Bank Of America Is Tone Deaf To Its Customers

bank of america

Photo: The Consumerist / Flickr

You would think that savvy, sophisticated companies would have an easy time figuring out whether a move they are considering would blow up on them, wouldn’t you? And yet, in the last few weeks we’ve seen some amazing examples of firms that seem to be tone deaf about how their customers feel about them.Take Bank of America. A month ago, it famously introduced a fee for using its debit cards, to a withering storm of protest. One customer was sufficiently enraged to gather 200,000 signatures asking the bank to reverse its decision. Oops. Yesterday, the bank announced plans to do just that. But how could they not have seen that this would be a public-relations and a customer-relations disaster? I think they made a number of assumptions that were just plain wrong.

You see, for some years B of A has been building up a population of debit-card customers, luring them by advertising the benefits of its “keep the change” program. With “keep the change,” purchases are rounded up to the next dollar, and the difference goes into the customer’s savings account. The program proved incredibly popular, even winning a design award in 2007. Its success means that B of A deliberately captured a huge group of customers who are very sensitive to savings, who have been trained to believe that debit cards are intrinsically good (as opposed to evil credit cards), and who think debit cards are like checks, which no bank should charge you to use. All of a sudden, a free service — in fact a service that B of A actually paid customers to use (they matched the first few hundred dollars of deposits) — turned into something customers have to pay for. Naturally, they felt surprised and imposed upon. As my good friend Trish Gorman points out in a great article on pricing, it is almost never a good idea to unpleasantly surprise your customers. And I’m afraid that “we’re not making as much profit as we used to on these products” is not going to cut it as an excuse.

In one of my blogs, I predicted that this move would enrage customers, and it did. That $60 per year may not mean much to a bank manager, but it means a lot to penny-pinching young mums, college students, guys who can’t find steady work, and a lot of the regular folk who are Bank of America customers. And the fact that it isn’t proportional to use struck many as unfair — even the phone company charges fees that are vaguely tied to how much you use their services!

The other misstep Bank of America made was miscalculating whether their competitors would follow. This is an interesting example of what I’ve often called a “tolerable” feature: people put up with it if they don’t think they have a viable alternative. Remember when airlines first introduced baggage fees? There were howls of protest. People swore they were going to take their business and go … where? There was nowhere to go. Almost every company in the industry grabbed the opportunity for some ancillary revenue and introduced baggage fees around the same time. Because all the competitors were doing it, passengers had little choice but to accept the fees. We grumble. We moan. We swap horrible airline stories at cocktail parties. But we pay.

Unfortunately for Bank of America, the other banks took one look at the angry hordes and decided to back off. The revenue raised was simply not worth the risk of customer anger. So B of A was stranded with a vastly unpopular program in a very competitive, low-interest-rate market where having lots of deposits is a competitive advantage. It was a symbolic as well as a substantive disaster. It reinforced the image of greedy banks seeking to stick it to their customers. It didn’t help that the daily headlines about “Occupy Wall Street” were raising people’s consciousness about the unfairness of wealth distribution.

This will join the set of case studies that have already left people shaking their heads this year, along with the disastrous price increase over at Netflix, and HP deciding to exit their hardware business (seemingly without having asked their customers whether this was a problem). And then deciding, well, maybe not.

So what does your company do to avoid enraging customers? And how does it react if the worst happens?

This post originally appeared on Harvard Business Review.

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