Issue #16, May 2009

"It is characteristic of wisdom not to do desperate things."
—Henry David Thoreau, American essayist

Desperate Marketers Make Desperate Decisions


That's the first thought that entered my mind each time I encountered a newspaper headline where a banker was disparaging his or her competitors for offering a free gift for opening a new checking account.

Obviously these bank marketers – or their agencies – were looking for some point of differentiation. Not finding one, they simply made the bad decision to criticize what their competitor was doing.

First, in January, 2007, the Safe Credit Union newspaper ad for free checking used two visuals in its headline. Under the bold headline "Their free checking" was a toaster. Under the second bold headline "Our free checking" was a plasma flat screen TV. Unfortunately, in the mice-type disclosure copy under the image of the TV readers would discover that only one TV would be awarded at the end of a long-running sweepstakes.

To me, this ad was a classic example of "bait and switch."

Next, in July, 2007, the Washington Mutual (WaMu) newspaper ad displayed the following headline, "Respect, not toasters" in its ad for free checking. There, underneath the big, bold headline was a picture of a toaster with well-done toast still in their slots.

Unfortunately, WaMu is no longer with us.

Finally, in February, 2008, the Cornhusker Bank newspaper ad used the following headline, "We Understand tote bags and free gifts don't matter to your family's budget." Fortunately, for the much maligned toaster, it was not shown in this ad.

You'll find reprints of all three ads in the sidebar to your right.

The last two headlines are examples of marketers trying to create a contrived trade-off in the minds of consumers.

The marketers behind the Cornhusker headline are subtly planting the seed that perhaps these free gifts are standing in the way of the customer earning interest. While the WaMu headline suggests that a free gift and being treated with respect are mutually exclusive choices. That's so absurd that it's laughable.

Being totally disingenuous, the marketers behind the Safe Credit Union ad are simply hoping that prospects will quickly believe that every new checking customer receives a flat screen TV as a free gift. After all, you have to stop and read the extremely small 8-point type disclosure copy underneath the TV to learn that you have to enter to win the TV.

Do you believe these marketers succeeded in differentiating their products or offers?

THE LAW OF UNINTENDED CONSEQUENCES

Common sense should dictate to marketers that if you can't find a meaningful point of difference for your product, you simply haven't tried hard enough.

Taking the easy way out and attacking your competitor can have unintended consequences.

This is especially true if you are using a marketing to women strategy.  

In her 2003 book, Marketing to Women, Marti Barletta advises marketers to avoid putting down their competitors. Barletta writes, "Because of their egalitarian culture, women see any kind of put-down as inappropriate – 'shady dealings'. The key is to keep it neutral, not negative."

While a bit more subtle than the others, the folks at Cornhusker Bank are definitely trying to put down their competition by using the headline, "We Understand tote bags and free gifts don't matter to your family budget."

In addition, such ads can backfire as they actually remind consumers that other banks and credit unions must be offering free gifts – much to the delight of those banks and credit unions doing so. After all, if these free gifts weren't successful, there'd be no use attacking them.

It's obvious that such ads don't work as they seldom appear more than once or twice before being assigned to the bank marketer's file of "bad ideas."

In reality, these three banks are guilty of creating a non-issue. As our senior copywriter commented, "Nobody will turn down a gift. And nobody thinks less of a bank that gives them something free."

Perhaps a case could be made for "marketing malpractice" as it's wrong to malign your competition in lieu of providing a meaningful point of differentiation for your checking account.

Fortunately, almost always the law of unintended consequences prevails – providing the deserved justice. In these instances, valuable marketing dollars wasted on bad newspaper ads while drawing attention to the good deeds of your competitors.

FREE GIFTS HAVE WORKED FOR MANY YEARS

Most likely banks began offering free gifts to attract new customers well over a hundred years ago – shortly after a second or third bank opened in the same town.

It was in 1933, with passage of the Glass-Steagall Act, that free gifts took on a much more important role in attracting new customers.  

Regulation Q was part of the Glass-Steagall Act. It put a limit on the interest rates banks could pay depositors, including zero on demand deposits…better known as checking accounts to consumers. This new inability to differentiate one bank’s checking account from another based on the interest rates paid, caused banks to begin competing aggressively for checking accounts using free gifts as a point of differentiation.

Under Regulation Q, the rather mundane toaster became the symbol of the almost unlimited variety of free gifts (or premiums) used by banks from 1933 through 1979 to convince consumers to open a checking account at one bank over another.

Perhaps because of its bland, mundane persona, comedians, cartoonists, and uninformed marketers have adopted the poor toaster as the symbol of the myriad of gifts flowing from the doors of neighborhood banks during the post-war boom period. In reality, toasters were not a common free gift.

As a result of the Monetary Control Act of 1980, the interest rate ceilings imposed by Regulation Q were phased out, ending in March, 1986. This enabled banks to walk away from free gifts and begin offering interest on checking account balances.

After a few years it became evident to many bankers that offering interest on checking balances can be a very costly point of differentiation. It wasn’t long before the free gift for opening a checking account slowly made its way back into the creative team’s tool box.

In fact, the free gift became an integral component of the Free Checking and Free Gift turnkey checking acquisition program introduced by ACTON in 1982. ACTON's program has worked successfully for well over 26 years and it's still delivering great results.

SIX REASONS WHY FREE GIFTS WORK

At a minimum, there are six good reasons why free gifts continue being offered today by a growing number of banks and credit unions.

1. Free gifts enable you to benefit from the power of the word "free."

2. Free gifts improve your offer.

3. Free gifts often serve as the tie-breaker.

4. Free gifts provide instant gratification.

5. Free gifts are better than cash and discounts.

6. Free gifts cost less.

THE POWER OF THE WORD "FREE"

The word "free" is one of the most powerful words in marketing…especially in direct response marketing.

And what could be better than using the word "free"?

Using the words "free gift."

Yes, the word "free" is redundant when used to describe a "gift." Occasionally, a gifted copywriter is chastised for using the term “free gift” when the word “gift” is grammatically correct.

So why do direct response copywriters insist on calling a gift a “free gift”?

The answer was provided by freelance copywriter Bob Bly in his article, "What conversational copy means," which appeared in the October 22, 2007 issue of DM News.

According to Bly, "The goal of direct response copywriting is not to produce perfect prose. It is to persuade the consumer to buy your product, and a copywriter should do whatever it takes to achieve that goal.

"For example, grammarians dislike the phrase 'free gift,' complaining that 'free' is inherent in the definition of gift. I remember years ago hearing about a mailer who split test 'free gift' versus 'gift.' Not only did 'free gift' win handily, but a number of recipients of the 'gift' letter responded by asking whether the gift was indeed free.

"As Emerson once said: 'It is not enough to write so you can be understood; you must write so clearly that you cannot be misunderstood.'"

While the word "free" is overused today, it is still a very powerful marketing word when used appropriately.

What do the experts say about using the word "free"?

  • "Free is a magic word," exclaims direct mail consultant Dick Benson.
  • "'Free' is of course a hackneyed and moss-covered word, but there doesn't seem to be any equally strong or less blatant substitute for it," wrote legendary copywriter Victor O. Schwab.
  • "Emphasize the word 'Free.' You can increase replies by putting the word 'Free' in big print or in capital letters. In broadcast advertising and in printed advertising you can repeat the word 'free' several times," advised famous ad man and copywriter John Caples.
  • "Samples serve numerous valuable purposes. They enable one to use the word 'Free' in ads. That often multiplies readers," according to Claude Hopkins.
  • "Bob Kalian, a New York entrepreneur, realized that 'free' was one of the most powerful words in direct marketing, so he decided to build an entire business around it," writes freelance copywriter Robert W. Bly in his 2002 book, The Complete Idiot's Guide to Direct Marketing.

With ACTON Marketing's Free Checking and Free Gift turnkey marketing program, you get to use the powerful marketing word "free" twice in the program name alone.
Inside this Issue

  Desperate Marketers Make Desperate Decisions

  The Law of Unintended Consequences

  Free Gifts Have Worked For Many Years

  Six Reasons Why Free Gifts Work

  The Power of the Word "Free"

  Free Gifts Improve Your Offer

  Free Gifts Often Serve as the Tie Breaker

  The Emotional Impact of Instant Gratification

  Free Gifts Are Better Than Cash and Discounts

  Free Gifts Cost Less

  Differentiate – Don't Denigrate!
 

This Safe Credit Union newspaper ad promoting free checking appeared in the January 17, 2007 issue of The Sacramento Bee. Upon first glance readers are mislead to believe that while other banks offer a simple toaster as a free gift, Safe Credit Union is giving away flat screen TVs. Those few readers who took the time to stop and read the small type sentence underneath the TV discovered it read: "Sign up for free checking and enter to win a plasma flat screen TV." So, Safe Credit Union wasn't offering a free gift to each consumer signing up for free checking. They were simply offering them a chance to enter a sweepstakes drawing.

This Washington Mutual (WaMu) free checking ad appeared in the July 9, 2007 issue of The Sacramento Bee. While the toaster was prominently featured in the ad, it was not being offered as a free gift for opening a new checking account. It was being used to demean those banks and credit unions offering a free gift to customers and prospects opening a new, free checking account. As the headline boasts, at WaMu you get respect, not a toaster. Are newspaper readers to believe that other banks won't respect them?

This Cornhusker Bank free checking ad appeared in the February 15, 2009 issue of the Lincoln Journal Star newspaper. While the poor toaster is spared in this particular anti-free gift ad, the headline attacks competitors offering free gifts to consumers opening a new checking account. Most annoying about this headline is that it is so presumptuous. How could the folks at Cornhusker Bank possibly know whether or not a free gift matters to a family's budget? In a feeble attempt to attack its competitors using its headline, the bank missed a marketing opportunity to attract readers by using the valuable headline space to mention that it pays interest on its free checking account.

FREE GIFTS IMPROVE YOUR OFFER

Free checking is a great offer.

Free checking and a free gift is an even better offer.

Everything else being equal, the bank or credit union with the best checking account offer should realize a better response, add more new customers, and grow market share at the expense of its competitors.

So far…so good.

But what happens when you and a competitor down the street are both offering free checking and a free gift? How can one have an offer that's better than the other?

Without getting into too much detail, a better offer can be achieved by:

  • Offering a merchandise gift over a cash bonus.
  • Offering a better gift with a higher perceived value.
  • Offering additional gifts through a Tell-A-Friend program.
  • Offering a choice of gifts.

Arriving at the better offer is best achieved by working with your direct response marketing partner – one with many years of experience using merchandise gifts as part of a product offer.

FREE GIFTS OFTEN SERVE AS THE TIE BREAKER

Generally, in any given market, consumers have their choice of several financial institutions offering a free checking account.

So how do they make their decision on which bank or credit union to select?

Fortunately, very few of these institutions also include a free gift as part of the offer.

Therefore, the free gift often serves as the "tie breaker" for consumers considering which bank or credit union to visit to open a new free checking account.

Of course, most consumers also consider location, hours open, number of ATMs, and brand name when making their decision. But given the commodity status of banking today, the free gift can play a more important role than you might think is possible.

This is especially true in today's dramatic economic downturn where consumers welcome such things as free gifts for making the right purchase decisions.

And don't forget the perceived value of "re-gifting."

The types of free gifts offered by most banks and credit unions make excellent gifts for family and friends.

  

THE EMOTIONAL IMPACT OF INSTANT GRATIFICATION

The creative teams behind these three newspaper ads grossly underestimate the importance of instant gratification when it comes to free gifts – or any incentive.

This is especially true of the Safe Credit Union ad where only one customer will win a flat screen TV…and receive it only after the contest ends several months down the road.

Bottom line...consumers want things NOW, not weeks or months later as is the case with cash bonuses.

For example, on Friday, April 3, 2009, a Bank of America banner ad appeared at the top of the msn.com home page offering a $50 cash bonus for opening a new checking account. Clicking on the ad took prospects to a landing page where they learn that the checking account has to remain open for 60 days before the cash bonus is paid.

While offering a cash bonus makes a great "secondary" offer by supplementing the "primary" free gift offer, standing alone, a cash bonus has less impact than a free gift. We'll cover this in more detail in next month's newsletter.

When a consumer walks into a neighborhood bank branch to open a new checking account, she wants to walk out carrying her new, free gift. It’s that simple!

Using a simplified example, two competing bank branches are located next door to each other and both are offering the identical free gift for opening an identical free checking account. The only difference is Bank A hands you your free gift immediately so you can take it home while Bank B tells you your gift will arrive in the mail in a couple of weeks. The lobby of Bank A will be very busy while the new accounts employees in Bank B will be staring out the window in envy.

Free gifts enable you to take advantage of the power of instant gratification.

Ignore the pull of instant gratification at your own risk.

This Bank of America banner ad appeared in the upper right corner of the msn.com home page on Friday, April 3, 2009. Clicking on the "Learn More" button in the lower right corner took interested prospects to the bank's landing page for this offer. On the landing page prospects discover that receiving the $50 bonus requires signing up for direct deposit and keeping a $125 minimum account balance for 60 days.

FREE GIFTS ARE BETTER THAN CASH AND DISCOUNTS

Perhaps counterintuitive to many marketers, most consumers prefer a free gift over cash or a discount.

When it comes to checking account marketing, cash offers tend to be much more prevalent than the occasional discount like temporary fee waivers. Nonetheless, research has shown that consumers generally prefer a free gift over a discount.

This finding was reported in the article, "The Price of 'Free' – dom: Consumer Sensitivity to Promotions With Negative Contextual Influences," which appeared in Issue #1 of the 2006 issue of the Journal of Consumer Research.

The authors write, "Research is actually showing that, while sale prices [discounts] do draw customers in, from the standpoint of long-term brand equity, companies are better off offering a premium rather than a price discount – at least once in a while."

They go on to write that "discounts" tend to make consumers more price sensitive while creating a price-quality tradeoff in their minds. The end result is a tendency for consumers to discount the quality of the product over time.

As for free gifts, the authors write, "Free premiums, on the other hand, apparently enhance the overall value of the product." The operative word here is "enhance."

The same enhancement value holds true for free gifts over cash.

"Free gift offers, particularly where the gift appeals to self-interest, out pull discount offers consistently."

—   Bob Stone, direct mail legend, author,
and agency founder

The discussion about cash versus a free gift was covered in some detail in the article by ACTON Marketing senior vice president Sean Mulvaney, "Travel and Gifts: The Dream Incentives," which appeared in the November 2006 issue of the ABA Bank Marketing magazine.

Using marketing research data supplied by Incentive Federation Inc. (IFI), Worcester, Mass., Mulvaney writes, "Some customers perceive it [cash] as 'vaporware.' It is spent immediately and holds no long-term trophy value. In fact, a 2005 study by IFI showed four out of five respondents believe travel and merchandise rewards are remembered longer than cash rewards; and, two-thirds of respondents felt cash rewards are remembered for the shortest time."

If you get a free set of CorningWare baking dishes for opening your new checking account, you'll remember you got them from your bank each time you use them. On the other hand, you will quickly forget where you spent the cash bonus and what you got for your money.

Not only does the free gift enhance the value of the checking account you opened, it enhances the bank's overall brand, and causes your customer to remember your bank each time the gift is used. That's a win/win/win situation.

And as covered above, a free gift delivers "instant gratification" to your customers while they must wait 60 days or longer before the cash bonus is deposited to their checking account.

Hands down, a free gift is the incentive of choice for most consumers.

FREE GIFTS COST LESS

Bank of America's $50 cash bonus costs the bank $50 each time a bonus is paid.

On the other hand, a bank giving away a free Black & Decker tool set with a perceived value of $50 may have paid only $10 for the gift.

That's a $40 savings in marketing costs that dramatically improves both your cost per new account and your ROI.

As for perceived value, the higher the better when it comes to having a positive impact on response. And as a marketer, you have control over perceived value by:

  • Selecting brand name merchandise like Sony, Black & Decker, CorningWare, and Apple.
  • Selecting merchandise that has mass appeal to the largest possible audience (e.g., an Apple iPod over a man's wrist watch).
  • Selecting merchandise with the greatest functionality (e.g., cookware over golf balls).
  • Buying in large quantities.

And above all, do not offer bank-branded merchandise as free gifts.

There's a major psychological difference between a box of Titleist golf balls and a box of golf balls bearing the Cal Fed Bank name and logo.

As you can see from the cover, ACTON Marketing senior vice president Sean Mulvaney's five-page article on free gifts was the lead article in the November 2006 issue of the ABA Bank Marketing magazine. In his article, Mulvaney explains in detail – supported by research – why free gifts outperform cash offers when used to acquire free checking account customers and cross-sell other bank products and services. It's a must-read article for any banker involved in making decisions about the use of premiums to generate new customers and cross-sell existing customers.

One word of caution here – leave the selection of your free gifts to experts with many years of experience in this business. Often what you think is an excellent free gift doesn't have the desired appeal. And items you don't like or don't think will have appeal have proven to be winners in several different geographic markets.

After making this mistake more than once, your editor learned his lesson and left the free gift decisions to the experts.

DIFFERENTIATE – DON'T DENIGRATE!

Remember your mother's sage advice, "If you can't say something nice, don't say anything at all."

Washington Mutual, Cornhusker Bank, and Safe Credit Union all ignored mother's advice and attempted to marginalize the free gifts offered by their competitors.

The marketing folks at these institutions, along with their agency folks, should have taken the high road and looked harder for an important point of differentiation.

Had they chosen the preferred route, they would have avoided being exposed in this newsletter and perhaps generated significantly more response to their expensive newspaper ads.

October 6 – 8

Fresh marketing ideas, networking opportunities, and sunshine in
Sonoma County, California.

Free for all banking professionals.

To register or for more information,
contact Shirley Sluka at 402-470-5915
or sluka@actonfs.com.

See you in Sonoma!

Past Issues of the Newsletter

All past issues of the ACTON Marketing, LLC newsletter are available online in the archive.

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