To Compete Effectively, Focus on Experiential Value Creation

A generation into the digital revolution with more rapid change on the horizon, culture is becoming a co-equal battlefield for future success. For talent acquisition, consumer attention and mindshare and, ultimately, share of wallet, culture is truly king.

That time-honored phrase is taking on renewed urgency today. In an era of hyper-competition, commodified products, standardized physical and digital distribution channels, and increasingly consistent service across the financial services industry, meaningful differentiation is a growing challenge and more powerful opportunity than ever before.

How do credit unions compete effectively in this evolving competitive environment? One answer is to reconsider value creation. Traditionally, financial retailers focus on economic and functional value creation. The times call for the added focus on organizational culture and experiential value creation.

Economic value creation is straightforward. It’s the basis for the financial services industry and consumers understand it intuitively. Credit unions do an outstanding job creating economic value, too. Uniquely local, invested in their communities, and providing competitive rates and fees, credit unions contribute significantly to the velocity of money in local communities across the country. This dimension of value creation is a solid credit union success story.

Functional value creation is a moving target for all industry competitors, and it will not ease up. The digital revolution means that the productivity frontier – the sum of best practices – is advancing faster than our ability to incorporate them throughout the credit union, both in back-office operations and member-facing channels.

Understandably, much of industry leadership’s attention is focused on functional value creation. Functional value in the digital era has been all-consuming. The revolution is all about operational efficiency and maintaining relevance through these game-changing innovations. Of course, it is critical to maintain relevance, but relevance keeps you in the game; it does little to help you win it.

This rewiring of the competitive landscape in the digital era poses new strategic challenges. First, remote, relatively impersonal 24/7 access tools level the playing field. This has positive, knock-on effects on operational efficiency, but it is not an entirely healthy development for smaller, local financial retailers that need to stand out and above their larger, better known and resource-rich competitors.

Over time, commodified digital experiences also change consumer understanding of the financial services industry. Increasingly, consumers think of industry products and services generically. This trend requires concerted, strategic attention from credit union leadership.

Building a distinctive, differentiated “experience culture” – delivering experiential value – is an entirely different challenge than competing over economic or functional value alone. Other industries facing commodity status – and the dynamic competition between industry rivals – provides insights into how credit unions might claim greater consumer mindshare and growing market share today.

Think Nike, Chick-Fil-A or Southwest Airlines. Each business competes effectively on economic and functional value. Where they truly distinguish themselves and rewrite the rules of the game in their industries is by delivering compelling, experiential value.

Nike’s impact in athletic apparel is well known. With the introduction of “Just Do It,” Nike made the strategic decision to create athletic aspiration in all of us. It reasoned that if it could accomplish that, the shoes would sell themselves.

This was a contentious decision at the time. Only in hindsight does it seem wise. At the time, Nike saw itself in the shoe business. The strategic innovation encapsulated by Just Do It is that experiential value could not only sell shoes, but help Nike own a playing field that its rivals would be unable to emulate.

Similarly, consumers understand that Chick-Fil-A is all about “chikin.” But Chick-Fil-A means much more than a quick meal. It transcends its fast food industry by delivering experiential value that is more meaningful and motivating than lunch on the go.

Based in faith, Chick-Fil-A’s experiential values are graciousness, humanity and care. As a result, having committed to creating a playing field on its own terms, Chick-Fil-A doesn’t compete with Taco Bell or McDonalds. In fact, its average branch is 60% more profitable than its next closest rival.

Southwest Airlines also decided not to accept the commodification of the airline industry. It knew that over time, simply selling seats at 30,000 feet would not help the company thrive. It made the strategic decision to shake up the industry and deliver the unique experiential value of “fun!”

The idea of an airline as “fun” was revolutionary. It still is. Southwest just completed its 46th consecutive year of profitability.

The financial services industry is facing similar competitive times. By focusing on experiential value creation, the credit union industry can tilt the playing field in its favor, attract the right talent, motivate staff and dramatize its values to a receptive public.

Matt Purvis is Principal of Purvis Management. He can be reached at matt@purvismanagement.com.