Growth is essential for all companies to survive and thrive. However, the traditional strategies for growth, particularly in the banking industry, are being reconsidered. The “build it and they will come” strategy is no longer a viable one, especially with the COVID-pandemic changing how so many people do things in their lives. Being all things to all people is no longer obtainable or practical – and it’s expensive. So, what is the best course to achieve that growth?
Many of the clients we work with serve markets with little to no growth, compete with many similar FIs, and have operated an “All things to all people” strategy for decades, if not centuries. When growth is no longer attainable in an FI’s legacy markets, we ask:
Are there markets you’re not in that afford better opportunity?
Are there key market segments that afford greater opportunity?
If you targeted those markets or segments, could you differentiate your brand from competitors?
The answers to these questions often yield the direction of a new, differentiated, and successful growth strategy. One that has been particularly successful for community-based FIs is the targeting of small- and middle-market businesses and servicing both their business needs and the personal needs of the business owners.
The strategy itself isn’t new. We worked with a client over 20 years ago who grew to $200+ million with just one office in five years, serving the senior management and owners of middle-market businesses with a concierge, private banking model, and offering commercial banking services, mortgage, and personal banking, and wealth management. And when two de novo banks emerged from Huntington Bank’s acquisition of First Michigan Bank in the mid-1990s, one, Macatawa Bank, grew to $1 billion in assets in ten years with a full-service, traditional “all things to all people” strategy supported by 14 branches, while Mercantile Bank grew to the same asset size in the same time frame, but focused on the business and personal needs of small- and middle-market businesses and operated just two branches.
Not all market share is created equal. Value segmentation of your FI’s customer base yields insight into which customer segments are most valuable to your business. By examining the composition of current and new markets, you can find new markets with significant growth potential.
In the example shown above, opportunity was assessed for the new markets with significantly more opportunity available for wealth management, mortgage, and business. With so little available opportunity for a bank to enter a market and compete for retail business, a more focused approach is more successful for community based FIs.
One Midwest community bank had been a fixture in its legacy markets and enjoyed strong growth for over a century. However, it had maximized its potential in those legacy markets and needed to look for new ways to grow without putting its current franchise at risk. We utilized a unique and comprehensive methodology that incorporated industry-leading databases and relevant demographic, psychographic, and firmographic data to review new markets for potential and fit. Galapagos identified multiple locations for consideration and consulted on different market growth models. The bank decided on a specialized LPO approach that focused on Wealth Management, Commercial, and Mortgage then took the necessary steps through acquisition, strategic talent hiring, and the development of a new professional services office to add this high-potential, higher-income market to the mix. This new market was projected to generate 80% of all growth available to them in the next five years. Tapping this opportunity required a greater degree of specialization and focus and a different customer emphasis.
The personalized service delivered by a community-based FI is a good fit for this audience because small businesses are often not served well by big banks (because the business is too small), and they’re not particularly well-served by FIs that focus on all customers equally. During the first round of PPP, we heard countless anecdotes of community banks successful in helping small businesses that were left to flounder without support from their large bank. The niche focus positions the bank as a stronger advisor and highlights their positives – that they’re smart but not so big that business customers feel unimportant to them.
Once opportunity has been confirmed, the next question is to determine what it will take to compete in that market or for that segment. Another client with a shrinking customer base, serving no-growth rural markets, identified a new market with small- and middle-market- business potential, then asked themselves the difficult question: Can we deliver what these customers might want? They researched the needs of those in that market, reviewed competitors, assessed their own service line and service, and developed a task list of gaps, which, if addressed, would make their offering to business really competitive. They then examined the buyer journeys of their target customers to understand where they could engage and serve customers in a truly distinctive way. With a single customer segment as its focus, it was easier for the bank to streamline its effort and resources to compete successfully.
When an FI has identified opportunity and has committed to being able to deliver on it, the next task is to be certain that their brand and marketing communications can best promote this focus and their value proposition.
If it’s time for your organization to reconsider your growth strategy, particularly as you consider new potential markets, give us a call or fill out the form below to request a consultation.