Simplicity is Key for Relationship-Based Pricing Program

There are three primary RBP program structures. To determine the most appropriate for your credit union you need to have set objectives.

 
 

Relationship-based pricing (RBP) is a strategy for increasing profitability through more active member participation. In today’s evolving financial services market more credit unions are turning to these programs to create a competitive edge.

According to the a majority of credit unions surveyed in a recent Callahan & Associates survey, a critical factor to a program’s success is simplicity. Members must understand how the program works and what their direct benefits will be. Currently there are three primary RBP program structures.

Balance
This structure takes into account individual member or household daily or monthly deposit and loan balances. Members then fall into certain tiered balance categories and are rewarded accordingly.

Usage
This format considers the number of services a member uses. Usually checking or credit card accounts are the focus service avenues and participation in other options such savings, brokerage or IRA accounts, or auto or mortgage loans enable the member to take advantage of the program.

Points
Similar to frequent flier miles, with a point system members earn rewards based on a variety of factors such as dividends earned, years of membership, usage of certain products, and other options. Members then choose when and where to apply their points based on their needs.

RBP programs work to reward behavior the credit union wants repeated. In order for actions to be repeated members must understand the incentive structure and experience the benefits. Therefore, when choosing the appropriate RBP program design, credit unions have to evaluate their own strategy and goals in conjunction with what members need and expect.

Moreover, for the credit union to realize the desired results it is also important to focus on one specific objective – such as retention, profitability, product usage or balances. A single focus creates simplicity within the organization and helps to streamline its offerings to the member. ​

 

 

 

May 23, 2005


Comments

 
 
 
  • I agree wholeheartedly! The most difficult balance is between simplicity and fairness, within the parameters of the systems, monitoring, and flexibility available. There will be holes, but our RBP program has resulted in general, measurable success by following this path. - Gary Skraba SVP, First Financial Credit Union (CA) $600MM, 80K members
    Anonymous
     
     
     
  • I totally agree. As a core vendor for credit unions, they have many great ideas of how they want to structure their RBP yet may not have identified what behavior they want to reward or change, what it will cost them and what is the value to the member. Thanks for the article.
    Anonymous
     
     
     
  • As a data processor who offers this type of software, I frequently work with a credit union's management team to determine the point shedule and the rewards associated. We incorportate all three factors - balance, usage & points. My experience is many credit unions spend too much time determineng the point schedule with no overall goals in mind. Unfortunely, many good intentions for a program never come to frutiion. We have actually taken our software to a new level to help credit unions monitor member behavior without rewards (with no marketing plan for members). In many cases this is all they want to do. In addition, simplicity is extremely important for staff to understand the program, be able to quickly cross sell the item(s) members may need to increase their overall participation with the credit union.
    Anonymous
     
     
     
  • The article was too simple. There was no input on how to change your accounts to use the RBP.
    Anonymous