Know Your Markets: The Key to Branch Network Optimization

Demographic and Transaction Data; Data-driven design is not just a buzzword; it’s real and it’s here. 

A significant fraction of a bank or credit union’s total operating costs can include unnecessary expenditures caused by poorly located or poorly designed branches.  This is a great source of frustration for decision makers.  Cutting maintenance and operational costs on older, poorly-planned branches is crucial to managing a sustainable network whose constituent branches are profitable and appropriate for the times.  The most effective way to execute this intimidating task is to perform a branch network optimization study.  An organization’s leadership may feel intimidated by the prospect of closing, consolidating, renovating, and opening new branch offices, but branch network optimization is a science, not a haphazard, seat-of-the-pants affair.  It can be done methodically, with minimal risk and maximum probability of a successful outcome.

Bank branch transformation in Massachusetts

Branch transformation, before and after. The barriers are down and the colors are bold.

An optimization study can quickly identify branches that aren’t hitting the required profit contribution levels or are outdated and inefficient for any number of reasons.  Beyond the branches themselves, the markets where those branches are located should also be studied; the mix of residential, commercial and industrial uses, the demographics, and lastly the market saturation of competitors in the geographic area.  Banks are now starting to realize that designing branches specifically for the markets they’re located in is the way forward, having used data and research to first determine the best locations for those branches.  Some reasons a branch may under-perform include:

Location-Related
Poor location (wrong side of street, vehicular access, wrong demographic, etc.).
Poor visibility, inadequate exterior branding (curb appeal).
Nonexistent interior branding and merchandising.
Distribution channels aren’t convenient or appropriate for that location.
Product and service offerings aren’t complementary to that market.
Product and service pricing isn’t competitive in that market.

Non-Location-Related
Poor customer service.
Poor branch organization and management.

Bank branches are now designed to reflect their shared history with the community via branding and graphic interior designs.

Graphic walls promote community values and emphasize the institution’s shared history with customers.

Branches Designed for Visibility, Demographics and Distribution Channels
Older branches generally weren’t designed around distribution channel usage data, which led to wasteful designs.  They were built at a time when branches were all designed to the same template; large, cavernous spaces dissected by insurmountable teller lines dividing branch staff from customers.  This was before market data was utilized.  Branch networks weren’t grown strategically, by analyzing data to find the best locations.  It’s now understood that if a branch is performing well in a certain type of market with a particular demographic, then it is fair to assume the brand will resonate with people in similar markets.  These markets should be identified for network growth, and the branches’ most trafficked distribution channels should be the design focus for branches opened in those similar markets in the future.

25% of all branches in CT fail to achieve break-even status, ever, and 40% fail to achieve true profitability wherein they cover their operating expenses and upstream enough money to cover the home office overhead plus generate a profit.  This is not a 1-year metric, but a 5-year, or mature branch, metric.

This is often due to poor locations.  For this reason, new branch locations must always be researched thoroughly.  Data such as population size and banking activity are important in determining a trade area’s fitness for a new branch.  Additional data such as customer drive time, average age, household sizes, income, ethnicity, occupation, education level, etc., all contribute to a more complete understanding of the local tapestry segments that will contribute most of the bank or credit union’s deposits and other business.

Branding for banks and credit unions in New England has progressed in leaps and bounds over the past decade.

Banks and credit unions can create buzz by projecting multimedia interior branding elements out to passing traffic. This example shows a bank in Connecticut.

Poor Visibility
Traditionally, financial institutions have not been expected to have “curb appeal”, but a vivid presence is crucial in today’s competitive marketplace.  The “branch as billboard” concept originated with the fast food industry and coffee shops such as Starbuck’s, but banks and credit unions are increasingly adopting these same exterior configurations for their locations.  Smaller footprint branches now utilize double-height buildings to broadcast the organization’s logo and palette, often via branded towers and illuminated graphics.  The outward projection of branding elements from the branch interior attracts attention from pedestrians and vehicular traffic and conveys information about products and services.  When a branch exterior fails to stand out in the crowd, or even worse looks unwelcoming and moribund, this functions as a negative in customers’ eyes.

A bank in Andover, Massachusetts that has been transformed to a fresh and modern look that wows the clientele.

Modern banks today employ vivid colors and branding themes, and electronic media to create a welcoming, lush feel for customers.

Interior Branding and Merchandising
A bank or credit union is part of a community whose local history, architecture, and geographic features can be represented in various media on graphic walls to great effect.  It’s what unites the brand with the surrounding community and connects interior design to the branch location.  Deeper links to the customer can be established in this way, as other media such as electronic and interactive displays can promote product and merchandising information.

Data-Driven Design – Distribution Channel Models
A transaction audit is an important part of the branch network optimization study.  The audit examines distribution channel activity across the branch network to determine each channel’s per-branch contribution to overall transactions.  The predominant distribution channels at each location speak to the preferences of the local demographic, and correlations can be found between distribution channel use and socioeconomic groups at specific branch locations.  These correlations can then be used not just to determine new locations for branches, but those branches can be designed around the main distribution channel at those locations, as discussed earlier.  This data can inform technology requirements, branch layouts, and architectural design.

Traditional teller lines can be removed and replaced by pods and dialogue towers to better facilitate relationships with customers.

This view from a corner of the teller line shows how the transformed branch is now more open, fresher, and appropriate for a modern, sophisticated market.

Bank branches in New England are meeting the needs of modern customers by conforming to the new retail paradigm.

In this “after and before” image, you can see how velvet ropes, hard floors, and outdated millwork have been replaced by carpets, flat-screen displays, sleeker woodwork, and branding elements.

Products & Services and Different Markets
The types of products and services offered by a financial institution’s branches can differ markedly across the branch network.  For instance, if the territory extends from upscale coastal areas inland to blue-collar regions, these differences should be reflected in the products and services offered at different locations, including the branding and merchandising of those products and services as well as other branch design aspects.  This again is about the connection between financial institutions and their customers/members.  It’s important to implement designs that are conducive to each demographics requirement in specific marketplaces.  Even as logos and color palettes should be consistent across the branch network, the messaging for products and services should be customized by location.  This is achieved by developing a concept for average working families and designing upward by adding products and services for the more affluent communities. This way, the appropriate scope of products and services is offered at each node while the messaging, merchandising and other design elements are controlled within the branch.  For instance, coastal branches located immediately adjacent to Boston would display a more complete array of financial products and services, while Central and Western Massachusetts locations would be tailored to whatever the financial requirements of those communities might be.

Hybrid teller pods can be designed to complement the bank's brand image and even the customer demographic in a given market.

This hybrid pod features a sit-down area to the left and a stand-up area to the right.

Data-Driven Design for Banks and Credit Unions
Data is the solution to two age-old questions for those involved in commercial design and construction: What will our next building look like, and where should it be?

The financial industry has finally begun to apply data to its growth and design strategy.  Data generated by architectural, engineering and building information processes are transforming the approach to branch construction.  When combined with demographic and internal transaction data it is proving to be a powerful tool for design and site selection, and it simplifies the often complex task of branch network optimization.  Data is enabling the development of a new kind of branch, one that is highly specialized and focused only on those distribution channels that each market prefers.

Banks and credit unions have evolved to meet the challenges posed by obsolescent branch designs and have entered a new era of retail branch banking.

Signage and branding is important to banks and credit unions to ensure customers know they are open for business in that location.

Financial institutions have to be clearly visible, and their value proposition broadcasted effectively to their market.