For the last two decades, community banks could effectively differentiate themselves from their big bank competition based on two bedrocks; “we’re local” and “we give great customer service”. With today’s fickle customers, increased competition, ever growing technology developments and changing demographics, community banks need to redefine their value proposition.
To define your true competitive differentiation, you need to communicate, and execute, on a promise to your customers that passes the following tests:
- Does your promise matter to your customer?
- Is your promise different from what your competitors promise?
- Can you prove you deliver on your promise to prospective customers?
In most markets, a “we’re local” differentiating strategy fails at least one of those tests. Customers and prospective customers hear the “we’re local” from many of your banking and credit union competitors. Even Wells Fargo’s advertising tries to position them as a local community bank. While we all know that’s laughable, many consumers do not. I also need to point out that “we’re local” may not matter much to many of your customer segments. Despite “buy local” campaigns across the country, consumers continue to support Wal-Mart and Costco even understanding that it hurts local businesses.
The “we give great customer service” strategy also fails at least one of those tests. Again, many of your banking and credit union competitors say the same thing so it is very difficult to compel prospective customers to leave their current bank to come to yours based on a potential of better service. It is also very difficult to prove to prospective customers. Unless you’ve been recognized by independent organizations (e.g., local paper, Greenwich Associates, Yelp reviews, etc.) for your great service or you offer service guarantees, many consumers will hear it as an empty slogan.
The other challenge with “great customer service” is how your core customer defines it. For some customers, it simply means being recognized when they come into the branch. For others, it means someone can answer their questions at 10:00 pm. For others, it means no surprise fees. Many business customers define it as hassle-free, as in, “don’t keep asking me for more information.” So unless you understand their needs and you set their expectations, it is very difficult to consistently meet, much less, exceed your customers’ service expectations.
So, then, how do you define your competitive differentiation? Here are the four key steps:
1. Define your core customer
It is exceedingly difficult, and expensive, to differentiate your bank across all consumer segments, all small business segments and all commercial segments. You want to laser focus your target market as much as possible. Often, it’s as simple as thinking of some of your “best” customers and asking yourself, “Who do we need more of to achieve our strategic goals?” Then name them as in, “if we had 25 more ABC Industries” or “1,000 more John and Susan Does applying for mortgages,” etc. “then we could achieve our goals.”
2. Determine what matters most to your core customers
Once you’ve defined your core customer, you need to determine what matters most to them when it comes to choosing a financial service provider. You can do this with customer surveys and ask them why they chose your bank or from first-hand knowledge from your sales and service people.
It’s important to ask insightful questions to avoid getting the lazy one word answers of “location” or “fees”.
3. Determine what need you can meet for those core customers that none of your competitors can
Once you’ve defined your core customer and what matters most to them, you now need to spend some time discussing what it is that you can do better for them than anyone else. This is the heart of differentiation. Can you provide a product that meets a need like no competitor can? Can you save them money? Can you bring industry knowledge that allows you to get harder deals approved? Can you offer a simpler, hassle-free experience than your competitors?
Spend some time on this and be honest about your ability to beat your competitors. Many of your competitors are successful in many areas. You’re looking for their Achilles heel.
4. Determine how you can prove that you can deliver on that promise
Lastly, you need to identify proof points for your promise. We’re not looking for a slogan; we’re looking for a promise that can be consistently delivered on.
How can you prove your promise? Can you offer a free financial review and promise them $100 if you can’t find ways to save them money? Can you guarantee a 25-day mortgage or pay them $500? Or can you simply list out the last 10 hospitals you financed or state that you bank more professional services firms than any other bank in the market? Can you point to 300 positive Yelp reviews?
The key is that you have to be able to prove your promise to your prospective customers. They are the ones you have to convince to go through the hassle of changing.
To avoid the commoditization trap, a unique and compelling value proposition is needed that both matters to your customers and differentiates you from your competitors. Get started today on defining your value proposition and then ruthlessly deliver on that promise.
For more information, http://www.aboundresources.com/bank-competitive-advantage/