Banks and financial institutions, which were never overly concerned with ensuring customer loyalty, are starting to pay the price. That’s because the traditional product-centric approach no longer works in a commoditized market; today, banks need to fulfill the changing needs and expectations of customers in order to win.
According to a recent study by the Economist Intelligence Unit and IBM’s Institute for Business Value, 90% of the world’s top banks recognize the need for transformation in pricing processes, methodologies, and use of client data.
Accordingly, they have made numerous attempts to improve loyalty by employing measures like discounts, product promotions and reward programs. Core banking systems are doing a fine job at tracking and processing standardized transactions, but rigid product silos and a product-centric approach prevent the tracking of discounts across multiple product silos, leading to customer dissatisfaction and revenue leakage.
There is a need to optimize product bundling and pricing, which in turn will improve banks’ revenue and customer service.
As banks move from a product to customer-centric approach, they are also adopting relationship-based pricing models. These models use insights from customer data to determine pricing, rewards, and other ways to keep customers satisfied. Relationship-based pricing finds application while setting analytical preferential interest rates, analytical charge amounts and bonus interest amounts for certain accounts.
It is a win-win solution as it is:
- A Designed to keep customers happy through preferential pricing.
- A “one stop shop” for customers providing loans, temporary overdrafts, checks and demand drafts and other value added services at a lower price.
- A source of revenue for banks, which helps them segregate customers based on the size of their business, and enables them to weed out unprofitable ones.
- A technological advantage, whose price optimization solutions also reduce the time required to administer the pricing process and thereby give management more time to focus on strategic decisions.