Recently, credit unions have received criticism for sponsoring event centers, stadiums, sports teams, and other high-profile venues or organizations. Critics invariably indicate that credit unions should instead return more money to members.
Ultimately, this is a complaint about marketing. That is partly what these sponsorships are—marketing, an effort to draw in more business from the community. Critics may as well say, “Why does the credit union spend that money on marketing instead of on its members?” In fact, credit union critics have employed this message for decades.
The answer is quite basic. Those who ask the question don’t understand business, aren’t thinking in the long-term, or are being intentionally obtuse.
Why does any company advertise? To grow its business. To draw in customers. Why would a credit union—a not-for-profit—want to do this? To further its mission of helping people—to help more people—and to gain scale. For more information about this, see this article about how growth helps a credit union fulfill its mission.
Advertising is so effective, in fact, that all types of entities employ it. Even government uses advertising. Public universities, public assistance agencies, state treasurers (to advertise where lost funds can be found), and more. It’s just a fact of our modern society that to get your message out, you advertise. Non-profit medical systems advertise. Churches and religions advertise. Charities advertise.
Advertising is so ubiquitous that it’s disingenuous to complain about credit unions engaging in the practice. If a banker does it, rest assured that it belies the true motives: shoring up their own business. Those complaints are, in a sense, guerilla marketing done by credit union competitors. If they can advertise to policy makers that credit unions shouldn’t advertise, and somehow reduce the amount advertising credit unions engage in, their own business will likely increase, and their profits go up.
If a consumer complains about credit union marketing, they’re looking to trade long-term sustainability with short-term gain. They would like to earn more interest on their savings or pay less on their loans. And really, who can blame them? The problem is that if a credit union stops marketing, it will have a harder time attracting new members. Eventually, without new members, the credit union will be left with no members. One might say that not attracting new members presents challenges to long-term sustainability.
The fact is that most credit unions have a marketing budget. The CEO, hired by the board, has made the determination that it’s in the best long-term interests of the organization to advertise. The board members—representatives of the members—approve the budget. Marketing happens.
Notably, even with their marketing budgets, credit unions still offer better pricing than for-profit financial cooperatives (this topic is address more fully, below).
Notably, the sponsorship of event centers or sports teams is often not just about spending marketing dollars. It’s about connecting to and strengthening a community.
Consider what happens when a billboard ad is bought. The billboard goes up. The billboard company earns income. Business is generated for the entity that bought the ad. The billboard ad comes down.
But what about when a university’s sports stadium is sponsored? Dollars are paid to the university. The name goes on the stadium. The sponsorship dollars offset some of the cost of running the stadium. The price for attendance at the stadium can be lower for attendees. Therefore, a broader group of people—alumni, students, other supporters—can attend events at the stadium. The stadium is less reliant on ticket sales and is in a stronger financial position. The community around that university has been strengthened.
The same is true for any community event center or entity, whether it be a privately owned event center or sports team. The venues bring together people with common interests. The sports teams have fanbases that take pride in having their team in the community. The sponsorship of a university or college’s stadium or arena—that helps build community’s identity and unity.
In other words, rather than enriching the owner of an advertising company, the sponsorship of a stadium helps build community. It’s marketing dollars that serve a dual purpose of helping build the credit union’s business, as well as strengthening the fabric of a community.
Should credit unions spend less in marketing? This question is at the core of the issue, and is no different than for any other business. Yes, credit unions are not-for-profit entities, but to succeed they need to attract new members, generate income, and grow scale.
It would be better to ask: is there any successful business that should stop advertising?
Certainly not.
Should credit unions spend less on advertising?
That’s a question that only the executive team and board of directors can answer. They know their business, and make decisions based on their knowledge and understanding of the credit union and the market. Some credit unions spend less; some spend more.
The fact remains that the membership of any given credit union elects those directors, who hires those executives. If members feel a credit union should not be spending dollars on marketing, they have a few options:
Few members, however, will feel this need because credit unions, even with their marketing budgets, continue to provide better pricing for consumers than do banks. And, the members enjoy the benefits of scale—lower costs for themselves as the fixed costs are spread over more members.
Recently, Andy Larsen, a reporter for the Salt Lake Tribune, made a comment how he thought a credit union “is using such a large portion of their members’ interest payments for sponsorships and not returning that money or just giving better interest rates on saving accounts but we’re not ready for that conversation.”[1]
It’s a classic complaint: the credit union should spend less on marketing, and give more to their members.
Not long later, Larsen composed an article[2] that compared rates of 8 Utah credit unions with the national average rates of credit unions and banks. The result? He didn’t mention that credit unions don’t return enough to members. His prior comment seemed to vanish into thin air because, ultimately, there was not a real story there. Utah credit union rates—despite their credit unions marketing by putting their names on buildings—were not worse than banks or credit unions nationally. They were right in line or better.
The fact is, even with their marketing, credit unions usually offer better pricing—in part because they’re cooperatives.
The point: the sponsorship of stadiums was not keeping credit unions from providing good rates.
It’s likely true that, in the short run, a credit union that cut out its marketing dollars would be able to return more to members, whether on lower loan rates or higher savings rates. In the short run.
But at what cost? This would be the credit union equivalent of sacrificing long-term sustainability for short-term gains. Why, because in a world where its competitors continued to advertise, that credit union would have to rely on word of mouth. And would word of mouth advertising be enough?
Ask the state treasurer, who advertises your ability to find your lost funds on his website, or the non-profit hospital system that encourages you to use its insurance, or the bank that pays for the Superbowl ad. Or, for that matter, Coca-Cola, Disneyland, or the national park system.
