The Bankwatch

Tracking the consumer evolution of financial services

Niching, as a way to break out of the Banking “arms race”

I enjoy James’ posts. He doesn’t post often, and when he does I frequently find myself being challenged.

Anyhow this thread originated here, a few weeks ago, and re-emerged here. The topic highlighted was the potential to reduce customer expectations in order to make them easier to exceed (I paraphrase). The example provided was Ryan Air, who provide a basic service, a flight, and everything else is extra. However the overall price remains cheap, while the service turns out not feel cheap.

James compares this matter to the arms race that Banks find themselves participating in, just to keep their heads above water, and maintain some semblance of market share and revenue.

… … the conundrum that faces banks as a result of the service arms race: the constant march to greater and greater levels of customer experience in an environment where only those with the deepest pockets can win in the long run.

I controversially then suggested that a strategy of lowering and exceeding customer expectations, rather than raising expectations and not meeting them, would be one way to get out of the death-spiral of increasingly tit-for-tat competitive responses

I had forgotten about this post. Meantime I have been thinking a lot about niches, and in particular, niches as a means to bring focus, clarity and prioritization to Banks business strategy. Some of the stuff I have been reading on that topic:

Advertising Age (who have annoyinginly stuck the piece behind a registration payment link now – but I have the original)

The essence of these articles that I took away. Niches are not small, but they are narrow and the scale comes from depth. The Wired piece talks about meganiches as a concept, and the examples provided are highly unusual to most but well known to the millions who know them, e.g. (Your’e the man now, dog) which gets millions of monthly visitors, and 100,000’s of thousands of contributors.

The Advertising Age piece quotes Booz Allen:

Booz Allen Hamilton explains why: As every market matures, choice increases. Then competition drives up quality and convenience to the point at which offerings become commoditised. The only businesses that then thrive are those that move beyond “me-too” or incremental offerings to marketing more-relevant and more-differentiated products and services. The only way to accomplish this is to focus on a narrower target.

This quote perfectly outlines the conundrum facing banks; how to move beyond ‘me-too’. Back to James more recent post.

Ryan Air
The Ryan Air example from James post is interesting.

Imagine our surprise, then, when we came to Dublin International and had only a few minutes wait to queue for check in (we had one bag to check, for which they waived the ten pound fee, for some reason). I am used to much longer wait times even with priority service. We had already paid for pre-boarding (five pounds each), so then had our pick of the seats on the aircraft (with allocated seating, you never, ever, get the seat you want). We decided that we’d like to eat on the plane and had a choice of options to select from, including wine and pizza, which set us back another five pounds each. Nett-nett, the flight cost less and we had exactly what we wanted from check-in till the moment we got off.

RyanAir don’t give you anything for the ticket price but a seat and safe travel. And you don’t expect anything else, excepting, perhaps, that you will have an uncomfortable journey. With such low expectations, we looked at everything that went right in a new way. We’re talking about using RyanAir for all our leisure travel now.

it seems Ryan Air provide a few things, very well:

– customer control of the package and pricing
– overall, generally economical
– clarity of their offer

My point is not to agree or disagree with Ryan Air. I will say that the attributes described relate to a decent percentage of the population, and there is a strong likelihood they will do as James has, and advocate Ryan Air to their friends. Mission Accomplished!

The Advertising Age article finished up with a few tips for ‘niching’, and I pulled out the top 5. Examples [mine] of strong niche players, to consider as you read these. (Walmart, Target, Starbucks, ING, Virgin)

1. Position your brand as narrowly as is economically possible.
2. Become the specialist that anticipates the needs of your target.
3. Rapidly work with the target niche to co-innovate.
4. Set as your goal such consumer centricity that the target niche will want to co-brand their identity with yours.
5. Live by a higher standard of ethics.

Source: Advertising Age: Today’s Niche Marketing Is All About Narrow, Not Small

Relevance to Bankwatch:
Too many times I have seen product simplification exercises in Banks, and the result when you combine the new ‘simple’ product with the ‘grandfathered’ products was such a mess, that it re-defines the word simple.

I think that niching is not that. Niching is about re-visiting your brand proposition for your target niche, then re-architecting everything around that. That means products, channels, and marketing methods. To achieve this, requires deciding on your target niche. I would suggest this goes beyond typical segment models. This is not about GenY only, although GenY is not a bad place to start. What are the customer attributes that you want to satisfy?

Obviously that’s impossible to do overnight, so this will have to be chunked up into bite size pieces. The first and most important step however would be to settle what your Bank wants to be when it grows up. What is your niche?

The clarity this will bring to prioritisation and simplification of next years initiatives will be well worth it.

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Written by Colin Henderson

June 11, 2007 at 09:23

Posted in Banking Strategy

3 Responses

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  1. With respect to the Ryan Air example, Air Canada Last year, Air Canada has implemented a la carte pricing. You can purchase cheaper tickets for, as James says, a seat and a safe flight. You pay more for schedule flexibility, reserved seating, meals, checking baggage, etc.

    Having been a long time Air Canada customer, it took some time to get used to this pricing scheme, and in the end, I like it because you theoretically pay for only the options you want. However, I continue to notice other travellers, who I assume had a prior experience with the “old” Air Canada not so happy with the change.

    My point is that “the potential to reduce Customer expectations in order to make Them easier to exceed” is perhaps a little more difficult with an established brand (e.g. a traditional bank). How do you not alienate existing customers without grandfathering products and services, which, as you indicate, is “such a mess, that it re-defines the word simple”?

    John Januszczak

    June 12, 2007 at 07:48

  2. […] an arms race. In fact everyone participating will actually lose. When I wrote the other day about ‘niching’ [pardon the new verb] I didn’t explain arms race in a banking […]

  3. […] 2007 · No Comments Good article here on Banks and Social Media. Earlier references here on niches, and the importance of Gen Y focus.  Understanding those concepts, helps to get inside the […]

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