Have We Become Suckers as Consumers?

Posted by on July 16, 2007 in Misc.

I recently posted on the increasing competitiveness of high-interest rate savings accounts this summer. As reported elsewhere, HSBC has entered into the fray with a 5% account but with one caveat- it only relates to new account holders. Existing account-holders continue to receive the lower stated rates (3.5% at HSBC). Yes, loyalty clearly does not pay. As Louis, a friend of mine, commented recently on another blog: “when did we as consumers allow our suppliers to dictate how we do business with them?” Have we become sucker consumers?

One of the marketing lessons that every entrepreneur/owner-manager learns is that it takes 4-5 times more money to find a new client than to keep an existing one. Thus, it is counter-institutive business sense for HSBC to offer a promotion that implicitly makes existing customers feel like they are second class citizens (as a side-note, the fact that interest rates keep increasing in high interest savings accounts means that money is increasingly becoming more expensive to borrow).

Wouldn’t the smarter promotion be to offer higher interest rates to existing account holders who hold a minimum balance if they increased their monthly contributions for a period of time? For example, an account holder with over $2,500 balance and who increased their monthly contributions by more than 15% for 6 consecutive months would have their interest rate retroactively increased by 1% for that period of time. For the record, I have switched accounts from ING to PC Financial.

My larger point, however, is what can we do to prevent ourselves from being suckers for bad service or being taken for granted? To paraphrase an interview I once saw with the author of the Naked Investor (a book about the excess and abuses of the investment industry): the financial industry preys on inertia. We should never take bad service lying down. I noticed in other blogs that many commentators have informed ING that they would be moving their money to the competition.

This is a great first step but we have to inform the right people. A client of mine who consults big businesses on improving customer experiences once commented that the role of a customer service representative was not to help us but to weed out “troublesome clients” such that they never got past their $12/hour representative. If you want to inform a company that it is losing your business, avoid telling the customer service representative (who, frankly, isn’t paid enough to care) and write a letter to the people who matter- senior executives, the board of directors and other decision makers (in publicly traded companies, these are listed on most websites). They’ll get the message that existing customers count if they get enough letters.

Before you buy, I would not only research the product but who is selling it. There are many sites such as this one which now lists the customer service experience of various retailers. The internet has been instrumental in leveling the playing field between the consumer and businesses. We just have to remember to use it and not let inertia set in.

Let me know if you have any other tips to share to avoid being made a sucker by a business.

7 Comments on Have We Become Suckers as Consumers?

By admin on July 16, 2007 at 5:01 pm

Just a mea culpa from the post today (and thanks for a reader for pointing it out). ING’s promotion applies to all customers but for a limited time only. HSBC differs interest rates depending on whether you are an existing or new customer. I have edited the post accordingly.

By Riscario Insider on July 16, 2007 at 9:00 pm

If you don’t mind saying, what difficulties did you encounter at ING Direct? Their interest rate promotion seems fair (all customers but limited time). Last week, we received a promotion offering a $13 bonus for opening an account with a minimum deposit ($100 maybe). Or rather, our pet did ;)

By Riscario Insider on July 16, 2007 at 11:34 pm

Your post helped inspire me to write “Who Can You Trust?” at http://riscario.blogspot.com/2007/07/who-can-you-trust.html

By Dennis on July 17, 2007 at 12:23 am

I would write about your experiences with a particular bank on your blog. I’m about to for Emigrant Direct and their horrible customer service.

Change has to start somewhere!

By growthinvalue on July 17, 2007 at 11:38 am

Wouldn’t the smarter promotion be to offer higher interest rates to existing account holders who hold a minimum balance if they increased their monthly contributions for a period of time?

It’s funny that youv’e just left ING (like I have) for PC FInancial because this is what ING has recently done. THey have a temporary “teaser” rate of 4.5% I think for all money you put in that’s more than your balance at the start of the summer.

not great, but it’s a start. Still, I’m with you — PC Financial it is, until ING gets back with the program.

By admin on July 17, 2007 at 1:01 pm

Thanks for all your comments. Clearly, I should have been a little more detailed in my proposal- interest rates go up indefinitely after you increased your monthly contribution for a period of time.

I do not have an issue with ING per se. I just believe if you are going to spend lots of money promoting your high interest rates it better be the highest in the market.

By The Financial Industry Preys on Inertia « Financial Security Quest on July 23, 2007 at 9:30 am

[...] Financial Industry Preys on Inertia Thicken My Wallet recently made the brilliant statement “The Financial Industry Preys on Inertia”. Tied [...]

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