Actionable Insights From APT's Retail Practice
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Using Cross-Sell to Make Low Margin Loans Profitable

April 29th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on Using Cross-Sell to Make Low Margin Loans Profitable)

Many banks are offering attractive loan pricing to try to gain market share.  American Banker recently published an article titled “Sacrificing Spread to Get Loans in the Door.”  Since loan demand is still weak, banks have felt the need to use low prices to maintain volume.

However, American Banker also reports that companies “are seeing little payoff” from the approach so far.  To make it work, banks need to turn those new, low-margin loans into a larger relationship.  Banks need to actively cross-sell new loan customers during the onboarding process. (more…)

Strategies to Make In-Store Branches Successful

April 29th, 2011 | Posted by Will Weidman in Financial Services | Uncategorized - (Comments Off on Strategies to Make In-Store Branches Successful)

American Banker recently featured an article which reported that some smaller banks are doubling down on in-store branches while larger banks are pulling back from them.  This cycle of investment and retrenchment with in-store branches seems to have been occurring for the past twenty years without a clear consensus on the value of this distribution model. 

One thing should be clear, however.  These in-store branches will not be successful if the staff hide behind their desks all day without making an attempt to engage passing customer traffic.  The in-store model requires a different mindset than a traditional branch – one in which staff are actively initiating conversations with potential customers.  (more…)

Groupon for Retail Strategy

April 27th, 2011 | Posted by CCorman in Retail | Uncategorized - (Comments Off on Groupon for Retail Strategy)

One of the top 11 trends for 2011 was Group Buying, which today is synonymous with Groupon (and to a lesser extent, Living Social). Now that a skyrocketing valuation , bids for buyout from Google , and controversial Superbowl ads have propelled Groupon to the forefront of the minds of customers and business executives alike (The Atlantic claims it is one of the most well-read publications today – and Starbucks CEO Howard Schultz, recent addition to Groupon’s board, seems to have taken note ), it is becoming increasingly relevant as a promotion in retail.

Will Groupon work for your business? Here’s our take:

There’s a reason Groupon initially offered discounts almost exclusively on restaurants and other service-based businesses: these businesses have (1) low incremental costs for additional customers and (2) extra capacity to spare amidst the recession (who knew hard economic times were the perfect opportunity for skydiving lessons or dinner cruises?).

Gap, Nordstrom Rack, Barnes and Noble, Bath and Body Works, etc. have all signed up with the site to offer incredible discounts on products. Unfortunately, it is unlikely that a company with high levels of awareness will see a positive return on the margins lost via a Groupon.

Let’s take a look: (more…)

Social Media: Marketing Steals the “Location, Location, Location” Adage from Real Estate

April 27th, 2011 | Posted by Guru Raj in Retail | Uncategorized - (Comments Off on Social Media: Marketing Steals the “Location, Location, Location” Adage from Real Estate)

Location-based marketing is “here.” From Chili’s to Target, leading restaurants and retailers are showing an enthusiasm for piloting offerings from a range of hot New York and Silicon Valley start-ups including Foursquare, Shopkick, and Gowalla.

While each location-based service (LBS) is unique, they are all oriented around a core principal: offers and coupons are most effective when restaurants and brands can target consumers at a specific time and place.

For example: General Mills would have the opportunity to target a 2 for 1 coupon for its Nature Valley granola bars to the iPhone of a consumer standing in the middle of the snack aisle. A $0.50 off a fountain drink deal could be broadcast to the smart phone of anyone walking within a block of a 7-Eleven.

Redemption statistics, along with location data tracked by smart phone applications, could then be used to arrive at the holy grail of marketing: targeting the right offer to the right consumer at the right time to most effectively drive purchases.

Many of Silicon Valley’s most vaunted venture capital firms have invested tens of millions of dollars in LBS companies at astronomical valuations, believing that these services will displace more traditional couponing channels including newspaper inserts and shared mail.

LBS start-ups have been using this cash to incentivize consumers to download iPhone and Android apps enabling their tracking and couponing technology.

Foursquare recently offered consumers discounted beverages based on the number of times they used Foursquare’s app to “check-in” at Starbucks locations.  Similarly, Shopkick offers loyalty points to shoppers for simply walking into a Macy’s or Best Buy location and additional points for scanning products they like – these points can then be redeemed for gift cards.

Such promotions have been popular with consumers who are downloading LBS apps in record numbers.  Foursquare is leading the charge, registering almost 7 million users and logging roughly 25k new users per day, with Gowalla following behind. In an impressive flexing of its muscle, Foursquare recently logged two-hundred thousand check-ins to a promotional campaign run during the Superbowl. The lure of free loot is so tempting that hackers are findings ways to trick GPS and other tracking systems to rack up ill-gained gift cards.

And competition from bigger and more established players is coming. Facebook recently released its integrated location offering “Places,” which even in its nascency is almost as popular as Microsoft’s Bing search engine among merchants looking to promote their businesses. Google recently announced a full roll-out of check-in functionality associated with its Latitude service.

Similarly, Groupon and LivingSocial are also looking to expand their offerings into the location-based space – allowing restaurateurs greater refinement in targeting offers to users at a specific time. Instead of selling 50%-off deals redeemable at any time, merchants could intelligently target deep discounts redeemable only during a certain time window to customers who were nearby. The opportunity is sizable: instead of selling thousands of 50% off Groupons valid at any time, a restaurant manager could target steep discounts redeemable in a specified near term window, during a rainy day when lunch sales were dragging, for instance.

We expect to see significantly greater focus from group buying sites on more sophisticated offers as consumers tire into a state of deal daze and merchants play competing sites off of each other to reduce deal costs.

Supporters and detractors aside, the market for location-based services is far from mature. Through the rapid iterations the industry will face, the core questions location based services pose for retailers remains remarkably consistent with more those posed by more traditional coupons: namely, are consumers redeeming coupons actually incremental or are they existing customers who are cutting into retailer margins? Only time, and rigorous testing, will tell.

Facebook as a Tool for Marketers

April 27th, 2011 | Posted by Jatin Atre in Uncategorized - (Comments Off on Facebook as a Tool for Marketers)

Social media is on the mind of most marketers these days.  Facebook, in particular, is dominating the social landscape with over 500 million users worldwide and 700 billion minutes spent on the site per month.  Marketers know they need a social presence but also must answer several crucial questions before developing a social media strategy:

  • How can I ensure that online advertising will provide the same unduplicated reach that mediums like TV & Radio allow?
  • How much is an impression on Facebook worth and should the CPM be the same or more as broadcast TV?
  • Will display ad technology ever allow me to deliver a tailored message to my customers in a way that is as powerful as a 30-second TV commercial?

In comparison, online display and search ads have become a relatively straight forward part of a marketer’s tool kit. In crafting your social presence, consider the following strategies:

  • Testing social media: In order to truly understand the offline impact of your social presence you must be willing to experiment. Vary your spend by geography to measure the true incremental impact of your online strategies on offline sales.
  • Use an integrated approach:  Develop a cohesive strategy to link your online marketing efforts with your offline efforts – for example, encourage your viewers to visit your Facebook page.
  • Carefully outsource your creative or keep your creative in house: Social media allows retailers to have a conversation with their customer. Companies can directly respond to their customers through comments. Control your online message and make sure it is aligned with your overall brand.
  • Employ targeted strategies: Push your agencies and media partners to provide targeted ads and offers to your consumers in a way that will drive incremental sales rather than cannibalize existing sales.  Measure the impact and continue to refine your strategies to target the customers that will drive the most incremental profit

The Battle over Interchange Fees and Debit Rewards

April 27th, 2011 | Posted by Jatin Atre in Financial Services | Uncategorized - (Comments Off on The Battle over Interchange Fees and Debit Rewards)

The Central Bank only has until April 21st to release final rules about debit card interchange fees.  The proposal in the Dodd-Frank Act is that interchange fees would be limited to $0.12, down about 70% from today’s $0.44 average.  The Federal Reserve will likely miss the 4/21 deadline, and it is unclear if debit card regulation will be delayed or even if it will happen at all.

While there is still a great deal of uncertainty, there has been a flurry of announcements about new policy changes from the nation’s largest banks.  The Washington Post reported that Wells Fargo has decided to join other banks like SunTrust and discontinue its debit reward program.  JP Morgan Chase has also decided not to waive checking account fees for customers who actively use their debit card. (more…)

Smart Business Experiments

April 22nd, 2011 | Posted by Marek Polonski in Retail - (Comments Off on Smart Business Experiments)

Washington D.C. – In case you missed it, Harvard Business Review has an interesting Step-by-Step Guide to Smart Business Experiments. Eric Anderson and Duncan Simester discuss how sophisticated executives are answering this question leveraging the scientific method. While seemingly straightforward, even the most advanced companies find it difficult to design rigorous, in-market, consumer-facing tests and use insights from these tests to guide strategy. Most Fortune 500 companies are now using APT to successfully design and learn from smart business experiments.

How to Measure ROI of Social Media

April 15th, 2011 | Posted by Marek Polonski in Retail - (Comments Off on How to Measure ROI of Social Media)

Washington D.C. – In case you missed it, Fast Company published an interview with APT SVP Jonathan Marek detailing the ways in which in-market tests are allowing retailers, restaurant, and other consumer facing businesses to measure the impact of location-based services like Foursquare and Facebook. It is a great read if you are interested in seeing beyond the hype and wanting to understand the true incremental impact social media has on an average consumer.

Surviving the Bank of Wal-Mart

April 13th, 2011 | Posted by Will Weidman in Financial Services | Uncategorized - (Comments Off on Surviving the Bank of Wal-Mart)

Walmart crossed the 1MM banking customer mark in Mexico, and will likely reach such levels in the US eventually.  When they do, Wal-Mart will cause serious displacement, as they have in each new retail vertical they’ve entered.  The way to survive and thrive against Walmart is to understand what value proposition you can provide customers that they cannot or will not.  For example, Circuit City made the fateful decision to fire all its high cost / high service sales people and replace them with low cost hourly people in order to mitigate their cost disadvantage.  In doing so, they removed one of the primary reasons customers would come to a specialty retailer for electronics instead of Walmart.  Best Buy, on the other hand, understood that their differentiator was their advice and service and doubled down in this area. 

Banks likewise need to understand what services they provide their customers that are actually perceived as differentiated in order to understand where to place their bets.  For example, TD Canada Trust has built a differentiated brand around convenience.  But what investments will reinforce that brand in a positive ROI manner?  TD Canada Trust is currently testing whether keeping branches open on Sunday will do so. 

We don’t know if Sunday hours are the answer but we applaud the approach of experimenting with an idea to validate whether and where it works instead of assuming it will.  Other banks would be advised to do the same quickly so that they are better positioned to fend off new competitive threats like Walmart.

Strike the Right Balance in Raising ATM Fees

April 7th, 2011 | Posted by Will Weidman in Financial Services | Uncategorized - (Comments Off on Strike the Right Balance in Raising ATM Fees)

APT was featured in American Banker with the following article on ATM fee strategy:

Banks received a lot of negative press when ATM fees started hitting $3 a few years ago. ATM fees have continued to increase in recent years, but the ceiling has been at $3 across major banks, and fees have largely been the same or lower at regional banks.

ATM fees are now back in the spotlight. Several leading banks made waves by announcing changes to their surcharge policy. JPMorgan Chase is testing $4 and $5 fees, and other banks are no longer paying foreign ATM fees, as American Banker reported.

The main impetus is the quest to replace lost fee income because of increased regulation. There are certainly opportunities to increase ATM fee income, but there is also a lot of risk. The key is finding the right balance. It is important to know how much to raise the fee and to find the right fee level for each ATM instead of raising fees across the board. Banks not paying foreign ATM fees need to consider the impact on retention and determine whether some types of checking accounts should keep this service.

When a bank’s ATM fees are below the market rate (e.g., below $3 today), raising fees to the market rate is typically profitable across most ATMs. However, going above the market rate is a different story. The impact depends on a lot of factors, including how many competitor ATMs are nearby, what rates they charge, demographics of the area and strength of your brand. Some ATMs can support going above the market rate, but others can’t. Banks therefore need to test the higher rate at a subset of ATMs that are spread throughout the network to identify the right strategy for each ATM.

Not paying foreign ATM fees for your customers can affect account generation and retention. The response will also vary widely by customer and by market. While it isn’t feasible to have a different policy by customer and challenging to have a different policy by market, it is easy to implement a policy where the payment of foreign ATM fees depends on the type of product a customer has. A basic checking customer may have a very different reaction than a premium checking customer.

It is tempting to raise fees to make up for lost income, but banks cannot go into these decisions blindly. Banks also need to be smart about testing. Chase is testing higher ATM fees in Texas and Illinois, but these markets may react very differently than the rest of the country. Make an informed decision before putting new account generation and customer retention at risk. Try new ideas first with a subset of customers or markets, and test in a representative sample of your entire network.