By Mark Gibson
American consumers and business owners have more choices in financial institutions than any country in the world. And yet, in recent research, institutions are differentiating primarily on rates or fees. Innovative institutions of all sizes have demonstrated that defining and communicating a differentiated selling proposition or value proposition can pay big dividends. Is there something banks can learn from these industry leaders?
It is not unusual to see more than 10 bank branches in a one-mile stretch of suburban highway. Often, the names are similar, and the buildings are indistinguishable. What motivates a potential customer to visit one over the other? The answer varies significantly depending on whom you ask:
The banker perspective. When CPG asks a group of bank executives what makes their organizations stand out, we often hear: “It’s our people.” Or, “We deliver a superior level of service.”
The customer perspective. On the other hand, very recent research indicates that most potential customers do not distinguish between the service or reputation of various institutions, and instead select a new bank based on rates, fees or cash incentives.
This phenomenon is not limited to consumers. While commercial bankers take pride in building strong relationships, we often hear that business owner select other institution based on better loan rates or terms.
It goes without saying that this price-based differentiation does not optimize profitability. It is not unusual in any category for certain competitors to position themselves as the ‘low-cost provider.’ Think Walmart. However, there are other ways to differentiate in the eyes of customers. And most of them have higher profit margins than being the low-cost provider.
What is a ‘value proposition’?
Put simply, a selling proposition or value proposition is an ‘elevator speech’ when a prospective customer asks, “Why should I choose to do business with your institution?” Importantly, a strong value proposition is written from the point of view of the customer, not the institution. It emphasizes how banks solve a problem, meet a need or enhance customers’ lives or businesses.
The value proposition serves as the foundation for marketing messages and strategies. It also assists sales teams in articulating a selling proposition in language that is relevant and compelling to prospects.
Why clarify your value proposition?
A bank may already be successful, or its senior leadership team may believe it is able to explain to customers why the bank is ‘different and better’ than other banks. That’s great! However, many bank leadership teams want to ensure bank marketers are articulating differences in the most advantageous way possible.
“Our management team is very experienced, coming from successful banks. However, we were worried that we might be speaking to ourselves in terms of how we described Founders to potential customers,” says Jon Higgins, president of Founders Bank. “Washington is extremely competitive, so we invested the time and effort to clarify our selling proposition, so every one of our associates is on the same page and telling a consistent story.”
As Higgins suggests, the benefits can be internal as well as external. Colleagues become more engaged, especially if they are part of the process and well-briefed. Selling efforts become more consistent. And marketing programs become more integrated and strategic. Think of it like a rowing shell with all the oars synchronized perfectly together, slicing through the water smoothly and rapidly.
The net result of this effort should be faster growth and higher margins. Let’s dig deeper to understand how it is done and who is doing it well.
What are the alternatives for differentiating your institution?
We have identified six areas in which a financial institution could choose to differentiate its value proposition.
Customer segment – One of the most common methods of differentiating the value proposition is to select one or more customer segments and then create an integrated set of products and services that meet that segment’s needs better than other organizations. An example of this is Triumph Financial, which uses “technology and innovation to reduce friction in cash flow management and increase the speed of payments for the trucking industry.”
Product – Another frequent means of differentiation is through creating a product innovation that meets a specific customer’s needs better than the competition. A good example of this approach is Fifth Third’s Early Pay, which provides consumers early access to their paychecks. With nearly one-third of Americans living paycheck to paycheck, that’s a pretty big segment!
Service – While many institutions believe they differentiate based on service, few have created tangible benefits and processes which deliver on this value proposition consistently. Oakworth Financial is an exception, dedicating a team of bankers to each client, establishing a defined service process and branding unique service elements such as Concierge Banking.
Image – Occasionally, a financial institution will effectively develop and communicate a brand position that is differentiated and helps it stand out in a crowded marketplace. Eastern Bank is such a brand, with a 200-year history of being committed to improving its local communities. Eastern invests in affordable housing, its bankers serve on many nonprofit boards, has one of the largest charitable foundations in its region and reminds residents of its commitment every day with its “Join Us For Good” theme line.
Value-based pricing – It is possible to use discrete pricing to differentiate your institution without racing to the bottom in terms of rates or fees. An example is Bangor Savings Bank’s Free ATM program. In 2006, Bangor identified that foreign ATM fees were a major pain point for many consumers. Using this insight, the bank successfully leveraged its Free ATM value proposition to cost-effectively grow its consumer franchise and outpaced competition.
Channel – The definition of convenience has evolved over the years, from ‘a branch close to my house’ to ‘technology that allows me to bank when I want.’ Banks that have paid attention to this trend have benefited. Capital One is one of the first banks to promote ”opening an account easily online in less than five minutes.” This channel differentiation has contributed to leading market share in its high-yield savings account.
How do you determine your value proposition?
The first step in the process is to examine the current situation. Why do customers choose a particular bank now? Why would they instead choose any of that bank’s competitors? How does the composition of a customer base differ from the market? These questions can inform who banks are attracting now. Those answers serve as the foundation for the value proposition.
Understanding current strengths and weaknesses is important as well. Much of this can be gleaned from front-line staff. Ideally, there is great benefit to identifying strengths that key competitors cannot match and build on those.
“Our employees were critical to our process,” Higgins says. “We conducted two focus groups and included all grade levels and job families. We had an outside firm conduct them to ensure we got honest feedback regarding the negatives as well as the positives. The insights were very powerful and allowed us to create a value proposition that was realistic yet didn’t overpromise.”
Finally, it is critical to take an objective look from the customers’ perspectives. What is important to customers in selecting and using a financial institution, and how do they perceive banks are currently performing on those important attributes? Answers to those questions can identify elements to build into a value proposition, and other areas which may need to be buttressed or enhanced over time.
Finally, another useful step is to articulate the value proposition in a way that resonates with employees, who should be included in the launch of the program.
Value proposition may be worded in a way that is appropriate for external consumption. For example, Oakworth Capital and Triumph Financial share their value proposition on their websites. For other institutions, their value proposition is like their mission and values – it provides clarity to employees as well as advertising agencies to ensure consistent communication with the outside world.
Standing apart, not standing alone
Done right, a well-defined value proposition describes banks’ competitive advantages in a way that resonates with employees, customers and prospects. It builds confidence and pride among team members, and it focuses their efforts on delivering value that matters to customers. Over time, this clarity of execution establishes a competitive barrier that becomes very difficult for competitors to match and allows banks to compete on something much more powerful than price.
Mark Gibson is a senior consulting associate at Capital Performance Group, a strategic consulting firm that helps financial institutions maximize the ROI of their marketing efforts. He can also be reached on LinkedIn.
