These past several years big banks have gotten bigger, re-allocated assets away from smaller, communities and invested in faster growing urban markets where they can achieve economies of scale in distribution and marketing. That often leaves community banks to divide a small pie in their legacy markets or search for growth on the fringes of larger markets where it’s a challenge to create the scale for success, even in some market portion.
Considering this, it’s no surprise we often field questions from bankers who want to know, “What can I do to accelerate organic growth in our branches?”
Let’s step back and think about some key levers: the nuts and bolts that bolster branch performance.
First come market or location attributes. Is the market growing? Does it include the right mix of consumers, businesses and financial product usage to foster success? And is the institution well positioned in terms of locations and sites to capitalize on the opportunity?
Second is management process. Does the bank offer the right products, services and sales/marketing strategies? Is there effective execution at the local level?
From data to defining market opportunity
How can you get your arms around this? Consider these three key questions and one hopeful answer:
- Do your really know the opportunity for growth? It sounds basic but it really marks a critical step because if there’s little growth—no “there there”—then you’ll have a tough road to hoe.
Start with the data. Define the market and the branch trade areas. Are they growing? Who lives and works there? How many businesses do you count and are they “bankable” in your target segments? What opportunity exists based on financial purchase propensity—and is there enough? And finally, what does your competition look like? How many competitors vie to divide up the pie? Is there enough room for you?
- Do you really know your performance versus the opportunity? One key metric involves your share of market versus share of distribution: the “fair share” or “power ratio.” Look at it this way: If you have 10 percent of the distribution (branches) and 10 percent of market’s deposits, your Power Ratio is 1:1 (or 100, based on an index). You are getting your fair share
But the relationship rarely breaks down as linear, or 1:1. In a typical market, most institutions are too small to leverage their convenience and fall below the curve. That leaves a smaller number of market leaders punching above their weight.
This isn’t to suggest that smaller players cannot capture growth but does make it critical to know where you stand on the opportunity curve. If you possess good distribution but fail to grow at or better than the market then you must ask yourself, “Is it the market, or is it us?” If you review all your markets and conclude that in most you don’t exceed the overall market growth rate, then the problem is almost certainly you, not them.
- Do you make excuses (“We need better products and pricing”) or is the problem rooted in the sales and marketing process? If your products do not match your market needs and competitive situation, then fix them. Too often we hear “We need to change our products, add rewards and implement new promotions.” Maybe. But most of the time that serves as an excuse, not a root cause.
In this day and age of ubiquitous data, we can glean detailed information on every customer and their financial usage; every prospect and their likely financial product purchase propensity. With this in mind, it’s easy to create a focused prospect list. The problem centers on what to do about it and how to execute against it.
I often ask retail executives how frequently they visit their branches and how much time they spend in them. I’m likely to hear “infrequently”—a disappointing response—even when it involves a small institution with just a few dozen locations.
You can’t assess the reality unless you talk with staff, walk in their shoes and talk to customers. Only then can separate wheat from chaff, assess real needs and take the lead to find workable solutions.
- Shoot for the “art of the possible.” Define the market opportunity. Measure your progress. Get at the impediments to greater growth. Different markets will present different opportunities. If you operate on the fringes of a major, growing urban market (such as Dallas, where PNC announced a major expansion) you must take a markedly different approach than institutions in a smaller market. But the questions you need to ask—and the decision framework—remain the same. Don’t settle for mediocrity. Set a high bar and work toward achieving market-leading goals.
Parting thoughts: Fair share, high pie
Success requires understanding customer behavior. Who has money at risk? Who has unfulfilled needs that represent cross sell opportunities? Who and when should you target for new money? How much growth do you need to compensate for attrition?
The tools exist to understand the market, the growth opportunities and your performance. Use these to your benefit and you’ll see the payoff with increased relationship depth and better than “fair share” organic growth. Indeed you can have your pie—more of it, in fact—and eat it, too.
David Kerstein is President of Austin, Texas-based Peak Performance Consulting Group, which specializes in helping community and regional banks grow. He can be reached at firstname.lastname@example.org