10 Feb Top 3 Hidden Costs to Predatory Marketing
Top 3 Hidden Costs to Predatory Marketing
Credit products designed and marketed to profit from subprime customers, without giving them equitable value, may profit in the near term. But they create burdensome costs which make such products mediocre drivers of sustainable profit.
Such products create multiple business hassles. Some of them hit the bottom line directly. Customers with overly burdensome credit terms tend to default at high rates, and they require high levels of customer service and collections efforts. But it’s the less tangible costs that do the really significant damage. These costs fall into three areas: 1) reputational, 2) legal and 3) seldom considered employee morale.
1. Reputational: When a bank becomes known as a predatory lender, it finds itself having to work harder to close more traditional business. C-level executives have friends, too. And they don’t like having to defend a deal assumed to be shady simply because of its association with a lender skirting regulatory bounds.
2. Legal: Predatory products require loads of legal maintenance. Like it or not, the FTC, FDIC and OCC are charged with protecting consumers from the big, bad banks. These regulators take their duties very seriously, and they maintain a consistent abhorrence to any product they perceive as unfair and deceptive. They’ve taken great pains to write exhaustive rules intended as consumer protection. In their worldview, even legitimate consumer products can be suspect. Marketing programs which are actually predatory attract extraordinary levels of regulatory fury. In the face of such determined free-market enemies, only so many legal arguments can be thrown in their way. Ultimately, there’s a good chance offending programs get shut down or neutralized, no matter how much legal argument is put forth as defense.
3. Employee Morale: Even though a product may be technically legal, and maybe even blessed by the Feds, nobody much likes having to go into the office every day, when going into the office involves a product that tends to take unfair advantage of its users. It has been estimated that subprime credit card programs have employee retention rates about 65% that of more traditional products. Every time a disillusioned campaign marketer, risk analyst or collections manager leaves the company, untold expertise leaves with him or her.
Yet considering the detriments to developing subprime products, people with poor credit histories need to borrow money, too. And when products are developed and marketed properly, they can get equitable value, even when they’re “borrowing at 29.9%” or “borrowing $200 on the 1st and repaying $220 on the 15th. That is, IF alternative approaches are pursued in good faith.