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Ganesh Parameswaran - Infosys Ltd.

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Relationship Based Pricing

31 October 2012  |  2658 views  |  0

In the commoditized, competitive world of banking, where products and positioning jostle for space, pricing is a key differentiator, even a determinant of survival.
 
Relationship Based Pricing (RBP), as the name suggests, is a concept in which the price a customer pays is determined by his relationship with the bank. The pricing is based on the customer's portfolio of products and services. This is contrary to the conventional approach of charging a fixed pricing for each service rendered.

  Retail banks have to not only fulfil customers' product needs - for a savings account, credit card, loan, demand draft, and so on - but also meet their price expectations. Until now, they've achieved this by bundling products, applying different pricing strategies for different customer segments and services, or offering discounts to their best customers. One example is the Flexi Fixed Deposit which pays a higher interest on savings accounts.

Technological advances have led to the creation of RBP solutions, which help banks integrate with their core banking platforms to serve customers better. Such solutions help banks identify customers' usage pattern through data mining or predictive analysis, and thereby suggest the optimal pricing strategy for each customer segment.

What's in it for the bank? As is the case in any business, in banking too the cost of acquiring a new customer is far higher than retaining an existing one. Effective bundling can result in cross sales, higher revenue and new customers.What's in it for the customer? Bundled products with extra benefits, a total cost of acquisition that is lower than the sum of the cost of individual products, the need to only pay for services used and faster turnaround time.
 
What could go wrong? Pricing is a sensitive issue. If the bundling strategy is not well conceived, it could impact customer sentiment negatively, and in the worst case, drive away customers. The presence of legacy systems could prevent banks from realizing the full value of their pricing initiatives.

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