Raise Prices in a Slow Economy? Nice Try

Falling diaper sales and the mess at Netflix point up the risks that big banks are taking by boosting fees in a recessionary environment.

  • Share
  • Read Later
Getty Images

What were they thinking? Diaper makers Kimberly-Clark and Procter & Gamble boosted prices last spring. By the fall, diaper sales were down and baby rashes were up. The fallout from Netflix’s decision to split its DVD and streaming services, hiking prices in the process, has been epic. The company lost 1 million customers, apologized, and is unwinding part of the move.

Now big banks are raising fees? It’s not impossible to boost prices in a slow economy. But companies need to be sensitive, make their case with consumers or at least be clever. A small business might explain that the soaring cost of leather, copper and gasoline have eaten its profits; higher prices are the only way to ensure quality. Sneaky food companies have taken to putting less in the package for the same price.

(MORE: Bank of America Backlash: Consumers React to Debit Card Fee)

These are hardly the tactics of big banks, which in the face of lingering outrage over bailouts and bonuses are unleashing a torrent of new fees that will sock their customers in a time of struggle. Bank of America is the poster child with its new $5 monthly charge to shop with a debit card. But other banks are following suit.

Do they not know about the spreading Occupy Wall Street movement, which was born of widespread discontent with bank practices? Within days of Bank of America’s move, Facebook-driven Bank Transfer Day surfaced and now has 26,000 people pledging to close their accounts. Small banks and credit unions look to be huge beneficiaries. The Baltimore Sun writes:

“Local credit unions are seizing on the public’s discontent with big banks—Wells Fargo and Chase are also testing debit fees, and Citi recently announced new charges for checking accounts—to step up their marketing efforts and pull in more customers.”

As reported on Credit.com:

“Since Bank of America’s announcement, several credit unions have seen an uptick in new accounts—one branch of the Arizona State Credit Union reported a 50% increase.”

To be fair, big banks have good reason for raising fees. Financial reform chopped by 45% what the banks can charge merchants each time they swipe a debit card. This will cost them an estimated $6.6 billion in annual revenue. The banks had warned lawmakers about the need to hike fees if the reforms came to pass.

(LIST: 10 Steps for Choosing an Online Bank)

Yet the banks never made their case to individuals. In fact, this whole episode feels like an I-told-you-so aimed at Congress. And there was nothing clever about the fee hikes, which are both big and bold.

The diaper price hikes are sticking. But now we’re buying fewer diapers. Netflix lost all those customers. Big banks are raising fees in a deadly environment anyway, and it seems likely they’ll end up paying for it one way or another.

0 comments
Sort: Newest | Oldest