Publications & Resources
March/April 2009
Focus: Got Capital?
Managing Your Branch Network Capital
By Eduardo Alvarez
Despite the great technological advances of our cyber-era, bank branches remain one of the most effective channels for the acquisition, retention and development of customer relationships. The branch facility possesses an even greater importance during uncertain economic times. As some of the larger financial players merge or downsize and as the mortgage crisis intensifies, customers will continue to seek reassurance, security and comfort from their bankers. Most of this interaction will take place at the local branch level.
As branch expansion has escalated over the past few years, many institutions have chosen to ignore the upkeep and upgrade of older branches in their network. This is a serious oversight that sends negative signals not only to the markets being served, but to the bank’s staff as well. While some branch facilities will never exploit their potential, many others are just dormant and in need of a jolt to push them to greater performance.
To successfully address the needs of these legacy branches, bankers should conduct a strategic exercise that analyzes the totality of the bank’s retail delivery and focuses on the three main integrative aspects of a network:
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The Brand, as defined by the images and perceptions that one associates with an organization; the way you go to market; the way in which you differentiate your offering to create loyalty.
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The Place, as defined by the physical (and in some instances virtual) platforms in which an organization interacts and conducts business with its customers.
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The Culture, as defined by the values held in common among staff as to the purpose of the organization and its methods to connect customer needs with products and services provided.
The integration of all three components leads to the creation of a differentiated customer experience, as well as to greater competitive advantage. This does not mean, however, that every branch location needs to receive the same exact treatment or level of investment. By developing a unique set of tools that address the brand, place and culture triad, the bank will be able to unify its image and customer experience to levels consistent with those newer locations that have received a more substantial investment.
Although there are several ways to approach this issue, several industry players have established an intervention hierarchy that takes into consideration, not only a branch’s current performance, but its desired potential. While some mature branches may get a quick make-over to conform to a particular brand’s image, other more promising locations may receive a more robust, and thus more costly, remodel.
By surveying and acting upon this legacy network, financial institutions will be able to discover more efficient ways of allocating capital. Like savvy retailers everywhere, bankers are beginning to examine, in a more systematic manner, the ultimate payback of capital spent in specific retail locations that they build or inherit.
Although consistently calculating the actual return on these projects will depend on the particular nature of data gathering and analysis for each institution, three simple steps can be followed in determining a legacy program payback.
First, make sure you clearly establish your parameters and determine how much “lift” you would need at each branch to pay for the program. This can be achieved by establishing beforehand the average investment per location and the desired timeframe to pay for the program.
Second, identify how you will arrive at the lift, in terms of the products and services mix, as well as the expected average annual balances, to be able to pay for the branch program once it is completed.
Third, establish exact targets to achieve the payback or required lift. The reasoning – your investment will pay off by selling a specific number of additional products or services at that retail location, over a specified period of time.
It all comes down to finding the best way to allocate your institution’s limited resources. In the end, those bankers who apply insightful analysis and judicious measures will successfully redefine and optimize their branch network.
Eduardo Alvarez is managing director of brand and retail strategy for NewGround. He can be reached at 603-427-0003 or ealvarez@newground.com.
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