How $4 Gas Will Impact Your Credit Union

by: Bo McDonald, President, Your Marketing Co

Gas prices are steadily going up, with no clear end in sight. Some parts of the US are already paying over $4 per gallon. Many economists warn that some areas could see prices topping $5 per gallon. The rapidly rising gas prices have the potential to put the brakes on what little economic recovery we were starting to see. We need to act now to position our credit unions for what lies ahead.

As gas prices continue to increase, it’s inevitable that the price of almost everything else will soar too.    Several economists calculate that the average American family will spend an additional $500 per year for each $1 increase in gas prices. Consequently, spending in other areas is reduced by $250 per year. We can say without hesitation that many families will be hurt by higher costs for food  and other products combined with paying more for every fill up. It’s time now to position your credit union for what lies ahead in the coming months.

There have been eleven recessions since the Great Depression that tend to average about 18 months long. That means we spend about one year out of seven in recessionary times. You would think Americans would be pretty experienced at dealing with the challenges that come as part of a recession. But that doesn’t seem to be the case. When the economy slows, too many Americans overreact. During the Great Depression, the Gross Domestic Product fell by an amazing 27%. During the “Great Recession” of the past couple of years, the GDP fell only four percent. That means 96% of the economy was still intact.

The truth is, the sky isn’t falling as quickly as the news media would have us believe.  When we listen to the doom and gloom stories packaged and sold on the six o’clock news we tend to overreact. It’s also true that consumers don’t stop spending money during a recession. They just spend differently. That is a fact that you, as a credit union marketer or CEO need to understand. Don’t let your personal feelings cloud your judgment while navigating the course of your credit union during these down times in our economy.
One of the biggest mistakes you can make during a down economy is to cut your advertising budget. Sure, it’s the quickest and easiest way to cut back and preserve the bottom line. It’s also safe to say that you probably won’t see any immediate negative effects. That may make your decision to cut the marketing budget a great idea. It’s not.

The first known attempt to prove that you should maintain advertising during down economic times dates back to the 1920s. Advertising executive, Roland S. Vaile, tracked the revenue of 200 companies before, during and after the 1923 recession. In April 1927 Vaile reported that the companies that had advertised the most had the biggest sales increases throughout the period.

Fast forward to the 70’s when Chevrolet faced mounting inventories in 1975 due to the recession and high fuel prices. Chevy decided to abandon its traditional practice of setting its advertising budget as a fixed percentage of sales. The result: Volume fell 10 percent because of the economic slowdown.  Chevrolet maintained its ad budget and actually increased advertising for its fuel-saving economy models. At the same time, Ford slashed advertising by 14 percent in an attempt to shore up profits. Ford certainly achieved its goal, but in doing so it permitted Chevrolet to increase its market share by 2 percent.

A study of 600 companies from 1980 to 1985 produced some interesting findings. Those businesses that chose to maintain or raise their advertising budget during the 1981 and 1982 recession had significantly higher sales when the economy began to recover. The study also found that companies that advertised aggressively during the recession had sales 256% higher than those that did not continue to advertise. Triple digit growth!

What can your credit union learn from all of this?

• Don’t treat your marketing budget like a savings account. The marketing budget is always the first victim of budget cuts. Learn from the mistakes of the larger companies who thought that the easiest way to impact the bottom line was to cut the marketing budget. They were right, cutting the budget DID impact the bottom line, but not in a good way.
• Redeploy assets. Instead of cutting your marketing budget, revaluate your current marketing plan and see if there is a more efficient way to spend those dollars. When you take note of what you’re spending money on.  Ask yourself “WHY are we spending money on that? “ If your answer is “that’s the way we’ve always done it”, that’s probably a great place to move funds out of and add into somewhere else.
• Consider the ramifications of cutting your marketing budget. Over the past three recessions dating back to 1980, 87% of the market leaders within their category lost their leadership position to another company. If your credit union isn’t the leader, now is a great time to get ahead. Chances are the big banks and other financial institutions in your area are cutting their budget.

The most important thing you can do is to understand what $4 gas means to your members. Refer back to the beginning of this post. Understand the decisions facing your members when they’re spending more not only to fill up, but to put food on the table. Look for ways your credit union can address those issues with the products and services you offer.   While many members may not be asking for a loan for the newest and biggest SUV, they will love you forever if you can refinance their loans to lower their monthly payments. Some members may find themselves in dire straits.  If you offer free financial counseling, now would be a great time to let members know about that service. It could mean the difference between another repo sitting on your lot and a member who is able to better manage their finances through this economy.

Bo McDonald is president of Your Marketing Co. A marketing firm that started serving credit unions nearly a decade ago, offering a wide range of services including web design, branding, product launch, printing and more. Think of YMC as a marketing department for your credit union without the overhead. Our focus is on one industry: credit unions. But that doesn’t mean our Credit Unions are all the same. We’ll highlight your credit union’s unique personality and position in the community in a custom way. Let us help you shake up the status quo with a modern marketing message planted on the foundation of personal service you’ve worked hard to establish.  www.yourmarketingco.com