Many banks believe that their customers are extremely sensitive to changes in fees and interest rates for retail deposit products. But recent research shows that in reality customers are fairly tolerant of such price changes. This is good news for banks: if they had more flexibility to price retail products without sparking widespread customer defections, they could boost their bottom-line retail earnings by as much as 5 to 7 percent.
In a 2001 market research study of more than 500 banking customers in the US Southeast and Midwest, we examined responses to price changes in checking accounts and certificates of deposit (CDs).1 Our findings suggest that few customers actually change banks as a result of changes in the cost of these products.
Checking-account customers, for instance, are surprisingly "sticky," citing convenience, the quality of service, and their relationships with bank personnel as reasons for not switching to other banks after price increases. More than one-third of these customers do not even recall the last price change to their checking accounts, and only 13 percent of those who do remember troubled themselves to shop around for a better deal. In the end, just 2 percent of all customers moved...