Loss Leaders

dlevene

Just wondering, from the point of view of the bank/BS, what is the point of loss leaders?

The obvious answer - to suck in customers that will then use other more profitable services - doesn't seem to make sense for the smaller organisations, eg. Yorkshire BS's 7% Regular Saver. Surely they know that most people who know about such accounts are adversarial MoneySavingExperts that have no concept of customer loyalty? :money:

bristolleedsfan

dlevene wrote: »

Just wondering, from the point of view of the bank/BS, what is the point of loss leaders?

The obvious answer - to suck in customers that will then use other more profitable services - doesn't seem to make sense for the smaller organisations, eg. Yorkshire BS's 7% Regular Saver. Surely they know that most people who know about such accounts are adversarial MoneySavingExperts that have no concept of customer loyalty? :money:

its fair to say that savings providers dont launch savings products exclusively aimed at viewers of this forum, not everyone has time or inclination to keep an eye on rates, also u are forgetting that some savers wont meet the conditions attached to regular savers through circumstances or other reasons so wont get the full advertised rate.

providers have to get people through their door in order to sell more morgages/house insurance/ other policies etc, once through the door not everyones first priority is savings rates, some people value, service/ distance of branch from home/ advice etc given as more important.

has anyone an opinion as to what loughborough will be gaining by paying 2.5% above base rate on its reg saver + ( closed to new apps) for two years.

exel1966

For every 10 who do understand the concepts of accounts there will be another 1000 who don't and can therefore be easily swayed into 'buying in' of another of that institutions products.
Far easier to entice somebody to buy/open accounts when they are already in earshot of you and you already know their profile/spending/saving habits !
The few who are savvy/read these pages are wise enough to know what's good and what's not so good, but we are a microscopic proportion of the general audience whom they're trying to reach.

dlevene

I guess so - I just assumed that a) although not everyone uses this site/forum, a lot of people do use Best Buy tables and b) there is a smaller likelihood of being able to get people to "buy in" to more products when the institution is smaller/less well known.

I only asked because I work at Sainsburys (store, not bank), and I was having a converation with our bank rep re. the Internet Saver. I was saying that we should raise the rate to 6.5% to compete with Tesco (yes, I know the various caveats that make the Sainsburys account better anyway). He replied that there was simply no point as it would lose too much money.

I was wondering that when our discussion continues I would be able to argue the benefits of loss leaders, apart from I want more money!

bristolleedsfan

dlevene wrote: »

I guess so - I just assumed that a) although not everyone uses this site/forum, a lot of people do use Best Buy tables and b) there is a smaller likelihood of being able to get people to "buy in" to more products when the institution is smaller/less well known.

I only asked because I work at Sainsburys (store, not bank), and I was having a converation with our bank rep re. the Internet Saver. I was saying that we should raise the rate to 6.5% to compete with Tesco (yes, I know the various caveats that make the Sainsburys account better anyway). He replied that there was simply no point as it would lose too much money.

I was wondering that when our discussion continues I would be able to argue the benefits of loss leaders, apart from I want more money!

not sure why u started a sainsburys/tesco discussion as tescos rate includes a short term bonus for new accounts ( many new tescos accounts were opened in last month to qualify for 1000 clubcard points, im not sure of tescos wisdom in running two promotions one after the other.) and sainsburys rate is from 1.00+ whereas tescos rates are tiered.

MattB_4

With regard to the fixed rate savings products out there priced significantly over the prevailing swap rates someone attempted to explain the rationale for this to me at work a couple of months ago. I'm afraid I have failed to remember exactly what it was all about, but it did work out as a cheaper method of raising funding for lending out.

Otherwise there are a variety of other reasons you could take into account. The degree to which you want/need to attract funds, market positioning, market share aspirations, cross sale of non-margin products/current accounts/mortgages, or as many do to build up a nice savings book you can then close to new customers. Then you run the rate down safe in the knowledge some people won't move their money (or do it slowly) and you can take a lovely margin. Then repeat with 'SavingsAccount2' or similar. This is usually the type of account that will play the best buy tables, which all too often fail to highlight some of the caveats behind the rates. This is almost the principle most of the fixed rate regular savers work on. Everyone knows 10% or whatever is a good rate of interest. But then they let it fall into some awful Instant Access account.

I think that often those who use best buy tables in the Mail etc are often not as rate savvy as you might expect. Savings briefly comes on their radar so that's where they go. They then thin nothing more of it while the rate slips.

dlevene

bristolleedsfan wrote: »

not sure why u started a sainsburys/tesco discussion as tescos rate includes a short term bonus for new accounts ( many new tescos accounts were opened in last month to qualify for 1000 clubcard points, im not sure of tescos wisdom in running two promotions one after the other.) and sainsburys rate is from 1.00+ whereas tescos rates are tiered.

As I said, I am aware of the downsides of the Tesco account that make the Sainsburys account better. I am not questioning this.

Personally, I would like to see the Sainsburys rate go up because I want the highest rate I can get. I was merely trying to initiate a discussion into why, from a commercial point of view, this also might be a good idea for Sainsburys.

bristolleedsfan

dlevene wrote: »

As I said, I am aware of the downsides of the Tesco account that make the Sainsburys account better. I am not questioning this.

Personally, I would like to see the Sainsburys rate go up because I want the highest rate I can get. I was merely trying to initiate a discussion into why, from a commercial point of view, this also might be a good idea for Sainsburys.

what i was saying is u arent comparing like for like, and y would sainsburys want to increase its rate to match tescos top tiered rate inc short term bonus when overall sainsburys account rate is a better deal in the first place as long as someone doesnt want cashpoint access.

MattB_4

It's a bit like why their food doesnt quite cost the same either!

dlevene

bristolleedsfan wrote: »

what i was saying is u arent comparing like for like, and y would sainsburys want to increase its rate to match tescos top tiered rate inc short term bonus when overall sainsburys account rate is a better deal in the first place as long as someone doesnt want cashpoint access.

That's exactly the question I was asking, hoping that I could get an answer that was good enough to convince someone who might have some influence on the matter.

MattB wrote:

It's a bit like why their food doesnt quite cost the same either!

I hear that - I steer clear of Sainsburys for shopping (well, unless it's for something I've just reduced :rotfl: )

MattB_4

I recall from my years working there a scary video showing how you'd get sacked for reducing stuff and then buying it yourself lol