Calculating the markup: when times are tough, bankers need to review their pricing practices to maximize the profitability of their existing customers. Here is a list of initiatives.

• Author: Baumgarten, Jens
• Position: Pricing

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The current financial crisis is arguably the worst most banking managers have experienced in their professional lives. But remember that markets and industries are redefined in rimes of shake ups, not in rimes of stability.

The current crisis should actually have a positive impact on those who develop the right strategies and take the right actions.

From a broader perspective, banks will be forced to review their business models. "pull back" from riskier endeavors and refocus on optimizing their core businesses. Above all, managers must maximize the profitability of their current customers. This requires some fundamental changes in banks' pricing and marketing practices. This article lists some of the most important initiatives banks should undertake.

Re-establish trust and improve price image.

Some can argue that banks have developed a poor image among consumer and commercial clients from years of dubious and poorly communicated pricing practices. Now, to re-establish consumer confidence, these institutions must quickly shift towards customer-friendly pricing.

First, a clear "pricing identity" must be developed by answering the following fundamental questions:

* How easy is it to navigate through our offers and prices? Do our sales teams as well as out customers understand why we price the way we do?

* Are our offering and price structures simple and clear (again, for our own sales reps as well as for our customers)?

* Is the pricing in line with our bank's value positioning?

* What are the price promises made to the customer (for example: always offer a fair price; be a low-cost provider: charge a premium for premium quality/service and so forth)?

* Is the customer fully reassured? How confident is he of having made the "right choice"?

Only when a bank has addressed the answers to these questions will it be able to develop trust. Online and direct banks (like Schwab or INGdirect) have been particularly successful in capturing market shares because they were able to communicate a clear price promise, simple pricing messages and so forth--in short, they have a clear pricing identity.

Second, banks should focus on rewarding customers for their business and loyalty. The current "bonus" approach, which provides rewards to customers in the form of points, airline miles and cash back, has now developed into a "must have" in many product segments and is no longer sufficient to develop real customer loyalty, due to the poor differentiation between offers. To achieve real customer loyalty, banks now have to pro-actively recognize the overall relationship a customer has with the bank...