Blogging Suggestion for Pentagon Federal Credit Union

Pentagon Federal Credit Union

MEMO

To: Frank Pollack, CEO and James Schenck, COO

CC: Professor Richard Linowes

From: Stephanie Willson

Re: Membership Retention, Satisfaction, and Marketing

Date: March 5, 2007

Executive Summary

Pentagon Federal Credit Union is a strong competitor amongst credit unions which are gaining more popularity in the financial industry. Average consumers respond more readily to a credit union that aims primarily in serving the public unlike that of a traditional bank which is more directed towards serving commercial businesses. Credit unions are limited in their customer base by membership requirements and Pentagon Federal Credit Union’s membership status specializes on military personnel. Since credit unions are relatively small in comparison to banks – their resources are also smaller which forces them to function very frugally. Using new and upcoming technology, credit unions can get around some of these expenses. A pro-active, low cost marketing plan responding to a new breed of technologically savvy consumers should be implemented in order to encourage and maintain memberships with Pentagon Federal Credit Union.

Background

Pentagon Federal Credit Union was established in 1937 and ranked as the third largest Credit Union in the United States located in Alexandria, Virginia. It boasts $9 billion in assets increasing at an impressive rate of $1 billion annually. Pentagon Federal Credit Union has been able to grow its size through various tactics including the acquisition of and merger with other credit unions. In the past year Pentagon Federal Credit Union merged with Budget Federal Credit Union and Fort Buchanan Federal Credit Union. This sort of growth helps to diversify shareholder risk while increasing shareholder resources.

Pentagon Federal Credit Union has a philanthropic partnership with the Pentagon Federal Credit Union Foundation covering 100% of their administration costs. Through them they have been serving the public through various causes such as gifting to the Walter Reed Army Medical Center in which they renovated a suite of military hospice rooms. They also funded the Faces of the Fallen exhibit, and gave financial support to the Asset Recovery Kit (ARK). Additionally, Pentagon Federal Credit Union has made disaster relief available to its members affected by the hurricanes in the south and participated in many other forms of giving back to the community.

Pentagon Federal Credit Union strives to be efficient and has reduced costs in many areas. Currently posted on their website is a request to members for changing to online statements which will help them save money on paper, printing, and mailing costs.

Some interesting facts about credit unions are that they don’t have customers, but instead they have members since the money they deposit is considered shares into the institution. Credit unions are also tax-exempt and have a volunteer and unpaid board of directors which allows them to pass these savings on to their members. The credit union industry accounts for approximately 10% of consumer deposits and 15% of consumer loans. Most credit unions have small holdings of less than $1 billion in assets – most are in the $500,000 range. Credit unions are small in sizes due to their membership common bond restraints which have been vigorously kept in check by the banking industry that fears credit union competition. An example of a small bank in the Washington, DC area is Chevy Chase Bank.

Small credit unions holding less than $5 million in assets cannot afford the normal costs of a financial institution such as processing checks, sending out statements, and having automated teller machine networks. These smaller credit unions will join a credit union network through a trade association that pulls together resources in order to contract out these services. Pentagon Federal Credit Union is large enough and has the assets to internally manage these aspects that the smaller credit union is forced to contract out.

Credit union loans to customers are also fairly small. In 2004 the average loan was $12,900. Since loans are so small in size, there are also very few delinquent loans which further adds to the solid financial foundation behind a credit union. Below is an example of how credit unions diversify their loan structure in order to better serve their customers:

Consumer Loan Holdings:
1st Mortgages	30.5%
Used Autos	21.8%
New Autos	17.0%
Other Real Estate	12.2%
Credit Cards	5.8%
Unsecured Loans	5.8%
Other Loans	5.4%
Leases	0.4%

Pentagon Federal Credit Union has more assets at its disposal than the average credit union so it has the capability to offer a mortgage loan of up to $400,000, which is considerably larger than what a smaller credit union could offer.

Problem

The main disadvantage of credit unions is that the common bond requirement keeps them small, thus reducing the accumulation of valuable resources needed to stay competitive against local banks they are unable to offer the range of services that can be provided by larger institutions. Even the trade associations are unable to level this playing field for customer competition.

Pentagon Federal Credit Union is a large credit union and a mid-sized financial institution when compared to its larger competitors as a whole. Being a military credit union, Pentagon Federal Credit Union can also maintain its size by having a large enough membership base which is continuously growing. Pentagon Federal Credit Union is a large credit union that can only grow by either attracting new members who must be in the military services or acquiring other credit unions. In attracting new members, there is a great deal of competition and new technologies increase the competitive drive in the industry.

Recommendation

Pentagon Federal Credit Union can to retain and increase its membership base through blogging as an inexpensive marketing tool to grow its business by attracting more members and maintaining its current customers. Pentagon Federal Credit Union can achieve this end by stepping further into the technological future by attaching to their already existing website a blog page for their consumers.

A blog is a website in journal style with the newest postings listed first. Blogs are interactive. They allow customers two-way communication with the company so they can voice their concerns and also praise what the company is doing correctly. Blogs also help customers feel valued by a company which helps to create brand loyalty.

Naked Conversations by Scoble and Israel list the following Six Pillars of Blogging that differentiates it from another form of communication: Publishable, Findable, Social, Viral, Syndicatable, and Linkable.

Naked Conversations - Six Pillars of Blogging:

1) Publishable by providing information cheaply and instantly.

2) Findable through search engines.

3) Social by promoting interesting conversation amongst people.

4) Viral having information that runs through it faster than a news service.

5) Syndicatable by getting RSS-enabled blogs.

RSS allows a person a subscription to blog updates without having to revisit the site periodically.

6) Linkable by connecting to many users of varying interests.

Many other financial companies, including credit unions, have already implemented blogs into their website to drive membership and retain customers. Wells Fargo Bank by far has the most interesting blog which targets several different customer types. The following credit unions have followed suit:

• UFirst Federal Credit Union with their Board of Directors
• VanCity Credit Union located in Vancouver, Canada
• Verity Credit Union
• Service One Credit Union posted by CEO Valerie Brown
• Savings and Loans Credit Union
• Coast Capital Savings is currently looking into jointing the blogosphere as well

Although banks have more money to invest into their marketing tools than credit unions, VanCity has a very interesting and well done blog that should cause Wells Fargo Bank to take note.

Who was the leader in beginning blogging for businesses? Microsoft! Microsoft was getting such a bad reputation as being the “Evil Empire” that they decided to reach out to the public through a two-way communication forum. They began blogging with customers and went so far as to video themselves at work. They wanted to transform their appearance from a “bunch of suits” into a company run by normal human beings. This form of public relations worked and turned around the negative opinions of many people who had formally been anti-Microsoft. Microsoft acknowledges that blogging has given them an advantage over companies, like Apple, that don’t allow their employees to blog.

Google Bombs

If credit unions have not yet felt the pressure to blog, they will feel the presence of bloggers shortly. Credit unions that have not sufficiently prepared for the tech future may unexpectedly experience a Google Bomb and not have the protocols in place to handle this situation. A Google Bomb is created by an experienced blogger that positions their post to the top of a Google search by creating repetitive links in their blog post and title. These little tricks give their posting what is called “Google Juice.” This sort of behavior is against Google policy. However, a company would have to become aware of the problem on their own before they could remove such a posting.

Damage control against an upset customer is also easier to clean up through blogging policies, especially if the company maintains its own blog. With the Internet, angry customers who do not feel heard are beginning to post websites against companies. Bison Federal Credit Union in Oklahoma was the victim of a disgruntled employee, when the ex-employee and her husband made a website entitled “Bison Federal Credit Union Sucks”. Bison Federal Credit Union had no idea for quite some time why their revenue flow decreased during the months that this site was running. Upon discovery, Bison Federal Credit Union unfortunately had to take the legal approach and get a court order to take the website down. The good news for Bison Federal Credit Union is that the complaint was on a static web page and not an independent blog. If this posting had been a blog, it would have received higher rankings since blogs receive increased traffic over websites. However, Vistar Credit Union had even less luck and found itself in a blog post entitled “Vistar Credit Union – The Worst Bank Ever”.

Posting on a blog already attached to the credit union’s website would give an upset customer a venue to vent their anger towards their financial institution and also allow a credit union the ability to respond, maintain the upset customer, and attract new membership as a proactive and responsive credit union. A blog page owned by the credit union can be edited and this tactic can also be implemented if all other efforts fail to soothe the other party.

The worst situation for a financial institution would be for an upset customer to start their own blog that the blogger can control. There are several steps to handle a situation where this sort of negative publicity is taking place. Trey Reeme of OpenSpaceCU, a blogger that promotes communication and transparency between credit unions and their customers, recommends the following steps in handling a negative blogger:

Trey Reeme’s Steps - Handling Negative Bloggers

1) Respond to their blog as if you were leveling the complaints of a customer venting in your lobby.

2) Acknowledge that your credit union can stand up to their criticisms and look really good by responding.

3) Do not ignore the blogger as they may be technically savvy and a non-response would lead to further attacks to a wider audience.

4) Avoid filing a law suit which would create more widespread negative public relations.

5) Have a blogging policy in place ahead of time.

Action Plan

Engage current and future customers through blogging. It improves customer service to members while also getting them to boast publicly their positive opinions about Pentagon Federal Credit Union. This online two-way word of mouth will help to influence other potential members in a strong level of trust and built-in confidence with the credit union.

Rate changes and other offerings to customers can be posted on this blog site creating a free ad. This form of marketing would best be targeted towards a more technologically savvy member and the upcoming younger computer generation. A blog page should be part of the company website. Comments should be posted several times a week by the Chief Executive Officer and the Board of Directors in which they can comment on the virtues and benefits of membership with Pentagon Federal Credit Union. Through this web site the credit union can answer questions and concerns for members regarding policies, rates, and other concerns that will build trust and loyalty.

Blogging and other new technology forums are inexpensive great marketing tools that bring the customer in without shouting at them like traditional ads. Blogging cannot be avoided or ignored indefinitely as customers and their technological usage increases to new levels and demands.

The future of credit unions is expected to be bright as consumer interest in this financial service grows. Credit unions are becoming less numerous although their membership sizes are growing through new memberships, increased assets, and mergers.

Conclusion

Pentagon Federal Credit Union is the third largest credit union in an industry that is gaining more growth and popularity. Consumers respond to credit unions that cooperatively look after the public’s interest first, unlike a traditional bank which is competitively and primarily first in serving commercial businesses. Credit unions are small in comparison to banks, so their resources force frugality. Credit unions spend money directed towards marketing and advertising costs for drawing in more members in comparison to other financial institutions. New technology will help credit unions can get around marketing expenses for targeted audiences. Blogging can be used to deal with customers who sound off at companies publicly and respond to these members while looking good. Pentagon Federal Credit Union can be prepared to handle these blogs before receiving a Google Bomb in addition to receiving positive publicity with their most technological and younger consumers. Blogging will affect credit unions and other institutions significantly in the near future.

Resources

https://www.penfed.org/index.asp

http://www.pentagonfoundation.org/

Financial Markets and Institutions NYC 2006 By Frederic Mishkin and Stanley Eakins, pgs. 504-510

http://en.wikipedia.org/wiki/Blog

http://www.microsoft.com/en/us/default.aspx

Naked Conversations: How Blogs are Changing the Way Businesses Talk with Customers NYC by Robert Scoble and Shel Israel, pgs. 20-28

http://www.apple.com/

http://www.ciicu.com/ Tue, 29 August 2006 – Pod Cast: Current Issues in Credit Unions Episode 5

http://blog.wellsfargo.com/

https://www.vancity.com/

www.google.com

http://www.opensourcecu.com/articles/category/credit-unions-who-blog

http://www.oscn.net/applications/oscn/DeliverDocument.asp?CiteID=20210

http://www.bisonfcu.org/atm.html

http://www.socu.com/about_blog.cgi

http://savingsloans.typepad.com/

http://www.bankrate.com/brm/news/cu/20001219a.asp?prodtype=cuc

http://banking.about.com/od/creditunions/a/creditunions.htm

http://www.creditunions.com/cuarticles/template.asp?article_id=2208