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CU Snapshot

 Apr '18Mar '18
# of CUs5,7245,727
Total Assets
($ billions)
Total Savings
($ billions)
Net Cap.
Loans to Savings82.9%81.5%
Loan Delinq.0.8%0.8%

         Credit Union Indicators

What's Your Competitive Advantage?

If you're not sure of the answer, your members won't be sure either.

Can you strictly define your credit union's business model and your competitive advantage?

If you say, "We're a full-service credit union and our competitive advantage is our member service," then you're missing the boat.

Being a credit union isn't a business model; it's a financial cooperative formed under a certain charter.

Being "full-service" doesn't really answer anything. Offering great member service with the best price is a worthy goal, but many experts characterize those traits as almost mutually exclusive.

Let's delineate five business models and their competitive advantages:

1. Convenience model (McDonald's). Convenience is the trump card in banking services. Bank of America and Wells Fargo have inconsistent service and only moderate pricing, but have gigantic market share.

Why? They sell physical convenience. Their branches and ATMs are everywhere. Many consumers will accept higher prices and lower-quality service for the sake of convenience.

2. Best-price model (Costco). Many consumers bypass convenient options to get to Costco, a warehouse store that allows them to save money on bulk purchases. Your credit union's pricing would have to be sufficiently different to stand out, and you can't sustain the best-price model unless your internal costs are lower than your competitors'.

Walmart is the poster child for this model. It builds its entire system around cost reduction so it can afford to "outprice" the competition.

3. Quality service model (Ritz-Carlton or Chick-fil-A). Most credit unions try to follow this model. Their locations are few and their prices are competitive, but to differentiate they attempt to "out-service" their competitors.

Chick-fil-A has ordinary food and extraordinary service. It hires carefully, trains exceptionally, and holds staff accountable. It sells a culture as much as a meal.

If you offer exemplary and consistent service quality, this model attracts loyal consumers who choose your option over convenience and better prices.

4. Innovation model (Apple). It's challenging to be a real innovator or disrupter in a regulated industry, especially one known more for conservatism than risk taking.

Innovation in the banking world seems to come from outside banking, not from within. Once you innovate, you must continue to innovate to maintain the lead. Few financial institutions follow this model.

5. Marketing/buzz model (Coca-Cola). Coca-Cola is the world's master at marketing. Like Coca-Cola, many credit unions and banks rely on marketing to attract business.

They don't focus on good service or have great prices, nor do they offer convenient locations or innovative products. But great marketing can keep new members coming in, to replace those members leaving through the revolving door.

This model works best with other attributes, such as good service or low prices, to retain members when the newness of the marketing message wears off.

Companies that select one of these models and fine-tune it usually have short- and long-term success because they've decided to be excellent at something.

Leadership author Jim Collins calls this the hedgehog concept. In "Good to Great," Collins uses the example of a hedgehog, which survives by excelling at only one thing: protecting itself with a spiny coat.

Ask yourself these questions:

· What's your credit union's area of excellence?

· What do you do to attract new consumers?

· What inspires customers to skip all the other banking choices and pick you?

If you're not sure of these answers, your members won't be sure, either.

Credit unions that stand out in the marketplace and thrive over the long term choose a business model, become an expert, and fine-tune it over time. This creates a sustainable market advantage.

TIM HARRINGTON is president of the financial services consulting firm T.E.A.M. Resources. Contact him at 800-788-9542.

This article initially appeared in Credit Union Directors Newsletter, which provides strategic insights for policy makers.