Pricing is no rocket science

Release date: 5 March 2024

Price is what you pay, value is what you get. (Warren Buffet)

The Price is a company's most powerful lever to increase revenue. Sounds obvious – but how does price optimization actually work?

My name is Max, and I joined zeb in January 2020. Since then, I have been working intensively on pricing and price optimization in regional banks. In this article, I will show you how we in the zeb pricing team go about our work and why pricing is by no means as dry as it may seem at first glance!

Pricing and why it’s so relevant

(Regional) banks offer their customers a wide range of products, such as current accounts, securities accounts, loans and much more. It is only logical to revise the prices of these products from time to time, as commission income represents a significant proportion of a bank’s total income. Other banks in the area may have adjusted their prices. Or the bank’s own costs have risen significantly (e.g. due to inflation). Or the interest rate environment has changed fundamentally, as is currently the case. In addition, past mergers have created the need to harmonize price differences among the involved institutions.

As you can imagine, it’s not enough to simply copy the competition’s prices or add ten percent here and there. Customers have different willingness to pay and different requirements for the services associated with the product. Banks also want to minimize the number of contract terminations caused by price increases. So you see: it’s complicated. And this is where zeb comes in …

Procedure – from analysis to implementation

At zeb, we use a three-stage process model for price optimization: analysis phase, conceptual design phase and implementation phase.

In the analysis phase, we take a close look at how customers are using the products today: What are they currently paying for the products? How many different product types are being marketed? What does the competition have to offer? This comprehensive analysis allows us to identify any unique features early in the project and address them as the project progresses.

This is followed by the conceptual design phase: In a workshop with the bank, we discuss optimization options. Each price point is put to the test, and we use powerful simulation tools to calculate the impact on earnings. Experience shows that far fewer customers switch banks when prices are increased than assumed (inelastic demand), provided the new conditions are not exaggerated. What I find particularly exciting: to put the customer at the center, we conduct customer surveys, create personas, and incorporate the impressions of customer advisors – a true 360-degree view. At the end of the conceptual design phase, new prices have been set, which then need to be implemented.

Implementation support: Leveraging potentials

Over the past few months, your bank may have informed you of new prices and asked you to agree to them. Following a court ruling in April 2021, customer consent is now required for price increases. As a consequence, this means that the communication of price adjustments has to be even more stringent and credible than before. We at zeb therefore provide comprehensive support during the implementation phase in setting up communication and marketing measures. This is where you can let your creative juices flow: flyers, letters to the customers, websites and much more need to be attractively designed.

In addition, the need for customer consent also offers opportunities. zeb.applied, one of our subsidiaries, builds intelligent consent processes. After all, bank customers rightly expect uncomplicated and intuitive digital services.

Innovation does not stop at banks

The range of services offered by banks today is much broader than it was a few years ago. It is no longer enough to deliver only basic functionalities, Instead, an attractive portfolio of services needs to be offered. Do you want some examples? Many banks reward their long-term customers with sophisticated loyalty programs or discounts at local retailers. Customers demand innovative payment solutions and intelligent insurance services. The Sparkasse and Volksbank brand is becoming increasingly relevant and charged with emotional messages in order to stand out from direct and neobanks. Another very relevant topic is attracting young customers and deepening the relationship with them step by step.

zeb supports its clients comprehensively in all these areas, which results in a varied job profile for us as consultants.

Always new challenges

What appeals to me most about working in the pricing team? The combination of quantitative and qualitative skills, as the simulations require accuracy and numerical understanding, but also facilitation skills and empathy to take into account both the interests of the employees in a project group and the needs of the clients. I also like the combination of flexible preparation time at home or in the office and direct contact with decision-makers at the client’s site. The fact that the range of tasks is also broad and always different depending on the background of the bank is an additional motivation for me.

Do you see yourself in these roles? Do you have what it takes both in terms of mathematical skills and creativity? If you are interested in working in the pricing team, or if you simply have questions, please contact me per Mail or LinkedIn!