Customer-Centric Versus Product-Centric

Community banks are uniquely positioned to manage their customer portfolio in a focused
manner due to the very nature of their business. The market for community bank services
is usually well defined with a majority of their customers coming from the area immediately
surrounding the bank or branches. Community bank services also tend to appeal to a certain
segment of the population. This population is not interested in all the services a national or
regional bank offers and is typically seeking a more stable, personal banking relationship.
Conversely, some national bank customers are not interested in the limited services offered
by a community bank such as limited ATM locations. This very nature makes it possible for
the community bank to outmaneuver the big banks by better targeting customers in their
community.

Banks in general tend to be more product-centric than customer-centric. Their focus is on
launching new products and services versus focusing on how they can better manage or
serve their different customer segments. If you lined up the marketing collateral and
websites from several community banks and removed the bank name from each, you would
find that the messages are very similar across the board:

"…we are focused on the community…"
"…we put the customer first…"
"…we build solid relationships…"

The challenge then becomes how to get the message heard in a crowded marketplace offering
commodity products.

Organizations that focus on satisfying the customer’s needs will not only experience growth in
their customer portfolio, but a customer-centered approach also results in superior financial
performance for the organization (Footnote 1). This study only analyzes how information
can be utilized to influence the organization’s contact strategy, but a complete customer-
centric implementation also involves computing customer profitability and developing a
behavior-based customer segmentation schema for managing the customer portfolio.

A customer-centric approach to growth varies dramatically from a product-centric approach.
Based on Jay Galbraith’s Star Model (Footnote 1) an organization is comprised of five dimensions:

• Strategy: the direction the organization is headed;
• Structure: where decision-making is located throughout the organization;
• Processes: how information flows through the organization;
• Rewards: how people are motivated;
• People: the mindsets and skills of the employees.

• it has one of the highest community bank growth rates in the United States;
• there is a high incidence of national and regional banks also entering the market;
• the market is still considered ‘underserved’ by several banking groups.

An examination of the census data reveals variances that should impact on a bank’s
communication strategy, customer management strategy and acquisition strategy. We’ve
highlighted the highest and lowest values for each data element. A discussion of how this
information might impact strategies follows:

• Households with Children – Since bank product purchases are largely driven by
  lifestage events, it would make sense to communicate with the customers from
  Branches A and B about college funds versus customers from branch F or I.
• College Degrees – Customers with college degrees tend to earn more and conse-
  quently will likely be more interested in CDs, retirement funds, etc.
• Race – The marketing collateral, communication pieces and website should reflect
  the racial diversity of the bank’s customers. Creating marketing collateral for individual
  branch areas is probably not cost effective, but digitally printed communication pieces
  can be targeted to the population in the area.
• Income – It should be no secret that a customer earning over $100,000 per year
  is going to be interested in a different set of products than a customer earning
  under $50,000.
• Owner versus Renter Occupied – Renters will be at a different lifestage than a
  customer or prospect that owns their residence. Therefore, the products/solutions
  they will be interested in purchasing will be different.
• Housing Value – Again, the customer with a $350,000 home is not typically looking
  for just a free checking account.

This data can also be used for a high-level share of wallet examination. For example, if a
customer only has a free checking account with your Bank A and the customer is located
in an area with high housing values, high income earners and high concentration of children,
that customer either hasn’t begun preparing for the rest of his/her life or their other accounts
are with other banks and financial institutions. It is up to the banker to find out which case
is true. Under either circumstance, it represents an opportunity for the bank. This is especially
true for long-term customers who haven’t gone past the original free checking account. Their
money is probably in other institutions.

This is an example of how a little bit of information can be very powerful if put in the right
hands. The proximity analysis is not very difficult. Start with a sample of data and if the
direction of the data supports customer concentration, then complete the analysis for the
entire customer population. Once concentration can be verified, use the free census data
to compare the demographics of the populations around the branch locations. Use the
demographic data to find the attributes that "stick out" or aren’t consistent with the data
around it. With this information, the bank can begin crafting communication strategies that
better fit their target audiences. This entire process is quick and inexpensive.

With this information as a solid foundation, the bank is on the path to customer-centricity.
Customers tend to spend more money at places they have an affinity to. Therefore, several
actionable can be taken by the bank, including:

Next, is a deeper ‘dive’ into the data by examining customer profitability and segmentation.
With a thorough understanding of who your customers are and which ones are more profitable,
the bank can become a finely tuned, information rich customer-centric organization.

(1) Galbraith, Jay R. Designing the Customer-Centric Organization: A Guide to
Strategy, Structure and Process. Jossey-Bass, San Francisco, CA (2005)

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