Car Loans are Like Baseball and Apple Pie

Often times when I speak at conferences on lending I talk about how many American consumers feel like they have to have an automobile loan. As soon as a car is paid off they say, I need to get a new car. Today, I read Seth Godin's blog and he talks about this part of the American culture. Not financially healthy for many reasons, but what would be the impact to our economy if this trend drastically changed? Something to think about.

Experiences Spring Break 2006

No, this is not an MTV Spring Break type of post so if you are looking for some excitement, look elsewhere. I have been on spring break with my family in the Gatlinburg - Pigeon Forge area over the last few days and have found myself tuned in to the importance of quality service more than ever. We all know in credit union land that service is at the essence of who we are and what we deliver. So, some highlights are as follows (don't worry I won't post a long slideshow of family pictures on here).

• Went to a family friendly comedy show called the Comedy Barn. These people get it. They are the masters of making you feel special and word of mouth marketing. Their two top selling souvenirs are a $9.99 red Comedy Barn t-shirt and a DVD of the show you watched. The t-shirt comes at a low price as long as you promise to wear it at least once during your stay in the area. Since they brought this to my attention I saw a ton of shirts - many hiking trails at the National Park. The DVD is guaranteed to have you in the DVD. They have many of the audience members participate in the show and they also have all of these cameras filming the audience during the show. How is that for personalization? People were lined up to buy these at intermission. The staff made you feel welcome and a part of their family. Something we can all learn from.
• A tale of two restaurant horror stories and how they responded. We went to the Cracker Barrel in Pigeon Forge (store #360) and waited one hour for our food. Our waitress was apologetic and promised that the manager was going to stop over and talk to us. No manager ever showed. Plus, my wife's order was wrong - which they corrected but again took way too long. The next night, we went to McDonalds (didn't want to risk waiting anywhere an hour for our food) and I ordered a fish sandwich without tartar sauce. The young lady at the register had entered my order correctly (displayed on my receipt) and when I went back up she apologized immediately for the mix-up. She rushed the order and said she would deliver a fresh sandwich to my table. She delivered. Then a few minutes later the manager comes over and says the young lady at the register had told him about the mix-up and he wanted to apologize. He then delivered three free apple pies. He noticed that we had four at the table and then ran back and got one more. McDonalds, which gets a bad rap many times, trumped Cracker Barrel on fixing the problem. Many times our quality of service is measured by how we fix problems not by how we deliver every day service. I was impressed with the two employees at McDonalds, plus my kids loved the apple pies, okay so did I.

Lessons learned - personalize the experience, a real life lesson on how to use viral marketing (how many will show off their Comedy Barn DVD to others?), and the value of fixing the problem to make a wow impression. All can be applied to improve our credit unions.

Unique Marketing Positioning

Been traveling the last couple of days and found two unique marketing or positioning situations. First, while sitting at the Indianapolis airport I glance over and see a power outlet. A long tall sticker surrounds the power outlet and then stretches upward to about five feet. The sticker says, "This power outlet works so you can too - Chase Bank". Wow, the power outlets are sponsored by Chase? It caught my eye.

Then while in Pinellas Park Wal-Mart. According to locals this is the busiest Wal-Mart in the United States. I was there around 8:00pm on a Friday night and it was full of activity. Well, I couldn't find the Tampa Bay Devils Ray jersey (for my son) I had been looking for all over Tampa (I know they are a dismal team but you would think they would want to sell some merchandise), however I spotted two things that made me go hmmmm. First, at the checkout counter you could order your McDonalds value meal and then go right over to the McDonalds and pick up your food. They don't want you to wait in two lines and trust me I had to wait in line to make my purchase. The value meals are posted at the register making it simple. Clever. Second, Achieva Credit Union had a branch in the store. I went over and introduced myself and got a warm greeting. The branch had three credit union mates working and they were in casual attire - it fits the store and I thought it was a good touch. They are open until 8pm Monday through Friday. I didn't check the other hours - sorry. The branch had three ATMs and one of the staff was walking a member through their ATM transaction. The employees report the in-store branch has been a success. Didn't have much time to chat as they were closing down.

BTW - Hulk Hogan and I shared the same security line this morning with one exception. He was put to the front of the line. He had his brand going.

Bracket Mania

With all of this talk about lost productivity while workers complete their March Madness brackets and watching games this Thursday and Friday, should credit unions consider a loan promotion involving bracketology? Something like the member who scores the highest in the credit union's basketball pool wins a 0% auto loan or a year's worth of their payments made? Why not take advantage of the hype and be playful with your members? I know it can be done because I see other businesses advertising cash rewards for their pool contests. Why not have fun while promoting your offerings?

The Effect of a Negative National Savings Rate

Just read an article by Mr. Ed Callahan and Mr. Bucky Sebastian in the latest Callahan's Credit Union Report. As with all of their editorials it proved to be a thought provoking piece on the effect of the fall of the United States average savings rate to a negative level for the first time since the Great Depression. There are many articles out there on this situation so I am sure you are aware of this news. Just in case you have been filling out your NCAA bracket instead of reading the finance page here as some links: CUNA, Yahoo, MSN.

How does this relate to credit union lending? Trust me, it does - big time. As Mr. Callahan and Mr. Sebastian point out as do the economists the average American consumer has been using the "equity" in their home to fund their spending. This is the first relation point, but I want to talk about the future impact. I talk to credit unions across the country almost every day and what I am hearing is more and more focus on competing for deposits and garnering new members instead of a fixed focus on originating loans. This competition for deposits is almost solely rate driven and it is a real commodity business. Who wins in a commodity business? Yes, Wal-Mart, but to be a bit more generic the most efficient win. Efficiency means operating in a lean environment. The main point of the before mentioned editorial was credit unions are running fat and need to get leaner. Plus, they need to cooperate more via sharing technology, branches, and other appropriate measures.

Three ideas I would suggest in response to this trend are as follows:

• Credit unions should look to innovation along the lines of delivery or product and not solely focus on rate. Innovation such as Sunmark Credit Union trying their own ING Direct type of offering called RateEdge. Filene i3 innovations such as MatriMoney and savings accounts designed around youth savings. Another i3 innovation, MoneyWorks, creates a new delivery channel for deposit based products.
  
• Focus on improved cross-selling. Your processes and technology should compliment your talented staff to get the most out of every contact you have with your members. During the loan application process are you looking at deposit based cross-selling opportunities? We need to be doing this.
• Look for efficiencies in all areas of your credit union. How can you trim fat and be leaner? A word of caution, don't just benchmark with other credit unions - we do this way too much. Benchmark with other institutions. One recommendation - get a copy of the Cornerstone Advisors 2005 Benchmarking Study.
  

Blue Oceans in Lending

In early January, I attended a Blue Ocean Strategy Workshop for approximately 50 credit union executives around the country hosted by Filene Research Institute. Being that Blue Ocean Strategy was my favorite business book last year, I was naturally hyped for this session and it did not disappoint. We broke into small teams and discussed the concepts of value innovation. One of the central themes from many of the small teams and especially the one in which I was involved was defining exactly what value credit unions really bring to their members. Basically, we boiled it down to the fact we help our members buy things. Yes, buy things like homes, cars, home improvements, college educations, etc... You know as I have said before on this blog, we take money in and we loan it out - simple, right? My small team had some fun discussing other industries and trends outside of credit union land. We talked a lot about Ty Pennington's Extreme Home Makeover (move that bus - I admit I sometimes TiVo this show), Oprah's Angel Network (I have never TiVo'd Oprah - honest) and other similar shows that get people together to help a specific person or family. It is a trend as people want to help others but they want to know who they are helping. When our small team was talking about this phenomenon, George Hofheimer from Filene, interjected in our group that he had heard about a cooperative bank in the UK that themed their whole marketing campaign around the fact that deposits in the cooperative bank go to help fund loans (dreams) for other bank customers. They even used specific testimonials. Scott Patterson might be able to clue us in on this through his UK research. Our small team built a new value curve on these concepts - it was fun and we might have been on to something.

As you know I have been watching Zopa and trading blog posts with Trey Reeme and Scott Patterson (both credit union bloggers) about this form of social lending and watching to see when it comes to the US. Well, Trey found a company called Prosper (They claim they are the first people-to-people lending marketplace in America) that just launched in the US with this social lending concept. I checked out their web site tonight and was blown away by the personalization and simplicity of what they have done. You can tell they have gone to great lengths to make it feel like a bit like eBay(they even brag about this in their About Us section) for the lending transaction. Please take the time to check it out. Some nice touches such as you outline your dream (why you need the cash) and your preferred terms and then lenders (other people) bid on funding a piece of your dream for a rate of return. Yes, bid like eBay. Prosper provides lenders (other people) with a credit grade and debt ratio (ahh, see lending can be simple) and then the auction ends and you have a pool of investors sharing the risk. The borrower makes payments through a deduction in their bank account and the investors are paid back. Prosper makes the fee structure simple.

Credit Union lenders - we can not afford to ignore this development. With shrinking net interest margins perhaps there is something to being more of a matchmaker between depositors and borrowers and charging for this matchmaking service and the servicing that goes along with the transaction. Is your credit union hurting for deposits like so many are? Perhaps, depositors are willing to take on some risk for a higher rate of return than we can offer in savings and CDs.

O'Garage - Applied to Credit Unions?

Yesterday, I received the latest edition of the Springwise free email on new business ideas (highly recommend you subscribe to this and their trend watching newsletter) and was immediately drawn to the O'Garage concept in France. The O'Garage concept goes against conventional thinking in today's auto repair business (the autos are too complex to repair and consumers just want it fixed) and that is why I like it. O'Garage is a place where do-it-yourselfers can go and have access to a clean garage with the latest and greatest equipment. They also have a parts store located right in the O'Garage. So walk with me here, imagine that you would prefer to maintenance and/or do light repairs yourself instead of forking over hundreds of dollars to the dealership. You contact O'Garage and make an appointment to have access to a bay that includes a car lift and any diagnostic equipment you need and all of the standard parts are there for you to access. Now, maybe I am smitten with the idea as I used to own a 1975 MGB that I restored. This was before I had kids so a two-seater was ideal and I had plenty of time to work on it. Plus, any of you that have owned a British sportscar like this, you know that you need time and patience (Lucas electronics - enough said). I would have loved to have access to a car lift and a garage like this to work on my toy car.

Enough with the concept as I know you are saying okay, how in the world does this relate to credit unions let alone lending. No, I am not thinking of installing car lifts outside of the drive through lanes. As I was watching the Longhorns vs. Trojans last night I kept thinking about this idea and how it might apply to credit unions. My friend, Andy Mattingly - SVP of Marketing and Strategy, at FORUM saw the Springwise newsletter and was asking me the same question - wow, what a cool idea - how could this apply to what we are doing. Well, during my shower this morning it hit me (come on it is the best place to think). One of the recurring themes I see in my personal life is friends and neighbors keep approaching me that they are having problems with their PC and would like for me to take a look at their PC for them because they can not figure out how to fix it. It seems like ninety percent of the time these problems can be resolved through some virus, spyware and/or general utility programs. The solution takes time, but most are correctable. PC users often don't know where to turn to get the advice they need and if they do get advice they are timid about trying it. Now pour the O'Garage concept and this recurring theme in to the beaker stir for 15 minutes and what do you get?

What if your credit union hired a PC tech guru and we set up office hours on a rotating branch basis. For example, on Wednesdays from 8am to 1pm our tech guru will be available at our southside location. Now, I admit at FORUM Solutions, our technology subsidiary at FORUM CU, we have pondered offering a PC repair service but we have always been scared of the liability. In this case, we set up a mini lab on a rotating basis at each branch location with a high speed Internet connection (not connected to the credit union's network) and we offer assistance. We don't fix the PC for the member, but instead we offer advice as they sit in front of their own PC that they brought into the branch and we help them fix their own problem and most importantly educate them on how to avoid the problem in the future. Now I know Best Buy has the Geek Squad that comes to your house but that is expensive and can be intimidating. Some might even say it could be embarrassing to have that little VW bug with Geek Squad on the side parked outside their house all day. So do you think this idea has merit? If no, please stop reading here and browse on to another much more worthy site. If yes, bear with me as I have some pricing ideas that could compliment this concept.

Pricing ideas - what if a credit union offered this free for their Platinum members (however you define them - services, profit, etc...), charged $30 per hour for your Gold members (again, however you define them) and $50 per hour for your members you want to do more business with. Then with the $50 per hour segment you tell them that after their PC consulting is complete that if they spend 10 minutes with a credit union advisor that we will charge them only $30. The $30 crowd could be offered the same by saying if you spend 10 minutes with the credit union advisor this visit is free. If you are like our credit union we are always looking for ways to engage our members in meaningful conversation so we can help them improve their financial lives. This might be the ticket to get more branch traffic, better branch profitability, and more business. Plus, these members are using a PC so they hopefully will be more apt to use electronic services in the future. Let's face it fancy coffee and donuts will only draw a certain crowd and number of people. Would the banks offer this? Something to think about.

How does this apply to lending? Two-fold. First, the members who sit down with a credit union advisor could be potential credit union borrowers, Second, if the member brings in their Commodore 64 and it can not be fixed, who better to provide some advice on what kind of PC to purchase and we can finance it for them right there. Perhaps, some type of partnership with a PC provider?

Challenge: How can we make this idea better and is it worthy of taking the next step?

Hook'em Horns