I was having breakfast with a friend recently and he was telling me about a bank he knew that was very profitable, had achieved impressive growth in a competitive market and does relatively little traditional marketing.
If you know the banking industry, you know it can be cut-throat.
The typical bank will spend a lot of money on advertising to tell us how wonderful they and how great their service is. Or, they might focus on their interest rates as a way to get money or borrowers in the door.
My friend’s bank does very little advertising.
Another common trait in banking is a “turf” mentality. Banks see a lot of value in occupying the territory they do business in. Every physical location is a large, “bricks and mortar” advertisement for them.
Yet, this particular bank has only a couple locations.
But, by assets, it’s one of the larger banks in the region. And it’s quite profitable.
So how have they achieved this seeming paradox?
Easy, they pick their customers smartly and they serve them very well.
It’s not a flashy or sexy strategy. It won’t get you advertising awards or front page press coverage. But it works like magic because it builds a solid business over time.
First, they decided to serve a specific loan market. Just one.
So, instead of having to market and service (and be knowledgeable about) many different types of lending, they can focus all their resources on one type.
This gives them tremendous leverage. It gives them the ability to be very, very good at this type of lending and to develop expertise and practices that other banks can’t or won’t. And they’ve developed a reputation for their expertise and abilities in this type of lending.
Second, they pick and manage their customers very well. They know who they can serve well and they stick with them. They avoid working with people whose situations are not a good fit for what they can do well.
They get a lot of referrals and they manage their referral sources. If a source starts sending them referrals that don’t fit, they stop working with them.
Over time, they have become so well known in their specific lending niche that they are the first choice for many referral sources in this market. So they can afford to be picky.
And by working with only those they can serve well, they have fewer bad loans, lower bad debt costs and therefore higher profits. They can afford to offer better service to their clients and the people who refer business to them because their cost of doing business is relatively lower.
Best of all, they don’t need a lot of branches and ads running all over town.
So, they save even more money on their marketing costs. Meaning they can invest in serving their customers even better.
I’d call that Smart Marketing!