2012: The Year of the Credit Union?

Will 2012 be the year of the credit union?

By Tony Rizzo

That depends on how prepared you are from a marketing standpoint before the first of the year. If you are planning on a mass marketing campaign touting no fees or low price, save your money. If you are planning on a direct marketing campaign targeted to specific households that are price sensitive and willing to switch checking accounts or are willing and able to borrow, welcome to the marketing department of the 21st century.

This article will look at market, economic and demographic factors that will influence your ability to gain market share in 2012, as well as a data based marketing approach that focuses on targeting most likely households and avoids the budget waste of mass marketing.

Wells Fargo and Chase have announced that they are both testing a $3 fee for it’s debit card usage in limited markets. Bank of America announced the implementation of a $5 debit card fee starting sometime next year. In the case of Bank of America, consumers immediately lit up the blogosphere with negative reactions and cries for switching checking accounts. In a recent TIME Moneyland poll asking Bank of America customers how they planned to respond to the announcement, roughly 75 percent of almost 1,000 respondents said they will switch banks. Eleven percent said they will switch to credit cards to avoid the monthly fee, 8% said they will switch to cash and 3 percent said they will go back to using paper checks. In an informal poll posted on the TIME Moneyland website, the results mirrored the formal survey (see figure 1). How will you respond? Will you follow the lead of the three largest national banks and increase fees, or will you carve out a unique selling proposition regarding the lack of the card fees and the value of credit union membership? From a macroeconomic standpoint, consider these facts.

Despite a small bump in July, consumer spending has slowed to a crawl. People worry about the direction of the economy and the overall lack of growth. Consumers won’t spend until they feel comfortable. The economy will not start growing until consumers start spending – it’s a Catch-22. No doubt your members have things they would like to buy that they have yet to purchase. According to Polk, the average car on the street is 11 years old. That’s up from 8.4 years in 1995. And even though the median price of existing houses relative to average employment income per worker is at its lowest since the 1970s and mortgage rates are at levels last seen in the Truman administration, existing home sales have slowed dramatically (According to John Loinski, economist for Moody’s Analytics). With unemployment hovering around 9 percent, people tend to save more than they spend. Also changes in real income from 2009 – 2010 have decreased 2.3 percent (Census Bureau) but it’s not just economics that are keeping loan demand and spending down.

Demographically, the 78 million baby boomers have moved beyond their prime spending years. They are past the point of buying a bigger home, adding additional vehicles, and filling their home with stuff. Also at this stage (we hope) their children have left the nest and they are done spending on college tuition. Generation X, with 51 million members, does not have the number of spenders required to sustain the high spending seen in the 1990s and earlier in this decade. It will not be for another 15-20 years that Generation Y, with its 78 million members finally in their prime spending years, will once again raise loan demand to the levels of the previous decade.

At some point spending will begin again, unemployment will decline and the economy will recover. One item you cannot change is the demographic factors discussed previously. What does this mean? And how can your credit union be poised for substantial growth in 2012? It’s all about smart prospecting and pinpoint communication.

It is no longer an acceptable strategy for marketing to spend on print ads and mass marketing approaches that sell on just price. This approach, while effective when loan demand exceeded capacity, quite simply no longer works in an environment where there’s clearly more supply of cash than consumer demand (How many times have you seen the message “We have money to lend!” splashed across a billboard or bus?). There are also far more physical bank locations than there were just 10 years ago. Consider this. If you drive from Bangor, Maine to San Diego, California and line up all of the 98,515 retail bank branches, you have access to a branch every 52 yards. Google “bank” and you’ll come up with over 1.8 billion hits. Clearly there is not a supply problem. As John F. Kennedy said, “If you want to make money, go where the money is.” This must be the mantra of the modern-day marketing department. Where to begin?

The branch by branch marketing plan – an analytical approach.

Strategically, your institution must have a branch by branch marketing plan. The strategy will allow hyper-local marketing communication based on the demographic and psychographic profiles of the members and prospective members around each location. From a marketing perspective this approach will allow specific offers to be made in each branch market to specific consumers. The best way to begin this plan is by first mapping branch locations along with competitive outlets, customers and prospects in order to define an exact branch footprint. This footprint should be drawn at a block level taking into account geographic barriers that block easy access to a location. Once this is complete, populate the branch footprint with data
including product balances and demographic information such as age, income, education level and homeownership statistics. Also add psychographic data that will give you insight into the financial spending patterns of each specific market. As a final step, chart your market potential across each major product line. In doing this you’ll be able to set by-market sales projections based on fact rather than feeling. As an advanced step, you can also prepare buying index measurements that will allow the marketer to offer specific products to specific households. This reduces budget waste and increases overall response rate. Armed with this knowledge, marketing can execute a branch by branch plan that is based on analytics and projected outcomes.

Go where the money is with daily credit monitoring. 

Another effective strategy for going where the money is relies upon analysis and taking  action with active borrowers. The premise of the strategy is to monitor credit report inquiries for real estate, vehicle, bank card and unsecured loans daily and send prequalified offers to only those households that are actively borrowing. This strategy works for both your current membership as well as your local branch market prospects. By looking at credit activity from current and prospective members who are actively borrowing, you can make a money-saving offer specifically to individuals who are borrowing today. The key to this is executing quickly. In other words, Joe applied for a mortgage with a competing lender yesterday. This morning you receive a credit trigger notification and this afternoon you have a communication in the mail touting your offer. The strategy has been proven to add new members and new loans.

What will your 2012 look like? Will this be the year of your credit union? While none of us have a crystal ball, one thing is certain: the economy will turn, spending will increase and consumers will be looking for a change. Get ready today and be poised with a strategic plan that is based on precision, detailed analysis and fast action.

Tony Rizzo is the general manager and creative director of MARQUIS Software Solutions. MARQUIS is the largest provider of MCIF/CRM solutions to credit unions world-wide, with a long-standing reputation for excellence.