Gary Skraba, vice president of marketing for First Financial Credit Union, West Covina, (www.fffcu.org) California, described FFCU's previous relationship pricing plan as ''complex and unwieldy.'' What the credit union needed, he said, was a ''transition to a program that would keep the top tier of members without diluting the value of membership for everyone else.''
In March 2001, the $508 million-in-assets FFCU phased out its ''Star'' program with coupons and rolled out a new program that has achieved the intent of any such relationship plan: member retention. The old plan was hard for the credit union's MCIF to track (it was updated monthly and based on a balance of loans/ shares/services) and had an accordion fee schedule, said Skraba. It was just not producing good results, he said.
The new program, called the Owners Club, has two top tiers, the Chairman's Circle, which requires a combined balance of $75,000 and minimum four years of membership, and the President's Circle, which requires a combined balance of $25,000, use of three different products or services and a minimum one-year membership. The Chairman's Circle consists of approximately 3% of FFCU's 69,000 members and the President's Circle varies from 6% to 7% of membership, said Skraba.
An important benefit that especially pleased members was getting their own membership card, which was sent to members at the launch of the program. ''People take pride in carrying that card,'' Skraba said. Chairman's Circle members also have access to a toll free number that goes to the Credit Unions's call center, where their calls are cued to the top, automatically. A special VIP area in branches is also set aside for them, eliminating the wait for service. And no, members didn't balk at that, he said. ''We don't trumpet that in any way.''
Comparisons between the Star Program and the Owners Club, based on the top two tiers (Chairman's Circle and President's Circle) versus the top tier of the Star Program (5-Star), show that member retention, the primary driver behind the change has been achieved. For example, Star households had 4.0% annual runoff rate; Owners Club HHs have only a 1.2% annual runoff rate, so the program slowed the loss of top households to other institutions.
The plan's effect on Household migration, (based on MCIF's classifications of Households) was also beneficial. It reduced the downward migration of the most profitable member households to lower profitability tiers by 20%, Skraba said. ''So we maintained the key relationships while reducing the ''deal-hunting'' mentality.
The above case study will appear in Callahan's soon to be published Relationship Pricing Report, available September 2002, will show how credit unions are using relationship pricing as a strategy to improve earnings. The report analyzes the use of relationship pricing by over 240 credit unions, the types of programs in place, and its effectiveness as a way to increase profitability. Click here to pre-order your copy.