2020 Foresight: Relationship Pricing Model Report at RnRMarketResearch.com

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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. 

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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 customer’s 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.

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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

Key highlights of this report

- 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 customer’s demography, product holding and volume of transactions.

- To remain competitive, banks aim to offer products at a price that take into account a customer’s willingness to pay. In this regard, banks assess a customer’s 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 cash back. Rewards are based on the size of purchases and the tenure of a customer’s 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.

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