Creating Competitive Advantages
Once you've analyzed the consumer driven factors that make up the competitive arena, you're able to apply a strategy framework to create your strategic differentiation. Here's a high level approach to use as a guide.
No financial institution no matter how large can be all things to all people so begin your strategic planning by defining the intersection of your brand promise and target markets. Your brand promise sets the tempo for your business model, your culture and everything you deliver. Maybe your brand casts you as a premium service provider, or a low cost provider, or a niche provider or anything else. It's important to recognize this as your brand is linked to your competitive positioning. A low cost provider is unlikely to be successful in pitching full service solutions to high net worth individuals. Brands can change, but not quickly. Changing the brand means changing consumers’ recognition of the company, its reputation, image and its place in the market.
With your brand promise recognized, you can change the focus from analyzing yourself to analyzing your customer target markets. Your goal is to create customer segments which can later be linked to products, services and competitive advantages. It's important to identify your market characteristics from the customers’ perspective. This is a break from the norm as most FiServ companies have a strong tendency to rely on supply-side definitions of markets. Also, avoid the common mistake of describing customer segments by product attributes and instead define them by a combination of demographics and behaviors.
Once you have identified your market boundaries and customer segmentation, you're ready to determine which advantages in the competitive arena you will make competitive advantages. This is a multi-faceted exercise as competitive advantages are relative to the combination of customer segments, products and competitors. Customer segments are continuously refined but remain relatively constant. Products can be manipulated for increased competitiveness and competitors will vary across markets and geographies. Because any particular competitive advantage is only relative to a segment, product and competitor, it's quite possible a competitive advantage in one market is not an advantage in another. This realization underscores why it is important to understand the complete market and not create differentiation in siloes. Also, when considering criteria in the competitive arena, don't make the all too common mistake of believing you know what customers want. To really know what customers want, and how they prioritize among alternatives, you need to ask them. If you haven't already, implement a voice of the customer program.
Once you have crafted your competitive advantages, you need operationalize their delivery. This includes assessing your culture and capabilities, designing repeatable processes for consistent delivery, applying enabling technology for automation and measurement, and creating a learning environment that refines your strategy and results in continuous process improvement.
The Point is This
The market shift is underway and undeniable. Consumers are more empowered, informed and demanding. Consumers are also switching their global financial service companies, community banks, investment banks, brokers, credit card providers, insurance companies, credit unions, mortgage lenders, thrift institutions and related financial institutions at an increased pace. These trends show no signs of abating.
However, financial services firms that fail to adapt to rising consumer expectations provide the consumers and business growth opportunity to firms that do. For many financial services sectors, particularly in Western nations, the markets are near saturation. This creates a zero sum game, whereby a customer acquisition for one company results in a loss for another.
A business strategy driven by consumer demand and demonstrating differentiation should begin by firmly understanding the competitive arena. Aligning the financial institutions brand, customer markets and competitors provides the intersection to select and design from consumer decision making criteria that can deliver competitive advantages. But remember, advantages must be relevant, measurable and unique to be competitive advantages.
Financial institutions will be increasingly challenged to differentiate themselves from the competition. Financial products, services, pricing, locations and delivery are quickly copied and easily imitated—a trend that accelerates commoditization and creates pricing pressure. However, more innovative and consumer driven business strategies will place increased emphasis on new types of engagement and Business Intelligence used to acquire new customers while also doubling down on customer strategies such as Customer Experience (CX) Management and Customer Relationship Management (CRM) in order to solidify existing customer relationships and retain those customers.
Make no mistake, new consumer driven business strategies will initially distinguish leaders from followers, and ultimately separate those who thrive from those will fail to survive.
Financial services leaders which take a wait and see approach are inviting more innovative competitors to make them irrelevant.