Being a credit union is not a business model; it is a charter type. Being “full service” doesn’t really answer anything. Sears is full service, yet they struggle to compete in the new, complex marketplace. While offering great member service with the best price is sound wisdom, it is seen by many experts and almost mutually exclusive.
Let’s breakout out business models and competitive advantages in five delineated areas:
1. Physically Convenient model – McDonalds
Convenience is the trump card in banking services. Bank of America and Wells Fargo fit this model. Their pricing is moderate; their service can be weak. Yet these two banks have gigantic market share. Why? They sell physical convenience. Their branches and ATMs are everywhere.
But convenience is expensive. You can’t lead in pricing AND service AND convenience. Many consumers will accept higher prices and lower quality service if their branch or ATM is close by.
2. Best Price model (lowest loan prices, highest deposit prices, lowest fee prices) – Costco
Not all consumers want convenience. Many want the best price. Many consumers will by-pass all the convenient options to get to Costco. They are a warehouse store with few locations allowing them to turn the savings into better prices.
If a credit unions wants to be the “best-priced banking option,” their pricing has to be sufficiently different to stand out. However, you can’t sustain the best price model unless your internal costs are lower than your competitors. Wal-Mart is the poster child at this. Their entire system is built around cost reduction; therefore they can afford to “out-price” the competition.
Too often credit unions offer lower prices but have the same or higher costs than their competition. The result is simply lower profit and lower net worth. This is a failed strategy.
3. Quality Service model – Ritz-Carlton or Chik-Fil-A
Most credit unions try to follow this model. Their locations are few, their prices are competitive, but they attempt to “out service” their competitors. This would be the Ritz Carlton/Nordstrom/Chick-fil-a model.
Chik-fil-a is a useful comparison. They have ordinary food and extraordinary service. They hire carefully, train exceptionally, hold staff accountable and remove decisively. They sell a culture as much as a meal.
The Quality Service model works if your service quality is exemplary and consistent. Like Pricing, to create an advantage, Quality Service can’t be a little better, it must be significantly better. This attracts consumers who like quality and will choose it over convenience and better prices.
A benefit is that Quality Service builds loyalty. The first two models do not. If you attract consumers via service, maintain that service, and keep pricing fair, you can create members for life. That is a great value.
4. Innovation model – Apple
This is difficult to create and maintain. Innovation in the banking world seems to come from outside of banking, not from within. It is a challenge to be a real innovator or disrupter in a regulated industry, one known for conservatism more than risk taking. And once you innovate, to maintain the lead, you must continue to innovate. Few financial institutions follow this model.
5. Marketing/Buzz model – Coca Cola
Coca Cola is world’s master at market. It sells a sweet syrup all over the planet. Like Coke, there are credit unions and banks that rely on marketing to attract business. They spend an unusual amount of their budget to build buzz and market products. They don’t focus on good service or have great prices, nor do they offer convenient locations or innovative products. But great marketing can keep new members coming to replace the revolving door of members leaving.
This model works best with some other attribute such as service or good price to keep the members yours when the newness of the marketing message wears off.
Companies that select one of these models and fine tune it usually have short and long-term success because they have decided to be excellent at something. Jim Collins calls it the “Hedgehog” principle. In Good to Great, he uses the example of a hedgehog that survives by excelling at only one thing: protecting itself with a spiny coat.
What is your credit union’s area of excellence? What do you do that attracts new consumers? What inspires customers to skip all the other banking choices and pick you? If you’re not sure, your members aren’t sure either. By identifying a competitive advantage and building a business model, you to stand out and attract those who are interested in what you are offering. You won’t attract everyone, you just need to attract enough of your target to make you successful.
Strictly define your business model. Those that tend to stand out in the marketplace and thrive over the long-term have chosen one in which to become expert, then fine-tune it over time. This creates a real, sustainable, market advantage.