LOMBARD, Ill. — With all the talk about creating unique member experiences to increase member loyalty and foster a strong primary financial relationship, Raddon Financial Group set out to see if member loyalty really pays or if it's just marketing hype.
The research firm worked on discovering what, if any return a credit union could expect for the time and money spent on member loyalty.
"We got lot of buzz from our client base about it since we are in a unique position to look at the whole member loyalty issue and determine if it is worth all the hype," said RFG Vice President of Research Bob O'Meara. "What we found is that there really are strong correlations to having a loyal member base and the financial health and performance of credit unions."
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Looking at overall satisfaction, loan and deposit purchases and likelihood to recommend, the RFG CEO Member Survey Strategic Update found that credit unions with highly loyal members experienced a higher member growth rate, balance growth rate, more services per household and an overall higher return on assets.
With growth as a major challenge for credit unions, O'Meara said the correlation of loyal members and credit union growth is a big issue. According to the survey, the return on assets for high-loyalty credit unions is 0.79%, mid-loyalty 0.75% and low-loyalty 0.56%. Looking at net household growth, credit unions with higher loyalty experienced the highest growth, with 3.9%, mid-loyalty 3.0% and low loyalty 0.9%.
In addition, deposit balance growth is nearly three-times higher for high-loyalty credit unions (8.1%), compared to their low loyalty counterparts (3.0%).
The survey also finds that while most loan and deposit dollars residing at financial institutions other than the credit union, high-loyalty credit unions maintain a larger share of their members' loan and deposit balances–35.0% and 39.0%, respectively. High member loyalty also seems to help new product cross-selling efforts within a household.
"You hear the statistics for example that high loyalty credit unions enjoy higher services per household than other credit unions; 2.32 compared to 2.18 for mid-loyalty and 1.96 for low loyalty and wonder what that really means," said O'Meara. "If you multiply 2.32 by 10,000 members, you're talking about 3,200 more products sold."
O'Meara adds that there were a few surprising results.
"We thought single sponsor credit unions would have more loyal members than community credit unions. The opposite was true," said O'Meara. "We discovered that convenience has a strong influence on loyalty."
He adds that individual credit union business models played a greater role in creating more satisfied members than just the community charter itself.
So just what builds member loyalty? It boils down to convenience, pricing and employee skills. Convenience can be a critical aspect of loyalty for most members. The survey finds that credit unions should be continually assessing their level of convenience from office hours and branch locations to ATM availability. In addition, high-loyalty credit unions are rated higher on employee skills. Member loyalty is influenced by such service quality attributes as staff friendliness, knowledge level, professionalism, prompt problem resolution and availability to answer questions.
"While not every credit union can build more branches, they can stress to their employees that meeting and exceeding member expectations can make all the difference in building member loyalty," said O'Meara. "Given the same employee skills, price is less important than branch convenience, which may be one of the reasons why community credit unions have an edge in loyalty over noncommunity credit unions. Take the time to find out what drives loyalty in your credit union. Have an objective measurement system in place to determine a baseline and periodically review."
O'Meara said ultimately it is about striking a balance and understanding your business model.
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