Bad profits and 4 ways to avoid them

I’ve flown 1.3 million miles on United Airlines, which has earned me Gold status for life (mine or theirs, whichever comes first). So I am a hostage of the airline that urges you to “Fly the Friendly Skies.” A couple of weeks ago I was on booking a domestic flight. After selecting my roundtrip I came to a screen I have never seen before. It showed me two prices for this fare: the Basic Economy (most restricted) and Economy. The difference in these two levels was $46.00. I selected the cheaper fare and then this awful screen pops up that compares your Basic Economy with the Economy. If you choose not to pay their ransom you cannot do the following:

  • choose your seat or change or upgrade your seats
  • sit with your group or your family (not kidding)
  • bring a full-sized carry-on bag onboard (curious how they monitor this…..)
  • change your flight (what if United has a mechanical breakdown – which is frequent – does it apply then?)
  • earn premier qualifying credit card and lifetime miles

As a Gold status customer those are all the things I am guaranteed. I get to board in the first group, sit with whomever I want, check a bag for free AND bring one onboard, change my flight, get automatic upgrades, and hell yes I better be earning miles….so I called the Premier desk. Surely this does not apply to your most loyal customers.

The poor guy that took my call explained to me that they were responding to customers that wanted the lowest possible fare and this is how they could get that – by basically being penalized, and in some really weird ways like not sitting with your family.  So I asked, does this apply to me? He said “Yes.” If you want those features you have to pay more for them. This is probably the worst profit I’ve seen in the airline business for quite some time. Now every time I book a flight I’m reminded that I have to pay more for what I earned by being loyal for over 20 years. I told him that if they were really smart they would recognize my status when I logged in and not even show me the basic economy fare. To confirm how stupid this is I asked him how many Gold status customers choose to save 46 bucks to forfeit their perks. None.

Fred Reichheld, Bain Fellow, Author/Speaker on Loyalty defines bad profits as this:  “They choke a company’s growth. They blacken the reputation and make it vulnerable to competitors. The pursuit of bad profits alienates customers and demoralizes employees.”

We all know that members hate fees. But they really hate bad profits. The worst fee ever charged by a credit union (that I know of) was the result of a declining loan to share ratio. They needed to make non-interest income to fill the gap. So you guessed it, they got in a room and brainstormed about how they could raise fees or create new ones. The “branch groupie” came up in that meeting. You know, the ones that come in a couple of times a week to do business they could probably do at an ATM. They must be penalized. So now if they come in more than 5 times a month – 2 dollars!

One such member was almost charged this fee (teller was too embarrassed to charge her the first time so she just waived it but warned her). She got the message. The next time she needed to go to the credit union she decided to go through the Drive-Up window. She had never used the drive-up and when she got to the teller to make her deposit, she was asked for her deposit slip. She didn’t realize there was one so she was charged TWO DOLLARS for not being ready. How do I know about this? Because it made the local paper and was shared in social media. I also met someone from the management team and they confirmed that they did have this fee and that it was a drive-up teller that suggested it because these people were holding up the line.

My question is why do they still have deposit slips? THAT’S the problem, not the member.

After hearing about this story and having personally been in these absurd meetings where we just pull fees out of the air and add them to our already long list of fees, how can we avoid bad profits? Profits that are risking reputation and demoralizing our front line staff. So I came up with a check list.

Before you charge a new fee or increase an old one you should ask yourself four questions.

  1. How much revenue will it generate? In the case of the drive-up and branch groupie, very little.
  2. Are you competitive in your market? Meaning, is this a fee others charge? How does yours compare? The fee for using the branch was way “out of market,” just like when Bank of America tried to charge $5.00 a month for the use of a debit card. That created a social media movement “Bank Transfer Day”
  3. What is your reputation risk? This relates to number 2. If you are going to be a fee pioneer…you better hope people follow you. Unfortunately, back to the airlines, that’s what happened with charging people to check luggage. Everyone followed EXCEPT Southwest Airlines who chose to do nothing and created a sweet differentiator for themselves.
  4. How uncomfortable is it for a front line person to collect this fee? I challenge the management team to go to a branch and explain it to the member directly. If that makes you feel uncomfortable, it’s a bad profit.

Blockbuster Video became so addicted to their late fees that when Netflix solved the problem, it essentially put them out of business.

Are you addicted to bad profits?

Denise Wymore

Denise Wymore

Denise started her credit union career over 30 years ago as a Teller for Pacific NW Federal Credit Union in Portland, Oregon. She moved up and around the org. chart ... Web: Details