Mar 29, 2017
Pattie Lovett-Reid: Beware of teaser rates
It is marketing 101 — loss-leader pricing. In a nutshell, a loss leader is a product offered at a loss, in order to lead people to purchase more profitable products. Or, in some cases, a twist on this concept, the classic "introductory offer."
As a consumer, you sign up for an attractive or discounted introductory offer that you know seems to good to be true only to find this belief reinforced when the bell and whistles on a product changed or the rates are altered. And if you miss the notice, or don't read the find print, you’ll start being charged the new standard monthly rate effective the date advised. This type of marketing activity isn't new and isn't isolated to one industry, sector and company. Companies need to get your attention and in turn your business. This type of activity has been going on for decades.
The most recent example to cross my desk was Tangerine's upcoming changes to their Money-Bank Credit Card account. Effective April 29, Tangerine is hiking fees, boosting the cost of cash advances, foreign conversion fees and overdraft withdrawals. When the card was launched, to great fanfare, it seemed almost too good to be true. The no fee Tangerine Money-Back Credit Card was an absolute steal for cash back rookies and connoisseurs alike.
In fact, the card had one of the best offerings and not surprising with no annual fees one might call this a classic loss leader to attract new business and share of wallet. With no annual fee, an impressive two per cent cash back in up to three merchant categories, and one per cent everywhere else, with no limits, caps or tiers, the Tangerine Money-Back credit card beat out most every other no-fee cash back card in the country - no question about it.
That was then and this is now.
Now to be fair, there is nothing legally wrong with this tactic and it likely generated a lot of business for the company. However, this moves comes amid increased scrutiny of bank practices in the wake of unproven complaints by alleged bank employees of impropriety. Trust is such a focal point for the Canadian consumer right now and with the big banks reviewing there own sales practices you wonder if a more comprehensive review would include sales and marketing.
In the meantime, read the fine print. Buyer beware. And when it comes to Tangerine, they likely achieved their objective – attract new customers. Why? Inertia is a powerful thing. It is a lot of work to source out a new card to be sure you are getting a better deal in the long-run.
