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Securing Profit with Unsecured Perception

Securing Profit with Unsecured Perception

October 2016

Note: All the information contained in this document is subject to change. Choice Creative Solutions disclaims all warranties as to the accuracy, completeness, or adequacy of such information. Choice Creative Solutions shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.

© Choice Creative Solutions its affiliates 1953 – 2016. All rights reserved. Choice Creative Solutions logos are registered trademarks of Choice Creative Solutions. Other product and service names might be trademarks of Choice Creative Solutions or its affiliates

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PROFITS ARE HIDING IN PLAIN SIGHTCredit unions are ignoring the potential game-changing profit generator in personal loans. By changing the perception of this product with simple marketing repositioning, credit unions can potentially double their loan portfolio.

The use of personal loans is on the rise in the U.S., with 24 million Americans preparing to take out a personal loan in the next 12 months. The majority of these loans – over 50% - are being used for debt consolidation. But many are being used for life events, emergency expenses, car repair, vacations or home improvement. The average personal loan per member has increased from $6,669 in 2009 to $7,599 in 2016.

With the introduction of fintech firms that can deliver personal loans electronically, credit unions face the threat of diminishing market share In less than two years, online lenders have increased their share of personal loan balances from 15.36% to 27.26% while credit unions have stagnated.

Conventional wisdom states that personal loans are used by non-prime members (those with credit scores of 300-600) who may not have as much access to revolving credit to meet their needs. As a result, personal loans have been ignored by both credit unions and traditional lenders alike. This inattention has limited the overall growth of their portfolios.

By repositioning personal loans as a revenue generator, credit unions can take back market share from both fintech and traditional lenders as well as increase membership and cross-sell opportunities. Long term, these efforts can help to stave off insolvency or acquisition.

CONVENTIONAL WISDOM IS THE ROAD TO RUIN

STOP COMPETING ON RATE

RECOGNIZE BEHAVIORAL ECONOMICS

Historically, the default strategy of most lenders is to promote “competitive” loan rates. But a lower rate doesn’t always address the member’s need.

Consider other commodity products. If you were selling apples, and your direct competition dropped the price of their apples by five cents, you could undercut them on price. A price war erupts. Both of you keep driving your prices down to attract more members.

You might “win” by having the lowest price, but what you’ve won is a race to the bottom. One where members might not even see the value of your product when it’s over.

Unless you can compensate with volume, competing on rate is a losing proposition from both a profit and reputation standpoint.

Personal loans should not be marketed as a one size fits all solution. Consideration must be given to your member’s wants and needs to help you target them better.

Revisiting the apple analogy, perhaps their benefit is that they are locally grown with no pesticides applied. Maybe they’re grown from a tree at a higher altitude, which makes them crisper and sweeter than the competition.

You are the only vendor who sells these apples. If people want them, they have to do business with you. Presumably, you can charge what you want for them within reason because you are meeting a need no one else can.

Greater profits can be achieved by introducing the product benefit in a way that leads the member to conclude that your personal loan is the only solution they’ve been looking for.

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DIVE INTO A BLUE OCEANIn order to make personal loans attractive to members in a commodity market, it is necessary to position the product differently than your competition. This can be achieved by focusing on the product benefit using recategorization marketing techniques. The resulting exclusivity of your product offerings will help your organization stand out as the only place members can turn to when solving their problems.

“Any customer can have a car painted any color that he wants so long as it is black.”

Henry Ford issued this statement in 1909 when he decided his plant would only produce one model of car, the “Model T.”

Ford did this because he wanted to expand car ownership in America. To achieve his goal, he needed to make the car as affordable and reliable as possible. To increase production, he limited variations.

Ford achieved his goal. In 1908, his 1,900 workers produced just over 6,000 cars. By 1911, his 4,100 workers produced just under 35,000. By limiting variation, Ford nearly tripled productivity and opened car ownership to the working class. He competed on rate and won.

This story might sound counterintuitive, based on the information we’ve outlined so far. Keep in mind, Ford was only able to limit variation because the automobile was a new and unproven invention. It was not widely available or affordable to the masses.

Fast forward to today and your credit union. Your personal loans are commodity product that are widely available, easily affordable and a known quantity to members. How can you win when everyone sells the same thing as you do?

Variety.

For the same reason car manufacturers sell the same model car in different colors and different features, you must find new ways to present the same commodity product in different ways to appeal to a wider audience and their unique needs and wants.

Personal loans are known by a few other names such as signature loans or unsecured loans. From a branding standpoint, these names fail to instill confidence or excitement.

A “personal loan” sounds like a very formal and detached business agreement. A “signature loan” sounds very serious – like you’re signing your life away! An “unsecured loan” makes the member question what, exactly, they’re getting into. Is there anyone who enjoys the feeling of being “unsecure?”

These product names use tragic words and instill negative feelings that translate into tragic results. Don’t give members an excuse to avoid the potential solutions you can provide. Find a way to rebrand your personal loan!

TRAGIC WORDS = TRAGIC RESULTS

“ANY COLOR AS LONG AS IT’S BLACK”

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The ancillary benefit of rebranding and diversifying your personal loan product is now your organization is the ONLY place where these products can be found. You are offering something unique to your business that no one else can claim.

“Exclusive” is the same as “rare” and rarity increases demand. Making your personal loan product exclusive weaves the product into your brand such that no other organization would even want the product for fear of looking like imitators.

People like things that are exclusive. They want what they can’t have and what others covet. They want things that signal to the world that they are one of select few.

As marketers, it is our job to promote the feeling of exclusivity. The member’s reward for choosing a rebranded, diversified personal loan unique to your organization is that it makes them smarter than their contemporaries who might be struggling with debt or who can’t find the resources to meet their financial goals.

The exclusivity of what your offer combined with promoted demand is a sure path to success.

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In 2008, Community Choice Credit Union of Johnston, Iowa reported personal loan balances just under $4 million dollars. By 2013, that balance had shrunk to $1.6 million dollars.

Recognizing the value of perception, Choice Creative Solutions rebranded Community Choice’s existing personal loan product and positioned the marketing to help their members buy furniture, landscaping, swimming pools or other amenities for their homes.

Immediately successful, the product offering was diversified to address specific life events, debt consolidation efforts, and more.

Within one year, Community Choice Credit Union increased their balances outstanding from $1.6 million to almost $5.9 million – an increase of almost 260%.

Since that time, personal loan outstanding balances have increased to $10 million in 2015 and $14.2 million in 2016.

Using strategic marketing, Community Choice Credit Union was able to alter the perception of their personal loan product as having a greater benefit to members. This resulted in increased profits and definitive market segment exclusivity.

THE PROOF IS IN THE YIELD CURVE

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Personal Loans Outstanding Trending Balance

RED OCEAN BLUE OCEAN

(proje

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• Personal loans gain in popularity http://www.bankrate.com/financing/personal-loans/person-al-loans-gain-in-popularity/

• Consumer Lending Poised for Growth in 2016 http://newsroom.transunion.com/transunion-consumer-lending-poised-for-growth-in-2016

• Why fintech lenders are snatching up more personal loan business http://www.experian.com/blogs/insights/2016/03/fintech-and-per-sonal-loans/

• Big growth in small loans http://www.bankingexchange.com/blogs-3/unconventional-wis-dom/item/5786-big-growth-in-small-loans

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To learn more about this turnkey approach to gaining greater market share of personal loans, contact

Jeff Klein Director of Sales Choice Creative Solutions 6163 NW 86th Street, Suite 101 Johnston, Iowa 515.251.8018.

Or visit StyleLoans.com

With the increased threat of fintech firms taking a larger share of personal loan balances, credit unions need to admit that stagnation in this area of their business should not be allowed to continue.

Recognizing the trend that personal loans are on the rise and rejecting conventional wisdom, credit unions must alter the perception of personal loans among members by abandoning marketing strategies that rely on promoting lower rates by instead focusing on the product benefit.

Credit unions have the flexibility to eliminate confusing or intimidating jargon and rebrand their products in a way that addresses the members varied and individual needs. These unique products are exclusive to their organizations and can be promoted as such to help them stand out against their competitors.

Financial services have cultivated a reputation of stability at the expense of authentic member interaction. By examining the needs of members and giving yourself permission to rebrand your products accordingly, members will reward you with greater growth.

YOU HAVE THE POWER TO CHANGE PERCEPTION

ADDITIONAL RESOURCES

VISIT StyleLoans.com

6163 NW 86th Street • Suite 101 • Johnston, Iowa 515.251.8018

choicecreativesolutions.com