“I’m back, baby!” – George Costanza
Much like the great George Costanza of Seinfeld fame, bankers are feeling that the tides have finally turned in their favor. Optimism has returned to the industry, as interest rates are on the rise, the regulatory winds have shifted, and share prices have responded in kind.
All of that optimism has also created some interesting discussions. With technology budgets finally restored – after a drought of nearly a decade – bankers are evaluating wide swaths of their infrastructure, especially those that directly impact the customer experience and revenue. Included in that evaluation for many is a potential overhaul of how they price, negotiate, and deliver deals for their commercial customers. We’ve helped dozens of banks dig into that decision over the last few months. That process has given us the chance to look under the hood at the current processes. To be blunt, it isn’t pretty.
Banks of all shapes and sizes have ignored this process for years, and it shows. There are several recurring issues in particular that are negatively impacting both the banks and their customers.
As you look at reshaping the experience for your commercial customers, make sure you are aware of these seven deadly sins of pricing. Today we’ll tackle Sins 1-3. Next week we’ll address Sins 4-7.
Sin #1: Failure to Scale
Pricing is one of those functions that many banks choose to tackle internally. After all, this is just a little math, and we’re great at math! But while getting the math right is an important step in pricing, it’s far from the only step. We see far too many banks that have stretched poor Microsoft Excel WAY beyond its limits. They’re now struggling to cope with a laundry lists of problems that include: lack of usability, slow processing, formula errors, garbage data, lack of integration, poor version control, difficult updates, and very limited controls, just to name a few.
Pricing impacts the bottom line more than any other function in your bank, and resources should be allocated accordingly. The most progressive banks are investing in platforms that are centered around the customer conversation, using AI to amplify great relationship managers. These RMs are given insight at the time of the negotiation that enables them to be flexible and responsive to their customers. That added value creates happier customers and better returns.
Sin #2: The Wrong Users at the Wrong Time
Many banks have Credit Analysts entering deals into a pricing model as a part of the approval process, but this is too late; by this point expectations on both sides are already set. At best this allows the bank to say no to a deal that it shouldn’t be doing – after making the customer and the credit group jump through a bunch of unnecessary hoops. More likely the bank does the deal anyway, and uses the model results to shame the RM after the fact.
Many banks are now shifting pricing away from pure “models” in credit, and are instead giving a sales and negotiation platform for their RMs. These systems make it possible for RMs to reshape and negotiate that deal early in the process, while it is still malleable. This not only leads to more profitable structures and happier customers, but also greatly reduces the number of deals in underwriting that never get booked. Instead, your credit group can focus its attention only on deals that have been qualified.
#3 Applying Vinegar Instead of Honey
Because of the risk-averse nature of banking, most systems are designed to avoid problems. Pricing is no exception. Banks typically use simple directive when setting up their pricing process: to stop RMs from doing bad deals. With any deal that is entered, there is typically a list of reasons why it won’t work or is outside of policy. The RMs essentially have to clear those “exceptions” to get the deal approved.
We’ve found the opposite approach to be much more effective. Instead of a list of problems, provide your RMs with a list of solutions: “Here are 10 ways we can make this deal better; now find one of those that also works for your customer.” It is a subtle difference, but it dramatically improves the way your RMs structure deals and serve their customers.
Be honest: Do you see your bank in any of these first three sins we’ve described? If so, don’t beat yourself up. Just start taking steps to get back on the right path.
If you’re blameless so far, congrats. But don’t get too comfortable. Four more pricing sins are headed your way next week.