Loyalty Fuels Growth

CUNA’s National Member & Nonmember Survey explores importance of member loyalty.

July 28, 2014

Loyalty Feature Art

Loyal members provide a lot of the momentum that moves your credit union forward. They’re the ones most likely to turn to their credit unions first when they need loans. They’ll tweet or call their congressional representatives to support credit union advocacy efforts. They’ll encourage family members, friends, and co-workers to join a credit union. They’re your credit union’s cheerleaders.

Loyal members understand credit unions’ cooperative business model. They wouldn’t even consider taking their business to any other financial institution.

Marketers know that any effort aimed at building member loyalty will trump any other marketing strategy.

Measuring loyalty

To measure loyalty in CUNA’s 2014-2015 National Member and Nonmember Survey, researchers used the Net Promoter® model originally developed by Satmetrix®.

This model asks consumers a key question: “How likely would you be to recommend your credit union (or bank) to a friend, family member, or co-worker?” Respondents mark answers on a scale from 1 (“not at all likely”) to 10 (“extremely likely”).

The scores are then categorized as follows:

Promoters have scores of 9 to 10. They are your loyal members who will continue to do business with your credit union and recommend it to others, thus fueling growth.

Passives have scores of 7 to 8. They’re satisfied members, but they can be swayed by competitive offerings elsewhere.

Detractors score 0 to 6. They’re indifferent or unhappy members who can damage your brand and impede growth through negative word-of-mouth.

The Net Promoter Score is the difference between the percentages of promoters and detractors.

Sixty percent of members are “promoters,” who can also be described as “highly loyal” members (“CU Net Promoter Scores”). This proportion has climbed steadily upward since previous surveys, while the detractors have declined, leading to rising Net Promoter Scores, from 32% in 2011 to 42% in 2014.

“Most noteworthy is that credit unions’ 60% promoter component far outpaces the 38% promoter component among nonmembers who are bank customers,” says Jon Haller, CUNA’s director of corporate and market research.

Similarly, banks have 30% detractors and credit unions have only 18%. This contributes to a wide gap in Net Promoter Scores between banks and credit unions—8% for banks and 42% for credit unions.

NEXT: PFI status

PFI status

The survey found that among all members, not just the “highly loyal” ones, 53% say their credit union is their primary financial institution (PFI). That proportion is down slightly from 59% in 2013 and 57% in 2011.

“When we looked at this year’s data by age group, we found that PFI levels fell into the 50% to 60% range across the board,” Haller says.

PFI levels varied across different income levels. Those members with household incomes of $25,000 to $75,000 had the highest PFI rate at 60%. The rate was closer to 45% among the lowest-earning households (earning less than $25,000) and the highest-earning households (earning more than $100,000).

Demographics of loyalty

When survey researchers looked at Net Promoter Scores by demographic groups, they found each age and income group of members registered higher scores than did their bank-using counterparts.

Not only that, but the gap between members’ and bank customers’ Net Promoter Scores was at least 20 percentage points in each age and income group, expanding to as much as a 40 percentage-point gap in some cases.

Loyalty Net Promoter ScoresOne group displaying the widest gap are the 18-to-24-year-olds. Young adults are markedly more likely to be promoters/highly loyal credit union members than they are to be promoters/highly loyal bank customers.

“Once you attract those young adults, they’re likely to become loyal members and heavy product/ service users,” says Haller. “They’re also likely to become vocal ambassadors for their credit unions. Through them, credit unions can reach out to even more young adults in their communities.”

Product use

From the survey data, researchers painted a picture of “highly loyal” versus “less loyal” members by comparing their use of credit union products and services.

As would be expected, highly loyal members use more products and services of all types. The differences between the two groups are particularly sizable for certain products/services.

For example, 77% of highly loyal members use their credit union’s online banking, compared with 40% of less loyal members. The rate of mobile banking use among highly loyal members is about twice that of less loyal members—29% versus 14%, respectively.

Outstanding loan balances, excluding first mortgages, are 36% higher for highly loyal members ($10,563 versus $7,775). And highly loyal members are about twice as likely as less loyal members to say their credit union is their PFI (67% versus 33%).

The 67% of highly loyal members calling their credit unions their PFIs is just one side of the coin. On the other side, you have 33% of highly loyal members saying banks are their PFIs.

Clearly, more can be done to close the gap between what some members think and what they actually do. Credit unions need to make the loyalty factor work even more in their favor.

NEXT: Forging stronger ties

Forging stronger ties

Credit union staff hear stories everyday about the person who couldn’t get a car loan from a bank. So he or she joined a credit union and got the loan, along with some good financial advice, resulting in a strong, life-long relationship.

“Credit unions have opportunities with each age and demographic group within their field of membership,” says Mike Schenk, CUNA’s interim chief economist.

Loyalty Primary Financial InstitutionsMany baby boomers, for example, desperately need help with retirement planning, he points out, especially since the average family retirement account today is only about $44,000, according to the Federal Reserve, if they have such an account. Half of them don’t even have one.

“Eighty percent of people ages 30 to 54 say they won’t have enough saved for retirement, according to the Census Bureau,” Schenk says. That supports the finding that 57% of credit union members are at least somewhat or very concerned they won’t have sufficient savings for retirement.

Another huge problem for many of your members is student debt. “Both retirement planning and student debt issues beg for a trusted financial adviser to step in and help,” Schenk says. “If credit unions do that, they could cement member relationships and strengthen loyalty.”

Be there for Gen Y

Two-thirds of Generation Y (ages 18 to 34) have at least one type of outstanding, long-term loan, such as student loans, mortgages, or car loans, according to a recent study from Filene Research Institute. And about 30% have two or more loans outstanding. Plus, about half say they’re carrying a balance on their credit cards.

SIDEBAR Young and Loyal

Credit unions have opportunities to help young adults address their debt problems, the Filene study found. “With strategies that focus on debt management and financial literacy, credit unions can target the most problematic areas for Generation Y,” concluded the George Washington University researchers, who partnered with Filene on the study.

In addition, credit unions can help the younger segment of Gen Y (ages 18 to 24) get financial assistance to attend college.

Retirement’s ‘new normal’

The golden age of retirement is gone and it’s not coming back, Hendrix Niemann, managing director of wealth management at CUNA Brokerage Services, told an audience at the National Association of Credit Union Service Organizations in April.

Loyalty Hi Less MemberIn this “new normal,” people live in retirement for 25 years or longer, and many haven’t saved nearly enough. They fear, and justifiably, that they’ll outlive their money. Concerns about meeting out-of-pocket medical expenses in later years add to their worries. Such fears, Niemann says, will escalate as members grow older.

“Credit unions have a major role to play in educating their members about these issues and helping them navigate the ‘new normal’ of retirement,” he says.

But, he adds, credit unions must be the ones to start the conversation with members. “Don’t wait for them to come to you,” he advises. “Reach out to them and ask them to visualize their future, and then help them figure out a realistic retirement plan.”