CUNA's Member & Nonmember Survey Results
Loyalty Drives Profitability
Loyal members—the Holy Grail for CU marketers—drive profitability.
July 29, 2013
Among credit union marketers—or marketers of any retail service for that matter—loyalty has become the Holy Grail. That’s because highly loyal members use more of your products and services than other members, which makes them more profitable. Beyond profitability, highly loyal members sing your credit union’s praises through social media and in face-to-face interactions. They’re your credit union’s most passionate advocates.
Some members merely like your credit union, but highly loyal members actually love your credit union. But loyalty, like most human characteristics, is complex. A tremendous amount of research has gone into answering the question: What creates high levels of loyalty between a consumer and a service provider?
Most loyalty research concludes that it’s difficult—and sometimes expensive—to achieve high levels of loyalty among consumers. For credit unions, you must measure multiple variables to determine which members are highly loyal.
One of the variables that contributes to loyalty is whether or not members call your credit union their primary financial institution (PFI). Credit unions have been making impressive progress in this area. Nearly 60% of members now say their credit unions are their PFIs, up considerably from 42% in 2009.
That sharp rise has come at the expense of banks’ PFInumbers. Banks’ numbers declined from 56% in 2009 to 38% in 2013.
“The financial crisis of 2008 and 2009 caused many consumers to question their loyalty to banks, which many consumers blamed for triggering the economic collapse,” says Jon Haller, CUNA’s director of corporate and market research.
At the time, national media portrayed credit unions as a more consumer- friendly, local option. Many consumers discovered and embraced credit unions’ not-for-profit, cooperative business model over banks’ for-profit model. The events spurred many existing members to shift their primary loyalties from banks to credit unions.
The first Bank Transfer Day, on Nov. 5, 2011, drove millions of new members to credit unions. From June 2011 to June 2012, credit unions opened about 2.9 million checking accounts—more than double the annual increases of previous years.
While the increase in the number and use of checking accounts—along with higher PFIlevels—are positive trends for credit unions, they’ve yet to translate into a significant spike in loan market share growth.
NEXT: Loyalty assessment
Some credit unions use the Net Promoter ® model—a tool Satmetrix developed for loyalty assessment. The Net Promoter approach is quite simple. It asks members one question: How likely would you be to recommend your credit union (or bank) to friends, family members, or co-workers?
Respondents indicate their position on a scale from 0 (not at all likely) to 10 (extremely likely). Based on their scores, they’re categorized as:
►Promoters score a 9 or 10. They’re loyal enthusiasts who’ll continue to fuel growth by referring others and actively using credit union products and services.
►Passives score a 7 or 8. They’re satisfied but unenthusiastic members who are vulnerable to attractive offers from your competitors.
►Detractors score from 0 to 6. They’re indifferent or dissatisfied members who can damage your credit union’s brand and impede growth through negative word of mouth.
To derive the Net Promoter Score, subtract the percentage of detractors from the percentage of promoters.
Credit unions, collectively, have a relatively high Net Promoter Score (“CU Net Promoter Scores”). More than half (57%) of members are “promoters” and would be “extremely likely” to recommend their credit unions to others. But 19% of members are “detractors.” That results in a Net Promoter Score of 38% (57% minus 19%), up significantly from 23% in 2009.
Banks, on the other hand, have a Net Promoter Score of only 8% (39% promoters minus 31% detractors).
Three-factor loyalty model
While some credit unions rely exclusively on the Net Promoter Score to gauge loyalty levels, many others want a more thorough measurement than a single question, which is why CUNA offers its three-factor model for measuring loyalty.
Haller believes credit unions’ reliance on the Net Promoter Score might have peaked a few years ago, and has since “lost its steam.”
He notes the vast majority of his member survey clients opt for CUNA’s approach, when given both options.
Members who are “highly loyal” in CUNA’s model meet all three of the following criteria:
1. They say their credit union is their primary financial institution (PFI);
2. They’re extremely likely to recommend their credit union to others; and
3. They definitely would contact their credit union the next time they need a financial product or service.
As might be expected, these more rigorous criteria yield lower loyalty levels. Or, as Haller puts it, “if you raise the bar, fewer members will be able to clear it.” Only 25% of members are highly loyal to their credit unions using this three-factor model, compared with the 38% of members who qualify as Net Promoters.
Members who are highly loyal, according to CUNA’s model, are much more likely than less loyal members to have and use credit union checking accounts and loan products, and to bring more of their loan dollars to the credit union. And credit unions have a much larger share of highly loyal members’ online and mobile banking activity.
“In this respect, the CUNA model offers more reliable behavior predictors than does the Net Promoter Score,” the cultivating member loyalty. Member loyalty, for the most loyal of a credit union’s members, translates directly into wallet share and profitability.”
NEXT: Likely to recommend
Likely to recommend
Another important variable for measuring loyalty is members’ “likelihood to recommend” their credit union to others. Overall, 57% of members are “extremely likely” to recommend their credit union to others (“Most members—except the youngest— are ‘extremely likely’ to recommend CUs”). Only 40% of members who also use banks say they’re “extremely likely” to recommend their banks.
Almost all credit union members who also use banks are more likely to recommend their credit unions than their banks. The one exception, however, is among members ages 18 to 24. They are the only age group equally likely to recommend their credit unions as they are to recommend their banks (31% would recommend credit unions; 32% would recommend banks). The widest gap is among members ages 45 to 54; 63% would recommend credit unions but only 39% would recommend banks.
“Younger members might not have a strong allegiance one way or the other because they simply haven’t had enough dealings with their banks or their credit unions to form strong opinions either way,” suggests Haller.
Another factor, says Haller, could be that some banks have strong relationships with major colleges and universities. They oft en have high visibility on college campuses and offer co-branded credit and debit cards to students.
“It might be a matter of who gets to young consumers first,” Haller says. “Banks’ presence on college campuses puts them in the right place at the right time.”
But, Haller continues, it’s not just about having a presence on college campuses. “Banks are probably less conservative than credit unions in granting credit cards to college students,” he says. “College students want easy credit, but they’re oft en not prepared to handle it, and they run up balances they can’t afford. Credit unions are more focused on financial education and teaching students how to use credit wisely.”
Likely to contact CU
Another variable in gauging loyalty levels is members’ likelihood of contacting their credit union the next time they need financial products or services. When members were asked whether or not they would contact their credit union for their next financial need:
• 50% said definitely;
• 34%, probably;
• 8%, probably not; and
• 1% were undecided.
Members ages 25 to 64 are somewhat more likely than the youngest (ages 18 to 24) or oldest (ages 65 or older) to say they definitely would turn to their credit unions for their next financial services need.