A toaster in a new suit of clothes

The financial services industry has never been short on clichés. There’s the diminutive clerk wearing a green visor and sleeve garters. The rotund, cigar-chomping financier. The heartless, mustache-twirling userer.

Not to be overlooked are clichés the industry brought upon itself through marketing. There’s the “friendly banker.” (“If the banks are so friendly,” comedian Alan King quipped, “how come they chain down the pens?”) There’s the “your partner” bank. (Banks using that one would do well to look up partner in the dictionary.) And let’s not forget toasters, which, for whatever reason, came to symbolize the golden age of bank incentive offers.

The toaster giveaway cliché had its start when financial institutions took a page from direct response marketing playbook and began serving up incentive offers. A new account or loan could net you a TV, a household appliance, or your choice of a .12-gauge shotgun or .270-caliber rifle. (“Don’t you think it’s a little dangerous handing out guns in a bank?” asks Michael Moore, in his film Bowling for Columbine, as a banker hands him a rifle. The exchange was pure fiction. Gun-offering banks didn’t hand out weapons on bank premises. They arranged delivery or handed out certificates to be redeemed elsewhere).

The power of the incentive offer

Blogger turned ETF manager Eddy Elfenbein was partially correct when he wrote:

The reason banks offered toasters to new accounts wasn’t due to bad marketing, but due to outdated regulations. That’s the only way they could pass cost savings on to depositors. Free toasters from banks weren’t some happy relic of a bygone era, they were the one of reasons why the modern financial world came about. Interest rates were regulated and you couldn’t even pay interest on a checking account.

The regulatory choke-hold certainly played its part, but Elfenbein overlooks the power of the incentive offer to motivate purchase. Indeed, I take exception to “bad marketing.” A properly deployed freebie is good marketing. It cannot make you buy what you don’t want, but when it comes to a product you’re considering, the right freebie can make the difference between resolving to buy someday and versus buying now.

You’d be surprised at how often what turns out to be “the right freebie” proves counter-intuitive. In his book Of Marketing and Emasculated Goats, direct marketer Steve Cuno wrote:

Whether for small or big-ticket items, a compelling incentive will multiply response. I doubled natural gas fireplace sales by offering a free jar of honey for visiting a showroom. The jar of honey, incidentally, retailed for only one dollar. For an industrial manufacturer, I tripled sales by offering a $20 Victoria’s Secret gift certificate. Even though (or perhaps because) most of that client’s customers were male.

Whatever became of the free toaster?

Nowadays, on the increasingly rare occasion you see someone walk into a bank, you rarely see that person exit the bank with a toaster. But incentive offers haven’t disappeared. They have merely evolved. For instance:

• Instead of a toaster, an offer of a few hundred dollars might motivate you to open a checking account on condition of maintaining a specified minimum balance for a specified amount of time.

• These days it’s nigh unto impossible to find a bank card that doesn’t offer points redeemable for merchandise or cash.

• And “no interest for six months” is arguably a very expensive toaster in a new suit of clothes.

Donating to a cause isn’t an incentive offer

Sometimes you’ll see a quasi-offer in the form of “for every new account, we’ll donate to [insert charity here].” As I wrote last week, that seems to be working for upstart online insurance company Lemonade with its Giveback program.

But if it’s working, it’s not working as an incentive offer. Offers work by playing to the desire to get something for nothing, to eke a little extra out of the marketer “… if I act now.” The promise of a donation to a cause, no matter how worthy, doesn’t play to that desire. Lemonade’s Giveback program alleviates concerns about overcharging and delayed claims. That’s less of an incentive and more of a reassurance.

Supporting a cause is laudable on its own merits, of course, and it can make for good PR. It’s a classier way of publicizing philanthropy than a press release blatantly boasting “We just gave $X million to …”

Donate to a cause because you support it, not because you expect it to increase sales.

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