February 20, 2008

The cover story of ABA’s Bank Marketing January/February 2008 edition examines the ways in which “little guys” (sound familiar?) can compete against the megabanks. The article is titled “Can David Compete with Goliath?”

Insights they offer to “little guys” looking to take on the big banks:

• Don’t try to fight the giants on their terms. Instead, differentiate your financial institution.
• Differentiation drives profitability.
• You cannot differentiate with products.
• The most effective way to differentiate is through superior service quality.

Reality Check: Real service is more than just friendly tellers giving smiles. If a financial institution doesn’t respond to people’s needs and concerns, they won’t think the service was great no matter how friendly and smiley the staff are.

The article points out that local players have the flexibility to customize services and tailor their brands, giving them an advantage over superhuge banks that must offer standardized products and services across vast BRANCH NETWORKs.

Reality Check: The “super service strategy” only works against industry goliaths with rigid systems and frustrated customers. Small- to medium-size financial institutions — especially credit unions — can always be more locally nimble than the biggest players in the industry.

Key Question: If everyone adopts the same strategy to fight goliaths, how differentiated will they be?

Bottom Line: The article offers this summary:

1. Perceived service quality drives customer satisfaction.
2. Customer satisfaction drives retention.
3. Retention drives profitability.

The article claims a 1% reduction in customer losses equates to an 8-17% increase in profits. For the average community bank with assets between $100 million and $1 billion that would represent an increase in profits of $269,000 to $572,000.

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Previous related stories from The Financial Brand:

• Service is not what differentiates you
• STRNLE
• Mission, vision, values…and the missing piece
• Banks: Less differentiated than a bar of soap

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