Archive for November, 2011

What B of A learned

Tuesday, November 1st, 2011

A funny thing happened on the way to the Fee Hike.

What Bank of America (NYSE:BAC) learned — or should have known and may have learned– is that customers DO NOT OWE them high profits.

When Congress passed laws that limit some of the Banks’ ways of extracting unexpected fees from customers, Banks and pundits argued that Banks would have to ratchet up fees in some other area, in order to maintain their (historically very high) profitability.

Not so.テつテつ No one has guaranteed Banks their high profits.テつ If Banks, or any other companies, want high profits they need to offer their customers a valuable service at a price that is attractive to the customers.テつ Simple, eh?テつ The company profits go up if the service is so valuable (and unavailable elsewhere) that customers willingly pay for it, and if the company is able to provide that service at a reasonable internal cost.

If the customers look at a new fee (as your correspondent recently did) and say “Hey, I can get that job done down the street for a fraction of that price!”テつ then the customers should and will leave.テつ Bye-bye BofA.テつ With all your potential for economies of scale, why is a wimpy little Credit Union kicking your A?

Answer:テつ because they don’t mistakenly feel entitled to high profits.テつ They know they have to earn their income by pleasing customers.

Big Bank Presidents:テつ yes, your Shareholders and the market analysts are going to be irate if your profitability drops.テつ Deal with it.テつ Figure out how to offer your customers an attractive deal, or quit your sniveling.