December 15, 2011

(B)random Number Generator

In an article titled Ten Issues Marketers Should Have on Their 2012 Agenda, ANA president Bob Liodice lays out what he sees as the top issues for marketers in 2012. The number two issue (or, I should say, the second issue listed, since they weren’t numbered): Agree to Universal Standards of Brand Valuation.

Liodice writes:

“A crucial missing element of marketing is the value of the brands that we work so hard to create and strengthen. We need generally accepted brand valuation standards that can be applied across the industry. The ANA is collaborating with the 4A’s, Advertising Research Foundation, Marketing Accountability Standards Board and our brand-valuation partners at Interbrand, Core Brand and Millward Brown have begun an effort to address this.”

My take: Amen. Well, partially.

It’s nice to see someone of Liodice’s stature recognize the problem. He might not put it this way, but I will: Most brand valuation methodologies are nothing more than (b)random number generators. 

I qualified my amen, however, because collaborating with the firms that hawk their (b)random number generators is unlikely to produce any standards or agreements. Each of those firms have a vested interest in creating something that’s different from their competitors. 

My amen is qualified for another reason, too: The whole subject of brand valuation is a joke. Here’s my proposal for valuing a brand:

Revenue – Expenses = Profit = Brand valuation 

Am I missing something here?

p.s. It’s really, really sad that one of the ten issues marketers need to address in 2012 is “prove the value of marketing.”

Posted by on December 15, 2011 in Marketing and tagged , , , , , , .

8 Comments

December 14, 2011

How Profitable Are Checking Accounts?

How profitable are checking accounts?

There are a lot of differing opinions about that question, but I will give you the one correct answer: It depends.

American Banker recently reported on a study which found:

“The average checking account cost banks $349 in 2011. But the average revenue per account is just $268, implying a loss of $81.”

[Quibble: It doesn't actually "imply" an $81 loss, it "works out" or "produces" a loss of $81]

But, as the article states, the costs to maintain checking accounts can vary widely across institutions of various sizes:

“For the largest banks with assets greater than $50 billion, the average checking account costs between $350 and $450 a year. Overhead, or the institutional costs not associated with a specific division or service, is what weighs down some of the largest banks, making it more difficult to cut costs.”

This raises a problem (or two). Allocating overhead costs can be a very inaccurate science (a point that was brought up to me by Jim Marous in some DMs this week). It seems unlikely to me that an activity-based costing approach was used to allocate those overhead costs.  

And it also seems likely to me that large banks — by virtue of having a broader product line than smaller banks and credit unions — will have more overhead (i.e., “institutional” in the language of the article) costs to allocate in the first place.

And, in fact, the study indicates that “for some of the smaller banks with less than $5 billion in assets, the costs are much lower — around $175 to $250 a year.” At the lower cost level (and assuming the same revenue), that would make the checking accounts profitable.

This is consistent with the findings of a study Aite Group conducted.

There are, however, some nuances that are different in my study than the one reflected in the one cited by American Banker.

The most important difference is that the cost differential between big banks and smaller FIs — and, in fact, even across smaller FIs  – isn’t necessarily due to differences in allocated overhead costs. The differences can come from lower cost to serve.

In addition, profitability is driven not just by a lower cost to serve, but by revenue — which can be generated by interchange, cross-sell, and from the use of deposits for revenue-generating purposes (e.g., lending).

The Aite Group study is not necessarily representative of the overall market. With the help of Bancvue, we compared the performance of high-yield checking accounts (which are, technically speaking, “free” checking accounts) to non-interest bearing accounts (the more typical definition of “free” accounts) across 120 financial institutions (predominantly credit unions and community banks) from May 2009 through April 2011.

We found that free checking accounts were, on average, profitable for that time period, although this average profitability trended down. But we also found that the profitability of high-interest accounts were, on average, about 2.5 times more profitable than the free accounts.

The drivers of the higher level of profitability weren’t necessarily lower overhead costs, but lower operational and support costs — driven by online banking and e-statement adoption — and higher revenue produced by higher levels of interchange and asset deployment. Even with the associated interest payments, the high-yield accounts were more profitable.

What’s the “so what?” here?

The American Banker article claims that:

“The issue comes down to efficiency and economies of scale. The banks likely to fare best are those that are big enough to support a sizeable base of checking account customers, but which are not loaded down with ancillary costs.”

My take: I disagree. The FIs (banks or credit unions) that are likely to fare best are those that actively manage account holders’ behavior by creating incentives and disincentives for profitable behavior, and that make profitable use of deposits.

For a copy of the report, visit the Bancvue web site.

Posted by on December 14, 2011 in Financial Services, Marketing, Retail Banking and tagged , , , , .

5 Comments

December 8, 2011

Social Business: Not How, But What And Why

In a Forbes blog post titled 10 Strategies For Building A Successful Social Business, the author lists what he calls “strategies” for building what he calls a “social” business. Here are a few of them with my take:

#1: Replace Traditional Marketing with Content Marketing

“Traditional marketing via TV, radio and print is…failing because consumers are tired of the one-way broadcast. People want interaction and the chance to develop a relationship with the brand. Enter Content Marketing. Content created on SlideShare, YouTube, Flickr and corporate blogs is easily shareable and interactive. TV is not. Smart visionaries are publishing high value content directly to its database of customers and in turn their social networks.”

My take: A misunderstanding of the role of traditional and content marketing. First off, forget the term “traditional.” There are different channels, or media, that marketers can use. Some have been around longer than others. Regardless of their age, some channels are better suited for different marketing objectives than others.

If you think of the customer lifecycle, or funnel, as consisting of awareness->consideration->preference->purchase->engagement, then it becomes clearer that TV is not particularly good at engagement. But Slideshare or corporate blogs may not be particularly good at generating meaningful improvements in broad consumer awareness.

Content marketing doesn’t replace traditional marketing — it supplements it.

#2: Recruit a Chief Social Evangelist

“Every company needs a Robert Scoble. Scoble personifies the type of individual every company should have onstaff. His formula is simple. Produce or share quality content with his legions of followers in order to create what psychologists call the herd effect.”

My take: If I had a nickel for every consultant who recommended the creation of a Chief Fill-in-the-blank Officer position, I wouldn’t have to work anymore.

There are three problems with this particular recommendation: 1) Scoble is Scoble because there aren’t a lot of Scobles out there who can produce high quality content about being or becoming a social business; 2) No offense to Scoble, but I really don’t think that there are a high percentage of CEOs — the people who can bring about a transformation towards becoming a social business — in his legions of followers. What this means is that the content produced by the Scoble Clone is likely to be read by the converts, not the heathen; and 3) What the hell is the “herd effect” and how does that influence senior executives to transform their companies?

#5: Chief Marketing and Sales Officers will be Social or Become Obsolete

“Earlier in the year I surveyed the Fortune 100 and found only 15 of the CMOs/CCOs had twitter accounts. Unfortunate, since the primary owners of Social lay with the marketing team. Social absence also appears to be the case for VPs of Sales and Chief Revenue/Sales Officers. The reason CMO’s need to be social is because traditional marketing has become less effective as people search for dialogue, and it will eventually be replaced with content marketing, brand communities, social campaigns and thought leadership. They’ll need to adapt quickly.”

My take: Individual executives do not need to be the ones using Twitter or Facebook if there are other people in the organization with better skills for those tools. Would you agree that the quality of a product is important? Of course you would. Does that mean that the CEO needs to know how to use the lathe on the machine floor that produces that product? Of course it doesn’t.

Second, I’m not so sure that people are necessarily “searching for dialogue.” A CMO Council study found that people are looking for “free stuff” not necessarily to “be heard.”

#10. Re-focus Human Resources on Human Experience

“Employee problems are dysfunctions of the corporation, and if left without correction, become degenerative diseases. But for the social organization, and, above all, for human resources, they represent a major source of opportunity. Here’s how. In the future workplace, human resources will focus more on developing internal communities that are supported by a social business platform. HR’s role will be to ensure the platform’s user experience, aesthetics, and collaborative elements support the HR mission of employee recruiting, satisfaction and retainment. So if analytics and sentiment about employee discontent is trending, HR can take meaningful steps to stop or learn from it.”

My take: Degenerative diseases? HR will develop internal communities? HR will ensure the social businesss platform’s “experience, aesthetics, and collaborative elements”? Huh?

Conclusion. The author concludes by saying:

“The top 10 strategies for building a social business represent the most frequently cited transformations occurring within the world’s most visionary organizations. Of course, mobile will be important; so will cloud computing. Interestingly, policies around the ownership of social information created on internal social business platforms is something the visionaries are just starting to think about.”

My take: No discussion of the “social business” would be complete without at least one gratuitous mention of mobile and cloud computing, would it? But who exactly are these “visionary” organizations that represent the “most frequently cited transformations”? I don’t recall seeing a single mention of them in the Forbes post.

BOTTOM LINE: In addition to the strategies being questionable in and of themselves, the Forbes post suffers from two serious flaws:

1. It doesn’t define exactly what a “social” business is — and isn’t. There’s a construct I’ve used when writing that was hammered into me when I worked at Forrester. I call it the “Stuart Dopey Graphic.” It was named after…wait for it…Stuart, who was anything but dopey. Stuart’s contention was that in describing something new or different, that we (as analysts) should have a chart that so clearly differentiates the current situation from the future, proposed situation that even a dope would get it.  In this Forbes post — and quite frankly, it pretty much everything I read about the “social” business — there’s little clarity about what’s really different in the social business other than having a Twitter ID, Facebook page, and posting YouTube videos. 

2. It doesn’t define why any business should become a social business. God forbid you should walk into your CEO’s office and tell him/her that you have 10 strategies for becoming a social business. First thing s/he’ll say is: Why the hell do we need to become a social business? 800 million people on Facebook is not a reason. “Strategies” for “how” to become a “social” business are useless if the rationale for why a company should become one is missing.

And you wonder why I think Social Media Gurus are DOA? 

Posted by on December 8, 2011 in Marketing, Social Media and tagged , , , , .

1 Comment

December 7, 2011

The Mobile Banking-Mobile Payment Connection

In a recent Credit Union Times article, as well as in a webinar I listened in on (presented by a competitor of mine who shall remain nameless), I’ve heard the following assertion:

Mobile banking adoption will drive mobile payment adoption.

The gist of the recommendation in the webinar was that banks and credit unions should drive adoption of mobile banking among their customers as a way to drive mobile payment adoption as it matures.

My take: Mobile shopping — not mobile banking — will drive mobile payments.

Interestingly, my competitor has published consumer data regarding technology adoption across countries in North America, Europe, and Asia. In the vast majority of countries, the adoption of online shopping (purchasing online, not just researching online) has historically outpaced — and continues to outpace — the adoption of online banking.

What did consumers do when the Internet started to take hold? They didn’t start buying things right away, nor did they start managing their bank accounts online. They started by shopping — i.e., researching.

As eCommerce opportunities expanded, consumers increasingly felt comfortable enough to make purchases online. The use of the channel to manage bank accounts quickly followed, but followed, nevertheless.

We’ll see a similar — although much more condensed — pattern with mobile payments and mobile banking.

In other words:

Mobile banking doesn’t drive mobile payments. Mobile shopping drives mobile payments, which in turn drives mobile banking.

The flow on mobile devices will be:

Am I getting the best price? –>  Check my balance –>  Buy it

For us fat cats, who don’t worry about our balances, we may check balances after the purchase. But regardless, mobile banking adoption isn’t going to be the key driver of mobile payment adoption.

Shopping –- which, in addition to price checking, includes mobile coupons and merchant-funded incentives –- will be the stronger impetus to mobile payments.

I’m not saying that mobile banking isn’t important. Offering mobile banking capabilities is an imperative — consumer interest and demand is overwhelming and growing. 

What I am saying is that banks and credit unions must get a whole lot better at mobile marketing — in the form of cross-selling, influencing choice of payment cards, merchant-funded reward offers — in order to reap potential benefits from mobile payment adoption.

Posted by on December 7, 2011 in Marketing, Mobile, Payments, Retail Banking and tagged , , .

5 Comments