Building SEGs' appeal

As core groups shrink, CUs go to great lengths to cultivate select employee groups

Ten years ago, IBM Rocky Mountain Federal Credit Union, Boulder, Colo., was a single-sponsor credit union. Then, IBM began spinning off subsidiaries such as Lexmark, and the institution inherited employee groups from the various IBM companies.

"That's when we realized we needed to make a decision," recalls Kerry Goodliffe-Parry, vice president of marketing. "We considered converting to a community charter but stuck with select employee groups [SEGs]."

Now called Premier Members Federal Credit Union, the institution counts some 200 SEGs, has $240 million in assets, and serves 18,000 households.

Single-sponsor credit unions throughout the nation have faced similar decisions during the past two decades as the economy reshaped business. When core membership groups shrank or disappeared, employer-based credit unions added SEGs to diversify to maintain stability and growth.

"What works best for us is to get groups that are similar to the original IBM core membership-those hightech, high-income folks," says Goodliffe-Parry. But she admits there's another school of thought that says the credit union should pursue opposite groups that may have a higher propensity to borrow.

Premier Members Federal considered but discarded that strategy. "Like-type groups want like-type services," says Goodliffe-Parry. "We market mostly to high-tech groups." She says 40% of its member households use online banking.

The former NC Works Federal Credit Union followed the other school of thought. This single-sponsor credit union began adding SEGs in 1987, including AT&T and Western Electric employees in North Carolina.

As AT&T faced divestiture and spun off subsidiaries, the credit union picked them up, becoming AT&T Family Federal Credit Union. It became famous as the target of the field-of-membership lawsuit bankers filed against the National Credit Union Administration in the 1990s. By that time, SEGs had become a diversification strategy.

PLOTTING STRATEGY

But instead of adding "groups that looked like us, we started talking to textile groups," says Rick Miller, senior vice president of corporate development for Truliant Federal Credit Union, current name for the Winston-Salem, N.C.-based credit union. Today, 16% of the $870 million asset institution's 170,000 members work in North Carolina's textile and furniture industries.

"We want our membership to reflect the communities in which we operate," says Miller. "So when we're in Asheboro, it's furniture and textile workers. In Gary's Research Triangle Park, it's high-tech folks."

One result: An anemic 60% loan-to-share ratio roared to the point where the credit union was loaned out and had to borrow money. The ratio since has returned to a cooler 70%. The target is to be 80% to 85% loaned out.

Any multiple-group credit union will tell you it's a big move going from a single sponsor to multiple sponsors. When Truliant Federal served AT&T employees exclusively, nearly every potential member was a member. Now, the credit union's member penetration is 42%, which still is much higher than the national average of 20%.

A recent SEG satisfaction survey revealed Truliant Federal was the only on-site financial institution at 73% of its SEGs; 60% at SEGs with 500 or more employees. "We may think we're a SEG's only financial institution, but if it's a larger company, chances are we're not," says Miller. The credit union refers to its SEGs as business partners.

Competition is a fact of life as credit unions leave behind the days of single-sponsor, protected memberships. And credit union practitioners are beginning to accept that fact. "I'm a firm believer in offering several credit unions to one employee group because it gives those people choice," says Goodliffe-Parry. "Each credit union has to stand on its own merits."

Premier Members Federal's director of business development seconds that notion. "A credit union with a monopoly isn't forced to get better," says Amy Munger. "With competition comes better service. It's a good thing." Competition especially is noticeable in SEGs with 250 or more employees, she notes.

Not everyone agrees with that view. "If we approach a business, and it's in another field of membership, we leave it alone," says Angle McCauley, senior membership development officer for the $610 million asset Tyndall Federal Credit Union, Panama City, Fla. "We don't want bad blood."

Still, Tyndall Federal serves some SEGs other credit unions serve. In those cases, McCauley explains, the other credit unions aren't local.

Of course, banks pay no attention to the niceties of who's serving whom. Banks approach businesses from a different direction. While credit unions usually deal with human resource departments, banks deal with chief financial officers. Banks will do company payrolls in exchange for net-check deposit.

Truliant Federal is looking for a way to offer payroll services and health-care programs to its business partners. This would help the credit union compete, for instance, with Wachovia Corp. and its Bank at Work program.

SEEKING BUSINESS

Credit unions work hard to keep their SEG contacts up to speed. Titles for these liaisons are evolving from SEG reps to SEG "ambassadors." Titles for credit union personnel working with the ambassadors are evolving to "business development account representatives," or "business development reps" for short.

Some title changes reflect cultural changes. Branch managers at Eastern Financial Florida Credit Union in Miramar now are sales managers. They spend more than 50% of their time in the field, prospecting for new business through active participation in chambers of commerce and other local organizations, and building relationships with current SEGs, says Christopher Matthews, vice president and regional sales manager.

Eastern Financial Florida structured its shift to a sales culture around two principles: 1) educating members on credit union products; and 2) proactive sales, matching specific products to individual member needs.

"All branch employees attended sales training classes, and we developed an incentive plan to reward sales achievements," Matthews explains. "Four years into the program, our employees have become very comfortable with the sales process." New hires are screened to ensure they'll be a good fit in the credit union's sales culture.

Eastern Financial Florida originally served Eastern Airlines employees. The Airline Deregulation Act of 1978, ensuing rate wars, and Eastern Airlines' untimely assumption of debt for newplane purchases, forced the company to close in 1991, explains Michele Loftus, the credit union's communications administrator.

As the airline shrank, the credit union grew under the direction of now-retired General Manager/CEO A.G. DeRusso. The credit union began taking in SEGs in 1982, starting with airline companies or airline supply companies, says Loftus.

Today, Eastern Financial Florida has a community charter and more than 900 SEGs. It has $1.5 billion in assets and 180,000 members, 51,000 of whom come from SEGs.

Three departments within the credit union have distinct SEG responsibilities, says Matthews. Fifteen sales managers and five business development reps interact one-on-one with SEGs; the marketing department produces collateral materials to support SEGs and coordinates special SEG events (cruises, sponsorship events, and so on); and the member company administration department provides logistical support to both the business development team and the SEGs.

CULTIVATING SEGs

Sales and business development reps visit Eastern Financial's SEGs regularly. Frequency depends on a SEG's size and how closely it works with the credit union. Some groups receive a "Credit Union Day" visit every two months; others quarterly, semiannually, or annually. The credit union also reaches members through financial seminars.

"We want members to see the value in having a total package relationship with us," says Matthews, pointing out the credit union takes a consultative, not high-pressure, approach to sales. The credit union teams with CUNA Mutual Group's MEMBERS Financial Services, Madison, Wis., to provide investments, mutual funds, estate planning, and college savings vehicles.

Sales efforts are paying off. In 1999, the credit union's cross-sell ratio was 2.64 products and services per member. In 2002, it increased to 3.25, and by May 2003, the ratio stood at 3.39.

Marketers and sales managers say it takes hard work to build successful SEG relationships. A credit union first must define what it wants to be, says Wendy Siebert, senior marketing consultant for CUNA Mutual's Northeast marketing division. "Once a credit union has clear goals, there has to be internal commitment of resources."

Jean Webb, a partner in The Paragon Consulting Group, Olympia, Wash., agrees. She says credit unions should assign specific employees for SEG development. "If you try to send someone out on a part-time basis, the urgency of the office gets in the way."

Credit unions need a regular presence at their SEGs, both in person and graphically, says Webb. "That gets people talking about you, and that's the best advertising." SEG marketing is like endorsed marketing. "You're not competing with everyone else who's in the newspaper or doing direct mail. You're a known entity."

Paycheck stuffers, posters, newsletters, and Web links give credit unions a graphic presence at a company. Membership drives, employee orientations, company picnics, and financial seminars give business development reps opportunities for that physical presence.

It takes a person with certain talents to call on SEGs, Webb points out. "You need someone with a presence; someone who can meet people, speak in front of groups, and ask for business in creative ways. You need someone who can talk with the CEO and with the person who makes the least money."

One way to build interest is to offer introductory specials, says Webb, such as free checking or discounts when people transfer loans.

Is it fair to segment members and offer just one group a special deal? "If credit unions have diversified memberships, it's almost impossible not to make distinctions," Webb concludes.

TARGET MARKETING

Credit unions reach out to SEGs according to their potential, whether it's intuitively or through studied research. For instance, Verizon (formerly General Telephone) still is General Technologies Federal Credit Union's core membership group.

The $124 million asset credit union in Irving, Texas, visits employees at 20 Verizon offices at least quarterly. It has another 50 SEGs, some of which receive visits only once or twice a year, says Robyn Pratt, marketing director.

School employees receive special treatment at Schools Financial Credit Union, Sacramento, Calif., because they represent the core membership. The $972 million asset institution has more than 500 contacts within the schools and school district offices, says Mary Robertson, vice president of marketing.

Credit union sales reps attend newemployee orientations, and Schools Financial holds three dinners a year to keep in-school reps informed. They also receive a "Schools Rep Kit," a clear, hard-plastic valise containing an annual report, premiums, and a handbook.

Truliant Federal uses a matrix to target its SEG efforts. The matrix awards more points to SEGs that are actively involved with the credit union. It also assigns more points to SEGs located in target markets and to high-income SEGs.

"We have 700 SEGs and 170,000 members. We can't go after all 170,000 members at the same level. We can't serve all SEGs at the same level," says Miller.

When matrix points are tallied, companies fall into "red, blue, and green" categories, representing their potential in descending order.

If Truliant wants high-income members from "red" companies, it has to work harder for them because they have lots of choices, Miller explains. Lower-income employees from "green" companies join because they have fewer options. "They can use us or a payday lender," he says.

Is it fair to court high-income people more aggressively? "We can't make loans to low-income folks unless we get deposits from high-income folks," Miller says.

Membership penetration is lower in "red" companies. And although "red members" have the highest deposit balances, their loan balances are lower than those of "blue members." And true to form, membership penetration is highest in "green" companies. In "red" companies without a strong credit union relationship, those high-income members have zero loan balances after 12 months.

It's proof that if you don't cultivate SEGs, you won't get their business.

Copyright Credit Union National Association, Inc. Aug 2003
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