Community banking is no longer solely the domain of small, local banks
with a few branches around town. All over the country, larger regional
banks have announced their intentions to focus on community banking as a
significant part of their overall strategies.
As the community banking field opens up, the players are seeking news
ways to compete. Ironically, while many look far and wide for marketing
answers, their highest potential weapon stands right in front of them
every day: customers who can become a willing, enthusiastic and unpaid
sales force. A systematic strategy for harnessing the power of this
asset can increase marketing efficiency tremendously.
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For the most part, larger banks are betting that they can co-opt the
image of community banking by establishing themselves within communities
as embodying a collection of “traditional” service attributes and
they’ll spend millions of dollars to hedge that bet. Meanwhile,
community banks are working hard to shake the general image that they
provide only a limited scope of services.
In the long run, the marketing communications battle over who succeeds
at getting the “community bank” message out becomes less relevant
because, as one long-time community bank customer puts it, “Sayin’ ain’t
doin’.”
While the larger banks have the advantage of huge advertising and
marketing budgets, community banks have their own advantage – a
generally strong reputation for delivering very good service, treating
customers as individuals and resolving problems quickly when they
happen. That reputation was not earned through advertising and marketing
messages, but through decades of positive customer and community
interaction and the word of mouth and recommendations that followed
those experiences.
For service oriented businesses like banking, the actual experience that
customers have is much more important than advertising and other
marketing communications in driving loyalty and recommendations (or
advocacy) — also known in consulting parlance as –“higher order”
behaviors.
Loyalty and Advocacy: The higher order behaviors
Higher order customer behaviors are those that demonstrate a true
attachment to the service organization. They are like all other
behaviors in that they are driven by a collection of specific factors
that can be identified and analyzed. But Chadwick Martin Bailev’s work
in this area suggests that there are different causes, or “drivers” that
lead to cyclical behavior, along with the inescapable — if not
surprising — conclusion that customer loyalty does not necessarily
result in customer advocacy.
This is an important point, because most businesses, including banks on
both sides of the community banking battle are missing a huge
opportunity by viewing advocacy only as a nice secondary benefit of
loyalty, when in fact it is extremely powerful and deserves , much more
attention in its own right. Advocates are a very effective, enthusiastic
and unpaid sales force. And there is compelling evidence that customers
rely heavily on third-party recommendations when making decisions.
In a recent case we found that recommendation was the single largest
contributor to the purchase decision of potential new customers,
contributing 26 percent to the decision. In fact, it carried the same
weight for repurchase decisions by existing customers, with previous
purchase as the second highest contributing factor at only 16 percent.
Implementing an advocacy strategy
In the battle over community banking territory, all participants, would
do well to consider the value of this new type of “community advocate” –
a value that is quantifiable in dollars. For one recent client, we
analyzed the value of a year’s worth of advocacy by its customers. A
small increase in their advocacy rate meant $230 million in additional
near term revenue. But that was just a snapshot of a single year. The
compounding effect of continued advocacy over several years multiplies
the financial impact dramatically.
And while many banks lack the information to determine how powerful
advocacy can be for them, they can and should get it. The concept of
lifetime customer value has been adopted by many businesses and has
caused them to focus on loyalty. But in most cases, the lifetime value
of a loyal customer will pale in comparison to the lifetime value of an
advocate.
The first thing to evaluate is the potential value of an advocacy
strategy. A focused analysis of internal and external data will create
an understanding of how much an advocate is worth to your bank, how much
latent potential for advocacy you and your key competitors have, and the
costs/benefits of different levels of investment in the strategy.
Developing and implementing the strategy is actually an organizational
performance exercise. As such, it does not belong in the marketing,
department, but rather, with the senior management team. Since
everything that touches the customer has an impact on their likelihood
to advocate, the strategy must be implemented in every comer of the
business. This means identifying the key factors that drive customers to
advocate and the activities throughout the organization that are
contributing to or detracting from those key factors.
Armed with both financial and performance information, managers can
develop plans and make resource allocation decisions aimed at maximizing
performance in critical areas that impact advocacy. Specific
departmental and individual performance goals and ongoing performance
measures from the plans should be folded into the existing performance
management system.
Ultimately, competition in community banking will benefit the customer
most, as rates and service are improved. But the institutions that hope
to thrive in this new environment will need to look past the obvious
marketing tools, and analyze how well they are taking advantage of the
built-in sales force that customers can represent. Smart, informed
decisions relative to organizational processes and service delivery
could create powerful advantages that significantly increase marketing
efficiency in an increasingly difficult marketplace.
Richard Schreuer is a Senior Vice President at Chadwick Martin Bailey,
Inc., a Boston-based consulting firm that uses advanced, proprietary
research and measurement to help its clients identify and penetrate
markets, develop products, improve service delivery and build brand
value.
