(Posted by Guest Blogger Barak Melnik)
I recently participated in the Retail Banking in Europe conference, which was held this year in Madrid. It was a very good conference, not to mention the great Spanish food and wine and the lovely weather. The program provided a good dose of visionary thinking but was anchored in real-life experiences and lessons learned. I was honored to share the podium with some of the most knowledgeable figures in the banking industry.
It was interesting to see the different ways in which banks look at pricing. On the podium, bank executives presented two very different business philosophies which translate to different pricing strategies.
The “one price fits all” approach seems to be quite effective when it is part of a broad strategy based on building market share and attracting customers with low cost, convenience, and simplicity. Banks applying this strategy are less concerned with making a profit on each customer; they look to pull in as many customers as possible, using economies of scale to lower costs of operations and improve investment outcomes in order to generate bottom line results.
Other speakers described very different strategies, aimed towards maximizing the value of each customer. Based on sophisticated methods of increasingly granular market segmentation, these banks create more products, offer a broader array of services, and find new creative ways to deliver them; they also have more pricing points to match each offering.
One of the executives I spoke with suggested these are just two stages in the natural evolution of banks. Pull in customers and gain value through volumes is a good starting point (e.g., for a new bank, a new product, a new territory). Sooner or later, though, market growth opportunities level off, creating the pressure to win more wallet share and increase per-customer profitability. It is at that point, he believes, that all banks will resort to more refined market analysis and try to better optimize their offering to maximize customer value.
