Price Management in Financial Services: Smart Strategies for Growth

Introduction

The term “price management“ was coined by Simon and Dolan in their 1997 book Power Pricing . Two of the most globally recognized thought leaders in pricing research and advice, the authors described their approach to pricing as follows: “Progressive business proactively use pricing as a tool for achieving their goals. These advocates of `price management` recognize the importance of pricing in determining profit and develop deep pricing competencies to consistently deliver improved profits for their companies.“ This book is about applying these principles to the financial services industry. We lay out the fundamentals of pricing in a concise and practical format, show how managers can successfully apply them in practice, and explain why pricing is capable of giving businesses a competitive edge. The book is, to a large extent, based on hundreds of strategic pricing projects conducted by the authors at Simon-Kucher & Partners, the most recognized pricing consultancy in the world. Throughout the book, we provide concrete recommendations for optimal price management. The reader will be provided with recommendations on: price wars, strategic aspects of pricing, effect of price on sales volume, price optimization, intelligent forms of price differentiation, as well as pricing process and pricing organization. Overall, the aim of the book is to provide an understanding of the effects of price on sales and profits and to demonstrate ways for pricing professionals to use pricing to increase profits. The book will answer a variety of key management questions, including:

• What are the reasons for the increased importance of pricing in financial services institutions, and how can pricing be used to increase profits?
• Why are pricing principles needed, and how can these be developed?
• How should financial services institutions position themselves in the market with regard to pricing, and what is an appropriate price and product strategy?
• What are the reasons for price wars in the financial services industry, and what strategies can be deployed to avoid price wars?
• What is a price-response function and how can this function be reliably determined to optimize prices for financial services products?
• What is pricing process and how can a systematic pricing process be developed?
• What effect does brand have on pricing, and vice-versa?
• What intelligent forms of price differentiation exist (e.g. interest rate tiers, added-value account package, and family prices)?
• What psychological aspect should be taken into account in pricing (e.g. customer perception of interest rates and discounts) and what are their implications for price communication?
• What effect does pricing have on the organization and is there a need for a “Head of Pricing “position in financial services institutions?
• What aspects of price implementation should be considered (e.g. enforcing prices in sales negotiations)?
• How should pricing be monitored by financial services institutions?
• How can the challenges of pricing in different business area (e.g. B2B, B2C or fund business) and segments (retail, private banking and commercial customers) be solved?

Throughout the book, answers to the above questions are revealed with the help of numerous case study examples.

The book consists of nine chapters.

Setting the scene in Chapter 2, we explore the fundamentals of pricing and why pricing is growing in relevance. We point out the key drivers raising the importance of pricing throughout the financial services industry, and draw particular attention to the damage caused by price wars- common in today´s fiercely competitive markets.

• In Chapter 3, we provide the readers with an overview of the fundamental building blocks of pricing and examine how pricing and strategy interact.
• In Chapter 4, we explore price optimization methodologies and use case studies to show how optimization methods have been successfully implemented by financial services organizations around the world.
• In Chapter 5, we go beyond the basic methodologies of price optimization and get to the heart of pricing. Using various case studies, we show how to apply key pricing strategies in the financial services industry, including price differentiation, price bundling, non-linear pricing and multi-person pricing.
• Chapter 6 describes the key psychological aspect of pricing (price awareness, price perception, price image and price thresholds) and show how financial services organizations can make use of them.
• In Chapter 7, we show how to confront the various obstacles encountered when putting pricing decisions into action. We explore the important question of what a manager should consider when implementing pricing strategies (pricing organization, pricing information systems, price enforcement).
• The case studies in Chapter 8 provide a step- by-step account of pricing in action. We demonstrate how financial services companies have implemented pricing. The pricing methodologies described in the book are at the center of each example.
• The book´s final chapter provides managers with an overview of the key learnings from the book.