Updated: Feb 23, 2021
How can we recognize, reward and further engage our most valued, targeted members?
A credit union client of ours recently sought to address a familiar problem: How can we recognize, reward and further engage our most valued, targeted members? Their initial approach: loan rate discounts, deposit rate bonuses, and bundled services. (Echoes of the well-intentioned but unsuccessful relationship pricing forays of years ago.)
Stop! There’s a better way.
The problem with the pricing-perqs model is that it not only costs you more and reduces your margins (and in the relationship pricing example, does this with members who are already most loyal), but also, doesn’t really work.
If you are like our CU client above, you are already price competitive. And if you’re just going to win on price, and play the commodity game, with due respect, you’re most likely going to lose. Somewhere, there is another provider with a lower cost structure who will undoubtedly undercut you.
So, it’s time to disrupt the maintenance mindset.
In short, banking is a maintenance activity. Like the gas company, your water provider, the garbage collector, or even most dry cleaners, banking services rest in the consumers’, “I don’t want to have to think about you” category.
“The harsh reality is consumers don’t want to think about you.”
Now we, in the financial services world, think about banking all the time. Don’t be fooled into thinking consumers do the same. They do not. While you see competitors’ billboards, branches, mailing materials and commercials, unless they are in the market and shopping, consumers rarely do. The harsh reality is consumers don’t want to think about you. In fact, like all maintenance activities, they are happiest when they are NOT thinking of you. (Consider the last time you thought about your gas company, water provider, garbage collector, or dry cleaner; my guess – because of a problem.) Like it or not, credit unions are in the same category.
Consumers just want financial service providers to do their jobs, effectively, efficiently, securely and invisibly, so they literally don’t have to think about them. As one exasperated participant shared in a GCS focus group years ago, “I hate Bank of America because I have to think about them all the time”. (Note that this is also useful advice in designing benefits or services: avoid confusing, thought-requiring conditions or qualifications. Members will reject it. They simply don't want to have to think about maintenance activities. Period.)
Now if you did think in a positive or appreciative way of your gas company, water provider, garbage collector, or dry cleaner, it may very well have been because you were OUT of maintenance. That is, you initially had to think about them due to a problem (you were out of maintenance). But when they fixed it, and you were returned to maintenance, you no longer had to think about them anymore and all was restored.) The enhancement of returning to maintenance triggered positive feelings. More on this in a moment.
Finally, another tell-tale sign of banking as a maintenance activity is revealed by the quantity and reasoning behind high Net Promoter ratings in the, “How likely would you be to recommend us” question. As members so often explain, their rationale behind 9 and 10 ratings is, “No mistakes,” and “No problems.” Their criteria for success is not the presence of exceptional performance, but rather the absence of poor performance. In maintenance activities, as long as you “don’t suck” or have “no problems,” your great.
Think about it: you would never give a 9 or 10 rating to a restaurant, a movie, a retail store or a car dealership simply because there were no mistakes. Why not? Because those businesses, like the investment side of financial services, are enhancement activities, where addition is the expectation.
Maintenance is about not subtracting. Enhancement is about adding, or possibly even multiplying. In financial services, banking is maintenance; investments are enhancement. It’s human nature. It’s a whole lot easier to get excited about gaining something than it is about not losing something. But that’s the game we’ve been playing.
In short, while on the banking service provider side, you have been playing to win, to add members and grow revenue. The consumer has been playing not to lose, by not paying unnecessarily high loan rates or excessive fees. You simply don’t grow with maintenance and that’s been the credit union business for decades. You will never win mindshare or significant market share through additional maintenance activities created by a maintenance mindset. Only when you move to enhancement do you capture the attention of the consumer.
The time has come to play differently. It’s time to change the game.
“The time has come to play differently. It's time to change the game."
Consider your dry cleaner. You typically only think about your dry cleaner when your clothes are not on ready, when they lose a button, or when there’s some other type of service problem. But it doesn’t have to be that way. What additions could dry cleaners provide that would move them from the maintenance category to an enhancement one? Consider this: dry cleaners know your size, your favorite brand, your favorite colors, your style. What if your dry cleaner offered you a discount at a local retailer, monitored and shared knowledge of online discounts of your favorite brand, offered a free buying service, free alterations or a pick up/drop off service for you? Now we are thinking about them, engaging with them, and loyal to them in an entirely different way. They have moved from a maintenance to enhancement mindset. And they have done so with non-standard (but related) services, and not mere pricing nor more-of-the-same maintenance activities.
The goal is to think about supplemental or complementary need-fulfilling services, bonuses or enhancements that extend or improve your existing maintenance business.
In a real-world example, T-Mobile exemplifies this. They lead the industry in subscriber additions. And they have significantly lower churn rates (lost customers) than either Verizon or AT&T. Instead of just lower prices in the maintenance cell phone business, they are all about enhancement with complementary benefits. “T-Mobile Tuesdays” provides exclusive bonuses for T-Mobile customers through user-relevant partnerships. Free Dunkin’ coffee, Taco Bell food, discounted movie and concert tickets, and more, all keep customers engaged and appreciative. T-Mobile’s partnership with Delta provides a free hour of Wi-Fi aboard Delta flights. A multi-line account does indeed get good pricing, but better yet, provides free Netflix each month. T-Mobile is not just a maintenance mobile provider. They are a conduit for freebees, discounts, added value, and useful enhancement bonuses. (They also just entered the banking world with some enhancement features – keep your eyes out here.)
Finally, there is one more important way in which the maintenance-enhancement relationship is especially relevant to credit unions. Credit unions often do their most meaningful work in helping underserved members. As noted earlier, consumers who are out of maintenance, will find a return to maintenance to actually be enhancement. Getting members out of unmanageable debt, helping them get out of the pay-day lending trap, offering tips on credit score improvements, freeing up money with a consolidation loan, significantly lowering car payments or even saving them dramatically on fees – these are all enhancement steps in the return to maintenance.
Consider industry events. The credit union movement had its greatest growth during the great recession. Bank of America’s see-a-teller-fee forced their customers to have to think about them, thus putting them out of maintenance. Well Fargo’s, “Did they open a bogus account for you too” similarly required their customers to think about them negatively, putting them out of maintenance. Competitors’ maintenance-threatening events are opportunities for your credit union. Bank buy-outs threaten maintenance. Fee increases and heightened qualifying requirements threaten maintenance. Uncertainty and change threaten maintenance. Credit unions have the opportunity for enhancement in all of these cases by offering a safe place — a place you don’t have to think about. And, contemplate this… who are your most loyal members? The ones who had problems – who were out of maintenance – that you fixed (enhancement). The enhancement process of getting back to maintenance is where you’ll find some of your most engaged members. (And USAA’s current “member for life” ad campaign further makes this case.)
“Growth and loyalty come from enhancement activities, not from maintenance activities."
It all boils down to this. Growth and loyalty come from enhancement activities, not from maintenance activities. This means either, providing consumers who are out of maintenance with the enhancement of stability and a return to maintenance (helping members to not have to think about banking services anymore). Or, by providing supplemental, additional, and potentially non-financial enhancement services so members will regularly want to think about you.
Don’t play the price game anymore. Yes, you need to be competitive and get a seat at the table. But beyond that, change the game. Disrupt the maintenance mindset and focus on enhancement. How? For guidance, look to our future articles on the SPECS of enhancement to provide a framework by which to fuel engagement and growth beyond price.