Bank’s Ad Spending Effectiveness

AdAge reported that Miller Brewing is shelving its Man Law ads. Apparently, Man Law #1 is “advertising must boost sales.” If that’s so — and who am I to challenge Man Law — then some banks may have to re-think their ad spend.

Using data compiled by TNS and published in American Banker (pw req’d), I looked at the ad spending of the nation’s big banks, and the asset gains (or declines) they’ve achieved, to calculate the change in assets per ad dollar spent.

(Methodology note: TNS reported ad spending for the first three quarters of 2006. I annualized that spending, and then divided the change in the bank’s assets from 2005 to 2006 by the annualized ad spend).

Here’s what I found:

……………………………………..Asset Change……………..Asset %
Bank……………………………….per Ad $…………………….growth

HSBC………………………………1650………………………….25.1
Bank of America………………..1117………………………….15.7
Wells Fargo………………………..766………………………….14.8
US Bank…………………………….642……………………………4.6
BB&T………………………………..567……………………………9.9
JP Morgan Chase…………………502………………………….13.4
SunTrust……………………………309……………………………7.2
Wachovia…………………………..297……………………………8.2
WaMu……………………………….248…………………………..13.1
Citigroup…………………………..202…………………………….5.1
Fifth Third…………………………113…………………………….2.9
PNC…………………………………108…………………………….4.5
National City……………………(69.8)…………………………..(1.7)
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Due to strategy differences, this isn’t an apples-to-apples comparison. Much of HSBC’s asset growth likely came from their high-yield online savings account push (according to Direct magazine, HSBC Direct acquired 350,000 customers since launching in November 2005). And with nearly half of their total ad spend going to the online channel, they got a good bang for their ad buck.

But when comparing banks with the [relatively] same geographic footprint, there are significant variations in assets gained per ad dollar spent. BB&T added $567 in assets for every ad dollar they spent compared with the $308 in assets that SunTrust gained.

West coast-centered Wells and WaMu (yes, I know it has a presence in NY) had relatively similar asset growth, yet Wells’ ad effectiveness result is three times better than WaMu’s.

And in the slower-growth midwest markets, US Bank put up $642 in assets per ad dollar — more than five times better than Fifth Third or PNC. Put another way: For PNC to have achieved the same ad effectiveness rating as US Bank, it would had to have reduced its ad spend by 83%, from $38.3 to $6.4 million.

Now, I’ll be the first to admit that this metric isn’t perfect, and that there were any number of factors that influenced the actual asset growth rate beyond the advertising. Should banks reduce their ad spend? I don’t know. But here’s what I can’t help but wonder:

How many banks tracked their ad spend against asset growth throughout the year and adjusted their investment between media, lead generation, and direct sales efforts?”

My bet: Very few. (You’re right, I’m hedging — I don’t think any of them did).

Many banks lack: 1) the ability to model the effects of different investment levels across their marketing opportunities (i.e., market mix models), and, just as — if not more — importantly, 2) the decision-making processes that would enable them to re-allocate funds and make mid-course corrections.

These capabilities could improve the ROI of marketing investments as much as any other investment that marketing makes.