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From Six TO SIXTY
A GENERATIONAL APPROACH TO DEPOSIT GATHERING

By Brady Walen

Industry trends continue to draw focus on issues surrounding deposit gathering as a key element to achieving growth for community banks.  Our work with clients has only reaffirmed that deposit gathering is a key issue facing decision makers across the country.  Leadership teams are faced with increasing pressures to develop and implement successful deposit gathering strategies as means to achieve growth objectives.  One viable strategy is the generational approach to deposit gathering, whereby a segmentation strategy is employed that targets different generations strategically based on their unique beliefs, values, and needs.

 

The three main segments of focus in the generational approach to deposit gathering range in age from six to sixty and include: Generation Y, Generation X, and Baby Boomers.  Each of these generations has unique preferences, expectations and needs which must be addressed strategically to capitalize on deposit potential.  The key to establishing long term deposit growth is to focus on the younger generations.  Younger generations provide institutions more opportunity to establish and build long term relationships than older generations.  Successful deposit gathering demands the delivery of value to these segments and commitment to the development of long term relationships with them.  The estimated population breakdown is represented in the following graph:

 

 

Segmentation of the market is important, especially when considering the dramatic differences between each of these three generations.  The shotgun approach, whereby a segmentation strategy is not employed, will not result in the realization of deposit potential.  In fact, the widely used shotgun approach usually offers no value to the customer, and thus no reason for them to consider depositing money with an institution using that approach.  Segmentation allows for community banks to develop a focused differentiation strategy, the optimal products and marketing mix, and more valuable and profitable relationships with their customers. 

 

The following insights are designed to provide an understanding of the unique characteristics of each segment: Generation Y, Generation X and Baby Boomers.  In addition, the preferences, expectations and needs of each will be outlined relative to deposit gathering, to inform community bankers about the value of the generational approach to segmentation. 

 

 

Generation Y

 

The specific parameters for Generation Y are usually inconsistent.  Market Insights defines Generation Y as those born between the years of 1980 and 2000, currently between the ages of 6 and 26.  With those parameters, there are approximately 72 million people, about 28% of the total population, that are considered part of Generation Y.  This generation is nearly as large as the Baby Boomer generation, and in order to sustain long term deposit growth, it must be strategically targeted. 

 

Characteristics of Generation Y:

 

  • Generation Y has grown up in the age of the internet, uses the most technology, and expects more from technology as a result
  • Demands for convenience are most prevalent with Generation Y; these demands are the result of the internet and alternative, faster delivery channels – guerilla marketing tactics are better received than mass marketing efforts
  • Generation Y is entering the workplace, establishing a career path, and beginning to take on responsibilities as decision makers
  • They are the first generation that is exposed to world wide media as a result of technology, and expect more diversity
  • Generation Y is influenced by the “latest and greatest” – sometimes regardless of brand loyalties
  • The youngest of the three generations, they may not have solidified brand loyalties and may be influenced more easily than Generation X and Baby Boomers
  • This generation is financially savvy, knows what they want, and knows how to get it.  They view debt as a necessity, but also view savings and investments as important.
  • They have their own money and/or influence household spending

Tips for Gathering Deposits from Generation Y:

 

  • Create the Need:  Expose Generation Y to specific deposit products with a strategic message that expresses value and speaks directly to them.   Generation Y does not have a comprehensive understanding of every product that their bank offers and they are more concerned with fulfilling their immediate needs.  Use interactions with Generation Y to expose them to other products, educate them, and create the need for the deposit products that they may not know they need.

 

  • Go Where they Go:   Employ marketing strategies that specifically target Generation Y.  Messages need to speak directly to Generation Y and need to go where they go.  This generation is more likely to use the internet and cell phones, and demands convenience.  Generation Y is more receptive to guerilla marketing efforts and tend to ignore messages delivered to the mass market.  They do not use the bank branch for transactions as much as Generation X or Baby Boomers, so a strategic approach must be developed to communicate the bank’s message outside of the branch.

 

  • Relate to their Life-stage:  Generation Y is beginning to enter the work force and establish a career path; they are earning their own money, making major purchases (i.e. cars and homes), and starting to plan ahead for their future.  They are in a unique position, and like any generation, a bank can capitalize on deposit potential with Generation Y if they relate to their life stage.  Educate Generation Y on products that will help them establish a savings or retirement account, and express the value in establishing these accounts at this stage in their lives. 

 

Put it in perspective:

 

Bank of America – Keep the Change

 

Bank of America’s Keep the Change program addresses many characteristics of Generation Y, and is a great example of a program designed to grow deposits.  The program is designed to encourage Bank of America customers to open a savings account with them, and non Bank of America customers to open both a Bank of America checking and savings account.  The program automatically deposits money into customers’ savings accounts from checking with every debit card purchase; the amount is the difference between the purchase amount and the next rounded dollar amount.  In addition, Bank of America matches the amount transferred on each purchase for the first 3 months, and 5% thereafter.

 

This program is a good strategy for deposit gathering as it requires that customers have both a Bank of America checking and savings account.  In addition, at the time of the launch, the program differentiated Bank of America from the competition as it was the only bank offering this type of promotion.  Furthermore, this program speaks directly to Generation Y.  The television commercials may not drive sales with Generation Y, but they support the guerrilla marketing tactics that Bank of America used to introduce the program.  A giant couch, gift card giveaways, and on site banking center to open accounts were used as event marketing to promote the Keep the Change program. 

 

Also, the details of the offer are available online. Once at the website, the visitor is invited to engage in a secure chat conversation with a Bank of America representative where questions will be answered, and the account can be opened immediately.  This reflects the convenience demands of Generation Y, educates them about the product online, and offers them value with matching contributions toward establishing a savings account.  As a result, Bank of America is growing deposits.

 

This is an excellent example of an integrated program designed around a deposit gathering product; it encourages Bank of America customers to open an additional account with the bank; it is also an attractive promotion with value to non bank customers and requires that they open both a checking and savings account to take advantage of the program benefits. 

 

 Generation X

 

Market Insights defines Generation X as those born between the years 1965 and 1979.  Based on these parameters it is estimated that Generation X is composed of approximately 43 million people.  As Baby Boomers retire, Generation X will fill their positions, becoming more established, starting families and becoming a vital source of deposits for banks across the country.

 

Characteristics of Generation X

 

  • Trends show that Generation X is more likely to stay single longer than Baby Boomers and live at home with their parents longer, thus starting families later
  • Generation X is extremely goal oriented and values time more than they value money
  • They plan further in advance as they have been exposed to some issues of uncertainty relative to social security and retirement planning
  • Generation X is recognized as a multi-tasking generation and is receptive to multi- sensory experiences
  • Gen X demands more heightened speed and convenience than Baby Boomers, but not as much as Generation Y
  • Generation X is also more likely to leave their current position in the work force (average length at each position is only 1.5 years)
  • They are purchasing homes, becoming more established, getting married and starting families

Tips for Gathering Deposits from Generation X

 

  • Package Products by Life Stage: Generation X is starting to establish families, making more money, and planning for the future.  Help them plan for the future by grouping products together based on their life stage, not by product type.  Banks that package products by life stage will expose Generation X customers to products such as retirement accounts and college savings programs, in addition to joint checking and savings accounts that Generation X may not actively seek out.  Packages that communicate value, help plan for the future and are convenient will help gather deposits through the diversified accounts.

 

  • Offer and Encourage Financial Planning:  Because Generation X is so goal oriented, and facing increasing complexities with marriage, children and more decisions, banks should offer and encourage financial planning within the bank.  This will allow banks to gain a solid understanding of participant customers which will result in better cross selling opportunities.  In turn, the customer will find value in the deeper relationship with the bank, which should encourage more brand loyalty, and result in the addition of more deposits held at the bank.

 

  • Make It Easy:  Generation X demands convenience and is experiencing increasingly complex lifestyles.  Generation X is getting married, buying houses, having children, and investing money; it is crucial that banks make it easy for Generation X to use their services.   This generation wants services that are available online, easily accessible, and in one place so they have more time to live their lives without worry. 

 

Put it in perspective:

 

Charles Schwab – Talk to Chuck

 

Banks across the country should take notice of Charles Schwab’s latest “Talk to Chuck” campaign.  The program speaks clearly to Generation X through everything from its television commercials to the campaign slogan and internet interface.  More importantly, this and other investment company programs are targeting Generation X and stealing potential bank deposits.  If investment services firms are augmenting their services to more closely resemble those of a bank, then banks must take heed.  These programs are more attractive to Generation X because of their packaging, ease of use, and communicated value added; in most cases, banks have similar product offerings that need to be targeted to Generation X.

 

The “Talk to Chuck” campaign is a great example of a company targeting Generation X with deposit products.  More importantly, Charles Schwab has shed its image of a company only serving high class investors.  While Charles Schwab is not a bank, banks should use this approach as an example of a great value proposition, marketing and product offerings.  The value for the customer is in the fact that Charles Schwab offers extensive resources to help Generation X plan for the future with a variety of accounts and investments.  The online interface allows all accounts to be viewed and managed online.  In addition, questions can be submitted online at any time.  Schwab also offers wireless access to accounts and up to the minute information via cell phones and other portable devices. Furthermore, the marketing of the campaign includes the personal message “Talk to Chuck” which is supported by unconventional animated television commercials.  This differentiates Charles Schwab from the competition, and the alternative approach is well suited for younger generations.  The campaign is different from that of banks or other investment companies, and speaks about issues that Generation X is concerned with.

 

The products offered by Charles Schwab may be attractive to a wide age range, but the packaging of the products is ideal for Generation X.  They are planning their future, and need answers.  Schwab’s website is a great resource with answers to common questions, suggestions, and the easy to read lay out is more goal oriented than product oriented.  Charles Schwab also has brick and mortar locations, which are not the preferred (online) delivery channel of Generation X, but they offer in-person support to those who need face time.  This example can be directly applied to the banking industry, as banks become more focused and aware of certain generational characteristics and strategies to target them.

 

 

Baby Boomers

 

It is generally accepted that Baby Boomers are those born between the years 1946 and 1964.  Under those parameters, approximately 30% (78 million) of the current population is considered to be a member of the Baby Boomer generation.  Recent attention has been drawn to Baby Boomers because 2006 marks the year when the first Boomers are turning 60.  This means that retirement is just around the corner for nearly a third of the United States population. There are high projections for the Boomers to inherit the money of their parents, so financial services need to prepare them with the products to serve their needs. 

 

Characteristics of Baby Boomers:

 

  • Baby Boomers are approaching retirement, with the first Boomers turning 60 in 2006
  • Many Boomers are responsible for supporting family members like parents and/or putting their own children through college
  • This generation is known for working hard, and is open to career changes even after they retire from current positions – many will continue to work after 65
  • The average Baby Boomer household retirement savings is less than $50,000; about half of the baby Boomers have insufficient or no retirement savings
  • Baby Boomers seem younger and are generally healthier than their parents were at the same age, thus they are projected to live longer
  • They make up such a large percentage of the population that over the next 18 years, the number of people in the United States over the age of 65 will double

 

Tips for Gathering Deposits from Baby Boomers

 

  • Develop a Unique Product Package:  The key to this strategy is to develop a unique product package that is supported by a differentiated service and serves the needs of the Boomers.  The market is saturated with retirement account promotions and companies claiming to have the answers, however, to gain the attention of Boomers, banks need to truly differentiate themselves with a unique product package that ultimately satisfies the needs of this generation.  The package must provide value, be easy to use and manage, and should be goal oriented – rather than product oriented.   While retirement savings is a key issue, the package should also offer a variety of other savings accounts and investment opportunities to support the Boomers’ wide range of needs.
  • Offer a Catch Up Solution:  Considering the amount of Baby Boomers that have insufficient retirement savings, and the characteristics of this generation, banks can gather deposits from Boomers if they offer a catch up solution.  While every market and customer base is unique, in general, Boomers need a plan and the correct product mix to achieve savings goals.  Banks can use this need to their advantage by offering supplemental account options in addition to traditional IRA’s, which will encourage additional customer savings. 

 

  • Prepare Boomers for What Lies Ahead:  Baby Boomers will experience continued uncertainty and speculation around government retirement support programs, as they are expected to fall short of fulfilling the needs of this generation.  Furthermore, there is much speculation that Baby Boomers are expected to inherit substantial amounts of money from their parents.  Regardless of these speculations, Banks must prepare Boomers for what lies ahead.  Banks must have a strategic plan with products in place to support either scenario, but focus on helping Boomers achieve their goals independent of these events.

 

Put it in perspective:

 

Ameriprise Financial – The New Retirement Landscape

 

Ameriprise Financial is targeting Baby Boomers with a program called “The New Retirement Landscape.”  This program serves as an educational tool to assist Baby Boomers in the planning of their retirement.  The program is goal oriented, not product oriented, which more easily allows customers to put their priorities in perspective.  The structure of this program is beneficial to Ameriprise because it allows them to evaluate the customers’ needs, and recommend a variety of products that will contribute to gathering of deposits.  In addition, this program encourages a long term relationship between Ameriprise and the customer by outlining steps beginning 15 years prior to retirement, and extending for the years beyond retirement.

 

Banks can incorporate many of the elements Ameriprise employs to gather deposits from their Baby Boomer customers.  First of all, banks offer, or have the capability to offer products similar to those offered by Ameriprise.  The packaging of the products is unique.  Rather than focusing on separate products, and using promotions to drive sales, Ameriprise encourages customers to answer the following questions regarding their goals as they approach retirement:

 

  • “What do you most look forward to doing?”
  • “Where do you dream of going?”
  • “How do you want to make your lasting mark?”

The answers to these questions will inform Ameriprise consultants of customer needs, and allow them to develop product packages that fulfill these needs.  Banks can employ this strategy to address each customer’s unique needs, and offer product options that customers are comfortable using.  The approach is goal oriented over the short and long term.  This encourages brand loyalty to a bank who is working with customers over time to help them achieve their goals. 

 

The strategy is also a viable deposit gathering strategy because it encourages customers to think about retirement savings at an early age.  Ameriprise’s program starts 15 years prior to retirement and continues well beyond the retirement age.  This allows Ameriprise to establish relationships with customers at age 42 or earlier, and continue to gather deposits from them over the long term. 

 

Conclusion

 

The generational approach to deposit gathering uses the characteristics of each of three generations: Generation X, Generation Y, and the Baby Boomers to segment the market.  Segmentation of these groups allows for a more focused strategy to be developed and implemented for gathering deposits.  Each generation has their own values, behaviors and attitudes that define their preferences regarding delivery channels and product needs.  A viable deposit gathering strategy must focus on the needs of each generation and be supported by the correct marketing, product mix and delivery network.

 

The most viable strategies for long term deposit growth will focus on the younger generations.  Banks targeting Generation Y and Generation X will have a greater opportunity to establish and build relationships that will yield greater deposits over time.  Boomers should not be ignored, however, as they make up such a large percentage of the current population, and can contribute to a more short-term deposit gathering strategy.  While each generation is defined by a unique set of characteristics, there are some underlying trends that can be applied across the generations to gather deposits:

 

  • Products should be packaged based on life stage.  This allows for customers in each group to identify which products will help them achieve their goals.  While some products will be more attractive to different generations, many products can serve more than one generation.
  • Target each generation with a strategic message.  It is important that each generation feels as though their needs are understood, and can be fulfilled.  An institution can market to all three of these generations if their messages all support the overall strategic message of the bank.  It is extremely important that messages do not contradict one another, and that together they are a cohesive representation of the bank.
  • Establish and build long term relationships with customers.  Make it easy for customers to begin building a portfolio of accounts with your institution, and communicate the value behind products.  Anticipating customer needs and understanding their life stage will allow continued deposit gathering which promotes long term growth for the bank. The development of deeper relationships with customers usually translates into more valuable relationships. 

 

Successful implementation of these strategies for each generation will contribute to increased deposit growth.  Competition from banks and non-banks will continue to drive augmented product and service offerings that deserve the attention of community banks across the country.  There is a tremendous opportunity for banks to gather deposits from existing and prospective customers, and benefit from the development of more valuable relationships from those customers.  The generational approach to deposit gathering is one segmentation strategy that will lead to more focused targeting of customers, and ultimately help institutions grow deposits.  Strategies that successfully result in deposit growth, and continue to generate deposits, will be a key differentiator between those banks that succeed and those that do not – it’s time to capture these deposits before someone else does.