Ask any bank or credit union in America what differentiates them from other financial institutions and invariably their answer will be “service.” They all emphatically declare, “Service is what differentiates us! Service is what our brand is about!” Here are four reality checks that should encourage your organization to look in the mirror and be honest.

Reality Check #1: As a financial service business, your service has to be good. If it isn’t, you’re out of business.

Of course “service” distinguishes financial services firms from one another. “Service” is, in essence, the “product” service firms produce. If you’re going to differentiate around “service,” you have to be a lot more specific and work a lot harder to define precisely how your service is different and why it is any better. The unique style and flavor of “service” is what differentiates each and every service business in the world.

What if you asked a car company what made them different from all the other car companies and they told you “our cars?” It sounds ridiculous, don’t you think? It dangles a question so obvious and implicit, it’s insulting: “Precisely how are your cars different?” And yet this logic doesn’t seem to apply to financial institutions. There are very intelligent people who never question precisely how their financial service firm’s “service” is any different from anyone else.

“We’re personal.”

Guess what? That’s what the other guy says too.

“We truly care.”

Ditto.

It’s not just players in financial services that struggle with this. It’s something that every service firm in every industry wrestles with — from plumbers to dentists.

Reality Check #2: If everyone says “our service is better,” someone is lying.

Service may be what your organization does best, but that doesn’t mean your service is comparatively better than anyone else. Even if it is true and the level of service at your financial institution is indisputably extraordinary, “service” is so commonly used by financial institutions as a primary brand theme that it is essentially impossible to differentiate around. You can’t take your claim to “better service” out to the public because your me-too message will be lost in the chorus of self-delusional financial institutions. Consumers, unable to sort out who is telling the truth and who is making shallow promises, simply tune everyone out.

Despite what you may believe, all the banks down the street aren’t mean and evil. They have nice people with generally good intentions. They say hello and smile at their customers, just like you do. They have customer service training. Yes, they occasionally drop the ball, but so do you. You’re fooling yourself if you think you can be nicer than the competition.

Reality Check #3: Saying “service is what differentiates us” is a cop-out and a roadblock.

If you ask any financial institution to describe what makes them unique without using the word “service” and you’ll come up empty-handed nearly every time. It’s as if banks and credit unions land on “service” and then never go any further or dig any deeper. It’s lazy. It’s a cop-out that enables financial institutions to dodge the hard questions. Are we really any different?

It’s easy to understand how the notion of “service” gets picked by boards of directors and management teams as the central brand theme for their financial institutions. For starters, it sounds good. Who can argue with “service?” It feels good. Throw on a few zingy adjectives like “premier,” “extraordinary,” “exceptional” or “world-class” and watch heads nod in unison around the room.

The belief that “service is what differentiates us” is the single biggest and most-common roadblock preventing financial institutions from developing a truly differentiated brand strategy.

Reality Check #4: Exceptional service does not mean providing a Ritz Carlton/Four Seasons experience.

A broad, general “service” strategy often leads HR departments to hire consultants who promise to train staff how to deliver the kind of phenomenal, world-class service one finds at the Ritz Carlton or Four Seasons hotels. That may sound great, but it only works if you target rich people who are willing to pony up big bucks and pay premium prices for VIP service. It’s an operational and fiscal reality: it costs more (a lot more!) to provide world-class service, which is something fewer consumers can afford.

Furthermore, it’s erroneous to assume great service always equates with 5-star, red carpet treatment. It’s not simply a matter of going above and beyond and bending over backwards. There are a lot of other factors that people use to define a quality service experience — speed, level of knowledge, responsiveness, ability to customize/personalize, dependability, etc.

Think about Southwest Airlines. No one feels special when they fly Southwest Airlines. You’re not part of the jet set, you’re flying the low-cost “bus of the skies.” And yet consumers love the Southwest brand because it is the most fun airline out there. Southwest’s sense of humor, funny personality and jocular attitude is what distinguishes their service experience. Their brand is about making an otherwise miserable experience fun.

How come there isn’t a bank or credit union with a brand similar to Southwest Airlines? A brand built around fun? What’s stopping them? Perhaps it’s that they all still believe it is their “service” that separates them?

At the heart of every brand rests a promise, a certain experience — good or bad — that people can count on. Some branding experts call it a “brand promise.” Others call it a “brand essence.” Or a “brand position.” You could even use the throwback term “Unique Selling Proposition.” Call it what you want. Your brand has one, whether you’ve defined one formally it or not.

If you think you have an idea about what your brand stands for, here’s a short quiz you can take to see how compelling it is.

1. Is your brand differentiated?

Is your brand position something unique to you, something that only you are known for, and none of your competitors?

Of all the components fueling a strong brand, differentiation is the most critical. Most brands fail this first test because they say their brand stands for something like “service” or “value.” If everyone else is saying the same thing, it doesn’t matter if you’re the best.

Tip: If you say “trust,” try again. Brands, by their very nature, embody “trust.” When you’re brand is known for something, that means consumers can trust you’ll deliver a predictable, reliable experience. Moreover, trust is the bedrock of every financial relationship, so forget about positioning yourself as the one who is “more trustworthy.” Trust is something you can only earn through your actions, over time.

2. Is your brand relevant?

Do consumers really care about what your brand stands for? How important is it to them? Does it benefit them? Why should they care?

“Value” and “service” may be very important to people, but they are themes so ubiquitously used by your competitors… nay, used by everyone — from plumbers to car dealers to supermarkets — that you cannot successfully differentiate around them.

Tip: You can have a highly-differentiated brand promise that you can credibly deliver on, and people still might not care. You have to strike a nerve. The best way to accomplish this is by (1) listening to a (2) narrowly-focused audience so that you can (3) understand their unique needs.

3. Is your brand credible?

Do you walk the talk? Can consumers really believe you can deliver what your brand promises? Are you capable?

Tip: If you’ve found a direction for your brand that is both differentiated and relevant, you’re on to something, even if you aren’t able to deliver…yet. The good news? You’ve solved the hardest riddle in branding: finding something people care about that your competitors aren’t doing. The bad news? The execution of a strategy meeting these criteria is no picnic. You’ll need all departments — operations, training, HR, IT, lending, compliance and marketing — to work together to build the infrastructure. The result is worth the effort. Don’t be discouraged.

4. Is your brand irreproducible?

Is your brand difficult — if not impossible — for competitors to copy? If one of your competitors started copying your strategy today, how long would it take them to catch up?

Tip: You’re looking to build something that either your competitors can’t credibly deliver, or something that would challenge them so much — logistically, financially, or otherwise — that they won’t even bother. Who wants to try to outmaneuver a brand like Apple, Google or Virgin?

Conclusion

If you answered “yes” to each of these questions, your brand is rock solid. It’s quite likely your brand is contributing significantly to your bottom line.

If you answered “no” to any one of these questions, you still have some work to do. If your brand isn’t differentiated, then you have to ask, “What can we do differently?” If your brand isn’t relevant, you need to go focus on an audience and find out what really drives them. If your brand isn’t credible, you need to either change your marketing messages or your service experience, because the two don’t align. And if your brand isn’t irreproducible, you need to push yourself further and faster than your competitors could ever imagine.

Here are this week’s stories of interest from around the web.
Click hotlinks for the complete story.

Money for Guns: Chase gives away prepaid debit cards for unregistered guns

Credit Score: Consumer Reports’ 12 best and 3 worst credit cards

Duel: Comparing ING vs. E-Trade click-through rates

Essay Contest: Credit union holds $1,500 ‘What Do You Want’ contest

Image Problems: Aussie credit unions in the same situation as U.S. peers

Pedal Pushing: 7.99% bike loans up to $2,500

Q&A Interview: Barclays sees how sponsorships can open doors in the U.S.

More Gas: DFCU-style gas promo from a Montana credit union

Online Media: Citibank’s exclusive sponsorship of popular Aussie website ‘The Fix’

Going Swimmingly: Visa happy with Phelps endorsement

Up for Review: ING’s £4 million direct mail account

Va Va Voom: Female employees pose in bank’s pinup calendar

That’s an Outhouse! But the sign says “Future home of Auburn-U FCU”

When financial institutions give the answer “service,” which question are they answering:

1. What are we good at?
2. What is the one thing we do better than anyone else?

More often than not, “service” is the reflexive answer to the first question, and almost never the honest answer to the second.

Few financial institutions do much of anything remarkably better than their peers, but when you ask about competitive strengths, they’ll often resort to “service” as a trusty fall-back. Many actually have themselves convinced that service is the answer to both questions.

Even if your service is good, it’s probably not notably better than your competitors. Every organization is better at some things than others. But its strengths, like “service,” may not be any different than the bank down the street. How do you know? How did you compare service experiences? What evidence is there?

Reality Check: Maybe your service isn’t that great. Maybe the other guys’ service is just worse. When people switch financial institutions, more often than not they’re doing it because of poor service, so some of these financial institutions are lying. Not everyone’s service is all that great.

Key Question: If you had to give any other answer than “service,” what would you say your organization does best?

Bottom Line: Unless you take service to the nth degree in everything you so, “service” is probably not the answer. Let go of this myth. In all likelihood, it isn’t what differentiates you, and you’ll have a hard time finding what does (or truly taking your service to a branded level) until you do.

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.