Academic journal article ABA Banking Journal

Stop Holding a Mirror to Your Capabilities

Academic journal article ABA Banking Journal

Stop Holding a Mirror to Your Capabilities

Article excerpt

Start Looking at your business through the eyes of your customer. Demand strategy enables you to profitably capture current and emerging demand share

Financial services are about as competitive as it gets. Every day brings more players vying for the same consumer wallet.

Banks have responded, in large part, by improving the efficiency and effectiveness of their existing business. The wave of re-engineering, followed by dramatic investments in customer relationship management and customer research, have certainly improved their offerings. The focus on the "best customers" has allowed banks to extract some pricing efficiency. And now, banks have high hopes for new technologies, online banking, account aggregation, and wireless applications.

Unfortunately, while these efforts are important, they are wholly insufficient. At best, banks are emulating each other, with little differentiation amongst providers. These efforts are supported by a lot of spending that has not been vetted by the target market. It is not surprising that there is a backlash from customers who find many of these efforts to be illogical.

Our work has demonstrated that demand strategy organizations thrive in all industries. Applying the principles of demand strategy has yielded insights that provide the answer plan for banks (and, as we emphasize later, customer research is not the same as demand strategy).

While some of the actions suggested require significant change in how most banks think about their markets, the rewards of adopting demand strategy are proportionately higher and sustainable. The question is one of will: Are you prepared to truly embrace the discipline of demand strategy?

Supply-led strategies no longer work

Most business strategies used in banking are supply-led; they have three characteristics:

* Rely on cost structure, innovation, breakthrough ideas, etc.;

* Use research to identify new markets and price points for existing offerings; and

* Tend to be like a solution looking for a need.

All strategy approaches are appropriate at some time or the other, but in today's marketplace supply-led strategies are no longer effective. They can be too easily replicated and do not create differentiation. As the "arms race" grows, the cost of experimenting with the latest widget has also risen beyond the reach of many banks. Therefore, as the banking industry matures, supply-led approaches are not sustainable.

Market leadership is achieved when you can offer something relevant and differentiated to your target "demand." As expressed by economists, demand is an expression of actionable intent, i.e., a customer's inclination, ability, and desire to purchase an offering. This demand is constantly being reshaped not only by the customer, but also by economy, competitors, culture, regulation, technology, etc. Opportunity is created when businesses match supply to demand.

What then is demand strategy? It is the prioritized and actionable plan for realizing the most profitable demand for the business. It is a systematic approach that enables companies to identify and embrace the most profitable current and emerging demand in the market.

Here are some of its characteristics and requirements:

* Demand must precede and then drive the alignment of supply,

* The foundation is a unique understanding of how your target demand relates to the business category you are in,

* You have to know something actionable that is not shared by your competitors,

* The business system has to focus on the priority needs of your target demand.

How are customers reacting to bank efforts?

Demand for financial services used to be a lot simpler. Pensions were secure and managed by others, awareness of the sector was lower, providers stuck to their regions or traditional offerings, and human interaction was very much the norm. …

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