RMS in the News
Banks Luring Small Biz with Cash and Gifts
5/20/2006 — Small Business Banking News
There are many roads to success in small business banking, and, when it comes to promotional giveaways, bankers are taking all of them.
Small business bankers are becoming more sophisticated about incentives, using them to boost cross-selling gambits and to deepen client relationships. But their approaches vary considerably — from offering everything to nothing.
From September 2005 through March 2006, Sovereign Bancorpused free Blackberry handhelds to entice new and existing small business customers to convert their household checking accounts to the thrift. It even enriched the offer in the first quarter, adding a $100 discount off the customer's first Blackberry bill.
The bank gave away more than 1,000 Blackberries during the promotion, said Cynthia Gadberry, director of commercial marketing at Sovereign. Gadberry put together the incentive with some forethought, she said. The Blackberry was meant to convey the impression that Sovereign understands that a small business owner's life is very busy, she said.
Do Incentives Right
• Do not rely on rewards alone. They will not get a customer to switch financial institutions. Once a small business has short-listed the best banks, then the giveaways matter, said James Gresham, chief executive of Dallas-based Rennhack Marketing Services Inc. "It's a tiebreaker," he said.
• Offer incentives that consumers want, not small businesses. According to data from ConsumerTrac, Rennhack's research arm, small business owners want gifts that appeal to their nature as consumers. So, while a small business might need a desk organizer or filing cabinet, a pair of Zeiss binoculars or an Apple iPod will get them through the door.
• Stick to gifts, not cash or gift certificates, Gresham said. Cash has no "trophy value" and there is no lasting impression on the customer. "The reason you see cash is because it's easy," Gresham said. "It's a little more work to do [gifts] because you have to deal with merchandise, but you get better results." Rennhack has gifts that cost $10 to $20 that outperform $50 cash rewards, he said.
• Do not overthink the program. Incentive programs have to be kept simple, or both the consumer and the front-line salesperson can become confused. If a bank is offering numerous options in its incentive program, it should simplify, Gresham said. "Take whatever it is you're giving away and cut it in half, and you will have a clearer message," he said.
Offering cash was never an option, Gadberry said. "If you give customers $50, there's no stickiness," she said. "Every time they use that Blackberry, they remember where they got it from."
Since last July, Bank of America Corp. has been rewarding small businesses with cash for referring other small businesses. This is an inexpensive way to get existing customers to sell for you, said James Gresham, chief executive of Dallas-based Rennhack Marketing Services Inc.
At BofA, small businesses also receive cash for opening a business savings account, being approved for a credit card, and signing up for merchant services card processing. Customers could theoretically earn as much as $220.
The offer was supposed to expire May 10, but BofA has extended it indefinitely, said Mario Ruggerio, Northeast business development leader at BofA. He would not disclose how many new accounts the offer has attracted.
Tellingly, perhaps, the incentive has been most successful in winning merchant services card-processing business, where BofA already had a product highly differentiated from the competition, Ruggerio said.
In addition, the incentives get customers and branch salespeople talking about the entire banking relationship, Ruggerio said, although he would not disclose the incentives that branch salespeople receive for selling multiple products to small businesses.
BofA uses cash because it believes business owners prefer to choose their own gifts, Ruggerio said.
NetBank Inc. is also targeting the personal business cross-sell, giving some small businesses as much as $175 in cash rewards for opening personal accounts with the internet bank. But NetBank's offer is part of a marketing alliance with BizFilings, an online company that helps small businesses incorporate themselves. Only BizFilings clients receive the cash rewards, which aims the promotion at a definable target market.
"Customers of BizFilings tend to be smaller businesses that are just getting started," said Rich Jeffers, a NetBank spokesman. "Those same businesses are typically in the market for banking services as well."
Although the BizFilings partnership launched in March, NetBank has been pleased with the number of accounts coming through its strategic alliance channel, Jeffers said. Such accounts represented 20% of all new retail and small business accounts combined in the fourth quarter of 2005, he said.
Not all bankers are high on rewards and incentives, though. For some, empirical proof of their success is still lacking.
"There are so many rewards available these days on plastic," said Derek Martin, senior vice president of consumer product management at BOK Financial Corp, based in Tulsa, Okla. "Do these really add up and add value? I have yet to see any really solid studies that they drive growth."
Although BOK has tested rewards in a number of markets, the bank did not see any material lift from them, he said. In many regions, though, incentives are merely "table stakes," Gresham said. "The small business expects to get something," he said. "It's just another piece you have to have." —V.R.