Commercial Banking Focus…Lower Middle Market: A closer look
Q&A with Nicole Johnson, Group Director and Financial Services Practice Lead
Today we are focusing on a desirable segment of the broad “commercial” client base – the Lower Middle Market. Media Logic’s resident expert, Nicole Johnson, Group Director and FS Practice Lead, shares her perspective on the Lower Midde Market segment honed by decades of commercial payments and retail banking marketing experience.
Listen to the full conversation here:
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Q. How would you define the Lower Middle Market (LMM) relative to the larger commercial client base?
Let’s start with the broader Middle Market segment. The middle market is a vital component of the economy. In the U.S., they account for one-third of private-sector GDP and employment, representing a total annual revenue of over $10 trillion.
Middle Market companies are often privately owned or closely held while some are publicly traded. These companies operate across a wide range of industries, including manufacturing, distribution, wholesale, retail, healthcare, technology, and professional services.
The Middle Market universe is typically subdivided into three tiers based on annual revenue. Revenue stratifications for these tiers are a bit fluid. For today’s purpose, we will define Lower Middle Market companies as earning $10 to $100M in annual revenue (Crystal Funds).
Q. Can you share more about Lower Middle Market commercial customers as an opportunity area?
Yes- the largest and fastest growing Commercial segment is the Middle Market representing a huge opportunity for banks and payment issuers. The lower tier is important because of the scale. This means that they make up a large universe straddling SMBs and Core Middle Market Commercial customers. JPMorgan estimates there are approximately 250,000 businesses that fit into the classification of the Lower Middle Market (Crystal Funds).
FIs who can authentically connect with LM The FI – who is new to us – was in the critical onboarding stage with the agency and sharing intel and insights. What they did not realize — and what became clear to us through our exposure to a cross-section of their client base — is that current LMM commercial clients perceived decreasing FI visibility over the relationship including a decline in face-to-face interactions, events, and bespoke solutions. Clearly this spoke to a loss of hyper-localized relationship tactics and personal attention compared to the past…resulting in a sense of “value lost.”
M companies and demonstrate local knowledge will have immense advantages. The LMM segments represent the biggest opportunity for regional banks and community FIs.
Earlier this year, Mastercard refocused on the Middle Market making an important observation: “There is an untapped opportunity to support the growth and digitization of middle market companies, specifically the lower-middle market.” Their proprietary research uncovered that “…fewer than 10% of financial providers offered services that support holistic financial visibility – exposing a significant capability gap for the segment.”
Middle Market companies – including the lower tier – demand tailored solutions. In fact, that research shows “four out of 10 would switch providers if offered products with a better fit.” That insight led Mastercard to launch a Mid-Market Accelerator to “address longstanding barriers that have blocked midsize companies from accessing bespoke tools…” (Mastercard)
Q. From your perspective marketing to this audience, can you speak to competitive threats?
The largest FIs and Super Regionals have a scale advantage – a physical presence coupled with the “air cover” achieved by investing in continuous and pervasive omni-channel messaging driving awareness and conversion. On the opposite end of the spectrum and a competitive threat, are fintechs – with little to no physical presence – but leveraging an ability to be disruptive and deliver frictionless digital interactions and solutions.
Regionals and community banks serving commercial clients must work around competitive threats. The good news: They can be successful in ways others cannot based on their local presence and expertise.
Q. How do the regional and community FI clients connect with the Lower Middle Market Segment?
The solutions we see that are working to attract and engage LMM commercial clients leverage FI’s expertise and local market knowledge. These FIs reinforce a set of benefits and person-to-person ability. They can deliver personalized service, regionally appropriate bank products, and insights about addressing regional business challenges.
These topics are of interest to all Commercial client segments, but what makes a difference with the Lower Middle Market is addressing regionally driven customer needs from an authentic place as a trusted authority within the same geography. That is the secret sauce, so to speak.
Q. What are key considerations and inputs towards a meaningful LMM segment value proposition?
Every FI will be different. We advise “Start where you are.” by asking and answering a set of questions to identify gaps, address and close those gaps, and only then formulating a meaningful value prop. We find structured ideation with multiple stakeholders from across the FI’s organization and agency marketing partners to be a successful approach. Arriving at a “meaningful” value prop is a very deliberate choice of word as it includes not only addressing the needs unique to the LMM client but also aligning with FI capabilities.
Q. Any additional insights to help us better understand the Lower Middle Market segment?
To reiterate, the segment requires regional expertise and a personal service focus. Once commercial clients move up into the next Middle Market tier, there will be a shift to how the FI best serves the audience. A different strategy will emphasize the FI’s Treasury Management capabilities and operational efficiencies.
Anecdotally, the LMM perspective and values were underscored for me and the Media Logic team through recent conversations with our FS clients. Specifically, we were able to integrate operational and strategic questions concerning the status of the industry. In turn, this provided us with the opportunity to immediately address potential attrition, and more importantly, helps the FI revisit the ways they bring value to their LMM clients unique to the segment.
Q. Can you speak to the areas where regional and community FIs might tap your expertise to attract and engage LMM clients – those “bespoke” customized solutions you’ve seen work?
We help FIs accomplish extremely specific goals as they engage with the target audience:
- Prove they are leaders in the local industry…
Visible high-impact marketing of bespoke engagements targeting the LMM audience: webinars, conferences, topical-focused seminars, etc.
- Focus on the right messages, delivered in the right channels…
Messages centered around local market insights, high-touch service and vertical solutions, delivered in traditional and digital media always reaching LMM “where they are.”
- Participate in compelling activities…
Community relationship building leverages the FI’s thought leadership as regional influencers, partnering with local philanthropic organizations for shared positive outcomes, visibility as a positive force at the grassroots level.
Q. Any other thoughts about the LMM opportunity for regional players and smaller FIs?
It’s been noted that these businesses can lack a clear, comprehensive view of their financial situation. The segment has many banking options, and many take an “a la carte approach to banking, maintaining relationships with multiple financial institutions to get the best rates.” Part of our communications strategy: Help LMM prospects and clients understand the importance of the big picture while avoiding the trap of chasing the best rate and winding up with a fragmented financial relationship. LMM clients must move beyond rate-sensitivity to a more balanced view of what a supportive FI partner can do for them.
We help our FI clients with “early and often” communications across the relationship life cycle. Connecting with the LMM commercial client once a year is simply not enough. The regional players who implement a high-touch communication plan with a mix of one-on-one interactions and bespoke activities will be successful in retaining and growing these commercial clients.
