Wednesday, February 20, 2008

Ah, Forget to Pay Your Credit Card Bill?

Paul Kedrosky (PK) posted a link to this study on credit card late payment penalties. The bottom line is that people who forget to pay their credit card bills on time, and become subject to the pain of late payment fees, initially change their behaviour, but over time forget the effects of that late payment fee at a rage of 10% per month!. If you have to pay a late payment fee this month you are not very likely to forget to pay your bill next month. BUT: in 10 months time you will be back to exactly the same behaviour pattern as you were exhibiting a before any fee was applied to you. Late Fees Do Not Change Inherent Customer Behaviour, but they do adjust it in the short term. It might be a very useful experiment to pattern a series of Reminders to such late paying customers, in two or three month cycles to remind them that they paid a fee before, and to avoid doing so again they might want to take actions x, y, and z. With an interim messaging strategy it might be possible to stretch out the reinforcement effects of the original late fee, without damaging the customer relationship by applying another late payment fee, thus encouraging potential switching behaviour.

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