
In managing a credit union, it is important to know whether your services are meeting members' needs. Customer satisfaction surveys uncover this data. These are good metrics to determine where a credit union can improve.
Customer satisfaction surveys only tell one side of the story. The key part missing is whether customers prefer the credit union over a competitor. For instance, a member could be completely satisfied with a credit union's services, but prefer another because of its location or online banking functionality. Because the competitor is ranked higher in the member's mind, the credit union is losing potential money to another one. In other words, the competitor has more of the member's wallet share.
What is the Wallet Allocation Rule?
Many businesses believe they are doing well because customers rate their products or services highly. However, it is important to compare businesses against competitors to understand how they can improve. The Wallet Allocation Rule addresses this common issue. It was initially introduced in the Harvard Business Review in 2011 by four business and marketing experts.
"It is important to compare businesses against competitors."
The authors of the rule first implemented it in a grocery store which rated highly among customers, but was rarely chosen as people's first choice. By surveying customers, it was discovered that two other grocery stores were preferred due to lower prices and good location. After lowering prices on select items, the grocery store rose in ranks in the minds of several customers, bringing the equivalent of $62 million of business to the store and away from competing stores.
The same theory can be applied to credit unions. According to the Filene Research Institute, one of the original authors of the Wallet Allocation Rule worked with Filene to research this. Through surveying both credit union depositors and the various financial institutions they use, Dr. Lerzan Aksoy determined five areas that members consider when choosing their favorite financial institution.
How can it help my credit union?
Members of larger credit unions prefer institutions with competitive fees, effective complaint resolution and a better interest rate on deposits. While members of smaller credit unions look for low fees as well, they value institutions that can provide quality products and sound financial advice. Credit unions can take note of these five areas to lessen the differences between themselves and their competitors.
Aksoy and Filene also address the competition between credit unions and banks. CU Today reported that many times, credit unions' biggest competition is other credit unions rather than banks. However, Aksoy also noted that customers view credit unions as having poor locations, a less advantageous ATM network and inferior online banking options. By improving these aspects, a credit union can grow in the ranks and begin to be a bigger threat to its competition.

Making changes such as these would strongly benefit the credit union as the average customer using multiple banking locations typically has more than $25,000 in other institutions. Learning the specific reasons why members bank at competing businesses has the potential to bring even more business to a credit union. According to Aksoy's report, less than 10 percent of deposits in the U.S. are made at credit unions, even though these institutions' members make up nearly 30 percent of the population.
To find your specific ranking and how you can improve, Aksoy gives credit union executives advice on how to begin their analysis of their wallet share. Begin by surveying members to determine their satisfaction with your credit union, where else they bank and why they choose to utilize these competitors. Then determine your wallet share. Find the competitors who outrank your institution and determine why. Figure out what it would cost to improve in these areas and compare it with the potential gain in wallet share. If the strategy would positively impact your credit union, implement it and monitor its success.
By making the factors that drive members to your competition less significant, your credit union is likely to see a change in member loyalty. Not only will your credit union benefit, but your members will likely appreciate the improved services available to them.