Jeff Judy

Jeff's Thoughts - August 14, 2013

"The Competition"

I'll spend the next two weeks teaching at the Pacific Coast School of Banking, always a great event. That means a lot of conversations with bank staff, both in the classroom and during breaks and social time.

And "The Competition" will be mentioned countless times in those conversations. Sometimes, frankly, The Competition will be an excuse for not doing the hard work of careful analysis and sound decision making, as in, "We'd really like to do that, but we have to match The Competition." That excuse was a "pet peeve" of mine when I started this newsletter years ago (see "Pet Peeve: Striving for Mediocrity"), and it still is. If you want to let The Competition set policy for your institution, well, I'll leave that to you.

Other conversations will revolve about how to get an edge on The Competition, and how to defend your own bank against the efforts of The Competition to gain market share at your expense. Whatever the context, The Competition will come up again and again.

The only problem is whether we really know what we mean when we refer to "The Competition"? Do we oversimplify when we lump all of our rivals into a monolithic block labeled The Competition?

I am reminded of an article that appeared a couple of months ago in a blog I often recommend, The Financial Brand. In "Who Are You Really Competing Against?", it was suggested that we need a more realistic, more complex view of The Competition to be effective in the marketplace.

The most simplistic view is that competition, for community banks, is all about the big banks. The Financial Brand doesn't buy this assumption. Certainly, you compete against the big banks on some products and services, but letting that segment of the market completely dominate your planning and strategizing is probably a mistake.

More importantly, breaking The Competition down by individual competitor, by types of products and services, and by new vs. existing customers can reveal a lot about where you are vulnerable and where you have opportunities. For example, you may beat Rival A on one product or service, but lose to them on another. The situation might be reversed when you look at where you stand compared to Rival B.

The original article (more information below) provides some suggestions about using SWOT analysis and other tools to get a more detailed picture of your competitive landscape. But let me boil all those details down with a simple example of some of the trade-offs you might face.

Consider two financial institutions:

Which comes closer to describing your bank? And which one would you rather be?

Oh, sure, you can tell me that you plan to bring in lots of new business and keep all of it. Nice goal, well worth striving for ... but very few banks have already achieved that.

The rest need to spend more time thinking about which products and services are most important to their success, about which rivals give them the most trouble on those items, and about what balance between new business and loyal business they are willing to accept. Your future success is more likely to be assured by designing strategies to deal with individual competitors in individual segments than it is by fighting against The Competition.