Jun 2, 2006

Price positioning: ‘Free forever’ versus ‘not free’

Pakistan’s Bank Alfalah launched a traditional credit card with no joining fee and no annual fee (the tagline is “Free Forever”) and got 100,000 new cardholders after 14 months.

United Bank (UBL) launched their chip credit card a year later, offering merchant promotions built into the payment transaction. Even though Alfalah’s Free Forever campaign had already trained customers to expect cards to be free, UBL nevertheless decided to charge an annual fee. UBL got 100,000 new cardholders in only 7 months, half the time, beating the prior record set by Alfalah only a year earlier.

UBL was privatized five years ago, and still had a reputation of being a large, sleepy, government owned bank that people thought would never be able to launch a cool, new, exciting credit card product. Their “dip the chip” advertising campaign turned things around and repositioned the bank’s brand as modern and relevant. You can check out their TV ad here, which I believe contributed heavily to their success. The ad clearly shows that there is something different with this card, it is definitely not like all other cards on the market, there is clearly something new and cool happening instantly when you use it to pay, it is not simply a copy of something you might get from any other bank. The difference made it possible to charge an annual fee.

A bank executive in Karachi pointed out a side benefit he saw when charging an annual fee: higher usage. He explained that people naturally want to get maximum usage out of something they paid for; when the card is free, there is no guilt if it is rarely used.

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