Most banks and credit unions strive to have competitive–if not superior–rates on products and services. The belief is that offering 2.50% APR on an auto loan leads to far more success than offering 3.00% APR. Makes sense…mostly.
Any consumer can (and does) look at 2.50% as better than 3.00% on an auto loan–the numbers are easy to compare, and the smaller one is always better. The credit union or bank offering this superior rate is probably getting more business because of it.
BUT: if tweaked a bit, their superior loan rate could create even more of an impact on consumers–and result in more word of mouth.
On a $15,000, 48-month auto loan, the rate difference between 2.50% and 3.00% only equates to $3.30/month in savings in the payment for the customer/member. That’s nothing. They aren’t even going to notice that $3.30 difference each month at all. So, they’re getting a better rate but without any of the buzzworthy gratification of feeling like they are saving.
But what WOULD feel gratifying to them? Receiving one single lump sum $40 check at the end of each year of the auto loan. A substantial rebate–a pleasant, buzzworthy surprise in the mail. Enough to treat yourself to a dinner out, a new shirt, or a deposit into your vacation fund.
Same Investment, More WOM
To the bank or credit union, the investment is the same ($40/year in rate concessions), but it’s packaged in a different and more interesting way; a way that might cause the customer/member to tell a friend, “woah, I got a $40 rebate in the mail today!” Plus, this approach would result in better member/customer retention because people would need to stick around in order to get their rebate check.
[As you know, we here at the PSST!/CBC family are huge advocates of applying business concepts from other non-financial industries. In fact, the idea we’ve shared is very similar to, though not inspired by, how REI runs their business as a co-op]
The Bottom Line
There are many ways to make the seemingly mundane aspects of financial services more buzzworthy and interesting. You just have to open your eyes to a new, word-of-mouth-oriented way of thinking, and peel away all the assumptions and limitations we’ve self-imposed as an industry (for example, we assume the savings from a lower interest rate must be amortized evenly across a loan’s life).
Or, if you can’t do it yourself, you can always call PSST! and CBC!