Find Your Niche! Why Member Segmentation Strategies Are Critical.

How credit unions today are creating more profitable members through segmentation strategies.

Young adultswonder whether they will ever achieve the financial stability of their parents’ generation. Women underestimate their financial literacy and fail to negotiate in their best interests. Boomers question if they will ever get to retire.Early adopters challenge technological know-how but offer loyalty and relationships in return.

All these segments exist within your field of membership, whether you serve an entire geographical community, a select employee group, or a particular trade, industry or profession. Rather than expanding a charter to reach more people, many credit unionstoday are creating more profitable members through various segmentation strategies.

To jump-start your thinking on different ways to segment, we’ll look at three starting points for your executive team. In the first example, we’ll look at how a product can be customized or re-positioned to appeal to different segments.In the second, we’ll look at how a credit union completely overhauled their marketing strategy to reactivate dormant segments within their existing membership. Finally, we’ll dive intothe needs of a specific segment and how you can develop enchanted members that not only give you their business but also help you grow through referrals.

Reposition Your Products To Appeal To New Markets

Loan growth is a critical need for most credit unions today, and many are evaluating whether to add a wider range of loans to attract new segments. Thisis definitely a worthwhile strategy especially when credit unions can create value where others are taking advantage of a market weakness (student lending and payday loans are two examples that come to mind). However, there may already be existing opportunities in your current product mix that just need repositioning. Let’s take a look at mortgages.

Alternatives to the traditional 30-year fixed rate mortgage may be better suited to different segments of your membership if you can align the messaging with members’ lifestyles. Shorter term fixed rate mortgages, like the 10- or 15-year varieties,are appealing to financially savvy members looking to retire their mortgage debt before major lifestyle changes like retirement or a child going college. For these members, being free of mortgage debt before taking on another obligation creates peace of mind.

One credit union is going even further by letting members customize the length of their mortgage anywhere from five to 12 years based on the payment they can afford. These mortgages are good for members in two ways: they charge significantly less in interestover the life of the loan and can be a form of forced savings as members put more of their income toward an appreciating asset while they are working and can well afford it. While members could voluntarily pay down more of their mortgageprinciple each month with a 30-year fixed, that requires a more conscious effort and allows for slipups (That pair of shoes is such a great deal I don’t have really to pay more this month.) The loans can also be goodfor the credit union because of the more predictable nature of their payouts.

Engineering A Smarter Approach To Direct Marketing

On a recent Callahan Leadership Webinar, Susan Chapman, vice president of marketing strategy at Smart Financial Credit Union, outlined her credit unions complete overhaul of theirmarketing strategy. In 2012, Smart Financial discontinued its previous marketing efforts which she described as a shotgun approach where everyone got the same offer through mass media marketing, largely TV, radio & billboard. In placeof those efforts, the credit union switched to customized offers through direct mail, both electronic and print. In addition, they chose to focus primarily on their existing, but dormant, membership, allocating only 10% of their planned marketingbudget on acquisition.

To implement the new strategy, they started with data aggregating and mining all sources they had at their disposal. The credit union took data from their core system and MCIF databases. They even mined their bill pay data for insights into members’habits. On top of that, they purchased psychographic information to deepen their understanding of the membership.

As a result of these efforts, Smart Financial divided their membership into 54 different demographics and used variable printing and electronic messagingto present the right person with the right message at the right time, according to Chapman. Based on the segments created, Chapman merged targeted marketing copy and imagery to appeal to each member segment receiving the postcard. Memberswere given Personalized URLs (PURLs), targeted one-to-one microsites that focused on the products of most use to them. One mailing alone generated $8 million in deposits and $37 million in loans.

While Smart Financial complemented their existing data with additional information, every credit union has a wealth of information already at their disposal that is useful for segmentation efforts. Payments data is an area many credit unions are startingto mine for insights into members’ preferences and habits. Knowing when members start shopping at A Pea in the Pod or Buy Buy Baby should trigger messages from your credit union about ways you can assist them as they go through lifestylechanges say renovating an existing home for a nursery or taking out a mortgage for a first home.

Identify A Vocal Segment To Drive Referrals

At NACUSO’s 2013 Annual Conference in Las Vegas last week, Beverley McClure, a managing director at USAA, presented on USAA’s strategy to create member enchantment. Details of her presentation aside, all I could think during her luncheon talkwas, That’s me. I’m one of those enchanted’ members.

In 1993, I first began my relationship with USAA (my father served in the Navy during Vietnam) and primarily used their insurance services for the next decade. I was happy but not enchanted. Then, in 2006, I returned to the US after a year abroad anddecided to try USAA Federal Savings Bank. Why? One reason: remote deposit capture (RDC). Really. That single service is possibly the greatest gift that USAAcan give a working mother. Speaking from personal experience, this target demographic is always looking for ways to do more with less time. Even better, we’re willing to tell our harried mom friends all about things that make our lives easier.

So, why RDC? Because moms (working or not) all have to coordinate payments with other moms: school fees, coaching fees, class gifts, charity auctions. It’s a never-ending cycle of collecting payments, primarily in the form of checks. And we’realways busy. So why do working moms see such huge value in this service? Because we measure the value of RDC as the amount of the time saved by not going to the bank to deposit a check. For Gen Y,they don’t have the same value perception because they didn’t grow up in a world where checks were a primary source of payment. For them, RDC is just another way to deal with the nuisance of paper checks. For Gen X working moms, it’sa lifesaver. We have real memories of carrying checks in our wallets for days, weeks even, before we could find time to go to a branch. Now, I just need 2 minutes and my iPhone.

And I don’t mind telling anyone who will listen to me. I evangelize the benefits of USAA’s mobile deposits every time another mom hands me a check.

Within your field of membership, I guarantee you have working moms. But more importantly for your team, this is just one example to spur a conversation about how you position your products and services in ways to capture more of the actual value createdfor different segments of your membership. Think about all the different products you offer and how some segments might value them more than others. While RDC seems like a high-tech way to attract Gen Y, it may really be more valuable to oldermembers still dealing with checks in every day life. Does your FOM contain many first generation Americans looking to be the first member of their family to go to college? A student loan may help them bridge the gap and create more value than formembers who come from wealthier demographics that expect to find financing even though the need is the same. For the first group, they will be more likely to share their experience and become enchanted with your credit union.

Consumers are bombarded by hundreds, if not thousands, of marketing messages every day, so credit unions need to find targeted ways to break through the clutter. The most effective way to reach members is by highlighting the value created by your productsand to present those messages at the time when members need them most.

April 8, 2016

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