Credit Unions: Keeping The Ethos Pure
And a short exploration of Net Promoter Scores
By David Hanson, CEO, H2M, Inc.
Credit Unions continue their quest to convey to the public the ‘soul of their business’. The ‘soul’ of any business is its core motivation. Being a not-for-profit organization, a credit union is not responsible to ‘absent’ owners and ‘outside’ shareholders for revenue goals. Rather, it markets for revenue to keep the cooperative in a healthy stance to better serve its members. This drive for revenue, however, can create somewhat of a dual-personality for its marketing programs. This can be seen in the contract between the ethos of providing real financial help to members who are struggling financially and the needs of our vested interest to drive more sales of revenue-producing financial instruments such as loans and credit cards to keep the business afloat. This schizoid approach can often be seen as an attempt to seduce our own member to spend more now than delaying gratification; which is self-defeating for the ethos of the credit union.
For illustration, let’s use credit cards as an example. Behavioral economists term for their use as a form of ‘discounting the future.’ It is well known and well documented that people fear a loss more than anticipate a gain. What this means is we tend to discount our future to avoid a pain moment in the present. As author Phil Barden points out in his excellent book “Decoded”, “This future discounting is the reason why we tend to spend more when using credit cards – the pain of paying is deferred to some future moment.” But is this what we should be doing for our members – helping them avoid present pain of not having enough money for their wants and needs and delay them to face it eventually after accumulating even more debt? It’s a fine line that must be approached thoughtfully.
There is also a tendency in this current marketing climate to consider straightforward selling to be crass – that we must engage and create impassioned, loyal and altruistic customers. But research clearly shows that consumers care very little about our brand, or any brand for that matter, even the ‘stars’ of branding; the Apple’s and Harley Davidson’s. Currently there appears to be a type of reciprocal altruism marketing being considered to drive revenue. This approach focuses on being the ‘good guys’ by offering help to members with their financial lives (and other areas). This has been termed Customer Intimacy – having a deep understanding of our members financial lives and their personal stories that allow us to offer personally tailored financial advice. There are costs, of course, for this level of service, however.
A New Look At Net Promoter Scores
New evidence has come to the fore that sheds light on the Net Promoter Score approach to customer loyalty and market share and revenue growth. Almost 100 million people are served by credit unions in the United States and it is well documented that credit unions enjoy far higher satisfaction levels and Net Promoter Scores than banks, yet they hold less than 10% of deposits. The authors of the book The Wallet Allocation Rule undertook a study and discovered the top driver of satisfaction was the issue of complaint resolution – hardly a marketable quality; Gee we screw up a lot but we make good on it. The research also uncovered the baseline driver of competitor rank between credit unions and banks; fee competitiveness. In the authors words, “Despite lower fees, better complaint resolution, and considerably higher overall satisfaction (and NPS) levels, however, the majority of credit union customers also felt the need to use one or more competing financial institutions. A separate analysis reveals why. The most important driver of a competing banks share among credit union members was Internet banking services. Internet banking is a strong feature of banks compared with credit unions.” The conclusion they make is “So although few industries can approach the level of satisfaction of credit unions, gaining share of deposits requires mitigating banks’ advantages in areas important to credit union members”. And here lies the conundrum; credit unions already have lower fees than banks and there is no room for downward movement in the current low-interest climate. Credit unions routinely tout their lower fees and still the market penetration of credit unions remains very low. Unfortunately the Net Promoter score has been touted as the ‘one’ number you need to look at for market share, that is; build higher and higher customer satisfaction scores and they will come. But recent evidence has empirically proven that the Net Promoter Score has zero correlation to revenue OR market share growth. In fact, the opposite is true; pursuing customer intimacy for the sake of higher NPS scores is a sure way to financial ruin. Obviously every business needs satisfied customers, but the evidence suggests that to focus on your Net Promoter Score as a number that will positively affect your market share and thus revenue growth is misguided and quite possibly sets you up for significant loss. But there is hope.
So I will leave you today with these thoughts to reflect upon and in upcoming posts will address more recent and surprising findings and offer rational solutions based on empirical evidence. In the meantime, please check out these sources:
The Wallet Allocation Rule, Wiley Books
How Brands Grow, by Byron Sharp, Oxford
Decoded, The Science Behind Why We Buy by Phil Barden