Financial Incentives Give
Customers More to 'Bank' On
By Julie Roth, associate editor
NEW YORK--Although the death knell of the financial premiums business has been tolling since deregulation in 1983, premiums themselves have stubbornly clung to life. Their character has changed, however, growing more sophisticated and upscale from their toaster days.
Now seen as attention-getters, rather than substitutes for attractive interest rates and services, financial premium offers have evolved into higher-stakes, more finely tuned programs.
Some observers, such as Richard Chiles of Sperry and Hutchinson Inc., are pessimistic about the future of financial premiums. His company made an informal inquiry of Georgia and Florida banks and found that premium monies are either being rechanneled into employee incentives or are simply being eliminated altogether.
While most professionals agree that the financial premium industry isn't what it was five years ago, some are nonetheless optimistic about its future. According to Richard Lynn, VP of marketing for National Financial Incentives (Bristol, PA), "People are coming back [to premiums]. We should have the best January [in 1988] than we've had in more than five years."
Optimist or pessimist, all sources interviewed by Premium/Incentive Business agreed that the emphasis in financial promotions must lie in banking services, not slick gifts.
"People would rather have higher interest rates than a gift," said Shelby St. Martin, VP in charge of retail banking for First Continental Bank & Trust (Overland Park, KS) First Continental ran a promotion in which Polaroid cameras were given to CD depositors. "We didn't run the promotion to make up for lesser rate," he said. "We did it to draw attention to ourselves. When you're in metro-Kansas City, competing with more than 100 banks, you have to do some things to stand out."
Emphasize Rates, Not Gifts
"Premiums get people's attention," he continued, "but the emphasis has to be placed on the interest rates you're paying." First Continental's program gave the cameras to depositors of $5,000 and up, but offered interest rates competitive with those of other area institutions.
"If you believe the premium will bring customers in the door without a competitive rate you're kidding yourself," said Thomas C. Barnett, president of Mid America Merchandising (Kansas City, MO). "The customer looks at rates first; merchandising is secondary."
There are, however, indications that premium offers do affect the length of time that a customer will park his or her money in an account.
"People don't change accounts to take advantage of premiums," added Lynn. "But if you offer them a TV, they might keep their money in your CD longer.
"As interest rates are moving up, banks need to lock-up longer-term monies," making long-term accounts particularly valuable, he explained. And if a bank marketer can tie up your money for a long time, as in a CD account, he doesn't have to get your business next month, Lynn quipped.
Premiums Target CDs
Indeed, CD accounts seem to be the most popular premium target these days. "Banks aren't willing to spend money for just anybody who walks in the door anymore," said Dennis B. Propp, president of Propco Financial Marketing (Chicago). "Premiums are designed to attract specific customers: home equity loans, credit card enhancements, checking accounts and especially CDs."
Arlington Federal Savings and Loan in Chicaco ran a premium program "just to keep CD money from walking out the door," said Leah Bender, VP of marketing. The S and L was getting competition from stocks, bonds, and rising rate CDs from its competitors. Arlington offered depositors high-profile gifts, such as Apple II computers, microwaves, televisions and jewelry.
The higher deposits made in CD accounts allowed Arlington to offer more elaborate and expensive gifts. The premiums were paid for by offering simple interest instead of compounded interest on the accounts, according to Bender.
Bloomfield Savings (Burmingham, MI), paid for its "Vacations in Paradise" promotion by offering rates just .5 percent below its regular rates on two- to ten-year CDs. Even though competitors' interest rate ward stole some of Bloomfield's thunder, the institution expected to obtain its $20 million minimum goal at press time. (See related story, page 27.)
No matter what the promotion, said Barnett, "The one thing that is prevalent today, as opposed to five years ago, is that teach institution has its own needs--they're all different.
"Each promotion is a custom deal. Promotions
are a close to a sale. They're not a panacea. They're not going to save
a low rate or a troubled institution. They're only going to make someone
look at your ad."
(This article appeared on page one of Premium/Incentive Business, December 1987.)
