My first post of 2008 comes as the result of a fairly normal activity that many of us–if we listen to the financial gurus and our financial advisors–undertake every year.  Namely, double-checking our financial records, investment portfolio allocations, life insurance and so forth.

During this year’s analysis of my bank accounts, I found that a teaser rate from Wachovia bank had expired and the interest rate on one of my money market accounts had gone down from 4.75% to the standard rate of 1.75%.  As the result of a couple of phone calls and some quick online banking, Wachovia lost a large chunk of my business that they needn’t have.

And they could have prevented it all by taking a lesson from Willams-Sonoma.

Salt, gold (investment grade) and the like are as close to pure commodities as you can get.  Banking services, thanks to the lack of creativity on the part of the major banks, aren’t much less of a commodity than pure salt.  Money market accounts, for example, offer a given rate of interest for your deposit with a certain number of allowed transfers per month, linkage to other accounts at the bank, access via branch and ATM and online and–importantly–FDIC insurance to protect your investment.

If you take a look at money market accounts from the major banks, you’ll find that they are more-or-less the same.  The rates will vary slightly, banking hours will be slightly different and the UI for the online banking portals will vary.  Otherwise, the deal is that you put your money in and, on a regular basis, your account is credited the proper interest per the agreement you have with the bank.

A few years ago, after the banks were deregulated and before the rise of online banking, Google and Web 2.0, the banks had a decided advantage in the business to consumer relationship.  Once you were secured as a customer, it was a lot easier for the bank to hold you.  After all, to decide to move your money to another bank, you’d have to go through a lot of phone calls or in-person visits.  Then, assuming you wanted to move your money, it was more in-person visits–usually at times that were very inconvenient to you–to take care of all the paperwork necessary to get a quarter- or half-point more in interest.

Now the playing field has been leveled.

Once I discovered that my teaser rate had gone down, I did a couple of quick searches.  It turns out that a number of banks such as HSBC, Commerce and a couple of local credit unions, have non-teaser rates in the 4.2 to 4.5% rates, all of which are much better than Wachovia’s crummy 1.75%.  So, I rang up Wachovia and asked if they’d give me a better rate.

Wachovia had a golden opportunity to keep (not even win back, but just keep) my business on that phone call.  And instead of arming their customer service reps with powerful products and terrific offers, served up through benefit-oriented scripting, they instead armed them with popguns.

I was offered the opportunity to move my funds to a CD with a 5.05% interest rate.  But that product required me to lock up my funds for at least 5 months.  No thanks.  I offered the rep a chance to extend the introductory rate to keep my business and he wasn’t able to do that.  When I asked him “got anything else”, he said “no”.

So I thanked him and within 3 minutes of hanging up, moved my money to an existing online account that currently pays well over 4.25%.

What does my banking story have to do with direct response marketing?

Plenty.  Let’s look at salt.  It’s just NaCl and you can buy it in various forms.  At Peapod, for example, you can get Giant brand salt for $0.42/lb, get fancy with Morton brand at $0.55/lb or splurge with Hain Pure Foods sea salt at $1.53/lb.  That’s right, you can pay almost 3X for a product that’s arguably less pure than the Giant or Morton’s brands.

But that’s nothing.  Check out Williams-Sonoma, who charges almost 44X the Giant brand for their sea salt. Now there’s a marketer who understands how to decommoditize a product offering!

What did Williams-Sonoma do to be able to charge 44X more for salt than Giant?  It wasn’t much.  Sure, there’s the W-S stores in the malls, which are costly to staff, stock and operate.  But aside from the stores, the salt is packaged a little better.  There’s a better story around the salt; after all, salt dried out by hand from the sea by a glamorous Frenchman beats the heck out of something blasted out of a mine in Pennsylvania by a sweaty miner.  Other than that, it’s the same stuff.

The difference between Giant brand and Williams-Sonoma salt is in the 4 P’s:

• Product.  Hand-dried in the sun vs. dug of the the dirty ground.
• Place. France vs. some hole in the ground.
• Promotion. Well written catalog story vs. unit cost tag on a low shelf.
• Price. Heavy premium vs. cheaper than the dirt it was dug out of.

So what could have Wachovia done to make me be at least OK with 1.75% interest?  How about:

• Product. Add a “free” financial plan for my family and myself?
• Place. Waive up to $20/month in foreign ATM fees for as long as I kept the money with them?
• Promotion. Offer double the FDIC insurance, provided by Lloyds of London at no charge to me?
• Price. Get the interest rate at least a little closer to the competition, provided some adjustments are made on Product, Place or Promotion.

That’s just a few off-the-cuff ideas.  I’m sure that bankers know of hundreds of possible changes to the marketing mix to allow their products to be different from the muck of commodity product offerings and dramatically increase their profit margins.

Summary and takeaways

1. Don’t sell commodity products.  If Williams-Sonoma can sell salt at 44X the going rate with a better package and an interesting story, you can turn your commodity into an exclusive product as well.
2. Give your customer service agents the ability to retain customers.  Know your customer LTV and give the reps wide leeway in doing as much as possible to retain your hard-won customers.  You’ll also find that the reps will perform even better once they are confident they’ve got tools in the toolkit that actually work.
3. Continue developing new products.  Unless you’ve got a mile-wide barrier to entry around your product, you will be commoditized.  If you’re not selling salt, you don’t have to worry about the guy in the mine next door.