In response to customer complaints about cluttered aisles and displays, Walmart removed about 15% of its products from store shelves back in 2009. This allowed managers to remove displays, shorten shelves and otherwise straighten up stores. What do you suppose happened to satisfaction? It went up. What do you suppose happened to sales? They went down. $1.85 billion down.
One of Filene's researchers, Professor Lerzan Aksoy of Fordham University, co-wrote an MIT Business article with the following finding: "The American Customer Satisfaction Index consistently shows Wal-Mart to have the lowest satisfaction levels of all major grocery retailers in the United States. Yet our research finds that the percentage of its customers who consider it their first-choice grocer is high relative to competitors. And despite it being a low-service category position, this strategy has paid off handsomely for Wal-Mart. It is now the largest grocery retailer in the United States, with groceries contributing 55% of its sales."
Credit unions are not so different from Walmart when it removed 15% of its inventory. We fixate on service to members and measures such as satisfaction help us benchmark our progress. But the siren song of satisfaction disguises an important truth: Members love their credit union but they often take their business elsewhere.
Following her fascinating Filene study from 2013, "Linking Member Satisfaction to Share of Deposits," we asked Prof. Aksoy to look at why members do and don't choose their own credit unions for a loan. What drives your most promising borrowers – existing members – into the arms of other lenders?
We asked her not just to gauge satisfaction and Net Promoter Score from more than 5,000 members, but to query individual members about where they had different loans and why. This new research, "Linking Member Satisfaction to Loan Decisions," uses the Wallet Allocation Rule to understand which specific drivers move them to use competing banks and credit unions. Credit union members revealed whether they had a loan with either the studied credit union, a competing credit union or a bank. Respondents must have applied for a loan within the past three years. They were surveyed regarding the process by which they selected an institution for a particular loan category (only one loan was discussed per respondent). The sample of members is large enough and from enough different credit unions that we believe the findings are generally representative of credit union members overall.
Recognizing that different loan types come with very different drivers, we separately examined first mortgages, refinanced first mortgages, second mortgages, HELOCs, new auto loans, used auto loans and personal loans. Respondents were asked to select all the attributes that played a role in their decision-making process from a list of approximately 40 choices. Once the larger list was narrowed to only the relevant factors, respondents were asked to rank those factors in order of importance. The research explores: How members form a consideration set, how much time they typically spend shopping for a loan, their preferred source of loan information and the most important drivers of loan selection.
In other words, we went beyond satisfaction in search of rank. Because, in a member's eyes, it doesn't pay for the credit union to generate great overall satisfaction but then have the second best loan option. The first choice product wins all the marbles.
Let's look just at mortgages. Our research found that members have positive perceptions of their credit union in general. On satisfaction, mortgage borrowers preferred their credit union at 8.5 (out of 10) to banks' 7.5. And on Net Promoter, they gave their own credit unions a 47 compared with banks' negative seven. Yet almost half of all existing members' mortgages (49%) were originated with a bank.
Moreover, because some credit union members considered multiple credit unions, most individual credit unions originated less than 50% of their members' mortgages. It is clear that credit unions are not able to leverage their significant advantage in overall member satisfaction to gain a significant advantage in terms of the percentage of members who choose to use their credit union to obtain their mortgage.
This mortgage finding highlights a troubling overall issue: Lower-value loans are easiest to capture. Credit unions do the best job of attracting existing members to personal loans and HELOCs. They are moderately successful with auto loans and second mortgages, but they struggle to capture the largest consumer loans of all: First mortgages.
Members rarely shop for loans. Shopping behaviors differ among loan categories, but on average, less than half of members compare loans from different institutions. And only about one in 10 actually applies with more than one institution. Rank matters, and being ranked No. 1 in a loan category is where your credit union must be to capture loans from your existing members.
So what should you do? Take a play from the Wallet Allocation Rule playbook.
Ask your members to tell you where they have gotten their most recent loans and also ask which attributes drove that selection. Specifically, ask respondents to select all the attributes that played a role in their decision-making process. Once they narrow the list to just the relevant factors, ask them to rank those factors in order of importance. Even this simplified version of the Wallet Allocation Rule approach will help uncover the attributes in members' decisions to use either your credit union or a competitor.
Satisfaction is important, but don't let it take your focus away from winning the lending competition that drives your credit union.
Ben Rogers is research director for Filene Research Institute. He can be reached at 608-661-3745 or [email protected].
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