Outside-the-Box Thinking Required

Bank marketing and product management executives have arguably never faced a greater challenge than they do today in the wake of recent regulatory changes involving overdraft fees and debit card interchange and even more heightened regulatory scrutiny expected from the new Consumer Financial Protection Bureau. In this kind of environment, how do you design and market new products to generate new revenues and build stronger customer relationships?

These issues will be discussed in detail at the Marketing & Product Management Summit at the BAI Retail Delivery conference scheduled for October in Chicago. And leading that summit will be Kenneth W. Olan, executive vice president and chief retail and marketing officer for Texas-based First Victoria Bank, who is recognized as one of the banking industry’s outside-the-box, maverick thinkers. Olan recently took the time to share his own views on these critical topics with BAI Banking Strategies.

Q: Given today’s environment of increased regulatory scrutiny and a skeptical public, what are the top challenges facing marketing and product development executives in financial services today?

Olan: We’re in an unusual era in banking. In my 25 years in the industry I don’t recall seeing so many unique issues surface at the same time.

The first would be ensuring that our products and services comply with the new regulations. Of course, those are just the table stakes. We also have the challenge of developing ways to offset the revenue lost as a result of the changes. That’s certainly a top issue for us and for just about every banker I’ve spoken with in other organizations. Unfortunately, I don’t think a single strategy or pricing scheme can make up for 100% of the lost revenue, at least not in the short term. So each bank will need to develop its own comprehensive strategy based on their market dynamics.

Another challenge is that customers are substantially conditioned to fee avoidance. As an industry, we have our work cut out for us in terms of how we demonstrate incremental value that customers will willingly pay for. My personal philosophy is that we need to get out of the box and redefine what it means to be a bank. We have a great distribution system to sell products through, but we need to broaden our offerings in a way that makes sense and that can allow us to diversify income streams. Each bank is sitting on top of a customer base that is ripe for new, unconventional offerings. We just need to cook those up in our respective organizations and deliver on them.

There’s also the challenge of seeing revenues decrease while, at the same time, continuing to invest in product development and marketing communications. Executive management in all organizations will require an extremely compelling story regarding where to invest more limited financial resources.

Regarding the skeptical public, we’re in an environment where a handful of banks have fueled serious questions about the industry as a whole and about our intentions as financial services providers. That makes the going more difficult for community banks as well as for the big ones. I think we’re going to have to do even more as an industry to be transparent with our products, pricing, services and overall messaging to help shore up and regain consumer confidence. We’ve made some solid strides in that direction, but there’s more to do.

Q: What is the role of social media in product development? How do you harness those capabilities effectively?

Olan: That’s one of the most exciting opportunities we’ve seen in a long time. Social media will take on a multifaceted role as we develop new products. And each form of social media, whether it’s Facebook, Twitter, LinkedIn or Groupon, will have its own place as a unique tool in the product development space. Many banks are currently formulating social media strategies to help better communicate who they are as an organization, however I would argue that social media will play an equally, if not more important role, in helping us learn more about who and what we should be.

First, social media will help us get real-time feedback on what we’re already doing. We’ll know in short order if we’re on the right track, if something needs tweaking or if it just isn’t going to work and we should cut our losses. I also see great value in using social media to help our customers get more involved in proactively influencing, and ultimately determining, what we offer. Customers are our best source of feedback and social media enables us to directly link the customer to our decision-making process. By doing so, not only do we collect great information, but we make it an interactive process that will give customers a genuine sense of having influence, thereby generating additional loyalty and buy-in.

The “always-on” nature of social media offers a wide variety of applications, whether it’s getting that real-time feedback on something we’ve rolled out or using it to execute real-time promotions (a.k.a., flash promotions) where we can instantaneously see how customers respond when presented limited-time offerings. So, speed-to-market and speed-to-perfecting products and services will be easier.

Ultimately, I think we’ll get some fantastic new product ideas by simply monitoring and listening to the dialogue and we’ll recognize opportunities to better serve customers in ways we may not have thought of before. Add the opportunity to use social media to educate and as a perfect forum for referrals and you have a tremendously powerful tool.

Q: Because of the recent regulatory crackdown on overdraft and debit card fees, banks are trying to incorporate new fees (in various ways) into their basic deposit offerings. How can marketing and product development executives deal with the consumer preference for “free” checking? How do you transition from free to fee checking without alienating customers?

Olan: I’ll go on record and say “free checking,” per se, will not go away completely. In fact, it will stay around in a variety of forms. There’s always a need in any dynamic marketplace to have low-cost providers because there’s a portion of consumers who don’t really care about bells and whistles.

That said, banks will take a closer look at what actually constitutes “free” checking. More likely than not, many banks will still offer a basic account of some sort with limited features that can still technically be considered free. As they say, value is in the eye of the beholder. So, to appeal to those who want more than just bare-bones checking, we’ll see banks create relationship packages in whatever form makes sense to them. Some will add fees as consumers add more premium services, and some will reduce or eliminate fees through certain defined customer behaviors like minimum balances, using specific ancillary products, performing certain activities, or by having a certain kind of relationship.

When it’s all said and done, customers will have a choice, and solid marketing communications will help ensure that customers recognize the added value of their product selection.

Q: What’s the future of rewards programs, given the recent regulatory changes that make many of them (particularly in debit cards) cost-prohibitive for banks?

Olan: Traditional rewards programs certainly won’t be as easy to cost-justify as they have been in the past, but rewards programs are here to stay in some form or fashion. Banks will still have positive revenue streams created by fees or relationships. And wherever there is revenue, and a highly competitive marketplace like banking, certain players will always be willing to give up part of that revenue in exchange for market share, share of wallet, increased product usage or improved loyalty, among other things.

Now setting that point aside for a moment, I don’t think that banks have any choice but to offer some kind of rewards program. That said, we may rethink what “rewards” actually means and what we are willing to reward for. Consumers have come to expect programs that show “appreciation” for what they bring to the table in some form or another. It’s hard to go backwards when consumer expectations have been set. One thing that is clear from the research I’ve seen is that the Gen Y customers are at the forefront of this expectation. It’s all they’ve ever known and they realize they can take their business down the street to someone else who will deliver on that expectation for them.

The long and the short of it is that rewards will be around, but the programs may look vastly different from those we see today.

Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at [email protected].