Checking accounts, savings accounts, CDs, etc.: Take a look at this bank's strategies to achieve high returns!

Tuesday: Return Driven Strategy

FROM THE DESK OF MILES EVERSON: One of the frameworks I find effective in managing my team at MBO Partners is Return Driven Strategy (RDS). This pyramid-shaped framework has 11 tenets and 3 foundations that help businesses achieve true wealth and value creation. Professor Joel Litman and Dr. Mark L. Frigo explained this in detail in the book, “Driven.” Today, let’s talk about a banking company and its strategies in the lens of Tenet Two of RDS: Fulfill otherwise unmet customer needs. Keep reading below to know how this brand maintains strong pricing power despite having offerings with little differentiation. CEO, MBO Partners Chairman of the Advisory Board, The I Institute

Checking accounts, savings accounts, CDs, etc.: Take a look at this bank's strategies to achieve high returns! Wells Fargo is a multinational financial services company with corporate headquarters in San Francisco, California, and operational headquarters in Manhattan, New York. The company is one of the “Big Four Banks” in the US, along with JPMorgan Chase, Bank of America, and Citigroup. It is one of the most valuable bank brands, with over 8,000 branches and 13,000 ATMs (automated teller machines) worldwide.. Today, Wells Fargo operates in 35 countries and has over 70 million customers around the globe. Wells Fargo’s Pricing Power and Return Driven Strategy’s (RDS) Tenet on Fulfilling Otherwise Unmet Customer Needs. According to Professor Joel Litman and Dr. Mark L. Frigo in the book, “Driven,” the retail banking space is extremely competitive. However, most products like checking accounts, savings accounts, and certificates of deposit (CDs) have little differentiation. If this is the case, how come Wells Fargo manages to maintain strong pricing power? In fact, Professor Litman and Dr. Frigo say that throughout the 1990s and into the 21st century, the company displayed returns on investment (ROIs) that are twice or thrice corporate averages. There’s more! From 1985 to 2005, Wells Fargo showed extraordinary growth rates and a stock price that increased 4 or 5 times that of the US market. How did all these become possible? To answer that question, let’s look at Wells Fargo’s performance… As one of the top deposit gatherers in the US, Wells Fargo’s strategy rests on deep customer relationships, sound risk management, and operational excellence. Successful execution of this strategy enables the company to achieve a wide economic moat, which is clearly shown in its financial statements. [Wide Economic Moat: This refers to an asset that is difficult to duplicate such as brand identity and patents. Companies with wide economic moats create an effective barrier against competitors, generate large amounts of cash flow, and have a track record of strong returns.] Additionally, Wells Fargo has established a base of customers who are willing to stick with the bank through thick and thin. Here are two more reasons why the company maintains strong pricing power: Competitive Advantage Wells Fargo’s competitive advantage stems from cost advantages, and customers switching costs to its core banking operations and intangible assets in wealth management. The company’s funding costs are also a key source of advantage. Of its tangible assets, 20% are funded by deposits bearing no interest expenses. These methods enable Wells Fargo to create a vast and dense branch network… and through this network, the company is able to maintain the top share of one-third of its markets and increase its deposit market share to 10% or more in 21 states in the US. Cross-selling Strategy and A One-stop Shop Wells Fargo’s focus on cross-selling enables it to build strong relationships with customers rather than engaging in one-off transactions. This strategy not only produces more deposits, but also results in more productive assets. According to an article from financial services company Morningstar, Inc., cross-selling helps Wells Fargo generate more revenue per balance sheet dollar than other banks. Another strategy that enables the bank to generate high returns is creating a one-stop shop for retail banking customers. Through this, customers can keep all their bank products like checking accounts, savings accounts, loans, credit cards, etc., in one place. The idea is to save them time while also reducing Wells Fargo’s costs to market to them. — According to Professor Litman and Dr. Frigo, to achieve Tenet Two of RDS—fulfill otherwise unmet customer needs—a firm must first uniquely answer an unmet need to generate high returns. In the case of Wells Fargo, the difference lies not just in the functionality of its products but also in the delivery of its offerings. As Dick Kovacevich, former CEO of Wells Fargo, said: “We’re really selling commodity products. But it’s the way we distribute the commodity products that make it unique. What we’re able to do with cross-selling is make banking much more convenient. It’s also less expensive.” The result? An average Wells Fargo customer household uses 5.2 different bank products, about twice the industry average, and 20% of customers buy 8 products from the bank! This shows that the company’s focus on timing and customer convenience pays off. This also highlights how pricing power needs to be examined not only for the price above the cost of the offering itself, but also relative to the investments and other expenses required to build the business. … and by executing the strategies above properly, Wells Fargo achieves higher ROIs, and its customers’ need for time and convenience is better fulfilled. Take note of the key points mentioned in today’s article! By fulfilling customers’ unmet needs—whether those needs are in the form of products, services, or the need for time and convenience—you and your brand will maintain strong pricing power and generate high returns. Stay tuned for more RDS-related features in the coming weeks! Hope you found this week’s insights interesting and helpful. Follow us on LinkedIn. Stay tuned for next Tuesday’s Return Driven Strategy! Publice speaking is oneof the common fear of people. This Task brings a lot of strees to some one who’s especially not used to speak infrnot of an audience. or represent his/her brand or company. Wait a minute. Do you think there’s something wrong with the paragraph above? Learn more about the importance of proofreading in next week’s article!