Crazy Eddie's Painful Pricing Lesson
Having the privilege of writing a weekly column lets the columnist overcome a sense of powerlessness many people often feel. For example, when someone's ATM card is swallowed by a machine and not returned for a month, he has no choice but to simmer.
When my card was swallowed up due to a mechanical glitch, my response was to look at the machine and say, "You took advantage of the wrong person." I wrote it up in my column.
Then, when I finally did get a new card, and I asked my banker why the bank didn't have an 800 number. He replied, "We do have an 800 number."
Where is it?" I asked.
He replied, "On the card." Eureka - there was grist for another column.
Getting in the Last Word
But one thing a columnist has to be careful about is using his weekly space to respond to nasty letters that are published about his previous columns. That would be taking advantage of the fact that the columnist can have the last word every time.
So I will respond gently to the letter published June 3 under the headline "Nadler's View of Car Dealers Is Biased and Misinformed."
Following a column in which I discussed the indignities of buying a car, an automotive sales manager, Harris R. Thompson Jr. of Smyrna, Ga., wrote: "Had Mr. Nadler consented to pay the suggested retail price that was posted on the window of the vehicle, he would not have met the gauntlet of sales pitches' that contributed to his dissatisfaction."
Consumers Know the Deal
My first thought was to wonder, "Should I laugh or cry?" Does any car salesman in 1991 think that informed people are going to pay the sticker price and give the dealer what Mr. Thompson called "the new-car dealer's meager 12% to 18% profit margin?" Consumers see lots loaded with vehicles and hear TV ads touting great rebates and discounts.
Of course, the real problem with buying a car is that Mr. Thompson should be right. It would be great if prices were established at a fair level and everybody got the same price.
No matter how little over dealer cost an individual pays, he feels cheated and believes had he bargained harder, he could have gotten a lower price.
What makes this so significant for all businesses, and especially bankers, is that when someone earns a reputation of being fair and consistent in the treatment of customers, his business can soar.
In the New York area, for example, there used to be a chain of electronics stores called Crazy Eddie's. Salesmen were told to try to get one high price, but that they could accept less if the customer really bargained hard - with the provision that the less the salesmen charged, the less their commission would be..
Another New York electronics retailer, 47th Street Photo, has low prices, but there is no bargaining. Today Crazy Eddie is out of business, while 47th Street Photo thrives.
What, you may ask, has this to do with banking? Everything.
Serving the Customer
The public wants to feel that the customer's aggressiveness does not affect rates earned or rates charged on a loan. I have said many times that if given the choice of better services or better rates, the customer will take better service every time.
But that doesn't mean one customer will be willing to pay more than another pays. And woe be to the banker who takes advantage of one customer who then finds that the bank made a better deal with another.
An example is a bank that accepts and keeps large deposits in noninterest bearing form and doesn't inform the customer of the advantage to putting it into a CD or some other profit-making paper.
Accounts at Stake
For when someone else informs the customer, the bank that took advantage often ends up losing the entire account - in the same way someone who pays sticker price for an American car today will never forgive his dealer when someone else informs him of the lower price he paid.
So Mr. Thompson's letter talks about what would be nice, rather than what is. But as of today, to suggest paying sticker price for a car is so humorous that even may over-serious graduate students laughed when I read them the letter.
But to a banker talking about his pricing schedule, it should not be a laugh. A banker should have a "sticker price" for everyone - albeit without the pie-in-the-sky 12% to 18% profit Mr. Thompson suggests should be the norm.
For if anything can improve bankers' image, it would be the fair and equal treatment of all customers. And if anything can lower bankers' image even further than the thrift crisis has, it would be banks setting prices like auto dealers do - setting a price that is truly fiction and then saying, in effect, "Now, put on your boxing gloves, and let's spar until we agree on a price."
Mr. Nadler is a contributing editor of the American Banker and professor of finance at the Rutgers University Graduate School of Management.