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Additional Pricing Strategy Discussion

By August 11, 2023Mark's Minutes

Last week we discussed the impact of the Fed’s move on pricing strategy. We also started with the assumption that organizations are likely in the latter stages of dealing with this dilemma.

We learned that we (as individuals and organizations), go through several phases when a change (or major life event) occurs:

Shock – We aren’t ready for the change; it’s a surprise.
Fear – We are now afraid of what this may mean to our world; we are scared.
Acceptance – We’ve come to accept that now this new set of conditions is going to remain
Transformation – Now that we have accepted these changes, we have to adjust our perspective to fit this new reality.

Everybody goes through these phases at different speeds. And so does an organization.

I believe that most organizations have gone through the acceptance phase but are still struggling with the transformation stage. But this is exactly where we need to be heading – to explore a new way of pricing that is more dynamic than what we have historically relied upon.

In a recent article in Financial Brand, they discussed key strategies to optimize your pricing strategy in these times. It’s worth sharing:

Savvy financial institutions around the world are experimenting with unconventional inputs to create pricing models that allow them to stand out in their market and appeal to the customers they want to serve.

Here are just a few examples:

In the United States, a midsize credit union rewards long-term customers with more favorable loan and deposit pricing. Customer loyalty creates value for the credit union, and giving special rates to these individuals strengthens the overall relationship.
In Europe, a large retail bank calculates a relationship score by evaluating assets and liabilities across multiple customer accounts (retail, wealth, business, etc.). The resulting “value score” is used as a pricing attribute when they’re creating a rate sheet. We’ve also seen these scores used to impact fee waivers and cash back rewards.
In the U.K., a large commercial bank incorporates climate data into how it prices loans secured by real estate. So, for example, if a property is located in a floodplain, the loan would be priced to reflect the increased risk of operating a business in that location.

By moving away from one-size-fits-all pricing models, these financial institutions are capturing business that works well for them at a price they — and their customers — find attractive.

Now these ideas may not be exactly what you are looking for. However, the idea is not to necessarily copy somebody else’s plan, but to create your own.

Coming out of this most recent season shows everyone how inflexible and obsolete our current pricing methodologies are. There is room for improvement.

Can you use this as a backdrop to building a new approach for your organization? Now’s the time.

Thanks for joining me today!