Location, Location, Location: More Important than Ever

by: Michael Downs, VP of Marketing, Momentum

It’s a ubiquitous phrase in the business of retail, yet William Dillard’s words, “Location. Location. Location.”, have never been more relevant to financial institutions than they are today.  With more than 250 credit unions closing their doors in 2011, it is clear that changing banking channel preferences, shifting demographics patterns, increasing competition, and regulatory pressures have added layers of complexity to the decisions credit unions face regarding their branch networks.  As such, these decisions are no longer about simply identifying a viable branch site, but have become about optimization and efficiency of the entire branch network, and how that network serves the community.

Unfortunately, a ‘magic formula’ doesn’t exist for credit unions to make site selection and branch network decisions, but there are powerful tools that can provide a solid framework for informing those decisions.

Market Analysis
The driving elements of location research involve qualifying the number of current and potential members, understanding where those members are concentrated, and determining whether there are sufficient quantities to support the branch network.  There are numerous resources for this type of data, but we highly recommend working with an industry-leading data provider that can perform detailed analyses in areas such as:

• Demographic Characteristics – information such as current and projected data on the age, income distribution, population density, household population growth, educational attainment, and occupation type are very common types of demographics.  It is important to work with a provider that has the capability to perform geographic plotting and visualization using maps.
• Competitive Landscape –competitive intensity of each current and potential market area including, total market demand by product (deposits and loans), market share by currently held by institution, growth or decline of market share, and proximity mapping of branch outlets.
• Market Characteristics – long-term market characteristics, such as unemployment levels, planned road improvements, major employer growth, residential construction growth, and household turnover rate can provide insight into the potential of the market.

Quantify Market Demand for Financial Products and Services
Credit unions need to determine if there is sufficient demand for financial products and services in their target market areas.  We highly recommend working with a professional market research firm who can provide detailed data on current year volumes and five-year projections.  We also recommend collecting information on delivery channel preferences by market area such as a traditional branch, ATM, telephone banking or mobile banking.  An understanding of market product usage and balances can provide a basis to assess whether sufficient demand exists to support a new branch office. Once this type of data is obtained, it can be compared against the types of member profiles and products that the credit union seeks from the market.  While a market may offer promising product demand overall, it may not necessarily align with the specific product mix the credit union desires.  This requires careful consideration and a clear understanding of current member characteristics.

Get on the Ground
While data analysis is a powerful tool, firsthand knowledge of a market is an invaluable piece to the puzzle.  By getting on the ground to physically assess proposed market areas, individuals are able to see the reality behind the data in a market analysis.  Things such as competitor locations, traffic volumes, shopping patterns, and retail concentrations can be observed to develop a better understanding of the market.  Conducting field work also enables a person to get a feel for the quality of the local neighborhoods, verify their consistency with the market data, and determined how well they align with the credit union’s brand.  It is also critical that a credit union gather information from local agencies such as planning departments, road commissions, and chambers of commerce for updated information on demographic projections, road projects, zoning, and new business development.  We recommend that credit unions consult with a professional real estate firm, design-build firm, and/or strategic consulting firm.

In the end, successful site selection requires a credit union to utilize multiple resources, including market research, member analysis, geographic mapping, fieldwork, and engagement with professional services firms.  Equally important is gaining an understanding of the impact that each branch (current and future) has on the branch network as a whole, and how those branches support the credit union’s brand in the communities they serve.

Michael Downs is the Vice President of Marketing at Momentum, a national design-build firm.  Mr. Downs and the Momentum team work with Credit Unions to facilitate strategic planning, evaluate facilities growth needs, and implement systems for ongoing measurement and benchmarking. Mr. Downs holds both a Bachelors and Masters of Business Administration, completed the ABA School of Bank Marketing at Southern Methodist University, and has more than twelve years of experience working with clients on strategic planning and marketing.  Learn more at www.momentumbuilds.com or connect at www.twitter.com/plandesignbuild