Rediscovering Roots: The Biggest Opportunity for Credit Unions

The credit union movement originated with the “common bond” concept at its core. People who were affiliated in some way banded together as members to provide fundamental financial services at a reasonable cost. Their affiliations included employer, religion, labor union, or some other means of association.

Because of their common affiliation and customer service culture, credit unions traditionally generated fierce loyalty among members. Over time, however, the financial services landscape evolved with more products and greater technological options. To remain relevant and grow, credit unions responded by moving away from their affiliation-focused mindset and evolved into a “be everything to everybody” position to compete.

The defining differences of credit unions that generated such passionate customer devotion were lost in this transition. As a result, it’s time for credit unions to return to their roots of exceptional focus on member needs and preferences.

Yet, simply going back to the original model is not the answer. The financial services landscape regarding products, technologies, and consumer expectations has changed. Credit unions can, however, leverage their affinity-based heritage by focusing on members at the level of individual needs and preferences. How to do this? Targeted membership segmentation or leveraging “niche experiences”.

Niche Marketing

Henry Ford famously said of the original Model T, “Any customer can have a car painted any color that he wants so long as it is black.” Indeed, a common attitude among early mass-production enterprises was to provide a narrow band of buying options that would appeal to the greatest number of people at the lowest possible cost.

Nevertheless, savvy businesspeople understand that different customers desire different things. Yet, the ability to tailor a product for every individual was costly and appealed only to those few who could pay the high price for customized products.

By the mid-twentieth century, however, two technological innovations destroyed this model. First, enterprises were better able to identify the purchasing preferences of market segments and target their marketing efforts at those subgroups. Second, improved process efficiency allowed for the profitable creation of multiple product variations.

Niche marketing is a natural extension of such basic segmentation. Enabled by further technological innovation embodied in the internet, information and calls to action are directly communicated to individuals based on their specific preferences gleaned from their demographics and search/buying behavior.

Often used by smaller organizations in established markets, a niche marketing strategy calls for identifying promising sub-segments and creating differentiated products based on one or a combination of dimensions, such as:

• Company Philosophy
• Culture or language
• Demographics
• Location
• Needs & Preferences
• Occupation or avocation
• Price
• Product
• Quality

An enterprise can employ a more personalized approach to forge a compelling, trusted brand by catering to a small niche. This builds strong customer relationships, leading to ongoing, profitable sales in otherwise crowded “look-alike” markets.

Credit Unions and Niche Marketing: It’s in Their DNA

Niche marketing is a natural strategy for credit unions, which started by providing products and services needed by members of tightly defined groups. For example, an employee-based credit union member trusted that it was intimately familiar with their financial needs and aspirations. In many respects, CUs were doing “niche marketing “before the term was invented.

If this is so, then why haven’t more credit unions adopted niche marketing? For one thing, there is the fear that implementing it will cost too much. Some may assume the institution will need to overhaul its branding, digital strategy, and technology stack, including its website. Fortunately, this is unnecessary since a niche marketing strategy can be executed with the existing membership community by employing minimal additional resources. Also, it can be phased in one niche at a time so the credit union can learn by experience with a smaller investment of time and money.

Case Studies

Consider these two case studies to understand how niche marketing operates in the real world.

Case Study #1 - Etsy

Etsy was founded in 2005 as a marketplace for hand-made products, a focus that differentiated it from eBay. The company became a destination for buyers searching for unique, hand-crafted items as well as a platform for independent craftspeople to offer their wares globally. This way, Esty’s niche strategy has built brand loyalty among buyers and sellers. Etsy’s annual revenue for 2022 was over $2.5 billion.

Case Study #2 - Dollar Shave Club

Mark Levine and Michael Dubin founded the Dollar Shave Club in 2011, when Gillette and Schick controlled over 70% of the men’s shaving category. In reviewing this seemingly entrenched market, they identified a niche of buyers that disliked the high price of shaving products and would be open to a less costly “subscription” model whereby replacement blades would be home delivered. The consumer also expected the product to be at least the same quality as the big brands.

The company launched as an exclusively direct-to-consumer e-commerce model. Other than its website, initial promotion efforts focused on bloggers and a viral online video. In 2016, Unilever bought Dollar Shave Club for $1.0 billion, and by 2018, the brand boasted an 8.5% share of the $2.8 billion men’s shaving market.

What can credit unions learn from these two niche strategy successes?

1. The companies found underserved groups in crowded markets in both cases. The average credit union finds itself in such an environment with big banks and credit unions, local/regional community banks, and digital-only fintechs. The aim would be to leverage the credit union’s understanding of its unique member base and find ways to cater to subgroups within it.
2. Esty and Dollar Shave Club engaged their niche members with information via blogs, videos, and other digital media to build credibility and brand loyalty. While directly promoting a product or service is part of the strategy, significant effort went into providing information and forums for niche members to interact via transactions, information exchange, and community building. Credit unions can nurture the same level of interaction and engagement among members with digital content.
3. These case studies demonstrate the virtue of learning customer needs and preferences at a deep level to guide the design of products/services via an iterative process. Both Etsy and Dollar Shave Club use customer feedback and purchase data to fine-tune their product and service offerings. Although smaller than the groups considered in large enterprise market segmentation efforts, market niches still take time to understand. Also, niche needs and preferences evolve, requiring marketers to continually update their tactics to match shifting trends.

Applying Niche Strategies at Credit Unions

How can a credit union go about adopting a niche strategy?

As noted above, a niche strategy can be phased in, which is probably the best approach for most credit unions getting started with the concept.

1. The first step is to analyze the strengths and weaknesses of the organization from a product perspective. Concentrating on product strengths will maximize the chances for success.
2. Second, leverage internal data about existing members to identify sub-groups. This can be based on dimensions noted above, like demographics, location, occupation, current products, etc. The resulting subgroups are the proposed niches. Having a robust analytics capability helps in this regard. Consideration should be given to retaining outside support if internal data analysis resources are thin.
3. Third, match up the niches against the organization’s product strengths and prioritize based on the niche with the most significant growth potential.
4. Fourth, design products specifically for the top-rated niche and establish growth goals.
5. Fifth, design the information campaign for the niche. This will include blogs, videos, and other digital media targeted at the group's interests. While primarily informative, the content should contain calls to action directing niche members to the relevant credit union products and services.
6. Finally, implement the program and measure results against product growth and media engagement goals. Are niche members consuming the content? What content performs best? Increase the volume of winning content and keep measuring.

What should credit unions expect from adopting a niche marketing strategy?

Of course, the niche strategy should deliver on targeted growth and product penetration goals. Drivers of these ultimate goals should include increased member retention and higher engagement rates. Also, intangibles like increased trust and brand loyalty are likely to increase.

Now is the time for credit unions to return to their roots by adopting niche marketing strategies. With its affinity-based orientation, credit union culture is “pre-wired” to focus on member needs and preferences. Niche marketing techniques can direct this inclination with laser intensity to deliver excellent financial performance through increased member loyalty and engagement.