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  • Dexter Pahmer

Why You Should Invest in Lottery Tickets

"You should save money" is good advice, but it is also the most basic advice. The first financial lesson given to children is, more often than not, that money must be kept and that it must not spent. Clearly, this rule also carries with it one of childhood's first disappointments: no [insert fast food restaurant here] for you, no new toy, no Star-Wars themed light-up sneakers. Financial self-control is, in other words, a bummer.

And while this restraint is often necessary, that doesn’t make it any easier. Saving money can be a strenuous test of discipline. In fact, the word “discipline” entered the English language as a synonym for punishment, and it still carries this meaning today. It’s unsurprising that many people don’t take pleasure in self-imposed asceticism. But normal people have strong incentives to be stingy; and banks have strong incentives to encourage these normal people to be stingy. The budgeting feature present in most banking apps, TDMySpend, NOMI, Scotia Smart Money, etc., exist to help you keep your money, but also to keep it inside the vaults of your bank. When a customer deposits their money, this provides the bank with the capital to make loans, the interest rates of said loans being a bank’s main source of profit. Banks also invest in real estate, bonds, and stocks, mostly using their customers’ funds and skimming the surplus. The more deposits, the more profits.

Fortunately for banks, it's almost imperative that a functional member of society have a bank account. And it’s almost imperative that it be filled with a non-zero amount of money. This, on the surface, should be a marketer's dream, as consumers need not be convinced to use a product if it is an almost-literal necessity. 

However, the problem that arises is one of differentiation. A savings account from one bank tends to be pretty similar to a savings account from a different bank. Furthermore, while factors like fraud protection and customer service rank as top priorities (followed by online/ATM access and low chequing fees), banks also tend to plateau in these areas. Lack of protection, or lack of service will harm the bank, but having them does not necessarily give them a leg up on their competitors. According to an MX study, customers who switched banks did so most often in search of better customer service. This, of course, indicates a sub-par service experience on the part of their previous bank. The switch is motivated by a negative experience with a competitor, but not necessarily any outstanding attribute of the new bank.

The second most cited reason for switching banks, however, is the search for higher savings rates. This is the key axis of difference: the return on investment, and the speed with which customers can reap this return. These are quite tangible, concrete metrics which the consumer can use to evaluate their options. In more traditional marketing, an inferior product can be made viable with lower prices, deft positioning or outside-the-box promotion. But the attractiveness of a banking product lies almost solely in its profitability to the consumer. Factors like brand identification and loyalty are secondary. 

Most people, in fact, have several bank accounts; the average American having 5.3 accounts in 2019. Furthermore, half of Americans hold accounts at more than one bank. This data may indicate a relatively high level of brand loyalty, but it also shows its limits. A sizable portion of the population is willing to deal with multiple banks if it puts more money in their pockets.

Banks, whose product is infinitely serious, also have quite limited possibilities for branding. The impression of a stable, trustworthy institution can only be achieved in a few very specific ways, none of which are innovative.

For example, consider these slogans from some of Canada's top banks:

The Bank Where People Make the Difference.

Let's Make Someday Happen

You're Richer Than You Think

Boldly Grow the Good in Business and Life

Ambitions Made Real

These are, (out of order), from BMO, TD, Scotiabank, CIBC, and RBC. But I bet you'd be hard-pressed to match the bank to its slogan, (unless of course you had some preexisting encyclopedic knowledge of bank slogans, which I personally don't.) All project a tame and blandly hopeful message which aims to seem trustworthy and compassionate. This, by all means, is a tried and tested method, but it is one which banks have demonstrably struggled to improve upon. So, at last, does the beleaguered banking marketer have nothing to vaunt but the product itself?

Kind of: Saving money is also a psychological act. While momentary deprivation can feel curtailing, it still feels good to know you're making the right choice. And the consumer is not dispassionate in this: perhaps they are saving for a trip, a musical instrument, a car. The act of saving money is a way of indulging this fantasy, almost as much as it is a way of achieving it. The aforementioned slogans also play on this, especially the only one that I think is any good: “Let's Make Someday Happen.” So why don't people make someday happen?

Well, if saving is a responsible act, it is also one made grueling by the glacial pace of appreciation. Saving money promises gratification only at the cost of time, consistency, and not eating out every day. It is a financial reward for adhering to “the double entendre of self-denial.” It is no wonder people yearn for immediate, or at least more immediate, gratification. The appeal of this lies in working as little as possible for a given gain. (And yes, waiting counts as work.) 

Banks generally try to instill and incentivize this work and the patience it requires, but that doesn't mean it's impossible to appeal to the impatience of customers. For example, many banks, current CMAC client Lodavo, and a variety of other financial institutions offer what is called a prize-linked savings account. In a PLSA, frugal customers are entered in draws for a variety of prizes, each dollar deposited increasing the customer’s chances of winning. In fact, during a pilot program in Michigan, Save To Win found that 56% of participants had not previously been savers. And, in 2010, they found that the average person had saved $1673 through their PLSA, a considerable improvement in financial health for a considerable number of people.

Because each dollar saved increases one's chances of winning, odds are “earned” by the customer’s own responsible behaviour. It feels good to save for the concrete reason of pecuniary accumulation, but also for the potential gains of gambling, the beautiful dream of a lot all at once. The tragedy of gambling, to quote Pushkin, is to “sacrifice the necessary in the hope of gaining the superfluous.” But a PLSA invites its owner to add to the necessary. 

The odds, of course, will “likely be similar to those of a lottery,” but of course people love the lottery. (In 2022, Quebec spent more than $1.5 billion on lottery tickets and about half of Canadians play the lottery with some sort of regularity.) People understand the infinitesimal odds with which they're engaging and, in part, it’s because of these odds that the lottery is so exciting! If it converts gamblers into savers, this is by all means a win-win.

It's important to remember that marketing is not simply a cosmetic procedure. Often, marketers are enraptured in the superficial: the image, the narrative, the appearance of the brand.  But if they are salespeople, then they must also look at what is sold and how to improve it. 

This is a roundabout way of referring to the Product. The first of the four P's, but also the most neglected! And it is often the most neglected specifically because marketers are not makers. Yes, market research is part and parcel of product development. But the psychology of a product - the appeal which marketers are paid to intuit - is often out of their hands. Product designers can be great marketers, i.e. Steve Jobs, but it is also up to marketers to be more creative product designers. This is especially true in an industry as rigid as banking. With limited branding possibilities, it's key to wield every element of the marketing mix to its fullest extent. 

Banks, mostly, are aware of this. It is from this knowledge that they forefront service, convenience, and security; these are the important reputational elements. However, in the banking sector, these are only baselines. The only true source of differentiation is the product.

In the case of the PLSA, a viable product is stifled by the strictures of the financial marketing ecosystem. Yet, there was an untapped segment of the market, and a great idea to reach it. This is product-marketing. The PLSA transcends the idea of a stodgy, responsible, marble-columned bank, but it does so to the benefit of both banks and their customers. It is an important lesson in adaptation, of allowing a good product to market itself on its own terms, even if it means going outside of your brand's comfort zone. Ultimately, this means a better product and a better product is always easier to sell.

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