by Tamir Shafer, Managing Director, Treasury and Banking Services
Changing banks is painful. You know it and so does your bank. In fact, they count on it. But every relationship has its breaking point. Recent trends suggest that yours may be closer than you think.
In Economics 101, we learn about supply and demand, elasticity, and diminishing marginal utility. We also learn about the ease (or difficulty) with which one ‘product’ can be replaced with a similar ‘product’. This consumer decision is called ‘substitutability’, and the economics behind it drive decision making by all consumers.
Think Pepsi vs. Coke and imagine this scenario: you are a fanatical Pepsi drinker, its 95 degrees Fahrenheit (35 degrees Celsius) and you are at an outdoor mall. You are very thirsty, and a cold can of Pepsi is the cure to quench your thirst. In front of you are only two vending machines: Coke and Pepsi. If the price of a can of Pepsi was $0.25 more than Coke, which brand would you buy? Probably the Pepsi. What if it were $1 more? Or $5 more? At what price-point does Coke become a substitute for Pepsi? We’ll get back to this in a minute. Continue reading