Issue #17, June 2009

“If you want to dramatically increase your response, dramatically increase your offer.”
—Axel Andersson

Cash As An Offer


"Open a Free Checking Account and Get $100 in Cash" screams the offer from atop the newspaper ad.

"$50 Bonus when you open a new checking account" shouts the offer in the online banner ad.

"Get $75 Free for opening a new checking account" yells the headline on the self-mailer that just arrived in the mail.

What's happening here?

Has cash all of a sudden replaced free gifts as the carrot that is dangled in front of consumers seeking a new checking account?

It appears the answer is no!

Today, it's the bigger banks that started the stampede to cash offers. Prior to cash, these banks rarely offered free gifts as an incentive. Perhaps they had too many branches to make free gifts workable.

Whatever the reasons for avoiding free gifts, some of the big banks have stumbled upon cash as a way to write marketing headlines that demand attention.

Let's take a closer look at three such big bank offers.

THREE BIG BANKS OFFER A CASH BONUS

Bank of the West

The offer appeared in a newspaper ad in The Sacramento Bee on April 28, 2009.

Bonus Amount = $100

Qualifying Criteria = Establish a monthly direct deposit of at least $250. The recurring direct deposit must be posted to the account within 60 calendar days of the account opening.

Bonus Paid = The $100 bonus is credited to the new checking account within 60 days after the first direct deposit is made.

Bank of America

The online banner ad appeared on Friday, April 3, 2009, on the msn.com homepage.

Bonus Amount = $50

Qualifying Criteria = Must maintain a minimum $125 balance and establish a qualifying, recurring monthly direct deposit within the first 60 days after the account is opened.

Bonus Paid = The $50 bonus is credited to the new checking account within 90 days provided the requirements have been met.

Over the past couple of years, Bank of America has also tested cash bonus offers of $25, $75, and $100 for opening a new checking account. In addition to testing an assortment of different bonus amounts, the bank also tests different qualifying criteria. Such ongoing testing requires a sophisticated account opening and tracking system to ensure the right bonus is paid to the right customer.

We are seeing a greater use of cash bonus offers from banks testing online banner ads promoting free checking accounts. Such offers are ephemeral . . . generally lasting only a few days. In situations like this, offering a free gift would be difficult.

Washington Mutual (Right after being acquired by Chase)

The offer appeared in a newspaper ad in The Sacramento Bee on February 15, 2009.

Bonus Amount = $100

Qualifying Criteria = Within 60 days of account opening customer must initiate a recurring monthly direct deposit (no minimum amount specified).

Bonus Paid = The $100 bonus is credited to the new checking account within 12 weeks after the initial direct deposit is posted to the account.

The difference between a free gift offer and the big banks' cash bonus offers is immediately obvious – one, the new customer must do something to qualify for the bonus and two, the bonus isn't paid until long after the new checking account is opened.

CHECK THE FINE PRINT AT THE BOTTOM

While the promise of $100 in cash causes consumers to salivate – thinking they'll walk in and open a checking account and walk out with a crisp $100 bill in hand – the reality is a bit different.

As singer/songwriter Tom Waits wrote in a song from his 1976 album Small Change, "The large print giveth and the small print taketh away."

With few exceptions, when a customer or prospect reads the entire ad or mailer, including the fine-print disclosure copy, she discovers three things.

  1. She must perform one or more activities to "qualify" for the cash bonus.
  1. She must wait several weeks or months before she gets the cash bonus.
  1. She doesn’t get cash but an invisible deposit made directly into her new checking account.

Often, by the time the cash bonus finally appears in her checking account, she's completely forgotten about the original offer.

While she ultimately receives the promised cash bonus, the thrill of getting something for free is absent – unlike the excitement of walking out of the branch carrying her new iPod or George Foreman Grill on the day she opened her new checking account.

THE EMOTIONAL IMPACT OF INSTANT GRATIFICATION

The creative and marketing teams behind the cash-only activation offers underestimate the importance of instant gratification when it comes to free gifts – or a cash incentive paid immediately.

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

While offering a cash bonus makes a great "secondary" offer by supplementing the "primary" free gift offer, standing alone cash has less impact than a free gift.

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!

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

Ignore the pull of instant gratification at your own risk.

Does this mean that you should avoid offering cash as an incentive for opening a new free checking account…or any checking account?

Absolutely not!

OTHER CASH BONUSES

Unwilling to allow the big banks to "own" the cash bonus offer, a few community and regional banks have begun testing their own cash bonus offers.

One bank offers a $50 cash bonus for opening a free checking account. The $50 is credited into the new account the first business day following the date the account is opened.

Another bank offers a $150 cash bonus, $50 of which is credited to the account the day the account is opened. The next $100 is paid after the customer establishes a recurring direct deposit and the first deposit appears within 60 days of the account being opened.

In both instances, the customer receives her cash bonus almost immediately…unlike the long waiting period encountered with the big bank offers.

What the big banks and smaller banks so far have in common is that they see a cash bonus as an alternative to a free gift offer.

In reality, it isn't an "either or" choice.

Free gifts and cash bonuses actually perform two totally different functions when it comes to "the offer."

ACTON MARKETING'S STEP UP OFFER

We believe you can add cash to your free gift offer to create what we call a "Step Up" offer.

To ensure our turnkey checking account acquisition program continues to deliver the best possible results, over time we've made improvements to its components including the list, the mystery shops, the training, and the offer.

Our original offer included a free gift with a cost in the $7 to $10 range. As a result of increased competition and inflation, today we sometimes recommend spending more for free gifts. By raising the price point, we can recommend more brand name merchandise like Apple and Sony, with a much higher perceived value like the iPod, a deluxe model George Forman Grill, or a portable DVD player.

These enhanced gifts help our clients to differentiate their offers from free gift offers made by competitors.

In highly competitive markets, in addition to spending more for the free gift, now we also recommend adding a cash component to the offer.

Look at it as a "win now, win later" approach to differentiating your offer.

The free gift is the "win now" portion as the new checking customer can walk out of your branch with his or her free gift in hand. This "instant gratification" is extremely important and makes a free gift much more desirable than cash alone delivered weeks or months after the account is opened.

The cash bonus is the "win later" portion as the new checking customer receives it later after meeting qualifying criteria.

The goal of the free gift is to quickly convince customers and prospects to choose your bank over a nearby competitor.

The ultimate goal of the cash bonus is to ensure that your new checking customers activate quickly, using more of your bank's products and services. Such customers tend to be stickier, more loyal, and less likely to close their account when a better offer comes along.

Qualifying criteria to receive the cash bonus can be as simple as keeping the new checking account open for a specified period of time – say 60 to 90 days – while meeting a minimum balance requirement or establishing direct deposit. Or it can be a bit more demanding, such as using online statements, paying one or more bills online, while making a specified number of debit card transactions in the first two to three months.

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Inside this Issue

  Cash As An Offer

  Three Big Banks Offer A Cash Bonus

  Check The Fine Print At The Bottom

  The Emotional Impact of Instant Gratification

  Other Cash Bonuses

  ACTON Marketing's Step Up Offer

  Don't Forget Your IT And Finance Folks

  The Next Step
 

This particular Bank of the West newspaper ad appeared in the Thursday, May 7, 2009 issue of The Sacramento Bee. Changing only the visual image behind the headline, similar ads continue to appear in the local newspaper. This is a page-dominant ad measuring a robust 7" X 14." The body copy and disclosure copy are shown below.

This is the bottom portion of the page-dominant Bank of the West ad, showing both the body copy and seven lines of disclosure copy. The bank mentions the direct deposit requirement in the first sentence of body copy. The details for the $100 cash bonus appear in the seven lines of disclosure copy.

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.

Unlike the ongoing Bank of the West newspaper ad with its $100 bonus offer, the Washington Mutual $100 offer was a one-time only special for President's Day. The page-dominant ad measuring 7" X 14" appeared one day only on February 15, 2009 in The Sacramento Bee. This ad with its blue background is a classic example of why you should never reverse copy out of a color background. It is extremely difficult to read the body copy in the ad. On the other hand, note that the disclosure copy is black ink on a white background. In this particular ad, the bank mentions the direct deposit requirement in the subhead. The disclosure copy portion of the ad appears below.

For some reason, the folks at Washington Mutual determined it required 18 lines of disclosure copy for this particular ad. Compare this to the seven lines in the Bank of the West newspaper ad. Another important point: While the Bank of the West ad contains an asterisk after the $100 figure, it's absent from the Washington Mutual ad. Both banks can't be right about the need for an asterisk.

An excellent example of a super offer was made by the Bank of Albuquerque. The bank not only offered a free gift for opening a free checking account, it sweetened the offer with a $100 cash bonus if the customer met some basic usage criteria.

Best of all, the bank gave its new customers a choice of qualifying criteria as seen in the sidebar to the right. To get the $100 cash bonus the customer could either:

1.     Establish and activate a recurring direct deposit and make five signature-based debit card transactions, or

2.     Make five signature-based debit card transactions and complete five online bill payments.

An excerpt from the bank's free checking self-mailer appears in the sidebar to the right.

DON'T FORGET YOUR IT AND FINANCE FOLKS

A word of caution is in order with cash bonuses. Be sure to check with your IT department or third party service bureau before making the marketing decision to include a cash bonus in your free checking account offer. Awarding cash bonuses – especially those with qualifying criteria – requires special systems programming and testing to track activity over a specified period of time. This can be quite costly and time consuming – especially for smaller banks.

From a marketing budget perspective, the cost for free gifts should be included in the marketing budget and considered part of the cost of acquiring a new checking customer.

On the other hand, the cost of the cash bonus may or may not be included in the marketing budget as cash bonuses are generally handled as "prepaid interest" by the bank's accounting system.

While every new checking customer gets a free gift purchased by the marketing department, only a portion of the new checking customers will ever qualify for the cash bonus. As a result, it's not possible to accurately include the cost of the cash bonus in the up-front marketing cost of acquiring a new checking customer.

And to do so would be unfair.

Historically, some banks simply treat the payment of cash bonuses as interest expense, adding it to the regular interest payments paid to qualifying accounts. This greatly simplifies accounting for such interest payments made to checking accounts.

There are banks that make the effort to allocate this bonus interest expense to the marketing department where they believe it rightly belongs.

If your bank takes this approach, the amount of cash bonuses paid for new checking accounts should be prorated between the acquisition budget and the marketing budgets for activation, retention, and cross-sell. After all, the real value of offering cash bonuses is to create stickier accounts while motivating these new checking customers to activate faster and use more of your bank's products and services.

Assigning a reasonable percentage of the cash bonus cost to the acquisition cost would be considered fair to the extent that including a cash bonus as part of the up-front marketing offer helps differentiate your free checking offer from that of your competitors.

Opening the cover page of the vertical, eight-page self-mailer, the bank's Step Up offer appears on the right hand panel. It's the first thing prospects see when opening the self-mailer. This is an excellent example of a bank being totally upfront with the qualifying criteria for its cash bonus offer. Note the body copy underneath the visual of the $100 bill. Not only are new checking customers given a choice of qualifying criteria, the criteria are clearly visible.

THE NEXT STEP

Take a look at the major competitors in your market. Your goal shouldn't be to match their offer, but to differentiate your offer so it is perceived as a better value to the consumer. The Step Up offer may be just the thing to provide that differentiation.

The key to moving forward is testing.

Keep your free gift offer and add a cash bonus offer for quick activation. Selecting the amount of the cash bonus also requires testing to arrive at the right amount.

You can select the same cash bonus amount as that being offered by your competitors but this amount may not be optimal for your bank.

By offering both a free gift and a cash bonus, you may be able to offer a smaller cash bonus and achieve the same response results as you would by offering a larger cash bonus. Only testing will provide you with this answer.

While testing is very important, it's equally important to test only one or two variables at a time. Too many test cells are both hard to manage and generally provide you with unreliable results.

Your best choice is to work closely with your direct response agency as they are experts in direct mail testing.

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!

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