Mr. Klenk, interest rates have risen. Does this mean that the issue of pricing excellence at banks is no longer on the agenda?
DR. PETER KLENK: Not at all. Of course, higher interest rates mean a return to higher earnings for the banks, but especially after the long period of low interest rates, it should be clear to everyone that systematic price optimization always makes sense – across all product areas. After all, a bank always has to make money. And if one thing falls away – the demand for credit or the topic of custody fees – then there is more to do elsewhere. So it is a basic necessity for banks to constantly look around to identify where they can take advantage of price opportunities. Only the focus in the product areas changes from year to year. 

In the book “Ihr Weg zur Pricing Excellence” (Your path to pricing excellence) you see a lack of confidence as a difficulty. How do you address this issue as a consulting firm?
In many projects, the topic of “empowering” customer advisors is extremely important, and we actively offer this as well. It’s all about emphasizing performance and added value rather than just discussing price. In the lending business, many advisors play the preferential terms card all too quickly, thinking they will close the deal if they drop 20 basis points. We try to influence this mindset positively right from the outset.

What needs to change in the minds of customer advisors?
They need to believe that their own brand is fundamentally strong and that customers did not end up in their branch or on their phone line by coincidence. They need to keep practicing that, regardless of whether the pricing itself changes. It’s more about a certain attitude that we support. At zeb, we use specially trained coaches for this purpose, who address topics such as behavioral training, communication skills as well as price enforcement tips and tricks. At the end of the day, it also comes down to negotiating skills. 

Does the confidence issue lie more with the bank’s management or with the individual advisor?
Both – the lack of confidence among some of the advisors is of course due to the negotiation scenario, although board members sometimes negotiate with large customers, too. Where the management is concerned, the information basis for pricing decisions is often pretty shaky, and such decisions are sometimes made on gut instinct. Particularly when it comes to sensitive issues, such as current account or credit card prices, the fear of bad press or of losing business due to a price increase comes into play. No one wants to be to blame for that. So there is a general hesitation to be observed here. On top of that, the toolbox is often poorly filled for making broad decisions in a systematic way. This is where we come in – to provide analytical support. 

What do you typically hear from banks on the topic of pricing?
If you ask customer advisors about their bank’s pricing, 75 to 80 percent always say: “The competition is cheaper.” But somehow that doesn’t add up. Someone has to be in the middle. It seems that many have a distorted picture of the market environment. Then again, for many markets and customer types, it’s not so much about price at all. Of course, there is the price-sensitive customer type, but there are also customers whose decision is based purely on the price-performance ratio, and there is a customer group that decides on the basis of performance only – they don’t care about the price. These customers simply want the “Porsche solution”, and the price is secondary. 

And banks should be more aware of these factors so that they are less afraid of price increases?
Exactly, and then they need to find out how such price sensitivities are distributed in their own customer portfolio. This is of course an art in itself and, accordingly, not part of the standard program in all banks. And for exactly this reason, many institutions fail to position themselves confidently in terms of price. But if they improve their toolbox, for example in the form of analysis tools, and gain more transparency, they will automatically also be able to remove the barriers – both in the minds of the advisors and among the management – to enforcing better prices. 

How high is the potential you generally leverage at banks through consulting projects in the area of pricing excellence?
That can be quantified rather precisely. We have certain empirical values as to the potential that is realistic for a bank. Together with VR RheinAhrEifel, which is a cooperative bank with EUR 4.4 billion in total assets, we have recently published our very broad pricing program in a trade publication, in which we look at several topics in parallel. The potential easily lies between 1 to 2 per mill of average total assets. That means, with total assets of EUR 4 billion, there is an annual earnings potential of at least EUR 4 million.

And when a bank has undergone such a program, is it well-equipped for all time?
Once a bank has completed such a program, it may well repeat it again after a certain period of time. Pricing can be optimized again and again. Since the market is constantly evolving, a bank must regularly test its pricing models for market conformity. Pricing is like a business strategy: if you leave it unchanged for ten years, you’ll run drive it into the ground.