Successfully choosing a location for a new branch has become both more complicated and easier in recent years. Significant changes in how customers access banking services have upended the traditional metrics used to evaluate available sites. Basic traffic counts and demographics remain important but are only a small part of the analysis which must be done to ensure that a new location will be accretive to the bank’s results. On the other hand, the quality, cost and usability of data on consumer behavior has improved dramatically in recent years, enabling us to gain a vastly deeper understanding of how people spend their time and money. In turn, this has opened the door to developing very accurate customer profiles for a given bank, and utilizing those profiles in the process of siting new branch locations. At the same time as e-commerce has disrupted the role of the branch, we’ve gained the ability to acquire a vastly greater understanding of customer behavior.
Today, the science around site location analytics has become one of the basic tools in our toolkit. It wasn’t long ago that we would routinely spend in the six figures to develop an analysis of the demographic characteristics and basic spending habits within the trade area surrounding a site under consideration for a new branch. Viewed through the lens of what we can do today, that analysis was a very blunt instrument.
We work with numerous financial institutions and our experience has been that regional and community banks are either not utilizing advanced site selection analytics or else are using only a small percentage of their full capabilities. With those who have attempted to use it, we routinely see the binders containing vast amounts of information sitting on their desks, largely unused. In fairness, this isn’t surprising as the breadth and depth of the information can be daunting and it takes time and a level of experience to understand it. To their credit, bank leadership also often seems to instinctively understand that there is a risk of drawing incorrect conclusions from the data.
Additionally, we continue to encounter financial institutions who believe that they serve their entire community when, in fact, we know our analysis will show that approximately 80% of their customers come from within a narrow cross-section of those living within a defined trade area. Many retailers have understood this for many years and embrace the idea of knowing their customer as a fundamental element of their site selection, marketing and communications strategies. Violating the basic principle of knowing your customer has led to many an unfortunate outcome.
We are often asked to help diagnose why a given branch isn’t performing to expectations. Using consumer behavioral analytics, we typically find there’s little or no alignment between the majority of the behavioral profiles present in the trade area surrounding the subject branch, and those proven to be responsive to the banks offerings and messaging. In summary, we find that the people living in the trade area aren’t the banks’ customers. If there’s a bright side to this, the analysis will point the banks’ marketing department toward options which can increase traffic at the branch; however, the client would have had the option of reconsidering locating a branch in that market if the analysis had been done earlier. This highlights what everyone who has opened a poor-performing branch knows: a bank can change a lot of things including the marketing, the staffing and the products and services offered; however, the most difficult and expensive thing to change is the location.
It’s important to recognize that behavioral analytics is only one component of the work to be done prior to deciding to open a new branch. The other is the field work. Each must be completed and the results carefully combined in order to create a complete understanding of the specific site. As important as it is to have the behavioral portion done by professionals who work with that information every day, the field work must also be done by experienced site selection professionals. To be clear, this doesn’t mean calling the local commercial broker. While you still must use appropriately licensed professionals, it’s critical that they have extensive and current experience in the site selection methodologies used by national or regional multi-location enterprises in the retail, food & beverage or service industries. Among other things, their work should include on-the-ground analysis of site positioning relative to competitors, traffic patterns, turning movements, parking layouts, co-tenancy impacts, the lease terms and sales performance of adjacent traffic generators, building & signage visibility and a variety of other factors. When utilized at its highest level, each of these factors will be assigned a specific weight and the result used to adjust the predicted volume for a new branch. This is an important step as the cumulative effect of these factors will often adjust the prediction by as much as 30%.
Modern site selection is the result of decades of remarkable advances in data collection, analytical methodologies and quantitative analysis of a variety of site characteristics. Site selection within the financial institution industry benefits from these advances as their application minimizes the risk of opening a poorly performing branch and allows for greater predictability of the return on investment of a new branch. Additionally, improvements in understanding customer behavior provide the ability to identify and connect with the specific customers who will respond positively to their overall presentation, often at lower cost.
E-commerce and online banking continue to transform the role that physical locations play in connecting an enterprise to its customers. Online capabilities reduce many services to commodities but are a far less effective channel for delivering personalized consultative and advisory services or providing opportunities for effective two-way communication between the enterprise and its customers. Therein lies the future for branches, and the path forward begins with an in-depth understanding of what matters to your customers. The application of the knowledge gained through that understanding should be the foundation upon which branch decisions are made. In this time of changing customer expectations, our industry needs to find ways to sustain and improve the return on their branch investments. Modern site selection methods are at the center of that work.