Let’s face it—most consumers (me included) love a good deal. In retail, the enticing banner of SALE triggers purchasing behavior in many consumers. Like moths to the flame, retailers use attractive promotions to draw business.
In this three-part blog series, we will explore: 1) the challenges with the current state of promotional pricing for deposits, 2) the art of what is possible, and 3) how to achieve the “new possible” with promotional pricing for deposits.
In the competitive banking landscape for deposits, promotions have been around for decades. While banks are not (usually) offering free toasters today, they often use a “one-size-fits-all” approach to pricing. The common approach? The alluring teaser rate with a minimum balance that typically runs between 3 and 12 months.
The teaser rate is often the go-to solution to raise liquidity. Yet, today’s consumers have more than one factor that affects their deposit decision-making. The duration of the promotion, balance requirement, ownership of other products, and personal savings goals are often top-of-mind for consumers. So, why can’t banks develop distinct, meaningful promotions with adjustable, nuanced levers vs using a standard, static offer design? (We’ll answer that question in our subsequent posts.)
We know customers have varying rate sensitivities, and those can vary greatly depending on geography. Don’t believe me? Try charging San Francisco coffee prices in Farmertown, Montana. Some institutions can offer rates for various geographies, but delivering differentiated rates down to the branch level or zip code is simply out of reach. No doubt, offering rates that are aligned to a specific customer segment, or even down to a single customer, is operationally and technically very challenging.
In our third post we will delve into how to accomplish this, but today, most banks simply deliver a single rate. In some cases, this means the loyal, proven customer gets the same rate as a new, unproven customer with a limited relationship. Most banks struggle to provide more customer-centric pricing. Yet, we all marvel at how e-commerce giants can deliver such personalized pricing and win even more business. There are certainly pricing lessons to be learned here.
The story does not end with the attractive promotional rate. Attrition is a big deal as banks are pouring out financial resources to attract deposits, putting much-needed liquidity at risk for attrition without a retention game plan. This creates a real revenue leakage problem. Customers can often be found opening a new account just to get the latest promotion vs. retaining the existing account with a retention rate. That’s expensive for the bank and annoying for the customer.
So, how do bank marketing and product professionals know what promotional offers will work? Testing a price is a proven method to validate pricing throughout retail, but it is surprisingly rare in retail banking.
As mentioned earlier, many core banking systems make this proven, intelligent process nearly unattainable. However, there are a few innovative banks testing rates, providing varying promotional offers, and realizing impressive results for their institution and their customers. These market leaders are moving beyond the “one-size-fits-all” teaser promotional price and using data-driven strategies to find the right price, at the right time, for the right consumers.
All consumers have become more astute and are looking for meaningful, discernable value. While the toaster promotion may be something we laugh about, implementing and testing strategies that attract and retain deposits is mission-critical for today’s banks.
In our next blog post, we will uncover the art of the new possible with promotional pricing for deposits. You will discover how to move beyond the one-size-fits-all approach to a more sophisticated, multi-lever strategy.