the United States and abroad, In addon, attention to the integration of Maytag’ business into Haier business (oF vce vers) in the United States was necessary. Tn particular, dione relate othe olfering and brand portfolio of the combined companies woul have tobe made. For example, should Hair continue with ‘uliprodict brand stategy or adopt Maytag’s mulbrand strategy? ‘The iniial May bid for Maytag by a private US-based investment group ‘was $113 billion, or about $14.00 per share. The ivestment group woul also "ssuine Maytag’ $969 millon in deb, Haier had the capital to exceed this bid ‘should company officals determine thatthe financial value of Maytag exceeded ‘i fgure: Furthermore, Haier's cost of capital was virally ero piven ts pre- ferred stats according to the Chinese government's plans for global expansion, [According to financial analysts the average prce-carmings ratio (P/E) multiple inthe hosschold appliance industry actuate ia the 16 to 20 range inthe prior five years (hat is, corporate stk prices were trading at 16 to 20 times. con- ‘orate camings-pershare). Financial analyts also projected Maytag’s earnings- pershare to be $0.54 in 2005, $0.75 in 2006, and $0.90 In 2007 following [tuccessful completion of Maytag’ restructuring effort. Maytay’s stock price was trading at $15.31 per share on June 15, ExhiDiC 9 shows the Maytag stock price ‘wend over the past 10 months ‘Onthe other hand, Hater executives ha wo consider whether such a fnaneal investment might e better directed at building the Haier brand and business in the United States folowing the comporate growth stategy of Japan's Sony Co poration and South Korea's Samsung Corporation, Both companies built their Cote businesses and corporate brands over an extended ime period eather than through acquisitions ‘Maytag Corporation Common Stock Pic Trend eae ney foe : et : J : Sop Oct Nov ec Jan Feb Ma Apr May Jun “arcs ped fom Manis Corporation We Slane 16 2.Preparing a Written Case Analy: {Chapter 3 outlined an approach to marketing decison making and case analysis, ‘The purpose of this appendix i to provide a more detailed description of what i involved ina thorough writen case analysis through the use of an example. The following case—Republic National Bank of Dallas: NOW Accounts describes 4 actual problem encountered by bank executives The cave i accompanied by a Stadent analysis inthe format described in Chapter 3. The student analysis shows how to organize a witen case and the ature and scope of the analysis, which ‘includes both qualitative and quantitative analyse, You should read sad analyze the ease before examining the student analysis & wrropuction In carly 1977, Ruth Krusen, marketing officer for Republic Nationa Bank of Da las (RNB), was asked to assess the impact on Republic Bank of offering NOW (Gegosiable order of withdrawal) accounts if they became legal nationwide Specifically, she was asd to 1, Determine the Impact oa profits that Republic National Banke could antipate from NOW accounts 2. Recommend a NOW account marketing stratery “Se caption of epi Nol unk of Dl in she peptone nly wise jy Pot er See ncaaos verso INOW accounts, which are effectively interest-bearing checking accounts, hae been in use since 1972 In New England. In early 1977, however bill was Introduced in Congress that would allow commercial Danks and dnt inssiutons in all 0 states wo provide this service! Despite opposition jn Congress, observers ‘were ofthe opinion that legislation enabling NOW accounts would be passed by the fist quarter of 1978 and would become effective January 1979 7] BANKING IN TEXAS. = ‘Tesas i a “unit banking” state. This means that individual banks eannot operate Ianch banks. The exulaion that limits hank to single location was spec Fed inthe state constitution of 1876. 1a 1971, however amendments the Bank olding Act allowed individual banks to acquire smaller Instone ithe iden tity ofthe acquired bank was maintained. Stace 1971, large banks in Texas have formed holding companies to improve thet lending capably in order to beter serve large commercial accounts By 1977, 33 hank holding companies were op crating in Texas, Holding companies owned 250 of the state's 1,340 bunks and held about 55 percent ofthe state's eal bank deposits in 1977 ‘Thee of the largest bank holding companies in Texas ae base in Dll ach operates is largest banke in downtown Dallas, First Intrnaional Bane shares, which operates Fist National Bank, is the largest bank holding company in Texas, Republic of Texas Corporation operates the Republic National Bank of Dallas and is the second largest holding company. Mercantile Tenss Corporation operates Mercantile National Hank and is the itv largest bank holding company in terms of total assets, ‘Banking activity In Texas generally corresponds to pockets of urban and ‘commercial grow. Accorangiy, banking activity is concentrated Inthe Dal Fort Worth and Houston metropolitan areas. The San Antonio metropolitan area has shown a dramatie increase in banking acuity due In part to population row and inereaed economic grow BZ comperimive siruation In DALLAS ‘The Dallas banking market consists of 57 banks i the ety of Dallas and an a dional 43 banks in Dallas County, At the end of 1976, the 57 banks inthe city of Dallas recorded total deposts of $13.27 lion. The 4 banks in Dallas County recorded deposits of about $1.25 billion. Tyee lage downiown banks dominate the Dallas banking market. At the end of 1976, Republic National Bank, Fst National Bank and the Mercantile Ne onal Bank accounted for approximately 78 percent of total bank deposits inthe ‘ty of Dallas and 71 percent of Dallas County bank deposits. Republic National Bank was the leader wih approximately $46 lion in deposits, followed closely by Fest National Bank with $44 billion. Mercanile National Bank recorded total deposits of about $1.3 billion atthe end of 1976. These three banks ae located bthin walking distance of one another s well x of some 12 other banks Competitive activites of Dallas banks have historically focused ‘on seal consumer) oF wholesale (business) bank account development Banks locited669 in subusban arcs typically emphasized the retail business, whereas downtown, ‘banks emphasized the wholesale business. Nevertheless, the Dallas competitive ‘environment in recent years has been characterized by aggressive bank market ing efforts on both rons, According to one observer of the Dall banking scene: ‘The competive marketing fares rc, ands no jus the catchy advertising themes "There's seramble pong on o repackage conser services pa Fon new Services ross sel service, and woo corte customer, Theres Sstirday banking, extended hours Baking, how tele foreign cure Slo, ch macins, o-carge checking package des, atonati payal Je Post, pension fd management services, computer bling service, spell ranged eal tour telrs checks 0 spend on trvel ors, een es ing ret card lous, oa sdicason, tok boxes, nl on anon Pt Xi ‘ona Bank allan aloe te more han 400 diferent bik pdt” a Inventory of services? Kusen confirmed the observation that the Dallas banking market was com- petitive. She noted that RNB continues to be competitive in banking services, but “the quetion of how aggressive we should be has not beea resolved at least 3s regards real account marketing.” RNB has at least as many bank services for Customers as competitors do, if not more services than are offered by the vast ‘major of commercial banks i Dallas. In addition to commercial banks, savings and loan association (Sis) also compete for passbook savings accounts among Dallas County residents. At the fend of 1976, deposits of the 22 Dallas County-based savings and loan associ. ‘ons were $2.85 billion. Dallas Federal Savings was the largest savings and loan association with about $909.6 milion ia deposits, or about 32 percent of total epost. Texas Federal Savings and Fist Texas Savings combined accounted for approximately $992 milion in deposits, or 35 percent of total deposits, Dalla County Savings and loan associations based tse Dallas County also operated bout 50 offices inthe county ‘Savings and loan associations have aggressively sought deposits in recent years. Dallasbased associations have historically outpaced the national average For savings and loan deposit volume growth, Savings associations have enh sized ewo competitive advantages in their passbook savings marketing programs Fst, they could pay 5% percent on passbook savings, wherets comme banks were limited by law to 5 percent on passbook savings Second, they could develop branch operations with a common name, whereas commercial banks ‘were limited to a single location in Texas. Savings and foan associations have placed greater emphasis on consumer, or installment, loans in recent years. Texas is ungue among states in that i al lows savings assocations to provide installment loans, and some associations have used this opportniy to atract deposit volume. According to an industry observer, S8Ls have historically attracted older customers. Installment loans are 2 useful sevice to bring in younger customers, inzoduee them t S84, and et them © open a passbook savings account ‘Credit unions also representa competitive force inthe Dallas market, By the ‘end of 1976, 218 cet unions were located in the ety of alla an ts inmed late environs. These credit unions operated 232 offices. Combined, credit unions held over $666 milion in assets and served almost one-half millon members. ‘reat unions compete effectively inthe Dallas market in thece ways Fir they offer consumer, or installment, loans to thei members st competidve ove ca A Pah er Bock” Dslr Wort asin Quay 3,2Interest rates. They hold a significant share of the automobile loans i the Dab las market, Second, credit unions hold substantial funds im member savings a ‘oun. Third, credit unions provide share drafts to theie members. A share daft isa withdrawal document tht permits creitunion members to make payments from interest-bearing savings accounts, These drafts resemble checks but af 4¢ tually drafts drawn on credit union and payable through bank, BR ePus.ic NATIONAL BANK Republic National Bank was founded in 1920. At that time, the bank was calle Garanty Bank and Trost, and it held a state banking charter, After several name changes, the present name Was adopted in 1937, and RNB obtained 4 national bhanke charter Today, RNB isthe largest member of the Republic of Texas Corpo- ration hank oldng-company system. By the end of 1977, ENB would be ranked twenty-first in the United States in total assets and deposits and woul Be the largest nk in Texas and the South in terms of total snes, deposits, loans, and equity expta. Also by the end of 1977, ENB would be ranked 130th among the 500 largest banks inthe nom Communist world, according to America Barer ‘magarine. RNB had woul assets exceeding $6 billion anda net acome of approxi ‘matey $36; lion by that time Retail Account Marketing Akihough figures are not available for compedng banks, RNB is considered to hnave one ofthe largest, if ot she largest reall account bases in the Dallas area, [Acconling to Krasen, this occurred ss resul of RNB historic postion of tak tng chances onthe ite guy andl community service," Ie wa estimated that about 55 percent of ENB's retail checking accounts in 1977 were under $500. Exhibit 1 thaws the distribution of accounts by account size. EINE rtes Disvtbution of Personal checking Account Balances inary 1977 “Gang noon Account Sze racconns posts ‘Under 200 3% m8 s200-$499 2 3 $500.4559 M 4 s1.000-54999 1 8 §5,00.4999| 7 ” s00m-$24599 3 s | *25000-$109000 2 2» | ‘ove s100600| ei as umber of personal checking acount 45000 emonal checking account deposit: 150 milion ‘mca Ca anata Daan Fecal ore Ban Bal, 7.oon “This philosophy is communicated In RNB advertising, Begnning in the late 1969s with “Sir Star Service” campaign and continuing with the “Star Treat ment” advertising campaign, RNB communicated to present and potential easton {2 that they were special and that RN ada umber of ypeil services to pre them. tn ealy 1977 the “Republic Nationa Bank s Dallas" campaign was launched, with Orson Welles narrating television and radio advertising spot an the Dll Sympltony playing the theme musi, This campaign was designed to reflec the mr tual taddons of RNB and Dallas residents as progressive and growth-oriented, 3 well as emphasize the interdependence of banking leadership a service withthe Prosperity an quality of Dallas if Marketing research has shown that RNB has had the highest "toptanind awareness" of any bank inthe Dallas ae sine 1975 Retail Account Services RNS retail account marketing efforts have resulted ina variety of tradional as ‘well as innovative bank services for its customers. For example, RNB provides its Teller 24 Service, which isan automatic bank tller/eash machine, This service operates 24 hours a day at 26 locations around the ety of Dallas and in sx ther ‘Texas cites. Another innovation, the Starpak Account, f complete package of banking services provided to customers for fied monthly fee of §3. Exhibit 2 ‘om page 692 gives «description ofthis service. RNB persanal checking i highly competitive in dhe Dallas market, with no service charge for accounts that ma ‘ain 4 minimum monthly balance of $400, A $1 charge acrucs to accounts with 2 minimum monthly halance of $300, a $2 eharge with a minimis moothly bal nce of $200, and 283 charge with no minimum balance requlement Retail Checking Account Revenue and Cost Estimates 1m the couse of preparing her repos, Krusen contacted the RNB Conwollers Division to obtain revenve and cost data on retail checking accounts. The Con teolers Divison report, based largely on Federal Reserve tals, indicated that approximately 85 pereent of real checking account depests were investble In ‘ther words, bout 15 percent of checking account deposits mst held ia ee ‘sence. Ninety-six percent of savings accounts balances were investable “The Controllers Division also indicated that RNB would realize an average yield on loans and securities of about 75 percent ia 1977. Krasen noted that {his figure was the lowest experience by RNB in recent yeas. In 1974 RNB had realize an average Yield of 10.59 percent. Other hgures obained diccly fom Federal Reserve statistical averages for commercial banks with total deposits of ‘over $200 milion were a follows Service an handing charge revenue per account per months $1.56 ‘Account cost pr month Guang checks, deposts, and ote ‘ana overhead $524 & NOW ACCOUNTS [NOW accounts came into being asthe resule of the atemp of a Massachusetts ‘tual savings bank o circumvent the prolbition ajuinst tilt institutions of Feeing checking accouats. After a two-year regulatory and legal battle, Consumer Savings Bank of Worcester, Massachusetts, won its cane and in June 1972 began to offer a savings account on which check instruments called negotiable or ‘ders of withdeswal could he writen. Other mutta in Masrachusets and New Hampshire soon followed suon aveexox ‘Component of Republic Nati 1. Unlined Cechng Theres 0 inn ance sient mo pe heck hag, snd oli on dhe amber feck you we when you ave «apa peso choke Ingaceount ad phone number, and yen can cede a many a8 you need any me yu ee dem. {3 Redo Laan Rater hte ear slone, many people tke Sark py freA then the loon pid, wet fund 10 percent of the tier you pa on instal Inert loan of $00 or mre wen he lon as been rep greed cs, Iran eet aoa cet spre 4, No Bank charg for Praers Cheks—0r for money odes oF cashes checks when ‘outow us your Sara Account Cr 5, Pe Saf Papas BoxMell he youthe 5 se ee: Or the 8 here fora reese 6. Conbined ont Statonent—Your moth sateen can nce sts rpc on any ‘eal the scounes you and yo spouse hve Republic onsite sess yo ‘sonal certificates of deposit and even personal loans Yes, oul as receive separate Fe arsatenes on ea a our Repub cen ou ae nee Combined Seca 7. Numerical Oech Lsting—Your mony statement wil epor each check in the order ‘writen That kes much ease recone our stent exch sont, 8. Automatic rea Preston Ths optional eric ie ou atonal peace nd Sn the oppatanty to take advantage ofan escapee bangin west Os Wa If plc Mer Cardo VISA Credit Finance care fr dere pent wl apy th nomal Repayment wil be nog yor ethly Maser rer VISA covet 2 a2 sone ca pecs on Yo SpA ech cng oF You Ne Maser Charge VISA Carat an of 26 eer machines te in Dall eer “ea chant 1400 fk wide, Wi er yr eye dae 2 four chy dae eke 10. uma Loam Repayment Yo Hae anita nat Rep we Wl at your ‘oq wither yourmontly sn pay fom your Spal Checking Account. 11, Automate Sains count pais youve never en ae sve bee ths pln ‘even the problem, Just lus how mach anon fiat dy ofthe orth, One die Speci, well stomatal easter the run yo sleet er our ecg 2 ours Ings acointThen, 0 help your ving grow ven fs, wel ay dhe hes interes 12, Surpab Acount Card Wties you a6 peed canton of Republic National ‘Dank nie tthe prvege and spel savage atlabe with your Sepa Account 13, No Sipaate Chargee—Al hee Staak services ae avalible Kr he Ma olf of $8 Torna spare charge Ps tho ior sees eae al Repae Naina Bank cstomer-—We py Ponte both ways when you bank by mal Nel alii Yourin-bank parking ub when Jou ble And youl aves penonal banker uigned 0 yur atau sotha yo can call Foeadvce asec wih ony buking nedBQ Now account MARKETING STRATEGY os Although regulatory auhories persist in regarding the NOW account as a savings accouat on which checks can be weit, from a consimer point of view (Gnd from an operational point of view) it isa checking account that pays inter fst As consumers gradually became educated shout NOWs, commercial banks began to lose customers to this atvactive type of acount, with whic they were unable to compete In response, federal and state laws were passe! permitting ‘commercial bunks a wells anitals and SSL in Massachusetts and New Hamp Shire to offer NOW accounts starting in January 1974, As of March 1976, aac Institutions inthe other New England states were granted the sume powers In {wo of the sates (Connecticut and Nine), statechartred thrifts had heen en powered to offer checking accounts afew months eater In New England, NOW accounts may he offered to individuals nd to aonprae organizations except thatin Connecticut thrifts can offer NOW only toindivihls)? ‘Nuniform rate ceiling of 5 percent alist all institutions Excerpts rom a report prepared by the RNB baeting Division on the development of NOW accounts [New England are presested in the appendix atthe end ofthis ase “The tak facing Krasen was ficult for a numberof reasons. Fist, the only NOW account information avaiable peained to the New England experience. Aktovgh this information would be wseflin gauging the rate of adoption of NOW accounts, ‘tas nt ented cleat how the Dallaarea banks and thi instutons would ec Second, several contingency plans would have to be charted. f NOW accounts were ot deemed appropriate for RNB by top management, then Krusen would have 10 ‘recommend a strategy to mania the RNB customer Ise. This strategy woul de pend on whether "ie" NOW account program became popular in dhe Dalla area Seatmove conservative approach was adopeed by compton If the NOW accent ‘rae adopted by RNB, she realized, the NOW account package (eprate account par ofan existing bank service) and the price (eric changes any) would have 10 be defined, The package ad pace woul be, in pa, determined by dhe competitive ‘ervionment that developed andthe cost of NOW accounts Timing was a died consideration. Should RNB hea leader and set the com: pete tenor inthe market or take “walt and see” stance? Finally CNB de ‘Sided to adope the NOW account, then question of communications would aise, For example, should KNB quill inform prescat customers of NOW ae oun aailabilty or actively communicate avalbiity tothe Dallas market as hole ia an advertising progean? ey ‘APPENDIX: NOW ACCOUNTS IN NEW ENGLAND, A REPORT PREPARED BY THE MARKETING DIVISION OF REPUBLIC NATIONAL BANK OF DALLAS “The objectives ofthis investigation of NOW accovats ia New England were 1. "o learn the speed and magnitude of NOW account impact a. bass for estimating the impact on RNB. 2 To dentfy and evaluate varios marketing strategies and their posible relevance to our wn marketFEI 1 0w account Adoption in wew England as of August 1976 Percentage of commercial Bank's Sbare nstitions Offering of NOW Stared ‘Commercial “Teventage Perna Mrs "Rents __of Accounts "alan Mewchuwrs 2 2 2 New Hanpahie 81" 6 8 a conection © 38 5 m Maine 2 ra a Vermont 25 » » % Rhode land? 5 8 8 8 tes only te acon bre NOW ae te 6 ped Penetration of NOWS Reaction of New England financial institutions given the power to offer NOW is shown in Exhibit A.1, It indicates the percentages of thrifs and commercial bunks that were offering NOW by August 1976 and the market shares of com tmercal banks. By August 1976 mutual savings hanks in Massachusetts and New Hampshire had been able t offer NOWs for 50 months, commercial banks for 50 months. In the other states, all Institutions had been able t offer them for Despite the resistance of commercial banks in Massachusetts andl New anpshie t offering NOWs, Exhibie AA shows that a substantial majority are ‘now providing them. Inthe other New England sates, commercial banks have snowed more quickly to adopt NOW accounts, This sone of the reasons that they hhave a larger share of NOW accounts and balances than do commercial banks Massachusetts and New Hanpshic. Nevertheless, even in the later states, con ‘mercial banks have captired more ofthe otal NOW balances than have dis ‘One conclasion supported by the data shat dhe competitiveness of financial inaiuions is directly related to the degre to which the state's population is con ‘centrated in large oan markets “The addional data on Massachusetts and New Hampshireshownin Exhibit 2 Indicate the substantial Impact of NOWs in the personal payment account mae let Exhibit A.2 shows that after four yeas, 72 percent of checking account ba ances in New Hampshire have been converted to NOWs and 41 percent have CIEE Porsonat payment accounts, august 1976 Persona Payment Balances Foci Percentage Massachusens “ 2695 been converted in Massachusetts, This have captured 27 percent ofthis market in New Hampshire and 21 percent in Massachuset Marketing Strategies (Massachusetts and New Hampshire As simple as the concept of an interest bearing checking account appears to be, NOW account induction in New England produced an inital confsion of posttoning, pricing, and marketing strategies. Positioning For a variety of reasons, ths intally positioned NOWS as sav- Jigs accounts wih a special convenience feature in getting aocess to funds. Con ssimers who opened them dil not regard them as checking accounts and there ‘vas elavely low accouat activity. Adding othe confusion, when banks began to offer NOWs, some of them were very negative ia thelr presentations. They told customers in effec, "We have NOW account, but you don't really want tO spend your savings, do you?” ‘nt, thrifts and then banks became more daring in presenting NOWs as accounts that were Mentical in function to checking accounts but paid interest INOWs are by now recognized a8 a substitute for checking accounts, are opened instead of checking accounts (or an existing checking account is coed when it Is realized that it sno longer needed), and have veually the same evel of act iy as checking accounts. Pricing. Pricing was inlay fay conserve, In New Hampshire, NOW tree usualy offered ats lower rate of Ierest han savings account, while in Massachusetts peritem charges were prevalent. Then price War began and increasing unico nations ef fee NOW:-that by, maxim fe interest, no service orem charges and no minimum balance regiments "the proportion of lattons offering free NOWs increased wnt mi 1975, tut nce then the rend hs hewn reversed, gel because lt entra io the Feld have offered less generous terms. thas also Been tre that some institations that previously offered fee NOWs have imposed changes or ian balance “Te fee NOW resulted from a variety of causes and motives: 1. At the time of introduction, money market rates were so hgh thatthe ‘ost of NOW funds might til allow a margin of pro 2. Tarts were inexperienced inthe costs involved in servicing checking 3. Some thrifts were determined to establish a good marketshare eal, regardless of short rn lack of profil. nthe major market areas, there was a free checking environment. Price and Service Package Pricing structures on NOWS in New England are ss varied as checking account charges have historically been. The possibility of ‘Competing through the Interest rate paid isthe only new element. When NOW sccounts are not fee, some variant ofthe following occurs 4. Interest rates. Initially, some institations paid less than the maximum rate on savings accounts, However, under competitive pressure, rites roe to the 5 percent cling in all major markets. However, some insti tions donot pay on a dayoédepoat to day-of-withdrawal bass. While696 very few now pay only on collected balances, several large banks are Contemplating going ia that direction, A few banks pay only on ini ‘mum lances. 2. Balance requirements. Balances above which the NOW account i free" range from $200 t $1,000 In most cases, this isthe minimum balance, although one large bank, Shaw, has an average balance requirement ‘What happens when the balance that goes below the minim varies? n some eases, no Interest is pan oes, a transtction or service fee Is imposed: and in some eases, both. In some isolated markets, ees are Imposed on all accounts, bu in compeive major markets, NOWs be come fre at some balance lve, 13 Transaction charges. Charges per check range from 10 t0 25 cents, Usually, the chage i levied on all checks ifthe Balance is below the required level. In some cases, 4 certain number of checks are fece (6 to 15 pee month), and in some other cases the numberof free checks is related to balances (fr example, 5 checks per $100 of average balance, 4. sereice charge. Some banks charge flat fees rather than perseansiction charges, Fees generally are $1 oF 82. Other New England States iy the time NOW accounts were authorized in the other New Hngland sates, both thats and commercial had the opportunity to assess the cost and compedive impact of NOWS inthe two oxgial states, and ‘money market conditions had changed. These facts ae rflecte nthe response fof fnancial institutions i offering NOWs. Commercial banks have moved more rapidly than they did in Massachusets and New Hampshce, At the same tin, both dfs 2d commercial hanks have been more conservative in pricing Connecticut. Thels have moved aggressively to offer both checking ac ‘counts and NOWs. Although free checking prevails in major, Connecticut ‘markets and alghowgh about one-third of the tits offer free NOW, large CConaceticut hanks have offered NOWs om conservative terms (high min ‘mum balances with transaction chaeyes for lowerbalance accounts). The effect ofthis strategy is reflected in the high average Balances of commercial bank NOWs—over $4,000, ‘bode Island. The Bancial masket i highly concentrate In avery few in stitutions. Six moaths after NOWs became lal, si ofthe nine commercial Danks afliated with thrift insttions, sx ofthe eight unaffiliated bank, and ‘one ofthe four unafilated ths were offering NOWs, None of them offered free NOWs, As inthe checking account marke i this state, zelatively igh ‘minimum balances are required shoul be noted that because ofthe the ‘commercial bank afilations, a majority of thts have in elect been able to ‘offer checking accounts to their customers Maine. This have concentrated harder on sling checking. accounts than fon offering, NOWs. Neither thrifts nor commercial banks have moved very fast to offer NOWs, Fer offer then fee Vermont. This slate shows the slowest gain in instiutions offering NOW. [None offers them fee.Baines Republic National Bank of Dallas NOW Accounts & STRATEGIC ISSUES AND PROBLEMS th Krusen, marketing officer for RNB, has been given responsibly f (2) determining the prot impact RNB could anicipate fom NOW accounts, an {@) recommending 4 contingency plan for a NOW account marketing strategy. Her ask involves 2 number of important factors. She must asses the fkelihood thatthe Dallas competitive environment wil be liberal or conservative in ts mat= keting of NOW accounts. An important consideration fe RNB's roe in affecting {this envionment, given ts dominant poston in the Dallas market and is pos: tore regarding aggressiveness in retal account marketing. Ukimately, she mist make a"gorno go" decision. A"go" decison requires 4 recommendation i the form of the service, its target market, ts price reflected in service charges, and Fromation, A "no ga” decision mst tae into Consideration RNIVs competitive Postion without NOW accounts and measures to minimize ther impact. The Problem facing RNB is how to retain ts dominant competitive postion given an {vironmental threat (NOW accounts) while a the same time peesering prot Ahly and ie customer base S| INSIGHTS FROM THE NEW ENGLAND EXPERIENCE, ‘The NOW account experience, based on the data in the report of the marketing division, reveals the following: 1, The faster commercial banks move to adopt NOW accounts, the larger {hice share of NOW accounts snd NOW account balances 2, Cannibalzation of checking accounts curs when NOW accounts are avilable; 72 percent of checking aecouat balances in New Hampshire have been converted to NOW accouts, and 44 percent of checking a ‘counts in Massachusetts have been converted to NOWs, These ies Seveloped over 50 months (four yeas) after the NOW intrdtion (Gee Cise Exhibit 2). 13. Exhibit 1 in the case provides some evidence that NOW account bal: ances ae high. This could men that those individuals with high check ing acount balances are more likely to switch to NOWs. Akematively, the Connecicut experience would indicate that miaimmam balance te ‘urements increase NOW account balances. Dats for Massachusetts and New Hampshire both of which experienced "ree NOWs*—would tnd to support the poine that individuals with high acount balances convert, 4. NOW account usage activity approaches checking. account activi hence checking account costs are merely tansfered to managing NOW5. Competitive activity, reflected in the NOW package provided, reveals that "free NOWS" Were initially provided. Fnancat inttations subse ‘quently offered less generous terms, however. 6 NOW account packages dfer greatly with respect 6 minimum balances, service charges and positioning against checking and savings account Results from the New England experience suggest that three scenarios are possible inthe Dallas market, Environment nironment Desripion NoNOW adoption nail ntistions pean fom adoption Uber NOW adoption: NOW ate adopted with 0 minum balance, terice charges 5 percent nee ative prometan/comimaniston program. CConsrative NOW adoption: NOW are adopted with sme form of milo service charges than 3 percent interes, ite Numerous factors will affect the Helihoed ofeach environments developing in the Dallas market, Factors in fvor of a n0-NOW envionment 1 ‘The New England experience suggests that » no-win possibilty exists forall nancial insiutions. Fr example, banks will have to pay interest ‘on previously interest-free funds, and SLs and credit unions wil cr ‘costs not previously encountered, 2. Money market rates are quite low at present, suggesting litle spread to make an adequate prot manga. 1 ‘The New England experience suggests that where NOW are leyalized, they are adopted in some form, by someone 2. Ifthe Dallas markets competitive and various nancial nsiations are ‘ying for deposits then NOWs offer means to attract deposits, More= ‘over, the Ne England experience suggests tht "getting in rst scr {al “Followership snot rewarded, 3 Sis are poised to take some advantage of NOWs in that their interest ‘ate paid on deposit wil fll rom 5 percent to 5 percent, assuring S percent ceiling eve, Factors in favor of liberal NOW environment 1 Thuis might view NOWS as a way of gaining deposits quickly. 2, SLs will benefit from NOWs even If 5 percent interest offered on [NOW accounts, since chey are currently paying 5 percent on savings 13. Shure drafts provided by eredit unions have characteristics similar to those of NOWS; NOW accounts would seem lke a logical extension. Factors ia favor ofa conservative NOW environment: 1. ‘This appears to be the trend in New England tates 2, Dallas banks do not generally offer free checking 3. Money market rates ae low. 11 would seem that 4 potential determinant of how the NOW envsonment evolves will be the decision of RNB, sven its dominance in the Dallas bankingvvexo 9 market. NB's dominant posiion would sem to affect the eavconment onty if RNB acts immediately with a well-hought-out NOW account program. NOWs are probably ievtable—that i, the no-NOW enviconment seems unlikely. The que tion, then, i whether a liberal or a conservative NOW environment will develop. The environment could be influenced by BNE, BB nePus.ic narionat BANK [ENE dominates the Dallas financial market, Is assets alone ($6 billion) are almost 10 times total assets of all credit unions ($669 millon). RNB's depts (Asbition exceed the tral forall SK ($285 lon). RNB hs the largest deposit ase ofall Dallas banks andthe largest retail account deposi base in alls ‘Nevertheless, RNB management apparently has not resolved how agressive the bank: should bein real account marketing efforts. The aggresiveness issne ‘would seem fo be elated to dhe bank’ emphasis on the wholesale rather th (he retal business. hit 1 im the case indeates that about 55 percent of RNB's checking ac ‘counts ae under $500, However, 96 pereent of tal checking account balances are accounted for by aecouats of $500 and wp, and 53 percent of total deposits ae accounted for by accounts of over $25,000. The average account size i 83,383, (150 milion ia deposits divided by 45,000 acconnts). A profitability alysis of checking account sizes reveals that RNB loses soney on aecounts that ae less than $500 on an annual bans (ace Exhibit 1 in this analysis). This profitability analysis indicates that accounts below $500 produce a loss of $519,210 annual Accounts under $20; 14400 accounts X (624.20 = (349056) tae = 35020 EECA) es netat account Profit Analysis (Based on Exhibit inthe Case) rage ‘sone Avge eet ening erage TRecenue per Retenue er Account — Profi Accommsice “sunt” + “Stet” = porernnt — “Coat = aay es an $200, 1992 sin72 864 sass © $2420 $20.49 mm 1872 468 am 0640 $500-$999 on 1872 pas ms 1655 $1,0-$4.999 1347 sara va19 sw 5000-89999 3395 i872 35265 Gems hg 77 '10.000-524999 omnas 7 o935 Gems 7667 $25 000-$10,000 212500 a7 nara ses ows Seater han $100,000 7,088.00 m7 yao.72 Gems 70384700 aneexonx More important, this analysis provides important data onthe pricing of NOW sccounts and the form ofthe Service, as wil be discussed later BR ean oF action there are evo primary altematves open to RNB: t0 offer NOWS oF not to offer NOWs, I NOWs are considered, then the fom, price, and promotion must be formulating "product market strategies, @) budgeting marketing, financial and pro Aducion esourees; and (3) developing retor- tlation and covery strategies, Sub-branding. The prictice of combining 4 cor Porat o fly bran! with new rand nae, ‘Success sequirements. The tise tasks that must ‘be performed by ah organization ita market fr indistry to compte succes. nese are ‘Somesimes “hey success foes," oe simply KSPs Sunk cost. Pas expenditures fora given activity ‘that are typealyielevant in whole oe in part to future dessons. The “sunk cot fallacy is fn atemp to recoup speat dollars by spend ing tl more dollars nthe are. Supply. chain Individuals snd organizations ‘at perfor logisteal actives required 0 ‘create of source and deliver 4 proctor 3 ‘ice to consumers and industrial uses. SWOT analysis, A formal framework for iden Tying and icamiog “organizational growth ‘opportunities, SWOT isan acronym for an ‘nganization’s Strengths and Weaknesses and external Opportunities ad Threat ‘Trade margin. The diference between unit Sales peice and unit cost at each level ofa mae Keting channel. Trade margin is sally ex pressed in percentage terms. OssARY OF SELECTED MARKETING TERMS AND CONCEPTS 707 ‘Trading down. The process of seducing the ‘bumber of features ‘or ality of an oer and fowering the purchase price ‘Trading up. The pracce of improving an offer: ng by adding new festores and higher quality materials or augmenting, products with sce ‘ces and sing the purchase pice Value. The rio of perceived benefits to price fora product or service Variable cost. Expenses that are uniform per ‘init of output within zelevant me period (sully defined as 2 budget yea; total var Sle costs fhictuate in direct proportion tothe futput volume of units produced. Variable fost Include cost of goods sold and other ‘able cots sch a sles commissions, Variablecost price strategies. Those that con sider ony direct variable) costs associated with ‘the offering in pacing a proctor serie. Vieal marketing. An tntemet enabled promo tion strategy that encourages individ 0 Toeward marketerintiated messages others visemal, ‘Working capital, The dollar value of an organi “ation'scurent assets (ach as cash, accounts fecevable, prepaid expenses, inventory) mt nus the dollar value of cuent Kable (tc {8 shoreterm accounts payable for goods and Services, income We).