Matt Davis, 30 Under 30 member, Members Credit Union
Credit Unions could learn a ton from Costco. A 2007 story by Barron’s attributed the company’s success (they are currently the world’s fourth largest retailer) to four things: keeping expenses and prices low, treating employees well, making discount shopping fashionable, and keeping shareholders happy. These are outstanding “big picture” ideas—general in focus, huge in their implications. However, let’s look at two specific details of Costco operations that the credit union movement would be wise to consider for implementation.
Controversial Topic 1: Membership Fees
In credit unions’ quest to gain market share in the financial services market we have sought easier loans via indirect lending, easier ways to join via community charters, and nearly non-existent barriers to joining (membership fees, maintenance fees, etc.). While we have not achieved “open membership,” I would argue that it has never been easier for an American to join a credit union. In many cases, citizens of certain states or municipalities have multiple choices of fine credit unions to join. Some companies even offer their workers membership into multiple credit unions as part of their employee benefits packages. It’s exciting to know that if someone wants to join a credit union, chances are quite good that there is one out there for which he/she is eligible.
In many ways, though, this has cheapened the relationship. It has simultaneously become just as simple to leave a credit union as it has to join one. With some credit union members, there’s a diminished sense of belonging with their financial institution. With others, they have no obvious vested interest in remaining a member of their specific credit union.
Costco charges an annual standard membership fee of $50. For a marginally higher investment, you can get an executive membership that gives you cash back on your annual purchases at Costco stores. What does this fee cause shoppers to do? Shop. Shop A LOT! Costco members realize that to get their $50 out of their membership, they need to make enough annual purchases to offset their annual fee. How cool, huh? Costco gets $50/member/year AND members who want to do as much business with them as possible.
I think there’s a market out there for consumers who want to feel some exclusivity with their financial institution. People who want to feel special. People who want to save money. People who are impressed by a financial institution that is so confident in their services and ability to save members money that they can charge an annual membership fee. Show them your value. Keep track of members’ annual savings, and communicate that with every transaction.
“Thank you for stopping by today, Mrs. Jenkins! You have now saved $455.34 this year by being a member.”
As an added bonus, return 5% of that calculated total to members at the end of the year. With luck, that total will be at least the $50 membership fee required for renewal. The purpose of the fee would not be income, after all, it would be for loyalty. Even more than that, it’s to prove the value of your financial institution. You’re saying “it’s well worth your $50 to be a member at our credit union.”
Controversial Topic 2: Gas
Gas prices are sucking the life out of American families. The purpose of credit unions is to promote thrift among our members. Isn’t there something we can do, within that purpose, to ease the burden of fuel costs?
Costco sold 1.7 billion gallons of gasoline in 2007. Typically saving Costco members three to ten cents per gallon compared to competitor gas stations, the idea to offer discount gas as a membership perk has proven to be a tremendous business decision. Members help justify their membership fee with the cost savings they receive with this discounted gas. Costco in turn is able to become more attractive to potential members.
How about forming “Credit Union Gas Stations”? Credit unions could form a gas cooperative that would require member credit unions to invest .1% of total assets in year one to fund its start (eg. $500 million credit union invests $500,000). Credit Union Gas Stations would be built in high traffic, high visibility locations across the nation to provide this membership perk. Gas would be sold at the per gallon cost plus two pennies to offset operation costs. The effect would be around six cents per gallon savings for participating credit union members. To pump gas at these stations, you must be a credit union member of a member credit union. You will be able to join a credit union at the station’s information center. Credit unions would issue a card to their members that authorizes the pumping of up to 40 gallons/month at these stations, making sure that no member or member credit union gets an unfairly high proportion of the fuel supply.
We’re cooperatives. Let’s take advantage of our collective economies of scale to make something like this happen. Costco has proven that it can be successful.
Comments
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Matt- Interesting concept on membership fees. I agree many people do shop more at stores like Costco & Sam’s Club to get the most for their membership. It would be a hard sell to many though. I personally cancelled my memberships because I didn’t shop there enough to cover the fee.
As for the gas station idea, it may better increase loyalty to instead offer cash back on gas purchases made with a CU debit/credit card. You mention a potential savings of six cents, and an access card. Through this method, members would be able to pay with ANY debit or credit card. If a CU offered cash back on gas purchases made with their own cards, it would make their card “top of wallet”. Say you offer 3% cash back, that would save members about twelve cents per gallon while increasing member deposits/PFI members (since they will be using your card, they have to keep money in their account).
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The purpose of the gas stations would of course be to save members money. Beyond that, however, it’s a way to demonstrate exclusivity. Want discount gas at a credit union gas station? Cool, join a credit union. Cash back could have the same cost savings benefit for members, but wouldn’t create half the buzz of member exclusive gas stations in my opinion
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The Coop where my Mom shops has a membership fee and gives a dividend to members at the end of each year. The amount of the dividend is tied to how much the shopper has spent during that year. It would appear that Costco operates according to a similar cooperative principle.
I’d love for cu boards to incorporate points of discussion from posts like yours in strategic planning sessions. They would provide a refreshing change from the usual discussions about traditional FI products and services.
(Matt, this is the first time I’ve commented on a Filene post. I like their captcha better than all others).
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My only thought on the membership fee…
I pay for Costco because I can’t get 500 rolls of TP for $15 anywhere else. Literally, I don’t have the ability to buy in gross from manufacturers – so Costco is my only option.
So I guess this really, in my opinion, becomes a commodity discussion. Since I think basic financial services are a commodity and bulk goods, in my case, are not (since I can’t get them anywhere but costco).
So if BoA or any other bank or financial institution is willing to “sell” me a good without a membership fee at the same price as my local CU (who has a membership fee), then unless there’s another compelling reason to join the local CU (like cheaper gas ;), I probably wouldn’t bother.
My being a fickle, Gen Yer and all…
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@Katie Thanks for your comment! I think you hit the nail on the head with your “commodity” statement. This is precisely what needs to be addressed. If credit unions want to differentiate themselves, they need to find a way to offer services that cannot be found anywhere else (or with unmatched pricing). Some credit unions have. Some credit unions want to. For them, I think they can find a willing market of people who would consider paying a membership fee for access. For the rest? Be special or go away.
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Matt (and others), it is interesting you raise this issue. A past Filene study identified the need for credit unions to make “membership meaningful”. In the course of this study, we interviewed credit union members and asked what organization they were members of and they most frequently said organizations like Costco, YMCA and the local library. When we prompted them about being a member of a credit union, many consumers didn’t make the connection because they couldn’t identify a tangible benefit. Cooperative ownership and voting for the board of directors just didn’t do it for most consumers. Good conversation.
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Matt,
We have actually researched and seriously discussed the whole gas station issue and offereing our members a discount by using our debit or credit card.
As a CUSO this is a tough sell, because it really doesn’t fit within the model of what we are in business for, but as an individual credit union, this can be accomplished relatively easy.
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@Jeremy We are in business to promote thrift among our members. To me, using collective bargaining to get better prices (on gas or any other purchase) fits into that mission quite nicely.
I wrote this very post on my personal blog (creditunionwarrior.blogspot.com), and got a great comment from Anthony Demangone (author of http://www.nafcucomplianceblog.typepad.com/ and Director of Regulatory Compliance at NAFCU). He essentially said the same thing as you:
“I love the ideas. However, (in the U.S.) laws and regulations would limit the ability of credit unions to sell gas. We’re creatures of limited powers. These powers are usually listed out in the state or federal law. If it isn’t there (or somehow possible through incidental powers), we can’t do it. (Lawyers!) But, I’m not ruling out that some creative minds couldn’t work with some outside partners to create some gas-related benefits.”
These issues obviously need to be sorted out. More to the point, we need a definitive position on the matter so we’re not limited by some perceived idea of what regulators may or not rule. The true value of a cooperative is being able to be better as a group than as an individual. It’s time we start looking for ways to capitalize on those collective economies of scale: price negotiations, vertical integration, etc.
I’m so stoked your credit union is considering some sort of program that will save your members on the cost of fuel. Instead of just talking about increasing your CU’s relevancy, you’re going out and doing something about it. Awesome.
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