Banks today need to understand how different customers value their products and services to set the prices in line with their business strategy. Banks should replace traditional pricing with a holistic data driven driven approach that includes customers' needs, preferences, behaviors, purchasing patterns, and price sensitivity.
To compete more effectively in today’s environment, banks need to understand how different customers value their products and services, and use this information to set the prices that best meet their strategic business goals. As a critical part of their multifaceted profit improvement and growth strategies, banks have recognized the need to replace their traditional pricing approaches and capabilities with a value-driven approach that incorporates their customers' needs, preferences, behaviors, purchasing patterns, and price sensitivity ("willingness to pay"). However, few banks have taken a truly data-driven, analytical approach to setting and managing prices.
A data-driven, holistic pricing approach creates more (and faster) value than banks can yield from reductions in variable and fixed costs, or from increases in volume. Research has shown that a 1% improvement in pricing will have 1.5 to 4.5 times the margin impact of a 1% cost improvement. Moreover, between 1% and 5% of value is lost across all industries because companies do not know enough about their customers’ willingness to pay, or do not have the ability to profit from this knowledge. With such profit leverage, pricing is one function that a company can always improve.
Banks that develop a data-driven, customer-focused approach are better positioned to use pricing as a competitive advantage across market and customer segments, as well as the entire portfolio of deposit, lending, and transaction products and services.