Branching Answers High-touch Need (Commentary)

During the early 1980s, the futurist John Naisbitt published his bestseller “Megatrends.” In the book, Naisbitt named 10 developments that would transform business and society in the future, including one he called “high tech, high touch.” Naisbitt wrote, “What happens is that whenever new technology is introduced into society, there must be a counterbalancing human response — the more high tech, the more high touch.”r

I’m reminded of Naisbitt’s prediction as I see the level of bank-branch construction nearly everywhere in central Arkansas and indeed throughout our state.r

Our level of branch construction is part of a national trend. Bank One, Wachovia, Commerce Bancorp, Hibernia Corp. and Colonial BancGroup are among the bank groups implementing ambitious expansion plans. In some areas, the rate of construction is remarkable. In Chicago, for example, seven banks have planned and announced a combined total of 170 new branches for 2003. Those seven banks, by themselves, will have increased the number of branches in Chicago by 8 percent in one year.r

Liam McGee, a Bank of America executive, offered this explanation to the trade magazine Bank Marketing International: “Physical distribution is still the most important channel for acquiring customers. If you want to grow your business, retail stores are essential.” The numbers support that assumption; according to a TowerGroup survey, 92 percent of Americans visit a branch regularly. Even those who use an online banking service still visit branches regularly (85 percent).r

Bank executives have two main options for growth. One is to grow by acquiring other banks, then consolidating operations. This typically involves the loss of many of the acquired bank’s customers as well as a difficult digestion period (reconciling technologies, eliminating redundant employees, etc.).r

Alternatively, banks can grow more organically, but there are risks in this approach as well. Branches are expensive to build and operate, adding to overhead in a low-margin business. Because it’s difficult to get customers to switch banks — even when you have spiffy new branches — the payoff from new branches generally has to come from deepening relationships with current customers. This includes selling new services.r

While most customers still visit branches, they do so less frequently these days. According to Synergistics Research Corp., the average bank customer visits a branch 2.9 times each month — down from 4.4 visits per month in 1995. That puts great pressure on branches to make the most of each contact opportunity.r

So what’s driving the explosion of brick and mortar here in Arkansas? I put the question to several bank marketing pros. Their answers point out consumers’ varied (and often contradictory) wants and needs as well as the need for responsiveness and product variety on the part of banks.r

Lori Case of First State Bank in Conway told me, “We feel that customers in Arkansas, being part of the South, still like personal contact even while they want the bank’s online products.”r

Donna Kimes of Farmers & Merchants Bank in Stuttgart put it this way: “Since 1989 … we’ve been told that banks were getting away from construction and going strictly with technology. It wasn’t true then, and it isn’t true now.”r

Jason Kincy of Arvest, which has the most branch locations in Arkansas, pointed out that while “convenience” tends to drive consumers’ selection of their bank, that criterion is defined in different ways for different customer segments.r

“Convenience to a busy executive might be a personal banker. A person on the go may value Internet banking, debit cards, ATMs and billpay. A traditional family may see convenience as longer hours.”r

It seems that segmentation is alive and well in bank marketing. Today’s branch construction is a risky yet necessary means of meeting the needs of certain customer segments.nr

Jim Karrh, Ph.D., is associate professor of marketing and advertising in the University of Arkansas at Little Rock’s College of Business and senior consultant with CJRW Executive Strategies in Little Rock. E-mail him at [email protected].