Allegiance Study Translates Member Engagement Into Economic Payback
SOUTH JORDAN, Utah -- Just as all the children in Garrison Keiler's Lake Wobegon are above average, all your members are exceptionally dedicated and loyal to their credit union.
Well, if you believe that, Chris Cottle, vice president of corporate marketing at the research firm Allegiance, would question whether you actually know just how engaged your members are.
"It has been my experience working with financial institutions, who by the way are the largest vertical we serve and include a number of credit unions, they would never come out and say, 'You know what? We have no clue what our loyalty programs are accomplishing, and we do not value engaged and loyal members.'
"We believe they are trying to do their best, but they don't understand what it really means to be a company that embraces this concept of engagement. Secondly, they really don't know how to quantify that strategy."
A recent Allegiance study, the Positive Economics of Customer Engagement, makes the case that engaged consumers translate into economic benefit.
In 2007, Allegiance introduced a monthly survey, Pulse of America for Banking. The survey divided customers and members into three groups:
Engaged consumers, who strongly agree with statements about product satisfaction, purchase intentions, willingness to recommend products and services, and high regard for the financial institution.
Disengaged consumers, who have at best an ambivalent attitude and speak negatively about their financial institution.
Swing consumers, who can be swayed either way. They're pretty much satisfied, but not really engaged.
Overall, about 35% are engaged, that is, they feel an emotional bond with their financial institution. Fifty-six percent could be swayed either way, and 9% are disengaged. As the study indicates, "The swing group is where the action happens, where there is a great opportunity to win loyal customers for life."
Then the researchers translated that into economic benefit. They created a hypothetical financial institution with one million customers. Next they looked at share of wallet and discovered engaged consumers used an average of 5.54 products, swing consumers 4.62 and disengaged consumers 4.5.
Figuring the average revenue of each product is $150, this means engaged consumers are responsible for $43.8 million in revenue. Increasing the ranks of engaged consumers by 1%, or 10,000 consumers, would boost revenue by nearly $1.4 million.
Less Talk, More Action
Cottle agreed it is tough to break through today's marketing clutter and build engagement.
"It is tougher because we live in an over-communicated, commoditized society," he said. "The average consumer gets a ton of offers from their financial institution, including lower-cost checking, lower loan rates and what have you. Financial institutions are frustrated with pounding their heads against the same concrete wall all the time, and the idea they constantly have to one-up their competitors."
That struggle will always be there, he continued, but why not look at the relationship side? He argued that today's technology makes it possible to know why somebody does business with you.
"We use the term engagement. Engagement is a higher term than loyalty. Somebody can be satisfied, but not loyal. Somebody can be loyal, but not necessarily engaged. As a result of being engaged, you do a number of things for the company. You go out of your way to show association with the company. You buy more products during good and bad times. You provide more word-of-mouth promoting the business," Cottle said.
Yes, he acknowledged, financial institutions are familiar with the concept of increasing loyalty. But most organizations, particularly financial institutions, tend to think loyalty is wrapped up in reward programs or positive results on yearly consumer satisfaction surveys.
Cottle pointed out that factors driving engagement and loyalty often change from year to year, or even month to month. For example, someone joining a credit union today may sign up because they're concerned about an economic recession and want a financial institution they believe will take care of them. When times improve in a year or two, the driving factor may change.
Many credit unions, of course, have shifted to community charters. Previously they served employees of Acme Widgets, a pretty homogeneous group. Today they serve a diverse membership from perhaps several counties. Will that also contribute to such fluid changes?
"I definitely think it will," Cottle answered. "You can segment your membership to learn about those who belonged to your original sponsor company and your new, expanding group.
"Credit unions are changing, and are certainly more sophisticated. I think credit unions have the opportunity to live in both worlds. They can live in a very sophisticated, analytical world and can also maintain with beautiful precision that down-home, personal feel they're so suited for."
Many credit unions indicate they see a strong relationship between member loyalty and employee loyalty. Cottle said there is indeed a correlation between member and employee engagement. "Like engaged customers, we know that engaged employees are the best employees. They create less risk because they are willing to settle disputes peacefully, and they are less likely to be searching for the next job," the study said.
Cottle said Allegiance is working on a complete study on the employee side, and it will be done in a couple months.
"We call it the spillover effect," he said. "We're looking at things such as productivity, propensity to promote the business and how valued they feel. We're quantifying that more right now, but we believe one of the best ways credit unions could enhance their member engagement is make sure their employees are engaged, especially their frontline employees."