Marketing, Front & Center

Investors frequently ask me what I look for in a bank. I cite among my top criteria facility in marketing. Now with the industry in peril and massive consolidation likely at hand, this is truer than ever.

Despite how obvious this seems to me, I’m always amazed at the ongoing resistance to the notion of marketing and the vital role it plays banking. It’s not everywhere mind you. Many bankers have embraced marketing and are sophisticated practitioners. The there’s still a lot of hold-outs though who believe that for banks, marketing is nothing more than a distraction and a side show.

Sometimes these guys remind me of old guard telephone company employees who are still waiting for Ma Bell and black rotary phones to come back.

‘The fact is, there’s ample evidence that marketing is the tip of the spear for successful depositories.’

This evidence comes in the form of consolidation. You don’t see many auto or media or consumer products companies merging with any degree of success. One reason for this are the risks associated with product integration. Just ask Daimler’s Dieter Zetsche.

But in banking the industry is consolidating with apparent ease. And the reason for this is the relative absence of product integration issues. Every bank has checking, CDs, and savings. With very few exceptions, they all have branches. And every bank has some combination of consumer, business or real estate lending. None of these products are proprietary and any banking organizations can offer these services.

To my way of thinking, this is tantamount to admitting that the products and services banks offer are basically commoditized. And if you believe this, then it’s not too great a leap to suggest the only difference between Bank A’s checking and Bank B’s is the positioning of the product in the consumer’s mind. What position this product occupies, or does not is attributable solely to marketing.

The fact is that marketing in banking is not new, and has been a driving force in the business since it’s earliest days. In 1870 The Second National Bank of New York opened the first “Women’s Department” catering exclusively to women. The department was predicated on the notion that while many women did not work, they nonetheless had a significant influence on the family’s finances.

In the 1890s banks began offering so-called school banking programs which enabled students to open accounts through their schools. By 1930, some 36 million children were enrolled. It’s probable, that some of these schoolchildren are still banking customers today.

And let’s not forget that one of the largest banks in the country, Bank of America, was started on what was basically a marketing segmentation ploy. That is, forerunner The Bank of Italy, opened in San Francisco in 1904 to address the needs of immigrant Italians.

So in many ways marketing is imprinted on the genes of banks. Given the low to no barriers to entry, it has to be. But getting back to the concerns of investors, what can and should be a source of concern for investors and acquirers however is when it’s not imprinted on the genes of the bankers themselves.