A bank needs more money to be lent onward. A life insurance company needs to sell more life policies, a mutual fund needs more assets to manage…
So what can they do? Well a bank can increase interest rates, improve the services, give you more services, give you a locker, create better products….etc. etc.
However, all this takes a lot of effort and costs. Some of those costs could be permanent too! And the effort is something which it does not know how to put.
What should a life insurance company do? Well they can drop prices of term insurance, of fund management costs, etc.
However all this is not so easy. So they can go to a smaller new location and open more branches (again easier said than done).
What is really the cheapest thing to do? Go and announce a freebie. A toaster for a savings bank account. Credit extra points on a card which is a joint card with an airline. A voucher for books for a ‘children’ account.
Giving freebies is easy to do, costs are fixed (so known) and one can easily put some conditions. For e.g. you can say the minimum balance condition in a savings bank account is Rs. 10,000. Clearly the client’s balance will earn you much more than the cost of the freebie, right?
What can a life insurance company do? Say ‘here is a scheme for children’ – allowing them to drop a free ‘Camlin painting kit’ costing Rs. 100. A few parents will buy a policy with such a high premium – that it covers the costs of the whole program!!
What can you do as a customer….?
Just ignore all the gifts that your agent or banker keeps throwing at you….just do not hear the noise….
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