Relationship Based Pricing in Financial Services

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According to experts, clinching a new account is more expensive than retaining an existing account. However, in a competitive market, post the financial crisis in 2008, financial firms are finding it tough to even retain existing accounts.

Financial institutions with an ability to understand a consumer behaviour/analyse data, utilize the inputs to facilitate a relationship based pricing strategy that would secure optimal results in terms of enhanced revenues and better margins.

They have faced growth issues in the recent past. Several organizations have devised customer retention strategies. In a highly competitive business environment, losing a customer would result in the loss of revenue.

The effectiveness of an organization’s client relationship would be the base for the firm’s business planning. Firms find it difficult to have an optimal approach in enhancing the client relationship. It could assist in augmenting the cross-selling opportunities and increase the asset performance while improving the brand equity for the firm.

The theory of relationship based pricing helps in overcoming the issues. It focuses on the lifeline of an organization – customers. It looks at options to influence their decisions and establish a long-term relationship for the business growth.

The key factors for the success of a Relationship Based Pricing Method are as follows:

Consolidated Processes

If the relationship based pricing concept has to succeed, existing systems encompassing various channels – website, mobile, social media must take a comprehensive organization-wide approach covering various asset types. Having a centralized approach to billing and pricing will standardize billing/pricing process with regard to various products and business verticals.

Customer Segmentation

An effective customer segmentation is a foundation for a financial institution to spearhead relationship-based pricing. The first step is to analyze customers’ previous behaviour, leverage modelling techniques to forecast outcomes. After an organization has finished segmentation, it could strategize its relationship. Amalgamated systems can encourage a distinct perspective of customers.

Leveraging efficient customer analytics along with enhancing the systems to collect data would enable financial institutions to establish a relationship with profitable customers. Analyzing mega data would enable firms to comprehend a customer’s behaviour and develop products/services that are priced in line with the customers’ expectations.

The process of segmenting customers on the basis of lifetime value (LTV) is becoming very prominent. The capability to determine the benefits from a client would enable firms to focus on profitable customers as per the firm’s long-term business plan.

Cluster the Product Offerings

Financial institutions with complementary products must bundle them together and offer as a package, thereby accomplishing a business synergy. The benefits of a lesser consolidated price for the services would be passed on to the customer. The organization can reduce the costs of service delivery along with maximizing the cross-selling opportunities.

Change Management

An organizational transformation is critical for a relationship based pricing. Facilitating the change encompassing systems, people, processes and customers is a complex process. Stakeholders across the organizational hierarchy must interface with each other. Effective internal communication is the key for the process to succeed.

Relationship-based pricing assists financial institutions to transform from a product centric to a customer centric pricing policy. It supports in removing issues pertaining to customer retention and revenue loss. The RBP methodology delivers a comprehensive perspective of a customer relationship and ensures an emphasized sales method to existing customers.

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