Why you should fire 20% of your credit union’s members

I keenly remember an exercise Lois Kitsch shared at a conference several years ago that is still etched in my mind: “If you think that mission is the most important thing at your credit union, go to this side of the room… if you think profit is the most important thing at your credit union, go to the other side of the room.”

The room was divided. What’s more important?

“Both” Lois said. If there is no profit, it’s hard to have the resources you need to fulfill your mission. Without a strong mission, well… you’re just another financial institution.

Rewind to the early 2000s and consider the strategy of former Best Buy CEO Brad Anderson. He took an unconventional approach to growing margins. Instead of raising prices or cutting expenses, he did the math and bet big on the strategy of firing 20% of their customers.

What?!?

Firing clients surely would cost them money. That’s 20% of their bottom line, right?

Wrong.

Anderson was very deliberate in the kind of customers he wanted to fire, and very deliberate in wooing the type of customers he did want in the store.

So, who did Anderson want to fire?

Customers who tie up a salesperson with millions of questions but never buy anything or who buy only during big sales. Or one who files for a rebate, and then returns the item.

“That would be directly equivalent to somebody going to an ATM and getting money out without putting any in,” Anderson said in an interview. “Those customers, they’re smart, and they’re costing us money.”

Retail consultant Karl Bjornson of Kurt Salmon Associates said the idea of discouraging bad customers can work if a company is careful about it. “Generally, it works better to, say, offer fewer sales rather than discouraging individual customers who shop aggressively on price.”

What in the world does this have to do with your credit union?

Time after time in credit union strategic planning sessions when we dive into processes and operations, I see some of the same obstacles keeping credit unions from successfully serving the members who need them most. In one extreme case, a credit union seeking loan growth and membership growth, but it was taking up to four days to get a decision in a loan app.

And consider this scenario that came straight from one of the credit union’s executives: “I was out of town and my debit card wasn’t working, and I just couldn’t get through to anyone.”

What was the obstacle? Members who wanted to know their balance over the phone from a live person. Members who wanted to know if a transaction had cleared.

Staff resources were tied up with members who were eating away at the credit union’s bottom line, because team members couldn’t serve our ideal member who truly needed the credit union. The single mother who needed to get an auto loan because her car was totaled and had no way to get to work. The credit union exec who was stuck in another country with no access to her funds.

When it was suggested the credit union not give balances and account info over the phone, one very empathetic leader of the credit union declared that wasn’t very credit union-y to not serve our members. But didn’t the credit union offer a mobile app, online banking, text banking, AND an automated phone teller that could give that same information? Of course, but the age-old credit union mantra of “but this is the way we’ve always done it” had a strangle hold on the credit union’s resources and, thus, growth.

Credit unions might not take the same approach as Best Buy of just firing members, but the concept has merit. If a credit union is not growing loans and new members because it’s spending too much time coddling other members who are disproportionately draining resources, then we must consider who (and how) we’re really serving our members. With a clearly defined ideal member, we can understand their greatest needs and focus on serving them and find growth.

Credit unions must re-define what member service truly means.

If you’re not seeing the growth you want, your bottom line is tight, and your staff is vocal about being too busy, find out what they are busy doing that isn’t producing results for the credit union. Examine your policies, pricing and processes to ensure they allow your team to serve that ideal member well. Understanding the needs of your ideal members and serving them well is vital. You might need an independent voice to help your credit union through the process, so consider bringing in a credit union strategic planning expert who will hold you accountable.

In Best Buy’s case, the company didn’t station a bouncer at the door to kick out customers who were costing them money. Best Buy changed its philosophy on sales, marketing and service. It’s time for credit unions to do the same.