Bye Bye Mass Appeal; Hello Niche Appeal November 24, 2009
Posted by nichebanking in Bank customer segmentation, Niche banking, Nicheruptive, The Long Tail of Banking.4 comments
In the last post, “Why Small Slices Didn’t Work…In the Past,” we discussed how in the “olden days” (like last year) a brick-and-mortar bank would need to have mass appeal in order to attract the critical mass of customers needed to make the bank viable. This resulted in very bland, diluted brands that don’t offend anyone…but also don’t really resonate with anyone.
With the Internet, however, that’s no longer the case. In fact, the Internet is making that approach totally obsolete. You see, the web is amazing at delivering tailored, specific and relevant content to people, based on what they’re interested in. You’re into left-handed crocheting? No problem. Love baking your own vegan dog biscuits? Easy to find others who share that passion.
In fact, not only has the Internet enabled this, it’s training us to expect this level of niche information. It’s showing us that we no longer have to put up with boring, generic content or experiences.
Thanks to the Internet, banking today knows no geographic boundaries–and there’s no need to try targeting every-other-person in a specific region, in order to create a viable bank.
Let’s look at a rough, crude calculation, just to make a point. Each US-based Internet direct bank has access to the 227 million Americans online. If you assume an average $2 billion bank might have maybe 50,000 customers or so (just a ballpark), that means each of those banks needs 0.02% of the US population as its customer. Two one-hundredths of a single percent. That’s a pretty small and narrow slice of the population, and you don’t have to cast a very wide net to get that portion of the market. So why are banks marketing as if they need to be attractive to everyone?
See–there is no need to be generic anymore. In fact, there’s a need to NOT be generic anymore. There’s a need to be so ridiculously focused that you can deliver a highly specialized niche experience that a certain group of people will LOVE, and all the others (the vast majority) will hate. Today, mass appeal is almost off-putting. It’s niche appeal that gets people fired up and passionate.
The question then, of course, is how exactly do you go about doing that? The answer to that question is exactly why we formed Nicheruptive, and we look forward to sharing our plan with you.
//2FVVEF9FJXPW
Why Small Slices Didn’t Work…In the Past November 18, 2009
Posted by nichebanking in Niche banking, Problems with traditional banking, The Long Tail of Banking.3 comments
In our last post, “Niche Banking: A Big Chunk of a Small Pie,” we discussed how the future of banking (niche banking, of course) will be in serving high percentages of small, narrowly defined customer segments. This begs the obvious question: “well, Mr. Long Tail Know-It-All, if pursuing high percentages of small, narrowly defined customer segments is so brilliant, why hasn’t the industry been doing it all along?”
It’s a good question.
Here’s why. Before the Internet became a primary delivery channel for banking services, banks were only brick-and-mortar based. If you wanted to start a de novo bank, you’d raise millions upon millions of dollars in capital, jump through the pain-in-the-butt regulatory approval process, and eventually open your doors. At that point, you had a huge financial burden to dig yourself out of, and a finite amount of branches (often just one) to work with in order to generate revenue and eventually profits.
You also had a finite potential market to pull customers from–probably the folks living within a 5 mile radius of your branch (unless you were in a super rural location, most customers would not drive more than 5 miles to get to you when there was another bank closer and more convenient). So, what was your strategy? Well, obviously, it was to be as widely appealing as possible to your potential market, so that you could draw enough customers to be viable and pay for the huge costs of capitalization and start-up that you just endured.
In other words, you had to be vanilla and generic enough so as not to turn anyone off…because you needed a lot of customers in order to make your bank viable.
In other words, you had to have mass appeal.
“So,” you may be asking yourself, “what has changed? Isn’t that still the case?” Well, no, it’s not necessarily the case any more. And the reason is that the Internet has created a whole new method of delivery that:
- breaks these geographic confines of the past
- greatly lowers the ROI hurdle
- allows for much stronger and more distinct brands to emerge, for more narrowly defined customer segments
If you’re lucky, maybe we’ll explain more in the next post. 
Stay tuned.
Niche Banking: “A big chunk of a small pie” November 11, 2009
Posted by nichebanking in Niche banking, Problems with traditional banking.1 comment so far
A big chunk of a small pie. This headline is just 7 short words. But it represents a whole new way of segmenting the market of potential customers. Here’s what I mean:
Today’s banks look at the entire market (defined by geography and often demographics, but rarely more narrowly defined than “you can fog a mirror and live within 3 miles of our branch”) and try to gain a share of this market. In other words, today’s banks get a small piece of a big and extremely broad market.
Niche banks do the opposite. They look at the entire market, and then define a narrow slice of it (defined NOT by geography or demographics, but by psychographics, interests, passions, etc.). Then, they try to gain a LARGE share of that tiny little slice. We’ve put together a graphic to show the difference between traditional banking and niche banking.
Click to enlarge
The long tail of banking is about these small slices…and lots of them. So why don’t we see this strategy in the banking industry today? Because this doesn’t work in a brick and mortar world…which we have lived in until recently. More on this in our next post.
Banks: Target How Many Market Segments? November 4, 2009
Posted by nichebanking in Niche banking, Nicheruptive, The Long Tail of Banking.add a comment
Today, in my normal Twitter activity (@nichebanking), I came across this good post on BankInnovation.net, called Target Niche Markets with Enhanced Online Experience. It starts out with a good, simple question: ”How many different market segments should banks target?”
I’d like to respond to a slightly different question: ”how many different market segments should the banking industry target?” My answer: infinite. This is exactly what the long tail of banking is all about–going further and further down the tail, “slicing and dicing” customers into lots and lots of unique segments based on psychographics rather than demographics or geography. Right now, as the article points out, the industry’s idea of segments is “consumers, small businesses, and micro-businesses.” These segments are about .2 centimeters down the tail. Instead, there is an opportunity for banks to go MUCH further down the tail, as the article (and the speaker at the BAI Retail Delivery Conference) points out.
As for the question of how many different segments an individual bank can target, that answer is depends on the bank’s ability to commit to a new model of doing business. Based on the Nicheruptive way of thinking (and I believe what Harris Bank‘s Nate Wehunt was insinuating), a “bank” could target dozens of different segments…and the customer wouldn’t even know or care. That’s because the key, of course, is that it may just technically be one entity (a “bank”) but in practicality and customer experience, it would appear as dozens of different banks.
