Dynamic Marketing Communiqué

Checking accounts, savings accounts, CDs, etc.: Take a look at this bank’s strategies to achieve high returns! [Tuesdays: Return Driven Strategy]

July 19, 2022

Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.

A Note from 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.

Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute

Return Driven Strategy

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.

Photo from Reuters

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:

  1. 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. 

  1. 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!

(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)

About The Dynamic Marketing Communiqué’s
“Tuesdays: Return Driven Strategy”

In the book, “Driven,” authors Professor Joel Litman and Dr. Mark L. Frigo said that the goal of every long-term successful business strategy should incorporate the combined necessity of “making the world a better place” and “getting wealthy.”

That is why they created Return Driven Strategy and Career Driven Strategy—frameworks that were built to help leaders and professionals plan and evaluate businesses so they can also help others achieve their organizational goals and career goals.

The frameworks describe the plans and actions that drive returns for anyone in an organization such as independent contractors, marketers, brand managers, communicators, and other people in any field. These actions lead to the creation of wealth and value for customers, employees, shareholders, and the society.

Every Tuesday, we’ll highlight case studies, business strategies, tips, and insights related to Return Driven Strategy and Career Driven Strategy.

In planning, building, or managing brands and businesses, these strategies, case studies, and guidelines will help you choose what specific actions to take and when to take them.

Hope you found this week’s insights interesting and helpful.

Stay tuned for next Tuesday’s “Return Driven Strategy!”


Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
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