Everybody talks about Relationship Pricing, but what does it really mean? Relationship Pricing is defined as a pricing and billing framework, where pricing is determined based on a customer/member’s overall financial picture, rather than being delivered on a product by product basis. There are hundreds of ways institutions deploy these programs. To list a few, it could refer to a Rewards Program, which is a discount or cash back program given to customers, after they’ve reached a certain threshold of spending. An example of this is what Bank of America does here. It could also refer to discounts that companies provide debit card users, like Navy FCU does here. It can even refer to competitive advantages financial institutions (FIs) provide their customers for having multiple accounts, which I will discuss in more detail later.
I believe relationship pricing was created because people want the best bang for their buck, and institutions understand this customer demand. FIs need to use all customer interactions as opportunities to further discover banking needs and their financial goals. For instance, if a customer adds a spouse to an account, this is the perfect opportunity to offer information on mortgages and a ‘value customer’ rate, since they may be in the market for a home mortgage soon. It is a win-win situation, the customer gets a preferred rate for being an existing client, and the FI gains new mortgage. Navy FCU does this for their for its mortgage loan members here.
The infrastructure of relationship pricing strategies will differ by account type, account balance, account demographics, supply and demand, and many other variables.
Another thing to consider, are your product pricing and designs outdated? If it has been 5+ years since your last review, you could be using a relationship pricing model that isn’t competitive with other FIs. There may be an opportunity to change your fee structure. Staying competitive with other community banks and credit unions is key, but also pay attention to what the bigger banks are doing. If those big bank own a share of the market, it’s a good idea to know more about their relationship pricing. You will gain insight into how competitive you truly are in the market.
Remember, two things -
- Make sure your products and service bundles are diverse.
- Having an effective Relationship Pricing program is vital to an institution’s success. Most FI’s have full divisions dedicated towards just this initiative, if not, they should!
Senior Consultant Hometown: Newark, New Jersey Alma Mater: Morehouse College
True Jersian, but hated the snow, that’s’ why I moved to Ga. Avid runner, loves playing chess, reading, and hanging out with family and friends.