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OCR for page 143
Chapter 7
Bank of America Base Study
This chapter provides an overview of the marketing activities of Bank of
America (BofA), a $250 billion dollar asset bank with headquarters in San
Francisco, California. BofA was extremely generous in providing general
information about its marketing approach to small businesses and its relationship
marketing strategies for medium-sized businesses. In addition, the Bank
provided great detail on the marketing of the Alpha/Prima consumer product,
which illustrates the way that BofA undertakes a product launch, whether for
business or for consumers. Due to the proprietary nature of its marketing plans,
BofA was naturally reluctant to provide detailed information about current
banking products. However, the Alpha/Prima product roll-out, although it
occurred in the 19SOs, gives a clear picture of the type of effort which BofA puts
behind a major product launch
In the highly competitive environment of _ ~ ~ _
the financialservices industry, BofA has ~ r
mace a name foritselfasanimportant -
lender to small businesses. In an effort to
reach a strategic goal of lending $10.6 ;
billion to this sector, BofA has
implemented a number of new products and services targeted specifically to the
small business customer. BofA has promoted these products and services using
print media, press releases, and in-branch literature. In a particularly aggressive
move, BofA also has marketed heavily on the Internet and even offers a number
of direct on-line banking services to these customers as well.
,.,:i~.,,,' I;'. i''. :.,, 'i it 'i :..,.', !. .~ . ,. ', '.: C ~;.,~ I '.' ,¢ . . i ;. ~ ,'. '.. . i i; .~ ~.i..
BofA also has focused organizational resources to market services to medium-
sized businesses, particularly in nearby Silicon Valley. A key innovation
stemming from this medium-sized business practice has been the "Relationship
Team." By using a team instead of an individual account manager for each
business customer, BofA is able to offer a one-stop shopping experience for
almost all financial services. New business needs also are identified far more
quickly through the Relationship Team structure than through the traditional
market research avenues, since a needs-identiOcation process is a part of the
Relationship Team experience.
P8gll 7-]
OCR for page 144
B~kof Am0nca eat
Although BofA is currently one of the largest banks in the United States, it faced
slightly declining market share during the 1980s. In an attempt to counter this
decline, BofA undertook a major effort to develop and promote a new
consolidated account, called the Alpha/Prima account. First, BofA undertook
market research to understand what its own trends were versus competitive
trends in banking accounts. In order to better understand its weaknesses, BofA
also surveyed the customers lost to competitors.
After this initial research, BofA developed the Alpha/Prima account, and
completed a marketing plan for this product. The marketing plan stated the
goals of stemming the flow of customers to other financial institutions and to
establish a competitive and aggressive position in interest-bearing checking
accounts. The plan specified the actual dollar goals in terms of total
Alpha/Prima balances and incremental balances over a four-year period. The
plan also specified pricing policy for the accounts, financial considerations,
cannibalization issues with existing accounts, and implementation issues. More
market research was conducted to assist in the design of product features and
pricing considerations. This research indicated that customers especially
appreciated the simplicity of the consolidated account.
The actual implementation of the Alpha/Prima account was a large project.
Bank support systems, including computer, accounting, and telephone service
capabilities, had to be improved. Personnel had to be trained at all levels of the
organization. Overall, the implementation costs of $ ~ ~ .2 million dollars
exceeded plans by $4 million dollars. Fortunately, the benefits of the plan were
also greater than what was projected.
Although the resources and the size of BofA are much larger than typical transit
agencies, lessons still can be learned from observing BofA's marketing
approach. A key lesson from BofA's experience is the Bank's drive to malce its
products and services more convenient to use. Also important is BofA's use of
market research data from lost customers to inform on-going and future
marketing efforts. Finally, BofA's use of technology (both in terms of the
Internet for small business banking and internal networks for implementation of
tile Alpha/Prima account) is exemplary, and is certainly analogous to transit's
use of AVL (Automatic Vehicle Location) systems to provide customers with
better information and real-time schedules.
=
In ~ 904, Peter Giannini founded the Bank of Italy, which later became the Bank
of America. Giannini is well known for managing BofA into several multi-
billion dollar companies and for heroics abler a natural disaster. During the
famous San Francisco earthquake of 1906, Giannini rescued $80,000 in cash
before the Bank building burned by hiding it in a wagon full of oranges and
bringing it to his house for safekeeping. With this money he reopened his bank
days before any other bank and began making loans from a plank-and-barre]
PB90 7-2
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Bank of Am01ica Cam SWAY
counter on the waterfront, urging demoralized San Franciscans to rebuild.
Gianinini also financed construction of the Golden Gate bridge when few other
banks would contribute money toward the project.
By 1929, BofA passed the $l billion mark in assets, in large part due to
Giannini's innovation: branch banking. A year later, Giannini consolidated what
were by this time two banking systems and handed operating control over to his
other, equally successful company, Transamerica.
The Bank continued its streak of success until the early l 980s, when liquidity
problems from Third World debt led the Bank toward bankruptcy.
BankAmerica is now on more solid footing and enjoying a stronger market share
in the retail and commercial banking sectors. Tile Bank, still based in San
Francisco, California, is the nation's third largest bank holding company and
manages assets of over $250 billion. Bank of America serves customers through
more than 1,900 offices in the Western United States and in 37 other
countries.~45
In line with the company's strategic vision, BofA has made a concerted effort to
target the small business customer. The following section reviews BofA's
broader organizational plan for developing this market, as well as the firm's
innovations to target this business segment.
Strategic Marketing and [onI-Term goals
BofA's strategic vision and long-term goals generally revolve around financial
objectives. While there are several goals for the company as a whole, each BofA
division - from retail banking or commercial banking to Merchant Services -
also develops its own specific objectives. As part of the Bank's retail and
commercial banking vision for the 2Ist century, BofA has targeted small
businesses. BofA claims that small business owners comprise 98 percent of the
American business market and are also the primary engine of newjob
growth. ~ ~ 5
In 1996, the company announced a plan to significantly increase the number of
loans made to small business owners. Since making a three-year, ten-state small
business lending commitment of $! 0.6 billion last April, BofA has loaned $6.6
billion to small companies in ten western states. During the same period, the
Bank loaned more than $3.9 billion to small businesses in California,
approaching its three-year $4.5 billion commitment to this particular state.
Paq87
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Woof Am~t8~S~y
.
Product and Marketing Plans
Each of BofA's divisions or groups is encouraged to develop its own product
and marketing plans. In fact, each division has a product development specialist
on staff. All groups use the BofA Guide to Writing a Marketing Plan (see
Chapter 7 Supplement, Appendix B) when developing and documenting
marketing efforts. The guide encourages divisions to develop a plan to "help
you decide which products offer the greatest growth and profit potential. Then
you can prioritize them in terms of the efforts and dollars you are willing to
invest in developing the business."
Ideas for new products are often culled frown market research of customers and
businesses. Databases of names and addresses are developed from existing
accounts and, as will be discussed later, from persons or businesses who respond
to a Web page Personal Profile.
New Product Development for Small Business
Much of BofA's success in the small business market can be directly attributed
to the company's ability to develop new products specifically geared to the
needs of the small business owner. In a few short years, BofA has augmented its
small business product lines with expedited processing (including express loan
approval) and new services (such as payroll services for small businesses).
Figure 7-! lists some of the products for small business. Following is a
chronology of the product innovations and promotions aimed at small
businesses.
From 1994-1995, BofA introduced a series of innovations that make it easier for
small companies to obtain credit. In 1996, BofA introduced a "simple, one-page
application for its Advantage Business Credit (ABC) loans and dirges of credit of
$2,500 to $100,000. The Bank also began express processing for loans and lines
of credit up to $50,000, meaning most business owners do not have to provide
tax returns, financial statements or other documents to apply." A direct result of
these efforts has been extraordinary growth in the ABC loans and lines of credit.
As reported by BofA, 'CIn 1995. . . BofA made $450 million in ABC loans and
lines in California; in 1996, that figure more than doubled to over $1 billion."~7
Page 7-4
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B"ofAm~ea ease S~
Figure 7-~: Bank of Amerita's Products for Small Businesses
R8f~ - Includes a Working Smarter series with articles on How You Can Develop a
Marketing Plan, Writing a Winning Business Plan, Alternative Worksweek Series, and
Getting the Financing Your Business Needs. References also include articles by small
business experts Paul and Sarah Edwards and Jane Applegate.
_! Y0l~ 0wn Bake F-he 0 th hi - Customers decide which bank features they prefer
- from checking account options to investment products - and thereby "design" their
personalized banking service. To begin the process on-line on the Internet, a customer must
first complete a Personal Profile. This personal and business information is then downloaded
to a database and eventually used to test-market new retail or commercial products.
4~ica~s- On the BofA Web page, customers can "click" on the screen and see (or print)
applications for a Visa BankCard application, ABC Loan or Line of Credit, or HomeBanking
Business, or request the Merchant Services Information Request Form or the Business
Connect Request Form for processing purposes. Willing customers also can participate in
market research efforts by completing a Supplier Diversity Questionnaire.
AN f01' mB N_ 0f Smog The Business Checking Account, Business Interest
Checking, Specialized(Business Checking Accounts (for businesses with high transaction
volumes and for businesses that need consolidation of multiple accounts or locations in a
particular state), and Business Overdraft Protection.
BUN SNAG ~ bll0Sb~ _ - The Business Savings Account (for an account that can
be opened with a small amount of funds), Business Money Market (for a higher earnings
potential with safety and limited access by check), Interest Maximizer (for highest money
market deposit yields with FDIC safety), or Investment CDs (for the security of a fixed rate
and fixed term).
Ill~ls £ Id" 0f Cleat - Lines of Credit, Loans, Commercial Vehicle Loans, Commercial Real
Estate Loans, and Letters of Credit.
B~4 - Homebankingfor Businesses as well as Business Connect Basic and Deluxe.
P8 - So- Services are provided by Automatic Data Processing (ADP), the nation's
largest payroll services company. ADP provides payroll and human services, including
issuing checks. calculating tax deductions, preparing tax reports.
T81 P8Yll~lt SKIS wffll I~TIll - Offers the option of arranging payment of business
taxes from any touch tone phone or PC (ostensibly in less than two minutes). Once
businesses inform BofA of the date, tax type and amount due the Bank will debit available
fiends from the specified account. Proof of transaction is forwarded by mail or by fax.
Subscription to the Bar~kAmeriTax service is projected to increase substantially as the IRS
continues to mandate that many businesses pay taxes electronically.
Pales
OCR for page 148
B~kofAmerealaoS~
Bank of AmerIca
sponsored a
speelal ALL Web
sIte for small
business owners
which provided
information on
suecessfu'
marketing, swung
up a home offles.
and producing
winning direst
mall.
On May 2, 1997 BofA announced the introduction of a special AOL site for
small business owners: "Small business owners who want to find out how to
market successfully, set up a home office, or produce winning direct mad! can
log on to BofA's site on America Online (AOL) during May, which is Small
Business Month. Special columns targeting the small business owner will focus
on topics including public relations and marketing, online advertising, direct
~nail, setting up a home office, and working at home. An "Ask the Experts"
column will answer questions from AOL users. And BofA will send anyone
whose question is published online a free, autographed book, 'Strategies for
Small Business Success' by syndicated small business columnist Jane
Applegate. In addition, Applegate and direct mail marketing expert David
Garfinke! will be hosting live chats throughout the month."
On May 5, 1997, BofA announced the roll-out of the Business Mcocir,~izer, a
flexible credit product that offers small businesses a revolving line of credit and
up to three loans in one package. As described in the press release, "the
revolving credit line of $] 00,000 to $250,000 provides financing for businesses
to purchase inventory, finance receivables, and manage cash flow. Then, when
businesses need long-term financing for a fixed asset purchase or permanent
working capital, they can set up a term loan with funds from their credit
line."''9
BofA introduced or expanded advertising of older products during May of 1997,
which BofA labeled "Small Business Month." Promotions about the month and
about BofA's specialized smalI-business products appeared in branches, on
BofA's Web page, and in local newspapers. The Bank also has introduced a
tolI-free telephone application service, an option it is now in the process of
expanding. "Small business owners in the 10 western states BofA serves can
now call a toll-free number to apply for business loans and lines of credit over
the phone, seven days a week." During Small Business Month, BofA also
featured several special promotions. Businesses received a 50 percent discount
on set-up fees for ABC loans and lines, as well as special deals on payroll
processing services and merchant services electronic processing.420
Finally, in celebration of Small Business Month, BofA promoted a "$25,000 for
Your Thoughts" contest. As explained in BofA's press release, "any customer
who has an Advantage Business Credit ~ (ABC) loan or line with BofA in
California as of June 30, 1997, can enter the "$25,000 for Your Thoughts"
contest by answering the following question in 200 words or less: Bank of
America has committed to lend $! 0.6 billion to small businesses over three
years. Why do you think it's important for BofA to support your business?"
The essay contest winner is slated to receive $25,000, and five second-prize
winners will receive $2,500 each.
. .
P8187~
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B - of Am~*atao Sib
Summary of Bank of Amerioa's Small Business Marketine
oneepts
As the above lists of products and promotions suggest, BofA aggressively has
sought the small business market. Its marketing approach has been to provide
information useful to small businesses, both through publications and through
the Internet. It also has developed products for small businesses to make
borrowing and use of bank services more convenient and less bureaucratic. It
has promoted these services to small businesses using the print media, press
releases, literature at its various branches, and with the Internet, via its Web page
and America On-Line.
In 1994, BofA introduced a new concept specifically geared toward the medium-
sized business customer ($5 to $200 million in revenues). BofA's Middle
Market banking is a more than $300 million business which provides a "full
range of financial products and services, primarily in the West and the Midwest.
Middle Market Banking's net income for 1996 increased $28 million, or 9
percent, from 1995. This increase was primarily attributable to a reduction in
the provision for credit losses, reflecting an improvement in credit quality."] 15
The new service is called the Relationship Team. The Relationship Team
consists of a Relationship Manager, who serves as the business' primary BofA
contact, and several representatives from BofA's various banking divisions. The
Relationship Manager targets businesses by word of mouth, by following
industry trade journals, and by seeking contacts at business functions. In
California, for example, Relationship Managers have targeted Silicon Valley as
a source of mid-sized companies with significant potential for future growth. At
an introductory meeting, the Relationship Manager and representatives from
selected divisions (i.e., BofA's Domestic Lending, Cash Management, Private
Placements, Risk Management, Asset Securitization, and Loan Syndication
departments) review BofA's "competitive position" and emphasize the benefits
of the Relationship Team in meeting the client's fixture needs. If the client
agrees to use BofA as its primary financial institution, follow-up reviews are
completed by the Relationship Manager and key division representatives at the
very least once a year, but oftentimes every other quarter.
The key advantage of Relationship Teams is retaining the client by meeting a
range of financial needs. If, for example, a business becomes interested in
expanding into a foreign market, the Relationship Manager can coordinate
meetings with BofA's Foreign Exchange and Trade Finance Divisions. The
result is a client who feels well cared for and therefore interested in continuing a
financial relationship with BofA.
Relation$hip
Teams retain the
client by meeting
a range of
finanelal seeds.
Page 7-7
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Bank of Amp Cam S=Y
Relationship Teams also have spawned new products. While consumer market
research remains BofA's engine for generating new products, Relationship
Managers can sometimes pinpoint new product opportunities. In October of last
year, for example, a Silicon Valley high-tech company expressed interest in
insurance packages for their employees. At the time, BofA did not sell such
packages to businesses. However, the Relationship Manager responded to the
client's request by talking to the Middle Market Banking Vice President. BofA
is now in the process of designing a new insurance package, which it intends to
sell as a part of its package of services to mid-sized companies.
i~llll~ll~klllllH]llel~llmTr]~lRdllllll -
BofA shared information on a product launched in 1988-1990, to illustrate the
marketing process it follows for consumers and businesses alike. This new
product, technically referred to as the Integrated Transaction Product, was
initiated in late ~ 986. The account name was first named the Alpha Account,
and then finally changed to the Prima Account in 199 ~ . When first introduced in
California in ~ 98S, the account represented a new way of providing customer
banking services by combining checking, savings, and overdraft protection into
one package that integrated price, servicing, and delivery.
Market Assessment
Since ~ 98 i, BofA had experienced a steady decline in its share of checking
households, accounts, and balances. Some of this decline was due in part to the
in-roads made by savings and loans and credits unions in capturing a greater
share of the checking market and of "main bank" households.
Since 1981, BofA lost market share in checking households, checking accounts,
and checking balances. Table 7- ~ shows this result.
Table 7-~: Bank of Im0riea Market Share
10/8' 10/87
Checking Households 32.9% 25.4%
Checking Balances 29.6% 13.3%
Checking Accounts 24.7% 21.5%
"BofA checking account closures exceeded account openings since early 1984.
Account closures exceeded openings by ~ ~ percent in 1985, 28.6 percent in 1986
P8gB 7~
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~nkofAma*ae - Sol
and 21.8 percent through June of 1987. Net account openings were positive
during the third quarter of 1987, but closures exceeded openings for the full year
1987 by 4.2 percent." A Closed Account Survey conducted in 1987 suggested
the following:
· BofA was losing disproportionate numbers of customers under age 35.
Forty percent of the respondents were under 35 years of age. This compared
to only 28 percent of BofA checking customers falling in this age range.
Account closures among higher income checking households were
disproportionately high. Thirty percent of closed account respondents
reported households incomes over $50,000, compared with 23 percent of the
total checking customers base in 1987.
· BofA closed account customers were most likely to move their account to a
savings anti loan (21 percent), a credit union (14 percent), or a bank other
than one ofthe major banks (12 percent).
Savings and loan institutions and credit unions received authorization to offer
interest-bearing transaction accounts in December ~ 980. These institutions,
along with independent banks, reaped the benefit of major bank share losses.
These institutions were particularly successful in building market share because
they offered higher deposit interest rates and more attractive account fees while
maintaining better quality of service perceptions with customers. Also,
industrywide ATM sharing helped to mitigate major bank advantages in time
and place convenience. Finally, parity in core consumer product lines made it
difficult for BofA (or any other bank, for that matter) to present a differentiated
product to customers.
As reported by BofA executives in the late ~ 980s, the in-roads made by non-
banks in the retail banking market were most dramatically illustrated by
reviewing trends in main bank share, as shown in Table 7-2.
Table 7-2: changes in Main Bank Share
|0/~' 4/87
Bank of America 22.7% 21.1%
Savings & Loans 8.5% 19.3%
Credit Unions 6.7% 1 1.3%
3 Major Banks 28.3% 25.3%
(Source: Market Share Audit)
While BofA's share of main bank households declined slightly during this time
period, it is important to note that the S&L and credit union segment were
fragmented, with no one thrift holding greater than a 2.6 percent share of main
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Bank of Althea [ase Sat
.
Bankcard Only 1.1 22%
Checking Only 0.9 18%
Savings Only 0.6 13%
Total 2.6 53°/O
bank households. BofA's major bank competitors also experienced market square
declines, though not as pronounced.
More than half of all BofA households maintained only one account relationship
with the Bank. The core services of BankCard, checking and savings
represented 2.6 million single service households. The 1987 breakdown is
shown in Table 7-3:
Table 7-3: Breakdown of Bank of Ameriea customers
Number of Hews - ds b Mi Hens Pereent of BofA Househdis
These single service households represented an obvious cross-sell opportunity
for BofA. However, they were also particularly vulnerable to alternatives
offered by other service providers. This was especially true to the 1.5 million
households with either checking-only or savings-only relationships.
The Alpha/Prima Marketing Plan
The comprehensive marketing plan developed for the Alpha/Prima Account
includes an Executive Summary, a Business Analysis, a Financial Analysis, and
an Implementation Overview. Following are some of the topics covered.
The Goals for the Alpha/Frima AGCOUI'
The Alpha/Prima Account is a product development response to the above
described adverse trends for BofA in the retail banking marketplace. By the
mid-19SOs, the California Banking Group designed a preliminary Alpha/Prima
product. Figure 7-2 provides the features of the Alpha/Prima account.
lags 7-10
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Bat of A_1ca C" SAY
Figure 7-2: Features of the Alpha/Prima Aeeount
A checking account with unlimited check-writing, no per-check charges, and no minimum balance
requirement. Clients were allowed to choose between interest-bearing and non-interest-bearing
checking accounts.
· A choice of "liquids' savings accounts - including ones that earned interest at short-term CD rates -
with no separate monthly or quarterly service charges and no minimum opening deposit requirement.
· A line of credit for overdraft protection and ready cash. The line of credit featured a variable interest
rate lower than most credit cards without separate annual fees. Customers could access the credit line
directly through the Automated Teller Machine.
· A combined statement providing a monthly summary of checking, savings, and credit line balances
and activity. Up to 25 deposit accounts could be included on one statement.
· One monthly fee for the entire package. Or, customers could eliminate that fee entirely when the
combined balance of a linked checking or savings accounts exceeded a minimum level.
· An automated teller machine card offering access to the account at ATMs, and at participating
merchant locations.
· The fee on the account depended on the type of checking account a customer chose. If someone
selected a non-interest-bearing checking account, then he/she could waive the $5 monthly fee by
keeping a combined balance of $1,500 in the accounts. If someone selected an interest-bearing
checking account, then he/she could waive the $7 monthly fee by keeping a combined balance of
$2,500.
The Alpha/Prima Account was designed to address several general business
objectives for BofA. In addition to stemming the flow of customers and account
balances to other financial institutions offering consolidated products, the
Alpha/Prima account was intended to strengthen and deepen BofA's base of
main-bank households. In banking terminology "main bank" households utilize
BofA as their "main bank" instead of maintaining a savings account at one
institution, a checking account at another facility, and an investment portfolio
with yet another financial manager. BofA, in general, and the retail banking
group, in particular, were very interested in "establishing a competitive and
aggressive posture in the Interest Bearing Checking marketing place." ~ he retail
group foresaw this edge as more than just a financial boon to the group, but also
as an opportunity to leverage higher balance and to introduce customers to
savings and/or investment products. The ability to sell other BofA products is
often referred to as "cross-sell ratios," and was yet another goal of the
Alpha/Prima product. Finally, BofA saw the Alpha/Prima account as an
opportunity to prompt a renewed confidence in BofA as an institution,
particularly as a bank at the forefront of"innovative, competitive ideas and
services." As mentioned earlier, BofA had faced near bankruptcy due to a
portfolio filet of bad third-worId debt. In the late 1980s, BofA faced the
Pag07-n
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Bank of America ease Sit
challenge of improving its image and instilling confidence in customers that
were generally leery of the Bank's financial stealth and stability.
The California Group went further than outlining general objectives for the
Alpha/Prima product. As is required of all new marketing products, the BofA
division quantified the above-mentioned objectives into specific financial goals,
including balances in the Alpha/Prima accounts and incremental change in
balances due to the account. Table 7-4 shows the specific goals.
Table 7-4: Goals for the Alpha/Prima Aeeount
. . . ... .
Average Balances he SMe ions of Dollars fIll 1818 1980 llll
TOTAL
Incremental Deposits
629.3 856.3 1,394.6 1,995.8
63.0 324.9 52 1.2 73 1.9
Prom the "AlphalPrima Account Positioning Study," February 1988
Product Pricing
BofA's pricing strategy for the AlphafPrima Account was based initially on
several qualitative objectives. These objectives were then translated into
quantitative goals and suggested policy changes.
The strategy for pricing the Alpha/Prima Account addressed the following
points:
· Pricing had to reward the customer for having a deeper relationship.
· Pricing had to reflect the added-value of the Alpha/Prima Account, which is
simplicity. Pricing had to be easy to understand.
· Pricing had to be advantageous versus major bank competitors.
· Pricing had to improve the marketability of interest-bearing checking, a
category in which BofA had historically under-performed.
Pricing could not present a barrier to entry for existing customers if the
Alpha/Prima Account was to aid in "closing the back door" (i.e.,
encouraging customers to retain one bank for all accounts and financial
services).
The Alpl~alPrima Account allowed for relationship pricing - a single monthly
fee or combined balance level for the entire service bundle. In addition, the
account design allowed for the capability to price Alpha/Prima Account interest-
bearing checking and Maximizer account interest rates to be more attractive
when compared to the standard, "unbundled" product line.
Paw 7-~E
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Bank of llmerica Ga811 Sb~
To ensure the capture of new checking account customers and to provide
incentives to existing customers to consolidate their relationships at BofA, the
California Banking Group recommend the following introductory, incentive
pricing: a fixed interest rate of 7 percent on all Alpha Savings Maximizer
accounts through October 3 I, 1988. While this incentive tested less positively
than waiving service charges for three months, it did represent a better incentive
for motivating consolidation behavior. The foregone revenue of $300,000 per
$]00 million from "cannibalized" funds was viewed as a promotional expense.
The California Banking Group proposed other pricing changes that were later
incorporated. At tile time, BofA offered Combined Balance Service to checking
account customers. This allowed customers to link only regular savings
accounts for the purpose of waiving service charges. In response, the California
Banking Group proposed de-marketing another product, Combiner! Balance
Service, and instead, "grandfathering" for existing users (4 percent of total
checking customers) while soliciting that croup for the AlDha/Prima Account
In the late 1980s, bank policy did not allow employees to have an Alpha/Prima
Account free of charge. The Group proposed revising the policy to allow bank
employees to have a non-interest-bearing account or one Alpha/Prima Account
with non-interest checking free of charge. This became "a significant internal
marketing plus."
Financial Analysis
The methodology and assumptions underlying the projected profitability ofthe
Alpha/Prima Account were all reviewed by CBG Financial Analysts, an outside
consulting firm. Their review found the financial analysis for the Alpha/Prima
account to be "generally conservative."
In the base case, the Alpha/Prima Account was expected to return in excess of
33 percent to BofA. On an initial investment of $ ~ ~ .2 million, the Alpha/Prima
Account was expected to return $33. ~ million in cumulative net revenue to the
Bank by 1991. Net revenue was projected to be $.9 million in 1988 and $15.3
million by 1991. The payback period from the date of introduction was 2 ~/z
years. Incremental outstanding liability balances for the Alpha/Prima Account
were expected to average $63.0 million in 1988 and increase to an average of
$73 l.9 ~nili~cn by 1991. Credit balances there expected to be $19.S million in
~ 988 and to increase to $ ~ 05. ~ million by ~ 99 ~ .
Revenue Sources
The three primary sources of revenue for the Alpha/Prima Account were derived
from increased account acquisition, deepening existing customer relationship,
and introducing the overdraft protection/revolving line of credit. Increased
account acquisition was projected to generate $] ~ .9 million in interest income
Pat
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B"ofAm~cala~0S~
and $7.4 million in fee revenue by 1991. Deepening existing customer
relationships would primarily result in new liquid savings accounts (I,SAs) for
the Bank. These new LSAs were expected to generate $5.0 million in interest
income by ~ 991 . Finally, the overdraft protection/revolving line of credit would
result in additional revenue of $.4 million in 1988, increasing to $7.3 million by
1991. These estimates were based on 65 percent of the Alpha account holders
using the line of credit as an overdraft feature, ~ 5 percent of the account holders
utilizing the account as a line of credit, and the remaining 20 percent never using
the line of credit.
"Cannibalization" issues
"Cannibalization" of fee income represented one of the biggest risks to the
procluct's financial success. Four types of fees were expected to be cannibalized:
monthly service charges, bankcard and other interest, insufficient funds fees, and
instant cash fees. Cannibalized fee income was estimated to be $2.0 million in
the first year and was projected to reach $] 8.5 million by ~ 991 . Monthly service
charges represented over 90 percent of all the fees lost to the Bank. Bank
customers with checking and savings accounts who transferred to the
AlphaJPrima Account and consolidated their balances would no longer generate
fee revenue. However, bankcard revenue would not be affected materially by
the Alpha/Prima Account because of the small relative size of Alpha/Prima
Account heavy users when compared to Bankcard holders.
Start-Up Cost'
Total start-up costs associated with the Alpha/Prima Account were projected to
be $7.2 million. Of these, system costs of $4.7 million represent the single
biggest item. An additional $3.0 million was dedicated to advertising and
marketing. Minimal branch expenses were expected and actualized. Future
ongoing operational costs were expected to be less than $~.0 million per year
through 1991 for ongoing line of credit processing costs and telephone servicing.
Sensitivity Inaly~'
The relative profitability of the Alpha product was expected to be sensitive to
variations in average account balances, internal and external account volumes,
fees collected and overdraft line usage. The product had an upside potential of
having an internal rate of return of 167 percent. In a worst case scenario, the
product had a downside potential of having an internal rate of return of 3.0
percent. Table 7-5 shows this analysis.
.
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But - So
Table 7-5: Sensitivity Analysis for the Alpha/Prima Aeeount
. . .
O,ffm~sib case Base ease Pes~enk~b case
Internal Rate of Return
Net Present Value at 20%
Payback period (in Years) 1.5
1 67.0% 33.4% 3.0%
$64.7MM $3.2MM $3.3MM
2.5 NA
Market Research Findings
Quantitative research using personal interviews was fielded in February, 1988, to
determine the appeal and effectiveness of what is called "alternative positioning"
for the Alpha/Prima Account and to identify the greatest opportunities within
target segments. These findings indicated an extremely positive response to the
Alpha/Prima Account concept, proposed pricing, and; planned positioning.
The market research found the following:
· alpha was It from what others offer - The majority of respondents
saw the account, as described, as completely or somewhat different from
what other institutions offer.
PrimBry poSi~' - Research tested four possible positioning for the
Alpha/Prima Account: "higher rates," "works harder," "saves money," and
"simplicity." The simplicity positioning was the preferred positioning across
all age groups. In addition to rating highest by a majority of respondents (40
percent), concepts of simplicity an eases showed up throughout the research
as leading reasons for liking the account or wanting to open it.
. B - fi~thatbest~acoount
percent)
"Gives you all your basic banking in one package of services" (74
"Gives you access to extra cash when you need it" (67 percent)
"Simplifies your record keeping" (65 percent)
"Prevents bounced checks" (65 percent)
"Offers three separate, but linked accounts" (64 percent)
"Makes it easier to manage your finances" (57 percent)
. Most enchant Cadres ~ ins whiner or not to open ~ account
Having unlimited check writing with no per-check charges (79 percent)
lal0 7-15
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B - of Althea lass IBM
Having one combined monthly statement for all your accounts (69
percent)
Having no monthly service charge when your combined checking and
savings balance meets a required minimum (65 percent)
Having a savings account which earns interest at short-term CD rates (65
percent)
· Purchase Ment -There was a high degree of interest across all groups in
converting to this account if it were offered at the respondent's checking
institution. Sixty-eight percent of the BofA customers who were sampled
indicated that they would be interested in converting their account if it were
offered by BofA. Conversely, 65 percent of non-BofA customers said they
would not open this account if offered by BofA. This latter point is in line
with "would switch" measures tracked in other parts of the survey
instrument. Roughly ~ in 4 BofA customers indicated that they would be
interested in opening this account at one of the other major California banks
or at Citicorp Savings (21 percent), which at the time offered the similar
Citi-one product.
· bust vs. non-~rest checkbeo preferene0$ -The interest-bearing version
of the account was far and away the more attractive. Eighty-three percent
claimed that they would open an interest checking account.
· Name maeffons -The vast majority of respondents (80+ percent) were either
positive or neutral about the name. Those who were positive associated it
with the top of lists, first, first rate, new or new beginning, or simply said it
sounds smart or sounds good. This indicates that Alpha/Prima Account was
a good name choice with ample opportunities to develop an image for the
product that would be unique to BofA.
· D~es/negathes {)ther than the low intent to purchase BofA by non-BofA
customers, the negatives were minimal. Only ~ ~ percent found anything
confusing about the account, and this confusion had to do with perceiving
too many options and rules. Eighty-five percent of those who preferred the
simplicity positioning thought it described the account well. The biggest
reasons those rejecting the account gave for saying they would not open the
account, even if it were at their own institution, were that they were satisfied
with what they already had, or that they needed more information.
Implementation issues
The Alpha/Prima Account launch was the primary focus for the California
Banking Group during the third quarter of 1988. The launch was simultaneously
supported by aggressive marketing and promotional campaigns. Internal
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Bank of A~ll~iBa GB80 SHIM
.
"marketing" was equally aggressive, and centered on the Bank's first use of live,
video conferencing. This medium - which allows interaction between the
presenter and audience - provided an opportunity to reach a large number of
retail and commercial bank employees in a single day.
In addition to the external and internal marketing efforts, the bank also made
changes to its internal systems to accommodate the new product. Alpha/Prima
product implementation included several components: systems development to
improve the company's computer and accounting capabilities, improvements to
the telephone or "teleservicing" support, a new "Alpha Credit Line Center" to
support credit application processing, and new credit policy for all BofA
customers. BofA's accounting and computer network systems were
reconfigured, and, in same places, new networks installed. These system
enhancements were completed and/or installed by late June. Branch sales began
on June 5, 1988, and full-scale external promotions began on July 18, 1998.
Table 7-6 shows start-up costs planned and as actually experienced. As can be
seen, the start-up costs were underestimated.
Table 7-6: Planned Versus Actual Start-up costs
IS Mlronsl Propose Startup AGblal Start-Up change
eos~sofl886 eostsallll
Plan
.
Systems $4.2 $5.9 $~.7
Development
Product Introduction $3.0 $5. ~$2. ~
Operational Set-Up - $0.2 $0.2
Total Start-Up Costs $7.2 $] I.2 $4.0
It should be noted that the majority of systems development costs were
opportunity costs and were incurred in 1987. The original product introduction
budget (completed in 1985) was seriously underestimated.
Training
In addition, BofA unrolled a new training program for bank employees related to
the Alpha/Prima account. Comprehensive sales and operational training
programs were established for all affected areas of the Bank. Particular attention
was given to developing sales tools which would result in more effective cross
selling. These tools included pamphlets, stickers, and branch posters to entice
customers and to assist tellers in the sale of the product. Statewide video
conferencing was used to reach the majority of branch employees. Target
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Bar. of Amf rhea C830 STY
audiences for this training included branch managers, ~nanagers of branch
operations, and new accounts representatives.
In addition to the training strategy, BofA developed Teller ant! Platform
O~cer's Guides to the Prima Account. The Teller's Guicle offered detailed
information about the account as well ideas for promoting the product with
clients (see Chapter 7 Supplement, Appendix B). The Platfor~n O~cer's Guicle
provided more detailed information about processing such an account and
excluded information about selling the product, since BofA assumed that
"selling" the product was primarily the responsibility of the teller.
Marketing
The marketing strategies for the sale of the Alpha/Prima project were first
developed by the California Group and then revised by what was then the
California marketing group. The following marketing-related issues were
addressed:
· Target Aulienee- Market research (discussed earlier) suggested fairly broad
appeal for the Alpha/Prima Account concept. The Younger Mass and
Younger Midscale segments represent the greatest potential. These two
segments - at the time defined as 21-44 years old with incomes ranging from
$20,000 to $45,000 - were attracted to the overall simplicity of the package,
the reduction in fees, and the unlimited check-writing option. Opportunities
also existed among older households, particularly those with $]0,000 or
more in "liquid" savings, mostly by advertising higher savings rates as a
reward for consolidating relationships.
· P0li~b' - The same market research effort indicated a strong preference
for positioning the AlphalPrima Account as a way "to simplify your life by
making banking easier." Consolidation of services was the single most
important reason among acceptors of the concept for being interested in
opening the account. This was mentioned bv SS percent ofthat croup.
-~^ ~
- - - 1 ~--I
· UU~CI 1118B-l his effort focused on BofA's own customer base to generate
additional relationships. Approximately ~ million mailings, promoting the
Alpha/Prima Account and offering a prescreened credit line. were mailed to
the following targets: households having what was called a "Liquid Savings
Account," households with a BofA consumer loan, and households with no
other relationship.
· Media - Advertising began on or about July ~ 8, ~ 98S, and was designed to
build general awareness of the Alpha/Prima Account and to stimulate what
BofA calls "incremental branch traffic." Television spots on local stations,
concurrent radio advertisements, advertisements in local California
rass7-s
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Bank of Am0rI88 Cat Seedy
newspapers, and outdoor media (primarily on billboards) also were utilized
during program roll-out.
Hbrchand~bg- Special emphasis was given to in-branch merchandising and
sales promotion for the Alpha/Prima Account. This encompassed collateral
materials (such as posters, banners, and brochures) to motivate employees.
The Alpha/Prima Account was viewed by BofA as an opportunity to view
the branch as a media venue and to maximize the number of impressions on
walk-in traffic. Stickers, statement inserts, card package inserts, lobby
posters, and mini posters all were developed to advertise the Alpha/Prima
Account.
Pubs Relations - A strategy for public relations support of the Alpha/Prima
Account was drafted by the Bank's Marketing Public Relations department.
TlmelIne
The following timeline identified the key target dates and milestones for
successful implementation of the Alpha/Prima Account.
D~vembb
Target Dam 131881
Pricing Committee Approval
RSVP/AMG Manager Presentation
Statewide Video Teleconference
Procedures Documents to Branches
install System Enhancements
Media Advertising Begins
Direct Mail Begins to Drop
Campaign Ends
March 25
March 25
early June
June 10
June 24 - 26
July 18
August ~
September 30
Ouicome
The financial case pivoted on four key variables: average account balances,
account volumes, fees collected, and overdraft line usage. The analysis
demonstrated that the Alpha/Prima Account offered BofA a range of outcomes
that presented a significant upside potential with a very limited downside. The
actual profitability was expected to be mid-range between the base case and the
..
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"kofAm~cala~Sh~
optimistic case. In reality, the Alpha/Prima account was extremely successful
and far exceeded even the more optimistic projections.
BofA conducted follow-up market research to confirm the Alpha/Prima account
positioning. The Bank recognized the need to develop a competitive service
package for high balance accounts. In the Fall of 1989, a series of focus groups
was conducted by Merrill Research in order to assess the needs and priorities of
high balance account holders. The market research included a total of 300
checking account holders interviewed and a mall-intercept survey. The criterion
for interviews was having $10,000 or more in a single savings account. Findings
were that the "Value" positioning was the most relevant for Alpha/Prima. Value
was characterized by "with this account, you get the most for your money,
because while your money earns a competitive rate of interest, you get the
banking services you need at no charge." The appeal of "Value" positioning
stems from the perception that this account would reduce fees and pay interest.
About four in ten preferred "Value," compared to one-fourth who preferred the
second place position, "Simpler.'' This finding represented a change in the
market opinion from earlier research, showing the need to update the marketing
approach to this market.
=3]G
Although BofA is much larger and has more resources than transit agencies,
there are still lessons that can be learned by close observation of BofA's
marketing approach. Also, not all methodologies used by BofA are expensive.
Consider the following:
· BofA is making full use of the Internet as a marketing too! and as a
technology too] to gather information on customers and to allow customers
to sign themselves up for banking services. To the extent that information
helpful to small business can draw customers to the BofA sites, the Internet
can be an inexpensive way to market. While few transit agencies are
actually using the Internet to sell passes, many agencies are providing
schedule information via Web locations. The APTA Web site, for example,
now has links to hundreds of Web sites from transit agency members.
BofA is appealing to small businesses by making its service convenient to
use. It has eliminated red tape in applying for loans, and also is offering
multiple services to small business customers. Analogous to this is that
some transit programs are being marketed to businesses, including the transit
voucher program. The objective of the voucher program is to make it simple
and equitable for companies to provide transit service subsidies to
employees.
· BofA is appealing to medium-sized businesses by providing a "Relationship
Team" and a variety of different services and products designed to meet the
particular needs of that business. While few transit agencies can afford to
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Ba. of Am0lica C8S0 SWAY
have a "Relationship Team," the concept of slaving one sales representative
assigned to particular companies is more common. Likewise, enterprising
transit agencies, such as Pace and King County Metro, are providing
businesses with a menu of products from which to choose.
· With the Alpha/Prima account, BofA spent some time analyzing what is
happening with its market and, in particular, surveying those customers who
closed accounts. Some transit agencies also undertake market research of
their users and non-users to better understand their respective characteristics,
and to identify which markets segments are most promising for increasing
ridership.
· BofA developed a detailed marketing plan for the Alpha/Prima account,
which specified expected financial results as well as costs. A marketing plan
is useful for making explicit the goals of a new service or product, as well as
providing detail for the marketing techniques to be employed.
· The marketing techniques used for the Alpha/Prima account included
internal marketing of the program. This is a critical lesson for transit, since
internal attitudes can support or kill new marketing and service initiatives.
· BofA effectively made use of press releases as part of its approach to getting
out the word on small business products, as well as the Alpha/Prima launch.
Press releases can provide free advertising if the release is well-written,
clear, interesting, and well timed enough to entice the press.
· The Alpha/Prima product development was significant, in that it required
BofA to change internal computer and accounting systems, and to provide
training to employees on a wide scale. There are analogous situations in
transit, particularly where the use of new technologies is envisioned to
greatly improve service. For example, a transit system employing new
technologies such as Advanced Vehicle Location (AVL) systems can
provide better information to passengers on real-time schedule adherence
and, in fact, can improve schedule adherence, if systems and training within
the agency are adequate.
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Representative terms from entire chapter:
marketing plan
