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Credit Unions and Community Banks: the Harsh Reality of Branding

January 4, 2018
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Every marketing textbook will tell you how important a strong brand is for generating market share, but measuring that brand can be a tricky proposition.  A financial institution has long been able to understand its levels of awareness and favorability in its local market, but was a particular level good?  Bad?  Indifferent?  Relative to their peers, how strong should their brand be?

In 2017, Raddon launched a new Brand Benchmark Study to seek to answer that. The study measures how consumers in a market perceive a financial institution’s brand and how that perception compares to other institutions.  

The groundbreaking study reflects sentiment from over 16,000 consumers representing 38 markets across the United States.  Results provided insight on how various financial institution-specific brands resonated within their communities.  Most importantly, by including many participating institutions, the study provided benchmarks to help those institutions gauge the performance of their brands against other institutions’ brands who serve consumers within similar markets.

We revealed the findings of the initial study at Raddon’s first ever national research conference, held November 6-8, in Chicago.  As compared to the top nationwide banks and local market competitors, results revealed a harsh reality:  local, community-based financial institutions are not differentiating themselves in terms of brand within the markets they serve.  The industry as a whole has a lot of work to do to change consumer perceptions and elevate their brand in order to help facilitate growth within their markets and beyond.

What do consumers think about the industry?

Consumers were asked to cite words or phrases that represent what a community bank, credit union and large nationwide bank means to them.  A word cloud representing the words and phrases associated with Community Banks reveals that consumers think of these institutions as local, community-focused, friendly and personal – signifying the ‘boutique’ servicing approach.

The market perceives credit unions as a source for the best rates.  As the word cloud below demonstrates, consumers use words such as rates, interest, fees, great and better to describe credit unions in general.

Although it’s not necessarily a negative finding, the credit union industry as a whole doesn’t seem to depict a service-oriented culture.  The credit union industry appears to resonate with consumers as a provider of specific products, like an auto loan, versus an all-encompassing, service-oriented financial services provider.

Furthermore, consumers perceive credit unions to be at a significant disadvantage as compared to national banks in terms of technology.  Although consumers describe large national banks as greedy, big and impersonal, they score 15 percentage points higher than credit unions on the technology attribute.  Although most credit unions DO offer the latest technology in terms of mobile applications and such, the market still perceives them as inferior to the large nationwide banks.  Community Banks score the lowest in terms of offering the latest technology.

Determining Brand Strength

Raddon defines the strength of the brand as the measurement of consumers’ progression through the purchase process.  This ‘funnel’ approach starts with awareness and narrows down through consideration, purchase and repurchase phases.

The average institution participating in the study scored 56% aided awareness within their market.  This compares with 96% for any one of the top 6 national banks (BOA, Chase, Citibank, Wells Fargo, PNC and US Bank).  Aided awareness does vary depending on the population density of the market; institutions within a more densely-populated market tended to have lower aided awareness.  Since consumers only recognize the average institution half of the time, awareness of more local financial institutions is at a significant disadvantage as compared to the large nationwide banks.

Of those who are aware of the institution, on average, only 20% of the respondents within the average market considered the institution for purchasing a product or service. On the other hand, of the consumers who were aware of at least one Top 6 bank, about half considered them for their financial product/service.

Consideration isn’t enough.  Did the consumer actually purchase the product or service?  The good news is that 72% of those that considered the average participating institution actually purchased from them.  The study also revealed that satisfaction, NPS and favorability are higher for the more localized financial institution.  Once consumers understand the value of the institution, they are likely to continue to patronize and recommend it to family and friends.  On average, 77% of those that purchased from the average institution in our study indicated that they are likely to purchase from them again.  Unfortunately, since awareness is low, the local financial institutions are not given enough opportunity to demonstrate their value.

Obviously, the large nationwide banks have the advantage in terms of brand strength simply because of the high levels of awareness they are able to maintain through advertising, branch network, etc.  This is the main weakness of the average financial institution.  Additionally, Raddon research shows that as brand strength increases market share grows.  This direct correlation signifies how critical brand is to the future growth of the organization and the importance of the branch in that effort.

The initial results of the study are clear – outside of the Top 6, the financial services industry has a lot of work to do in terms of defining their brand.  The advantage for the local institutions is their strong customer ties and their ability to deliver value.  The opportunity for these institutions will be to figure out how to leverage these strengths and communicate them to the greater market to help increase awareness for their organization.

A series of webinars highlighting more specific findings from the initial Raddon Brand Benchmark study are planned for 2018.  Dates and registration information will be available in early 2018.

To understand how your brand resonates within the markets in which you serve, consider a Brand Benchmark Study from Raddon.  Contact Mark Boehm at mboehm@raddon.com, for more information.