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.
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.
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.
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.