Banks risking incentives backlash
"Banks are training consumers to become incentive-seekers, rather than good customers." Bodo Lang, University of Auckland Business School
Customers are being told to get in touch with their banks if they want a slice of the incentives being offered to tempt new customers.
The incentives have been in the news because a number of customers who received cash payments complained when asked to pay them back when they repaid their loans or tried to move their business to another lender.
Mike Lee, a marketing lecturer at the University of Auckland Business School, said publicity about the incentives was likely to annoy long-time customers who were loyal to a bank.
‘‘The concept being used here is consumer inertia, the theory that customers are happy to stay put, and therefore it will take extra incentives to shift other company’s customers over to your own brand, while simultaneously it will take more to shift your own customers away.
‘‘So what ends up happening is that companies end up competing for each other’s customers, trying to woo them away, while ignoring their own existing and loyal customers.’’
His colleague, Bodo Lang, said New Zealand banks had been restrained in their use of incentives, compared to their counterparts in Asia and the US.
‘‘While such incentives are attractive for customers who they are intended for, they do have multiple drawbacks,’’ he said.
‘‘Firstly, existing customers who are not eligible for such incentives can feel undervalued because their loyalty is not being rewarded.
‘‘As a result, they may engage in a variety of behaviours, all of them are negative from the bank’s perspective.’’
Such behaviours can range from complaining to the bank, to taking the issue to social media or even switching banks.
‘‘The drawbacks of sign-up incentives do not stop there. They also undermine much of banks’ brand equity by conditioning consumers to look for the best deal.
‘‘In other words, banks are training consumers to become incentive-seekers, rather than good customers. In this sense, sign-up incentives can increase the cost base of all banks, forcing them to use such short-term incentives more and more.’’
Lee said people who saw their banks offering better deals to new customers could ring and threaten to leave.
‘‘Eight times out of 10 the company will be able to match the incentive offered to new customers. But you have to be prepared to call the bluff and go to their competitors if they refuse.’’