Marketing of financial services Essay Example | Topics and Well Written Essays - 1500 words

Marketing of financial services - Essay Example Reduction in the incidence of interest rate clustering, however, is not very costly. Hence, Ashton and Hudson implied that the more na've customers should take a more active stance in their finances - be more involved as "[t]he degree of price or interest rate clustering appears to be exaggerate when low levels of financial involvement are concerned" (Ashton & Hudson 2008, p. 1402). Citibank offers several savings and investment products, whether local currency denominated or foreign currency denominated, to its clientele. These savings and investments products are offered with range of interest rates. A look at the bank's Web page on its savings and investments products shows that its US Dollar Reward Saver is marketed as giving 2.50 per cent gross per annum rate which is much higher than the account's actual annual equivalent rate or AER of 2.02 per cent. Although both rates were published in the Web page, a na've customer - whose interest or whose lack of "ability to process information" (Ashton & Hudson 2008, p. 1393) is the one being exploited - would immediately zero in on the "earn up to 2.50% gross p.a. fixed for 6 months" (Citibank 2008) and ignore the subsequent "2.02% AER on your US Dollars in the UK2.50 per cent gross" (Citibank 2008). Clearly, in this example, the bank is playing in a very broad context of marketing ethics. Another example is the bank's Reward Saver Issue 2 product which is being offered at a gross per annum interest rate of 6.35 per cent while in reality, the customer will actually be getting an interest rate closer to 5.08 per cent which is the AER. Even the AER is structured in a way to maximise or to exploit the na've's customer's tendency to round up - in here, the na've customer would think that 5.08 per cent is substantially higher than 5 per cent. An example which provides proof to Ashton and Hudson's conclusion on the rounding - "If the number is not already a round number an individual would round a number to the closest reference number" (Ashton & Hudson 2008, p. 1394) - is the bank's net interest rate per annum for its 60 day direct savings account. The bank gives 2.48 per cent for accounts with more than '75,000. A customer with the characteristics described by Ashton and Hudson will immediately round this rate off to 2.5 per cent. The 0.02 per cent difference from the rounding off can be translated to '15 every year for a '75,000 account! Ashton and Hudson observed that for mortgage rates, the interest rate clustering "occurs very frequently just below round numbers giving strong evidence for the common use of na've number processing strategies" (Ashton & Hudson 2008, p. 1401). Unfortunately, for Citibank United Kingdom (and even for HSBC UK) I could not obtain interest rates for their mortgage products, hence I applied the findings of the research to the bank's credit card rates. For its Citi Platinum MasterCard, Citibank charges 5.8 per cent for balance transfers and an APR of 16.9 per cent which are examples of the observation made by Ashton and Hudson - clustering just below round numbers. This can also be observed in the bank's Citi AAdavatage