MANY BANKS ENDED 2012 WITH THEIR HIGHEST EARNINGS SINCE 2006, yet, for the industry, future growth and profitability remain challenges. Many banks remain focused on efficiency improvements, with growth plans shelved for the time being. This is happening at an unfortunate time. Industry changes are so great and happening so fast that banks must quickly adapt their business models and differentiate themselves, not just to become more efficient, but also to survive.
For a great many consumers and business owners, the majority of banks, including community banks, are not seen as different from one another. And commoditization may actually be increasing. Online banking, mobile deposits, prepaid cards and the like are rapidly becoming commoditized. "Great service" alone isn't a platform for differentiation. This is a service business--banks are supposed to provide great service. When consumers think that "any bank will do," every bank is vulnerable.
The mandate for change
Margin pressures in the intermediation business are not going away. The profitability equation associated with taking deposits and making loans is forever changed, suggesting new sources of earnings are needed going forward. In addition, branches are less relevant to many bank customers: Traditional media do not reach targeted customers, and, many younger consumers and business owners question the need for any bank relationship.
In this reality, where will future growth and profitability come from? The old strategies for growth won't work anymore. "Winning the battle for customers is now about doing something different and better," says Eric Lucero, director of marketing for Citizens Business Bank (assets: $6.4 billion) in Ontario, Calif. "And being different isn't about products. It's now more about creating a better experience--across all touch points--and operating with a purpose as an entire organization."
The transition for many banks toward a focus on experience and organizational purpose won't be an easy one. There are a lot of bank management teams that will struggle to make this shift, in large part because it's so foreign to them. But it's a necessary shift to make if a bank is to compete successfully over the long term, and it requires new approaches to strategy setting and a commitment to change.
A new and more important role for marketing
Marketing is uniquely positioned to lead this change. In the past, marketing focused much of its energy on communica-tions--advertising, public relations, media strategies and the like--and in many respects the operations of the day-to-day banking business were separated from marketing's activities. Once management decided what it wanted to do, marketing was told and then did its thing.
This old way of thinking is a disaster in today's fast-moving marketplace. "Marketers shouldn't be there solely to answer questions and get things out the door. They should be th in king about serious strategic problems facing the company," says Rick Claypoole, director of product management and marketing at Cadence Bank (assets: $5.4 billion) in Birmingham, Ala. "For instance, instead of thinking about how to rationalize--which means reduce--spending in the branch channel, think about what the purpose of the branches is today and will be down the road. Own the big questions."
Owning the big questions is one thing, getting senior management to work on these serious strategic issues is another. Marketing executives must take more of a leadership role in setting strategy in order to build more customer-centric companies. Mark Gibson, chief marketing officer at Rockland Trust (assets: $4.9 billion) in Rockland, Mass., is a firm believer in this. "At many banks, strategic planning is essentially a budgeting exercise, but it needs to be much more. Banks need to spend more time on answering real strategic questions about the business: What business are we in? …