How banks can increase revenue through systematic price management
Price is still the biggest lever for improved profitability
As a rule of thumb, additional earnings of up to EUR 1 million per EUR 1 billion total assets p.a. are possible
Learn about the true potential of your institution via our five steps of price optimization
It’s a well-known fact: the economic environment for German banks has deteriorated dramatically over the past decade. Low interest rates are squeezing the profit margin, and despite the expansion of lending business, higher net commission income and reduced material and personnel costs, the institutions are earning significantly less money today than they did twenty years ago.
One solution to this problem lies in systematic price management, because price is still a greater lever for improving profitability than many other measures.
Our current analyses, projects and publications show that considerable increases in earnings can be achieved through systematic price optimization. Our project for a medium-sized regional bank, only one of many successful examples, proved that a potential of over two million euros per two billion euros of balance sheet total per year became real.
Five steps to success.
At a recent project, we realized a pricing potential of more than EUR 2 million at a EUR 2 billion balance sheet total.
Many decision-makers see price management as walking a fine line. They’re afraid to scare off customers. Customer advisors too are often afraid to tackle the subject head-on. However, banks that have positioned themselves excellently in the market should not only know their own strength, but also consciously use their brand value in customer meetings.
In our experience, for a bank to be able to use its own brand to earn money, it is necessary for employees to develop an awareness of their own added value over competitors. We train staff accordingly and provide them with methods for confidently dealing with customers. This ability is a key prerequisite for success, especially with new pricing models.
“Pricing decisions quickly and heavily affect profits. Therefore, they have to be based on reliable information rather than gut feeling.”
Dr. Peter Klenk, Partner, zeb
Differentiation helps to make better use of differences in willingness to pay
Examples from the business world prove this: if a company cleverly staggers prices and services, it can make better use of different customers’ willingness to pay. The US barbecue manufacturer, Weber, for example, has developed a number of experiences to accompany its pricey—and actually rather unremarkable—products. Customers perceive these as a high quality range of products and services—and are prepared to pay higher prices. Banks can take advantage of this strategy, for example when offering current accounts. In online banking, prices can also be differentiated according to channel; or in price packages, for example, a discount can be granted if a customer buys products in combination.