What is this thing called member value?
The notion of member value is a frequent discussion topic as we meet with credit union CEOs, boards and senior management teams. Some credit unions, generally including those that most enthusiastically support the credit union philosophy, recently seem to have a renewed emphasis on this topic and are beginning to include even more objectives in their strategic plans to ensure their support of members and their communities. However, most of these credit unions really struggle with finding ways to measure member value, partly because of the cooperative ownership structure of credit unions.
I would maintain that you can’t measure member value directly using any balance sheet and income statement metrics, unless you assume the members could work together to liquidate the credit union at some future time and divide the credit union’s capital among themselves. Instead, measuring member value boils down to a complex function of a number of quantitative and qualitative factors:
- Loan rate value – Decreased interest and fees members pay on loans at the credit union in relation to the rates and fees they could pay elsewhere.
- Deposit rate value – Increased interest they earn on the balances they maintain in accounts at the credit union.
- Fee value – Decreased fees they pay for accounts, services and various transactions.
- Access to credit value – Value some members derive from being able to borrow from the credit union in cases where other lenders would not grant credit to those members.
- Access to services value – Value some members derive from being able to transact other services at the credit union that they could not transact elsewhere.
- Convenience value – Value members perceive from the relative convenience of the credit union in comparison to alternatives (this could result from geographic proximity, electronic access, telephonic service, and other factors).
- Service level value – Value members place on the credit union’s service levels relative to the service levels of alternative providers of financial services.
- Rewards value – Debit card, credit card and other rewards the credit union pays to members.
- Affinity dividends value – Affinity dividends the credit union pays to members.
- Community value – Value members attribute to the credit union’s contributions to the local community.
- Cooperative value – Value some members attribute to supporting a cooperative institution rather than another type of organization.
Admittedly, measuring these factors is not a simple task but many credit unions do have information readily available to quantify a number of the components of member value. For instance, most credit unions conduct market surveys of lending and deposit rates, or purchase such analysis, and they could use this information to analyze the loan and deposit rate components of member value.
Also, most departments either analyze competitor transaction pricing information (or should begin doing so) and could use that information to measure the fee value of the credit union. The rewards and affinity dividends values also should be readily quantifiable.
That leaves six remaining components of member value that are much more difficult to analyze: access to credit, access to services, convenience, service level, community and cooperative value. The credit union will need to think long and hard about the best ways to measure these factors. Doing so will require analysis of and setting utility for the availability of certain lending and other services. The credit union will need to analyze its convenience and service levels relative to alternatives and assign values to certain components of those results. Finally, the credit union will need to find ways to understand the value that members place on the credit union’s contributions to the community and their support of cooperatives. Various metrics such as net promoter scores, secret shopper scores, social media scores, and other measures, along with a variety of assumptions, might be useful in quantifying these values.
Member value results from the financial, personal and other benefits that members perceive they receive from the credit union. Almost all members do not know, understand or care one bit about the credit union’s financial results or capital, unless those results are so poor that they garner media attention. Even then, only a small portion of members, if any, would leave the credit union even in the face of a major reputation event. (Did you stop shopping at Target?)
If your credit union can measure the value it is providing to members, it can position itself to solidify relationships with current members. Leveraging this information through effective marketing programs then can effectively spread the word about the value of your credit union, allowing you to provide value to an ever growing number of members and ensuring your credit union achieves the growth necessary to be viable in the long run.