Bank marketing budgets adapt to new tools

The definition of bank marketing keeps expanding. Decades ago, the usual choices were newspaper advertising, outdoor, local radio and TV, and maybe some focus groups. Today financial marketers' palette is far bigger with social media marketing, search engine marketing and optimization, and content marketing added to the traditional methods. And beyond that "martech," big data and analytics are part of Marketing to varying degrees.

The chief marketing officer's task - and talent - lies in finding the ideal blend of all of these options and tools to reach and sell the bank's target audiences. The mix differs for every institution, but the question facing every marketing director remains: Is my marketing budget large enough? Marketing spending is never in a vacuum. Not only does it need to take into account other banks' and credit unions' budgeting decisions, but spending by fintech players must increasingly be considered.

To help our readers gain some context as they evaluate their own budgeting decisions, The Financial Brand pulled the marketing budgets of a random sampling of banks ranging from about $250 million in assets up to about $50 billion in assets from FDIC's call report database. We gathered yearend totals for 2015 and 2018 from the "advertising and marketing" line item, culling from the initial list those institutions that had been acquired since yearend 2018 as well as those institutions that for whatever reason did not report such expenditures for both years. Marketing expenditures don't always fall neatly into the call report's category - marketing technology spending, for example, may come out of the IT budget - but looking at the advertising and marketing line makes a reasonable proxy for discussion.

This database became the raw material for the calculations and analysis in this article. (Appearing elsewhere on The Financial Brand is a similar study of credit union marketing budgets.) Note that three banks out of four in the sample, as shown in the pie chart below, increased annual marketing budgets in the 2015-2018 period. More than one in ten increased marketing budgets by 20% or more, on average.

As a rule, the smaller the bank, the smaller the percentage increase in their marketing budget each year. Banks with over $10 billion in assets tended to be much more aggressive. They increased their marketing budgets by an average of 10.6% every year between 2015 and 2018, and 40.3% over the study period. Banks with less than $500 million in assets, by contrast, increased their marketing budgets by half as much - only 5.0% over the same timeframe, and 21% over the study period.

The table below, organized by asset tiers, includes budget figures for all asset ranges included in the study, along with other measures of profitability and their correlation with marketing budgets.

Attempting to establish a definitive relationship of marketing spending to any measure of results ignores the fact that a bank is a machine of many moving parts. Brilliant marketing could be undermined by a local economic downturn. Successful marketing that produces strong loan growth that ought to produce strong net income could be negated by a major loan loss. But with care a marketing officer can make a case for ensuring that in today's competitive environment no brand need face the battle with inadequate ammunition and support.

In 2018, banks generated, on average, $18.34 for every dollar spent on marketing, up from 2015's average of $14.48. As a group, banks between $500 million and $1 billion averaged the highest profit per dollar spent on marketing, with the largest asset class, those over $10 billion, coming in behind that.

Looking at the above table based on asset tiers, it is notable that the three middle tiers, covering banks between $500 million and $10 billion, as a group spend more on marketing as a percentage of assets than the largest and smallest categories in the study sample.

Conceivably this reflects the urge to grow not only for growth's own sake, but for strategic reasons. In recent years crossing the $1 billion mark and the $10 billion mark have become priorities for banks. This reflects a mixture of influences, including the quest for overall efficiency; the need to grow larger to support the costs of ongoing digitization; and overcoming the drag of compliance, often a fixed cost.