Competition and Strategic Planning

Competition is one of those things that makes strategic planning tricky. Without competition, we could set a strategy to get members and know it would work. But all potential members have a plethora of choices for their financial service needs. What this means for you, as a credit union manager, is that all members - and potential members - will evaulate your offerings in the light of competing possibilities. These possibilities may be other credit unions, banks, or, indeed any institution offering financial services.

Let's take a look at why this will affect your strategies. Let's say you design your offerings, based on extensive (and perhaps expensive!) consumer research, to appeal to the average member. In a competition-free market, this is an excellent choice - your advertising will hit home, market penetration will increase, and your members will be happy.

In any market with competition, however, this strategy may lead to deteriorating financial performance. Why? Because competing institutions are likely to pursue the exact same approach - and have a similar appeal to members and potential members. When a potential member sees advertising, for example, from two different institutions that have the same appeal, his or her choices will be driven by other factors. If you and your competitor are both selling great service, this person may choose to join your credit union because you spent more on advertising, or maybe he will choose your competitor because their rates are lower. The problem, of course, is that almost any reason this potential customer may have for choosing your credit union is going to cost you - and your members - money.

Let's look at this same market, but instead of having two institutions promoting service, let's say you promote greater convenience. If everything else is equal - you spend the same amount on development, advertising, etc., and have the same rates and fees, some potential members will join your credit union because of convenience - and other will join your competitor, because of service. The service-oriented member will prefer your competitor, while the convenience-oriented member will prefer you. This is a much better situation, because you will not be forced to out-spend your competitor in any area - other than convenience. Strangely, consumers tend to prefer this scenario, because it offers them clear, believable choices.

Obviously, this is an oversimplified situation, and naturally, all members want both service and convenience (and great rates, promotions, relationships and a ton of other things!). But there is a very important lesson in this example: you will have lower costs and better performance if you use your strategic planning to be where your competition isn't. The corollary is also true: the more your strategy looks like a competitor's, the less money you will make.

-Robert