With free checking so easy to come by nowadays, banks have upped the ante to attract deposits. But while incentives such as George Foreman Grills and iPods may help in the short term, the only way to sustain long-term growth is through institutional distinctiveness, according to marketing experts at BAI’s Retail Delivery Conference & Expo.

“For the next year and beyond, you have to think about sustainability, about ways to differentiate,” said Sherief Meleis, a managing director at Novantas, a New York City-based consulting firm.

For the session entitled “Forget the Toaster: Driving Branch Traffic Through Distinctiveness” presented Wednesday, Meleis was joined by Paul Kadin, a marketing director at Citibank North America, a division of New York-based Citigroup Inc. They described two main drivers of distinctiveness.

There is functional/rational distinctiveness, which includes attributes such as convenience/access, product competitiveness, sales/service and affinity to the community. And then there’s “emotional resonance,” a less tangible sentiment which must still be backed up by the bank’s value proposition.

Meleis cited New Jersey’s Commerce Bancorp, Charlotte-based Bank of America Corp., Seattle-based Washington Mutual Inc. and Roseburg, Ore.-based Umpqua Holding Corp., as institutions that have been able to garner either functional or emotional distinctiveness, or both.

Kadin said Citibank’s “Thank You” rewards program targets both functional and emotional distinctiveness. The emotional appeal comes from showing the bank’s appreciation for customers by rewarding them with points for their entire relationship with the institution, Kadin said.

The functional distinctiveness comes from enabling customers to select gifts from point accumulation on an ongoing basis, rather than just at the opening of an account. “What we are trying to do is to create some new elements in the formula that people go through when they try to choose a bank,” Kadin said. “That helps us rise above the commodity status.”

Meleis said focusing on distinctiveness is more important than ever, noting banking’s current sluggish account growth. Money market deposit accounts, for example, grew only 7% during the 12 months ending June 30, according to Novantas. That compares with a compounded annual growth rate of 14% for the period 2000 to 2004. Similarly, home equity loans were growing this year at an annual rate of 4%, down from 34% during the period 2000 to 2004.

“When the rising tide isn’t going to take you up, how are you going to hit your growth goals? asked Meleis. “You have to take share from your competitors.”

Giving away backpacks, coolers, and XM radios won’t help in the long run, he added. “Those are good gifts, but ultimately giving them away is like rearranging deck chairs on the Titanic,” Meleis said.

For more on how banks are using promotional incentives to attract deposit customers, see “Promotional Giveaways: From Toaster to iPod” in the August 16, 2006 issue of BAI’s Banking Strategies Retail Delivery Insights.

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