To stem the present rush of speculative customers, building societies are hiking their minimum investment levels. But freezing out small account holders now could spell trouble for the future. Sean Brierley investigates

While the rest of the marketing world bends over backwards to encourage consumers to spend, use and consume more, two service sector industries are actively trying to do the exact opposite.

Yorkshire Water told its customers to stop using so much of its product, blaming shortages on selfish and misguided gardeners. Predictably, the bloated privatised company was awash with protests that as a service provider, its duty is to provide adequate supplies, not attack customers for its own failings.

Most of us would expect such perverse logic from a water company. But no one would expect to find building societies discouraging custom in the same way.

For the past two weeks, the societies have been deliberately raising minimum deposit levels in their share accounts to discourage consumers from becoming members.

The Woolwich was one of the first to raise its minimum deposit from 100 to 500. Alliance & Leicester increased its from 10 to 500, while others such as the Bradford & Bingley, Britannia and Nationwide have all increased their minimum deposits by between 400 and 900 per cent.

The societies claim they do not want the wrong kind of customer in their branches.

Building societies have been the victims of a frenzied (liquid) gold rush. Taking their cue from media pundits, thousands have opened speculative accounts in the hope of striking lucky when the society is bought or transferred to plc status.

Some societies have publicly stated that they are in talks. BAT, which owns Eagle Star, and Allied Dunbar, has stated that it intends to add a building society to its portfolio of financial service brands. NatWest is also interested in strengthening its grip on the mortgage and savings market after recording poor results in the first half of this year.

The fever has been precipitated by highly publicised takeovers including the Halifax’s Leeds Permanent deal, Lloyds acquisition of Cheltenham & Gloucester and, most recently, Abbey National’s 1.35bn takeover of National & Provincial. Abbey’s takeover promises to make every N&P member richer by 500.

One newspaper even published a horse racing league table with societies’ names and betting odds for conversion to plc status through merger or acquisition. Among the most likely contenders are Bristol & West (5-2), Britannia (7-2), Alliance & Leicester (6-1), Nationwide and Woolwich (both at 10-1). Though many of these may be far from the finishing line, many punters are willing to place a low-risk bet by opening share accounts on a minimum deposit.

Ironically, one other likely casualty of the shifting status of the building societies is advertising agencies who are desperately trying to keep on top of the rapidly changing situation.

Building societies are currently among the most volatile clients to have.

Abbott Mead Vickers.BBDO, whose client The Leeds Permanent was bought by Halifax, is frantically trying to find a replacement. It is understood AMV was unsure whether to try to win the entire Halifax business from Bates Dorland and Zenith or join the Abbey National media pitch list (MW last week). Apparently, chief executive Michael Baulk was not informed that AMV will be pitching for the Abbey business.

BMP DDB Needham, which has the 10m Alliance & Leicester account was, according to Abbey National marketing director Ambrose McGinn, also in talks to pitch for Abbey’s media buying business, but pulled out at the last minute. “BMP must be worried about losing Alliance & Leicester when a takeover happens,” says an observer.

Similarly, National & Provincial was close to awarding its account to WCRS before it was bought by Abbey National and the pitch was called off. Like The Leeds, the N&P brand will probably be absorbed into Abbey National.

Whether ad agencies are planning to pitch for competitors’ business is the least of the building societies’ problems.

Building society branches have reported huge increases in new members opening with minimum deposits. “Whereas branch staff would previously spend 40 per cent of their time opening new accounts, now

they are spending 70 per cent,” says an Alliance & Leicester spokeswoman.

Such an influx provides a distorted new business picture for the societies.”As with banks, societies make most money from accounts which have high balances and a low number of transactions because costs are lower,” says a Nationwide spokesman. “The new accounts flooding in are nearly all low balances involving high transactions.”

For any society making itself attractive to a purchaser, a high number of unstable accounts which are unlikely to remain once the sale is complete is not the way to do it.

However, of more long-term concern to societies is the appal-ling state of the housing market – mortgage deals have never been so low. The explosion of offerings

from banks and insurance companies has increased competition to drastic proportions. Drastic measures by some operators who are offering Renault and Rover cars as part of the package (MW July 21) have left societies pushing a value-for-money strategy ahead of brand values.

One financial services marketing director says: “With the emergence of truly big players in the market – because of acquisitions – whichever societies are left will have to become niche players, probably in the overcrowded mortgage market. Their only point of difference will be their mutuality, which is a completely outmoded selling point.”

The Alliance & Leicester spokeswoman says the society is having to face up to new conditions with more competitors and changing consumer demands. “Customers are now very smart, they are looking for value for money and choice. The fact that we are mutual is secondary.”

But in the rush to deter the speculative consumer, some fear building societies could alienate their “bread and butter” market of small investors.

“Small investors are the big investors of tomorrow,” says James Evans, brand manager at Bradford & Bingley, highlighting the importance of the children’s market. “Building societies risk not only losing a significant proportion of the children’s market, but also alienating parents,” he says.

In response, the society last week launched a Premier deposit account which – unlike share accounts – do not give consumers membership, with a minimum deposit of 25. It will also launch a special children’s share account in September with a minimum deposit of 10.

The increase in minimum deposits is not a long-term strategy. It is a short-term solution to a short-term problem. Once the takeover and merger deals have been done, the need will disappear.

But the more long-term problems facing building societies will remain. It will be the societies – in whatever form – which resolve those problems, and again start to attract consumers, that will win the day.