Small Business Banking Customers: An Attractive Segment for Organic Growth

Small business customers are among the most profitable segments for most banks. Relatively few small business customers are extremely satisfied with their bank, yet banks believe they have made improvements in serving small business customers. That disconnect is creating growth opportunities for banks as customers look to switch. Capturing the growth opportunity requires deep understanding of target segments, channel choices, and products and services.

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Leading Research

Paul Hyde Ken Favaro Ashish Jain Samuel Bloustein

Small Business Banking Customers An Attractive Segment for Organic Growth

This report was originally published before March 31, 2014, when Booz & Company became Strategy&, part of the PwC network of firms. For more information visit

Small Business Customers Are Among the Most Profitable Segments for Most Banks
Gross Margins by Small Business Market Segment

75% 70%

50% 35%

One year after customer acquisition Two years after customer acquisition

$1 Million - $10 Million Sales Small Business Segment

Note: Margin calculation includes origination, maintenance, and transaction costs. Source: Booz & Company analysis

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Relatively Few Small Business Customers Are Extremely Satisfied with Their Bank, and That Percentage Has Recently Declined
Percentage of Small Businesses Extremely Satisfied with Their Bank’s Ability to Understand Their Needs and Recommend Products
47% 39% 36% 36%


2007 13% 2009

National Banks

Regional Banks

Community Banks

Satisfaction levels vary by type of bank Lower satisfaction for larger banks
Source: Aite Group

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Banks Believe They Have Made Improvements in Serving Small Business Customers
Banks’ Ratings of Their Own Evolution in Ability to Understand Small Business Needs over the Past Three Years

Very Strong Improvement


Strong Improvement


53% of banks believe they have strongly or very strongly improved selling to small businesses

Some Improvement


All banks say they have improved their ability to meet small business customers’ needs at least somewhat over the past three years No bank considers its abilities to have diminished over the last three years

Source: Aite Group

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This Disconnect Is Creating Growth Opportunities for Banks as Customers Look to Switch
Propensity to Switch from Primary Provider (2010)
31% Poor customer service/ problem resolution 23% High fees Branches not convenient 15% 13% 10% 14% Products did not suit my needs Poor rates on credit and deposits Some other reason Worried about bank’s financial stability Not trustworthy National Banks Regional Banks
Source: Booz & Company data

Reasons for Switching/Considering Switching (2010)

43% 38% 22% 20% 15% 14% 10% 4%

Community Banks

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Capturing the Growth Opportunity Requires Deep Understanding of Target Segments, Channel Choices, and Products/Services
Target Segments


What are the needs of our market’s segments? For which segment(s) should we build a value proposition to attract new businesses and those willing to switch?

Channel Choices
What channels do our target segments prefer/primarily use? What sales/service delivery model best aligns to their preferences and needs?
Source: Booz & Company analysis

Product/Service Portfolio
What are the products and services that resonate with our target segments? What is the most efficient go-to-market model?

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Target Segments

Capturing Switchers Requires an Understanding of Segments …
Segment Name Segment Characteristics
Complex and sophisticated businesses Average satisfaction Most likely to use many banks Place a high value on bank relationships Value banks that resolve issues and value them as customers Most satisfied Place a high value on bank relationships Most likely to bank at the nearest branch Average satisfaction Likely to use one bank Place a low value on banking relationship; bank at closest branch Shop on price and ease of doing business Least satisfied Likely to use one bank Place a low value on banking relationship; shop on price

Most Important Needs
Access to credit Competitive rates Trust in the bank

Credit Seekers

Passive Customers

Quick and amiable remedies for problems Bank that values their business Trust in the bank

Convenience Buyers

Convenient branches Easy to do business with Quick and amiable remedies for problems

Price Shoppers
Source: Booz & Company analysis
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Competitive fees Competitive rates Technology to bank wherever, whenever



Target Segments

… in Order to Create a Value Proposition to Meet Their Needs
Needs Category
Promote and support ease of doing business Provide meaningful customer engagement Price rates and fees competitively Offer convenience and access

Problem resolution Ease of doing business Financially stable Trust Values my business Competitive rates Competitive fees Technology Convenient branches Business branches Access to credit

Credit Seekers

Passive Customers

There may be more than one target

Common Needs vs. Distinct Needs
Credit Seekers vs. Passive Customers Credit Seekers Common Needs Passive Customers

Competitive rates Access to credit Knowledgeable banker

Problem resolution Financially stable Trust Delivers solutions Values my business

Support client growth

Delivers solutions Product breadth Knowledgeable banker Local authority

Make relationship managers available

Banker on hand Single point of contact Well-known name

Source: Booz & Company analysis
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II Channel Choices

The Sales and Service Delivery Model Must Be Tailored to Each Target Segment and in Light of Channel Preferences

Archetype Models for Engaging with Small Business Customers
High Intensity
(e.g., relationship managed)

Moderate Intensity
(e.g., “pod” model)

Low Intensity
(e.g., call center model) Contact Center


“Adviser-client” model Each business owner/operator has a relationship manager whom he/she can contact directly Effectiveness of this model is dependent on seamless referral to experts by the relationship manager Can be used for Credit Seekers and Passive Customers

Many-to-one “team-client” model Integrated “pods” collectively provide holistic support to businesses Pods comprise individuals who have a mix of skill sets and who are remunerated as a team Can be used for any segment

The next available person works with businesses Preferential queuing and access can be provided to high-value bank clients Preferred clients utilize the same resource base as mass clients but with improved access Can be used for Convenience Buyers and Price Shoppers

Source: Booz & Company analysis

Choice of model will depend on target segments, value proposition, and economics

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II Channel Choices

Irrespective of the Model, Best Practices in Sales Force Management Should Be Implemented to Achieve Top-Tier Sales Performance
Components of Best Practice Sales Force Model Build capabilities (tools, training, processes) to identify holistic client needs (examples: utilize client relationship reviews as a cross-sell tool; utilize product partners to proactively “sell the bank”) Institutionalize prospecting best practices (example: active involvement in organizations) Enhance skill training for competencies identified as major predictors of success (example: business acumen) Assess sales managers against identified core competencies and incorporate into hiring and training practices Implement a structured approach to collaboration between lines of business Enable cross-collaboration through incentives and goals

Client Needs and Sales Process

Skill Competencies

Sales Collaboration

Sales Coaching
Source: Booz & Company analysis
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Leverage best practices to facilitate coaching among peers (examples: pre-call sales planning in team meetings; formal apprenticeship program/peer mentorship)


III Product/Service Portfolio

Products (e.g., Cash Management) Must Be Customized to Meet the Needs of Specific Client Segments

Price Shoppers Convenience Buyers Passive Customers Credit Seekers

Access & Manage an Operating Account

Online Banking


Client Need Category

Protect & Secure an Operating Account

Fraud Check

Next-Day Positive Pay

Same-Day Positive Pay

Ensure Liquidity


Customized Investments

Accelerate Cash Inflows Improve Cash Outflows

Electronic Capture


Lockbox with Data Entry



Direct File Transfer


Product Suites


Source: Booz & Company analysis
Booz & Company


Our Approach Will Position Banks to Quickly Capture Incremental Market Share
Organic Growth (Illustrative) Incremental Share Points

High-Level Approach
Conduct market survey to assess rightto-win opportunities and identify market segments Determine gaps in needs offerings for market segments Develop value proposition for segments of focus Analyze unit cost, customer preferences, and industry trends across customer lifecycle/channel dimensions Determine the optimal distribution strategy Create a client needs-driven product suites framework Differentiate pricing by product functionality and volumes Align and streamline the sales process to the product suites

Target Segments

1.0% 0.8%

II Share Growth Channel Choices


Base Year

Year One

Year Two

Year Three

Product/ Service Portfolio

Source: Booz & Company analysis

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Contact Information
Chicago Ashish Jain Principal +1-312-578-4753 [email protected] New York Ken Favaro Partner +1-212-551-6826 [email protected] Paul Hyde Partner +1-212-551-6069 [email protected] Samuel Bloustein Senior Associate +1-212-551-6567 [email protected]

Booz & Company senior executive advisor David Meer also contributed to this Leading Research.
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