Confessions of a Walmart Shopper

OK, OK, I admit it. I have been known to darken the automated door at my local Walmart. But whether or not we want to ’fess up to it, GonzoBankers, once in a while we need to pay attention to and learn from the competition. What can the world’s largest retailer teach bankers? Strategic market focus and operational discipline, for starters.

After we finish rationalizing that Walmart is not a regulated financial institution, and once we get past our snobbish conviction that we serve more upscale segments of the banking and business population, if we honestly look at Walmart, we can learn a lot.

Regardless of what some think of Walmart’s hiring and management practices, the fact remains that the retailer has done a phenomenal job of delivering value to its customers, targeting its operations toward a specific market segment, now in multiple countries. Walmart clearly targets the “paycheck-to-paycheck” population, perhaps 100 million Americans, with good economic value in food, soft and durable goods, as well as financial services designed to provide maximum personal convenience for its customers and maximum transaction-based income for itself – not to mention a huge amount of float. If any provider can afford a severe debit interchange cap, it’s you know who.

While the rest of us are focusing on how to raise operating fees and social goals like financial literacy, Walmart continues to offer financial products designed for cash buyers, especially those that will use its cash cards shopping in its stores. Walmart is now the world’s largest payroll check casher, and the fee has remained a consistent $3.00.

Sorry, I got off track. Walmart learned very early on what our customers have been trying to tell us for years. The relationship is all about price and convenience. As much as we want it to be about “world-class” service, it’s not – and it never has been. If you are a loyal Walmart shopper, it’s not about the personal service. Walmart also knew instinctively that the only way to maintain aggressive pricing was to become the leader in operational efficiency, a discipline envied by the rest of U.S. businesses. We all understand that Walmart’s increasing scale is a huge factor, but it started out with just a few stores in Arkansas and expanded in secondary geographic markets.

Market Focus

It is my belief that any financial provider, large or small, must have a clear idea of who its target customers are and what drives their financial decisions. Many of us have age and income data, and perhaps geographic distribution, but from what I’ve seen, we seldom do the primary research necessary to develop a better understanding of what drives our own customers to make buying decisions. Talking directly to customers may be the only way we truly understand which competitive attributes are the most important. Walmart’s overall focus is simple.

• Provide value to the middle class working population;
• Target the unbanked and paycheck-to-paycheck segment;
• Minimize the risk by dealing only in collectable funds;
• Leverage state-of-the art technology to maintain the lowest possible operating cost; and
• Nothing is free, but pricing is simple, transparent and low.

Given the current assault on the middle class – diminishing wages and home values, as well as increased food, fuel and medical costs – Walmart’s model is here to stay.

Operating Discipline

Walmart was one of the first retailers to employ radio tag technology to streamline inventory control and minimize turn time. It was also a leader in stored value and reloadable debit cards. The company has been relentless in developing its end-to-end supply chain into a “wonder of the world.” This takes discipline. A lot of people complain about Walmart’s heavy-handed supply chain management and bullying of manufacturers. The simple fact is that the customer wins.

Bank, thrift or credit union managers would do well to find ways to sharpen market focus and bring discipline into every-day operating processes. Here are some suggestions.

• Look at the institution’s current customer base from a profitability perspective and develop a more clearly defined target customer;
• Use primary research techniques to understand the target segment’s needs and decision drivers;
• Adjust the product-service mix to more closely align with their needs and decision drivers; and
• Develop marketing messaging that aligns with the target market.

On the operating discipline side:

• Benchmark operational processes against other providers;
• Take an end-to-end look at customer service and back office processes with the intent of reducing steps and evaluating policies that slow processes down;
• Maximize the use of ECM software to simplify and automate work flow and record access;
• Review decisions made to please examiners that reach beyond regulatory requirements; and
• Revise process workflows to either reduce headcount requirements or increase scalability.

It has been our observation that many bankers do not really know how complex processes are because of hand-offs from department to department. Many current service processes have not been evaluated for years.

It is clear that financial providers now losing business to Internet-only competitors will need to streamline processes to keep operating expenses under control. As it becomes more evident that net interest income increases may yet be a long time coming, and non-interest income is under attack, the importance of reducing OPEX continues to grow.

If price and convenience are the drivers for customers, focus and discipline are essential going forward. The winners are not those that know what to do. They are the ones that do it.
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Are your performance goals backed by competitive analysis?

Understanding your target customer and crafting products and delivery services specifically for that segment can go a long way toward more effective decisions and use of ever-more precious resources.

For more than a decade, the team at Cornerstone Advisors has assisted hundreds of banks and credit unions utilize benchmarking to increase their operating efficiency. Put our proprietary database of hundreds of mid-size bank and credit union performance metrics to work to highlight areas where your institution can improve productivity, increase revenue, and reduce expenses.

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