Small Business Packaging

Merrill Lynch & Co. plowed deeper into the traditional banker's terrain in May when it announced plans to commit $159 million in loans and outreach services for small businesses in California's Asian, Latino and African-American communities. This announcement further underscores the fact that the large, nonbank players continue to pose a serious threat to traditional bankers in the small business market segment.

Although this market segment continues to be a fierce battleground, some institutions are growing market share by rolling out new small business accounts that strategically integrate financial and nonfinancial products into their traditional product line-up.

 

Creating a niche in New York

Two years ago North Fork Bank, a $16 billion asset institution in Long Island, N.Y., launched Business Advantage, a small-business packaged account. Its main objectives were, to position the bank as a full-service institution for small businesses while differentiating itself from its "mega-bank" competitors in Long Island and Metropolitan New York. To that end, North Fork introduced a product that offered small business checking customers a full menu of financial services along with strategic discounts on business-related services and supplies, travel, and other small business resources.

"We feel that small business customers really need a bank to be the source for all of their needs," says a North Fork Bank spokesperson. "We can help them get discounts that they normally would not get based on their small size, and that gives us a competitive edge in this market."

Today, North Fork has more than 2,600 small business account holders whose collective balances top $52 million. Bank management attributes the product's success to its strong branch network and to a popular incentive program that kicked off the product. Employees were offered $25 for signing up new Business Advantage accounts and $10 for converting existing accounts.

 

Commitment pays off

Smaller banks also are reporting strong results from small business packaged accounts. When Sandy Spring Bank, a $1.6 billion asset bank in Olney, Md., began feeling competitive pressure from community, regional and national banks, it elected to revamp its image as a business bank. With the commitment firmly in place to aggressively pursue this market, it launched Business Preferred in April 1998. Through a strategic alliance, the bank bundled financial and lifestyle benefits into a small business checking account designed specifically for small business customers.

"A packaged account made sense," says Susan De Bow, Sandy Spring's assistant product manager, "and not having the responsibility of managing it was another plus for us."

The bank reached its six-month goal; however, a reorganization of the retail sales area caused the 12-month goal to slip. The account regained momentum with a direct mail campaign, which helped the bank to enroll more than 10 percent of its customer base and exceed its annual sales goals.

Sandy Springs promoted the small business product with radio, cable television, and print media. It also used an incentive program to fire up the sales staff.

"The marketing campaign was the leading factor in our success," says De Bow. "Everyone was pumped about offering this new product, from the executive level down."

 

Best practices

To be a serious competitor in the small business market, the shortest road to success is to establish your institution as the single source provider of financial services to small businesses. Strategic alliances can help you achieve that goal. But it takes more to ensure success.

To emulate the success of the best small business banks, you also need:

• Vision. Know exactly how you want to position your bank with small business customers. Every decision should be based on that vision. Include a plan for online capabilities. Many small business owners are making decisions based solely on this feature.
• Product solutions. Analyze your current products. As you consider a small business package, ask yourself, "Will this make us look like a small business bank in the marketplace?" In addition to traditional products -- checking, savings, and loans -- offer equipment leasing, sub-prime credit, insurance and sweep accounts. Mix in value-added features such as business discounts and owner benefits to meet 85 to 90 percent of your small business clients' needs.
• Effective pricing. When it comes to pricing, know your market. Don't assume that if your bank offers a free business checking account that you can't charge for a value-added product. A recent survey of small business owners found that 79 percent would pay an additional $8 for an account that offered good value.
• Marketing and sales. Merchandise your lobby so that every customer who walks through the door knows you have a new small business product. Launch a telephone campaign to contact current customers, and offer a free trial if they convert to your new account. Find your best salespeople and train them. Offer a cash incentive plan to keep them excited.
• Consistent contact. One of the biggest customer service problems is that small business owners often only have one point of contact at the bank -- the lending officer. Since this is a high turnover position, it can be very frustrating from the small business perspective. One way to overcome this problem is to create a call center to answer clients' questions.
• Senior-level commitment. Senior management and board members must get involved with the program to prove your commitment to your clients and sales staff. They should attend any kick-off parties and show their endorsement throughout the campaign.
• Accountability. Keep everyone accountable for his or her part in making the program a success.

Whatever your plan, make sure that it is one you can implement quickly. Nonbanks are three years ahead of banks in the small business game. Build something that resembles your current products as closely as possible and keep it operationally simple.