Relationship-based pricing enables customers to pay for services and products as well as get benefits based on the relationship they share with their bank. Using this strategy, banks can dynamically price their product portfolio and hyper personalize their offerings in line with the customer needs.
It entails incentivizing positive customer behavior to encourage them to do more business with the bank and make more investments in the bank. For example, some banks in the Middle East and APAC region offer conditional incentives to customers who maintain a minimum balance, which in turn is determined by the relationship. This not only helps them retain their existing customer base but also attract new customers.
However, it is also imperative for banks to strike the right balance between providing customer benefits and maintaining profitability. For example, a bank in the APAC focused on discounts to an extent which led to product cannibalizations. In such a scenario, it makes it important to constantly track customer behavior and incentivize them only for positive financial behavior instead of using a blanket approach. Dynamic and analytical pricing models based on product category and customer consumption patterns can help resolve this.
Here’s another example, in a corporate setting, if a client takes an overdraft, and is repaying on time consistently, the bank could incentivize them by cross-selling products and services at better prices or even offer an extended overdraft limit. This offers long-term value to the customer and ensures longer and more profitable relationship. To maximize loyalty and profitability, banks must give its best value to its best customers.
Dynamic pricing is contextual and offers the right price to the right customer at the right time. By understanding customer behavior banks can offer desirable and attractive price propositions to customers. It essentially entails using advanced analytics, including machine learning and artificial intelligence to analyze customer and transaction data and offer personalized, real-time prices and offerings to meet contextual customer needs. Dynamic pricing not only helps increase customer stickiness but also offers ample cross-selling and product bundling opportunities to Relationship Managers.
When customers are given such choice and control over their relationship, it enhances their experience, reiterates their trust in the bank, and promotes financial health for customers.
A sophisticated pricing solution with dynamic relationship bases, and analytical rules-based pricing will have a distinct advantage in bolstering customer relationships, monitoring revenues and optimizing relationship values. Banks can now leverage such a product to grow their revenue and profits faster than their competitors.