Right pricing: through good pricing practices, you can retain existing customers as well as attract new ones even during times of economic uncertainty.

• Author: Thamara, Thomas
• Position: Marketing Strategies

Pricing strategy should support and reinforce your bank's corporate and business goals both in your targeted market segments and geographic areas. Hence, no uniform or preferred pricing strategies are feasible for a given bank on all occasions. All prices should also be viewed relative to your key competitor prices in the same targeted markets in relation to the perceived goals of the competitor. You should note that, in a period of economic distress, which we are going through at the moment, pricing strategy is an excellent tool to help you not only to retain existing customers, but also to attract new customers, and thus increase your market share.

In this article, we will review some of the basic bank product/service pricing principles and then outline some of the common competitive pricing strategies that banks use. This will help you determine which pricing approach is best for your unique bank situation.

Let's start by reviewing some of the major generational customer segments that currently exist in the United States. The need for understanding these segments is critical since their product/service needs, wants, mores, value systems, aspirations and sensitivity to prices will differ.

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The following are the principal generation segments and their size.

* Baby boomers, born 1945-64; size: 78 million.

* Generation X, born 1965-84; size: 68 million (a smaller generation than the baby boomers).

* Generation Y, (Also referred to as the Cyber or Net Generation), including second-generation Latino contingent, born after 1984, will be 100 million strong in 2010. They use the Internet, Kindle II, e-book reader, etc., for much of their information and entertainment (as opposed to TV, radio, news media, magazines and so forth), that is, a multi-channel access.

Since they generally view banks as outdated, financial institutions must offer them the right mix of products/services and deliver these services through the right channels, with incentive pricing schemes, to attract Generation Y customers.

Other, smaller market segments to consider in devising a pricing strategy include:

* Military market, which is primarily served by the credit unions. Pick-a-payment mortgages was a common approach used in many instances. USAA insurance company is an example of a financial services company heavily involved in serving military families.

* Working poor. The focus in this segment is to compete solely on price. For each subsegment of the working poor selected, one needs to get a lay of the land, and develop talking points, with tailored pricing and service as key components. Prepaid card accounts with a short-term line of credit are substitutes for bank deposits to help card users build a credit history.

All prices should also be viewed in relation to your key competitor's prices in each niche, and your area of focus or geographic thrust. However, please note, that in a period of economic downturn, which we are facing now, the goal should be to increase operational, organizational and other opportunities to become more efficient, instead of simply raising prices, which some banks are doing, (From Ram Charan, "Leadership in an Era of Economic Uncertainty," McGraw-Hill, 2009), and by organizing by segments rather than by regions.

Common pricing principles

If your...