Pub. 10 2019 Issue 1

Spring 2019 19 West Virginia Banker 1. Segment and Analyze Members/Customers Segment and analyze members/customers into appropriate groups for marketing and sales programs. Historically, many organizations have used top-down analysis, but the prevailing trend is to evaluate from the member up. One effective wrinkle to that technique is identifying the most profitable households, discerning the factors that put them in that category, and then strategizing how to mold other member households in their likeness. This technique focuses on the member rather than the individual because often products and services are comple- mentary. Remember, this analysis can be accomplished from a needs-based, not product-pushing, perspective; loyal members/ customers also benefit most from your services, so this exercise can quantify the savings realized by these ideal members. 2. Segment and Analyze Branches, Employees, and Third Parties Such as Auto Dealers By analyzing the effectiveness of separate entities such as auto dealers, credit unions can understand how to optimize their resource allocation to each group. Just like members/ customers; branches, employees and auto dealers can be very profitable or very costly. Knowing where to allocate capital for marketing, employee incentives, building new branches, or furthering auto dealer relationships can make the difference between growth and stagnation, or worse, a decline in assets and membership. 3. Establish Product Pricing According to the consulting firm Deloitte, fewer than 3% of businesses effectively manage, execute or communicate pric- es. The goal is to provide value for customers and members in a way that incentivizes them to conduct more business with you, which is why you should avoid rate-chasers that will use only your “loss leader” products and bolt at the next best offer. Notably, many companies miss out on charging op- portunities based on intangible factors like customer service or convenience provided by their product or service. Take a long view here — think of “lifetime value” of a loyal customer, projecting out which items are worthy loss leaders. Remem- ber that a discount is an investment in a member; are you receiving return on that investment? 4. Optimize Operational Inefficiencies From a servicing resource perspective, ideally, you have a cost-accounting system in place to paint an accurate picture of the amount of time staff invests in performing various tasks; the fallback is to conduct annual job audits, which are considerably less precise. The impact of staff resource costs is considerable, typically accounting for 35% to 50% of nonin- terest expenses to provide services. The difference is credit unions don’t pay shareholders but rather return that money to members by providing dividends, improving rates, and/or lowering fees. In fact, many argue that profitability analysis is more important for credit unions; lacking the ability to raise supplemental capital, they must rely solely on operational efficiency and improvements to build capital.  Profitability Analysis Continued on Page 20