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This Land of Strangers - Robert E Hall

This Land of Strangers

"..the most important book of the decade." — Richard Boyatzis, co-author of best seller Primal Leadership

Relationships, in all their varied forms, have been the lifetime study of Robert Hall. He brings a rare combination of experience as a researcher, consultant, writer, teacher and CEO in dealing with the real-world relationship challenges of modern organizations. When coupled with a decade of hands-on experience in the gritty world of inner-city homeless families it translates into a tapestry of vivid stories, well-researched and oft startling facts, and strategic insights that weave together the yet untold narrative of society's gravest risk and most stellar opportunity.

Nuisance Fees and The Brand: You are What You charge

FeeDisclosure.com … allows mortgage customers to break down the fees they can expect to pay if they buy a new house or refinance their current one. It calls out the fees that are bogus. Example: $100 email fees. It benchmarks more standard costs, such as title searches across the country, and it’s bringing sorely needed transparency to that business. Its tagline: “Transparency breeds trust.” – By Don Peppers & Martha Rogers, Ph.D.

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My wife and I recently experienced one of those wonderful, spur-of-the-moment, weekend get-aways in the Caribbean. It was perfect and the place where we stayed was just exquisite. In fact everything about the trip was just idyllic except one thing: at checkout, they charged us a 10% condominium maintenance fee that had not been disclosed at the time we booked the place nor was it on the written confirmation. We paid the fee, but it left a bad taste in our mouth about that place.

Fees have become prevalent. I am, in many respects a believer in fees because they can have the virtue of charging only those who use or access special privileges. Toll roads charge only those who use the road. Change fees for airline tickets only apply to those who change their flights. ATMs charge only non-customers who extract cash. Overdraft charges, only apply to those who make unauthorized loans on the bank’s funds. Fees reimburse for the unique cost associated with a service.

Yet fees exist in the context of a relationship and it seems that increasingly institutions hungry for revenue are using fees to weaken customer relationships. They have created weasel ways to classify parts of the base offering as a fee or to overcharge for what should be minor additional costs. It feels like tricked up revenue that takes advantage of customer misfortune.

For example, when the cost for the three minute phone conversation to change the airline reservation is a fee of $100 on a $400 airline ticket, it gives me pause. Let’s see, the cost to change the ticket represented 25% of the cost of the plane, maintenance, airport facility, fuel, crew, and head office expenses? It says to me, you really want that fee more than you want me as a customer. Somewhere you got out of the business of serving for profit and got into to the business of punishing for profit. I don’t expect you to lose money on my misfortune. However, I really would prefer for it not to be your primary source of profit.

Banking is no different. Oliver Wyman estimates that there are now about 400,000 ATMs in the U.S. compared to 139,000 in 1996. As the number of ATMs increase one would hope that the costs would not increase. Yet according to the Wall Street Journal, J.P. Morgan Chase & Co. has started charging customers of other banks $3 every time they use the bank’s 9,100 ATMs, compared to previous rates of $1.50 to $2. For banks that stress convenience, this tactic smacks of zeroing in on the exploitation of inconvenience. To maximize profits, don’t place the ATMs where your customers are, place them where the other bank’s ATMs aren’t and make their customers pay for inconvenience. When it comes to late payment fees on credit cards, don’t target those customers able to pay on time, target and sell to those who aren’t and collect $39 from those least able to pay. Finally, for insufficient funds fees which generate over $30 billion a year and up to 70% of the U.S. fee income from financial consumers, build your business model and your processes to extract multiple overdraft fees per incidence.

It could be tempting for large banks who are experiencing their own challenges, to cross the line and target more fees from the inconvenienced, the inept and the financially disabled. This potential dash for cash has adverse strategic implications.

First, smaller banks and non-traditional banks may find this an especially fortuitous time to win to favor and market share. They are already positioned as smaller or less institutional alternatives to the large banks, less aggressive and thus more trusted regarding pricing policies and fees.

Second, services providers like FeeDisclosure.com may find this a good time to provide information and transparency that shines a bright light on fees. This is just the kind of information that travels the viral networks and it would be a really bad time, given the mood of the country, to be seen as preying on the have nots.

Finally, many may want to consider the brand cost of fee addictions. Turning brands around has never been harder than it is these days. I suggest that the financial analysts who are working on the fee models for elevating revenue get together with the marketing departments and discuss how much marketing cost it will take to repair the relationship damage from exorbitant fees. It is my belief that fee policies are now overwhelming advertising programs in defining the brand of large institutions.

In the eyes of the marketplace: you are what you charge.


(Column appeared originally in ABA Bank Marketing magazine – April 2008)

By ROBERT E. HALL

Not to be reproduced without written permission. All rights reserved. © Copyright Robert E. Hall 2008

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