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2020 Foresight: Relationship Pricing

Timetric
Published Date » 2013-10-22
No. Of Pages » 47

Synopsis

The report provides top-level market analysis, information and insights on relationship pricing strategies adopted by retail banks: 

  • It provides global snapshot of relationship pricing adopted by retail banks in developing and developed economies in the banking industry.
  • It analyzes relationship pricing trends and key operational opportunities for retail banks. 
  • It gives a detailed analysis of relationship pricing models adopted by retail banks globally.

Summary

  • With changes in economic fundamentals, technology, regulatory frameworks and competitive dynamics, the retail banking industry has recorded a gradual transformation in its banking business models since 1990. Following the financial crisis, banks analyzed the importance of building a profitable and long-term relationship with their customers to increase revenues and profitability. Since pricing is affected by cost pressures and changing customer expectations, banks use the opportunity to build a strong customer relationship by offering a customer-centric business models based on relationship pricing.
  • Banks apply different relationship pricing models including product bundling, behavior- and time-based pricing, and personalized pricing to a diverse customer base which suits their individual banking requirements and willingness to pay. Product bundling enables the single point management of packages, prices and promotional offers to customers, providing customized packages and bundles including products and services from different business lines, rather than selling one product or service at a time. NatWest in the UK offers product bundling with discounted features which has resulted in an increase in profit margins. 
  • Banks also offer time-based pricing by providing differentiated prices for new and existing customers and categorizing these according to their long- and short-term associations with the bank. Wells Fargo offers higher interest rates in its certificate of deposits (CD) or savings account at the end of every month, enabling existing customers to earn extra interest as an incentive to save more and increase their assets with the bank over time. 
  • Behavior-based pricing, based on the overall purchasing behavior of customers, involves offering various promotional offers and discounts on products and services. This enhances the long-term relationship of customers, resulting in higher profit margins and revenues. Through personalized pricing, banks generate and apply customized pricing for specific customers or customer groups. The bank calculates a customers financial status and suggests a customized solution. 
  • Banks are adopting advanced technology to enhance their banking solutions and build strong customer relationships. Banks have signed up with a number of analytical firms to develop frameworks and applications to use data collected from customer transactions. The use of advanced customer analytics tools in relationship pricing helps banks to understand consumer buying behavior, enabling them to offer personalized services which results in an increase in customer acquisition and retention. This approach also helps to target and isolate the most profitable customers and phase out pricing that does not offer significant value. 

Scope

This report provides a comprehensive analysis of relationship pricing models adopted by 
retail banks

  • It details insights on emerging operational, technological and regulatory trends driving the adoption of relationship pricing across developed and emerging economies
  • It provides an overview of loyalty programs as an approach to relationship-based pricing models
  • It provides case studies on relationship pricing implemented by various retail banks and their outcomes

Reasons To Buy

  • Understand the concept of relationship pricing and its adoption across key markets worldwide
  • Assess the current and future opportunities of relationship pricing in the retail banking industry
  • Gain insights into the business models adopted by retail banks to offer relationship pricing to consumers
  • Gain insight into various trends driving the growth of retail banks in offering relationship pricing

Key Highlights

  • Following the financial crisis, banks developed profitable growth through relationship pricing to derive greater value from their existing customers. In the constantly changing banking environment, a single price for all approaches is not suitable for targeting diverse customer segments, resulting in the establishment of customized pricing for specific customer groups. Following this, banks offers products and services with pricing based on a customers demography, product holding and volume of transactions. 
  • To remain competitive, banks aim to offer products at a price that take into account a customers willingness to pay. In this regard, banks assess a customers lifetime value which acts as a key driver for relationship-based pricing. 
  • Increasing competition and commoditization of services means banks have to undergo a 'virtual makeover' in offering products and services to customers. To distinguish their banking services from competitors and maintain long-term customer relationships, banks have adopted strategies such as price differentiation and a consumer-centric approach where prices and services are determined by customer requirements and purchasing behavior. 
  • Loyalty programs have emerged as a key marketing tool in the global retail banking industry. These programs offer reward points, rebates and cashback. Rewards are based on the size of purchases and the tenure of a customers relationship with the bank.
  • The understanding of purchasing patterns enables financial institutions to identify and phase out ineffective pricing and reward programs. This strategy enables banks to properly segment and target customers. Advanced analytics also enable banks to analyze their product portfolios and develop pricing strategies based on current competition.
Table of Content

1 Executive Summary

2 Global Snapshot on Relationship Pricing
2.1 Global Snapshot
2.2 Key Drivers

3 Relationship Pricing Models
3.1 Product Bundling Pricing
3.2 Time-Based Pricing
3.3 Behavior-Based Pricing
3.4 Personalized Relationship Pricing
3.5 Multidimensional Pricing

4 Current Pricing Trends and Challenges
4.1 Operations Trends
4.2 Technology Trends
4.3 Regulatory Trends

5 Relationship Pricing-Based Loyalty Programs
5.1 Overview of Relationship Pricing-Based Loyalty Programs
5.2 Loyalty Programs Targeting Various Customer Segments
5.3 Case Examples

6 Implementation Strategies and Case Studies
6.1 Best Practices
6.1.1 Redefining pricing with the introduction of relationship pricing
6.1.2 Partnerships and collaborations to offer technologically advanced solutions
6.1.3 Using analytics to understand consumer behavior and offer personalized solutions
6.1.4 Introduction of higher margin reward programs to improve profitability
6.2 Case Studies
6.2.1 Citibanks introduction of time-based relationship pricing with the Citi Prestige Card in Hong Kong
6.2.2 Standard Chartered Banks behavior-based pricing in the UAE
6.2.3 Axis Bank signed up SunTec for relationship-based pricing and billing solutions
6.2.4 Union First Markets loyalty program to scale-up business
6.2.5 Wells Fargo implemented relationship pricing to market its savings and loans products
6.2.6 Absa Banks introduction of Value Bundles

7 Appendix
7.1 Methodology
7.2 Contact Timetric
7.3 About Timetric
7.4 Timetrics Services
7.5 Disclaimer

List of Tables

Table 1: Interest Rates Per Annum in HDFC Banks Term Deposit (Below INR10 Million)
Table 2: Citibanks Multidimensional Pricing in Mortgage Loan Products in the US
Table 3: Impact of Banking Regulations in Developed Economies
Table 4: Impact of Banking Regulations in Emerging Economies
Table 5: Interest Rates in Wells Fargos Step Rate CD
Table 6: Absa Banks Introduction of Value Bundles and Benefits Offered, 2013

List of Figures

Figure 1: Shift From Product to Customer Centric Pricing Approach
Figure 2: Evolution of Banking Pricing Models
Figure 3: Relationship Pricing Models
Figure 4: Wells Fargos Increased Interest Rates on CDs
Figure 5: Emerging Trends and Their Impact Assessments
Figure 6: Growth of HNWIs in Key Countries (Million), 20082012
Figure 7: Customer Targeting Strategies Framework

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