Share

How Does Your Bank’s Marketing Performance Stack Up?

Measuring marketing ROI is a difficult (and often fruitless) task, as there are many different ways to go about doing it, and insufficient (and often inaccurate) data characterizing nearly every approach. Taking a high-level macro approach wouldn't be my preferred method for calculating marketing ROI, but there is some data available to help banks (and credit unions, for that matter) see how they compare to other banks.

Marketing Intensity Ratio

Boston-based consulting firm EMI analyzed FFIEC call report data for ~40 large US banks to capture marketing spend and marketing intensity ratio--marketing spend as a percentage of net revenue (net- + non- interest income).

The list doesn't provide an apples-to-apples comparison between banks because Chase's and Capital One's card spend is broken out separately, but it wasn't for other large issuers like Citi and Wells Fargo, or for any other banks for that matter. I chose to not combine Chase's and Cap One's card and bank marketing spend to demonstrate the differences in the business units' marketing spend.

Some observations on bank marketing spend:

  • The "1/10 of 1%" rule holds up. For years I've heard the rule of thumb on bank marketing spend is that it's one-tenth of 1% of assets. The aggregated marketing spend of the 36 financial institutions included in the analysis came to....wait for it...yep, one-tenth of 1% of assets. Go figure.
  • Budgets are on the rise. In the aggregate, marketing spend for the FIs in the analysis was up 17% between 2016 and 2017, with nearly half seeing double digit gains, and just seven reducing their marketing spend.
  • Card marketing spend is insane. We've only got two data points here, but according to EMI's analysis, Chase spent nearly one in five of its revenue dollars on marketing, with Capital One spending nearly one in 10. In contrast, the bank with the highest marketing intensity ratio, Santander, spent 4% of its revenue on marketing.

Measuring Marketing Performance

In and of itself, this data is interesting as a guide for benchmarking spending, but doesn't help gauge performance. Looking at the relationship between the change in marketing spend and change in Marketing Intensity Ratio provides some clues, however.

If the percentage increase in marketing spend produces a relatively higher percentage change in revenue, that's good. Likewise, if the marketing budget drops and revenue increases, stays the same, or declines by a smaller percentage, that's good too. 

To capture this relationship, I subtracted the percentage change in marketing spend (times 100) from the basis point change in the Marketing Intensity Ratio. A negative score is good, a positive score is bad.

Interestingly, the banks (and card issuers) whose marketing budgets declined between 2016 and 2017 demonstrated the highest Marketing Performance Scores because revenue either increased, stayed the same, or decreased by a lower percentage than the decline in marketing spend.

Among the banks, Huntington turned in the strongest performance score on the basis of a 1% decline in spending and 47 point drop in Marketing Intensity Ratio. Other strong performers included M&T, Webster, and TD Bank. City National and KeyBank had strong scores on the heels of an increase in marketing spend.

At the other end of the spectrum, Goldman Sachs Bank was ranked lowest in Marketing Performance Score, the result of pumping huge ad dollars into its Marcus unit. While the new unit has yet to produce strong revenue gains to offset the high Marketing Intensity Ratio, it has amassed roughly $23 billions in assets ($1 billion in the past two months alone) and it issued $1 billion in loans in its first eight months of operation.

In all fairness, looking at a one-year snapshot of Marketing Performance Scores is ignoring a lot of context regarding what happened at a particular bank in prior years. But seeing how your bank's or credit union's Marketing Performance Score compares to others in the industry can provide some competitive context you might not have had before.

Ron Shevlin
Director of Research
Cornerstone Advisors

Share