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Member Segmentation and Profitability: Current Practice and Future Possibilities

This research determines and evaluates current practices in member segmentation at large credit unions and explores the most effective future strategies.

    • William Kelly Center for Credit Union Research at University of Wisconsin-Madison

    Executive Summary

    Every sector of the financial services marketplace is under siege by aggressive competitors using sophisticated marketing segmentation strategies. Today's marketing pundits reject traditional banking, brokerage, and insurance marketing that attempts to reach and serve "average" consumers or "all" households with broad, untargeted communication programs and undifferentiated product offerings. The experts believe financial marketers should gather and analyze non-traditional data including customer profitability to construct behavioral segmentation strategies. Segmenting markets only by age or some other single demographic characteristic, they argue, is out-of-date and often ineffective in today's highly competitive marketing environment.

    What is this research about?

    This research was designed to answer three questions:

    • How do credit unions currently segment their membership for marketing purposes?
    • To what extent do credit unions use member profitability analysis (MPA) to segment their membership?
    • What future segmentation practices would be most effective for credit unions?

    It was anticipated that the most advanced use of these techniques would be at large credit unions. For this reason, the study focused on the practices of 100 large credit unions, which are defined as over $250 million in assets.

    What are the credit union implications?

    Any enterprise can improve its performance in a variety of ways. It can often make the greatest strides by working on the areas which have received relatively little attention in the past. In the case of credit unions, sophisticated strategic marketing fits in this category. Typically CEO's have come from the ranks of management in operations or finance rather than marketing, and chief marketing officers have seldom been influential at the highest levels of strategy development.

    This has created the opportunity to develop criteria for segmenting members and potential members, identifying the households in those segments, developing products and services tailored to the needs of each segment, and marketing each of these services to the segment for which it was designed. The life cycle segmentation strategy outlined in this report is ideal for credit unions because it fits the values of credit unions and the current modes of thinking about members found among the top executives of large credit unions. It also provides for a continuing marketing relationship with members as it changes. It emphasizes product, service and marketing message changes as members’ needs and preferences evolve over time.