Leveraging Demographic Data Essential for Taking Advantage of … · 2016-05-02 · • Demonstrate your institution cares about customers individually Channel proliferation is another

Leveraging Demographic Data Essential for Taking Advantage of

Market Opportunities

By Mary Lou Kolodziej Practice Manager, FIS Consulting Services

www.fmsinc.org 2 © 2013 Financial Managers Society, Inc.

Leveraging Demographic Data Essential for Taking Advantage of Market Opportunities By Mary Lou Kolodziej, Practice Manager, FIS Consulting Services Overview

Identifying community institutions’ best opportunities involves more than just understanding your products and the customers who use them. Having a thorough understanding of the market in which your institution does business and how well you penetrate that market, and with what consumer segments, is the key to making effective marketing decisions for your institution. From this paper you will learn how to:

• Uncover and prioritize your most profitable customers • Identify meaningful customer types within large segments • Understand consumer attitudes and behaviors • Create a consumer view of your market: by brands, channel preference, and

retail consumption

The Industry’s Revenue Challenge

The banking industry as a whole faces significant revenue challenges. Increased competition for limited quality loans, coupled with tough new regulations on fee income, puts pressure on interest and non-interest income respectively. The following graphic taken from FDIC data indicates the overall decline in both lending and fee income over the past 10 years.

3.50%

3.27%3.12% 3.07%

2.95% 2.90%2.71%

3.00%

3.27%3.12%

2.98%

2.55% 2.55%

2.31% 2.32% 2.25%

2.01%

1.65%

2.01%

1.81% 1.73% 1.75%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Non-interest Income Net Interest Income

Revenue as a Percent of Assets

Smart bankers understand there are no magic bullets to drastically raise revenues. Successful community banks are learning to leverage the advantages they do have in terms of customer and market intelligence. Savvy banking


executives leverage demographic data to help them maximize marketing efforts. This paper describes the issues banks face in segmenting market and customer data and then offers an approach to follow to leverage customer demographic data. Two case studies showcase results certain financial institutions achieved when they followed this approach.

First a Word on Big Data

The Big Data trend casts a large shadow over retail banking today. But with the proliferation of data and accompanying overload, perhaps what bankers really need is Smart Data. Smart Data consists of targeted profiles and customer segmentation information that allows bankers to find more good customers and sell more products to existing good customers. It’s that simple. Big Data consists of intricate, thought-provoking insights that help uncover new opportunities, strategies and innovation. Everybody needs Big Data, but most of the time, Smart Data is what drives results.

Industry Research Indicates Bank Marketing Challenges

Looking beyond the overall banking industry revenue challenges, specific industry marketing metrics provide further depth to the description of the challenges financial institutions face. In their 2012 Consumer Banking Survey, Ernst & Young found that the majority of retail customers (58 percent) have more than one banking relationship and a slight majority (51 percent) lack confidence in banks. On the positive side, enrollment in bank loyalty programs increased to 30 percent of consumers surveyed, indicating that the public does respond to appropriate value incentives.

In a recent survey conducted by NM Incite in conjunction with FIS™, consumers indicated the topics they were most interested in hearing about from community banks:

• Provide superior customer support • Support the local community • Demonstrate your institution cares about customers individually

Channel proliferation is another hurdle bank marketers face with the explosion of online advertising and social media. Not only must specific messages be written for specific audiences, but marketing executives must also decide between traditional direct mail, e-mail, Facebook, Twitter and a host of other delivery alternatives.

Issues Surrounding Your Markets and Customer Segments

Community bank marketers face many challenges in getting the appropriate messages and offers to the appropriate prospects and customers. Their marketing budgets are under scrutiny, media markets are fragmenting and consumer preferences are evolving. In fact, consumers have many choices in regard to what information they receive and how they receive it. Increasingly they are taking control.


Today, accurate marketing campaigns are crucial to reach the increasingly connected consumer effectively. In order for these campaigns to be successful, bank executives must know the answers to key questions such as:

• Who are my best customers? • What is the potential demand for a particular product? • How do I find growing consumer segments and markets? • Which markets offer the best opportunity? • How do I reach consumers most effectively?

How to Put Demographic Data into Action

In order to answer the previous questions, banks must maximize the use of demographic data. Knowledge of your customers and your market is power – power that can help your offers stand out in a crowded market. Demographic data provides the foundation to understand market competition, to gain knowledge of potential in the marketplace and to develop more complete customer profiles to pursue targeted opportunities. In order to put demographic data to its most effective use, we recommend the following four-step approach:

1. Know Your Competition

An analysis of where your competitors’ branches are located in your market area provides a good starting analysis for your bank. The following example shows such an analysis for a bank with branches in the southern United States. In this particular analysis, the top five institutions have 34 percent of the branches in the defined market area.

Sample Market Analysis

0 20 40 60 80 100 120 140 160

Simmons First NB

TD Bank, NA

Capital City Bk

M&I Marshall & Ilsley Bk

Iberiabank

Bank of the Ozarks

First Arkansas B&T

Metropolitan NB

JPMorgan Chase Bk NA

Fifth Third Bk

Centennial Bank

SunTrust Bk

Regions Bank


Beyond location, the product offerings of your competition must be understood and evaluated. The following matrix shows a checking product analysis for each of the institutions listed in the bank’s market area.

Type

# Checking

Products

Totally

Free

Fee

Based

Qualified

Free Student Senior

Online

100%

Reward/

High

Interest

Cafeteria

Build Your

Own

Debit

Card

Rewards

Credit

Card

Rewards

JPMorgan Chase & Co. Big 4 N N Y Y N N N N N Y

Bank of America Big 3 N N Y N N Y Y N Y Y

Citigroup Inc. Big 4 N N Y N N Y Y N Y Y

Wells Fargo Big 5 N N Y Y N N Y N Y Y

US Bank Big 7 N (usually) Y Y Y Y 65+ N Y N Y Y

Bank of America Big 3 N N Y N N Y Y N Y Y

Ave 4.6

Regions Financial Market 7 N Y Y Y Y N Y N Y Y

Arvest Bank Market 5 Y Y Y N N N N N N Y

First Security Bank Market 5 Y N Y N Y50+ N N N N N

Bank of the Ozarks Market 6 Y Y Y N Y50+ N Y N Y N

BancorpSouth Bank Market 5 N Y N Y Y N N Y N Y

Iberiabank Market 7 N N Y N Y50+ N Y N Y Y

First National Bank Market 5 Y Y N N Y50+ N N N N N

First Federal Bank Market 4 Y Y N N Y50+ N N N N N

First Community Bank Market 11 N N Y N Y50+ y N N N N

Focus Bank Market 7 N Y Y N Y N Y N Y N

Simmons First Bank Market 8 N N Y Y Y Y N N N Y

Ave 6.4

Source: FIS Analytics

Competitor Analysis for Products and Offerings: Qualifications and Rewards by Bank Types

2. Assess Market Potential

As your community bank seeks to understand the potential in your market footprint, you need to assess if the market itself is growing or shrinking. Many banks make the mistake of evaluating territories or markets based on historical performance, and not on potential opportunities. A true assessment of market potential forces this type of critical review. Continuing to look at the same example bank, we find the total population of the combined geographic footprint for this institution is projected to grow approximately 1.7 times the national average in next five years to an estimated population of 4,500,000. Furthermore, the market trends toward a younger population, but it still has a higher than national average group of consumers who are 65 or older. The following graphic shows the relative growth potential of the counties in the bank’s market area and contrasts that with state and national growth rates.

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Relative Growth Potential by Population Area

3. Establish Customer Profiles

The next step to make demographic data work for your bank is to establish meaningful market segments by creating meaningful customer profiles. This is where the experience of a provider of demographic data can pay off. FIS utilizes sources such as Nielsen. Their customer profile approach identifies 58 segments within 12 Lifestage Groups. Predictive demographics are optimized around financial product preferences. The principal drivers for this optimization are consumer income, age and incomeGroups are shown in the following graphic.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Bank Combined

Counties

Growth 2012

6 © 2013 Financial Manager

Relative Growth Potential by Population Area

Establish Customer Profiles

The next step to make demographic data work for your bank is to establish meaningful market segments by creating meaningful customer profiles. This is where the experience of a provider of demographic data can pay off. FIS utilizes

Their customer profile approach identifies 58 segments within 12 Lifestage Groups. Predictive demographics are optimized around financial product preferences. The principal drivers for this optimization are consumer income, age and income-producing assets. The Nielsen Lifestage Groups are shown in the following graphic.

Bank Combined

Counties

State AR, AL, FL USA

Growth 2012 - 2017 Growth 2000 - 2012 Growth 1990 - 2000

gers Society, Inc.

The next step to make demographic data work for your bank is to establish meaningful market segments by creating meaningful customer profiles. This is where the experience of a provider of demographic data can pay off. FIS utilizes

Their customer profile approach identifies 58 segments within 12 Lifestage Groups. Predictive demographics are optimized around financial product preferences. The principal drivers for this optimization are

. The Nielsen Lifestage


Sample Nielsen Lifestages

It is important to understand how your customers compare to the overall bank market footprint. This determines opportunities to refine marketing strategies based on the profile of consumers residing in your footprint. The inclusion of county, state or the entire U.S. as a benchmark helps to quantify uniqueness within your bank’s market footprint. The following graphic highlights a sample bank’s representation of consumer segments compared to the benchmark areas. It has a greater representation of Upscale Earners, Mass Middle Class and Midscale Matures and is underrepresented in the Fiscal Fledglings segment when compared to the benchmark areas.


Sample Bank: Lifestage Group Analysis

In addition, knowledge of market share and share of wallet can help redefine current marketing product offerings. The following example report highlights market share for each market compared to the sample bank total of 12 percent.

Sample Bank: Market Share by Footprint

Another way to use market share and share of wallet data at the product level is to determine which products have the highest opportunity for refinement. You can then identify gaps within current offerings including potential new customers. The following table illustrates that the sample bank has an opportunity to increase market share with First Mortgages, Savings and Interest Checking products. In addition, the sample bank could improve average balances or share of wallet within its Savings and Regular Checking offerings.

0%

5%

10%

15%

20%

25%

30%

Bank Total HHs Available in Footprint Counties

14%

18%

6%

Market 1 Market 2 Market 3


Sample Bank: Product Potential Analysis

The next step is to link knowledge and findings to an action plan that is aligned with the overall bank growth and retention objectives.

4. Pursue Targeted Opportunities

Armed with the customer profile analysis, banks can now use the competitive landscape and market potential to create targeted market opportunities. Additionally, they can create a unique marketing message and a communications strategy for each target audience. Consumers expect messages and offers that resonate with their individual circumstances. Gone are the days of shotgun advertising with a one-size-fits-all approach. The following graphics are examples of the characteristics available within a customer profile.

Source: Nielsen Data Analytics

Sample Bank: Customer Profile Characteristics

Product Ownership Average Balance

Market

Share

Wallet

Share Opportunity

Products

Sample

Bank

Market

Footprint

Sample

Bank

Market

Footprint

Ave Bal

Differences

Share of

HH

Share of

Wallet/

Balance

Potential

Prospects In

Market

Footprint

Regular Checking 49% 48% 2,500$ $3,660 ($1,160) 25% 17% 71,032

Interest Checking 25% 40% 12,000$ $6,931 $5,069 16% 27% 67,763

Regular Savings 21% 73% 11,000$ $31,037 ($20,037) 7% 3% 136,058

First Mortgages 31% 43% 120,000$ $107,696 $12,304 18% 20% 70,156


How have banks utilized this approach to leveraging demographic data for marketing success within their organizations? The following case studies provide examples of demographic data success in action.

Case Studies on How Banks Are Using Demographic Data

Community Bank with $800 Million in Assets

A community bank in the Southeast needed detailed profiles on their customers and prospects. The bank’s marketing team needed answers to specific questions to aid in their analysis:

• Who are our customers? • What products do our customers use, and how do they use them? • How profitable are those customers and products? • How does our product mix compare with our competitors?

A consulting firm assisted with a detailed assessment of the bank’s market, customer information and a competitive analysis. The findings directed the financial institution to invest in new online products, package product bundles according to defined market segments and better direct their marketing resources. The bank was able to determine relationship profitability to re-align their product mix to four basic checking accounts. They went further and developed “Lifestyle” branded accounts that appealed to the personal style and buying characteristics of specific customer profiles. An online deposit account opening product was introduced along with online applications for personal loans. Through demographic analysis, the bank was able to appeal to younger, more affluent customers.

A Community Bank with $600 Million in Assets

This bank’s executives realized they needed to reach their full potential in the northwestern Indiana market they served. In order to do so, the bank engaged a third party to help them ensure the staff was allocated to the best market opportunities and to help them capture additional incremental revenue from retail and commercial lines of business. Demographic data helped to measure market potential so the bank understood where they were and were not getting their fair share of the market for financial services. The bank was able to accomplish the following with the demographic data analysis:

• Reallocate resources to better serve their customers • Realize revenue potential in all market areas • Improve customer experience • Position for future growth • Remain independent


This bank worked with the third party to both enhance revenue and improve the productivity of the bank’s staff. The engagement facilitated staff reallocation to match market-based potential, improve pricing discipline, streamline loan approvals and processing, and establish a foundation for future organic and acquisition growth. The analysis uncovered $1.5 million in untapped potential new revenue.

Published by:

Financial Managers Society, Inc.

1 North LaSalle Street, Suite 3100

Chicago, IL 60602

312-578 - 1300

[email protected]

http://www.fmsinc.org/WhitePapers (member login required)

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Leveraging Demographic Data Essential for Taking Advantage of … · 2016-05-02 · • Demonstrate your institution cares about customers individually Channel proliferation is another