Bad Profits, Unhappy Customers

I recently had an experience with my long-term bank branch that exemplifies something I’ve been writing about for more than a decade: bad profits. 

This branch has had several names hanging above the door since I first opened an account there 30 years ago. One after another, new banks took over in the wave of acquisitions that has transformed the industry. Today, the branch is part of one of the largest banks in the world.

Not long ago, running low on checks, I went to the bank’s website to reorder. Checks had long been free or available at a nominal charge, so I was shocked to realize that the bank would be charging me $107.  

I quickly canceled the order and, not for the first time, calculated how much work it would be to close my account and move to another bank. The necessary steps would create such a hassle that I had to admit they had me trapped. But my money didn’t need to remain trapped, and I reduced my balance so it barely exceeded the account minimum. 

Later, sharing my frustration with my youngest son, he informed me I could order checks from Costco for any bank. I went online and placed my order there. Including shipping and taxes, the charge came to about $12 with my Costco membership.  

Costco is famous for avoiding bad profits, my term for profits earned at the expense of a customer relationship. Banks, on the other hand, with their various fees and charges, are infamous for pursuing them. Bad profits alienate customers, leaving them feeling misled, mistreated, ignored or coerced. 

As my colleague Rob Markey and I explain in The Ultimate Question 2.0, bad profits often come from unfair or deceptive pricing. Clearly, it was not costing my bank over $100 to print some checks if Costco could do it for $12. How could I not feel that my trust had been abused?

Bad profits choke a company’s growth by creating detractors whose dissatisfaction blackens its reputation. They demoralize employees and leave the company vulnerable to the competition. They make a mockery of the Golden Rule—that we should treat our neighbors the way we would like to be treated.

Companies that focus on good profits, the kind that come with customers’ enthusiastic cooperation, are more likely to thrive. In the US and Canada, Costco’s member renewal rate is currently 90%, and the retailer continues to grow profitably, while many banks struggle. 

Companies that focus on good profits, the kind that come with customers’ enthusiastic cooperation, are more likely to thrive.

Costco’s pro-customer actions include automatically redeeming coupons (whether or not the customer has them in hand), offering generous warranties and maintaining consistent pricing, avoiding the manipulative high-low paradigm of setting prices high initially and then dramatically discounting items when their popularity drops. Costco knows it has to earn a hurdle rate of return for investors—and it does so with its membership fees. From there, the company channels all of its creativity into providing great customer experiences and value. 

By contrast, the customer-alienating behaviors of certain banks are well known. Wells Fargo’s practices have topped the headlines recently, but many other banks levy abusive late fees and other frustrating, and often hard-to-spot, charges. Mine is certainly not alone. 

Why don’t more banks understand that filling their budget gaps with bad profits is simply turning their customers against them—and destroying their ability to attract and retain good employees, who want to be proud of how they treat customers? I hope that readers of this article will highlight some financial services institutions that avoid bad profits and might provide a safe place for all of us to transfer our bank balances.

Read more: Good Profits and Growth