If you treat your existing members right, not only will you retain them-they'll probably tell their friends about you.
Editor's note: The following
first appeared in the June 2009 issue of Credit Union Management.
By Ron Jooss
May 29, 2009
In 2003, Washington Mutual Chairman and CEO Kerry Killinger described his organization's strategic plans this way: "We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe's-Home Depot did to their industry. And I think if we've done our job, five years from now you're not going to call us a bank."
Give Killinger credit, he was half right.
But much can be learned from Washington Mutual's 2008 bankruptcy-aside from its destructive appetite for subprime loans, according to Bill Handel, VP/research and development at CUES Supplier member Raddon Financial Group, Lombard, Ill.
"WaMu was a churn model," Handel says. "WaMu had a relatively robust geographic network with products that could be promoted easily through the media. You could bring in a lot of growth in a short period of time. But you also have a lot of churn going on in those models. Because of what they were trying to do, they benefited for a period of time. The efficacy of the model is in question with WaMu gone, but that model still exists. It just doesn't work in the credit union space."
Handel says the churn model, in which customers or members come and go with little attention to branding, doesn't work in the credit union space in part because most credit unions focus strategically on service, but also because credit unions lack locational convenience to drive rapid new member growth.
Of course, putting credit unions in the same league as WaMu isn't an apt comparison. On the other hand, on a smaller scale, how many credit unions have taken out community charters with the idea that growth would follow-only to be greatly underwhelmed?
And that, according to Handel, is why member retention matters. Where credit unions excel-where virtually everyone in the credit union industry likes to believe they excel, anyway-is on the service side of the business. And that's the area where most credit unions choose to place their strategic emphasis.
"The issue is that in order to get the growth, in order to be able to continue to grow as an organization, we're not going to grow through aggressive expansion into external markets, even with a community charter," Handel says. "The way we're more likely to grow is through retention of what we have as existing business and using those retained members as the basis for re-ferral business.
"What we find in the
credit union space is that typically 40 percent of members say the reason they
came to the credit union was a referral. So the retention helps you grow from
within and also gives you a base from which to generate new member growth, without
follow the WaMu model or the BofA model or the Chase model of aggressive branch expansion."
One credit union that Raddon has found to be very effective at satisfying its members is $733 million/71,500-member Capital Communications Federal Credit Union, Albany, N.Y. Raddon performed a mailed research survey of Capital Communications FCU's members in February and March of 2008 as part of a wider program involving 132 credit unions nationwide. The purpose of the survey was to identify member potential, loyalty, perceptions of service quality and share of wallet at each credit union.
In answering the question, "In general, how satisfied are you with the service provided at the credit union?" 75 percent of Capital Communications FCU's members responded "very satisfied," the highest response among the participating credit unions. The group average was 55.6 percent. Other responses included "satisfied," "dissatisfied," and "very dissatisfied." In all, 98.7 percent of Capital Communications FCU's members answered that they were either "satisfied" or "very satisfied" with the service at their credit union.
Paula Stopera, president/CEO of Capital Communications FCU has come to expect members to share stories about how pleased they are with the credit union's service. "Current member experience actually brings us more success than anything else," she explains.
On its face, that philosophy is simple enough. Stopera says she wants the credit union "to always be the solution, never the problem," one of those wise philosophies that can navigate employees through any situation.
"We constantly reinforce that difference," Stopera says. "We don't have 200 branches and 500 ATMs. We have to be different."
Stopera says that difference requires an investment; Capital Communications' FCU's cost to serve members is higher than average. The credit union measures wait times in its lobbies and its call center, and outfits its branches with children's areas, Disney television, aquariums, coffee bars and free coin machines.
"It's the Ritz experience in a credit union," Stopera says. "Our philosophy is delivering an experience, so that when people leave, they say, 'Wow, I never want to talk to anybody else. I never want to go anywhere else.'"
That may sound far-fetched, but as Stopera explains, Capital Communications FCU truly reaches out to create a lifetime financial experience for its members. For example, the CU has found a niche helping its Gen Y members with the college admissions process, offering workshops to help them complete applications, write essays and plan college visits. According to Stopera, there's simply too much work for high school guidance counselors. It's an area that has served both the credit union and its member families well. "We've found a niche in helping our families find the resources they need and offering guidance on the best financing options."
Of course, the 16- to 18-year-old segment has day-to-day financial needs as well, and Capital Communications FCU offers a checking account with a debit card, with an eye on capturing the member through collegeand beyond. "We also give them a Student Visa credit card, so we can help them establish credit within a manageable realm of $500 and they learn about budgeting the year before they leave for school," Stopera explains. "It gives them some independence and establishes who will be the credit card in their wallet when they're 25 years old. When they graduate from college, they are going to be calling us for that car loan. Today you have to get that young person between the age of 16 and 19. You can't wait until they are 25."
One phrase often used hand-in-hand with member service and share of wallet is member engagement. Engaging members is at the core of member retention. And it starts when members open their accounts.
"What we find is that the initial three to six months is absolutely critical to get the engagement of the member," Handel says. "Most consumers, when they change relationships, don't simply come in and take their whole book of business and bring it over. Most come in for a specific product or offer as a way of initially viewing you."
That's another reason those early retention efforts are paying off, according to Stopera. "We understand from our Raddon research that it takes about two years for a new household to become profitable for us," she says. "That's when the services per household start to grow and, thanks to our consistent efforts, we are able to add the big services at that point. They trust us, and we are able to help them with home equity loans, direct deposits, bill-pay-really sticky services."
Similarly, $5.7 billion/216,000-member Meridian Credit Union, St. Catharines, Ontario, works at engaging members early. And, like Stopera, Dave Roberts, Meridian CU's VP/marketing, describes credit union-member contacts as "experiences."
"Regardless of what a member comes to us for, whether it's a mortgage, a car loan or a mutual fund, the very next product that we talk to them about is our checking account," Roberts explains, "because that's the opportunity for them to experience Meridian on an ongoing basis, for us to become their primary financial institution, not just a place where they opened one particular product."
Roberts says the credit union has streamlined its internal processes so checking, credit cards and Internet banking accounts are virtually applied for when other types of accounts are opened. "Most of the time is spent engaging the member in conversation, identifying what their financial needs might be in the future," Roberts explains. "Then we have three follow-up contacts with them within the next year, preferably sooner."
While service is probably what some would call the soft side of member retention, Meridian CU leverages technology to use its hard data to keep members in the fold as well. The credit union also employs a predictive index model that examines more than 500 variables on a monthly basis. Among other behaviors, the model projects the likelihood that a member is going to leave the credit union. A branch manager then calls each at-risk member.
Roberts says the results of those calls have been eye-opening. "At first, [a branch manager] would look at some of these members and go, 'No, that person is very loyal; they've been here for years. They're not at risk of leaving.' But then they would call the member up and be surprised by the conversation. What the model is very good at doing is saying, 'Something has changed in your member's life.' So whether the member actually turned out to be at risk of leaving us, it flipped it around and presented us with an opportunity to meet a need that they had. So for example, if someone lost a job, their banking behavior changed and they might pop as a potential member that's going to leave us. By having that conversation, we can re-examine the services that we are providing them and make some changes."
That combination of targeted service leveraged with hard data has worked wonders. In 2008, Meridian CU retained 96 percent of its members with more than one year of membership.
More Data, More Service
$723 million/39,000-member Advantis Credit Union, Milwaukie, Ore., leverages a database system from Database Marketing Agency to maintain targeted contact with members in a manner very similar to Meridian CU. As described by Rich Weissman, president/CEO of Database Marketing Agency (www.dmacorporation.com), a CUES Supplier member based in Beaverton, Ore., the Matrix Marketing system essentially creates a fresh database for the credit union each month based on each member's recent activity. The member's current status is referenced against historical data that includes hundreds of variables, which predicts likely next activities. The results allow the credit union to target segments of its membership for specific products and services, and puts it on alert for at-risk members, who can be contacted directly.
Weissman says this type of modeling is based on testing called survival analysis done by the Food and Drug Administration to test the efficacy of drugs. "We do it to determine whether or not that account is going to live, and what can be done to help it thrive," he explains.
Those accounts that need a "check up" present opportunities, according Wendy Edwards, VP/marketing/human resources at Advantis CU. In fact, Edwards says the credit union responded to over 8,000 alerts from the Marketing Matrix program in 2008. "When you know that a member's behavior is about to change, it provides you with opportunities to give some attention to those at-risk relationships and to offer the right product at the right time."
Edwards says the credit union began focusing on member retention in 2006-2007 when it experienced flat net member growth.
"The cost of new member acquisition keeps increasing," Edwards says, and it makes good financial sense to work to retain and build profitable relationships with existing members."
With the knowledge provided by the Marketing Matrix program, Advantis CU is proactive about engaging members early in their relationship with the credit union. "Having an indication of the next product our member is likely to purchase helps us provide product offers that are relevant and timely," he says. "Our onboarding program focuses on building deep and profitable member relationships within the first year with a series of offers and sales interactions." This approach has proved mutually beneficial. For the first three quarters of 2008, Advantis CU ranked first out of an average of 195 U.S. credit unions with assets between $250 million and $1 billion for returning financial value to members, according to Callahan & Associates, a national research and consulting firm. For the fourth quarter of 2008, Advantis CU ranked third in the nation, but first among credit unions in Oregon within this same asset category. The Callahan's Return of Member scoring system measures members' use of their credit unions.
And, just as Raddon's Handel theorizes, that return to members does seem to carry word-of-mouth value. Edwards says the credit union experienced 12 percent net new membership growth in 2008.
New Members Count, Too
Of course, everyone agrees, credit unions must place some emphasis on new member growth. "It is never going to be 100 percent cross-selling or retention, and it's never going to be 100 percent delving into the broader marketplace; it's always going to be some combination of these two factors," Handel says. "But in the credit union space I think what we're finding is the ones that are more effective in terms of getting robust growth are those that are more effective in terms of retention, because through retention they not only deepen relationship, they also get better business. I think most credit unions should lean 60 to 70 percent toward retention."
With that in mind, Meridian's Roberts sums up why his CU tips the scale toward retention: "On the surface [member retention] is more cost efficient, but we also get a return on it from a different perspective. By ensuring our members are satisfied and loyal, then they are representing our brand. So it becomes a brand investment of sorts as well. Of course, word-of-mouth referral is a great source of growth, one of our cornerstones of growth."
It must be doing something right. Meridan CU's year-over-year membership growth was 14 percent in 2008.
Ron Jooss is a CUES editor.
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