KEYCORP INVESTS $100 MIL TO EXPAND, BUILD BRAND: BANK EMPLOYS CONSUMER MARKETING TACTICS AND DIVERSIFIED DELIVERY SYSTEMS

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In its drive to survive, KeyCorp spent an unprecedented $100 million in marketing last year and is expected to spend the same amount this year as it spreads its name nationwide.

That exceeds the marketing expenditures of many larger banks, but as the industry's merger trend continues, more will be upping marketing budgets to build national brands.

ONLY IN 14 STATES

Even though Key isn't truly "national" yet-its branches stretch from Alaska to New England but are in only 14 states-the company aims to become one of the nation's best-known financial services brands in the next three years.

"Many of today's banks won't survive as we move toward a future where we'll see fewer, much bigger financial services companies," said Ken Hemauer, an analyst with Robert W. Baird & Co.

There's enormous pressure to cut costs and take advantage of economies of scale through mergers, and "advertising over a broad geographic area is another way to maximize efficiencies," said Mike ter Maat, a senior economist with the American Bankers Association.

The association measured 554 bank mergers and acquisitions last year, and deals in 1997 are expected to exceed that if present trends continue, Mr. ter Maat said.

Like dozens of other midsize banks, Key is in danger of being swallowed if it doesn't become a powerhouse on its own, Mr. Hemauer said. "KeyCorp is certainly out on the leading edge in its marketing efforts," he said.

USING CONSUMER MARKETING

Its strategy: reach consumers across the nation through a combination of consumer marketing tactics and diversified delivery systems.

"Our actual geographic presence is much less relevant than our business, which will reach customers everywhere with innovative products through marketing channels that have nothing to do with brick-and-mortar branches," said Stephen A. Cone, Key's exec VP-chief marketing officer.

Mr. Cone, a former direct marketing entrepreneur and top executive with American Express Co., was recruited in 1994 to shake up Key's once-sleepy marketing department and develop new transaction channels after Key merged with Cincinnati's Society Bank.

Both banks had undergone a series of mergers in the previous several years, creating name and identity confusion in its markets scattered across the U.S.

His first move was to kill the 145-year-old Society Bank brand name, a move considered risky by some. But Mr. Cone said extinguishing the Society name proved how fragile bank brands have become.

"Despite years and years of marketing and advertising Society's name, no one cared when it was gone," Mr. Cone said.

MAKING GREAT STRIDES

Industry analysts agree Key has made great strides.

The marketer said its brand awareness has increased 80% in most markets in the last two years. Key now claims to be No. 1 nationwide in lending for small businesses, recreational vehicles and boats; No. 3 in educational loans; No. 4 in auto loans; and No. 6 in personal loans and credit cards.

Key said it achieved those rankings largely through its database- and integrated-marketing efforts.

"Marketing has become the key to survival for banks, and even though we're spending more than a lot of our rivals, we ought to be spending more," Mr. Cone said.

One of Mr. Cone's biggest marketing moves to date was signing actor Anthony Edwards, star of NBC's highly rated "ER," as ad spokesman, in 1995. Mr. Cone has found a number of ways of using Mr. Edwards in various integrated marketing programs beyond TV and print advertising.

Y&R Advertising, New York, is Key's agency.

In addition to ads, Mr. Edwards agreed to schmooze with top bank officials and clients as well as chat with high school students at one of Key's Investment Centers in Seattle recently.

As the title sponsor of Seattle's Key Arena, the company brought Mr. Edwards there for events earlier this month.

Mr. Edwards' voice can also be heard on Key's recordings guiding callers to its toll-free telephone number through options when requesting information or doing transactions. By yearend, his voice will greet each caller by his or her first name, using a new computerized system.

WORKING THE PHONES

Telephone banking has become Key's No. 1 transaction channel, generating more than 100,000 inbound calls daily, said Mr. Cone.

Like most consumer banks, credit cards remain the bank's most profitable product.

Intensive direct marketing paired with high-tech customer service through a toll-free number has become extremely lucrative for Key, he said. Personal computer and Internet banking is also growing.

MOST POWERFUL TOOL

"The Internet is getting a lot of attention because it's new and sexy, but the telephone will remain our most powerful marketing tool for the next 10 years. It's still much easier and faster than the Internet, and no one balks at the security issues of using it even for high-balance transactions," he said.

This month, Mr. Edwards began appearing in a new 60-second spot running on cable TV that targets "The Sandwich Generation," a term coined for one of its most sought-after customer groups: Baby boomers who are caring for their parents while putting their own children through college.

Key's emphasis on segmented marketing is being reflected in its branches, where it's replacing full-service outlets with smaller-scale Key Centers in high-traffic locations. The centers serve customers based on specific lifestyle and demographic needs-such as retirement, savings for college, first-time investments and small businesses.

Kiosks and mini-branches in supermarkets are crucial to Key's future expansion plans, especially in the Northeast. Key entered the New Hampshire market entirely through supermarket outlets.

FOLLOWUP MAILINGS

Each time a customer has an interaction with Key, he or she receives up to four different mailings or telephone calls aimed at cross-selling additional products based on each customer's specific needs.

While Key drives the consumer side of the business with marketing, there is a weak link: corporate banking, where size-and growth-

are increasingly important.

"Marketing . . . doesn't do much for us in the corporate side of things," said one Key executive who did not wish to be identified. "Being a giant is what you need to be."

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