Relationship Pricing: All CU Members Are Not Created Equal, Says Analyst

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If relationship pricing is so great, why don't more CUs do it? The answer: in addition to the philosophical barrier of member equality, the analysis necessary to do relationship pricing well is sophisticated, according to Nate Rocco of Tshibanda & Associates.

While there is no one "right way," he said CUs first must understand member profitability, their members' goals and behaviors, and the members' financial contribution.

The first step is to measure retention, which Rocco said is a key metric to relationship pricing, but something not all CUs do. Next, determine the share of wallet the credit union is getting from its members by examining credit reports. Then, analyze product profitability to determine the true cost of each product.

"This step is a little bit sophisticated and requires a financial analyst," he said. "But this is not something a $25-million credit union couldn't do."

Members then would be segmented by the factors most important to the CU. These factors could be age, gender, income, profitability, credit score or numerous other possibilities. Rocco said segmentation helps define eligibility and reward structures in relationship pricing.

Once the products have been priced and members have been segmented, Rocco recommends one of three structural options for the programs: account-balance based, product-usage based or points-based.

The points-based structure "looks a lot like frequent flyer programs," Rocco said, awarding points for every year of membership as well as for use of certain products and services, for example.

Regardless of which structure a credit union chooses, Rocco emphasized the importance of reward statements. "Let the members know what the credit union is doing for them and giving them."

Another important, but often overlooked, component of implementing a relationship pricing system is to communicate with tellers and other member-facing employees, he added.

"No one knows the members like the frontline staff. Sit them down; tell them which benefits the credit union is considering. Ask them for feedback."

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