The Product Puzzle: Beyond Vendor Risk Management

Anyone who has taken a Marketing 101 course can probably recite?from memory?“The 4 Ps?of Marketing,”?but?for?too many financial institutions it may as well be “The?3 Ps.”?

• Price?– Significant resources are?invested in ALCOs?(asset/liability committees)?and related activities;?adjusting asset and liability sensitivity and mix, analyzing yield curves and forecasts, risk-based capital reserves, liquidity ratios, etc. That makes perfect sense for the core business model of gathering funds through deposits and lending them back out at higher rates. Getting any of those things too wrong for too long leads to failure.?
• Place?– Another word?distribution. For centuries this was done at the scale of person to person, pen?and paper, and brick and mortar. As the world has digitized,?so has distribution. Deposits, loans, payments, transaction reporting,?and servicing?have been converted to bits and pixels.?
• Promotion?–?Newspaper display?ads, billboards, radio jingles, and free toasters?have largely been?replaced by emails, social media posts, digital ads, retargeting, keyword marketing, SEO, content marketing, and logo?swag. However,?the content?has remained largely the?same: Either?high-level,?branded?content positioning the institution as some blend of safe, strong, convenient, friendly, and locally focused; or direct?promotion of a specific?loan or deposit rate?offering.?

What’s?missing???

Product?–?The American Marketing Association defines product as “a bundle of attributes (features, functions, benefits, and uses) capable of exchange or use;?usually a mix of tangible and intangible forms. Thus,?a product may be an idea, a?good, a service, or any combination of the three. It exists for the purpose of exchange in the satisfaction of individual and organizational objectives.”?

You know, the stuff that delivers value to customers. Price, place, and promotion are largely internally?focused. Product is harder because it is (or should be) customer focused.?

Product Management is More than Product Advertising

My colleague Amber Frye recalls from her banking days being repeatedly told to “do more ‘brand awareness’?rather than product marketing because of the compliance implications and making sure all the required disclosures/logos were included. When we did do product advertising,?the lead time getting it approved by our compliance department was weeksss.”?

This is further worsened?by a lack of true product managers at most institutions.?Far too often when they do exist, they should more properly be titled “pricing manager” or “promotion manager.”?True product managers should be both of those things, but also experts in deeply?understanding of?the customers and their evolving needs.??

Here's?why a new focus on product is more important than ever?for community banks:?

• Core loan and deposit products are fungible commodities, with pricing bounds determined?by market supply and demand.?
• The largest and strongest institutions have unmatched?scale and capital advantages?to push against those pricing bounds?to win and protect market share.?
• Agile,?asymmetric competitors have other advantages, such as lower costs to acquire?and service customers?that allows them to cherry pick profitable?market segments.?
• The cost of building physical locations and staffing them with workers was a barrier to entry that effectively?no longer exists.?
• Promotion channels are more plentiful and more accessible than ever, but that also means they are more crowded than ever?and harder to stand out without a unique product offering.?

?Missed Opportunities

Organizations that hope to win in these conditions must focus even harder on creating new value propositions?through products.?Our industry tends to be too slow in recognizing how new capabilities can be used to improve customer outcomes, not just reduce expenses.??

?In the early 1990s the digitization of transactional data was viewed by most in the industry as merely an opportunity to reduce operating costs by saving on printing and postage (Sign up for e-statements!).?Early movers like Quicken, Yodlee, Mint.com, and others realized that customers were taking this digitized transaction data and creating budgeting tools. This led not only to the concept of Personal Financial Management (PFM) but also to the first digital-only neobanks?like?Perkstreet, Simple, and Moven, which built robust digital experiences around pre-paid card rails. That, in turn, led to the early developments of open banking, where products are not necessarily distributed from the same places they were developed.?

?Most bankers get, at least superficially, that all products do not necessarily need to be produced fully in-house?these days. We are now at least a decade and a half deep into discussions of “bank/fintech partnerships”,?but almost all?those discussions are about compliance and risk management. Those are massively crucial details, but it’s?time to add the equally crucial details?on delivering new value propositions to attract and retain?customers?through?new products.?

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We are hosting a workshop in Chicago on July 29-30 Product Management for the Next Era of Banking, focused on helping attendees gain a comprehensive understanding of the critical roles of product and product management in modern digital banking, whether created in-house or through external partnerships. There will be a track for current and prospective product managers, and one for executives on aligning product strategy with enterprise strategy and managing structures and resource allocation.

Learn more and register here

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JP Nicols is Cofounder and Managing Director of Alloy Labs where he helps leaders create competitive advantage to drive exponential growth through industry-leading best practices,? tools, and frameworks.

He is a top-rated speaker and instructor on innovation, strategy, and leadership at leading graduate schools of banking, and cohost of the Breaking Banks Fintech Podcast , the #1 global fintech radio show and podcast.

He previously spent 20 years helping to grow a $6B regional community bank into a $400B national leader.