6 Tips to Help You Up Your Pricing Game

 A 1% increase in price results in a rise of 8.7% in operational profitability. Despite this, more than 30% of price decisions made by businesses each year fail to achieve optimal results. 

Pricing for goods and services is an important part of any go-to-market strategy since it affects revenue, profitability, and brand perception. In the banking industry, proper pricing is critical to increasing profit margins.

Fintech competition, shrinking lending margins, and regulatory-driven reductions have all had an impact on banking earnings. The regulatory environment has tightened significantly over time, previous strategies like hidden costs or passing costs on to customers are obsolete. Banks are also dealing with deteriorating client loyalty as well. Customers today have a variety of alternatives to pick from, as well as the ability to compare services and pricing models among banks to make the best decisions for themselves. Banks must focus on adopting data-driven smart pricing models to drive profitability in these scenarios. For banks trying to strengthen their pricing strategy, here are a few pointers.

Introduce Middleware to Handle Pricing

Back then, "fixed pricing" was the standard. Given the complicated market structure that banks operate in today, a one-size-fits-all pricing approach is bound to fail. Fortunately, technological tools for developing dynamic pricing strategies are already in place and ready for banks to use. However, before banks can utilize technology to strengthen dynamic pricing strategies, they must first deal with the hindrances of legacy systems. Despite the need to digitalize, the banking industry has been hesitant to do so. As a result, they're stuck with outdated infrastructure that can't support innovative pricing techniques such as relationship-based pricing, differential pricing, or dynamic pricing. The transformation of large-scale infrastructure is time-consuming and costly intensive. Many banks are increasingly collaborating with technology partners to implement middleware that functions independently of the core to provide them the flexibility they need to meet customer expectations and operate with agility.

Finetune Customer Segmentation

Historically, banks price items based on logical client groups such as geographical factors. Customer segmentation may be transformed by advanced data analytics and new technologies like Artificial Intelligence and Machine Learning, which enable smarter and more effective pricing methods. Banks must also invest in sophisticated data analytics systems that can gather and analyze customer data in order to deliver useful information about their pricing sensitivity. Banks can now segment their customers based on characteristics such as personal preferences, purchasing habits, willingness to pay, and current financial status using modern analytics tools. Customer profiles can also be re-evaluated against fresh data on a regular basis to guarantee price offerings that are current and dynamic.

Consider Holistic Customer Value

Pricing plans must be devised such that each client receives the most economic benefit possible. Customer segmentation is the initial stage, but it must be followed by a comprehensive grasp of each customer's value proposition. To this aim, the pricing solution must take into account both the asset's risk profile and the customer's willingness to pay. To determine the client's value perception, all pricing components such as transaction fees, late fees, credit interest, debit interest, penalties, and overdraft must be mapped against the customer profile. Banks will need to measure the perceived customer value for each product component, including free services, and then price the product according to different segments to establish the best price structure. If acquiring or retaining clients is vital, some assets may be undervalued. Others, which do not attract a huge number of customers, might be priced more in order to produce more income. Particularly for items with low margins, a thorough grasp of pricing elasticity is essential. Smart pricing plans should also take into account the competitive environment by regularly analyzing the prices of rivals as well as the competition's reaction to their own pricing adjustments.

Balanced Promotional Offers
Most banks provide promotional rates to encourage deposit growth, which may result in higher funding costs. The net interest margin should not be harmed by the interest on deposits to be paid out. A strong pricing solution can assist banks in continuing to make targeted offers without jeopardizing interest margins.

Customer Retention
Any bank's ultimate goal is to keep clients, and pricing methods must aid in this endeavor. Fair and transparent prices, in combination with relationship-based pricing and engaging perks and loyalty management programs, may help ensure long-term client loyalty. Based on parameters such as total money under management with the bank or subscription to various products from the bank, privileged clients may be rewarded with higher rates, cheaper costs, greater free limits, or even a personal adviser.

Focus on People and Ownership

Software is only part of the smart pricing solution. Frequently, the organization's IT investments are harmed by ambiguous pricing policies, a lack of ownership, and undertrained workers. To reduce income leakage due to human error, banks must focus on developing and educating their workers. Teams might benefit from well-defined processes, accessible data, and user-friendly dashboards to keep informed about pricing rules. Banks must also reorganize their hierarchies in light of the present market environment, which is characterized by severe rivalry, market disruption, and changing customer behavior. Price used to be within the responsibility of finance or risk management departments in the traditional cost and pricing paradigm. However, in today's complicated environment, a growing number of departments, such as sales, marketing, and customer intelligence, are being granted a seat at the price table. To effectively control price choices and minimize damaging pricing, banks must establish a centralized authority with representation from all stakeholders.

The current banking landscape is complicated and rapidly changing, needing more rapid and precise go-to-market strategies. Today's technology makes it simple to enhance pricing tactics, and it must be used to assure profitability. By using data, a strong software-defined solution may effortlessly orchestrate a complicated pricing process. Smart pricing is a critical go-to-market competency that, when executed well, can yield large profits for banks.