Evidently discounts still hold considerable merit for any organization trying to grow its business. But not all concessions are created equal. Some may be quite unprofitable and if allowed to remain in a bank’s portfolio, they can have an adverse impact on the business. Banks reward customers on the basis of positive financial behaviour. But there may instances where the customer continues to get rewards like discounted interest rates even though they don’t maintain a minimum balance. This revenue leakage can be very damaging for the bank in the long run.
Right now, banks are focusing on revamping their pricing strategies to transition to innovative, personalized value-based pricing models. And assessing their discounting approaches to ensure greater profitability is an important part of a value-based pricing roadmap. The key to implementing an effective concession strategy lies in treating them as investments. Organizations must routinely review their investments to weed out ones that have become irrelevant or unprofitable. This approach must be extended to discounts as well. Banks must evaluate the rebates in place to understand their impact on profits, and other strategic priorities. There is no downside to removing unproductive ones, even with existing profitable customers. Even discretionary discounts must be implemented after careful analysis of their impact, must be implemented on a temporary basis, and must be monitored to ensure they remain profitable.