In any business, being able to name your competitors is an incredibly important practice. While this would seem to be a pretty straight forward exercise, it can become complicated quickly. For example, when looking at a large manufacturer such as GM, competitors would not only include other car makers, but makers of alternative transports such as motorcycles and even bicycles in some international markets. Then, expanding further to look at alternative service providers such as public transit, trains and airlines. Technology can also impact competition quickly. For instance, 5 years ago Uber and Lyft would not have been a threat to the automotive industry, but they have developed a business model that makes owning a car not necessary in some markets. Keeping a close eye on current competition, and looking out for future changes to the competitive landscape, is a critical component of managing any company.
A buzz word often thrown around is something called Competitive Intelligence. If you google Competitive Intelligence, you will notice lots of marketing and consulting ads, but not much of an explanation for the term. Entrepreneur.com has a nice clean definition – “The process of gathering actionable information on your business's competitive environment.” Being able to do this is critical; not just so you can properly position your products and services, but so you are aware of changing market conditions that can impact your industry. Harvard Business Review (HBR) also discussed Competitive Intelligence recently, and took the above definition a step further and added an important word, “Perspective.” HBR’s definition for Competitive Intelligence is “perspective on changing market conditions.” This means identifying risks and opportunities early enough to allow the company to adapt its strategy or in extreme cases, change it.
The financial services industry has been in an extremely competitive environment for decades, with no signs of this changing anytime soon. As with the example above, technology is rapidly changing the competitive landscape, and we have to be careful not to get complacent when looking at just the same old competitors as benchmarks. With the influx of alternatives to banking services offered by large retailers and Fintechs, traditional banks and credit unions cannot afford to be caught unprepared for rapid changes to the industry.
While change is something FIs are often hesitant to embrace, it can also bring new opportunities to the industry. Accenture recently posted an interesting question and answer dialogue from one of their industry experts. This brief discussion, which to summarize, states that while change is definitely going to be a part of the industry in the near future, the unique position of trust held by established financial institutions, will allow them to enhance customer relationships versus lose them. Deloitte’s 2017 Banking Industry Outlook report also states that while the overall banking environment should improve this year, a deeper relationship with Fintechs will be necessary as globalization and digitization continue to advance in the industry.
Putting these concepts together, banks and credit unions need to know who their current competitors are, and how they are positioned in their respective markets. They also need to keep a close look on how the competitive landscape is changing, and be prepared to work with technology companies and other third parties, bringing their expertise to bear on rapidly changing market trends. Knowledge of the current environment is critical to pricing and relationship management. Knowledge of industry trends and how the industry is changing is just as important, FIs need to be proactive to be prepared for these inevitable changes.