Taking advantage of new market opportunities article

Taking Advantage of New Market

Opportunities 10 Areas of Opportunity for Financial Institutions in 2011

Taking Advantage of New Market Opportunities 10 Areas of Opportunity for Financial Institutions in 2011

© 2011 Market Insights 2

Over the last 18 months, markets across the country have experienced a great deal of change. In fact, based on 2010 US Census data, there is a growing realization that the shifts have been so significant that ―the average American household no longer exists‖i. And while not always apparent, these changes have brought on a surprising series of opportunities for community banks and credit unions. For some institutions, the opportunity is organic — deepening relationships with current customers or members. For others, greater growth and profitability through expansion — much of which is happening through increased merger and acquisition activity.

In our experience, we have identified ten areas of opportunity for community banks and credit unions embedded in the changes and challenges in today’s marketplace. While the level of opportunity will vary from one institution to the next, these ten areas invite you to think differently about the current state of the industry — and the opportunities that may be available in your own markets.

The first area of opportunity for financial institutions in today’s marketplace is also the most

important: Know Your Market. In order to take advantage of available opportunities, knowing

your market is a requirement. You need to know what it looks like right now; how it has

changed in recent years; and how it’s expected to change in the future.

In our experience, people often claim that they know their markets. But in many cases, they’re

referring to their own personal experiences, perceptions, and opinions about what their market

looks like. And while these perceptions certain do contribute to a general or overall

understanding, many people neglect to look at quantitative market data and information. It’s the

quantitative data that reveals market realities – and the actual level of opportunity available to

your institution.

If you haven’t already done so, a simple first step to knowing your market is looking at local

demographic data. This information is readily available and provides general clues about the

statistical characteristics of your market. Once you’ve collected the demographic data, start

asking questions. How have the demographics in your market shifted in recent years? How are

they predicted to change in the future? What does this reveal about customer needs?



The 2010 census data was recently released. It offers some great data about population shifts,

changes, and trends at the state, county, and market-level. In looking at the 2010 census data,

it’s easy to see that markets experienced different rates of growth (or in the case of Michigan, a

decline) between the years 2000 and 2010. Some markets experienced growth, others a

decline, and others have remained stagnant. A great interactive map can be found at:

2010.census.gov/2010census/data. Use the map to look at local market data. Compare the

quantitative data to your own perceptions.

Late last year, as preliminary census data was being reported, AdAge published an article

called ―Why you can no longer sell to the average American Household.‖ii The article centered

on a compelling point that was referenced at the beginning of this paper: The average

American household no longer exists. This has huge implications for most financial

institutions. We’re now a multi-segmented nation and a multigenerational society:

- married couples with children make up fewer than 21% of all households

- more than 27% of households live alone

- there are approximately 10 million multigenerational households

- people of color will make up more than 50% of population by 2014

While only local data can tell the specific story; these demographic trends indicate that most

financial institutions can no longer aim for the mass-market – especially as the common

characteristics historically held by the mass market continue to change. Instead, financial

institutions need to be more targeted in their marketing and outreach efforts. This level of

targeting is only possible when you have a strong understanding of your local markets.

It is also important to point out that an analysis of demographic data represents a good starting

point. However, demographic data should be viewed as one layer of necessary market data. In

today’s competitive marketplace, you should also be equipped with market data relative to:

Psychographics. These characteristics reflect the attitudes and tastes of people in

your markets. This

information can be used to

determine likely financial

behaviors, product needs,

and preferences. More and

more financial institutions

are turning to

psychographic data to help

inform their marketing and

sales strategies. Ultimately,

it helps bring clarity to

defining a target market

which allows for more targeted marketing efforts.

Competition: Data about market share is important in some situations. But peer group

data and market share information is not always enough in today’s competitive

marketplace. Financial institutions should also be evaluating their competitions’ brand

http://adage.com/article/adagestat/housing-growth-changing-demographics-family/147133/



positions, marketing messages, and campaign efforts. This level of assessment is

necessary for effective brand positioning and differentiation strategies.

Product Usage & Demand: Today’s financial institutions should also be equipped with

data about estimated product usage and product demand in their markets. Again, this

level of data is available. Product usage and demand information will help you set

realistic expectations with respect to market realities. Most importantly, this information

supports important promotion and marketing campaign decisions.

Projected Growth: Financial institutions should know how their branches are expected

to perform now and in the future. Like product usage and demand, projected growth

estimates with respect to deposits, loans, and investments in your markets helps set

realistic expectations. It helps identify available market opportunities. And it helps set

the direction of important marketing and delivery network decisions.

The second area of opportunity addresses recent shifts in the economy directly; financial

services executives and marketers must acknowledge the post-recession consumer

mindset. We are all consumers. And we can all think of ways in which we’ve changed our

lives, our routines, and our purchasing behaviors as a result of the recession. Today’s financial

institutions must recognize and acknowledge the consumer mindset that is driving these

behavioral changes. And most importantly, we must adapt accordingly.

Mint.com conducted a survey late last year asking an important question: ―How do Americans

feel about the recession?‖iii The survey included a mix of employed and unemployed people

and focused on how their financial behaviors have changed as a result of the recession. The

findings are telling. The greatest level of response came when Mint asked: ―Have you reduced

overall spending?‖ About 75% of those surveyed responded that they had, in fact, reduced their

overall spending. About 50% of respondents said that they had put off plans for a home

improvement project or vacation. And over 40% said that they had used money from savings or

retirement to make ends meet as a result of the recession.

Data like this is evidence that consumers are thinking and behaving differently about their

finances as a result of the recession. In fact, studies over the past 12 months indicate that the

depth and severity of the recession is likely to influence consumer behaviors for years to come.

This has obvious implications for your marketing, your customer service and perhaps even your



overall business model. In other words, it is likely that your institution will have to change at

some level in order to maintain alignment between your products, services, delivery channels,

marketing messages and the new behaviors and preferences of your customers or members.

While information and trends within the financial services industry can be helpful, executives

and marketers should also find inspiration from outside the industry. Comparing your

efforts to those of your peer group or local competition is limiting; it can only take you so far.

Further, following another institution’s lead on promotions, copying their latest product ideas,

and measuring your success against theirs does little to help differentiate your institution from

your competitors in the minds of consumers.

Remember, you’re a consumer too. Consumer behaviors are influenced by all the companies

with which we do business. Think of some of today’s most well-known innovative companies:

Facebook, Amazon, Apple, Google, Netflix and Zappos may come to mind. Each of these

companies are having a significant impact in reshaping consumer behaviors. And while they

may not be directly involved with the financial services industry, these companies are

influencing consumer expectations with respect to your business as well.

With companies like these, consumers have been introduced to new ways of buying. These

companies are changing expectations about the way we interact with businesses, and the ways

we interact with one another. They’re conditioning us to expect things to be flexible and

immediate. And they’ve helped us understand that, as consumers, we have an extensive

number of options available to us --- and we can now find information about those options faster

and easier than ever before.

There’s no reason why financial institutions couldn’t adopt some of the practices that have been

introduced and popularized by companies outside of the financial services industry. At the very

least, these innovative companies should serve as inspiration for new ideas. There’s a reason

why these companies have been recognized as some of today’s most innovative companies.

Financial institutions stand to benefit by understanding what makes these companies so

successful.



While many institutions are focused on innovation and differentiation, and some are content with

the status quo, a number of banks and credit unions are failing to meet the basic needs and

expectations of today’s consumers. There’s a certain base-level of customer service, product

offerings, and experiences that financial institutions must offer consumers. That baseline

threshold can be described as ―parity.‖ And as consumer needs and expectations continue to

grow, you must also, at the very least, move to meet those expectations.

In conversations about differentiation, we often hear people criticize the concept as ―being

different for the sake of being different.‖ The concept of parity is well-suited for these critics.

Parity isn’t about ―being different for the sake of being different.‖ Rather, it’s about ensuring that

everything about your business remains in alignment with ever-evolving consumer needs,

preferences, and expectations. In other words, parity is about remaining relevant. Sometimes

this requires doing things differently, but parity itself usually doesn’t result in any kind of

meaningful differentiation. Instead, it allows your institution to maintain its position at the table

when it comes to consumers making choices about where to conduct their business.

This quote from Robert Pasikoff, President of a company called Brand Keys, illustrates this point

beautifully:

“Brands are barely keeping up with consumer expectations now. Every day consumers

adopt and devour the latest technologies and innovations, and hunger for more.

Smarter marketers will identify and capitalize on unmet expectations. Those brands that

understand where the strongest expectations exist will be the brands that survive – and

prosper.”iv

The flipside, of course, is the fact that some brands do not recognize, identify, or understand

unmet expectations. Unfortunately, this is true of many financial institutions. Consumer

expectations are growing. Failure to keep up with those expectations will only serve to further

separate your institution from available opportunities. Those that recognize the opportunity,

however, and take action, will be well-positioned to take advantage of new opportunities as a

result.



Taking advantage of new market opportunities requires that you first identify the opportunities

that are available to your institution, and then to make a series of strategic choices about which

opportunities make sense for your institution and which do not. Again, this represents a

departure in thinking for many bankers --- as many are quick to pursue any opportunity that

presents itself, an approach that can often leads to random, compulsory, unfocused, and

disconnected efforts.

Knowing what you want requires that you give consideration to two important elements of your

business: 1.) your brand, and 2.) your market. You must have clarity about both of these if

you’re going to be able to make the important distinction between opportunities that represent a

good fit for your organization and those that do not.

Knowing what you want means being more proactive and less reactive. It’s means having a

process to evaluate opportunities --- and it’s about being able to making commitments to

opportunities that are worthwhile and being able to say ―no‖ to those that are not. With a

reliance on knowing your market and knowing your brand, you can see how this is all closely

connected to marketing. However, important strategic choices like this cannot be the

responsibility of your marketing department alone, which leads us to the next area of opportunity

for financial institutions in 2011.



Taking advantage of new market opportunities requires that you institutionalize and internalize

the concept of marketing throughout your institution. While many institutions have dedicated

marketing personnel, it’s time to assign greater importance to the function and role of marketing

at financial institutions throughout the industry. Marketing needs to be elevated beyond product

promotions and advertising; it needs to be elevated and extended to include everyone within an

institution. And this is especially true given recent economic shifts and the impact those shifts

have had on changing consumer behaviors and the banking industry overall.

In our experience, many bankers have a very limited view of marketing --quite simply, many

equate marketing to advertising. But consider a definition of marketing from Wikipedia:

“Marketing is the process by which companies determine what products or services may

be of interest to customers, and the strategy to use in sales, communications and

business development.”

The marketing process cannot be accomplished by one person or one department at an

institution. While marketing personnel should be able to ―determine what products and services

may be of interest to customers,‖ and to develop ―the strategy used in sales, communications

and business development,‖ execution of that strategy cannot be limited to a select few.

As Harvard Business Review’s Rosabeth Moss Kanter recently said:

“In a recession, everyone should be in marketing.”

This is true. In a recession, everyone should be in marketing. And while the recession has

been officially over for nearly two years; today’s most successful companies have learned that

motivated employees contribute to creative thinking that can help retain current customers and

identify new ones. To deploy this concept at your institution, two things must happen:

1.) Institutionalize the concept of marketing. Marketing cannot be siloed or second

string or the first line item to be cut when budgets are tight. Marketing must have a

literal ―seat at the executive table‖ and the strategic value marketing contributes to

your institution’s success must be widely acknowledged and endorsed.



2.) With that foundation in place, then you can require that all employees Internalize the

concept of marketing --- that they integrate certain behaviors and activities into their

daily roles and responsibilities that will support marketing efforts. Every employee

needs to be responsible and held accountable for helping in the successful execution

of your institution’s marketing strategy. Internal marketing and training centered on

messaging and expected behaviors, along with attention to employee morale, will aid

that process of internalization.

Institutionalizing and internalizing the concept of marketing is essentially about adopting a

marketing mindset. For some institutions, this will require greater attention placed on internal

marketing – as opposed to focusing so heavily on external marketing efforts. Through the

partnership of marketing, management and human resources, cultural shifts can be made with a

focus on internal marketing that ultimately help drive more effective marketing efforts overall.

As suggested earlier, financial institutions can no longer be all things to all people. Consumers

simply have too many choices when it comes to deciding where to do their banking. And the

choice is often a difficult one to make because many financial institutions look the same; many

promote similar messages and products; and many fail when it comes to targeting specific

market segments directly.

The most effective marketing efforts are those with a clear target. Financial institutions should

be extremely focused on targeting specific segments of the market. Everyone throughout an

institution should be able to fill in the following blank with a similar answer:

―We are the financial institution for _______________________.‖

If your institution is like most financial institutions, your response to this prompt likely includes a

geography and an age range. The response we hear most often is something like, ―we are the

financial institution for 18-54 year olds that live in our county.‖ However, that answer is too

broad. Every other financial institution in the country would like to serve all 18-54 year olds in

their county. You need to be more specific. Remember, taking advantage of new market

opportunities requires that you know your market. Start by identifying specific demographic,

psychographic, and product usage characteristics that are attractive to your institution; identify



the characteristics associated with your most profitable customers. Again, be specific. Now, fill

in the blank.

This exercise also includes another important question:

―We are not the financial institution for ________________________.‖

While you need to have a clear target market, you also need to be clear about the kinds of

customers that don’t represent a good fit for your institution. These consumer segments are

usually those that are unprofitable for your institution, or those that require products or delivery

channels that are beyond your capabilities or areas of focus.

ING Direct is a great example to illustrate this point. In his book, Rework, Jason Fried makes a

great observation:

“ING Direct has built the fastest-growing bank in America by saying no. When

customers ask for a credit card, the answer is no. When they ask for an online

brokerage, the answer is no. When they ask if they can open an account with a million

dollars in it, the answer is no. ING wants to keep things simple. That’s why the bank

offers just a few savings accounts, certificates of deposit, and mutual funds – and that’s

it.”v

ING Direct has a clear target market. It knows what it wants. And it knows what it doesn’t want.

As a result, it’s able to tailor everything about its business to reflect its target market --- and this

allows ING to be in the best position to take advantage of unique opportunities associated with

that target.

New opportunities are also afforded to institutions that are able to strategically differentiate from

the competition. David Ascher from Transom Consulting Group makes a great point about

opportunities for differentiated financial institutions:

“Community and regional banks face a series of daunting challenges, but there is ample

opportunity for those that pursue strategically aggressive approaches in marketing and



branding and that differentiate meaningfully. These banks will break out of the sea of

sameness and become leaders in the community banking landscape.”vi

There are a couple important points embedded here that deserve emphasis: ample opportunity

is available if you’re strategic, aggressive, and able to differentiate meaningfully. And this

requires focus on your marketing and branding efforts.

At Market Insights, we generally talk about three different kinds of differentiation that are often

associated with financial institutions:

1. Transient – transient differentiation is temporary and easily replicable. It is often

associated with products or promotions. While a certain product or promotion may

set your institution apart from the competition in the short-term, transient

differentiation is not sustainable over time.

2. Circumstantial – circumstantial differentiation refers to some historical or situational

attribute of your institution’s situation. Often times, circumstantial differentiation

involves institutions talking about how long they’ve been in business. As an

example, ―Independently owned since 1935.‖ While this could be a true statement,

and it does indicate a difference, circumstantial differences aren’t usually considered

a driver of consumer behaviors.

3. Strategic – The most effective differentiation is strategic differentiation. Strategic

differentiation requires constant attention to brand, marketing, your markets, your

customers and your competition. This process requires a lot of time, energy, and

resources, but it ultimately allows institutions to develop real, meaningful, and

sustainable points of distinction between your institution and the competition.

Strategic differentiation is not a one-time effort. Unlike many marketing campaigns or

promotions, the process requires ongoing attention.

We hear more and more about the power of social media every day. And every day, we hear

about how financial institutions are --or should be-- introducing social media into their marketing

efforts. While there is certainly a great deal of new opportunity available to institutions through

social media, the level of priority it is given depends on many variables.



There’s no denying that shifts in consumer behaviors have led to the explosion of social media.

According to Nielsen, 75% of the population above the age of two has internet access. It is no

wonder that social media marketing is maturing and Facebook, Twitter and other sites have

become powerful marketing tools for a growing number of businesses. However, many financial

institutions aren’t prepared with the resources or expertise to effectively incorporate social

media into their marketing efforts.

Before pursuing marketing and communications initiatives focused specifically on online social

media, financial institutions should first consider their offline social interactions and objectives.

What role does your institution play in social interactions and engagement within your

community? What role do you want it to play? The answers to these questions will likely reveal

helpful information about the direction of your online social efforts.

Often times, financial institutions fail to demonstrate the connection between their online and

offline efforts. The most effective social media efforts involve online and offline efforts working

together. They should complement one another. Perhaps the most important things to keep in

mind in adopting a more aggressive social strategy is: 1) you’ve got to get it right offline before

you’re going to get it right online; and 2) joining the conversation means talking about what your

customers (or potential customers) want to talk about.

The 10th new opportunity for today’s financial institutions is perhaps the most important: let go

of old ways, behaviors, and expectations. As markets continue to change and shift, financial

institutions must respond to new challenges with new solutions. Our team was recently asked

by The Financial Brand for examples of things financial institutions are currently doing, but

shouldn’t be. One point that we contributed to the conversation related directly to this

opportunity: Stop doing things that aren’t working. It’s time to think and act differently. Old

behaviors and expectations may be comfortable, but they also may be getting in the way of your

institution’s ability to take advantage of new market opportunities.

http://thefinancialbrand.com/17692/20-things-banks-and-credit-unions-should-do-but-dont/



About Market Insights

Market Insights is a consulting firm specializing in the development of growth strategies for

community banks and credit unions. Since 1993, we have earned a reputation for developing

practical and profitable growth strategies for financial institutions in markets across the country.

As our tagline suggests, we are all about growth, redefined for today’s marketplace. Our suite

of consulting services includes:

Delivery Network Planning & Management Marketing & Positioning Strategy Development Strategic Planning Leadership Discovery Mergers & Acquisitions Consulting Market Studies

Each of these services is intended to help financial institutions identify and take advantage of market opportunities. To learn more about our services or to request a proposal, please contact Joe Sullivan, CEO of Market Insights, at: 800-348-0220 or [email protected]

Market Insights www.formarketinsights.com 800-348-0220 3600 N. Lake Shore Drive #505 Chicago, IL 60613 Visit our blog: www.formarketinsights.com/blog Follow us on Twitter: www.twitter.com/miinsider

i http://adage.com/article/adagestat/housing-growth-changing-demographics-family/147133/ ii ibid

iii http://www.mint.com/blog/trends/recession-10262010/

iv http://www.brandkeys.com/news/press/10%20Trends%20for%202010.pdf

v Jason Fried, Rework (New York: Crown Business, 2010)

vi http://www.prnewswire.com/news-releases/los-angeles-banking-survey-reveals-need-for-breakout-strategies-

103453059.html

mailto:[email protected]

http://www.formarketinsights.com/

http://www.formarketinsights.com/blog

http://www.twitter.com/miinsider

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Taking advantage of new market opportunities article