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.trackback
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.
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While I appreciate the idea behind this, and I understand the example you use of ‘left-handed crocheting’, can you offer some realistic examples of banking niches?
And in thinking about what you’ve said here, it seems like the appeal here would have to be for customers willing to do their banking online – and for the bankers who are interested in offering products exclusively or almost exclusively online. Do you think we’re ready for this shift from brick and mortar to an entirely online experience? And is there a place here for financial institutions that may not want to be exclusively online banks?
Brady, first off, thank you very much for your comment. I’m really excited to get more perspectives into this blog. Our topic is such a new one that there’s TONS of great opportunity for us to all explore this unchartered territory together and learn along the way.
To answer your first question, I believe that *eventually* a left handed crocheting niche bank is realistic. But that’s reeeaaaallly far down the long tail and I seriously doubt would be one of the first niche banks we see. What’s more likely in the short term are banks that are on the long tail (but not quite so far down) that center around very real and mainstream passions. For instance, millions upon millions of people have passions for things like sports, beer, wine, dogs, their children, etc. I foresee banks that tap into these passions.
To your second point, you’re right—niche banks are not going to convert brick-and-mortar customers to online-only experiences overnight. Today there are millions of customers using Internet direct banks, though, all getting a pretty generic experience that’s not really much different than the generic brick-and-mortar experience, except that it takes place online. My vision for how niche banking works in the physical world is not as clear…in fact I’m not sure it would work at all. But that’s the case with most long tail stuff—for instance a brick-and-mortar bookstore couldn’t be viable selling most of the stuff Amazon.com can sell.
I think the public is becoming ever more used to the idea of money as a set of numbers on a screen rather than bank notes in their wallet. This is evident in the fact that people rarely carry large amounts of cash anymore. Because of this I think people are ready to experience an all-virtual banking system as long as access to their money is not overly prohibitive and they possess the ability to withdraw it as bank notes as needed.
I would agree with that. One thing to note is that our business model (which I realize we have yet to fully unveil) is based on converting customers from people who are already banking fully (or almost fully) online at other existing Internet direct banks. Our goal is not so much to talk a person who banks at their local brick-and-mortar community bank into going completely online-only at our niche bank. I believe we will benefit from an organic natural transition of people to direct banks in general, which we will capitalize on by providing a unique and niche-oriented experience.