Marketing

Y

the

Third QuarTer 2009

Ma ry l a n d b a n k e r

Marketing to Generation

They’re Your

Bank’s Future

The Official PublicaTiOn Of The Maryland bankers assOciaTiOn

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Marketing to

Generation Y They’re your bank’s future

By Christina P. O’Neill

eneration Y, born between 1979

and 1999, are your bank’s future.

They’ve already surpassed Baby

Boomers in numbers and will exceed them

in annual income by next year. They’re

“digital natives,” the first generation to

grow up with computers, but they’re also

a social generation. How well you provide

their favored technology and how you

use it to communicate with them will

determine your success in recruiting and

retaining them as customers.

For boomers, technology was an end

in itself, says Larry Cohen, director of the

Consumer Financial Decisions group at

SRI Consulting Business Intelligence. But

for Gen X and Y, it’s just another medium

of exchange that they learn quickly.

The way Gen Y communicates and

consumes information is an essential part

of who we are, says Cobey Dietrich, direc-

tor of advertising and public relations at

Bel Air-based A.Bright Idea LLC. “Their

computer will be their window to work,

socialization, and online banking.”

“Their social network defines their

lives,” says Anita Newcomb, president

and founder of A.G. Newcomb, a Mary-

land-based management consulting firm

focusing on the banking sector. These

social networks will be critical elements of

banks’ marketing strategies to reach this

valuable customer segment. At present,

there are almost 60 banks with a presence

on Facebook, she says, but there’s more

that banks could do to attract Gen Y.

Tony Coretto, managing partner of

PNT Marketing Services Inc. in Long

Island City, NY says institutions may start

distinct, co-branded spinoff sites targeted

to Gen Y, with snappier design than a

“plain-vanilla” banking site.

But the ease of establishing a long-

term web-based banking relationship with

Gen X and Gen Y also gives them more

opportunity to research the competition.

“Banks have to adopt a different strategy

of communication,” he says. Gen Y will

be suspicious of a standard corporate

line. Communications must be relevant

and targeted. “If you’re not on Facebook,

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you’re missing on an opportunity to

provide information on your services, but

you don’t want to be overtly pitching or

advertising.”

Getting the message right

When First United Bank and Trust

Co. redesigned and updated its web site,

the bank’s chairman drew from the ranks

of bank employees under age 30. The

Oakland, MD-based bank is now inves-

tigating an entry into mobile banking by

next year – to be led by a Gen Y’er – and

is contemplating establishing a pres-

ence on a medium such as Facebook or

YouTube. “We’re not there yet,” says Rick

Thayer, senior vice president and director

of marketing. “We’re a community bank

and we are fairly conservative. We’re

still in the process of understanding the

commitment we make by going out there

at all, refreshing the content on the web

site, and making sure we have the mes-

sage right.” Additionally, he says, as First

United investigates mobile banking, it will

want to make sure to offer the most secure

site available.

What does Gen Y want? Immediacy,

individualism and social interaction,

Thayer says. When the bank redesigned

and rebuilt its web site, it incorporated

practical financial calculators such as

the Lunch Savings Calculator, the Rent

vs. Buy calculator and the Cool Million

calculator. “We added more content, so

when they visit the web site, it’s not just

static,” he says.

A.Bright Idea’s Dietrich says Gen

Y’s understanding of technology is in-

nate – and their thirst for constant new

information requires that banks constantly

refresh their web sites with new informa-

tion to attract a generation that uses web

products such as del.ici.ous and RSS feeds.

Clients with web sites five or six years old

that aren’t getting any new traffic are very

likely not refreshing the site with informa-

tion Gen Y wants, she says.

A. Bright Idea’s client, Slavie Federal

Savings Bank, came to the agency for

marketing support. Founded in 1900 in

Baltimore, it built its reputation as a “heri-

tage bank,” good for stability and strength.

However, Dietrich says, the concern was

that the bank might appear too traditional

for Gen Y.

The agency developed the tag line,

“Discover Today’s Slavie,” to refresh its

image and updated the bank’s web site to a

clean, fresh and functional look. It markets

opportunities for first-time homebuy-

ers – the upper end of the age bracket for

Gen Y. It also utilized a nontraditional

approach with radio personality endorse-

ments in the Baltimore market with a

campaign featuring regional talk show

host Ed Norris, whose show targets men

aged 18 to 49.

Helping Gen Y help itself

Another bank, the super-regional PNC

Bank, teamed with IDEO, a research firm,

to do in-depth ethnographic studies across

the United States and South Korea, to

determine what differentiates them from

other age cohorts. Researchers visited cus-

tomers at home, asking about their money

management strategies and what they

wanted to see in financial service tools.

Gen Y customers want help to help

themselves, says Michael Ley, vice presi-

dent of e-business and payments for PNC.

Services have to be simple, clear and

on-demand because some of the day-to-

day money management concepts haven’t

been taught in school, he says.

PNC Bank’s Virtual Wallet program, in

development since late 2007, was launched

in August of last year. It calls the checking

account the Spending account;

a short-term savings account with a lower

interest rate is the Reserve account, and

a long-term savings with a higher rate is

the Growth account. Customers can move

money between accounts by using a

money-bar slider.

“We found that there are many

customers trying to [aggregate informa-

tion] on their own,” Ley says. “They

have a checking account in which they

might have tucked away $200 as a reserve.

We tried to visualize that and put it in a

context they can understand. The Virtual

Wallet represents how these folks think

about their money.”

Two-way communication:

Are you ready for this?

Gen Y wants the capability of critiqu-

ing customer relationships, and shar-

ing that critique with their friends. “It’s

essential for a bank to enable users to

critique their interface with the bank.

But few banks are thick-skinned enough

to put those critique comments on line,”

Newcomb says.

Marketing to

Gen Y and

Their Parents About 11 million U.S. households

domicile children who can no longer

be claimed on their parents’ taxes.

Larry Cohen, director of the Consumer

Financial Decisions group at SRI

Consulting Business Intelligence, calls

them Boomerangs. “A lot of entry level

jobs don’t pay enough to support living

independently – or to support the

lifestyle to which children have become

accustomed at their parents’ house,”

he says. “Also, parents are more open

to having children stay in the home,

compared to previous generations.”

However, he notes that there is consid-

erable pent-up demand for household

formation. “The speed with which

households form increased in the 90s and

dropped off a cliff in 2000. It has remained

at a lower level since,” he says.

Some adult children may remain Boo-

merangs into their 30s, an adult child

dependency pattern Cohen regards as not

optimal for either child or parent. Hav-

ing a Boomerang at home compromises

parents’ ability to save for retirement or

to downsize their living quarters. Then,

there’s the wear and tear on the car, and

health insurance. If the child living at

home doesn’t have a job that pays for

health care and they get sick, parents

won’t let them go without, he says.

A good bank product for Gen Y might

be to construct a long-term nest egg, to

start on the down payment for a house,

or to pay down school or other debt, he

suggests. Another vehicle could help the

parent save for retirement. Alternatively,

a bank could develop a product for Gen Y

children linked to their parents, in which

a parent could match a percentage of what

the child puts in the growth fund.

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Corporate transparency has become a

critical element of the value proposal, par-

ticularly since September 2008, the height

of the financial panic on Wall Street,

Newcomb says, “Gen Y wants total trans-

parency in disclosure of fees and terms,

and they want to align their values with

the values of companies [they perceive

are] like them. They will combine their

social and civic beliefs with action.”

That said, Gen Y is also more entre-

preneurial than any other customer set,

and seem set to become the small-business

owners of tomorrow. They’ll need some

help to get there, though. “They are

well-educated but financially illiterate,”

Newcomb says. “They need products

and services that facilitate their banking

wisdom. For example, products that help

them develop a pattern of saving, because

they haven’t been savers.”

Greed is good — NOT “Gen Y is socially conscious, and

want their bank to be, too,” says SRI’s

Cohen. Gen Y has been exposed to the

big financial scandals and implosions

of the past eight years. “This is a time

of great velocity. For this generation to

have this exposure at a time when they

are becoming independent, it will have

long-term impact,” he says.

Of all groups surveyed, Millennials –

those aged 18 to 24 – present the lowest

level of confidence that Social Security

will be there for them. But while they

believe they’ll have to work longer, they

also want to not only do well, but to do

good. “Many have a responsible streak

and a strong sense of civic duty,” says

Cohen. “Gen Y may be first to say greed

is not good.”

Making it stick

Research has determined that it’s five

to 10 times more expensive to recruit

customers than retain them. Commu-

nity banks’ challenge will be how to keep

Gen Y customers who move away from

their home region when they leave col-

lege, Newcomb says.

Gen Y is a natural for time-saving

online applications that aggregate all

their financial information into one

convenient place, promoting “sticky” be-

havior that results in customer retention.

“Sticky behavior makes accounts

‘stick’ with banks, and makes them

harder to disentangle. Rather than a

retention strategy, it can be a growth

strategy,” notes Coretto. “If you’ve got a

customer you want to keep, enroll them

in direct deposit payroll, online bill pay-

ment, or automatic transfer payments to

their credit card or mortgage. Anything

that is a link that would have to be

severed if the customer changes banks is

one more reason to stay with the current

bank.”

How hard is it, really, to sever those

links? “The perception is often greater

than the reality,” Coretto says. Filling out

forms, providing identification, setting

up direct payroll deposit by providing your

employer with a voided check from the

new account (and usually waiting a pay cycle

for the direct deposit to activate) takes

maybe a couple of days. Once a seamless

system is in place, “customers are loathe to

disrupt that.”

Young consumers who have tie-ins to

Quicken or account aggregation sites such

as Mint.com or Yodlee.com, have even

more reasons to stay with their current

bank, rather than pull out and replace all

their bank-related links. Once a customer

has these financial linkages in place “a

bank has to do something egregiously bad

to drive them away,” Coretto says.

Acceptance

While Gen Y are the early adopt-

ers of new technology, bankers say older

demographic groups are also adopting

new technology at a quicker rate than in

the past, placing banks which offer new

services earlier a competitive advantage as

the adoption rate accelerates. For the late-

comers, new services become a “me-too”

and profitability is not what it could have

been with an earlier adoption rate, says

First United Bank and Trust’s Thayer, who

sees the day when mobile banking will be

yet another free service, used as way to

increase sales and retention.

He cites research that shows that

customers who regularly use online bill

pay are up to 95 percent less likely to

leave compared to others. Customers who

don’t use online bill pay are 43 percent

more likely to leave. A person who uses a

debit card is 1.5 times more likely to buy

another banking product than someone

who just uses checks.

As Gen X and Y research mortgages

and other loan products, they can com-

parison shop within their respective online

communities, comparing rates and points,

and getting advice from their online com-

munity rather than the bank.

It’s a far cry from a generation ago – or

even more recently – when talking about

money was considered taboo. “Given the

community ethic that has arisen with

Facebook, LinkedIn, Twitter, and other

social networking sites, there is an entirely

different attitude about sharing personal

information.” Coretto says. “The advice

comes from the community, not a third

party like a bank.” That leads to commod-

itization of financial products and services

unless banks can make their messages

relevant to the community, Coretto says. ■

Christina P. O’Neill is custom publications editor for The

Warren Group, publisher of The Maryland Banker.

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