By John Redding, Richard Kamm and Craig Younkman
Why should people choose us over all the other options they have in the marketplace?
Most credit unions seem stuck in the mud when it comes to competitive differentiation.
With unrelenting competition from all directions, CUs generally recognize that outperforming the guy down the block (and on the Internet) in some targeted area is critical for long-term success and viability. Yet, from our experience, most senior managers, board and staff cannot clearly answer the question, "Why choose us?"
We recently partnered with a dozen clients ($100 million to $1.2 billion in assets) to try out a new approach to answering the differentiation question. With each CU, we created "as is" and "will be" competitive differentiation maps and then developed a transition plan to close the gaps between them. (Details on the specific process we used can be found on our Web site. Find the link at the very top of the page).The results have been very positive. As a rule, these CUs have:
- pinpointed a specific competitive differentiation strategy (price leader, product/delivery leader or relationship leader) at which they will excel as compared to their competitors;
- identified targeted niche markets they will seek to serve better than other financial institutions;
- developed a quantitatively based "as is" assessment of their current levels of competitive differentiation and established "will be" goals for the future; and
- started to take concrete actions to move the credit from the "as is" to the "will be" levels of competitive differentiation.
More important, their strategic plans are much more focused than before. A limited set of high-priority initiatives are now seen by everyone as the drivers of long-term competitive success.
Here are three insights about what made the process successful:
Insight #1: Forget the Competition (to begin with)
Paradoxically, we discovered that the best first step in tackling competitive differentiation is not to analyze the competition but to assess internal business practices. By closely examining how they were running their businesses today, the CUs determined whether they were better positioned to differentiate themselves as price/low cost leaders, product/delivery leaders, or relationship/loyalty leaders.
We usually started by taking a look at each CU's product offering. Financial institutions that differentiated as price/low cost leaders tended to limit their product offerings to keep costs down. Those that differentiated as product/delivery leaders were frequently first to market with new and innovative offerings. Financial institutions that differentiated as relationship/loyalty leaders typically had an extensive range of products to maximize share of wallet. In addition to products, we also analyzed pricing, delivery systems and technology, marketing, key business processes, organization structure and culture, and measures.
Most CUs found that their business model did not consistently align with any single competitive differentiation strategy. Some also found that they said one thing in their plans, marketing and internal communications, but were actually doing something different on a daily basis when running the business.
Case Example: Take the $800 million, multi-SEG CU that participated in our group. In previous planning sessions, it had set an ambitious long-term goal of excelling at building member relationships, striving for best-in-market levels of share of wallet and member loyalty. As a result, management and board were equally surprised to discover that, in most areas, the credit union was better equipped to be a price/low cost leader, able to handle large volumes of speedy, hassle-free transactions at a lower cost than most other financial institutions. Because of this discovery, the credit union carefully re-assessed its long-term relationship/loyalty leader strategy and, in a major change in course, fully committed itself to excel as a price/low cost leader. This conclusion caused the credit union to rethink major investments planned for a CRM system, targeted marketing and product line expansion.
Insight #2: Don't Turn to the Future Until You Understand the Present
We also came to believe that conversations about future competitive positioning are unproductive until everyone shares an in-depth understanding of where their CUs are today. To do so, we had the CUs create "as is" maps of their current performance relative to major competitors on the same three competitive differentiation dimensions: price, product/delivery, and relationship leadership. They also created "as is" maps of their current ability to serve selected niche markets (e.g., youth market, Latino market, underserved market, upscale market, etc.) compared to their competition.
Case Example: Through the creation of these "as is" maps, a $500 million community-chartered CU was dismayed to realize that, despite considerable investments over several years, the CU was still lagging behind major competitors in serving the Latino market and the youth market. This realization sparked a vigorous debate whether the credit union was truly committed to and realistically capable of excelling in serving these two niche markets.
Insight #3: Separate What You Want to be Great at From What You Want to be Good At
In the past, these credit unions may have felt that if they picked one area to be great at, or one group to excel at serving, they would be neglecting other areas or groups. A light often clicked on when we explained that CUs can generally not afford to be below average compared to their competition in any differentiation area or with any group. While there is one major area the CU will seek to be great at over time, there are many things the CU will need to be good at, maintaining a level of performance that is roughly equal to that provided by its direct competitors. For example, a relationship leader still needs to be in the ballpark when it comes to pricing. And a CU that excels in serving the 18-34 market still needs to meet the needs of boomers and seniors.
Case Example: For the $500 million CU just mentioned, a major breakthrough occurred when the CU decided that it would seek to be good (roughly equal to the competition) at serving the youth market while it would strive to be great (best in market) at serving the Latino market. As a result, the CU would make some limited investments to improve services to the youth market, but just to the level of being equal to the competition. On the other hand, becoming great at serving the Latino market was now fully embraced as a long-term strategic priority.
There were other insights along the way as well. This is not just a senior management exercise; boards also need to be involved. While some additional market research is needed, most information is already available–the group just needs to make sense of it.
The most important discovery of all was the powerful impact of finally being able to answer the question "Why choose us?" Business plans changed, sometimes dramatically so. Some key business decisions are coming out differently than they likely would have without this process. Daily business operations are being intentionally modified to strengthen competitive positioning. As a result, these CUs feel better positioned than ever to separate themselves from the pack and succeed in meeting the competitive challenges of tomorrow.
John Redding, Richard Kamm and Craig Younkman are principals with the Institute for Strategic Learning, LLC, Naperville, Ill.
Read another article by these authors: "How High Performers Became High Performers."
Read more on differentiation in our strategy archive.
