While high-relationship members appreciate the benefits of relationship pricing, recent nationwide focus groups reveal the ineffectiveness and potential risks of some of these programs. First, it's important for credit union officials to remember the three most common reasons why consumers join credit unions in the first place: no or low fees, competitive rates and personalized service. With that in mind, credit unions currently utilizing or contemplating relationship pricing should heed these warnings:
* Members share suspicion of the motivations behind relationship pricing. They do not want to pay for financial services and view fees as a form of greed.
* Members want simplicity in their financial services and are frustrated by programs with complicated tiers.
* When a loan balance translates into eligibility for benefits, members become alienated once the loan is paid off and their benefits are gone.
* Members buy products because of their inherent merit and value, not because of additional perks they may receive as a result of their increased relationship.
* Long-time members who were subsidized by older members when they were new to the institution wish to do the same for new members today.
To avoid alienating members, consider these new relationship-pricing concepts:
* "Start free and make it better." Offer programs that are enhanced over time.
* Consider a points program that offers a carrot of choice and opportunity. Lower participation merely reduces the opportunity for further gain without penalty.
* Structure programs that recognize tenure and past activity.
* Allow grace periods for achieving and maintaining qualifying balances.
* Count investments toward balance requirements.
* For incentive purposes, combine household balances to solidify relationships with the entire family.
* Implement surcharge rebate programs with automatic reimbursement. In the consumer's mind, access that isn't free isn't access.
Bottom line: While relationship pricing programs must be profitable for the institution, they must also satisfy members by being simple and adding "carrots" with minimal "sticks."
Neil Goldman is President of Member Research. He can be reached at (310) 643-5910 or by email at ngold1
