Using Focus Groups

In 2011, Desert Schools Federal Credit Union saw that its automotive lending program, specifically its auto refinancing program, was underperforming, despite the organization’s competitive rates.

The Arizona-based financial institution has more than 308,000 residents across three counties and is one of the largest lenders in the state. As such, the CU competes against the likes of Bank of America, Chase and Wells Fargo. So its strategy for a new car loan program—developed by the marketing, lending, retail and product management teams—needed to be inventive to catch the attention of prospective customers.

We sought out research firm Goodmind, New York, to conduct an online focus group that would help us understand how consumers react to a variety of auto refinance offers.  We conducted 45 in-depth interviews, of which 20 were Desert Schools FCU members and 25 were non-members. Each participant was presented with several advertisements featuring different incentives. Respondents offered verbal insight on each advertisement and also provided a numeric rating on a scale of 0 to 5, to indicate how likely they would be to consider the auto loan offer.

The main incentives presented to the focus group were an automotive care package, a $100 gas card, a 3.34 percent rate (to test high rate reaction), a 2.69 percent rate (to test low rate reaction), a 10 percent annual interest rebate and a 1 percent instant cash back bonus. These offers tested whether consumers preferred incentives in terms of gifts, lower interest rates or tangible cash.

Throughout the study, respondents saw value in each offer, but had initial reservations on many of the incentives. For example, the auto care package was highly rated among respondents, but because the offer didn’t list the interest rate, consumers were reluctant to trust it was a viable offer. This discovery illustrated that respondents expected a competitive rate up front. 

The highest rated incentive was the 1 percent cash back offer, with respondents noting “the instant cash aspect was a unique offering that stood out the most,” and “I personally haven’t seen an offer like this. Other banks are just offering lower rates vs. cash back.”

In sifting through the research, we concluded that a strategy of combining a competitive rate with a unique cash back offer was a tactic that would differentiate Desert Schools FCU from the rest of the stiff competition in the Arizona market. Since the June 2012 inception of Desert Schools FCU’s new 1 percent cash back offer combined with a rate as low as 2.84 percent, the auto re-fi program has experienced an 85 percent lift in volume.

“By listening to this group, we were able to really design an offer that resonates with the needs and wants of our current and potential members,” said Gary Sneed, the CU’s chief lending officer. “The insight that we gained was paramount in the evolution of our auto lending program.”

Four takeaways from the study provide additional insight on how to determine a strategy for bringing an offer to your market.

First, a good rate is the foundation for any compelling offer. Many respondents in our study would ignore any other information except the rate when it was listed on an advertisement. This showed that consumers conducted research of their own and were more educated on current interest rates.

Second, we learned that hidden fees were instant turn-offs to those seriously considering a loan with a financial institution. In addition, when respondents were asked what they didn’t like about the loan process, several indicated that confusing language and “jargon” were turn-offs for them.

Third, participants wanted the process to be quick and easy, citing the convenience of filling out an application online and completing the form in their own time. Respondents desired an application that would ideally take less than 15 minutes to complete and would prefer a response “within minutes,” but would accept a response within 24 hours.

And finally, we know customers seek transparency through all stages of the lending process.  Although many of our respondents were already educated on rates and terminology, confusion played a large factor in determining what they wanted from a loan. Respondents cited a fear of hidden fees, long applications, fine print and the inability to find answers to their questions as factors that could deter them from seeking to refinance their existing loan.

According to one respondent, “The most confusing part of finding an auto loan is filling out the loan application and knowing who to talk to if you have questions.”

All of these items are key points to consider with any lending team before constructing the next steps of marketing your campaign. As with any marketing plan, by researching consumers’ interests beforehand, CUs are better able to determine members’ wants and needs to better serve their clientele.

CUES member Cathy Graham is VP/marketing at $3.8 billion Desert Schools Federal Credit Union, Phoenix.