Shopping Around

Justin Randal oversees the home equity business unit at a bank located in the Midwest. Mortgage interest rates are extremely competitive and even a fraction of a percentage point can cause a large fluctuation in the cash flows of a bank. Additionally, banks spend hefty amounts of money in marketing their products to businesses and consumers alike. Mr. Randal has a lucrative salary, but the majority of the income he receives is commission- based. By exceeding corporate goals, Mr. Randal has climbed the corporate ladder and now has many mortgage consultants that work under him. He, in turn, is directly affected (and compensated) by their performances and encourages them to find new and innovative ways to increase the number of mortgages the bank handles.

A very important aspect of the highly competitive banking industry is monitoring the actions of competing entities. Industry standards are fairly strict, but banks advertise intensely and run various promotions throughout the year. The financial institutions target various customer segments in unique and imaginative ways in order to outshine other banks that compete for similar customers. As a result, banks can be highly influenced by even the slightest move of one of its competitors.

On a weekly basis, Mr. Randal will play the role of a “potential customer” by contacting competitors in order to attain highly valuable information. He will address a number of questions to a low-ranking personal banker that resides at a rival entity. These inquiries range from mortgage rates to marketing campaigns. Mr. Randal asks for information about current promotions and even meddles about confidential company policies. Based on the results of his research, Mr. Randal alters the short-term strategy of the bank in which he works. Because he is very successful at what he does, the individuals that work under Mr. Randal emulate his behaviors. While many do not support this behavior, they justify their actions by arguing that their competitors carry out similar acts.

Is it right for Mr. Randal to shop around and act as a “potential customer”?