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Credit unions traditionally have been masters at promoting better client (member) engagement compared to banks. The Financial Brand cited Gallup studies showing that credit unions consistently outscore banks on the client response that an institution “cares about my financial well-being.”
“Gallup found that 73% of members who felt their credit union cared for their financial well-being were ‘engaged,’ meaning they had a rational, emotional, and psychological attachment to the brand.”
However, are members simply feeling good, or does engagement translate into more tangible measures of credit union success? In this post, we’ll explore some solid reasons why your credit union can benefit from efforts to deepen member engagement.
Increase Revenue and Profitability
A key goal of any financial institution is to increase revenue and profitability. So, how does increased engagement bring in more dollars to a credit union? One way is through better member retention. A classic study by Frederick Reichheld of Bain & Company concluded that increasing customer retention rates by just 5% can boost profits by 25% to 95%. Numerous studies have backed up this conclusion over time. For example, a 2010 study published in the Journal of Marketing Management stated:
“… loyal customers are more profitable than new customers. This conclusion is based on several behavioral patterns attributable to loyal customers: loyal customers generate more profits because they get accustomed to the service and use the service more [and] they are less price sensitive, and thus, companies can charge more.”
Another way engaged members result in more revenue is through greater wallet share. Through cross-selling (selling complementary products) and upselling (selling upgraded products) to existing members, credit unions can capture a more significant share of members' total financial services dollars. This is much easier with engaged existing members because the buyer-seller relationship is already established. As a known entity, a credit union can expect up to a 60-70% success rate selling to an existing member compared to 5-20% for a new one.
Improved Customer Lifetime Value (CLV)
Customer Lifetime Value is a metric popularized in the 1988 book Database Marketing: Strategy and Implementation. It's calculated by measuring the total revenue generated over the total time the member belongs to the credit union. CLV helps businesses forecast profitability by customer segments, thereby supporting better resource allocation and pricing decision-making.
Long-time customers are vital to a company’s bottom line. According to Wharton Online, they may:
- Make more purchases consistently over time
- Refer other customers to a business
- Impact company sentiment through brand advocacy on channels such as social media
- Cost less to retain and build relationships with than new customers
Efforts to deepen engagement can convert casual members into loyalists from whom the credit union can gain more revenue at a lower cost. In the long run, this maximizes overall CLV.
Enhanced Brand Loyalty
Initiatives focused on customer engagement usually aim to strengthen loyalty, which is essential for the long-term success of any enterprise. As Kellie Walenciak points out in Sales and Marketing magazine:
“… companies need a strong customer engagement strategy to be able to meet customers where they are at and meaningfully connect with customers. Positive customer engagement can build long-lasting connections between customers and your brand. But if you’re not doing it right, customers will disengage, negatively affecting your overall revenue.”
Increased loyalty has a tangible effect on company results. In a study cited by Forbes:
- 83% of consumers say they pay attention to how brands treat them as their products.
- 73% say they would pay more for a product if they love the brand.
Brand loyalty also results in more referrals. According to Statista, 52% of respondents who said they were loyal to a brand would recommend it to family and friends. This would also lower new member acquisition costs.
Reduced Churn Rates
Reducing churn (member retention) is as much of a concern for credit unions as member acquisition. According to CU 2.0:
“It costs most credit unions over $400 to acquire a new member. Those members generate between $100–200 each in revenue per year. But with 25% member churn in the first year—and with an average attrition rate of 11%—more than 40% of new accounts will leave before they become profitable.”
Enhancing engagement results in better member retention over time. It makes sense that an engaged member is less likely to be lured away by a competitive offer.
Increased Efficiency
Engaged members can also lower new client acquisition costs and improve marketing efficiency. In an article on personalization, a classic member engagement technique, McKinsey states:
“Personalization marketing has real advantages for companies: it can reduce customer acquisition costs by as much as 50 percent, lift revenues by 5 to 15 percent, and increase marketing ROI by 10 to 30 percent. Personalization has also been shown to improve performance and provide better customer outcomes.”
This is why engaged members tend to be more receptive to the credit union’s marketing campaigns.
Nook Niche Experiences = Member Engagement
Given all the advantages of improved member engagement, most credit union decision-makers would jump at the chance to launch their own initiatives. But where to start? Fortunately, Nook’s Niche Experiences Platform makes member engagement easy.
Executing this strategy begins with identifying subsegments (niches) within the member base. Niches can be based on various dimensions, such as demographics, location, culture/language, occupation, or hobbies/avocations.
Next, each niche receives digital content personalized to their interests and life priorities. This means the content will not be focused only on financial topics. Most will be “lifestyle” subjects like food, travel, health/fitness, and fashion/beauty, with some financial content included. This is accomplished with minimal technical integration and credit union staff resources.
It may seem counterintuitive for a credit union to be the source of such general content. However, the aim is to appeal to members’ interests across the vast sweep of their lives to instill a sense that the credit union understands them as people, not just depositors or borrowers. Hence, the term niche experience signifies that members are engaged at a deeper, more meaningful level, evolving from apathy or neutrality to raving fans.
