360° Perspective on Credit Union Strategic Development:
Competitive Advantage
“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique
mix of value.”
- Michael Porter
Competitive advantage is an edge that positions an organization to generate greater margin or more effectively attract
and retain customers compared to its competitors.
For credit unions, competitive advantage will come from leveraging meaningful points of differentiation. In the financial
services marketplace, you must differentiate in a way that is
unique, sustainable, and meaningful to consumers.
Many organizations in other industries have successfully
used differentiation as a competitive advantage. Consider
the following example.
For many years, Blockbuster dominated the movie rental
playing field. Their stores (or those of their “me too” competitors) could be seen in practically every neighborhood.
Yet today Blockbuster is a shadow of its former self, brought
down in large part by the entry of a new and unconventional
competitor: Netflix.
Netflix differentiated itself by acting on the opportunity to
shift a delivery channel paradigm and harnessing its organizational data to deliver added value to customers. On an
average weekend in North America, approximately one third
of all downstream internet traffic now belongs to Netflix.
Its recommendation engine (built on information gleaned
through customer interactions) drives 75% of its viewing.
Like Netflix, credit unions compete in an industry where ease
of product accessibility is critical and where consumers seek
value that goes beyond pricing and fee structure. Although
video rentals and financial decisions are worlds apart in
terms of gravity and risk, this example still provides a valuable lesson for the credit union industry.
Competitive advantage through differentiation works best in
a market that offers the following circumstances:
1. Consumer needs and uses of the product are diverse.
Netflix offers convenient, flexible delivery of a large, constantly evolving selection of movies to appeal to a highly
diverse audience.
Consumers have diverse financial needs. Conducting an indepth analysis of member engagement will provide a solid
starting point for understanding what members need, how
they use your products and services, and which delivery
channels they prefer.
Pulling a report from your core processor or MCIF can help
you understand delivery channel usage among your mem-
bers. The following sample data for a credit union with
40,000 members shows that branches and online banking
are preferred delivery channels. Having totals that exceed
the actual number of members is an indication that members
are using more than one delivery channel. Comparing changes in data over time can help you understand engagement
trends and identify opportunities to better meet members’
evolving needs.
Delivery channel
# of members
% of members
Branches (total)
15,000
38%
Online banking
9,000
23%
Mobile
4,000
10%
ATM Proprietary
7,000
18%
ATM Network
5,000
13%
Shared branches
3,600
9%
Total
43,600
111%
(example based on 40,000 membership)
2. There are many ways to differentiate the products and
services, and the buyer perceives these many ways as
having value.
By using customer data to provide targeted recommendations, Netflix adds value by offering customers selections
they might not have otherwise considered.
Your credit union’s frontline staff, contact center and anyone
else who has direct contact with members can provide critical insights regarding members’ challenges and concerns.
Understanding multiple facets of the member experience will
put you on the path to defining feasible, meaningful ways in
which you can add value for members.
For example, one credit union was experiencing low credit
card portfolio penetration despite strong cross-sell efforts
and a competitive offering. Interviews with staff and an
analysis of data revealed a high application rate followed
by significant drop off during the 30 day period between
application and issuance. Members were dissatisfied with the
length of the fulfillment process, so they ended up selecting
a competing product that they felt provided greater value in
terms of responsiveness. Understanding the value members
place on speed of fulfillment helped the credit union identify
opportunities to become more competitive.
3. Few rivals are following a similar differentiation strategy.
When Netflix launched its model of rental video delivery,
their approach was unique and did not lend itself to easy
duplication.
For credit unions, it’s important to build competitive strategy
on a foundation of understanding economic and financial
performance position. Start with an assessment of your
5300 information and key ratios, comparing data with peers
and the local economic environment. Understand what sets
you apart.
tify cross-sell strategies that will increase member engagement and move its loan numbers into positive territory.
A comparison of 5300 data would look like this:
Netflix has continued to evolve its model to keep pace with
changes in technology and media consumption, producing its
own content driven by the consumer data it collects.
Name
Credit Union A
Peer Group
ROA
0.15%
0.85%
Loans/Shares
48.72%
67.42%
Delinquency Ratio
0.20%
1.04%
Charge-Off Ratio
0.39%
0.58%
Efficiency Ratio
95.99%
79.37%
Operating Expense Ratio
3.56%
3.09%
Member Growth
19.66%
2.89%
Loan Growth
-7.34%
5.89%
Share Growth
0.41%
5.22%
Auto Loan Penetration
12.69%
16.25%
Credit Card Penetration
11.49%
15.45%
Mortgage Penetration
1.30%
4.39%
Core Earnings Ratio
0.29%
1.10%
Yield on Loans
4.74%
5.11%
Yield on Investments
0.52%
1.07%
Compared to peers, Credit Union A has significant member
growth, a high efficiency ratio, and low delinquency and
charge-off ratios. However, the credit union is lagging in loan
growth and loan to share ratio. Compared to its local market
competitors, Credit Union A is unique in offering basic products
and services for underbanked groups. This differentiator has
contributed to recent member growth, although the demographic has underperformed on loan utilization. To effectively
build on this point of differentiation, Credit Union A must iden-
Human
capital
Organizational
data
Competitive
Advantage
4. Technological change is fast and rapid product innovation provides pathways for the pursuit of differentiation.
Ongoing changes in technology continue to create opportunities for credit unions to deliver products and services to members more effectively and efficiently. To determine how they
can stand out compared to other financial institutions, credit
unions should begin with an analysis of which differentiators
matter most to consumers and how well their existing technology delivers value to members. That will enable a credit union
to identify how technology can strengthen existing differentiators or overcome existing consumer pain points.
CUNA Mutual Group’s AskAuto app provides a great example
of how credit unions can differentiate themselves with the
help of technology. This app simplifies the auto purchase
process by enabling members to learn information such as
average retail cost (new or used) and EPA mileage plus save
their own notes and ranking preferences, just by scanning
the vehicle identification number or VIN with their smartphone. The app helps members compare vehicles and when
the member is ready to purchase, they can also use the app
to submit a credit union loan application. This smart use of
technology adds value for members in a unique way, reinforcing a credit union’s position as a knowledgeable partner who
makes members’ lives easier.
A disciplined, unbiased analysis of your credit union’s current
market position and member satisfaction will help you identify
how to achieve competitive advantage through differentiation.
Translating that understanding into a strategic vision supported by metrics-based short-term and long-term goals will
enable you to create an organizational roadmap to success.
Accomplishing your organization’s vision in a turbulent world requires a strategic
approach to maximizing strengths and leveraging opportunities for growth. The
Third Degree Business360° Process™ can help you succeed through an unbiased
strategic analysis of your credit union’s competitive advantage, delivery channels, organizational data and human capital. Third Degree works with progressive credit unions at times of growth and transition to help them navigate the
new realities of a more competitive marketplace.
Delivery
channels
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