ARTICLES

Has Lloyd Craig Flipped His Lid?
B.C. Business Magazine
By Eve Lazarus

Wander into the spanking new Pitt Meadows branch of Coast Capital Savings and your attention is immediately drawn to a blue wall with the words "How Can We Help You?" written in huge, childlike white letters. A concierge greets you at the circular "help desk" and directs you to a "help tower" where a customer services rep will join you at a desk. Got kids? They're still in sight, but have already scampered into a room full of educational toys, comfortable chairs and video games. Now that the kids are happy and not underfoot, you can calmly attend to your banking. What's on your grocery list today? A no-fee chequing account, some competitively priced car insurance or perhaps a mortgage no other bank in B.C. would offer to someone with your credit rating?

Coast Capital calls its new branch design Aperio, a Latin word that loosely means to "make open," and you'll notice that there are no teller windows with chest-high barriers, no velvet ropes and none of the formality that most banks exude. Coast Capital wants to get on your shopping list and the credit union is spending $1.3 million on an unbank-like advertising campaign to get you in the door not to mention the investment the company has made in its futuristic interior design, longer hours and gutsy new products.

If this all sounds more like a retail experience than a trip to the bank you've pretty much grasped the strategy. Mike Bushore, vice president of strategic planning for the Surrey, B.C.-based credit union, says the retail game is exactly what he's in. He's after the same kind of feeling you'd get from a Starbucks, a Tim Hortons or even a WestJet-an atmosphere that delivers an "experience" for the employees and the credit union's 300,000 members. Bushore reckons the longer you spend in the branch, the more business you will do.

"IKEA knows if Mom and Dad put the kid in the toy room, they'll stay three times longer. They also know you spend twice as much because you are able to buy a bigger ticket product that requires more deliberation," he says.

Coast Capital's repositioning has been two years in the making, and preparing for a forecasted $4 million financial hit in lost fees and service charges has likely given Bushore some sleepless nights. In his view, no-fee chequing and "no worry mortgages" are not just products, they're a "movement," and for the whole plan to work, Coast had to be the first financial institution to offer them.

The first television commercials offering a no-fee, no-strings-attached chequing account aired in January of this year. "Being first was imperative, because if you are second you are only going to be cast as those who are following the lead," Bushore observes. "I was stressing so bad the last quarter of last year. I thought, oh my God, what if somebody beats us to the punch?"

Coast Capital is the second-largest credit union in Canada (after Vancity) with 44 branches, 300,000 members and $7.2 billion in assets. Its president and CEO Lloyd Craig has an audacious plan. He wants to see Coast Capital spread right across the country by 2010 and in 10 years he'd like to have one million customers in the database. There are serious legislative hurdles to jump; credit unions are currently regulated by provincial governments reluctant to allow such firms as Coast Capital, Vancity and its 52 fellow B.C. credit unions to expand nationally.

While B.C., Saskatchewan and Ontario currently have reciprocity legislation-which means that at least in theory they can operate in each others provinces-they have yet to write the regulations around that legislation that spells out how these credit unions would expand. The only other way that credit unions can break out of their home province is if the federal government changes the Bank Act to give credit unions the same jurisdictional freedom as the banks.

Craig believes wholeheartedly that "bigger is better" when it comes to credit unions and he wants Coast Capital to be the industry leader that takes the system to the next level. "We want to be able to find a partner or partners outside B.C. and start working on building a national entity. We don't want to go on from year to year and just be another guy in a crowded marketplace."

Partnership hurdles aside, how will Craig entice skeptical bank customers-and he needs a total of 45,000 new ones this year, more than double Coast Capital's average yearly intake of 20,000 clients-to make the switch? Can a credit union survive and thrive without charging service fees on chequing accounts or debit-card transactions?

Keith Puiu, president and CEO at the Abbotsford-based Prospera Credit Union, says he's not convinced that his credit union doesn't already offer its 65,000 members enough account options without eliminating fees. If Prospera was to follow Coast Capital into no-fee chequing, he says it would cost his credit union around $2.5 million a year in lost fees and would probably negatively impact the money that the credit union now puts back into the community. As for the "no worry mortgages," Puiu calls them "dangerous."

He worries that people will overextend themselves with the easier available credit and not be able to meet payments, if for example, there is a spike in interest rates or a serious decline in the real estate market.

"We've all been in this country and this province when the real estate market has changed," he says.

Neil Ranson, CEO of Aldergrove Credit Union, says he has yet to see members leaving for Coast Capital but he is carefully monitoring the situation. He says that it's unlikely that Aldergrove will drop its own fees, adding that members expect to pay a reasonable price for a reasonable service. "If they don't want to pay, then usually it is business that we can get by without."

Todd Newfield, who teaches marketing at Capilano College, believes that other financial institutions will be carefully watching what happens. "There's so much noise out there in the market, so much competition, that when somebody comes up with a clear value proposition-and no fees is clearly a value proposition-then it enables them to get heard above the clutter."

Newfield compares no-fee banking services to what happened in the investment securities industry with the introduction of online trading. "When the Internet came about, people got fed up with paying the three or five percent on purchases and that whole industry was reorganized," he states. "Now with the banks starting to offer no-fee chequing, I think it's just right for the times and it's going to set the trend that the non-commissioned broker set back in the '90s."

Lloyd Craig has notched up 19 years in the business, most of them at Surrey Metro Savings. Coast Capital is the result of a 2000 merger between Richmond Savings and Pacific Coast Savings; Surrey Metro Savings joined the group in June of 2002. A self-described "measured risk-taker," Craig says the first priority was to merge the three entities and then to give consumers something they couldn't get at any other financial institution. It took two years to put a cost structure in place at the credit union which would allow it to absorb the financial hit of no-fee chequing. During that time Craig's team also developed projections indicating how many of its current customers would move to free chequing and how many new customers would join Coast Capital, bringing other business with them.

"Being CEO means every once in a while you have to push your organization forward, and that means you have to take some measured risks, and I would say maybe the bigger risk is not taking any risks," says Craig. He likes to use a marathon analogy to explain the preparation for free chequing. "It's like somebody waking up and telling me tomorrow they are going to run a marathon. I'll tell them right now that they are going to start the marathon but they are not going to finish and it's the same with free chequing. The first thing we did was to get our infrastructure buttoned-down and in shape."

Coast Capital conducted a number of member and non-member focus groups to gauge initial interest. Next it hired Ipsos-Reid to survey 800 Canadians aged 19 to 55. Among the findings: 40 percent of Canadians think chequing account fees are unfair. And while it came as no surprise that people don't like paying fees, Craig and his team were gratified to learn that up to 73 percent of those surveyed would open an account with an institution that offered a truly free, unlimited chequing account.

People marry over money, divorce over money, even kill over money, but it's nearly impossible to get them to change their financial institutions without a big shove. And Coast Capital was still an unknown entity. No name recognition. No awareness. No consumer interest. Nada.

To build a brand that packed some heat, Coast Capital's senior vice president of marketing, Lawrie Ferguson, hired Rethink, a Vancouver-based shop headed up by creative superstars Chris Staples and Ian Grais and strategist Tom Shepansky. This is the same team that created the award-winning "humongous bank" ads for Richmond Savings when the three men all worked at Palmer Jarvis (now DDB Canada) in the early 1990s. Rethink is legendary in Canadian ad circles for sweeping award shows with its off-the-wall advertising, for generating publicity for its clients and for winning multi-million-dollar accounts like Future Shop, A&W Restaurants and A&P Dominion Supermarkets. In 2003 Marketing Magazine named Rethink Agency of the Year.

Lloyd Craig, Mike Bushore and Lawrie Ferguson had not worked with Rethink prior to the Richmond/Pacific Coast Savings merger. Ferguson says the fact that the agency's principals were behind the successful Richmond Savings campaign gave them a lot of confidence but it was likely Rethink's no-frills environment which sealed the deal. Thanks to a discreet neon sign and the single blue light bulb hanging over its front door, not to mention an interior decorated with a blue drum set, a wandering dog called Bruce, some trademark green Astroturf and a tacky fake fireplace, Rethink is the opposite of intimidating. Unlike at other agencies where parades of people are marched in to make new business pitches, Ferguson felt comfortable at Rethink. "We met at a ping-pong table with Chris, Ian and Tom and they were all very interested and genuine," she says. "It's low-rent down there." All in all, the perfect partner for an obscure, results-oriented company with David-and-the-Goliath-sized ambition.

So Lawrie Ferguson held her breath, dumped RRSP advertising (a banking industry tradition) and slapped her entire marketing budget behind a campaign to promote the "free chequing, free debit and more" account. When the first volley of "How can we help you?" television ads ran in January 2004, one showed a credit union staffer giving medicine to a customer's Rottweiler; in another, a helpful Coast Capital employee tackles a home-owner's wasp nest; and in the third, a staffer agrees to run across Canada for charity on a customer's behalf. "We chose to launch with an exaggerated form to make our point," says Shepansky. "I'd say we over-steered out of the gate, but did it ever get noticed."

In fact public awareness of Coast Capital Savings rose to 74 percent in June 2004, compared to 63 percent in December 2003. The ads didn't make everybody happy-there were more than 100 complaints, mostly from viewers who felt the commercials portrayed large-breed dogs in a bad light or poked fun at employees. As newcomers to television advertising, Craig and Ferguson agree that the negative responses made them a tad nervous. "It's a real credit to Coast that they recognize that their job is to not make everyone happy, their job is to make their target market happy," says Chris Staples. The idea behind the first round of advertising wasn't to generate a return on investment but rather to build a brand and set up the second round of ads. "It's like going to a cocktail party," he says. "We had to introduce ourselves and make a good first impression before we could start making a sale."

Return on investment is now integral to most marketing plans and few companies will invest in any type of advertising unless there is a clear indication that for every dollar spent there is a higher dollar amount to be made in return. Simply put, ROI means results. It means having a way to measure those results whether it's an increase in sales, an increase in market share or an increase in brand momentum which eventually translates back to sales.

Ferguson says that the standard industry tracking for ROI from a marketing standpoint is pretty simple. Determine the cost of the marketing campaign and tally up the direct return. "I have a campaign that is costing me $1.3 million, so I'm spending $52 each to get my 25,000 customers in the door. We know that 25,000 customers will bring an average balance of $2,000 and we lend that $50 million out at four percent," she says. For every $52 that Ferguson spends on a customer she expects a return on investment of $80, giving her a net ROI of $28.

And while Ferguson points out that there's more to the product launch and the campaign than monetary return, she admits she tracks Coast Capital Savings' ROI on a daily basis. Using stats generated by Vancouver advertising research firm Ipsos-ASI, she monitors brand recall, advertising impact and more. Initial indications are good. The credit union's commercials are hitting 44 percent for claimed television ad recall among viewers, which puts them second only to ING Direct in that category. Proven TV recall is at 21 percent, which means that the message and the creative are sticking. In the first two months of the campaign, Coast Capital enjoyed a 118 percent increase in new members compared to the same period the previous year. Even more impressive, loss of existing members was down 24 percent. Free publicity alone from the campaign resulted in about $300,000 worth of media hits in 31 different outlets from The Castlegar News to The Globe and Mail and CBC French-language television.

"We are looking at cannibalization, we are looking at new guys in the door, we are looking at current customers that got chequing," says Ferguson. "We are going to look at things like average balances and cross-sell ratios. Did they get three other products [when they signed up], what did they get, what balances were there, what is their age and what area are they from?"

In early March and roughly six weeks after the television launch of free chequing, Lloyd Craig was at an Eddie Bauer clothing store in Oakridge Shopping Centre when he and a saleswoman got onto the subject of banking. While ringing up his purchase she told him she'd just switched her chequing account to Coast Capital Savings. "I said you're kidding, what else did you give them?" Craig recalls. "She didn't hesitate for a second. She said, 'They did my car insurance, I moved my RRSP to them, they gave me a line of credit and they sold me this really neat GIC.' She said, 'There are a couple of other things that are going to go over, but it will take a month or two.'"

To cover the cost of the $1.3 million ad campaign and achieve a return on investment, Coast Capital needs another 24,999 customers just like the Eddie Bauer saleswoman-and between $50 and $60 million in new deposits by year-end. So far numbers are tracking right on target with 16,000 free chequing accounts opened at the end of April. Of these, 7,000 are from new members and the balance comes from members who previously did not have a chequing account at Coast Capital.

As time goes on, Ferguson intends to track customers like Craig's saleswoman to discover which financial service products they're after once they've grabbed the free chequing carrot. And handing out the carrots has put smiles on Coast Capital faces, she reports. "One of the great things internally is that we have employees that are just pumped. I've never seen them more excited. Happy employees are happy when they meet customers and happy customers give us more business and it extrapolates. They are sort of galvanized around the vision and the mission."

Coast Capital's latest television ads, launched in January, build strategically on the "How can we help you?" brand campaign. "We've established we are helpful, now it's show me the money, show me how you are helpful," says Ferguson. The ads intentionally tap into consumers' distrust of banks. Focus groups from all income levels told Coast Capital they had a huge distrust of banks. Staples says it was important to address that issue head-on and both of the new ads start with the proposition that "nobody is going to believe us and there must be some kind of catch, some kind of hidden fees."

Coast Capital's free chequing service has touched a nerve in the public and not just in the intended target market-middle-class, 40 -to 60-year-old Joes and Janes struggling to pay for their kids' education, their mortgages and an annual holiday. One example is the West Vancouver branch, which has seen the second-highest percentage of new accounts opened after the Georgia Street branch. In fact, West Van has increased its net membership by eight percent which compares to last quarter (September to December) where net membership declined by one percent. "Frankly, West Van surprises me," acknowledges Ferguson. "We kind of struggled in that market because we really didn't have a point of difference."

In April the credit union delivered a one-two punch with the "no worries mortgage," another "switcher product." The idea was to take a calculated risk and create a revolutionary mortgage that targeted groups having a hard time qualifying for credit through the traditional financial institutions.
"This isn't really a new product, it's really a new process," says Craig. "We just think we are missing a lot of really good business."

Craig points to statistical research that shows that while 63 percent of people born in Canada own their own homes, only 28 percent of new immigrants who arrived between 1991 and 1996 are home-owners.
Coast Capital's appeal to a niche market of immigrants, self-employed business owners and young professionals with limited credit history could serve the credit union well, assuming its loan officers separate the hardworking types from the deadbeats.

Rethink designed a number of radio and outdoor ads with catchy slogans such as, "Hey, you're human," "Think of a number between one and ten," and "Did you just read all these words?" Each one is stamped with the word "approved" and given a tick mark. The tag line is, "We approve just about anyone." As Rethink's Chris Staples explains, "If you had a job for two or three years and are alive you can probably get a mortgage through Coast Capital, it's as simple as that."

"What I love about Coast Capital is that they are real entrepreneurs and they don't feel like bankers," he continues. "Bankers tend to be extremely cautious and risk-adverse. These guys are not cowboys or anything but at the same time they are willing to make smart bets and that kind of audacious thinking is really rare in this category."

Rethink is modeled after Wieden+Kennedy, an agency with an international reputation and client roster based in Portland, Oregon. W+K rose to fame on the heels of Nike. Both were small companies in the early 1980s. Coast Capital, says Staples, could be Rethink's Nike.

"I really, truly believe that this brand could be the challenger brand for all of Canada in financial services. There's nothing stopping it," he says. "The other credit unions tend to be extremely politically correct and cautious and the banks are too worried about mergers and the bottom line to do anything risky. I think there's a huge opening for a brand like Coast Capital right across the country."