PCBB
BID Daily Newsletter
December 05, 2008

BID Daily Newsletter

December 05, 2008

THE FINE AROMA OF PREMIUM ACCOUNTS

Not far from San Francisco lies Napa Valley, an area blessed with a key natural element that makes this region one of the greatest wine areas in the world - namely, tourists. These tourists drive their rental cars around, stopping at some of the highest priced wineries with names like Opus, Rothschild, Silver Oak and Harlan Estates. There, seemingly normal people turn into wine snobs and start using phrases like vitis vinifera and ascescence. To be expensive, wineries have to do 3 things: have a Wine Spectator rating of over 90, have proper marketing and charge outlandish prices. Wineries, like most other products, perpetuate premium branding by elevating their prices. Unlike wineries that increase their margins when they offer premium products, banks are one of the few industries that often decrease their margins. This point is timely, because banks are about to enter a period of historically slimmer margins.
Banks often make the mistake of paying their highest rates on premium accounts, under the false assumption that high-balance customers are price sensitive. This is a faulty assumption, as "premium" or "elite" depository products have balance correlations tied to level of service, access and VIP treatment. Never market "premium" or "platinum" accounts on rate. Offering a high-touch, high-rate and high-balance account may destroy the very value banks hope to create.
High-rate accounts should be presented and marketed as middle-tier accounts with stripped down services. Even the positioning of accounts has an affect. Well-heeled customers tend to want the "best," which savvy banks can define. Those that frame the top account by rate will end up with a rate-sensitive balance sheet. Banks that define "best" by service will end up with service-sensitive customers. By moving high-service/lower rate products to the end of the product line-up (printed materials, website, etc.) and making sure employees understand how to sell service versus rate, banks can gain an advantage in attracting lower rate deposits.
When designing premium accounts, the trick is to package products into a bundle that is inexpensive to deliver, but adds client retention features and cache to the package. Safe deposit boxes, special lines/phone numbers, online banking, debit cards, overdraft protection, special events (lecture series, tickets, etc.) and credit lines are all relatively inexpensive, but collectively offer a set of services that are cheaper than paying a high rate.
While many banks can benefit from adding a premium set of depository accounts to their DDA and MMDA offerings, many more can gain simply by restructuring their current pricing and sales approach. Don't assume all premium customers are interested in rate and make sure employees position "high-balance, low-rate/high-service" accounts as absolutely the best the bank has to offer. If you do, bank connoisseurs will start describing your cost of funds as "classically absent of rate reflection with aromas of profitability and subtle hints of top performance."