Making the Most of Membership Growth: How Credit Unions Can Leverage Member Satisfaction Today for Long-Term Growth Tomorrow

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1 Making the Most of Membership Growth: How Credit Unions Can Leverage Member Satisfaction Today for Long-Term Growth Tomorrow These are anxious times for both providers and consumers in the financial services industry, especially banking. Market valuations of the major national banks are plummeting and the FDIC is taking smaller regional and local banks into receivership at the rate of two or three per week. But even amidst the turmoil, Credit Unions have found themselves in a rather more positive position. Though challenged by many of the same forces buffeting the industry and pressuring net incomes, they have generally kept their balance sheets in much better shape than the banks and they recently have seen an increasing rate of membership and deposit growth. In fact, Credit Unions generally seem poised to be major beneficiaries of the current upheaval as consumers increasingly choose membership as a part of the flight to quality in financial services. But to take full advantage of these opportunities, Credit Union managers need to have a precise, reliable and quantifiable means with which to assess their performance in their current members eyes and to understand where the rising tide of new members may create the greatest service delivery challenges. [I]t is always more difficult to serve more customers not simply because it requires more resources, but also because more customers also bring added heterogeneity, which requires more service resources. Claes Fornell, The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference CFI Group s study among 1,000 Credit Union members represents a valuable first step in that direction. Analysis of the survey responses are powered by the same methodology that drives the University of Michigan s American Customer Satisfaction Index (ACSI), the only uniform, cross-industry measure of satisfaction available in the United States today and widely acknowledged as the gold standard for customer satisfaction metrics. The topline findings from the study appear below and hold several insights for how credit unions can best leverage the opportunities presented by the current upheavals in the banking and financial services sector. They also demonstrate why member satisfaction measurement programs should be given high priority and visibility within credit unions to successfully face today s new and exciting challenges. Credit Unions Lead the Pack in Customer Satisfaction While many in the credit union community would be unsurprised to hear that their organizations generally outperform retail banks and other financial institutions in the realm of customer satisfaction, the magnitude of their advantage revealed in the study is simply stunning. In the ACSI methodology, customer satisfaction ratings are shown on a 0 to 100 point scale, (100 the highest possible score). Figure 1 illustrates, credit unions outperform all other financial service providers by large margins, and positively crush the major national retail banks. Figure 1

2 Monitor. (Credit Unions Lead the Pack in Customer Satisfaction continued) The CFI Group Credit Union Monitor presently shows credit unions with a customer satisfaction rating of 85, similar to the 84 produced in the ACSI itself. Credit unions in fact score nearly as well as some of the top-rated companies and industries measured in the ASCI, such as Amazon.com, Mercedes-Benz, and other high-value brands. Respondents to the Credit Union Monitor survey gave credit unions a 10-point edge over retail banks generally, and up to sixteen points higher than the major national banks measured in the ACSI. According to ACSI score, credit unions closest competition is the catch-all category of all other banks, which includes smaller regional and local banks captured in the survey in numbers too small to be tabulated by brand name. Compared to national banks, both credit unions and smaller banks typically enjoy better reputations for customer service and have a degree of local or home town appeal. Furthermore, as many advantages offered by larger banks continue to erode with the crisis of confidence as well as the advent of new banking technologies, smaller financial institutions such as credit unions should remain well positioned to increase their memberships and deposits. In fact, recently-released data for 2008 compiled by the Credit Union National Association (CUNA) showed credit union membership growth rates rising to their highest levels in the past five years, even as the scope of the financial sector s woes was just beginning to be understood. Happy Members Make a Healthy Bottom Line Equally encouraging are current credit union members intent to continue and increase their participation in their credit union based on the high levels of customer satisfaction provided and high-quality products and services offered. Using the ACSI scale from 0 to 100, CFI Group discovered the following: When asked how likely they were to be a customer of their credit union a year from now, current credit union members surveyed gave an average score of 93. In surveys of this nature, a score of 93 is about as close to perfect retention as is possible, especially considering common sources of member turnover, such as relocation outside of a credit union s service area, that have no direct correlation with membership satisfaction. Respondents gave an average score of 90 for their likelihood to recommend their credit union to a friend or colleague; and 76% of the respondents reported that they had already done so. Many players in retail banking can only dream about this kind of positive word-of-mouth. Respondents scored the likelihood of purchasing additional products and services from their credit union at 78. This aligns closely with CUNA data showing a strong downward trend in share of core deposits (shares and share drafts) as a proportion of total deposits. A broadening of member participation in products and services offers credit unions a valuable cross-sell opportunity to increase total deposits even if cash-strapped members may have less flexibility to grow balances in core accounts. 23% of Credit Union members who have other bank accounts report that they plan to give more of their business to their credit union in the coming year. This is nearly three times the number who say they plan to give more business to non-credit union financial services providers like national or regional retail banks. That is the good news for credit unions. The challenge is that they will need at least to maintain and, if possible, to improve their already extraordinary levels of customer satisfaction to continue to enjoy these positive outcomes. CFI Group s analysis of the baseline survey data shows that if their member satisfaction levels fall, credit unions will see a point-for-point decrease in members likelihood to recommend their credit union, to remain as members, and to consider additional products and services. 1 U.S. Credit Union Profile: A Summary of Year-End 2008 Credit Union Results, Credit Union National Association Economics & Statistics, February 25, 2009.

3 Analyze. Identifying Points of Leverage So where are the risks and opportunities for credit unions as they look for strategies to maintain high levels for member satisfaction? To address this question, CFI Group conducted an analysis of the survey data to understand which aspects of credit unions product and service delivery have the greatest impact or leverage upon member satisfaction. The starting point for the analysis is the member satisfaction model, which appears in figure 2. Figure 2 In this model, members assessments of their credit unions performance in a variety of areas including channels of service (Branch, Phone Banking, Online Banking), Staff behaviors, Products and Services, Information and Communications, and Rates and Fees serve as key drivers of overall member satisfaction, which in turn is the driver of the business outcomes discussed above. Each product or service area corresponds to a section on the survey with multiple items (questions) related to that area. For example, the Branch component of the model asks respondents to give ratings on their credit union branches on items including the convenience of the branch location, availability of parking, operating hours, staffing levels, the branch s appearance, and so on. These individual items are then rolled up into an index score for each component of the member experience. Respondents to the survey rated these components of their experience very highly, with all garnering scores in the 80s on the 0 to 100 point scale. However, the ACSI methodology used by CFI Group carries the analysis a step further, examining the relationships between the components and member satisfaction to identify those with the most leverage to drive changes both positive and negative - in the member satisfaction score. These leverages are calculated such that they are independent - that is, they represent the effect of changes in performance in a component with all else being equal or controlling for the influence of the other components. By comparing these leverages to one another, credit unions can identify the areas that should be their priorities in maintaining or improving member satisfaction and healthy business outcomes. Score changes in high-leverage areas will have the largest impact upon satisfaction and should be the priorities for investments and initiatives in improvements, or, on the flip side, the last areas to be cut in a resource-constrained environment.

4 Identify. Satisfaction Drivers and Membership Growth Across all the responses to the survey, the analysis based on the model in figure 2 shows Products and Services, Rates and Fees, and Information and Communications with members have the most significant leverage to maintain and drive improvements in member satisfaction. However, further analysis shows some important differences in priorities among different sets of members, particularly with regard to some potential challenges that credit unions may face as they deal with a potential influx of new members. Figures 3 and 4 compare the relative leverages of the various components of the member satisfaction experience for the survey respondents who reported having been with their credit union for less than a year and those who have been with their credit union a year or more. The results are striking. Satisfaction Drivers - Members for One Year or less Satisfaction Drivers - Members for Over One Year Figure 3 Figure 4 For those credit union members who most recently joined, the principal drivers of satisfaction are the performance of the credit union Staff, and their experiences with the Branch and Phone channels of service delivery. By contrast, other components of the member experience gain more prominence as levers to drive satisfaction among members of greater than one year s tenure, with the credit union s Rates and Fees, provision of Information and Communications, and the Product and Service mix provided assuming a greater portion of the leverage upon satisfaction. This finding makes some intuitive sense, as after the first year or so members likely have become accustomed to their credit union s touchpoints and service channels, and know what to expect and how best to navigate their transactions to best meet their needs. At this point in the member life cycle their attention turns to other aspects of the credit union s value proposition. The charts above have direct implications for the situation that credit unions now find themselves in with regard to increasing memberships. Specifically, the areas that have the greatest leverage to drive satisfaction among newly acquired members are precisely those that may experience the greatest stress as a result of increasing membership levels. More and more demands will be made upon staff to handle the influx of new members, many of whom will demand relatively high levels of attention as they establish their accounts. Branches and phone centers will experience increased traffic volumes, potentially impacting the member experience. Credit unions will need to manage and resource these areas carefully in order to ensure that the influx of new customers does not overwhelm their capabilities with the potentially ironic result of driving down satisfaction. Measuring staff performance to offset customer service problems while in transition Monitoring member satisfaction measurement alongside overall membership growth helps credit unions identify growth spurts transitional periods when current service areas may start to experience the stress of increased membership. CFI Group discovered that members who experienced a problem with their credit union but had satisfying interaction with credit union staff were almost as satisfied as members who reported no problems at all.

5 Act. (Measuring staff performance to offset customer service problems while in transition continued) Figure 5 Figure 5 shows that members who reported no problems with their credit unions had an average satisfaction rating of 86 (on a 0-to-100 scale) while members who experienced problems but rated their interaction with staff as high had an average overall satisfaction rating of 84. Members who experienced problems and rated their staff interaction low (less than 80) had an average satisfaction rating of 59. This indicates that a member satisfaction measurement solution that monitors staff performance can significantly reduce negative impact of service problems members (new or current) may experience due to growth stress. Cross-Sales and Re-connecting with Dormant Customers As noted previously, high levels of member satisfaction have created a significant opportunity for credit unions to deepen their relationship with their members through cross/up-sales of additional products and services. Furthermore, the leverage analysis for members of greater than one year s tenure presented in figure 4 suggests that the very process of providing members with Information and Communications around these additional items will help to buttress satisfaction scores. CFI Group s analysis of the Credit Union Monitor survey data unearthed another potential source of cross-sale opportunities among members who have relatively low rates of contact or engagement with their credit union. These members constitute approximately 11% of the survey respondent base and reported that they had had no contact with any of their credit union s service channels (branch, telephone, or online banking) in over three month s time. And at 76, their average satisfaction score stands well below that of other members. So who are these relatively dormant members, and what does their usage of their credit unions look like? The survey data offers some general characteristics of these members as a group: They tend to be above the age of 30 They are likely to have a household income of $40,000 or more 63% have been with their credit unions for ten years or longer They are more common in credit unions with a trade/industry/profession (TIP) charter than those with community or select employee group (SEG) charters; they are also more likely to say that they joined their credit union as the result of a benefit of their employment (or their spouse s) rather than for reasons such as attraction to the service typically associated with credit unions, convenience, or financial benefits They are much more inclined to report that their credit union is not their primary financial services provider 52% of them do less than one-quarter of their banking with their credit union, compared to 10% of those with recent contact with their credit union They are one-third as likely to report that they will be increasing their product/service usage with their credit union in the next year as other members 74% of them have only basic share or share draft services 52% report that their primary financial services institution is a local or regional bank

6 Thrive. (Cross-Sales and Re-connecting with Dormant Customers continued) The general profile of these members generally suggests people in middle age and of relatively strong financial standing who may have established their basic finances with a credit union in the past but have since looked elsewhere, though typically not to larger national institutions. This fact may bode well for efforts to win back more of their business, particularly as many regional and local banks encounter difficulties in the current economic climate. Leverage analysis also shows that with regard to their satisfaction, these dormant members may be especially responsive to information and communications from their credit union, particularly with regard to information about rates and fees. As CUNA data for 2008 shows, generally speaking credit unions now enjoy a pricing advantage over banks on deposits. Credit unions who can identify and target their own dormant customers with well-crafted messages about their offerings may find increasing success drawing these members more closely into the fold over the coming months. Making the Most of Membership Growth Generally the results of the baseline Credit Union Monitor survey bode well for the industry as a whole, though certainly the fate of any given credit union lies solely in the hands of its own members and managers. While the results presented in this paper provide some insight into how credit unions can navigate the current market, individual credit unions that want to make the most of the opportunities it presents should undertake some sort of rigorous member research of their own. Such research can ensure that their offerings meet industry standards and help them to understand the particular needs and priorities of their own memberships. Below are several key ways in which credit union executives and managers should focus their efforts: Keeping a close eye on membership growth and service channel usage to ensure that both new and long-term members do not experience degradation of services in areas critical to their satisfaction. Understanding the specific drivers of satisfaction within their own new member base. This survey found that staff, branches and telephone banking are key drivers for new credit union members generally. But individual credit unions serving distinct populations may discover additional drivers specific to their own members. Identifying dormant members and re-engaging them with the credit union. Credit unions may be able to do this through their own customer relationship management systems to arrive at a more finely calibrated assessment than was possible with this survey. Having done so, managers should then be sure that their marketing messages are calibrated specifically to re-engage these members with a broader range of their product and service offerings. Monitoring satisfaction and key member metrics over the long haul. While research efforts to understand how best to serve new and longstanding members will be particularly critical for taking full advantage of current opportunities, credit union executives who establish an ongoing and regular member satisfaction measurement program will be best prepared to adjust when conditions in the market shift again. About CFI Group () CFI Group is a global leader in providing customer feedback insights through analytics. CFI Group provides a technology platform that leverages the science of the American Customer Satisfaction Index (ACSI). This platform continuously measures the customer experience across multiple channels, benchmarks performance, and prioritizes improvements for maximum impact. Founded in 1988 and headquartered in Ann Arbor, Michigan, CFI Group serves global clients from a network of offices worldwide. Our clients span a variety of industries, including financial services, hospitality, manufacturing, telecom, retail and government. Regardless of your industry, we can put the power of our technology and the science of the ACSI methodology to work for you. About The ACSI ( The American Customer Satisfaction Index (ACSI) is the only uniform, cross-industry measure of customer satisfaction proven to predict financial results. Founded at the University of Michigan s Ross School of Business, the ACSI is a leading economic indicator of consumer spending in the United States. The ACSI measures more than 225 companies and organizations across 47 industries, representing close to half of the U.S. economy. Nearly 20 years of data from the ACSI show that customer satisfaction is an indicator of financial results on both macro and microeconomic levels, including shareholder value and cash flow volatility. The U.S. Federal Government also uses the ACSI as the gold standard of satisfaction measurement for its agencies. For more information contact marketing@cfigroup.com or call