementation, and Evaluation 73
Organizing the Bank for Marketing 74
The Centralized Marketing Department 76
Decentralized Marketing 79
Organizing for Marketing in a Holding Company 79 Environment: The Relationship of Marketing to Other Departments 80
Technology 81
Systems and Operations 81
Human Resources and Personnel 81
Training 82
Accounting and Finance 82
Contents v
Compliance/Legal Services 83
Auditing 83
Line Divisions and Subsidiaries 84
Branches 84
Chief Executive Offi cer 85
Implementing the Marketing Plan 86
The Quality Movement and Implementation 86
Factors Affecting Implementation 87
Evaluation: Performance Monitoring And Controls 88
Goal Setting 89
The Reporting Process 91
Some Common Problems Encountered in the Planning Process 92 Summary 94
Points for Review 95
Notes 96
Chapter 5 The Players: Understanding Consumers and the Market 97
Motivation and Consumer Behavior 99
Using Market Planning and Research to Know Your Market 101
The Macroenvironment 101
Economic Environment 101
Demographic Environment 103
Generational Environment 106
Social and Cultural Environment 106
Political, Legal, and Regulatory Environment 107
Technological Environment 108
Natural Environment 111
The Microenvironment 111
Customers 111
Producers and Suppliers 112
Intermediaries 112
Competitors 112
Publics 113
Summary 114
Points for Review 114
Notes 115
Chapter 6 The Game Plan: The Development of a Situation Analysis 117
Setting the Stage 118
Why Formalize the Situation Analysis? 118
Solid Foundation Versus “Gut Instinct” 119
The Four Elements of a Situation Analysis 120
Self-Analysis 121
Analysis of Microenvironmental Factors 125 SWOT—Analysis of Strengths, Weaknesses, Opportunities, and Threats 136 Summary 137
Points For Review 138
Notes 138
Chapter 7 The Background: Marketing Research and Marketing
Information Systems 139
Defi nition of Marketing Research 141
Marketing Research or Market Research? 141
Marketing Research in Banking 142
Using Marketing Research to Understand the Market 143
Types of Market Data 143
Updating Market Data 145
Market Data Sources 146
The Marketing Research Process 146
Step 1: Defi ning the Problem 146
Step 2: Planning and Designing the Research Project 147
Step 3: Collecting the Data 150
Step 4: Analyzing the Data 154
Step 5: Reporting the Research Finding 154
Step 6: Integrating the Data into Planning 155
When and Why Results Are Used 155
Marketing Information Systems 156
MCIF Introduction 156
MCIF Systems and Marketing Research 157
CRM and MCIF Systems 158
Types of CRM 158
Points of Use and Relevance for MCIF 159
Summary 160
Points for Review 160
Notes 160
PART III
Building the Foundation: Strategic Marketing Planning
161
Chapter 8 Master Plan: Developing the Strategic Marketing
Planning Process 163
The Marketing Management Process 164
What Is Management? 164
What Is Marketing Management? 165
The Task of Marketing Management 165
The Marketing Planning Process 168
The Importance of Marketing Planning 168
Conducting the Situation Analysis 169
Contents vii
Selecting the Target Market 170
Designing the Marketing Strategy 171
Implementing the Plan 174
Evaluating the Results 175
Why Plan? Some Routine Arguments 176
Prerequisites for Planning 178
The Planning Funnel 178
Three-Year Planning and Flexibility 179
Summary 179
Points for Review 180
Notes 180
Chapter 9 The Road Map: Setting Goals and Objectives and Identifying
Marketing Strategies and Tactics 183
Setting Marketing Goals and Objectives 184
Importance of Setting Marketing Goals and Objectives 186
What Do Goals Look Like? 187
The Hierarchy of Goals in Business 187
Characteristics of Marketing Objectives 189
Developing a Marketing Strategy 190
Bottom Up and Top Down 190
Involving the Entire Organization 191
Segmentation and Target Market Selection 191
Marketing Strategy and Tactics 193
The Eight-Step Process 195
Strategy Formulation in Action 196
Applying Strategy to a Bank Marketing Plan 196 Applying Strategy to a Product Marketing Plan 197 Summary 199
Points for Review 200
Notes 200
Chapter 10 Ready, Aim . . . : Segmentation and Positioning Strategies 201
Segmenting the Market 202
Avoiding “Analysis Paralysis” 203
Segmentation at Work 204
Segmentation Strategies 204
Segmenting the Commercial Banking Market 208
Target Market Selection 208
Generational Marketing 210
Integrating Generational Marketing 214
Types of Segmentation 214
Undifferentiated Marketing 214
Differentiated Marketing 214
Positioning 215 Summary 217
Points for Review 217
Notes 218
PART IV
Building the House: The Marketing Process
219
Chapter 11 The Foundation: Process Support and Making the Marketing
Process Part of Everyday Thinking 221
Structure of Marketing 222
Size and Scope of Marketing Departments 223
Interaction with Operations 224
Call Centers 224
Image Processing 225
Making Marketing “An Everyday Process” 226
Integrating Branding 227
Customer Service and Experience 229
Recency and Frequency 230
Retention and Attrition 232
Summary 234
Points for Review 236
Notes 236
Chapter 12 Keeping Score: Measurement, ROI, and Showing the Worth
of Marketing 237
Methods of Evaluation 238
ROI 238
ROMI 238
ROI and ROMI Combined 239
Gaining Agreement 240
Methods of Evaluation 241
Effectiveness, Effi ciency, and Payback 241
Full Organizational Impact 242
Calculations 242
ROI 242
ROMI 242
Calculation of Required Lift 243
Break-even Community Event 243
Calculation of Projected Sales Units 243
Product Profi tability 243
Using ROI and ROMI to Defi ne and Refi ne Your Planning and Execution 244 Summary 245
Points for Review 245
Contents ix
PART V
Marketing-Mix Strategies
247
Chapter 13 Who’s on Second? Product Strategy and New
Product Development 249
Importance of the Product 250
What Is a Product? 250
Product Item, Product Line, and Product Mix 251
Services vs. Products 252
Product Strategies 255
Product Mix Strategies 255
Product Life Cycle Strategies 257
Package (Systems) Selling 261
New Product Development 262
Types of New Products 262
New Product Development Process and Stages 263
Product Management 266
Adoption and Elimination 267
Product Adopter Categories 267
Product Failures 268
Product Elimination 269
New Products and Services in the Marketplace 271
Overdraft Privilege 271
Totally Free Checking 271
Remote Deposit Capture 272
Mobile Banking 272
Capacity and Demand Strategies 272
Summary 273
Points for Review 273
Notes 274
Chapter 14 How Much? The Pricing Strategy 275
The Defi nition and Role of Price 276
Pricing and the Bank’s Profi tability 277
How a Bank Earns a Profi t 277
Price Elasticity of Demand 279
ALCO 282
Estimating Customer Response to Price Changes 283
Primary Data and Pricing 283
Secondary Data and Pricing 284
Pricing Decisions 285
Pricing Strategies for New Products 286
Changing the Price of Existing Products 290
How Pricing Decisions Are Made 293
Reactions to Pricing 295
Customers’ Reaction 295
Employees’ Reaction 295
Competitors’ Reaction 296
Pricing Segmentation Model 296
Price Sensitivities 296
Regulation and the Pricing of Bank Services 297
Summary 298
Points for Review 299
Notes 299
Chapter 15 The Ballpark: Distribution Strategy 301
Marketing Channels 302
A Banking Example 303
Challenges to the Distribution of Bank Services 304 Physical Channels of Distribution for Bank Services 306
The Branch Network 306
Making Banking Services Accessible to the Disabled 313
Beyond Bricks and Mortar 313
Intermediaries in the Banking Industry 320
Summary 321
Points for Review 321
Notes 322
Chapter 16 Learning From Cracker Jack: Promotion Strategy and Personal Selling 323
The Promotion Mix 325
Advertising 325
Sales Promotions 325
Public Relations 325
Personal Selling 326
Service Quality Concept and Standards 326
Measuring Service Quality and Loyalty 327
Service Process Design and Redesign 327
Differences between Selling and Marketing 327
Selling as an Element of Customer Service 328
Ensuring Loyalty and Not Just Satisfaction 329
The Importance of Selling in Banking 330
Characteristics of a Successful Salesperson 334
Personal Attributes 334
Selling Skills 335
Managing the Selling Process 338
Recruiting 338
Contents xi
Motivating 339
Monitoring Results 340
Evaluating the Sales Effort 341
Rewarding Results of the Sales Effort 341
Designing a Training Program 342
Training Program Content 343
Executing a Sales Training Program 344
Summary 345
Points for Review 346
Notes 346
PART VI
“Hitting the Streets”: Taking Your Marketing to the Market
347
Chapter 17 The Announcer: Advertising and Sales Promotion—
“Generating Excitement” 349
The Promotion Mix 350
Advertising 350
Sales Promotion 351
Public Relations 351
Personal Selling 351
Relative Use of the Promotion Mix Elements 351
The Communication Goal 352
Type of Product or Service 353
Nature of the Market 353
Product Life Cycle Stage 354
Advertising Expenditures 354
Constructing the Marketing Budget 355
The Size of the Marketing Budget 355
The Bank’s Size and Scope 355
Advertising’s Share of the Marketing Budget 356
How Advertising Dollars Are Spent 360
The Goals of Advertising 362
Executing the Advertising Message 366
Measuring Advertising’s Effectiveness 371
The Advertising Agency 372
Bank Advertising Regulation 373
Sales Promotion 374
Point-of-Purchase Merchandising 374
Incentives 376
Seminars 376
Specialties 376
Contests 377
The Promotional Campaign 377 Summary 378
Points for Review 379
Notes 380
Chapter 18 The Promoter: Communications—Creating Buzz and
Spreading the Word 381
The Communication Process 383
Paid versus Public Communications 384
Community Relations 385
Public Relations 386
The Purpose of Public Relations 389
The Position of Public Relations in the Organization 390
The Role of Public Relations 392
Public Relations Tasks 393
Benefi ts of the Broader Perspective of Public Relations 400
Other Communication Methods 401
E-mail Marketing 401
Direct Mail 401
Telemarketing 403
Web Site 403
Partnerships 404 Summary 404
Points for Review 405
Notes 406
PART VII Other Topics in Bank Marketing
407
Chapter 19 The Complete Team: The Wholesale Side of Banking 409
Business Banking 411
Identifying the Market and Assessing Its Needs 411 Adapting the Marketing Mix to the Business Banking Market 413
Trust Marketing 420
Adapting the Marketing Mix to the Trust Market 421 Summary 425
Points for Review 426
Notes 426
PART VIII All-Star Game: Comprehensive Case Studies
427
Case A Conducting Marketing Research to Assist in a New Product
Pricing Decision 429
Market Research Report: Pricing a New Low-Cost Checking Account 429
Defi ning the Problem 429
Contents xiii
Selecting a Research Tool 430
Designing the Sample 430
Collecting the Data 432
Analyzing the Data 432
Reporting the Results 437
Case B Marketing Plan for a New Product: Home Equity Credit Line 439
Executive Summary 439
Situation Analysis 440
Economic Data 440
Demographic Data 441
Political/Legal Considerations 441
Social/Cultural Considerations 441
Competitive Analysis 441
Self-Analysis 442
Summary of Problems and Opportunities 444
Goals 444
Corporate Goals 444
Marketing Goals 444
Detailed Marketing Strategy and Tactics 445
Target Market 445
Product Strategy: Product and Market Expansion 445
Pricing Strategy 445
Promotion Strategy 445
Distribution Strategy and Tactics 448
Measurement and Evaluation of Results 448
Case C Sales Techniques 451
Scenario 1. New Checking Customer—Effective Technique 451 Scenario 2. New Checking Customer—Ineffective Technique 453 Scenario 3. New Savings Account—Effective Technique 454
Case D Developing a Retail Promotional Campaign 457
Citizens and Northern Bank Introduces New Focus on Students
with Ju$t For Kid$ and Sammy Saver 457
Background 457
Setting Goals and Objectives 457
Developing Strategy and Tactics 457
Selecting the Media 457
Creating the Advertising 458
Developing the Sales Promotion Materials 458 Implementing Internal and External Communications 458
Monitoring and Evaluating Results 458
Case E Developing an Advertising Campaign 459
Introduction 459 Background 459
Analysis of LaSalle State Bank’s Logo 460
Marketing Mix 460
Goals and Objectives 461
Monitoring 462 Evaluation 462 Conclusion 463
Note 463
Case F Developing a Marketing Plan for Main Street Bank 465
Introduction 465
Situation Analysis 465
Analysis of the Economic Market Environment 465
Analysis of the Demographic Environment 466
Customer Analysis 469
Analysis of the Bank’s Competitive Environment 471
Self-Analysis 473
Summary of MSB’s Problems and Opportunities 473
Goals and Objectives 476
Mission Statement and Corporate Goals 476
Target Market Selection 476
Selected Marketing Objectives 476
Strategy and Tactics (Action Plan) 477
Strategy #1 477
Strategy #2 477
Case G Using an MCIF to Create, Manage, Track, and Report a
Marketing Program 479
Introduction 479
Goals and Objectives 479
Selected Marketing Objectives 479
Preparation 479
MCIF Research 479
Product Reviews 480
Process 480
Outcomes 480
Strategy 480
Timeline 481
Expected Results 481
Case H Examples of Bank Community Relations Activities 483
A Community Development Project 483
Contents xv
Community Support Efforts 484
Community Banks Help Battle Floods 484
Community Improvement Project 484
A Major School Initiative Revitalizes a Small Town 484
Notes 485
Case I Marketing Implications of Mergers and Acquisitions 487
Introduction 487 Communication 488
Internal Communications 488
External Communications 488
Product, Pricing, and Distribution Issues 488
Establishing a New Identity 489
Merger Strategies for Customer Retention 489
Conclusion 489
Notes 490
PART IX
Tool Kit and Supplemental Resource Guide
491
Tool Kit 493
Supplemental Resource Guide for Financial Services Professionals 529
