Credit Unions’ Competitive Secret: Innovation?

A Boston Consulting Group exec was recently quoted in American Banker as saying that financial services firms could do even better if they raised the bar on innovation — a view shared by Matt at The Boulevard to Retirement.

What do consumers think? According to Forrester’s research, not a lot. Just 18% of the consumers they surveyed said they would use the word innovative to describe their bank. Investment firms scored a little higher at 26%.

Which banks had the highest percentage of customers considering them to be innovative?

In first was SunTrust with 27%, followed by Wachovia with 24%, and credit unions at 23% (note: Forrester doesn’t ask survey respondents to identify the specific CU they do business with, so responses are attributed to credit unions in the aggregate).

And in the ranking of investment firms whose customers consider them to be innovative, CUs again came in third, behind Ameriprise and Charles Schwab.

My take: These findings should make some CUs reconsider their marketing messages. By focusing their marketing on the service aspects of CUs (which, according to Forrester, CUs already score very highly on), their marketing messages are preaching to the choir — and doing little to convert the heathen. The Forrester data raises two marketing considerations.

First, it raises the question of how well CUs tout their (perceived) innovations and how aware bank customers are of what CUs are doing. I don’t mean to downplay CUs’ efforts by qualifying them as “perceived” because there are plenty of examples — from using biodegradable corn plastic for membership cards for new members at one CU to interest-free energy loans at another. But I’ve found out about these efforts on sites like CUES and Filene Institute — which I doubt are read by consumers looking for new financial providers.

Second, it raises the question of how well CUs really understand why their members perceive them to be innovative in the first place.

I’d bet that, with some consumers, it’s a halo effect. A member has a strong emotional connection to her CU and gives it high marks across the board — even if she can’t identify anything she would consider to be innovative.

But for other members, something about their CU is causing them to consider their CU innovative. And my hunch is that, in many cases, it’s not some big, earth-shattering, disruptive innovation, but something that CU execs wouldn’t have thought their members would even consider to be innovative. (For a good discussion of different types of innovation, go here).

CU execs need to better understand their members’ perceptions on CU innovation. Doing so could give them a much-needed opportunity to break away from the “this amp goes to eleven” marketing strategy many CUs employ today. (It’s a reference to a line in the movie “Spinal Tap”).

Here’s what I mean: Many CUs say that they “compete on service”. But when that strategy doesn’t deliver the market growth and profitability they’re looking for, what do they do? Change the strategy? No. They “turn the amp up to 11” and scream even louder about their superior service.

Successful marketing is about exploring — and exploiting — the opportunities hidden in the nooks and crannies of the marketplace. This innovation perception could be one of those opportunities for credit unions.

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13 thoughts on “Credit Unions’ Competitive Secret: Innovation?

  1. I couldn’t agree more. Credit unions are all saying the same thing.

    We are local, we are community minded, we are member owned and we offer great service. Great, but none of these compel prospective members to action.

    Innovation is definitely a promotable and provable differentiator. I actually believe the bar isn’t even that high. Credit unions just need to scan their competitive environment, find an under-served niche and promote a single, differentiated (and obvious) position over time. And, with a differentiated strategy, they can even get away with the amp at 5 or 6.

    Excellent post Ron.


  2. Great service is a great retention and up-sell/cross-sell tool. For prospects, however, it’s a different story for two reasons: 1) they haven’t experienced it. A firm can promise great service all they want, but until somebody experiences it, it’s just another empty promise; and 2) it’s awfully tough to quantify. A prospect can easily compare rates, fees, etc. But when you promise “great service” doesn’t it really often come down to the luck of the draw — i.e., which service rep you deal with? The one who’s got a ton of experience, understands the products, understands your needs, etc. — or the one who’s been on the job for two weeks and just got out of training?

  3. It’s true that service is a perceived value that’s hard to verify and it’s also one that community banks compete on. I wonder what types of compelling innovations would grab a consumer’s attention and get them to switch… maybe an active community embedded in a financial services company sharing what they’ve learned about how to get the most value out of this institution. A recently funded startup, is building the infrastructure for people (user) powered customer service. With the banking industry being what it is, my guess is that CUs would adopt this before banks and could use it to expose knowledge in their network of passionate members, which seems to be a huge value proposition (albeit qualitative) that banks could only dream of.

    Since I’m working at a retirement planning startup, we talk with employers, banks, CUs, mutual fund companies, benefits outsourcing companies, CU resellers, etc. and I’ve found that they’re interested in offering innovative solutions, since it helps them build assets, provide more personalized service to their customers they can’t service in a cost-effective way (Middle Market and Mass Affluent). The trick is finding the true innovators who are willing to empower their customers/members and are comfortable with reshaping the balance of power (i.e. giving more to the consumers so that they can improve their preparedness for retirement).

  4. Being a techie, when I hear innovation, I think about technology. In that regard, I think credit unions are leading banks. Well, in my area anyways. Working in IT must be like a dream at our local credit union because they have all the new whiz bang. I think they even have an “automated” branch, where staff is there to just help their members with the different kiosks. As far as service goes, from what I hear, they get high marks in that also. My employer, however, is very conservative. At times it seems that we take a “wait until 75% of our competitors are doing it” approach.

  5. George: The grass is always greener, eh? I can only imagine that there are a lot of CU technologists reading your comment and wondering in which parallel universe you live in.

  6. Great comments all. George, from a technology standpoint (in my opinion), if CUs are more innovative, it’s a reflection of the executive management at CUs being more willing to take a chance on being different. Most credit unions, due to the sheer size difference, have been forced to look at unique or different ways to compete and survive. Generally speaking, there seems to be more of an open mind to new and creative ways of serving their members. From a service standpoint, I think Ron’s comment hit it dead on the nose – it’s all about the service rep. The right ATTITUDE and right tools (whether technology, experience, training, etc.) can be that differentiator. I don’t know that I would say that it makes the service innovative, though. Frankly, I think the service level expectations from financial institutions is so low that the teller actually making eye contact and smiling might be considered innovative.

  7. Mike: Your comment made me envision a potential TV commercial for CUs.

    In the commercial, two bank managers are talking, and one says to the other “we’ve just implemented a radical new innovation here at the bank. We’re confident that it’s going to drive customer satisfaction through the roof. Look over there at that teller.”

    Teller [to a customer]: “Hi, may I help you?”

    Bank manager [to his colleague]: “Well, what do you think? Brilliant, isn’t it?”

  8. Ron, you are right. Remember Apple’s marketing phrase “Think different”. Unless CUs begin to think that way (and that is all that is being asked here – just to think) nothing will start to change. I don’t know why this doesn’t happen. Over and over again I have sat at tables with peers I had the highest regard for who are more than willing to stay with the status quo. Everything points to a profitable and stable CU, and they don’t want to rock the boat. If you think differently you will act differently and you eventually become different. Then you just state who you are and what you are doing.

  9. What credit unions across the country need to do is pool our resources to build a national advertising campaign around the value and innovation in America’s Credit Unions.

    We just completed some research with our members and some non-members in our area and the findings were profound. Of the the non-members, we interviewed predominately younger people 18 to 30, few if any even knew what a credit union was. Most just thought a CREDIT UNION WAS JUST A BANK THEY COULDN”T JOIN.

    These are the young people who we have to attract to ultimately survive and they basically have no idea what we are. In my opinion that is THE problem facing credit unions. You can innovate all you want but if consumers think we are some kind of exclusive/private club, that innovation will be for not.

  10. Kris — Thanks for commenting. Personally, my suspicion is that what CUs are doing to innovate — i.e., green initiatives, interest-free energy loans, etc. — would appeal most to Gen Yers, but that they’re not even aware of them.

    Meanwhile, what it seems that so many CUs are doing to increase awareness is to focus on the “we’re not a big, bad bank” message or the “we’re community-focused” message. Instead, a “look at what we’re doing to innovate — and you can take advantage of this, too” message may be worth testing.

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